<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1998
REGISTRATION NO. 333-58979
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940
Amendment No. 1
(CHECK APPROPRIATE BOX OR BOXES)
---------------------
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
(713) 526-5251
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE)
---------------------
NORI L. GABERT, ESQ.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
P.O. BOX 3206, HOUSTON, TEXAS 77253
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
JOHN A. DUDLEY, ESQ.
SULLIVAN & WORCESTER, LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
It is proposed that this filing will become effective (check
appropriate box):
---------------------
<TABLE>
<S> <C>
___ immediately upon filing pursuant to paragraph (b) ___ on (date) pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (b) ___ 75 days after filing pursuant to paragraph (a)(2)
___ 60 days after filing pursuant to paragraph (a)(1) ___ on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>
Title of Securities Being Registered: Shares of Beneficial Interest
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 or until the Registration Statement shall become
effective on such date at the Commission, acting pursuant to said Section 8(a)
may determine.
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- --------------------------------------------------------------------------------
<PAGE> 2
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
---------------------
FORM N-1A
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(a))
Note: The Registrant offers 23 investment portfolios, 23 of which offer Class A
Shares and Class B Shares. Eighteen of the portfolios are comprised of four
classes of shares -- Class A, Class B, Institutional Class I and Institutional
Class II. The Class A and Class B shares are offered pursuant to one separate
Prospectus and the Institutional Class I and Institutional Class II shares are
each offered pursuant to a separate Prospectus. Each of the classes is offered
through a combined Statement of Additional Information.
<TABLE>
<C> <S> <C>
1. Class A and Class B Shares
</TABLE>
PART A
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
1. Cover Page........................................ Cover Page
2. Synopsis.......................................... Fee Table
3. Condensed Financial Information................... Inapplicable
4. General Description of Registrant................. Welcome, About the Series Company, About the
Funds, Types of Investments
5. Management of the Fund............................ About the Funds Management
6. Capital Stock and Other Securities................ About the Series Company
7. Purchase of Securities Being Offered.............. Purchasing and Selling Fund Shares
8. Redemption and Repurchase......................... Purchasing and Selling Fund Shares
9. Pending Legal Proceedings......................... Inapplicable
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------- -------------------------------------------
<C> <S> <C>
10. Cover Page........................................ Cover Page
11. Table of Contents................................. Table of Contents
12. General Information and History................... General Information and History
13. Investment Objectives and Policies................ Fundamental Investment Restrictions; Investment
Practices
14. Management of the Registrant...................... Trustees and Officers; Investment Adviser;
Investment Sub-Advisers
15. Control Persons and Principal Holders of
Securities........................................ Other Information
16. Investment Advisory and Other Services............ Investment Adviser; Investment Sub-Advisers;
Other Information
17. Brokerage Allocation.............................. Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................ Other Information
19. Purchase, Redemption and Pricing of Securities
Being Offered..................................... Purchasing and Selling Fund Shares
20. Tax Status........................................ Taxation
21. Underwriters...................................... Purchasing and Selling Fund Shares
22. Calculation of Performance Data................... Calculation of Yield for the Money Market Fund
and the Municipal Money Market Fund
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered in Part C of the Registration Statement.
<PAGE> 3
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
---------------------
FORM N-1A
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(a))
Note: The Registrant offers 23 investment portfolios, 18 of which offer
Institutional Class I Shares. Eighteen portfolios are comprised of four classes
of shares -- Class A, Class B, Institutional Class I and Institutional Class II.
The Class A and Class B shares are offered pursuant to one separate Prospectus
and the Institutional Class I and Institutional Class II shares are each offered
pursuant to a separate Prospectus. Each of the classes is offered through a
combined Statement of Additional Information.
<TABLE>
<C> <S> <C>
2. Institutional Class I Shares
</TABLE>
PART A
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
1. Cover Page........................................ Cover Page
2. Synopsis.......................................... Inapplicable
3. Condensed Financial Information................... Inapplicable
4. General Description of Registrant................. Welcome, About the Series Company, About the
Funds, Types of Investments
5. Management of the Fund............................ About the Funds Management
6. Capital Stock and Other Securities................ About the Series Company
7. Purchase of Securities Being Offered.............. About the Series Company
8. Redemption and Repurchase......................... About the Series Company
9. Pending Legal Proceedings......................... Inapplicable
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------- -------------------------------------------
<C> <S> <C>
10. Cover Page........................................ Cover Page
11. Table of Contents................................. Table of Contents
12. General Information and History................... General Information and History
13. Investment Objectives and Policies................ Fundamental Investment Restrictions; Investment
Practices
14. Management of the Registrant...................... Trustees and Officers; Investment Adviser;
Investment Sub-Advisers
15. Control Persons and Principal Holders of
Securities........................................ Other Information
16. Investment Advisory and Other Services............ Investment Adviser; Investment Sub-Advisers;
Other Information
17. Brokerage Allocation.............................. Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................ Other Information
19. Purchase, Redemption and Pricing of Securities
Being Offered..................................... Purchasing and Selling Fund Shares
20. Tax Status........................................ Taxation
21. Underwriters...................................... Purchasing and Selling Fund Shares
22. Calculation of Performance Data................... Calculation of Yield for the Money Market Fund
and the Municipal Money Market Fund
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered in Part C of the Registration Statement.
<PAGE> 4
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
---------------------
FORM N-1A
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(a))
Note: The Registrant offers 23 investment portfolios, 18 of which offer
Institutional Class II Shares. Eighteen portfolios are comprised of four classes
of shares -- Class A, Class B, Institutional Class I and Institutional Class II.
The Class A and Class B shares are offered pursuant to one separate Prospectus
and the Institutional Class I and Institutional Class II shares are each offered
pursuant to a separate Prospectus. Each of the classes is offered through a
combined Statement of Additional Information.
<TABLE>
<C> <S> <C>
3. Institutional Class II Shares
</TABLE>
PART A
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
1. Cover Page........................................ Cover Page
2. Synopsis.......................................... Inapplicable
3. Condensed Financial Information................... Inapplicable
4. General Description of Registrant................. Welcome, About the Series Company, About the
Funds, Types of Investments
5. Management of the Fund............................ About the Funds Management
6. Capital Stock and Other Securities................ About the Series Company
7. Purchase of Securities Being Offered.............. About the Series Company
8. Redemption and Repurchase......................... About the Series Company
9. Pending Legal Proceedings......................... Inapplicable
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------- -------------------------------------------
<C> <S> <C>
10. Cover Page........................................ Cover Page
11. Table of Contents................................. Table of Contents
12. General Information and History................... General Information and History
13. Investment Objectives and Policies................ Fundamental Investment Restrictions; Investment
Practices
14. Management of the Registrant...................... Trustees and Officers; Investment Adviser;
Investment Sub-Advisers
15. Control Persons and Principal Holders of
Securities........................................ Other Information
16. Investment Advisory and Other Services............ Investment Adviser; Investment Sub-Advisers;
Other Information
17. Brokerage Allocation.............................. Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................ Other Information
19. Purchase, Redemption and Pricing of Securities
Being Offered..................................... Purchasing and Selling Fund Shares
20. Tax Status........................................ Taxation
21. Underwriters...................................... Purchasing and Selling Fund Shares
22. Calculation of Performance Data................... Calculation of Yield for the Money Market Fund
and the Municipal Money Market Fund
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered in Part C of the Registration Statement.
<PAGE> 5
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THE STATEMENT OF
ADDITIONAL INFORMATION DOES NOT CONSTITUTE A PROSPECTUS.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 15, 1998
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 2
CLASS A SHARES 2929 ALLEN PARKWAY
CLASS B SHARES HOUSTON, TEXAS 77019
October 15, 1998
PROSPECTUS
The American General Series Portfolio Company 2 (the "Series Company") is a
mutual fund made up of 23 separate Funds (the "Funds"). Each of the Funds has a
different investment objective. Each Fund is explained in more detail on its
Fact Sheet contained in this prospectus. Here is a summary of the goals of the
23 Funds:
INDEX EQUITY FUNDS:
AMERICAN GENERAL S&P 500 INDEX FUND ("S&P 500 INDEX FUND")
Total return through investments tracking the S&P 500 Index.
AMERICAN GENERAL MID CAP INDEX FUND ("MID CAP INDEX FUND")
Total return through investments tracking the S&P Mid Cap Index.
AMERICAN GENERAL SMALL CAP INDEX FUND ("SMALL CAP INDEX FUND")
Total return through investments tracking the Russell 2000 Index.
ACTIVELY MANAGED EQUITY FUNDS:
AMERICAN GENERAL INTERNATIONAL GROWTH FUND ("INTERNATIONAL GROWTH FUND")
Long-term capital appreciation through investments in non-U.S. companies,
the majority of which are expected to be in developed markets.
AMERICAN GENERAL LARGE CAP GROWTH FUND ("LARGE CAP GROWTH FUND")
Long-term growth through investments in large cap U.S. issuers. Dividend
income is a secondary objective.
AMERICAN GENERAL MID CAP GROWTH FUND ("MID CAP GROWTH FUND")
Capital appreciation through investments in medium capitalization equity
securities. Current income is a secondary objective.
AMERICAN GENERAL SMALL CAP GROWTH FUND ("SMALL CAP GROWTH FUND")
Long-term growth through investments in small growth companies.
AMERICAN GENERAL INTERNATIONAL VALUE FUND ("INTERNATIONAL VALUE FUND")
Growth of capital and future income through investments in non-U.S. issuers.
AMERICAN GENERAL LARGE CAP VALUE FUND ("LARGE CAP VALUE FUND")
Total returns exceeding the Russell 1000 Value Index through investments in
equity securities.
AMERICAN GENERAL MID CAP VALUE FUND ("MID CAP VALUE FUND")
Growth through investments in medium capitalization companies.
AMERICAN GENERAL SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND")
Maximum long-term return through investments in small capitalization
companies.
SPECIALTY EQUITY FUND:
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND ("SOCIALLY RESPONSIBLE FUND")
Growth through investments in companies meeting social criteria of the Fund.
BALANCED FUND:
AMERICAN GENERAL BALANCED FUND ("BALANCED FUND")
Conservation of principal and long-term growth of capital and income through
investments in fixed income and equity securities.
INCOME FUNDS:
AMERICAN GENERAL HIGH YIELD BOND FUND ("HIGH YIELD BOND FUND")
Highest possible total return and income consistent with conservation of
capital through investments in high yielding, high risk fixed income
securities. INVESTMENTS OF THIS TYPE ARE REGARDED BY THE RATING AGENCIES AS
PREDOMINANTLY SPECULATIVE WITH RESPECT TO AN ISSUER'S CONTINUING ABILITY TO
MEET PRINCIPAL AND INTEREST PAYMENTS.
AMERICAN GENERAL STRATEGIC BOND FUND ("STRATEGIC BOND FUND")
Highest possible total return and income consistent with conservation of
capital through investments in income producing securities. THE LOWER RATED
FIXED INCOME SECURITIES IN WHICH THE FUND MAY INVEST ARE REGARDED BY THE
RATING AGENCIES AS SPECULATIVE WITH RESPECT TO AN ISSUER'S CONTINUING
ABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS.
AMERICAN GENERAL DOMESTIC BOND FUND ("DOMESTIC BOND FUND")
High total return consistent with conservation of capital through
investments primarily in investment grade fixed income securities.
AMERICAN GENERAL CORE BOND FUND ("CORE BOND FUND")
Highest possible total return consistent with conservation of capital
through investments in medium to high quality fixed income securities.
AMERICAN GENERAL MUNICIPAL BOND FUND ("MUNICIPAL BOND FUND")
Highest possible total return consistent with conservation of capital
through investments in fixed income securities that are exempt from regular
federal income taxation.
MONEY MARKET FUNDS:
AMERICAN GENERAL MONEY MARKET FUND ("MONEY MARKET FUND")
Income through investments in short-term money market securities.
AMERICAN GENERAL MUNICIPAL MONEY MARKET FUND ("MUNICIPAL MONEY MARKET FUND")
Income through investments in short-term money market securities that are
exempt from regular federal income taxation.
LIFESTYLE FUNDS:
AMERICAN GENERAL GROWTH LIFESTYLE FUND ("GROWTH LIFESTYLE FUND")
Growth through investments in Series Company Funds.
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND ("MODERATE GROWTH LIFESTYLE
FUND")
Growth and current income through investments in Series Company Funds.
AMERICAN GENERAL CONSERVATIVE GROWTH LIFESTYLE FUND ("CONSERVATIVE GROWTH
LIFESTYLE FUND")
Current income and a low to moderate level of growth through investments in
Series Company Funds.
- --------------------------------------------------------------------------------
SHARES OF THE MUNICIPAL MONEY MARKET FUND AND THE MONEY MARKET FUND ARE NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE IS NO ASSURANCE THAT THESE
FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The Variable Annuity Life Insurance Company ("VALIC") is the Funds' investment
adviser. Class A and Class B Shares of these Funds are available to you through
the Fund's distributor, VALIC Investment Services Company (the "Distributor"),
an affiliate of VALIC. VALIC is a member of the American General Corporation
group of companies.
This prospectus offers Class A and Class B Shares of the Funds only. The Funds
offer other classes of shares that offer different services to investors and
incur different expenses, which would affect performance. VALIC has filed a
Statement of Additional Information, dated October 15, 1998, with the Securities
and Exchange Commission ("SEC"). This Statement contains additional information
about these Funds and is part of this prospectus. For a free copy, write to the
American General Series Portfolio Company 2 at the address above or call
1-877-999-2434. The Statement of Additional Information has been filed with the
SEC and is available along with other related materials at the SEC's internal
web site (http://www.sec.gov).
This prospectus sets forth concisely the information you should know before
investing in the Funds.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OR PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE FUNDS. ALSO, NEITHER THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED ON
WHETHER THIS PROSPECTUS IS ADEQUATE OR ACCURATE. IT IS A CRIMINAL OFFENSE TO
STATE OTHERWISE.
DO NOT COPY
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE
WELCOME....................................... 1
FEE TABLE..................................... 2
ABOUT THE SERIES COMPANY'S MANAGEMENT......... 6
Investment Adviser....................... 6
Investment Sub-advisers.................. 6
Portfolio Manager........................ 8
How Advisers Are Paid For Their
Services............................... 8
The Sub-advisers......................... 9
About the Board of Trustees.............. 10
ABOUT THE FUNDS............................... 11
Growth, Balanced, Income, Stability and
Lifestyle Categories................... 11
About Level of Risk...................... 11
About Portfolio Turnover................. 12
About Fund Performance................... 12
THE INDEX EQUITY FUNDS........................ 13
FUND FACT SHEETS.............................. 15
INDEX EQUITY FUNDS
S&P 500 Index Fund....................... 16
Mid Cap Index Fund....................... 18
Small Cap Index Fund..................... 20
ACTIVELY MANAGED EQUITY FUNDS
International Growth Fund................ 23
Large Cap Growth Fund.................... 27
Mid Cap Growth Fund...................... 29
Small Cap Growth Fund.................... 32
International Value Fund................. 34
Large Cap Value Fund..................... 36
Mid Cap Value Fund....................... 39
Small Cap Value Fund..................... 41
SPECIALTY EQUITY FUND
Socially Responsible Fund................ 43
BALANCED FUND Balanced Fund................. 45
INCOME FUNDS
High Yield Bond Fund..................... 48
Strategic Bond Fund...................... 49
Domestic Bond Fund....................... 51
Core Bond Fund........................... 53
Municipal Bond Fund...................... 56
MONEY MARKET FUNDS
Money Market Fund........................ 58
Municipal Money Market Fund.............. 60
LIFESTYLE FUNDS
Growth Lifestyle Fund.................... 61
Moderate Growth Lifestyle Fund........... 63
Conservative Growth Lifestyle Fund....... 65
TYPES OF INVESTMENTS.......................... 67
Equity Securities........................ 67
Fixed Income Securities.................. 67
U.S. Government Securities.......... 68
Mortgage-Related Securities......... 68
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Asset-Backed Securities............. 69
Loan Participations................. 69
Variable Rate Demand Notes............... 69
Variable Amount Demand Master Notes...... 69
Structured Securities.................... 69
Real Estate Securities................... 70
Illiquid and Restricted Securities....... 70
Foreign Securities....................... 70
Depository Receipts...................... 70
Investment Funds......................... 70
Foreign Currency......................... 70
When-Issued Securities................... 71
Municipal Securities..................... 71
Money Market Securities.................. 71
Investment Companies..................... 71
Derivatives.............................. 71
Options............................. 72
Call Option......................... 72
Put Option.......................... 72
Swap Agreements.......................... 72
Warrants and Rights...................... 72
Repurchase Agreements.................... 73
Reverse Repurchase Agreements, Dollar
Rolls and Borrowings................... 73
A Word About Risk........................ 73
Investment Practices..................... 75
Limitations......................... 75
Lending Portfolio Securities........ 75
PURCHASING AND SELLING FUND SHARES............ 76
Types of Accounts........................ 76
Sales Arrangements....................... 76
Investment Minimums...................... 77
Class A Shares........................... 77
Class B Shares........................... 78
Distribution and Service Plan............ 79
How to Buy Shares........................ 79
How to Exchange Shares................... 80
How to Sell (Redeem) Shares.............. 81
Net Asset Value of the Series Company
Shares................................. 82
ABOUT THE SERIES COMPANY...................... 83
Series Company Shares.................... 83
Diversification.......................... 83
Taxes.................................... 83
Voting Rights............................ 84
Year 2000 Risks.......................... 84
Euro Conversion.......................... 84
Reports.................................. 85
Appendix -- Description of Bond Ratings....... 86
Appendix -- Description of Municipal Bond
Ratings..................................... 88
Appendix -- Description of Municipal Note
Ratings..................................... 90
Appendix -- Description of Commercial Paper
Ratings..................................... 91
</TABLE>
(i)
<PAGE> 7
WELCOME
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, and VALIC mean
The Variable Annuity Life Insurance Company. The words you and your mean the
investor.
American General Series Portfolio Company 2 (the "Series Company") was organized
as a Delaware business trust on March 16, 1998.
The Series Company is an open-end management investment company and currently
consists of 23 different Funds, each of which is described in detail in this
prospectus. VALIC serves as each Fund's Investment Adviser and, in this role,
reports directly to the Series Company's Board of Trustees. As Investment
Adviser, VALIC oversees the Funds' day-to-day operations, supervises the
purchase and sale of Fund investments and performs the cash management function.
Investment Sub-advisers make the investment decisions for the Funds that they
manage, as described more fully in this prospectus. However, VALIC makes
investment decisions for, and is responsible for the day-to-day management of,
the Socially Responsible Fund, the Money Market Fund and the Lifestyle Funds.
For more information, see "About the Series Company's Management" in this
prospectus.
All inquiries regarding this prospectus should be directed, in writing, to
American General Fund Group Customer Service, P.O. Box 419502, Kansas City,
Missouri 64141-6502, or by calling 1-877-999-2434.
Open-end means shares
of the Funds can be
bought or sold by the
Series Company at any
time. Also, there is no
limit on the number of
investors who may buy
shares.
1
<PAGE> 8
FEE TABLE
- --------------------------------------------------------------------------------
The following tables illustrate the fees and expenses that investors bear
directly or indirectly as shareholders of the Funds. Shareholder transaction
expenses are the charges that an investor pays to purchase or redeem shares of a
Fund. Annual fund operating expenses are the fees paid out of the assets of a
Fund. Each Fund pays a management fee to VALIC and a distribution and/or service
fee to the Distributor. The expenses paid by a Fund are factored into the
calculation of its share price or dividends and are not charged directly to
investors. The expenses reflected in the tables below are based on the Funds'
anticipated expenses for the first year of operation on an annualized basis.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P 500 MID CAP SMALL CAP
INDEX FUND INDEX FUND INDEX FUND
------------------------ ------------------------ ------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 5.75%(1) None 5.75%(1) None 5.75%(1) None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None None None
Maximum Deferred Sales Load None(3) Year 1 - 5.00% None(3) Year 1 - 5.00% None(3) Year 1 - 5.00%
Year 2 - 4.00% Year 2 - 4.00% Year 2 - 4.00%
Year 3 - 3.00% Year 3 - 3.00% Year 3 - 3.00%
Year 4 - 2.00% Year 4 - 2.00% Year 4 - 2.00%
Year 5 - 1.00% Year 5 - 1.00% Year 5 - 1.00%
After - None After - None After - None
Redemption Fees (as a percentage
of amounts redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
<CAPTION>
INTERNATIONAL LARGE CAP
GROWTH FUND GROWTH FUND
------------------------ ------------------------
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 5.75%(1) None 5.75%(1) None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None
Maximum Deferred Sales Load None(3) Year 1 - 5.00% None(3) Year 1 - 5.00%
Year 2 - 4.00% Year 2 - 4.00%
Year 3 - 3.00% Year 3 - 3.00%
Year 4 - 2.00% Year 4 - 2.00%
Year 5 - 1.00% Year 5 - 1.00%
After - None After - None
Redemption Fees (as a percentage
of amounts redeemed, if
applicable) None None None None
Exchange Fee None None None None
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP GROWTH SMALL CAP INTERNATIONAL
FUND GROWTH FUND VALUE FUND
------------------------ ------------------------ ------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 5.75%(1) None 5.75%(1) None 5.75%(1) None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None None None
Maximum Deferred Sales Load None(3) Year 1 - 5.00% None(3) Year 1 - 5.00% None(3) Year 1 - 5.00%
Year 2 - 4.00% Year 2 - 4.00% Year 2 - 4.00%
Year 3 - 3.00% Year 3 - 3.00% Year 3 - 3.00%
Year 4 - 2.00% Year 4 - 2.00% Year 4 - 2.00%
Year 5 - 1.00% Year 5 - 1.00% Year 5 - 1.00%
After - None After - None After - None
Redemption Fees (as a percentage
of amounts redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
<CAPTION>
LARGE CAP MID CAP
VALUE FUND VALUE FUND
------------------------ ------------------------
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 5.75%(1) None 5.75%(1) None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None
Maximum Deferred Sales Load None(3) Year 1 - 5.00% None(3) Year 1 - 5.00%
Year 2 - 4.00% Year 2 - 4.00%
Year 3 - 3.00% Year 3 - 3.00%
Year 4 - 2.00% Year 4 - 2.00%
Year 5 - 1.00% Year 5 - 1.00%
After - None After - None
Redemption Fees (as a percentage
of amounts redeemed, if
applicable) None None None None
Exchange Fee None None None None
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP SOCIALLY
VALUE FUND RESPONSIBLE FUND BALANCED FUND
------------------------ ------------------------ ------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 5.75%(1) None 5.75%(1) None 5.75%(1) None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None None None
Maximum Deferred Sales Load None(3) Year 1 - 5.00% None(3) Year 1 - 5.00% None(3) Year 1 - 5.00%
Year 2 - 4.00% Year 2 - 4.00% Year 2 - 4.00%
Year 3 - 3.00% Year 3 - 3.00% Year 3 - 3.00%
Year 4 - 2.00% Year 4 - 2.00% Year 4 - 2.00%
Year 5 - 1.00% Year 5 - 1.00% Year 5 - 1.00%
After - None After - None After - None
Redemption Fees (as a percentage
of amounts redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
<CAPTION>
HIGH YIELD STRATEGIC
BOND FUND BOND FUND
------------------------ ------------------------
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 4.75%(2) None 4.75%(2) None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None
Maximum Deferred Sales Load None(3) Year 1 - 5.00% None(3) Year 1 - 5.00%
Year 2 - 4.00% Year 2 - 4.00%
Year 3 - 3.00% Year 3 - 3.00%
Year 4 - 2.00% Year 4 - 2.00%
Year 5 - 1.00% Year 5 - 1.00%
After - None After - None
Redemption Fees (as a percentage
of amounts redeemed, if
applicable) None None None None
Exchange Fee None None None None
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DOMESTIC CORE MUNICIPAL
BOND FUND BOND FUND BOND FUND
------------------------ ------------------------ ------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) 4.75%(2) None 4.75%(2) None 4.75%(2) None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None None None
Maximum Deferred Sales Load None(3) Year 1 - 5.00% None(3) Year 1 - 5.00% None(3) Year 1 - 5.00%
Year 2 - 4.00% Year 2 - 4.00% Year 2 - 4.00%
Year 3 - 3.00% Year 3 - 3.00% Year 3 - 3.00%
Year 4 - 2.00% Year 4 - 2.00% Year 4 - 2.00%
Year 5 - 1.00% Year 5 - 1.00% Year 5 - 1.00%
After - None After - None After - None
Redemption Fees (as a percentage
of amounts redeemed, if
applicable) None None None None None None
Exchange Fee None None None None None None
<CAPTION>
MONEY MARKET MUNICIPAL MONEY
FUND MARKET FUND
------------------------ ------------------------
CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None None None None
Maximum Sales Load Imposed on
Reinvested Dividends None None None None
Maximum Deferred Sales Load None Year 1 - 5.00% None Year 1 - 5.00%
Year 2 - 4.00% Year 2 - 4.00%
Year 3 - 3.00% Year 3 - 3.00%
Year 4 - 2.00% Year 4 - 2.00%
Year 5 - 1.00% Year 5 - 1.00%
After - None After - None
Redemption Fees (as a percentage
of amounts redeemed, if
applicable) None None None None
Exchange Fee None None None None
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE> 9
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH MODERATE GROWTH CONSERVATIVE GROWTH
LIFESTYLE FUND LIFESTYLE FUND LIFESTYLE FUND
------------------------ ------------------------ ------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) 5.75%(1) None 5.75%(1) None 5.75%(1) None
Maximum Sales Load Imposed on Reinvested
Dividends None None None None None None
Maximum Deferred Sales Load None(3) Year 1 - 5.00% None(3) Year 1 - 5.00% None(3) Year 1 - 5.00%
Year 2 - 4.00% Year 2 - 4.00% Year 2 - 4.00%
Year 3 - 3.00% Year 3 - 3.00% Year 3 - 3.00%
Year 4 - 2.00% Year 4 - 2.00% Year 4 - 2.00%
Year 5 - 1.00% Year 5 - 1.00% Year 5 - 1.00%
After - None After - None After - None
Redemption Fees (as a percentage of amounts
redeemed, if applicable) None None None None None None
Exchange Fee None None None None None None
</TABLE>
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursements, as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
S&P 500 INDEX FUND MID CAP INDEX FUND SMALL CAP INDEX FUND INTERNATIONAL GROWTH FUND
------------------- ------------------- --------------------- -------------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------- -------- -------- -------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee 0.27% 0.27% 0.28% 0.28% 0.28% 0.28% 0.90% 0.90%
12b-1 Fee 0.25% 1.00%(4) 0.25% 1.00%(4) 0.25% 1.00%(4) 0.25% 1.00%(4)
Other Expenses(6) 0.66% 0.91% 1.00% 1.66% 1.18% 2.04% 0.72% 0.84%
------ ------ ------ ------ ------ ------ ------ ------
Total Fund Expenses 1.18% 2.18% 1.53% 2.94% 1.71% 3.32% 1.87% 2.74%
Expense Reimbursement -0.36% -0.61% -0.70% -1.36% -0.88% -1.74% -0.47% -0.59%
Total Fund Expenses
after Reimbursement 0.82% 1.57% 0.83% 1.58% 0.83% 1.58% 1.40% 2.15%
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
LARGE CAP GROWTH FUND
---------------------
CLASS A CLASS B
--------- ---------
<S> <C> <C>
Management Fee 0.55% 0.55%
12b-1 Fee 0.25% 1.00%(4)
Other Expenses(6) 0.59% 0.60%
------ ------
Total Fund Expenses 1.39% 2.15%
Expense Reimbursement -0.29% -0.30%
Total Fund Expenses
after Reimbursement 1.10% 1.85%
====== ======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MID CAP GROWTH FUND SMALL CAP GROWTH FUND INTERNATIONAL VALUE FUND LARGE CAP VALUE FUND
------------------- --------------------- ------------------------- ---------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------- -------- --------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee 0.65% 0.65% 0.85% 0.85% 1.00% 1.00% 0.50% 0.50%
12b-1 Fee 0.25% 1.00%(4) 0.25% 1.00%(4) 0.25% 1.00%(4) 0.25% 1.00%(4)
Other Expenses(6) 0.70% 0.77% 0.65% 0.70% 0.70% 0.81% 0.59% 0.60%
------ ------ ------ ------ ------ ------ ------ ------
Total Fund Expenses 1.60% 2.42% 1.75% 2.55% 1.95% 2.81% 1.34% 2.10%
Expense Reimbursement -0.56% -0.63% -0.35% -0.40% -0.66% -0.77% -0.29% -0.30%
Total Fund Expenses
after Reimbursement 1.04% 1.79% 1.40% 2.15% 1.29% 2.04% 1.05% 1.80%
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
MID CAP VALUE FUND
-------------------
CLASS A CLASS B
-------- --------
<S> <C> <C>
Management Fee 0.75% 0.75%
12b-1 Fee 0.25% 1.00%(4)
Other Expenses(6) 0.69% 0.76%
------ ------
Total Fund Expenses 1.69% 2.51%
Expense Reimbursement -0.40% -0.47%
Total Fund Expenses
after Reimbursement 1.29% 2.04%
====== ======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP VALUE FUND SOCIALLY RESPONSIBLE FUND BALANCED FUND HIGH YIELD BOND FUND
--------------------- ------------------------- ----------------- ---------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
--------- --------- ----------- ----------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee 0.75% 0.75% 0.25% 0.25% 0.80% 0.80% 0.70% 0.70%
12b-1 Fee 0.25% 1.00%(4) 0.25% 1.00%(4) 0.25% 1.00%(4) 0.25% 1.00%(4)
Other Expenses(6) 0.66% 0.70% 0.74% 1.44% 0.78% 0.86% 1.04% 1.59%
------ ------ ------ ------ ------ ------ ------ ------
Total Fund Expenses 1.66% 2.45% 1.24% 2.69% 1.83% 2.66% 1.99% 3.29%
Expense Reimbursement -0.43% -0.47% -0.44% -1.14% -0.76% -0.84% -0.74% -1.29%
Total Fund Expenses
after Reimbursement 1.23% 1.98% 0.80% 1.55% 1.07% 1.82% 1.25% 2.00%
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
STRATEGIC BOND FUND
-------------------
CLASS A CLASS B
-------- --------
<S> <C> <C>
Management Fee 0.60% 0.60%
12b-1 Fee 0.25% 1.00%(4)
Other Expenses(6) 1.24% 2.67%
------ ------
Total Fund Expenses 2.09% 4.27%
Expense Reimbursement -0.94% -2.37%
Total Fund Expenses
after Reimbursement 1.15% 1.90%
====== ======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL MONEY
DOMESTIC BOND FUND CORE BOND FUND MUNICIPAL BOND FUND MONEY MARKET FUND MARKET FUND
------------------- ----------------- ------------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
-------- -------- ------- ------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee 0.60% 0.60% 0.50% 0.50% 0.50% 0.50% 0.25% 0.25% 0.50% 0.50%
12b-1 Fee 0.25% 1.00%(4) 0.25% 1.00%(4) 0.25% 1.00%(4) 0.25% 1.00%(4) 0.25% 1.00%(4)
Other Expenses(6) 0.57% 0.64% 1.12% 1.44% 1.28% 3.26% 1.10% 1.88% 1.24% 2.90%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Fund Expenses 1.42% 2.24% 1.87% 2.94% 2.03% 4.76% 1.60% 3.13% 1.99% 4.40%
Expense Reimbursement -0.39% -0.46% -0.82% -1.14% -0.98% -2.96% -0.80% -1.58% -0.94% -2.60%
Total Fund Expenses
after Reimbursement 1.03% 1.78% 1.05% 1.80% 1.05% 1.80% 0.80% 1.55% 1.05% 1.80%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH LIFESTYLE MODERATE GROWTH CONSERVATIVE GROWTH
FUND(5) LIFESTYLE FUND(5) LIFESTYLE FUND(5)
----------------- ----------------- -------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
12b-1 Fee 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses(6) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
------ ------ ------ ------ ------ ------
Total Fund Expenses 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Expense Reimbursement 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Fund Expenses
after Reimbursement 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Reduced for purchases of $25,000 and over. See "Purchasing and Selling Fund
Shares -- Class A Shares."
(2) Reduced for purchases of $50,000 and over. See "Purchasing and Selling Fund
Shares -- Class A Shares."
3
<PAGE> 10
(3) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a CDSC of 1.00% may be imposed on redemptions made
within one year of purchase and 0.50% within the second year.
(4) Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted as a fund-level senior by NASD
Rules.
(5) The Growth Lifestyle Fund, the Moderate Growth Lifestyle Fund and the
Conservative Growth Lifestyle Fund seek to accomplish their respective
objectives by investing primarily in a number of other Series Company Funds
("Underlying Series Company Funds"). Each Lifestyle Fund will bear
indirectly its pro rata share of the fees and expenses incurred by the
Underlying Series Company Funds in which the Lifestyle Fund is invested.
Each Lifestyle Fund will invest only in Institutional Class II shares of the
Underlying Series Company Funds.
(6) Other Expenses, which include custody, accounting, reports to shareholders,
audit, legal, administrative, recordkeeping and other miscellaneous services
provided to the Funds, are based on estimated amounts for the current fiscal
year.
- --------------------------------------------------------------------------------
TOTAL COMBINED OPERATING EXPENSES(a)
(including indirect expenses) (after expense reimbursements, as a percentage of
net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED TOTAL
COMBINED
OPERATING EXPENSES(B)
---------------------
CLASS A CLASS B
------- -------
<S> <C> <C>
Growth Lifestyle Fund 1.31% 2.06%
Moderate Growth Lifestyle Fund 1.25% 2.00%
Conservative Growth Lifestyle Fund 1.22% 1.97%
</TABLE>
(a) Estimated Total Combined Operating Expenses of each Lifestyle Fund is based
on the Total Fund Operating Expenses of the Underlying Series Company Funds
and the Lifestyle Funds, assuming each Lifestyle Fund's projected asset
allocation among the Underlying Series Company Funds is maintained.
(b) Reflects estimated total average weighted combined operating expenses.
- ---------------
The purpose of the expense tables above is to assist investors in understanding
the various costs and expenses that a shareholder of a Fund will bear directly
or indirectly.
4
<PAGE> 11
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
Your investment of $1,000 would incur the following expenses, assuming 5% annual
return and, except as indicated, redemption at the end of each period:
<TABLE>
<CAPTION>
S&P MID SMALL LARGE SMALL LARGE MID SMALL
500 CAP CAP CAP MID CAP CAP CAP CAP CAP
INDEX INDEX INDEX INTERNATIONAL GROWTH GROWTH GROWTH INTERNATIONAL VALUE VALUE VALUE
FUND FUND FUND GROWTH FUND FUND FUND FUND VALUE FUND FUND FUND FUND
----- ----- ----- ------------- ------ ------- ------ ------------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A shares
1 Year $ 8 $11 $ 9 $71 $69 $68 $72 $71 $68 $71 $13
3 Years $26 $33 $27 $98 $91 $89 $100 $97 $90 $97 $39
Class B shares
1 Year $57 $57 $57 $57 $59 $55 $59 $56 $58 $57 $58
3 Years $60 $60 $60 $60 $66 $54 $69 $59 $65 $62 $64
Class B Shares
(no redemption)
1 Year $ 4 $ 4 $ 4 $ 5 $ 7 $ 3 $ 8 $ 4 $ 6 $ 5 $ 6
3 Years $14 $14 $14 $15 $21 $ 8 $24 $13 $19 $17 $19
<CAPTION>
SOCIALLY
RESPONSIBLE BALANCED
FUND FUND
----------- --------
<S> <C> <C>
Class A shares
1 Year $66 $58
3 Years $82 $81
Class B shares
1 Year $57 $54
3 Years $60 $52
Class B Shares
(no redemption)
1 Year $ 5 $ 2
3 Years $14 $ 6
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MODERATE
MONEY MUNICIPAL GROWTH GROWTH
HIGH YIELD STRATEGIC DOMESTIC CORE BOND MUNICIPAL MARKET MONEY LIFESTYLE LIFESTYLE
BOND FUND BOND FUND BOND FUND FUND BOND FUND FUND MARKET FUND FUND FUND
---------- --------- --------- --------- --------- ------ ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A shares
1 Year $60 $59 $58 $58 $58 $ 8 $58 $ 1 $ 1
3 Years $86 $83 $79 $80 $80 $26 $80 $ 3 $ 3
Class B shares
1 Year $52 $53 $57 $54 $54 $57 $54 $53 $53
3 Years $46 $49 $62 $52 $53 $60 $53 $50 $50
Class B shares
(no redemption)
1 Year $ 0 $ 1 $ 5 $ 2 $ 2 $ 5 $ 2 $ 1 $ 1
3 Years $ 0 $ 3 $16 $ 6 $ 6 $14 $ 6 $ 3 $ 3
<CAPTION>
CONSERVATIVE
GROWTH
LIFESTYLE FUND
--------------
<S> <C>
Class A shares
1 Year $ 1
3 Years $ 3
Class B shares
1 Year $53
3 Years $50
Class B shares
(no redemption)
1 Year $ 1
3 Years $ 3
</TABLE>
THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
5
<PAGE> 12
ABOUT THE SERIES COMPANY'S MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC, a stock life insurance company, has been in the investment advisory
business since 1960. VALIC, as of June 30, 1998, had over $8.5 billion in assets
under management. VALIC has been the Investment Adviser for the Funds that
comprise the Series Company since their inception.
VALIC is a member of the American General Corporation group of companies. The
American General Corporation group of companies is a leading provider of
retirement services, life insurance and consumer loans. Members of the American
General Corporation group of companies operate in each of the 50 states and
Canada.
As Investment Adviser, VALIC oversees the Funds' day to day operations. Also,
VALIC supervises the purchase and sale of Fund investments and performs the cash
management formation. For the S&P 500 Index Fund, the Mid Cap Index Fund, the
Small Cap Index Fund, the International Growth Fund, the Large Cap Growth Fund,
the Mid Cap Growth Fund, the Small Cap Growth Fund, the International Value
Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the Small Cap Value
Fund, the Balanced Fund, the High Yield Bond Fund, the Strategic Bond Fund, the
Domestic Bond Fund, the Core Bond Fund, Municipal Bond Fund and Municipal Money
Market Fund, VALIC employs Investment Sub-advisers who make investment decisions
for such Fund(s). However, VALIC makes investment decisions for, and is directly
responsible for the day to day management of, the Socially Responsible Fund, the
Money Market Fund and the Lifestyle Funds. VALIC serves as Investment Adviser
through an Investment Advisory Agreement it entered into with the Series
Company. The Investment Advisory Agreement provides for the Series Company to
pay all expenses not specifically assumed by VALIC. Examples of the expenses
paid by the Series Company include transfer agency fees, custodial fees, the
fees of outside legal and auditing firms, the costs of reports to shareholders
and expenses of servicing shareholder accounts (e.g., daily calculation of the
net asset value). The Series Company allocates these expenses to each Fund in a
manner approved by the Board of Trustees. After the second year, this agreement
will be renewed once each year by the Series Company's Board of Trustees.
One Investment Advisory Agreement dated October 7, 1998 covers all 23 Funds.
For more information about the Advisory Agreement, see the "Investment Adviser"
section in the Statement of Additional Information.
INVESTMENT SUB-ADVISERS
For some of the Funds, VALIC works with Investment Sub-advisers, financial
service companies that specialize in certain types of investing. However, VALIC
still retains ultimate responsibility for managing the Funds. The Sub-adviser's
role is to make investment decisions for the Funds according to each Fund's
investment objectives and restrictions.
In selecting Sub-advisers, the Series Company's Trustees carefully evaluated:
(i) the nature and quality of the services expected to be rendered to the
Fund(s) by the Sub-adviser; (ii) the distinct investment objective and policies
of the Fund(s); (iii) the history, reputation, qualification and background of
the Sub-adviser's personnel and its financial condition; (iv) its performance
track record; and (v) other factors deemed relevant. The Trustees also reviewed
the fees to be paid to each Sub-adviser.
The Sub-advisers are:
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P. ("AGIM")
AGIM is the Sub-adviser for the Core Bond Fund, the Strategic Bond Fund, the
High Yield Bond Fund, the Municipal Bond Fund and the Municipal Money Market
Fund. AGIM is a limited partnership whose sole general partner and sole limited
partner are wholly-owned subsidiaries of American General Corporation. AGIM
provides investment management and advisory services to pension and profit
sharing plans, financial institutions and other investors. As of June 30, 1998,
AGIM had approximately $70 billion in assets under management.
BANKERS TRUST COMPANY
("BANKER'S TRUST")
Bankers Trust is the Sub-adviser for the S&P 500 Index Fund, the Mid Cap Index
Fund, and the Small Cap Index Fund and is one of two Sub-advisers for the Small
Cap Value Fund.
VALIC'S ADDRESS is 2929
Allen Parkway, Houston, Texas 77019.
AGIM'S PRINCIPAL OFFICES
are located at 2929 Allen
Parkway, Houston, Texas 77019.
BANKERS TRUST'S PRINCIPAL OFFICES
are located at 130 Liberty Street,
New York, New York 10006.
6
<PAGE> 13
- --------------------------------------------------------------------------------
Bankers Trust first offered investment management services in 1938 and began
managing index funds in 1977. As of June 30, 1998, Bankers Trust was the seventh
largest U.S. financial services institution and managed over $336 billion in
assets. Bankers Trust is entirely owned by Bankers Trust Corporation, a bank
holding company.
BROWN CAPITAL MANAGEMENT, INC. ("BROWN CAPITAL MANAGEMENT")
Brown Capital Management is the Sub-adviser for the Mid Cap Growth Fund.
Established as a Maryland corporation in 1983, Brown Capital Management served
as investment adviser to approximately $3.4 billion in assets as of June 30,
1998.
CAPITAL GUARDIAN TRUST COMPANY
("CAPITAL GUARDIAN")
Capital Guardian is the Sub-adviser for the International Value Fund, the
Balanced Fund and the Domestic Bond Fund. Capital Guardian provides investment
management services to a limited number of large institutional clients such as
employee benefit funds, foundations and endowment funds. As of June 30, 1998,
Capital Guardian had more than $79.5 billion in assets under management.
FIDUCIARY MANAGEMENT ASSOCIATES, INC. ("FMA")
FMA is one of two Sub-advisers for the Small Cap Value Fund. FMA is a
wholly-owned subsidiary of United Asset Management Corporation, and provides
investment management services to corporations, foundations, endowments, pension
and profit-sharing plans, trusts, estates and other institutions as well as
individuals. As of June 30, 1998, FMA had over $1.9 billion in assets under
management.
GOLDMAN SACHS ASSET MANAGEMENT ("GSAM")
GSAM is the Sub-adviser for the Large Cap Growth Fund. GSAM is a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"). GSAM provides a
wide range of fully discretionary investment advisory services quantitatively
driven and actively managed to U.S. and international equity portfolios, U.S.
and global fixed income portfolios, commodity and currency products and money
market accounts. As of June 30, 1998, GSAM and its affiliates served as
investment adviser or distributor for assets exceeding $162.2 billion.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("JP MORGAN")
JP Morgan is the Sub-adviser for the Small Cap Growth Fund. Known for its
commitment to proprietary research and its disciplined investment strategies, JP
Morgan provides asset management services to corporations, financial
institutions, governments and individuals. As of June 30, 1998, JP Morgan and
its affiliates employed over 300 analysts and portfolio managers around the
world and had more than $300 billion in assets under management.
JACOBS ASSET MANAGEMENT
Jacobs Asset Management is the Sub-adviser for the International Growth Fund.
Jacobs Asset Management is a Delaware limited partnership. United Asset
Management Corporation is a limited partner of, and owns a controlling interest
in, Jacobs Asset Management. Jacobs Asset Management provides investment
management and advisory services to corporations, unions, pensions and
profit-sharing plans, trusts and estates and other institutions and investors.
As of June 30, 1998, Jacobs Asset Management had more than $431 million in
assets under management.
NEUBERGER & BERMAN MANAGEMENT INC. ("N&B MANAGEMENT")
N&B Management is the Sub-adviser for the Mid Cap Value Fund. N&B Management and
its predecessor firms have specialized in the management of no-load mutual funds
since 1950. As of June 30, 1998, N&B Management and its affiliates managed
approximately $59 billion in aggregate net assets, including approximately $24
billion in mutual fund assets.
STATE STREET BANK & TRUST COMPANY ("STATE STREET BANK")/STATE STREET GLOBAL
ADVISORS ("STATE STREET GLOBAL ADVISORS")
State Street Global Advisors is the Sub-adviser for the Large Cap Value Fund.
State Street Global Advisors is an operating division of State Street Bank, a
wholly-owned subsidiary of State Street Corporation, which had more than $390
billion under management as of June 30, 1998.
BROWN CAPITAL MANAGEMENT'S
PRINCIPAL OFFICES are located at
809 Cathedral Street, Baltimore,
Maryland 21201.
CAPITAL GUARDIAN'S PRINCIPAL
OFFICES are located at 333 South
Hope Street, Los Angeles,
California 90071.
FMA'S PRINCIPAL OFFICES are located
at 55 West Monroe Street,
Suite #2550, Chicago,
Illinois 60603.
GSAM'S PRINCIPAL OFFICES are
located at One New York Plaza,
New York, New York 10004.
JP MORGAN'S PRINCIPAL OFFICES are
located at 522 Fifth Avenue,
New York, NY 10036.
JACOBS ASSET MANAGEMENT'S
PRINCIPAL OFFICES are located at
200 East Broward
Boulevard, Suite 1920,
Fort Lauderdale, Florida 33301.
N&B MANAGEMENT'S PRINCIPAL
OFFICES are located 605 Third
Avenue, Second Floor, New York,
New York 10158-0180.
STATE STREET GLOBAL ADVISOR'S
PRINCIPAL OFFICES are located at
2 International Place, Boston,
Massachusetts 02110.
7
<PAGE> 14
- --------------------------------------------------------------------------------
These financial service companies act as Investment Sub-advisers through an
agreement each entered into with VALIC. For more information on these agreements
and on these Sub-advisers, see the "Investment Sub-Advisers" section in the
Statement of Additional Information.
PORTFOLIO MANAGER
A manager is a person or team of persons VALIC or one of its Sub-advisers has
assigned to be primarily responsible for the day to day management of a Fund's
investments. A Fund's investments are called its portfolio.
HOW ADVISERS ARE PAID FOR
THEIR SERVICES
VALIC
Each Fund pays VALIC a fee based on its average daily net asset value. A Fund's
net asset value is the total value of the Fund's assets minus any money it owes
for operating expenses, such as the fee paid to its Custodian to safeguard the
Fund's investments.
Here is a list of the percentages each Fund pays VALIC.
<TABLE>
<S> <C>
S&P 500 Index Fund 0.27% on the first $500 million
0.26% on assets over $500 million
Mid Cap Index Fund 0.28% on the first $500 million
0.27% on assets over $500 million
Small Cap Index Fund 0.28% on the first $500 million
0.27% on assets over $500 million
International Growth Fund 0.90% on the first $100 million
0.80% on assets over $100 million
Large Cap Growth Fund 0.55%
Mid Cap Growth Fund 0.65% on the first $25 million
0.55% on the next $25 million
0.45% on assets over $50 million
Small Cap Growth Fund 0.85%
International Value Fund 1.00% on the first $25 million
0.85% on the next $25 million
0.675% on the next $200 million
0.625% on assets over $250 million
Large Cap Value Fund 0.50%
Mid Cap Value Fund 0.75% on the first $100 million
0.725% on the next $150 million
0.70% on the next $250 million
0.675% on the next $250 million
0.65% on the assets over $750 million
</TABLE>
<TABLE>
<S> <C>
Small Cap Value Fund 0.75% on the first $50 million
0.65% on the assets over $50 million
Socially Responsible
Fund 0.25%
Balanced Fund 0.80% on the first $25 million
0.65% on the next $25 million
0.45% on assets over $50 million
High Yield Bond Fund 0.70% on the first $200 million
0.60% on the next $300 million
0.55% on assets over $500 million
Strategic Bond Fund 0.60% on the first $200 million
0.50% on the next $300 million
0.45% on assets over $500 million
Domestic Bond Fund 0.60% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% on the assets over $300 million
Core Bond Fund 0.50% on the first $200 million
0.45% on the next $300 million
0.40% on assets over $500 million
Municipal Bond Fund 0.50% on the first $200 million
0.45% on the next $300 million
0.40% on assets over $500 million
Money Market Fund 0.25%
Municipal Money Market 0.50% on the first $200 million
Fund 0.45% on the next $300 million
0.40% on assets over $500 million
Conservative Growth 0.10%
Lifestyle Fund
Moderate Growth 0.10%
Lifestyle Fund
Growth Lifestyle Fund 0.10%
</TABLE>
The Investment Advisory Agreement VALIC entered into with each Fund does not
limit how much the Funds pay in monthly expenses each year.
As shareholders of other Series Company Funds, the Lifestyle Funds incur their
proportionate share of the Underlying Series Company Funds' fees and expenses,
including the fees paid to VALIC.
From time to time VALIC, the Sub-advisers and/or the Distributor may voluntarily
undertake to reduce the Fund's expenses by reducing the fees payable to them to
the extent of, or bearing expenses in excess of, such limitations as they may
establish.
8
<PAGE> 15
- --------------------------------------------------------------------------------
THE SUB-ADVISERS
The Funds do not pay the Sub-advisers directly. According to the agreements,
VALIC pays them periodically a fee based on the Fund's average daily net market
values. VALIC pays them a percentage of what is paid to us by the Funds. VALIC
and the Sub-advisers may agree to change the amount of money VALIC pays them.
Any such change increasing the charge paid by a Fund to VALIC would have to be
approved by the Series Company Board of Trustees and the shareholders of the
Fund.
The Series Company was issued an exemptive order by the SEC on September 9, 1998
for an exemption (the "Exemption") from certain provisions of the Investment
Company Act of 1940 ("1940 Act") which would otherwise require VALIC to obtain
formal shareholder approval prior to engaging and entering into sub-advisory
agreements with Sub-advisers. The relief is based on the conditions set forth in
the Exemption that, among other things: (1) VALIC will select, monitor, evaluate
and allocate assets to the Sub-advisers and oversee the Sub-advisers' compliance
with the relevant Fund's investment objective, policies and restrictions; (2)
before a Fund may rely on the Exemption, the Exemption must be approved by the
shareholders of the Funds operating under the Exemption; (3) the Series Company
will provide to shareholders certain information about a new Sub-adviser; (4)
the Series Company will disclose in this prospectus the existence, substance and
effect of the Exemption; and (5) the Trustees, including a majority of the
"independent" Trustees, must approve each sub-advisory agreement in the manner
required under the 1940 Act. Any changes to the Investment Advisory Agreement
between the Series Company and VALIC would still require shareholder approval.
As required by the Exemption, the initial shareholder of each Fund on October 7,
1998 consented to permit VALIC to terminate, replace or add Sub-advisers and to
enter into sub-advisory agreements with Sub-advisers upon approval of the Board
of Trustees but without formal shareholder approval.
Under the Investment Sub-advisory Agreement we have with AGIM, we pay AGIM a
monthly fee based on the average daily net asset values for each of the Core
Bond Fund, the Municipal Bond Fund and the Municipal Money Market Fund at an
annual rate of 0.25% of the first $200 million, 0.20% of the next $300 million
and 0.15% on assets over $500 million and the Strategic Bond Fund at an annual
rate of 0.35% of the first $200 million, 0.25% of the next $300 million and
0.20% on assets over $500 million. We pay AGIM a monthly fee based on the
average daily net asset values of the High Yield Bond Fund at an annual rate of
0.45% of the first $200 million, 0.35% of the next $300 million and 0.30% on
assets over $500 million.
Under the Investment Sub-advisory Agreement we have with Bankers Trust, we pay
Bankers Trust monthly fees based on the average daily net asset values of the
portion of the Small Cap Value Fund portfolio it manages at an annual rate of
0.03% and the S&P 500 Index Fund at an annual rate of 0.02% of the first $2
billion and 0.01% on assets over $2 billion. We pay Bankers Trust monthly fees
based on the average daily net asset values of the Mid Cap Index Fund at an
annual rate of 0.03% of the first $300 million and 0.02% on assets over $300
million and the Small Cap Index Fund at an annual rate of 0.03% of the first
$150 million and 0.02% on assets over $150 million.
Under the Investment Sub-advisory Agreement we have with Brown Capital
Management, we pay Brown Capital Management a monthly fee based on the average
daily net asset values of the Mid Cap Growth Fund at the annual rate of 0.40% of
the first $25 million, 0.30% of the next $25 million and 0.20% on assets over
$50 million.
Under the Investment Sub-advisory Agreement we have with Capital Guardian, we
pay Capital Guardian a quarterly fee based on the average daily net asset values
of the International Value Fund at an annual rate of 0.75% of the first $25
million, 0.60% of the next $25 million, 0.425% of the next $200 million and
0.375% on assets over $250 million and the Domestic Bond Fund at an annual rate
of 0.35% of the first $50 million, 0.20% on the next $50 million, 0.18% on the
next $200 million and 0.15% of assets over $300 million. We pay Capital Guardian
quarterly fees based on the average daily net asset values of the Balanced Fund
at an annual rate of 0.55% of the first $25 million, 0.40% of the next $25
million and 0.20% on assets over $50 million. Capital Guardian aggregates fees
with respect to the International Value Fund, the Domestic Bond Fund and the
Balanced Fund and applies a 5% discount to all fees if total fees are between
$1.25 million and $4 million, a 7.5% discount to all fees if total fees are
between $4 million and $8 million, a 10% discount to all fees if total fees are
between $8 million and $12 million, and a 12.5% discount to all fees if total
fees exceed $12 million.
Under the Investment Sub-advisory Agreement we have with FMA, we pay FMA a
monthly fee based on the average daily net asset values of the portion of the
Small Cap Value Fund portfolio it manages at the annual rate of 0.50% of the
first $50 million and 0.40% on assets over $50 million.
Under the Investment Sub-advisory Agreement we have with GSAM, we pay GSAM a
monthly
For more information on WHAT THE
SUB-ADVISERS ARE PAID, see the
"Investment Sub-Advisers"
section in the Statement of
Additional Information.
9
<PAGE> 16
- --------------------------------------------------------------------------------
fee based on the average daily net asset values of the Large Cap Growth Fund at
the annual rate of 0.30%.
Under the Investment Sub-advisory Agreement we have with JP Morgan, we pay JP
Morgan a monthly fee based on the average daily net asset values of the Small
Cap Growth Fund at the annual rate of 0.60%.
Under the Investment Sub-advisory Agreement we have with Jacobs Asset
Management, we pay Jacobs Asset Management a monthly fee based on the average
daily net asset values of the International Growth Fund at an annual rate of
0.65% of the first $100 million and 0.55% on assets over $100 million.
Under the Investment Sub-advisory Agreement we have with N&B Management, we pay
N&B Management a monthly fee based on the average daily net asset values of the
Mid Cap Value Fund at the annual rate of 0.50% of the first $100 million, 0.475%
of the next $150 million, 0.45% of the next $250 million, 0.425% of the next
$250 million and 0.40% on assets over $750 million.
Under the Investment Sub-advisory Agreement we have with State Street Global
Advisors, we pay State Street Global Advisors a monthly fee based on the average
daily net asset values of the Large Cap Value Fund at the annual rate of 0.25%
but no less than $50,000 per year.
According to the agreements VALIC has with the Sub-advisers, we will receive
investment advice for each sub-advised Fund. Under these agreements we give the
Sub-advisers the authority to buy and sell securities for these Funds. VALIC
retains the responsibility for the overall management of these Funds. The Sub-
advisers may buy and sell securities for each Fund with broker-dealers and other
financial intermediaries that they select.
The Sub-advisers may place orders to buy and sell securities of these Funds with
a broker-dealer affiliated with the Sub-adviser as allowed by law. This could
include any affiliated futures commission merchants.
The 1940 Act permits Sub-advisers under certain conditions to place an order to
buy or sell securities with an affiliated broker. One of these conditions is
that the commission received by the affiliated broker cannot be greater than the
usual and customary brokers commission if the sale was completed on a securities
exchange. The Series Company has adopted procedures, as required by the 1940
Act, which provide that any commissions received by a Sub-adviser's affiliated
broker are reasonable and fair if compared to the commission received by other
brokers for the same type of securities transaction.
The Securities Exchange Act of 1934 prohibits members of national securities
exchanges from effecting exchange transactions for accounts that they or their
affiliates manage, except as allowed under rules adopted by the SEC. The Series
Company and the Sub-advisers have entered into written contracts, as required by
the 1940 Act, to allow the Sub-advisers' affiliates to effect these types of
transactions for commissions. The 1940 Act generally prohibits a Sub-adviser or
a Sub-adviser's affiliate, acting as principal, from engaging in securities
transactions with a Fund, without an exemptive order from the SEC.
VALIC and the Sub-advisers may enter into simultaneous purchase and sale
transactions for the Funds or affiliates of the Funds.
ABOUT THE BOARD OF TRUSTEES
The Series Company Board of Trustees currently consists of twelve members: nine
are independent Trustees and three are VALIC employees.
The Board of Trustees may change each Fund's investment objective, investment
policies and non-fundamental investment restrictions without shareholder
approval. The Board may not change any fundamental restrictions placed on the
types of investments each Fund may buy. The fundamental restrictions appear in
the Statement of Additional Information. Changes to these restrictions may be
made with shareholder approval only.
10
<PAGE> 17
ABOUT THE FUNDS
- --------------------------------------------------------------------------------
GROWTH, BALANCED, INCOME, STABILITY AND LIFESTYLE CATEGORIES
The Funds offered in this prospectus fall into five general investment
categories: growth, balanced, income, stability and lifestyle.
GROWTH CATEGORY
The goal of a Fund in the growth category is to increase the value of your
investment over the long term by investing mostly in stocks. Stocks are a type
of investment that can increase in value over a period of years. Companies sell
stock to get the money they need to grow. These companies often keep some of
their profits to reinvest in their business. As they grow, the value of their
stock may increase. This is how the value of your investment may increase.
Series Company Growth Category includes:
S&P 500 Index Fund
Mid Cap Index Fund
Small Cap Index Fund
International Growth Fund
Large Cap Growth Fund
Mid Cap Growth Fund
Small Cap Growth Fund
International Value Fund
Large Cap Value Fund
Mid Cap Value Fund
Small Cap Value Fund
Socially Responsible Fund
BALANCED CATEGORY
(COMBINATION OF GROWTH AND INCOME CATEGORIES)
The goal of a Fund in the balanced category is to increase the value of your
investment over the long term and to provide income. The Fund in the balanced
category seek to conserve the value of your initial investment and promote
long-term growth and income by investing in stocks and income producing
securities.
Series Company Balanced Category includes:
Balanced Fund
INCOME CATEGORY
Unlike Funds in the growth category, where the objective is to make the Fund's
investments increase in value, Funds in the income category try to keep the
value of their investments from falling, while providing an increase in the
value of your investment through the income earned on a Fund's investments. To
meet this objective, Funds in the income category buy investments that are
expected to pay interest to a Fund on a regular basis.
Series Company Income Category includes:
High Yield Bond Fund
Strategic Bond Fund
Domestic Bond Fund
Core Bond Fund
Municipal Bond Fund
STABILITY CATEGORY
Funds in the stability category provide liquidity, protection of capital and
current income through investments in high quality securities.
Series Company Stability Category includes:
Money Market Fund
Municipal Money Market Fund
LIFESTYLE CATEGORY
The proliferation of mutual funds over the last several years has left many
investors in search of a simple means to manage their long-term investments.
With new investment categories emerging each year and with each mutual fund
reacting differently to political, economic and business events, many investors
are forced to make complex investment decisions in the face of limited
experience, time and personal resources. The Lifestyle Funds are designed to
meet the needs of investors who prefer to have their asset allocation decisions
made by professional money managers, are looking for an appropriate core
investment for their retirement portfolio and appreciate the advantages of broad
diversification.
A Lifestyle Fund does not invest directly in portfolio securities but, rather,
invests in a combination of Series Company Funds in order to meet its investment
objective. In this manner, the Lifestyle Funds offer you the opportunity to
diversify your investment portfolio by investing in one Fund, rather than in a
variety of Series Company Funds.
Series Company Lifestyle Category includes:
Growth Lifestyle Fund
Moderate Growth Lifestyle Fund
Conservative Growth Lifestyle Fund
ABOUT LEVEL OF RISK
The risks involved in each Fund are described in each Fund's Fact Sheet. These
risks may include market risk, credit risk, interest rate risk, manager risk and
risk associated with foreign securities. These risks are described in the "Types
of Investments" section in this prospectus. The money you invest in the Series
Company is not insured. And, we can't guarantee that any of the Funds will meet
their investment objectives. There's a chance you may lose money and end up with
less than you invested.
11
<PAGE> 18
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO TURNOVER
Portfolio turnover occurs when a Fund sells its investments and buys new ones.
In some Funds, high portfolio turnover occurs when these Funds sell and buy
investments as part of their investment strategy. In other Funds, like the Index
Funds discussed below, portfolio turnover is lower because the make up of the
index stays fairly constant.
High portfolio turnover may cause a Fund's expenses to increase. For example, a
Fund may have to pay brokerage fees and other related expenses.
The anticipated annual portfolio turnover rates for each of the Funds except the
Money Market Fund and the Municipal Money Market Fund are as follows:
<TABLE>
<CAPTION>
ANTICIPATED
PORTFOLIO
NAME OF FUND TURNOVER RATE
------------ -------------
<S> <C>
S&P 500 Index Fund 3-5%
Mid Cap Index Fund 10-15%
Small Cap Index Fund 40-50%
International Growth Fund 50%
Large Cap Growth Fund 50-75%
Mid Cap Growth Fund 30-60%
Small Cap Growth Fund 100%
International Value Fund 150%
Large Cap Value Fund 100%
Mid Cap Value Fund 100%
Small Cap Value Fund 100%
Socially Responsible Fund 120%
Balanced Fund 150%
High Yield Bond Fund 100-200%
Strategic Bond Fund 100-200%
Domestic Bond Fund 150%
Core Bond Fund 100-200%
Municipal Bond Fund 50-100%
Growth Lifestyle Fund 10-20%
Moderate Growth Lifestyle
Fund 10-20%
Conservative Growth Lifestyle 10-20%
Fund
</TABLE>
A portfolio turnover rate of 100% or more a year is considered high. A high rate
increases a Fund's transaction costs and expenses.
ABOUT FUND PERFORMANCE
From time to time, the Series Company may advertise Fund performance information
such as Fund average annual total return and index total return. Information as
to how this Fund performance information is calculated appears in the Statement
of Additional Information.
12
<PAGE> 19
THE INDEX EQUITY FUNDS
- --------------------------------------------------------------------------------
Three of the 23 Funds in the Series Company are Index Equity Funds investing
mostly in stocks. Their investment strategy is to track the performance of a
specific index. This strategy is followed whether markets go up or down. As part
of this investment strategy, each Fund may also invest in futures contracts and
options. Because these Funds do not have a defensive investment strategy, when
the market goes down, you will bear the risk of such market decline.
Index Funds perform best over the long term. This means you should plan to keep
your money in an Index Fund for a period of years.
WHAT IS AN INDEX?
An index reflects the average performance of a particular class of securities.
Examples of indexes include large company stocks (S&P 500 Index), mid-size
company stocks (S&P Mid Cap 400 Index), the bond market, or stocks of companies
in specific industries. Indexes are not managed funds, and cannot be bought.
Investment advisers compare the results of the funds they manage to indexes that
are close to the investment style of the fund. Information about the Series
Company's use of Standard & Poor's Indexes is in the Statement of Additional
Information.
WHICH INDEXES DO THESE FUNDS TRY TO TRACK?
While there are more than a hundred different indexes, the Index Funds in this
prospectus try to track three very prominent stock indexes:
THE S&P 500 INDEX FUND TRACKS THE STANDARD & POOR'S 500 STOCK INDEX(R)*
The Standard & Poor's 500 Stock Index(R) (S&P 500) tracks the common stock
performance of large U.S. manufacturing, utilities, transportation, and
financial companies as well as companies in other industries. These companies
are usually listed on the New York Stock Exchange. It also tracks performance of
common stocks sold by foreign and smaller U.S. companies in similar industries.
The smaller U.S. companies are usually listed on the American Stock Exchange. In
total, this index tracks 500 common stocks.
An index may periodically change some of the stocks it tracks. And, different
indexes sometimes track some of the same stocks. For example, as of May 31,
1998, this index was tracking 18 of the same stocks tracked by the Russell 2000
Index.
THE MID CAP INDEX FUND TRACKS THE STANDARD & POOR'S MID CAP 400(R) INDEX*
The Standard & Poor's Mid Cap 400(R) Index (S&P Mid Cap 400) tracks the common
stock performance of 400 medium capitalized U.S. and foreign manufacturing,
utilities, transportation, and financial companies as well as companies in other
industries. The average market capitalization of the S&P Mid Cap 400 Index was
$3.4 billion as of May 31, 1998.
Standard & Poor's created this Index in 1991 to give investors an idea of how
the stocks of medium capitalized companies generally perform.
Standard & Poor's may periodically change some of the stocks in the index. And,
different indexes sometimes include some of the same stocks. For example, as of
May 31, 1998, this index was tracking 130 of the same stocks tracked by the
Russell 2000 Index. This index does not track the same stocks as the S&P 500
Index.
THE SMALL CAP INDEX FUND TRACKS
THE RUSSELL 2000(R) INDEX**
The Russell 2000 Index is provided by The Frank Russell Company. This Index
tracks the common stock performance of 2,000 small capitalized U.S. companies in
various industries. Small capitalized means these companies have a market value
below $1 billion.
The Frank Russell Company created this index in 1979 to give investors an idea
of how the stocks of small capitalized companies generally perform. The average
market capitalization of the Russell 2000 Index is $820 million as of May 31,
1998.
The stocks tracked by this index are updated annually because many small
capitalized companies eventually become medium capitalized companies and some
fail.
- ---------------
* "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "S&P Mid Cap 400(R)" are
trademarks of Standard & Poor's ("S&P"). Neither the Mid Cap Index Fund nor
the S&P Index Fund is sponsored, endorsed, sold or promoted by S&P, and S&P
makes no representation regarding the advisability of investment in these
Funds.
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. The Small Cap Index Fund is not promoted, sponsored or
endorsed by, nor in any way affiliated with Frank Russell Company. Frank
Russell Company is not responsible for and has not reviewed the Fund or any
associated literature or publications and makes no representation or
warranty, express or implied, as to their accuracy, or completeness, or
otherwise.
INDEX FUNDS have out- performed
most actively managed mutual
funds over consecutive ten-year
periods. However, because they
are managed to track an index,
they will rise and fall with the
market.
13
<PAGE> 20
- --------------------------------------------------------------------------------
HOW CLOSELY CAN INDEX FUNDS TRACK THE PERFORMANCE OF THEIR INDEX?
The factors that cause a Fund to perform differently from the index it tries to
track are called tracking differences. There is no assurance that an Index Fund
can track its index.
The coefficient of correlation (r) is an index number which shows how closely
two variables are related. If r = 0 there is no tendency for one variable to
change with the other. A value of +1 means that one variable will vary exactly
with the other. Index funds try to keep their coefficient of correlation as
close to 1 as possible. As a practical matter, any coefficient above 0.95, when
measured against the comparison index, shows good tracking.
Tracking accuracy is reviewed daily by the Sub-adviser for each of the Index
Funds. If an Index Fund does not accurately track an index, the Sub-adviser will
rebalance the Fund's portfolio by selecting securities which will provide a more
representative sampling of the securities in the index as a whole or the sector
diversification within the index, as appropriate.
The index may remove one stock and substitute another requiring the sub-adviser
of the Fund to do the same. When a stock is sold and the new stock purchased,
the Fund incurs transaction costs. The index incurs no transaction costs.
Therefore, the portfolio manager cannot match exactly the performance of an
index.
Also, it may not be possible for a Fund to buy every stock in its index or in
the same proportions. Fund portfolio managers may rely on a statistical
selection technique to figure out, of the stocks tracked by their index, how
many and which ones to buy. Stocks are bought and sold when they are added to or
dropped from the index. This keeps brokerage fees and other transaction costs
low. For more information, see the "Investment Strategy" sections on each Fund's
Fact Sheet.
14
<PAGE> 21
HOW TO READ A FUND FACT SHEET
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS-----------------------------------------------------------------
Gives you a quick recap of each Fund.
FUND NAME-----------------------------------------------------------------------
INVESTMENT ADVISER; INVESTMENT SUB-ADVISER--------------------------------------
They make the investment decisions for the Fund. See "About the Series
Company's Management" for more information.
PORTFOLIO MANAGER---------------------------------------------------------------
Some Funds have a specific person or persons assigned as the portfolio
manager. The person is described here. The portfolio manager's role is
explained in "About the Series Company's Management."
INVESTMENT OBJECTIVE------------------------------------------------------------
This is the goal of the Fund, which is set by the Series Company Board of
Trustees.
INVESTMENT RISK-----------------------------------------------------------------
Shows some of the investment risks of the Fund.
INVESTMENT STRATEGY-------------------------------------------------------------
This section explains how the Investment Advisers go about meeting the Fund's
Investment Objective.
FUND INVESTMENTS----------------------------------------------------------------
Shows the types of investments the Fund makes.
PERFORMANCE INFORMATION OF OTHER INVESTMENT COMPANIES AND PRIVATE ACCOUNTS------
This shows the average annual total return for a mutual fund, a managed account
or a composite of mutual funds and/or managed accounts, managed in
substantially the same manner as a Fund, for the time period ended March 31,
1998. Although these numbers represent the returns as of that date, they do not
represent performance information since that date. Performance information for
periods since June 30, 1998 may be significantly different (lower) than the
performance shown. Information about how the mutual fund, managed account or
composite performed for the period shown is presented net of fees and expenses.
[CHART]
15
<PAGE> 22
S&P 500 INDEX FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURN THROUGH
INVESTMENTS TRACKING THE S&P
500 INDEX
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Bankers Trust Company
PORTFOLIO MANAGER
Frank Salerno, Managing Director-Chief Investment Officer of Quantitative and
Index Equity of the Sub-adviser, has been the Fund's portfolio manager since its
inception. Mr. Salerno has been with the Sub-adviser since 1981.
INVESTMENT OBJECTIVE
Seeks to provide investment results that, before expenses, correspond to the
total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by the S&P 500 Index
(Index).
INVESTMENT RISK
The S&P 500 Index includes the common stock of many large, well-established
companies. These companies usually have the financial strength to weather
difficult financial times. However, the value of any common stock can rise and
fall over short and long periods of time. This Fund, which holds nearly all of
the 500 common stocks in the S&P 500 Index, avoids the risk of individual stock
selection and seeks to provide the return of the large company sector of the
market. In the past that return has been positive over many years but can be
negative at certain times. There is no assurance that a positive return will
occur in the future.
Because the Fund invests in many of the common stocks tracked by this Index,
your investment will experience similar changes in value and share similar
risks, such as market risk and risk associated with foreign securities. For more
information about market risk and risk associated with foreign securities, see
"A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a sampling of common stocks in the Index that, as a group,
should reflect its performance. The common stocks of the S&P 500 Index to be
included in the Fund will be selected utilizing a statistical sampling technique
known as "optimization." This process selects common stocks for the Fund so that
various industry weightings, market capitalizations and fundamental
characteristics (e.g., price-to-book, price-to-earnings, debt-to-asset ratios
and dividend yields) closely approximate those of the S&P 500 Index. The stocks
held by the Fund are weighted to make the Fund's aggregate investment
characteristics similar to those of the Index as a whole. Since it may not be
possible for this Fund to buy every stock included on this Index or in the same
proportions, we rely on the aforementioned statistical technique to figure out,
of the stocks tracked by the Index, how many and which ones to buy.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund's Investments Assets*
- -------------------------------------------
<S> <C>
Common stocks in the S&P at least 65%
500 Index**
- -------------------------------------------
Futures and options no more than 33%
- -------------------------------------------
Foreign common stocks no more than 20%
(listed and over-the-
counter) in the S&P 500
Index
- -------------------------------------------
Investments not in the no more than 35%
S&P 500 Index
Common stock and
related securities
High quality money
market securities
- -------------------------------------------
Rule 144A securities up to 10%
(liquid)
- -------------------------------------------
Illiquid and restricted up to 15%
securities***
</TABLE>
- -------------------------------------------------
* At time of purchase.
** The Fund's assets may be invested in short-term
instruments hedged with stock index futures or options with remaining
maturities of 397 days or less to meet redemptions, facilitate investment in
common stocks, or for day to day operating purposes. Short-term instruments
consist of (i) short-term obligations of the U.S. Government, its agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-
term debt securities rated Aa or higher by Moody's Investors Service, Inc.
("Moody's") or AA or higher by Standard & Poor's Ratings Group ("S&P") or,
if unrated, of comparable quality in the opinion of the Sub-adviser; (iii)
commercial paper; (iv) bank obligations, including negotiable certificates
of deposit, time deposits and bankers' acceptances; and (v) repurchase
agreements. With respect to investments in commercial paper, bank
obligations or repurchase agreements, the issuer or the issuer's parent must
have outstanding debt rated Aa or higher by Moody's or AA or higher by S&P
or outstanding commercial paper or bank obligations rated Prime-1 by Moody's
or A-1 by S&P; or if no such ratings are available, the instrument must be
of comparable quality in our opinion.
***
Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
16
<PAGE> 23
- --------------------------------------------------------------------------------
The S&P 500 Index Fund recently commenced operations and, therefore, has no
investment performance record. However, the S&P 500 Index Fund's investment
objectives, policies and strategies are substantially similar to the those of
the BT Pyramid Large Cap Equity Index Fund and it is managed in substantially
the same manner and by the same individual as the BT Pyramid Large Cap Equity
Index Fund. The chart herein shows the historical performance for the BT Pyramid
Large Cap Equity Index Fund for the period April 1, 1988 through March 31, 1998,
net of the BT Pyramid Large Cap Equity Index Fund's fees and expenses. Prior to
January 1994, the assets of BT Pyramid Large Cap Equity Index Fund were invested
in the BT Pyramid Equity Index Fund. The inception date of the BT Pyramid Large
Cap Equity Index Fund was April 1, 1988.
The BT Pyramid Large Cap Equity Index Fund is subject to the limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expenses reimbursements) for the S&P 500 Index Fund are higher
than the total fees incurred by the BT Pyramid Large Cap Equity Index Fund.
Consequently, the performance results for the BT Pyramid Large Cap Equity Index
Fund would have been lower if the BT Pyramid Large Cap Equity Index Fund had the
same expenses as the S&P 500 Index Fund. The performance of the BT Pyramid Large
Cap Equity Index Fund has been calculated in accordance with SEC performance
standards. See "Performance and Yield Information" in the Statement of
Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON THE BT PYRAMID LARGE CAP EQUITY INDEX
FUND WHICH IS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME
INDIVIDUAL AS THE S&P 500 INDEX FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
S&P INDEX FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF BT PYRAMID LARGE CAP EQUITY INDEX FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
47.85% 22.05% 18.67%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the S&P 500 Index Fund is likely to differ from the BT
Pyramid Large Cap Equity Index Fund in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings and performance of the S&P 500
Index Fund may vary from those of the BT Pyramid Large Cap Equity Index Fund.
17
<PAGE> 24
MID CAP INDEX FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURN INVESTMENTS
TRACKING THE S&P MID CAP 400
INDEX
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Bankers Trust Company
PORTFOLIO MANAGER
Frank Salerno, Managing Director-Chief Investment Officer of Quantitative and
Index Equity of the Sub-adviser, has been the Fund's portfolio manager since its
inception. Mr. Salerno has been with the Sub-adviser since 1981.
INVESTMENT OBJECTIVE
Seeks to provide investment results that, before expenses, correspond to the
total return (i.e. the combination of capital changes and income) of common
stocks that, as a group, are expected to provide investment results closely
corresponding to the performance of the S&P Mid Cap 400 Index (Index).
INVESTMENT RISK
The S&P Mid Cap 400 Index includes the stocks of many medium sized companies.
These companies usually do not have as much financial strength as very large
companies and so may not be able to do as well in difficult times. However,
because they are medium-sized, they have more potential to grow, which means the
value of their stock may increase. The S&P Mid Cap 400 Index also includes
common stocks of certain medium-sized foreign companies. These common stocks can
be more risky than large company common stocks. An index fund holding nearly all
of the 400 common stocks in the S&P Mid Cap 400 Index avoids the risk of
individual stock selection and seeks to provide the return of the medium-sized
company sector of the market. On average that return has been positive over many
years but can be negative at certain times. There is no assurance that a
positive return will occur in the future.
Because this Fund invests in many of the common stocks tracked by this Index,
your investment will experience similar changes in value and share similar risks
such as market risk and risk associated with foreign securities. For more
information about market risk and risk associated with foreign securities, see
"A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a sampling of common stocks in the Index that, as a group,
should reflect its performance. The common stocks of the S&P Mid Cap 400 Index
to be included in the Fund will be selected utilizing a statistical sampling
technique known as "optimization." This process selects stocks for the Fund so
that various industry weightings, market capitalizations and fundamental
characteristics (e.g. price-to-book, price-to-earnings, debt-to-asset ratios and
dividend yields) closely approximate those of the S&P Mid Cap 400 Index. The
common stocks held by the Fund are weighted to make the Fund's aggregate
investment characteristics similar to those of the Index as a whole. Since it
may not be possible for this Fund to buy every common stock included in this
Index or in the same proportions, we rely on the aforementioned statistical
technique to figure out, of the stocks tracked by the Index, how many and which
ones to buy.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -------------------------------------------
<S> <C>
Common stocks in the S&P at least 65%
Mid Cap 400 Index
- -------------------------------------------
Foreign stocks (listed no more than 20%
and over-the-counter) in
the S&P Mid Cap 400 Index
- -------------------------------------------
Futures and options no more than 33%
- -------------------------------------------
Investments not in the
S&P Mid Cap 400 Index no more than 35%
Common stock and
related securities
High quality money
market securities**
- -------------------------------------------
Rule 144A securities up to 10%
(liquid)
- -------------------------------------------
Illiquid and restricted up to 15%
securities.***
</TABLE>
- -------------------------------------------------
* At time of purchase.
** Short-term instruments with remaining maturities of
397 days or less to meet redemptions, facilitate investment in common
stocks, or for day to day operating purposes. Short-term instruments consist
of (i) short-term obligations of the U.S. Government, its agencies,
instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated Aa or higher by Moody's Investors Service,
Inc. ("Moody's") or AA or higher by Standard & Poor's Ratings Group ("S&P")
or, if unrated, of comparable quality in the opinion of the Sub-Adviser;
(iii) commercial paper; (iv) bank obligations, including negotiable
certificates of deposit, time deposits and bankers' acceptances; and (v)
repurchase agreements. With respect to investments in commercial paper, bank
obligations or repurchase agreements, the issuer or the issuer's parent must
have outstanding debt rated Aa or higher by Moody's or AA or higher by S&P
or outstanding commercial paper or bank obligations rated Prime-1 by Moody's
or A1 or higher by S&P; or if no such ratings are available, the instrument
must be of comparable quality in our opinion.
*** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
in "Types of
Investments."
18
<PAGE> 25
- --------------------------------------------------------------------------------
The Mid Cap Index Fund recently commenced operations and, therefore, has no
investment performance record. However, the Mid Cap Index Fund's investment
objectives, policies and strategies are substantially similar to those of the
American General Series Portfolio Company Mid Cap Index Fund and it is managed
in substantially the same manner and by the same individual as the American
General Series Portfolio Company Mid Cap Index Fund. The chart herein shows the
historical performance for the American General Series Portfolio Company Mid Cap
Index Fund for the period October 1, 1991 through March 31, 1998, net of the
American General Series Portfolio Company Mid Cap Index Fund's fees and
expenses.
The American General Series Portfolio Company Mid Cap Index Fund is subject to
the limitations, diversification requirements and other restrictions imposed on
registered mutual funds by the 1940 Act and Subchapter M of the Internal Revenue
Code.
Total fees (after expense reimbursements) for the Mid Cap Index Fund are higher
than the total fees incurred by the American General Series Portfolio Company
Mid Cap Index Fund. Consequently, the performance results for the American
General Series Portfolio Company Mid Cap Index Fund would have been lower if the
American General Series Portfolio Company Mid Cap Index Fund had the same
expenses as the Mid Cap Index Fund. The performance of the American General
Series Portfolio Company Mid Cap Index Fund has been calculated in accordance
with SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE AMERICAN GENERAL
SERIES PORTFOLIO COMPANY MID CAP INDEX FUND WHICH IS MANAGED IN SUBSTANTIALLY
THE SAME MANNER AND BY THE SAME INDIVIDUAL AS THE MID CAP INDEX FUND AND DOES
NOT REFLECT THE PERFORMANCE OF THE MID CAP INDEX FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF AMERICAN GENERAL SERIES PORTFOLIO COMPANY MID CAP
INDEX FUND
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
- ---------------------------------------------------------
48.53% 31.07% 18.58%
- ---------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Mid Cap Index Fund is likely to differ from the
American General Series Portfolio Company Mid Cap Index Fund in size, cash flow
patterns and certain tax matters. Accordingly, the portfolio holdings and
performance of the American General Series Portfolio Company Mid Cap Index Fund
may vary from those of the Mid Cap Index Fund.
19
<PAGE> 26
SMALL CAP INDEX FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURN THROUGH
INVESTMENTS TRACKING THE
RUSSELL 2000 INDEX
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Bankers Trust Company
PORTFOLIO MANAGER
Frank Salerno, Managing Director-Chief Investment Officer of Quantitative and
Index Equity of the Sub-adviser, has been the Fund's portfolio manager since its
inception. Mr. Salerno has been with the Sub-adviser since 1981.
INVESTMENT OBJECTIVE
Seeks to replicate as closely as possible (before deduction of expenses) the
total return of the Russell 2000 Index (Index) by investing in the common stock
one or more companies included in the Index that are deemed representative of
the diversification of the entire Russell 2000 Index.
INVESTMENT RISK
The Russell 2000 Index includes many small U.S. companies. Some of these
companies often do not have the financial strength needed to do well in
difficult times. Also, they often sell limited numbers of products, which can
make it harder for them to compete with medium and large companies. However,
because they are small, their common stock prices may fluctuate more over the
short-term, but they have more potential to grow. This means their common stock
value may offer greater potential for appreciation. An index fund holding a
large sampling of the 2,000 stocks in the Russell 2000 Index avoids the risks of
individual stock selection and seeks to provide the return of the smaller-sized
company sector of the market. On average that return has been positive over the
years but has been negative at certain times. There is no assurance that a
positive return will occur in the future.
Because this Fund invests in many of the common stocks tracked by this Index,
your investment will experience similar changes in value and share similar risks
such as market risk. For more information about market risk, see "A Word About
Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a sampling of common stocks in the Index that, as a group,
should reflect its performance. The common stocks of the Russell 2000 Index to
be included in the Fund will be selected utilizing a statistical sampling
technique known as "optimization." This process selects common stocks for the
Fund so that various industry weightings, market capitalizations and fundamental
characteristics (e.g. price-to-book, price-to-earnings, debt-to-asset ratios and
dividend yields) closely approximate those of the Russell 2000 Index. The common
stocks held by the Fund are weighted to make the Fund's aggregate investment
characteristics similar to those of the Index as a whole. Since it may not be
possible for this Fund to buy every common stock included in this Index or in
the same proportions, we rely on the aforementioned statistical technique to
figure out, of the stocks tracked by the Index, how many and which ones to buy.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
20
<PAGE> 27
SMALL CAP INDEX FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ----------------------------------------------
<S> <C>
Common stocks in the Russell at least 65%
2000 Index
- ----------------------------------------------
Foreign stocks (listed and no more than
over-the-counter) in the 25%
Russell 2000 Index
- ----------------------------------------------
Investments not in the Russell
2000 Index
Common stock and related no more than
securities 35%
High quality money market
securities**
- ----------------------------------------------
Rule 144A securities (liquid) up to 10%
- ----------------------------------------------
Illiquid and restricted up to 15%
securities***
- ----------------------------------------------
Futures and options no more than
33%
- ----------------------------------------------
Swap agreements up to 10%
- ----------------------------------------------
Warrants**** up to 5%
</TABLE>
- -------------------------------------------------
* At time of purchase.
** We may invest up to 25% of the Fund's assets in
short-term fixed income securities and money market instruments to meet
redemption requests or to facilitate investment in securities of the
Russell 2000 Index. Such securities or investments will be short-term
instruments with remaining maturities of 397 days or less to meet
redemptions, facilitate investment in common stocks, or for day to day
operating purposes. Short-term instruments consist of (i) short-term
obligations of the U.S. Government, its agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt
securities rated Aa or higher by Moody's Investors Service, Inc.
("Moody's") or AA or higher by Standard & Poor's Ratings Group ("S&P") or,
if unrated, of comparable quality in the opinion of the Sub-Adviser; (iii)
commercial paper; (iv) bank obligations, including negotiable certificates
of deposit, time deposits and bankers' acceptances; and (v) repurchase
agreements. With respect to investments in commercial paper, bank
obligations or repurchase agreements, the issuer or the issuer's parent
must have outstanding debt rated Aa or higher by Moody's or AA or higher by
S&P or outstanding commercial paper or bank obligations rated Prime-1 by
Moody's or A1 or higher by S&P, or if no such ratings are available, the
instrument must be of comparable quality in our opinion.
*** Percent of Fund's net assets applied at all times.
**** The Fund's investment in warrants will not exceed 2%
of its assets with respect to warrants not listed on the New York or
American Stock Exchanges.
21
<PAGE> 28
- --------------------------------------------------------------------------------
The Small Cap Index Fund recently commenced operations and, therefore, has no
investment performance record. However, the Small Cap Index Fund's investment
objectives, policies and strategies are substantially similar to those of the BT
Pyramid Russell 2000 Index Fund and it is managed in substantially the same
manner and by the same individual as the BT Pyramid Russell 2000 Index Fund. The
chart herein shows the historical performance for the BT Pyramid Russell 2000
Index Fund for the period April 1, 1988 through March 31, 1998, net of the BT
Pyramid Russell 2000 Equity Index Fund's fees and expenses. The inception date
of the BT Russell 2000 Index Fund was October 31, 1987.
The BT Pyramid Russell 2000 Index Fund is subject to the limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Small Cap Index Fund are
higher than the total fees incurred by the BT Pyramid Russell 2000 Index Fund.
Consequently, the performance results for the BT Pyramid Russell 2000 Index Fund
would have been lower if the BT Pyramid Russell 2000 Index Fund had the same
expenses as the Small Cap Index Fund. The performance of the BT Pyramid Russell
2000 Index Fund has been calculated in accordance with SEC performance
standards. See "Performance and Yield Information" in the Statement of
Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON THE BT PYRAMID RUSSELL 2000 INDEX
FUND WHICH IS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME
INDIVIDUAL AS THE SMALL CAP INDEX FUND AND DOES NOT REFLECT THE PERFORMANCE OF
THE SMALL CAP INDEX FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
BT PYRAMID RUSSELL 2000 INDEX FUND
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- ---------------------------------------------------------
42.43% 17.60% 14.57%
- ---------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Small Cap Index Fund is likely to differ from the BT
Pyramid Russell 2000 Index Fund in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings and performance of the Small Cap
Index Fund may vary from those of the BT Pyramid Russell 2000 Index Fund.
22
<PAGE> 29
INTERNATIONAL GROWTH
FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM CAPITAL
APPRECIATION THROUGH
INVESTMENTS IN NON-U.S.
COMPANIES, THE MAJORITY OF
WHICH ARE EXPECTED TO BE IN
DEVELOPED MARKETS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Jacobs Asset Management
PORTFOLIO MANAGER
This Fund is managed by an investment committee comprised of the following
individuals: Daniel L. Jacobs, Wai W. Chin, Robert J. Jurgens and Cynthia A.
New. Mr. Jacobs has been President of the Sub-adviser since July 1, 1995. From
1984 to 1995, Mr. Jacobs was Executive Vice President and Director of Templeton
Investment Counsel. Mr. Jacobs was portfolio manager of Templeton's Smaller
Companies Growth Fund and Templeton Variable Product Series Fund -- Templeton
International Fund. Ms. Chin has been Managing Director of Asian Research and
Portfolio Management of the Sub-adviser since July 1995. Prior to this, Ms. Chin
was Vice President of the Global Equity Group of Scudder, Stevens & Clark from
1989 to April 1995. Mr. Jurgens has been Managing Director of European Research
and Portfolio Management of the Sub-adviser since August 1995. From 1993 to
1995, Mr. Jurgens was Vice President and head of AIG Global Investors'
International Equity Division. Ms. New has been Director, Latin American
Research, of the Sub-adviser since July 1998. Prior to this, Ms. New was an
equity analyst at Pioneer Management Corporation from December 1997 to June 1998
and was at Templeton International Council from June 1993 to December 1997,
where she had research and portfolio management responsibilities for developed
and emerging market corporate and government debt securities.
INVESTMENT OBJECTIVE
Seeks to provide long-term capital appreciation by investing in equity
securities of non-U.S. companies, the majority of which are expected to be in
developed markets. The Fund may invest across the capitalization spectrum,
although it intends to emphasize smaller capitalization stocks.
INVESTMENT RISK
As described in the Investment Strategy section below, this Fund invests almost
all its assets in foreign securities, which have risks that U.S. investments do
not have, including foreign political and economic developments, fluctuations in
foreign exchange rates and limited publicly available information. For a further
explanation of the risks associated with foreign securities, see "A Word About
Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund will invest in equity securities in the markets of at least three
countries outside the United States. The Fund will diversify its investments
among developed and emerging market countries. The Fund will focus its emerging
market investments on those countries in which the Sub-adviser believes the
economies are developing and the markets are becoming more sophisticated. An
"emerging market country" is any country which, in the opinion of the
Sub-adviser, is generally considered to be an emerging or developing country by
the international financial community, including the International Bank for
Reconstruction and Development (the World Bank) and the International Finance
Corporation. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe. Investing in many emerging countries is not feasible
or may involve unacceptable political risks.
We will use a flexible, value-oriented approach to selecting this Fund's
investments, focusing on companies rather than on countries or markets. Our goal
is to identify stocks selling at the greatest discount to their intrinsic future
value. Value is ascertained through an analysis of price/cash flow, enterprise
value/cash flow, and price/future earnings. This Fund invests in a wide range of
equity securities including those of smaller capitalization companies.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
23
<PAGE> 30
INTERNATIONAL GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Foreign equity securities** at least 85%
Equity securities including
common stock, preferred
stock, convertible
preferred stock, rights and
warrants, and American
Depository Receipts
("ADRs"), European
Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs")
- --------------------------------------------
Equity securities of issuers up to 40%
in emerging countries***
- --------------------------------------------
Equity securities of small generally 50%
capitalization
companies****
- --------------------------------------------
Equity securities of open-end up to 10%
or closed-end investment
companies
- --------------------------------------------
Forward currency exchange up to 100%
contracts
- --------------------------------------------
Illiquid securities***** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Short-term investments****** up to 10%
- --------------------------------------------
</TABLE>
* At time of purchase.
** We intend to invest at least 85% of this Fund's total
assets in the equity securities of at least three countries outside the
United States.
*** "Emerging countries" are countries with economies
or securities markets that are considered by the Sub-adviser not to be
fully developed. An "emerging country" security is issued by a company
that in our opinion has one or more of the following characteristics: (i)
its principal securities trading market is in an emerging country; (ii)
alone or on a consolidated basis, it derives 50% or more of its annual
revenue from either goods produced, sales made or services performed in
emerging countries, or (iii) it is organized under the laws of, and has a
principal office in, an emerging country.
**** Small capitalization companies are companies with
market capitalizations of less than $1 billion at the time of purchase.
In certain countries, companies at the high end of the $1 billion
capitalization range would be considered to be mid cap or large cap
companies.
***** Percent of Fund's net assets applied at all times.
****** For temporary defensive reasons, we may invest up
to 100% of the Fund's total assets in short-term (less than twelve months
to maturity) securities or cash, including domestic and foreign money
market instruments, certificates of deposit, bankers' acceptances, time
deposits, U.S. Government obligations, U.S. Government agency securities,
short-term corporate debt securities, and commercial paper rated A-1 or
A-2 by S&P or Prime 1 or Prime 2 by Moody's or if unrated, in our opinion
of comparable quality. In no event will the Fund purchase short-term
securities rated below Baa by Moody's or BBB by S&P. We may do this when
we think economic, political or market conditions make it too risky for
us to follow our general guidelines.
24
<PAGE> 31
- --------------------------------------------------------------------------------
1. The Templeton Performance Information
The International Growth Fund recently commenced operations and, therefore, has
no investment performance record. The performance information shown herein is
for the Templeton International Fund, a series of the Templeton Variable
Products Series Fund, which was managed by Mr. Jacobs, a principal of the
Sub-adviser. The Templeton International Fund has substantially similar, though
not necessarily identical objectives, policies and strategies as the
International Growth Fund. The chart below shows the historical investment
performance of the Templeton International Fund, net of fees and expenses, for
the year-ended June 30, 1995 and for the period May 1, 1992 to June 30, 1995,
during Mr. Jacobs tenure as the portfolio manager. Mr. Jacobs was primarily
responsible for the day-to-day management and no other person had a significant
role in achieving the Templeton International Fund's performance.
The International Growth Fund is subject to investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the International Growth Fund are
higher than the total fees incurred by the Templeton International Fund.
Consequently, the performance results for the Templeton International Fund would
have been lower if the Templeton International Fund had the same expenses as the
International Growth Fund. The performance of the Templeton International Fund
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON THE TEMPLETON INTERNATIONAL FUND WHICH WAS MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUAL WHO MANAGED THE
INTERNATIONAL GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
INTERNATIONAL GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF TEMPLETON INTERNATIONAL FUND
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------
1 YEAR* SINCE INCEPTION*
- -----------------------------------------------------
10.14% 12.33%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
[CHART]
*PERIOD ENDED JUNE 30, 1995
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the International Growth Fund is likely to differ from the
Templeton International Fund in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the International Growth Fund
may vary from those of the Templeton International Fund.
25
<PAGE> 32
- --------------------------------------------------------------------------------
2. The Separate Account Performance Information
Although the International Growth Fund has no performance record, the Fund's
investment objectives, policies and strategies will be substantially similar,
though not necessarily identical, to those employed by the Sub-adviser with
respect to separately managed accounts of the Sub-adviser ("Separately Managed
Accounts"). The chart herein shows the historical investment performance for a
composite of the Sub-adviser's Separately Managed Accounts ("Sub-adviser
Composite") which were managed by the Sub-adviser in substantially the same
manner and by the same individuals who manage the International Growth Fund. The
Sub-adviser Composite represents the total return, net of all fees and expenses,
of all Separately Managed Accounts of the Sub-adviser. The inception date of the
Sub-adviser Composite was October 1, 1995.
The Separately Managed Accounts in the Sub-adviser Composite were not subject to
the investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Separately Managed Accounts included in the
Sub-adviser Composite had been subject to the requirements imposed on registered
mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the International Growth Fund are
higher than the total fees incurred by the Separately Managed Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser's Separately
Managed Accounts had the same expenses as the International Growth Fund. The
performance of the Sub-adviser Composite has been calculated in accordance with
SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE
SUB-ADVISER'S SEPARATELY MANAGED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE
SAME MANNER AND BY THE SAME INDIVIDUALS WHO MANAGE THE INTERNATIONAL GROWTH FUND
AND DOES NOT REFLECT THE PERFORMANCE OF THE INTERNATIONAL GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF SUB-ADVISER COMPOSITE
<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
19.02% 22.04%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1995
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the International Growth Fund is likely to differ from the
Sub-adviser's Separately Managed Accounts in size, cash flow patterns and
certain tax matters. Accordingly, the portfolio holdings of the International
Growth Fund may vary from those of the Sub-adviser's Separately Managed Accounts
and performance of the International Growth Fund may vary from those of the
Sub-adviser Composite.
26
<PAGE> 33
LARGE CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN LARGE CAP
U.S. ISSUERS. DIVIDEND
INCOME IS A SECONDARY
OBJECTIVE.
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Goldman Sachs Asset Management
PORTFOLIO MANAGER
The Fund is managed by the following individuals: Robert C. Jones; Kent A.
Clark; Victor H. Pinter; and Melissa Brown. Mr. Jones, Managing Director, joined
the Sub-adviser in 1989. From 1987 to 1989, he was the senior quantitative
analyst in the Goldman Sachs Investment Research Department and the author of
the monthly Stock Selection publication. Mr. Clark, Vice President, joined the
Sub-adviser's quantitative equity management team in 1992. Prior to joining the
Sub-adviser, Mr. Clark studied for a Ph.D in finance at the University of
Chicago. Mr. Pinter, Vice President, joined the Sub-adviser in 1990. From 1985
to 1990, he was a project manager in the Sub-adviser's Information Technology
Division. Ms. Brown, Vice President, joined the Sub-adviser in 1998. From 1984
to 1998, Ms. Brown was the director of Quantitative Equity Research and served
on the Investment Policy Committee at Prudential Securities.
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary objective.
INVESTMENT RISK
This Fund invests almost entirely in equity securities. The value of equity
securities can rise and fall over both short and long periods of time. The
Fund's investments are selected to maintain a risk profile similar to the
Russell 1000 Growth Index, and your investment may experience similar changes in
value and share similar risks such as market risk, credit risk, interest rate
risk and risk associated with foreign securities. For more information about
market risk, credit risk, interest rate risk and risk associated with foreign
securities, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests primarily in the equity securities of large cap U.S. issuers.
Large cap U.S. issuers include the largest 1,000 companies by market
capitalization traded in the United States.
The Fund will be managed utilizing Goldman Sachs' Quantitative Equity Strategy.
The acronym "CORE" (Computer-Optimized and Research Enhanced) reflects the three
step investment process the team uses to select securities. First, we estimate
the returns of 3000 U.S. stocks and foreign securities using a combination of
research from the Goldman Sachs Global Investment Research Department, other
industry sources and objective quantitative analysis. Next, the Fund's
investment portfolio is constructed by balancing expected returns against
portfolio risk, trading fees and investment objectives. The Fund is intended to
be constructed with minimum deviations from the sector, risk statistics and
macroeconomic sensitivity of the benchmark. A proprietary multi-factor model is
used in seeking to ensure risks taken are both intended and are warranted due to
expected return. Lastly, the Fund is traded regularly and rebalanced in seeking
to ensure all positions are in line with current market outlooks and benchmark
weights.
We follow the guidelines listed below for making the primary investments for
this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of large cap at least 65%
U.S. issuers
- --------------------------------------------
Other equity securities of up to 25%
U.S. and foreign issuers**,
including convertible
securities, ADRs and GDRs
- --------------------------------------------
Investment grade fixed income up to 100%
securities***
- --------------------------------------------
Futures and options**** up to 5%
- --------------------------------------------
Illiquid securities***** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Warrants and stock purchase up to 5%
rights
- --------------------------------------------
Investment companies up to 5%
- --------------------------------------------
Unseasoned companies up to 5%
- --------------------------------------------
</TABLE>
* At time of purchase.
** This Fund may invest in the equity securities of a
foreign issuer only if the securities are traded in the U.S.
*** For temporary defensive purposes, we may invest up
to 100% of the Fund's total assets in fixed income securities, including
U.S. Government securities, repurchase agreements collateralized by U.S.
Government securities, commercial paper rated at least A-2 by S&P or P-2
by Moody's, certificates of deposit, bankers' acceptances, repurchase
agreements, non-convertible preferred stocks and non-convertible corporate
bonds with a remaining maturity of less than one year. The Sub-adviser
will not necessarily dispose of a fixed income security when its ratings
are down graded to below investment grade.
**** The Fund may purchase or sell futures contracts
only with respect to a representative index. At no time will the aggregate
margin deposit required on all futures or options held exceed 5% of the
Fund's total assets.
***** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
27
<PAGE> 34
- --------------------------------------------------------------------------------
The Large Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Large Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser with respect to sixteen accounts ("Combined Accounts"),
including fourteen advisory accounts ("Accounts") and two registered mutual
funds ("Funds"). The chart herein shows the historical investment performance
for a composite of the Combined Accounts ("Combined Accounts Composite"), which
were managed by the Sub-adviser in substantially the same manner and by the same
individuals who manage the Large Cap Growth Fund. The Combined Accounts
Composite includes all Combined Accounts, net of average fees and expenses
charged by the Accounts and the Funds. These expenses include investment
advisory fees but do not include custodial fees (other than for the mutual
funds), which, if included, could lessen the performance presented. The
inception dates of the Combined Accounts comprising the Combined Accounts
Composite range from November 11, 1991 to January 30, 1998.
The Accounts included in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Accounts included in the Combined Accounts
Composite had been subject to the requirements imposed on registered mutual
funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Large Cap Growth Fund are
higher than the total fees historically incurred by the Combined Accounts
comprising the Combined Accounts Composite. Consequently, the performance
results for the Combined Accounts Composite would have been lower if the
Combined Accounts Composite had the same expenses as the Large Cap Growth Fund.
The performance of the Combined Accounts Composite has been calculated in
accordance with SEC performance standards. See "Performance and Yield
Information" in the Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A
COMPOSITE OF THE SUB-ADVISER'S COMBINED ACCOUNTS WHICH ARE MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUALS AS THE LARGE CAP
GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE LARGE CAP GROWTH FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
51.22% 26.08% 22.95%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE NOVEMBER 11, 1991
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Large Cap Growth Fund is likely to differ from the
Sub-Adviser's Accounts and Funds in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Large Cap Growth Fund may
vary from those of the Sub-adviser's Combined Accounts and the performance of
the Large Cap Growth Fund may vary from that of the Combined Accounts Composite.
28
<PAGE> 35
MID CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CAPITAL APPRECIATION THROUGH
INVESTMENTS IN MEDIUM
CAPITALIZATION EQUITY
SECURITIES. CURRENT INCOME
IS A SECONDARY OBJECTIVE.
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Brown Capital Management, Inc.
PORTFOLIO MANAGER
The Fund is managed by a team led by Eddie C. Brown. Mr. Brown is Founder,
President and controlling shareholder of the Sub-adviser. Mr. Brown has been
with the Sub-adviser since its inception in 1983. Robert E. Hall, Theodore M.
Alexander III, Noreen A. Frost, and Stephon A. Jackson assist Mr. Brown in the
management of the Fund. Mr. Hall, Senior Vice President and Portfolio
Manager/Analyst, joined the Sub-adviser in September 1993. Mr. Alexander, Vice
President and Portfolio Manager/Analyst, joined the Sub-adviser in October 1995.
Prior to this, Mr. Alexander was a Securities Analyst at Legg Mason Wood Walker
from June 1994 to October 1995. From June 1990 to January 1994, Mr. Alexander
was a Securities Analyst at Alex Brown & Sons, Inc. Ms. Frost, Vice President
and Portfolio Manager/Analyst, joined the Sub-adviser in February 1996. Prior to
this, Ms. Frost was in institutional sales at Duff & Phelps Securities Co. from
December 1994 to October 1996. From 1983 to 1993, Ms. Frost was
Investment/Broker-Dealer Analyst at Alex Brown & Sons, Inc. Mr. Jackson, Vice
President and Portfolio Manager/Analyst, joined the Sub-adviser in July 1997.
Prior to this, Mr. Jackson was Portfolio Manager/Director of Research at NCM
Capital Management from March 1994 to June 1997. From March 1993 to March 1994,
Mr. Jackson was an Analyst at Putnam Investments.
INVESTMENT OBJECTIVE
Seeks capital appreciation principally through investments in medium
capitalization equity securities, such as common and preferred stocks and
securities convertible into common stocks. Current income is a secondary
objective.
INVESTMENT RISK
This Fund invests mostly in equity securities of medium-sized companies that we
believe are undervalued in the marketplace. The value of any equity security may
rise or fall over long or short periods of time. Although these equity
securities present an opportunity for capital appreciation, they may not be
broadly traded and involve market risk and risk associated with foreign
securities. For a discussion of market risk and risk associated with foreign
securities, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund will invest principally in the equity securities of medium
capitalization companies. Medium capitalization companies include companies with
a market capitalization of $1 to $7 billion. We will seek to achieve capital
appreciation through an opportunistic investment strategy with a growth bias.
This Fund will purchase equity securities of those companies that we feel are
undervalued relative to their growth potential in the securities markets,
because the companies are presently out of favor, not well known or possess
value that is not currently recognized by the investment community. We use a
"bottom up" approach to select specific investments, employing analysis that
contains elements of traditional dividend discount and earnings yield models,
establishes predicted relative valuation for equity and fixed income markets,
and determines the attractiveness of individual securities through evaluation of
growth and risk characteristics of the underlying company relative to the
overall equity market. Although the Fund's portfolio securities generally will
be acquired for the long term, they may be sold under some of the following
circumstances when the Sub-adviser believes that: a) the anticipated price
appreciation has been achieved or is no longer probable; b) alternative
investments offer superior total return prospects; or c) fundamentals change
adversely.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
29
<PAGE> 36
MID CAP GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for
this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of medium at least 65%
capitalization companies
- --------------------------------------------
Other equity securities up to 35%
Common stocks, convertible
preferred stocks, preferred
stocks and convertible bonds
traded on domestic exchanges
or in over-the-counter
markets
- --------------------------------------------
Foreign equity securities, up to 10%
ADRs**
- --------------------------------------------
Money market instruments*** up to 10%
and fixed income
securities****, U.S.
Government securities,
corporate fixed income
securities**** (including
those subject to repurchase
agreements), bankers
acceptances and certificates
of deposit of domestic
branches of U.S. banks,
commercial paper (including
variable amount demand
master notes) rated in one
of the two highest ratings
categories of organizations
or, if not rated, of
equivalent quality and cash
and cash equivalents
- --------------------------------------------
Illiquid securities***** up to 10%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Real estate securities****** up to 10%
- --------------------------------------------
</TABLE>
* At time of purchase.
** Foreign equity securities held by this Fund will be
held in the form of ADRs.
*** For temporary defensive reasons, we may invest up
to 100% of the Fund's assets in money market instruments and cash and
cash equivalents. We may do this when we think economic and market
conditions make it too risky to follow its general guidelines.
**** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***** Percent of Fund's net assets applied at all times.
****** This Fund will not invest directly in real estate, but
rather, in interests in or readily marketable securities issued by
companies that invest in real estate, including real estate investment
trusts (REITs).
30
<PAGE> 37
- --------------------------------------------------------------------------------
The Mid Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Mid Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser with respect to discretionary investment management accounts
under their management ("Combined Accounts"). The chart herein shows the
investment performance for a composite of these Combined Accounts ("Combined
Accounts Composite") which were managed by the Sub-adviser in substantially the
same manner and by the same individuals who manage the Mid Cap Growth Fund. The
Combined Accounts Composite includes all Combined Accounts, net of account fees
and expenses. The inception dates of the Combined Accounts comprising the
Combined Accounts Composite range from January 1, 1993 to March 31, 1998.
The Combined Accounts in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Combined Accounts included in the Combined
Accounts Composite had been subject to the requirements imposed on mutual funds,
their performance might have been lower.
Total fees (after expense reimbursements) for the Mid Cap Growth Fund are higher
than the total fees historically incurred by the Combined Accounts comprising
the Combined Accounts Composite. Consequently, the performance results for the
Combined Accounts Composite would have been lower if the Combined Accounts
Composite had the same expenses as the Mid Cap Growth Fund. The performance of
the Combined Accounts Composite has been calculated in accordance with SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
COMBINED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE
SAME INDIVIDUALS AS THE MID CAP GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE
OF THE MID CAP GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
47.95% 23.51% 21.86%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1993
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Mid Cap Growth Fund is likely to differ from the
Sub-adviser's Combined Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Mid Cap Growth Fund may vary
from those of the Sub-adviser's Combined Accounts and the performance of the Mid
Cap Growth Fund may vary from that of the Combined Accounts Composite.
31
<PAGE> 38
SMALL CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN SMALL GROWTH
COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
J.P. Morgan Investment Management Inc.
PORTFOLIO MANAGER
Candice Eggerss, Stephen J. Rich and Saira Malik are the members of the
Sub-adviser's team who will be primarily responsible for the day-to-day
management of the Fund. Ms. Eggerss, who has been with the Sub-adviser since
1996, is a Vice President and specializes in portfolio investments in small
capitalization technology companies. Prior to this, Ms. Eggerss was employed at
Weiss, Peck and Greer from April 1993 to April 1996 and at Equitable Capital
Management prior to 1993. Mr. Rich is a Vice President and a portfolio manager
in the Small Cap Equity Group. In addition to his present position, his seven
years of experience in equity portfolio management include positions in the
Sub-adviser's Structured Equity and Balanced/Equity groups. Ms. Malik joined the
Sub-adviser in 1995 after completing her graduate studies at the University of
Wisconsin.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth from a portfolio of equity securities of small
capitalization growth companies.
INVESTMENT RISK
Small capitalization companies may not have the financial strength to do well in
difficult times. Because they are small, the prices of their equity securities
may fluctuate more over the short term but they have more potential to grow.
This means their value may offer greater potential for appreciation. The equity
securities that the Fund invests in involve certain risks such as market risks.
For a discussion of these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund invests in small capitalization U.S. companies, which are companies
whose market capitalizations are greater than $150 million and less than $1.25
billion. On an industry-by-industry basis, the Fund's weightings are similar to
those of the Russell 2000 Growth Index. Within each industry, the Fund invests
in equity securities that the Sub-adviser's research and valuation process
indicate are undervalued. The greater a company's estimated worth compared to
the current market price of its equity securities, the more undervalued the
company.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -----------------------------------------------
<S> <C>
Equity securities of at least 65%
small capitalization
growth companies
including U.S. and
foreign common stocks,
convertible securities,
preferred stocks,
warrants and rights
- -----------------------------------------------
Other equity securities up to 35%
of U.S. and foreign
large and medium
capitalization issuers
including common
stocks, convertible
securities, preferred
stocks, warrants,
rights and investment
company securities
- -----------------------------------------------
Foreign investments up to 5%
- -----------------------------------------------
Futures and options up to 25%
- -----------------------------------------------
Illiquid securities** up to 15%
- -----------------------------------------------
Rule 144A securities up to 30%
(liquid)
- -----------------------------------------------
Investment grade up to 10%
short-term fixed income
securities***
- -----------------------------------------------
Swap Agreements up to 5%
- -----------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
*** During severe market downturns, we may invest up to
100% of the Fund's assets in investment grade short-term securities,
including repurchase agreements. The Sub-adviser will not necessarily
dispose of a fixed income security when its rating is down graded to below
investment grade.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
32
<PAGE> 39
- --------------------------------------------------------------------------------
The Small Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Small Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser and its affiliates with respect to discretionary investment
management accounts under their management ("Combined Accounts"). The chart
herein shows the historical investment performance for a composite of these
Combined Accounts ("Combined Accounts Composite") which was managed by the
Sub-adviser in substantially the same manner as the Small Cap Growth Fund. The
Combined Accounts Composite includes all Combined Accounts, net of the highest
management fee charged and other account fees and expenses. The inception dates
of the Combined Accounts comprising the Combined Accounts Composite range from
September 1, 1994 to June 1, 1997.
The Combined Accounts in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Combined Accounts included in the Combined
Accounts Composite had been subject to the requirements imposed on registered
mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Small Cap Growth Fund are
higher than the total fees historically incurred by the Combined Accounts
comprising the Combined Accounts Composite. Consequently, the performance
results for the Combined Accounts Composite would have been lower if the
Combined Accounts Composite had the same expenses as the Small Cap Growth Fund.
The performance of the Combined Accounts Composite has been calculated in
accordance with SEC performance standards. See "Performance and Yield
Information" in the Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A
COMPOSITE OF THE SUB-ADVISER'S COMBINED ACCOUNTS WHICH ARE MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUALS AS THE SMALL CAP
GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE SMALL CAP GROWTH FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
53.70% 29.20%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 1, 1994
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Small Cap Growth Fund is likely to differ from the
Sub-adviser's Combined Accounts in size, cash flow patterns and certain tax
matters. Accordingly the portfolio holdings of the Small Cap Growth Fund may
vary from those of the Sub-adviser's Combined Accounts and the performance of
the Small Cap Growth Fund may vary from that of the Combined Accounts Composite.
33
<PAGE> 40
INTERNATIONAL VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH OF CAPITAL AND FUTURE
INCOME THROUGH INVESTMENTS
IN NON-U.S. ISSUERS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
The Fund's portfolio managers include: (i) Robert Ronus, President of the
Sub-adviser, who has been an investment professional for 29 years and has been
with the Sub-adviser or an affiliate for 25 years; (ii) David Fisher, Vice
Chairman of the Sub-adviser, who has been an investment professional for 32
years and has been with the Sub-adviser or an affiliate for 28 years; (iii)
Harmut Giesecke, Senior Vice President and Director of Capital International,
Inc., an affiliate of the Sub-adviser, who has been an investment professional
for 26 years and has been with the Sub-adviser or an affiliate for 25 years;
(iv) Nancy Kyle, Senior Vice President of the Sub-adviser, who has been an
investment professional for 24 years and has been with the Sub-adviser or an
affiliate for 7 years; (v) John McIlwraith, Senior Vice President of the
Sub-adviser, who has been an investment professional for 28 years and has been
with the Sub-adviser or an affiliate for 14 years; (vi) Nilly Sikorsky, Director
of The Capital Group of Companies, Inc., an affiliate of the Sub-adviser, who
has been an investment professional for 35 years and has been with the
Sub-adviser or an affiliate for 35 years; (vii) Lionel Sauvage, Vice President
of the Sub-adviser, who has been an investment professional for 11 years and has
been with the Sub-adviser or an affiliate for 11 years; (viii) Richard Havas,
Sr., Vice President of the Sub-adviser, who has been an investment professional
for 16 years and has been with the Sub-adviser or an affiliate for 12 years; and
(ix) Rudolf Staehelin, Sr., Vice President of Capital Research International, an
affiliate the Sub-adviser, who has been an investment professional for 20 years
and has been with the Sub-adviser or an affiliate for 16 years.
INVESTMENT OBJECTIVE
Seeks to provide growth of capital and future income through investments
primarily in securities of non-U.S. issuers and securities whose principal
markets are outside of the United States.
INVESTMENT RISK
As described in the Investment Strategy section below, this Fund invests almost
all of its assets in foreign securities, which have risks that U.S. investments
do not have, including future foreign political and economic developments,
fluctuations in foreign exchange rates and limited publicly available
information. For a further explanation of the risks associated with foreign
securities and market risk, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a portfolio consisting primarily of equity and fixed income
securities of non-U.S. issuers.
While the assets of the Fund can be invested with geographical flexibility, the
emphasis will be on securities of companies located in Europe, Canada,
Australia, and the Far East, giving due consideration to economic, social, and
political developments, currency risks and the liquidity of various national
markets.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -----------------------------------------------
<S> <C>
Foreign securities** at least 80%
Equity securities,
investment grade fixed
income securities
- -----------------------------------------------
Futures and options Put up to 90% of the
and call options on amount in foreign
foreign currencies and securities
forward currency
contracts
- -----------------------------------------------
Cash, cash equivalents, up to 100%
government securities,
nonconvertible
preferred stocks, or
investment grade fixed
income securities***
- -----------------------------------------------
Rule 144A securities up to 15%
(liquid)
- -----------------------------------------------
Illiquid securities**** up to 15%
- -----------------------------------------------
</TABLE>
* At the time of purchase.
** We may invest up to 10% of the Fund's assets in the
securities of foreign small capitalization companies. The Fund also may
invest in securities of issuers located in emerging market countries.
*** We may invest up to 100% of the Fund's assets in
these instruments in varying proportions as a temporary defensive position,
when we think economic, political and market conditions in foreign
countries make it too risky to follow our general guidelines. The
Sub-adviser will not necessarily dispose of a fixed income security when
its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
For additional
information about THE
FUND'S INVESTMENTS see
"Types of Investments."
34
<PAGE> 41
- --------------------------------------------------------------------------------
The International Value Fund recently commenced operations and, therefore, has
no investment performance record. However, the International Value Fund's
investment objectives, policies and strategies are substantially similar, but
not necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. The chart herein shows the historical investment performance for a
composite of the Sub-adviser's Discretionary Accounts ("Sub-adviser Composite")
which were managed by the Sub-adviser in substantially the same manner as the
International Value Fund. The Sub-adviser Composite represents the total return
of all Discretionary Accounts, net of the highest management fee charged and
other account fees and expenses. The inception dates of the Discretionary
Accounts comprising the Sub-Adviser Composite range from December 31, 1978 to
March 31, 1998.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-Adviser
Composite had been subject to the requirements imposed on registered mutual
funds, their performance might have been lower.
Total fees (after expense reimbursements) for the International Value Fund are
higher than the total fees historically incurred by the Discretionary Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser Composite had
the same expenses as the International Value Fund. The performance of the
Sub-adviser Composite has been calculated in accordance with SEC performance
standards. See "Performance and Yield Information" in the Statement of
Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
DISCRETIONARY ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE
INTERNATIONAL VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
INTERNATIONAL VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
SUB-ADVISER COMPOSITE
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- ---------------------------------------------------------
24.02% 14.85% 11.35%
- ---------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the International Value Fund is likely to differ from the
Sub-adviser's Discretionary Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the International Value Fund may
vary from those of the Sub-adviser's Discretionary Accounts and the performance
of the International Value Fund may vary from that of the Sub-adviser Composite.
35
<PAGE> 42
LARGE CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURNS EXCEEDING THE
RUSSELL 1000 VALUE INDEX
THROUGH INVESTMENTS IN
EQUITY SECURITIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
State Street Bank & Trust Company/
State Street Global Advisors
PORTFOLIO MANAGER
The Fund's portfolio managers include Jeffrey P. Adams, Jennifer W. Bardsley,
David A. Hanna, Douglas T. Holmes, CFA, Ben J. Salm, Peter Stonberg, CFA,
Richard B. Weed and Peter B. Wiley, CFA. Mr. Adams, Principal, US Active Equity
joined the Sub-adviser in June 1989, where he has been the team leader of the
Small Cap Strategy since its inception and is responsible for the research
initiatives for this product. Mr. Adams' responsibilities include the management
of global active portfolios and research and development of new U.S. active
processes. Ms. Bardsley, Principal, US Active Equity, joined the Sub-adviser in
1993 as a member of the Investment Systems group and moved to the U.S. Active
Equity group in January 1996, where her responsibilities include product
development, portfolio management and maintenance of the modeling and portfolio
construction processes. Mr. Hanna, Principal, US Active Equity, joined the
Sub-adviser in May 1997 and is a Portfolio Manager for the Hedged Matrix
(Long/Short Market Neutral) Product and participates in group research projects
involving the development of modeling and portfolio development techniques.
Prior to joining the Sub-adviser, Mr. Hanna was director of equity and
quantitative research at Standish, Ayer & Wood, from January 1992 to April 1997,
where he both managed a group of quantitative analysts and worked on equity
research projects. Mr. Holmes, Managing Director, Global Enhanced Equity, joined
the Sub-adviser in 1984 and specializes in the portfolio construction, risk
control and trading of accounts managed by the Sub-adviser in this area. Mr.
Salm, Principal, US Active Equity, joined the Sub-adviser in 1992 and is
responsible for research, product development and portfolio management within
the US Active strategy. Mr. Stonberg, Principal and Head of US Active Equity,
joined the Sub-adviser in 1981 and is responsible for all of the Sub-adviser's
US Active Equity investment strategies. Mr. Weed, Principal, US Active Equity,
joined the Sub-adviser in April 1994, where his responsibilities include
portfolio management, product development and research. Previously, Mr. Weed was
with Valuequest, an investment adviser, from December 1993 to March 1994 and
with Brattle Group, an economic consulting firm, from May 1992 to November 1993.
Mr. Wiley, Principal, US Active Equity, joined the Sub-adviser in April 1997.
Previously, Mr. Wiley was with Colonial Management Associates, an investment
management firm, from August 1992 to April 1997.
INVESTMENT OBJECTIVE
Seeks to provide total returns that exceed over time the Russell 1000 Value
Index (Index) through investment in equity securities.
INVESTMENT RISK
This Fund invests primarily in the equity securities of large, well-established
companies that generally possess the strength to withstand difficult financial
periods. Nevertheless, the value of any equity security can rise or fall over
short and long periods of time. As described below, in order to avoid unintended
exposures to economic factors, including the direction of the economy, interest
rates, energy prices and inflation, we maintain the proportion of equity
securities from different economic sectors in this Fund's portfolio at a level
similar to that of the Index. There is no assurance that the Fund will be
unaffected by such economic factors.
Because the Fund maintains sector weights at a similar level to that of the
Index, your investment may experience similar changes in value and share similar
risks such as market risk and risk associated with foreign securities. For more
information about market risk and risk associated with foreign securities, see
"A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund will invest primarily in equity securities of large capitalization
companies. Large capitalization companies include the largest 1,200 companies by
market capitalization domiciled in the United States. Equity securities will be
selected and ranked according to two separate and uncorrelated measures: value
and the momentum of Wall Street sentiment. The value measure compares a
company's assets, projected earnings growth and cash flow growth with the price
of its equity securities within the context of its historical valuation. The
measure of Wall Street sentiment examines changes in Wall Street analysts'
earnings estimates and ranks stocks by the strength and consistency of those
changes. These two measures will be combined to create a single composite score
of an equity security's attractiveness. These scores are used to determine their
relative attractiveness. Sector weights are maintained at a similar level
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
36
<PAGE> 43
LARGE CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------
to that of the Index to avoid unintended exposure to factors such as the
direction of the economy, interest rates, energy prices and inflation.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of large at least 65%
capitalization companies
- --------------------------------------------
ADRs up to 5%
- --------------------------------------------
Debentures up to 5%
- --------------------------------------------
Notes up to 5%
- --------------------------------------------
Warrants** up to 5%
- --------------------------------------------
Illiquid and restricted up to 15%
securities**
- --------------------------------------------
Rule 144A securities (liquid) up to 15%
- --------------------------------------------
Securities lending up to 331/3%
- --------------------------------------------
When-issued securities** up to 25%
- --------------------------------------------
Put and call options up to 5%
Covered put and call options
on securities
Put and call options on
securities indices
- --------------------------------------------
Futures and options up to 5%
Initial margin deposits on
futures and premiums for
options and futures
- --------------------------------------------
High quality short-term fixed up to 100%
income securities***
- --------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
*** For temporary defensive purposes, to invest
uncommitted cash balances or to meet shareholder redemptions, we may
invest up to 100% of the Fund's assets in high quality short-term fixed
income securities such as U.S. Government securities, repurchase
agreements collateralized by these obligations, variable amount master
demand notes, commercial paper, bank certificates of deposit, bankers'
acceptances and time deposits. The Sub-adviser will not necessarily
dispose of a fixed income security when its rating is down graded to below
investment grade.
37
<PAGE> 44
- --------------------------------------------------------------------------------
The Large Cap Value Fund recently commenced operations and, therefore, has no
investment performance record. However, the Large Cap Value Fund is managed by
the Sub-adviser in substantially the same manner and by the same individuals as
those who manage discretionary accounts (the "Discretionary Accounts") with
substantially similar investment objectives, policies and strategies.
The chart herein shows the investment performance for all Discretionary
Accounts, net of account fees and expenses. The inception dates for the
Discretionary Accounts range from August 1, 1992 through August 1, 1997. The
Discretionary Accounts are not subject to the investment limitations,
diversification requirements and the other restrictions imposed on registered
mutual funds by the 1940 Act and Subchapter M of the Internal Revenue Code. If
the Discretionary Accounts had been subject to the requirements imposed on
registered mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Large Cap Value Fund are
higher than the total fees incurred by the Discretionary Accounts. Consequently,
the performance results for the Discretionary Accounts would have been lower if
the Discretionary Accounts had the same expenses as the Large Cap Value Fund.
The performance of the Discretionary Accounts has been calculated in accordance
with SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE SUB-
ADVISER'S DISCRETIONARY ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME
MANNER AND BY THE SAME INDIVIDUALS AS THE LARGE CAP VALUE FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE LARGE CAP VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF DISCRETIONARY ACCOUNTS
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
58.95% 24.14% 24.04%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 1, 1992
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Large Cap Value Fund is likely to differ from the
Discretionary Accounts in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Large Cap Value Fund
may vary from those of the Discretionary Accounts.
38
<PAGE> 45
MID CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN MEDIUM CAPITALIZATION
COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Neuberger&Berman Management Inc.
PORTFOLIO MANAGER
Michael M. Kassen, Robert I. Gendelman and S. Basu Mullick serve as co-managers
of the Fund. Mr. Kassen and Mr. Gendelman are Vice Presidents of the Sub-adviser
and principals of
Neuberger&Berman, LLC. Messrs. Kassen and Gendelman have been associated with
the Sub-adviser since 1990 and 1994, respectively. Prior to 1994, Mr. Gendlemen
was a portfolio manager for another mutual fund manager. Mr. Mullick has been a
Vice President of the Sub-adviser since October 1998. From 1993 to 1998, Mr.
Mullick was a portfolio manager for another mutual fund manager.
INVESTMENT OBJECTIVE
Seeks capital growth, through investment in equity securities of medium
capitalization companies using a value-oriented investment approach.
INVESTMENT RISK
The value of any equity security may rise or fall over long or short periods of
time. Although equity securities present an opportunity for capital
appreciation, they may not be broadly traded and involve market risk and risk
associated with foreign securities. For a discussion of these risks, see "A Word
About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund invests principally in equity securities of medium capitalization
established companies, using a value-oriented investment approach intended to
increase capital with reasonable risk. Medium capitalization companies include
companies with the characteristics of companies included in the Russell
Midcap(TM) Index. As of June 30, 1998, the largest company included in the
Russell Midcap(TM) Index had an approximate market capitalization of $10.3
billion. We choose securities we believe are undervalued based on strong
fundamentals, including a low price-to-earnings ratio, consistent cash flow, and
the company's track record through all parts of the market cycle. When selecting
securities for this Fund, we also consider other factors, including ownership by
a company's management of the company's stock and the dominance of a company in
its particular field.
We follow the guidelines listed below for making the investments for this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of medium at least 65%
capitalization companies
- --------------------------------------------
Other equity securities up to 35%
Common stock, preferred
stock, convertible
securities
- --------------------------------------------
Covered call options up to 35%
- --------------------------------------------
Foreign currency transactions up to 5%
- --------------------------------------------
Options on foreign currencies up to 5%
- --------------------------------------------
Foreign securities up to 10%
- --------------------------------------------
Illiquid and restricted up to 15%
securities**
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Corporate fixed income up to 15%
securities rated C or higher
by Moody's or CC or higher
by S&P and comparable
unrated securities***
- --------------------------------------------
Investment grade fixed income less than 5%
securities****, corporate
bonds and debentures, U.S.
Government securities, money
market instruments, zero
coupon securities
- --------------------------------------------
Cash and cash equivalents***** up to 100%
- --------------------------------------------
</TABLE>
* At time of purchase.
** We may invest up to 15% of the Fund's net assets in
illiquid securities. This limitation applies at all times. Restricted
securities are explained under "Types of Investments."
*** This Fund may invest up to 15% of its net assets in
below investment grade fixed income securities only when we believe that
the anticipated return to the Fund warrants exposure to the additional
risk involved in these instruments.
**** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***** For temporary defensive reasons, we may invest up
to 100% of the Fund's assets in cash and cash equivalents, U.S. Government
securities, commercial paper and certain other money market instruments,
including repurchase agreements collateralized by the foregoing. We may do
this when we think economic and market conditions make it too risky to
follow its general investment guidelines.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
39
<PAGE> 46
- --------------------------------------------------------------------------------
The Mid Cap Value Fund recently commenced operations and, therefore, has no
investment performance record. However, the Mid Cap Value Fund's investment
objectives, policies and strategies are substantially similar, though not
necessarily identical, to those of Neuberger&Berman Partners Fund and it is
managed by the Sub-adviser in substantially the same manner and by the same
individuals as Neuberger&Berman Partners Fund. Neuberger&Berman Partners Fund
seeks to achieve its objective by investing principally in common stocks of
medium to large capitalization companies. As a result, Neuberger&Berman Partners
Fund may in the future have, or in the past have had, greater exposure to larger
capitalization companies than the Mid Cap Value Fund will have. The chart herein
shows the investment performance for Neuberger&Berman Partners Fund for the
period April 1, 1988 through March 31, 1998, net of Neuberger&Berman Partners
Fund's fees and expenses. The date the Sub-Adviser assumed management of
Neuberger&Berman Partners Fund was January 20, 1975.
The Mid Cap Value Fund is subject to investment limitations, diversification
requirements and other restrictions imposed on registered mutual funds by the
1940 Act and Subchapter M of the Internal Revenue Code.
Total fees after (expense reimbursements) for the Mid Cap
Value Fund are higher than the total fees incurred by
Neuberger&Berman Partners Fund. Consequently, the performance results for
Neuberger&Berman Partners Fund would have been lower if Neuberger&Berman
Partners Fund had the same expenses as the Mid Cap Value Fund. The performance
of Neuberger&Berman Partners Fund has been calculated in accordance with SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON NEUBERGER&BERMAN
PARTNERS FUND WHICH IS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME
INDIVIDUALS AS THE MID CAP VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE OF
THE MID CAP VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
NEUBERGER&BERMAN PARTNERS FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
41.54% 21.80% 17.95%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Mid Cap Value Fund is likely to differ from
Neuberger&Berman Partners Fund in size, cash flow patterns and certain tax
matters. Neuberger&Berman Partners Fund may have greater exposure to large
capitalization companies than the Mid Cap Value Fund. Accordingly, the portfolio
holdings and performance of the Mid Cap Value Fund may vary from those of
Neuberger&Berman Partners Fund.
40
<PAGE> 47
SMALL CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal MAXIMUM LONG-TERM RETURN
THROUGH INVESTMENTS IN SMALL
CAPITALIZATION COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISERS
Fiduciary Management Associates, Inc.
Bankers Trust Company
PORTFOLIO MANAGER
The actively-managed portion of the Fund's portfolio is managed by Kathryn Maag
Vorisek, Douglas G. Madigan, CFA, Lloyd J. Spicer, CFA, and Terry B. French of
Fiduciary Management Associates Inc., Ms. Vorisek, Senior Vice President and
Portfolio Manager/Analyst for the Sub-adviser's small cap discipline, is the
team leader. Ms. Vorisek joined the Sub-adviser in April 1996. Previously, Ms.
Vorisek was with Duff & Phelps Investment Management from June 1989 to April
1996. Mr. Madigan, Senior Vice President and Director of Research, joined the
Sub-adviser in September 1998. Previously, Mr. Madigan was with Harris Bank as
Vice President, Equity Research, from 1994 to September 1998 and as Mutual Fund
Portfolio Manager and Partner from 1996 to September 1998. Prior to that, Mr.
Madigan was Vice President and Senior Portfolio Manager at Continental Bank from
1989 to 1994. Mr. Spicer, Senior Vice President and Portfolio Manager/ Small Cap
Advisor, joined the Sub-adviser in March 1994. Previously, Mr. Spicer was Senior
Vice President at LaSalle National Corporation from February 1982 through March
1994. Mr. French, Senior Vice President and Portfolio Manager, joined the
Sub-adviser in November 1997. Mr. French managed private investment portfolios
from January 1991 to November 1997.
Frank Salerno, Managing Director-Chief Investment Officer of Quantitative and
Equity Index of Bankers Trust Company, has been the portfolio manager for the
passively-managed portion of this Fund's portfolio since the Fund's inception.
Mr. Salerno has been with the Sub-adviser since 1981.
INVESTMENT OBJECTIVE
Seeks maximum long-term return, consistent with reasonable risk to principal, by
investing primarily in equity securities of small capitalization companies in
terms of revenues and/or market capitalization.
INVESTMENT RISK
A portion of this Fund's portfolio is invested in a statistically-selected
sampling of the 2,000 stocks in the Russell 2000 Index (Index). This part of the
Fund's investment portfolio avoids the risks of individual stock selection and
seeks to achieve and exceed the return of the smaller-sized company sector of
the market. On the average, that return has been positive, but has been negative
at certain times. There is no assurance that a positive return will occur in the
future.
Because this Fund invests in smaller capitalization equity securities, your
investment may exhibit greater market value volatility than investments in
common stocks of larger companies. Your investment also will experience similar
changes in value and share similar risks as stocks included in the Index, such
as market risk and risk associated with investment in foreign securities. For
more information about these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGIES
This Fund invests primarily in equity securities of small capitalization
companies, which are companies whose stock market capitalizations range from $50
million to $1 billion and companies included in the Index. One portion of the
Fund's investment portfolio will be actively managed and the other portion will
be passively managed. In analyzing and selecting investments for the actively
managed portion of the Fund's investment portfolio, we look for market themes
and changes that signal opportunity. We seek companies with lower
price-to-earnings ratios, strong cash flow, good credit lines and clean or
improving balance sheets. At any given time, this portion of the Fund's
investment portfolio will be invested in a diversified group of small
capitalization equity securities in several industries. The Fund will invest
primarily in U.S. companies with seasoned management or a track record as part
of a larger company.
The passively-managed portion of the Fund's investment portfolio is comprised of
a sampling of stocks in the Index that, as a group, should reflect its
performance. The stocks of the Index to be included in the Fund will be selected
utilizing a statistical sampling technique known as "optimization." This process
selects stocks for the Fund so that various industry weightings, market
capitalizations and fundamental characteristics (e.g. price-to-book,
price-to-earnings, debt-to-asset ratios and dividend yields) closely approximate
those of the Index. The stocks held by the Fund are weighted to make the Fund's
aggregate investment characteristics similar to those of the Index as a whole.
Since it may not be possible for this Fund to buy every stock included
in the Index or in the same proportions, we rely on the aforementioned
statistical technique to figure out, of the stocks tracked by the Index, how
many and which ones to buy.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
41
<PAGE> 48
SMALL CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Equity securities of small at least 65%
capitalization companies**
- ---------------------------------------------
Short-term investments Foreign up to 35%
and domestic money market
instruments, certificates of
deposit, bankers'
acceptances, time deposits,
U.S. Government obligations,
U.S. Government agency
securities, short-term
corporate fixed income
securities***, commercial
paper rated A-1 or A-2 by
S&P or Prime-1 or Prime-2 by
Moody's or, if unrated, of
comparable quality,
repurchase agreements
- ---------------------------------------------
Illiquid securities**** up to 15%
- ---------------------------------------------
Futures and Options up to 20%
- ---------------------------------------------
Swap Agreements up to 10%
- ---------------------------------------------
Warrants***** up to 5%
- ---------------------------------------------
Time deposits****** up to 10%
- ---------------------------------------------
Foreign securities up to 10%
- ---------------------------------------------
Investment companies up to 10%
- ---------------------------------------------
Rule 144A securities (liquid) up to 10%
- ---------------------------------------------
</TABLE>
* At time of purchase.
** This Fund will invest at least 65% of its total assets
in equity securities of companies whose stock market capitalizations
range from $50 million to $1 billion, including stocks in the Russell
2000 Index.
*** The Fund will not purchase short-term fixed
income securities rated below Baa by Moodys or BBB by S&P. However, the
Sub-adviser will not necessarily dispose of a fixed income security when
its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
***** The Fund's investment in warrants will not exceed
2% of its assets with respect to warrants not listed on the New York or
American Stock Exchanges.
****** This Fund will invest only in time deposits
maturing in two to seven calendar days. The Fund will not purchase time
deposits maturing in more than seven days.
42
<PAGE> 49
SOCIALLY RESPONSIBLE
FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN COMPANIES MEETING SOCIAL
CRITERIA OF THE FUND
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
Maruti More' has been this Fund's portfolio manager and Vice President --
Investments of the Series Company since its inception. Since April 1998, Mr.
More' serves as Vice President of VALIC and American General Investment
Management, L.P. Previously, Mr. More' was with American General Corporation
from August 1996 to April 1998. Prior to that, Mr. More' was Managing Director,
Marketable Securities for Paul Revere Investment Management Corporation from
1993 to 1995. Mr. More has served as Portfolio Manager of the American General
Series Portfolio Company Social Awareness Fund ("AGSPC Social Awareness Fund")
since October 1998.
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in equity
securities, in companies which meet the social criteria established for the
Fund. The Fund does not invest in companies that:
- produce nuclear energy;
- make military weapons or delivery systems; or
- engage continuously in practices or produce products that significantly
pollute the environment (such products include tobacco products).
INVESTMENT RISK
This Fund may experience market risk, and risks associated with foreign
securities. For a discussion of these risks see "A Word About Risk" in this
prospectus.
If a company stops meeting the Fund's social criteria after the Fund invested in
it, the Fund will sell these investments even if this means the Fund loses
money. Also, if the Fund changes its social criteria and the companies the Fund
has already invested in no longer qualify, the Fund will sell these investments
even if this means the Fund loses money. Social criteria screening will limit
the availability of investment opportunities for the Fund more than for funds
having no such criteria.
To find out which companies meet the Fund's social criteria, we rely on industry
classifications, research services such as the Investor Responsibility Research
Center (IRRC), and special magazines and papers that publish this type of
information.
Since our definition of social criteria is not "fundamental," the Series
Company's Board of Trustees may change it without shareholder approval. When
deciding to make changes to the criteria, the Board will consider, among other
things, new or revised state laws that govern or affect the investments of
public funds. At least once a year, we survey state laws on this issue to look
for any new developments. If our survey shows that at least 20 states have
adopted laws that restrict public funds from being invested in a clearly
definable category of investments, this category is automatically added to our
social criteria list.
INVESTMENT STRATEGY
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund's Investments Assets*
- -----------------------------------------------
<S> <C>
Equity securities of at least 80%
companies meeting the
Fund's social criteria
- -----------------------------------------------
Other types of equity up to 20%
securities of companies
meeting social criteria
including:
Foreign securities
Preferred stock
Convertible
securities
- -----------------------------------------------
High quality money market up to 20%
securities and warrants
- -----------------------------------------------
Futures and options up to 33%
- -----------------------------------------------
Illiquid and restricted up to 10%
securities**
- -----------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
43
<PAGE> 50
- --------------------------------------------------------------------------------
The Socially Responsible Fund recently commenced operations and, therefore, has
no investment performance record. However, the Socially Responsible Fund's
investment objectives, policies and strategies are substantially similar to
those of the AGSPC Social Awareness Fund and it is managed by VALIC in
substantially the same manner as the AGSPC Social Awareness Fund. The chart
herein shows the historical investment performance for the AGSPC Social
Awareness Fund for the period of October 2, 1989 through March 31, 1998, net of
AGSPC Social Awareness Fund's fees and expenses. The inception date for the
AGSPC Social Awareness Fund was October 2, 1989.
The AGSPC Social Awareness Fund is subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Socially Responsible Fund are
higher than the total fees incurred by the AGSPC Social Awareness Fund.
Consequently, the performance results for the AGSPC Social Awareness Fund would
have been lower if the AGSPC Social Awareness Fund had the same expenses as the
Socially Responsible Fund. The performance of the AGSPC Social Awareness Fund
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON THE AGSPC SOCIAL AWARENESS FUND WHICH IS MANAGED IN
SUBSTANTIALLY THE SAME MANNER AS THE SOCIALLY RESPONSIBLE FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE SOCIALLY RESPONSIBLE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF AGSPC SOCIAL AWARENESS FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
47.45% 21.54% 16.57%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Socially Responsible Fund is likely to differ from the
AGSPC Social Awareness Fund in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the AGSPC Socially
Responsible Fund may vary from those of the AGSPC Social Awareness Fund.
44
<PAGE> 51
BALANCED FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CONSERVATION OF PRINCIPAL
AND LONG-TERM GROWTH OF
CAPITAL AND INCOME THROUGH
INVESTMENTS IN FIXED INCOME
AND EQUITY SECURITIES
- -------------------------------------------------
Investment Category BALANCED
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
This Fund is managed using a system of multiple portfolio managers. Under this
system, the Fund is divided into segments, which are assigned to individual
managers.
The portfolio managers for the fixed income portion of the Fund include: (i) Jim
Mulally, Senior Vice President of the Sub-adviser, who has been an investment
professional for 21 years and has been with the Sub-adviser or an affiliate for
18 years; and (ii) Jim Baker, Vice President of the Sub-adviser, who has been an
investment professional for 17 years and has been with the Sub-adviser or an
affiliate for 11 years.
The portfolio managers for the U.S. large cap equity portion of the Fund
include: (i) David Fisher, Vice Chairman of the Sub-adviser, who has been an
investment professional for 32 years and has been with the Sub-adviser or an
affiliate for 28 years; (ii) Gene Stein, Executive Vice President of the
Sub-adviser, who has been an investment professional for 26 years and has been
with the Sub-adviser or an affiliate for 25 years; (iii) Michael Ericksen,
Senior Vice President of the Sub-adviser, who has been an investment
professional for 17 years and has been with the Sub-adviser or an affiliate for
11 years; (iv) Ted Samuels, Senior Vice President of the Sub-adviser, who has
been an investment professional for 19 years and has been with the Sub-adviser
or an affiliate for 17 years; (v) Donnalisa Barnum, Vice President of the
Sub-adviser, who has been an investment professional for 16 years and has been
with the Sub-adviser or an affiliate for 12 years; and (vi) R. Bryan Jacoboski,
Vice President of the Sub-adviser, who has been an investment professional for
17 years and has been with the Sub-adviser or an affiliate for 4 years.
Previously Mr. Jacoboski was Managing Director, Equity Research at Paine Webber
from 1983 to 1994.
The portfolio managers for the U.S. small cap equity portion of the Fund
include: (i) Bob Kirby, Chairman Emeritus of the Sub-adviser, who has been an
investment professional for 45 years and has been with the Sub-adviser or an
affiliate for 32 years; (ii) Michael Ericksen, Senior Vice President of the
Sub-adviser, who has been an investment professional for 17 years and has been
with the Sub-adviser or an affiliate for 11 years; (iii) James Kang, Vice
President of Capital Guardian Research Company, an affiliate of the Sub-adviser,
who has been an investment professional for 11 years and has been with the
Sub-adviser or an affiliate for 10 years; and (iv) R. Bryan Jacoboski, Vice
President of the Sub-adviser.
INVESTMENT OBJECTIVE
Seeks balanced accomplishment of
(i) conservation of principal and (ii) long-term growth of capital and income
through investment in fixed income and equity securities.
INVESTMENT RISK
This Fund invests principally in fixed income and equity securities. The value
of an equity security can rise and fall over long and short periods of time and
involve market risks. Like equity securities, fixed income securities involve
certain risks, including interest rate risk, credit risk, market risk and risk
associated with foreign securities. This may cause the fixed income securities
that the Fund owns to be worth less than the Fund paid. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a combination of fixed income and equity securities in order
to maintain the value of your principal investment and provide you with capital
growth and income over the long term. At all times at least 25% of the Fund's
total assets are invested in fixed income senior securities. We select
securities for the Fund's portfolio by identifying fixed income and equity
securities that represent fundamental values at reasonable prices. We implement
this philosophy using a system of portfolio managers, under which a different
group of portfolio managers makes investment decisions for the fixed income and
equity portions of the Fund.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
45
<PAGE> 52
BALANCED FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -------------------------------------------
<S> <C>
Fixed income securities up to 75%
Securities rated A or
better by Moody's or
S&P or of comparable
investment quality**
securities issued by
the U.S. Government
and its
instrumentalities,
securities issued by
the Canadian
Government, its
provinces and their
instrumentalities,
mortgage-related
securities of
governmental issuers,
GNMA certificates of
private issuers,
collateralized
mortgage obligations,
mortgage-backed bonds,
cash or cash
equivalents, including
commercial bank
obligations and
commercial paper***
- -------------------------------------------
Fixed income senior at least 25%
securities
- -------------------------------------------
Equity securities**** up to 75%
- -------------------------------------------
High yielding, high risk up to 20%
fixed income
securities*****
- -------------------------------------------
Rule 144A securities up to 15%
(liquid)
- -------------------------------------------
Illiquid up to 15%
securities******
- -------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** All of the above listed fixed income securities will
constitute at least 75% of the fixed income securities held by the Fund.
**** Equity securities held by the Fund will be listed on
national securities exchanges or in the national over-the-counter market
(NASDAQ) and may include American Depository Receipts. We may invest up
to 10% of the Fund's assets in the securities of U.S. small
capitalization companies.
***** No minimum rating requirement applied.
Commonly referred to as high yield, high risk, junk or below investment
grade fixed income securities.
****** Percent of Fund's net assets applied at all times.
46
<PAGE> 53
- --------------------------------------------------------------------------------
The Balanced Fund recently commenced operations and, therefore, has no
investment performance record. However, the Balanced Fund's investment
objectives, policies and strategies are substantially similar, but not
necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. Although managed in substantially the same manner as the Balanced
Fund, the Discretionary Accounts may not invest as great a percentage of their
assets in fixed income senior securities as the Balanced Fund. As a result, the
Balanced Fund may have, or may in the past have had, greater exposure to fixed
income senior securities than the Discretionary Accounts. The chart herein shows
the historical investment performance for a composite of all of the
Sub-adviser's Discretionary Accounts ("Sub-adviser Composite") which were
managed by the Sub-adviser in substantially the same manner as the Balanced
Fund. The Sub-adviser Composite represents the total return of all Discretionary
Accounts net of the highest management fee charged and other account fees and
expenses. The inception dates of the Discretionary Accounts comprising
Sub-adviser Composite range from December 31, 1974 to September 30, 1997.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-adviser
Composite had been subject to the requirements imposed on mutual funds, their
performance might have been lower.
Total fees (after expense reimbursements) for the Balanced Fund are higher than
the total fees historically incurred by the Discretionary Accounts comprising
the Sub-adviser Composite. Consequently, the performance results for the
Sub-adviser Composite would have been lower if the Sub-adviser Composite had the
same expenses as the Balanced Fund. The performance of the Sub-adviser Composite
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
DISCRETIONARY ACCOUNTS WHICH ARE
MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE BALANCED FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE BALANCED FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
SUB-ADVISER COMPOSITE
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
31.17% 15.84% 14.44%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Balanced Fund is likely to differ from the
Sub-adviser's Discretionary Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Balanced Fund may vary from
those of the Sub-adviser's Discretionary Accounts and the performance of the
Balanced Fund may vary from that of the Sub-adviser Composite.
47
<PAGE> 54
HIGH YIELD BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN AND INCOME CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN HIGH
YIELDING, HIGH RISK FIXED
INCOME SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGERS
The Fund is managed by Gordon Massie, who is assisted by Jeffrey Gary and Mark
Pauly, CFA. Mr. Massie, Senior Vice President, joined the Sub-adviser in April
1998. Previously, Mr. Massie was Director of High Yield Research at American
General Corporation from August 1985 to April 1998. Mr. Gary, Vice President,
joined the Sub-adviser in June 1998. From 1996 to April 1998, Mr. Gary was
Managing Director at Koch Capital Services, Inc. and from 1993 to 1996, Mr. Gary
served as Senior Analyst/Trader at Cargill Financial Services. Mr. Pauly, Senior
Investment Manager, High Yield, joined the Sub-adviser in April 1998. From
August 1994 to August 1996, Mr. Pauly served as the Manager of Portfolio
Forecasting and Analysis for American General Corporation and, from June 1992 to
August 1994, Mr. Pauly was Director of Marketing Services for American General
of New York.
INVESTMENT OBJECTIVE
Seeks the highest possible total return and income consistent with conservation
of capital through investment in a diversified portfolio of high yielding, high
risk fixed income securities.
INVESTMENT RISK
High yielding, high risk fixed income securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Because investment in lower rated fixed income securities
(commonly referred to as junk bonds) involves significantly greater credit risk,
market risk and interest rate risk than higher rated fixed income securities,
achievement of the Fund's investment objective is dependent upon the
Sub-adviser's investment analysis. Accordingly, the Fund's investments may be
worth less than what the Fund paid for them. The Fund is also subject to risks
associated with foreign securities. For a discussion of these risks see "A Word
About Risk" in the prospectus.
INVESTMENT STRATEGY
The Fund invests in high yielding, high risk fixed income securities to provide
you with the highest possible total return from current income and capital gains
while preserving your investment.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Fixed income securities rated at least 65%
below Baa3 by Moody's and
below BBB- by S&P**
- --------------------------------------------
Foreign fixed income up to 35%
securities rated below Baa3
by Moody's and below BBB- by
S&P**
- --------------------------------------------
Fixed income securities rated up to 35%
Baa3 or higher by Moody's or
Rated BBB- or higher by
S&P***
- --------------------------------------------
Zero coupon securities (i.e., up to 15%
securities not paying
current cash interest)
- --------------------------------------------
Fixed income securities rated up to 15%
below Caa3 by Moody's or
CCC- by S&P***
- --------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and warrants
- --------------------------------------------
Illiquid securities**** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 30%
- --------------------------------------------
</TABLE>
* At time of purchase.
** Commonly referred to as high yield, high risk, junk
or below investment grade fixed income securities.
*** The Sub-adviser will not necessarily dispose of a fixed
income security when its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
48
<PAGE> 55
STRATEGIC BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN AND INCOME CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN
INCOME PRODUCING SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGERS
The Fund is managed by Steven Guterman, who is assisted by Gordon Massie, Robert
Hiebert, CFA, Craig Mitchell, CFA, James J. Roth, George Steelman, Edwin
Ferrell, CFA and William Trimbur, Jr., CFA. Mr. Guterman, Executive Vice
President, joined the Sub-adviser in June 1998. Previously, Mr. Guterman was
with Salomon Brothers, Inc. from 1983 to May 1998, where he served as Managing
Director from 1996 to May 1998 and with Salomon Brothers Asset Management, Inc.,
where he was a Senior Portfolio Manager and head of the U.S. Fixed Income
Portfolio Group from 1990 to May 1998. In such capacity, Mr. Guterman served as
a portfolio manager of the Manufacturers Investment Trust Strategic Bond Trust,
the New England Zenith Fund Salomon Brothers Strategic Bond Opportunities
Series, the North American Funds Strategic Income Fund, the JNL Series Trust
Salomon Brothers/JNL Global Bond Series, the Salomon Brothers Series Funds Inc.
Strategic Bond Fund and the Nationwide Separate Account Trust Nationwide
Multi-Sector Bond Fund. Mr. Massie, Senior Vice President, joined the
Sub-adviser in April 1998. Previously, Mr. Massie was Director of High Yield
Research at American General Corporation from August 1985 to April 1998. Mr.
Hiebert, Vice President and Senior Portfolio Manager, joined the Sub-adviser in
April 1998. Previously, Mr. Hiebert served as Senior Corporate Bond Trader at
American General Corporation from August 1995 to April 1998. Prior to that, Mr.
Hiebert served as Senior Trader with Cargill Financial Services Corp. from June
1992 to August 1995. Mr. Mitchell, Vice President and Senior Portfolio Manager,
joined the Sub-adviser in April 1998 and American General Corporation in May
1995. From July 1992 to April 1995, Mr. Mitchell served as Assistant Portfolio
Manager and, subsequently, Portfolio Manager at Providian Corporation. Mr. Roth,
Vice President, Fixed Income Trading, joined the Sub-adviser in April 1998.
Previously, Mr. Roth was Senior Portfolio Manager at American General
Corporation from August 1994 to March 1998. Prior to that, Mr. Roth was National
Sales Manager, Department of Capital Markets with the Resolution Trust
Corporation from February 1994 to July 1994 and Capital Markets Specialist from
June 1991 to January 1994. Mr. Steelman, Associate Portfolio Manager, joined the
Sub-adviser in April 1998. From April 1996 to April 1998, Mr. Steelman served as
Associate Portfolio Manager for American General Corporation. Mr. Steelman was
Senior Financial Analyst for American General Corporation's Treasury Department
from December 1994 to April 1996. Prior to joining American General Corporation,
Mr. Steelman pursuant graduate studies in international management. Mr. Ferrell,
Director, joined the Sub-adviser in April 1998, where he has primary
responsibility for sovereign political and economic research. Previously, Mr.
Ferrell was a sovereign analyst with The Principal Financial Group from November
1993 to April 1998, where he was involved in the co-ordination of its emerging
market and non-dollar investment efforts. Mr. Trimbur, Vice President and
Investment Officer of the Series Company, joined the Sub-adviser in May 1998. As
Portfolio Manager for the Sub-adviser, Mr. Trimbur is primarily responsible for
the management and trading of non-dollar denominated bonds and equities. Mr.
Trimbur managed domestic bonds and equities for VALIC from 1987 to 1991 and has
been managing foreign bonds and equities for VALIC since 1991.
INVESTMENT OBJECTIVE
Seeks the highest possible total return and income consistent with conservation
of capital through investment in a diversified portfolio of income producing
securities.
INVESTMENT RISK
A significant portion of the Fund's investments may be in high yielding, high
risk fixed income securities that are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and interest
payments. Because investment in lower rated fixed income securities (commonly
referred to as junk bonds) involves significantly greater credit risk, market
risk and interest rate risk than higher rated fixed income securities,
achievement of the Fund's investment objective is dependent upon the Sub-
adviser's investment analysis. Accordingly, the Fund's investments may be worth
less than what the Fund paid for them. The Fund is also subject to risks
associated with foreign securities. For a discussion of these risks see "A Word
About Risk" in the prospectus.
Additional information
about THE FUND'S
INVESTMENTS provided
under "Types of
Investments."
49
<PAGE> 56
STRATEGIC BOND FUND
Fact Sheet
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
The Fund invests in a broad range of fixed income securities including
investment grade bonds, U.S. Government and agency obligations, mortgage backed
securities, high yield bonds, emerging market debt and non-dollar bonds, to
provide you with the highest possible total return from current income and
capital gains, while preserving your investment. A substantial portion of the
Fund may be invested in high yielding, high risk securities.
We follow the guidelines listed below for making the primary investment for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Investment grade fixed income at least 65%
securities**, U.S.
Government and agency and
mortgage related securities,
U.S., Canadian and foreign
high yield, high risk fixed
income securities rated C or
higher by Moody's or CC or
higher by S&P and comparable
unrated securities***
- --------------------------------------------
Foreign non-dollar bonds up to 25%
(currency exposure may be
hedged or unhedged)
- --------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and warrants
- --------------------------------------------
Illiquid securities**** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 50%
- --------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** Commonly referred to as high yield, high risk, junk
or below investment grade fixed income securities.
**** Percent of Fund's net assets applied at all times.
50
<PAGE> 57
DOMESTIC BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGH TOTAL RETURN CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS
PRIMARILY IN INVESTMENT
GRADE FIXED INCOME
SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
James S. Baker and James R. Mulally serve as the Fund's portfolio managers. Mr.
Baker, Vice President and fixed-income portfolio manager of an affiliate of the
Sub-adviser, has focused on the application of quantitative valuations to
investment grade bonds and portfolios for the Sub-adviser since 1987. Mr.
Mulally, Senior Vice President, Director and Chairman of the Sub-adviser's Fixed
Income Subcommittee, joined the Sub-adviser in 1980.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investments primarily in investment grade fixed income securities and
other income producing securities.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk, market risk and risk associated with foreign securities. This
may cause the investments that the Fund owns to be worth less than what the Fund
paid. For a discussion of these risks see "A Word About Risk" in this
prospectus.
INVESTMENT STRATEGY
The Fund invests in high quality fixed income securities to provide you with the
highest possible total return from current income and capital gains while
preserving your investment. To increase the Fund's earning potential, we may use
a small part of the Fund's assets to make some higher risk investments.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Investment grade U.S. at least 65%
corporate fixed income
securities rated at least A
by Moody's or S&P**,
securities issued or
guaranteed by the U.S.
Government***, Yankee
bonds, asset backed bonds,
mortgage backed bonds,
interest bearing short-term
investments such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ---------------------------------------------
Non-U.S. investment grade up to 35%
intermediate and long-term
corporate fixed income
securities rated at least A
by Moody's or S&P** or of
comparable quality,
Eurodollar fixed income
securities****, securities
issued or guaranteed by the
Canadian Government, its
provinces or their
instrumentalities, interest
bearing short-term
investments, such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ---------------------------------------------
Other fixed income securities up to 25%
Corporate bonds rated less
than A by Moody's or S&P,
related-related securities,
high yield, high risk
bonds*****
- ---------------------------------------------
Rule 144A securities (liquid) up to 15%
- ---------------------------------------------
Illiquid Securities****** up to 15%
- ---------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by at least one of
the following: (i) the full faith and credit of the U.S. Government
(e.g., Government National Mortgage Association), (ii) the right of the
issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Banks),
(iii) the credit of the issuing government agency (e.g., Student Loan
Marketing Association) or (iv) the discretionary authority of the U.S.
Government to purchase certain obligations of the agency.
**** The Fund currently intends to limit these
investments to no more than 20% of its total assets.
***** No minimum rating requirement applies.
Commonly referred to as high yield, high risk, junk or below investment
grade fixed income securities.
****** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
51
<PAGE> 58
- --------------------------------------------------------------------------------
The Domestic Bond Fund recently commenced operations and, therefore, has no
investment performance record. However, the Domestic Bond Fund's investment
objectives, policies and strategies are substantially similar, but not
necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. The chart herein shows the historical investment performance for a
composite of all of the Sub-adviser's Discretionary Accounts ("Sub-adviser
Composite") which were managed by the Sub-adviser in substantially the same
manner as the Domestic Bond Fund. The Sub-adviser Composite represents the total
return of all Discretionary Accounts, net of the highest management fee charged
and other account fees and expenses. The inception dates of the Discretionary
Accounts comprising Sub-adviser Composite range from December 31, 1972 to March
1, 1998.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-adviser
Composite had been subject to the requirements imposed on mutual funds, their
performance might have been lower.
Total fees (after expense reimbursements) for the Domestic Bond Fund are higher
than the total fees historically incurred by the Discretionary Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser Composite had
the same expenses as the Domestic Bond Fund. The performance of the Sub-adviser
Composite has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S DISCRETIONARY ACCOUNTS WHICH
ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE DOMESTIC BOND FUND AND DOES
NOT REFLECT THE PERFORMANCE OF THE DOMESTIC BOND FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF SUB-ADVISER COMPOSITE
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -------------------------------------------------------------
11.78% 6.61% 9.12%
- -------------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Domestic Bond Fund is likely to differ from the
Sub-adviser's Discretionary Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Domestic Bond Fund may vary
from those of the Sub-adviser's Discretionary Accounts and the performance of
the Domestic Bond Fund may vary from that of the Sub-adviser Composite.
52
<PAGE> 59
CORE BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN CONSISTENT WITH
CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN
MEDIUM TO HIGH QUALITY FIXED
INCOME SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGER
Robert N. Kase, CFA, serves as the Fund's portfolio manager and is assisted by
Craig A. Mitchell, CFA, James J. Roth and Leon A. Olver. Mr. Kase, Vice
President and Senior Portfolio Manager, joined the Sub-adviser in September
1998. Previously, Mr. Kase was Senior Portfolio Manager at CL Capital
Management, Inc. from September 1992 to July 1998. Mr. Mitchell, Vice President
and Senior Portfolio Manager, joined the Sub-adviser in April 1998 and American
General Corporation in May 1995. From July 1992 to April 1995, Mr. Mitchell
served as Assistant Portfolio Manager and, subsequently, Portfolio Manager at
Providian Corporation. Mr. Roth, Vice President, Fixed Income Trading, joined
the Sub-adviser in April 1998. Previously, Mr. Roth was Senior Portfolio Manager
at American General Corporation from August 1994 to March 1998. Prior to that,
Mr. Roth was National Sales Manager, Department of Capital Markets, with the
Resolution Trust Corporation from February 1994 to July 1994 and Capital Markets
Specialist from June 1991 to January 1994. Mr. Olver, Portfolio Manager, has
been with the Sub-adviser since April 1998. As Portfolio Manager for the Sub-
adviser, Mr. Olver is responsible for portfolio management of domestic fixed
income assets. Prior to this, Mr. Olver had been with VALIC since June 1995 as
portfolio manager, and was with First Heights Bank as manager of research and
analysis from May 1991 to June 1995. Mr. Olver serves as Vice President and
Investment Officer of the American General Series Portfolio Company and USLIFE
Income Fund, Inc., each a registered investment company managed by VALIC.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investments in medium to high quality fixed income securities.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk, market risk and risk associated with foreign securities. This
may cause the Fund's investments to be worth less than what the Fund paid for
them. For a discussion of these risks see "A Word About Risk" in this
prospectus.
INVESTMENT STRATEGY
The Fund invests in medium to high quality fixed income securities to provide
you with the highest possible total return from current income and capital gains
while preserving your investment. To increase the Fund's earning potential, we
may use a small part of the Fund's assets to make some higher risk investments.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
53
<PAGE> 60
CORE BOND FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -----------------------------------------------
<S> <C>
Investment grade at least 65%
intermediate and long-
term corporate fixed
income securities rated
at least Baa3 by
Moody's or BBB- by
S&P** or of comparable
quality, U.S. dollar
denominated fixed
income securities
issued by foreign
issuers***, securities
issued or guaranteed by
the U.S.
Government****,
mortgage backed and
other asset securities,
interest bearing
short-term investments,
such as commercial
paper, bankers'
acceptances, bank
certificates of deposit
and other cash
equivalents and cash
- -----------------------------------------------
Other fixed income up to 10%
securities
corporate bonds rated
below Baa3 by Moody's
and BBB- by S&P*****
- -----------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and
warrants
- -----------------------------------------------
Illiquid securities****** up to 15%
- -----------------------------------------------
Rule 144A securities up to 30%
(liquid)
- -----------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** The Fund currently intends to limit these
investments to no more than 40% of its total assets.
**** U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by at least one of
the following: (i) the full faith and credit of the U.S. Government
(e.g., Government National Mortgage Association), (ii) the right of the
issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Banks),
(iii) the credit of the issuing government agency (e.g., Student Loan
Marketing Association) or (iv) the discretionary authority of the U.S.
Government to purchase certain obligations of the agency.
***** Commonly referred to as high yield, high risk,
junk or below investment grade bonds.
****** Percent of Fund's net assets applied at all times.
54
<PAGE> 61
- --------------------------------------------------------------------------------
The Core Bond Fund recently commenced operations and, therefore, has no
investment performance record. The performance information shown herein is for
the Canada Life Commingled Fund, which was managed by Robert N. Kase, the Core
Bond Fund's portfolio manager, from January 1, 1993 to July 1998. The Canada
Life Commingled Fund has substantially similar, though not necessarily identical
the investment objectives, policies and strategies as the Core Bond Fund. The
chart herein shows the historical investment performance for the period February
1, 1993 through March 31, 1998, net of the Canada Life Commingled Fund fees and
expenses.
The Canada Life Commingled Fund was not subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code. If the
Canada Life Commingled Fund had been subject to the requirements imposed on
registered mutual funds, its performance might have been lower.
Total fees (after expense reimbursements) for the Core Bond Fund are higher than
the total fees incurred by the Canada Life Commingled Fund. Consequently, the
performance results for the Canada Life Commingled Fund would have been lower if
the Canada Life Commingled Fund had the same expenses as the Core Bond Fund. The
performance of the Canada Life Commingled Fund has been calculated in accordance
with SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE CANADA LIFE
COMMINGLED FUND WHICH WAS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE
SAME INDIVIDUAL AS THE CORE BOND FUND AND DOES NOT REFLECT THE PERFORMANCE OF
THE CORE BOND FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
CANADA LIFE COMMINGLED FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
10.42% 7.57% 7.69%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE FEBRUARY 1, 1993
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Core Bond Fund is likely to differ from the Canada Life
Commingled Fund in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Core Bond Fund may
vary from those of the Canada Life Commingled Fund.
55
<PAGE> 62
MUNICIPAL BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN CONSISTENT WITH
CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN FIXED
INCOME SECURITIES THAT ARE
EXEMPT FROM REGULAR FEDERAL
INCOME TAXATION
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the investment management division of American General
Corporation.
PORTFOLIO MANAGER
Marybeth Whyte serves as the Fund's Portfolio Manager and was formerly the
portfolio manager of the Salomon Brothers New York Municipal Money Market Fund,
the Salomon Brothers National Intermediate Municipal Fund and the North American
National Municipal Bond Fund. Ms. Whyte, Senior Vice President, joined the
Sub-adviser in September 1998. Previously, Ms. Whyte was Director of the
Municipal Bond Group at Salomon Brothers Asset Management from July 1994 to
September 1998 and was the portfolio manager of the Salomon Brothers New York
Municipal Money Market Fund. Prior to that, Ms. Whyte was Senior Vice President
and Head of the Municipal Bond Group at Fiduciary Trust International from July
1987 to July 1994.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investments in fixed income securities that are exempt from regular
federal income taxation.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk and market risk. This may cause the Fund's investments to be
worth less than what the Fund paid for them. For a discussion of these risks see
"A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in high quality municipal fixed income securities to provide
you with the highest possible total return from current income and capital gains
while preserving your investment.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments* Assets**
- --------------------------------------------
<S> <C>
Municipal fixed income at least 80%
securities
municipal bonds, municipal
notes and other municipal
obligations rated at least
Baa3 by Moody's or BBB- by
S&P or Fitch or of
comparable quality;
short-term obligations rated
MIG2, VMIG2 or P2 or better
by Moody's, SP2 or A2 or
better by S&P or F-2 or
better by Fitch***
- --------------------------------------------
Taxable fixed income up to 20%
securities
money market instruments,
U.S. Government
obligations,**** and other
investment grade securities
rated at least A by Moody's,
S&P or Fitch*****
- --------------------------------------------
Illiquid securities****** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 30%
- --------------------------------------------
</TABLE>
*A portion of the Fund's dividends paid in respect of
its shares may be subject to the alternative minimum tax.
**At time of purchase.
***If, in the opinion of the Sub-adviser, adverse
conditions prevail in the market for obligations, the interest on which is
exempt from regular federal income taxes, the Fund may invest without
limit in taxable high quality short-term money market instruments. At time
of purchase.
****U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by (i) the full
faith and credit of the U.S. Government, (ii) the right of the issuer to
borrow from the U.S. Treasury, (iii) the credit of the issuing government
agency, or (iv) the discretionary authority of the U.S. Government or GNMA
to purchase certain obligations of the agency.
*****The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
******Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
56
<PAGE> 63
- --------------------------------------------------------------------------------
The Municipal Bond Fund recently commenced operations and, therefore, has no
performance record. However, the Municipal Bond Fund's investment objectives,
policies and strategies are substantially similar to those of the North American
National Municipal Bond Fund, which was managed by Marybeth Whyte. The chart
herein shows the historical performance for the North American Funds National
Municipal Bond Fund net of fees and expenses. The inception date of the North
American National Municipal Bond Fund was August 1, 1993. During Ms. Whyte's
role as portfolio manager of the North American National Municipal Bond Fund,
which commenced August 1, 1994, she was primarily responsible for the day-to-day
management of the North American National Municipal Bond Fund, and no other
person played a significant role in achieving the fund's performance.
The Municipal Bond Fund is subject to investment limitations, diversification
requirements and other restrictions imposed on registered mutual fund by the
1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Municipal Bond Fund are higher
than the total fees incurred by the North American National Municipal Bond Fund.
Consequently, the performance results for the North American National Municipal
Bond Fund would have been lower if the North American National Municipal Bond
Fund had the same fees and expenses as the Municipal Bond Fund. The performance
of the North American National Municipal Bond Fund has been calculated in
accordance with SEC performance standards. See "Performance and Yield
Information" in the Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE NORTH
AMERICAN NATIONAL MUNICIPAL BOND FUND WHICH WAS MANAGED IN SUBSTANTIALLY THE
SAME MANNER AND BY THE SAME INDIVIDUAL AS THE MUNICIPAL BOND FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE MUNICIPAL BOND FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF NORTH AMERICAN NATIONAL
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
11.03% 7.63%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF $10,000
STIPULATED PAYMENT MADE AUGUST 1, 1994
[CHART]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Municipal Bond Fund is likely to differ from the North
American National Municipal Bond Fund in size, cash flow patterns and certain
tax matters. Accordingly, the portfolio holdings and performance of the
Municipal Bond Fund may vary from those of the North American National Municipal
Bond Fund.
57
<PAGE> 64
MONEY MARKET FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal INCOME THROUGH INVESTMENTS
IN SHORT-TERM MONEY MARKET
SECURITIES
- -------------------------------------------------
Investment Category STABILITY
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
Teresa Moro has been this Fund's portfolio manager and Vice President and
Investment Officer of the Series Company since its inception. Since 1991, Ms.
Moro has served as Vice President and Investment Officer of American General
Series Portfolio Company, a registered investment company managed by VALIC and
as Portfolio Manager of the American General Series Portfolio Company Money
Market Fund ("AGSPC Money Market Fund").
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
INVESTMENT RISK
The short-term money market securities that this Fund invests in are high
quality investments, posing low credit and interest rate risk. The current yield
of the Fund will generally go up or down with changes in the level of interest
rates. The Fund uses the amortized cost method to value its portfolio securities
and tries to keep its net asset value at $1.00 per share. There can be no
assurance that the net asset value will be $1.00 per share at all times.
Because the risk to the money you invest is low, the potential for profit is
also low. The Fund may experience risks including interest rate risk, market
risk, credit risk and risk associated with foreign securities. For a discussion
of these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in short-term money market securities to provide you with
liquidity, protection of your investment and current income. We use 95% of the
Fund's total assets to buy short-term securities that are rated within the
highest rating category for short-term debt obligations by at least two
nationally recognized rating services or unrated securities of comparable
investment quality. These eligible securities must mature, after giving effect
to any demand features, in 13 months or less and the Fund must have a
dollar-weighted average portfolio maturity of 90 days or less. These practices
are designed to minimize any fluctuation in the value of the Fund's portfolio.
The investments this Fund may buy include:
- Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities
- Certificates of deposit and other obligations of domestic banks that have
total assets in excess of $1 billion
- Commercial paper sold by corporations and finance companies
- Corporate debt obligations with remaining maturities of 13 months or less
- Repurchase agreements
- Money market instruments of foreign issuers payable in U.S. dollars (limited
to no more than 20% of the Fund's net assets)
- Asset-backed securities
- Loan participations
- Adjustable rate securities
- Taxable municipal obligations (variable rate demand notes)
- Illiquid and restricted securities*
- Rule 144A securities (liquid)
- ---------------
* Limited to 10% of the Fund's net assets at all times
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
58
<PAGE> 65
- --------------------------------------------------------------------------------
The Money Market Fund recently commenced operations and, therefore, has no
investment performance record. However, the Money Market Fund's investment
objectives, policies and strategies are substantially similar, although not
identical, to those of the AGSPC Money Market Fund and it is managed by VALIC in
substantially the same manner and by the same individual as the AGSPC Money
Market Fund. The chart herein shows the historical investment performance for
the AGSPC Money Market Fund for the period of April 1, 1988 through March 31,
1998, net of AGSPC Money Market Fund's fees and expenses. The inception date for
the AGSPC Money Market Fund was December 16, 1985.
The AGSPC Money Market Fund is subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Money Market Fund are higher
than the total fees incurred by the AGSPC Money Market Fund. Consequently, the
performance results for the AGSPC Money Market Fund would have been lower if the
AGSPC Money Market Fund had the same expenses as the Money Market Fund. The
performance of the AGSPC Money Market Fund has been calculated in accordance SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON THE AGSPC MONEY MARKET FUND WHICH IS
MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUAL AS THE MONEY
MARKET FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE MONEY MARKET FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF AGSPC MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------
5.24% 4.51% 5.42%
- -----------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Money Market Fund is likely to differ from the AGSPC
Money Market Fund in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Money Market Fund may
vary from those of the AGSPC Money Market Fund.
59
<PAGE> 66
MUNICIPAL MONEY
MARKET FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal INCOME THROUGH INVESTMENTS
IN SHORT-TERM MONEY MARKET
SECURITIES THAT ARE EXEMPT
FROM REGULAR FEDERAL INCOME
TAXATION
- -------------------------------------------------
Investment Category STABILITY
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the investment management division of American General
Corporation.
PORTFOLIO MANAGER
Marybeth Whyte serves as the Fund's Portfolio Manager and was formerly the
portfolio manager of the Salomon Brothers New York Municipal Money Market Fund,
the Salomon Brothers National Intermediate Municipal Fund and the North American
[National] Municipal Bond Fund. Ms. Whyte, Senior Vice President, joined the
Sub-adviser in September 1998. Previously, Ms. Whyte was Director of the
Municipal Bond Group at Salomon Brothers Asset Management from July 1994 to
September 1998 and was the portfolio manager of the Salomon Brothers New York
Municipal Money Market Fund. Prior to that, Ms. Whyte was Senior Vice President
and Head of the Municipal Bond Group at Fiduciary Trust International from July
1987 to July 1994.
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market securities that are exempt from regular federal income
taxation.
INVESTMENT RISK
The short-term money market securities that this Fund invests in are high
quality investments posing low credit and interest rate risk. The current yield
of the Fund will generally go up or down with changes in the level of interest
rates. The Fund uses the amortized cost method to value its portfolio securities
and tries to keep its net asset value at $1.00 per share. There can be no
assurance that the net asset value will be $1.00 at all times.
Because the risk to the money you invest is low, the potential for profit is
also low. The Fund may experience risks including interest rate risk, market
risk and credit risk. For a discussion of these risks, see "A Word About Risk"
in this prospectus.
INVESTMENT STRATEGY
The Fund invests in short-term money market securities to provide you with
liquidity, protection of your investment and current income. We use 95% of the
Fund's total assets to buy short-term securities that are rated within the
highest rating category for short-term fixed income securities by at least two
nationally recognized rating services or unrated securities of comparable
investment quality. These eligible securities must mature, after giving effect
to any demand features, in 13 months or less and the Fund must have a
dollar-weighted average portfolio maturity of 90 days or less. These practices
are designed to minimize any fluctuation in the value of the Fund's portfolio.
However, if in the opinion of the Sub-adviser, adverse conditions prevail in the
market for obligations, the interest on which is exempt from regular federal
income taxes, the Fund may invest without limit in taxable high quality
short-term money market instruments.
The investments this Fund may buy include:
- Municipal fixed income securities with remaining maturities of 13 months or
less
- Commercial paper sold by municipalities rated at least MIG1 or MIG2 by
Moody's or A1 or A2 by S&P
- Variable rate demand notes
- Auction rate preferred stock and other adjustable rate obligations that are
exempt from federal income taxation
- Illiquid and restricted securities*
- Rule 144A securities (liquid)
- ---------------
* Limited to 10% of the Fund's net assets at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
60
<PAGE> 67
GROWTH LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994. Prior to this, Ms. Weathington studied for a
Bachelor of Science degree in finance at the University of New Orleans.
INVESTMENT OBJECTIVE
Seeks growth through investments in Series Company Funds. This Fund is suitable
for investors seeking the potential for capital growth that a fund investing
predominately in equity securities may offer.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act because it
invests in a limited number of the Underlying Series Company Funds. However, the
Underlying Series Company Funds themselves are diversified companies.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described herein, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Underlying
Series Company Funds in which it invests. Changes in the net asset values of the
Underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
Underlying Series Company Funds to meet their investment objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 25%-35%
Small Capitalization Equity
Securities 15%-25%
Medium Capitalization Equity
Securities 10%-20%
Large Capitalization Equity
Securities 25%-35%
Bonds 5%-15%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective. We may
change the asset allocation ranges, the particular Underlying Series Company
Funds in which the Fund may invest and the target investment percentages set
from time to time by VALIC, subject to the supervision of the Series Company's
Board of Trustees.
61
<PAGE> 68
GROWTH LIFESTYLE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 15%
Value Fund
American General International 15%
Growth Fund
American General Small Cap 10%
Value Fund
American General Small Cap 10%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 13%
Growth Fund
American General Large Cap 12%
Value Fund
American General Domestic 10%
Bond Fund
</TABLE>
62
<PAGE> 69
MODERATE GROWTH
LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH AND CURRENT INCOME
THROUGH INVESTMENTS IN
SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994. Prior to this, Ms. Weathington studied for a
Bachelor of Science degree in finance at the University of New Orleans.
INVESTMENT OBJECTIVE
Seeks growth and current income through investments in Series Company Funds.
This Fund is suitable for investors who wish to invest in equity securities, but
who are not willing to assume the substantial market risks of the Growth
Lifestyle Fund.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act because it
invests in a limited number of the Underlying Series Company Funds. However, the
Underlying Series Company Funds themselves are diversified companies.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described below, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Underlying
Series Company Funds in which it invests. Changes in the net asset values of the
Underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
Underlying Series Company Funds to meet their investment objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 10%-20%
Small Capitalization Equity
Securities 10%-20%
Medium Capitalization Equity
Securities 10%-20%
Large Capitalization Equity
Securities 25%-30%
Bonds 20%-30%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective. We may
change the asset allocation ranges, the
63
<PAGE> 70
MODERATE GROWTH LIFESTYLE FUND
Fact Sheet
- --------------------------------------------------------------------------------
particular Underlying Series Company Funds in which the Fund may invest and the
target investment percentages set from time to time by VALIC, subject to the
supervision of the Series Company's Board of Trustees.
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 8%
Value Fund
American General International 7%
Growth Fund
American General Small Cap 8%
Value Fund
American General Small Cap 7%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 25%
Bond Fund
</TABLE>
64
<PAGE> 71
CONSERVATIVE GROWTH
LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CURRENT INCOME AND LOW TO
MODERATE GROWTH THROUGH
INVESTMENTS IN SERIES
COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994. Prior to this, Ms. Weathington studied for a
Bachelor of Science degree in finance at the University of New Orleans.
INVESTMENT OBJECTIVE
Seeks current income and low to moderate growth of capital through investments
in Series Company Funds. This Fund is suitable for investors who wish to invest
in equity securities, but who are not willing to assume the market risks of
either the Growth Lifestyle Fund or the Moderate Growth Lifestyle Fund.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act because it
invests in a limited number of the Underlying Series Company Funds. However, the
Underlying Series Company Funds themselves are diversified companies.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described below, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Underlying
Series Company Funds in which it invests. Changes in the net asset values of the
Underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
Underlying Series Company Funds to meet their investment underlying objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 5%-15%
Small Capitalization Equity
Securities 5%-15%
Medium Capitalization Equity
Securities 5%-15%
Large Capitalization Equity
Securities 25%-35%
Bonds 30%-50%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective.
65
<PAGE> 72
CONSERVATIVE GROWTH LIFESTYLE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We may change the asset allocation ranges, the particular Underlying Series
Company Funds in which the Fund may invest and the target investment percentages
set from time to time by VALIC, subject to the supervision of the Series
Company's Board of Trustees.
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 5%
Value Fund
American General International 5%
Growth Fund
American General Small Cap 5%
Value Fund
American General Small Cap 5%
Growth Fund
American General Mid Cap 5%
Value Fund
American General Mid Cap 5%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 40%
Bond Fund
</TABLE>
66
<PAGE> 73
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Equity securities represent an ownership position in a company. The prices of
equity securities fluctuate based on changes in the financial condition of the
issuing company and on market and economic conditions. If you own an equity
security, you own a part of the company that issued it. Companies sell equity
securities to get the money they need to grow.
Stocks are one type of equity security. Generally, there are three types of
stocks:
Common stock -- Each share of common stock represents a part of the ownership of
the company. The holder of common stock participates in the growth of the
company through increasing stock price and receipt of dividends. If the company
runs into difficulty, the stock price can decline and dividends may not be paid.
Preferred stock -- Each share of preferred stock allows the holder to get a set
dividend before the common stock shareholders receive any dividends on their
shares.
Convertible preferred stock -- A stock with a set dividend which the holder may
exchange for a certain amount of common stock.
All of the Funds, except the Lifestyle Funds and the Money Market Fund, may
invest in common, preferred, and convertible preferred stock in accordance with
their investment strategies.
Stocks are not the only type of equity security. Other equity securities include
but are not limited to convertible securities, depository receipts, warrants,
rights and partially paid shares, investment company securities, real estate
securities, convertible bonds and foreign equity securities such as ADRs, GDRs
and EDRs. More information about these equity securities is set forth herein or
contained in the Statement of Additional Information.
FIXED INCOME SECURITIES
Fixed income securities include a broad array of short, medium and long-term
obligations, including notes and bonds. Fixed income securities may have fixed,
variable, or floating rates of interest, including rates of interest that vary
inversely at a multiple of a designated or floating rate, or that vary according
to changes in relative values of currencies. Fixed income securities generally
involve an obligation of the issuer to pay interest on either a current basis or
at the maturity of the security and to repay the principal amount of the
security at maturity.
Bonds are one type of fixed income security and are sold by governments on the
local, state, and federal levels, and by companies. There are many different
kinds of bonds. For example, each bond issue has specific terms. U.S. Government
bonds are guaranteed to pay interest and principal by the federal government.
Revenue bonds are usually only paid from the revenue of the issuer. An example
of that would be an airport revenue bond. Debentures are a very common type of
corporate bond (a bond sold by a company). Payment of interest and return of
principal is subject to the company's ability to pay. Convertible bonds are
corporate bonds that can be exchanged for stock. The types of bonds that most
Funds may invest in include, but are not limited to: U.S. Government bonds and
investment grade corporate bonds (the Mid Cap Value Fund, the Balanced Fund, the
Domestic Bond Fund, the High Yield Bond Fund, the Strategic Bond Fund and the
Core Bond Fund may also invest in below investment grade bonds). For a
description of investment grade bonds and below investment grade bonds see "A
Word about Risk -- Credit Risk" in this prospectus.
Investing in a bond is like making a loan for a fixed period of time at a fixed
interest rate. During the fixed period, the bond pays interest on a regular
basis. At the end of the fixed period, the bond matures and the investor usually
gets back the principal amount of the bond. Fixed periods to maturity are
categorized as short-term (generally less than 12 months), intermediate (one to
10 years), and long-term (generally 10 years or more). Commercial paper is a
specific type of corporate or short-term note. In fact, it's very short term,
being paid in less than 270 days. Most commercial paper matures in 50 days or
less.
Bonds that are rated Baa by Moody's or BBB by S&P have speculative
characteristics. Bonds that are unrated or rated below Baa3 by Moody's or BBB-
by S&P (commonly referred to as high yield, high risk or "junk bonds") are
regarded, on balance, as predominantly speculative. Changes in economic
conditions or other circumstances are more likely to weaken the issuer's
capacity to pay interest and principal in accordance with the terms of the
obligation than is the case with higher rated bonds. While such bonds may have
some quality and protective characteristics, these are outweighed by
uncertainties or risk exposures to adverse conditions. Lower rated bonds may be
more susceptible to real or perceived adverse economic and individual corporate
developments than would investment grade bonds. See "A Word about Risk -- Risks
Associated with Lower Rated Fixed Income Securities" herein.
For example, a projected economic downturn or the possibility of an increase in
interest rates may affect prices because such an event might lessen the ability
of highly leveraged high yield issuers to
ISSUED means the
Company (ISSUER) sold it
originally to the public.
For more information
about FIXED INCOME
SECURITIES AND THEIR
RATINGS, see the Appendix
herein and the
Statement of Additional
Information.
67
<PAGE> 74
- --------------------------------------------------------------------------------
meet their principal and interest payment obligations, meet projected business
goals, or obtain additional financing. In addition, the secondary trading market
for lower rated bonds may be less liquid than the market for investment grade
bonds. This potential lack of liquidity may make it more difficult to accurately
value certain of these lower rated portfolio securities.
VALIC and the Sub-advisers will not necessarily dispose of a bond when its
ratings are down graded to below investment grade.
Bonds are not the only type of fixed income security. Other fixed income
securities include but are not limited to U.S. and foreign corporate fixed
income securities, including convertible securities (bonds, debentures, notes
and other similar instruments) and corporate commercial paper; mortgage-related
and other asset-backed securities; inflation-indexed bonds issued by both
governments and corporations; structured notes, including hybrid or "indexed"
securities, preferred or preference stock, catastrophe bonds, and loan
participations; bank certificates of deposit, fixed time deposits and bankers'
acceptances; repurchase agreements and reverse repurchase agreements; fixed
income securities issued by states or local governments and their agencies,
authorities and other instrumentalities; obligations of foreign governments or
their subdivisions, agencies and instrumentalities; and obligations of
international agencies or supranational entities. Fixed income securities may be
acquired with warrants attached. For more information about specific fixed
income securities see the Statement of Additional Information.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, the Tennessee Valley Authority and
the Small Business Authority are supported only by the credit of the
instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury securities
(STRIPs and CUBEs) are direct obligations of the U.S. Government.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities include, but are not limited to, mortgage
pass-through securities, collateralized mortgage obligations and commercial
mortgage-backed securities.
Mortgage pass-through securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property.
Payments of interest and principal on these securities are generally made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities). Mortgage-related securities are
subject to interest rate risk and prepayment risk.
Payment of principal and interest on some mortgage pass-through securities may
be guaranteed by the full faith and credit of the U.S. Government (i.e.,
securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities
of the U.S. Government (i.e., securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, private mortgage insurance companies and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Collateralized mortgage obligations ("CMOs") are hybrid mortgage-related
instruments. CMOs may be collateralized by whole mortgage loans
For more information
about MORTGAGE-RELATED
SECURITIES, see the
Statement of Additional
Information.
68
<PAGE> 75
- --------------------------------------------------------------------------------
or by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC,
or FNMA. CMOs are structured into multiple classes, with each class bearing a
different stated maturity. CMOs that are issued or guaranteed by the U.S.
Government or by any of its agencies or instrumentalities will be considered
U.S. Government securities by the Funds, while other CMOs, even if
collateralized by U.S. Government securities, will have the same status as other
privately issued securities for purposes of applying a Fund's diversification
tests.
Commercial mortgage-backed securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities is relatively small compared to
the market for residential single-family mortgage-backed securities. Many of the
risks of investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed securities
may be less liquid and exhibit greater price volatility than other types of
mortgage-related or asset-backed securities.
Mortgage-related securities include mortgage pass-through securities described
above and securities that directly or indirectly represent a participation in,
or are secured by and payable from, mortgage loans on real property, such as
mortgage dollar rolls, CMO residuals or stripped mortgage-backed securities.
These securities may be structured in classes with rights to receive varying
proportions of principal and interest.
ASSET-BACKED SECURITIES
Asset-backed securities are bonds or notes that are normally supported by a
specific property. If the issuer fails to pay the interest or return the
principal when the bond matures, then the issuer must give the property to the
bondholders or noteholders. All of the Funds in this prospectus, except the
Lifestyle Funds and the Mid Cap Value Fund, may invest in asset-backed
securities. Examples of assets supporting asset-backed securities include credit
card receivables, retail installment loans, home equity loans, auto loans, and
manufactured housing loans.
LOAN PARTICIPATIONS
A loan participation is an investment in a loan made to a U.S. company that is
secured by the company's assets. The assets must be, at all times, worth enough
money to cover the balance due on the loan. Major national and regional banks
make loans to companies and then sell the loans to investors. These banks don't
guarantee the companies will pay the principal and interest due on the loans.
All the Funds in this prospectus, other than the Lifestyle Funds and the Mid Cap
Value Fund, may invest in loan participations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes ("VRDNs") are either taxable or tax-exempt
obligations containing a floating or variable interest rate adjustment formula,
together with an unconditional right to demand payment of the unpaid principal
balance plus accrued interest upon a short notice period, generally not to
exceed seven days. The Municipal Bond Fund, the Municipal Money Market Fund and
the Money Market Fund also may invest in participation VRDNs, which provide the
Funds with an undivided interest in underlying VRDNs held by major investment
banking institutions. Any purchase of VRDNs will meet applicable diversification
and concentration requirements, and with respect to the Municipal Money Market
Fund and the Money Market Fund, the conditions established by the SEC under
which such securities may be considered to have remaining maturities of 397 days
or less.
VARIABLE AMOUNT DEMAND MASTER NOTES
The Mid Cap Growth Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the
Balanced Fund, the Domestic Bond Fund, the High Yield Bond Fund, the Strategic
Bond Fund, the Municipal Bond Fund, and the Core Bond Fund may invest in
variable amount demand master notes. Variable amount master demand notes are
unsecured obligations that are redeemable upon demand and are typically unrated.
These instruments are issued pursuant to written agreements between their
issuers and holders. The agreements permit the holders to increase (subject to
an agreed maximum) and the holders and issuers to decrease the principal amount
of the notes, and specify that the rate of interest payable on the principal
fluctuates according to an agreed formula.
STRUCTURED SECURITIES
The value of the principal of and/or interest on such securities is determined
by reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and,
For more information about
ASSET-BACKED SECURITIES
see the Statement of
Additional Information.
For more information
about LOAN PARTICIPANTS
see the Statement
of Additional Information.
69
<PAGE> 76
- --------------------------------------------------------------------------------
therefore, result in the loss of a Fund's investment.
The Balanced Fund, the Domestic Bond Fund, the High Yield Bond Fund, the
Strategic Bond Fund and the Core Bond Fund may invest in structured securities.
REAL ESTATE SECURITIES
All of the Funds in this prospectus, except the Lifestyle Funds and the Domestic
Bond Fund, may invest in real estate securities. Real estate securities are
securities issued by companies that invest in real estate or interests therein.
Certain Funds also may invest in real estate investment trusts ("REITs"). REITs
are generally publicly traded on the national stock exchanges and in the
over-the-counter market and have varying degrees of liquidity. More information
about REITs and real estate securities generally is contained in the Statement
of Additional Information.
ILLIQUID AND RESTRICTED SECURITIES
An illiquid security is one that may not be frequently traded. If it must be
sold quickly, it may have to be sold at a loss. For example, if a Fund owns a
stock that is not sold very often and the Fund needs to sell this stock quickly,
it may have to offer the investment at a low price for someone to buy it.
A restricted security is one that has not been registered with the SEC and
therefore can't be sold in the public market. Restricted securities do include
securities eligible for resale under Rule 144A of the Securities Act of 1933.
Some Rule 144A securities may be liquid as determined by VALIC or a Sub-adviser.
These investments can be very risky because a Fund's ability to sell a
restricted security is very limited and Rule 144A securities deemed to be
illiquid will have the effect of increasing the amount of the Fund's investments
in illiquid securities. In addition, investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. For more information about Rule 144A securities see the
Statement of Additional Information.
All the Funds, except the Lifestyle Funds, may buy illiquid and restricted
securities, but are restricted as to how much money they may invest in them.
FOREIGN SECURITIES
All of the Funds, except the Lifestyle Funds, may invest in securities of
foreign issuers. Such foreign securities may be denominated in foreign
currencies, except with respect to the Money Market Fund, the Core Bond Fund and
the Municipal Money Market Fund, which may only invest in U.S.
dollar-denominated securities of foreign issuers.
Securities of foreign issuers include obligations of foreign branches of U.S.
banks and of foreign banks, common and preferred stocks, fixed income securities
issued by foreign governments, corporations and supranational organizations, and
ADRs, EDRs and GDRs. See "Depository Receipts" below.
DEPOSITORY RECEIPTS
All of the Funds in this prospectus, except the Lifestyle Funds, may invest in
ADRs. ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank. ADRs in which a Fund
may invest may be sponsored or unsponsored. There may be less information
available about foreign issuers of unsponsored ADRs.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank. We
consider ADRs, EDRs and GDRs to be foreign securities. The S&P 500 Index Fund,
the Mid Cap Index Fund, the Small Cap Index Fund, the International Growth Fund,
the Small Cap Growth Fund, the International Value Fund, the High Yield Bond
Fund, the Strategic Bond Fund, the Core Bond Fund and the MidCap Value Fund may
invest in EDRs and/or GDRs. The Large Cap Growth Fund may invest in GDRs but may
not invest in EDRs.
INVESTMENT FUNDS
Some countries have laws and regulations that currently preclude direct foreign
investment in the securities of their companies. However, indirect foreign
investment in the securities of companies listed and traded on the stock
exchanges in these countries is permitted through investment funds which have
been specifically authorized. The S&P 500 Index Fund, the Mid Cap Index Fund,
the Small Cap Index Fund, the International Growth Fund, the Large Cap Growth
Fund, the Small Cap Growth Fund, the International Value Fund and the Mid Cap
Value Fund may invest in investment funds.
FOREIGN CURRENCY
All of the Funds, except the Lifestyle Funds, the Large Cap Value Fund, the
Small Cap Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the
Small Cap Growth Fund, the Balanced Fund, the Domestic Bond Fund, the Core Bond
Fund, the Municipal Money Market Fund and the Money Market Fund, may buy and
sell foreign currencies the same way they buy and sell other investments. Funds
buy foreign currencies when they believe the value of the currency will
increase. If it does increase, they sell the currency for a profit. If it
decreases they willexperience a loss. Generally, the International Growth Fund
and the International Value Fund
For more information
about REAL ESTATE
SECURITIES, see the Statement
of Additional Information.
For more information
about ILLIQUID AND RESTRICTED
SECURITIES see the
Statement of Additional
Information.
For more information about
FOREIGN SECURITIES, see the
Statement of Additional
information.
For more information
about FOREIGN CURRENCY
EXCHANGE TRANSACTIONS, see
the Statement of
Additional Information.
70
<PAGE> 77
- --------------------------------------------------------------------------------
may also buy and sell foreign currencies to settle transactions for foreign
securities bought or sold in the Fund.
WHEN-ISSUED SECURITIES
When-issued securities are those investments that have been announced by the
issuer and will be on the market soon. The Funds negotiate the price with a
broker before it goes on the market. If the security ends up selling on the
market at a lower price than negotiated, the Funds may have a loss. If it sells
at a higher price, the Funds may have a profit.
All of the Funds, other than the Lifestyle Funds, the Money Market Fund and the
Mid Cap Value Fund, may buy when-issued securities in accordance with their
investment strategy.
MUNICIPAL SECURITIES
The Municipal Bond Fund and the Municipal Money Market Fund may invest in
municipal securities. The Municipal Money Market Fund will not purchase a
security which, after giving effect to any demand features, has a remaining
maturity of greater than 13 months, or maintains a dollar-weighted average
portfolio maturity in excess of 90 days.
Municipal securities include bonds, notes and other instruments issued by or on
behalf of states, territories and possessions of the United States (including
the District of Columbia) and their political subdivisions, agencies or
instrumentalities, the interest on which is excluded from gross income for
federal income tax purposes, (i.e., exempt from regular federal income tax). The
two principal classifications of municipal bonds are "general obligations" and
"revenue obligations". General obligations are secured by the issuers' pledge of
its full faith and credit for the payment of principal and interest, although
the characteristics and enforcement of general obligations may vary according to
the law applicable to the particular issuer. Revenue obligations are not backed
by the credit and taxing authority of the issuer, but are payable solely from
the revenues derived from a particular facility or class of facilities or, in
some cases, from the proceeds of a special excise tax or other specific revenue
source. In addition, revenue obligations may be backed by a letter of credit,
guarantee or insurance. Revenue obligations include, among other things,
municipal notes and private activity bonds.
Funds that invest in municipal securities may invest in municipal leases and
certificates of participation in municipal leases. A municipal lease is an
obligation in the form of a lease or installment purchase which is issued by a
state or local government to acquire equipment and facilities. Certificates of
participation represent undivided interests in municipal leases, installment
purchase agreements or other instruments. The certificates are typically issued
by a trust or other entity which has received an assignment of the payments to
be made by the state or political subdivision under such leases or installment
purchase agreements.
The Municipal Bond Fund and the Municipal Money Market Fund may invest in
municipal lease obligations that the Board of Trustees has determined to treat
as liquid under guidelines established by the Board. Determinations concerning
the liquidity and valuation of municipal lease obligations are based on, among
other things: (1) the frequency of trades and quotes for the municipal lease
obligations; (2) the number of dealers willing to purchase or sell the municipal
lease obligation and the number of potential purchasers; (3) the willingness of
dealers to undertake to make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer. Under Board
guidelines, a municipal lease obligation will not be deemed to be liquid unless
there is reasonable assurance that its marketability, and thus its liquidity
will be maintained throughout the entire time the instrument is to be held by
the Municipal Bond Fund or the Municipal Money Market Fund.
MONEY MARKET SECURITIES
All of the Funds may invest part of their assets in high quality money market
securities payable in U.S. dollars. A listing of the types of money market
securities in which the Municipal Money Market Fund and the Money Market Fund
may invest is in that Fund's Fact Sheet. A money market security is high quality
when it is rated in one of the two highest credit categories by Moody's or S&P
or another nationally recognized rating service or if unrated, deemed high
quality by VALIC or a Sub-adviser.
These high quality money market securities may include:
- Cash and cash equivalents
- Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities
- Certificates of deposit and other obligations of domestic banks having total
assets in excess of $1 billion
- Commercial paper sold by corporations and finance companies
- Corporate debt obligations with remaining maturities of 13 months or less
- Repurchase agreements, money market securities of foreign issuers if payable
in U.S. dollars, asset-backed securities, loan participations, and
adjustable rate securities
INVESTMENT COMPANIES
The Funds may invest in the securities of other open-end or closed-end
investment companies subject to the limitations imposed by the 1940
For more information
about WHEN-ISSUED SECURITIES,
see the Statement
of Additional Information.
For more information about
MUNICIPAL SECURITIES, see the
Statement of Additional
Information.
For more information about
MONEY MARKET SECURITIES OF
FOREIGN ISSUERS the Funds
may purchase, see the
Statement of Additional
Information.
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<PAGE> 78
- --------------------------------------------------------------------------------
Act. A Fund will indirectly bear its proportionate share of any management fees
and other expenses paid by an investment company in which it invests.
DERIVATIVES
Unlike stocks and bonds that represent actual ownership of that stock or bond,
derivatives are investments which "derive" their value from securities issued by
a company, government, or government agency. In certain cases, derivatives may
be purchased for non-speculative investment purposes or to protect ("hedge")
against a change in the price of the underlying security. There are some
investors who take higher risk ("speculate") and buy derivatives to profit from
a change in price of the underlying security. We may purchase derivatives to
hedge the investment portfolios and to earn additional income in order to help
achieve the Funds' objectives. Generally, we do not buy derivatives to
speculate.
The Funds, other than the Lifestyle Funds, the Money Market Fund, the Municipal
Money Market Fund, the Mid Cap Growth Fund and the International Growth Fund,
may buy and sell derivatives, such as futures and/or options.
Options
An option is the right to buy or sell any type of investment for a preset price
over a specific period of time.
Call Option
For example, you can buy an option from Mr. Smith that gives you the right to
buy 10 shares of stock X at $25.00 per share anytime between now and six weeks
from now. You believe stock X will be selling for more than $25.00 per share
between now and then. Mr. Smith believes it won't be. If you exercise this
option before it expires, Mr. Smith must sell you 10 shares of stock X at $25.00
per share.
On the other hand, you can sell an option to Mr. Smith that gives him the right
to buy 10 shares of stock X at $25.00 per share anytime between now and six
weeks from now. You believe stock X will be selling for less than $25.00 per
share between now and then. Mr. Smith believes it won't be. If he exercises this
option before it expires, you must sell to Mr. Smith 10 shares of stock X at
$25.00 per share.
Put Option
Or, you can buy an option from Mr. Smith that gives you the right to sell him 10
shares of stock X at $25.00 per share anytime between now and six weeks from
now. In this example, you believe stock X will be selling for less than $25.00
per share between now and then. Mr. Smith thinks it will be selling for more.
Or, you can sell an option to Mr. Smith that gives him the right to sell to you
10 shares of stock X at $25.00 per share anytime between now and six weeks from
now. In this example, he believes stock X will be selling for less than $25.00
per share between now and then.
The Funds use stock and bond futures to invest cash and cash equivalents. When
certain levels are reached the Fund will sell the futures and buy stocks or
bonds.
All of the Funds except the Lifestyle Funds, the Money Market Fund, the
Municipal Money Market Fund, the Mid Cap Growth Fund and the International
Growth Fund, may invest in one or more of the following types of futures and
options:
- Write (sell) exchange traded covered put and call options on securities and
stock indices.
- Purchase exchange traded put and call options on securities and stock
indices.
- Purchase and sell exchange traded financial futures contracts.
- Write (sell) covered call options and purchase exchange traded put and call
options on financial futures contracts.
- Write (sell) covered call options and purchase non-exchange traded call and
put options on financial futures contracts.
The S&P 500 Index Fund, the Mid Cap Index Fund, the Small Cap Index Fund, the
International Value Fund, the Large Cap Value Fund, the High Yield Bond Fund,
the Strategic Bond Fund, the Core Bond Fund, the Municipal Bond Fund and the
Small Cap Growth Fund may write and purchase put and call options on securities
and stock indices that are not traded on an exchange.
The Funds, except the Lifestyle Funds, the Large Cap Value Fund, the Small Cap
Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the Small Cap
Growth Fund, the Balanced Fund, the Domestic Bond Fund, the Core Bond Fund, the
Municipal Money Market Fund and the Money Market Fund, may write and purchase
options on foreign currencies. These Funds also may purchase forward foreign
currency exchange contracts to protect against a decline in the value of the
U.S. dollar, to effect cross-hedges involving two non-U.S. currencies, or for,
settlement purposes.
SWAP AGREEMENTS
Swap agreements are contracts between parties in which one party agrees to make
payments to the other party based on the change in market value of a specified
index or asset. In return, the other party agrees to make payments to the first
party based on the return of a different specified index
For more information on put
and call options AND FINANCIAL
FUTURES CONTRACTS AND OPTIONS, see
the Statement of Additional
information.
For more information about
SWAP AGREEMENTS, see the
Statement of Additional
Information.
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- --------------------------------------------------------------------------------
or asset. Additional information about swap agreements is contained in the
Statement of Additional Information.
The Core Bond Fund, the Domestic Bond Fund, the Strategic Bond Fund, the
Municipal Bond Fund, the Small Cap Value Fund and the Small Cap Growth Fund may
enter into swap agreements.
WARRANTS AND RIGHTS
Warrants and rights are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. Changes in the value
of a warrant do not necessarily correspond to changes in the value of its
underlying securities.
The International Growth Fund, the Large Cap Value Fund, the Large Cap Growth
Fund, the Small Cap Value Fund, the International Value Fund, the Balanced Fund,
the Domestic Bond Fund, the High Yield Bond Fund, the Strategic Bond Fund, the
Municipal Bond Fund, the Core Bond Fund and the Small Cap Growth Fund are
authorized to use warrants or rights.
REPURCHASE AGREEMENTS
A repurchase agreement requires the seller of the security to buy it back at a
set price at a certain time. If a Fund enters into a repurchase agreement, it is
really making a short term loan (usually for one day to one week). A Fund may
enter into repurchase agreements only with well-established securities dealers
or banks that are members of the Federal Reserve System. All the Funds in this
prospectus may invest in repurchase agreements.
The risk in a repurchase agreement is the failure of the seller to be able to
buy the security back. If the value of the security declines, the Fund may have
to sell at a loss.
A repurchase agreement of more than 7 days duration is illiquid. A discussion of
repurchase agreements, illiquid securities and Fund limitations is contained in
the Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS, DOLLAR ROLLS AND BORROWINGS
A reverse repurchase agreement involves the sale of a security by a Fund and its
agreement to repurchase the instrument at a specified time and price. Under a
reverse repurchase agreement, the Fund continues to receive any principal and
interest payments on the underlying security during the term of the agreement.
The Fund generally will segregate assets determined to be liquid by VALIC or a
Sub-adviser. In effect, these assets cover the Fund's obligations under reverse
repurchase agreements.
Certain Funds also may enter into dollar rolls. In a dollar roll transaction, a
Fund sells mortgage-backed or other securities for delivery in the current month
and simultaneously contracts to purchase substantially similar securities on a
specified future date. The time period from the date of sale to the date of
purchase under a dollar roll is known as the roll period. A Fund foregoes
principal and interest paid during the roll period on the securities sold in a
dollar roll. However, a Fund receives an amount equal to the difference between
the current sales price and the lower price for the future purchase as well as
by any interest earned on the proceeds of the securities sold.
If a Fund's positions in reverse repurchase agreements, dollar rolls or similar
transactions are not covered by liquid assets in a segregated account, as
described above, such transactions would be subject to the Funds' limitations on
borrowings. Apart from such transactions, a Fund will not borrow money, except
as provided in its investment restrictions. See "Investment Restrictions" in the
Statement of Additional Information for a complete listing of each Fund's
investment restrictions.
A WORD ABOUT RISK
There are five basic types of investment risk you may be subject to:
- Market Risk
- Credit (Financial) Risk
- Interest Rate Risk
- Risk Associated with Foreign Securities
- Manager Risk (Lifestyle Funds only)
Generally, stocks are considered to be subject to market risk, while fixed
income securities, such as U.S. Government bonds and money market securities are
subject to interest rate risk. Other fixed income securities, such as corporate
bonds, involve both interest rate and credit (financial) risk. Lastly, risks
associated with foreign securities can involve political, currency and limited
information risks. Each of these types of investment risks, including manager
risk, is discussed below.
Market Risk
Market risk refers to the loss of capital resulting from changes in the prices
of investments. For example, market risk occurs when expectations of lower
corporate profits in general cause the broad market of stocks to fall in price.
When this happens, even though a company is experiencing growth in profits, the
price of its stock could fall.
For more information about
REPURCHASE AGREEMENTS, see the
Statement of Additional
Information.
For more information about
REVERSE REPURCHASE AGREEMENTS,
DOLLAR ROLLS AND BORROWINGS, see
the Statement of Additional
Information.
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- --------------------------------------------------------------------------------
Credit (Financial) Risk
Credit risk refers to the risk that the issuer of a fixed income security may
default or be unable to pay interest or principal due on a fixed income
security.
To help the Funds' Investment Adviser or Sub-advisers decide which U.S.
corporate and foreign fixed income securities to buy, they rely on Moody's and
S&P (two nationally recognized rating services), and on VALIC's and/or a Sub-
adviser's own research. This research lowers the risk of buying a fixed income
security of a company that may not pay the interest and principal on the fixed
income security.
Certain of the Funds in this prospectus may buy fixed income securities that are
rated as investment grade. There are four different levels of investment grade,
from AAA to BBB; see Description of Bond Ratings herein. All fixed income
securities with these ratings are considered to have adequate ability to pay
interest and principal.
All of the Funds in this prospectus may buy fixed income securities issued by
the U.S. Government. The U.S. Government guarantees it will always pay principal
and interest.
Risks Associated with Lower Rated Fixed Income Securities
Certain of the Funds also may purchase fixed income securities that are rated
below investment grade. Fixed income securities rated below BBB- by S&P or Baa3
by Moody's are considered to be below investment grade. Fixed income securities
with a below investment grade rating present a comparatively greater risk of
default in the timely payment of interest and principal than fixed income
securities rated as investment grade.
The lower rated but higher yielding fixed income securities purchased by the
Funds may be issued in connection with corporate restructurings, such as
leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar
events. In addition, high yield fixed income securities are often issued by
smaller, less creditworthy companies or by companies with substantial debt. The
securities ratings by Moody's and S&P are based largely on the issuer's
historical financial condition and the rating agency's investment analysis at
the time of the rating. As a result, the rating assigned to a security does not
necessarily reflect the issuer's current financial condition, which may be
better or worse than the rating indicates. Credit ratings are only one factor
VALIC or a Sub-adviser relies on in evaluating lower-rated fixed income
securities. The analysis of a lower rated security may also include
consideration of the issuer's experience and managerial strength, changing
financial condition, borrowing requirements or debt maturity schedules,
regulatory concerns, and responsiveness to changes in business conditions and
interest rates. VALIC or a Sub-adviser also may consider relative values based
on anticipated cash flow, interest or dividend coverage, balance sheet analysis,
and earnings prospects.
The market for lower rated fixed income securities is relatively new and until
recently its growth has paralleled a long economic expansion. Past experience,
therefore, may not provide an accurate indication of future performance of this
market, particularly during an economic recession. An economic downturn or
increase in interest rates is likely to have a greater negative effect on the
ability of the issuers to pay principal and interest, meet projected business
goals, and obtain additional financing. These circumstances also may result in a
higher incidence of defaults compared to higher rated securities. As a result,
adverse changes in economic conditions and increases in interest rates may
adversely affect the market for lower rated fixed income securities, the value
of such securities in a Fund's portfolio, and, therefore, the Fund's net asset
value. As a result, investment in such Fund is more speculative than investment
in a fund that invests primarily in higher rated fixed income securities.
Although certain Funds intend generally to purchase lower rated securities that
have secondary markets, these markets may be less liquid and less active than
markets for higher rated securities. These factors may limit the ability of a
Fund to sell lower rated securities at their expected value. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower rated fixed income securities,
especially in a thinly traded market. If market quotations are not readily
available for the Fund's lower rated or non-rated securities, these securities
will be valued by a method VALIC or a Sub-advisor believes accurately reflects
fair value. Judgment plays a greater role in valuing lower rated fixed income
securities than it does in valuing securities for which more extensive
quotations and last sale information are available.
See the Appendix to the prospectus for a description for bond ratings.
Interest Rate Risk
Interest rate risk refers to the risk that fluctuations in interest rates may
affect the value of interest paying securities in a Fund. If a Fund sells a bond
before it matures, it may lose money, even if the bond is guaranteed by the U.S.
Government. Say, for example, a Fund bought an intermediate government bond last
year that was paying
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<PAGE> 81
- --------------------------------------------------------------------------------
interest at a fixed rate of 6%. Now, intermediate government bonds are paying
interest at a rate of 7%. If the Fund wants to sell the bond paying 6%, it will
have to sell it at a discount (and realize a loss) to attract buyers because
they can buy new bonds paying 7% interest.
Manager Risk
The Lifestyle Funds, which do not hold securities directly, are subject to
manager risk, which is the possibility that the portfolio managers of the
Underlying Series Company Funds may fail to execute the Underlying Series
Company Funds' investment strategies effectively. As a result, the Lifestyle
Funds may fail to meet their stated objectives.
Risk Associated with Foreign Securities
Certain Funds may, subject to limits stated in the Fund's Fact Sheet, invest in
foreign securities including ADRs, EDRs and GDRs and securities of companies
domiciled in emerging market countries. A foreign security is a security issued
by an entity domiciled or incorporated outside of the U.S.
Among the principal risks of owning foreign securities:
Political risk -- the chance of a change in government and the assets of the
company being taken away.
Currency risk -- a change in the value of the foreign currency compared to the
dollar. If the foreign currency declines in value, your investment valued in
U.S. dollars will decline even if the value of the foreign stock or bond is
unchanged.
Limited information -- foreign companies generally are not regulated to the
degree U.S. companies are and may not report all of the information we are used
to getting. To minimize taxes they may not report some income or they may report
higher expenses.
INVESTMENT PRACTICES
Limitations
Each Fund has limitations on the percentage of its assets that it may allocate
to certain investments. These limits are determined by the Fund's investment
objectives and risk level.
Some Funds are restricted from buying certain types of investments altogether.
For example, the Money Market Fund may not invest in futures and options.
Each Fund's limitations are shown in the Investment Strategy section of its Fact
Sheet.
Lending Portfolio Securities
Each Fund, except the Lifestyle Funds, may lend its investment securities to
broker-dealers and other financial institutions to earn more money for the Fund.
Assets are placed in a special account by the borrower to cover the market value
of the securities on loan. The assets serving as collateral for the loan are
valued daily.
A risk of lending portfolio investments is that there may be a delay in the Fund
getting its investments back when a loaned security is sold.
The Funds will only make loans to broker-dealers and other financial
institutions approved by its Custodian, as monitored by VALIC and authorized by
the Board of Trustees.
For more information about
FOREIGN SECURITIES AND EMERGING
MARKETS, see the Statement
of Additional Information.
For more information about
LENDING PORTFOLIO SECURITIES, see
the Statement of Additional Information.
For more information about
INVESTMENT LIMITATIONS, see the
Statement of Additional
Information.
75
<PAGE> 82
PURCHASING AND SELLING FUND SHARES
- --------------------------------------------------------------------------------
TYPES OF ACCOUNTS
The different ways you may set up an account are listed below.
Individual or Joint Tenant
Individual accounts are owned by one person. Joint accounts can have two or more
owners (tenants).
Retirement
Retirement plans provide individuals with tax-advantaged ways to save for
retirement, either with tax-deductible contributions or tax-free growth.
Retirement accounts require special applications and typically have lower
minimums. Retirement accounts include:
- Traditional Individual Retirement Accounts (IRAs)
- Roth IRAs
- Roth Conversion IRAs
- Rollover IRAs
- Profit Sharing or Money Purchase Pension Plans (Keoghs)
- Simplified Employee Pension Plans (SEP-IRAs)
- Salary Reduction SEP-IRAs (SARSEPs)
- SIMPLE IRAs
- 403(b) Custodial Accounts
- 401(k) Plans
- Deferred Compensation Plans (457 Plans)
Gifts or Transfers to a Minor (UGMA, UTMA)
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child without paying
federal gift tax. Depending on state laws, you can set up a custodial account
under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors
Act (UTMA).
Trust
The trust must be established before an account can be opened.
Business or Organization
For investment needs of corporations, associations, partnerships, or other
groups require a special application.
SALES ARRANGEMENTS
The Series Company offers two classes of Fund shares to you on a continuous
basis through the Distributor, an affiliate of VALIC. Fund shares are offered at
net asset value ("NAV") and, depending upon the class of shares you purchase, a
sales charge may be deducted.
- CLASS A SHARES. An investor who purchases Class A Shares pays a sales charge
at the time of purchase. Larger purchases of Class A Shares qualify for
reduced sales charges. Purchases of $1 million or more are not subject to
any sales charge at the time of purchase, but are subject to a contingent
deferred sales charge ("CDSC") if sold within a specified period after
purchase. Class A Shares are subject to an ongoing distribution and service
fee at an annual rate of 0.25% of each Fund's aggregate average daily net
assets attributable to Class A Shares. See "Purchasing and Selling Fund
Shares -- Distribution and Service Plan" herein.
- CLASS B SHARES. Class B Shares are sold without an initial sales charge but
are subject to a CDSC if sold within a specified period after purchase.
Class B Shares provide an investor the benefit of putting all the investor's
dollars to work from the time the purchase is made. Class B Shares are
subject to an ongoing distribution and service fee at an annual rate of
1.00% of each Fund's aggregate average daily net assets attributable to
Class B Shares. As a result of the distribution and service fee that Class B
Shares pay, Class B Shares have a higher expense ratio and pay lower
dividends than Class A Shares. Class B Shares convert automatically to Class
A Shares six years after the end of the calendar month in which an
investor's order to purchase was accepted. See "Purchasing and Selling Fund
Shares -- Distribution and Service Plan" and "Conversion Feature" herein.
- CONVERSION FEATURE. Class B Shares will convert automatically to Class A
Shares six years after the shares were purchased and will no longer be
subject to the distribution fee. The conversion will be based on the net
asset values of Class B and Class A Shares, respectively. Class B Shares
acquired through the reinvestment of dividends will be held in a separate
sub-account. Each time Class B Shares (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares
in the sub-account will also convert to Class A Shares.
Which Arrangement is Best for you?
The decision as to which class of shares provides a more suitable investment for
you depends on a number of factors, including the amount and intended length of
your investment. If your investment qualifies for a reduced sales charge, you
might consider Class A Shares. If you prefer not to pay an initial sales charge,
you might consider Class B Shares. The Distributor will not accept any purchase
order for Class B Shares for $500,000 or more because it ordinarily will be
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<PAGE> 83
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more advantageous for you to purchase Class A Shares.
With respect to the Money Market Fund and the Municipal Money Market Fund,
unless you intend to exchange your Fund shares for Class B Shares of other
Funds, you should purchase Class A Shares because Class A Shares are subject to
a lower distribution and service fee.
INVESTMENT MINIMUMS
The following table illustrates the minimum investment requirements for initial
and subsequent investments in each of the Funds, which may be changed at any
time, at the sole discretion of the Series Company.
<TABLE>
<CAPTION>
INVESTMENT MINIMUMS
-----------------------
INITIAL SUBSEQUENT
ACCOUNT INVESTMENT INVESTMENT
------- ---------- ----------
<S> <C> <C>
Regular Account $2,000 $50
UGMA/UTMA Accounts $ 250 $50
Automatic Investment
Programs $ 50 $50
</TABLE>
CLASS A SHARES
The public offering price of Class A Shares is the Fund's NAV plus a sales
charge that varies depending on the size of your purchase. The Fund whose shares
you purchase receives the net asset value. The sales charge is allocated between
the Distributor and the Series Company as shown in the following tables except
when the Series Company, in its discretion, allocates the entire amount to the
Distributor.
The Distributor will from time to time, at its expense, provide promotional
incentives or payments to the Distributor's registered representatives in
connection with sales of Class A Shares. These incentives or payments may
include payments for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and their guests to
locations within and outside the United States for meetings or seminars of a
business nature.
SALES CHARGE TABLES
EQUITY FUNDS*
<TABLE>
<CAPTION>
SALES CHARGE AS AMOUNT OF
A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
AMOUNT OF NET DISTRIBUTOR AS A
TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE INVESTED PRICE OFFERING PRICE
----------------- -------- -------- ----------------
<S> <C> <C> <C>
Less than $25,000 6.10% 5.75% 5.25%
$25,000 but less than
$50,000 5.82% 5.50% 5.00%
$50,000 but less than
$100,000 4.99% 4.75% 4.25%
$100,000 but less
than $250,000 3.90% 3.75% 3.25%
$250,000 but less
than $500,000 2.56% 2.50% 2.00%
$500,000 but less
than $1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more ** ** **
</TABLE>
- ---------------
* The Equity Funds include the S&P 500 Index
Fund, the Mid Cap Index Fund, the Small Cap Index Fund, the International
Growth Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the Small
Cap Growth Fund, the International Value Fund, the Large Cap Value Fund,
the Mid Cap Value Fund, the Small Cap Value Fund, the Socially Responsible
Fund, the Balanced Fund, the Growth Lifestyle Fund, the Moderate Growth
Lifestyle Fund and the Conservative Growth Lifestyle Fund.
** Redemptions subject to CDSC.
FIXED INCOME FUNDS*
<TABLE>
<CAPTION>
SALES CHARGE AS AMOUNT OF
A PERCENTAGE OF: SALES CHARGE
------------------- REALLOWED TO
AMOUNT OF NET DISTRIBUTOR AS A
TRANSACTION AMOUNT OFFERING PERCENTAGE OF
AT OFFERING PRICE INVESTED PRICE OFFERING PRICE
----------------- -------- -------- ----------------
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 but less than
$100,000 4.71% 4.50% 4.00%
$100,000 but less
than $250,000 3.63% 3.50% 3.00%
$250,000 but less
than $500,000 2.56% 2.50% 2.00%
$500,000 but less
than $1,000,000 2.04% 2.00% 1.75%
$1,000,000 or more ** ** **
</TABLE>
- ---------------
* The Fixed Income Funds include the High
Yield Bond Fund, the Strategic Bond Fund, the Domestic Bond Fund, the Core
Bond Fund and the Municipal Bond Fund.
** Redemptions subject to CDSC.
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- --------------------------------------------------------------------------------
There is no initial sales charge on purchases of Class A shares of $1 million or
more. However, a CDSC of 1.00% will be imposed on redemptions within one year of
purchase and 0.50% within the second year.
In determining whether a CDSC is payable, shares not subject to any charge will
be redeemed first followed by shares held longest during the CDSC period. Any
CDSC will be based on the lower of the shares' cost and current NAV. Any shares
acquired by reinvestment of distributions will be redeemed without a CDSC. The
Distributor receives the entire amount of any CDSC you pay.
WHEN THE SALES CHARGE ON CLASS A SHARES WILL BE REDUCED OR WAIVED
You may reduce or eliminate the initial sales charge through:
- - Volume Discount. Purchases of the Funds' Class A Shares made at the same time
in related accounts may be aggregated for the purpose of receiving a
discounted sales charge. Notice must be given at the time the orders are
placed that there are multiple orders which qualify for a reduced sales
charge.
- - Cumulative Purchase Discount. Purchases of the Funds' Class A Shares may also
qualify for a reduced sales charge based on the current total net asset value
of your account and any related accounts. Notice must be given at the time the
order is placed that it qualifies for a reduced sales charge based on related
holdings in existing Fund accounts.
- - Letter of Intent. Reduced sales charges may be applied to purchases over a
period of 13 months by entering into a Letter of Intent. Your existing
holdings may be combined with your new purchases in related accounts to reach
the investment commitment of the Letter of Intent. Up to 5% of the stated
amount of the Letter of Intent will be held in escrow to cover additional
sales charges which may be due if investments over the 13-month period are not
sufficient to qualify for the sales charge reduction. The term of the Letter
of Intent will begin on the date it is signed or, if you choose, up to 90 days
before the date the Letter of Intent is signed. See the Statement of
Additional Information and the Fund account application for further details.
- - NAV Purchases of Class A Shares. Class A Shares are purchased without an
initial sales charge in the following situations. No allowance is paid to the
Distributor on such purchases.
- Current and retired Trustees (and their families);
- Current and retired employees of American General Corporation and its
affiliates (and their families);
- Directors, officers, employees and, when permitted, registered
representatives of financial intermediaries that have entered into a
selling agreement with the Distributor;
- Financial institution trust departments investing in the aggregate more
than $1 million in the Funds; and
- Accounts for which broker-dealers, financial institutions or financial
planners charge an account management fee ("wrap accounts");
- Tax qualified plans with more than $1 million in plan assets;
- Tax qualified plans purchasing shares with loan repayments from
participants; and
- By a Fund in connection with the acquisition of another investment company.
"Families" include a person's spouse, children under 21 years of age,
grandchildren and parents.
The reduced sales charge programs may be changed or discontinued by the Series
Company at any time.
Reinstatement Privilege
If you redeem some or all of your Fund shares, you have up to 30 days to
reinvest all or part of your redemption proceeds in Class A Shares of the Fund
without paying a sales charge. This privilege applies only to redemptions of
Class A Shares on which an initial sales change or CDSC was paid or to
redemptions of Class A shares of the Fund that you purchased by reinvesting
dividends or distributions. You must ask National Financial Data Services, Inc.
(the "Transfer Agent") to apply this privilege when you send your payment.
CLASS B SHARES
Class B Shares are sold without an initial sales charge, although a CDSC will be
imposed if you sell Class B Shares within a specified period after purchase as
shown in the table herein. The following types of shares may be sold without
charge at any time: (i) shares acquired by reinvestment of distributions, and
(ii) shares for which the CDSC is waived, as described in "Purchasing and
Selling Fund Shares -- When the Contingent Deferred Sales Charge Will be Waived"
below. For other shares, the amount of the charge is determined as a percentage
of the lesser of the current market value or the cost of shares being redeemed.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
YEAR 1 2 3 4 5 6+
- --------------------------------------------------------------
CHARGE 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
</TABLE>
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- --------------------------------------------------------------------------------
In determining whether a CDSC is payable on any redemption, shares not subject
to any charge will be redeemed first, followed by shares held the longest during
the CDSC period. For this purpose, the amount of any increase in a share's value
above its initial purchase price is not regarded as a share exempt from a CDSC.
Thus, when a share that has appreciated in value is sold during the CDSC period,
a CDSC is assessed only on its initial purchase price. The Distributor receives
the entire amount of any CDSC you pay. Class B Shares will automatically convert
to Class A shares six years after the shares were purchased. See "Purchasing and
Selling Fund Shares -- Conversion Feature."
A commission of 4.00% of the purchase amount will be paid to the Distributor at
time of purchase. Additionally, the Distributor may pay promotional incentives
in the form of cash or other compensation to registered representatives that
sell Class B Shares.
WHEN THE CONTINGENT DEFERRED SALES CHARGE WILL BE WAIVED
A CDSC will not be assessed on Class B Shares for:
- - exchanges of Class B Shares of one Fund for the same Class of Shares of
another Fund;
- - redemptions from tax-deferred retirement plans and IRAs for required minimum
distributions when you reach age 70 1/2;
- - redemptions from tax-deferred retirement plans for returns of excess
contributions to the plan, termination of employment, participant loans and
hardship withdrawals;
- - redemptions as a result of death of the registered investor or in the case of
joint accounts, of all registered investors;
- - redemptions as a result of the disability of the registered investor (as
determined in writing by the Social Security Administration) which occurs
after the account was established;
- - redemptions for failure to meet minimum account balances; and
- - systematic withdrawal amounts provided amounts withdrawn do not exceed on an
annual basis 12% of the account value at the time the Transfer Agent receives
the request.
DISTRIBUTION AND SERVICE PLAN
The Series Company has adopted a Distribution and Service Plan ("Plan") for
Class A and Class B Shares under Rule 12b-1 of the 1940 Act. The Plan
compensates the Distributor for services provided and expenses incurred by it as
principal underwriter of the Funds' shares. The Plan provides for the payment of
a distribution and service fee by the Funds to the Distributor (expressed as a
percentage of average net assets) of 0.25% on Class A Shares and 1.00% on Class
B Shares.
Under the Plan, the Distributor receives a service fee for providing investor
services to Class A and Class B investors, which include establishing and
maintaining investor accounts and records, providing investor liaison services,
helping with requests to buy and sell shares, receiving and answering
correspondence and monitoring dividend payments. In addition, the Distributor
receives a distribution fee for selling and promoting Class A and Class B
Shares. The Distributor's distribution expenses may include sales commissions
and compensation paid to registered representatives, payments to marketing and
sales personnel, advertising expenditures and the costs of preparing and
distribution promotional material. The Plan authorizes the Distributor to enter
into agreements with other broker-dealers and financial intermediaries for the
provision of investor and distribution services to the Funds. See the Statement
of Additional Information for more information about the Distribution and
Service Plan.
HOW TO BUY SHARES
You can buy Fund shares through the Series Company by contacting Transfer Agent,
at 1-877-999-2434, or your registered representative or through an automatic
investment program.
GENERAL
You must indicate at the time of investment whether you are purchasing Class A
Shares or Class B Shares. You also are required by federal regulations to
certify your taxpayer identification or Social Security number when opening your
account. Failure to provide an identification number could subject you to
back-up withholding on any distributions, redemptions or disbursements from your
account.
A purchase order placed with the Transfer Agent by 3:00 p.m., Houston time each
day the New York Stock Exchange is open ("Business Day"), will be effected at
the NAV per share next determined on that day, provided you pay the purchase
price in immediately available funds. Purchase orders received after 3:00 p.m.
and on non-Business Days will be effected at the first NAV determined on the
following Business Day.
If your check used for investment does not clear, a fee may be imposed by the
Transfer Agent. All payments should be in U.S. dollars and, to avoid fees and
delays, should be drawn only on U.S. banks. The Series Company reserves the
right to reject any purchase order and may suspend sale of Fund shares in
response to conditions in the securities markets or for other reasons.
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All checks should be made payable to the Fund(s) in which you are investing, or
its authorized agent.
OPENING YOUR ACCOUNT
To open your account, contact your registered representative or complete the
enclosed application and return it to the Transfer Agent, or its authorized
agent, with your check. PLEASE INDICATE THE FUND AND THE CLASS OF SHARES YOU
WISH TO PURCHASE.
ADDING TO YOUR ACCOUNT
To add to your account, contact your registered representative or:
By Mail
Identify the Fund and account number or use the remittance slip attached to your
account statement. Send a check payable to the Fund in which you are investing
to the following address:
American General Fund Group
P.O. Box 419502
Kansas City, MO 64141-6502
By Wire
Initial or subsequent purchase payments can also be made by Federal Funds wire,
transferred along with proper instructions directly to your account. Before an
initial wire transfer can be accepted, an account must be established for you.
See your registered representative or call 1-877-999-2434 for further
instructions. Your financial institution may charge a fee for wiring funds to
your account. Consult your bank for information on remitting funds by wire and
any associated bank charges.
By Telephone
This service allows you to purchase additional shares quickly and conveniently
through an electronic transfer of money. When you make a purchase by telephone,
your pre-designated bank account will be debited for the desired amount. You can
establish this privilege when you open your account, or, if your account is
already established, call 1-877-999-2434 to request the appropriate form. This
option will become effective 10 days after the form is received.
AUTOMATIC INVESTMENT PROGRAMS
Automatic Investing
Money is automatically transferred from your bank account to your Fund account
monthly or quarterly. The minimum amount per transfer is $25 per Fund account.
This privilege may be set up when your account is opened or at any later date by
completing the appropriate section of the Fund application. You may discontinue
your participation in this program at any time.
Payroll Deduction
If your employer can initiate an automatic payroll deduction, you may make
regular investments of $50 or more per Fund account up to once per month from
your paycheck. To obtain information on establishing this option call
1-877-999-2434.
Systematic Exchange
In order to assist you in a dollar-cost averaging purchase program, you may
designate the amount of money ($25 minimum per Fund account) to be automatically
exchanged from one Fund to another once per month. In order to set up this
option, you must have at least $5,000 in the Fund from which you are exchanging.
You may discontinue your participation in this program at any time. For more
information on how to establish this option, call 1-877-999-2434.
HOW TO EXCHANGE SHARES
On any Business Day you may exchange your shares for shares of another Fund of
the same Class.
By Mail
To exchange your shares, your written request should include the following
information:
- - the name of the Fund(s) exchanging out of and in to;
- - the account number(s);
- - the amount of money or number of shares being redeemed;
- - the name(s) on the account;
- - the signature(s) of all registered owners, see "How to Sell (Redeem) Shares"
for more information about the signature requirements based on the type of
account; and
- - your daytime telephone number.
By Telephone
Accounts are automatically eligible for the telephone exchange option unless
this privilege was declined on the application or otherwise in writing. Call
1-877-999-2434 with the same information as noted above.
General Exchange Policies
- - Exchanges between accounts will only be accepted if the registrations are
identical.
- - Because excessive trading can hurt Fund performance and investors, the
Distributor may refuse any exchange purchase if (1) the Distributor believes
the Fund would be harmed or unable to invest effectively, or (2) the Fund
receives or anticipates simultaneous orders that may significantly affect the
Fund.
- - If you are exchanging Class A Shares of the Money Market Fund or the Municipal
Money
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<PAGE> 87
- --------------------------------------------------------------------------------
Market Fund for Class A Shares of any other Fund with a sales charge, you will
pay a sales charge at the time of the exchange.
- - Shares of the High Yield Bond Fund, the Strategic Bond Fund, the Core Bond
Fund, the Domestic Bond Fund and the Municipal Bond Fund may not be exchanged
for shares of any other Fund without the assessment of a sales charge within
90 days of the date of purchase.
- - An exchange represents the sale of shares from one Fund and the purchase of
shares of another Fund, which may produce a taxable gain or loss in a
nontax-deferred account.
- - If you are exchanging Class B shares, no CDSC is charged at the time of the
exchange.
We may modify or terminate the Series Company's exchange policies upon 60 days
prior written notice.
HOW TO SELL (REDEEM) SHARES
THROUGH YOUR REGISTERED REPRESENTATIVE
You may sell your shares on any Business Day by contacting your representative
or the Transfer Agent.
THROUGH THE TRANSFER AGENT
By Mail
Send a written request, signed by each owner (if joint account) to the Transfer
Agent, or its authorized agent, at the following address:
American General Fund Group
P.O. Box 419502
Kansas City, MO 64141-6502
PLEASE INDICATE THE FUND AND THE CLASS OF SHARES YOU WISH TO SELL.
By Wire
As soon as appropriate information regarding your bank account has been
established for your Fund account, you may write or telephone redemption
requests to the Transfer Agent, and redemption proceeds will be wired in Federal
Funds to the commercial bank you have specified. Information regarding your bank
account may be provided on the account application or in a signature guaranteed
letter of instruction to the Transfer Agent. Signature guarantee requirements
are discussed herein.
Redemption proceeds will normally be wired the next Business Day following the
day on which your request and any other necessary documents have been received
by the Transfer Agent, or its authorized agent. Requests must be for at least
$500 and may be subject to limits on frequency and amount. A charge of $25 may
be imposed for wire redemptions. Wire privileges may be modified or suspended at
any time.
Contact your bank for information on any charges imposed by the bank in
connection with receipt of redemptions by wire.
By Telephone
Accounts (other than IRAs) have this option unless this option was specifically
declined on the application or in writing. You may redeem up to $50,000 daily
from your account by calling 1-877-999-2434 before 3:00 p.m. Houston time.
Checks will be sent to the address of record.
AUTOMATIC REDEMPTIONS
Systematic Withdrawals
You may provide for the automatic redemption of a specific dollar amount from
your account on a regular basis. The minimum amount of a withdrawal is $50 and
the minimum account size is $5,000. If you own Class B Shares you may redeem up
to 12% annually of your initial account without incurring a CDSC.
Automated Clearing House ("ACH") Deposits
If your bank is a member of ACH, you may elect to have the redemption proceeds
of your Class A Shares electronically transferred into your bank account.
Redemption proceeds transferred to your bank account via the ACH plan are
credited to your account on the second Business Day following the date
redemption proceeds are paid. To participate in the ACH plan, you must fill out
the appropriate section of your account application and include a voided check
or deposit slip from your bank. You may terminate your participation in the ACH
plan at any time by submitting a written request to the Transfer Agent.
Check Writing Privilege
If you hold Class A shares of the Money Market Fund or the Municipal Money
Market Fund and you complete the appropriate section of the account application,
you may redeem shares of a Fund by writing checks on your account. The Transfer
Agent will provide you with a supply of checks drawn on State Street Bank and
Trust Company ("Bank"), which you may write in amounts of $100 or more.
When one of your checks is presented to the Bank for payment, the Transfer Agent
will redeem the number of Class A shares required to cover the amount of the
check at the next determined NAV. Check writing redemptions represent a sale of
your Class A shares. Any gain or loss realized on the sale of your Class A
Shares is a taxable event.
Checks will not be honored for the redemption of your Class A Shares that you
have held for less than 15 calendar days, unless you have paid for them by bank
wire. If you have written a check for an amount that exceeds the value of your
Class A Shares, the check will be returned to you and you may incur additional
charges. You may not liquidate your entire account by writing a check.
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- --------------------------------------------------------------------------------
The Series Company or the Bank may terminate or suspend the check writing
privilege at any time. If your account is subject to backup withholding you are
not eligible for the privilege.
Minimum Accounts
The Fund reserves the right to redeem any account if, after 60 days written
notice, the account's value remains below a $2,000 minimum balance ($500 for
UGMA, UTMA and automatic investment program accounts).
General Redemption Policies
- - Redemption orders are effected at the NAV per share next determined after
receipt of the order in proper form by the Transfer Agent. When you redeem
your Class B Shares within five years of purchase, you may be subject to a
CDSC as set forth in this Prospectus.
- - Redemption requests must be signed by each investor, including each joint
investor. When redeeming shares, you should indicate whether you are redeeming
Class A or Class B Shares. If you own both Class A and Class B Shares, Class A
Shares will be redeemed first unless you request otherwise. Certain types of
redemption requests will need to include a signature guarantee. Signature
guarantees must accompany redemption requests for: (1) an amount in excess of
$50,000; or (2) any amount if the redemption proceeds are to be sent somewhere
other than the address of record on the Series Company's books or if the
current address of record has not been on the books for 60 days.
- - You may obtain a signature guarantee from: (1) a bank which is a member of the
FDIC; (2) a trust company; (3) a member firm of a national securities
exchange; or (4) another eligible guarantor institution. Guarantees must be
signed by an authorized signatory of the guarantor institution and be
accompanied by the words "Signature Guaranteed." A notary public cannot
provide a signature guarantee.
- - The Series Company ordinarily will make payment for all shares redeemed within
three Business Days after the Transfer Agent receives a request in proper
form, except as provided by the rules of the SEC. However, if the shares to be
redeemed have been purchased by check, the Fund will, upon the clearance of
the purchase check, mail the redemption proceeds. It may take up to 15 days
for the purchase check to clear. This does not apply to situations where a
Fund receives payment via immediately available funds for the purchase of
shares.
NET ASSET VALUE OF THE SERIES COMPANY SHARES
How Net Asset Value is Calculated
Here is how the Series Company calculates the net asset value of each Fund's
shares:
<TABLE>
<S> <C> <C> <C>
Step 1:
Total value of the Fund's
assets* (including money The Fund's
owed to the Fund but not yet Total Net Asset
collected) = Value
- - The Fund's liabilities
(including money owed by the
Fund but not yet paid)
Step 2:
The Fund's total net asset
value (from Step 1)
/ The total number of the
Fund's shares that are NET ASSET VALUE
outstanding. = PER SHARE
</TABLE>
- ---------------
* The Series Company uses the fair market value of a Fund's
investments to calculate the Fund's total value. However, it uses the
amortized cost method to determine the values of all the Municipal Money
Market Fund's and the Money Market Fund's investments and of any other Fund's
short-term securities maturing within 60 days. The amortized cost method
approximates fair market value.
If a Fund's portfolio includes investments that are not sold often or are not
sold on any exchanges, the Series Company's Board of Trustees or its delegate
will, in good faith, estimate fair market value of these investments.
When Net Asset Value is Calculated
The Series Company calculates the net asset value of each Fund's shares at
approximately 4 pm EST each day the New York Stock Exchange is open. (The New
York Stock Exchange is open Monday through Friday but is closed on certain
federal and other holidays.)
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<PAGE> 89
ABOUT THE SERIES COMPANY
- --------------------------------------------------------------------------------
SERIES COMPANY SHARES
The Series Company is an open-end mutual fund and may offer shares of the Funds
for sale at any time. The Series Company was organized on March 16, 1998, under
the laws of the state of Delaware as a business trust, and presently is
authorized to sell 23 series. Each of these series is authorized to issue an
unlimited number of shares of beneficial interest, par value $0.01 per share,
divided into class. Presently, 18 series offer four classes of shares and 5
series offer two classes of shares. Additional series and classes may be
established from time to time in accordance with provisions of the Series
Company's Declaration of Trust.
Each class of shares represents an interest in the same assets of a Fund and
generally are identical in all respects except that each class bears certain
distribution expenses and has exclusive voting rights with respect to its
distribution fee, if any. Except as described herein, there are no conversion,
preemptive or other subscription rights. In the event of liquidation, each of
the shares of a Fund is entitled to its portion of all of the Fund's net assets
after all debts and expenses of the Fund have been paid. Since Class B Shares
pay higher distribution fees and transfer agent costs, the liquidation proceeds
to Class B shareholders are likely to be lower than to Class A investors.
The Series Company does not contemplate holding regular meetings of shareholders
to elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares of the Series Company may by written request require a
meeting to consider the removal of Trustees by a vote of two-thirds of the
shares then outstanding cast in person or by proxy at such meeting. The Series
Company will assist such holders in communicating with other shareholders of the
Series Company to the extent required by the 1940 Act. More detailed information
concerning the Series Company is set forth in the Statement of Additional
Information.
The Series Company's Declaration of Trust provides that no Trustee, officer or
shareholder of the Series Company shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or liability of the Series Company but the assets of the Fund only
shall be liable.
DIVIDENDS AND CAPITAL GAINS
Dividends from Net Investment Income
Net investment income generally includes stock dividends received and bond
interest earned less expenses paid by the Fund. Each Fund pays dividends from
net investment income occasionally. Except for the Municipal Bond Fund and the
Municipal Money Market Fund, each Fund's dividends from net investment income
are taxable as ordinary income. Dividends from net investment income are
automatically reinvested for you into additional shares of the Fund. However,
you may elect to receive dividends in cash or in shares of the Money Market Fund
or the Municipal Money Market Fund on your purchase application. The Money
Market Fund and the Municipal Money Market Fund pay dividends daily. The High
Yield Bond Fund, the Strategic Bond Fund, the Domestic Bond Fund, the Core Bond
Fund and the Municipal Bond Fund declare dividends daily and distribute such
dividends monthly. All of the other Funds pay dividends quarterly, except the
International Growth Fund and the International Value Fund, which pay dividends
semi-annually.
Distributions from Capital Gains
When a Fund sells a security for more than it paid for that security, a capital
gain results. Once a year, each Fund pays distributions from capital gains, as
long as total capital gains exceed total capital losses. Distributions from
capital gains are automatically reinvested for you into additional shares of the
Fund.
DIVERSIFICATION
Each Fund's diversification policy limits the amount that the Fund may invest in
certain securities. Each Fund's diversification policy is also designed to
comply with the diversification requirements of the Internal Revenue Code (the
"Code") as well as the 1940 Act.
All of the Funds, except the Lifestyle Funds, may, with respect to 75% of their
total assets, invest up to 5% of their total assets in a single issuer. An
issuer, or "company" does not include the U.S. Government or agencies of the
U.S. Government according to the Code and the 1940 Act. For diversification
purposes, repurchase agreements are considered to be issued by the U.S.
Government if backed by U.S. Government securities. Also, these Funds may not
own more than 10% of the voting securities of a company.
The Lifestyle Funds are "non-diversified" under the 1940 Act, which means that
the Lifestyle Funds are not limited in the proportion of their assets that may
be invested in the securities of a single issuer.
Also, the Municipal Money Market Fund and the Money Market Fund may not invest
more than 5% of its total assets in any company rated as "second tier" by a
national rating service (as described in Types of Investments).
TAXES
By paying out all earnings as described in the Dividends and Capital Gains
section above and by complying with the diversification requirements under the
Code, each Fund expects to qualify as a Registered Investment Company (RIC)
under Subchapter M of the Code. By qualifying as a
VALIC INVESTMENT
SERVICES COMPANY
(the Distributor) acts as the
Series Company's
distributor.
See the Statement of Additional
information for further tax
discussions. You should also
consult your tax advisor
before investing.
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<PAGE> 90
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RIC the Fund will not have to pay federal income taxes.
VOTING RIGHTS
One Vote Per Share
Each outstanding share has one vote on all matters that shareholders vote on.
Shareholder Meetings
Delaware law does not require the Series Company to hold regular, annual
shareholder meetings. But, the Series Company must hold shareholder meetings on
the following matters:
- to approve certain agreements as required by the 1940 Act;
- to change fundamental investment objectives in the Diversification section
and to change fundamental investment restrictions, above;
- to fill vacancies on the Series Company's Board of Trustees if the
shareholders have elected less than a majority of the Trustees.
Controlling Shareholder
VALIC, as the initial sole shareholder of each of the Funds as of the
commencement date of the Series Company, controls each Fund. VALIC does not
anticipate that its initial control of each Fund will adversely affect the
rights of future shareholders.
YEAR 2000 RISKS
VALIC is in the process of modifying its systems to achieve Year 2000 readiness.
This endeavor is directed and managed by VALIC and monitored by the parent
company, American General Corporation. VALIC has developed clearly defined and
documented plans that have been implemented to minimize the risk of significant
negative impact on its operations.
These plans include the following activities: (1) perform an inventory of
VALIC's information technology and non-information technology systems; (2)
assess which items in the inventory may expose VALIC to business interruptions
due to Year 2000 issues; (3) test systems for Year 2000 readiness; (4) reprogram
or replace systems that are not Year 2000 ready; and (5) return the systems to
operation. VALIC expects to complete the forgoing activities for all critical
business systems relevant to the Series Company by December 1998. Accordingly,
VALIC has no contingency plans because any open Year 2000 issues may be
addressed in 1999.
In addition, the Series Company and VALIC have business relationships with
various third parties, each of which must also be Year 2000 ready. Therefore,
VALIC's plans also include assessing and attempting to mitigate the risks
associated with the potential failure of third parties to achieve Year 2000
readiness. Due to the various stages of the third parties' Year 2000 readiness,
VALIC's efforts in this regard will extend through 1999.
Through June 30, 1998 VALIC has incurred and expensed $13 million (pretax)
related to Year 2000 readiness, including $6.5 million incurred during the first
six months of 1998. VALIC currently anticipates that it will incur future costs
of $3 million (pretax) for additional internal staff, third party vendors, and
other expenses to achieve Year 2000 readiness.
Due to the magnitude and complexity of this project, risks and uncertainties
exist. If conversion of VALIC's systems is not completed on a timely basis (due
to non-performance by significant third-party vendors or other unforeseen
circumstances), or if significant third parties fail to achieve Year 2000
readiness on a timely basis, the Year 2000 issue could have a material adverse
impact on the operations of VALIC and the Series Company.
EURO CONVERSION
The planned introduction of a single European currency, the Euro, on January 1,
1999 for participating European nations in the Economic and Monetary Union (EMU)
presents unique risks and uncertainties for investors in those countries. The
European Union currently consists of: Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, Sweden and the United Kingdom. The risks associated with the introduction
of the Euro include: (i) whether the payment and operational systems of banks
and other financial institutions will be ready by the scheduled launch date;
(ii) the creation of suitable clearing and settlement payment schemes for the
Euro; (iii) the legal treatment of outstanding financial contracts after January
1, 1999 that refer to existing currencies rather than the Euro; (iv) the
fluctuation of the Euro relative to non-Euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; and (v) whether the
interest rate, tax and labor regimes of the European countries participating in
the Euro will converge over time. Further, the conversion of the currencies of
other EMU countries, such as the United Kingdom, and the admission of other
countries, including Central and Eastern European countries, to the EMU could
adversely affect the Euro. These or other factors may cause market disruptions
before or after the introduction of the Euro and could adversely affect the
value of foreign securities and currencies held by the Funds.
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Additionally, while it is not possible to predict the impact of the Euro
implementation plan on the Funds, the transition to the Euro may change the
economic environment and behavior of investors, particularly in European
markets. For example, investors may begin to view those countries participating
in the EMU as a single entity, and VALIC and the Sub-advisers may need to adapt
their investment strategies accordingly. The process of implementing the Euro
also may adversely affect financial markets world-wide and may result in changes
in the relative strength and value of the U.S. dollar or other major currencies.
Also, the transition to the Euro is likely to have a significant impact on
fiscal and monetary policy in the participating countries and may produce
unpredictable effects on trade and commerce generally. These resulting
uncertainties could create increased volatility in financial markets world-wide.
REPORTS
The Series Company sends Annual Reports containing audited financial statements,
Semi-Annual Reports containing unaudited financial statements, and proxy
materials to investors.
If you have any questions about the Annual or Semi-Annual Reports, call or write
to the Series Company at the phone number/address found on the cover page of
this prospectus.
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APPENDIX -- DESCRIPTION OF BOND RATINGS
- --------------------------------------------------------------------------------
MOODY'S INVESTORS SERVICE
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Nonrated: Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1 and B 1.
STANDARD & POOR'S CORPORATION
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
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these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PREFERRED STOCK RATINGS
Both Moody's and Standard & Poor's use the same designations for corporate bonds
as they do for preferred stock, except in the case of Moody's preferred stock
ratings, the initial letter rating is not capitalized. While the descriptions
are tailored for preferred stocks, the relative quality distinctions are
comparable to those described above for corporate bonds.
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APPENDIX -- DESCRIPTION OF MUNICIPAL BOND RATINGS
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MOODY'S
AAA: Municipal bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA: Municipal bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger.
A: Municipal bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
BAA: Municipal bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
These bonds lack outstanding investment characteristics and, in fact, have
speculative characteristics as well.
BA: Municipal bonds rated Ba are judged to have predominantly speculative
elements and their future cannot be considered well assured. Often the
protection of interest and principal payments may be very moderate and, thereby,
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
CON.(-): Municipal bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes probable credit stature upon the
completion of construction or the elimination of the basis of the condition.
S&P
AAA: Municipal bonds rated AAA are the highest-grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market,
they move with interest rates and, hence, provide the maximum safety on all
counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in the
majority of instances differ from AAA issues only in a small degree. Here, too,
prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium-grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions.
BBB: Municipal bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
FITCH
AAA: Municipal bonds rated AAA are considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events.
AA: Municipal bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong although not quite as strong as bonds rated AAA and not
significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have
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an adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is
higher than for bonds with higher ratings.
BB: Municipal bonds rated BB are considered speculative. The obligor's ability
to pay interest and repay principal may be affected over time by adverse
economic changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service requirements.
Plus (+) or minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus or minus signs
are not used with the AAA category.
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APPENDIX -- DESCRIPTION OF MUNICIPAL NOTE RATINGS
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MOODY'S
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
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APPENDIX -- DESCRIPTION OF COMMERCIAL PAPER RATINGS
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MOODY'S
Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, CDs, medium-term notes, and municipal and investment notes. The
short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-5: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
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Please tear off, complete and return the form below to American General Fund
Group Customer Service, P.O. Box 419502, Kansas City, Missouri 64141-6502 to
order a Statement of Additional Information for the Company. A Statement of
Additional Information may also be ordered by calling 1-877-999-2434.
................................................................................
- --------------------------------------------------------------------------------
Please send me a free copy of the Statement of Additional Information for
American General Series Portfolio Company 2.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
Social Security Number: ____________________________________________________
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<PAGE> 101
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INVESTMENT ADVISER:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
INVESTMENT SUB-ADVISERS:
American General Investment Management, L.P.
2929 Allen Parkway
Houston, Texas 77019
Bankers Trust Company
130 Liberty St.
New York, New York 10006
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Fiduciary Management Associates, Inc.
55 West Monroe Street
Suite 2550
Chicago, Illinois 60603
Goldman Sachs Asset Management
One New York Plaza
New York, New York 10004
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Jacobs Asset Management
200 East Broward Boulevard
Suite 1920
Fort Lauderdale, Florida 33301
Neuberger&Berman Management Inc.
605 Third Avenue
Second Floor
New York, New York 10158-0180
State Street Global Advisors
2 International Place
Boston, Massachusetts 02110
DISTRIBUTOR:
VALIC Investment Services Company
2929 Allen Parkway
Houston, Texas 77019
CUSTODIAN:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS:
Ernst & Young LLP
1221 McKinney Street
Houston, Texas 77010
TRANSFER AND SHAREHOLDER SERVICE AGENT:
National Financial Data Services, Inc.
330 West 9th Street
Kansas City, Missouri 64105
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
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<S> <C> <C>
Judith L. Craven Thomas L. West, Jr. Chairman
Timothy J. Ebner John A. Graf President
Gustavo E. Gonzales, Jr. Craig R. Rodby Vice Chairman
John A. Graf John E. Arant Executive Vice President
Norman Hackerman Michael G. Atnip Executive Vice President
John Wm. Lancaster Joe C. Osborne Executive Vice President
Ben H. Love Peter V. Tuters Senior Investment Officer
John E. Maupin, Jr. Teresa S. Moro Vice President and Investment Officer
F. Robert Paulsen William Trimbur, Jr. Vice President and Investment Officer
Craig R. Rodby Brent C. Nelson Vice President
R. Miller Upton Cynthia A. Toles Vice President and Secretary
Thomas L. West, Jr. Nori L. Gabert Vice President and Assistant Secretary
Maruti D. More Vice President-Investments
Gregory R. Seward Treasurer
Kathryn A. Pearce Controller
Cynthia A. Gibbons Assistant Vice President
Jaime M. Sepulveda Assistant Treasurer
Donna L. Hathaway Assistant Controller
Earl E. Allen, Jr. Assistant Treasurer
</TABLE>
Printed Matter
Printed in U.S.A.
VA 108561 VER. 11/98 Recycled Paper LOGO
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<PAGE> 102
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THE STATEMENT OF
ADDITIONAL INFORMATION DOES NOT CONSTITUTE A PROSPECTUS.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 15, 1998
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 2
INSTITUTIONAL CLASS I SHARES 2929 ALLEN PARKWAY
HOUSTON TEXAS 77019
OCTOBER 15, 1998
PROSPECTUS
The American General Series Portfolio Company 2 (the "Series Company") is a
mutual fund made up of 23 separate Funds (the "Funds"), 18 of which are
described in detail in this prospectus. Each of the Funds has a different
investment objective. Each Fund is explained in more detail on its Fact Sheet
contained in this prospectus. Here is a summary of the goals of the 18 Funds
available under this prospectus:
ACTIVELY MANAGED EQUITY FUNDS:
AMERICAN GENERAL INTERNATIONAL GROWTH FUND ("INTERNATIONAL GROWTH FUND")
Long-term capital appreciation through investments in non-U.S. companies,
the majority of which are expected to be in developed markets.
AMERICAN GENERAL LARGE CAP GROWTH FUND ("LARGE CAP GROWTH FUND")
Long-term growth through investments in large cap U.S. issuers. Dividend
income is a secondary objective.
AMERICAN GENERAL MID CAP GROWTH FUND ("MID CAP GROWTH FUND")
Capital appreciation through investments in medium capitalization equity
securities. Current income is a secondary objective.
AMERICAN GENERAL SMALL CAP GROWTH FUND ("SMALL CAP GROWTH FUND")
Long-term growth through investments in small growth companies.
AMERICAN GENERAL INTERNATIONAL VALUE FUND ("INTERNATIONAL VALUE FUND")
Growth of capital and future income through investments in non-U.S.
issuers.
AMERICAN GENERAL LARGE CAP VALUE FUND ("LARGE CAP VALUE FUND")
Total returns exceeding the Russell 1000 Value Index through investments in
equity securities.
AMERICAN GENERAL MID CAP VALUE FUND ("MID CAP VALUE FUND")
Growth through investments in medium capitalization companies.
AMERICAN GENERAL SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND")
Maximum long-term return through investments in small capitalization
companies.
SPECIALTY EQUITY FUND:
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND ("SOCIALLY RESPONSIBLE FUND")
Growth through investments in companies meeting social criteria of the
Fund.
BALANCED FUND:
AMERICAN GENERAL BALANCED FUND ("BALANCED FUND")
Conservation of principal and long-term growth of capital and income
through investments in fixed income and equity securities.
INCOME FUNDS:
AMERICAN GENERAL HIGH YIELD BOND FUND ("HIGH YIELD BOND FUND")
Highest possible total return and income consistent with conservation of
capital through investments in high yielding, high risk fixed income
securities. INVESTMENTS OF THIS TYPE ARE REGARDED BY THE RATING AGENCIES AS
PREDOMINANTLY SPECULATIVE WITH RESPECT TO AN ISSUER'S CONTINUING ABILITY TO
MEET PRINCIPAL AND INTEREST PAYMENTS.
AMERICAN GENERAL STRATEGIC BOND FUND ("STRATEGIC BOND FUND")
Highest possible total return and income consistent with conservation of
capital through investments in income producing securities. THE LOWER RATED
FIXED INCOME SECURITIES IN WHICH THE FUND MAY INVEST ARE REGARDED BY THE
RATING AGENCIES AS SPECULATIVE WITH RESPECT TO AN ISSUER'S CONTINUING
ABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS.
AMERICAN GENERAL DOMESTIC BOND FUND ("DOMESTIC BOND FUND")
High total return consistent with conservation of capital through
investments primarily in investment grade fixed income securities.
AMERICAN GENERAL CORE BOND FUND ("CORE BOND FUND")
Highest possible total return consistent with conservation of capital
through investments in medium to high quality fixed income securities.
MONEY MARKET FUND:
AMERICAN GENERAL MONEY MARKET FUND ("MONEY MARKET FUND")
Income through investments in short-term money market securities.
LIFESTYLE FUNDS:
AMERICAN GENERAL GROWTH LIFESTYLE FUND ("GROWTH LIFESTYLE FUND")
Growth through investments in Series Company Funds.
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND ("MODERATE GROWTH LIFESTYLE
FUND")
Growth and current income through investments in Series Company Funds.
AMERICAN GENERAL CONSERVATIVE GROWTH LIFESTYLE FUND ("CONSERVATIVE GROWTH
LIFESTYLE FUND")
Current income and a low to moderate level of growth through investments in
Series Company Funds.
- --------------------------------------------------------------------------------
SHARES OF THE MONEY MARKET FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THIS FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The Variable Annuity Life Insurance Company ("VALIC") is the Funds' investment
adviser. Institutional Class I Shares of these Funds are available to you only
through an employer retirement plan purchased through VALIC Investment Services
Company (the "Distributor"), an affiliate of VALIC, which establishes an account
balance with the Series Company in excess of $5 million. The Distributor may
waive the minimum account balance requirement under certain conditions. For full
details of Institutional Class I Shares eligibility criteria, see "Purchase and
Redemption of Shares.". VALIC is a member of the American General Corporation
group of companies.
Because different employer plans contain different combinations of Funds, all of
the Funds in this prospectus may not be available to you. And, there may be some
Funds that are available to you that don't appear in this prospectus. See the
separate prospectus that describes your employer's plan for a complete list of
Funds in which you may invest. BE SURE TO READ ALL PROSPECTUSES AND EMPLOYER
PLAN MATERIALS IN FULL BEFORE YOU START PARTICIPATING AND KEEP THEM FOR FUTURE
REFERENCE.
This prospectus offers Institutional Class I shares of the Funds only. The Funds
offer other classes of shares that offer different services to investors and
incur different expenses, which would affect performance.
This prospectus sets forth concisely the information you should know before
investing in the Funds.
VALIC has filed a Statement of Additional Information, dated October 15, 1998,
with the Securities and Exchange Commission ("SEC"). This Statement contains
additional information about these Funds and is part of this prospectus. For a
free copy, write to American General Series Portfolio Company 2 at the address
above or call 1-888-568-2542. The Statement of Additional Information has been
filed with the SEC and is available along with other related materials at the
SEC's internal web site (http://www.sec.gov).
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE REGULATORS HAVE
APPROVED OR DISAPPROVED THESE FUNDS. ALSO, NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE REGULATORS HAVE PASSED ON WHETHER THIS PROSPECTUS IS
ADEQUATE OR ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
DO NOT COPY
<PAGE> 103
TABLE OF CONTENTS
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PAGE
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COVER PAGE
WELCOME....................................... 1
FEE TABLE..................................... 3
ABOUT THE SERIES COMPANY MANAGEMENT........... 5
Investment Adviser....................... 5
Investment Sub-advisers.................. 5
Portfolio Manager........................ 7
How Advisers Are Paid for Their
Services............................... 7
The Sub-advisers......................... 8
About the Board of Trustees.............. 9
ABOUT THE FUNDS............................... 10
Growth, Balanced, Income, Stability and
Lifestyle Categories................... 10
About Level of Risk...................... 10
About Portfolio Turnover................. 10
About Fund Performance................... 11
HOW TO READ A FUND FACT SHEET................. 12
SERIES COMPANY FUND FACT SHEETS
ACTIVELY MANAGED EQUITY FUNDS
International Growth Fund........... 13
Large Cap Growth Fund............... 17
Mid Cap Growth Fund................. 19
Small Cap Growth Fund............... 22
International Value Fund............ 24
Large Cap Value Fund................ 26
Mid Cap Value Fund.................. 29
Small Cap Value Fund................ 31
SPECIALTY EQUITY FUND
Socially Responsible Fund........... 33
BALANCED FUND
Balanced Fund....................... 35
INCOME FUNDS
High Yield Bond Fund................ 38
Strategic Bond Fund................. 39
Domestic Bond Fund.................. 41
Core Bond Fund...................... 43
MONEY MARKET FUND
Money Market Fund................... 46
LIFESTYLE FUNDS
Growth Lifestyle Fund............... 48
Moderate Growth Lifestyle Fund...... 50
Conservative Growth Lifestyle
Fund.............................. 52
</TABLE>
<TABLE>
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PAGE
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<S> <C>
TYPES OF INVESTMENTS.......................... 54
Equity Securities........................ 54
Fixed Income Securities.................. 54
U.S. Government Securities.......... 55
Mortgage-Related Securities......... 55
Asset-Backed Securities............. 56
Loan Participations................. 56
Variable Rate Demand Notes...............
Variable Amount Demand Master Notes...... 56
Structured Securities.................... 56
Real Estate Securities................... 57
Illiquid and Restricted Securities....... 57
Foreign Securities....................... 57
Depository Receipts...................... 57
Investment Funds......................... 57
Foreign Currency......................... 57
When-Issued Securities................... 58
Money Market Securities.................. 58
Investment Companies..................... 58
Derivatives.............................. 58
Options............................. 58
Call Option......................... 58
Put Option.......................... 58
Swap Agreements.......................... 59
Warrants and Rights...................... 59
Repurchase Agreements.................... 59
Reverse Repurchase Agreements, Dollar
Rolls and Borrowings................... 59
A Word About Risk........................ 60
Investment Practices..................... 61
Limitations......................... 61
Lending Portfolio Securities........ 61
ABOUT THE SERIES COMPANY...................... 62
Series Company Shares.................... 62
Purchase and Redemption of Shares........ 62
Transfers and Exchanges.................. 63
Net Asset Value of the Series Company
Shares................................. 63
Dividends and Capital Gains.............. 63
Diversification.......................... 63
Taxes.................................... 64
Voting Rights............................ 64
Year 2000 Risks.......................... 64
Euro Conversion.......................... 64
Reports.................................. 65
Appendix -- Description of Bond Ratings....... 66
Appendix -- Description of Commercial Paper
Ratings..................................... 68
</TABLE>
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WELCOME
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, and VALIC mean
The Variable Annuity Life Insurance Company and any Investment Sub-adviser that
we work with. The words you and your mean the participant.
American General Series Portfolio Company 2 (the "Series Company") was organized
as a Delaware business trust on March 16, 1998.
The Series Company is an open-end management investment company and currently
consists of 23 different Funds, 18 of which are described in detail in this
prospectus. VALIC serves as each Fund's Investment Adviser and, in this role,
reports directly to the Series Company's Board of Trustees. As Investment
Adviser, VALIC oversees the Funds' day-to-day operations, supervise the
purchases and sales of Fund investments and performs the cash management
function. Investment Sub-advisers make the investment decisions for the Funds
that they manage, as described more fully in this prospectus. However, VALIC
makes investment decisions for, and is directly responsible for the day-to-day
management of, the Socially Responsible Fund, the Money Market Fund and the
Lifestyle Funds. For more information, see "About the Series Company's
Management" in this prospectus.
Individuals can't invest in the shares of these Funds directly. Instead, they
participate through an employer plan that purchases shares of the Funds through
the Distributor. Most often employers establish retirement plans so they can
offer their employees a way to save for retirement. Retirement plans through
employers may be entitled to tax benefits that individual retirement plans may
not be entitled to. These tax benefits are fully explained in your employer's
plan materials.
After you invest in a Fund, you participate in Fund earnings or losses, in
proportion to the amount of money you invest. Depending on your employer plan,
if you withdraw your money before retirement, you may incur charges and
additional tax liabilities. However, to save for retirement, you generally
should let your investments and their earnings build. At retirement, you may
withdraw all or a portion of your money or leave it in the account until you
need it. At a certain age you may be required to begin withdrawals.
All inquiries regarding this prospectus should be directed, in writing, to
American General Fund Group Customer Service, P.O. Box 8254, Boston,
Massachusetts 02266-8254, or by calling 1-888-568-2542.
Open-end means shares
of the Funds can be
bought or sold by the
Series Company at any
time. Also, there is no limit
on the number of investors
who may buy shares.
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FEE TABLE
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The following tables illustrate the fees and expenses that investors bear
directly or indirectly as shareholders of the Funds. Shareholder transaction
expenses are the charges that an investor pays to purchase or redeem shares of a
Fund. Annual fund operating expenses are the fees paid out of the assets of a
Fund. Each Fund pays a management fee to VALIC. The expenses paid by a Fund are
factored into the calculation of its share price or dividends and are not
charged directly to investors. The expenses reflected in the tables below are
based on the Funds' anticipated expenses for the first year of operation on an
annualized basis.
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<TABLE>
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SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Load Imposed on Reinvested Dividends None
Maximum Deferred Sales Load None
Redemption Fees (as a percentage of amounts redeemed, if
applicable) None
Exchange Fee None
</TABLE>
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursements, as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LARGE SMALL LARGE
CAP CAP CAP
INTERNATIONAL GROWTH MID CAP GROWTH INTERNATIONAL VALUE MID CAP SMALL CAP
GROWTH FUND FUND GROWTH FUND FUND VALUE FUND FUND VALUE FUND VALUE FUND
------------- ------ ----------- ------ ------------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee 0.90% 0.55% 0.65% 0.85% 1.00% 0.50% 0.75 0.75%
12b-1 Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses(b) 0.87% 0.60% 0.77% 0.70% 0.84% 0.60% 0.76% 0.70%
Total Fund Expenses 2.02% 1.40% 1.67% 1.80% 2.09% 1.35% 1.76% 1.70%
------ ------ ------ ------ ------ ------ ------ ------
Expense Reimbursement -0.74% -0.42% -0.75% -0.52% -0.92% -0.42% -0.59% -0.59%
Total Fund Expenses after
Reimbursement 1.28% 0.98% 0.92% 1.28% 1.17% 0.93% 1.17% 1.11%
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
SOCIALLY
RESPONSIBLE
FUND
-------------
<S> <C>
Management Fee 0.25%
12b-1 Fee 0.25%
Other Expenses(b) 2.73%
Total Fund Expenses 3.23%
------
Expense Reimbursement -2.55%
Total Fund Expenses after
Reimbursement 0.68%
======
</TABLE>
<TABLE>
<CAPTION>
MONEY GROWTH
BALANCED HIGH YIELD STRATEGIC DOMESTIC CORE MARKET LIFESTYLE
FUND BOND FUND BOND FUND BOND FUND BOND FUND FUND FUND(A)
---------- ----------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee 0.80% 0.70% 0.60% 0.60% 0.50% 0.25% 0.10%
12b-1 Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.00%
Other Expenses(b) 0.77% 1.53% 2.46% 0.67% 1.84% 1.75% 0.00%
------ ------ ------ ------ ------ ------ ------
Total Fund Expenses 1.82% 2.48% 3.31% 1.52% 2.59% 2.25% 0.10%
Expense Reimbursement -0.87% -1.35% -2.28% -0.61% -1.66% -1.57% 0.00%
Total Fund Expenses after
Reimbursement 0.95% 1.13% 1.03% 0.91% 0.93% 0.68% 0.10%
====== ====== ====== ====== ====== ====== ======
<CAPTION>
MODERATE CONSERVATIVE
GROWTH GROWTH
LIFESTYLE LIFESTYLE
FUND(A) FUND(A)
---------- --------------
<S> <C> <C>
Management Fee 0.10% 0.10%
12b-1 Fee 0.00% 0.00%
Other Expenses(b) 0.00% 0.00%
------ ------
Total Fund Expenses 0.10% 0.10%
Expense Reimbursement 0.00% 0.00%
Total Fund Expenses after
Reimbursement 0.10% 0.10%
====== ======
</TABLE>
- ---------------
(a)
The Growth Lifestyle Fund, the Moderate Growth Lifestyle Fund and the
Conservative Growth Lifestyle Fund seek to accomplish their respective
objectives by investing primarily in a number of other Series Company Funds
("Underlying Series Company Funds"). Each Lifestyle Fund will bear
indirectly its pro rata share of the fees and expenses incurred by the
Underlying Series Company Funds in which the Lifestyle Fund is invested.
Each Lifestyle Fund will invest only in Institutional Class II shares of
the Underlying Series Company Funds.
(b) Other Expenses, which include custody, accounting, reports to shareholders,
audit, legal, administrative, recordkeeping and other miscellaneous
services provided to the Funds, are based on estimated amounts for the
current fiscal year.
- --------------------------------------------------------------------------------
TOTAL COMBINED OPERATING EXPENSES(a)
(including indirect expenses) (after expense reimbursements, as a percentage of
net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMBINED
OPERATING EXPENSES(B)
------------------------
<S> <C>
Growth Lifestyle Fund 1.19%
Moderate Growth Lifestyle Fund 1.13%
Conservative Growth Lifestyle Fund 1.10%
</TABLE>
- ---------------
(a) Estimated Total Combined Operating Expenses of each Lifestyle Fund is based
on the Total Fund Operating Expenses of the Underlying Series Company Funds
and the Lifestyle Funds, assuming each Lifestyle Fund's projected asset
allocation among the Underlying Series Company Funds is maintained.
(b) Reflects estimated total average weighted combined operating expenses.
- ---------------
The purpose of the expense tables above is to assist investors in understanding
the various costs and expenses that a shareholder of a Fund will bear directly
or indirectly.
3
<PAGE> 107
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment assuming each Fund's
annual return is 5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
International Growth Fund $13 $41
Large Cap Growth Fund $10 $31
Mid Cap Growth Fund $ 9 $29
Small Cap Growth Fund $13 $41
International Value Fund $12 $37
Large Cap Value Fund $ 9 $30
Mid Cap Value Fund $12 $37
Small Cap Value Fund $11 $35
Socially Responsible Fund $ 7 $22
Balanced Fund $10 $30
High Yield Bond Fund $12 $36
Strategic Bond Fund $11 $33
Domestic Bond Fund $ 9 $29
Core Bond Fund $ 9 $30
Money Market Fund $ 7 $22
Growth Lifestyle Fund $ 1 $ 3
Moderate Growth Lifestyle Fund $ 1 $ 3
Conservative Growth Lifestyle Fund $ 1 $ 3
</TABLE>
THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
4
<PAGE> 108
ABOUT THE SERIES COMPANY'S MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC, a stock life insurance company, has been in the investment advisory
business since 1960. VALIC, as of June 30, 1998, had over $8.5 billion in assets
under management. VALIC has been the Investment Adviser for the Funds that
comprise the Series Company since their inception.
VALIC is a member of the American General Corporation group of companies. The
American General Corporation group of companies is a leading provider of
retirement services, life insurance and consumer loans. Members of the American
General Corporation group of companies operate in each of the 50 states and
Canada.
As Investment Adviser, VALIC oversees the Funds' day to day operations. Also,
VALIC supervises the purchase and sale of Fund investments and performs the cash
management function. For the International Growth Fund, the Large Cap Growth
Fund, the Mid Cap Growth Fund, the Small Cap Growth Fund, the International
Value Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the Small Cap
Value Fund, the Balanced Fund, the High Yield Bond Fund, the Strategic Bond
Fund, the Domestic Bond Fund and the Core Bond Fund, VALIC employs Investment
Sub-advisers who make investment decisions for such Fund(s). However, VALIC
makes investment decisions for, and is directly responsible for the day to day
management of, the Socially Responsible Fund, the Money Market Fund and the
Lifestyle Funds. VALIC serves as Investment Adviser through an Investment
Advisory Agreement it entered into with the Series Company. The Investment
Advisory Agreement provides for the Series Company to pay all expenses not
specifically assumed by VALIC. Examples of the expenses paid by the Series
Company include transfer agency fees, custodial fees, the fees of outside legal
and auditing firms, the costs of reports to shareholders and expenses of
servicing shareholder accounts (e.g., daily calculation of the net asset value).
The Series Company allocates these expenses to each Fund in a manner approved by
the Board of Trustees. After the second year, this agreement will be renewed
once each year by the Series Company's Board of Trustees.
One Investment Advisory Agreement dated October 7, 1998 covers all Funds.
For more information about the Advisory Agreement, see the "Investment Adviser"
section in the Statement of Additional Information.
INVESTMENT SUB-ADVISERS
For some of the Funds, VALIC works with Investment Sub-advisers, financial
service companies that specialize in certain types of investing. However, VALIC
still retains ultimate responsibility for managing the Funds. The Sub-adviser's
role is to make investment decisions for the Funds according to each Fund's
investment objectives and restrictions.
In selecting Sub-advisers, the Series Company's Trustees carefully evaluated:
(i) the nature and quality of the services expected to be rendered to the
Fund(s) by the Sub-adviser; (ii) the distinct investment objective and policies
of the Fund(s); (iii) the history, reputation, qualification and background of
the Sub-adviser's personnel and its financial condition; (iv) its performance
track record; and (v) other factors deemed relevant. The Trustees also reviewed
the fees to be paid to each Sub-adviser.
The Sub-advisers are:
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P. ("AGIM")
AGIM is the Sub-adviser for the Core Bond Fund, the Strategic Bond Fund and the
High Yield Bond Fund. AGIM is a limited partnership whose sole general partner
and sole limited partner are wholly-owned subsidiaries of American General
Corporation. AGIM provides investment management and advisory services to
pension and profit sharing plans, financial institutions and other investors. As
of June 30, 1998, AGIM had approximately $70 billion in assets under management.
BANKERS TRUST COMPANY
("BANKER'S TRUST")
Bankers Trust is one of two Sub-advisers for the Small Cap Value Fund. Bankers
Trust first offered investment management services in 1938 and began managing
index funds in 1977. As of June 30, 1998, Bankers Trust was the seventh largest
U.S. financial institution and
VALIC'S ADDRESS is 2929 Allen
Parkway, Houston, Texas 77019.
AGIM'S PRINCIPAL OFFICES
are located at 2929 Allen
Parkway, Houston, Texas 77019.
BANKERS TRUST'S PRINCIPAL OFFICES
are located at 130 Liberty Street,
New York, New York 10006.
5
<PAGE> 109
- --------------------------------------------------------------------------------
managed over $360 billion in assets. Bankers Trust is entirely owned by Bankers
Trust Corporation, a bank holding company.
BROWN CAPITAL MANAGEMENT, INC. ("BROWN CAPITAL MANAGEMENT")
Brown Capital Management is the Sub-adviser for the Mid Cap Growth Fund.
Established as a Maryland corporation in 1983, Brown Capital Management served
as investment adviser to approximately $4 billion in assets as of June 30, 1998.
CAPITAL GUARDIAN TRUST COMPANY
("CAPITAL GUARDIAN")
Capital Guardian is the Sub-adviser for the International Value Fund, the
Balanced Fund and the Domestic Bond Fund. Capital Guardian provides investment
management services to a limited number of large institutional clients such as
employee benefit funds, foundations and endowment funds. As of June 30, 1998,
Capital Guardian had more than $79.5 billion in assets under management.
FIDUCIARY MANAGEMENT ASSOCIATES, INC. ("FMA")
FMA is one of two Sub-advisers for the Small Cap Value Fund. FMA is a
wholly-owned subsidiary of United Asset Management Corporation, and provides
investment management services to corporations, foundations, endowments, pension
and profitsharing plans, trusts, estates and other institutions as well as
individuals. As of June 30, 1998, FMA had over $1.9 billion in assets under
management.
GOLDMAN SACHS ASSET MANAGEMENT ("GSAM")
GSAM is the Sub-adviser for the Large Cap Growth Fund. GSAM is a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"). GSAM provides a
wide range of fully discretionary investment advisory services quantitatively
driven and actively managed to U.S. and international equity portfolios, U.S.
and global fixed income portfolios, commodity and currency products and money
market accounts. As of June 30, 1998, GSAM and its affiliates served as
investment adviser or distributor for assets exceeding $162.2 billion.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("JP MORGAN")
JP Morgan is the Sub-adviser for the Small Cap Growth Fund. Known for its
commitment to proprietary research and its disciplined investment strategies, JP
Morgan provides asset management services to corporations, financial
institutions, governments and individuals. As of June 30, 1998, JP Morgan and
its affiliates employed over 300 analysts and portfolio managers around the
world and had more than $300 billion in assets under management.
JACOBS ASSET MANAGEMENT
Jacobs Asset Management is the Sub-adviser for the International Growth Fund.
Jacobs Asset Management is a Delaware limited partnership. United Asset
Management Corporation is a limited partner of, and owns a controlling interest
in, Jacobs Asset Management. Jacobs Asset Management provides investment
management and advisory services to corporations, unions, pensions and
profit-sharing plans, trusts and estates and other institutions and investors.
As of June 30, 1998, Jacobs Asset Management had more than $431 million in
assets under management.
NEUBERGER & BERMAN MANAGEMENT INC. ("N&B MANAGEMENT")
N&B Management is the Sub-adviser for the Mid Cap Value Fund. N&B Management and
its predecessor firms have specialized in the management of no-load mutual funds
since 1950. As of June 30, 1998, N&B Management and its affiliates managed
approximately $59 billion in aggregate net assets, including approximately $24
billion in mutual funds assets.
STATE STREET BANK & TRUST COMPANY ("STATE STREET BANK")/STATE STREET GLOBAL
ADVISORS ("STATE STREET GLOBAL ADVISORS")
State Street Global Advisors is the Sub-adviser for the Large Cap Value Fund.
State Street Global Advisors is an operating division of State Street Bank, a
wholly-owned subsidiary of State Street Corporation, which had more than $390
billion under management as of June 30, 1998.
BROWN CAPITAL MANAGEMENT'S
PRINCIPAL OFFICES are located at
809 Cathedral Street, Baltimore,
Maryland 21201.
CAPITAL GUARDIAN'S PRINCIPAL
OFFICES are located at 333 South
Hope Street, Los Angeles,
California 90071.
FMA'S PRINCIPAL OFFICES are located
at 55 West Monroe Street, Suite #2550,
Chicago, Illinois 60603.
GSAM'S PRINCIPAL OFFICES are located at One New York Plaza, New York, New York
10004.
JP MORGAN'S PRINCIPAL OFFICES are located at 522 Fifth Avenue, New York, NY
10036.
JACOBS ASSET MANAGEMENT'S
PRINCIPAL OFFICES are located at 200 East Broward
Boulevard, Suite 1920,
Fort Lauderdale, Florida 33301.
N&B MANAGEMENT'S PRINCIPAL OFFICES are located 605 Third Avenue, Second Floor,
New York, New York 10158-0180.
STATE STREET GLOBAL ADVISOR'S
PRINCIPAL OFFICES are located at
2 International Place, Boston,
Massachusetts 02110.
6
<PAGE> 110
- --------------------------------------------------------------------------------
These financial service companies act as Investment Sub-advisers through an
agreement each entered into with VALIC. For more information on these agreements
and on these Sub-advisers, see the "Investment Sub-Advisers" section in the
Statement of Additional Information.
PORTFOLIO MANAGER
A manager is a person or team of persons VALIC or one of its Sub-advisers has
assigned to be primarily responsible for the day to day management of a Fund's
investments. A Fund's investments are called its portfolio.
HOW ADVISERS ARE PAID FOR
THEIR SERVICES
VALIC
Each Fund pays VALIC a fee based on its average daily net asset value. A Fund's
net asset value is the total value of the Fund's assets minus any money it owes
for operating expenses, such as the fee paid to its Custodian to safeguard the
Fund's investments.
Here is a list of the percentages each Fund pays VALIC.
<TABLE>
<S> <C>
International Growth Fund 0.90% on the first $100 million
0.80% on assets over $100 million
Large Cap Growth Fund 0.55%
Mid Cap Growth Fund 0.65% on the first $25 million
0.55% on the next $25 million
0.45% on assets over $50 million
Small Cap Growth Fund 0.85%
International Value Fund 1.00% on the first $25 million
0.85% on the next $25 million
0.675% on the next $200 million
0.625% on assets over $250 million
Large Cap Value Fund 0.50%
Mid Cap Value Fund 0.75% on the first $100 million
0.725% on the next $150 million
0.70% on the next $250 million
0.675% on the next $250 million
0.65% on the assets over $750 million
Small Cap Value Fund 0.75% on the first $50 million
0.65% on the assets over $50 million
</TABLE>
<TABLE>
<S> <C>
Socially Responsible
Fund 0.25%
Balanced Fund 0.80% on the first $25 million
0.65% on the next $25 million
0.45% on assets over $50 million
High Yield Bond Fund 0.70% on the first $200 million
0.60% on the next $300 million
0.55% on assets over $500 million
Strategic Bond Fund 0.60% on the first $200 million
0.50% on the next $300 million
0.45% on assets over $500 million
Domestic Bond Fund 0.60% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% on the assets over $300 million
Core Bond Fund 0.50% on the first $200 million
0.45% on the next $300 million
0.40% on assets over $500 million
Money Market Fund 0.25%
Conservative Growth
Lifestyle Fund 0.10%
Moderate Growth
Lifestyle Fund 0.10%
Growth Lifestyle Fund 0.10%
</TABLE>
The Investment Advisory Agreement VALIC entered into with each Fund does not
limit how much the Funds pay in monthly expenses each year.
As shareholders of other Series Company Funds, the Lifestyle Funds incur their
proportionate share of the Underlying Series Company Funds' fees and expenses,
including the fees paid to VALIC.
From time to time VALIC, the Sub-advisers and/or the Distributor may voluntarily
undertake to reduce a Fund's expenses by reducing the fees payable to them to
the extent of, or bearing expenses in excess of, such limitations as they may
establish.
7
<PAGE> 111
- --------------------------------------------------------------------------------
THE SUB-ADVISERS
The Funds do not pay the Sub-advisers directly. According to the agreements,
VALIC pays them periodically a fee based on the Fund's average daily net asset
values. VALIC pays them a percentage of what is paid to us by the Funds. VALIC
and the Sub-advisers may agree to change the amount of money VALIC pays them.
Any such change increasing the charge paid by a Fund to VALIC would have to be
approved by the Series Company Board of Trustees and the shareholders of the
Fund.
The Series Company was issued an exemptive order by the SEC on September 9, 1998
for an exemption (the "Exemption") from certain provisions of the Investment
Company Act of 1940 ("1940 Act") which would otherwise require VALIC to obtain
formal shareholder approval prior to engaging and entering into sub-advisory
agreements with Sub-advisers. The relief is based on the conditions set forth in
the Exemption that, among other things: (1) VALIC will select, monitor, evaluate
and allocate assets to the Sub-advisers and oversee the Sub-advisers' compliance
with the relevant Fund's investment objective, policies and restrictions; (2)
before a Fund may rely on the Exemption, the Exemption must be approved by the
shareholders of the Funds operating under the Exemption; (3) the Series Company
will provide to shareholders certain information about a new Sub-adviser; (4)
the Series Company will disclose in this prospectus the existence, substance and
effect of the Exemption; and (5) the Trustees, including a majority of the
"independent" Trustees, must approve each sub-advisory agreement in the manner
required under the 1940 Act. Any changes to the Investment Advisory Agreement
between the Series Company and VALIC would still require shareholder approval.
As required by the Exemption, the initial shareholder of each Fund on October 7,
1998 consented to permit VALIC to terminate, replace or add Sub-advisers and to
enter into sub-advisory agreements with Sub-advisers upon approval of the Board
of Trustees but without formal shareholder approval.
Under the Investment Sub-advisory Agreement we have with AGIM, we pay AGIM a
monthly fee based on the average daily net asset values for the Core Bond Fund
at an annual rate of 0.25% of the first $200 million, 0.20% of the next $300
million and 0.15% on assets over $500 million and the Strategic Bond Fund at an
annual rate of 0.35% of the first $200 million, 0.25% of the next $300 million
and 0.20% on assets over $500 million. We pay AGIM a monthly fee based on the
average daily net asset values of the High Yield Bond Fund at an annual rate of
0.45% of the first $200 million, 0.35% of the next $300 million and 0.30% on
assets over $500 million.
Under the Investment Sub-advisory Agreement we have with Bankers Trust, we pay
Bankers Trust monthly fees based on the average daily net asset values of the
portion of the Small Cap Value Fund portfolio it manages at an annual rate of
0.03%.
Under the Investment Sub-advisory Agreement we have with Brown Capital
Management, we pay Brown Capital Management a monthly fee based on the average
daily net asset values of the Mid Cap Growth Fund at the annual rate of 0.40% of
the first $25 million, 0.30% of the next $25 million and 0.20% on assets over
$50 million.
Under the Investment Sub-advisory Agreement we have with Capital Guardian, we
pay Capital Guardian a quarterly fee based on the average daily net asset values
of the International Value Fund at an annual rate of 0.75% of the first $25
million, 0.60% of the next $25 million, 0.425% of the next $200 million and
0.375% on assets over $250 million and the Domestic Bond Fund at an annual rate
of 0.35% of the first $50 million, 0.20% on the next $50 million, 0.18% on the
next $200 million and 0.15% of assets over $300 million. We pay Capital Guardian
quarterly fees based on the average daily net asset values of the Balanced Fund
at an annual rate of 0.55% of the first $25 million, 0.40% of the next $25
million and 0.20% on assets over $50 million. Capital Guardian aggregates fees
with respect to the International Value Fund, the Domestic Bond Fund and the
Balanced Fund and applies a 5% discount to all fees if total fees are between
$1.25 million and $4 million, a 7.5% discount to all fees if total fees are
between $4 million and $8 million, a 10% discount to all fees if total fees are
between $8 million and $12 million, and a 12.5% discount to all fees if total
fees exceed $12 million.
Under the Investment Sub-advisory Agreement we have with FMA, we pay FMA a
monthly fee based on the average daily net asset values of the portion of the
Small Cap Value Fund portfolio it manages at the annual rate of 0.50% of the
first $50 million and 0.40% on assets over $50 million.
Under the Investment Sub-advisory Agreement we have with GSAM, we pay GSAM a
monthly fee based on the average daily net asset values of the Large Cap Growth
Fund at the annual rate of 0.30%.
Under the Investment Sub-advisory Agreement we have with JP Morgan, we pay JP
Morgan a monthly fee based on the average daily net asset values of the Small
Cap Growth Fund at the annual rate of 0.60%.
For more information on WHAT THE SUB-ADVISERS ARE PAID, see the "Investment
Sub-Advisers" section in the Statement of Additional Information.
8
<PAGE> 112
- --------------------------------------------------------------------------------
Under the Investment Sub-advisory Agreement we have with Jacobs Asset
Management, we pay Jacobs Asset Management a monthly fee based on the average
daily net asset values of the International Growth Fund at an annual rate of
0.65% of the first $100 million and 0.55% on assets over $100 million.
Under the Investment Sub-advisory Agreement we have with N&B Management, we pay
N&B Management a monthly fee based on the average daily net asset values of the
Mid Cap Value Fund at the annual rate of 0.50% of the first $100 million, 0.475%
of the next $150 million, 0.45% of the next $250 million, 0.425% of the next
$250 million and 0.40% on assets over $750 million.
Under the Investment Sub-advisory Agreement we have with State Street Global
Advisors, we pay State Street Global Advisors a monthly fee based on the average
daily net asset values of the Large Cap Value Fund at the annual rate of 0.25%
but no less than $50,000 per year.
According to the agreements VALIC has with the Sub-advisers, we will receive
investment advice for each sub-advised Fund. Under these agreements we give the
Sub-advisers the authority to buy and sell securities for these Funds. We retain
the responsibility for the overall management of these Funds. The Sub-advisers
may buy and sell securities for each Fund with broker-dealers and other
financial intermediaries that they select.
The Sub-advisers may place orders to buy and sell securities of these Funds with
a broker-dealer affiliated with the Sub-adviser as allowed by law. This could
include any affiliated futures commission merchants.
The 1940 Act permits Sub-advisers under certain conditions to place an order to
buy or sell securities with an affiliated broker. One of these conditions is
that the commission received by the affiliated broker cannot be greater than the
usual and customary brokers commission if the sale was completed on a securities
exchange. The Series Company has adopted procedures, as required by the 1940
Act, which provide that any commissions received by a Sub-adviser's affiliated
broker are reasonable and fair if compared to the commission received by other
brokers for the same type of securities transaction.
The Securities Exchange Act of 1934 prohibits members of national securities
exchanges from effecting exchange transactions for accounts that they or their
affiliates manage, except as allowed under rules adopted by the SEC. The Series
Company and the Sub-advisers have entered into written contracts, as required by
the 1940 Act, to allow the Sub-advisers' affiliates to effect these types of
transactions for commissions. The 1940 Act generally prohibits a Sub-adviser or
a Sub-adviser's affiliate, acting as principal, from engaging in securities
transactions with a Fund, without an exemptive order from the SEC.
VALIC and the Sub-advisers may enter into simultaneous purchase and sale
transactions for the Funds or affiliates of the Funds.
ABOUT THE BOARD OF TRUSTEES
The Series Company Board of Trustees currently consists of twelve members: nine
are independent Trustees and three are VALIC employees.
The Board of Trustees may change each Fund's investment objective, investment
policies and non-fundamental investment restrictions without shareholder
approval. The Board may not change any fundamental restrictions placed on the
types of investments each Fund may buy. The fundamental restrictions appear in
the Statement of Additional Information. Changes to these restrictions may be
made with shareholder approval only.
9
<PAGE> 113
ABOUT THE FUNDS
- --------------------------------------------------------------------------------
GROWTH, BALANCED, INCOME, STABILITY AND LIFESTYLE CATEGORIES
The Funds offered in this prospectus fall into five general investment
categories: growth, balanced, income, stability and lifestyle.
GROWTH CATEGORY
The goal of a Fund in the growth category is to increase the value of your
investment over the long term by investing mostly in stocks. Stocks are a type
of investment that can increase in value over a period of years. Companies sell
stock to get the money they need to grow. These companies often keep some of
their profits to reinvest in their business. As they grow, the value of their
stock may increase. This is how the value of your investment may increase.
Series Company Growth Category includes:
International Growth Fund
Large Cap Growth Fund
Mid Cap Growth Fund
Small Cap Growth Fund
International Value Fund
Large Cap Value Fund
Mid Cap Value Fund
Small Cap Value Fund
Socially Responsible Fund
BALANCED CATEGORY
(COMBINATION OF GROWTH AND INCOME CATEGORIES)
The goal of a Fund in the balanced category is to increase the value of your
investment over the long term and to provide income. The Fund in the balanced
category seeks to conserve the value of your initial investment and promote
long-term growth and income by investing in stocks and income producing
securities.
Series Company Balanced Category includes:
Balanced Fund
INCOME CATEGORY
Unlike Funds in the growth category, where the objective is to make the Fund's
investments increase in value, Funds in the income category try to keep the
value of their investments from falling, while providing an increase in the
value of your investment through the income earned on a Fund's investments. To
meet this objective, Funds in the income category buy investments that are
expected to pay interest to a Fund on a regular basis.
Series Company Income Category includes:
High Yield Bond Fund
Strategic Bond Fund
Domestic Bond Fund
STABILITY CATEGORY
The Fund in the stability category provides liquidity, protection of capital and
current income through investments in high quality securities.
Series Company Stability Category includes:
Money Market Fund
LIFESTYLE CATEGORY
The proliferation of mutual funds over the last several years has left many
investors in search of a simple means to manage their long-term investments.
With new investment categories emerging each year and with each mutual fund
reacting differently to political, economic and business events, many investors
are forced to make complex investment decisions in the face of limited
experience, time and personal resources. The Lifestyle Funds are designed to
meet the needs of investors who prefer to have their asset allocation decisions
made by professional money managers, are looking for an appropriate core
investment for their retirement portfolio and appreciate the advantages of broad
diversification.
A Lifestyle Fund does not invest directly in portfolio securities but, rather,
invests in a combination of Series Company Funds in order to meet its investment
objective. In this manner, the Lifestyle Funds offer you the opportunity to
diversify your investment portfolio by investing in one Fund, rather than in a
variety of Series Company Funds.
Series Company Lifestyle Category includes:
Growth Lifestyle Fund
Moderate Growth Lifestyle Fund
Conservative Growth Lifestyle Fund
ABOUT LEVEL OF RISK
The risks involved in each Fund are described in each Fund's Fact Sheet. These
risks may include market risk, credit risk, interest rate risk, manager risk and
risk associated with foreign securities. These risks are described in the "Types
of Investments" section in this prospectus. The money you invest in the Series
Company is not insured. And, we can't guarantee that any of the Funds will meet
their investment objectives. There's a chance you may lose money and end up with
less than you invested.
ABOUT PORTFOLIO TURNOVER
Portfolio turnover occurs when a Fund sells its investments and buys new ones.
In some Funds, high portfolio turnover occurs when these Funds
10
<PAGE> 114
- --------------------------------------------------------------------------------
sell and buy investments as part of their investment strategy.
High portfolio turnover may cause a Fund's expenses to increase. For example, a
Fund may have to pay brokerage fees and other related expenses.
The anticipated annual portfolio turnover rates for each of the Funds except the
Money Market Fund are as follows:
<TABLE>
<CAPTION>
ANTICIPATED
PORTFOLIO
NAME OF FUND TURNOVER RATE
------------ -------------
<S> <C>
International Growth Fund 50%
Large Cap Growth Fund 50-75%
Mid Cap Growth Fund 30-60%
Small Cap Growth Fund 100%
International Value Fund 150%
Large Cap Value Fund 100%
Mid Cap Value Fund 100%
Small Cap Value Fund 100%
Socially Responsible Fund 120%
Balanced Fund 150%
High Yield Bond Fund 100-200%
Strategic Bond Fund 100-200%
Domestic Bond Fund 150%
Core Bond Fund 100-200%
Growth Lifestyle Fund 10-20%
Moderate Growth Lifestyle 10-20%
Fund
Conservative Growth Lifestyle 10-20%
Fund
</TABLE>
A portfolio turnover rate of 100% or more a year is considered high. A high rate
increases a Fund's transaction costs and expenses.
ABOUT FUND PERFORMANCE
From time to time, the Series Company may advertise Fund performance information
such as Fund average annual total return and index total return. Information as
to how this Fund performance information is calculated appears in the Statement
of Additional Information.
11
<PAGE> 115
HOW TO READ A FUND FACT SHEET
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS-----------------------------------------------------------------
Gives you a quick recap of each Fund.
FUND NAME-----------------------------------------------------------------------
INVESTMENT ADVISER; INVESTMENT SUB-ADVISER--------------------------------------
They make the investment decisions for the Fund. See "About the Series
Company's Management" for more information.
PORTFOLIO MANAGER---------------------------------------------------------------
Some Funds have a specific person or persons assigned as the portfolio
manager. The person is described here. The portfolio manager's role is
explained in "About the Series Company's Management."
INVESTMENT OBJECTIVE------------------------------------------------------------
This is the goal of the Fund, which is set by the Series Company Board of
Trustees.
INVESTMENT RISK-----------------------------------------------------------------
Shows some of the investment risks of the Fund.
INVESTMENT STRATEGY-------------------------------------------------------------
This section explains how the Investment Advisers go about meeting the Fund's
Investment Objective.
FUND INVESTMENTS----------------------------------------------------------------
Shows the types of investments the Fund makes.
PERFORMANCE INFORMATION OF OTHER INVESTMENT COMPANIES AND PRIVATE ACCOUNTS------
This shows the average annual total return for a mutual fund, a managed account
or a composite of mutual funds and/or managed accounts, managed in
substantially the same manner as a Fund, for the time period ended March 31,
1998. Although these numbers represent the returns as of that date, they do not
represent performance information since that date. Performance information for
periods since June 30, 1998 may be significantly different (lower) than the
performance shown. Information about how the mutual fund, managed account or
composite performed for the period shown is presented net of fees and expenses.
[CHART]
12
<PAGE> 116
INTERNATIONAL GROWTH
FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM CAPITAL
APPRECIATION THROUGH
INVESTMENTS IN NON-U.S.
COMPANIES, THE MAJORITY OF
WHICH ARE EXPECTED TO BE IN
DEVELOPED MARKETS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Jacobs Asset Management
PORTFOLIO MANAGER
This Fund is managed by an investment committee comprised of the following
individuals: Daniel L. Jacobs, Wai W. Chin, Robert J. Jurgens and Cynthia A.
New. Mr. Jacobs has been President of the Sub-adviser since July 1, 1995. From
1984 to 1995, Mr. Jacobs was Executive Vice President and Director of Templeton
Investment Counsel. Mr. Jacobs was portfolio manager of Templeton's Smaller
Companies Growth Fund and Templeton Variable Product Series Fund -- Templeton
International Fund. Ms. Chin has been Managing Director of Asian Research and
Portfolio Management of the Sub-adviser since July 1995. Prior to this, Ms. Chin
was Vice President of the Global Equity Group of Scudder, Stevens & Clark from
1989 to April 1995. Mr. Jurgens has been Managing Director of European Research
and Portfolio Management of the Sub-adviser since August 1995. From 1993 to
1995, Mr. Jurgens was Vice President and head of AIG Global Investors'
International Equity Division. Ms. New has been Director, Latin American
Research, of the Sub-adviser since July 1998. Prior to this, Ms. New was an
equity analyst at Pioneer Management Corporation from December 1997 to June 1998
and was at Templeton International Council from June 1993 to December 1997,
where she had research and portfolio management responsibilities for developed
and emerging market corporate and government debt securities.
INVESTMENT OBJECTIVE
Seeks to provide long-term capital appreciation by investing in equity
securities of non-U.S. companies, the majority of which are expected to be in
developed markets. The Fund may invest across the capitalization spectrum,
although it intends to emphasize smaller capitalization stocks.
INVESTMENT RISK
As described in the Investment Strategy section below, this Fund invests almost
all its assets in foreign securities, which have risks that U.S. investments do
not have, including foreign political and economic developments, fluctuations in
foreign exchange rates and limited publicly available information. For a further
explanation of the risks associated with foreign securities, see "A Word About
Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund will invest in equity securities in the markets of at least three
countries outside the United States. The Fund will diversify its investments
among developed and emerging market countries. The Fund will focus its emerging
market investments on those countries in which the Sub-adviser believes the
economies are developing and the markets are becoming more sophisticated. An
"emerging market country" is any country which, in the opinion of the
Sub-adviser, is generally considered to be an emerging or developing country by
the international financial community, including the International Bank for
Reconstruction and Development (the World Bank) and the International Finance
Corporation. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe. Investing in many emerging countries is not feasible
or may involve unacceptable political risks.
We will use a flexible, value-oriented approach to selecting this Fund's
investments, focusing on companies rather than on countries or markets. Our goal
is to identify stocks selling at the greatest discount to their intrinsic future
value. Value is ascertained through an analysis of price/cash flow, enterprise
value/cash flow, and price/future earnings. This Fund invests in a wide range of
equity securities including those of smaller capitalization companies.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
13
<PAGE> 117
INTERNATIONAL GROWTH FUND
Fund Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Foreign equity securities** at least 85%
Equity securities including
common stock, preferred
stock, convertible
preferred stock, rights and
warrants, and American
Depository Receipts
("ADRs"), European
Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs")
- --------------------------------------------
Equity securities of issuers up to 40%
in emerging countries***
- --------------------------------------------
Equity securities of small generally 50%
capitalization
companies****
- --------------------------------------------
Equity securities of open-end up to 10%
or closed-end investment
companies
- --------------------------------------------
Forward currency exchange up to 100%
contracts
- --------------------------------------------
Illiquid securities***** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Short-term investments****** up to 10%
- --------------------------------------------
</TABLE>
* At time of purchase.
** We intend to invest at least 85% of this Fund's total
assets in the equity securities of at least three countries outside the
United States.
*** "Emerging countries" are countries with economies
or securities markets that are considered by the Sub-adviser not to be
fully developed. An "emerging country" security is issued by a company
that in our opinion has one or more of the following characteristics: (i)
its principal securities trading market is in an emerging country; (ii)
alone or on a consolidated basis, it derives 50% or more of its annual
revenue from either goods produced, sales made or services performed in
emerging countries, or (iii) it is organized under the laws of, and has a
principal office in, an emerging country.
**** Small capitalization companies are companies with
market capitalizations of less than $1 billion at the time of purchase.
In certain countries, companies at the high end of the $1 billion
capitalization range would be considered to be mid cap or large cap
companies.
***** Percent of Fund's net assets applied at all times.
****** For temporary defensive reasons, we may invest up
to 100% of the Fund's total assets in short-term (less than twelve months
to maturity) securities or cash, including domestic and foreign money
market instruments, certificates of deposit, bankers' acceptances, time
deposits, U.S. Government obligations, U.S. Government agency securities,
short-term corporate debt securities, and commercial paper rated A-1 or
A-2 by Standard & Poor's Ratings Group ("S&P") or Prime 1 or Prime 2 by
Moody's Investors Services, Inc. ("Moody's") or if unrated, in our
opinion of comparable quality. In no event will the Fund purchase
short-term securities rated below Baa by Moody's or BBB by S&P. We may do
this when we think economic, political or market conditions make it too
risky for us to follow our general guidelines.
14
<PAGE> 118
- --------------------------------------------------------------------------------
1. The Templeton Performance Information
The International Growth Fund recently commenced operations and, therefore, has
no investment performance record. The performance information shown herein is
for the Templeton International Fund, a series of the Templeton Variable
Products Series Fund, which was managed by Mr. Jacobs, a principal of the
Sub-adviser. The Templeton International Fund has substantially similar, though
not necessarily identical objectives, policies and strategies as the
International Growth Fund. The chart below shows the historical investment
performance of the Templeton International Fund, net of fees and expenses, for
the year-ended June 30, 1995 and for the period May 1, 1992 to July 30, 1995,
during Mr. Jacobs tenure as the portfolio manager. Mr. Jacobs was primarily
responsible for the day-to-day management and no other person had a significant
role in achieving the Templeton International Fund's performance.
The International Growth Fund is subject to investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the International Growth Fund are
higher than the total fees incurred by the Templeton International Fund.
Consequently, the performance results for the Templeton International Fund would
have been lower if the Templeton International Fund had the same expenses as the
International Growth Fund. The performance of the Templeton International Fund
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON THE TEMPLETON INTERNATIONAL FUND WHICH WAS MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUAL WHO MANAGED THE
INTERNATIONAL GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
INTERNATIONAL GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF TEMPLETON INTERNATIONAL FUND
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------
1 YEAR* SINCE INCEPTION*
- -----------------------------------------------------
10.14% 12.33%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
[CHART]
*PERIOD ENDED JUNE 30, 1995
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the International Growth Fund is likely to differ from the
Templeton International Fund in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings and performance of the
International Growth Fund may vary from those of the Templeton International
Fund.
15
<PAGE> 119
- --------------------------------------------------------------------------------
2. The Separate Account Performance Information
Although the International Growth Fund has no performance record, the Fund's
investment objectives, policies and strategies are substantially similar, though
not necessarily identical, to those employed by the Sub-adviser with respect to
separately managed accounts of the Sub-adviser ("Separately Managed Accounts").
The chart herein shows the historical investment performance for a composite of
the Sub-adviser's Separately Managed Accounts ("Sub-adviser Composite") which
were managed by the Sub-adviser in substantially the same manner and by the same
individuals who manage the International Growth Fund. The Sub-adviser Composite
represents the total return, net of all fees and expenses, of all Separately
Managed Accounts of the Sub-adviser. The inception date of the Sub-adviser
Composite was October 1, 1995.
The Separately Managed Accounts in the Sub-adviser Composite were not subject to
the investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Separately Managed Accounts included in the
Sub-adviser Composite had been subject to the requirements imposed on registered
mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the International Growth Fund are
higher than the total fees incurred by the Separately Managed Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser's Separately
Managed Accounts had the same expenses as the International Growth Fund. The
performance of the Sub-adviser Composite has been calculated in accordance with
SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE
SUB-ADVISER'S SEPARATELY MANAGED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE
SAME MANNER AND BY THE SAME INDIVIDUALS WHO MANAGE THE INTERNATIONAL GROWTH FUND
AND DOES NOT REFLECT THE PERFORMANCE OF THE INTERNATIONAL GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF SUB-ADVISER COMPOSITE
<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
19.02% 22.04%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1995
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the International Growth Fund is likely to differ from the
Sub-adviser's Separately Managed Accounts in size, cash flow patterns and
certain tax matters. Accordingly, the portfolio holdings of the International
Growth Fund may vary from those of the Sub-adviser's Separately Managed Accounts
and performance of the International Growth Fund may vary from those of the
Sub-adviser Composite.
16
<PAGE> 120
LARGE CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN LARGE CAP
U.S. ISSUERS. DIVIDEND
INCOME IS A SECONDARY
OBJECTIVE.
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Goldman Sachs Asset Management
PORTFOLIO MANAGER
The Fund is managed by the following individuals: Robert C. Jones; Kent A.
Clark; Victor H. Pinter; and Melissa Brown. Mr. Jones, Managing Director, joined
the Sub-adviser in 1989. From 1987 to 1989, he was the senior quantitative
analyst in the Goldman Sachs Investment Research Department and the author of
the monthly Stock Selection publication. Mr. Clark, Vice President, joined the
Sub-adviser's quantitative equity management team in 1992. Prior to joining the
Sub-adviser, Mr. Clark studied for a Ph.D in finance at the University of
Chicago. Mr. Pinter, Vice President, joined the Sub-adviser in 1990. From 1985
to 1990, he was a project manager in the Sub-adviser's Information Technology
Division. Ms. Brown, Vice President, joined the Sub-adviser in 1998. From 1984
to 1998, Ms. Brown was the director of Quantitative Equity Research and served
on the Investment Policy Committee at Prudential Securities.
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary objective.
INVESTMENT RISK
This Fund invests almost entirely in equity securities. The value of equity
securities can rise and fall over both short and long periods of time. The
Fund's investments are selected to maintain a risk profile similar to the
Russell 1000 Growth Index, and your investment may experience similar changes in
value and share similar risks such as market risk, credit risk, interest rate
risk and risk associated with foreign securities. For more information about
market risk, credit risk, interest rate risk and risk associated with foreign
securities, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests primarily in the equity securities of large cap U.S. issuers.
Large cap U.S. issuers include the largest 1,000 companies by market
capitalization traded in the United States.
The Fund will be managed utilizing Goldman Sachs' Quantitative Equity Strategy.
The acronym "CORE" (Computer-Optimized and Research Enhanced) reflects the three
step investment process the team uses to select securities. First, we estimate
the returns of 3000 U.S. stocks and foreign securities using a combination of
research from the Goldman Sachs Global Investment Research Department, other
industry sources and objective quantitative analysis. Next, the Fund's
investment portfolio is constructed by balancing expected returns against
portfolio risk, trading fees and investment objectives. The Fund is intended to
be constructed with minimum deviations from the sector, risk statistics and
macroeconomic sensitivity of the benchmark. A proprietary multi-factor model is
used in seeking to ensure risks taken are both intended and are warranted due to
expected return. Lastly, the Fund is traded regularly and rebalanced in seeking
to ensure all positions are in line with current market outlooks and benchmark
weights.
We follow the guidelines listed below for making the primary investments for
this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of large cap at least 65%
U.S. issuers
- --------------------------------------------
Other equity securities of up to 25%
U.S. and foreign issuers**,
including convertible
securities, ADRs and GDRs
- --------------------------------------------
Investment grade fixed income up to 100%
securities***
- --------------------------------------------
Futures and options**** up to 5%
- --------------------------------------------
Illiquid securities***** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Warrants and stock purchase up to 5%
rights
- --------------------------------------------
Investment companies up to 5%
- --------------------------------------------
Unseasoned companies up to 5%
- --------------------------------------------
</TABLE>
* At time of purchase.
** This Fund may invest in the equity securities of a
foreign issuer only if the securities are traded in the U.S.
*** For temporary defensive purposes, we may invest up
to 100% of the Fund's total assets in fixed income securities, including
U.S. Government securities, repurchase agreements collateralized by U.S.
Government securities, commercial paper rated at least A-2 by S&P or P-2
by Moody's, certificates of deposit, bankers' acceptances, repurchase
agreements, non-convertible preferred stocks and non-convertible corporate
bonds with a remaining maturity of less than one year. The Sub-adviser
will not necessarily dispose of a fixed income security when its ratings
are down graded to below investment grade.
**** The Fund may purchase or sell futures contracts
only with respect to a representative index. At no time will the aggregate
margin deposit required on all futures or options held exceed 5% of the
Fund's total assets.
***** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
17
<PAGE> 121
- --------------------------------------------------------------------------------
The Large Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Large Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser with respect to sixteen accounts ("Combined Accounts"),
including fourteen advisory accounts ("Accounts") and two registered mutual
funds ("Funds"). The chart herein shows the historical investment performance
for a composite of the Combined Accounts ("Combined Accounts Composite"), which
were managed by the Sub-adviser in substantially the same manner and by the same
individuals who manage the Large Cap Growth Fund. The Combined Accounts
Composite includes all Combined Accounts, net of average fees and expenses
charged by the Accounts and the Funds. These expenses include investment
advisory fees but do not include custodial fees (other than for the mutual
funds), which, if included, could lessen the performance presented. The
inception dates of the Combined Accounts comprising the Combined Accounts
Composite range from November 11, 1991 to January 30, 1998.
The Accounts included in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Accounts included in the Combined Accounts
Composite had been subject to the requirements imposed on registered mutual
funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Large Cap Growth Fund are
higher than the total fees historically incurred by the Combined Accounts
comprising the Combined Accounts Composite. Consequently, the performance
results for the Combined Accounts Composite would have been lower if the
Combined Accounts Composite had the same expenses as the Large Cap Growth Fund.
The performance of the Combined Accounts Composite has been calculated in
accordance with SEC performance standards. See "Performance and Yield
Information" in the Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A
COMPOSITE OF THE SUB-ADVISER'S COMBINED ACCOUNTS WHICH ARE MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUALS AS THE LARGE CAP
GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE LARGE CAP GROWTH FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
51.22% 26.08% 22.95%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE NOVEMBER 11, 1991
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Large Cap Growth Fund is likely to differ from the
Sub-Adviser's Accounts and Funds in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Large Cap Growth Fund may
vary from those of the Sub-adviser's Combined Accounts and the performance of
the Large Cap Growth Fund may vary from that of the Combined Accounts Composite.
18
<PAGE> 122
MID CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CAPITAL APPRECIATION THROUGH
INVESTMENTS IN MEDIUM
CAPITALIZATION EQUITY
SECURITIES. CURRENT INCOME
IS A SECONDARY OBJECTIVE.
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Brown Capital Management, Inc.
PORTFOLIO MANAGER
The Fund is managed by a team led by Eddie C. Brown. Mr. Brown is Founder,
President and controlling shareholder of the Sub-adviser. Mr. Brown has been
with the Sub-adviser since its inception in 1983. Robert E. Hall, Theodore M.
Alexander III, Noreen A. Frost, and Stephon A. Jackson assist Mr. Brown in the
management of the Fund. Mr. Hall, Senior Vice President and Portfolio
Manager/Analyst, joined the Sub-adviser in September 1993. Mr. Alexander, Vice
President and Portfolio Manager/Analyst, joined the Sub-adviser in October 1995.
Prior to this, Mr. Alexander was a Securities Analyst at Legg Mason Wood Walker
from June 1994 to October 1995. From June 1990 to January 1994, Mr. Alexander
was a Securities Analyst at Alex Brown & Sons, Inc. Ms. Frost, Vice President
and Portfolio Manager/Analyst, joined the Sub-adviser in February 1996. Prior to
this, Ms. Frost was in institutional sales at Duff & Phelps Securities Co. from
December 1994 to October 1996. From 1983 to 1993, Ms. Frost was
Investment/Broker-Dealer Analyst at Alex Brown & Sons, Inc. Mr. Jackson, Vice
President and Portfolio Manager/Analyst, joined the Sub-adviser in July 1997.
Prior to this, Mr. Jackson was Portfolio Manager/Director of Research at NCM
Capital Management from March 1994 to June 1997. From March 1993 to March 1994,
Mr. Jackson was an Analyst at Putnam Investments.
INVESTMENT OBJECTIVE
Seeks capital appreciation principally through investments in medium
capitalization equity securities, such as common and preferred stocks and
securities convertible into common stocks. Current income is a secondary
objective.
INVESTMENT RISK
This Fund invests mostly in equity securities of medium-sized companies that we
believe are undervalued in the marketplace. The value of any equity security may
rise or fall over long or short periods of time. Although these equity
securities present an opportunity for capital appreciation, they may not be
broadly traded and involve market risk and risk associated with foreign
securities. For a discussion of market risk and risk associated with foreign
securities, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund will invest principally in the equity securities of medium
capitalization companies. Medium capitalization companies include companies with
a market capitalization of $1 to $7 billion. We will seek to achieve capital
appreciation through an opportunistic investment strategy with a growth bias.
This Fund will purchase equity securities of those companies that we feel are
undervalued relative to their growth potential in the securities markets,
because the companies are presently out of favor, not well known or possess
value that is not currently recognized by the investment community. We use a
"bottom up" approach to select specific investments, employing analysis that
contains elements of traditional dividend discount and earnings yield models,
establishes predicted relative valuation for equity and fixed income markets,
and determines the attractiveness of individual securities through evaluation of
growth and risk characteristics of the underlying company relative to the
overall equity market. Although the Fund's portfolio securities generally will
be acquired for the long term, they may be sold under some of the following
circumstances when the Sub-adviser believes that: a) the anticipated price
appreciation has been achieved or is no longer probable; b) alternative
investments offer superior total return prospects; or c) fundamentals change
adversely.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
19
<PAGE> 123
MID CAP GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for
this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of medium at least 65%
capitalization companies
- --------------------------------------------
Other equity securities up to 35%
Common stocks, convertible
preferred stocks, preferred
stocks and convertible bonds
traded on domestic exchanges
or in over-the-counter
markets
- --------------------------------------------
Foreign equity securities, up to 10%
ADRs**
- --------------------------------------------
Money market instruments*** up to 10%
and fixed income
securities****, U.S.
Government securities,
corporate fixed income
securities**** (including
those subject to repurchase
agreements), bankers
acceptances and certificates
of deposit of domestic
branches of U.S. banks,
commercial paper (including
variable amount demand
master notes) rated in one
of the two highest ratings
categories of organizations
or, if not rated, of
equivalent quality and cash
and cash equivalents
- --------------------------------------------
Illiquid securities***** up to 10%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Real estate securities****** up to 10%
- --------------------------------------------
</TABLE>
* At time of purchase.
** Foreign equity securities held by this Fund will be
held in the form of ADRs.
*** For temporary defensive reasons, we may invest up
to 100% of the Fund's assets in money market instruments and cash and
cash equivalents. We may do this when we think economic and market
conditions make it too risky to follow its general guidelines.
**** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***** Percent of Fund's net assets applied at all times.
****** This Fund will not invest directly in real estate, but
rather, in interests in or readily marketable securities issued by
companies that invest in real estate, including real estate investment
trusts (REITs).
20
<PAGE> 124
- --------------------------------------------------------------------------------
The Mid Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Mid Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser with respect to discretionary investment management accounts
under their management ("Combined Accounts"). The chart herein shows the
investment performance for a composite of these Combined Accounts ("Combined
Accounts Composite") which were managed by the Sub-adviser in substantially the
same manner and by the same individuals who manage the Mid Cap Growth Fund. The
Combined Accounts Composite includes all Combined Accounts, net of account fees
and expenses. The inception dates of the Combined Accounts comprising the
Combined Accounts Composite range from January 1, 1993 to March 31, 1998.
The Combined Accounts in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Combined Accounts included in the Combined
Accounts Composite had been subject to the requirements imposed on mutual funds,
their performance might have been lower.
Total fees (after expense reimbursements) for the Mid Cap Growth Fund are higher
than the total fees historically incurred by the Combined Accounts comprising
the Combined Accounts Composite. Consequently, the performance results for the
Combined Accounts Composite would have been lower if the Combined Accounts
Composite had the same expenses as the Mid Cap Growth Fund. The performance of
the Combined Accounts Composite has been calculated in accordance with SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
COMBINED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE
SAME INDIVIDUALS AS THE MID CAP GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE
OF THE MID CAP GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
47.95% 23.51% 21.86%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1993
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Mid Cap Growth Fund is likely to differ from the
Sub-adviser's Combined Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Mid Cap Growth Fund may vary
from those of the Sub-adviser's Combined Accounts and the performance of the Mid
Cap Growth Fund may vary from that of the Combined Accounts Composite.
21
<PAGE> 125
SMALL CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN SMALL GROWTH
COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
J.P. Morgan Investment Management Inc.
PORTFOLIO MANAGER
Candice Eggerss, Stephen J. Rich and Saira Malik are the members of the
Sub-adviser's team who will be primarily responsible for the day-to-day
management of the Fund. Ms. Eggerss, who has been with the Sub-adviser since
1996, is a Vice President and specializes in portfolio investments in small
capitalization technology companies. Prior to this, Ms. Eggerss was employed at
Weiss, Peck and Greer from April 1993 to April 1996 and at Equitable Capital
Management prior to 1993. Mr. Rich is a Vice President and a portfolio manager
in the Small Cap Equity Group. In addition to his present position, his seven
years of experience in equity portfolio management include positions in the
Sub-adviser's Structured Equity and Balanced/Equity groups. Ms. Malik joined the
Sub-adviser in 1995 after completing her graduate studies at the University of
Wisconsin.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth from a portfolio of equity securities of small
capitalization growth companies.
INVESTMENT RISK
Small capitalization companies may not have the financial strength to do well in
difficult times. Because they are small, the prices of their equity securities
may fluctuate more over the short term but they have more potential to grow.
This means their value may offer greater potential for appreciation. The equity
securities that the Fund invests in involve certain risks such as market risks.
For a discussion of these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund invests in small capitalization U.S. companies, which are companies
whose market capitalizations are greater than $150 million and less than $1.25
billion. On an industry-by-industry basis, the Fund's weightings are similar to
those of the Russell 2000 Growth Index. Within each industry, the Fund invests
in equity securities that the Sub-adviser's research and valuation process
indicate are undervalued. The greater a company's estimated worth compared to
the current market price of its equity securities, the more undervalued the
company.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -----------------------------------------------
<S> <C>
Equity securities of at least 65%
small capitalization
growth companies
including U.S. and
foreign common stocks,
convertible securities,
preferred stocks,
warrants and rights
- -----------------------------------------------
Other equity securities up to 35%
of U.S. and foreign
large and medium
capitalization issuers
including common
stocks, convertible
securities, preferred
stocks, warrants,
rights and investment
company securities
- -----------------------------------------------
Foreign investments up to 5%
- -----------------------------------------------
Futures and options up to 25%
- -----------------------------------------------
Illiquid securities** up to 15%
- -----------------------------------------------
Rule 144A securities up to 30%
(liquid)
- -----------------------------------------------
Investment grade up to 10%
short-term fixed income
securities***
- -----------------------------------------------
Swap Agreement up to 5%
- -----------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
*** During severe market downturns, we may invest up to
100% of the Fund's assets in investment grade short-term securities,
including repurchase agreements. The Sub-adviser will not necessarily
dispose of a fixed income security when its rating is down graded to below
investment grade.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
22
<PAGE> 126
- --------------------------------------------------------------------------------
The Small Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Small Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser and its affiliates with respect to discretionary investment
management accounts under their management ("Combined Accounts"). The chart
herein shows the historical investment performance for a composite of these
Combined Accounts ("Combined Accounts Composite") which was managed by the
Sub-adviser in substantially the same manner as the Small Cap Growth Fund. The
Combined Accounts Composite includes all Combined Accounts, net of the highest
management fee charged and other account fees and expenses. The inception dates
of the Combined Accounts comprising the Combined Accounts Composite range from
September 1, 1994 to June 1, 1997.
The Combined Accounts in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Combined Accounts included in the Combined
Accounts Composite had been subject to the requirements imposed on registered
mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Small Cap Growth Fund are
higher than the total fees historically incurred by the Combined Accounts
comprising the Combined Accounts Composite. Consequently, the performance
results for the Combined Accounts Composite would have been lower if the
Combined Accounts Composite had the same expenses as the Small Cap Growth Fund.
The performance of the Combined Accounts Composite has been calculated in
accordance with SEC performance standards. See "Performance and Yield
Information" in the Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A
COMPOSITE OF THE SUB-ADVISER'S COMBINED ACCOUNTS WHICH ARE MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUALS AS THE SMALL CAP
GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE SMALL CAP GROWTH FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
53.70% 29.20%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 1, 1994
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Small Cap Growth Fund is likely to differ from the
Sub-adviser's Combined Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Small Cap Growth Fund may
vary from those of the Sub-adviser's Combined Accounts and the performance of
the Small Cap Growth Fund may vary from that of the Combined Accounts Composite.
23
<PAGE> 127
INTERNATIONAL VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH OF CAPITAL AND FUTURE
INCOME THROUGH INVESTMENTS
IN NON-U.S. ISSUERS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
The Fund's portfolio managers include: (i) Robert Ronus, President of the
Sub-adviser, who has been an investment professional for 29 years and has been
with the Sub-adviser or an affiliate for 25 years; (ii) David Fisher, Vice
Chairman of the Sub-adviser, who has been an investment professional for 32
years and has been with the Sub-adviser or an affiliate for 28 years; (iii)
Harmut Giesecke, Senior Vice President and Director of Capital International,
Inc., an affiliate of the Sub-adviser, who has been an investment professional
for 26 years and has been with the Sub-adviser or an affiliate for 25 years;
(iv) Nancy Kyle, Senior Vice President of the Sub-adviser, who has been an
investment professional for 24 years and has been with the Sub-adviser or an
affiliate for 7 years; (v) John McIlwraith, Senior Vice President of the
Sub-adviser, who has been an investment professional for 28 years and has been
with the Sub-adviser or an affiliate for 14 years; (vi) Nilly Sikorsky, Director
of The Capital Group of Companies, Inc., an affiliate of the Sub-adviser, who
has been an investment professional for 35 years and has been with the
Sub-adviser or an affiliate for 35 years; (vii) Lionel Sauvage, Vice President
of the Sub-adviser, who has been an investment professional for 11 years and has
been with the Sub-adviser or an affiliate for 11 years; (viii) Richard Havas,
Sr., Vice President of the Sub-adviser, who has been an investment professional
for 16 years and has been with the Sub-adviser or an affiliate for 12 years; and
(ix) Rudolf Staehelin, Sr., Vice President of Capital Research International, an
affiliate the Sub-adviser, who has been an investment professional for 20 years
and has been with the Sub-adviser or an affiliate for 16 years.
INVESTMENT OBJECTIVE
Seeks to provide growth of capital and future income through investments
primarily in securities of non-U.S. issuers and securities whose principal
markets are outside of the United States.
INVESTMENT RISK
As described in the Investment Strategy section below, this Fund invests almost
all of its assets in foreign securities, which have risks that U.S. investments
do not have, including future foreign political and economic developments,
fluctuations in foreign exchange rates and limited publicly available
information. For a further explanation of the risks associated with foreign
securities and market risk, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a portfolio consisting primarily of equity and fixed income
securities of non-U.S. issuers.
While the assets of the Fund can be invested with geographical flexibility, the
emphasis will be on securities of companies located in Europe, Canada,
Australia, and the Far East, giving due consideration to economic, social, and
political developments, currency risks and the liquidity of various national
markets.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -----------------------------------------------
<S> <C>
Foreign securities** at least 80%
Equity securities,
investment grade fixed
income securities
- -----------------------------------------------
Futures and options Put up to 90% of the
and call options on amount in foreign
foreign currencies and securities
forward currency
contracts
- -----------------------------------------------
Cash, cash equivalents, up to 100%
government securities,
nonconvertible
preferred stocks, or
investment grade fixed
income securities***
- -----------------------------------------------
Rule 144A securities up to 15%
(liquid)
- -----------------------------------------------
Illiquid securities**** up to 15%
- -----------------------------------------------
</TABLE>
* At the time of purchase.
** We may invest up to 10% of the Fund's assets in the
securities of foreign small capitalization companies. The Fund also may
invest in securities of issuers located in emerging market countries.
*** We may invest up to 100% of the Fund's assets in
these instruments in varying proportions as a temporary defensive position,
when we think economic, political and market conditions in foreign
countries make it too risky to follow our general guidelines. The
Sub-adviser will not necessarily dispose of a fixed income security when
its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
For additional
information about THE
FUND'S INVESTMENTS see
"Types of Investments."
24
<PAGE> 128
- --------------------------------------------------------------------------------
The International Value Fund recently commenced operations and, therefore, has
no investment performance record. However, the International Value Fund's
investment objectives, policies and strategies are substantially similar, but
not necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. The chart herein shows the historical investment performance for a
composite of the Sub-adviser's Discretionary Accounts ("Sub-adviser Composite")
which were managed by the Sub-adviser in substantially the same manner as the
International Value Fund. The Sub-adviser Composite represents the total return
of all Discretionary Accounts, net of the highest management fee charged and
other account fees and expenses. The inception dates of the Discretionary
Accounts comprising the Sub-Adviser Composite range from December 31, 1978 to
March 31, 1998.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-Adviser
Composite had been subject to the requirements imposed on registered mutual
funds, their performance might have been lower.
Total fees (after expense reimbursements) for the International Value Fund are
higher than the total fees historically incurred by the Discretionary Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser Composite had
the same expenses as the International Value Fund. The performance of the
Sub-adviser Composite has been calculated in accordance with SEC performance
standards. See "Performance and Yield Information" in the Statement of
Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
DISCRETIONARY ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE
INTERNATIONAL VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
INTERNATIONAL VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
SUB-ADVISER COMPOSITE
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- ---------------------------------------------------------
24.02% 14.85% 11.35%
- ---------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the International Value Fund is likely to differ from the
Sub-adviser's Discretionary Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the International Value Fund may
vary from those of the Sub-adviser's Discretionary Accounts and the performance
of the International Value Fund may vary from that of the Sub-adviser Composite.
25
<PAGE> 129
LARGE CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURNS EXCEEDING THE
RUSSELL 1000 VALUE INDEX
THROUGH INVESTMENTS IN
EQUITY SECURITIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
State Street Bank & Trust Company/
State Street Global Advisors
PORTFOLIO MANAGER
The Fund's portfolio managers include Jeffrey P. Adams, Jennifer W. Bardsley,
David A. Hanna, Douglas T. Holmes, CFA, Ben J. Salm, Peter Stonberg, CFA,
Richard B. Weed and Peter B. Wiley, CFA. Mr. Adams, Principal, US Active Equity
joined the Sub-adviser in June 1989, where he has been the team leader of the
Small Cap Strategy since its inception and is responsible for the research
initiatives for this product. Mr. Adams' responsibilities include the management
of global active portfolios and research and development of new U.S. active
processes. Ms. Bardsley, Principal, US Active Equity, joined the Sub-adviser in
1993 as a member of the Investment Systems group and moved to the U.S. Active
Equity group in January 1996, where her responsibilities include product
development, portfolio management and maintenance of the modeling and portfolio
construction processes. Mr. Hanna, Principal, US Active Equity, joined the
Sub-adviser in May 1997 and is a Portfolio Manager for the Hedged Matrix
(Long/Short Market Neutral) Product and participates in group research projects
involving the development of modeling and portfolio development techniques.
Prior to joining the Sub-adviser, Mr. Hanna was director of equity and
quantitative research at Standish, Ayer & Wood, from January 1992 to April 1997,
where he both managed a group of quantitative analysts and worked on equity
research projects. Mr. Holmes, Managing Director, Global Enhanced Equity, joined
the Sub-adviser in 1984 and specializes in the portfolio construction, risk
control and trading of accounts managed by the Sub-adviser in this area. Mr.
Salm, Principal, US Active Equity, joined the Sub-adviser in 1992 and is
responsible for research, product development and portfolio management within
the US Active strategy. Mr. Stonberg, Principal and Head of US Active Equity,
joined the Sub-adviser in 1981 and is responsible for all of the Sub-adviser's
US Active Equity investment strategies. Mr. Weed, Principal, US Active Equity,
joined the Sub-adviser in April 1994, where his responsibilities include
portfolio management, product development and research. Previously, Mr. Weed was
with Valuequest, an investment adviser, from December 1993 to March 1994 and
with Brattle Group, an economic consulting firm, from May 1992 to November 1993.
Mr. Wiley, Principal, US Active Equity, joined the Sub-adviser in April 1997.
Previously, Mr. Wiley was with Colonial Management Associates, an investment
management firm, from August 1992 to April 1997.
INVESTMENT OBJECTIVE
Seeks to provide total returns that exceed over time the Russell 1000 Value
Index (Index) through investment in equity securities.
INVESTMENT RISK
This Fund invests primarily in the equity securities of large, well-established
companies that generally possess the strength to withstand difficult financial
periods. Nevertheless, the value of any equity security can rise or fall over
short and long periods of time. As described below, in order to avoid unintended
exposures to economic factors, including the direction of the economy, interest
rates, energy prices and inflation, we maintain the proportion of equity
securities from different economic sectors in this Fund's portfolio at a level
similar to that of the Index. There is no assurance that the Fund will be
unaffected by such economic factors.
Because the Fund maintains sector weights at a similar level to that of the
Index, your investment may experience similar changes in value and share similar
risks such as market risk and risk associated with foreign securities. For more
information about market risk and risk associated with foreign securities, see
"A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund will invest primarily in equity securities of large capitalization
companies. Large capitalization companies include the largest 1,200 companies by
market capitalization domiciled in the United States. Equity securities will be
selected and ranked according to two separate and uncorrelated measures: value
and the momentum of Wall Street sentiment. The value measure compares a
company's assets, projected earnings growth and cash flow growth with the price
of its equity securities within the context of its historical valuation. The
measure of Wall Street sentiment examines changes in Wall Street analysts'
earnings estimates and ranks stocks by the strength and consistency of those
changes. These two measures will be combined to create a single composite score
of an equity security's attractiveness. These scores are used to determine their
relative attractiveness. Sector weights are maintained at a similar level
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
26
<PAGE> 130
LARGE CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------
to that of the Index to avoid unintended exposure to factors such as the
direction of the economy, interest rates, energy prices and inflation.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of large at least 65%
capitalization companies
- --------------------------------------------
ADRs up to 5%
- --------------------------------------------
Debentures up to 5%
- --------------------------------------------
Notes up to 5%
- --------------------------------------------
Warrants** up to 5%
- --------------------------------------------
Illiquid and restricted up to 15%
securities**
- --------------------------------------------
Rule 144A securities (liquid) up to 15%
- --------------------------------------------
Securities lending up to 331/3%
- --------------------------------------------
When-issued securities** up to 25%
- --------------------------------------------
Put and call options up to 5%
Covered put and call options
on securities
Put and call options on
securities indices
- --------------------------------------------
Futures and options up to 5%
Initial margin deposits on
futures and premiums for
options and futures
- --------------------------------------------
High quality short-term fixed up to 100%
income securities***
- --------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
*** For temporary defensive purposes, to invest
uncommitted cash balances or to meet shareholder redemptions, we may
invest up to 100% of the Fund's assets in high quality short-term fixed
income securities such as U.S. Government securities, repurchase
agreements collateralized by these obligations, variable amount master
demand notes, commercial paper, bank certificates of deposit, bankers'
acceptances and time deposits. The Sub-adviser will not necessarily
dispose of a fixed income security when its rating is down graded to below
investment grade.
27
<PAGE> 131
- --------------------------------------------------------------------------------
The Large Cap Value Fund recently commenced operations and, therefore, has no
investment performance record. However, the Large Cap Value Fund is managed by
the Sub-adviser in substantially the same manner and by the same individuals as
those who manage discretionary accounts (the "Discretionary Accounts") with
substantially similar investment objectives, policies and strategies.
The chart herein shows the investment performance for all Discretionary
Accounts, net of account fees and expenses. The inception dates for the
Discretionary Accounts range from August 1, 1992 through August 1, 1997. The
Discretionary Accounts are not subject to the investment limitations,
diversification requirements and the other restrictions imposed on registered
mutual funds by the 1940 Act and Subchapter M of the Internal Revenue Code. If
the Discretionary Accounts had been subject to the requirements imposed on
registered mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Large Cap Value Fund are
higher than the total fees incurred by the Discretionary Accounts. Consequently,
the performance results for the Discretionary Accounts would have been lower if
the Discretionary Accounts had the same expenses as the Large Cap Value Fund.
The performance of the Discretionary Accounts has been calculated in accordance
with SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE SUB-
ADVISER'S DISCRETIONARY ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME
MANNER AND BY THE SAME INDIVIDUALS AS THE LARGE CAP VALUE FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE LARGE CAP VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF DISCRETIONARY ACCOUNTS
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
58.95% 24.14% 24.04%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 1, 1992
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Large Cap Value Fund is likely to differ from the
Discretionary Accounts in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Large Cap Value Fund
may vary from those of the Discretionary Accounts.
28
<PAGE> 132
MID CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN MEDIUM CAPITALIZATION
COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Neuberger&Berman Management Inc.
PORTFOLIO MANAGER
Michael M. Kassen, Robert I. Gendelman and S. Basu Mullick serve as co-managers
of the Fund. Mr. Kassen and Mr. Gendelman are Vice Presidents of the Sub-adviser
and principals of
Neuberger&Berman, LLC. Messrs. Kassen and Gendelman have been associated with
the Sub-adviser since 1990 and 1994, respectively. Prior to 1994, Mr. Gendlemen
was a portfolio manager for another mutual fund manager. Mr. Mullick has been a
Vice President of the Sub-adviser since October 1998. From 1993 to 1998, Mr.
Mullick was a portfolio manager for another mutual fund manager.
INVESTMENT OBJECTIVE
Seeks capital growth, through investment in equity securities of medium
capitalization companies using a value-oriented investment approach.
INVESTMENT RISK
The value of any equity security may rise or fall over long or short periods of
time. Although equity securities present an opportunity for capital
appreciation, they may not be broadly traded and involve market risk and risk
associated with foreign securities. For a discussion of these risks, see "A Word
About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund invests principally in equity securities of medium capitalization
established companies, using a value-oriented investment approach intended to
increase capital with reasonable risk. Medium capitalization companies include
companies with the characteristics of companies included in the Russell
Midcap(TM) Index. As of June 30, 1998, the largest company included in the
Russell Midcap(TM) Index had an approximate market capitalization of $10.3
billion. We choose securities we believe are undervalued based on strong
fundamentals, including a low price-to-earnings ratio, consistent cash flow, and
the company's track record through all parts of the market cycle. When selecting
securities for this Fund, we also consider other factors, including ownership by
a company's management of the company's stock and the dominance of a company in
its particular field.
We follow the guidelines listed below for making the investments for this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of medium at least 65%
capitalization companies
- --------------------------------------------
Other equity securities up to 35%
Common stock, preferred
stock, convertible
securities
- --------------------------------------------
Covered call options up to 35%
- --------------------------------------------
Foreign currency transactions up to 5%
- --------------------------------------------
Options on foreign currencies up to 5%
- --------------------------------------------
Foreign securities up to 10%
- --------------------------------------------
Illiquid and restricted up to 15%
securities**
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Corporate fixed income up to 15%
securities rated C or higher
by Moody's or CC or higher
by S&P and comparable
unrated securities***
- --------------------------------------------
Investment grade fixed income less than 5%
securities****, corporate
bonds and debentures, U.S.
Government securities, money
market instruments, zero
coupon securities
- --------------------------------------------
Cash and cash equivalents***** up to 100%
- --------------------------------------------
</TABLE>
* At time of purchase.
** We may invest up to 15% of the Fund's net assets in
illiquid securities. This limitation applies at all times. Restricted
securities are explained under "Types of Investments."
*** This Fund may invest up to 15% of its net assets in
below investment grade fixed income securities only when we believe that
the anticipated return to the Fund warrants exposure to the additional
risk involved in these instruments.
**** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***** For temporary defensive reasons, we may invest up
to 100% of the Fund's assets in cash and cash equivalents, U.S. Government
securities, commercial paper and certain other money market instruments,
including repurchase agreements collateralized by the foregoing. We may do
this when we think economic and market conditions make it too risky to
follow its general investment guidelines.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
29
<PAGE> 133
- --------------------------------------------------------------------------------
The Mid Cap Value Fund recently commenced operations and, therefore, has no
investment performance record. However, the Mid Cap Value Fund's investment
objectives, policies and strategies are substantially similar, though not
necessarily identical, to those of Neuberger&Berman Partners Fund and it is
managed by the Sub-adviser in substantially the same manner and by the same
individuals as Neuberger&Berman Partners Fund. Neuberger&Berman Partners Fund
seeks to achieve its objective by investing principally in common stocks of
medium to large capitalization companies. As a result, Neuberger&Berman Partners
Fund may in the future have, or in the past have had, greater exposure to larger
capitalization companies than the Mid Cap Value Fund will have. The chart
herein shows the investment performance for Neuberger&Berman Partners Fund for
the period April 1, 1988 through March 31, 1998, net of Neuberger&Berman
Partners Fund's fees and expenses. The date the Sub-Adviser assumed management
of Neuberger&Berman Partners Fund was January 20, 1975.
The Mid Cap Value Fund is subject to investment limitations, diversification
requirements and other restrictions imposed on registered mutual funds by the
1940 Act and Subchapter M of the Internal Revenue Code.
Total fees after (expense reimbursements) for the Mid Cap
Value Fund are higher than the total fees incurred by
Neuberger&Berman Partners Fund. Consequently, the performance results for
Neuberger&Berman Partners Fund would have been lower if Neuberger&Berman
Partners Fund had the same expenses as the Mid Cap Value Fund. The performance
of Neuberger&Berman Partners Fund has been calculated in accordance with SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON NEUBERGER&BERMAN
PARTNERS FUND WHICH IS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME
INDIVIDUALS AS THE MID CAP VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE OF
THE MID CAP VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
NEUBERGER&BERMAN PARTNERS FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
41.54% 21.80% 17.95%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Mid Cap Value Fund is likely to differ from
Neuberger&Berman Partners Fund in size, cash flow patterns and certain tax
matters. Neuberger&Berman Partners Fund may have greater exposure to large
capitalization companies than the Mid Cap Value Fund. Accordingly, the portfolio
holdings and performance of the Mid Cap Value Fund may vary from those of
Neuberger&Berman Partners Fund.
30
<PAGE> 134
SMALL CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal MAXIMUM LONG-TERM RETURN
THROUGH INVESTMENTS IN SMALL
CAPITALIZATION COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISERS
Fiduciary Management Associates, Inc.
Bankers Trust Company
PORTFOLIO MANAGER
The actively-managed portion of the Fund's portfolio is managed by Kathryn Maag
Vorisek, Douglas G. Madigan, CFA, Lloyd J. Spicer, CFA, and Terry B. French of
Fiduciary Management Associates, Inc. Ms. Vorisek, Senior Vice President and
Portfolio Manager/Analyst for the Sub-adviser's small cap discipline, is the
team leader. Ms. Vorisek joined the Sub-adviser in April 1996. Previously, Ms.
Vorisek was with Duff & Phelps Investment Management from June 1989 to April
1996. Mr. Madigan, Senior Vice President and Director of Research, joined the
Sub-adviser in September 1998. Previously, Mr. Madigan was with Harris Bank as
Vice President, Equity Research, from 1994 to September 1998 and as Mutual Fund
Portfolio Manager and Partner from 1996 to September 1998. Prior to that, Mr.
Madigan was Vice President and Senior Portfolio Manager at Continental Bank from
1989 to 1994. Mr. Spicer, Senior Vice President and Portfolio Manager/ Small Cap
Advisor, joined the Sub-adviser in March 1994. Previously, Mr. Spicer was Senior
Vice President at LaSalle National Corporation from February 1982 through March
1994. Mr. French, Senior Vice President and Portfolio Manager, joined the
Sub-adviser in November 1997. Mr. French managed private investment portfolios
from January 1991 to November 1997.
Frank Salerno, Managing Director-Chief Investment Officer of Quantitative and
Equity Index of Bankers Trust Company, has been the portfolio manager for the
passively-managed portion of this Fund's portfolio since the Fund's inception.
Mr. Salerno has been with the Sub-adviser since 1981.
INVESTMENT OBJECTIVE
Seeks maximum long-term return, consistent with reasonable risk to principal, by
investing primarily in equity securities of small capitalization companies in
terms of revenues and/or market capitalization.
INVESTMENT RISK
A portion of this Fund's portfolio is invested in a statistically-selected
sampling of the 2,000 stocks in the Russell 2000 Index (Index). This part of the
Fund's investment portfolio avoids the risks of individual stock selection and
seeks to achieve and exceed the return of the smaller-sized company sector of
the market. On the average, that return has been positive, but has been negative
at certain times. There is no assurance that a positive return will occur in the
future.
Because this Fund invests in smaller capitalization equity securities, your
investment may exhibit greater market value volatility than investments in
common stocks of larger companies. Your investment also will experience similar
changes in value and share similar risks as stocks included in the Index, such
as market risk and risk associated with investment in foreign securities. For
more information about these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGIES
This Fund invests primarily in equity securities of small capitalization
companies, which are companies whose stock market capitalizations range from $50
million to $1 billion and companies included in the Index. One portion of the
Fund's investment portfolio will be actively managed and the other portion will
be passively managed. In analyzing and selecting investments for the actively
managed portion of the Fund's investment portfolio, we look for market themes
and changes that signal opportunity. We seek companies with lower
price-to-earnings ratios, strong cash flow, good credit lines and clean or
improving balance sheets. At any given time, this portion of the Fund's
investment portfolio will be invested in a diversified group of small
capitalization equity securities in several industries. The Fund will invest
primarily in U.S. companies with seasoned management or a track record as part
of a larger company.
The passively-managed portion of the Fund's investment portfolio is comprised of
a sampling of stocks in the Index that, as a group, should reflect its
performance. The stocks of the Index to be included in the Fund will be selected
utilizing a statistical sampling technique known as "optimization." This process
selects stocks for the Fund so that various industry weightings, market
capitalizations and fundamental characteristics (e.g. price-to-book,
price-to-earnings, debt-to-asset ratios and dividend yields) closely approximate
those of the Index. The stocks held by the Fund are weighted to make the Fund's
aggregate investment characteristics similar to those of the Index as a whole.
Since it may not be possible for this Fund to buy every stock included
in the Index or in the same proportions, we rely on the aforementioned
statistical technique to figure out, of the stocks tracked by the Index, how
many and which ones to buy.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
31
<PAGE> 135
SMALL CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Equity securities of small at least 65%
capitalization companies**
- ---------------------------------------------
Short-term investments Foreign up to 35%
and domestic money market
instruments, certificates of
deposit, bankers'
acceptances, time deposits,
U.S. Government obligations,
U.S. Government agency
securities, short-term
corporate fixed income
securities***, commercial
paper rated A-1 or A-2 by
S&P or Prime-1 or Prime-2 by
Moody's or, if unrated, of
comparable quality,
repurchase agreements
- ---------------------------------------------
Illiquid securities**** up to 15%
- ---------------------------------------------
Futures and Options up to 20%
- ---------------------------------------------
Swap Agreements up to 10%
- ---------------------------------------------
Warrants***** up to 5%
- ---------------------------------------------
Time deposits****** up to 10%
- ---------------------------------------------
Foreign securities up to 10%
- ---------------------------------------------
Investment companies up to 10%
- ---------------------------------------------
Rule 144A securities (liquid) up to 10%
- ---------------------------------------------
</TABLE>
* At time of purchase.
** This Fund will invest at least 65% of its total assets
in equity securities of companies whose stock market capitalizations
range from $50 million to $1 billion, including stocks in the Russell
2000 Index.
*** The Fund will not purchase short-term fixed
income securities rated below Baa by Moody's or BBB by S&P. However, the
Sub-adviser will not necessarily dispose of a fixed income security when
its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
***** The Fund's investment in warrants will not exceed
2% of its assets with respect to warrants not listed on the New York or
American Stock Exchanges.
****** This Fund will invest only in time deposits
maturing in two to seven calendar days. The Fund will not purchase time
deposits maturing in more than seven days.
32
<PAGE> 136
SOCIALLY RESPONSIBLE
FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN COMPANIES MEETING SOCIAL
CRITERIA OF THE FUND
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
Maruti More has been this Fund's portfolio manager and Vice
President-Investments of the Series Company since its inception. Since April
1998, Mr. More serves as Vice President of VALIC and American General Investment
Management, L.P. Previously, Mr. More was with American General Corporation from
August 1996 to April 1998. Prior to that, Mr. More was Managing Director,
Marketable Securities for Paul Revere Investment Management Corporation from
1993 to 1995. Mr. More has served as Portfolio Manager of the American General
Series Portfolio Company Social Awareness Fund ("AGSPC Social Awareness Fund")
since October 1998.
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in equity
securities, in companies which meet the social criteria established for the
Fund. The Fund does not invest in companies that:
- produce nuclear energy;
- make military weapons or delivery systems; or
- engage continuously in practices or produce products that significantly
pollute the environment (such products include tobacco products).
INVESTMENT RISK
This Fund may experience market risk, and risks associated with foreign
securities. For a discussion of these risks see "A Word About Risk" in this
prospectus.
If a company stops meeting the Fund's social criteria after the Fund invested in
it, the Fund will sell these investments even if this means the Fund loses
money. Also, if the Fund changes its social criteria and the companies the Fund
has already invested in no longer qualify, the Fund will sell these investments
even if this means the Fund loses money. Social criteria screening will limit
the availability of investment opportunities for the Fund more than for funds
having no such criteria.
To find out which companies meet the Fund's social criteria, we rely on industry
classifications, research services such as the Investor Responsibility Research
Center (IRRC), and special magazines and papers that publish this type of
information.
Since our definition of social criteria is not "fundamental," the Series
Company's Board of Trustees may change it without shareholder approval. When
deciding to make changes to the criteria, the Board will consider, among other
things, new or revised state laws that govern or affect the investments of
public funds. At least once a year, we survey state laws on this issue to look
for any new developments. If our survey shows that at least 20 states have
adopted laws that restrict public funds from being invested in a clearly
definable category of investments, this category is automatically added to our
social criteria list.
INVESTMENT STRATEGY
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund's Investments Assets*
- -----------------------------------------------
<S> <C>
Equity securities of at least 80%
companies meeting the
Fund's social criteria
- -----------------------------------------------
Other types of equity up to 20%
securities of companies
meeting social criteria
including:
Foreign securities
Preferred stock
Convertible
securities
- -----------------------------------------------
High quality money market up to 20%
securities and warrants
- -----------------------------------------------
Futures and options up to 33%
- -----------------------------------------------
Illiquid and restricted up to 10%
securities**
- -----------------------------------------------
Rule 144A securities up to 20%
(liquid)
- -----------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
33
<PAGE> 137
- --------------------------------------------------------------------------------
The Socially Responsible Fund recently commenced operations and, therefore, has
no investment performance record. However, the Socially Responsible Fund's
investment objectives, policies and strategies are substantially similar to
those of the AGSPC Social Awareness Fund and it is managed by VALIC in
substantially the same manner as the AGSPC Social Awareness Fund. The chart
herein shows the historical investment performance for the AGSPC Social
Awareness Fund for the period of October 2, 1989 through March 31, 1998, net of
AGSPC Social Awareness Fund's fees and expenses. The inception date for the
AGSPC Social Awareness Fund was October 2, 1989.
The AGSPC Social Awareness Fund is subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Socially Responsible Fund are
higher than the total fees incurred by the AGSPC Social Awareness Fund.
Consequently, the performance results for the AGSPC Social Awareness Fund would
have been lower if the AGSPC Social Awareness Fund had the same expenses as the
Socially Responsible Fund. The performance of the AGSPC Social Awareness Fund
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON THE AGSPC SOCIAL AWARENESS FUND WHICH IS MANAGED IN
SUBSTANTIALLY THE SAME MANNER AS THE SOCIALLY RESPONSIBLE FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE SOCIALLY RESPONSIBLE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF AGSPC SOCIAL AWARENESS FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
47.45% 21.54% 16.57%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Socially Responsible Fund is likely to differ from the
AGSPC Social Awareness Fund in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Socially Responsible
Fund may vary from those of the AGSPC Social Awareness Fund.
34
<PAGE> 138
BALANCED FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CONSERVATION OF PRINCIPAL
AND LONG-TERM GROWTH OF
CAPITAL AND INCOME THROUGH
INVESTMENTS IN FIXED INCOME
AND EQUITY SECURITIES
- -------------------------------------------------
Investment Category BALANCED
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
This Fund is managed using a system of multiple portfolio managers. Under this
system, the Fund is divided into segments, which are assigned to individual
managers.
The portfolio managers for the fixed income portion of the Fund include: (i) Jim
Mulally, Senior Vice President of the Sub-adviser, who has been an investment
professional for 21 years and has been with the Sub-adviser or an affiliate for
18 years; and (ii) Jim Baker, Vice President of the Sub-adviser, who has been an
investment professional for 17 years and has been with the Sub-adviser or an
affiliate for 11 years.
The portfolio managers for the U.S. large cap equity portion of the Fund
include: (i) David Fisher, Vice Chairman of the Sub-adviser, who has been an
investment professional for 32 years and has been with the Sub-adviser or an
affiliate for 28 years; (ii) Gene Stein, Executive Vice President of the
Sub-adviser, who has been an investment professional for 26 years and has been
with the Sub-adviser or an affiliate for 25 years; (iii) Michael Ericksen,
Senior Vice President of the Sub-adviser, who has been an investment
professional for 17 years and has been with the Sub-adviser or an affiliate for
11 years; (iv) Ted Samuels, Senior Vice President of the Sub-adviser, who has
been an investment professional for 19 years and has been with the Sub-adviser
or an affiliate for 17 years; (v) Donnalisa Barnum, Vice President of the
Sub-adviser, who has been an investment professional for 16 years and has been
with the Sub-adviser or an affiliate for 12 years; and (vi) R. Bryan Jacoboski,
Vice President of the Sub-adviser, who has been an investment professional for
17 years and has been with the Sub-adviser or an affiliate for 4 years.
Previously Mr. Jacoboski was Managing Director, Equity Research at Paine Webber
from 1983 to 1994.
The portfolio managers for the U.S. small cap equity portion of the Fund
include: (i) Bob Kirby, Chairman Emeritus of the Sub-adviser, who has been an
investment professional for 45 years and has been with the Sub-adviser or an
affiliate for 32 years; (ii) Michael Ericksen, Senior Vice President of the
Sub-adviser, who has been an investment professional for 17 years and has been
with the Sub-adviser or an affiliate for 11 years; (iii) James Kang, Vice
President of Capital Guardian Research Company, an affiliate of the Sub-adviser,
who has been an investment professional for 11 years and has been with the
Sub-adviser or an affiliate for 10 years; and (iv) R. Bryan Jacoboski, Vice
President of the Sub-adviser.
INVESTMENT OBJECTIVE
Seeks balanced accomplishment of
(i) conservation of principal and (ii) long-term growth of capital and income
through investment in fixed income and equity securities.
INVESTMENT RISK
This Fund invests principally in fixed income and equity securities. The value
of an equity security can rise and fall over long and short periods of time and
involve market risks. Like equity securities, fixed income securities involve
certain risks, including interest rate risk, credit risk, market risk and risk
associated with foreign securities. This may cause the fixed income securities
that the Fund owns to be worth less than the Fund paid. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a combination of fixed income and equity securities in order
to maintain the value of your principal investment and provide you with capital
growth and income over the long term. At all times at least 25% of the Fund's
total assets are invested in fixed income senior securities. We select
securities for the Fund's portfolio by identifying fixed income and equity
securities that represent fundamental values at reasonable prices. We implement
this philosophy using a system of portfolio managers, under which a different
group of portfolio managers makes investment decisions for the fixed income and
equity portions of the Fund.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
35
<PAGE> 139
BALANCED FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Fixed income securities up to 75%
Securities rated A or better
by Moody's or S&P or of
comparable investment
quality**, securities issued
by the U.S. Government and
its instrumentalities,
securities issued by the
Canadian Government, its
provinces or their
instrumentalities,
mortgage-related securities
of governmental issuers,
GNMA certificates of private
issuers, collateralized
mortgage obligations,
mortgage-backed bonds, cash
or cash equivalents,
including commercial bank
obligations and commercial
paper***
- --------------------------------------------
Fixed income senior securities at least 25%
- --------------------------------------------
Equity securities**** up to 75%
- --------------------------------------------
High yielding, high risk fixed up to 20%
income securities*****
- --------------------------------------------
Rule 144A securities (liquid) up to 15%
- --------------------------------------------
Illiquid securities****** up to 15%
- --------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** All of the above listed fixed income securities will
constitute at least 75% of the fixed income securities held by the Fund.
**** Equity securities held by the Fund will be listed on
national securities exchanges or in the national over-the-counter market
(NASDAQ) and may include American Depository Receipts. We may invest up
to 10% of the Fund's assets in the securities of U.S. small
capitalization companies.
***** No minimum rating requirement applied.
Commonly referred to as high yield, high risk, junk or below investment
grade fixed income securities.
****** Percent of Fund's net assets applied at all times.
36
<PAGE> 140
- --------------------------------------------------------------------------------
The Balanced Fund recently commenced operations and, therefore, has no
investment performance record. However, the Balanced Fund's investment
objectives, policies and strategies are substantially similar, but not
necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. Although managed in substantially the same manner as the Balanced
Fund, the Discretionary Accounts may not invest as great a percentage of their
assets in fixed income senior securities as the Balanced Fund. As a result, the
Balanced Fund may have greater exposure to fixed income senior securities than
the Discretionary Accounts. The chart herein shows the historical investment
performance for a composite of all of the Sub-adviser's Discretionary Accounts
("Sub-adviser Composite") which were managed by the Sub-adviser in substantially
the same manner as the Balanced Fund. The Sub-adviser Composite represents the
total return of all Discretionary Accounts, net of the highest management fee
charged and other account fees and expenses. The inception dates of the
Discretionary Accounts comprising Sub-adviser Composite range from December 31,
1974 to September 30, 1997.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-adviser
Composite had been subject to the requirements imposed on mutual funds, their
performance might have been lower.
Total fees (after expense reimbursements) for the Balanced Fund are higher than
the total fees historically incurred by the Discretionary Accounts comprising
the Sub-adviser Composite. Consequently, the performance results for the
Sub-adviser Composite would have been lower if the Sub-adviser Composite had the
same expenses as the Balanced Fund. The performance of the Sub-adviser Composite
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
DISCRETIONARY ACCOUNTS WHICH ARE
MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE BALANCED FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE BALANCED FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
SUB-ADVISER COMPOSITE
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
31.17% 15.84% 14.44%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Balanced Fund is likely to differ from the
Sub-adviser's Discretionary Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Balanced Fund may vary from
those of the Sub-adviser's Discretionary Accounts and the performance of the
Balanced Fund may vary from that of the Sub-adviser Composite.
37
<PAGE> 141
HIGH YIELD BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN AND INCOME CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN HIGH
YIELDING, HIGH RISK FIXED
INCOME SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGERS
The Fund is managed by Gordon Massie, who is assisted by Jeffrey Gary and Mark
Pauly, CFA. Mr. Massie, Senior Vice President, joined the Sub-adviser in April
1998. Previously, Mr. Massie was Director of High Yield Research at American
General Corporation from August 1985 to April 1998. Mr. Gary, Vice President,
joined the Sub-adviser in June 1998. From 1996 to April 1998, Mr. Gary was
Managing Director at Koch Capital Services, Inc. and from 1993 to 1996, Mr. Gary
served as Senior Analyst/Trader at Cargill Financial Services. Mr. Pauly, Senior
Investment Manager, High Yield, joined the Sub-adviser in April 1998. From
August 1994 to August 1996, Mr. Pauly served as the Manager of Portfolio
Forecasting and Analysis for American General Corporation and, from June 1992 to
August 1994, Mr. Pauly was Director of Marketing Services for American General
of New York.
INVESTMENT OBJECTIVE
Seeks the highest possible total return and income consistent with conservation
of capital through investment in a diversified portfolio of high yielding, high
risk fixed income securities.
INVESTMENT RISK
High yielding, high risk fixed income securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Because investment in lower rated fixed income securities
(commonly referred to as junk bonds) involves significantly greater credit risk,
market risk and interest rate risk than higher rated fixed income securities,
achievement of the Fund's investment objective is dependent upon the
Sub-adviser's investment analysis. Accordingly, the Fund's investments may be
worth less than what the Fund paid for them. The Fund is also subject to risks
associated with foreign securities. For a discussion of these risks see "A Word
About Risk" in the prospectus.
INVESTMENT STRATEGY
The Fund invests in high yielding, high risk fixed income securities to provide
you with the highest possible total return from current income and capital gains
while preserving your investment.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Fixed income securities rated at least 65%
below Baa3 by Moody's and
below BBB- by S&P**
- --------------------------------------------
Foreign fixed income up to 35%
securities rated below Baa3
by Moody's and below BBB- by
S&P**
- --------------------------------------------
Fixed income securities rated up to 35%
Baa3 or higher by Moody's or
Rated BBB- or higher by
S&P***
- --------------------------------------------
Zero coupon securities (i.e., up to 15%
securities not paying
current cash interest)
- --------------------------------------------
Fixed income securities rated up to 15%
below Caa3 by Moody's or
CCC- by S&P***
- --------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and warrants
- --------------------------------------------
Illiquid securities**** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 30%
- --------------------------------------------
</TABLE>
* At time of purchase.
** Commonly referred to as high yield, high risk, junk
or below investment grade fixed income securities.
*** The Sub-adviser will not necessarily dispose of a fixed
income security when its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
38
<PAGE> 142
STRATEGIC BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN AND INCOME CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN
INCOME PRODUCING SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGERS
The Fund is managed by Steven Guterman, who is assisted by Gordon Massie, Robert
Hiebert, CFA, Craig Mitchell, CFA, James J. Roth, George Steelman, Edwin
Ferrell, CFA and William Trimbur, Jr., CFA. Mr. Guterman, Executive Vice
President, joined the Sub-adviser in June 1998. Previously, Mr. Guterman was
with Salomon Brothers, Inc. from 1983 to May 1998, where he served as Managing
Director from 1996 to May 1998 and with Salomon Brothers Asset Management, Inc.,
where he was a Senior Portfolio Manager and head of the U.S. Fixed Income
Portfolio Group from 1990 to May 1998. In such capacity, Mr. Guterman served as
a portfolio manager of the Manufacturers Investment Trust Strategic Bond Trust,
the New England Zenith Fund Salomon Brothers Strategic Bond Opportunities
Series, the North American Funds Strategic Income Fund, the JNL Series Trust
Salomon Brothers/JNL Global Bond Series, the Salomon Brothers Series Funds Inc.
Strategic Bond Fund and the Nationwide Separate Account Trust Nationwide
Multi-Sector Bond. Mr. Massie, Senior Vice President, joined the Sub-adviser in
April 1998. Previously, Mr. Massie was Director of High Yield Research at
American General Corporation from August 1985 to April 1998. Mr. Hiebert, Vice
President and Senior Portfolio Manager, joined the Sub-adviser in April 1998.
Previously, Mr. Hiebert served as Senior Corporate Bond Trader at American
General Corporation from August 1995 to April 1998. Prior to that, Mr. Hiebert
served as Senior Trader with Cargill Financial Services Corp. from June 1992 to
August 1995. Mr. Mitchell, Vice President and Senior Portfolio Manager, joined
the Sub-adviser in April 1998 and American General Corporation in May 1995. From
July 1992 to April 1995, Mr. Mitchell served as Assistant Portfolio Manager and,
subsequently, Portfolio Manager at Providian Corporation. Mr. Roth, Vice
President, Fixed Income Trading, joined the Sub-adviser in April 1998.
Previously, Mr. Roth was Senior Portfolio Manager at American General
Corporation from August 1994 to March 1998. Prior to that, Mr. Roth was National
Sales Manager, Department of Capital Markets with the Resolution Trust
Corporation from February 1994 to July 1994 and Capital Markets Specialist from
June 1991 to January 1994. Mr. Steelman, Associate Portfolio Manager, joined the
Sub-adviser in April 1998. From April 1996 to April 1998, Mr. Steelman served as
Associate Portfolio Manager for American General Corporation. Mr. Steelman was
Senior Financial Analyst for American General Corporation's Treasury Department
from December 1994 to April 1996. Prior to joining American General Corporation,
Mr. Steelman pursued graduate studies in international management. Mr. Ferrell,
Director, joined the Sub-adviser in April 1998, where he has primary
responsibility for sovereign political and economic research. Previously, Mr.
Ferrell was a sovereign analyst with The Principal Financial Group from November
1993 to April 1998, where he was involved in the co-ordination of its emerging
market and non-dollar investment efforts. Mr. Trimbur, Vice President and
Investment Officer of the Series Company, joined the Sub-adviser in May 1998. As
Portfolio Manager for the Sub-adviser, Mr. Trimbur is primarily responsible for
the management and trading of non-dollar denominated bonds and equities. Mr.
Trimbur managed domestic bonds and equities for VALIC from 1987 to 1991 and has
been managing foreign bonds and equities for VALIC since 1991.
INVESTMENT OBJECTIVE
Seeks the highest possible total return and income consistent with conservation
of capital through investment in a diversified portfolio of income producing
securities.
INVESTMENT RISK
A significant portion of the Fund's investments may be in high yielding, high
risk fixed income securities that are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and interest
payments. Because investment in lower rated fixed income securities (commonly
referred to as junk bonds) involves significantly greater credit risk, market
risk and interest rate risk than higher rated fixed income securities,
achievement of the Fund's investment objective is dependent upon the Sub-
adviser's investment analysis. Accordingly, the Fund's investments may be worth
less than what the Fund paid for them. The Fund is also subject to risks
associated with foreign securities. For a discussion of these risks see "A Word
About Risk" in the prospectus.
Additional information
about THE FUND'S
INVESTMENTS provided
under "Types of
Investments."
39
<PAGE> 143
STRATEGIC BOND FUND
Fact Sheet
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
The Fund invests in a broad range of fixed income securities including
investment grade bonds, U.S. Government and agency obligations, mortgage backed
securities, high yield bonds, emerging market debt and non-dollar bonds, to
provide you with the highest possible total return from current income and
capital gains, while preserving your investment. A substantial portion of the
Fund may be invested in high yielding, high risk securities.
We follow the guidelines listed below for making the primary investment for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Investment grade fixed income at least 65%
securities**, U.S.
Government and agency and
mortgage-related securities,
U.S., Canadian and foreign
high yield, high risk fixed
income securities rated C or
higher by Moody's or CC or
higher by S&P and comparable
unrated securities***
- --------------------------------------------
Foreign non-dollar bonds up to 25%
(currency exposure may be
hedged or unhedged)
- --------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and warrants
- --------------------------------------------
Illiquid securities**** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 50%
- --------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** Commonly referred to as high yield, high risk, junk
or below investment grade fixed income securities.
**** Percent of Fund's net assets applied at all times.
40
<PAGE> 144
DOMESTIC BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGH TOTAL RETURN CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS
PRIMARILY IN INVESTMENT
GRADE FIXED INCOME
SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
James S. Baker and James R. Mulally serve as the Fund's portfolio managers. Mr.
Baker, Vice President and fixed-income portfolio manager of an affiliate of the
Sub-adviser, has focused on the application of quantitative valuations to
investment grade bonds and portfolios for the Sub-adviser since 1987. Mr.
Mulally, Senior Vice President, Director and Chairman of the Sub-adviser's Fixed
Income Subcommittee, joined the Sub-adviser in 1980.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investments primarily in investment grade fixed income securities and
other income producing securities.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk, market risk and risk associated with foreign securities. This
may cause the investments that the Fund owns to be worth less than what the Fund
paid. For a discussion of these risks see "A Word About Risk" in this
prospectus.
INVESTMENT STRATEGY
The Fund invests in high quality fixed income securities to provide you with the
highest possible total return from current income and capital gains while
preserving your investment. To increase the Fund's earning potential, we may use
a small part of the Fund's assets to make some higher risk investments.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Investment grade U.S. at least 65%
corporate fixed income
securities rated at least A
by Moody's or S&P**,
securities issued or
guaranteed by the U.S.
Government***, Yankee
bonds, asset backed bonds,
mortgage backed bonds,
interest bearing short-term
investments such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ---------------------------------------------
Non-U.S. investment grade up to 35%
intermediate and long-term
corporate fixed income
securities rated at least A
by Moody's or S&P** or of
comparable quality,
Eurodollar fixed income
securities****, securities
issued or guaranteed by the
Canadian Government, its
provinces or their
instrumentalities, interest
bearing short-term
investments, such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ---------------------------------------------
Other fixed income securities up to 25%
Corporate bonds rated less
than A by Moody's or S&P,
mortgage-related
securities, high yield,
high risk bonds*****
- ---------------------------------------------
Rule 144A securities (liquid) up to 15%
- ---------------------------------------------
Illiquid Securities****** up to 15%
- ---------------------------------------------
</TABLE>
*At time of purchase.
**The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by at least one of
the following: (i) the full faith and credit of the U.S. Government (e.g.,
Government National Mortgage Association), (ii) the right of the issuer to
borrow from the U.S. Treasury (e.g., Federal Home Loan Banks), (iii) the
credit of the issuing government agency (e.g., Student Loan Marketing
Association) or (iv) the discretionary authority of the U.S. Government to
purchase certain obligations of the agency.
****The Fund currently intends to limit these
investments to no more than 20% of its total assets.
*****No minimum rating requirement applies.
Commonly referred to as high yield, high risk, junk or below investment
grade fixed income securities.
******Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
41
<PAGE> 145
- --------------------------------------------------------------------------------
The Domestic Bond Fund recently commenced operations and, therefore, has no
investment performance record. However, the Domestic Bond Fund's investment
objectives, policies and strategies are substantially similar, but not
necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. The chart herein shows the historical investment performance for a
composite of all of the Sub-adviser's Discretionary Accounts ("Sub-adviser
Composite") which were managed by the Sub-adviser in substantially the same
manner as the Domestic Bond Fund. The Sub-adviser Composite represents the total
return of all Discretionary Accounts, net of the highest management fee charged
and other account fees and expenses. The inception dates of the Discretionary
Accounts comprising Sub-adviser Composite range from December 31, 1972 to March
1, 1998.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-adviser
Composite had been subject to the requirements imposed on mutual funds, their
performance might have been lower.
Total fees (after expense reimbursements) for the Domestic Bond Fund are higher
than the total fees historically incurred by the Discretionary Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser Composite had
the same expenses as the Domestic Bond Fund. The performance of the Sub-adviser
Composite has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S DISCRETIONARY ACCOUNTS WHICH
ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE DOMESTIC BOND FUND AND DOES
NOT REFLECT THE PERFORMANCE OF THE DOMESTIC BOND FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF SUB-ADVISER COMPOSITE
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -------------------------------------------------------------
11.78% 6.61% 9.12%
- -------------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Domestic Bond Fund is likely to differ from the
Sub-adviser's Discretionary Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Domestic Bond Fund may vary
from those of the Sub-adviser's Discretionary Accounts and the performance of
the Domestic Bond Fund may vary from that of the Sub-adviser Composite.
42
<PAGE> 146
CORE BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN CONSISTENT WITH
CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN
MEDIUM TO HIGH QUALITY FIXED
INCOME SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGER
Robert N. Kase, CFA, serves as the Fund's portfolio manager and is assisted by
Craig A. Mitchell, CFA, James J. Roth and Leon A. Olver. Mr. Kase, Vice
President and Senior Portfolio Manager, joined the Sub-adviser in September
1998. Previously, Mr. Kase was Senior Portfolio Manager at CL Capital
Management, Inc. from September 1992 to July 1998. Mr. Mitchell, Vice President
and Senior Portfolio Manager, joined the Sub-adviser in April 1998 and American
General Corporation in May 1995. From July 1992 to April 1995, Mr. Mitchell
served as Assistant Portfolio Manager and, subsequently, Portfolio Manager at
Providian Corporation. Mr. Roth, Vice President, Fixed Income Trading, joined
the Sub-adviser in April 1998. Previously, Mr. Roth was Senior Portfolio Manager
at American General Corporation from August 1994 to March 1998. Prior to that,
Mr. Roth was National Sales Manager, Department of Capital Markets, with the
Resolution Trust Corporation from February 1994 to July 1994 and Capital Markets
Specialist from June 1991 to January 1994. Mr. Olver, Portfolio Manager, has
been with the Sub-adviser since April 1998. As Portfolio Manager for the Sub-
adviser, Mr. Olver is responsible for portfolio management of domestic fixed
income assets. Prior to this, Mr. Olver had been with VALIC since June 1995 as
portfolio manager and was with First Heights Bank as manager of research and
analysis from May 1991 to June 1995. Mr. Olver serves as Vice President and
Investment Officer of the American General Series Portfolio Company and USLIFE
Income Fund, Inc., each a registered investment company managed by VALIC.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investments in medium to high quality fixed income securities.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk, market risk and risk associated with foreign securities. This
may cause the Fund's investments to be worth less than what the Fund paid for
them. For a discussion of these risks see "A Word About Risk" in this
prospectus.
INVESTMENT STRATEGY
The Fund invests in medium to high quality fixed income securities to provide
you with the highest possible total return from current income and capital gains
while preserving your investment. To increase the Fund's earning potential, we
may use a small part of the Fund's assets to make some higher risk investments.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
43
<PAGE> 147
CORE BOND FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Investment grade intermediate at least 65%
and long-term corporate
fixed income securities
rated at least Baa3 by
Moody's or BBB- by S&P** or
of comparable quality, U.S.
dollar denominated fixed
income securities issued by
foreign issuers***,
securities issued or
guaranteed by the U.S.
Government****, mortgaged
backed and other asset
backed securities, interest
bearing short-term
investments, such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- --------------------------------------------
Other fixed income securities up to 10%
corporate bonds rated
below Baa3 by Moody's
and BBB- by S&P*****
- --------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and warrants
- --------------------------------------------
Illiquid securities****** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 30%
- --------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** The Fund currently intends to limit these
investments to no more than 40% of its total assets.
**** U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by at least one of
the following: (i) the full faith and credit of the U.S. Government
(e.g., Government National Mortgage Association), (ii) the right of the
issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Banks),
(iii) the credit of the issuing government agency (e.g., Student Loan
Marketing Association) or (iv) the discretionary authority of the U.S.
Government to purchase certain obligations of the agency.
***** Commonly referred to as high yield, high risk,
junk or below investment grade bonds.
****** Percent of Fund's net assets applied at all times.
44
<PAGE> 148
- --------------------------------------------------------------------------------
The Core Bond Fund recently commenced operations and, therefore, has no
investment performance record. The performance information shown herein is for
the Canada Life Commingled Fund, which was managed by Robert N. Kase, the Core
Bond Fund's portfolio manager, from January 1, 1993 to July 1998. The Canada
Life Commingled Fund has substantially similar, though not necessarily identical
investment objectives, policies and strategies as the Core Bond Fund. The chart
herein shows the historical investment performance for the Canada Life
Commingled Fund for the period February 1, 1993 through March 1998, net of the
Canada Life Commingled Fund fees and expenses.
The Canada Life Commingled Fund was not subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code. If the
Canada Life Commingled Fund had been subject to the requirements imposed on
registered mutual funds, its performance might have been lower.
Total fees (after expense reimbursements) for the Core Bond Fund are higher than
the total fees incurred by the Canada Life Commingled Fund. Consequently, the
performance results for the Canada Life Commingled Fund would have been lower if
the Canada Life Commingled Fund had the same expenses as the Core Bond Fund. The
performance of the Canada Life Commingled Fund has been calculated in accordance
with SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE CANADA LIFE
COMMINGLED FUND WHICH WAS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE
SAME INDIVIDUAL AS THE CORE BOND FUND AND DOES NOT REFLECT THE PERFORMANCE OF
THE CORE BOND FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
CANADA LIFE COMMINGLED FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
10.42% 7.57% 7.69%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE FEBRUARY 1, 1993
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Core Bond Fund is likely to differ from the Canada Life
Commingled Fund in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Core Bond Fund may
vary from those of the Canada Life Commingled Fund.
45
<PAGE> 149
MONEY MARKET FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal INCOME THROUGH INVESTMENTS
IN SHORT-TERM MONEY MARKET
SECURITIES
- -------------------------------------------------
Investment Category STABILITY
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
Teresa Moro has been this Fund's portfolio manager and Vice President and
Investment Officer of the Series Company since its inception. Since 1991, Ms.
Moro has served as Vice President and Investment Officer of American General
Series Portfolio Company, a registered investment company managed by VALIC and
as Portfolio Manager of the American General Series Portfolio Company Money
Market Fund ("AGSPC Money Market Fund").
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
INVESTMENT RISK
The short-term money market securities that this Fund invests in are high
quality investments, posing low credit and interest rate risk. The current yield
of the Fund will generally go up or down with changes in the level of interest
rates. The Fund uses the amortized cost method to value its portfolio securities
and tries to keep its net asset value at $1.00 per share. There can be no
assurance that the net asset value will be $1.00 per share at all times.
Because the risk to the money you invest is low, the potential for profit is
also low. The Fund may experience risks including interest rate risk, market
risk, credit risk and risk associated with foreign securities. For a discussion
of these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in short-term money market securities to provide you with
liquidity, protection of your investment and current income. We use 95% of the
Fund's total assets to buy short-term securities that are rated within the
highest rating category for short-term debt obligations by at least two
nationally recognized rating services or unrated securities of comparable
investment quality. These eligible securities must mature, after giving effect
to any demand features, in 13 months or less and the Fund must have a
dollar-weighted average portfolio maturity of 90 days or less. These practices
are designed to minimize any fluctuation in the value of the Fund's portfolio.
The investments this Fund may buy include:
- Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities
- Certificates of deposit and other obligations of domestic banks that have
total assets in excess of $1 billion
- Commercial paper sold by corporations and finance companies
- Corporate debt obligations with remaining maturities of 13 months or less
- Repurchase agreements
- Money market instruments of foreign issuers payable in U.S. dollars (limited
to no more than 20% of the Fund's net assets)
- Asset-backed securities
- Taxable municipal obligations (variable rate demand notes)
- Loan participations
- Adjustable rate securities
- Illiquid and restricted securities*
- Rule 144A securities (liquid)
- ---------------
*Limited to 10% of the Fund's net assets at all times
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
46
<PAGE> 150
- --------------------------------------------------------------------------------
The Money Market Fund recently commenced operations and, therefore, has no
investment performance record. However, the Money Market Fund's investment
objectives, policies and strategies are substantially similar, although not
identical, to those of the AGSPC Money Market Fund and it is managed by VALIC in
substantially the same manner and by the same individual as the AGSPC Money
Market Fund. The chart herein shows the historical investment performance for
the AGSPC Money Market Fund for the period of April 1, 1988 through March 31,
1998, net of AGSPC Money Market Fund's fees and expenses. The inception date for
the AGSPC Money Market Fund was December 16, 1985.
The AGSPC Money Market Fund is subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Money Market Fund are higher
than the total fees incurred by the AGSPC Money Market Fund. Consequently, the
performance results for the AGSPC Money Market Fund would have been lower if the
AGSPC Money Market Fund had the same expenses as the Money Market Fund. The
performance of the AGSPC Money Market Fund has been calculated in accordance SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON THE AGSPC MONEY MARKET FUND WHICH IS
MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUAL AS THE MONEY
MARKET FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE MONEY MARKET FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF AGSPC MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------
5.24% 4.51% 5.42%
- -----------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Money Market Fund is likely to differ from the AGSPC
Money Market Fund in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Money Market Fund may
vary from those of the AGSPC Money Market Fund.
47
<PAGE> 151
GROWTH LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994. Prior to this, Ms. Weathington studied for a
Bachelor of Science degree in finance at the University of New Orleans.
INVESTMENT OBJECTIVE
Seeks growth through investments in Series Company Funds. This Fund is suitable
for investors seeking the potential for capital growth that a fund investing
predominately in equity securities may offer.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act because it
invests in a limited number of the Underlying Series Company Funds. However, the
Underlying Series Company Funds themselves are diversified companies.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described herein, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Underlying
Series Company Funds in which it invests. Changes in the net asset values of the
Underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
Underlying Series Company Funds to meet their investment objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 25%-35%
Small Capitalization Equity
Securities 15%-25%
Medium Capitalization Equity
Securities 10%-20%
Large Capitalization Equity
Securities 25%-35%
Bonds 5%-15%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective. We may
change the asset allocation ranges, the particular Underlying Series Company
Funds in which the Fund may invest and the target investment percentages set
from time to time by VALIC, subject to the supervision of the Series Company's
Board of Trustees.
48
<PAGE> 152
GROWTH LIFESTYLE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 15%
Value Fund
American General International 15%
Growth Fund
American General Small Cap 10%
Value Fund
American General Small Cap 10%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 13%
Growth Fund
American General Large Cap 12%
Value Fund
American General Domestic 10%
Bond Fund
</TABLE>
49
<PAGE> 153
MODERATE GROWTH
LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH AND CURRENT INCOME
THROUGH INVESTMENTS IN
SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994. Prior to this, Ms. Weathington studied for a
Bachelor of Science degree in finance at the University of New Orleans.
INVESTMENT OBJECTIVE
Seeks growth and current income through investments in Series Company Funds.
This Fund is suitable for investors who wish to invest in equity securities, but
who are not willing to assume the substantial market risks of the Growth
Lifestyle Fund.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act because it
invests in a limited number of the Underlying Series Company Funds. However, the
Underlying Series Company Funds themselves are diversified companies.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described below, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Underlying
Series Company Funds in which it invests. Changes in the net asset values of the
Underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
Underlying Series Company Funds to meet their investment objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 10%-20%
Small Capitalization Equity
Securities 10%-20%
Medium Capitalization Equity
Securities 10%-20%
Large Capitalization Equity
Securities 25%-30%
Bonds 20%-30%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective. We may
change the asset allocation ranges, the
50
<PAGE> 154
MODERATE GROWTH LIFESTYLE FUND
Fact Sheet
- --------------------------------------------------------------------------------
particular Underlying Series Company Funds in which the Fund may invest and the
target investment percentages set from time to time by VALIC, subject to the
supervision of the Series Company's Board of Trustees.
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 8%
Value Fund
American General International 7%
Growth Fund
American General Small Cap 8%
Value Fund
American General Small Cap 7%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 25%
Bond Fund
</TABLE>
51
<PAGE> 155
CONSERVATIVE GROWTH
LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CURRENT INCOME AND LOW TO
MODERATE GROWTH THROUGH
INVESTMENTS IN SERIES
COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994. Prior to this, Ms. Weathington studied for a
Bachelor of Science degree in finance at the University of New Orleans.
INVESTMENT OBJECTIVE
Seeks current income and low to moderate growth of capital through investments
in Series Company Funds. This Fund is suitable for investors who wish to invest
in equity securities, but who are not willing to assume the market risks of
either the Growth Lifestyle Fund or the Moderate Growth Lifestyle Fund.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act because it
invests in a limited number of the Underlying Series Company Funds. However, the
Underlying Series Company Funds themselves are diversified companies.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described below, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Underlying
Series Company Funds in which it invests. Changes in the net asset values of the
Underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
Underlying Series Company Funds to meet their investment objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 5%-15%
Small Capitalization Equity
Securities 5%-15%
Medium Capitalization Equity
Securities 5%-15%
Large Capitalization Equity
Securities 25%-35%
Bonds 30%-50%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective.
52
<PAGE> 156
CONSERVATIVE GROWTH LIFESTYLE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We may change the asset allocation ranges, the particular Underlying Series
Company Funds in which the Fund may invest and the target investment percentages
set from time to time by VALIC, subject to the supervision of the Series
Company's Board of Trustees.
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 5%
Value Fund
American General International 5%
Growth Fund
American General Small Cap 5%
Value Fund
American General Small Cap 5%
Growth Fund
American General Mid Cap 5%
Value Fund
American General Mid Cap 5%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 40%
Bond Fund
</TABLE>
53
<PAGE> 157
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Equity securities represent an ownership position in a company. The prices of
equity securities fluctuate based on changes in the financial condition of the
issuing company and on market and economic conditions. If you own an equity
security, you own a part of the company that issued it. Companies sell equity
securities to get the money they need to grow.
Stocks are one type of equity security. Generally, there are three types of
stocks:
Common stock -- Each share of common stock represents a part of the ownership of
the company. The holder of common stock participates in the growth of the
company through increasing stock price and receipt of dividends. If the company
runs into difficulty, the stock price can decline and dividends may not be paid.
Preferred stock -- Each share of preferred stock allows the holder to get a set
dividend before the common stock shareholders receive any dividends on their
shares.
Convertible preferred stock -- A stock with a set dividend which the holder may
exchange for a certain amount of common stock.
All of the Funds, except the Lifestyle Funds and the Money Market Fund, may
invest in common, preferred, and convertible preferred stock in accordance with
their investment strategies.
Stocks are not the only type of equity security. Other equity securities include
but are not limited to convertible securities, depository receipts, warrants,
rights and partially paid shares, investment company securities, real estate
securities, convertible bonds and foreign equity securities such as ADRs, GDRs
and EDRs. More information about these equity securities is set forth herein or
contained in the Statement of Additional Information.
FIXED INCOME SECURITIES
Fixed income securities include a broad array of short, medium and long-term
obligations, including notes and bonds. Fixed income securities may have fixed,
variable, or floating rates of interest, including rates of interest that vary
inversely at a multiple of a designated or floating rate, or that vary according
to changes in relative values of currencies. Fixed income securities generally
involve an obligation of the issuer to pay interest on either a current basis or
at the maturity of the security and to repay the principal amount of the
security at maturity.
Bonds are one type of fixed income security and are sold by governments on the
local, state, and federal levels, and by companies. There are many different
kinds of bonds. For example, each bond issue has specific terms. U.S. Government
bonds are guaranteed to pay interest and principal by the federal government.
Revenue bonds are usually only paid from the revenue of the issuer. An example
of that would be an airport revenue bond. Debentures are a very common type of
corporate bond (a bond sold by a company). Payment of interest and return of
principal is subject to the company's ability to pay. Convertible bonds are
corporate bonds that can be exchanged for stock. The types of bonds that most
Funds may invest in include, but are not limited to: U.S. Government bonds and
investment grade corporate bonds (the Mid Cap Value Fund, the Balanced Fund, the
Domestic Bond Fund, the High Yield Bond Fund, the Strategic Bond Fund and the
Core Bond Fund may also invest in below investment grade bonds). For a
description of investment grade bonds and below investment grade bonds see "A
Word about Risk -- Credit Risk" in this prospectus.
Investing in a bond is like making a loan for a fixed period of time at a fixed
interest rate. During the fixed period, the bond pays interest on a regular
basis. At the end of the fixed period, the bond matures and the investor usually
gets back the principal amount of the bond. Fixed periods to maturity are
categorized as short term (generally less than 12 months), intermediate (one to
10 years), and long-term (generally 10 years or more). Commercial paper is a
specific type of corporate or short-term note. In fact, it's very short-term,
being paid in less than 270 days. Most commercial paper matures in 50 days or
less.
Bonds that are rated Baa by Moody's or BBB by S&P have speculative
characteristics. Bonds that are unrated or rated below Baa3 by Moody's or BBB-
by S&P (commonly referred to as high yield, high risk or "junk bonds") are
regarded, on balance, as predominantly speculative. Changes in economic
conditions or other circumstances are more likely to weaken the issuer's
capacity to pay interest and principal in accordance with the terms of the
obligation than is the case with higher rated bonds. While such bonds may have
some quality and protective characteristics, these are outweighed by
uncertainties or risk exposures to adverse conditions. Lower rated bonds may be
more susceptible to real or perceived adverse economic and individual corporate
developments than would investment grade bonds. See "A Word about Risk -- Risks
Associated with Lower Rated Fixed Income Securities" herein.
For example, a projected economic downturn or the possibility of an increase in
interest rates may affect prices because such an event might lessen the ability
of highly leveraged high yield issuers to
ISSUED means the
Company (ISSUER) sold it
originally to the public.
For more information
about FIXED INCOME
SECURITIES AND THEIR
RATINGS, see the Appendix
herein and the
Statement of Additional
Information.
54
<PAGE> 158
- --------------------------------------------------------------------------------
meet their principal and interest payment obligations, meet projected business
goals, or obtain additional financing. In addition, the secondary trading market
for lower rated bonds may be less liquid than the market for investment grade
bonds. This potential lack of liquidity may make it more difficult to accurately
value certain of these lower rated portfolio securities.
VALIC and the Sub-advisers will not necessarily dispose of a bond when its
ratings are down graded to below investment grade.
Bonds are not the only type of fixed income security. Other fixed income
securities include but are not limited to U.S. and foreign corporate fixed
income securities, including convertible securities (bonds, debentures, notes
and other similar instruments) and corporate commercial paper; mortgage-related
and other asset-backed securities; inflation-indexed bonds issued by both
governments and corporations; structured notes, including hybrid or "indexed"
securities, preferred or preference stock, catastrophe bonds, and loan
participations; bank certificates of deposit, fixed time deposits and bankers'
acceptances; repurchase agreements and reverse repurchase agreements; fixed
income securities issued by states or local governments and their agencies,
authorities and other instrumentalities; obligations of foreign governments or
their subdivisions, agencies and instrumentalities; and obligations of
international agencies or supranational entities. Fixed income securities may be
acquired with warrants attached. For more information about specific fixed
income securities see the Statement of Additional Information.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, the Tennessee Valley Authority and
the Small Business Authority are supported only by the credit of the
instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury securities
(STRIPs and CUBEs) are direct obligations of the U.S. Government.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities include, but are not limited to, mortgage
pass-through securities, collateralized mortgage obligations and commercial
mortgage-backed securities.
Mortgage pass-through securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property.
Payments of interest and principal on these securities are generally made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities). Mortgage-related securities are
subject to interest rate risk and prepayment risk.
Payment of principal and interest on some mortgage pass-through securities may
be guaranteed by the full faith and credit of the U.S. Government (i.e.,
securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities
of the U.S. Government (i.e., securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, private mortgage insurance companies and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Collateralized mortgage obligations ("CMOs") are hybrid mortgage-related
instruments. CMOs may be collateralized by whole mortgage loans
For more information
about MORTGAGE-RELATED
SECURITIES, see the
Statement of Additional
Information.
55
<PAGE> 159
- --------------------------------------------------------------------------------
or by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC,
or FNMA. CMOs are structured into multiple classes, with each class bearing a
different stated maturity. CMOs that are issued or guaranteed by the U.S.
Government or by any of its agencies or instrumentalities will be considered
U.S. Government securities by the Funds, while other CMOs, even if
collateralized by U.S. Government securities, will have the same status as other
privately issued securities for purposes of applying a Fund's diversification
tests.
Commercial mortgage-backed securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities is relatively small compared to
the market for residential single-family mortgage-backed securities. Many of the
risks of investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed securities
may be less liquid and exhibit greater price volatility than other types of
mortgage-related or asset-backed securities.
Mortgage-related securities include mortgage pass-through securities described
above and securities that directly or indirectly represent a participation in,
or are secured by and payable from, mortgage loans on real property, such as
mortgage dollar rolls, CMO residuals or stripped mortgage-backed securities.
These securities may be structured in classes with rights to receive varying
proportions of principal and interest.
ASSET-BACKED SECURITIES
Asset-backed securities are bonds or notes that are normally supported by a
specific property. If the issuer fails to pay the interest or return the
principal when the bond matures, then the issuer must give the property to the
bondholders or noteholders. All of the Funds in this prospectus, except the
Lifestyle Funds and the Mid Cap Value Fund, may invest in asset-backed
securities. Examples of assets supporting asset-backed securities include credit
card receivables, retail installment loans, home equity loans, auto loans, and
manufactured housing loans.
LOAN PARTICIPATIONS
A loan participation is an investment in a loan made to a U.S. company that is
secured by the company's assets. The assets must be, at all times, worth enough
money to cover the balance due on the loan. Major national and regional banks
make loans to companies and then sell the loans to investors. These banks don't
guarantee the companies will pay the principal and interest due on the loans.
All the Funds in this prospectus, other than the Lifestyle Funds and the Mid Cap
Value Fund, may invest in loan participations.
VARIABLE AMOUNT DEMAND MASTER NOTES
The Mid Cap Growth Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the
Balanced Fund, the Domestic Bond Fund, the High Yield Bond Fund, the Strategic
Bond Fund and the Core Bond Fund may invest in variable amount demand master
notes. Variable amount master demand notes are unsecured obligations that are
redeemable upon demand and are typically unrated. These instruments are issued
pursuant to written agreements between their issuers and holders. The agreements
permit the holders to increase (subject to an agreed maximum) and the holders
and issuers to decrease the principal amount of the notes, and specify that the
rate of interest payable on the principal fluctuates according to an agreed
formula.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes ("VRDNs") are taxable obligations containing a
floating or variable interest rate adjustment formula, together with an
unconditional right to demand payment of the unpaid principal balance plus
accrued interest upon a short notice period, generally not to exceed seven days.
The Money Market Fund also may invest in participation VRDNs, which provide the
Fund with an undivided interest in underlying VRDNs held by major investment
banking institutions. Any purchase of VRDNs will meet applicable diversification
and concentration requirements as well conditions established by the SEC under
which such securities may be considered to have remaining maturities of 397 days
or less.
STRUCTURED SECURITIES
The value of the principal of and/or interest on such securities is determined
by reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, result in the loss of a Fund's investment.
For more information about
ASSET-BACKED SECURITIES
see the Statement of
Additional Information.
For more information
about LOAN PARTICIPANTS
see the Statement
of Additional Information.
56
<PAGE> 160
- --------------------------------------------------------------------------------
The Balanced Fund, the Domestic Bond Fund, the High Yield Bond Fund, the
Strategic Bond Fund and the Core Bond Fund may invest in structured securities.
REAL ESTATE SECURITIES
All of the Funds in this prospectus, except the Lifestyle Funds and the Domestic
Bond Fund, may invest in real estate securities. Real estate securities are
securities issued by companies that invest in real estate or interests therein.
Certain Funds also may invest in real estate investment trusts ("REITs"). REITs
are generally publicly traded on the national stock exchanges and in the
over-the-counter market and have varying degrees of liquidity. More information
about REITs and real estate securities generally is contained in the Statement
of Additional Information.
ILLIQUID AND RESTRICTED SECURITIES
An illiquid security is one that may not be frequently traded. If it must be
sold quickly, it may have to be sold at a loss. For example, if a Fund owns a
stock that is not sold very often and the Fund needs to sell this stock quickly,
it may have to offer the investment at a low price for someone to buy it.
A restricted security is one that has not been registered with the SEC and
therefore can't be sold in the public market. Restricted securities do include
securities eligible for resale under Rule 144A of the Securities Act of 1933.
Some Rule 144A securities may be liquid as determined by VALIC or a Sub-adviser.
These investments can be very risky because a Fund's ability to sell a
restricted security is very limited and Rule 144A securities deemed to be
illiquid will have the effect of increasing the amount of the Fund's investments
in illiquid securities. In addition, investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. For more information about Rule 144A securities see the
Statement of Additional Information.
All the Funds, except the Lifestyle Funds, may buy illiquid and restricted
securities, but are restricted as to how much money they may invest in them.
FOREIGN SECURITIES
All of the Funds, except the Lifestyle Funds, may invest in securities of
foreign issuers. Such foreign securities may be denominated in foreign
currencies, except with respect to the Money Market Fund and the Core Bond Fund,
which may only invest in U.S. dollar-denominated securities of foreign issuers.
Securities of foreign issuers include obligations of foreign branches of U.S.
banks and of foreign banks, common and preferred stocks, fixed income securities
issued by foreign governments, corporations and supranational organizations, and
ADRs, EDRs and GDRs. See "Depository Receipts" below.
DEPOSITORY RECEIPTS
All of the Funds in this prospectus, except the Lifestyle Funds, may invest in
ADRs. ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank. ADRs in which a Fund
may invest may be sponsored or unsponsored. There may be less information
available about foreign issuers of unsponsored ADRs.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank. We
consider ADRs, EDRs and GDRs to be foreign securities. The International Growth
Fund, the Small Cap Growth Fund, the International Value Fund, the High Yield
Bond Fund, the Strategic Bond Fund, and the MidCap Value Fund may invest in EDRs
and/or GDRs. The Large Cap Growth Fund may invest in GDRs but may not invest in
EDRs.
INVESTMENT FUNDS
Some countries have laws and regulations that currently preclude direct foreign
investment in the securities of their companies. However, indirect foreign
investment in the securities of companies listed and traded on the stock
exchanges in these countries is permitted through investment funds which have
been specifically authorized. The International Growth Fund, the Large Cap
Growth Fund, the Small Cap Growth Fund, the International Value Fund and the Mid
Cap Value Fund may invest in investment funds.
FOREIGN CURRENCY
All of the Funds, except the Lifestyle Funds, the Large Cap Value Fund, the
Small Cap Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the
Small Cap Growth Fund, the Balanced Fund, the Domestic Bond Fund, the Core Bond
Fund and the Money Market Fund, may buy and sell foreign currencies the same way
they buy and sell other investments. Funds buy foreign currencies when they
believe the value of the currency will increase. If it does increase, they sell
the currency for a profit. If it decreases they will experience a loss.
Generally, the International Growth Fund and the International Value Fund may
also buy and sell foreign currencies to settle transactions for foreign
securities bought or sold in the Fund.
For more information
about REAL ESTATE
SECURITIES, see the Statement
of Additional Information.
For more information
about ILLIQUID AND RESTRICTED
SECURITIES see the
Statement of Additional
Information.
For more information about
FOREIGN SECURITIES, see the
Statement of Additional
information.
57
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WHEN-ISSUED SECURITIES
When-issued securities are those investments that have been announced by the
issuer and will be on the market soon. The Funds negotiate the price with a
broker before it goes on the market. If the security ends up selling on the
market at a lower price than negotiated, the Funds may have a loss. If it sells
at a higher price, the Funds may have a profit.
All of the Funds, other than the Lifestyle Funds, the Money Market Fund and the
Mid Cap Value Fund, may buy when-issued securities in accordance with their
investment strategy.
MONEY MARKET SECURITIES
All of the Funds may invest part of their assets in high quality money market
securities payable in U.S. dollars. A listing of the types of money market
securities in which the Money Market Fund may invest is in that Fund's Fact
Sheet. A money market security is high quality when it is rated in one of the
two highest credit categories by Moody's or S&P or another nationally recognized
rating service or if unrated, deemed high quality by VALIC or a Sub-adviser.
These high quality money market securities may include:
- Cash and cash equivalents
- Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities
- Certificates of deposit and other obligations of domestic banks having total
assets in excess of $1 billion
- Commercial paper sold by corporations and finance companies
- Corporate debt obligations with remaining maturities of 13 months or less
- Repurchase agreements, money market securities of foreign issuers if payable
in U.S. dollars, asset-backed securities, loan participations, and
adjustable rate securities
INVESTMENT COMPANIES
The Funds may invest in the securities of other open-end or closed-end
investment companies subject to the limitations imposed by the 1940 Act. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by an investment company in which it invests.
DERIVATIVES
Unlike stocks and bonds that represent actual ownership of that stock or bond,
derivatives are investments which "derive" their value from securities issued by
a company, government, or government agency. In certain cases, derivatives may
be purchased for non-speculative investment purposes or to protect ("hedge")
against a change in the price of the underlying security. There are some
investors who take higher risk ("speculate") and buy derivatives to profit from
a change in price of the underlying security. We may purchase derivatives to
hedge the investment portfolios and to earn additional income in order to help
achieve the Funds' objectives. Generally, we do not buy derivatives to
speculate.
The Funds, other than the Lifestyle Funds, the Money Market Fund, the Mid Cap
Growth Fund and the International Growth Fund, may buy and sell derivatives,
such as futures and/or options.
Options
An option is the right to buy or sell any type of investment for a preset price
over a specific period of time.
Call Option
For example, you can buy an option from Mr. Smith that gives you the right to
buy 10 shares of stock X at $25.00 per share anytime between now and six weeks
from now. You believe stock X will be selling for more than $25.00 per share
between now and then. Mr. Smith believes it won't be. If you exercise this
option before it expires, Mr. Smith must sell you 10 shares of stock X at $25.00
per share.
On the other hand, you can sell an option to Mr. Smith that gives him the right
to buy 10 shares of stock X at $25.00 per share anytime between now and six
weeks from now. You believe stock X will be selling for less than $25.00 per
share between now and then. Mr. Smith believes it won't be. If he exercises this
option before it expires, you must sell to Mr. Smith 10 shares of stock X at
$25.00 per share.
Put Option
Or, you can buy an option from Mr. Smith that gives you the right to sell him 10
shares of stock X at $25.00 per share anytime between now and six weeks from
now. In this example, you believe stock X will be selling for less than $25.00
per share between now and then. Mr. Smith thinks it will be selling for more.
Or, you can sell an option to Mr. Smith that gives him the right to sell to you
10 shares of stock X at $25.00 per share anytime between now and six weeks from
now. In this example, he believes stock X will be selling for less than $25.00
per share between now and then.
The Funds use stock and bond futures to invest cash and cash equivalents. When
certain levels are reached the Fund will sell the futures and buy stocks or
bonds.
All of the Fund, except the Lifestyle Funds, the Money Market Fund, the Mid Cap
Growth Fund
For more information
about WHEN-ISSUED SECURITIES,
see the Statement
of Additional Information.
For more information about
MONEY MARKET SECURITIES OF
FOREIGN ISSUERS the Funds
may purchase, see the
Statement of Additional
Information.
For more information
about FOREIGN CURRENCY
EXCHANGE TRANSACTIONS, see
the Statement of
Additional Information.
For more information on put
and call options AND FINANCIAL
FUTURES CONTRACTS AND OPTIONS, see
the Statement of Additional
information.
58
<PAGE> 162
- --------------------------------------------------------------------------------
and the International Growth Fund, may invest in one or more of the following
types of futures and options:
- Write (sell) exchange traded covered put and call options on securities and
stock indices.
- Purchase exchange traded put and call options on securities and stock
indices.
- Purchase and sell exchange traded financial futures contracts.
- Write (sell) covered call options and purchase exchange traded put and call
options on financial futures contracts.
- Write (sell) covered call options and purchase non-exchange traded call and
put options on financial futures contracts.
The International Value Fund, the Large Cap Value Fund, the High Yield Bond
Fund, the Strategic Bond Fund, the Core Bond Fund and the Small Cap Growth Fund
may write and purchase put and call options on securities and stock indices that
are not traded on an exchange.
The Funds, except the Lifestyle Funds, the Large Cap Value Fund, the Small Cap
Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the Small Cap
Growth Fund, the Balanced Fund, the Domestic Bond Fund, the Core Bond Fund and
the Money Market Fund, may write and purchase options on foreign currencies.
These Funds also may purchase forward foreign currency exchange contracts to
protect against a decline in the value of the U.S. dollar, to effect
cross-hedges involving two non-U.S. currencies, or for, settlement purposes.
SWAP AGREEMENTS
Swap agreements are contracts between parties in which one party agrees to make
payments to the other party based on the change in market value of a specified
index or asset. In return, the other party agrees to make payments to the first
party based on the return of a different specified index or asset. Additional
information about swap agreements is contained in the Statement of Additional
Information.
The Core Bond Fund, the Domestic Bond Fund, the Strategic Bond Fund, the Small
Cap Value Fund and the Small Cap Growth Fund may enter into swap agreements.
WARRANTS AND RIGHTS
Warrants and rights are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. Changes in the value
of a warrant do not necessarily correspond to changes in the value of its
underlying securities.
The International Growth Fund, the Large Cap Value Fund, the Large Cap Growth
Fund, the Small Cap Value Fund, the International Value Fund, the Balanced Fund,
the Domestic Bond Fund, the High Yield Bond Fund, the Strategic Bond Fund, the
Core Bond Fund and the Small Cap Growth Fund are authorized to use warrants or
rights.
REPURCHASE AGREEMENTS
A repurchase agreement requires the seller of the security to buy it back at a
set price at a certain time. If a Fund enters into a repurchase agreement, it is
really making a short term loan (usually for one day to one week). A Fund may
enter into repurchase agreements only with well-established securities dealers
or banks that are members of the Federal Reserve System. All the Funds in this
prospectus may invest in repurchase agreements.
The risk in a repurchase agreement is the failure of the seller to be able to
buy the security back. If the value of the security declines, the Fund may have
to sell at a loss.
A repurchase agreement of more than 7 days duration is illiquid. A discussion of
repurchase agreements, illiquid securities and Fund limitations is contained in
the Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS, DOLLAR ROLLS AND BORROWINGS
A reverse repurchase agreement involves the sale of a security by a Fund and its
agreement to repurchase the instrument at a specified time and price. Under a
reverse repurchase agreement, the Fund continues to receive any principal and
interest payments on the underlying security during the term of the agreement.
The Fund generally will segregate assets determined to be liquid by the VALIC or
a Sub-adviser. In effect, these assets cover the Fund's obligations under
reverse repurchase agreements.
Certain Funds also may enter into dollar rolls. In a dollar roll transaction, a
Fund sells mortgage-backed or other securities for delivery in the current month
and simultaneously contracts to purchase substantially similar securities on a
specified future date. The time period from the date of sale to the date of
purchase under a dollar roll is known as the roll period. A Fund foregoes
principal and interest paid during the roll period on the securities sold in a
dollar roll. However, a Fund receives an amount equal to the difference between
the current sales price and the lower price for the future purchase as well as
by any interest earned on the proceeds of the securities sold.
For more information about
SWAP AGREEMENTS, see the
Statement of Additional
Information.
For more information about
REPURCHASE AGREEMENTS, see the
Statement of Additional
Information.
For more information about
REVERSE REPURCHASE AGREEMENTS,
DOLLAR ROLLS AND BORROWINGS, see
the Statement of Additional
Information.
59
<PAGE> 163
- --------------------------------------------------------------------------------
If a Fund's positions in reverse repurchase agreements, dollar rolls or similar
transactions are not covered by liquid assets in a segregated account, as
described above, such transactions would be subject to the Funds' limitations on
borrowings. Apart from such transactions, a Fund will not borrow money, except
as provided in its investment restrictions. See "Investment Restrictions" in the
Statement of Additional
Information for a complete listing of each Fund's investment restrictions.
A WORD ABOUT RISK
There are five basic types of investment risk you may be subject to:
- Market Risk
- Credit (Financial) Risk
- Interest Rate Risk
- Risk Associated with Foreign Securities
- Manager Risk (Lifestyle Funds only)
Generally, stocks are considered to be subject to market risk, while fixed
income securities, such as U.S. Government bonds and money market securities are
subject to interest rate risk. Other fixed income securities, such as corporate
bonds, involve both interest rate and credit (financial) risk. Lastly, risks
associated with foreign securities can involve political, currency and limited
information risks. Each of these types of investment risks, including manager
risk, is discussed below.
Market Risk
Market risk refers to the loss of capital resulting from changes in the prices
of investments. For example, market risk occurs when expectations of lower
corporate profits in general cause the broad market of stocks to fall in price.
When this happens, even though a company is experiencing growth in profits, the
price of its stock could fall.
Credit (Financial) Risk
Credit risk refers to the risk that the issuer of a fixed income security may
default or be unable to pay interest or principal due on a fixed income
security.
To help the Funds' Investment Adviser or Sub-advisers decide which U.S.
corporate and foreign fixed income securities to buy, they rely on Moody's and
S&P (two nationally recognized rating services), and on VALIC's and/or a Sub-
adviser's own research. This research lowers the risk of buying a fixed income
security of a company that may not pay the interest and principal on the fixed
income security.
Certain of the Funds in this prospectus may buy fixed income securities that are
rated as investment grade. There are four different levels of investment grade,
from AAA to BBB; see Description of Bond Ratings herein. All fixed income
securities with these ratings are considered to have adequate ability to pay
interest and principal.
All of the Funds in this prospectus may buy fixed income securities issued by
the U.S. Government. The U.S. Government guarantees it will always pay principal
and interest.
Risks Associated with Lower Rated Fixed Income Securities
Certain of the Funds also may purchase fixed income securities that are rated
below investment grade. Fixed income securities rated below BBB- by S&P or Baa3
by Moody's are considered to be below investment grade. Fixed income securities
with a below investment grade rating present a comparatively greater risk of
default in the timely payment of interest and principal than fixed income
securities rated as investment grade.
The lower rated but higher yielding fixed income securities purchased by the
Funds may be issued in connection with corporate restructurings, such as
leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar
events. In addition, high yield fixed income securities are often issued by
smaller, less creditworthy companies or by companies with substantial debt. The
securities ratings by Moody's and S&P are based largely on the issuer's
historical financial condition and the rating agency's investment analysis at
the time of the rating. As a result, the rating assigned to a security does not
necessarily reflect the issuer's current financial condition, which may be
better or worse than the rating indicates. Credit ratings are only one factor
VALIC or a Sub-adviser relies on in evaluating lower-rated fixed income
securities. The analysis of a lower rated security may also include
consideration of the issuer's experience and managerial strength, changing
financial condition, borrowing requirements or debt maturity schedules,
regulatory concerns, and responsiveness to changes in business conditions and
interest rates. VALIC or a Sub-adviser also may consider relative values based
on anticipated cash flow, interest or dividend coverage, balance sheet analysis,
and earnings prospects.
The market for lower rated fixed income securities is relatively new and until
recently its growth has paralleled a long economic expansion. Past experience,
therefore, may not provide an accurate indication of future performance of this
market, particularly during an economic recession. An economic downturn or
increase in interest rates is likely to have a greater negative effect on the
ability of the issuers to pay principal and interest, meet projected business
goals, and obtain
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<PAGE> 164
- --------------------------------------------------------------------------------
additional financing. These circumstances also may result in a higher incidence
of defaults compared to higher rated securities. As a result, adverse changes in
economic conditions and increases in interest rates may adversely affect the
market for lower rated fixed income securities, the value of such securities in
a Fund's portfolio, and, therefore, the Fund's net asset value. As a result,
investment in such Fund is more speculative than investment in a Fund that
invests primarily in higher rated fixed income securities.
Although certain Funds intend generally to purchase lower rated securities that
have secondary markets, these markets may be less liquid and less active than
markets for higher rated securities. These factors may limit the ability of a
Fund to sell lower rated securities at their expected value. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower rated fixed income securities,
especially in a thinly traded market. If market quotations are not readily
available for the Fund's lower rated or non-rated securities, these securities
will be valued by a method VALIC or a Sub-adviser believes accurately reflects
fair value. Judgment plays a greater role in valuing lower rated fixed income
securities than it does in valuing securities for which more extensive
quotations and last sale information are available.
See the Appendix to the prospectus for a description for bond ratings.
Interest Rate Risk
Interest rate risk refers to the risk that fluctuations in interest rates may
affect the value of interest paying securities in a Fund. If a Fund sells a bond
before it matures, it may lose money, even if the bond is guaranteed by the U.S.
Government. Say, for example, a Fund bought an intermediate government bond last
year that was paying interest at a fixed rate of 6%. Now, intermediate
government bonds are paying interest at a rate of 7%. If the Fund wants to sell
the bond paying 6%, it will have to sell it at a discount (and realize a loss)
to attract buyers because they can buy new bonds paying 7% interest.
Manager Risk
The Lifestyle Funds, which do not hold securities directly, are subject to
manager risk, which is the possibility that the portfolio managers of the
Underlying Series Company Funds may fail to execute the Underlying Series
Company Funds' investment strategies effectively. As a result, the Lifestyle
Funds may fail to meet their stated objectives.
Risk Associated with Foreign Securities
Certain Funds may, subject to limits stated in the Fund's Fact Sheet, invest in
foreign securities including ADRs, EDRs and GDRs and securities of companies
domiciled in emerging market countries. A foreign security is a security issued
by an entity domiciled or incorporated outside of the U.S.
Among the principal risks of owning foreign securities:
Political risk -- the chance of a change in government and the assets of the
company being taken away.
Currency risk -- a change in the value of the foreign currency compared to the
dollar. If the foreign currency declines in value, your investment valued in
U.S. dollars will decline even if the value of the foreign stock or bond is
unchanged.
Limited information -- foreign companies generally are not regulated to the
degree U.S. companies are and may not report all of the information we are used
to getting. To minimize taxes they may not report some income or they may report
higher expenses.
INVESTMENT PRACTICES
Limitations
Each Fund has limitations on the percentage of its assets that it may allocate
to certain investments. These limits are determined by the Fund's investment
objectives and risk level.
Some Funds are restricted from buying certain types of investments altogether.
For example, the Money Market Fund may not invest in futures and options.
Each Fund's limitations are shown in the Investment Strategy section of its Fact
Sheet.
Lending Portfolio Securities
Each Fund, except the Lifestyle Funds, may lend its investment securities to
broker-dealers and other financial institutions to earn more money for the Fund.
Assets are placed in a special account by the borrower to cover the market value
of the securities on loan. The assets serving as collateral for the loan are
valued daily.
A risk of lending portfolio investments is that there may be a delay in the Fund
getting its investments back when a loaned security is sold.
The Funds will only make loans to broker-dealers and other financial
institutions approved by its Custodian, as monitored by VALIC and authorized by
the Board of Trustees.
For more information about
FOREIGN SECURITIES AND EMERGING
MARKETS, see the Statement
of Additional Information.
For more information about
LENDING PORTFOLIO SECURITIES, see
the Statement of Additional Information.
For more information about
INVESTMENT LIMITATIONS, see the
Statement of Additional
Information.
61
<PAGE> 165
ABOUT THE SERIES COMPANY
- --------------------------------------------------------------------------------
SERIES COMPANY SHARES
The Series Company is an open-end mutual fund and may offer shares of the Funds
for sale at any time. However, the Series Company offers Institutional Class I
Shares of the Funds only to employee retirement plans offered through the
Distributor.
The Series Company was organized on March 16, 1998, under the laws of the state
of Delaware as a business trust, and presently is authorized to sell 23 series,
18 of which are described in this prospectus. Each of these series is authorized
to issue an unlimited number of shares of beneficial interest, par value $0.01
per share, divided into class. Other classes may be established from time to
time in accordance with provisions of the Series Company's Declaration of Trust.
Each class of shares represents an interest in the same assets of a Fund and
generally are identical in all respects except that each class bears certain
distribution expenses and has exclusive voting rights with respect to its
distribution fee, if any. There are no conversion, preemptive or other
subscription rights with respect to the Institutional Class I Shares. In the
event of liquidation, each of the shares of a Fund is entitled to its portion of
all of the Fund's net assets after all debts and expenses of the Fund have been
paid.
The Series Company does not contemplate holding regular meetings of shareholders
to elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares of the Series Company may by written request require a
meeting to consider the removal of Trustees by a vote of two-thirds of the
shares then outstanding cast in person or by proxy at such meeting. The Series
Company will assist such holders in communicating with other shareholders of the
Series Company to the extent required by the 1940 Act. More detailed information
concerning the Series Company is set forth in the Statement of Additional
Information.
The Series Company's Declaration of Trust provides that no Trustee, officer or
shareholder of the Series Company shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or liability of the Series Company but the assets of the Fund only
shall be liable.
Share certificates are not available.
PURCHASE AND REDEMPTION OF SHARES
Institutional Class I shares of each Fund are available to you through your
employer plan. Institutional Class I Shares are available to any qualifying
employer plan once the plan establishes a minimum account balance of $5 million
with the Series Company. A plan's account balance is equal at any time to the
aggregate of all amounts contributed by the plan to the Series Company, less the
cost of all redemptions by such plan from the Series Company. The Distributor
may waive the minimum account balance requirement if it reasonably anticipates
that the size of the plan and/or the anticipated amount of contributions will
present economies of scale.
As a participant in an employer retirement plan, you do not purchase
Institutional Class I Shares of the Funds directly. Rather, Institutional Class
I Shares of a Fund are purchased for you when you elect to allocate your
retirement contributions to a Fund that is available as an investment option in
your retirement or savings plan. You may be permitted to elect different
investment options, alter the amounts contributed to your plan, or change how
contributions are allocated among your investment options in accordance with
your plan's specific provisions. See your plan administrator or employee
benefits office for more details.
Investments by individual participants in employer retirement plans are made
through their plan sponsor or administrator, who is responsible for transmitting
instructions for all orders for the purchase, redemption and exchange of Fund
shares. The availability of an investment by a plan participant in the Funds,
and the procedures for investing, depend upon the provisions of the plan and
whether the plan sponsor or administrator has contracted with the Series Company
or designated agent for special processing services.
As distributor, the Distributor sells Institutional Class I Shares of the Funds
to employer retirement plans. The Distributor sends orders to buy, sell or
transfer shares to the Series Company's designated agent daily. Purchases,
exchanges or redemptions of the Funds' shares are processed as soon as they have
been received in good order. Good order means that your request includes
complete information on your purchase, exchange or redemption and that the
Distributor has received the appropriate payment. The Series Company and the
Distributor reserve the right to refuse any order for the purchase of shares.
The Series Company also reserves the right to suspend the sale of the Funds'
shares in response to conditions in the securities markets or for other reasons.
The price to purchase one share of a Fund is the Fund's net asset value per
share (NAV). Shares are sold at the public offering price based on the net asset
value next determined after receipt of an order. In most cases, in order to
receive that day's public offering price, the Series Company's designated agent
for pricing purposes, must
VALIC INVESTMENT
SERVICES COMPANY
acts as the
Series Company's
distributor.
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<PAGE> 166
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receive an order, in good order, before the close of regular trading on the New
York Stock Exchange.
The Distributor is a wholly-owned subsidiary of VALIC and acts as distributor of
the Funds' shares under an agreement with the Series Company. The Distributor is
not required to sell a minimum number of shares to employer retirement plans.
For more information on how to participate in the Funds through an employee
retirement plan, please refer to your plan materials or contact your employee
benefits office.
TRANSFERS AND EXCHANGES
An employer retirement plan may allow you to exchange all or part of your
existing plan balance from one investment option to another. Check with your
plan administrator for details on the rules governing exchanges in your plan.
Exchanges will be accepted by the Series Company only as permitted by your plan.
Your plan administrator can explain how frequently exchanges are allowed. The
Series Company reserves the right to refuse any exchange purchase request.
NET ASSET VALUE OF THE SERIES COMPANY SHARES
How Net Asset Value is Calculated
Here is how the Series Company calculates the net asset value of each Fund's
shares:
<TABLE>
<S> <C> <C> <C>
Step 1:
Total value of the Fund's
assets* (including money The Fund's
owed to the fund but not yet Total Net Asset
collected) = Value
- - The Fund's liabilities
(including money owed by the
Fund but not yet paid)
Step 2:
The Fund's total net asset
value (from Step 1)
/ The total number of the
Fund's shares that are NET ASSET VALUE
outstanding. = PER SHARE
</TABLE>
- ---------------
* The Series Company uses the fair market value of a Fund's
investments to calculate the Fund's total value. However, it uses the
amortized cost method to determine the values of all the Money Market Fund's
investments and of any other Fund's short-term securities maturing within 60
days. The amortized cost method approximates fair market value.
If a Fund's portfolio includes investments that are not sold often or are not
sold on any exchanges, the Series Company's Board of Trustees or its delegate
will, in good faith, estimate fair market value of these investments.
When Net Asset Value is Calculated
The Series Company calculates the net asset value of each Fund's shares at
approximately 4 pm EST each day the New York Stock Exchange is open. (The New
York Stock Exchange is open Monday through Friday but is closed on certain
federal and other holidays.)
Through the Distributor, an employer plan sends orders to the Series Company to
buy, sell, or transfer shares based on requests received from participants.
DIVIDENDS AND CAPITAL GAINS
Dividends from Net Investment Income
Net investment income generally includes stock dividends received and bond
interest earned less expenses paid by the Fund. Each Fund pays dividends from
net investment income occasionally. Dividends from net investment income are
automatically reinvested for you into additional shares of the Fund. The Money
Market Fund pays dividends daily. The High Yield Bond Fund, the Strategic Bond
Fund, the Domestic Bond Fund and the Core Bond Fund declare dividends daily and
pay such dividends monthly. All other Funds pay dividends quarterly except the
International Growth Fund and the International Value Fund, which pay dividends
semi-annually.
Distributions from Capital Gains
When a Fund sells a security for more than it paid for that security, a capital
gain results. Once a year, each Fund pays distributions from capital gains, as
long as total capital gains exceed total capital losses. Distributions from
capital gains are automatically reinvested for you into additional shares of the
Fund.
DIVERSIFICATION
Each Fund's diversification policy limits the amount that the Fund may invest in
certain securities. Each Fund's diversification policy is also designed to
comply with the diversification requirements of the Internal Revenue Code (the
"Code") as well as the 1940 Act.
All of the Funds, except the Lifestyle Funds, may, with respect to 75% of their
total assets, invest up to 5% of their total assets in a single issuer. An
issuer, or "company" does not include the U.S. Government or agencies of the
U.S. Government according to the Code and the 1940 Act. For diversification
purposes, repurchase agreements are considered to be issued by the U.S.
Government if backed by U.S. Government securities. Also, these Funds may not
own more than 10% of the voting securities of a company.
The Lifestyle Funds are "non-diversified" under the 1940 Act, which means that
the Lifestyle Funds are not limited in the proportion of their assets that may
be invested in the securities of a single issuer.
Also, the Money Market Fund may not invest more than 5% of its total assets in
any company rated as "second tier" by a national rating service (as described in
Types of Investments).
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TAXES
By paying out all earnings as described in the Dividends and Capital Gains
section above and by complying with the diversification requirements under the
Code, each Fund expects to qualify as a Registered Investment Company (RIC)
under Subchapter M of the Code. By qualifying as a RIC the Fund will not have to
pay federal income taxes.
VOTING RIGHTS
One Vote Per Share
Each outstanding share has one vote on all matters that shareholders vote on. As
a participant under an employer plan, you vote on these matters indirectly by
voting your shares. The way you vote your shares as a participant depends on
your employer plan.
When a matter comes up for vote, the employer plan will vote its shares in the
same proportion as the share votes it actually receives. If VALIC determines
that it may, under the current interpretation of the 1940 Act, vote shares
directly instead of voting through its shares, it may decide to vote that way.
Controlling Shareholder
VALIC, as the initial sole shareholder of the Funds as of the commencement date
of the Series Company, controls each Fund. VALIC does not anticipate that its
initial control of each Fund will adversely effect the rights of future
shareholders.
Shareholder Meetings
Delaware law does not require the Series Company to hold regular, annual
shareholder meetings. But, the Series Company must hold shareholder meetings on
the following matters:
- to approve certain agreements as required by the 1940 Act;
- to change fundamental investment objectives in the Diversification section
and to change fundamental investment restrictions, above;
- to fill vacancies on the Series Company's Board of Trustees if the
shareholders have elected less than a majority of the Trustees.
Shareholder Communications
The Series Company will assist in shareholder communications.
YEAR 2000 RISKS
VALIC is in the process of modifying its systems to achieve Year 2000 readiness.
This endeavor is directed and managed by VALIC and monitored by the parent
company, American General Corporation. VALIC has developed clearly defined and
documented plans that have been implemented to minimize the risk of significant
negative impact on its operations.
These plans include the following activities: (1) perform an inventory of
VALIC's information technology and non-information technology systems; (2)
assess which items in the inventory may expose VALIC to business interruptions
due to Year 2000 issues; (3) test systems for Year 2000 readiness; (4) reprogram
or replace systems that are not Year 2000 ready; and (5) return the systems to
operation. VALIC expects to complete the forgoing activities for all critical
business systems relevant to the Series Company by December 1998. Accordingly,
VALIC has no contingency plans because any open Year 2000 issues may be
addressed in 1999.
In addition, the Series Company and VALIC have business relationships with
various third parties, each of which must also be Year 2000 ready. Therefore,
VALIC's plans also include assessing and attempting to mitigate the risks
associated with the potential failure of third parties to achieve Year 2000
readiness. Due to the various stages of the third parties' Year 2000 readiness,
VALIC's efforts in this regard will extend through 1999.
Through June 30, 1998 VALIC has incurred and expensed $13 million (pretax)
related to Year 2000 readiness, including $6.5 million incurred during the first
six months of 1998. VALIC currently anticipates that it will incur future costs
of $3 million (pretax) for additional internal staff, third party vendors, and
other expenses to achieve Year 2000 readiness.
Due to the magnitude and complexity of this project, risks and uncertainties
exist. If conversion of VALIC's systems is not completed on a timely basis (due
to non-performance by significant third-party vendors or other unforeseen
circumstances), or if significant third parties fail to achieve Year 2000
readiness on a timely basis, the Year 2000 issue could have a material adverse
impact on the operations of VALIC and the Series Company.
EURO CONVERSION
The planned introduction of a single European currency, the Euro, on January 1,
1999 for participating European nations in the Economic and Monetary Union (EMU)
presents unique risks and uncertainties for investors in those countries. The
European Union currently consists of: Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, Sweden and the United Kingdom. The risks associated with the introduction
of the Euro include: (i) whether the payment and operational
See the Statement of Additional
Information for further tax
discussions. You should also
consult your tax advisor before
investing.
64
<PAGE> 168
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systems of banks and other financial institutions will be ready by the scheduled
launch date;(ii) the creation of suitable clearing and settlement payment
schemes for the Euro; (iii) the legal treatment of outstanding financial
contracts after January 1, 1999 that refer to existing currencies rather than
the Euro; (iv) the fluctuation of the Euro relative to non-Euro currencies
during the transition period from January 1, 1999 to December 31, 2000 and
beyond; and (v) whether the interest rate, tax and labor regimes of the European
countries participating in the Euro will converge over time. Further, the
conversion of the currencies of other EMU countries, such as the United Kingdom,
and the admission of other countries, including Central and Eastern European
countries, to the EMU could adversely affect the Euro. These or other factors
may cause market disruptions before or after the introduction of the Euro and
could adversely affect the value of foreign securities and currencies held by
the Funds.
Additionally, while it is not possible to predict the impact of the Euro
implementation plan on the Funds, the transition to the Euro may change the
economic environment and behavior of investors, particularly in European
markets. For example, investors may begin to view those countries participating
in the EMU as a single entity, and VALIC and the Sub-advisers may need to adapt
their investment strategies accordingly. The process of implementing the Euro
also may adversely affect financial markets world-wide and may result in changes
in the relative strength and value of the U.S. dollar or other major currencies.
Also, the transition to the Euro is likely to have a significant impact on
fiscal and monetary policy in the participating countries and may produce
unpredictable effects on trade and commerce generally. These resulting
uncertainties could create increased volatility in financial markets world-wide.
REPORTS
The Series Company sends Annual Reports containing audited financial statements,
Semi-Annual Reports containing unaudited financial statements, and proxy
materials to participants or other investors.
If you have any questions about the Annual or Semi-Annual Reports, call or write
to the Series Company at the phone number / address found on the cover page of
this prospectus.
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<PAGE> 169
APPENDIX -- DESCRIPTION OF BOND RATINGS
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MOODY'S INVESTORS SERVICE
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Nonrated: Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1 and B 1.
STANDARD & POOR'S CORPORATION
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
66
<PAGE> 170
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PREFERRED STOCK RATINGS
Both Moody's and Standard & Poor's use the same designations for corporate bonds
as they do for preferred stock, except in the case of Moody's preferred stock
ratings, the initial letter rating is not capitalized. While the descriptions
are tailored for preferred stocks, the relative quality distinctions are
comparable to those described above for corporate bonds.
67
<PAGE> 171
APPENDIX -- DESCRIPTION OF COMMERCIAL PAPER RATINGS
- --------------------------------------------------------------------------------
MOODY'S
Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, CDs, medium-term notes, and municipal and investment notes. The
short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-5: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
68
<PAGE> 172
Please tear off, complete and return the form below to American General Fund
Group Customer Service, P.O. Box 8254, Boston, Massachusetts 02266-8254 to order
a Statement of Additional Information for the Company. A Statement of Additional
Information may also be ordered by calling 1-888-568-2542.
................................................................................
- --------------------------------------------------------------------------------
Please send me a free copy of the Statement of Additional Information for
American General Series Portfolio Company 2.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
Social Security Number: ____________________________________________________
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(This page intentionally left blank)
<PAGE> 174
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INVESTMENT ADVISER:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
INVESTMENT SUB-ADVISERS:
American General Investment Management, L.P.
2929 Allen Parkway
Houston, Texas 77019
Bankers Trust Company
130 Liberty St.
New York, New York 10006
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Fiduciary Management Associates, Inc.
55 West Monroe Street
Suite 2550
Chicago, Illinois 60603
Goldman Sachs Asset Management
One New York Plaza
New York, New York 10004
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Jacobs Asset Management
200 East Broward Boulevard
Suite 1920
Fort Lauderdale, Florida 33301
Neuberger&Berman Management Inc.
605 Third Avenue
Second Floor
New York, New York 10158-0180
State Street Global Advisors
2 International Place
Boston, Massachusetts 02110
DISTRIBUTOR:
VALIC Investment Services Company
2929 Allen Parkway
Houston, Texas 77019
CUSTODIAN:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS:
Ernst & Young LLP
1221 McKinney Street
Houston, Texas 77010
TRANSFER AND SHAREHOLDER SERVICE AGENT:
National Financial Data Services, Inc.
330 West 9th Street
Kansas City, Missouri 64105
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
-------- --------
<S> <C> <C>
Judith L. Craven Thomas L. West, Jr. Chairman
Timothy J. Ebner John A. Graf President
Gustavo E. Gonzales, Jr. Craig R. Rodby Vice Chairman
John A. Graf John E. Arant Executive Vice President
Norman Hackerman Michael G. Atnip Executive Vice President
John William Lancaster Joe C. Osborne Executive Vice President
Ben H. Love Peter V. Tuters Senior Investment Officer
John E. Maupin, Jr. Teresa S. Moro Vice President and Investment Officer
F. Robert Paulsen William Trimbur, Jr. Vice President and Investment Officer
Craig R. Rodby Brent C. Nelson Vice President
R. Miller Upton Cynthia A. Toles Vice President and Secretary
Thomas L. West, Jr. Nori L. Gabert Vice President and Assistant Secretary
Maruti D. More Vice President-Investments
Gregory R. Seward Treasurer
Kathryn A. Pearce Controller
Cynthia A. Gibbons Assistant Vice President
Jaime M. Sepulveda Assistant Treasurer
Donna L. Hathaway Assistant Controller
Earl E. Allen, Jr. Assistant Treasurer
</TABLE>
Printed Matter
Printed in U.S.A.
VA 10832 VER. 11/98 Recycled Paper LOGO
- --------------------------------------------------------------------------------
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<PAGE> 175
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THE STATEMENT OF
ADDITIONAL INFORMATION DOES NOT CONSTITUTE A PROSPECTUS.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 15, 1998
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 2
INSTITUTIONAL CLASS II SHARES 2929 ALLEN PARKWAY
HOUSTON TEXAS 77019
OCTOBER 15, 1998
PROSPECTUS
The American General Series Portfolio Company 2 (the "Series Company") is a
mutual fund made up of 23 separate Funds (the "Funds"), 18 of which are
described in detail in this prospectus. Each of the Funds has a different
investment objective. Each Fund is explained in more detail on its Fact Sheet
contained in this prospectus. Here is a summary of the goals of the 18 Funds
available under this prospectus:
ACTIVELY MANAGED EQUITY FUNDS:
AMERICAN GENERAL INTERNATIONAL GROWTH FUND ("INTERNATIONAL GROWTH FUND")
Long-term capital appreciation through investments in non-U.S. companies,
the majority of which are expected to be in developed markets.
AMERICAN GENERAL LARGE CAP GROWTH FUND ("LARGE CAP GROWTH FUND")
Long-term growth through investments in large cap U.S. issuers. Dividend
income is a secondary objective.
AMERICAN GENERAL MID CAP GROWTH FUND ("MID CAP GROWTH FUND")
Capital appreciation through investments in medium capitalization equity
securities. Current income is a secondary objective.
AMERICAN GENERAL SMALL CAP GROWTH FUND ("SMALL CAP GROWTH FUND")
Long-term growth through investments in small growth companies.
AMERICAN GENERAL INTERNATIONAL VALUE FUND ("INTERNATIONAL VALUE FUND")
Growth of capital and future income through investments in non-U.S.
issuers.
AMERICAN GENERAL LARGE CAP VALUE FUND ("LARGE CAP VALUE FUND")
Total returns exceeding the Russell 1000 Value Index through investments
in equity securities.
AMERICAN GENERAL MID CAP VALUE FUND ("MID CAP VALUE FUND")
Growth through investments in medium capitalization companies.
AMERICAN GENERAL SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND")
Maximum long-term return through investments in small capitalization
companies.
SPECIALTY EQUITY FUND:
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND ("SOCIALLY RESPONSIBLE FUND")
Growth through investments in companies meeting social criteria of the
Fund.
BALANCED FUND:
AMERICAN GENERAL BALANCED FUND ("BALANCED FUND")
Conservation of principal and long-term growth of capital and income
through investments in fixed income and equity securities.
INCOME FUNDS:
AMERICAN GENERAL HIGH YIELD BOND FUND ("HIGH YIELD BOND FUND")
Highest possible total return and income consistent with conservation of
capital through investments in high yielding, high risk fixed income
securities. INVESTMENTS OF THIS TYPE ARE REGARDED BY THE RATING AGENCIES
AS PREDOMINANTLY SPECULATIVE WITH RESPECT TO AN ISSUER'S CONTINUING
ABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS.
AMERICAN GENERAL STRATEGIC BOND FUND ("STRATEGIC BOND FUND")
Highest possible total return and income consistent with conservation of
capital through investments in income producing securities. THE LOWER
RATED FIXED INCOME SECURITIES IN WHICH THE FUND MAY INVEST ARE REGARDED BY
THE RATING AGENCIES AS SPECULATIVE WITH RESPECT TO AN ISSUER'S CONTINUING
ABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS.
AMERICAN GENERAL DOMESTIC BOND FUND ("DOMESTIC BOND FUND")
High total return consistent with conservation of capital through
investments primarily in investment grade fixed income securities.
AMERICAN GENERAL CORE BOND FUND ("CORE BOND FUND")
Highest possible total return consistent with conservation of capital
through investments in medium to high quality fixed income securities.
MONEY MARKET FUND:
AMERICAN GENERAL MONEY MARKET FUND ("MONEY MARKET FUND")
Income through investments in short-term money market securities.
LIFESTYLE FUNDS:
AMERICAN GENERAL GROWTH LIFESTYLE FUND ("GROWTH LIFESTYLE FUND")
Growth through investments in Series Company Funds.
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND ("MODERATE GROWTH
LIFESTYLE FUND")
Growth and current income through investments in Series Company Funds.
AMERICAN GENERAL CONSERVATIVE GROWTH LIFESTYLE FUND ("CONSERVATIVE GROWTH
LIFESTYLE FUND")
Current income and a low to moderate level of growth through investments
in Series Company Funds.
- --------------------------------------------------------------------------------
SHARES OF THE MONEY MARKET FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THIS FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
The Variable Annuity Life Insurance Company ("VALIC") is the Funds' investment
adviser. Institutional Class II Shares of these Funds are available to you only
through an employer retirement plan purchased through VALIC Investment Services
Company ("the Distributor"), an affiliate of VALIC, which establishes an account
balance with the Series Company in excess of $500 million. The Distributor may
waive the minimum account balance requirement under certain conditions. For full
details of Institutional Class II Shares eligibility criteria, see "Purchase and
Redemption of Shares." VALIC is a member of the American General Corporation
group of companies.
Because different employer plans contain different combinations of Funds, all of
the Funds in this prospectus may not be available to you. And, there may be some
Funds that are available to you that don't appear in this prospectus. See the
separate prospectus that describes your employer's plan for a complete list of
Funds in which you may invest. BE SURE TO READ ALL PROSPECTUSES AND EMPLOYER
PLAN MATERIALS IN FULL BEFORE YOU START PARTICIPATING AND KEEP THEM FOR FUTURE
REFERENCE.
This prospectus offers Institutional Class II Shares of the Funds only. The
Funds offer other classes of shares that offer different services to investors
and incur different expenses, which would affect performance.
This prospectus sets forth concisely the information you should know before
investing in the Funds.
VALIC has filed a Statement of Additional Information, dated October 15, 1998,
with the Securities and Exchange Commission ("SEC"). This Statement contains
additional information about these Funds and is part of this prospectus. For a
free copy, write to American General Series Portfolio Company 2 at the address
above or call 1-888-568-2542. The Statement of Additional Information has been
filed with the SEC and is available along with other related materials at the
SEC's internal web site (http://www.sec.gov).
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE REGULATORS HAVE
APPROVED OR DISAPPROVED THESE FUNDS. ALSO, NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE REGULATORS HAVE PASSED ON WHETHER THIS PROSPECTUS IS
ADEQUATE OR ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
DO NOT COPY
<PAGE> 176
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
COVER PAGE
WELCOME....................................... 1
FEE TABLE..................................... 3
ABOUT THE SERIES COMPANY'S MANAGEMENT......... 5
Investment Adviser....................... 5
Investment Sub-advisers.................. 5
Portfolio Manager........................ 7
How Advisers Are Paid for Their
Services............................... 7
The Sub-advisers......................... 8
About the Board of Trustees.............. 9
ABOUT THE FUNDS............................... 10
Growth, Balanced, Income, Stability and
Lifestyle Categories................... 10
About Level of Risk...................... 10
About Portfolio Turnover................. 10
About Fund Performance................... 11
HOW TO READ A FUND FACT SHEET................. 12
SERIES COMPANY FUND FACT SHEETS
ACTIVELY MANAGED EQUITY FUNDS
International Growth Fund........... 13
Large Cap Growth Fund............... 17
Mid Cap Growth Fund................. 19
Small Cap Growth Fund............... 22
International Value Fund............ 24
Large Cap Value Fund................ 26
Mid Cap Value Fund.................. 29
Small Cap Value Fund................ 31
SPECIALTY EQUITY FUND
Socially Responsible Fund........... 33
BALANCED FUND
Balanced Fund....................... 35
INCOME FUNDS
High Yield Bond Fund................ 38
Strategic Bond Fund................. 39
Domestic Bond Fund.................. 41
Core Bond Fund...................... 43
MONEY MARKET FUND
Money Market Fund................... 46
LIFESTYLE FUNDS
Growth Lifestyle Fund............... 48
Moderate Growth Lifestyle Fund...... 50
Conservative Growth Lifestyle
Fund.............................. 52
TYPES OF INVESTMENTS.......................... 54
Equity Securities........................ 54
Fixed Income Securities.................. 54
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
U.S. Government Securities.......... 55
Mortgage-Related Securities......... 55
Asset-Backed Securities............. 56
Loan Participations................. 56
Variable Amount Demand Master Notes...... 56
Variable Rate Demand Notes...............
Structured Securities.................... 56
Real Estate Securities................... 57
Illiquid and Restricted Securities....... 57
Foreign Securities....................... 57
Depository Receipts...................... 57
Investment Funds......................... 57
Foreign Currency......................... 57
When-Issued Securities................... 58
Money Market Securities.................. 58
Investment Companies..................... 58
Derivatives.............................. 58
Options............................. 58
Call Option......................... 58
Put Option.......................... 58
Swap Agreements.......................... 59
Warrants and Rights...................... 59
Repurchase Agreements.................... 59
Reverse Repurchase Agreements, Dollar
Rolls and Borrowings................... 59
A Word About Risk........................ 60
Investment Practices..................... 61
Limitations......................... 61
Lending Portfolio Securities........ 61
ABOUT THE SERIES COMPANY...................... 62
Series Company Shares.................... 62
Purchase and Redemption of Shares........ 62
Transfers and Exchanges.................. 63
Net Asset Value of the Series Company
Shares................................. 63
Dividends and Capital Gains.............. 63
Diversification.......................... 63
Taxes.................................... 64
Voting Rights............................ 64
Year 2000 Risks.......................... 64
Euro Conversion.......................... 65
Reports.................................. 65
Appendix -- Description of Bond
Ratings................................ 66
Appendix -- Description of Commercial
Paper Ratings.......................... 68
</TABLE>
(i)
<PAGE> 177
WELCOME
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, and VALIC mean
The Variable Annuity Life Insurance Company and any Investment Sub-adviser that
we work with. The words you and your mean the participant.
American General Series Portfolio Company 2 (the "Series Company") was organized
as a Delaware business trust on March 16, 1998.
The Series Company is an open-end management investment company and currently
consists of 23 different Funds, 18 of which are described in detail in this
prospectus. VALIC serves as each Fund's Investment Adviser and, in this role,
reports directly to the Series Company's Board of Trustees. As Investment
Adviser, VALIC oversees the Funds' day-to-day operations, supervises the
purchase and sale of Fund investments and performs the cash management function.
Investment Sub-advisers make the investment decisions for the Funds that they
manage, as described more fully in this prospectus. However, VALIC makes
investment decisions for, and is directly responsible for the day-to-day
management of, the Socially Responsible Fund, the Money Market Fund and the
Lifestyle Funds. For more information, see "About the Series Company's
Management" in this prospectus.
Individuals can't invest in the shares of these Funds directly. Instead, they
participate through an employer plan that purchases shares of the Funds through
the Distributor. Most often employers establish retirement plans so they can
offer their employees a way to save for retirement. Retirement plans through
employers may be entitled to tax benefits that individual retirement plans may
not be entitled to. These tax benefits are fully explained in your employer's
plan materials.
After you invest in a Fund, you participate in Fund earnings or losses, in
proportion to the amount of money you invest. Depending on your employer plan,
if you withdraw your money before retirement, you may incur charges and
additional tax liabilities. However, to save for retirement, you generally
should let your investments and their earnings build. At retirement, you may
withdraw all or a portion of your money or leave it in the account until you
need it. At a certain age you may be required to begin withdrawals.
All inquiries regarding this prospectus should be directed, in writing, to
American General Fund Group Customer Service, P.O. Box 8254, Boston,
Massachusetts 02266-8254, or by calling 1-888-568-2542.
Open-end means shares
of the Funds can be
bought or sold by the
Series Company at any
time. Also, there is no limit
on the number of investors
who may buy shares.
1
<PAGE> 178
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2
<PAGE> 179
FEE TABLE
- --------------------------------------------------------------------------------
The following tables illustrate the fees and expenses that investors bear
directly or indirectly as shareholders of the Funds. Shareholder transaction
expenses are the charges that an investor pays to purchase or redeem shares of a
Fund. Annual fund operating expenses are the fees paid out of the assets of a
Fund. Each Fund pays a management fee to VALIC. The expenses paid by a Fund are
factored into the calculation of its share price or dividends and are not
charged directly to investors. The expenses reflected in the tables below are
based on the Funds' anticipated expenses for the first year of operation on an
annualized basis.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Load Imposed on Reinvested Dividends None
Maximum Deferred Sales Load None
Redemption Fees (as a percentage of amounts redeemed, if
applicable) None
Exchange Fee None
</TABLE>
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursements, as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL LARGE CAP MID CAP SMALL CAP INTERNATIONAL LARGE CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND VALUE FUND VALUE FUND
------------- ----------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.90% 0.55% 0.65% 0.85% 1.00% 0.50%
Other Expenses(b) 0.82% 0.59% 0.73% 0.67% 0.80% 0.59%
Total Fund Expenses 1.72% 1.14% 1.38% 1.52% 1.80% 1.09%
Expense Reimbursement -0.69% -0.41% -0.71% -0.49% -0.88% -0.41%
Total Fund Expenses after
Reimbursement 1.03% 0.73% 0.67% 1.03% 0.92% 0.68%
===== ===== ===== ===== ===== =====
<CAPTION>
SOCIALLY
MID CAP SMALL CAP RESPONSIBLE BALANCED
VALUE FUND VALUE FUND FUND FUND
---------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Management Fee 0.75% 0.75% 0.25% 0.80%
Other Expenses(b) 0.73% 0.68% 1.87% 0.77%
Total Fund Expenses 1.48% 1.43% 2.12% 1.57%
Expense Reimbursement -0.56% -0.57% -1.69% -0.87%
Total Fund Expenses after
Reimbursement 0.92% 0.86% 0.43% 0.70%
===== ===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursements, as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MODERATE
HIGH YIELD GROWTH GROWTH
BOND STRATEGIC DOMESTIC CORE BOND MONEY LIFESTYLE LIFESTYLE
FUND BOND FUND BOND FUND FUND MARKET FUND FUND(A) FUND(A)
---------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee 0.70% 0.60% 0.60% 0.50% 0.25% 0.10% 0.10%
Other Expenses(b) 1.53% 2.46% 0.66% 1.32% 1.27% 0.00% 0.00%
Total Fund Expenses 2.23% 3.06% 1.26% 1.82% 1.52% 0.10% 0.10%
Expense Reimbursement -1.35% -2.28% -0.60% -1.14% -1.09% 0.00% 0.00%
Total Fund Expenses after
Reimbursement 0.88% 0.78% 0.66% 0.68% 0.43% 0.10% 0.10%
====== ====== ====== ====== ====== ==== ====
<CAPTION>
CONSERVATIVE
GROWTH
LIFESTYLE
FUND(A)
------------
<S> <C>
Management Fee 0.10%
Other Expenses(b) 0.00%
Total Fund Expenses 0.10%
Expense Reimbursement 0.00%
Total Fund Expenses after
Reimbursement 0.10%
====
</TABLE>
- ---------------
(a) The Growth Lifestyle Fund, the Moderate Growth Lifestyle Fund and the
Conservative Growth Lifestyle Fund seek to accomplish their respective
objectives by investing primarily in a number of other Series Company Funds
("Underlying Series Company Funds"). Each Lifestyle Fund will bear
indirectly its pro rata share of the fees and expenses incurred by the
Underlying Series Company Funds in which the Lifestyle Fund is invested.
(b) Other Expenses, which include custody, accounting, reports to shareholders,
audit, legal, administrative, recordkeeping and other miscellaneous services
provided to the Funds, are based on estimated amounts for the current fiscal
year.
- --------------------------------------------------------------------------------
TOTAL COMBINED OPERATING EXPENSES(a)
(including indirect expenses) (after expense reimbursements, as a percentage of
net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMBINED
OPERATING EXPENSES(B)
------------------------
<S> <C>
Growth Lifestyle Fund 0.94%
Moderate Growth Lifestyle Fund 0.88%
Conservative Growth Lifestyle Fund 0.85%
</TABLE>
(a) Estimated Total Combined Operating Expenses of each Lifestyle Fund is based
on the Total Fund Operating Expenses of the Underlying Series Company Funds
and the Lifestyle Funds, assuming each Lifestyle Fund's projected asset
allocation among the Underlying Series Company Funds is maintained.
(b) Reflects estimated total average weighted combined operating expenses.
The purpose of the expense tables above is to assist investors in understanding
the various costs and expenses that a shareholder of a Fund will bear directly
or indirectly.
3
<PAGE> 180
- --------------------------------------------------------------------------------
EXAMPLE
- --------------------------------------------------------------------------------
You would pay the following expenses on a $1,000 investment assuming each Fund's
annual return is 5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
International Growth Fund $10 $33
Large Cap Growth Fund $ 7 $23
Mid Cap Growth Fund $ 7 $21
Small Cap Growth Fund $10 $33
International Value Fund $ 9 $29
Large Cap Value Fund $ 7 $22
Mid Cap Value Fund $ 9 $29
Small Cap Value Fund $ 9 $27
Socially Responsible Fund $ 4 $14
Balanced Fund $ 7 $22
High Yield Bond Fund $ 9 $28
Strategic Bond Fund $ 8 $25
Domestic Bond Fund $ 7 $21
Core Bond Fund $ 7 $22
Money Market Fund $ 4 $14
Growth Lifestyle Fund $ 1 $ 3
Moderate Growth Lifestyle Fund $ 1 $ 3
Conservative Growth Lifestyle Fund $ 1 $ 3
</TABLE>
THE INFORMATION CONTAINED IN THE ABOVE TABLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
4
<PAGE> 181
ABOUT THE SERIES COMPANY'S MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC, a stock life insurance company, has been in the investment advisory
business since 1960. VALIC, as of June 30, 1998, had over $8.5 billion in assets
under management. VALIC has been the Investment Adviser for the Funds that
comprise the Series Company since their inception.
VALIC is a member of the American General Corporation group of companies. The
American General Corporation group of companies is a leading provider of
retirement services, life insurance and consumer loans. Members of the American
General Corporation group of companies operate in each of the 50 states and
Canada.
As Investment Adviser, VALIC oversees the Funds' day to day operations. Also,
VALIC supervises the purchase and sale of Fund investments and performs the cash
management function. For the International Growth Fund, the Large Cap Growth
Fund, the Mid Cap Growth Fund, the Small Cap Growth Fund, the International
Value Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the Small Cap
Value Fund, the Balanced Fund, the High Yield Bond Fund, the Strategic Bond
Fund, the Domestic Bond Fund and the Core Bond Fund, VALIC employs Investment
Sub-advisers who make investment decisions for such Fund(s). However, VALIC
makes investment decisions for, and is directly responsible for the day to day
management of, the Socially Responsible Fund, the Money Market Fund and the
Lifestyle Funds. VALIC serves as Investment Adviser through an Investment
Advisory Agreement it entered into with the Series Company. The Investment
Advisory Agreement provides for the Series Company to pay all expenses not
specifically assumed by VALIC. Examples of the expenses paid by the Series
Company include transfer agency fees, custodial fees, the fees of outside legal
and auditing firms, the costs of reports to shareholders and expenses of
servicing shareholder accounts (e.g., daily calculation of the net asset value).
The Series Company allocates these expenses to each Fund in a manner approved by
the Board of Trustees. After the second year, this agreement will be renewed
once each year by the Series Company's Board of Trustees.
One Investment Advisory Agreement dated October 7, 1998 covers all Funds.
For more information about the Advisory Agreement, see the "Investment Adviser"
section in the Statement of Additional Information.
INVESTMENT SUB-ADVISERS
For some of the Funds, VALIC works with Investment Sub-advisers, financial
service companies that specialize in certain types of investing. However, VALIC
still retains ultimate responsibility for managing the Funds. The Sub-adviser's
role is to make investment decisions for the Funds according to each Fund's
investment objectives and restrictions.
In selecting Sub-advisers, the Series Company's Trustees carefully evaluated:
(i) the nature and quality of the services expected to be rendered to the
Fund(s) by the Sub-adviser; (ii) the distinct investment objective and policies
of the Fund(s); (iii) the history, reputation, qualification and background of
the Sub-advisers' personnel and its financial condition; (iv) its performance
track record; and (v) other factors deemed relevant. The Trustees also reviewed
the fees to be paid to each Sub-adviser.
The Sub-advisers are:
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P. ("AGIM")
AGIM is the Sub-adviser for the Core Bond Fund, the Strategic Bond Fund and the
High Yield Bond Fund. AGIM is a limited partnership whose sole general partner
and sole limited partner are wholly-owned subsidiaries of American General
Corporation. AGIM provides investment management and advisory services to
pension and profit sharing plans, financial institutions and other investors. As
of June 30, 1998, AGIM had approximately $70 billion in assets under management.
BANKERS TRUST COMPANY
("BANKER'S TRUST")
Bankers Trust is one of two Sub-advisers for the Small Cap Value Fund. Bankers
Trust first offered investment management services in 1938 and began managing
index funds in 1977. As of June 30, 1998, Bankers Trust was the seventh largest
U.S. financial services
VALIC'S ADDRESS is 2929 Allen
Parkway, Houston, Texas 77019.
AGIM'S PRINCIPAL OFFICES
are located at 2929 Allen
Parkway, Houston, Texas 77019.
BANKERS TRUST'S PRINCIPAL OFFICES
are located at 130 Liberty Street,
New York, New York 10006.
5
<PAGE> 182
- --------------------------------------------------------------------------------
institution and managed over $360 billion in assets. Bankers Trust is entirely
owned by Bankers Trust Corporation, a bank holding company.
BROWN CAPITAL MANAGEMENT, INC. ("BROWN CAPITAL MANAGEMENT")
Brown Capital Management is the Sub-adviser for the Mid Cap Growth Fund.
Established as a Maryland corporation in 1983, Brown Capital Management served
as investment adviser to approximately $4 billion in assets as of June 30, 1998.
CAPITAL GUARDIAN TRUST COMPANY
("CAPITAL GUARDIAN")
Capital Guardian is the Sub-adviser for the International Value Fund, the
Balanced Fund and the Domestic Bond Fund. Capital Guardian provides investment
management services to a limited number of large institutional clients such as
employee benefit funds, foundations and endowment funds. As of June 30, 1998,
Capital Guardian had more than $79.5 billion in assets under management.
FIDUCIARY MANAGEMENT ASSOCIATES, INC. ("FMA")
FMA is one of two Sub-advisers for the Small Cap Value Fund. FMA is a
wholly-owned subsidiary of United Asset Management Corporation, and provides
investment management services to corporations, foundations, endowments, pension
and profitsharing plans, trusts, estates and other institutions as well as
individuals. As of June 30, 1998, FMA had over $1.9 billion in assets under
management.
GOLDMAN SACHS ASSET MANAGEMENT ("GSAM")
GSAM is the Sub-adviser for the Large Cap Growth Fund. GSAM is a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"). GSAM provides a
wide range of fully discretionary investment advisory services quantitatively
driven and actively managed to U.S. and international equity portfolios, U.S.
and global fixed income portfolios, commodity and currency products and money
market accounts. As of June 30, 1998, GSAM and its affiliates served as
investment adviser or distributor for assets exceeding $162.2 billion.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("JP MORGAN")
JP Morgan is the Sub-adviser for the Small Cap Growth Fund. Known for its
commitment to proprietary research and its disciplined investment strategies, JP
Morgan provides asset management services to corporations, financial
institutions, governments and individuals. As of June 30, 1998, JP Morgan and
its affiliates employed over 300 analysts and portfolio managers around the
world and had more than $300 billion in assets under management.
JACOBS ASSET MANAGEMENT
Jacobs Asset Management is the Sub-adviser for the International Growth Fund.
Jacobs Asset Management is a Delaware limited partnership. United Asset
Management Corporation is a limited partner of, and owns a controlling interest
in, Jacobs Asset Management. Jacobs Asset Management provides investment
management and advisory services to corporations, unions, pensions and
profit-sharing plans, trusts and estates and other institutions and investors.
As of June 30, 1998, Jacobs Asset Management had more than $431 million in
assets under management.
NEUBERGER & BERMAN MANAGEMENT INC. ("N&B MANAGEMENT")
N&B Management is the Sub-adviser for the Mid Cap Value Fund. N&B Management and
its predecessor firms have specialized in the management of no-load mutual funds
since 1950. As of June 30, 1998, N&B Management and its affiliates managed
approximately $59 billion in aggregate net assets, including approximately $24
billion in mutual fund assets.
STATE STREET BANK & TRUST COMPANY ("STATE STREET BANK")/STATE STREET GLOBAL
ADVISORS ("STATE STREET GLOBAL ADVISORS")
State Street Global Advisors is the Sub-adviser for the Large Cap Value Fund.
State Street Global Advisors is an operating division of State Street Bank, a
wholly-owned subsidiary of State Street Corporation, which had more than $390
billion under management as of June 30, 1998.
BROWN CAPITAL MANAGEMENT'S PRINCIPAL OFFICES are located at
809 Cathedral Street, Baltimore, Maryland 21201.
CAPITAL GUARDIAN'S PRINCIPAL
OFFICES are located at 333 South
Hope Street, Los Angeles,
California 90071.
FMA'S PRINCIPAL OFFICES are located at 55 West Monroe Street, Suite #2550,
Chicago, Illinois 60603.
GSAM'S PRINCIPAL OFFICES are located at One New York Plaza, New York, New York
10004.
JP MORGAN'S PRINCIPAL OFFICES are located at 522 Fifth Avenue, New York, NY
10036.
JACOBS ASSET MANAGEMENT'S
PRINCIPAL OFFICES are located at 200 East Broward
Boulevard, Suite 1920,
Fort. Lauderdale, Florida 33301.
N&B MANAGEMENT'S PRINCIPAL OFFICES are located 605 Third Avenue, Second Floor,
New York, New York 10158-0180.
STATE STREET GLOBAL ADVISOR'S
PRINCIPAL OFFICES are located at
2 International Place, Boston,
Massachusetts 02110.
6
<PAGE> 183
- --------------------------------------------------------------------------------
These financial service companies act as Investment Sub-advisers through an
agreement each entered into with VALIC. For more information on these agreements
and on these Sub-advisers, see the "Investment Sub-Advisers" section in the
Statement of Additional Information.
PORTFOLIO MANAGER
A manager is a person or team of persons VALIC or one of its Sub-advisers has
assigned to be primarily responsible for the day to day management of a Fund's
investments. A Fund's investments are called its portfolio.
HOW ADVISERS ARE PAID FOR
THEIR SERVICES
VALIC
Each Fund pays VALIC a fee based on its average daily net asset value. A Fund's
net asset value is the total value of the Fund's assets minus any money it owes
for operating expenses, such as the fee paid to its Custodian to safeguard the
Fund's investments.
Here is a list of the percentages each Fund pays VALIC.
<TABLE>
<S> <C>
International Growth Fund 0.90% on the first $100 million
0.80% on assets over $100 million
Large Cap Growth Fund 0.55%
Mid Cap Growth Fund 0.65% on the first $25 million
0.55% on the next $25 million
0.45% on assets over $50 million
Small Cap Growth Fund 0.85%
International Value Fund 1.00% on the first $25 million
0.85% on the next $25 million
0.675% on the next $200 million
0.625% on assets over $250 million
Large Cap Value Fund 0.50%
Mid Cap Value Fund 0.75% on the first $100 million
0.725% on the next $150 million
0.70% on the next $250 million
0.675% on the next $250 million
0.65% on the assets over $750 million
Small Cap Value Fund 0.75% on the first $50 million
0.65% on the assets over $50 million
</TABLE>
<TABLE>
<S> <C>
Socially Responsible
Fund 0.25%
Balanced Fund 0.80% on the first $25 million
0.65% on the next $25 million
0.45% on assets over $50 million
High Yield Bond Fund 0.70% on the first $200 million
0.60% on the next $300 million
0.55% on assets over $500 million
Strategic Bond Fund 0.60% on the first $200 million
0.50% on the next $300 million
0.45% on assets over $500 million
Domestic Bond Fund 0.60% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% on the assets over $300 million
Core Bond Fund 0.50% on the first $200 million
0.45% on the next $300 million
0.40% on assets over $500 million
Money Market Fund 0.25%
Conservative Growth
Lifestyle Fund 0.10%
Moderate Growth
Lifestyle Fund 0.10%
Growth Lifestyle Fund 0.10%
</TABLE>
The Investment Advisory Agreement VALIC entered into with each Fund does not
limit how much the Funds pay in monthly expenses each year.
As shareholders of other Series Company Funds, the Lifestyle Funds incur their
proportionate share of the Underlying Series Company Funds' fees and expenses,
including the fees paid to VALIC.
From time to time VALIC, the Sub-advisers and/or the Distributor may
voluntarily undertake to reduce a Fund's expenses by reducing the fees payable
to them to the extent of, or bearing expenses in excess of, such limitations as
they may establish.
7
<PAGE> 184
- --------------------------------------------------------------------------------
THE SUB-ADVISERS
The Funds do not pay the Sub-advisers directly. According to the agreements,
VALIC pays them periodically a fee based on the Fund's average daily net asset
values. VALIC pays them a percentage of what is paid to us by the Funds. VALIC
and the Sub-advisers may agree to change the amount of money VALIC pays them.
Any such change increasing the charge paid by a Fund to VALIC would have to be
approved by the Series Company Board of Trustees and the shareholders of the
Fund.
The Series Company was issued an exemptive order by the SEC on September 9, 1998
for an exemption (the "Exemption") from certain provisions of the Investment
Company Act of 1940 ("1940 Act") which would otherwise require VALIC to obtain
formal shareholder approval prior to engaging and entering into sub-advisory
agreements with Sub-advisers. The relief is based on the conditions set forth in
the Exemption that, among other things: (1) VALIC will select, monitor, evaluate
and allocate assets to the Sub-advisers and oversee the Sub-advisers compliance
with the relevant Fund's investment objective, policies and restrictions; (2)
before a Fund may rely on the Exemption, the Exemption must be approved by the
shareholders of the Funds operating under the Exemption; (3) the Series Company
will provide to shareholders certain information about a new Sub-adviser; (4)
the Series Company will disclose in this prospectus the existence, substance and
effect of the Exemption; and (5) the Trustees, including a majority of the
"independent" Trustees, must approve each sub-advisory agreement in the manner
required under the 1940 Act. Any changes to the Investment Advisory Agreement
between the Series Company and VALIC would still require shareholder approval.
As required by the Exemption, the initial shareholder of each Fund, on October
7, 1998 consented to permit VALIC to terminate, replace or add Sub-advisers and
to enter into sub-advisory agreements with Sub-advisers upon approval of the
Board of Trustees but without formal shareholder approval.
Under the Investment Sub-advisory Agreement we have with AGIM, we pay AGIM a
monthly fee based on the average daily net asset values for the Core Bond Fund
at an annual rate of 0.25% of the first $200 million, 0.20% of the next $300
million and 0.15% on assets over $500 million and the Strategic Bond Fund at an
annual rate of 0.35% of the first $200 million, 0.25% of the next $300 million
and 0.20% on assets over $500 million. We pay AGIM a monthly fee based on the
average daily net asset values of the High Yield Bond Fund at an annual rate of
0.45% of the first $200 million, 0.35% of the next $300 million and 0.30% on
assets over $500 million.
Under the Investment Sub-advisory Agreement we have with Bankers Trust, we pay
Bankers Trust monthly fees based on the average daily net asset values of the
portion of the Small Cap Value Fund portfolio it manages at an annual rate of
0.03%.
Under the Investment Sub-advisory Agreement we have with Brown Capital
Management, we pay Brown Capital Management a monthly fee based on the average
daily net asset values of the Mid Cap Growth Fund at the annual rate of 0.40% of
the first $25 million, 0.30% of the next $25 million and 0.20% on assets over
$50 million.
Under the Investment Sub-advisory Agreement we have with Capital Guardian, we
pay Capital Guardian a quarterly fee based on the average daily net asset values
of the International Value Fund at an annual rate of 0.75% of the first $25
million, 0.60% of the next $25 million, 0.425% of the next $200 million and
0.375% on assets over $250 million and the Domestic Bond Fund at an annual rate
of 0.35% of the first $50 million, 0.20% on the next $50 million, 0.18% on the
next $200 million and 0.15% of assets over $300 million. We pay Capital Guardian
quarterly fees based on the average daily net asset values of the Balanced Fund
at an annual rate of 0.55% of the first $25 million, 0.40% of the next $25
million and 0.20% on assets over $50 million. Capital Guardian aggregates fees
with respect to the International Value Fund, the Domestic Bond Fund and the
Balanced Fund and applies a 5% discount to all fees if total fees are between
$1.25 million and $4 million, a 7.5% discount to all fees if total fees are
between $4 million and $8 million, a 10% discount to all fees if total fees are
between $8 million and $12 million, and a 12.5% discount to all fees if total
fees exceed $12 million.
Under the Investment Sub-advisory Agreement we have with FMA, we pay FMA a
monthly fee based on the average daily net asset values of the portion of the
Small Cap Value Fund portfolio it manages at the annual rate of 0.50% of the
first $50 million and 0.40% on assets over $50 million.
Under the Investment Sub-advisory Agreement we have with GSAM, we pay GSAM a
monthly fee based on the average daily net asset values of the Large Cap Growth
Fund at the annual rate of 0.30%.
Under the Investment Sub-advisory Agreement we have with JP Morgan, we pay JP
Morgan a monthly fee based on the average daily net asset values of the Small
Cap Growth Fund at the annual rate of 0.60%.
For more information on WHAT THE SUB-ADVISERS ARE PAID, see the "Investment
Sub-Advisers" section in the Statement of Additional Information.
8
<PAGE> 185
- --------------------------------------------------------------------------------
Under the Investment Sub-advisory Agreement we have with Jacobs Asset
Management, we pay Jacobs Asset Management a monthly fee based on the average
daily net asset values of the International Growth Fund at an annual rate of
0.65% of the first $100 million and 0.55% on assets over $100 million.
Under the Investment Sub-advisory Agreement we have with N & B Management, we
pay N & B Management a monthly fee based on the average daily net asset values
of the Mid Cap Value Fund at the annual rate of 0.50% of the first $100 million,
0.475% of the next $150 million, 0.45% of the next $250 million, 0.425% of the
next $250 million and 0.40% on assets over $750 million.
Under the Investment Sub-advisory Agreement we have with State Street Global
Advisors, we pay State Street Global Advisors a monthly fee based on the average
daily net asset values of the Large Cap Value Fund at the annual rate of 0.25%
but no less than $50,000 per year.
According to the agreements VALIC has with the Sub-advisers, we will receive
investment advice for each sub-advised Fund. Under these agreements we give the
Sub-advisers the authority to buy and sell securities for these Funds. VALIC
retains the responsibility for the overall management of these Funds. The Sub-
advisers may buy and sell securities for each Fund with broker-dealers and other
financial intermediaries that they select.
The Sub-advisers may place orders to buy and sell securities of these Funds with
a broker-dealer affiliated with the Sub-adviser as allowed by law. This could
include any affiliated futures commission merchants.
The 1940 Act permits Sub-advisers under certain conditions to place an order to
buy or sell securities with an affiliated broker. One of these conditions is
that the commission received by the affiliated broker cannot be greater than the
usual and customary brokers commission if the sale was completed on a securities
exchange. The Series Company has adopted procedures, as required by the 1940
Act, which provide that any commissions received by a Sub-adviser's affiliated
broker are reasonable and fair if compared to the commission received by other
brokers for the same type of securities transaction.
The Securities Exchange Act of 1934 prohibits members of national securities
exchanges from effecting exchange transactions for accounts that they or their
affiliates manage, except as allowed under rules adopted by the SEC. The Series
Company and the Sub-advisers have entered into written contracts, as required by
the 1940 Act, to allow the Sub-advisers' affiliates to effect these types of
transactions for commissions. The 1940 Act generally prohibits a Sub-adviser or
a Sub-adviser's affiliate, acting as principal, from engaging in securities
transactions with a Fund, without an exemptive order from the SEC.
VALIC and the Sub-advisers may enter into simultaneous purchase and sale
transactions for the Funds or affiliates of the Funds.
ABOUT THE BOARD OF TRUSTEES
The Series Company Board of Trustees currently consists of twelve members: nine
are independent Trustees and three are VALIC employees.
The Board of Trustees may change each Fund's investment objective, investment
policies and non-fundamental investment restrictions without shareholder
approval. The Board may not change any fundamental restrictions placed on the
types of investments each Fund may buy. The fundamental restrictions appear in
the Statement of Additional Information. Changes to these restrictions may be
made with shareholder approval only.
9
<PAGE> 186
ABOUT THE FUNDS
- --------------------------------------------------------------------------------
GROWTH, BALANCED, INCOME, STABILITY AND LIFESTYLE CATEGORIES
The Funds offered in this prospectus fall into five general investment
categories: growth, balanced, income, stability and lifestyle.
GROWTH CATEGORY
The goal of a Fund in the growth category is to increase the value of your
investment over the long term by investing mostly in stocks. Stocks are a type
of investment that can increase in value over a period of years. Companies sell
stock to get the money they need to grow. These companies often keep some of
their profits to reinvest in their business. As they grow, the value of their
stock may increase. This is how the value of your investment may increase.
Series Company Growth Category includes:
International Growth Fund
Large Cap Growth Fund
Mid Cap Growth Fund
Small Cap Growth Fund
International Value Fund
Large Cap Value Fund
Mid Cap Value Fund
Small Cap Value Fund
Socially Responsible Fund
BALANCED CATEGORY
(COMBINATION OF GROWTH AND INCOME CATEGORIES)
The goal of a Fund in the balanced category is to increase the value of your
investment over the long term and to provide income. The Fund in the balanced
category seek to conserve the value of your initial investment and promote
long-term growth and income by investing in stocks and income producing
securities.
Series Company Balanced Category includes:
Balanced Fund
INCOME CATEGORY
Unlike Funds in the growth category, where the objective is to make the Fund's
investments increase in value, Funds in the income category try to keep the
value of their investments from falling, while providing an increase in the
value of your investment through the income earned on a Fund's investments. To
meet this objective, Funds in the income category buy investments that are
expected to pay interest to a Fund on a regular basis.
Series Company Income Category includes:
High Yield Bond Fund
Strategic Bond Fund
Domestic Bond Fund
Core Bond Fund
STABILITY CATEGORY
The Fund in the stability category provide liquidity, protection of capital and
current income through investments in high quality securities.
Series Company Stability Category includes:
Money Market Fund
LIFESTYLE CATEGORY
The proliferation of mutual funds over the last several years has left many
investors in search of a simple means to manage their long-term investments.
With new investment categories emerging each year and with each mutual fund
reacting differently to political, economic and business events, many investors
are forced to make complex investment decisions in the face of limited
experience, time and personal resources. The Lifestyle Funds are designed to
meet the needs of investors who prefer to have their asset allocation decisions
made by professional money managers, are looking for an appropriate core
investment for their retirement portfolio and appreciate the advantages of broad
diversification.
A Lifestyle Fund does not invest directly in portfolio securities but, rather,
invests in a combination of Series Company Funds in order to meet its investment
objective. In this manner, the Lifestyle Funds offer you the opportunity to
diversify your investment portfolio by investing in one Fund, rather than in a
variety of Series Company Funds.
Series Company Lifestyle Category includes:
Growth Lifestyle Fund
Moderate Growth Lifestyle Fund
Conservative Growth Lifestyle Fund
ABOUT LEVEL OF RISK
The risks involved in each Fund are described in each Fund's Fact Sheet. These
risks may include market risk, credit risk, interest rate risk, manager risk and
risk associated with foreign securities. These risks are described in the "Types
of Investments" section in this prospectus. The money you invest in the Series
Company is not insured. And, we can't guarantee that any of the Funds will meet
their investment objectives. There's a chance you may lose money and end up with
less than you invested.
ABOUT PORTFOLIO TURNOVER
Portfolio turnover occurs when a Fund sells its investments and buys new ones.
In some Funds, high portfolio turnover occurs when these Funds
10
<PAGE> 187
- --------------------------------------------------------------------------------
sell and buy investments as part of their investment strategy.
High portfolio turnover may cause a Fund's expenses to increase. For example, a
Fund may have to pay brokerage fees and other related expenses.
The anticipated annual portfolio turnover rates for each of the Funds except the
Money Market Fund are as follows:
<TABLE>
<CAPTION>
ANTICIPATED
PORTFOLIO
NAME OF FUND TURNOVER RATE
------------ -------------
<S> <C>
International Growth Fund 50%
Large Cap Growth Fund 50-75%
Mid Cap Growth Fund 30-60%
Small Cap Growth Fund 100%
International Value Fund 150%
Large Cap Value Fund 100%
Mid Cap Value Fund 100%
Small Cap Value Fund 100%
Socially Responsible Fund 120%
Balanced Fund 150%
High Yield Bond Fund 100-200%
Strategic Bond Fund 100-200%
Domestic Bond Fund 150%
Core Bond Fund 100-200%
Growth Lifestyle Fund 10-20%
Moderate Growth Lifestyle 10-20%
Fund
Conservative Growth Lifestyle 10-20%
Fund
</TABLE>
A portfolio turnover rate of 100% or more a year is considered high. A high rate
increases a Fund's transaction costs and expenses.
ABOUT FUND PERFORMANCE
From time to time, the Series Company may advertise Fund performance information
such as Fund average annual total return and index total return. Information as
to how this Fund performance information is calculated appears in the Statement
of Additional Information.
11
<PAGE> 188
HOW TO READ A FUND FACT SHEET
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS-----------------------------------------------------------------
Gives you a quick recap of each Fund.
FUND NAME-----------------------------------------------------------------------
INVESTMENT ADVISER; INVESTMENT SUB-ADVISER--------------------------------------
They make the investment decisions for the Fund. See "About the Series
Company's Management" for more information.
PORTFOLIO MANAGER---------------------------------------------------------------
Some Funds have a specific person or persons assigned as the portfolio
manager. The person is described here. The portfolio manager's role is
explained in "About the Series Company's Management."
INVESTMENT OBJECTIVE------------------------------------------------------------
This is the goal of the Fund, which is set by the Series Company Board of
Trustees.
INVESTMENT RISK-----------------------------------------------------------------
Shows some of the investment risks of the Fund.
INVESTMENT STRATEGY-------------------------------------------------------------
This section explains how the Investment Advisers go about meeting the Fund's
Investment Objective.
FUND INVESTMENTS----------------------------------------------------------------
Shows the types of investments the Fund makes.
PERFORMANCE INFORMATION OF OTHER INVESTMENT COMPANIES AND PRIVATE ACCOUNTS------
This shows the average annual total return for a mutual fund, a managed account
or a composite of mutual funds and/or managed accounts, managed in
substantially the same manner as a Fund, for the time period ended March 31,
1998. Although these numbers represent the returns as of that date, they do not
represent performance information since that date. Performance information for
periods since June 30, 1998 may be significantly different (lower) than the
performance shown. Information about how the mutual fund, managed account or
composite performed for the period shown is presented net of fees and expenses.
[CHART]
12
<PAGE> 189
INTERNATIONAL GROWTH
FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM CAPITAL
APPRECIATION THROUGH
INVESTMENTS IN NON-U.S.
COMPANIES, THE MAJORITY OF
WHICH ARE EXPECTED TO BE IN
DEVELOPED MARKETS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Jacobs Asset Management
PORTFOLIO MANAGER
This Fund is managed by an investment committee comprised of the following
individuals: Daniel L. Jacobs, Wai W. Chin, Robert J. Jurgens and Cynthia A.
New. Mr. Jacobs has been President of the Sub-adviser since July 1, 1995. From
1984 to 1995, Mr. Jacobs was Executive Vice President and Director of Templeton
Investment Counsel. Mr. Jacobs was portfolio manager of Templeton's Smaller
Companies Growth Fund and Templeton Variable Product Series Fund -- Templeton
International Fund. Ms. Chin has been Managing Director of Asian Research and
Portfolio Management of the Sub-adviser since July 1995. Prior to this, Ms. Chin
was Vice President of the Global Equity Group of Scudder, Stevens & Clark from
1989 to April 1995. Mr. Jurgens has been Managing Director of European Research
and Portfolio Management of the Sub-adviser since August 1995. From 1993 to
1995, Mr. Jurgens was Vice President and head of AIG Global Investors'
International Equity Division. Ms. New has been Director, Latin American
Research, of the Sub-adviser since July 1998. Prior to this, Ms. New was an
equity analyst at Pioneer Management Corporation from December 1997 to June 1998
and was at Templeton International Council from June 1993 to December 1997,
where she had research and portfolio management responsibilities for developed
and emerging market corporate and government debt securities.
INVESTMENT OBJECTIVE
Seeks to provide long-term capital appreciation by investing in equity
securities of non-U.S. companies, the majority of which are expected to be in
developed markets. The Fund may invest across the capitalization spectrum,
although it intends to emphasize smaller capitalization stocks.
INVESTMENT RISK
As described in the Investment Strategy section below, this Fund invests almost
all its assets in foreign securities, which have risks that U.S. investments do
not have, including foreign political and economic developments, fluctuations in
foreign exchange rates and limited publicly available information. For a further
explanation of the risks associated with foreign securities, see "A Word About
Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund will invest in equity securities in the markets of at least three
countries outside the United States. The Fund will diversify its investments
among developed and emerging market countries. The Fund will focus its emerging
market investments on those countries in which the Sub-adviser believes the
economies are developing and the markets are becoming more sophisticated. An
"emerging market country" is any country which, in the opinion of the
Sub-adviser, is generally considered to be an emerging or developing country by
the international financial community, including the International Bank for
Reconstruction and Development (the World Bank) and the International Finance
Corporation. These countries generally include every nation in the world except
the United States, Canada, Japan, Australia, New Zealand and most nations
located in Western Europe. Investing in many emerging countries is not feasible
or may involve unacceptable political risks.
We will use a flexible, value-oriented approach to selecting this Fund's
investments, focusing on companies rather than on countries or markets. Our goal
is to identify stocks selling at the greatest discount to their intrinsic future
value. Value is ascertained through an analysis of price/cash flow, enterprise
value/cash flow, and price/future earnings. This Fund invests in a wide range of
equity securities including those of smaller capitalization companies.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
13
<PAGE> 190
INTERNATIONAL GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Foreign equity securities** at least 85%
Equity securities including
common stock, preferred
stock, convertible
preferred stock, rights and
warrants, and American
Depository Receipts
("ADRs"), European
Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs")
- --------------------------------------------
Equity securities of issuers up to 40%
in emerging countries***
- --------------------------------------------
Equity securities of small generally 50%
capitalization
companies****
- --------------------------------------------
Equity securities of open-end up to 10%
or closed-end investment
companies
- --------------------------------------------
Forward currency exchange up to 100%
contracts
- --------------------------------------------
Illiquid securities***** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Short-term investments****** up to 10%
- --------------------------------------------
</TABLE>
* At time of purchase.
** We intend to invest at least 85% of this Fund's total
assets in the equity securities of at least three countries outside the
United States.
*** "Emerging countries" are countries with economies
or securities markets that are considered by the Sub-adviser not to be
fully developed. An "emerging country" security is issued by a company
that in our opinion has one or more of the following characteristics: (i)
its principal securities trading market is in an emerging country; (ii)
alone or on a consolidated basis, it derives 50% or more of its annual
revenue from either goods produced, sales made or services performed in
emerging countries, or (iii) it is organized under the laws of, and has a
principal office in, an emerging country.
**** Small capitalization companies are companies with
market capitalizations of less than $1 billion at the time of purchase.
In certain countries, companies at the high end of the $1 billion
capitalization range would be considered to be mid cap or large cap
companies.
***** Percent of Fund's net assets applied at all times.
****** For temporary defensive reasons, we may invest up
to 100% of the Fund's total assets in short-term (less than twelve months
to maturity) securities or cash, including domestic and foreign money
market instruments, certificates of deposit, bankers' acceptances, time
deposits, U.S. Government obligations, U.S. Government agency securities,
short-term corporate debt securities, and commercial paper rated A-1 or
A-2 by Standard & Poor's Ratings Group ("S&P") or Prime 1 or Prime 2 by
Moody's Investors Services, Inc. ("Moody's") or if unrated, in our
opinion of comparable quality. In no event will the Fund purchase
short-term securities rated below Baa by Moody's or BBB by S&P. We may do
this when we think economic, political or market conditions make it too
risky for us to follow our general guidelines.
14
<PAGE> 191
- --------------------------------------------------------------------------------
1. The Templeton Performance Information
The International Growth Fund recently commenced operations and, therefore, has
no investment performance record. The performance information shown herein is
for the Templeton International Fund, a series of the Templeton Variable
Products Series Fund, which was managed by Mr. Jacobs, a principal of the
Sub-adviser. The Templeton International Fund has substantially similar, though
not necessarily identical objectives, policies and strategies as the
International Growth Fund. The chart below shows the historical investment
performance of the Templeton International Fund, net of fees and expenses, for
the year-ended June 30, 1995 and for the period May 1, 1992 to June 30, 1995,
during Mr. Jacobs tenure as the portfolio manager. Mr. Jacobs was primarily
responsible for the day-to-day management and no other person had a significant
role in achieving the Templeton International Fund's performance.
The International Growth Fund is subject to investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the International Growth Fund are
higher than the total fees incurred by the Templeton International Fund.
Consequently, the performance results for the Templeton International Fund would
have been lower if the Templeton International Fund had the same expenses as the
International Growth Fund. The performance of the Templeton International Fund
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON THE TEMPLETON INTERNATIONAL FUND WHICH WAS MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUAL WHO MANAGED THE
INTERNATIONAL GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
INTERNATIONAL GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF TEMPLETON INTERNATIONAL FUND
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------
1 YEAR* SINCE INCEPTION*
- -----------------------------------------------------
10.14% 12.33%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
[CHART]
*PERIOD ENDED JUNE 30, 1995
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the International Growth Fund is likely to differ from the
Templeton International Fund in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings and performance of the
International Growth Fund may vary from those of the Templeton International
Fund.
15
<PAGE> 192
- --------------------------------------------------------------------------------
2. The Separate Account Performance Information
Although the International Growth Fund has no performance record, the Fund's
investment objectives, policies and strategies are substantially similar, though
not necessarily identical, to those employed by the Sub-adviser with respect to
separately managed accounts of the Sub-adviser ("Separately Managed Accounts").
The chart herein shows the historical investment performance for a composite of
the Sub-adviser's Separately Managed Accounts ("Sub-adviser Composite") which
were managed by the Sub-adviser in substantially the same manner and by the same
individuals who manage the International Growth Fund. The Sub-adviser Composite
represents the total return, net of all fees and expenses, of all Separately
Managed Accounts of the Sub-adviser. The inception date of the Sub-adviser
Composite was October 1, 1995.
The Separately Managed Accounts in the Sub-adviser Composite were not subject to
the investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Separately Managed Accounts included in the
Sub-adviser Composite had been subject to the requirements imposed on registered
mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the International Growth Fund are
higher than the total fees incurred by the Separately Managed Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser's Separately
Managed Accounts had the same expenses as the International Growth Fund. The
performance of the Sub-adviser Composite has been calculated in accordance with
SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE
SUB-ADVISER'S SEPARATELY MANAGED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE
SAME MANNER AND BY THE SAME INDIVIDUALS WHO MANAGE THE INTERNATIONAL GROWTH FUND
AND DOES NOT REFLECT THE PERFORMANCE OF THE INTERNATIONAL GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF SUB-ADVISER COMPOSITE
<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
19.02% 22.04%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1995
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the International Growth Fund is likely to differ from the
Sub-adviser's Separately Managed Accounts in size, cash flow patterns and
certain tax matters. Accordingly, the portfolio holdings of the International
Growth Fund may vary from those of the Sub-adviser's Separately Managed Accounts
and performance of the International Growth Fund may vary from those of the
Sub-adviser Composite.
16
<PAGE> 193
LARGE CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN LARGE CAP
U.S. ISSUERS. DIVIDEND
INCOME IS A SECONDARY
OBJECTIVE.
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Goldman Sachs Asset Management
PORTFOLIO MANAGER
The Fund is managed by the following individuals: Robert C. Jones; Kent A.
Clark; Victor H. Pinter; and Melissa Brown. Mr. Jones, Managing Director, joined
the Sub-adviser in 1989. From 1987 to 1989, he was the senior quantitative
analyst in the Goldman Sachs Investment Research Department and the author of
the monthly Stock Selection publication. Mr. Clark, Vice President, joined the
Sub-adviser's quantitative equity management team in 1992. Prior to joining the
Sub-adviser, Mr. Clark studied for a Ph.D in finance at the University of
Chicago. Mr. Pinter, Vice President, joined the Sub-adviser in 1990. From 1985
to 1990, he was a project manager in the Sub-adviser's Information Technology
Division. Ms. Brown, Vice President, joined the Sub-adviser in 1998. From 1984
to 1998, Ms. Brown was the director of Quantitative Equity Research and served
on the Investment Policy Committee at Prudential Securities.
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary objective.
INVESTMENT RISK
This Fund invests almost entirely in equity securities. The value of equity
securities can rise and fall over both short and long periods of time. The
Fund's investments are selected to maintain a risk profile similar to the
Russell 1000 Growth Index, and your investment may experience similar changes in
value and share similar risks such as market risk, credit risk, interest rate
risk and risk associated with foreign securities. For more information about
market risk, credit risk, interest rate risk and risk associated with foreign
securities, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests primarily in the equity securities of large cap U.S. issuers.
Large cap U.S. issuers include the largest 1,000 companies by market
capitalization traded in the United States.
The Fund will be managed utilizing Goldman Sachs' Quantitative Equity Strategy.
The acronym "CORE" (Computer-Optimized and Research Enhanced) reflects the three
step investment process the team uses to select securities. First, we estimate
the returns of 3000 U.S. stocks and foreign securities using a combination of
research from the Goldman Sachs Global Investment Research Department, other
industry sources and objective quantitative analysis. Next, the Fund's
investment portfolio is constructed by balancing expected returns against
portfolio risk, trading fees and investment objectives. The Fund is intended to
be constructed with minimum deviations from the sector, risk statistics and
macroeconomic sensitivity of the benchmark. A proprietary multi-factor model is
used in seeking to ensure risks taken are both intended and are warranted due to
expected return. Lastly, the Fund is traded regularly and rebalanced in seeking
to ensure all positions are in line with current market outlooks and benchmark
weights.
We follow the guidelines listed below for making the primary investments for
this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of large cap at least 65%
U.S. issuers
- --------------------------------------------
Other equity securities of up to 25%
U.S. and foreign issuers**,
including convertible
securities, ADRs and GDRs
- --------------------------------------------
Investment grade fixed income up to 100%
securities***
- --------------------------------------------
Futures and options**** up to 5%
- --------------------------------------------
Illiquid securities***** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Warrants and stock purchase up to 5%
rights
- --------------------------------------------
Investment companies up to 5%
- --------------------------------------------
Unseasoned companies up to 5%
- --------------------------------------------
</TABLE>
* At time of purchase.
** This Fund may invest in the equity securities of a
foreign issuer only if the securities are traded in the U.S.
*** For temporary defensive purposes, we may invest up
to 100% of the Fund's total assets in fixed income securities, including
U.S. Government securities, repurchase agreements collateralized by U.S.
Government securities, commercial paper rated at least A-2 by S&P or P-2
by Moody's, certificates of deposit, bankers' acceptances, repurchase
agreements, non-convertible preferred stocks and non-convertible corporate
bonds with a remaining maturity of less than one year. The Sub-adviser
will not necessarily dispose of a fixed income security when its ratings
are down graded to below investment grade.
**** The Fund may purchase or sell futures contracts
only with respect to a representative index. At no time will the aggregate
margin deposit required on all futures or options held exceed 5% of the
Fund's total assets.
***** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
17
<PAGE> 194
- --------------------------------------------------------------------------------
The Large Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Large Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser with respect to sixteen accounts ("Combined Accounts"),
including fourteen advisory accounts ("Accounts") and two registered mutual
funds ("Funds"). The chart herein shows the historical investment performance
for a composite of the Combined Accounts ("Combined Accounts Composite"), which
were managed by the Sub-adviser in substantially the same manner and by the same
individuals who manage the Large Cap Growth Fund. The Combined Accounts
Composite includes all Combined Accounts, net of average fees and expenses
charged by the Accounts and the Funds. These expenses include investment
advisory fees but do not include custodial fees (other than for the mutual
funds), which, if included, could lessen the performance presented. The
inception dates of the Combined Accounts comprising the Combined Accounts
Composite range from November 11, 1991 to January 30, 1998.
The Accounts included in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Accounts included in the Combined Accounts
Composite had been subject to the requirements imposed on registered mutual
funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Large Cap Growth Fund are
higher than the total fees historically incurred by the Combined Accounts
comprising the Combined Accounts Composite. Consequently, the performance
results for the Combined Accounts Composite would have been lower if the
Combined Accounts Composite had the same expenses as the Large Cap Growth Fund.
The performance of the Combined Accounts Composite has been calculated in
accordance with SEC performance standards. See "Performance and Yield
Information" in the Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A
COMPOSITE OF THE SUB-ADVISER'S COMBINED ACCOUNTS WHICH ARE MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUALS AS THE LARGE CAP
GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE LARGE CAP GROWTH FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
51.22% 26.08% 22.95%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE NOVEMBER 11, 1991
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Large Cap Growth Fund is likely to differ from the
Sub-Adviser's Accounts and Funds in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Large Cap Growth Fund may
vary from those of the Sub-adviser's Combined Accounts and the performance of
the Large Cap Growth Fund may vary from that of the Combined Accounts Composite.
18
<PAGE> 195
MID CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CAPITAL APPRECIATION THROUGH
INVESTMENTS IN MEDIUM
CAPITALIZATION EQUITY
SECURITIES. CURRENT INCOME
IS A SECONDARY OBJECTIVE.
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Brown Capital Management, Inc.
PORTFOLIO MANAGER
The Fund is managed by a team led by Eddie C. Brown. Mr. Brown is Founder,
President and controlling shareholder of the Sub-adviser. Mr. Brown has been
with the Sub-adviser since its inception in 1983. Robert E. Hall, Theodore M.
Alexander III, Noreen A. Frost, and Stephon A. Jackson assist Mr. Brown in the
management of the Fund. Mr. Hall, Senior Vice President and Portfolio
Manager/Analyst, joined the Sub-adviser in September 1993. Mr. Alexander, Vice
President and Portfolio Manager/Analyst, joined the Sub-adviser in October 1995.
Prior to this, Mr. Alexander was a Securities Analyst at Legg Mason Wood Walker
from June 1994 to October 1995. From June 1990 to January 1994, Mr. Alexander
was a Securities Analyst at Alex Brown & Sons, Inc. Ms. Frost, Vice President
and Portfolio Manager/Analyst, joined the Sub-adviser in February 1996. Prior to
this, Ms. Frost was in institutional sales at Duff & Phelps Securities Co. from
December 1994 to October 1996. From 1983 to 1993, Ms. Frost was
Investment/Broker-Dealer Analyst at Alex Brown & Sons, Inc. Mr. Jackson, Vice
President and Portfolio Manager/Analyst, joined the Sub-adviser in July 1997.
Prior to this, Mr. Jackson was Portfolio Manager/Director of Research at NCM
Capital Management from March 1994 to June 1997. From March 1993 to March 1994,
Mr. Jackson was an Analyst at Putnam Investments.
INVESTMENT OBJECTIVE
Seeks capital appreciation principally through investments in medium
capitalization equity securities, such as common and preferred stocks and
securities convertible into common stocks. Current income is a secondary
objective.
INVESTMENT RISK
This Fund invests mostly in equity securities of medium-sized companies that we
believe are undervalued in the marketplace. The value of any equity security may
rise or fall over long or short periods of time. Although these equity
securities present an opportunity for capital appreciation, they may not be
broadly traded and involve market risk and risk associated with foreign
securities. For a discussion of market risk and risk associated with foreign
securities, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund will invest principally in the equity securities of medium
capitalization companies. Medium capitalization companies include companies with
a market capitalization of $1 to $7 billion. We will seek to achieve capital
appreciation through an opportunistic investment strategy with a growth bias.
This Fund will purchase equity securities of those companies that we feel are
undervalued relative to their growth potential in the securities markets,
because the companies are presently out of favor, not well known or possess
value that is not currently recognized by the investment community. We use a
"bottom up" approach to select specific investments, employing analysis that
contains elements of traditional dividend discount and earnings yield models,
establishes predicted relative valuation for equity and fixed income markets,
and determines the attractiveness of individual securities through evaluation of
growth and risk characteristics of the underlying company relative to the
overall equity market. Although the Fund's portfolio securities generally will
be acquired for the long term, they may be sold under some of the following
circumstances when the Sub-adviser believes that: a) the anticipated price
appreciation has been achieved or is no longer probable; b) alternative
investments offer superior total return prospects; or c) fundamentals change
adversely.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
19
<PAGE> 196
MID CAP GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for
this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of medium at least 65%
capitalization companies
- --------------------------------------------
Other equity securities up to 35%
Common stocks, convertible
preferred stocks, preferred
stocks and convertible bonds
traded on domestic exchanges
or in over-the-counter
markets
- --------------------------------------------
Foreign equity securities, up to 10%
ADRs**
- --------------------------------------------
Money market instruments*** up to 10%
and fixed income
securities****, U.S.
Government securities,
corporate fixed income
securities**** (including
those subject to repurchase
agreements), bankers
acceptances and certificates
of deposit of domestic
branches of U.S. banks,
commercial paper (including
variable amount demand
master notes) rated in one
of the two highest ratings
categories of organizations
or, if not rated, of
equivalent quality and cash
and cash equivalents
- --------------------------------------------
Illiquid securities***** up to 10%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Real estate securities****** up to 10%
- --------------------------------------------
</TABLE>
* At time of purchase.
** Foreign equity securities held by this Fund will be
held in the form of ADRs.
*** For temporary defensive reasons, we may invest up
to 100% of the Fund's assets in money market instruments and cash and
cash equivalents. We may do this when we think economic and market
conditions make it too risky to follow its general guidelines.
**** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***** Percent of Fund's net assets applied at all times.
****** This Fund will not invest directly in real estate, but
rather, in interests in or readily marketable securities issued by
companies that invest in real estate, including real estate investment
trusts (REITs).
20
<PAGE> 197
- --------------------------------------------------------------------------------
The Mid Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Mid Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser with respect to discretionary investment management accounts
under their management ("Combined Accounts"). The chart herein shows the
investment performance for a composite of these Combined Accounts ("Combined
Accounts Composite") which were managed by the Sub-adviser in substantially the
same manner and by the same individuals who manage the Mid Cap Growth Fund. The
Combined Accounts Composite includes all Combined Accounts, net of account fees
and expenses. The inception dates of the Combined Accounts comprising the
Combined Accounts Composite range from January 1, 1993 to March 31, 1998.
The Combined Accounts in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Combined Accounts included in the Combined
Accounts Composite had been subject to the requirements imposed on mutual funds,
their performance might have been lower.
Total fees (after expense reimbursements) for the Mid Cap Growth Fund are higher
than the total fees historically incurred by the Combined Accounts comprising
the Combined Accounts Composite. Consequently, the performance results for the
Combined Accounts Composite would have been lower if the Combined Accounts
Composite had the same expenses as the Mid Cap Growth Fund. The performance of
the Combined Accounts Composite has been calculated in accordance with SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
COMBINED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE
SAME INDIVIDUALS AS THE MID CAP GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE
OF THE MID CAP GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
47.95% 23.51% 21.86%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1993
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Mid Cap Growth Fund is likely to differ from the
Sub-adviser's Combined Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Mid Cap Growth Fund may vary
from those of the Sub-adviser's Combined Accounts and the performance of the Mid
Cap Growth Fund may vary from that of the Combined Accounts Composite.
21
<PAGE> 198
SMALL CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN SMALL GROWTH
COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
J.P. Morgan Investment Management Inc.
PORTFOLIO MANAGER
Candice Eggerss, Stephen J. Rich and Saira Malik are the members of the
Sub-adviser's team who will be primarily responsible for the day-to-day
management of the Fund. Ms. Eggerss, who has been with the Sub-adviser since
1996, is a Vice President and specializes in portfolio investments in small
capitalization technology companies. Prior to this, Ms. Eggerss was employed at
Weiss, Peck and Greer from April 1993 to April 1996 and at Equitable Capital
Management prior to 1993. Mr. Rich is a Vice President and a portfolio manager
in the Small Cap Equity Group. In addition to his present position, his seven
years of experience in equity portfolio management include positions in the
Sub-adviser's Structured Equity and Balanced/Equity groups. Ms. Malik joined the
Sub-adviser in 1995 after completing her graduate studies at the University of
Wisconsin.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth from a portfolio of equity securities of small
capitalization growth companies.
INVESTMENT RISK
Small capitalization companies may not have the financial strength to do well in
difficult times. Because they are small, the prices of their equity securities
may fluctuate more over the short term but they have more potential to grow.
This means their value may offer greater potential for appreciation. The equity
securities that the Fund invests in involve certain risks such as market risks.
For a discussion of these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund invests in small capitalization U.S. companies, which are companies
whose market capitalizations are greater than $150 million and less than $1.25
billion. On an industry-by-industry basis, the Fund's weightings are similar to
those of the Russell 2000 Growth Index. Within each industry, the Fund invests
in equity securities that the Sub-adviser's research and valuation process
indicate are undervalued. The greater a company's estimated worth compared to
the current market price of its equity securities, the more undervalued the
company.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -----------------------------------------------
<S> <C>
Equity securities of at least 65%
small capitalization
growth companies
including U.S. and
foreign common stocks,
convertible securities,
preferred stocks,
warrants and rights
- -----------------------------------------------
Other equity securities up to 35%
of U.S. and foreign
large and medium
capitalization issuers
including common
stocks, convertible
securities, preferred
stocks, warrants,
rights and investment
company securities
- -----------------------------------------------
Foreign investments up to 5%
- -----------------------------------------------
Futures and options up to 25%
- -----------------------------------------------
Illiquid securities** up to 15%
- -----------------------------------------------
Rule 144A securities up to 30%
(liquid)
- -----------------------------------------------
Investment grade up to 10%
short-term fixed income
securities***
- -----------------------------------------------
Swaps Agreements up to 5%
- -----------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
*** During severe market downturns, we may invest up to
100% of the Fund's assets in investment grade short-term securities,
including repurchase agreements. The Sub-adviser will not necessarily
dispose of a fixed income security when its rating is down graded to below
investment grade.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
22
<PAGE> 199
- --------------------------------------------------------------------------------
The Small Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Small Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser and its affiliates with respect to discretionary investment
management accounts under their management ("Combined Accounts"). The chart
herein shows the historical investment performance for a composite of these
Combined Accounts ("Combined Accounts Composite") which was managed by the
Sub-adviser in substantially the same manner as the Small Cap Growth Fund. The
Combined Accounts Composite includes all Combined Accounts, net of the highest
management fee charged and other account fees and expenses. The inception dates
of the Combined Accounts comprising the Combined Accounts Composite range from
September 1, 1994 to June 1, 1997.
The Combined Accounts in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Combined Accounts included in the Combined
Accounts Composite had been subject to the requirements imposed on registered
mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Small Cap Growth Fund are
higher than the total fees historically incurred by the Combined Accounts
comprising the Combined Accounts Composite. Consequently, the performance
results for the Combined Accounts Composite would have been lower if the
Combined Accounts Composite had the same expenses as the Small Cap Growth Fund.
The performance of the Combined Accounts Composite has been calculated in
accordance with SEC performance standards. See "Performance and Yield
Information" in the Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A
COMPOSITE OF THE SUB-ADVISER'S COMBINED ACCOUNTS WHICH ARE MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUALS AS THE SMALL CAP
GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE SMALL CAP GROWTH FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
53.70% 29.20%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 1, 1994
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Small Cap Growth Fund is likely to differ from the
Sub-adviser's Combined Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Small Cap Growth Fund may
vary from those of the Sub-adviser's Combined Accounts and the performance of
the Small Cap Growth Fund may vary from that of the Combined Accounts Composite.
23
<PAGE> 200
INTERNATIONAL VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH OF CAPITAL AND FUTURE
INCOME THROUGH INVESTMENTS
IN NON-U.S. ISSUERS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
The Fund's portfolio managers include: (i) Robert Ronus, President of the
Sub-adviser, who has been an investment professional for 29 years and has been
with the Sub-adviser or an affiliate for 25 years; (ii) David Fisher, Vice
Chairman of the Sub-adviser, who has been an investment professional for 32
years and has been with the Sub-adviser or an affiliate for 28 years; (iii)
Harmut Giesecke, Senior Vice President and Director of Capital International,
Inc., an affiliate of the Sub-adviser, who has been an investment professional
for 26 years and has been with the Sub-adviser or an affiliate for 25 years;
(iv) Nancy Kyle, Senior Vice President of the Sub-adviser, who has been an
investment professional for 24 years and has been with the Sub-adviser or an
affiliate for 7 years; (v) John McIlwraith, Senior Vice President of the
Sub-adviser, who has been an investment professional for 28 years and has been
with the Sub-adviser or an affiliate for 14 years; (vi) Nilly Sikorsky, Director
of The Capital Group of Companies, Inc., an affiliate of the Sub-adviser, who
has been an investment professional for 35 years and has been with the
Sub-adviser or an affiliate for 35 years; (vii) Lionel Sauvage, Vice President
of the Sub-adviser, who has been an investment professional for 11 years and has
been with the Sub-adviser or an affiliate for 11 years; (viii) Richard Havas,
Sr., Vice President of the Sub-adviser, who has been an investment professional
for 16 years and has been with the Sub-adviser or an affiliate for 12 years; and
(ix) Rudolf Staehelin, Sr., Vice President of Capital Research International, an
affiliate the Sub-adviser, who has been an investment professional for 20 years
and has been with the Sub-adviser or an affiliate for 16 years.
INVESTMENT OBJECTIVE
Seeks to provide growth of capital and future income through investments
primarily in securities of non-U.S. issuers and securities whose principal
markets are outside of the United States.
INVESTMENT RISK
As described in the Investment Strategy section below, this Fund invests almost
all of its assets in foreign securities, which have risks that U.S. investments
do not have, including future foreign political and economic developments,
fluctuations in foreign exchange rates and limited publicly available
information. For a further explanation of the risks associated with foreign
securities and market risk, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a portfolio consisting primarily of equity and fixed income
securities of non-U.S. issuers.
While the assets of the Fund can be invested with geographical flexibility, the
emphasis will be on securities of companies located in Europe, Canada,
Australia, and the Far East, giving due consideration to economic, social, and
political developments, currency risks and the liquidity of various national
markets.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -----------------------------------------------
<S> <C>
Foreign securities** at least 80%
Equity securities,
investment grade fixed
income securities
- -----------------------------------------------
Futures and options Put up to 90% of the
and call options on amount in foreign
foreign currencies and securities
forward currency
contracts
- -----------------------------------------------
Cash, cash equivalents, up to 100%
government securities,
nonconvertible
preferred stocks, or
investment grade fixed
income securities***
- -----------------------------------------------
Rule 144A securities up to 15%
(liquid)
- -----------------------------------------------
Illiquid securities**** up to 15%
- -----------------------------------------------
</TABLE>
* At the time of purchase.
** We may invest up to 10% of the Fund's assets in the
securities of foreign small capitalization companies. The Fund also may
invest in securities of issuers located in emerging market countries.
*** We may invest up to 100% of the Fund's assets in
these instruments in varying proportions as a temporary defensive position,
when we think economic, political and market conditions in foreign
countries make it too risky to follow our general guidelines. The
Sub-adviser will not necessarily dispose of a fixed income security when
its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
For additional
information about THE
FUND'S INVESTMENTS see
"Types of Investments."
24
<PAGE> 201
- --------------------------------------------------------------------------------
The International Value Fund recently commenced operations and, therefore, has
no investment performance record. However, the International Value Fund's
investment objectives, policies and strategies are substantially similar, but
not necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. The chart herein shows the historical investment performance for a
composite of the Sub-adviser's Discretionary Accounts ("Sub-adviser Composite")
which were managed by the Sub-adviser in substantially the same manner as the
International Value Fund. The Sub-adviser Composite represents the total return
of all Discretionary Accounts, net of the highest management fee charged and
other account fees and expenses. The inception dates of the Discretionary
Accounts comprising the Sub-Adviser Composite range from December 31, 1978 to
March 31, 1998.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-Adviser
Composite had been subject to the requirements imposed on registered mutual
funds, their performance might have been lower.
Total fees (after expense reimbursements) for the International Value Fund are
higher than the total fees historically incurred by the Discretionary Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser Composite had
the same expenses as the International Value Fund. The performance of the
Sub-adviser Composite has been calculated in accordance with SEC performance
standards. See "Performance and Yield Information" in the Statement of
Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
DISCRETIONARY ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE
INTERNATIONAL VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
INTERNATIONAL VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
SUB-ADVISER COMPOSITE
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- ---------------------------------------------------------
24.02% 14.85% 11.35%
- ---------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the International Value Fund is likely to differ from the
Sub-adviser's Discretionary Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the International Value Fund may
vary from those of the Sub-adviser's Discretionary Accounts and the performance
of the International Value Fund may vary from that of the Sub-adviser Composite.
25
<PAGE> 202
LARGE CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURNS EXCEEDING THE
RUSSELL 1000 VALUE INDEX
THROUGH INVESTMENTS IN
EQUITY SECURITIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
State Street Bank & Trust Company/
State Street Global Advisors
PORTFOLIO MANAGER
The Fund's portfolio managers include Jeffrey P. Adams, Jennifer W. Bardsley,
David A. Hanna, Douglas T. Holmes, CFA, Ben J. Salm, Peter Stonberg, CFA,
Richard B. Weed and Peter B. Wiley, CFA. Mr. Adams, Principal, US Active Equity
joined the Sub-adviser in June 1989, where he has been the team leader of the
Small Cap Strategy since its inception and is responsible for the research
initiatives for this product. Mr. Adams' responsibilities include the management
of global active portfolios and research and development of new U.S. active
processes. Ms. Bardsley, Principal, US Active Equity, joined the Sub-adviser in
1993 as a member of the Investment Systems group and moved to the U.S. Active
Equity group in January 1996, where her responsibilities include product
development, portfolio management and maintenance of the modeling and portfolio
construction processes. Mr. Hanna, Principal, US Active Equity, joined the
Sub-adviser in May 1997 and is a Portfolio Manager for the Hedged Matrix
(Long/Short Market Neutral) Product and participates in group research projects
involving the development of modeling and portfolio development techniques.
Prior to joining the Sub-adviser, Mr. Hanna was director of equity and
quantitative research at Standish, Ayer & Wood, from January 1992 to April 1997,
where he both managed a group of quantitative analysts and worked on equity
research projects. Mr. Holmes, Managing Director, Global Enhanced Equity, joined
the Sub-adviser in 1984 and specializes in the portfolio construction, risk
control and trading of accounts managed by the Sub-adviser in this area. Mr.
Salm, Principal, US Active Equity, joined the Sub-adviser in 1992 and is
responsible for research, product development and portfolio management within
the US Active strategy. Mr. Stonberg, Principal and Head of US Active Equity,
joined the Sub-adviser in 1981 and is responsible for all of the Sub-adviser's
US Active Equity investment strategies. Mr. Weed, Principal, US Active Equity,
joined the Sub-adviser in April 1994, where his responsibilities include
portfolio management, product development and research. Previously, Mr. Weed was
with Valuequest, an investment adviser, from December 1993 to March 1994 and
with Brattle Group, an economic consulting firm, from May 1992 to November 1993.
Mr. Wiley, Principal, US Active Equity, joined the Sub-adviser in April 1997.
Previously, Mr. Wiley was with Colonial Management Associates, an investment
management firm, from August 1992 to April 1997.
INVESTMENT OBJECTIVE
Seeks to provide total returns that exceed over time the Russell 1000 Value
Index (Index) through investment in equity securities.
INVESTMENT RISK
This Fund invests primarily in the equity securities of large, well-established
companies that generally possess the strength to withstand difficult financial
periods. Nevertheless, the value of any equity security can rise or fall over
short and long periods of time. As described below, in order to avoid unintended
exposures to economic factors, including the direction of the economy, interest
rates, energy prices and inflation, we maintain the proportion of equity
securities from different economic sectors in this Fund's portfolio at a level
similar to that of the Index. There is no assurance that the Fund will be
unaffected by such economic factors.
Because the Fund maintains sector weights at a similar level to that of the
Index, your investment may experience similar changes in value and share similar
risks such as market risk and risk associated with foreign securities. For more
information about market risk and risk associated with foreign securities, see
"A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund will invest primarily in equity securities of large capitalization
companies. Large capitalization companies include the largest 1,200 companies by
market capitalization domiciled in the United States. Equity securities will be
selected and ranked according to two separate and uncorrelated measures: value
and the momentum of Wall Street sentiment. The value measure compares a
company's assets, projected earnings growth and cash flow growth with the price
of its equity securities within the context of its historical valuation. The
measure of Wall Street sentiment examines changes in Wall Street analysts'
earnings estimates and ranks stocks by the strength and consistency of those
changes. These two measures will be combined to create a single composite score
of an equity security's attractiveness. These scores are used to determine their
relative attractiveness. Sector weights are maintained at a similar level
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
26
<PAGE> 203
LARGE CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------
to that of the Index to avoid unintended exposure to factors such as the
direction of the economy, interest rates, energy prices and inflation.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of large at least 65%
capitalization companies
- --------------------------------------------
ADRs up to 5%
- --------------------------------------------
Debentures up to 5%
- --------------------------------------------
Notes up to 5%
- --------------------------------------------
Warrants** up to 5%
- --------------------------------------------
Illiquid and restricted up to 15%
securities**
- --------------------------------------------
Rule 144A securities (liquid) up to 15%
- --------------------------------------------
Securities lending up to 331/3%
- --------------------------------------------
When-issued securities** up to 25%
- --------------------------------------------
Put and call options up to 5%
Covered put and call options
on securities
Put and call options on
securities indices
- --------------------------------------------
Futures and options up to 5%
Initial margin deposits on
futures and premiums for
options and futures
- --------------------------------------------
High quality short-term fixed up to 100%
income securities***
- --------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
*** For temporary defensive purposes, to invest
uncommitted cash balances or to meet shareholder redemptions, we may
invest up to 100% of the Fund's assets in high quality short-term fixed
income securities such as U.S. Government securities, repurchase
agreements collateralized by these obligations, variable amount master
demand notes, commercial paper, bank certificates of deposit, bankers'
acceptances and time deposits. The Sub-adviser will not necessarily
dispose of a fixed income security when its rating is down graded to below
investment grade.
27
<PAGE> 204
- --------------------------------------------------------------------------------
The Large Cap Value Fund recently commenced operations and, therefore, has no
investment performance record. However, the Large Cap Value Fund is managed by
the Sub-adviser in substantially the same manner and by the same individuals as
those who manage discretionary accounts (the "Discretionary Accounts") with
substantially similar investment objectives, policies and strategies.
The chart herein shows the investment performance for all Discretionary
Accounts, net of account fees and expenses. The inception dates for the
Discretionary Accounts range from August 1, 1992 through August 1, 1997. The
Discretionary Accounts are not subject to the investment limitations,
diversification requirements and the other restrictions imposed on registered
mutual funds by the 1940 Act and Subchapter M of the Internal Revenue Code. If
the Discretionary Accounts had been subject to the requirements imposed on
registered mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Large Cap Value Fund are
higher than the total fees incurred by the Discretionary Accounts. Consequently,
the performance results for the Discretionary Accounts would have been lower if
the Discretionary Accounts had the same expenses as the Large Cap Value Fund.
The performance of the Discretionary Accounts has been calculated in accordance
with SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE SUB-
ADVISER'S DISCRETIONARY ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME
MANNER AND BY THE SAME INDIVIDUALS AS THE LARGE CAP VALUE FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE LARGE CAP VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF DISCRETIONARY ACCOUNTS
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
58.95% 24.14% 24.04%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 1, 1992
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Large Cap Value Fund is likely to differ from the
Discretionary Accounts in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Large Cap Value Fund
may vary from those of the Discretionary Accounts.
28
<PAGE> 205
MID CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN MEDIUM CAPITALIZATION
COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Neuberger&Berman Management Inc.
PORTFOLIO MANAGER
Michael M. Kassen, Robert I. Gendelman and S. Basu Mullick serve as co-managers
of the Fund. Mr. Kassen and Mr. Gendelman are Vice Presidents of the Sub-adviser
and principals of
Neuberger&Berman, LLC. Messrs. Kassen and Gendelman have been associated with
the Sub-adviser since 1990 and 1994, respectively. Prior to 1994, Mr. Gendelman
was a portfolio manager for another mutual fund manager. Mr. Mullick has been a
Vice President of the Sub-adviser since October 1998. From 1993 to 1998, Mr.
Mullick was a portfolio manager for another mutual fund manager.
INVESTMENT OBJECTIVE
Seeks capital growth, through investment in equity securities of medium
capitalization companies using a value-oriented investment approach.
INVESTMENT RISK
The value of any equity security may rise or fall over long or short periods of
time. Although equity securities present an opportunity for capital
appreciation, they may not be broadly traded and involve market risk and risk
associated with foreign securities. For a discussion of these risks, see "A Word
About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund invests principally in equity securities of medium capitalization
established companies, using a value-oriented investment approach intended to
increase capital with reasonable risk. Medium capitalization companies include
companies with the characteristics of companies included in the Russell
Midcap(TM) Index. As of June 30, 1998, the largest company included in the
Russell Midcap(TM) Index had an approximate market capitalization of $10.3
billion. We choose securities we believe are undervalued based on strong
fundamentals, including a low price-to-earnings ratio, consistent cash flow, and
the company's track record through all parts of the market cycle. When selecting
securities for this Fund, we also consider other factors, including ownership by
a company's management of the company's stock and the dominance a company in its
particular field.
We follow the guidelines listed below for making the investments for this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of medium at least 65%
capitalization companies
- --------------------------------------------
Other equity securities up to 35%
Common stock, preferred
stock, convertible
securities
- --------------------------------------------
Covered call options up to 35%
- --------------------------------------------
Foreign currency transactions up to 5%
- --------------------------------------------
Options on foreign currencies up to 5%
- --------------------------------------------
Foreign securities up to 10%
- --------------------------------------------
Illiquid and restricted up to 15%
securities**
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Corporate fixed income up to 15%
securities rated C or higher
by Moody's or CC or higher
by S&P and comparable
unrated securities***
- --------------------------------------------
Investment grade fixed income less than 5%
securities****, corporate
bonds and debentures, U.S.
Government securities, money
market instruments, zero
coupon securities
- --------------------------------------------
Cash and cash equivalents***** up to 100%
- --------------------------------------------
</TABLE>
* At time of purchase.
** We may invest up to 15% of the Fund's net assets in
illiquid securities. This limitation applies at all times. Restricted
securities are explained under "Types of Investments."
*** This Fund may invest up to 15% of its net assets in
below investment grade fixed income securities only when we believe that
the anticipated return to the Fund warrants exposure to the additional
risk involved in these instruments.
**** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***** For temporary defensive reasons, we may invest up
to 100% of the Fund's assets in cash and cash equivalents, U.S. Government
securities, commercial paper and certain other money market instruments,
including repurchase agreements collateralized by the foregoing. We may do
this when we think economic and market conditions make it too risky to
follow its general investment guidelines.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
29
<PAGE> 206
- --------------------------------------------------------------------------------
The Mid Cap Value Fund recently commenced operations and, therefore, has no
investment performance record. However, the Mid Cap Value Fund's investment
objectives, policies and strategies are substantially similar, though not
necessarily identical, to those of Neuberger&Berman Partners Fund and it is
managed by the Sub-adviser in substantially the same manner and by the same
individuals as Neuberger&Berman Partners Fund. Neuberger&Berman Partners Fund
seeks to achieve its objective by investing principally in common stocks of
medium to large capitalization companies. As a result, Neuberger&Berman Partners
Fund may in the future have, or in the past have had, greater exposure to larger
capitalization companies than the Mid Cap Value Fund will have. The chart herein
shows the investment performance for Neuberger&Berman Partners Fund for the
period April 1, 1988 through March 31, 1998, net of Neuberger&Berman Partners
Fund's fees and expenses. The date the Sub-Adviser assumed management of
Neuberger&Berman Partners Fund was January 20, 1975.
The Mid Cap Value Fund is subject to investment limitations, diversification
requirements and other restrictions imposed on registered mutual funds by the
1940 Act and Subchapter M of the Internal Revenue Code.
Total fees after (expense reimbursements) for the Mid Cap
Value Fund are higher than the total fees incurred by
Neuberger&Berman Partners Fund. Consequently, the performance results for
Neuberger&Berman Partners Fund would have been lower if Neuberger&Berman
Partners Fund had the same expenses as the Mid Cap Value Fund. The performance
of Neuberger&Berman Partners Fund has been calculated in accordance with SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON NEUBERGER&BERMAN
PARTNERS FUND WHICH IS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME
INDIVIDUALS AS THE MID CAP VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE OF
THE MID CAP VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
NEUBERGER&BERMAN PARTNERS FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
41.54% 21.80% 17.95%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Mid Cap Value Fund is likely to differ from
Neuberger&Berman Partners Fund in size, cash flow patterns and certain tax
matters. Neuberger&Berman Partners Fund may have greater exposure to large
capitalization companies than the Mid Cap Value Fund. Accordingly, the portfolio
holdings and performance of the Mid Cap Value Fund may vary from those of
Neuberger&Berman Partners Fund.
30
<PAGE> 207
SMALL CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal MAXIMUM LONG-TERM RETURN
THROUGH INVESTMENTS IN SMALL
CAPITALIZATION COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISERS
Fiduciary Management Associates, Inc.
Bankers Trust Company
PORTFOLIO MANAGER
The actively-managed portion of the Fund's portfolio is managed by Kathryn Maag
Vorisek, Douglas G. Madigan, CFA, Lloyd J. Spicer, CFA, and Terry B. French of
Fiduciary Management Associates, Inc. Ms. Vorisek, Senior Vice President and
Portfolio Manager/Analyst for the Sub-adviser's small cap discipline, is the
team leader. Ms. Vorisek joined the Sub-adviser in April 1996. Previously, Ms.
Vorisek was with Duff & Phelps Investment Management from June 1989 to April
1996. Mr. Madigan, Senior Vice President and Director of Research, joined the
Sub-adviser in September 1998. Previously, Mr. Madigan was with Harris Bank as
Vice President, Equity Research, from 1994 to September 1998 and as Mutual Fund
Portfolio Manager and Partner from 1996 to September 1998. Prior to that, Mr.
Madigan was Vice President and Senior Portfolio Manager at Continental Bank from
1989 to 1994. Mr. Spicer, Senior Vice President and Portfolio Manager/ Small Cap
Advisor, joined the Sub-adviser in March 1994. Previously, Mr. Spicer was Senior
Vice President at LaSalle National Corporation from February 1982 through March
1994. Mr. French, Senior Vice President and Portfolio Manager, joined the
Sub-adviser in November 1997. Mr. French managed private investment portfolios
from January 1991 to November 1997.
Frank Salerno, Managing Director-Chief Investment Officer of Quantitative and
Equity Index of Bankers Trust Company, has been the portfolio manager for the
passively-managed portion of this Fund's portfolio since the Fund's inception.
Mr. Salerno has been with the Sub-adviser since 1981.
INVESTMENT OBJECTIVE
Seeks maximum long-term return, consistent with reasonable risk to principal, by
investing primarily in equity securities of small capitalization companies in
terms of revenues and/or market capitalization.
INVESTMENT RISK
A portion of this Fund's portfolio is invested in a statistically-selected
sampling of the 2,000 stocks in the Russell 2000 Index (Index). This part of the
Fund's investment portfolio avoids the risks of individual stock selection and
seeks to achieve and exceed the return of the smaller-sized company sector of
the market. On the average, that return has been positive, but has been negative
at certain times. There is no assurance that a positive return will occur in the
future.
Because this Fund invests in smaller capitalization equity securities, your
investment may exhibit greater market value volatility than investments in
common stocks of larger companies. Your investment also will experience similar
changes in value and share similar risks as stocks included in the Index, such
as market risk and risk associated with investment in foreign securities. For
more information about these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGIES
This Fund invests primarily in equity securities of small capitalization
companies, which are companies whose stock market capitalizations range from $50
million to $1 billion and companies included in the Index. One portion of the
Fund's investment portfolio will be actively managed and the other portion will
be passively managed. In analyzing and selecting investments for the actively
managed portion of the Fund's investment portfolio, we look for market themes
and changes that signal opportunity. We seek companies with lower
price-to-earnings ratios, strong cash flow, good credit lines and clean or
improving balance sheets. At any given time, this portion of the Fund's
investment portfolio will be invested in a diversified group of small
capitalization equity securities in several industries. The Fund will invest
primarily in U.S. companies with seasoned management or a track record as part
of a larger company.
The passively-managed portion of the Fund's investment portfolio is comprised of
a sampling of stocks in the Index that, as a group, should reflect its
performance. The stocks of the Index to be included in the Fund will be selected
utilizing a statistical sampling technique known as "optimization." This process
selects stocks for the Fund so that various industry weightings, market
capitalizations and fundamental characteristics (e.g. price-to-book,
price-to-earnings, debt-to-asset ratios and dividend yields) closely approximate
those of the Index. The stocks held by the Fund are weighted to make the Fund's
aggregate investment characteristics similar to those of the Index as a whole.
Since it may not be possible for this Fund to buy every stock included
in the Index or in the same proportions, we rely on the aforementioned
statistical technique to figure out, of the stocks tracked by the Index, how
many and which ones to buy.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
31
<PAGE> 208
SMALL CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Equity securities of small at least 65%
capitalization companies**
- ---------------------------------------------
Short-term investments Foreign up to 35%
and domestic money market
instruments, certificates of
deposit, bankers'
acceptances, time deposits,
U.S. Government obligations,
U.S. Government agency
securities, short-term
corporate fixed income
securities***, commercial
paper rated A-1 or A-2 by
S&P or Prime-1 or Prime-2 by
Moody's or, if unrated, of
comparable quality,
repurchase agreements
- ---------------------------------------------
Illiquid securities**** up to 15%
- ---------------------------------------------
Futures and Options up to 20%
- ---------------------------------------------
Swap Agreements up to 10%
- ---------------------------------------------
Warrants***** up to 5%
- ---------------------------------------------
Time deposits****** up to 10%
- ---------------------------------------------
Foreign securities up to 10%
- ---------------------------------------------
Investment companies up to 10%
- ---------------------------------------------
Rule 144A securities (liquid) up to 10%
- ---------------------------------------------
</TABLE>
* At time of purchase.
** This Fund will invest at least 65% of its total assets
in equity securities of companies whose stock market capitalizations
range from $50 million to $1 billion, including stocks in the Russell
2000 Index.
*** The Fund will not purchase short-term fixed
income securities rated below Baa by Moodys or BBB by S&P. However, the
Sub-adviser will not necessarily dispose of a fixed income security when
its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
***** The Fund's investment in warrants will not exceed
2% of its assets with respect to warrants not listed on the New York or
American Stock Exchanges.
****** This Fund will invest only in time deposits
maturing in two to seven calendar days. The Fund will not purchase time
deposits maturing in more than seven days.
32
<PAGE> 209
SOCIALLY RESPONSIBLE
FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN COMPANIES MEETING SOCIAL
CRITERIA OF THE FUND
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
Maruti More' has been this Fund's portfolio manager and Vice President --
Investments of the Series Company since its inception. Since April 1998, Mr.
More' serves as Vice President of VALIC and American General Investment
Management, L.P. Previously, Mr. More' was with American General Corporation
from August 1996 to April 1998. Prior to that, Mr. More' was Managing Director,
Marketable Securities for Paul Revere Investment Management Corporation from
1993 to 1995. Mr. More' has served as Portfolio Manager of the American General
Series Portfolio Company Social Awareness Fund ("AGSPC Social Awareness Fund")
since October 1998.
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in equity
securities, in companies which meet the social criteria established for the
Fund. The Fund does not invest in companies that:
- produce nuclear energy;
- make military weapons or delivery systems; or
- engage continuously in practices or produce products that significantly
pollute the environment (such products include tobacco products).
INVESTMENT RISK
This Fund may experience market risk, and risks associated with foreign
securities. For a discussion of these risks see "A Word About Risk" in this
prospectus.
If a company stops meeting the Fund's social criteria after the Fund invested in
it, the Fund will sell these investments even if this means the Fund loses
money. Also, if the Fund changes its social criteria and the companies the Fund
has already invested in no longer qualify, the Fund will sell these investments
even if this means the Fund loses money. Social criteria screening will limit
the availability of investment opportunities for the Fund more than for funds
having no such criteria.
To find out which companies meet the Fund's social criteria, we rely on industry
classifications, research services such as the Investor Responsibility Research
Center (IRRC), and special magazines and papers that publish this type of
information.
Since our definition of social criteria is not "fundamental," the Series
Company's Board of Trustees may change it without shareholder approval. When
deciding to make changes to the criteria, the Board will consider, among other
things, new or revised state laws that govern or affect the investments of
public funds. At least once a year, we survey state laws on this issue to look
for any new developments. If our survey shows that at least 20 states have
adopted laws that restrict public funds from being invested in a clearly
definable category of investments, this category is automatically added to our
social criteria list.
INVESTMENT STRATEGY
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund's Investments Assets*
- -----------------------------------------------
<S> <C>
Equity securities of at least 80%
companies meeting the
Fund's social criteria
- -----------------------------------------------
Other types of equity up to 20%
securities of companies
meeting social criteria
including:
Foreign securities
Preferred stock
Convertible
securities
- -----------------------------------------------
High quality money market up to 20%
securities and warrants
- -----------------------------------------------
Futures and options up to 33%
- -----------------------------------------------
Illiquid and restricted up to 10%
securities**
- -----------------------------------------------
Rule 144A securities up to 20%
(liquid)
- -----------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
33
<PAGE> 210
- --------------------------------------------------------------------------------
The Socially Responsible Fund recently commenced operations and, therefore, has
no investment performance record. However, the Socially Responsible Fund's
investment objectives, policies and strategies are substantially similar to
those of the AGSPC Social Awareness Fund and it is managed by VALIC in
substantially the same manner as the AGSPC Social Awareness Fund. The chart
herein shows the historical investment performance for the AGSPC Social
Awareness Fund for the period of October 2, 1989 through March 31, 1998, net of
AGSPC Social Awareness Fund's fees and expenses. The inception date for the
AGSPC Social Awareness Fund was October 2, 1989.
The AGSPC Social Awareness Fund is subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Socially Responsible Fund are
higher than the total fees incurred by the AGSPC Social Awareness Fund.
Consequently, the performance results for the AGSPC Social Awareness Fund would
have been lower if the AGSPC Social Awareness Fund had the same expenses as the
Socially Responsible Fund. The performance of the AGSPC Social Awareness Fund
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON THE AGSPC SOCIAL AWARENESS FUND WHICH IS MANAGED IN
SUBSTANTIALLY THE SAME MANNER AS THE SOCIALLY RESPONSIBLE FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE SOCIALLY RESPONSIBLE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF AGSPC SOCIAL AWARENESS FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
47.45% 21.54% 16.57%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Socially Responsible Fund is likely to differ from the
AGSPC Social Awareness Fund in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Socially Responsible
Fund may vary from those of the AGSPC Social Awareness Fund.
34
<PAGE> 211
BALANCED FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CONSERVATION OF PRINCIPAL
AND LONG-TERM GROWTH OF
CAPITAL AND INCOME THROUGH
INVESTMENTS IN FIXED INCOME
AND EQUITY SECURITIES
- -------------------------------------------------
Investment Category BALANCED
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
This Fund is managed using a system of multiple portfolio managers. Under this
system, the Fund is divided into segments, which are assigned to individual
managers.
The portfolio managers for the fixed income portion of the Fund include: (i) Jim
Mulally, Senior Vice President of the Sub-adviser, who has been an investment
professional for 21 years and has been with the Sub-adviser or an affiliate for
18 years; and (ii) Jim Baker, Vice President of the Sub-adviser, who has been an
investment professional for 17 years and has been with the Sub-adviser or an
affiliate for 11 years.
The portfolio managers for the U.S. large cap equity portion of the Fund
include: (i) David Fisher, Vice Chairman of the Sub-adviser, who has been an
investment professional for 32 years and has been with the Sub-adviser or an
affiliate for 28 years; (ii) Gene Stein, Executive Vice President of the
Sub-adviser, who has been an investment professional for 26 years and has been
with the Sub-adviser or an affiliate for 25 years; (iii) Michael Ericksen,
Senior Vice President of the Sub-adviser, who has been an investment
professional for 17 years and has been with the Sub-adviser or an affiliate for
11 years; (iv) Ted Samuels, Senior Vice President of the Sub-adviser, who has
been an investment professional for 19 years and has been with the Sub-adviser
or an affiliate for 17 years; (v) Donnalisa Barnum, Vice President of the
Sub-adviser, who has been an investment professional for 16 years and has been
with the Sub-adviser or an affiliate for 12 years; and (vi) R. Bryan Jacoboski,
Vice President of the Sub-adviser, who has been an investment professional for
17 years and has been with the Sub-adviser or an affiliate for 4 years.
Previously Mr. Jacoboski was Managing Director, Equity Research at Paine Webber
from 1983 to 1994.
The portfolio managers for the U.S. small cap equity portion of the Fund
include: (i) Bob Kirby, Chairman Emeritus of the Sub-adviser, who has been an
investment professional for 45 years and has been with the Sub-adviser or an
affiliate for 32 years; (ii) Michael Ericksen, Senior Vice President of the
Sub-adviser, who has been an investment professional for 17 years and has been
with the Sub-adviser or an affiliate for 11 years; (iii) James Kang, Vice
President of Capital Guardian Research Company, an affiliate of the Sub-adviser,
who has been an investment professional for 11 years and has been with the
Sub-adviser or an affiliate for 10 years; and (iv) R. Bryan Jacoboski, Vice
President of the Sub-adviser.
INVESTMENT OBJECTIVE
Seeks balanced accomplishment of
(i) conservation of principal and (ii) long-term growth of capital and income
through investment in fixed income and equity securities.
INVESTMENT RISK
This Fund invests principally in fixed income and equity securities. The value
of an equity security can rise and fall over long and short periods of time and
involve market risks. Like equity securities, fixed income securities involve
certain risks, including interest rate risk, credit risk, market risk and risk
associated with foreign securities. This may cause the fixed income securities
that the Fund owns to be worth less than the Fund paid. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a combination of fixed income and equity securities in order
to maintain the value of your principal investment and provide you with capital
growth and income over the long term. At all times at least 25% of the Fund's
total assets are invested in fixed income senior securities. We select
securities for the Fund's portfolio by identifying fixed income and equity
securities that represent fundamental values at reasonable prices. We implement
this philosophy using a system of portfolio managers, under which a different
group of portfolio managers makes investment decisions for the fixed income and
equity portions of the Fund.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
35
<PAGE> 212
BALANCED FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -------------------------------------------
<S> <C>
Fixed income securities up to 75%
Securities rated A or
better by Moody's or S&P or
of comparable investment
quality** securities issued
by the U.S. Government and
its instrumentalities,
securities issued by the
Canadian Government, its
provinces or their
instrumentalities,
mortgage-related securities
of governmental issuers,
GNMA certificates of
private issuers,
collateralized mortgage
obligations,
mortgage-backed bonds, cash
or cash equivalents,
including commercial bank
obligations and commercial
paper***
- -------------------------------------------
Fixed income senior at least 25%
securities
- -------------------------------------------
Equity securities**** up to 75%
- -------------------------------------------
High yielding, high risk up to 20%
fixed income
securities*****
- -------------------------------------------
Rule 144A securities (liquid) up to 15%
- -------------------------------------------
Illiquid securities****** up to 15%
- -------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** All of the above listed fixed income securities will
constitute at least 75% of the fixed income securities held by the Fund.
**** Equity securities held by the Fund will be listed on
national securities exchanges or in the national over-the-counter market
(NASDAQ) and may include American Depository Receipts. We may invest up
to 10% of the Fund's assets in the securities of U.S. small
capitalization companies.
***** No minimum rating requirement applied.
Commonly referred to as high yield, high risk, junk or below investment
grade fixed income securities.
****** Percent of Fund's net assets applied at all times.
36
<PAGE> 213
- --------------------------------------------------------------------------------
The Balanced Fund recently commenced operations and, therefore, has no
investment performance record. However, the Balanced Fund's investment
objectives, policies and strategies are substantially similar, but not
necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. Although managed in substantially the same manner as the Balanced
Fund, the Discretionary Accounts may not invest as great a percentage of their
assets in fixed income senior securities as the Balanced Fund. As a result, the
Balanced Fund may have, greater exposure to fixed income senior securities than
the Discretionary Accounts. The chart herein shows the historical investment
performance for a composite of all of the Sub-adviser's Discretionary Accounts
("Sub-adviser Composite") which were managed by the Sub-adviser in substantially
the same manner as the Balanced Fund. The Sub-adviser Composite represents the
total return of all Discretionary Accounts net of the highest management fee
charged and other account fees and expenses. The inception dates of the
Discretionary Accounts comprising Sub-adviser Composite range from December 31,
1974 to September 30, 1997.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-adviser
Composite had been subject to the requirements imposed on mutual funds, their
performance might have been lower.
Total fees (after expense reimbursements) for the Balanced Fund are higher than
the total fees historically incurred by the Discretionary Accounts comprising
the Sub-adviser Composite. Consequently, the performance results for the
Sub-adviser Composite would have been lower if the Sub-adviser Composite had the
same expenses as the Balanced Fund. The performance of the Sub-adviser Composite
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
DISCRETIONARY ACCOUNTS WHICH ARE
MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE BALANCED FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE BALANCED FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
SUB-ADVISER COMPOSITE
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
31.17% 15.84% 14.44%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Balanced Fund is likely to differ from the
Sub-adviser's Discretionary Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Balanced Fund may vary from
those of the Sub-adviser's Discretionary Accounts and the performance of the
Balanced Fund may vary from that of the Sub-adviser Composite.
37
<PAGE> 214
HIGH YIELD BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN AND INCOME CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN HIGH
YIELDING, HIGH RISK FIXED
INCOME SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGERS
The Fund is managed by Gordon Massie, who is assisted by Jeffrey Gary and Mark
Pauly, CFA. Mr. Massie, Senior Vice President, joined the Sub-adviser in April
1998. Previously, Mr. Massie was Director of High Yield Research at American
General Corporation from August 1985 to April 1998. Mr. Gary, Vice President,
joined the Sub-adviser in June 1998. From 1996 to April 1998, Mr. Gary was
Managing Director at Koch Capital Services, Inc. and from 1993 to 1996, Mr. Gary
served as Senior Analyst/Trader at Cargill Financial Services. Mr. Pauly, Senior
Investment Manager, High Yield, joined the Sub-adviser in April 1998. From
August 1994 to August 1996, Mr. Pauly served as the Manager of Portfolio
Forecasting and Analysis for American General Corporation and, from June 1992 to
August 1994, Mr. Pauly was Director of Marketing Services for American General
of New York.
INVESTMENT OBJECTIVE
Seeks the highest possible total return and income consistent with conservation
of capital through investment in a diversified portfolio of high yielding, high
risk fixed income securities.
INVESTMENT RISK
High yielding, high risk fixed income securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Because investment in lower rated fixed income securities
(commonly referred to as junk bonds) involves significantly greater credit risk,
market risk and interest rate risk than higher rated fixed income securities,
achievement of the Fund's investment objective is dependent upon the
Sub-adviser's investment analysis. Accordingly, the Fund's investments may be
worth less than what the Fund paid for them. The Fund is also subject to risks
associated with foreign securities. For a discussion of these risks see "A Word
About Risk" in the prospectus.
INVESTMENT STRATEGY
The Fund invests in high yielding, high risk fixed income securities to provide
you with the highest possible total return from current income and capital gains
while preserving your investment.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Fixed income securities rated at least 65%
below Baa3 by Moody's and
below BBB- by S&P**
- --------------------------------------------
Foreign fixed income up to 35%
securities rated below Baa3
by Moody's and below BBB- by
S&P**
- --------------------------------------------
Fixed income securities rated up to 35%
Baa3 or higher by Moody's or
Rated BBB- or higher by
S&P***
- --------------------------------------------
Zero coupon securities (i.e., up to 15%
securities not paying
current cash interest)
- --------------------------------------------
Fixed income securities rated up to 15%
below Caa3 by Moody's or
CCC- by S&P***
- --------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and warrants
- --------------------------------------------
Illiquid securities**** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 30%
- --------------------------------------------
</TABLE>
* At time of purchase.
** Commonly referred to as high yield, high risk, junk
or below investment grade fixed income securities.
*** The Sub-adviser will not necessarily dispose of a fixed
income security when its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
38
<PAGE> 215
STRATEGIC BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN AND INCOME CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN
INCOME PRODUCING SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGERS
The Fund is managed by Steven Guterman, who is assisted by Gordon Massie, Robert
Hiebert, CFA, Craig Mitchell, CFA, James J. Roth, George Steelman, Edwin
Ferrell, CFA and William Trimbur, Jr., CFA. Mr. Guterman, Executive Vice
President, joined the Sub-adviser in June 1998. Previously, Mr. Guterman was
with Salomon Brothers, Inc. from 1983 to May 1998, where he served as Managing
Director from 1996 to May 1998 and with Salomon Brothers Asset Management, Inc.,
where he was a Senior Portfolio Manager and head of the U.S. Fixed Income
Portfolio Group from 1990 to May 1998. In such capacity, Mr. Guterman served as
a portfolio manager of the Manufacturers Investment Trust Strategic Bond Trust,
the New England Zenith Fund Salomon Brothers Strategic Bond Opportunities
Series, the North American Funds Strategic Income Fund, the JNL Series Trust
Salomon Brothers/JNL Global Bond Series, the Salomon Brothers Series Funds Inc.
Strategic Bond Fund and the Nationwide Separate Account Trust Nationwide
Multi-Sector Bond Fund. Mr. Massie, Senior Vice President, joined the
Sub-adviser in April 1998. Previously, Mr. Massie was Director of High Yield
Research at American General Corporation from August 1985 to April 1998. Mr.
Hiebert, Vice President and Senior Portfolio Manager, joined the Sub-adviser in
April 1998. Previously, Mr. Hiebert served as Senior Corporate Bond Trader at
American General Corporation from August 1995 to April 1998. Prior to that, Mr.
Hiebert served as Senior Trader with Cargill Financial Services Corp. from June
1992 to August 1995. Mr. Mitchell, Vice President and Senior Portfolio Manager,
joined the Sub-adviser in April 1998 and American General Corporation in May
1995. From July 1992 to April 1995, Mr. Mitchell served as Assistant Portfolio
Manager and, subsequently, Portfolio Manager at Providian Corporation. Mr. Roth,
Vice President, Fixed Income Trading, joined the Sub-adviser in April 1998.
Previously, Mr. Roth was Senior Portfolio Manager at American General
Corporation from August 1994 to March 1998. Prior to that, Mr. Roth was National
Sales Manager, Department of Capital Markets with the Resolution Trust
Corporation from February 1994 to July 1994 and Capital Markets Specialist from
June 1991 to January 1994. Mr. Steelman, Associate Portfolio Manager, joined the
Sub-adviser in April 1998. From April 1996 to April 1998, Mr. Steelman served as
Associate Portfolio Manager for American General Corporation. Mr. Steelman was
Senior Financial Analyst for American General Corporation's Treasury Department
from December 1994 to April 1996. Prior to joining American General Corporation,
Mr. Steelman pursued graduate studies in international management. Mr. Ferrell,
Director, joined the Sub-adviser in April 1998, where he has primary
responsibility for sovereign political and economic research. Previously, Mr.
Ferrell was a sovereign analyst with The Principal Financial Group from November
1993 to April 1998, where he was involved in the co-ordination of its emerging
market and non-dollar investment efforts. Mr. Trimbur, Vice President and
Investment Officer of the Series Company, joined the Sub-adviser in May 1998. As
Portfolio Manager for the Sub-adviser, Mr. Trimbur is primarily responsible for
the management and trading of non-dollar denominated bonds and equities. Mr.
Trimbur managed domestic bonds and equities for VALIC from 1987 to 1991 and has
been managing foreign bonds and equities for VALIC since 1991.
INVESTMENT OBJECTIVE
Seeks the highest possible total return and income consistent with conservation
of capital through investment in a diversified portfolio of income producing
securities.
INVESTMENT RISK
A significant portion of the Fund's investments may be in high yielding, high
risk fixed income securities that are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and interest
payments. Because investment in lower rated fixed income securities (commonly
referred to as junk bonds) involves significantly greater credit risk, market
risk and interest rate risk than higher rated fixed income securities,
achievement of the Fund's investment objective is dependent upon the Sub-
adviser's investment analysis. Accordingly, the Fund's investments may be worth
less than what the Fund paid for them. The Fund is also subject to risks
associated with foreign securities. For a discussion of these risks see "A Word
About Risk" in the prospectus.
Additional information
about THE FUND'S
INVESTMENTS provided
under "Types of
Investments."
39
<PAGE> 216
STRATEGIC BOND FUND
Fact Sheet
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
The Fund invests in a broad range of fixed income securities including
investment grade bonds, U.S. Government and agency obligations, mortgage backed
securities, high yield bonds, emerging market debt and non-dollar bonds, to
provide you with the highest possible total return from current income and
capital gains, while preserving your investment. A substantial portion of the
Fund may be invested in high yielding, high risk securities.
We follow the guidelines listed below for making the primary investment for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Investment grade fixed income at least 65%
securities**, U.S.
Government and agency and
mortgage-related securities,
U.S., Canadian and foreign
high yield, high risk fixed
income securities rated C or
higher by Moody's or CC or
higher by S&P and comparable
unrated securities***
- --------------------------------------------
Foreign non-dollar bonds up to 25%
(currency exposure may be
hedged or unhedged)
- --------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and warrants
- --------------------------------------------
Illiquid securities**** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 50%
- --------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** Commonly referred to as high yield, high risk, junk
or below investment grade fixed income securities.
**** Percent of Fund's net assets applied at all times.
40
<PAGE> 217
DOMESTIC BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGH TOTAL RETURN CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS
PRIMARILY IN INVESTMENT
GRADE FIXED INCOME
SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
James S. Baker and James R. Mulally serve as the Fund's portfolio managers. Mr.
Baker, Vice President and fixed-income portfolio manager of an affiliate of the
Sub-adviser, has focused on the application of quantitative valuations to
investment grade bonds and portfolios for the Sub-adviser since 1987. Mr.
Mulally, Senior Vice President, Director and Chairman of the Sub-adviser's Fixed
Income Subcommittee, joined the Sub-adviser in 1980.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investments primarily in investment grade fixed income securities and
other income producing securities.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk, market risk and risk associated with foreign securities. This
may cause the investments that the Fund owns to be worth less than what the Fund
paid. For a discussion of these risks see "A Word About Risk" in this
prospectus.
INVESTMENT STRATEGY
The Fund invests in high quality fixed income securities to provide you with the
highest possible total return from current income and capital gains while
preserving your investment. To increase the Fund's earning potential, we may use
a small part of the Fund's assets to make some higher risk investments.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Investment grade U.S. at least 65%
corporate fixed income
securities rated at least A
by Moody's or S&P**,
securities issued or
guaranteed by the U.S.
Government***, Yankee
bonds, asset-backed bonds,
mortgage backed bonds,
interest bearing short-term
investments such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ---------------------------------------------
Non-U.S. investment grade up to 35%
intermediate and long-term
corporate fixed income
securities rated at least A
by Moody's or S&P** or of
comparable quality,
Eurodollar fixed income
securities****, securities
issued or guaranteed by the
Canadian Government, its
provinces or their
instrumentalities, interest
bearing short-term
investments, such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ---------------------------------------------
Other fixed income securities up to 25%
Corporate bonds rated less
than A by Moody's or S&P,
mortgage-related
securities, high yield,
high risk bonds*****
- ---------------------------------------------
Rule 144A securities (liquid) up to 15%
- ---------------------------------------------
Illiquid Securities****** up to 15%
- ---------------------------------------------
</TABLE>
*At time of purchase.
**The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by at least one of
the following: (i) the full faith and credit of the U.S. Government (e.g.,
Government National Mortgage Association), (ii) the right of the issuer to
borrow from the U.S. Treasury (e.g., Federal Home Loan Banks), (iii) the
credit of the issuing government agency (e.g., Student Loan Marketing
Association) or (iv) the discretionary authority of the U.S. Government to
purchase certain obligations of the agency.
****The Fund currently intends to limit these
investments to no more than 20% of its total assets.
*****No minimum rating requirement applies.
Commonly referred to as high yield, high risk, junk or below investment
grade fixed income securities.
******Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
41
<PAGE> 218
- --------------------------------------------------------------------------------
The Domestic Bond Fund recently commenced operations and, therefore, has no
investment performance record. However, the Domestic Bond Fund's investment
objectives, policies and strategies are substantially similar, but not
necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. The chart herein shows the historical investment performance for a
composite of all of the Sub-adviser's Discretionary Accounts ("Sub-adviser
Composite") which were managed by the Sub-adviser in substantially the same
manner as the Domestic Bond Fund. The Sub-adviser Composite represents the total
return of all Discretionary Accounts, net of the highest management fee charged
and other account fees and expenses. The inception dates of the Discretionary
Accounts comprising Sub-adviser Composite range from December 31, 1972 to March
1, 1998.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-adviser
Composite had been subject to the requirements imposed on mutual funds, their
performance might have been lower.
Total fees (after expense reimbursements) for the Domestic Bond Fund are higher
than the total fees historically incurred by the Discretionary Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser Composite had
the same expenses as the Domestic Bond Fund. The performance of the Sub-adviser
Composite has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S DISCRETIONARY ACCOUNTS WHICH
ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE DOMESTIC BOND FUND AND DOES
NOT REFLECT THE PERFORMANCE OF THE DOMESTIC BOND FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF SUB-ADVISER COMPOSITE
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -------------------------------------------------------------
11.78% 6.61% 9.12%
- -------------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Domestic Bond Fund is likely to differ from the
Sub-adviser's Discretionary Accounts in size, cash flow patterns and certain tax
matters. Accordingly, the portfolio holdings of the Domestic Bond Fund may vary
from those of the Sub-adviser's Discretionary Accounts and the performance of
the Domestic Bond Fund may vary from that of the Sub-adviser Composite.
42
<PAGE> 219
CORE BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN CONSISTENT WITH
CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN
MEDIUM TO HIGH QUALITY FIXED
INCOME SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGER
Robert N. Kase, CFA, serves as the Fund's portfolio manager and is assisted by
Craig A. Mitchell, CFA, James J. Roth and Leon A. Olver. Mr. Kase, Vice
President and Senior Portfolio Manager, joined the Sub-adviser in September
1998. Previously, Mr. Kase was Senior Portfolio Manager at CL Capital
Management, Inc. from September 1992 to July 1998. Mr. Mitchell, Vice President
and Senior Portfolio Manager, joined the Sub-adviser in April 1998 and American
General Corporation in May 1995. From July 1992 to April 1995, Mr. Mitchell
served as Assistant Portfolio Manager and, subsequently, Portfolio Manager at
Providian Corporation. Mr. Roth, Vice President, Fixed Income Trading, joined
the Sub-adviser in April 1998. Previously, Mr. Roth was Senior Portfolio Manager
at American General Corporation from August 1994 to March 1998. Prior to that,
Mr. Roth was National Sales Manager, Department of Capital Markets, with the
Resolution Trust Corporation from February 1994 to July 1994 and Capital Markets
Specialist from June 1991 to January 1994. Mr. Olver, Portfolio Manager, has
been with the Sub-adviser since April 1998. As Portfolio Manager for the Sub-
adviser, Mr. Olver is responsible for portfolio management of domestic fixed
income assets. Prior to this, Mr. Olver had been with VALIC since June 1995 as
portfolio manager and was with First Heights Bank as manager of research and
analysis from May 1991 to June 1995. Mr. Olver serves as Vice President and
Investment Officer of the American General Series Portfolio Company and USLIFE
Income Fund, Inc., each a registered investment company managed by VALIC.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investments in medium to high quality fixed income securities.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk, market risk and risk associated with foreign securities. This
may cause the Fund's investments to be worth less than what the Fund paid for
them. For a discussion of these risks see "A Word About Risk" in this
prospectus.
INVESTMENT STRATEGY
The Fund invests in medium to high quality fixed income securities to provide
you with the highest possible total return from current income and capital gains
while preserving your investment. To increase the Fund's earning potential, we
may use a small part of the Fund's assets to make some higher risk investments.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
43
<PAGE> 220
CORE BOND FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Investment grade intermediate at least 65%
and long-term corporate
fixed income securities
rated at least Baa3 by
Moody's or BBB- by S&P** or
of comparable quality, U.S.
dollar denominated fixed
income securities issued by
foreign issuers***,
securities issued or
guaranteed by the U.S.
Government****, mortgaged
backed and other
asset-backed securities,
interest bearing short-term
investments, such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ---------------------------------------------
Other fixed income securities up to 10%
corporate bonds rated
below Baa3 by Moody's
and BBB- by S&P*****
- ---------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and warrants
- ---------------------------------------------
Illiquid securities****** up to 15%
- ---------------------------------------------
Rule 144A securities (liquid) up to 30%
- ---------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** The Fund currently intends to limit these
investments to no more than 40% of its total assets.
**** U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by at least one of
the following: (i) the full faith and credit of the U.S. Government
(e.g., Government National Mortgage Association), (ii) the right of the
issuer to borrow from the U.S. Treasury (e.g., Federal Home Loan Banks),
(iii) the credit of the issuing government agency (e.g., Student Loan
Marketing Association) or (iv) the discretionary authority of the U.S.
Government to purchase certain obligations of the agency.
***** Commonly referred to as high yield, high risk,
junk or below investment grade bonds.
****** Percent of Fund's net assets applied at all times.
44
<PAGE> 221
- --------------------------------------------------------------------------------
The Core Bond Fund recently commenced operations and, therefore, has no
investment performance record. The performance information shown herein is for
the Canada Life Commingled Fund, which was managed by Robert N. Kase, the Core
Bond Fund's portfolio manager, from January 1, 1993 to July 1998. The Canada
Life Commingled Fund has substantially similar, though not necessarily
identical, investment objectives, policies and strategies as the Core Bond Fund.
The chart herein shows the historical investment performance for the Canada Life
Commingled Fund for the period February 1, 1993 through March 1998, net of the
Canada Life Commingled Fund fees and expenses.
The Separately Managed Account was not subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code. If the
Separately Managed Account had been subject to the requirements imposed on
registered mutual funds, its performance might have been lower.
Total fees (after expense reimbursements) for the Core Bond Fund are higher than
the total fees incurred by the Canada Life Commingled Fund. Consequently, the
performance results for the Canada Life Commingled Fund would have been lower if
the Canada Life Commingled Fund had the same expenses as the Core Bond Fund. The
performance of the Separately Managed Account has been calculated in accordance
with SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE CANADA LIFE
COMMINGLED FUND WHICH WAS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE
SAME INDIVIDUAL AS THE CORE BOND FUND AND DOES NOT REFLECT THE PERFORMANCE OF
THE CORE BOND FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
CANADA LIFE COMMINGLED FUND
<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
10.42% 7.57% 7.69%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE FEBRUARY 1, 1993
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Core Bond Fund is likely to differ from the Canada Life
Commingled Fund in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Core Bond Fund may
vary from those of the Canada Life Commingled Fund.
45
<PAGE> 222
MONEY MARKET FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal INCOME THROUGH INVESTMENTS
IN SHORT-TERM MONEY MARKET
SECURITIES
- -------------------------------------------------
Investment Category STABILITY
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
Teresa Moro has been this Fund's portfolio manager and Vice President and
Investment Officer of the Series Company since its inception. Since 1991, Ms.
Moro has served as Vice President and Investment Officer of American General
Series Portfolio Company, a registered investment company managed by VALIC and
as Portfolio Manager of the American General Series Portfolio Company Money
Market Fund ("AGSPC Money Market Fund").
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
INVESTMENT RISK
The short-term money market securities that this Fund invests in are high
quality investments, posing low credit and interest rate risk. The current yield
of the Fund will generally go up or down with changes in the level of interest
rates. The Fund uses the amortized cost method to value its portfolio securities
and tries to keep its net asset value at $1.00 per share. There can be no
assurance that the net asset value will be $1.00 per share at all times.
Because the risk to the money you invest is low, the potential for profit is
also low. The Fund may experience risks including interest rate risk, market
risk, credit risk and risk associated with foreign securities. For a discussion
of these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in short-term money market securities to provide you with
liquidity, protection of your investment and current income. We use 95% of the
Fund's total assets to buy short-term securities that are rated within the
highest rating category for short-term debt obligations by at least two
nationally recognized rating services or unrated securities of comparable
investment quality. These eligible securities must mature, after giving effect
to any demand features, in 13 months or less and the Fund must have a dollar-
weighted average portfolio maturity of 90 days or less. These practices are
designed to minimize any fluctuation in the value of the Fund's portfolio.
The investments this Fund may buy include:
- Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities
- Certificates of deposit and other obligations of domestic banks that have
total assets in excess of $1 billion
- Commercial paper sold by corporations and finance companies
- Corporate debt obligations with remaining maturities of 13 months or less
- Repurchase agreements
- Money market instruments of foreign issuers payable in U.S. dollars (limited
to no more than 20% of the Fund's net assets)
- Asset-backed securities
- Loan participations
- Taxable municipal obligations (variable rate demand notes)
- Adjustable rate securities
- Illiquid and restricted securities*
- Rule 144A securities (liquid)
- ---------------
*Limited to 10% of the Fund's net assets at all times
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
46
<PAGE> 223
- --------------------------------------------------------------------------------
The Money Market Fund recently commenced operations and, therefore, has no
investment performance record. However, the Money Market Fund's investment
objectives, policies and strategies are substantially similar, although not
identical, to those of the AGSPC Money Market Fund and it is managed by VALIC in
substantially the same manner and by the same individual as the AGSPC Money
Market Fund. The chart herein shows the historical investment performance for
the AGSPC Money Market Fund for the period of April 1, 1988 through March 31,
1998, net of AGSPC Money Market Fund's fees and expenses. The inception date for
the AGSPC Money Market Fund was December 16, 1985.
The AGSPC Money Market Fund is subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Money Market Fund are higher
than the total fees incurred by the AGSPC Money Market Fund. Consequently, the
performance results for the AGSPC Money Market Fund would have been lower if the
AGSPC Money Market Fund had the same expenses as the Money Market Fund. The
performance of the AGSPC Money Market Fund has been calculated in accordance SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON THE AGSPC MONEY MARKET FUND WHICH IS
MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUAL AS THE MONEY
MARKET FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE MONEY MARKET FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF AGSPC MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------
5.24% 4.51% 5.42%
- -----------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. Historical returns
reflect investment management fees and other operating expenses, if any. You
should be aware that the Money Market Fund is likely to differ from the AGSPC
Money Market Fund in size, cash flow patterns and certain tax matters.
Accordingly, the portfolio holdings and performance of the Money Market Fund may
vary from those of the AGSPC Money Market Fund.
47
<PAGE> 224
GROWTH LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994. Prior to this, Ms. Weathington studied for a
Bachelor of Science degree in finance at the University of New Orleans.
INVESTMENT OBJECTIVE
Seeks growth through investments in Series Company Funds. This Fund is suitable
for investors seeking the potential for capital growth that a fund investing
predominately in equity securities may offer.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act because it
invests in a limited number of the Underlying Series Company Funds. However, the
Underlying Series Company Funds themselves are diversified companies.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described herein, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Underlying
Series Company Funds in which it invests. Changes in the net asset values of the
Underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
Underlying Series Company Funds to meet their investment objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 25%-35%
Small Capitalization Equity
Securities 15%-25%
Medium Capitalization Equity
Securities 10%-20%
Large Capitalization Equity
Securities 25%-35%
Bonds 5%-15%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective. We may
change the asset allocation ranges, the particular Underlying Series Company
Funds in which the Fund may invest and the target investment percentages set
from time to time by VALIC, subject to the supervision of the Series Company's
Board of Trustees.
48
<PAGE> 225
GROWTH LIFESTYLE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 15%
Value Fund
American General International 15%
Growth Fund
American General Small Cap 10%
Value Fund
American General Small Cap 10%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 13%
Growth Fund
American General Large Cap 12%
Value Fund
American General Domestic 10%
Bond Fund
</TABLE>
49
<PAGE> 226
MODERATE GROWTH
LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH AND CURRENT INCOME
THROUGH INVESTMENTS IN
SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994. Prior to this, Ms. Weathington studied for a
Bachelor of Science degree in finance at the University of New Orleans.
INVESTMENT OBJECTIVE
Seeks growth and current income through investments in Series Company Funds.
This Fund is suitable for investors who wish to invest in equity securities, but
who are not willing to assume the substantial market risks of the Growth
Lifestyle Fund.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act because it
invests in a limited number of the Underlying Series Company Funds. However, the
Underlying Series Company Funds themselves are diversified companies.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described below, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Underlying
Series Company Funds in which it invests. Changes in the net asset values of the
Underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
Underlying Series Company Funds to meet their investment objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 10%-20%
Small Capitalization Equity
Securities 10%-20%
Medium Capitalization Equity
Securities 10%-20%
Large Capitalization Equity
Securities 25%-30%
Bonds 20%-30%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective. We may
change the asset allocation ranges, the
50
<PAGE> 227
MODERATE GROWTH LIFESTYLE FUND
Fact Sheet
- --------------------------------------------------------------------------------
particular Underlying Series Company Funds in which the Fund may invest and the
target investment percentages set from time to time by VALIC, subject to the
supervision of the Series Company's Board of Trustees.
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 8%
Value Fund
American General International 7%
Growth Fund
American General Small Cap 8%
Value Fund
American General Small Cap 7%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 25%
Bond Fund
</TABLE>
51
<PAGE> 228
CONSERVATIVE GROWTH
LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CURRENT INCOME AND LOW TO
MODERATE GROWTH THROUGH
INVESTMENTS IN SERIES
COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994. Prior to this, Ms. Weathington studied for a
Bachelor of Science degree in finance at the University of New Orleans.
INVESTMENT OBJECTIVE
Seeks current income and low to moderate growth of capital through investments
in Series Company Funds. This Fund is suitable for investors who wish to invest
in equity securities, but who are not willing to assume the market risks of
either the Growth Lifestyle Fund or the Moderate Growth Lifestyle Fund.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act because it
invests in a limited number of the Underlying Series Company Funds. However, the
Underlying Series Company Funds themselves are diversified companies.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described below, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Series
Company Funds in which it invests. Changes in the net asset values of the
Underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
Underlying Series Company Funds to meet their investment objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 5%-15%
Small Capitalization Equity
Securities 5%-15%
Medium Capitalization Equity
Securities 5%-15%
Large Capitalization Equity
Securities 25%-35%
Bonds 30%-50%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective.
52
<PAGE> 229
CONSERVATIVE GROWTH LIFESTYLE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We may change the asset allocation ranges, the particular Underlying Series
Company Funds in which the Fund may invest and the target investment percentages
set from time to time by VALIC, subject to the supervision of the Series
Company's Board of Trustees.
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 5%
Value Fund
American General International 5%
Growth Fund
American General Small Cap 5%
Value Fund
American General Small Cap 5%
Growth Fund
American General Mid Cap 5%
Value Fund
American General Mid Cap 5%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 40%
Bond Fund
</TABLE>
53
<PAGE> 230
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Equity securities represent an ownership position in a company. The prices of
equity securities fluctuate based on changes in the financial condition of the
issuing company and on market and economic conditions. If you own an equity
security, you own a part of the company that issued it. Companies sell equity
securities to get the money they need to grow.
Stocks are one type of equity security. Generally, there are three types of
stocks:
Common stock -- Each share of common stock represents a part of the ownership of
the company. The holder of common stock participates in the growth of the
company through increasing stock price and receipt of dividends. If the company
runs into difficulty, the stock price can decline and dividends may not be paid.
Preferred stock -- Each share of preferred stock allows the holder to get a set
dividend before the common stock shareholders receive any dividends on their
shares.
Convertible preferred stock -- A stock with a set dividend which the holder may
exchange for a certain amount of common stock.
All of the Funds, except the Lifestyle Funds and the Money Market Fund, may
invest in common, preferred, and convertible preferred stock in accordance with
their investment strategies.
Stocks are not the only type of equity security. Other equity securities include
but are not limited to convertible securities, depository receipts, warrants,
rights and partially paid shares, investment company securities, real estate
securities, convertible bonds and foreign equity securities such as ADRs, GDRs
and EDRs. More information about these equity securities is set forth herein or
contained in the Statement of Additional Information.
FIXED INCOME SECURITIES
Fixed income securities include a broad array of short, medium and long-term
obligations, including notes and bonds. Fixed income securities may have fixed,
variable, or floating rates of interest, including rates of interest that vary
inversely at a multiple of a designated or floating rate, or that vary according
to changes in relative values of currencies. Fixed income securities generally
involve an obligation of the issuer to pay interest on either a current basis or
at the maturity of the security and to repay the principal amount of the
security at maturity.
Bonds are one type of fixed income security and are sold by governments on the
local, state, and federal levels, and by companies. There are many different
kinds of bonds. For example, each bond issue has specific terms. U.S. Government
bonds are guaranteed to pay interest and principal by the federal government.
Revenue bonds are usually only paid from the revenue of the issuer. An example
of that would be an airport revenue bond. Debentures are a very common type of
corporate bond (a bond sold by a company). Payment of interest and return of
principal is subject to the company's ability to pay. Convertible bonds are
corporate bonds that can be exchanged for stock. The types of bonds that most
Funds may invest in include, but are not limited to: U.S. Government bonds and
investment grade corporate bonds (the Mid Cap Value Fund, the Balanced Fund, the
Domestic Bond Fund, the High Yield Bond Fund, the Strategic Bond Fund and the
Core Bond Fund may also invest in below investment grade bonds). For a
description of investment grade bonds and below investment grade bonds see "A
Word about Risk -- Credit Risk" in this prospectus.
Investing in a bond is like making a loan for a fixed period of time at a fixed
interest rate. During the fixed period, the bond pays interest on a regular
basis. At the end of the fixed period, the bond matures and the investor usually
gets back the principal amount of the bond. Fixed periods to maturity are
categorized as short-term (generally less than 12 months), intermediate (one to
10 years), and long-term (generally 10 years or more). Commercial paper is a
specific type of corporate or short-term note. In fact, it's very short-term,
being paid in less than 270 days. Most commercial paper matures in 50 days or
less.
Bonds that are rated Baa by Moody's or BBB by S&P have speculative
characteristics. Bonds that are unrated or rated below Baa3 by Moody's or BBB-
by S&P (commonly referred to as high yield, high risk or "junk bonds") are
regarded, on balance, as predominantly speculative. Changes in economic
conditions or other circumstances are more likely to weaken the issuer's
capacity to pay interest and principal in accordance with the terms of the
obligation than is the case with higher rated bonds. While such bonds may have
some quality and protective characteristics, these are outweighed by
uncertainties or risk exposures to adverse conditions. Lower rated bonds may be
more susceptible to real or perceived adverse economic and individual corporate
developments than would investment grade bonds. See "A Word about Risk -- Risks
Associated with Lower Rated Fixed Income Securities" herein.
For example, a projected economic downturn or the possibility of an increase in
interest rates may affect prices because such an event might lessen the ability
of highly leveraged high yield issuers to
ISSUED means the
Company (ISSUER) sold it
originally to the public.
For more information
about FIXED INCOME
SECURITIES AND THEIR
RATINGS, see the Appendix herein
and the Statement of Additional
Information.
54
<PAGE> 231
- --------------------------------------------------------------------------------
meet their principal and interest payment obligations, meet projected business
goals, or obtain additional financing. In addition, the secondary trading market
for lower rated bonds may be less liquid than the market for investment grade
bonds. This potential lack of liquidity may make it more difficult to accurately
value certain of these lower rated portfolio securities.
VALIC and the Sub-advisers will not necessarily dispose of a bond when its
ratings are down graded to below investment grade.
Bonds are not the only type of fixed income security. Other fixed income
securities include but are not limited to U.S. and foreign corporate fixed
income securities, including convertible securities (bonds, debentures, notes
and other similar instruments) and corporate commercial paper; mortgage-related
and other asset-backed securities; inflation-indexed bonds issued by both
governments and corporations; structured notes, including hybrid or "indexed"
securities, preferred or preference stock, catastrophe bonds, and loan
participations; bank certificates of deposit, fixed time deposits and bankers'
acceptances; repurchase agreements and reverse repurchase agreements; fixed
income securities issued by states or local governments and their agencies,
authorities and other instrumentalities; obligations of foreign governments or
their subdivisions, agencies and instrumentalities; and obligations of
international agencies or supranational entities. Fixed income securities may be
acquired with warrants attached. For more information about specific fixed
income securities see the Statement of Additional Information.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are obligations of, or guaranteed by, the U.S.
Government, its agencies or instrumentalities. The U.S. Government does not
guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, the Tennessee Valley Authority and
the Small Business Authority are supported only by the credit of the
instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury securities
(STRIPs and CUBEs) are direct obligations of the U.S. Government.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities include, but are not limited to, mortgage
pass-through securities, collateralized mortgage obligations and commercial
mortgage-backed securities.
Mortgage pass-through securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property.
Payments of interest and principal on these securities are generally made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities). Mortgage-related securities are
subject to interest rate risk and prepayment risk.
Payment of principal and interest on some mortgage pass-through securities may
be guaranteed by the full faith and credit of the U.S. Government (i.e.,
securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities
of the U.S. Government (i.e., securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, private mortgage insurance companies and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Collateralized mortgage obligations ("CMOs") are hybrid mortgage-related
instruments. CMOs may be collateralized by whole mortgage loans
For more information
about MORTGAGE-RELATED
SECURITIES, see the
Statement of Additional
Information.
55
<PAGE> 232
- --------------------------------------------------------------------------------
or by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC,
or FNMA. CMOs are structured into multiple classes, with each class bearing a
different stated maturity. CMOs that are issued or guaranteed by the U.S.
Government or by any of its agencies or instrumentalities will be considered
U.S. Government securities by the Funds, while other CMOs, even if
collateralized by U.S. Government securities, will have the same status as other
privately issued securities for purposes of applying a Fund's diversification
tests.
Commercial mortgage-backed securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities is relatively small compared to
the market for residential single-family mortgage-backed securities. Many of the
risks of investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed securities
may be less liquid and exhibit greater price volatility than other types of
mortgage-related or asset-backed securities.
Mortgage-related securities include mortgage pass-through securities described
above and securities that directly or indirectly represent a participation in,
or are secured by and payable from, mortgage loans on real property, such as
mortgage dollar rolls, CMO residuals or stripped mortgage-backed securities.
These securities may be structured in classes with rights to receive varying
proportions of principal and interest.
ASSET-BACKED SECURITIES
Asset-backed securities are bonds or notes that are normally supported by a
specific property. If the issuer fails to pay the interest or return the
principal when the bond matures, then the issuer must give the property to the
bondholders or noteholders. All of the Funds in this prospectus, except the
Lifestyle Funds and the Mid Cap Value Fund, may invest in asset-backed
securities. Examples of assets supporting asset-backed securities include credit
card receivables, retail installment loans, home equity loans, auto loans, and
manufactured housing loans.
LOAN PARTICIPATIONS
A loan participation is an investment in a loan made to a U.S. company that is
secured by the company's assets. The assets must be, at all times, worth enough
money to cover the balance due on the loan. Major national and regional banks
make loans to companies and then sell the loans to investors. These banks don't
guarantee the companies will pay the principal and interest due on the loans.
All the Funds in this prospectus, other than the Lifestyle Funds and the Mid Cap
Value Fund, may invest in loan participations.
VARIABLE AMOUNT DEMAND MASTER NOTES
The Mid Cap Growth Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the
Balanced Fund, the Domestic Bond Fund, the High Yield Bond Fund, the Strategic
Bond Fund and the Core Bond Fund may invest in variable amount demand master
notes. Variable amount master demand notes are unsecured obligations that are
redeemable upon demand and are typically unrated. These instruments are issued
pursuant to written agreements between their issuers and holders. The agreements
permit the holders to increase (subject to an agreed maximum) and the holders
and issuers to decrease the principal amount of the notes, and specify that the
rate of interest payable on the principal fluctuates according to an agreed
formula.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes ("VRDNs") are taxable obligations containing a
floating or variable interest rate adjustment formula, together with an
unconditional right to demand payment of the unpaid principal balance plus
accrued interest upon a short notice period, generally not to exceed seven days.
The Money Market Fund also may invest in participation VRDNs, which provide the
Fund with an undivided interest in underlying VRDNs held by major investment
banking institutions. Any purchase of VRDNs will meet applicable diversification
and concentration requirements as well conditions established by the SEC under
which such securities may be considered to have remaining maturities of 397 days
or less.
STRUCTURED SECURITIES
The value of the principal of and/or interest on such securities is determined
by reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, result in the loss of a Fund's investment.
For more information about
ASSET-BACKED SECURITIES
see the Statement of
Additional Information.
For more information
about LOAN PARTICIPANTS
see the Statement
of Additional Information.
56
<PAGE> 233
- --------------------------------------------------------------------------------
The Balanced Fund, the Domestic Bond Fund, the High Yield Bond Fund, the
Strategic Bond Fund and the Core Bond Fund may invest in structured securities.
REAL ESTATE SECURITIES
All of the Funds in this prospectus, except the Lifestyle Funds and the Domestic
Bond Fund, may invest in real estate securities. Real estate securities are
securities issued by companies that invest in real estate or interests therein.
Certain Funds also may invest in real estate investment trusts ("REITs"). REITs
are generally publicly traded on the national stock exchanges and in the
over-the-counter market and have varying degrees of liquidity. More information
about REITs and real estate securities generally is contained in the Statement
of Additional Information.
ILLIQUID AND RESTRICTED SECURITIES
An illiquid security is one that may not be frequently traded. If it must be
sold quickly, it may have to be sold at a loss. For example, if a Fund owns a
stock that is not sold very often and the Fund needs to sell this stock quickly,
it may have to offer the investment at a low price for someone to buy it.
A restricted security is one that has not been registered with the SEC and
therefore can't be sold in the public market. Restricted securities do include
securities eligible for resale under Rule 144A of the Securities Act of 1933.
Some Rule 144A securities may be liquid as determined by VALIC or a Sub-adviser.
These investments can be very risky because a Fund's ability to sell a
restricted security is very limited and Rule 144A securities deemed to be
illiquid will have the effect of increasing the amount of the Fund's investments
in illiquid securities. In addition, investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities. For more information about Rule 144A securities see the
Statement of Additional Information.
All the Funds, except the Lifestyle Funds, may buy illiquid and restricted
securities, but are restricted as to how much money they may invest in them.
FOREIGN SECURITIES
All of the Funds, except the Lifestyle Funds, may invest in securities of
foreign issuers. Such foreign securities may be denominated in foreign
currencies, except with respect to the Money Market Fund and the Core Bond Fund
which may only invest in U.S. dollar-denominated securities of foreign issuers.
Securities of foreign issuers include obligations of foreign branches of U.S.
banks and of foreign banks, common and preferred stocks, fixed income securities
issued by foreign governments, corporations and supranational organizations, and
ADRs, EDRs and GDRs. See "Depository Receipts" below.
DEPOSITORY RECEIPTS
All of the Funds in this prospectus, except the Lifestyle Funds, may invest in
ADRs. ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank. ADRs in which a Fund
may invest may be sponsored or unsponsored. There may be less information
available about foreign issuers of unsponsored ADRs.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank. We
consider ADRs, EDRs and GDRs to be foreign securities. The International Growth
Fund, the Small Cap Growth Fund, the International Value Fund, the High Yield
Bond Fund, the Strategic Bond Fund, and the MidCap Value Fund may invest in EDRs
and/or GDRs. The Large Cap Growth Fund may invest in GDRs but may not invest in
EDRs.
INVESTMENT FUNDS
Some countries have laws and regulations that currently preclude direct foreign
investment in the securities of their companies. However, indirect foreign
investment in the securities of companies listed and traded on the stock
exchanges in these countries is permitted through investment funds which have
been specifically authorized. The International Growth Fund, the Large Cap
Growth Fund, the Small Cap Growth Fund, the International Value Fund and the Mid
Cap Value Fund may invest in investment funds.
FOREIGN CURRENCY
All of the Funds, except the Lifestyle Funds, the Large Cap Value Fund, the
Small Cap Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the
Small Cap Growth Fund, the Balanced Fund, the Domestic Bond Fund, the Core Bond
Fund and the Money Market Fund, may buy and sell foreign currencies the same way
they buy and sell other investments. Funds buy foreign currencies when they
believe the value of the currency will increase. If it does increase, they sell
the currency for a profit. If it decreases they will experience a loss.
Generally, the International Growth Fund and the International Value Fund may
also buy and sell foreign currencies to settle transactions for foreign
securities bought or sold in the Fund.
For more information
about REAL ESTATE
SECURITIES, see the Statement
of Additional Information.
For more information
about ILLIQUID AND RESTRICTED
SECURITIES see the Statement of Additional
Information.
For more information about
FOREIGN SECURITIES, see the
Statement of Additional
information.
For more information
about WHEN-ISSUED SECURITIES,
see the Statement
of Additional Information.
For more information about
MONEY MARKET SECURITIES OF
FOREIGN ISSUERS the Funds
may purchase, see the
Statement of Additional
Information.
For more information
about FOREIGN CURRENCY
EXCHANGE TRANSACTIONS, see
the Statement of
Additional Information.
57
<PAGE> 234
- --------------------------------------------------------------------------------
WHEN-ISSUED SECURITIES
When-issued securities are those investments that have been announced by the
issuer and will be on the market soon. The Funds negotiate the price with a
broker before it goes on the market. If the security ends up selling on the
market at a lower price than negotiated, the Funds may have a loss. If it sells
at a higher price, the Funds may have a profit.
All of the Funds, other than the Lifestyle Funds, the Money Market Fund and the
Mid Cap Value Fund, may buy when-issued securities in accordance with their
investment strategy.
MONEY MARKET SECURITIES
All of the Funds may invest part of their assets in high quality money market
securities payable in U.S. dollars. A listing of the types of money market
securities in which the Money Market Fund may invest is in that Fund's Fact
Sheet. A money market security is high quality when it is rated in one of the
two highest credit categories by Moody's or S&P or another nationally recognized
rating service or if unrated, deemed high quality by VALIC or a Sub-adviser.
These high quality money market securities may include:
- Cash and cash equivalents
- Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities
- Certificates of deposit and other obligations of domestic banks having total
assets in excess of $1 billion
- Commercial paper sold by corporations and finance companies
- Corporate debt obligations with remaining maturities of 13 months or less
- Repurchase agreements, money market securities of foreign issuers if payable
in U.S. dollars, asset-backed securities, loan participations, and
adjustable rate securities
INVESTMENT COMPANIES
The Funds may invest in the securities of other open-end or closed-end
investment companies subject to the limitations imposed by the 1940 Act. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by an investment company in which it invests.
DERIVATIVES
Unlike stocks and bonds that represent actual ownership of that stock or bond,
derivatives are investments which "derive" their value from securities issued by
a company, government, or government agency. In certain cases, derivatives may
be purchased for non-speculative investment purposes or to protect ("hedge")
against a change in the price of the underlying security. There are some
investors who take higher risk ("speculate") and buy derivatives to profit from
a change in price of the underlying security. We may purchase derivatives to
hedge the investment portfolios and to earn additional income in order to help
achieve the Funds' objectives. Generally, we do not buy derivatives to
speculate.
The Funds, other than the Lifestyle Funds, the Money Market Fund, the Mid Cap
Growth Fund and the International Growth Fund, may buy and sell derivatives,
such as futures and/or options.
Options
An option is the right to buy or sell any type of investment for a preset price
over a specific period of time.
Call Option
For example, you can buy an option from Mr. Smith that gives you the right to
buy 10 shares of stock X at $25.00 per share anytime between now and six weeks
from now. You believe stock X will be selling for more than $25.00 per share
between now and then. Mr. Smith believes it won't be. If you exercise this
option before it expires, Mr. Smith must sell you 10 shares of stock X at $25.00
per share.
On the other hand, you can sell an option to Mr. Smith that gives him the right
to buy 10 shares of stock X at $25.00 per share anytime between now and six
weeks from now. You believe stock X will be selling for less than $25.00 per
share between now and then. Mr. Smith believes it won't be. If he exercises this
option before it expires, you must sell to Mr. Smith 10 shares of stock X at
$25.00 per share.
Put Option
Or, you can buy an option from Mr. Smith that gives you the right to sell him 10
shares of stock X at $25.00 per share anytime between now and six weeks from
now. In this example, you believe stock X will be selling for less than $25.00
per share between now and then. Mr. Smith thinks it will be selling for more.
Or, you can sell an option to Mr. Smith that gives him the right to sell to you
10 shares of stock X at $25.00 per share anytime between now and six weeks from
now. In this example, he believes stock X will be selling for less than $25.00
per share between now and then.
The Funds use stock and bond futures to invest cash and cash equivalents. When
certain levels are reached the Fund will sell the futures and buy stocks or
bonds.
All of the Funds, except the Lifestyle Funds, the Money Market Fund, the Mid Cap
Growth Fund and the International Growth Fund, may
For more information on put
and call options AND FINANCIAL
FUTURES CONTRACTS AND OPTIONS, see
the Statement of Additional
information.
58
<PAGE> 235
- --------------------------------------------------------------------------------
invest in one or more of the following types of futures and options:
- Write (sell) exchange traded covered put and call options on securities and
stock indices.
- Purchase exchange traded put and call options on securities and stock
indices.
- Purchase and sell exchange traded financial futures contracts.
- Write (sell) covered call options and purchase exchange traded put and call
options on financial futures contracts.
- Write (sell) covered call options and purchase non-exchange traded call and
put options on financial futures contracts.
The International Value Fund, the Large Cap Value Fund, the High Yield Bond
Fund, the Strategic Bond Fund, the Core Bond Fund and the Small Cap Growth Fund
may write and purchase put and call options on securities and stock indices that
are not traded on an exchange.
The Funds, except the Lifestyle Funds, the Large Cap Value Fund, the Small Cap
Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the Small Cap
Growth Fund, the Balanced Fund, the Domestic Bond Fund, the Core Bond Fund and
the Money Market Fund, may write and purchase options on foreign currencies.
These Funds also may purchase forward foreign currency exchange contracts to
protect against a decline in the value of the U.S. dollar, to effect
cross-hedges involving two non-U.S. currencies, or for, settlement purposes.
SWAP AGREEMENTS
Swap agreements are contracts between parties in which one party agrees to make
payments to the other party based on the change in market value of a specified
index or asset. In return, the other party agrees to make payments to the first
party based on the return of a different specified index or asset. Additional
information about swap agreements is contained in the Statement of Additional
Information.
The Core Bond Fund, the Domestic Bond Fund, the Strategic Bond Fund, the Small
Cap Value Fund and the Small Cap Growth Fund may enter into swap agreements.
WARRANTS AND RIGHTS
Warrants and rights are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. Changes in the value
of a warrant do not necessarily correspond to changes in the value of its
underlying securities.
The International Growth Fund, the Large Cap Value Fund, the Large Cap Growth
Fund, the Small Cap Value Fund, the International Value Fund, the Balanced Fund,
the Domestic Bond Fund, the High Yield Bond Fund, the Strategic Bond Fund, the
Core Bond Fund and the Small Cap Growth Fund are authorized to use warrants or
rights.
REPURCHASE AGREEMENTS
A repurchase agreement requires the seller of the security to buy it back at a
set price at a certain time. If a Fund enters into a repurchase agreement, it is
really making a short term loan (usually for one day to one week). A Fund may
enter into repurchase agreements only with well-established securities dealers
or banks that are members of the Federal Reserve System. All the Funds in this
prospectus may invest in repurchase agreements.
The risk in a repurchase agreement is the failure of the seller to be able to
buy the security back. If the value of the security declines, the Fund may have
to sell at a loss.
A repurchase agreement of more than 7 days duration is illiquid. A discussion of
repurchase agreements, illiquid securities and Fund limitations is contained in
the Statement of Additional Information.
REVERSE REPURCHASE AGREEMENTS, DOLLAR ROLLS AND BORROWINGS
A reverse repurchase agreement involves the sale of a security by a Fund and its
agreement to repurchase the instrument at a specified time and price. Under a
reverse repurchase agreement, the Fund continues to receive any principal and
interest payments on the underlying security during the term of the agreement.
The Fund generally will segregate assets determined to be liquid by VALIC or a
Sub-adviser. In effect, these assets cover the Fund's obligations under reverse
repurchase agreements.
Certain Funds also may enter into dollar rolls. In a dollar roll transaction, a
Fund sells mortgage-backed or other securities for delivery in the current month
and simultaneously contracts to purchase substantially similar securities on a
specified future date. The time period from the date of sale to the date of
purchase under a dollar roll is known as the roll period. A Fund foregoes
principal and interest paid during the roll period on the securities sold in a
dollar roll. However, a Fund receives an amount equal to the difference between
the current sales price and the lower price for the future purchase as well as
by any interest earned on the proceeds of the securities sold.
If a Fund's positions in reverse repurchase agreements, dollar rolls or similar
transactions are not covered by liquid assets in a segregated
For more information about
SWAP AGREEMENTS, see the
Statement of Additional
Information.
For more information about
REPURCHASE AGREEMENTS, see the
Statement of Additional
Information.
For more information about
REVERSE REPURCHASE AGREEMENTS,
DOLLAR ROLLS AND BORROWINGS, see
the Statement of Additional
Information.
59
<PAGE> 236
- --------------------------------------------------------------------------------
account, as described above, such transactions would be subject to the Funds'
limitations on borrowings. Apart from such transactions, a Fund will not borrow
money, except as provided in its investment restrictions. See "Investment
Restrictions" in the Statement of Additional Information for a complete listing
of each Fund's investment restrictions.
A WORD ABOUT RISK
There are five basic types of investment risk you may be subject to:
- Market Risk
- Credit (Financial) Risk
- Interest Rate Risk
- Risk Associated with Foreign Securities
- Manager Risk (Lifestyle Funds only)
Generally, stocks are considered to be subject to market risk, while fixed
income securities, such as U.S. Government bonds and money market securities are
subject to interest rate risk. Other fixed income securities, such as corporate
bonds, involve both interest rate and credit (financial) risk. Lastly, risks
associated with foreign securities can involve political, currency and limited
information risks. Each of these types of investment risks, including manager
risk, is discussed below.
Market Risk
Market risk refers to the loss of capital resulting from changes in the prices
of investments. For example, market risk occurs when expectations of lower
corporate profits in general cause the broad market of stocks to fall in price.
When this happens, even though a company is experiencing growth in profits, the
price of its stock could fall.
Credit (Financial) Risk
Credit risk refers to the risk that the issuer of a fixed income security may
default or be unable to pay interest or principal due on a fixed income
security.
To help the Funds' Investment Adviser or Sub-advisers decide which U.S.
corporate and foreign fixed income securities to buy, they rely on Moody's and
S&P (two nationally recognized rating services), and on VALIC's and/or a Sub-
adviser's own research. This research lowers the risk of buying a fixed income
security of a company that may not pay the interest and principal on the fixed
income security.
Certain of the Funds in this prospectus may buy fixed income securities that are
rated as investment grade. There are four different levels of investment grade,
from AAA to BBB; see Description of Bond Ratings herein. All fixed income
securities with these ratings are considered to have adequate ability to pay
interest and principal.
All of the Funds in this prospectus may buy fixed income securities issued by
the U.S. Government. The U.S. Government guarantees it will always pay principal
and interest.
Risks Associated with Lower Rated Fixed Income Securities
Certain of the Funds also may purchase fixed income securities that are rated
below investment grade. Fixed income securities rated below BBB- by S&P or Baa3
by Moody's are considered to be below investment grade. Fixed income securities
with a below investment grade rating present a comparatively greater risk of
default in the timely payment of interest and principal than fixed income
securities rated as investment grade.
The lower rated but higher yielding fixed income securities purchased by the
Funds may be issued in connection with corporate restructurings, such as
leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar
events. In addition, high yield fixed income securities are often issued by
smaller, less creditworthy companies or by companies with substantial debt. The
securities ratings by Moody's and S&P are based largely on the issuer's
historical financial condition and the rating agency's investment analysis at
the time of the rating. As a result, the rating assigned to a security does not
necessarily reflect the issuer's current financial condition, which may be
better or worse than the rating indicates. Credit ratings are only one factor
VALIC or a Sub-adviser relies on in evaluating lower-rated fixed income
securities. The analysis of a lower rated security may also include
consideration of the issuer's experience and managerial strength, changing
financial condition, borrowing requirements or debt maturity schedules,
regulatory concerns, and responsiveness to changes in business conditions and
interest rates. VALIC or a Sub-adviser also may consider relative values based
on anticipated cash flow, interest or dividend coverage, balance sheet analysis,
and earnings prospects.
The market for lower rated fixed income securities is relatively new and until
recently its growth has paralleled a long economic expansion. Past experience,
therefore, may not provide an accurate indication of future performance of this
market, particularly during an economic recession. An economic downturn or
increase in interest rates is likely to have a greater negative effect on the
ability of the issuers to pay principal and interest, meet projected business
goals, and obtain additional financing. These circumstances also may result in a
higher incidence of defaults compared to higher rated securities. As a result,
60
<PAGE> 237
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adverse changes in economic conditions and increases in interest rates may
adversely affect the market for lower rated fixed income securities, the value
of such securities in a Fund's portfolio, and, therefore, the Fund's net asset
value. As a result, investment in such Fund is more speculative than investment
in a Fund that invests primarily in higher rated fixed income securities.
Although certain Funds intend generally to purchase lower rated securities that
have secondary markets, these markets may be less liquid and less active than
markets for higher rated securities. These factors may limit the ability of a
Fund to sell lower rated securities at their expected value. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower rated fixed income securities,
especially in a thinly traded market. If market quotations are not readily
available for the Fund's lower rated or nonrated securities, these securities
will be valued by a method VALIC or a Sub-adviser believes accurately reflects
fair value. Judgment plays a greater role in valuing lower rated fixed income
securities than it does in valuing securities for which more extensive
quotations and last sale information are available.
See the Appendix to the prospectus for a description for bond ratings.
Interest Rate Risk
Interest rate risk refers to the risk that fluctuations in interest rates may
affect the value of interest paying securities in a Fund. If a Fund sells a bond
before it matures, it may lose money, even if the bond is guaranteed by the U.S.
Government. Say, for example, a Fund bought an intermediate government bond last
year that was paying interest at a fixed rate of 6%. Now, intermediate
government bonds are paying interest at a rate of 7%. If the Fund wants to sell
the bond paying 6%, it will have to sell it at a discount (and realize a loss)
to attract buyers because they can buy new bonds paying 7% interest.
Manager Risk
The Lifestyle Funds, which do not hold securities directly, are subject to
manager risk, which is the possibility that the portfolio managers of the
Underlying Series Company Funds may fail to execute the Underlying Series
Company Funds' investment strategies effectively. As a result, the Lifestyle
Funds may fail to meet their stated objectives.
Risk Associated with Foreign Securities
Certain Funds may, subject to limits stated in the Fund's Fact Sheet, invest in
foreign securities including ADRs, EDRs and GDRs and securities of companies
domiciled in emerging market countries. A foreign security is a security issued
by an entity domiciled or incorporated outside of the U.S.
Among the principal risks of owning foreign securities:
Political risk -- the chance of a change in government and the assets of the
company being taken away.
Currency risk -- a change in the value of the foreign currency compared to the
dollar. If the foreign currency declines in value, your investment valued in
U.S. dollars will decline even if the value of the foreign stock or bond is
unchanged.
Limited information -- foreign companies generally are not regulated to the
degree U.S. companies are and may not report all of the information we are used
to getting. To minimize taxes they may not report some income or they may report
higher expenses.
INVESTMENT PRACTICES
Limitations
Each Fund has limitations on the percentage of its assets that it may allocate
to certain investments. These limits are determined by the Fund's investment
objectives and risk level.
Some Funds are restricted from buying certain types of investments altogether.
For example, the Money Market Fund may not invest in futures and options.
Each Fund's limitations are shown in the Investment Strategy section of its Fact
Sheet.
Lending Portfolio Securities
Each Fund, except the Lifestyle Funds, may lend its investment securities to
broker-dealers and other financial institutions to earn more money for the Fund.
Assets are placed in a special account by the borrower to cover the market value
of the securities on loan. The assets serving as collateral for the loan are
valued daily.
A risk of lending portfolio investments is that there may be a delay in the Fund
getting its investments back when a loaned security is sold.
The Funds will only make loans to broker-dealers and other financial
institutions approved by its Custodian, as monitored by VALIC and authorized by
the Board of Trustees.
For more information about
FOREIGN SECURITIES AND EMERGING
MARKETS, see the Statement
of Additional Information.
For more information about
LENDING PORTFOLIO SECURITIES, see
the Statement of Additional Information.
For more information about
INVESTMENT LIMITATIONS, see the
Statement of Additional
Information.
61
<PAGE> 238
ABOUT THE SERIES COMPANY
- --------------------------------------------------------------------------------
SERIES COMPANY SHARES
The Series Company is an open-end mutual fund and may offer shares of the Funds
for sale at any time. However, the Series Company offers Institutional Class II
Shares of the Funds only to employee retirement plans offered through the
Distributor and to the Series Company's Lifestyle Funds.
The Series Company was organized on March 16, 1998, under the laws of the state
of Delaware as a business trust, and presently is authorized to sell 23 series,
18 of which are described in this prospectus. Each of these series is authorized
to issue an unlimited number of shares of beneficial interest, par value $0.01
per share, divided into class. Other classes may be established from time to
time in accordance with provisions of the Series Company's Declaration of Trust.
Each class of shares represents an interest in the same assets of a Fund and
generally are identical in all respects except that each class bears certain
distribution expenses and has exclusive voting rights with respect to its
distribution fee, if any. There are no conversion, preemptive or other
subscription rights with respect to the Institutional Class II Shares. In the
event of liquidation, each of the shares of a Fund is entitled to its portion of
all of the Fund's net assets after all debts and expenses of the Fund have been
paid.
The Series Company does not contemplate holding regular meetings of shareholders
to elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares of the Series Company may by written request require a
meeting to consider the removal of Trustees by a vote of two-thirds of the
shares then outstanding cast in person or by proxy at such meeting. The Series
Company will assist such holders in communicating with other shareholders of the
Series Company to the extent required by the 1940 Act. More detailed information
concerning the Series Company is set forth in the Statement of Additional
Information.
The Series Company's Declaration of Trust provides that no Trustee, officer or
shareholder of the Series Company shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or liability of the Series Company but the assets of the Fund only
shall be liable.
Share certificates are not available.
PURCHASE AND REDEMPTION OF SHARES
Institutional Class II Shares of each Fund are available to you through your
employer plan. Institutional Class II shares are available to any qualifying
employer plan once the plan establishes a minimum account balance of $500
million with the Series Company. A plan's account balance is equal at any time
to the aggregate of all amounts contributed by the plan to the Series Company,
less the cost of all redemptions by such plan from the Series Company. The
Distributor may waive the minimum account balance requirement if it reasonably
anticipates that the size of the plan and/or the anticipated amount of
contributions will present economies of scale. There are no minimum account
balance or minimum purchase requirements in connection with purchases of
Institutional Class II Shares by the Lifestyle Funds.
As a participant in an employer retirement plan, you do not purchase
Institutional Class II Shares of the Funds directly. Rather, Institutional Class
II Shares of a Fund are purchased for you when you elect to allocate your
retirement contributions to a Fund that is available as an investment option in
your retirement or savings plan. You may be permitted to elect different
investment options, alter the amounts contributed to your plan, or change how
contributions are allocated among your investment options in accordance with
your plan's specific provisions. See your plan administrator or employee
benefits office for more details.
Investments by individual participants in employer retirement plans are made
through their plan sponsor or administrator, who is responsible for transmitting
instructions for all orders for the purchase, redemption and exchange of Fund
shares. The availability of an investment by a plan participant in the Funds,
and the procedures for investing, depend upon the provisions of the plan and
whether the plan sponsor or administrator has contracted with the Series Company
or designated agent for special processing services.
As distributor, the Distributor sells Institutional Class II Shares of the Funds
to employer retirement plans. The Distributor sends orders to buy, sell or
transfer shares to the Series Company's designated agent daily. Purchases,
exchanges or redemptions of the Funds' shares are processed as soon as they have
been received in good order. Good order means that your request includes
complete information on your purchase, exchange or redemption and that the
Distributor has received the appropriate payment. The Series Company and the
Distributor reserve the right to refuse any order for the purchase of shares.
The Series Company also reserves the right to suspend the sales of the Funds'
shares in response to conditions in the securities markets or for other reasons.
The price to purchase one share of a Fund is the Fund's net asset value per
share (NAV). Shares
VALIC INVESTMENT
SERVICES COMPANY
(the Distributor) acts as the
Series Company's
distributor.
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are sold at the public offering price based on the net asset value next
determined after the receipt of an order. In most cases, in order to receive
that day's public offering price, the Series Company's designated agent for
pricing purposes must receive an order, in good order before the close of
regular trading on the New York Stock Exchange.
The Distributor is a wholly-owned subsidiary of VALIC and acts as distributor of
the Funds' shares under an agreement with the Series Company. The Distributor is
not required to sell a minimum number of shares to employer retirement plans.
For more information on how to participate in the Funds through an employee
retirement plan, please refer to your plan materials or contact your employee
benefits office.
TRANSFERS AND EXCHANGES
An employer retirement plan may allow you to exchange all or part of your
existing plan balance from one investment option to another. Check with your
plan administrator for details on the rules governing exchanges in your plan.
Exchanges will be accepted by the Series Company only as permitted by your plan.
Your plan administrator can explain how frequently exchanges are allowed. The
Series Company reserves the right to refuse any exchange purchase request.
NET ASSET VALUE OF THE SERIES COMPANY SHARES
How Net Asset Value is Calculated
Here is how the Series Company calculates the net asset value of each Fund's
shares:
<TABLE>
<S> <C> <C> <C>
Step 1:
Total value of the Fund's
assets* (including money The Fund's
owed to the fund but not yet Total Net Asset
collected) = Value
- - The Fund's liabilities
(including money owed by the
Fund but not yet paid)
Step 2:
The Fund's total net asset
value (from Step 1)
/ The total number of the
Fund's shares that are NET ASSET VALUE
outstanding. = PER SHARE
</TABLE>
- ---------------
* The Series Company uses the fair market value of a Fund's
investments to calculate the Fund's total value. However, it uses the
amortized cost method to determine the values of all the Money Market Fund's
investments and of any other Fund's short-term securities maturing within 60
days. The amortized cost method approximates fair market value.
If a Fund's portfolio includes investments that are not sold often or are not
sold on any exchanges, the Series Company's Board of Trustees or its delegate
will, in good faith, estimate fair market value of these investments.
When Net Asset Value is Calculated
The Series Company calculates the net asset value of each Fund's shares at
approximately 4 pm EST each day the New York Stock Exchange is open. (The New
York Stock Exchange is open Monday through Friday but is closed on certain
federal and other holidays.)
Through the Distributor, an employer plan sends orders to the Series Company to
buy, sell, or transfer shares based on requests received from participants.
DIVIDENDS AND CAPITAL GAINS
Dividends from Net Investment Income
Net investment income generally includes stock dividends received and bond
interest earned less expenses paid by the Fund. Each Fund pays dividends from
net investment income occasionally. Dividends from net investment income are
automatically reinvested for you into additional shares of the Fund. The Money
Market Fund pays dividends daily. The High Yield Bond Fund, the Strategic Bond
Fund, the Domestic Bond Fund and the Core Bond Fund declare dividends daily and
distribute such dividends monthly. All of the other Funds pay dividends
quarterly, except the International Growth Fund and the International Value
Fund, which pay dividends semi-annually.
Distributions from Capital Gains
When a Fund sells a security for more than it paid for that security, a capital
gain results. Once a year, each Fund pays distributions from capital gains, as
long as total capital gains exceed total capital losses. Distributions from
capital gains are automatically reinvested for you into additional shares of the
Fund.
DIVERSIFICATION
Each Fund's diversification policy limits the amount that the Fund may invest in
certain securities. Each Fund's diversification policy is also designed to
comply with the diversification requirements of the Internal Revenue Code (the
"Code") as well as the 1940 Act.
All of the Funds, except the Lifestyle Funds, may, with respect to 75% of their
total assets, invest up to 5% of their total assets in a single issuer. An
issuer, or "company" does not include the U.S. Government or agencies of the
U.S. Government
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according to the Code and the 1940 Act. For diversification purposes, repurchase
agreements are considered to be issued by the U.S. Government if backed by U.S.
Government securities. Also, these Funds may not own more than 10% of the voting
securities of a company.
The Lifestyle Funds are "non-diversified" under the 1940 Act, which means that
the Lifestyle Funds are not limited in the proportion of their assets that may
be invested in the securities of a single issuer.
Also, the Money Market Fund may not invest more than 5% of its total assets in
any company rated as "second tier" by a national rating service (as described in
Types of Investments).
TAXES
By paying out all earnings as described in the Dividends and Capital Gains
section above and by complying with the diversification requirements under the
Code, each Fund expects to qualify as a Registered Investment Company (RIC)
under Subchapter M of the Code. By qualifying as a RIC the Fund will not have to
pay federal income taxes.
VOTING RIGHTS
One Vote Per Share
Each outstanding share has one vote on all matters that shareholders vote on. As
a participant under an employer plan, you vote on these matters indirectly by
voting your shares. The way you vote your shares as a participant depends on
your employer plan.
When a matter comes up for vote, the employer plan will vote its shares in the
same proportion as the share votes it actually receives. If VALIC determines
that it may, under the current interpretation of the 1940 Act, vote shares
directly instead of voting through its shares, it may decide to vote that way.
Controlling Shareholder
VALIC, as the initial sole shareholder of the Funds as of the commencement date
of the Series Company, controls each Fund. VALIC does not anticipate that its
initial control of each Fund will adversely effect the rights of future
shareholders.
Shareholder Meetings
Delaware law does not require the Series Company to hold regular, annual
shareholder meetings. But, the Series Company must hold shareholder meetings on
the following matters:
- to approve certain agreements as required by the 1940 Act;
- to change fundamental investment objectives in the Diversification section
and to change fundamental investment restrictions, above;
- to fill vacancies on the Series Company's Board of Trustees if the
shareholders have elected less than a majority of the Trustees.
Shareholder Communications
The Series Company will assist in shareholder communications.
YEAR 2000 RISKS
VALIC is in the process of modifying its systems to achieve Year 2000 readiness.
This endeavor is directed and managed by VALIC and monitored by the parent
company, American General Corporation. VALIC has developed clearly defined and
documented plans that have been implemented to minimize the risk of significant
negative impact on its operations.
These plans include the following activities: (1) perform an inventory of
VALIC's information technology and non-information technology systems; (2)
assess which items in the inventory may expose VALIC to business interruptions
due to Year 2000 issues; (3) test systems for Year 2000 readiness; (4) reprogram
or replace systems that are not Year 2000 ready; and (5) return the systems to
operation. VALIC expects to complete the forgoing activities for all critical
business systems relevant to the Series Company by December 1998. Accordingly,
VALIC has no contingency plans because any open Year 2000 issues may be
addressed in 1999.
In addition, the Series Company and VALIC have business relationships with
various third parties, each of which must also be Year 2000 ready. Therefore,
VALIC's plans also include assessing and attempting to mitigate the risks
associated with the potential failure of third parties to achieve Year 2000
readiness. Due to the various stages of the third parties' Year 2000 readiness,
VALIC's efforts in this regard will extend through 1999.
Through June 30, 1998 VALIC has incurred and expensed $13 million (pretax)
related to Year 2000 readiness, including $6.5 million incurred during the first
six months of 1998. VALIC currently anticipates that it will incur future costs
of $3 million (pretax) for additional internal staff, third party vendors, and
other expenses to achieve Year 2000 readiness.
Due to the magnitude and complexity of this project, risks and uncertainties
exist. If conversion of VALIC's systems is not completed on a timely basis (due
to non-performance by significant third-party vendors or other unforeseen
circumstances), or if significant third parties fail to achieve Year 2000
readiness on a timely basis, the Year 2000 issue could have a material
See the Statement of Additional Information for further tax discussions. You
should also consult your tax advisor before investing.
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adverse impact on the operations of VALIC and the Series Company.
EURO CONVERSION
The planned introduction of a single European currency, the Euro, on January 1,
1999 for participating European nations in the Economic and Monetary Union (EMU)
presents unique risks and uncertainties for investors in those countries. The
European Union currently consists of: Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, Sweden and the United Kingdom. The risks associated with the introduction
of the Euro include: (i) whether the payment and operational systems of banks
and other financial institutions will be ready by the scheduled launch date;
(ii) the creation of suitable clearing and settlement payment schemes for the
Euro; (iii) the legal treatment of outstanding financial contracts after January
1, 1999 that refer to existing currencies rather than the Euro; (iv) the
fluctuation of the Euro relative to non-Euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; and (v) whether the
interest rate, tax and labor regimes of the European countries participating in
the Euro will converge over time. Further, the conversion of the currencies of
other EMU countries, such as the United Kingdom, and the admission of other
countries, including Central and Eastern European countries, to the EMU could
adversely affect the Euro. These or other factors may cause market disruptions
before or after the introduction of the Euro and could adversely affect the
value of foreign securities and currencies held by the Funds.
Additionally, while it is not possible to predict the impact of the Euro
implementation plan on the Funds, the transition to the Euro may change the
economic environment and behavior of investors, particularly in European
markets. For example, investors may begin to view those countries participating
in the EMU as a single entity, and VALIC and the Sub-advisers may need to adapt
their investment strategies accordingly. The process of implementing the Euro
also may adversely affect financial markets world-wide and may result in changes
in the relative strength and value of the U.S. dollar or other major currencies.
Also, the transition to the Euro is likely to have a significant impact on
fiscal and monetary policy in the participating countries and may produce
unpredictable effects on trade and commerce generally. These resulting
uncertainties could create increased volatility in financial markets world-wide.
REPORTS
The Series Company sends Annual Reports containing audited financial statements,
Semi-Annual Reports containing unaudited financial statements, and proxy
materials to participants or other investors.
If you have any questions about the Annual or Semi-Annual Reports, call or write
to the Series Company at the phone number / address found on the cover page of
this prospectus.
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APPENDIX -- DESCRIPTION OF BOND RATINGS
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MOODY'S INVESTORS SERVICE
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Nonrated: Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1 and B 1.
STANDARD & POOR'S CORPORATION
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
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BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PREFERRED STOCK RATINGS
Both Moody's and Standard & Poor's use the same designations for corporate bonds
as they do for preferred stock, except in the case of Moody's preferred stock
ratings, the initial letter rating is not capitalized. While the descriptions
are tailored for preferred stocks, the relative quality distinctions are
comparable to those described above for corporate bonds.
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APPENDIX -- DESCRIPTION OF COMMERCIAL PAPER RATINGS
- --------------------------------------------------------------------------------
MOODY'S
Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, CDs, medium-term notes, and municipal and investment notes. The
short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-5: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
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Please tear off, complete and return the form below to American General Customer
Service, P.O. Box 8254, Boston, Massachusetts 02266-8254 to order a Statement of
Additional Information for the Company. A Statement of Additional Information
may also be ordered by calling 1-888-568-2542.
................................................................................
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Please send me a free copy of the Statement of Additional Information for
American General Series Portfolio Company 2.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
Social Security Number: ____________________________________________________
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<PAGE> 247
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INVESTMENT ADVISER:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
INVESTMENT SUB-ADVISERS:
American General Investment Management, L.P.
2929 Allen Parkway
Houston, Texas 77019
Bankers Trust Company
130 Liberty St.
New York, New York 10006
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Fiduciary Management Associates, Inc.
55 West Monroe Street
Suite 2550
Chicago, Illinois 60603
Goldman Sachs Asset Management
One New York Plaza
New York, New York 10004
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Jacobs Asset Management
200 East Broward Boulevard
Suite 1920
Fort Lauderdale, Florida 33301
Neuberger&Berman Management Inc.
605 Third Avenue
Second Floor
New York, New York 10158-0180
State Street Global Advisors
2 International Place
Boston, Massachusetts 02110
DISTRIBUTOR:
VALIC Investment Services Company
2929 Allen Parkway
Houston, Texas 77019
CUSTODIAN:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS:
Ernst & Young LLP
1221 McKinney Street
Houston, Texas 77010
TRANSFER AND SHAREHOLDER SERVICE AGENT:
National Financial Data Services, Inc.
330 West 9th Street
Kansas City, Missouri 64105
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
-------- --------
<S> <C> <C>
Judith L. Craven Thomas L. West, Jr. Chairman
Timothy J. Ebner John A. Graf President
Gustavo E. Gonzales, Jr. Craig R. Rodby Vice Chairman
John A. Graf John E. Arant Executive Vice President
Norman Hackerman Michael G. Atnip Executive Vice President
John Wm. Lancaster Joe C. Osborne Executive Vice President
Ben H. Love Peter V. Tuters Senior Investment Officer
John E. Maupin, Jr. Teresa S. Moro Vice President and Investment Officer
F. Robert Paulsen William Trimbur, Jr. Vice President and Investment Officer
Craig R. Rodby Brent C. Nelson Vice President
R. Miller Upton Cynthia A. Toles Vice President and Secretary
Thomas L. West, Jr. Nori L. Gabert Vice President and Assistant Secretary
Maruti D. More Vice President-Investments
Gregory R. Seward Treasurer
Kathryn A. Pearce Controller
Cynthia A. Gibbons Assistant Vice President
Jaime M. Sepulveda Assistant Treasurer
Donna L. Hathaway Assistant Controller
Earl E. Allen, Jr. Assistant Treasurer
</TABLE>
Printed Matter
Printed in U.S.A.
VA 10832 VER. 11/98 Recycled Paper LOGO
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<PAGE> 248
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THE STATEMENT OF ADDITIONAL INFORMATION DOES NOT
CONSTITUTE A PROSPECTUS.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 15, 1998
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
AMERICAN GENERAL S&P 500 INDEX FUND
AMERICAN GENERAL MID CAP INDEX FUND
AMERICAN GENERAL SMALL CAP INDEX FUND
AMERICAN GENERAL INTERNATIONAL GROWTH FUND
AMERICAN GENERAL LARGE CAP GROWTH
AMERICAN GENERAL MID CAP GROWTH FUND
AMERICAN GENERAL SMALL CAP GROWTH FUND
AMERICAN GENERAL INTERNATIONAL VALUE FUND
AMERICAN GENERAL LARGE CAP VALUE FUND
AMERICAN GENERAL MID CAP VALUE FUND
AMERICAN GENERAL SMALL CAP VALUE FUND
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND
AMERICAN GENERAL BALANCED FUND
AMERICAN GENERAL HIGH YIELD BOND FUND
AMERICAN GENERAL STRATEGIC BOND FUND
AMERICAN GENERAL DOMESTIC BOND FUND
AMERICAN GENERAL CORE BOND FUND
AMERICAN GENERAL MUNICIPAL BOND FUND
AMERICAN GENERAL MONEY MARKET FUND
AMERICAN GENERAL MUNICIPAL MONEY MARKET FUND
AMERICAN GENERAL GROWTH LIFESTYLE FUND
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND
AMERICAN GENERAL CONSERVATIVE GROWTH LIFESTYLE FUND
--------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------
PART B
OCTOBER 15, 1998
This Statement of Additional Information is not a prospectus and contains
information in addition to that in the Prospectus for American General Series
Portfolio Company 2 (the "Series Company"). It should be read in conjunction
with the Prospectuses. The Statement of Additional Information and the related
Prospectuses are dated October 15, 1998.
DO NOT COPY
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TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History............................. 5
Performance and Yield Information........................... 5
Average Annual Total Return............................... 5
Portfolio Total Return.................................... 6
Index Total Return........................................ 6
Seven Day Yields.......................................... 6
30 Day Current Yield...................................... 6
Tax Equivalent Yields..................................... 6
Performance Returns of Certain Investment Companies and
Private Accounts other than the Funds.................. 7
Investment Restrictions..................................... 9
American General S&P 500 Index Fund....................... 9
American General Mid Cap Index Fund....................... 11
American General Small Cap Index Fund..................... 12
American General International Growth Fund................ 15
American General Large Cap Growth Fund.................... 16
American General Mid Cap Growth Fund...................... 17
American General Small Cap Growth Fund.................... 18
American General International Value Fund................. 19
American General Large Cap Value Fund..................... 20
American General Mid Cap Value Fund....................... 22
American General Small Cap Value Fund..................... 23
American General Socially Responsible Fund................ 24
American General Balanced Fund............................ 25
American General High Yield Bond Fund..................... 26
American General Strategic Bond Fund...................... 26
American General Domestic Bond Fund....................... 28
American General Core Bond Fund........................... 26
American General Municipal Bond Fund...................... 26
American General Money Market Fund........................ 29
American General Municipal Money Market Fund.............. 30
American General Growth Lifestyle Fund.................... 31
American General Moderate Growth Lifestyle Fund........... 31
American General Conservative Growth Lifestyle Fund....... 31
Investment Practices........................................ 32
Repurchase Agreements..................................... 32
Lending Portfolio Securities.............................. 32
Borrowing, Reverse Repurchase Agreements and Dollar
Rolls.................................................. 33
Convertible Securities.................................... 34
Foreign Securities........................................ 34
Brady Bonds............................................... 35
Sovereign Debt Obligations................................ 36
Performance Indexed Paper................................. 37
Bank Obligations.......................................... 37
International Bonds....................................... 38
Emerging Markets.......................................... 38
Foreign Currency Exchange Transactions.................... 38
Standard and Poor's Depository Receipts................... 39
When-Issued Securities.................................... 39
Fixed Income Securities................................... 39
Lower Rated Fixed Income Securities....................... 40
</TABLE>
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<TABLE>
<S> <C>
Zero Coupon Fixed Income Securities.............................. 40
Inflation-Indexed Bonds.......................................... 41
Hybrid Instruments............................................... 42
Catastrophe Bonds................................................ 42
Real Estate Securities and Real Estate Investment Trusts......... 43
Warrants......................................................... 43
Swap Agreements.................................................. 43
Structured Notes................................................. 45
Eurodollar Obligations........................................... 45
Mortgage-Related Securities...................................... 45
Other Mortgage-Related Securities................................ 48
Asset-Backed Securities.......................................... 49
Municipal Bonds.................................................. 49
Municipal Notes.................................................. 49
Municipal Obligations............................................ 50
Municipal Commercial Paper....................................... 51
Variable Rate Demand Notes....................................... 51
Municipal Inflation-Indexed Bonds................................ 52
Pre-Refunded Bonds............................................... 52
Loan Participations.............................................. 52
Adjustable Rate Securities....................................... 52
Illiquid Securities.............................................. 53
Rule 144A Securities............................................. 53
Options on Securities and Securities Indices..................... 53
Writing Covered Call and Put Options and Purchasing
Call and Put Options.......................................... 55
Financial Futures Contracts...................................... 56
Options on Financial Futures Contracts........................... 58
Certain Additional Risks of Options and Financial
Futures Contracts............................................. 59
Limitations...................................................... 60
Short Sales and Short Sales Against the Box...................... 61
Money Market Securities of Foreign Issuers....................... 61
Investment Adviser................................................. 61
Investment Sub-Advisers............................................ 62
Portfolio Transactions and Brokerage............................... 65
Purchasing and Selling Fund Shares................................. 66
General.......................................................... 66
Purchase of Shares............................................... 67
Cumulative Purchase Discount..................................... 67
Letter of Intent................................................. 67
Selling Fund Shares.............................................. 67
Contingent Deferred Sales Charge -- Class A...................... 68
Exchange Privilege............................................... 68
Distribution and Service Plan...................................... 69
Determination of Net Asset Value................................... 69
Calculation of Yield for the Money Market Fund and the
Municipal Money Market Fund..................................... 71
Taxation........................................................... 71
General.......................................................... 71
Original Issue Discount and Market Discount...................... 75
Tax Exempt Information........................................... 75
Taxable U.S. Shareholders -- Distributions....................... 76
Taxable U.S. Shareholders -- Sales of Shares..................... 77
Non-U.S. Shareholders............................................ 78
State and Local.................................................. 78
</TABLE>
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<PAGE> 251
<TABLE>
<S> <C>
Other Information........................................................................................... 79
Shareholder Reports....................................................................................... 79
Voting and Other Rights................................................................................... 79
Custody of Assets......................................................................................... 79
Index Funds............................................................................................... 80
Trustees and Officers....................................................................................... 81
Marketing Information....................................................................................... 85
Financial Statements........................................................................................ 88
</TABLE>
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GENERAL INFORMATION AND HISTORY
American General Series Portfolio Company 2 (the "Series Company") was
organized as a Delaware business trust on March 16, 1998 by VALIC and is
registered under the Investment Company Act of 1940, as amended, (the "1940
Act") as an open-end, management investment company. Pursuant to an Investment
Advisory Agreement with the Series Company and subject to the authority of the
Series Company's Board of Trustees, VALIC serves as the Series Company's
investment adviser and conducts the business and affairs of the Series Company.
Additionally, VALIC has engaged investment sub-advisers to provide investment
sub-advisory services for each Fund other than the American General Socially
Responsible Fund, the American General Money Market Fund, the American General
Conservative Growth Lifestyle Fund, the American General Moderate Growth
Lifestyle Fund and the American General Growth Lifestyle Fund, subject to
VALIC's control, direction and supervision. The Series Company consists of
twenty-three separate investment portfolios (hereinafter collectively referred
to as the "Funds" or individually as a "Fund"), each of which is, in effect, a
separate mutual fund issuing its own separate class of shares of beneficial
interest.
The Series Company and VALIC have Codes of Ethics which establish for their
officers, directors or trustees and certain employees procedures and
restrictions as to those individuals' personal investment trading activities.
PERFORMANCE AND YIELD INFORMATION
The Funds have not commenced operations and, therefore, have no
performance. Accordingly, the performance information for each Fund included in
the Prospectus is the performance of either: (i) a mutual fund with similar
investment objectives, policies and strategies as the Fund that is currently
managed by the same individuals; (ii) an unregistered discretionary account of
the Sub-adviser with similar investment objectives, policies and strategies that
is managed by the same individuals; and/or (iii) a composite of such registered
management investment companies or unregistered discretionary accounts. The
inception date indicated is that of the other mutual fund, account or composite.
See the Prospectus for detailed information relating to the mutual fund,
unregistered discretionary account or composite.
The total return of a mutual fund, discretionary account or composite
("Average Annual Total Return"), is the total return of the mutual fund,
discretionary account or composite before expenses ("Portfolio Total Return").
The Series Company may compare Portfolio Total Return to the total return of the
mutual fund, discretionary account or composite benchmark index ("Index Total
Return"). The difference between Portfolio Total Return and Index Total Return
is referred to as "tracking difference." Tracking difference represents the
amount that the return on the investment portfolio (which results from VALIC or
the Sub-adviser's investment selection) deviates from its benchmark's Index
Total Return.
AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for periods of 1, 3, 5, and 10
years, or, since inception of a mutual fund, discretionary account or composite,
are calculated according to the following formula:
P (1+T)(n) = ERV
Where:
<TABLE>
<S> <C>
P = A hypothetical initial Purchase Payment of $1,000.
T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a hypothetical $1,000 Purchase
Payment made at the beginning of the first period.
</TABLE>
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<PAGE> 253
Average Annual Total Return reflects the deduction of mutual fund, discretionary
account or composite expenses and assumes that all dividends and distributions
are reinvested when paid.
PORTFOLIO TOTAL RETURN
Portfolio Total Return quotations for periods of 1, 3, 5, and 10 years, or
since inception, are calculated by adding to the Average Total Annual Return
(described above) the expenses of the mutual fund, discretionary account or
composite. Expenses of the Fund are calculated at the end of each mutual fund,
discretionary account or composite fiscal year and are expressed as a percentage
of average net assets. Expenses as a percentage of average net assets are
prorated equally over the months in the fiscal year in which the ratio was
calculated when determining expenses for periods crossing over fiscal years.
INDEX TOTAL RETURN
Index Total Return quotations for periods 1, 3, 5, and 10 years, or since
inception, are calculated by determining the percentage change in value of the
benchmark index over the applicable period including reinvestment of dividends
and interest as applicable. Index Total Return is calculated according to the
formula described above for Average Annual Total Return, however it does not
include an expense component; if an expense component were included the return
would be lower.
SEVEN DAY YIELDS
The American General Money Market Fund and the American General Municipal
Money Market Fund may quote a Seven Day Current Yield and a Seven Day Effective
Yield. The Seven Day Current Yield is calculated by determining the total return
for the current seven day period ("based period return") and annualizing the
base period return by dividing by seven days, then multiplying the result by 365
days. The Seven Day Effective Yield annualizes the base period return while
compounding weekly the base period return according to the following formula:
Seven Day Effective Yield = [(Base Period Return + 1)(365/7)-1]
30 DAY CURRENT YIELD
The American General Domestic Bond Fund, the American General High Yield
Bond Fund, the American General Strategic Bond Fund, the American General Core
Bond Fund and the American General Municipal Bond Fund may quote a 30 Day
Current Yield which is determined based on the current 30 day period, according
to the following standardized formula:
Yield = 2[(1 + NII )(6)-1]
S X NAV
Where:
<TABLE>
<S> <C> <C>
NII = Net investment income (interest income, plus dividend
income, plus other income, less fund expenses.
S = Average daily shares outstanding.
NAV = Net asset value per share on the last day of the period.
</TABLE>
Effective Yield = [(Base Period Return + 1)365/7] - 1
TAX EQUIVALENT YIELDS
The Municipal Bond Fund and the Municipal Money Market Fund (each referred
to as the "Fund") may also quote a tax equivalent yield and a tax equivalent
effective yield that show the before tax yield that would have to be earned from
a taxable investment to equal the Fund's yield. These yields are computed by
dividing the portion of the Fund's yield that is tax-exempt by one minus the
stated federal income tax rate and adding the product to the portion of the
Fund's yield that is not tax-exempt, if any.
As of July 31, 1998, the federal income tax rate upon which the Fund's tax
equivalent yield quotations are based was 39.6%. From time to time, as any
changes to the rate become effective, taxable-equivalent yield quotations
advertised by the Fund will be updated to reflect these changes. The Fund
expects updates may be necessary as tax rates are changed by the federal
government. The advantage of tax-free investments, like the Fund, will be
enhanced by any tax rate increases. Therefore, the details of specific tax
increases may be used in sales material for the Fund.
6
<PAGE> 254
PERFORMANCE RETURNS OF CERTAIN INVESTMENT COMPANIES
AND PRIVATE ACCOUNTS OTHER THAN THE FUNDS*
MARCH 31, 1998
<TABLE>
<CAPTION>
10 YEAR
INCEPTION OR SINCE
DATE 1 YEAR 3 YEAR 5 YEAR INCEPTION (A)
--------- ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
AMERICAN GENERAL S&P 500 INDEX FUND 4/1/88
BT Pyramid Large Cap Equity Index Fund Average
Annual Total Return 47.85% 32.65% 22.05% 18.67%
BT Pyramid Large Cap Equity Index Fund
Portfolio Total Return 48.14% 32.91% 22.29% 18.90%
S&P 500 Index 47.97% 32.81% 22.40% 18.94%
AMERICAN GENERAL MID CAP INDEX FUND 10/1/91
AGSPC Mid Cap Index Fund Average Annual Total
Return 48.53% 20.37% 31.07% 18.58%
AGSPC Mid Cap Index Fund Portfolio Total Return 48.89% 20.76% 31.48% 19.02%
S&P Mid Cap 400 Index 49.00% 28.44% 19.51% 19.39%
AMERICAN GENERAL SMALL CAP INDEX FUND 4/1/88
BT Pyramid Russell 2000 Index Fund Average
Annual Total Return 42.43% 24.37% 17.60% 14.57%
BT Pyramid Russell 2000 Index Portfolio Total
Return 42.78% 24.67% 17.90% 14.86%
Russell 2000 Index 42.01% 24.42% 17.67% 14.86%
AMERICAN GENERAL INTERNATIONAL GROWTH FUND 5/1/92
Templeton International Fund Average Annual
Total Return 10.14% 14.13% -- 12.33%
Templeton International Fund Portfolio Total
Return 10.85% 14.96% -- 13.28%
Salomon Brothers Primary Market Index 20.34% 10.92% -- 9.97%
AMERICAN GENERAL INTERNATIONAL GROWTH FUND 10/1/95
Composite Average Annual Return 19.02% -- -- 22.04%
Composite Portfolio Total Return 19.77% -- -- 22.79%
Salomon Brothers Primary Market Index 20.34% -- -- 13.68%
AMERICAN GENERAL LARGE CAP GROWTH 11/11/91
Composite Average Annual Total Return 51.22% 35.03% 26.08% 22.95%
Composite Portfolio Total Return 51.89% 35.64% 26.65% 23.51%
Russell 1000 Growth Index 48.32% 32.38% 21.96% 20.73%
AMERICAN GENERAL MID CAP GROWTH FUND 1/1/93
Composite Average Annual Total Return 47.95% 30.62% 23.51% 21.86%
Composite Portfolio Total Return 48.26% 31.13% 24.09% 22.44%
Russell Midcap Growth Index 42.36% 24.90% 18.41% 17.02%
AMERICAN GENERAL SMALL CAP GROWTH FUND 9/1/94
Composite Average Annual Total Return 53.70% 33.60% -- 29.20%
Composite Portfolio Total Return 55.50% 35.20% -- 30.70%
Russell 2000 Growth Index 41.17% 20.40% -- 12.94%
AMERICAN GENERAL INTERNATIONAL VALUE FUND 12/31/78
Composite Average Annual Total Return 24.02% 18.71% 14.85% 11.35%
Composite Portfolio Total Return 24.93% 19.59% 15.71% 12.18%
Salomon Brothers Primary Market Index 20.34% 10.92% 11.10% 5.34%
AMERICAN GENERAL LARGE CAP VALUE FUND 8/1/92
Discretionary Account Average Annual Total
Return 58.95% 36.98% 24.14% 24.04%
Discretionary Account Portfolio Total Return 59.33% 37.32% 24.44% 24.35%
Russell 1000 Value Index 47.17% 32.37% 21.81% 18.52%
AMERICAN GENERAL MID CAP VALUE FUND 1/20/75
Neuberger&Berman Partners Fund Average Annual
Total Return 41.54% 31.07% 21.80% 17.95%
Neuberger&Berman Partners Fund Portfolio Total
Return 42.35% 31.90% 22.66% 18.76%
Russell Midcap Value Index 45.32% 29.65% 20.15% 17.78%
</TABLE>
7
<PAGE> 255
<TABLE>
<CAPTION>
10 YEAR
INCEPTION OR SINCE
DATE 1 YEAR 3 YEAR 5 YEAR INCEPTION (A)
--------- ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND 10/2/89
AGSPC Social Awareness Fund Average Annual
Total Return 47.45% 33.34% 21.54% 16.57%
AGSPC Social Awareness Fund Portfolio Total
Return 48.01% 33.91% 27.19% 16.80%
S&P 500 Index 47.97% 32.81% 22.40% 18.94%
AMERICAN GENERAL BALANCED FUND 12/31/74
Composite Average Annual Total Return 31.17% 27.63% 15.84% 14.44%
Composite Portfolio Total Return 31.88% 23.29% 16.48% 15.06%
S&P 500 Index 47.97% 32.81% 22.40% 18.94%
Lehman Brothers Government and Corporate Bond
Index 12.39% 9.20% 6.96% 8.92%
AMERICAN GENERAL DOMESTIC BOND FUND 12/31/72
Composite Average Annual Total Return 11.78% 9.13% 6.61% 9.12%
Composite Portfolio Total Return 12.17% 9.51% 6.98% 9.50%
Benchmark(B) 12.00% 9.18% 6.99% 8.93%
AMERICAN GENERAL CORE BOND FUND 11/1/48
Separately Managed Account Average Annual Total
Return 10.42% 9.94% 7.57% 7.69%
Separately Managed Account Portfolio Total
Return 11.08 10.60% 8.21% 8.33%
Benchmark(B) 12.00% 9.18% 6.99% 8.93%
AMERICAN GENERAL MUNICIPAL BOND FUND 8/1/94**
North American National Municipal Bond Fund
Average Annual Total Return 11.03% 8.49% -- 7.63%
North American National Municipal Bond Fund
Portfolio Total Return 12.10% 9.39% -- 8.49%
Lehman Seven Through Long Muni Bond Index 11.57% 7.96% -- 8.33%
AMERICAN GENERAL MONEY MARKET FUND 12/16/85
AGSPC Money Market Fund Average Annual Total
Return 5.24% 5.20% 4.51% 5.42%
AGSPC Money Market Fund Portfolio Total Return 5.78% 5.77% 5.14% 6.30%
30-Day Certificate of Deposit Primary Offering
Rate
by New York City Banks 4.82% 4.73% 4.19% 5.25%
</TABLE>
- ---------------
* Performance information for each Fund included in the Prospectus is the
performance of either: (i) a mutual fund with similar investment
objectives, policies and strategies as the Fund that is currently managed
by the same individuals; (ii) an unregistered discretionary account of the
Sub-adviser with similar investment objectives, policies and strategies;
and/or (iii) a composite of such registered management investment
companies or unregistered discretionary accounts.
**
The inception date of the North American National Municipal Bond Fund was
August 1, 1993. Ms. Whyte's role as portfolio manager commenced August 1,
1994.
(A) Amounts shown are returns for ten years or since inception if the mutual
fund, managed account or composite has been in existence for less than ten
years.
(B) Benchmark consists of the Lehman Brothers Aggregate Index.
8
<PAGE> 256
INVESTMENT RESTRICTIONS
The Funds have each adopted certain fundamental investment restrictions
which, unlike the other investment objective(s), policies, and investment
program of each Fund, may only be changed with the consent of a majority of the
outstanding voting securities of the particular Fund. The 1940 Act defines such
a majority as the lesser of (1) 67% or more of the voting securities present in
person or by proxy at a shareholders' meeting, if the holders of more than 50%
of the outstanding voting securities of a Fund are present or represented by
proxy, or (2) more than 50% of a Fund's outstanding voting securities. Also,
certain of the Funds have non-fundamental investment restrictions which may not
be changed by the Series Company's Board of Trustees without shareholder
approval.
Calculation of each Fund's total assets for compliance with any of the
following fundamental or non-fundamental investment restrictions or any other
investment restrictions set forth in the Series Company's prospectus or
Statement of Additional Information will not include cash collateral held in
connection with securities lending activities.
The fundamental and, in certain cases, non-fundamental, investment
restrictions of each Fund are listed below. The percentage limitations
referenced in some of the restrictions are to be determined at the time of
purchase. However, percentage limitations for illiquid securities and borrowings
apply at all times.
AMERICAN GENERAL S&P 500 INDEX FUND ("S&P 500 INDEX FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the S&P 500 Index Fund may not:
(1) Borrow money or mortgage or hypothecate assets of the Fund, except that in
an amount not to exceed 1/3 of the current value of the Fund's total
assets, it may borrow money as a temporary measure for extraordinary or
emergency purposes and enter into reverse repurchase agreements or dollar
roll transactions, and except that it may pledge, mortgage or hypothecate
not more than 1/3 of such assets to secure such borrowings (it is intended
that money would be borrowed only from banks and only either to accommodate
requests for the withdrawal of beneficial interests (redemption of shares)
while effecting an orderly liquidation of portfolio securities or to
maintain liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations) or reverse
repurchase agreements, provided that collateral arrangements with respect
to options and futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute. If borrowings exceed
5% of the Fund's total assets the Fund will not purchase additional
securities.
(2) Underwrite securities issued by other persons except insofar as the Series
Company (or the Fund) may technically be deemed an underwriter under the
Securities Act of 1933 ("1933 Act") in selling a portfolio security.
(3) Make loans to other persons except: (a) through the lending of the Fund's
portfolio securities and provided that any such loans not exceed 30% of the
Fund's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately.
(4) Purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business
(except that the Fund) may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the Fund's ownership of securities).
(5) Concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement
of the Fund's investment objective, up to 25% of its total assets may be
invested in any one industry. This limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's pro
rata portion of the securities and other assets owned by any such company.
9
<PAGE> 257
(6) Issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
As a matter of non-fundamental policy, the S&P 500 Index Fund may not:
(1) Pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Fund total assets (taken at market value), provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered a pledge of assets
for purposes of this restriction.
(2) Purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures.
(3) Sell any security which it does not own unless by virtue of its ownership
of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.
(4) Invest for the purpose of exercising control or management.
(5) Invest more than 15% of the Fund's net assets (taken at the greater of cost
or market value) in securities that are illiquid or not readily marketable
not including (a) Rule 144A securities that have been determined to be
liquid by the Board of Trustees, and (b) commercial paper that is sold
under section 4(2) of the 1933 Act which: (i) is not traded flat or in
default as to interest or principal: and (ii) is rated in one of the two
highest categories by at least two nationally recognized statistical rating
organizations and the Series Company's Board of Trustees have determined
the commercial paper to be liquid: or (iii) is rated in one of the two
highest categories by one nationally recognized statistical rating agency
and the Board of Trustees has determined that the commercial paper is
equivalent quality and is liquid.
(6) Invest more than 10% of the Fund's total assets (taken at the greater of
cost or market value) in securities that are restricted as to resale under
the 1933 Act (other than Rule 144A securities deemed liquid by the Board of
Trustees.)
(7) Invest more than 5% of the Fund's total assets in securities issued by
issuers which (including predecessors) have been in operation less than
three years.
(8) With respect to 75% of the Fund's total assets, purchase securities of any
issuer if such purchase at the time thereof would cause the Fund to hold
more than 10% of any class of securities of such issuer, for which purposes
all indebtedness of an issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a single class, except that
futures or option contracts shall not be subject to this restriction. The
Fund may purchase securities of other investment companies without regard
to such limitation to the extent permitted by (i) the 1940 Act, as amended
from time to time, (ii) the rules and regulations promulgated by the
Securities and Exchange Commission ("SEC") under the 1940 Act, as amended
from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.
(9) With respect to 75% of its assets, invest more than 5% of its total assets
in the securities (excluding U.S. government securities) of any one issuer;
except that the Fund may purchase securities of other investment companies
without regard to such limitation to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time, or
(iii) an exemption or other relief from the provisions of the 1940 Act.
(10) Purchase or retain in the Fund's portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Series Com-
10
<PAGE> 258
pany, or is an officer or partner of VALIC or the Sub-adviser, if after the
purchase of the securities of such issuer for the Fund one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or securities,
or both, all taken at market value, of such issuer, and such persons owning
more than 1/2 of 1% of such shares or securities together own beneficially
more than 5% of such shares or securities, or both, all taken at market
value.
(11) Invest more than 5% of the Fund's net assets in warrants (valued at the
lower of cost or market) (other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase), but not more
than 2% of the Fund's net assets may be invested in warrants not listed on
the New York Stock Exchange Inc. (the "NYSE") or the American Stock
Exchange.
(12) Make short sales of securities or maintain a short position, unless at all
times when a short position is open, it owns an equal amount of such
securities or securities convertible into or exchangeable without payment
of any further consideration, for securities of the same issue and equal in
amount to, the securities sold short and unless not more than 10% of the
Fund's net assets (taken at market value) is represented by such
securities, or securities convertible into or exchangeable for such
securities, at any one time. The Fund has no current intention to engage in
short selling.
(13) Write puts and calls on securities unless each of the following conditions
are met: (a) the security underlying the put or call is within the
investment policies of the Fund and the option is issued by the Options
Clearing Corporation, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges: (b) the
aggregate value of the obligations underlying the puts determined as of the
date the options are sold shall not exceed 50% of the Fund's net assets;
(c) the securities subject to the exercise of the call written by the Fund
must be owned by the Fund at the time the call is sold and must continue to
be owned by the Fund until the call has been exercised, has lapsed, or the
Fund has purchased a closing call, and such purchase has been confirmed,
thereby extinguishing the Fund's obligation to deliver securities pursuant
to the call it has sold: and (d) at the time a put is written, the Fund
establishes a segregated account with its custodian consisting of cash or
short-term U.S. government securities equal in value to the amount the Fund
will be obligated to pay upon exercise of the put (this account must be
maintained until the put is exercised, has expired, or the Fund has
purchased a closing put, which is a put of the same series as the one
previously written).
(14) Buy and sell puts and calls on securities, stock index futures or options
on stock index futures, or financial futures or options on financial
futures unless such options are written by other persons and: (a) the
options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all such options which are held at any time do
not exceed 20% of the Fund's total net assets; and (c) the aggregate margin
deposits required on all such futures or options thereon held at any time
do not exceed 5% of the Fund's total assets.
(15) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted (i) by the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
AMERICAN GENERAL MID CAP INDEX FUND ("MID CAP INDEX FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Mid Cap Index Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer. However,
the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC
11
<PAGE> 259
under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act. For purposes of this
restriction, all outstanding debt securities of an issuer are considered as
one class, and all preferred stock of an issuer is considered as one class.
This restriction does not apply to obligations issued or guaranteed by the
U.S. Government, its agencies, or instrumentalities. As a matter of
operating policy, the Series Company will not consider repurchase
agreements subject to the 5% limitation if the collateral underlying the
repurchase agreements are U.S. Government securities.
(2) (a) Issue senior securities except in connection with investments in
options and futures contracts; or (b) borrow, except from banks and as a
temporary measure for extraordinary or emergency purposes and then, in no
event, in excess of 33 1/3% of the Fund's total assets valued at the lower
of market or cost. If borrowings exceed 5% of the Fund's total assets, the
Fund will not purchase additional securities.
(3) Acquire real estate or real estate contracts, although the Fund may acquire
obligations that are secured by real estate or securities issued by
companies investing in real estate, such as real estate investment trusts.
(4) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(5) Lend money, except by purchasing debt obligations in which a Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.
(6) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.
(7) Lend its portfolio securities to broker-dealers and other financial
institutions in an amount in excess of 33 1/3% of the value of the Fund's
total assets.
(8) Enter into a financial futures contract (by exercise of any option or
otherwise) or acquire any options thereon, if, immediately thereafter, the
total of the initial margin deposits required with respect to all open
futures positions, at the time such positions were established, plus the
sum of the premiums paid for all unexpired options on futures contracts
would exceed 5% of the value of its total assets.
(9) Invest more than 25% of the value of its total assets in the securities of
issuers primarily engaged in any one industry. This limitation excludes
shares of other open-end investment companies owned by the Fund but
includes the Fund's pro rata portion of the securities and other assets
owned by any such company.
As a matter of non-fundamental policy, the Mid Cap Index Fund may not:
(1) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted (i) by the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(2) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer; except that the Fund may purchase
securities of other investment companies without regard to such limitation
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
(3) Effect short sales of securities or purchase securities on margin, except
in connection with investment in options and futures contracts. Each Fund
may use short-term credits when necessary to clear transactions.
(4) Invest more than 15% of the Fund's net assets in illiquid and restricted
securities.
AMERICAN GENERAL SMALL CAP INDEX FUND ("SMALL CAP INDEX FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Small Cap Index Fund may not:
(1) Borrow money or mortgage or hypothecate assets of the Fund, except that in
an amount not to exceed 1/3 of the current value of the
12
<PAGE> 260
Fund's total assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks and
only either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete a portfolio security transaction or other
similar situations) or reverse repurchase agreements, provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered a
pledge of assets for purposes of this restriction and except that assets
may be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment
Company Institute. If borrowings exceed 5% of the Fund's total assets, the
Fund will not purchase additional securities.
(2) Underwrite securities issued by other persons except insofar as the Series
Company (or the Fund) may technically be deemed an underwriter under the
1933 Act in selling a portfolio security.
(3) Make loans to other persons except: (a) through the lending of the Fund's
portfolio securities and provided that any such loans not exceed 30% of the
Fund's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately.
(4) Purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business
(except that the Series Company may hold and sell, for the Fund's
portfolio, real estate acquired as a result of the Fund's ownership of
securities). This limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of the
securities and other assets owned by any such company.
(5) Concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement
of a Fund's investment objective(s), up to 25% of its total assets may be
invested in any one industry, provided, however, that this limitation
excludes shares of other open-end investment companies owned by the Fund
but includes the Fund's pro rata portion of the securities and other assets
owned by any such company.
(6) Issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
As a matter of non-fundamental policy, the Small Cap Index Fund may not:
(1) Pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Fund's total assets (taken at market value), provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, and reverse repurchase agreements are
not considered a pledge of assets for purposes of this restriction.
(2) Purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures.
(3) Sell securities it does not own such that the dollar amount of such short
sales at any one time exceeds 25% of the net equity of the Fund, and the
value of securities of any one issuer in which the Fund is short exceeds
the lesser of 2.0% of the value of the Fund's net assets or 2.0% of the
securities of any class of
13
<PAGE> 261
any U.S. issuer and, provided that short sales may be made only in those
securities which are fully listed on a national securities exchange or a
foreign exchange (This provision does not include the sale of securities of
the Fund contemporaneously owns or has the right to obtain securities
equivalent in kind and amount to those sold, i.e., short sales against the
box.) (The Fund has no current intention to engage in short selling).
(4) Invest for the purpose of exercising control or management; except that the
Fund may purchase securities of other investment companies without regard
to such limitation to the extent permitted by (i) the 1940 Act, as amended
from time to time, (iii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act.
(5) Invest more than 10% of the Fund's total assets (taken at the greater of
cost or market value) in securities that are restricted as to resale under
the 1933 Act (other than Rule 144A securities deemed liquid by the Fund's
Board of Trustees).
(6) Invest more than 15% of the Fund's net assets (taken at the greater of cost
or market value) in securities that are illiquid or not readily marketable
not including (a) Rule 144A securities that have been determined to be
liquid by the Board of Trustees; and (b) commercial paper that is sold
under section 4(2) of the 1933 Act which: (i) is not traded flat or in
default as to interest or principal; and (ii) is rated in one of the two
highest categories by at least two nationally recognized statistical rating
organizations and the Board of Trustees have determined the commercial
paper to be liquid; or (iii) is rated in one of the two highest categories
by one nationally recognized statistical rating agency and the Board of
Trustees have determined that the commercial paper is equivalent quality
and is liquid.
(7) Invest more than 5% of the Fund's total assets in securities issued by
issuers which (including predecessors) have been in operation less than
three years.
(8) With respect to 75% of the Fund's total assets, purchase securities of any
issuer if such purchase at the time thereof would cause the Fund to hold
more than 10% of any class of securities of such issuer, for which purposes
all indebtedness of an issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a single class, except that
futures or option contracts shall not be subject to this restriction. The
Fund may purchase securities of other investment companies without regard
to such limitation to the extent permitted by (i) the 1940 Act, as amended
from time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act.
(9) Invest more than 5% of its total assets in the securities (excluding U.S.
government securities) of any one issuer; except that the Fund may purchase
securities of other investment companies without regard to such limitation
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
(10) Invest in securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the Series
Company, or is an officer or partner of the VALIC or of the Subadviser, if
after the purchase of the securities of such issuer for the Fund one or
more of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or both, all
taken at market value.
(11) Invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase) if, as a result,
the investments (valued at the lower of cost or market) would exceed 5% of
the value of the Fund's net assets or if, as a result, more than 2% of the
Fund's net assets would be invested in warrants not listed on a recognized
United States or foreign stock exchange, to the extent permitted by
applicable state securities laws.
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(12) Write puts and calls on securities unless each of the following conditions
are met: (a) the security underlying the put or call is within the
Investment Practices of the Fund and the option is issued by the Options
Clearing Corporation, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate value of the obligations underlying the puts determined as of the
date the options are sold shall not exceed 5% of the Fund's net assets; (c)
the securities subject to the exercise of the call written by the Fund must
be owned by the Fund at the time the call is sold and must continue to be
owned by the Fund until the call has been exercised, has lapsed, or the
Fund has purchased a closing call, and such purchase has been confirmed,
thereby extinguishing the Fund's obligation to deliver securities pursuant
to the call it has sold; and (d) at the time a put is written, the Fund
establishes a segregated account with its custodian consisting of cash or
short-term U.S. government securities equal in value to the amount the Fund
will be obligated to pay upon exercise of the put (this account must be
maintained until the put is exercised, has expired, or the Fund has
purchased a closing put, which is a put of the same series as the one
previously written).
(13) Buy and sell puts and calls on securities, stock index futures or options
on stock index futures, or financial futures or options on financial
futures unless such options are written by other persons and: (a) the
options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all, such options which are held at any time do
not exceed 20% of the Fund's total net assets; and (c) the aggregate margin
deposits required on all such or options thereon held at any time do not
exceed 5% of the Fund's total assets.
(14) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted (i) by the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
AMERICAN GENERAL INTERNATIONAL GROWTH FUND ("INTERNATIONAL GROWTH FUND")
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the International Growth Fund may not:
(1) With respect to 75% of its total assets, invest more than 5% of its total
assets at the time of purchase in the securities of any single issuer
(other than obligations issued or guaranteed as to principal and interest
by the U.S. Government or any of its agencies or instrumentalities); except
that the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
(2) With respect to 75% of its total assets, purchase more than 10% of any
class of the outstanding voting securities of any issuer; except that the
Fund may purchase securities of other investment companies without regard
to such limitation to the extent permitted by (i) the 1940 Act, as amended
from time to time, (ii) the rules and regulations promulgated by the SEC
under the 1940 Act, as amended from time to time, or (iii) an exemption or
other relief from the provisions of the 1940 Act.
(3) Invest more than 20% of its total assets in companies within a single
industry, provided, however, that this limitation excludes shares of other
open-end investment companies owned by the Fund but includes the Fund's pro
rata portion of the securities and other assets owned by any such company.
There are no limitations on investments made in instruments issued or
guaranteed by the U.S. Government and its agencies.
(4) Make loans except by purchasing debt securities in accordance with its
investment objective and policies or entering into repurchase agreements,
or by lending its portfolio securi-
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ties to banks, brokers, dealers and other financial institutions so long as
the loans are made in compliance with the 1940 Act, as amended, or the
rules and regulations or interpretations of the SEC.
(5) Borrow, except (i) from banks; (ii) to enter into reverse repurchase
agreements or to employ similar investment techniques, and pledge its
assets in connection therewith; and (iii) as a temporary measure for
extraordinary or emergency purposes and then, in no event, in excess of
33 1/3% of the Fund's total assets valued at the lower of market or cost.
If borrowings exceed 5% of the Fund's total assets, the Fund will not
purchase additional securities.
(6) Invest in physical commodities or contracts on physical commodities.
(7) Purchase or sell real estate, although it may purchase and sell securities
of companies which deal in real estate and may purchase and sell securities
which are secured by interests in real estate.
(8) Underwrite the securities of other issuers.
(9) Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges, or (ii) entering into
repurchase transactions.
As a matter of non-fundamental policy, the International Growth Fund may
not:
(1) Invest more than 5% of its assets at the time of purchase in the securities
of companies that have (with predecessors) a continuous operating history
of less than 3 years.
(2) Invest in futures and/or options on futures.
(3) Purchase on margin or sell short.
(4) Invest more than an aggregate of 15% of the Fund's net assets in illiquid
or restricted securities.
(5) Invest for the purpose of exercising control over management of any
company; except that the Fund may purchase securities of other investment
companies without regard to such limitation to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time, or
(iii) an exemption or other relief from the provisions of the 1940 Act.
(6) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
AMERICAN GENERAL LARGE CAP GROWTH FUND
("LARGE CAP GROWTH FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Large Cap Growth Fund may not:
(1) Make any investment inconsistent with the Fund's classification as a
diversified company under the 1940 Act.
(2) Invest 25% or more of its total assets in the securities of one or more
issuers conducting their principal business activities in the same industry
(excluding the U.S. Government or any of its agencies or
instrumentalities), provided, however, that this limitation excludes shares
of other open-end investment companies owned by the Fund but includes the
Fund's pro rata portion of the securities and other assets owned by any
such company.
(3) Borrow money, except (a) the Fund may borrow from banks (as defined in the
1940 Act) or through reverse repurchase agreements in amounts up to 33 1/3%
of its total assets (including the amount borrowed), (b) the Fund may, to
the extent permitted by applicable law, borrow up to an additional 5% of
its total assets for temporary purposes, (c) the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase securities on
margin to the extent permitted by applicable law and (e) the Fund may
engage in transactions in mortgage dollar rolls which are accounted for as
financings.
(4) Make loans, except through (a) the purchase of debt obligations in
accordance with the Fund's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions,
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<PAGE> 264
and (c) loans of securities as permitted by applicable laws but not to exceed
33 1/3% of the Fund's total assets.
(5) Underwrite securities issued by others, except to the extent that the sale
of portfolio securities by the Fund may be deemed to be an underwriting.
(6) Purchase, hold or deal in real estate, although the Fund may purchase and
sell securities that are secured by real estate or interests therein,
securities of real estate investment trusts and mortgage-related securities
and may hold and sell real estate acquired by a Fund as a result of the
ownership of securities.
(7) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related or foreign currency-related hedging
instruments, including swap agreements and other derivative instruments,
subject to compliance with any applicable provisions of the federal
securities or commodities laws.
(8) Issue senior securities to the extent such issuance would violate
applicable law.
As a matter of non-fundamental policy, the Large Cap Growth Fund may not:
(1) Invest in companies for the purpose of exercising control or management;
except that the Fund may purchase securities of other investment companies
without regard to such limitation to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time, or
(iii) an exemption or other relief from the provisions of the 1940 Act.
(2) Invest more than 15% of the Fund's net assets in illiquid and restricted
securities.
(3) Purchase additional securities if the Fund's borrowings (excluding covered
mortgage dollar rolls) exceed 5% of its net assets.
(4) Make short sales of securities, except short sales against the box.
(5) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
AMERICAN GENERAL MID CAP GROWTH FUND ("MID CAP GROWTH FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Mid Cap Growth Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities are
not subject to these limitations); except that the Fund may purchase
securities of other investment companies without regard to such limitation
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
(2) Invest 25% or more of the value of its total assets in any one industry or
group of industries (except that securities of the U.S. Government, its
agencies and instrumentalities are not subject to these limitations);
provided, however, that this limitation excludes shares of other open-end
investment companies owned by the Fund but includes the Fund's pro rata
portion of the securities and other assets owned by any such company.
(3) Invest in interests in real estate, real estate mortgage loans, real estate
limited partnerships, oil, gas or other mineral exploration or development
programs or leases, except that the Fund may invest in the readily
marketable securities of companies which own or deal in such things.
(4) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter under the federal securities
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<PAGE> 265
laws, in connection with the disposition of portfolio securities.
(5) Make loans of money, except that the Fund may invest in repurchase
agreements.
(6) Issue senior securities as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges, or (ii) entering into
repurchase transactions.
(7) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related or foreign currency-related hedging
instruments, including swap agreements and other derivative instruments,
subject to compliance with any applicable provisions of the federal
securities or commodities laws.
(8) Lend its portfolio securities to broker-dealers and other financial
institutions in an amount in excess of 33 1/3% of the value of the Fund's
total assets.
(9) Borrow money, enter into reverse repurchase agreements, or employ similar
investment techniques, and pledge, assets in connection therewith, except
to the extent permitted by applicable law, and provided that the Fund will
not purchase additional securities if borrowings exceed 5% of total assets.
As a matter of non-fundamental policy, the Mid Cap Growth Fund may not:
(1) Invest in the securities of any issuer if any of the officers, directors or
trustees of the Series Company, VALIC or the Sub-adviser own beneficially
more than 1/2 of 1% of the outstanding securities of such issuer or
together own more than 5% of the outstanding securities of such issuer.
(2) Invest for the purpose of exercising control or management of another
issuer; except that the Fund may purchase securities of other investment
companies without regard to such limitation to the extent permitted by (i)
the 1940 Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time, or
(iii) an exemption or other relief from the provisions of the 1940 Act.
(3) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions).
(4) Make short sales of securities or maintain a short position, except short
sales "against the box"; (A short sale is made by selling a security the
Fund does not own. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no additional
cost securities identical to those sold short.)
(5) Participate on a joint or joint and several basis in any trading account in
securities.
(6) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be invested
in such securities.
(7) Invest more than 10% of the value of its net assets in illiquid securities.
(8) Purchase foreign securities, except the Fund may invest up to 10% of total
assets in foreign securities sold as American Depository Receipts.
(9) Invest in restricted securities.
(10) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
AMERICAN GENERAL SMALL CAP GROWTH FUND
("SMALL CAP GROWTH FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Small Cap Growth Fund may not:
(1) Make any investment inconsistent with the Fund's classification as a
diversified investment company under the 1940 Act; except that the Fund may
purchase securities of
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<PAGE> 266
other investment companies without regard to such limitation to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(2) Invest 25% or more of its total assets in the securities of one or more
issuers conducting their principal business activities in the same industry
(excluding the U.S. Government or any of its agencies or
instrumentalities); provided, however, that this limitation excludes shares
of other open-end investment companies owned by the Fund but includes the
Fund's pro rata portion of the securities and other assets owned by any
such company.
(3) Issue senior securities, except as permitted under the 1940 Act or any
rule, order or interpretation thereunder.
(4) Borrow money, enter into reverse repurchase agreements, or employ similar
investment techniques, and pledge, assets in connection therewith, except
to the extent permitted by applicable law, and provided that the Fund will
not purchase additional securities if borrowings exceed 5% of total assets.
(5) Underwrite securities of other issuers, except to the extent that the Fund,
in disposing of portfolio securities may be deemed an underwriter within
the meaning of the 1933 Act.
(6) Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in (a) securities directly or
indirectly secured by real estate, or (b) securities issued by issuers that
invest in real estate.
(7) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related or foreign currency-related hedging
instruments, including swap agreements and other derivative instruments,
subject to compliance with any applicable provisions of the federal
securities or commodities laws.
(8) Make loans to other persons, except in accordance with the Fund's
investment objectives and policies and to the extent permitted by
applicable law.
As a matter of non-fundamental policy, the Small Cap Growth Fund may not:
(1) Purchase securities on margin, make short sales of securities, or maintain
a short position, except in the course of the Fund's hedging activities,
provided that this restriction shall not be deemed to be applicable to the
purchase or sale of when-issued securities or delayed delivery securities.
(2) Invest more than 15% of the Fund's net assets in illiquid securities.
(3) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
AMERICAN GENERAL INTERNATIONAL VALUE FUND
("INTERNATIONAL VALUE FUND") INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the International Value Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer; except
that the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act. For purposes
of this restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is considered
as one class. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities. As a
matter of operating
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<PAGE> 267
policy, the Series Company will not consider repurchase agreements subject
to the 5% limitation if the collateral underlying the repurchase agreements
are U.S. Government securities.
(2) (a) Issue senior securities except in connection with investments in
options and futures contracts; or (b) borrow money, enter into repurchase
agreements, or employ similar investment techniques, and pledge its assets
in connection therewith, except to the extent permitted by applicable law,
and provided that the Fund will not purchase additional securities if
borrowings exceed 5% of total assets.
(3) Acquire real estate or real estate contracts, although the Fund may acquire
obligations that are secured by real estate or securities issued by
companies investing in real estate, such as real estate investment trusts.
(4) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(5) Lend money, except by purchasing debt obligations in which the Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.
(6) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related or foreign currency-related hedging
instruments, including swap agreements and other derivative instruments,
subject to compliance with any applicable provisions of the federal
securities or commodities laws.
(7) Lend its portfolio securities to broker-dealers and other financial
institutions in an amount in excess of 33 1/3% of the value of the Fund's
total assets.
(8) Invest more than 25% of its total assets in issuers primarily engaged in a
single industry (excluding the U.S. Government or any of its agencies or
instrumentalities), provided, however, that this limitation excludes shares
of other open-end investment companies owned by the Fund but includes the
Fund's pro rata portion of the securities and other assets owned by any
such company.
As a matter of non-fundamental policy, the International Value Fund may
not:
(1) Invest more than 15% of the Fund's net assets in illiquid and restricted
securities.
(2) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(3) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer; except that the Fund may purchase
securities of other investment companies without regard to such limitation
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
(4) Effect short sales of securities or purchase securities on margin, except
in connection with investment in options and futures contracts. The Fund
may use short-term credits when necessary to clear transactions.
AMERICAN GENERAL LARGE CAP VALUE FUND ("LARGE CAP VALUE FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Large Cap Value Fund may not:
(1) Invest 25% or more of the value of its total assets in securities of
companies primarily engaged in any one industry (other than the U.S.
Government, its agencies and instrumentalities), provided, however, that
this limitation excludes shares of other open-end investment companies
owned by the Fund but includes the Fund's pro rata portion of the
securities and other assets owned by any such company.
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<PAGE> 268
(2) Borrow money, except to enter into reverse repurchase agreements and employ
similar investment techniques and pledge its assets in connection
therewith, and as a temporary measure for extraordinary or emergency
purposes or to facilitate redemptions (not for leveraging or investment),
provided that borrowings do not exceed an amount equal to 33 1/3% of the
current value of the Fund's total assets taken at market value, less
liabilities other than borrowings. If at any time the Fund's borrowings
exceed this limitation due to a decline in net assets, such borrowings will
within three days be reduced to the extent necessary to comply with this
limitation. The Fund will not purchase investments once borrowed funds
(including reverse repurchase agreements) exceed 5% of its total assets.
(3) With respect to 75% of its total assets, invest in securities of any one
issuer (other than securities issued by the U.S. Government, its agencies,
and instrumentalities), if immediately after and as a result of such
investment the current market value of the Fund's holdings in the
securities of such issuer exceeds 5% of the value of the Fund's assets;
except that the Fund may purchase securities of other investment companies
without regard to such limitation to the extent permitted by (i) the 1940
Act, as amended from time to time, (ii) the rules and regulations
promulgated by the SEC under the 1940 Act, as amended from time to time, or
(iii) an exemption or other relief from the provisions of the 1940 Act.
(4) Make loans to any person or firm; provided, however, that the making of a
loan shall not include (i) the acquisition for investment of bonds,
debentures, notes or other evidences of indebtedness of any corporation or
government which are publicly distributed or of a type customarily
purchased by institutional investors, or (ii) the entry into repurchase
agreements or reverse repurchase agreements. The Fund may lend its
portfolio securities to broker-dealers or other institutional investors if
the aggregate value of all securities loaned does not exceed 33 1/3% of the
value of the Fund's total assets.
(5) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related or foreign currency-related hedging
instruments, including swap agreements and other derivative instruments,
subject to compliance with any applicable provisions of the federal
securities or commodities laws.
(6) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in securities secured by real estate or
interests therein or issued by companies which invest in real estate or
interests therein.
(7) Engage in the business of underwriting securities issued by others, except
that the Fund will not be deemed to be an underwriter or to be underwriting
on account of the purchase of securities subject to legal or contractual
restriction on disposition.
(8) Issue senior securities, except as permitted by its investment objective,
policies and restrictions, and except as permitted by the 1940 Act.
As a matter of non-fundamental policy, the Large Cap Value Fund may not:
(1) Purchase from or sell portfolio securities to its officers or trustees or
other interested persons (as defined in the 1940 Act) of the Fund,
including their investment advisers and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.
(2) Invest more than 15% of the Fund's net assets in illiquid securities or
restricted securities.
(3) Make investments for the purpose of gaining control of an issuer's
management.
(4) Pledge, mortgage or hypothecate its assets. However, the Fund may pledge
securities having a market value at the time of the pledge not exceeding
33 1/3% of the value of the Fund's total assets to secure borrowings
permitted by paragraph (2) above under fundamental policies.
(5) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, if as a result of such purchase the value of the
Fund's aggregate investment in such securi-
21
<PAGE> 269
ties would exceed 5% of the Fund's total assets.
(6) Make short sales of securities or purchase any securities on margin, except
for such short-term credits as are necessary for the clearance of
transactions. The Fund may make initial margin deposits and variation
margin payments in connection with transactions in futures contracts and
related options.
(7) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
AMERICAN GENERAL MID CAP VALUE FUND ("MID CAP VALUE FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Mid Cap Value Fund may not:
(1) Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes and not for leveraging or investment and
(ii) enter into reverse repurchase agreements and employ similar investment
techniques, and pledge its assets in connection therewith, for any purpose;
provided that (i) and (ii) in combination do not exceed 33 1/3% of the
value of its total assets (including the amount borrowed) less liabilities
(other than borrowings). If borrowings exceed 33 1/3% of the value of the
Fund's total assets, the Fund will reduce its borrowings within three days
(excluding Sundays and holidays) to the extent necessary to comply with the
33 1/3% limitation.
(2) Purchase physical commodities or contracts thereon, unless acquired as a
result of the ownership of securities or instruments, but this restriction
shall not prohibit the Fund from purchasing futures contracts or options
(including options on futures contracts, but excluding options or futures
contracts on physical commodities) or from investing in securities of any
kind. For purposes of the limitations on commodities, the Fund does not
consider foreign currencies or forward contracts to be physical
commodities.
(3) With respect to 75% of the value of its total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities) if, as a
result, (i) more than 5% of the value of the Fund's total assets would be
invested in the securities of that issuer or (ii) the Fund would hold more
than 10% of the outstanding voting securities of that issuer; except that
the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act.
(4) Purchase any security if, as a result, 25% or more of its total assets
(taken at current value) would be invested in the securities of issuers
having their principal business activities in the same industry, provided,
however, that this limitation excludes shares of other open-end investment
companies owned by the Fund but includes the Fund's pro rata portion of the
securities and other assets owned by any such company. This limitation does
not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
(5) Lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets (taken at current value) would be lent to other
parties, except, in accordance with its investment objective, policies, and
limitations, (i) through the purchase of a portion of an issue of debt
securities or (ii) by engaging in repurchase agreements.
(6) Purchase real estate unless acquired as a result of the ownership of
securities or instruments, but this restriction shall not prohibit the Fund
from purchasing securities issued by entities or investment vehicles that
own or deal in real estate or interests therein or instruments secured by
real estate or interests therein.
(7) Issue senior securities, except as permitted under the 1940 Act.
(8) Underwrite securities of other issuers, except to the extent that the Fund,
in disposing of
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portfolio securities, may be deemed to be an underwriter within the meaning
of the 1933 Act.
As a matter of non-fundamental policy, the Mid Cap Value Fund may not:
(1) Purchase securities if outstanding borrowings, including any reverse
repurchase agreements, exceed 5% of its total assets.
(2) Purchase securities on margin from brokers or other lenders, except that
the Fund may obtain such short-term credits as are necessary for the
clearance of securities transactions. Margin payments in connection with
transactions in futures contracts and options on futures contracts shall
not constitute the purchase of securities on margin and shall not be deemed
to violate the foregoing limitation.
(3) Invest more than 10% of the value of its total assets in securities of
foreign issuers, provided that the limitation shall not apply to foreign
securities denominated in U.S. dollars, including American Depositary
Receipts ("ADRs").
(4) Invest more than 15% of the Fund's net assets in illiquid and restricted
securities.
(5) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
AMERICAN GENERAL SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Small Cap Value Fund may not:
(1) Borrow money or mortgage or hypothecate assets of the Fund, except that in
an amount not to exceed 1/3 of the current value of the total Fund's
assets, it may borrow money as a temporary measure for extraordinary or
emergency purposes and enter into reverse repurchase agreements or dollar
roll transactions, and except that it may pledge, mortgage or hypothecate
not more than 1/3 of such assets to secure such borrowings (it is intended
that money would be borrowed only from banks and only either to accommodate
requests for the withdrawal of beneficial interests (redemption of shares)
while effecting an orderly liquidation of portfolio securities or to
maintain liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations) or reverse
repurchase agreements, provided that collateral arrangements with respect
to options and futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute. If borrowings exceed
5% of the Fund's total assets, the Fund will not purchase additional
securities.
(2) Underwrite securities issued by other persons except insofar as the Series
Company (or the Fund) may technically be deemed an underwriter under the
1933 Act in selling a portfolio security.
(3) Make loans to other persons except: (a) through the lending of the Fund's
portfolio securities and provided that any such loans not exceed 33 1/3% of
the Fund's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately.
(4) Purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein), in the
ordinary course of business (except that the Series Company may hold and
sell, for the Fund's portfolio, real estate acquired as a result of the
Fund's ownership of securities and the securities of companies that deal in
real estate).
(5) Invest more than 25% of its total assets in issuers primarily engaged in a
single industry (excluding the U.S. Government or any of its agencies or
instrumentalities), provided, however, that this limitation excludes shares
of other open-end investment companies owned by the Fund but includes the
Fund's pro rata portion of the securities and other assets owned by any
such company.
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(6) Issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.
(7) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related or foreign currency-related hedging
instruments, including swap agreements and other derivative instruments,
subject to compliance with any applicable provisions of the federal
securities or commodities laws.
As a matter of non-fundamental policy, the Small Cap Value Fund may not:
(1) Invest more than 15% of the Fund's net assets in illiquid and restricted
securities.
(2) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND
("SOCIALLY RESPONSIBLE FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Socially Responsible Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer; except
that the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act. For purposes
of this restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is considered
as one class. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities. As a
matter of operating policy, the Series Company will not consider repurchase
agreements subject to the 5% limitation if the collateral underlying the
repurchase agreements are U.S. Government securities.
(2) (a) Issue senior securities except in connection with investments in
options and futures contracts; or (b) borrow money, enter into reverse
repurchase agreements, or employ similar investment techniques, and pledge
its assets in connection therewith, except to the extent permitted by
applicable law, and provided that the Fund will not purchase additional
securities if borrowings exceed 5% of total assets.
(3) Acquire real estate or real estate contracts, although the Fund may acquire
obligations that are secured by real estate or securities issued by
companies investing in real estate, such as real estate investment trusts.
(4) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(5) Lend money, except by purchasing debt obligations in which a Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.
(6) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related
24
<PAGE> 272
or foreign currency-related hedging instruments, including swap agreements
and other derivative instruments, subject to compliance with any applicable
provisions of the federal securities or commodities laws.
(7) Lend its portfolio securities to broker-dealers and other financial
institutions in an amount in excess of 33 1/3% of the value of the Fund's
total assets.
(8) Enter into financial futures contracts (by exercise of any option or
otherwise) or acquire any options thereon, if, immediately thereafter, the
total of the initial margin deposits required with respect to all open
futures positions at the time such positions were established plus the sum
of the premiums paid for all unexpired options on futures contracts would
exceed 5% of the value of its total assets.
(9) Invest more than 25% of the value of its total assets in the securities of
issuers primarily engaged in any one industry (excluding the U.S.
Government or any of its agencies or instrumentalities), provided, however,
that this limitation excludes shares of other open-end investment companies
owned by the Fund but includes the Fund's pro rata portion of the
securities and other assets owned by any such company.
As a matter of non-fundamental policy, the Socially Responsible Fund may
not:
(1) Invest more than 10% of the Fund's net assets in illiquid and restricted
securities.
(2) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(3) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer; except that the Fund may purchase
securities of other investment companies without regard to such limitation
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
(4) Effect short sales of securities or purchase securities on margin, except
in connection with investment in options and futures contracts. The Fund
may use short-term credits when necessary to clear transactions.
AMERICAN GENERAL BALANCED FUND ("BALANCED FUND") INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Balanced Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer; except
that the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act. For purposes
of this restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is considered
as one class. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities. As a
matter of operating policy, the Series Company will not consider repurchase
agreements subject to the 5% limitation if the collateral underlying the
repurchase agreements are U.S. Government securities.
(2) (a) Issue senior securities except in connection with investments in
options and futures contracts; or (b) borrow money, enter into reverse
repurchase agreements, or employ similar investment techniques and pledge
its assets in connection therewith, except to the extent permitted by
applicable law, and provided that the Fund will not purchase additional
securities if borrowings exceed 5% of total assets.
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<PAGE> 273
(3) Acquire real estate or real estate contracts, although the Fund may acquire
obligations that are secured by real estate or securities issued by
companies investing in real estate, such as real estate investment trusts.
(4) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(5) Lend money, except by purchasing debt obligations in which the Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.
(6) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related or foreign currency-related hedging
instruments, including swap agreements and other derivative instruments,
subject to compliance with any applicable provisions of the federal
securities or commodities laws.
(7) Lend its portfolio securities to broker-dealers and other financial
institutions in an amount in excess of 33 1/3% of the value of the Fund's
total assets.
(8) Invest more than 25% of its total assets in issuers primarily engaged in a
single industry (excluding the U.S. Government or any of its agencies or
instrumentalities), provided, however, that this limitation excludes shares
of other open-end investment companies owned by the Fund but includes the
Fund's pro rata portion of the securities and other assets owned by any
such company.
As a matter of non-fundamental policy, the Balanced Fund may not:
(1) Invest more than 15% of the Fund's net assets in illiquid and restricted
securities.
(2) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(3) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer; except that the Fund may purchase
securities of other investment companies without regard to such limitation
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
(4) Effect short sales of securities or purchase securities on margin, except
in connection with investment in options and futures contracts. The Fund
may use short-term credits when necessary to clear transactions.
AMERICAN GENERAL HIGH YIELD BOND FUND ("HIGH YIELD BOND FUND"); AMERICAN GENERAL
STRATEGIC BOND FUND ("STRATEGIC BOND FUND"); AMERICAN GENERAL CORE BOND FUND
("CORE BOND FUND") AND AMERICAN GENERAL MUNICIPAL BOND FUND ("MUNICIPAL BOND
FUND") INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the High Yield Bond Fund, the Strategic Bond
Fund, the Core Bond Fund and the Municipal Bond Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer; except
that a Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act. For purposes
of this restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is considered
as one class. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities or
securities issued by state or municipal governments and their political
subdivisions. As a matter of operating policy,
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<PAGE> 274
the Series Company will not consider repurchase agreements subject to the
5% limitation if the collateral underlying the repurchase agreements are
U.S. Government securities.
(2) (a) Issue senior securities except in connection with investments in
options and futures contracts; or (b) borrow from banks or enter into
reverse repurchase agreements, or employ similar investment techniques, and
pledge its assets in connection therewith, unless immediately after each
borrowing there is asset coverage of 300%.
(3) Acquire real estate or real estate contracts, although a Fund may acquire
obligations that are secured by real estate or securities issued by
companies investing in real estate, such as real estate investment trusts.
(4) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(5) Lend money, except by purchasing debt obligations in which a Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.
(6) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related or foreign currency-related hedging
instruments, including swap agreements and other derivative instruments,
subject to compliance with any applicable provisions of the federal
securities or commodities laws.
(7) Lend its portfolio securities to broker-dealers and other financial
institutions in an amount in excess of 33 1/3% of the value of a Fund's
total assets.
(8) Invest more than 25% of its total assets in issuers primarily engaged in a
single industry (excluding the U.S. Government or any of its agencies or
instrumentalities and with respect to the Municipal Bond Fund, obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or by any state, territory or any possession of the
United States, the District of Columbia or any of their authorities,
agencies, instrumentalities or political subdivisions, or with respect to
repurchase agreements collateralized by any such obligations), provided,
however, that this limitation excludes shares of other open-end investment
companies owned by a Fund but includes a Fund's pro rata portion of the
securities and other assets owned by any such company.
As a matter of non-fundamental policy, the High Yield Fund, the Strategic
Bond Fund, the Core Bond Fund and the Municipal Bond Fund may not:
(1) Invest more than 15% of a Fund's net assets in illiquid and restricted
securities.
(2) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(3) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer; except that a Fund may purchase
securities of other investment companies without regard to such limitation
to the extent permitted by (i) the 1940 Act, as amended from time to time,
(ii) the rules and regulations promulgated by the SEC under the 1940 Act,
as amended from time to time, or (iii) an exemption or other relief from
the provisions of the 1940 Act.
(4) Effect short sales of securities or purchase securities on margin, except
in connection with investment in options and futures contracts. A Fund may
use short-term credits when necessary to clear transactions.
For the purposes of the investment limitations applicable to the Municipal
Bond Fund, the identification of the issuer of a municipal obligation depends on
the terms and conditions of the obligation. If the assets and revenues of an
agency, authority, instrumentality, or other political subdivision are separate
from those of the government creating the subdivision and the obligation is
backed only by the assets and revenues of the subdivision, such subdivi-
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sion would be regarded as the sole issuer. Similarly, in the case of a private
activity bond, if the bond is backed only by the assets and revenues of the non-
governmental user, such non-governmental user would be regarded as the sole
issuer. If in either case the creating government or another entity guarantees
an obligation, the guarantee would be considered a separate security and treated
as an issue of such government or entity.
AMERICAN GENERAL DOMESTIC BOND FUND
("DOMESTIC BOND FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Domestic Bond Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer; except
that the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act. For purposes
of this restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is considered
as one class. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities. As a
matter of operating policy, the Series Company will not consider repurchase
agreements subject to the 5% limitation if the collateral underlying the
repurchase agreements are U.S. Government securities.
(2) (a) Issue senior securities except in connection with investments in
options and futures contracts; or (b) borrow from banks or enter into
repurchase agreements, or employ similar investment techniques, and pledge
its assets in connection therewith, unless immediately after each borrowing
there is asset coverage of 300%.
(3) Acquire real estate, real estate contracts or real estate securities.
(4) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(5) Lend money, except by purchasing debt obligations in which the Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.
(6) Purchase or sell commodities or commodities contracts. This restriction
shall not prohibit the Fund, subject to restrictions described in the
Prospectus and elsewhere in this Statement of Additional Information, from
purchasing, selling or entering into futures contracts, options on futures
contracts, foreign currency forward contracts, foreign currency options, or
any interest rate, securities-related or foreign currency-related hedging
instruments, including swap agreements and other derivative instruments,
subject to compliance with any applicable provision of the federal
securities or commodities laws.
(7) Lend its portfolio securities to broker-dealers and other financial
institutions in an amount in excess of 33 1/3% of the value of the Fund's
total assets.
(8) Invest more than 25% of its total assets in issuers primarily engaged in a
single industry (excluding the U.S. Government or any of its agencies or
instrumentalities), provided, however, that this limitation excludes shares
of other open-end investment companies owned by the Fund but includes the
Fund's pro rata portion of the securities and other assets owned by any
such company.
As a matter of non-fundamental policy, the Domestic Bond Fund may not:
(1) Invest more than 15% of the Fund's net assets in illiquid and restricted
securities.
(2) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(3) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer; except that the Fund may
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<PAGE> 276
purchase securities of other investment companies without regard to such
limitation to the extent permitted by (i) the 1940 Act, as amended from
time to time, (ii) the rules and regulations promulgated by the SEC under
the 1940 Act, as amended from time to time, or (iii) an exemption or other
relief from the provisions of the 1940 Act.
(4) Effect short sales of securities or purchase securities on margin, except
in connection with investment in options and futures contracts. The Fund
may use short-term credits when necessary to clear transactions.
AMERICAN GENERAL MONEY MARKET FUND ("MONEY MARKET FUND") INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Money Market Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer; except
that the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act. For purposes
of this restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is considered
as one class. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities. As a
matter of operating policy, the Series Company will not consider repurchase
agreements subject to the 5% limitation if the collateral underlying the
repurchase agreements are U.S. Government securities.
(2) (a) Issue senior securities except in connection with investments in
options and futures contracts; or (b) borrow money, enter into reverse
repurchase agreements, or employ similar investment techniques, and pledge
its assets in connection therewith, except to the extent permitted by
applicable law, and provided that the Fund will not purchase additional
securities if borrowings exceed 5% of total assets.
(3) Acquire real estate or real estate contracts, although the Fund may acquire
obligations that are secured by real estate or securities issued by
companies investing in real estate, such as real estate investment trusts.
(4) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(5) Lend money, except by purchasing debt obligations in which the Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.
(6) Lend its portfolio securities to broker-dealers and other financial
institutions in an amount in excess of 33 1/3% of the value of the Fund's
total assets.
(7) Purchase or sell commodity contracts.
(8) Invest more than 25% of the value of its total assets in the securities of
issuers primarily engaged in any one industry, except investments in
obligations issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities, provided, however, that this limitation excludes shares
of other open-end investment companies owned by the Fund but includes the
Fund's pro rata portion of the securities and other assets owned by any
such company.
As a matter of non-fundamental policy, the Money Market Fund may not:
(1) Invest more than 10% of the Fund's net assets in illiquid and restricted
securities.
(2) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(3) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer; except that the Fund may purchase
securities of other investment companies without regard to such limitation
to the
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<PAGE> 277
extent permitted by (i) the 1940 Act, as amended from time to time, (ii)
the rules and regulations promulgated by the SEC under the 1940 Act, as
amended from time to time, or (iii) an exemption or other relief from the
provisions of the 1940 Act.
(4) Purchase any security which matures, after giving effect to any demand
features, more than 13 months from the date of purchase.
(5) Invest in warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof.
AMERICAN GENERAL MUNICIPAL MONEY MARKET FUND ("MUNICIPAL MONEY MARKET FUND")
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Municipal Money Market Fund may not:
(1) Purchase the securities of any issuer (except the U.S. Government, its
agencies or instrumentalities, or securities which are backed by the full
faith and credit of the U.S. or securities issued by state or municipal
governments and their political subdivisions) if, as a result, more than 5%
of its total assets would be invested in the securities of such issuer or
more than 10% of the outstanding voting securities of any class of any
issuer would be held by the Fund. The Fund may purchase securities of other
investment companies without regard to such limitation to the extent
permitted by (i) the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(2) Borrow money, except from a bank for temporary or emergency purposes and
not for investment purposes, and then in an amount not exceeding 10% of the
value of the Fund's total assets at the time of borrowing. (No new
investments will be made by the Fund while any outstanding borrowings
exceed 5% of its total assets.) Secured temporary borrowings may take the
form of reverse repurchase agreements, pursuant to which the Fund would
sell portfolio securities for cash and simultaneously agree to repurchase
them at a specified date for the same amount of cash plus an interest
component.
(3) Underwrite any issue of securities, except to the extent that the purchase
of municipal obligations in accordance with the Fund's investment
objectives, policies, and restrictions, either directly from the issuer, or
from an underwriter for an issuer, may be deemed to be underwriting.
(4) Purchase or sell real estate, but this shall not prevent the Fund from
investing in municipal fixed income securities secured by real estate or
interests therein.
(5) Purchase or sell commodities or commodity contracts or invest in oil, gas
or other mineral exploration or development programs.
(6) Make loans, except (i) by the purchase of a portion of an issue of debt
securities in accordance with its investment objectives, policies, and
restrictions, (ii) by engaging in repurchase transactions, and (iii) by
making loans of portfolio securities not in excess of 10% of the value of
the Fund's total assets.
(7) Write, purchase or sell puts, calls, or combinations thereof, except that
it may obtain rights to resell municipal bonds and notes.
(8) Purchase securities (other than municipal bonds, notes and other fixed
income securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) if, as a result, more than 25% of total Fund assets
would be invested in any one industry.
As a matter of non-fundamental policy, the Municipal Money Market Fund may
not:
(1) Pledge, mortgage, or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities
having a market value at the time of pledge not exceeding 10% of the value
of the Fund's total assets.
(2) Invest more than 10% of the Fund's net assets in illiquid or restricted
securities.
(3) Make short sales of securities or purchase any securities on margin, except
for such short-term credits as are necessary for the clearance of
transactions.
(4) Purchase or retain the securities of any issuer other than the securities
of the Fund, if, to the Fund's knowledge, those Trustees and officers of
the Series Company, or of the investment manager, who individually own
beneficially more than 1/2 of 1% of the outstanding securi-
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ties of such issuer together own beneficially more than 5% of such
outstanding securities.
(5) Invest for the purpose of exercising control or management of another
company.
(6) Invest in securities issued by other investment companies except as part of
a merger, reorganization or other acquisition and except to the extent
permitted (i) by the 1940 Act, as amended from time to time, (ii) the rules
and regulations promulgated by the SEC under the 1940 Act, as amended from
time to time, or (iii) an exemption or other relief from the provisions of
the 1940 Act.
(7) Purchase an industrial revenue bond if, as a result of such purchase, more
than 5% of total Fund assets would be invested in industrial revenue bonds
where the payment of principal and interest are the responsibility of
companies with less than three years of operating history.
For the purposes of the investment limitations applicable to the Municipal
Money Market Fund, the identification of the issuer of a municipal obligation
depends on the terms and conditions of the obligation. If the assets and
revenues of an agency, authority, instrumentality, or other political
subdivision are separate from those of the government creating the subdivision
and the obligation is backed only by the assets and revenues of the subdivision,
such subdivision would be regarded as the sole issuer. Similarly, in the case of
a private activity bond, if the bond is backed only by the assets and revenues
of the non-governmental user, such non-governmental user would be regarded as
the sole issuer. If in either case the creating government or another entity
guarantees an obligation, the guarantee would be considered a separate security
and treated as an issue of such government or entity.
AMERICAN GENERAL GROWTH LIFESTYLE FUND
("GROWTH LIFESTYLE FUND"); AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND
("MODERATE GROWTH LIFESTYLE FUND"); AND AMERICAN GENERAL CONSERVATIVE GROWTH
LIFESTYLE FUND ("CONSERVATIVE GROWTH LIFESTYLE FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Growth Lifestyle Fund, the Moderate
Growth Lifestyle Fund and the Conservative Growth Lifestyle Fund may not:
(1) Issue senior securities.
(2) Borrow money, except to the extent permitted by applicable law, and
provided that the Fund may not purchase additional securities if borrowings
exceed 5% of total assets.
(3) Underwrite the securities of other issuers.
(4) Purchase real estate or real estate mortgage loans, although the underlying
mutual funds in which a Fund will invest may purchase marketable securities
of companies which deal in real estate, real estate mortgage loans or
interests therein.
(5) Purchase or sell commodities or commodity contracts.
(6) Make loans except by purchasing bonds, debentures or similar obligations
which are either publicly distributed or customarily purchased by
institutional investors.
(7) Invest more than 25% of its assets in any one industry, other than Funds
that are part of the Series Company.
As a matter of non-fundamental policy, the Growth Lifestyle Fund, the
Moderate Growth Lifestyle Fund and the Conservative Growth Lifestyle Fund may
not:
(1) Purchase any securities on margin, make short sales of securities or
purchase or sell puts and calls, or combinations thereof.
(2) Invest directly in oil, gas, or other mineral exploration or development
programs; provided, however, that the underlying mutual funds in which the
Fund will invest may purchase the securities of companies engaged in such
activities.
(3) Purchase or retain any security other than shares of the underlying Series
Company Funds if (i) one or more officers or trustees of the Series Company
individually own or would own, directly or beneficially, more than 1/2 of 1
percent of the securities of such issuer and (ii) in the aggregate such
persons own or would own more than 5% of such securities.
(4) Invest in companies for the purpose of exercising control of management.
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INVESTMENT PRACTICES
REPURCHASE AGREEMENTS
Each Fund may hold commercial paper, certificates of deposits, and
government obligations (including government guaranteed obligations) subject to
repurchase agreements with certain well established domestic banks and certain
broker-dealers, including primary government securities dealers, approved as
creditworthy by the Board of Trustees. The underlying security must be a U.S.
Government security or a security rated in the highest rating category by the
requisite NRSROs (Nationally Recognized Statistical Rating Organization) (except
for the International Growth Fund, the International Value Fund, the Strategic
Bond Fund, the Municipal Bond Fund, and the High Yield Bond Fund which may
utilize foreign money market securities) and the seller must be a well
established securities dealer or bank that is a member of the Federal Reserve
System. For the Money Market Fund and the Municipal Money Market Fund, the
underlying security must be a U.S. Government security or a security rated in
the highest rating category by the requisite NRSROs and must be determined to
present minimal credit risk. Repurchase agreements are generally for short
periods, often less than a week. Repurchase agreements typically obligate a
seller, at the time it sells securities to a Fund, to repurchase the securities
at a specific future time and price. The price for which the Fund resells the
securities is calculated to exceed the price the Fund initially paid for the
same securities, thereby determining the yield during the Fund's holding period.
This result is a fixed market rate of interest, agreed upon by that Fund and the
seller, which is accrued as ordinary income. Most repurchase agreements mature
within seven days although some may have a longer duration. The underlying
securities constitute collateral for these repurchase agreements, which are
considered loans under the 1940 Act.
The Funds do not intend to sell the underlying securities subject to a
repurchase agreement (except to the seller upon maturity of the agreement).
During the term of the repurchase agreement, the Funds (i) retain the securities
subject to the repurchase agreement as collateral securing the seller's
obligation to repurchase the securities, (ii) monitor on a daily basis the
market value of the securities subject to the repurchase agreement, and (iii)
require the seller to deposit with the Series Company's custodian collateral
equal to any amount by which the market value of the securities subject to the
repurchase agreement falls below the resale amount provided under the repurchase
agreement. In the event that a seller defaults on its obligation to repurchase
the securities, the Funds must hold the securities until they mature or may sell
them on the open market, either of which may result in a loss to a Fund if, and
to the extent that, the values of the securities decline. Additionally, the
Funds may incur disposition expenses when selling the securities. Bankruptcy
proceedings by the seller may also limit or delay realization and liquidation of
the collateral by a Fund and may result in a loss to that Fund. The Board of
Trustees of the Series Company will evaluate the creditworthiness of all banks
and broker-dealers with which the Series Company proposes to enter into
repurchase agreements. The Funds will not invest in repurchase agreements that
do not mature within seven days if any such investment, together with any
illiquid assets held by a Fund, exceeds 10% of the value of that Fund's total
assets (15% in the case of the S&P 500 Index Fund, the MidCap Index Fund, the
Small Cap Index Fund, International Growth Fund, the Large Cap Growth Fund, the
Small Cap Growth Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the
Small Cap Value Fund, the High Yield Bond Fund, the Balanced Fund, the
International Value Fund, the Domestic Bond Fund, the Strategic Bond Fund, the
Municipal Bond Fund and the Core Bond Fund).
LENDING PORTFOLIO SECURITIES
For purposes of realizing additional income, each Fund, except the
Lifestyle Funds, may make secured loans of its portfolio securities. Securities
loans are made to broker-dealers and other financial institutions approved by
State Street Bank and Trust Company (the "Custodian"), custodian to the Funds
and pursuant to agreements requiring that the loans be continuously secured by
collateral at least equal at all times to the loaned securities marked to market
on a daily basis. VALIC will monitor the activities of the Custodian as
authorized by the Board of Trustees. The collateral received will consist of
cash, U.S. government securities, letters of credit or such other collateral as
permitted by interpretations or rules of the SEC. While the securities are on
loan, the Funds will continue to receive the equivalent of the interest or
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dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower.
Any loan of portfolio securities by any Fund will be callable at any time
by the lending Fund upon notice of five business days. When voting or consent
rights which accompany loaned securities pass to the borrower, the lending Fund
will call the loan, in whole or in part as appropriate, to permit the exercise
of such rights if the matters involved would have a material effect on that
Fund's investment in the securities being loaned. If the borrower fails to
maintain the requisite amount of collateral, the loan will automatically
terminate, and the lending Fund will be permitted to use the collateral to
replace the securities while holding the borrower liable for any excess of
replacement cost over collateral. As with any extensions of credit, there are
risks of delay in receiving additional collateral or in the recovery of the
securities or, in some cases, even loss of rights in the collateral should the
borrower of the securities fail financially. However, these loans of portfolio
securities will be made only when the Custodian, as monitored by VALIC,
considers the borrowing broker-dealers or financial institutions to be
creditworthy and of good standing and the interest earned from such loans to
justify the attendant risks. On termination of the loan, the borrower will be
required to return the securities to the lending Fund. Any gain or loss in the
market price during the loan would inure to the lending Fund. The lending Fund
may pay reasonable finders', administrative, and custodial fees in connection
with a loan of its securities.
BORROWING, REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
A Fund, subject to its investment restrictions, may borrow money. This
borrowing may be unsecured. Provisions of the 1940 Act require a Fund to
maintain continuous asset coverage (that is, total assets including borrowings,
less liabilities exclusive of borrowings) of 300% of the amount borrowed, with
an exception for borrowings not in excess of 5% of the Fund's total assets made
for temporary administrative purposes. Any borrowings for temporary
administrative purposes in excess of 5% of the Fund's total assets must maintain
continuous asset coverage. If the 300% asset coverage should decline as a result
of market fluctuations or other reasons, a Fund may be required to sell some of
its portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. As noted below, a Fund also may
enter into certain transactions, including reverse repurchase agreements,
mortgage dollar rolls, and sale-buybacks, that can be viewed as constituting a
form of borrowing or financing transaction by the Fund. To the extent a Fund
covers its commitment under a reverse repurchase agreement (or economically
similar transaction) by the segregation of assets determined in accordance with
procedures adopted by the Trustees, equal in value to the amount of the Fund's
commitment to repurchase, such an agreement will not be considered a "senior
security" by the Fund and therefore will not be subject to the 300% asset
coverage requirement otherwise applicable to borrowings by the Funds. Borrowing
will tend to exaggerate the effect on net asset value of any increase or
decrease in the market value of a Fund's portfolio. Money borrowed will be
subject to interest costs which may or may not be recovered by appreciation of
the securities purchased. A Fund also may be required to maintain minimum
average balances in connection with such borrowing or to pay a commitment or
other fee to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate.
In addition to borrowing for temporary purposes, a Fund may enter into
reverse repurchase agreements, mortgage dollar rolls, and economically similar
transactions. A reverse repurchase agreement involves the sale of a
portfolio-eligible security by a Fund, coupled with its agreement to repurchase
the instrument at a specified time and price. Under a reverse repurchase
agreement, the Fund continues to receive any principal and interest payments on
the underlying security during the term of the agreement. The Fund typically
will segregate assets determined to be liquid by VALIC or a Sub-adviser in
accordance with procedures established by the Board of Trustees, equal (on a
daily mark-to-market basis) to its obligations under reverse repurchase
agreements. However, reverse repurchase agreements involve the risk that the
market value of securities retained by the Fund may decline below the repurchase
price of the securities sold by the Fund which it is obligated to repurchase. To
the extent that positions in reverse repurchase agreements are not covered
through the segregation of liquid assets at least equal to the amount of any
forward purchase commitment, such transactions
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would be subject to the Funds' limitations on borrowings.
A "mortgage dollar roll" is similar to a reverse repurchase agreement in
certain respects. In a "dollar roll" transaction, a Fund sells a
mortgage-related security, such as a security issued by the Government National
Mortgage Association ("GNMA"), to a dealer and simultaneously agrees to
repurchase a similar security (but not the same security) in the future at a
pre-determined price. A "dollar roll" can be viewed, like a reverse repurchase
agreement, as a collateralized borrowing in which a Fund pledges a
mortgage-related security to a dealer to obtain cash. Unlike in the case of
reverse repurchase agreements, the dealer with which a Fund enters into a dollar
roll transaction is not obligated to return the same securities as those
originally sold by the Fund, but only securities which are "substantially
identical." To be considered "substantially identical," the securities returned
to a Fund generally must: (1) be collateralized by the same types of underlying
mortgages; (2) be issued by the same agency and be part of the same program; (3)
have a similar original stated maturity; (4) have identical net coupon rates;
(5) have similar market yields (and therefore price); and (6) satisfy "good
delivery" requirements, meaning that the aggregate principal amounts of the
securities delivered and received back must be within 1.0% of the initial amount
delivered.
A Fund's obligations under a dollar roll agreement must be covered by
segregated liquid assets equal in value to the securities subject to repurchase
by the Fund. As with reverse repurchase agreements, to the extent that positions
in dollar roll agreements are not covered by segregated liquid assets at least
equal to the amount of any forward purchase commitment, such transactions would
be subject to the Funds' limitations on borrowings. Dollar roll transactions for
terms exceeding three months may be deemed "illiquid" and subject to a Fund's
overall limitations on investments in illiquid securities.
CONVERTIBLE SECURITIES
Certain Funds may invest in convertible securities of foreign or domestic
issues. A convertible security is a security (a bond or preferred stock) which
may be converted at a stated price within a specified period of time into a
certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in a corporation's capital
structure but are usually subordinated to similar nonconvertible securities.
Convertible securities provide, through their conversion feature, an opportunity
to participate in capital appreciation resulting from a market price advance in
a convertible security's underlying common stock. The price of a convertible
security is influenced by the market value of the underlying common stock and
tends to increase as the market value of the underlying stock rises, whereas it
tends to decrease as the market value of the underlying stock declines.
A Fund may be required to permit the issuer of a convertible security to
redeem the security, convert it into the underlying common stock, or sell it to
a third party. Thus, a Fund may not be able to control whether the issuer of a
convertible security chooses to convert that security. If the issuer chooses to
do so, this action could have an adverse effect on a Fund's ability to achieve
its investment objectives.
To the extent that convertible securities are intended by a Fund to be
equity securities, the following equity quality criteria typically are
considered: industry prospects (growth rate, competitive pressures,
supply/demand characteristics), market valuations (including price-to-book
ratios, price-earnings ratios and return on equity), company profile (suppliers,
competitors, end-users and customers), discretionary cash flow and quality of
management. To the extent that convertible securities are intended by a Fund to
be fixed income securities, the quality criteria typically applied by the Fund
to investments in fixed income securities (i.e., Moody's and S&P ratings) are
applied.
FOREIGN SECURITIES
All Funds, other than the Lifestyle Funds, may invest in foreign
securities. A foreign security includes corporate debt securities of foreign
issuers (including preferred or preference stock), certain foreign bank
obligations (see "Bank Obligations") and U.S. dollar or foreign
currency-denominated obligations of foreign governments or their subdivisions,
agencies and instrumentalities, international agencies and supranational
entities.
Included within the definition of foreign securities are the following
depository receipts: American Depository Receipts (ADRs), European Depositary
Receipts (EDRs) and Global Depository Receipts
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(GDRs). Depository receipts that are denominated in U.S. dollars are not
considered foreign securities in determining compliance with the Mid Cap Value
Fund's investment restrictions.
ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank and traded on a United
States exchange or in an over-the-counter market. Generally, ADRs are in
registered form. Investment in ADRs has certain advantages over direct
investment in the underlying foreign securities since: (i) ADRs are U.S.
dollar-denominated investments that are easily transferable and for which market
quotations are readily available, and (ii) issuers whose securities are
represented by ADRs are generally subject to auditing, accounting and financial
reporting standards similar to those applied to domestic issuers. EDRs and GDRs
are receipts evidencing an arrangement with a non-U.S. bank similar to that for
ADRs and are designed for use in the non-U.S. securities markets. EDRs and GDRs
are not necessarily quoted in the same currency as the underlying security. In
addition, certain Funds may invest in other types of depositary securities such
as international depository receipts, global depository shares, European
depository shares and international depository shares.
A Fund may also, in accordance with its specific investment objective(s)
and investment program, policies and restrictions purchase U.S. dollar-
denominated money market securities of foreign issuers. Such money market
securities may be registered domestically and traded on domestic exchanges or in
the over-the-counter market (e.g., Yankee securities) or may be (1) registered
abroad and traded exclusively in foreign markets or (2) registered domestically
and issued in foreign markets (e.g., Eurodollar securities).
In addition, all the Funds, except the Lifestyle Funds, the Core Bond Fund,
the Municipal Money Market Fund and the Money Market Fund, may invest in
non-U.S. dollar-denominated foreign securities, in accordance with their
specific investment objective(s), investment programs, policies, and
restrictions. Investing in foreign securities may involve advantages and
disadvantages not present in domestic investments. There may be less publicly
available information about securities not registered domestically, or their
issuers, than is available about domestic issuers or their domestically
registered securities. Stock markets outside the U.S. may not be as developed as
domestic markets, and there may also be less government supervision of foreign
exchanges and brokers. Foreign securities may be less liquid or more volatile
than U.S. securities. Trade settlements may be slower and could possibly be
subject to failure. In addition, brokerage commissions and custodial costs with
respect to foreign securities may be higher than those for domestic investments.
Accounting, auditing, financial reporting and disclosure standards for foreign
issuers may be different than those applicable to domestic issuers. Non-U.S.
dollar-denominated foreign securities may be affected favorably or unfavorably
by changes in currency exchange rates and exchange control regulations
(including currency blockage) and a Fund may incur costs in connection with
conversions between various currencies. Foreign securities may also involve
risks due to changes in the political or economic conditions of such foreign
countries, the possibility of expropriation of assets or nationalization, and
possible difficulty in obtaining and enforcing judgments against foreign
entities.
BRADY BONDS
The Domestic Bond Fund, the Balanced Fund, the High Yield Bond Fund, the
Municipal Bond Fund, the Strategic Bond Fund and the Core Bond Fund may invest
in Brady Bonds. Brady Bonds are securities created through the exchange of
existing commercial bank loans to sovereign entities for new obligations in
connection with debt restructurings under a debt restructuring plan introduced
by former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Plan debt restructurings have been implemented in a number of countries,
including: Argentina, Bolivia, Bulgaria, Costa Rica, the Dominican Republic,
Ecuador, Jordan, Mexico, Niger, Nigeria, the Philippines, Poland, Uruguay, and
Venezuela. In addition, Brazil has concluded a Brady-like plan. It is expected
that other countries will undertake a Brady Plan in the future, including Panama
and Peru.
Brady Bonds have been issued only recently, and accordingly do not have a
long payment history. Brady Bonds may be collateralized or uncollateralized, are
issued in various currencies (primarily the U.S. dollar) and are actively traded
in the over-the-counter secondary market. U.S. dollar-denominated,
collateralized Brady Bonds, which may be fixed rate par bonds or floating rate
discounts bonds,
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are generally collateralized in full as to principal by U.S. Treasury zero
coupon bonds having the same maturity as the Brady Bonds. Interest payments on
these Brady Bonds generally are collateralized on a one-year or longer
rolling-forward basis by cash or securities in an amount that, in the case of
fixed rate bonds, is equal to at least one year of interest payments or, in the
case of floating rate bonds, initially is equal to at least one year's interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady Bonds
are often viewed as having three or four valuation components: (i) the
collateralized repayment of principal at final maturity; (ii) the collateralized
interest payments; (iii) the uncollateralized interest payments; and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk").
Most Mexican Brady Bonds issued to date have principal repayments at final
maturity fully collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and interest coupon payments
collateralized on an 18-month rolling-forward basis by funds held in escrow by
an agent for the bondholders. A significant portion of the Venezuelan Brady
Bonds and the Argentine Brady Bonds issued to date have principal repayments at
final maturity collateralized by U.S. Treasury zero coupon bonds (or comparable
collateral denominated in other currencies) and/or interest coupon payments
collateralized on a 14-month (for Venezuela) or 12-month (for Argentina)
rolling-forward basis by securities held by the Federal Reserve Bank of New York
as collateral agent.
Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds. There can be no assurance that Brady
Bonds in which the Funds may invest will not be subject to restructuring
arrangements or to requests for new credit, which may cause the Funds to suffer
a loss of interest or principal on any of its holdings.
SOVEREIGN DEBT OBLIGATIONS
Investment in sovereign debt can involve a high degree of risk. The
governmental entity that controls the repayment of sovereign debt may not be
able or willing to repay the principal and/or interest when due in accordance
with the terms of the debt. A governmental entity's willingness or ability to
repay principal and interest due in a timely manner may be affected by, among
other factors, its cash flow situation, the extent of its foreign reserves, the
availability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the
governmental entity's policy toward the International Monetary Fund, and the
political constraints to which a governmental entity may be subject.
Governmental entities may also depend on expected disbursements from foreign
governments, multilateral agencies and others to reduce principal and interest
arrearages on their debt. The commitment on the part of these governments,
agencies and others to make such disbursements may be conditioned on a
governmental entity's implementation of economic reforms and/or economic
performance and the timely service of such debtor's obligations. Failure to
implement such reforms, achieve such levels of economic performance or repay
principal or interest when due may result in the cancellation of such third
parties' commitments to lend funds to the governmental entity, which may further
impair such debtor's ability or willingness to service its debts in a timely
manner. Consequently, governmental entities may default on their sovereign debt.
Holders of sovereign debt (including the Funds) may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental
entities. There is no bankruptcy proceeding by which sovereign debt on which
governmental entities have defaulted may be collected in whole or in part.
A Fund will consider an issuer to be economically tied to a country with an
emerging securities market if (1) the issuer is organized under the laws of, or
maintains its principal place of business in, the country, (2) its securities
are principally traded in the country's securities markets, or (3) the issuer
derived at least half of its revenues or profits from goods produced or sold,
investments made, or services performed in the country, or has at least half of
its assets in that country.
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PERFORMANCE INDEXED PAPER
Performance indexed paper ("PIPs(SM)") is U.S. dollar-denominated
commercial paper the yield of which is linked to certain foreign exchange rate
movements. The yield to the investor on performance indexed paper is established
at maturity as a function of spot exchange rates between the U.S. dollar and a
designated currency as of or about that time (generally, the index maturity two
days prior to maturity). The yield to the investor will be within a range
stipulated at the time of purchase of the obligation, generally with a
guaranteed minimum rate of return that is below, and a potential maximum rate of
return that is above, market yields on U.S. dollar-denominated commercial paper,
with both the minimum and maximum rates of return on the investment
corresponding to the minimum and maximum values of the spot exchange rate two
business days prior to maturity.
BANK OBLIGATIONS
Each Fund, other than the Lifestyle Funds, may invest in bank obligations.
Bank obligations in which the Funds may invest include certificates of deposit,
bankers' acceptances, and fixed time deposits. Certificates of deposit are
negotiable certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return. Bankers' acceptances
are negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Fixed time deposits are bank obligations payable
at a stated maturity date and bearing interest at a fixed rate. Fixed time
deposits may be withdrawn on demand by the investor, but may be subject to early
withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits. A Fund will not invest in
fixed time deposits which (1) are not subject to prepayment or (2) provide for
withdrawal penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more than 10% of its net assets (15% in the case of the S&P 500 Index
Fund, the Mid Cap Index Fund, the Small Cap Index Fund, the International Growth
Fund, the Large Cap Growth Fund, the Small Cap Growth Fund, the Large Cap Value
Fund, the Small Cap Value Fund, the High Yield Bond Fund, the Balanced Fund, the
International Value Fund, the Domestic Bond Fund, the Municipal Bond Fund, the
Strategic Bond Fund and the Core Bond Fund) would be invested in such deposits,
repurchase agreements maturing in more than seven days and other illiquid
assets.
The Funds limit investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. A Fund
also may invest in certificates of deposit of savings and loan associations
(federally or state chartered and federally insured) having total assets in
excess of $1 billion.
The Funds limit investments in foreign bank obligations to United States
dollar-or foreign currency-denominated obligations of foreign banks (including
United States branches of foreign banks) which at the time of investment (i)
have more than $10 billion, or the equivalent in other currencies, in total
assets; (ii) in terms of assets are among the 75 largest foreign banks in the
world; (iii) have branches or agencies (limited purpose offices which do not
offer all banking services) in the United States; and (iv) in the opinion of
VALIC or a Sub-adviser, are of an investment quality comparable to obligations
of United States banks in which the Funds may invest. The Core Bond Fund may
invest in the same types of bank obligations as the other Funds, but they must
be U.S. dollar-denominated. Subject to a Fund's limitation on concentration in
the securities of issuers in a particular industry, there is no limitation on
the amount of a Fund's assets which may be invested in obligations of foreign
banks which meet the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such
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as exchange controls may be adopted which might adversely affect the payment of
principal and interest on those obligations and that the selection of those
obligations may be more difficult because there may be less publicly available
information concerning foreign banks or the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign banks may
differ from those applicable to United States banks. Foreign banks are not
generally subject to examination by any U.S. Government agency or
instrumentality.
INTERNATIONAL BONDS
Certain Funds also may invest in international bonds, which include U.S.
dollar-denominated bonds issued by foreign corporations for which the primary
trading market is in the United States ("Yankee Bonds"), or for which the
primary trading market is abroad ("Euro Bonds"). International bonds may involve
special risks and considerations not typically associated with investing in U.S.
companies, including differences in accounting, auditing and financial reporting
standards; generally higher commission rates on foreign portfolio transactions;
the possibility of nationalization, expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations (which may include
suspension of the ability to transfer currency from a country); and political
instability which could affect U.S. investments in foreign countries.
Additionally, dispositions of foreign securities and dividends and interest
payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility. A
Fund's investment in international bonds also may be affected either unfavorably
or favorably by fluctuations in the relative rates of exchange between
currencies of different nations, by exchange control regulations and by
indigenous economic and political developments.
EMERGING MARKETS
Investments in companies domiciled in emerging market countries may be
subject to additional risks. Specifically, volatile social, political and
economic conditions may expose investments in emerging or developing markets to
economic structures that are generally less diverse and mature. Emerging market
countries may have less stable political systems than those of more developed
countries. As a result, it is possible that recent favorable economic
developments in certain emerging market countries may be suddenly slowed or
reversed by unanticipated political or social events in such countries.
Moreover, the economies of individual emerging market countries may differ
favorably or unfavorably from the US economy in such respects as the rate of
growth in gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
Another risk is that the small current size of the markets for such
securities and the currently low or nonexistent volume of trading can result in
a lack of liquidity and in greater price volatility. Until recently, there has
been an absence of a capital market structure or market-oriented economy in
certain emerging market countries. If a Fund's securities will generally be
denominated in foreign currencies, the value of such securities to the Fund will
be affected by changes in currency exchange rates and in exchange control
regulations. A change in the value of a foreign currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of a Fund's
securities. In addition, some emerging market countries may have fixed or
managed currencies which are not free-floating against the U.S. dollar. Further,
certain emerging market currencies may not be internationally traded. Certain of
these currencies have experienced a steady devaluation relative to the U.S.
dollar. Many emerging markets countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.
A further risk is that the existence of national policies may restrict a
Fund's investment opportunities and may include restrictions on investment in
issuers or industries deemed sensitive to national interests. Also, some
emerging markets countries may not have developed structures governing private
or foreign investment and may not allow for judicial redress for injury to
private property.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Foreign currency transactions used by certain of the Funds may be either:
(i) on the spot (i.e., cash) basis at the spot rate prevailing in the foreign
exchange market, or (ii) conducted through the use of forward foreign currency
exchange contracts. A
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forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date. In general, forward foreign currency
exchange contracts are not guaranteed by a third party and, accordingly, each
party to a forward foreign currency exchange contract is dependent upon the
creditworthiness and good faith of the other party.
A Fund will enter into forward foreign currency exchange contracts only
under two circumstances. First, a Fund may enter into a forward foreign currency
exchange contract to purchase an amount of foreign currency to protect itself
against a possible loss that might occur between trade and settlement dates for
a particular security, resulting from a decline in the U.S. dollar against the
foreign currency in which such security is denominated. This practice may limit
the potential gains that might result from a positive change in such currency
relationships. Second, when VALIC or a Sub-adviser believes that the currency of
a particular foreign country may suffer or enjoy a substantial movement against
the U.S. dollar, a Fund may enter into a forward foreign currency exchange
contract to purchase or sell an amount of foreign currency approximating the
value of some or all of that Fund's portfolio securities denominated in such
foreign currency. The forecasting of short-term currency market movements is
extremely difficult and it is uncertain whether such short-term hedging
strategies will be successful.
STANDARD AND POOR'S DEPOSITORY RECEIPTS
The Large Cap Growth Fund may, consistent with its objectives, purchase
Standard & Poor's Depository Receipts ("SPDR's"). SPDRs are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust, a trust
which has been established to accumulate and hold a portfolio of common stocks
that is intended to track the price performance and dividend yield of the S&P
500. This trust is sponsored by a subsidiary of the American Stock Exchange.
SPDRs may be used for several reasons, including but not limited to:
facilitating the handling of cash flows or trading, or reducing transaction
costs. The use of SPDRs would introduce additional risk to the Large Cap Growth
Fund as the price movement of the instrument does not perfectly correlate with
the price action of the underlying index.
WHEN-ISSUED SECURITIES
Each of the Funds except the Lifestyle Funds, the Money Market Fund and the
Mid Cap Value Fund may purchase securities on a when-issued, delayed delivery or
forward commitment basis. When such transactions are negotiated, the price of
such securities is fixed at the time of commitment, but delivery and payment for
the securities may take place a month or more after the date of the commitment
to purchase. The securities so purchased are subject to market fluctuation, and
no interest accrues to the purchaser during this period. Forward commitments
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date. VALIC does not believe that a Fund's net asset
value or income will be adversely affected by the purchase of securities on a
when-issued basis.
FIXED INCOME SECURITIES
Fixed income securities are considered high quality if they are rated at
least A by Moody's or its equivalent by any other NRSRO or, if unrated, are
determined to be of equivalent investment quality. High quality fixed income
securities are considered to have a very strong capacity to pay principal and
interest. Fixed income securities are considered investment grade if they are
rated, for example, at least Baa by Moody's or BBB by S&P or their equivalents
by any other NRSRO or, if not rated, are determined to be of equivalent
investment quality. Investment grade fixed income securities are regarded as
having an adequate capacity to pay principal and interest. Lower rated
securities, for example, Ba by Moody's or its equivalent by any other NRSRO are
regarded on balance as high risk and predominantly speculative with respect to
the issuer's continuing ability to meet principal and interest payments.
The maturity of fixed income securities may be considered long (ten plus
years), intermediate (one to ten years), or short-term (thirteen months or
less). In general, the principal values of longer-term securities fluctuate more
widely in response to changes in interest rates than those of shorter-term
securities, providing greater opportunity for capital gain or risk of capital
loss. A decline in interest rates usually produces an increase in the value of
fixed income securities, while an increase in interest rates generally reduces
their value.
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LOWER RATED FIXED INCOME SECURITIES
Issuers of lower rated or non-rated securities ("high yield" securities,
commonly known as "junk bonds") may be highly leveraged and may not have
available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be adversely affected by
specific issuer developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing. The
risk of loss due to default by the issuer is significantly greater for the
holders of lower rated securities because such securities may be unsecured and
may be subordinated to other creditors of the issuer.
Lower rated securities frequently have call or redemption features which
would permit an issuer to repurchase the security from a Fund. If a call were
exercised by the issuer during a period of declining interest rates, a Fund
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to a Fund and dividends to
shareholders.
A Fund may have difficulty disposing of certain lower rated securities
because there may be a thin trading market for such securities. The secondary
trading market for high yield securities is generally not as liquid as the
secondary market for higher rated securities. Reduced secondary market liquidity
may have an adverse impact on market price and a Fund's ability to dispose of
particular issues when necessary to meet a Fund's liquidity needs or in response
to a specific economic event such as a deterioration in the creditworthiness of
the issuer.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of lower rated
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of lower rated securities are likely to adversely affect a
Fund's net asset value. In addition, a Fund may incur additional expenses to the
extent it is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.
Finally, there are risks involved in applying credit ratings as a method
for evaluating lower rated fixed income securities. For example, credit ratings
evaluate the safety of principal and interest payments, not the market risks
involved in lower rated fixed income securities. Since credit rating agencies
may fail to change the credit ratings in a timely manner to reflect subsequent
events, the Sub-adviser will monitor the issuers of lower rated fixed income
securities in a Fund to determine if the issuers will have sufficient cash flow
and profits to meet required principal and interest payments, and to assure the
debt securities' liquidity within the parameters of the Fund's investment
policies. The Sub-adviser will not necessarily dispose of a portfolio security
when its ratings have been changed.
ZERO COUPON FIXED INCOME SECURITIES
The Large Cap Value Fund, the Mid Cap Value Fund, the Balanced Fund, the
High Yield Bond Fund, the Strategic Bond Fund, the Municipal Bond Fund, the Core
Bond Fund and the Domestic Bond Fund may invest in zero coupon fixed income
securities, which are debt obligations that do not entitle the holder to any
periodic payment of interest prior to maturity or that specify a future date
when the securities begin to pay current interest.
Zero coupon fixed income securities are issued and traded at a discount
from their face amount or par value. This discount varies depending on
prevailing interest rates, the time remaining until cash payments begin, the
liquidity of the security, and the perceived credit quality of the issuer.
The discount on zero coupon fixed income securities ("original issue
discount") must be taken into income ratably by a Fund prior to the receipt of
any actual payments. Because the Fund must distribute substantially all of its
net income to its shareholders each year for income and excise tax purposes, the
Fund may have to dispose of portfolio securities under disadvantageous
circumstances to generate cash, or may be required to borrow, to satisfy its
corresponding Fund's distribution requirements.
The market prices of zero coupon fixed income securities generally are more
volatile than the prices
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of securities that pay interest periodically. Zero coupon fixed income
securities are likely to respond to changes in interest rates to a greater
degree than other types of debt securities having a similar maturity and credit
quality.
Custodial receipts issued in connection with zero coupon fixed income
securities, such as CATs and TIGRs, are not issued by the U.S. Treasury,
although the underlying bond represented by such receipt is a debt obligation of
the U.S. Treasury. Other zero coupon Treasury securities (STRIPs and CUBEs) are
direct obligations of the U.S. Government.
INFLATION-INDEXED BONDS
The Core Bond Fund, the Balanced Fund, the Municipal Bond Fund, the
Domestic Bond Fund, the High Yield Bond Fund and the Strategic Bond Fund may
invest in inflation-indexed bonds. Inflation-indexed bonds are fixed income
securities whose principal value is periodically adjusted according to the rate
of inflation. Such bonds generally are issued at an interest rate lower than
typical bonds, but are expected to retain their principal value over time. The
interest rate on these bonds is fixed at issuance, but over the life of the bond
this interest may be paid on an increasing principal value, which has been
adjusted for inflation.
Inflation-indexed securities issued by the U.S. Treasury will initially
have maturities of five, ten or thirty years, although it is anticipated that
securities with other maturities will be issued in the future. The securities
will pay interest on a semi-annual basis, equal to a fixed percentage of the
inflation-adjusted principal amount. For example, if a Fund purchased an
inflation-indexed bond with a par value of $1,000 and a 3% real rate of return
coupon (payable 1.5% semi-annually), and inflation over the first six months
were 1%, the mid-year par value of the bond would be $1,010 and the first semi-
annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation during
the second half of the year reached 3%, the end-of-year par value of the bond
would be $1,030 and the second semi-annual interest payment would be $15.45
($1,030 times 1.5%).
If the periodic adjustment rate measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward, and consequently the
interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury
inflation-indexed bonds, even during a period of deflation. However, the current
market value of the bonds is not guaranteed, and will fluctuate. The Funds may
also invest in other inflation related bonds which may or may not provide a
similar guarantee. If a guarantee of principal is not provided, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal.
The value of inflation-indexed bonds is expected to change in response to
changes in real interest rates. Real interest rates in turn are tied to the
relationship between nominal interest rates and the rate of inflation.
Therefore, if inflation were to rise at a faster rate than nominal interest
rates, real interest rates might decline, leading to an increase in value of
inflation-indexed bonds. In contrast, if nominal interest rates increased at a
faster rate than inflation, real interest rates might rise, leading to a
decrease in value of inflation-indexed bonds.
While these securities are expected to be protected from long-term
inflationary trends, short-term increases in inflation may lead to a decline in
value. If interest rates rise due to reasons other than inflation (for example,
due to changes in currency exchange rates), investors in these securities may
not be protected to the extent that the increase is not reflected in the bond's
inflation measure.
The U.S. Treasury has only recently begun issuing inflation-indexed bonds.
As such, there is no trading history of these securities, and there can be no
assurance that a liquid market in these instruments will develop, although one
is expected. Lack of a liquid market may impose the risk of higher transaction
costs and the possibility that a Fund may be forced to liquidate positions when
it would not be advantageous to do so. There also can be no assurance that the
U.S. Treasury will issue any particular amount of inflation-indexed bonds.
Certain foreign governments, such as the United Kingdom, Canada and Australia,
have a longer history of issuing inflation-indexed bonds, and there may be a
more liquid market in certain of these countries for these securities.
The periodic adjustment of U.S. inflation-indexed bonds is tied to the
Consumer Price Index for Urban Consumers ("CPI-U"), which is calculated monthly
by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in
the cost
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of living, made up of components such as housing, food, transportation and
energy. Inflation-indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index, calculated by that government.
There can be no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the United
States.
Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their
principal until maturity. See "Taxation" for information about the possible tax
consequences of investing in inflation-indexed bonds.
HYBRID INSTRUMENTS
A hybrid instrument can combine the characteristics of equity and fixed
income securities, futures, and options. For example, a hybrid instrument may
combine the characteristics of preferred stock and fixed income securities in
the form of quarterly income preferred stock or trust-originated preferred
stock. In other hybrid securities, the principal amount or interest rate may be
tied (positively or negatively) to the price of some commodity, currency or
securities index or another interest rate (each a "benchmark"). The interest
rate or the principal amount payable at maturity of a hybrid security may be
increased or decreased, depending on changes in the value of the benchmark.
Hybrid instruments can be used as an efficient means of pursuing a variety
of investment goals, including currency hedging, duration management, and
increased total return. Hybrids may not bear interest or pay dividends. The
value of a hybrid or its interest rate may be a multiple of a benchmark and, as
a result, may be leveraged and move (up or down) more steeply and rapidly than
the benchmark. These benchmarks may be sensitive to economic and political
events, such as commodity shortages and currency devaluations, which cannot be
readily foreseen by the purchaser of a hybrid. Under certain conditions, the
redemption value of a hybrid could be zero. Thus, an investment in a hybrid may
entail significant market risks that are not associated with a similar
investment in a traditional, U.S. dollar-denominated bond that has a fixed
principal amount and pays a fixed rate or floating rate of interest. The
purchase of hybrids also exposes a Fund to the credit risk of the issuer of the
hybrids. These risks may cause significant fluctuations in the net asset value
of the Fund. Accordingly, no Fund will invest more than 5% of its assets in
hybrid instruments.
Certain issuers of structured products such as hybrid instruments may be
deemed to be investment companies as defined in the 1940 Act. As a result, the
Funds' investments in these products will be subject to limits applicable to
investments in investment companies and may be subject to restrictions contained
in the 1940 Act.
CATASTROPHE BONDS
The High Yield Bond Fund, the Balanced Fund, the Municipal Bond Fund, the
Strategic Bond Fund, the Domestic Bond Fund and the Core Bond Fund may invest in
"catastrophe bonds." Catastrophe bonds are fixed income securities, for which
the return of principal and payment of interest is contingent on the
non-occurrence of a specific "trigger" catastrophic event, such as a hurricane
or an earthquake. They may be issued by government agencies, insurance
companies, reinsurers, special purpose corporations or other on-shore or
off-shore entities. If a trigger event causes losses exceeding a specific amount
in the geographic region and time period specified in a bond, a Fund investing
in the bond may lose a portion or all of its principal invested in the bond. If
no trigger event occurs, the Fund will recover its principal plus interest. For
some catastrophe bonds, the trigger event or losses may be based on companywide
losses, index-portfolio losses, industry indices, or readings of scientific
instruments rather than specified actual losses. Often the catastrophe bonds
provide for extensions of maturity that are mandatory, or optional at the
discretion of the issuer, in order to process and audit loss claims in those
cases where a trigger event has, or possibly has, occurred. In addition to the
specified trigger events, catastrophe bonds may also expose the Fund to certain
unanticipated risks including but not limited to issuer (credit) default,
adverse regulatory or jurisdictional interpretations, and adverse tax
consequences.
Catastrophe bonds are a relatively new type of financial instrument. As
such, there is no significant trading history of these securities, and there can
be no assurance that a liquid market in these instruments will develop. See
"Illiquid Securities" below.
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Lack of a liquid market may impose the risk of higher transaction costs and the
possibility that a Fund may be forced to liquidate positions when it would not
be advantageous to do so. Catastrophe bonds are typically rated, and a Fund will
only invest in catastrophe bonds that meet the credit quality requirements for
the Fund.
REAL ESTATE SECURITIES AND REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund, other than the Lifestyle Funds and the Domestic Bond Fund, may
invest in real estate securities. Real estate securities are equity securities
consisting of (i) common stocks, (ii) rights or warrants to purchase common
stocks, (iii) securities convertible into common stocks and (iv) preferred
stocks issued by real estate companies. A real estate company is one that
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or that has at least 50% of its assets invested in real estate.
Certain Funds also may invest in REITs. REITs are pooled investment
vehicles which invest primarily in income producing real estate or real estate
related loans or interest. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs. Equity REITs
invest the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive income
from the collection of interest payments. Like regulated investment companies
such as the Funds, REITs are not taxed on income distributed to shareholders
provided they comply with certain requirements under the Internal Revenue Code
(the "Code"). A Fund will indirectly bear its proportionate share of any
expenses paid by REITs in which it invests in addition to the expenses paid by a
Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers,
self-liquidation, and the possibilities of failing to qualify for the exemption
from tax for distributed income under the Code and failing to maintain their
exemptions from the 1940 Act. REITs (especially mortgage REITs) are also subject
to interest rate risks.
WARRANTS
Certain Funds may invest in or acquire warrants to purchase equity or fixed
income securities. Bonds with warrants attached to purchase equity securities
have many characteristics of convertible bonds and their prices may, to some
degree, reflect the performance of the underlying stock. Bonds also may be
issued with warrants attached to purchase additional fixed income securities at
the same coupon rate. A decline in interest rates would permit a Fund to buy
additional bonds at the favorable rate or to sell the warrants at a profit. If
interest rates rise, the warrants would generally expire with no value. Warrants
do not entitle a holder to dividends or voting rights with respect to the
underlying securities and do not represent any rights in the assets of the
issuing company. In addition, the value of warrants does not, necessarily, in
all cases change to the same extent as the value of the underlying securities to
which they relate. Warrants cease to have value if they are not exercised prior
to the expiration date. These factors can make warrants more speculative than
other types of investments.
SWAP AGREEMENTS
Certain Funds may enter into interest rate, index and currency exchange
rate swap agreements. These transactions are entered into in an attempt to
obtain a particular return when it is considered desirable to do so, possibly at
a lower cost to the Fund than if the Fund had invested directly in an instrument
that yielded that desired return. Swap agreements are two party contracts
entered into primarily by institutional investors for periods ranging from a few
weeks to more than one year. In a standard "swap" transaction, two parties agree
to exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments, which may be adjusted
for an interest factor. The gross returns to be exchanged or "swapped" between
the parties are generally calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a
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"basket" of securities representing a particular index. Forms of swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified rate, or "floor"; and interest rate
collars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding minimum
or maximum levels.
Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
segregation of assets determined to be liquid by VALIC or a Sub-adviser in
accordance with procedures established by the Board of Trustees, to avoid any
potential leveraging of a Fund's portfolio. Obligations under swap agreements so
covered will not be construed to be "senior securities" for purposes of the
Fund's investment restriction concerning senior securities. A Fund will not
enter into a swap agreement with any single party if the net amount owed or to
be received under existing contracts with that party would exceed 5% of the
Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective of total return will depend on VALIC or a Sub-adviser's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Because they are two party
contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid. Moreover, a Fund bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of the default or bankruptcy of a swap agreement counterparty. The Funds will
enter into swap agreements only with counterparties that meet certain standards
of creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Fund's repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code may limit
the Funds' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the CFTC
effective February 22, 1993. To qualify for this exemption, a swap agreement
must be entered into by "eligible participants," which include the following,
provided the participants' total assets exceed established levels: a bank or
trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and
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the use of a clearing organization or margin system, (3) are undertaken in
conjunction with a line of business, and (4) are not marketed to the public.
STRUCTURED NOTES
Structured notes are derivative fixed income securities, the interest rate
or principal of which is determined by an unrelated indicator. Indexed
securities include structured notes as well as securities other than debt
securities, the interest rate or principal of which is determined by an
unrelated indicator. Indexed securities may include a multiplier that multiplies
the indexed element by a specified factor and, therefore, the value of such
securities may be very volatile. To the extent a Fund invests in these
securities, however, VALIC or a Sub-adviser will analyze these securities in its
overall assessment of the effective duration of the Fund's portfolio in an
effort to monitor the Fund's interest rate risk.
EURODOLLAR OBLIGATIONS
Certain Funds, in accordance with their investment objective(s), policies,
and investment program, may invest in Eurodollar obligations, including
Eurodollar bonds and Eurodollar certificates of deposit. A Eurodollar obligation
is a security denominated in U.S. dollars and originated principally in Europe,
giving rise to the term Eurodollar.
Such securities are not registered with the SEC and generally may only be
sold to U.S. investors after the initial offering and cooling-off periods. The
market for Eurodollar securities is dominated by foreign-based investors and the
primary trading market for these securities is London.
Eurodollar obligations, including Eurodollar bonds and Eurodollar
certificates of deposit, are principally obligations of foreign branches of U.S.
banks. These instruments represent the loan of funds actually on deposit in the
U.S. The Series Company believes that the U.S. bank would be liable in the event
that its foreign branch failed to pay on its U.S. dollar denominated
obligations. Nevertheless, the assets supporting the liability could be
expropriated or otherwise restricted if located outside the U.S. Exchange
controls, taxes, or political and economic developments also could affect
liquidity or repayment. Due to possibly conflicting laws or regulations, the
foreign branch of the U.S. bank could maintain and prevail that the liability is
solely its own, thus exposing a Fund to a possible loss. Such U.S. dollar
denominated obligations of foreign branches of Federal Deposit Insurance
Corporation ("FDIC") member U.S. banks are not covered by the usual $100,000 of
FDIC insurance if they are payable only at an office of such a bank located
outside the U.S., Puerto Rico, Guam, American Samoa, and the Virgin Islands.
Moreover, there may be less publicly available information about foreign
issuers whose securities are not registered with the SEC and such foreign
issuers may not be subject to the accounting, auditing, and financial reporting
standards applicable to issuers registered domestically. In addition, foreign
issuers, stock exchanges, and brokers generally are subject to less government
regulation. There are, however, no risks of currency fluctuation since the
obligations are U.S. dollar denominated.
Certain Funds also may purchase and sell Eurodollar futures contracts,
which enable purchasers to obtain a fixed rate for the lending of funds and
sellers to obtain a fixed rate for borrowings. A Fund might use Eurodollar
futures contracts and options thereon to hedge against changes in a foreign
prime lending interest rate to which many interest swaps and fixed income
securities are linked.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are interests in pools of residential or
commercial mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. See "Mortgage Pass-Through
Securities." Certain of the Funds may also invest in fixed income securities
which are secured with collateral consisting of mortgage-related securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.
Mortgage Pass-Through Securities
Interests in pools of mortgage-related securities differ from other forms
of fixed income securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
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residential or commercial mortgage loans, net of any
fees paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by GNMA)
are described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
The principal governmental guarantor of mortgage-related securities are
GNMA, Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage ("FHLMC"). GNMA is a wholly owned United States Government corporation
within the Department of Housing and Urban Development. GNMA is authorized to
guarantee, with the full faith and credit of the United States Government, the
timely payment of principal and interest on securities issued by institutions
approved by GNMA (such as savings and loan institutions, commercial banks and
mortgage bankers) and backed by pools of mortgages insured by the Federal
Housing Administration (the "FHA"), or guaranteed by the Department of Veterans
Affairs (the "VA").
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States Government. FHLMC was created by Congress in 1970 for the
purpose of increasing the availability of mortgage credit for residential
housing. It is a government-sponsored corporation formerly owned by the twelve
Federal Home Loan Banks and now owned entirely by private stockholders. FHLMC
issues Participation Certificates ("PCs") which represent interests in
conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but PCs are not
backed by the full faith and credit of the United States Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Series Company's investment quality standards. There can be
no assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. Certain Funds may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, VALIC or a Sub-adviser determines that the securities meet the Series
Company's quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. No Fund will
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purchase mortgage-related securities or any other assets which in VALIC's or the
Sub-adviser's opinion are illiquid if, as a result, more than 10% of the value
of the Fund's net assets will be illiquid (15% in the case of the International
Growth Fund, the Small Cap Growth Fund, the Large Cap Growth Fund, the Large Cap
Value Fund, the MidCap Value Fund, the Small Cap Value Fund, the High Yield Bond
Fund, the Balanced Fund, the International Value Fund, the Domestic Bond Fund,
the Strategic Bond Fund and the Core Bond Fund.)
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Funds'
industry concentration restrictions, set forth below under "Investment
Restrictions," by virtue of the exclusion from that test available to all U.S.
Government securities. In the case of privately issued mortgage-related
securities, the Funds take the position that mortgage-related securities do not
represent interests in any particular "industry" or group of industries. The
assets underlying such securities may be represented by a portfolio of first
lien residential mortgages (including both whole mortgage loans and mortgage
participation interests) or portfolios of mortgage pass-through securities
issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a
mortgage-related security may in turn be insured or guaranteed by the FHA or the
Veterans' Administration. In the case of private issue mortgage-related
securities whose underlying assets are neither U.S. Government securities nor
U.S. Government-insured mortgages, to the extent that real properties securing
such assets may be located in the same geographical region, the security may be
subject to a greater risk of default than other comparable securities in the
event of adverse economic, political or business developments that may affect
such region and, ultimately, the ability of residential homeowners to make
payments of principal and interest on the underlying mortgages.
Collateralized Mortgage Obligations (CMOs)
A CMO is a hybrid between a mortgage-backed bond and a mortgage
pass-through security. Similar to a bond, interest and prepaid principal is
paid, in most cases, monthly. CMOs may be collateralized by whole mortgage
loans, but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income
streams.
CMOs are structured in multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
As an example of a CMO transaction, a corporation ("issuer") issues
multiple series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond
offering are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
Commercial Mortgage-Backed Securities
Commercial mortgage-backed securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be
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less liquid and exhibit greater price volatility than other types of mortgage-
or asset-backed securities.
OTHER MORTGAGE-RELATED SECURITIES
Other mortgage-related securities include securities other than those
described above that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property, including mortgage
dollar rolls, CMO residuals or stripped mortgage-backed securities ("SMBS").
Other mortgage-related securities may be equity or fixed income securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO Residuals
CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities -- Stripped Mortgage-Backed Securities." In
addition, if a series of a CMO includes a class that bears interest at an
adjustable rate, the yield to maturity on the related CMO residual will also be
extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances a Fund may fail to recoup
fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful review of the characteristics of the securities in question. In
addition, CMO residuals may, or pursuant to an exemption therefrom, may not have
been registered under the Securities Act of 1933, as amended (the "1933 Act").
CMO residuals, whether or not registered under the 1933 Act, may be subject to
certain restrictions on transferability, and may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities ("SMBS")
SMBS are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. If the underlying
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mortgage assets experience greater than anticipated prepayments of principal, a
Fund may fail to recoup some or all of its initial investment in these
securities even if the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
ASSET-BACKED SECURITIES
Certain Funds may invest in asset-backed securities (unrelated to first
mortgage loans) that represent fractional interests in pools of retail
installment loans, both secured (such as certificates for automobile
receivables) and unsecured, and leases, or revolving credit receivables both
secured and unsecured (such as credit card receivable securities). These assets
are generally held by a trust and payments of principal and interest, or
interest only are passed through monthly or quarterly to certificate holders and
may be guaranteed up to certain amounts by letters of credit issued by a
financial institution affiliated or unaffiliated with the trustee or originator
of the trust.
Underlying automobile sales contracts, leases or credit card receivables
are subject to prepayment, which may reduce the overall return to certificate
holders. Nevertheless, principal repayment rates tend not to vary much with
interest rates and the short-term nature of the underlying loans, leases, or
receivables tends to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying loans, leases or receivables are not realized
by the trust because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If consistent with
its investment objective(s) and policies, a Fund may invest in other
asset-backed securities that may be developed in the future.
MUNICIPAL BONDS
Municipal bonds are debt obligations that are typically issued by a
municipality to obtain funding for public purposes, such as the construction of
public facilities (e.g., airports, highways, bridges and schools). Private
activity bonds issued by or on behalf of public authorities to finance various
privately operated facilities also are considered municipal bonds. Municipal
bonds at the time of issuance may have varying maturities. The Municipal Money
Market Fund will not purchase a security which, after giving effect to any
demand features, has a remaining maturity of greater than 13 months, or
maintains a dollar-weighted average portfolio maturity in excess of 90 days.
The Municipal Bond Fund and the Municipal Money Market Fund may invest in
investment grade municipal bonds. Investment grade municipal bonds are
instruments that are rated at the time of purchase within the four highest
ratings assigned by Moody's, S&P, Fitch, or determined by a Sub-adviser to be of
comparable quality. The four highest ratings currently assigned by Moody's to
municipal bonds are "Aaa", "Aa", "A" and "Baa"; the four highest ratings
assigned by S&P and Fitch to municipal bonds are "AAA", "AA", "A" and "BBB".
Although municipal obligations rated in the fourth highest rating category by
Moody's (i.e., "Baa") or S&P or Fitch (i.e., "BBB") are considered investment
grade, they may be subject to greater risks than other higher rated investment
grade securities. Municipal obligations rated "Baa" by Moody's, for example, are
considered medium grade obligations that lack outstanding investment
characteristics and have speculative characteristics as well. Municipal
obligations rated "BBB" by S&P and Fitch are regarded as having an adequate
capacity to pay principal and interest. A more complete description of the
ratings assigned by Moody's, S&P and Fitch is included in the Appendix to the
Class A and Class B Prospectus.
MUNICIPAL NOTES
Municipal notes are notes issued by local, regional and state governments
to meet their short-term funding requirements. Municipal notes generally have
maturities at the time of issuance of three years or less.
Certain Funds may invest in municipal notes rated at the time of purchase
"MIG1", "MIG2" (or "VMIG-1" or "VMIG-2", in the case of variable rate demand
notes), "P-2" or better by Moody's, "SP-2", "A-2" or better by S&P or "F-2" or
better
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by Fitch, or if not rated, determined by a Sub-adviser to be of comparable
quality.
Municipal notes that may be purchased by the Funds include, but are not
limited to:
Tax Anticipation Notes. Tax anticipation notes ("TANs") are sold as
interim financing in anticipation of collection of taxes. An uncertainty in
a municipal issuer's capacity to raise taxes as a result of such factors as
a decline in its tax base or a rise in delinquencies could adversely affect
the issuer's ability to meet its obligations on outstanding TANs.
Bond Anticipation Notes. Bond anticipation notes ("BANs") are sold as
interim financing in anticipation of a bond sale. The ability of a
municipal issuer to meet its obligations on its BANs is primarily dependent
on the issuer's adequate access to the longer term municipal bond market
and the likelihood that the proceeds of such bond sales will be used to pay
the principal of, and interest on, BANs.
Revenue Anticipation Notes. Revenue anticipation notes ("RANs") are
sold as interim financing in anticipation of receipt of other revenues. A
decline in the receipt of certain revenues, such an anticipated revenues
from another level of government, could adversely affect an issuer's
ability to meet its obligations on outstanding RANs.
TANs, BANs and RANs are usually general obligations of the issuer.
MUNICIPAL OBLIGATIONS
Municipal obligations are debt obligations issued by or on behalf of
states, cities, municipalities and other public authorities. The two principal
classifications of municipal obligations that may be held by the Municipal Bond
Fund and the Municipal Money Market Fund are "general obligation" securities and
"revenue" securities. General obligation securities are secured by the issuer's
pledge of its full faith, credit and taxing power for the payment of principal
and interest. Revenue securities are payable only from the revenues derived from
a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of a facility being financed. Revenue securities may include private
activity bonds. Such bonds may be issued by or on behalf of public authorities
to finance various privately operated facilities and are not payable from the
unrestricted revenues of the issuer. As a result, the credit quality of private
activity bonds is frequently related directly to the credit standing of private
corporations or other entities. In addition, the interest on private activity
bonds issued after August 7, 1986 is subject to the federal alternative minimum
tax. The Funds will not be restricted with respect to the proportion of its
assets that may be invested in such obligations. Accordingly, the Funds may not
be a suitable investment vehicle for individuals or corporations that are
subject to the federal alternative minimum tax.
The Funds' portfolio may also include "moral obligation" securities, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation securities is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality that
created the issuer.
In addition, the Funds may invest in municipal lease obligations ("MLOs").
MLOs are not fully backed by the municipality's credit and their interest may
become taxable if the lease is assigned. If the governmental user does not
appropriate sufficient funds for the following year's lease payments, the lease
will terminate, with the possibility of default on the MLO and loss to the Fund.
The Sub-adviser may invest more than 5% of each Fund's net assets in MLOs and
the Trustees of the Series Company have established procedures the Sub-adviser
will use to examine certain factors in evaluating the liquidity of such
obligations. These factors include (i) the frequency of trades and quotes for
the MLO; (ii) the number of dealers willing to purchase or sell such MLO and the
number of other potential purchasers; (iii) the willingness of dealers to
undertake to make a market in the MLO; (iv) the nature of the MLO and the nature
of the marketplace trades (e.g., the time needed to dispose of the security and
the method of soliciting offers); (v) the nature of the offering of such MLO
(e.g., the size of the issue and the number of anticipated holders); (vi) the
ability of the MLO to maintain its marketability throughout the time the
instrument is held in the Fund; and (vii) other factors, if any, which the
Sub-adviser deems relevant to determining the existence of a trading market for
such MLO. The Funds also may invest in resource recovery bonds, which may be
general obligations of the
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issuing municipality or supported by corporate or bank guarantees. The viability
of the resource recovery project, environmental protection regulations and
project operator tax incentives may affect the value and credit quality of
resource recovery bonds.
The Funds currently intend to invest substantially all of their assets in
obligations the interest on which is exempt from regular federal income taxes.
However, in order to maintain liquidity, each of these Funds may invest up to
20% of its assets in taxable obligations, including taxable high-quality
short-term money market instruments. These Funds also may invest in the
following taxable high-quality short-term money market instruments: obligations
of the U.S. Government or its agencies or instrumentalities; commercial paper of
issuers rated, at the time of purchase, "A-2" or better by S&P, "P-2" or better
by Moody's, or "F-2" or better by Fitch or which if unrated, in the opinion of
the Sub-adviser, are of comparable quality; certificates of deposit, bankers'
acceptances or time deposits of U.S. banks with total assets of at least $1
billion (including obligations of foreign branches of such banks) and of the 75
largest foreign commercial banks in terms of total assets (including domestic
branches of such banks), and repurchase agreements with respect to such
obligations.
If at some future date, in the opinion of the Sub-adviser, adverse
conditions prevail in the market for obligations the interest on which is exempt
from regular federal income taxes, the Funds may invest its assets without limit
in taxable high-quality short-term money market instruments. Dividends paid by
the Funds that are attributable to interest derived from taxable money market
instruments will be taxable to investors.
From time to time, the Funds may invest more than 25% of its assets in
obligations whose interest payments are from revenues of similar projects (such
as utilities or hospitals) or whose issuers share the same geographic location.
As a result, the Funds may be more susceptible to a single economic, political
or regulatory development than would a portfolio of securities with a greater
variety of issuers. These developments include proposed legislation or pending
court decisions affecting the financing of such projects and market factors
affecting the demand for their services or products.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from regular federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Series Company nor the Sub-adviser will review the proceedings relating to the
issuance of municipal obligations or the basis for such opinions.
MUNICIPAL COMMERCIAL PAPER
The Municipal Bond Fund and the Municipal Money Market Fund may also
purchase municipal commercial paper. Municipal commercial paper that may be
purchased by the Funds consists of short term obligations of a municipality.
Such paper is likely to be issued to meet seasonal working capital needs of a
municipality or as interim construction financing. Municipal commercial paper,
in many cases, is backed by a letter of credit lending agreement, repurchase
agreement or other credit facility agreement offered by banks or other
institutions.
The Funds may invest in commercial paper that is rated at the time of
purchase "P-2" or better by Moody's, "A-2" or better by S&P, or "F-2" or better
by Fitch, or, if not rated, determined by a Sub-adviser to be of comparable
quality.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes ("VRDNs") are either taxable or tax-exempt
obligations which contain a floating or variable interest rate adjustment
formula and which are subject to an unconditional right of demand to receive
payment of the principal balance plus accrued interest either at any time or at
specified intervals not exceeding one year and in either case upon no more than
seven days notice. The interest rates are adjustable at intervals ranging from
daily ("floating rate") to up to one year to some prevailing market rate for
similar investments, such adjustment formula being calculated to maintain the
market value of the VRDN at approximately the par value of the VRDN upon the
adjustment date. The adjustments are typically based upon the prime rate of a
bank or some other appropriate interest rate adjustment index.
The Municipal Bond Fund, the Municipal Money Market Fund and the Money
Market Fund may also invest in VRDNs in the form of participation interests
("Participating VRDNs") in variable rate tax-exempt obligations held by a
financial institution, typically a commercial bank ("institution").
Participating VRDNs provide the Fund with a specified undivided interest (up to
100%) in the under-
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lying obligation and the right to demand payment of the unpaid principal balance
plus accrued interest on the Participating VRDNs from the institution upon a
specified number of days' notice, not to exceed seven days. A Fund has an
undivided interest in the underlying obligation and thus participates on the
same basis as the institution in such obligation except that the institution
typically retains fees out of the interest paid on the obligation for servicing
the obligation and issuing the repurchase commitment.
MUNICIPAL INFLATION-INDEXED BONDS
The Municipal Bond Fund may invest in inflation-indexed bonds issued by
municipalities. Interest payments are made to bondholders semi-annually and are
made up of two components: a fixed "real coupon" or spread, and a variable
coupon linked to an inflation index. Accordingly, payments will increase or
decrease each period as a result of changes in the inflation index. In the
period of deflation payments may decrease to zero, but in any event will not be
less than zero.
PRE-REFUNDED BONDS
From time to time, a municipality may refund a bond that it has already
issued prior to the original bond's call date by issuing a second bond, the
proceeds of which are used to purchase securities. The securities are placed in
an escrow account pursuant to an agreement between the municipality and an
independent escrow agent. The principal and interest payments on the securities
are then used to pay off the original bondholders. For the purposes of
diversification, pre-refunded bonds will be treated as governmental issues.
LOAN PARTICIPATIONS
Loan Participations are debt obligations of corporations and are usually
purchased from major money center banks, selected regional banks, and major
foreign banks with branches in the U.S. which are regulated by the Federal
Reserve System or appropriate state regulatory authorities. VALIC and the
Sub-advisers believe that the credit standards imposed by such banks are
comparable to the standards such banks use in connection with loans originated
by them and in which they intend to maintain a full interest. The financial
institutions offering loan participations do not guarantee principal or interest
on the loan participations which they offer. VALIC and the Sub-advisers will not
purchase such securities for the Funds unless they believe that the collateral
underlying the corporate loans is adequate and the corporation will be able, in
a timely fashion, to pay scheduled interest and principal amounts.
ADJUSTABLE RATE SECURITIES
Certain of the Funds may invest in adjustable rate money market securities.
Adjustable rate securities (i.e., variable rate and floating rate instruments)
are securities that have interest rates that are adjusted periodically,
according to a set formula. The maturity of some adjustable rate securities may
be shortened under certain special conditions described more fully below.
Variable rate instruments are obligations (usually certificates of deposit)
that provide for the adjustment of their interest rates on predetermined dates
or whenever a specific interest rate changes. A variable rate instrument whose
principal amount is scheduled to be paid in 13 months or less is considered to
have a maturity equal to the period remaining until the next readjustment of the
interest rate. Many variable rate instruments are subject to demand features
which entitle the purchaser to resell such securities to the issuer or another
designated party, either (1) at any time upon notice of usually 30 days or less,
or (2) at specified intervals, not exceeding 13 months, and upon 30 days notice.
A variable rate instrument subject to a demand feature is considered to have a
maturity equal to the longer of the period remaining until the next readjustment
of the interest rate or the period remaining until the principal amount can be
recovered through demand.
Floating rate instruments (generally corporate notes, bank notes, or
Eurodollar certificates of deposit) have interest rate reset provisions similar
to those for variable rate instruments and may be subject to demand features
like those for variable rate instruments. The maturity of a floating rate
instrument is considered to be the period remaining until the principal amount
can be recovered through demand.
Certain Funds may invest in inverse floaters, which are derivative fixed
income or municipal securities. Inverse floaters may be issued by agencies or
instrumentalities of the U.S. government or by private issuers including savings
and loan associations, mortgage banks, commercial banks, investment banks and
special purpose subsidiaries of
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the foregoing. Inverse floaters generally have greater volatility than other
types of mortgage securities in which a Fund may invest. Although inverse
floaters are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, inverse floaters are
generally illiquid.
Inverse floaters are structured as a class of security that receives
distributions on a pool of mortgage assets and whose yields move in the opposite
direction of short-term interest rates and at an accelerated rate. Such
securities have the effect of providing a degree of investment leverage since
they will generally increase or decrease in value in response to changes in
market interest rates at a rate which is a multiple (typically two) of the rate
at which fixed-rate long-term debt obligations increase or decrease in response
to such changes. As a result, the market values of such securities will
generally be more volatile than the market value of fixed-rate securities.
ILLIQUID SECURITIES
The Funds will not invest more than 10% (15% in the case of the S&P 500
Index Fund, the Mid Cap Index Fund, the Small Cap Index Fund, the International
Growth Fund, the Small Cap Growth Fund, the Large Cap Growth Fund, the Large Cap
Value Fund, the Mid Cap Value Fund, the Small Cap Value Fund, the High Yield
Bond Fund, the Balanced Fund, the International Value Fund, the Domestic Bond
Fund, the Strategic Bond Fund, the Municipal Bond Fund and the Core Bond Fund),
of the value of their net assets in securities or other investments that are
illiquid or not readily marketable (including repurchase agreements with
maturities exceeding seven days). Securities received as a result of a corporate
reorganization or similar transaction affecting readily-marketable securities
already held in the portfolio of a Fund will not be considered securities or
other investments that are not readily marketable. However, the Funds will
attempt, in an orderly fashion, to dispose of any securities received under
these circumstances, to the extent that such securities are considered not
readily marketable, and together with other illiquid securities, exceed 10% (or
15%) of the value of a Fund's net assets.
RULE 144A SECURITIES
Each Fund, other than the Lifestyle Funds, may purchase securities which,
while privately placed, are eligible for purchase and sale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Series Company, under the
supervision of the Board of Trustees, will consider whether securities purchased
under Rule 144A are illiquid and thus subject to the Funds' restriction on
investing more than 10% (15% in the case of the S&P 500 Index Fund, the Mid Cap
Index Fund, the Small Cap Index Fund, the International Growth Fund, the Small
Cap Growth Fund, the Large Cap Growth Fund, the Large Cap Value Fund, the Mid
Cap Value Fund, the Small Cap Value Fund, the High Yield Bond Fund, the Balanced
Fund, the International Value Fund, the Domestic Bond Fund, the Strategic Bond
Fund and the Core Bond Fund) of its net assets in illiquid securities. Excluded
from the Funds' investment limitations, however, are any Rule 144A securities
that have been determined to be liquid by the Board of Trustees, VALIC or the
Sub-adviser pursuant to Board approved guidelines. Determination of whether a
Rule 144A security is liquid or not is a question of fact. In making this
determination the Series Company will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition the Series Company could consider (i) frequency of trades
and quotes, (ii) number of dealers and potential purchasers, (iii) dealer
undertakings to make a market, and (iv) nature of the security and market place
trades (for example, the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities will also be monitored by the Series Company and, if, as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Funds' holding of illiquid securities will be reviewed to determine
what, if any, action is required to assume that the Funds do not invest more
than 10% (or 15%) of their net assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of the Funds'
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. Each Fund other than the Lifestyle Funds,
may invest in Rule 144A securities (in accordance with each Fund's investment
restrictions as listed in the prospectus) that have been determined to be liquid
by Board approved guidelines.
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OPTIONS ON SECURITIES AND SECURITIES INDICES
Each Fund, other than the Large Cap Growth Fund, the Mid Cap Growth Fund,
the International Growth Fund, the Lifestyle Funds, the Municipal Money Market
Fund and the Money Market Fund, may write covered call and put options on
securities and securities indices. The Mid Cap Value Fund may write covered call
options and purchase call options in related closing transactions only. A call
option is a contract that gives to the holder the right to buy a specified
amount of the underlying security or currency at a fixed or determinable price
(called the exercise or "strike" price) upon exercise of the option. A put
option is a contract that gives the holder the right to sell a specified amount
of the underlying security or currency at a fixed or determinable price upon
exercise of the option.
To "cover" a call option written, a Fund may, for example, identify and
have available for sale the specific portfolio security, group of securities, or
foreign currency to which the option relates. To cover a put option written, a
Fund may, for example, establish a segregated asset account with its custodian
containing cash or liquid assets that, when added to amounts deposited with its
broker or futures commission merchant ("FCM") as margin, equals the market value
of the instruments underlying the put option written.
Certain Funds may write options on securities and securities indices. If a
Fund writes an option which expires unexercised or is closed out by the Fund at
a profit, it will retain the premium received for the option, which will
increase its gross income. If the price of the underlying security or currency
moves adversely to the Fund's position, the option may be exercised and the
Fund, as the writer of the option, will be required to sell or purchase the
underlying security or currency at a disadvantageous price, which may only be
partially offset by the amount of premium received.
Options on stock indices are similar to options on stock, except that all
settlements are made in cash rather than by delivery of stock, and gains or
losses depend on price movements in the stock market generally (or in a
particular industry or segment of the market represented by the index) rather
than price movements of individual stocks. When a Fund writes an option on a
securities index, and the underlying index moves adversely to the Fund's
position, the option may be exercised. Upon such exercise, the Fund, as the
writer of the option, will be required to pay in cash an amount equal to the
difference between the exercise settlement value of the underlying index and the
exercise price of the option, multiplied by a specified index "multiplier."
Call or put options on a stock index may be written at an exercise or
"strike" price which is either below or above the current value of the index. If
the exercise price at the time of writing the option is below the current value
of the index for a call option or above the current value of the index for a put
option the option is considered to be "in the money." In such a case, the Fund
will cover such options written by segregating with its custodian or pledging to
its commodity broker as collateral cash, U.S. Government or other high-grade,
short-term debt obligations equal in value to the amount by which the option
written is in the money, times the multiplier, times the number of contracts.
Stock indices for which options are currently traded include the S&P 500
Index, Value Line Index, National OTC Index, Major Market Index, Computer
Technology Index, Oil Index, NYSE Options Index, Technology Index, Gold/Silver
Index, Institutional Index and NYSE Beta Index. The Funds may also use options
on such other indices as may now or in the future be available.
Each Fund, except the Large Cap Growth Fund, the Mid Cap Growth Fund, the
Lifestyle Funds, the International Growth Fund, the International Value Fund,
the Mid Cap Value Fund, the Municipal Money Market Fund and the Money Market
Fund, may also purchase put or call options on securities and securities indices
in order to (i) hedge against anticipated changes in interest rates or stock
prices that may adversely affect the prices of securities that the Fund intends
to purchase at a later date, (ii) hedge its investments against an anticipated
decline in value, or (iii) attempt to reduce the risk of missing a market or
industry segment advance. Certain Funds also may purchase put options on foreign
currencies that correlate with the Fund's portfolio securities in order to
minimize or hedge against anticipated declines in the exchange rate of the
currencies in which the Fund's securities are denominated and may purchase call
options on foreign currencies that correlate with its portfolio securities to
take advantage of anticipated increases in exchange rates. In the event that the
anticipated changes in interest rates, stock prices, or exchange rates occur,
the
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Fund may be able to offset the resulting adverse effect on the Fund, in whole or
in part, through the options purchased.
The premium paid for a put or call option plus any transaction costs will
reduce the benefit, if any, realized by the Fund upon exercise or liquidation of
the option, and, unless the price of the underlying security, securities index,
or currency changes sufficiently, the option may expire without value to the
Fund. To close option positions purchased by the Funds, the Funds may sell put
or call options identical to options previously purchased, which could result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put or call
option purchased.
Options used by the Funds may be traded on the national securities
exchanges or in the over-the-counter market. Only the Large Cap Value Fund, the
Small Cap Growth Fund, the High Yield Bond Fund, the Strategic Bond Fund, the
Municipal Bond Fund and the Core Bond Fund may use over-the-counter options.
Options traded in the over-the-counter market may not be as actively traded as
those on an exchange. Accordingly, it may be more difficult to value such
options. In addition, it may be more difficult to enter into closing
transactions with respect to options traded over-the-counter. In this regard,
the Funds may enter into contracts with the primary dealers with whom they write
over-the-counter options. The contracts will provide that each Fund has the
absolute right to repurchase an option it writes at any time at a repurchase
price which represents the fair market value of such option, as determined in
good faith through negotiations between the parties, but which in no event will
exceed a price determined pursuant to a formula contained in the contract.
Although the specific details of the formula may vary between contracts with
different primary dealers, the formula will generally be based on a multiple of
the premium received by each Fund for writing the option, plus the amount, if
any, of the option's intrinsic value (i.e., the amount the option is
"in-the-money"). The formula will also include a factor to account for the
difference between the price of the security and the strike price of the option
if the option is written "out-of-the-money." Although the specific details of
the formula may vary with different primary dealers, each contract will provide
a formula to determine the maximum price at which each Fund can repurchase the
option at any time. The Funds have established standards of creditworthiness for
these primary dealers.
WRITING COVERED CALL AND PUT OPTIONS AND PURCHASING CALL AND PUT OPTIONS
All of the Funds, except the Mid Cap Growth Fund, the International Growth
Fund, the Large Cap Growth Fund, the Lifestyle Funds, the Municipal Money Market
Fund and the Money Market Fund, may write exchange-traded covered call and put
options on or relating to specific securities in order to earn additional income
or, in the case of a call written, to minimize or hedge against anticipated
declines in the value of the Fund's securities. The Mid Cap Value Fund may write
exchange-traded covered call options, but not put options in this connection. To
"cover" an option means, for example, to identify and make available for sale
the specific portfolio security or foreign currency to which the option relates.
Through the writing of a covered call option a Fund receives premium income but
obligates itself to sell to the purchaser of such an option the particular
security or foreign currency underlying the option at a specified price at any
time prior to the expiration of the option period, regardless of the market
value of the security or the exchange rate for the foreign currency during this
period. Through the writing of a covered put option a Fund receives premium
income but obligates itself to purchase a particular security or foreign
currency underlying the option at a specified price at any time prior to the
expiration of the option period, regardless of market value or exchange rate
during the option period.
Certain Funds, in accordance with their investment objective(s) and
investment programs, may also write exchange-traded covered call and put options
on stock indices and may purchase call and put options on stock indices that
correlate with the Fund's portfolio securities. These Funds may engage in such
transactions for the same purposes as they may engage in such transactions with
respect to individual portfolio securities or foreign currencies, that is, to
generate additional income or as a hedging technique to minimize anticipated
declines in the value of the Fund's portfolio securities or the exchange rate of
the securities in which the Fund invested. In economic effect, a stock index
call or put option is similar to an option on a particular security, except that
the value of the option depends on the weighted value of the group of securities
comprising the index, rather than a particular secur-
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ity, and settlements are made in cash rather than by delivery of a particular
security.
Each Fund, other than the Large Cap Growth Fund, the Mid Cap Growth Fund,
the International Growth Fund, the Lifestyle Funds, the Municipal Bond Fund and
the Money Market Fund, may also purchase exchange-traded call and put options
with respect to securities and stock indices that correlate with that Fund's
particular portfolio securities. In this connection, the Mid Cap Value Fund may
purchase exchange traded call options only.
A Fund may purchase put options for defensive purposes in order to protect
against an anticipated decline in the value of its portfolio securities or
currencies. As the holder of a put option with respect to individual securities
or currencies, the Fund has the right to sell the securities or currencies
underlying the options and to receive a cash payment at the exercise price at
any time during the option period. As the holder of a put option on an index, a
Fund has the right to receive, upon exercise of the option, a cash payment equal
to a multiple of any excess of the strike price specified by the option over the
value of the index.
A Fund may purchase call options on individual securities, currencies or
stock indices in order to take advantage of anticipated increases in the price
of those securities or currencies by purchasing the right to acquire the
securities or currencies underlying the option or, with respect to options on
indices, to receive income equal to the value of such index over the strike
price. As the holder of a call option with respect to individual securities or
currencies, a Fund obtains the right to purchase the underlying securities or
currencies at the exercise price at any time during the option period. As the
holder of a call option on a stock index, a Fund obtains the right to receive,
upon exercise of the option, a cash payment equal to the multiple of any excess
of the value of the index on the exercise date over the strike price specified
in the option.
Unlisted options may be used by the Large Cap Value Fund, the Small Cap
Growth Fund, the High Yield Bond Fund, the Strategic Bond Fund, the Municipal
Bond Fund and the Core Bond Fund. Such options are not traded on an exchange and
may not be as actively traded as listed securities, making the valuation of
these securities more difficult. In addition, an unlisted option entails a risk
not found in connection with listed options -- that the party on the other side
of the option transaction will default. This may make it impossible to close out
an unlisted option position in some cases, and profits may be lost thereby. Such
unlisted, over-the-counter options, unless otherwise indicated, will be
considered illiquid securities. The Funds will engage in such transactions only
with firms of sufficient credit to minimize these risks. In instances in which a
Fund has entered into agreements with primary dealers with respect to the
unlisted, over-the-counter options it has written, and such agreements would
enable the Fund to have an absolute right to repurchase, at a pre-established
formula price, the over-the-counter options written by it, the Fund will treat
as illiquid only the amount equal to the formula price described above less the
amount by which the option is "in-the-money."
Although these investment practices will be used to generate additional
income and to attempt to reduce the effect of any adverse price movement in the
securities or currencies subject to the option, they do involve certain risks
that are different in some respects from investment risks associated with
similar funds which do not engage in such activities. These risks include the
following: writing covered call options -- the inability to effect closing
transactions at favorable prices and the inability to participate in the
appreciation of the underlying securities or currencies above the exercise
price; writing covered put options -- the inability to effect closing
transactions at favorable prices and the obligation to purchase the specified
securities or currencies or to make a cash settlement on the stock index at
prices which may not reflect current market values or exchange rates; and
purchasing put and call options -- possible loss of the entire premium paid. In
addition, the effectiveness of hedging through the purchase or sale (writing) of
stock index options will depend upon the extent to which price movements in the
portion of a Fund's portfolio being hedged correlate with price movements in the
selected stock index. Perfect correlation may not be possible because the
securities held or to be acquired by a Fund may not exactly match the
composition of the stock index on which options are purchased or written. If the
forecasts of VALIC regarding movements in securities prices, currencies or
interest rates are incorrect, a Fund's investment results may have been better
without the hedge.
FINANCIAL FUTURES CONTRACTS
Each Fund, except the Mid Cap Growth Fund, the International Growth Fund,
the Mid Cap Value
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Fund, the Lifestyle Funds, the Municipal Money Market Fund and the Money Market
Fund, in accordance with its investment objective(s), investment program,
policies, and restrictions may purchase and sell exchange-traded financial
futures contracts as a hedge to protect against anticipated changes in
prevailing interest rates, overall stock prices or currency rates, or to
efficiently and in a less costly manner implement either increases or decreases
in exposure to the equity or bond markets. The Funds may also write covered call
options and purchase put and call options on financial futures contracts for the
same purposes or to earn additional income and the Small Cap Growth Fund, the
Large Cap Value Fund and the Large Cap Growth Fund may also write covered put
options on stock index futures contracts. The Large Cap Value Fund may utilize
currency futures contracts and both listed and unlisted financial futures
contracts and options thereon.
Financial futures contracts consist of interest rate futures contracts,
stock index futures contracts, and currency futures contracts. An interest rate
futures contract is a contract to buy or sell specified debt securities at a
future time for a fixed price. A stock index futures contract is similar in
economic effect, except that rather than being based on specific securities, it
is based on a specified index of stocks and not the stocks themselves. A
currency futures contract is a contract to buy or sell a specific foreign
currency at a future time for a fixed price.
An interest rate futures contract binds the seller to deliver to the
purchaser on a specified future date a specified quantity of one of several
listed financial instruments, against payment of a settlement price specified in
the contract. A public market currently exists for futures contracts covering a
number of indexes as well as financial instruments and foreign currencies,
including: U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates;
three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of
deposit; Eurodollar certificates of deposit; the Australian dollar; the Canadian
dollar; the British pound; the German mark; the Japanese yen; the French franc;
the Swiss franc; the Mexican peso; and certain multinational currencies, such as
the European Currency Unit ("ECU"). It is expected that other futures contracts
will be developed and traded in the future.
The Municipal Bond Fund may enter into municipal bond index futures
contracts. A municipal bond index futures contract is an agreement to take or
make delivery of an amount of cash equal to the difference between the value of
the index at the beginning and at the end of the contract period. The Municipal
Bond Fund may enter into short municipal bond index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of securities in its respective portfolio that might otherwise
result. When the Fund is not fully invested in securities and anticipates a
significant market advance, it may enter into long municipal bond index futures
contracts in order to gain rapid market exposure that may wholly or partially
offset increases in the costs of securities that it intends to purchase. In a
substantial majority of these transactions, the Fund will purchase such
securities upon termination of the futures position but, under unusual market
conditions, a futures position may be terminated without the corresponding
purchase of securities.
Stock index futures contracts bind purchaser and seller to deliver, at a future
date specified in the contract, a cash amount equal to a multiple of the
difference between the value of a specified stock index on that date and the
settlement price specified by the contract. That is, the seller of the futures
contract must pay and the purchaser would receive a multiple of any excess of
the value of the index over the settlement price, and conversely, the purchaser
must pay and the seller would receive a multiple of any excess of the settlement
price over the value of the index. A public market currently exists for stock
index futures contracts based on the S&P 500 Index, the S&P MidCap 400, the
Nikkei 225, the New York Stock Exchange Composite Index, the Value Line Stock
Index, and the Major Market Index. It is expected that financial instruments
related to broad-based indices, in addition to those for which futures contracts
are currently traded, will in the future be the subject of publicly-traded
futures contracts, and the Funds may use any of these, which are appropriate, in
its hedging strategies.
A financial futures contract is an agreement to buy or sell a security (or
deliver a final cash settlement price, in the case of a contract relating to an
index or otherwise not calling for physical delivery of a specified security)
for a set price in the future. Exchange-traded futures contracts are designated
by boards of trade which have been designated
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"contracts markets" by the Commodity Futures Trading Commission ("CFTC").
Positions taken in the futures markets are not normally held until delivery
or cash settlement is required, but instead are liquidated through offsetting
transactions which may result in a gain or a loss. While futures positions taken
by a Fund will usually be liquidated in this manner, the Fund may instead make
or take delivery of underlying securities whenever it appears economically
advantageous to the Fund to do so. A clearing organization associated with the
relevant exchange assumes responsibility for closing out transactions and
guarantees that, as between the clearing members of an exchange, the sale and
purchase obligations will be performed with regard to all positions that remain
open at the termination of the contract.
Unlisted financial futures contracts, which may be purchased or sold only
by the Large Cap Value Fund, the High Yield Bond Fund, the Strategic Bond Fund,
the Municipal Bond Fund and the Core Bond Fund, like unlisted options, are not
traded on an exchange and, generally, are not as actively traded as listed
futures contracts or listed securities. Such financial futures contracts
generally do not have the following elements: standardized contract terms,
margin requirements relating to price movements, clearing organizations that
guarantee counter-party performance, open and competitive trading in centralized
markets, and public price dissemination. These elements in listed instruments
serve to facilitate their trading and accurate valuation. As a result, the
accurate valuation of unlisted financial futures contracts may be difficult. In
addition, it may be difficult or even impossible, in some cases, to close out an
unlisted financial futures contract, which may, in turn, result in significant
losses to the Fund. Such unlisted financial futures contracts will be considered
by the Fund to be illiquid securities and together with other illiquid
securities will be limited to no more than 10% (or 15%) of the value of such
Fund's total assets. In making such determination, the value of unlisted
financial futures contracts will be based upon the "face amount" of such
contracts.
When financial futures contracts are entered into by a Fund, either as the
purchaser or the seller of such contracts, the Fund is required to deposit with
the Custodian in a segregated account in the name of the FCM an initial margin
of cash or U.S. Treasury bills equaling as much as 5% to 10% or more of the
contract settlement price. The nature of initial margin requirements in futures
transactions differs from traditional margin payments made in securities
transactions in that initial margins for financial futures contracts do not
involve the borrowing of funds by the customer to finance the transaction.
Instead, a customer's initial margin on a financial futures contract represents
a good faith deposit securing the customer's contractual obligations under the
financial futures contract. The initial margin deposit is returned, assuming
these obligations have been met, when the financial futures contract is
terminated. In addition, subsequent payments to and from the FCM, called
"variation margin," are made on a daily basis as the price of the underlying
security, stock index, or currency fluctuates, reflecting the change in value in
the long (purchase) or short (sale) positions in the financial futures contract,
a process known as "marking to market."
Certain Funds may hold financial futures contracts in accordance with their
investment policies. A Fund may not adhere to its internal operating policy in
circumstances where the Fund is required to invest a large cash infusion. In
this circumstance the Fund's total invested position, including the security
value of the financial futures contracts may not exceed 100% of the Fund's net
assets.
Financial futures contracts generally are not entered into to acquire the
underlying asset and generally are not held to term. Prior to the contract
settlement date, the Funds will normally close all futures positions by entering
into an offsetting transaction which operates to cancel the position held, and
which usually results in a profit or loss.
OPTIONS ON FINANCIAL FUTURES CONTRACTS
For bona fide hedging purposes, each Fund, except the Mid Cap Growth Fund,
the International Growth Fund, the Mid Cap Value Fund, the Lifestyle Funds, the
Municipal Money Market Fund and the Money Market Fund, may also purchase call
and put options on financial futures contracts and write call options on
financial futures contracts of the type which the particular Fund is authorized
to enter into. Options on financial future contracts used by the Funds are
traded on exchanges that are licensed and regulated by the CFTC. A call option
on a financial futures contract gives the purchaser the right in return for the
premium paid, to purchase a financial futures contract (assume a
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"long" position) at a specified exercise price at any time before the option
expires. A put option gives the purchaser the right, in return for the premium
paid, to sell a financial futures contract (assume a "short" position), for a
specified exercise price, at any time before the option expires.
Unlike entering into financial futures contracts, purchasing options on
financial futures contracts allows a Fund to decline to exercise the option,
thereby avoiding any loss beyond foregoing the purchase price (or "premium")
paid for the options. Therefore, the purchase of options on financial futures
contracts may be a preferable hedging strategy when a Fund desires maximum
flexibility. Whether, in order to achieve a particular objective, a Fund enters
into a financial futures contract, on the one hand, or an option contract, on
the other, will depend on all the circumstances, including the relative costs,
liquidity, availability and capital requirements of such financial futures and
options contracts. Also, the Funds will consider the relative risks involved,
which may be quite different. These factors, among others, will be considered in
light of market conditions and the particular objective to be achieved.
CERTAIN ADDITIONAL RISKS OF OPTIONS AND FINANCIAL FUTURES CONTRACTS
In addition to the risks described in the Series Company's Prospectus, the
use of options and financial futures contracts may entail the following risks.
First, although such instruments when used by the Funds are intended to
correlate with the Funds' portfolio securities or currencies, in many cases the
options or financial futures contracts used may be based on securities,
currencies, or stock indices the components of which are not identical to the
portfolio securities owned or intended to be acquired by the Funds. Second, due
to supply and demand imbalances and other market factors, the price movements of
financial futures contracts, options thereon, currency options, and stock index
options may not necessarily correspond exactly to the price movements of the
securities, currencies, or stock indices on which such instruments are based.
Accordingly, there is a risk that a Fund's transactions in those instruments
will not in fact offset the impact on the Fund of adverse market developments in
the manner or to the extent contemplated or that such transactions will result
in losses to the Fund which are not offset by gains with respect to
corresponding portfolio securities owned or to be purchased by that Fund.
To some extent, these risks can be minimized by careful management of
hedging activities. For example, where price movements in a financial futures or
option contract are expected to be less volatile than price movements in the
related portfolio securities owned or intended to be acquired by a Fund, it may,
in order to compensate for this difference, use an amount of financial futures
or option contracts which is greater than the amount of such portfolio
securities. Similarly, where the price movement of a financial futures or option
contract is anticipated to be more volatile, a Fund may use an amount of such
contracts which is smaller than the amount of portfolio securities to which such
contracts relate.
The risk that the hedging technique used will not actually or entirely
offset an adverse change in a Fund's portfolio securities is particularly
relevant to financial futures contracts and options written on stock indices and
currencies. A Fund, in entering into a futures purchase contract, potentially
could lose any or all of the contract's settlement price. In entering into a
futures sale contract, a Fund could potentially lose a sum equal to the excess
of the contract's value (marked to market daily) over the contract's settlement
price. In writing options on stock indices or currencies a Fund could
potentially lose a sum equal to the excess of the value of the index or currency
(marked to market daily) over the exercise price. In addition, because financial
futures contracts require delivery at a future date of either a specified
security or currency, or an amount of cash equal to a multiple of the difference
between the value of a specified stock index on that date and the settlement
price, an algebraic relationship exists between any price movement in the
underlying security or currency or index and the potential cost of settlement to
a Fund. A small increase or decrease in the value of the underlying security or
currency or stock index can, therefore, result in a much greater increase or
decrease in the cost to the Fund.
Stock index call options written also pose another risk as hedging tools.
Because exercises of stock index options are settled in cash, there is an
inherent timing risk that the value of a Fund's portfolio securities "covering"
a stock index call option written by it may decline during the time between
exercise of the option by the option holder
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and notice to the Fund of such exercise (usually one day or more) thereby
requiring the Fund to use additional assets to settle the transaction. This risk
is not present in the case of covered call options on individual securities,
which are settled by delivery of the actual securities.
There are also special risks in using currency options including the
following: (i) settlement of such options must occur in the country issuing the
currency in conformity with foreign regulations for such delivery, including the
possible imposition of additional costs and taxes, (ii) no systematic reporting
of "last sale" information for foreign currencies, and (iii) the need to use
"odd lot" transactions for underlying currencies at prices less favorable than
those for "round lot" transactions.
Although the Funds intend to establish positions in these instruments only
when there appears to be an active market, there is no assurance that a liquid
market for such instruments will exist when a Fund seeks to "close out" (i.e.
terminate) a particular financial futures contract or option position. This is
particularly relevant for over-the-counter options and financial futures
contracts, as previously noted. Trading in such instruments could be
interrupted, for example, because of a lack of either buyers or sellers. In
addition, the futures and options exchanges may suspend trading after the price
of such instruments has risen or fallen more than the maximum amount specified
by the exchange. Exercise of options could also be restricted or delayed because
of regulatory restrictions or other factors. A Fund may be able, by adjusting
investment strategy in the cash or other contract markets, to offset to some
extent any adverse effects of being unable to liquidate a hedge position.
Nevertheless, in some cases, a Fund may experience losses as a result of such
inability. Therefore it may have to liquidate other more advantageous
investments to meet its cash needs.
In addition, FCMs or brokers in certain circumstances will have access to a
Fund's assets posted as margin in connection with these transactions as
permitted under the 1940 Act. See "Other Information -- Custody of Assets" in
this Statement of Additional Information. The Funds will use only FCMs or
brokers in whose reliability and financial soundness they have full confidence
and have adopted certain other procedures and limitations to reduce the risk of
loss with respect to any assets which brokers hold or to which they may have
access. Nevertheless, in the event of a broker's insolvency or bankruptcy, it is
possible that a Fund could experience a delay or incur costs in recovering such
assets or might recover less than the full amount due. Also the value of such
assets could decline by the time a Fund could effect such recovery.
The success of a Fund in using hedging techniques depends, among other
things, on VALIC's, or the Sub-adviser's ability to predict the direction and
volatility of price movements in both the futures and options markets as well as
the securities markets and on VALIC's or the Sub-adviser's ability to select the
proper type, time, and duration of hedges. There can be no assurance that these
techniques will produce their intended results. In any event, VALIC, or the
Sub-adviser will use financial futures contracts, options thereon, currency
options and stock index options only when it believes the overall effect is to
reduce, rather than increase, the risks to which a Fund is exposed. Hedging
transactions also, of course, may be more, rather than less, favorable to a Fund
than originally anticipated.
LIMITATIONS
No Fund will enter into any financial futures contract or purchase any
option thereon if, immediately thereafter, the total amount of its assets
required to be on deposit as initial margin to secure its obligations under
financial futures contracts, plus the amount of premiums paid by it for
outstanding options to purchase futures contracts, exceeds 5% of the market
value of its total assets; provided however, that in the case of an option that
is in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation. This is a fundamental policy of the Socially
Responsible Fund.
In addition, each Fund has an operating policy which provides that it will
not enter into financial futures contracts or write put or call options with
respect to financial futures contracts unless such transactions are either
"covered" or subject to segregation requirements considered appropriate by the
SEC staff. Further, each Fund has an operating policy which provides that it
will not enter into custodial arrangements with respect to initial or variation
margin deposits or marked-to-market amounts unless the custody of such initial
and variation margin deposits and marked-to-market amounts are in compliance
with current SEC staff interpretive positions or no-action letters or rules
adopted by the SEC.
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SHORT SALES AND SHORT SALES AGAINST THE BOX
Certain Funds may engage in short sale transactions in securities listed on
one or more national securities exchanges or on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"). Short selling
involves the sale of borrowed securities. At the time a short sale is effected,
a Fund incurs an obligation to replace the security borrowed at whatever its
price may be at the time that the Fund purchases it for delivery to the lender.
When a short sale transaction is closed out by delivery of the securities, any
gain or loss on the transaction is taxable as a short term capital gain or loss.
Until the security is replaced, the Fund is required to pay to the lender
amounts equal to any dividends or interest which accrue during the period of the
loan. All short sales will be fully collateralized. A Fund may also engage in
short sales against the box, which involves selling a security the Fund holds in
its portfolio for delivery at a specified date in the future. A Fund will not
engage in short sales or short sales against the box if immediately following
such transaction the aggregate market value of all securities sold short and
sold short against the box would exceed 10% of the Fund's net assets (taken at
market value).
MONEY MARKET SECURITIES OF FOREIGN ISSUERS
Foreign money market instruments utilized by certain of the Funds will be
limited to: (i) obligations of, or guaranteed by, a foreign government, its
agencies or instrumentalities; (ii) certificates of deposit, bankers'
acceptances, short-term notes, negotiable time deposits and other obligations of
the ten largest banks in each foreign country, measured in terms of net assets;
and (iii) other short-term unsecured corporate obligations (usually 1 to 270 day
commercial paper) of foreign companies. For temporary purposes or in light of
adverse foreign political or economic conditions, the Funds may invest in
short-term high quality foreign money market securities without limitation.
INVESTMENT ADVISER
VALIC is a stock life insurance company organized on May 1, 1969 under the
Texas Insurance Code as a successor to The Variable Annuity Life Insurance
Company of America, a District of Columbia insurance company organized in 1955.
VALIC is an indirect wholly-owned subsidiary of American General Corporation,
Houston, Texas. Members of the American General Corporation group of companies
operate in each of the 50 states, the District of Columbia, and Canada and
collectively engage in substantially all forms of financial services. American
General Corporation was incorporated as a Texas business corporation on February
26, 1980 as the successor to American General Life Insurance Company (organized
in 1926) as the result of a corporate reorganization completed on July 1, 1980.
VALIC serves as the investment adviser to each of the Funds pursuant to an
Investment Advisory Agreement with each Fund dated October 7, 1998, that was
approved by the Board of Trustees on August 26, 1998. Under the Investment
Advisory Agreement, each Fund pays VALIC an annual fee, payable monthly, based
on its average daily net asset value.
Pursuant to the Investment Advisory Agreement, the Series Company retains
VALIC to manage the investment of the assets of each Fund, maintain a trading
desk, and place orders for the purchase and sale of portfolio securities. As
investment adviser, VALIC obtains and evaluates as appropriate economic,
statistical, and financial information in order to formulate and implement
investment programs in furtherance of each Fund's investment objective(s) and
investment program. Pursuant to the Investment Advisory Agreements, VALIC
provides other services including furnishing the services of the President and
such other executives and clerical personnel as the Series Company requires to
conduct its day-to-day operations, to prepare the various reports and statements
required by law, and to conduct any other recurring or nonrecurring activity
which the Series Company may need to continue operations. The Investment
Advisory Agreement provides that the Series Company pay all expenses not
specifically assumed by VALIC under the Agreement. Examples of the expenses paid
by the Series Company include transfer agency fees, custodial fees, the fees of
outside legal and auditing firms, the costs of reports to shareholders and
expenses of servicing shareholder accounts (e.g., daily calculation of the net
asset
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value). The Series Company allocates advisory fees, SEC filing fees, interest
expenses and state filing fees, if any, to the Fund that incurs such charges and
allocates all other expenses among the Funds based on the net assets of each
Fund in relation to the net assets of the Series Company.
The Investment Advisory Agreement requires that VALIC's advisory fee be
reduced by any commissions, tender and exchange offer solicitation fees and
other fees, or similar payments (less any direct expenses incurred) received by
VALIC or its affiliates in connection with the purchase and sale of portfolio
investments of the Funds. In this regard, the Investment Advisory Agreement
requires VALIC to use its best efforts to recapture tender and exchange
solicitation offer fees for each Fund's benefits, and to advise the Series
Company's Board of Trustees of any other fees, or similar payments that it (or
any of its affiliates) may receive in connection with each Fund's portfolio
transactions or of other arrangements that may benefit any of the Funds or the
Series Company.
The Investment Advisory Agreement may be continued with respect to any Fund
if specifically approved, after the initial two year term, at least annually by
(a)(i) the Series Company's Board of Trustees or (ii) a majority of that Fund's
outstanding voting securities (as defined by the 1940 Act), and (b) the
affirmative vote of a majority of the trustees who are not parties to the
agreement or "interested persons" of any such party (as defined by the 1940 Act)
by votes cast in person at a meeting called for this purpose. The Investment
Advisory Agreement also provides that it shall terminate automatically if
assigned. The Investment Advisory Agreement may be terminated as to any Fund at
any time by the Series Company's Board of Trustees, by vote of a majority of the
Fund's outstanding voting securities, or by VALIC, on not more than 60 days'
written notice, nor less than 30 days' written notice, or upon such shorter
notice as may be mutually agreed upon, without the payment of any penalty.
Additionally the Investment Advisory Agreement provides that VALIC shall not be
liable to the Series Company, or any shareholder in the Series Company, for any
act or omission in rendering services under the Agreement, or for any losses
sustained in the purchase, holding, or sale of any portfolio security, so long
as there has been no willful misfeasance, bad faith, negligence, or reckless
disregard of obligations or duties on the part of VALIC.
Pursuant to an Accounting Services Agreement dated October 7, 1998
("Agreement"), VALIC provides accounting services to the Series Company. The
Agreement provides that the Series Company will pay to VALIC an annual fee
payable monthly based on average daily net assets for providing the accounting
services.
INVESTMENT SUB-ADVISERS
Pursuant to Investment Sub-advisory Agreements dated October 7, 1998 with
each Sub-adviser, VALIC has engaged American General Investment Management, L.P.
("AGIM") to provide sub-advisory services to the High Yield Bond Fund, the
Strategic Bond Fund, the Core Bond Fund, the Municipal Bond Fund and the
Municipal Money Market Fund and Bankers Trust Company ("Bankers Trust") to
provide sub-advisory services for S&P 500 Index Fund, the Mid Cap Index Fund and
the Small Cap Index Fund and for a portion of the Small Cap Value Fund. In
addition, Capital Guardian Trust Company ("Capital Guardian") provides
sub-advisory services for the International Value Fund, the Domestic Bond Fund
and the Balanced Fund, Jacobs Asset Management provides sub-advisory services
for the International Growth Fund, State Street Bank and Trust Company/State
Street Global Advisors ("State Street Global Advisors") provides sub-advisory
services for the Large Cap Value Fund, Goldman Sachs Asset Management ("GSAM")
provides sub-advisory services for the Large Cap Growth Fund and
Neuberger&Berman Management Inc. ("N&B Management") provides sub-advisory
services for the Mid Cap Value Fund pursuant to separate Sub-advisory
Agreements. Brown Capital Management, Inc. ("Brown Capital Management") provides
sub-advisory services for the Mid Cap Growth Fund, Fiduciary Management
Associates, Inc. ("FMA") provides sub-advisory services for a portion of the
Small Cap Value Fund and J.P. Morgan Investment Management, Inc. ("JP Morgan")
provides sub-advisory services for the Small Cap Growth Fund pursuant to
separate sub-advisory Agreements, as well. AGIM, Bankers Trust, Capital
Guardian, Jacobs Asset Management, State Street Global Advisors, GSAM, N&B
Management, Brown Capital Management, FMA
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and JP Morgan (collectively, the "Sub-advisers") will be subject to the control,
supervision and direction of VALIC, which will retain responsibility for the
overall management of the Funds to which these companies provide sub-advisory
services (collectively, the "Sub-advised Funds").
In selecting Sub-advisers, the Series Company's Trustees carefully
evaluated: (i) the nature and quality of the services expected to be rendered to
the Fund(s) by the Sub-adviser, (ii) the distinct investment objective and
policies of the Fund(s); (iii) the history, reputation, qualification and
background of the Sub-adviser's personnel and its financial condition; (iv) its
performance track record; and (v) other factors deemed relevant. The Trustees
also reviewed the fees to be paid to each Sub-adviser.
The Series Company was issued an exemptive order by the SEC on September 9,
1998 for an exemption (the "Exemption") from certain provisions of the 1940 Act
which would otherwise require VALIC to obtain formal shareholder approval prior
to engaging and entering into sub-advisory agreements with Sub-advisers. The
relief is based on the conditions set forth in the Exemption that, among other
things; (1) VALIC will select, monitor, evaluate and allocate assets to the
Sub-advisers and oversee Sub-advisers compliance with the relevant Fund's
investment objective, policies and restrictions; (2) before a Fund may rely on
the Exemption, the Exemption must be approved by the shareholders of the Funds
operating under the Exemption; (3) the Series Company will provide to
shareholders certain information about a new Sub-adviser; (4) the Series Company
will disclose in its Prospectus the existence, substance and effect of the
Exemption; and (5) the Trustees, including a majority of the "non-interested"
Trustees, must approve each sub-advisory agreement in the manner required under
the 1940 Act. Any changes to the Investment Advisory Agreement between the
Series Company and VALIC would still require shareholder approval. As required
by the Exemption, the initial shareholder of each Fund on October 7, 1998,
consented to permit VALIC to terminate, replace or add Sub-advisers and to enter
into sub-advisory agreements with Sub-advisers upon approval of the Board of
Trustees but without formal shareholder approval.
Pursuant to the Investment Sub-advisory Agreements and subject to VALIC's
control, supervision and direction, the Sub-advisers will manage the investment
and reinvestment of the assets, other than cash, of the Sub-advised Funds,
including the evaluation of pertinent economic, statistical, financial and other
data, and the determination of industries and companies to be represented in the
Sub-advised Funds. Further, the Sub-advisers will maintain a trading desk and
place orders for the purchase and sale of portfolio investments for the
Sub-advised Funds, accounts with brokers and dealers selected by the
Sub-advisers, or arrange for any other entity to provide a trading desk and to
place orders with brokers and dealers selected by the Sub-advisers and VALIC.
The Investment Sub-advisory Agreements provide that the Sub-advisers will
bear the expense of discharging their responsibilities.
VALIC shall pay to AGIM, for the services rendered and expenses paid by
AGIM, a monthly fee computed at the annual rate of 0.25% of the first $200
million, 0.20% of the next $300 million and 0.15% of average daily net asset
values on the excess over $500 million for each of the Core Bond Fund, the
Municipal Bond Fund and the Municipal Money Market Fund. With respect to the
Strategic Bond Fund, VALIC pays AGIM, a monthly fee computed at the annual rate
of 0.35% of the first $200 million, 0.25% of the next $300 million and 0.20% of
average daily net assets over $500 million. For the High Yield Bond Fund, VALIC
pays AGIM, a monthly fee computed at the annual rate of 0.45% of the first $200
million, 0.35% of the next $300 million and 0.30% of average daily net assets
over $500 million.
VALIC shall pay to Bankers Trust, for the services rendered and expenses
paid by Bankers Trust, a monthly fee computed at the annual rate of 0.03% of the
average daily net asset values of the portion of the Small Cap Value Fund
portfolio that it manages. With respect to the S&P 500 Index Fund, VALIC shall
pay to Bankers Trust, a monthly fee computed at the annual rate of 0.02% of the
first $2 billion and 0.01% of average daily net asset values on the excess over
$2 billion. VALIC shall pay Bankers Trust, a monthly fee computed at the annual
rate of 0.03% of the first $300 million and 0.02% of average daily net asset
values on the excess over $300 million of the Mid Cap Index Fund, and 0.03% of
the first $150 million and 0.02% of average daily net asset values on the excess
over $150 million of the Small Cap Index Funds.
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VALIC shall pay to Brown Capital Management, for the services rendered to
the Mid Cap Growth Fund and expenses paid by Brown Capital Management, a monthly
fee computed at the annual rate of 0.40% of the first $25 million, 0.30% of the
next $25 million and 0.20% of average daily net asset values on the excess over
$50 million.
VALIC shall pay to Capital Guardian, for the services rendered and expenses
paid by Capital Guardian, a quarterly fee computed at the annual rate of 0.75%
of the first $25 million, 0.60% of the next $25 million, 0.425% of the next $200
million and 0.375% of average daily net assets values on the excess over $250
million of the International Value Fund, 0.35% of the first $50 million, 0.20%
of the next $50 million, 0.18% of the next $200 million and 0.15% of average
daily net asset values on the excess over $300 million of the Domestic Bond Fund
and 0.55% of the first $25 million, 0.40% of the next $25 million and 0.20% of
average daily net asset values on the excess over $50 million of the Balanced
Fund. Capital Guardian aggregates fees with respect to the International Value
Fund, the Domestic Bond Fund and the Balanced Fund and applies a 5% discount to
all fees if total fees are between $1.25 million and $4 million, a 7.5% discount
to all fees if total fees are between $4 million and $8 million, a 10% discount
to all fees if total fees are between $8 million and $12 million and a 12.5%
discount to all fees if total fees exceed $12 million.
VALIC shall pay to FMA, for the services rendered to the portion of the
Small Cap Value Fund that it manages and expenses paid by FMA, a monthly fee
computed at the annual rate of 0.50% of the first $50 million and 0.40% of
average daily net asset values on the excess over $50 million.
VALIC shall pay to GSAM, for the services rendered to the Large Cap Growth
Fund and expenses paid by GSAM, a monthly fee computed at the annual rate of
0.30% of average daily net asset values of the Large Cap Growth Fund.
VALIC shall pay to JP Morgan, for the services rendered to the Small Cap
Growth Fund and expenses paid by JP Morgan, a monthly fee computed at the annual
rate of 0.60% of average daily net asset values of the Small Cap Growth Fund.
VALIC shall pay to Jacobs Asset Management, for the services rendered to
the International Growth Fund and expenses paid by Jacobs Asset Management, a
monthly fee computed at the annual rate of 0.65% of the first $100 million and
0.55% of average daily net asset values on the excess over $100 million.
VALIC shall pay to N&B Management, for the services rendered to the Mid Cap
Value Fund and expenses paid by N&B Management, a monthly fee computed at the
annual rate of 0.50% of the first $100 million, 0.475% of the next $150 million,
0.45% of the next $250 million, 0.425% of the next $250 million and 0.40% of
average daily net asset values on the excess over $750 million.
VALIC shall pay to State Street Global Advisors, for the services rendered
to the Large Cap Value Fund and expenses paid by State Street, a monthly fee
computed at the annual rate of 0.25% of average daily net asset values of the
Large Cap Value Fund, but in no event less than $50,000 per year.
The Investment Sub-advisory Agreements may be continued with respect to any
of the Funds if approved, after the initial two year term, at least annually by
the vote of the Series Company's Board of Trustees who are not parties to the
Investment Sub-advisory Agreements or interested persons of any such parties,
cast in person at a meeting called for the purpose of voting on such approval
and by a vote of a majority of the Series Company's Board of Trustees or a
majority of the relevant Fund's outstanding voting securities.
Subject to the Exemption, the Investment Sub-advisory Agreements may be
terminated at any time by VALIC, the relevant Sub-adviser, the Series Company's
Board of Trustees, or by vote of a majority of the outstanding voting securities
of the relevant Sub-advised Fund, on not more than 60 days' nor less than 30
days' written notice to the other entities, or upon such shorter notice as may
be mutually agreed upon. Such termination shall be without the payment of any
penalty.
The Investment Sub-advisory Agreements provide that the Sub-advisers shall
not be liable to VALIC, the Series Company or to any shareholder of the Series
Company for any act or omission in rendering services under the Investment
Sub-advisory Agreements or for any losses sustained in the purchase, holding or
sale of any portfolio security, so long as there has been no willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties on the part of the Sub-advisers.
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PORTFOLIO TRANSACTIONS AND BROKERAGE
As investment adviser to the Series Company, VALIC has responsibility for
placing (and deciding when to place) orders for the purchase and sale of
investments for the portfolio of each Fund, selecting brokers or dealers to
handle these transactions, and negotiating commissions on these transactions.
VALIC utilizes the assistance of Sub-advisers in selecting brokers or dealers to
handle transactions for the Sub-advised Funds. The Sub-advisers may employ
affiliated brokers for portfolio transactions under circumstances described in
the Prospectus under the heading "About the Series Company's Management."
Virtually all of the over-the-counter transactions by the actively managed
portion of the Small Cap Value Fund, the High Yield Bond Fund, the Strategic
Bond Fund, the Domestic Bond Fund, the Municipal Bond Fund and the Mid Cap
Growth Fund, are principal transactions with issuers and dealers at net prices
which entail no brokerage commissions. The International Value Fund, the Mid Cap
Value Fund, and the Socially Responsible Fund, each purchase and sell most of
their portfolio securities on a national securities exchange on an agency basis.
The International Growth Fund, the Balanced Fund, the Mid Cap Growth Fund, the
Small Cap Value Fund, and the Large Cap Value Fund engage in over-the-counter
transactions with principals and transactions with national securities exchanges
on an agency basis. The Series Company normally enters into principal
transactions directly with the issuer or the market-maker.
When the Series Company purchases or sells securities or financial futures
contracts on an exchange, it pays a commission to any FCM or broker executing
the transaction. When the Series Company purchases securities from the issuer,
an underwriter usually receives a commission or "concession" paid by the issuer.
When the Series Company purchases securities from a market-maker, it pays no
commission, but the price includes a "spread" or "mark-up" (between the bid and
asked price) earned by the market-making dealer on the transaction.
In purchasing and selling each Fund's portfolio securities, it is the
policy of VALIC and the Sub-advisers (collectively, the "Advisers") to seek the
best execution at the most favorable price through responsible broker-dealers
and, in the case of agency transactions, at competitive commission rates. When
selecting brokers or dealers, and in negotiating prices and commissions, the
Advisers consider such factors as: the broker or dealer's reliability; the
quality of the broker or dealer's execution services on a continuing basis; the
rate of the commission; the size and difficulty of the order and the timeliness
of execution; the reliability, integrity, financial condition, general
execution, and operational capabilities of that firm and competing
broker-dealers. In over-the-counter transactions, the Advisers place orders
directly with the principal market-maker unless they believe the Series Company
can obtain a better price (or receive better execution of orders) from a broker
on an agency basis. In transactions executed on securities or commodities
exchanges, the Advisers seek the best overall price and execution at the most
favorable commission rate (except when higher brokerage commissions are paid to
obtain brokerage and research services, as explained below). When the Advisers
believe that more than one firm meets these criteria the Advisers may prefer
brokers who provide the Advisers or the Series Company with brokerage and
research services, described below.
The Advisers may cause a Fund to pay a broker-dealer a commission (for
executing a securities transaction) that is greater than the commission another
broker-dealer would have received for executing the same transaction, if the
Advisers determine in good faith that the greater commission paid to the first
broker-dealer is reasonable in relation to the value of brokerage and research
services provided to the Advisers viewed in terms of either that particular
transaction or the overall responsibilities of the Advisers.
The Advisers receive a wide range of research services from broker-dealers,
including: information on securities markets, the economy and individual
companies; statistical information; accounting and tax law interpretations;
technical market action; pricing and appraisal services; and credit analyses.
Research services are received by the Advisers primarily in the form of written
reports, telephone contacts, personal meetings with securities analysts,
corporate and industry spokespersons, and access to various computer-generated
data.
The Advisers have no agreements or understandings with broker-dealers by
which specific amounts of transactions or commissions are directed to specific
broker-dealers.
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The Advisers evaluate whether such research services provide lawful and
appropriate assistance to them in the performance of their investment
decision-making responsibilities, for the Series Company. The Advisers will not
cause the Series Company to pay higher commissions without first determining, in
good faith, that the cost is reasonable considering the brokerage and research
services provided, with respect to either the particular transaction or the
Advisers' overall responsibilities with respect to accounts for which they
exercise investment discretion. The Advisers receive research services at no
cost and cannot assign any specific monetary value to them; nevertheless, the
Advisers believe these supplemental investment research services are essential
to the Advisers' ability to provide high quality portfolio management to the
Funds. Research services furnished by broker-dealers through whom a Fund effects
securities transactions may be used by the Advisers in servicing all of the
Funds, and the Advisers may not use all such services in managing the Funds.
The amount of brokerage commissions paid, the quality of execution, the
nature and quality of research services provided, and the amount of commissions
paid to firms providing research services are reviewed quarterly by the Series
Company's Board of Trustees.
Occasions may arise when one or more of the Funds or other accounts that
may be considered affiliated persons of the Funds under the 1940 Act desire to
purchase or sell the same portfolio security at approximately the same time. On
those occasions when such simultaneous purchase and sale transactions are made
such transaction will be allocated in an equitable manner according to written
procedures approved by the Series Company's Board of Trustees. Specifically,
such written procedures provide that in allocating purchase and sale
transactions made on a combined basis the parties will seek to achieve the same
net unit price of securities for each Fund or other account and to allocate as
nearly as practicable, such transactions on a pro-rata basis substantially in
proportion to the amounts ordered to be purchased and sold by each Fund or other
account. In some cases, this procedure could have an adverse effect on the price
or quantity of securities available to the Funds. However, the Funds may,
alternatively, benefit from lower broker's commissions and/or correspondingly
lower costs for brokerage and research services by engaging in such combined
transactions. In the Advisers' opinion, the results of this procedure will, on
the whole, be in the best interest of each Fund.
PURCHASING AND SELLING FUND SHARES
GENERAL
(APPLICABLE TO ALL CLASSES OF SHARES)
Pursuant to a Distribution and Service Agreement, VALIC Investment Services
Company (the "Distributor") acts as the principal underwriter of the Series
Company's shares. The Distributor has the exclusive right to distribute shares
of the Series Company. The Distributor's obligation is an agency or "best
efforts" arrangement under which the Series Company is required to take and pay
for only such shares of the Series Company as may be sold to the public. The
Distributor is not obligated to sell any stated number of shares. The
Distributor's address is the same as that of VALIC.
The Distribution and Service Agreement between the Distributor and the
Series Company provides that it shall continue in force, after the initial two
year period, from year to year, provided that such continuance is approved at
least annually (a)(i) by the Board of Trustees of the Series Company, or (ii) by
vote of a majority of the Series Company's outstanding voting securities (as
defined in the 1940 Act) and (b) by the affirmative vote of a majority of the
Series Company's Trustees who are not 'interested persons' (as defined in the
1940 Act) of the Series Company by votes cast in person at a meeting called for
such purpose. The distribution and service agreement may be terminated at any
time, without penalty, by a vote of the Board of Trustees of the Series Company
or by a vote of a majority of the outstanding voting securities of the Series
Company, or by the Distributor, on sixty days' written notice to the other
party. The distribution and service agreement also automatically terminates in
the event of an assignment.
Pursuant to the Distribution and Service Agreement the Distributor pays
promotional and advertising expenses and the cost of printing prospectuses used
to offer and sell shares of the Series Company (after typesetting and printing
the copies required for regulatory filings by the Series Company). Promotional
and advertising expenses include any expense related to distribution of shares
of the Funds or attributable to any activity primarily
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intended to result in the sale of shares, including, for
example, the preparation, printing, and distribution of advertising and sales
literature (including reports to shareholders used as sales literature). The
Series Company pays all expenses related to the registration of Fund shares
under federal and state laws, including registration and filing fees, the cost
of preparing the prospectus for such purpose, and related expenses of outside
legal and auditing firms.
The following information supplements the section in the Series Company's
Prospectus captioned "Purchasing and Selling Fund Shares."
PURCHASE OF SHARES
(APPLICABLE TO CLASS A AND CLASS B SHARES)
Shares of the Funds are sold in a continuous offering and may be purchased
on any business day through National Financial Data Services, Inc. (the
"Transfer Agent") or your registered representative. For information regarding
the purchase of Fund shares, see "Purchasing and Selling Fund Shares -- How to
Buy Shares" in the Series Company Prospectus.
CUMULATIVE PURCHASE DISCOUNT
(APPLICABLE TO CLASS A SHARES)
The reduced sales charges described in the Prospectus under "Purchasing and
Selling Fund Shares -- When the Sales Charge on Class A Shares will be Reduced
or Waived" apply to purchases of Class A shares of the Fund where the aggregate
investment is $25,000 or more for the Equity Funds, and $50,000 or more for the
Fixed Income Funds. For purposes of determining eligibility for the cumulative
purchase discount, spouses and their children under 21 years of age are treated
as a single purchaser, as is a trustee or other fiduciary of a single trust
estate or a single fiduciary account. An aggregate investment includes all
shares of the Funds owned plus the shares being purchased. The current offering
price is used to determine the value of all such shares. The same reduction is
applicable to purchases under a Letter of Intent as described in the next
paragraph. The reduced sales charge will also not be applied should a review of
the records of the Distributor or the Transfer Agent fail to confirm the
representations concerning the investor's holdings.
LETTER OF INTENT
(APPLICABLE TO CLASS A SHARES)
Purchases of Class A Shares of the Funds described above under "Cumulative
Purchase Discount" made pursuant to the Letter of Intent and still owned are
also included in determining the applicable quantity discount. A Letter of
Intent permits an investor to establish a total investment goal to be achieved
by any number of investments over a thirteen-month period. Each investment made
during the period will receive the reduced sales charge applicable to the amount
represented by the goal as if it were a single investment. Escrowed shares
totalling 5% of the dollar amount of the Letter of Intent are held by the
Transfer Agent in the name of the shareholder. The effective date of a Letter of
Intent may be back-dated up to 90 days in order that any investments made during
this 90-day period, valued at the investor's cost, can become subject to the
Letter of Intent. The Letter of Intent does not obligate the investor to
purchase the indicated amount. In the event the Letter of Intent goal is not
achieved within the thirteen-month period, the investor is required to pay the
difference between sales charges otherwise applicable to the purchases made
during this period and sales charges actually paid. Such payment may be made
directly to the Distributor or, if not paid, the Distributor will liquidate
sufficient escrowed shares to obtain such difference. If the goal is exceeded in
an amount which qualifies for a lower sales charge, a price adjustment is made
by refunding to the investor in shares of a Fund, the amount of excess sales
charges, if any, paid during the thirteen-month period.
SELLING FUND SHARES
(APPLICABLE TO ALL CLASSES OF SHARES)
For a description of how an investor may sell his or her shares, see the
applicable section in the Series Company Prospectuses.
Redemptions are not made on days during which the New York Stock Exchange
(the "Exchange") is closed. The right of redemption may be suspended and the
payment therefor may be postponed for more than seven days during any period
when (a) the Exchange is closed for other than customary weekend or holidays;
(b) trading on the Exchange is restricted; (c) an emergency exists as a result
of which disposal by a Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for a Fund to fairly determine
the value of its net assets; or (d) the SEC, by order, so permits.
The Series Company normally redeems Fund shares for cash. The Series
Company, with
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respect to each Fund, may make full or partial payment by assigning to
investors, Series Company portfolio securities at their value used in
determining the redemption price (i.e. by redemption-in-kind). The Series
Company, pursuant to Rule 18f-1 under the 1940 Act, has filed a notification of
election on Form 18f-1. Pursuant to this election, the Series Company has
committed itself to pay investors, in cash, all redemptions made during any 90
day period, up to the lesser of $250,000 or 1% of the Series Company's net asset
value. The securities to be paid in-kind to an investor will be selected in such
manner as the Board of Trustees deems fair and equitable. In such cases,
investors would incur brokerage expenses should they wish to liquidate these
portfolio securities.
CONTINGENT DEFERRED SALES CHARGE -- CLASS A
(APPLICABLE TO CLASS A SHARES)
For investments of $1,000,000 or more of Class A Shares of a Fund
("Qualified Purchaser"), the initial sales charge will be waived and a
contingent deferred sales charge ("CDSC -- Class A") of 1.00% is imposed on
redemptions made within the first year of the purchase and 0.50% within the
second year. If a CDSC -- Class A is imposed upon redemption, the amount of the
CDSC -- Class A will be equal to the lesser of 1.00% or 0.50%, respectively, of
the net asset value of the shares at the time of purchase or 1.00% or 0.50%,
respectively, of the net asset value of the shares at the time of redemption.
The CDSC -- Class A will be imposed only if a Qualified Purchaser redeems
an amount which causes the value of the account to fall below the total dollar
amount of purchase payments made by the Qualified Purchaser without an initial
sales charge during the one or two year period prior to the redemption. No
CDSC -- Class A will be imposed on exchanges between Funds. For purposes of the
CDSC -- Class A, when shares of one Fund are exchanged for shares of another
Fund, the purchase date for the shares of the Fund exchanged into will be
assumed to be the date on which shares were purchased in the Fund from which the
exchange was made. If the exchanged shares themselves are acquired through an
exchange, the purchase date is assumed to carry over from the date of the
original election to purchase shares subject to a CDSC -- Class A rather than
pay an initial sales charge. In determining whether a CDSC -- Class A is
payable, it is assumed that shares held the longest are the first to be
redeemed.
Cumulative Purchase Discounts and Letters of Intent apply to the net asset
value privilege. Also, in order to establish an amount of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of a Fund described in the Prospectus.
EXCHANGE PRIVILEGE
(APPLICABLE TO CLASS A SHARES)
The following supplements the discussion of "Purchasing and Selling Fund
Shares -- How to Exchange Shares" in the Prospectus:
By use of the exchange privilege, the investor authorizes the Transfer
Agent to act on telephonic, telegraphic or written exchange instructions from
any person representing himself or herself to be the investor or the agent of
the investor and believed by the Transfer Agent to be genuine. The Series
Company, the Distributor and the Transfer Agent employ procedures considered by
them to be reasonable to confirm that instructions communicated by telephone are
genuine. Such procedures include requiring certain personal identification
information prior to acting upon telephone instructions, tape recording
telephone communications, and providing written confirmation of instructions
communicated by telephone. If reasonable procedures are employed, neither the
Series Company, the Distributor nor the Transfer Agent will be liable for
following telephone instructions which it reasonably believes to be genuine. The
Series Company, the Distributor and the Transfer Agent may be liable for any
losses due to unauthorized or fraudulent instructions if reasonable procedures
are not followed.
For purposes of determining the sales charge rate previously paid on Class
A Shares, all sales charges paid on the exchanged security and on any security
previously exchanged for such security or for any of its predecessors shall be
included. If the exchanged security was acquired through reinvestment, that
security is deemed to have been sold with a sales charge rate equal to the rate
previously paid on the security on which the dividend or distribution was paid.
If a shareholder exchanges less than all of his or her securities, the security
upon which the highest sale charge rate was previously paid is deemed exchanged
first.
Exchange requests received on a business day prior to the time shares of
the Funds involved in the request are priced will be processed on the date of
receipt. "Processing" a request means that shares in the Fund from which the
shareholder is withdraw-
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ing an investment will be redeemed at the net asset value per share next
determined on the date of receipt. Shares of the new Fund into which the
shareholder is investing will also normally be purchased at the net asset value
per share, plus any applicable sales charge, next determined on the date of
receipt. Exchange requests received on a business day after the time shares of
the Funds involved in the request are priced will be processed on the next
business day in the manner described herein.
DISTRIBUTION AND SERVICE PLAN
The Series Company, with respect to each Fund, has adopted a Distribution
and Service Plan for Class A shares and Class B shares. The Distribution and
Service Plan is referred to herein as the "Plan". The Plan provides that the
Fund may spend a portion of the Fund's average daily net assets attributable to
each class of shares in connection with the provision of ongoing distribution
and shareholders services.
Under the Plan, the Distributor must submit quarterly reports to the Board
of Trustees of the Series Company, setting forth separately by Fund and class of
shares all amounts paid under the Plan and the purposes for which such
expenditures were made, together with such other information as from time to
time is reasonably requested by the Trustees. The Plan provides that it will
continue in full force and effect from year to year so long as such continuance
is specifically approved by a vote of the Trustees, and also by a vote of the
disinterested Trustees, cast in person at a meeting called for the purpose of
voting on the Plan. The Plan may not be amended to increase materially the
amount to be spent for the services described therein with respect to any class
of shares without approval by a vote of a majority of the outstanding voting
shares of such class, and all material amendments to the Plan must be approved
by the Trustees and also by the disinterested Trustees. The Plan may be
terminated with respect to any class of shares at any time by a vote of a
majority of the disinterested Trustees or by a vote of a majority of the
outstanding voting shares of such class.
DETERMINATION OF NET ASSET VALUE
Equity investments (including common stocks, preferred stocks, convertible
securities, and warrants) and call options written on all portfolio investments
listed or traded on a national exchange are valued at their last sale price on
that exchange prior to the time when assets are valued. In the absence of any
exchange sales on that day and for unlisted equity securities, such securities
and call options written on portfolio securities are valued at the last sale
price on the NASDAQ (National Association of Securities Dealers Automated
Quotations) National Market System. In the absence of any National Market System
sales on that day, equity securities are valued at the last reported bid price
and call options written on all portfolio securities for which other
over-the-counter market quotations are readily available are valued at the last
reported asked price.
U.S. Treasury securities and other obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities, are valued at representative
quoted prices. Such quotations generally are obtained from government securities
pricing services; however, in circumstances where it is deemed appropriate to do
so, quotations may be obtained from dealers in government securities.
The Board of Trustees also has authorized the Funds to value certain fixed
income securities by reference to valuations obtained from pricing services
which take into account appropriate factors such as institution-size trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data in determining valuations
of such securities, without extensive reliance upon quoted prices, since such
valuations are believed by the Board of Trustees to more accurately reflect the
fair value of such securities.
Publicly-traded corporate bonds are valued at prices obtained from the
Custodian.
Short-term fixed income securities for which market quotations are readily
available are valued at the last reported bid price, except for those with a
remaining
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maturity of 60 days or less which are valued by the amortized cost method
(unless, due to special circumstances, the use of such a method with respect to
any security would result in a valuation which does not approximate fair market
value).
Convertible bonds are valued at prices obtained from one or more of the
major dealers in such bonds. Where there is a discrepancy between dealers or
when no quotes are readily available, values may be adjusted based on a
combination of yields and premium spreads to the underlying common stock.
Portfolio securities that are primarily traded on foreign securities
exchanges are generally valued at the last sale price on the exchange where such
security is primarily traded. All foreign securities traded on the
over-the-counter market are valued at the last sale quote, if market quotations
are available, or the last closing bid price, if there is no active trading in a
particular security for a given day. Where market quotations are not readily
available for such foreign over-the-counter securities, then such securities
will be valued in good faith by a method that the Series Company's Board of
Trustees, or its delegates, believes accurately reflects fair value. Quotations
of foreign securities in foreign currencies are converted, at current exchange
rates, to their U.S. dollar equivalents in order to determine their current
value. In addition, because of the need to value foreign securities (other than
ADRs) as of the close of trading on various exchanges and over-the-counter
markets throughout the world, the calculation of the net asset value of Funds
investing in such foreign securities may not take place contemporaneously with
the valuation of such foreign securities in those Funds' portfolios.
Options purchased by the Funds (including options on financial futures
contracts, stock indices, foreign currencies, and securities) listed on national
securities exchanges are valued on the exchange where such security is primarily
traded.
Over-the-counter options purchased or sold by the Funds are valued based
upon prices provided by market-makers in such securities or dealers in such
currencies.
Exchange-traded financial futures contracts (including interest rate
futures contracts, stock index futures contracts, and currency futures
contracts) are valued at the settlement price for such contracts established
each day by the board of trade or exchange on which such contracts are traded.
Unlisted financial futures contracts are valued based upon prices provided by
market-makers in such financial futures contracts.
All of the assets of the Municipal Money Market Fund and the Money Market
Fund are valued on the basis of amortized cost. Under the amortized cost method
of valuation, securities are valued at a price on a given date, and thereafter a
constant accretion of any discount or amortization of any premium to maturity is
assumed, regardless of the impact of fluctuating interest rates on the market
value of the security. While this method provides certainty in valuation it may
result in periods in which value as determined by amortized cost is higher or
lower than the price a Fund would receive if it sold the security. During such
periods, the yield to investors may differ somewhat from that obtained by a
similar fund or portfolio which uses available market quotations to value all of
its portfolio securities. The Series Company's Board of Trustees has established
procedures reasonably designed, taking into account current market conditions
and Municipal Money Market Fund's and Money Market Fund's investment objective,
to stabilize the net asset value per share for purposes of sales and redemptions
at $1.00. These procedures include review by the Board, at such intervals as it
deems appropriate, to determine the extent, if any, to which the net asset value
per share calculated by using available market quotations deviates from $1.00
per share. In the event such deviation should exceed one half of one percent,
the Board will promptly consider initiating corrective action. If the Board
believes that the extent of any deviation from a $1.00 amortized cost price per
share may result in material dilution or other unfair results to new or existing
shareholders, it will take such steps as it considers appropriate to eliminate
or reduce these consequences to the extent reasonably practicable. Such steps
may include: selling portfolio securities prior to maturity; shortening the
average maturity of the portfolio; withholding or reducing dividends; or
utilizing a net asset value per share determined from available market
quotations. Even if these steps were taken, the Municipal Money Market Fund's
and Money Market Fund's net asset value might still decline.
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CALCULATION OF YIELD FOR THE MONEY MARKET FUND AND
THE MUNICIPAL MONEY MARKET FUND
The yield for each of the Money Market Fund and the Municipal Money Market
Fund (individually the "Fund") is its net income expressed as a percentage of
assets on an annualized basis for a seven day period. Rule 482 under the 1933
Act requires that a yield quotation set forth in an advertisement for a money
market fund be computed by a standardized method based on an historical seven
calendar day period. The current yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
period, and then dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return.
The base period return is then multiplied by (365/7) to annualize the yield
figure. The determination of net change in account value reflects the value of
additional shares purchased with dividends from the original share, dividends
declared on both the original share and such additional shares, and any fees
that are charged to all shareholder accounts, in proportion to the length of the
base period and the Fund's average account size. The Fund may also calculate its
compound effective yield by compounding the unannualized base period return
(calculated as described above) by adding one to the base period return, raising
the sum to a power equal to 365 divided by 7, and subtracting one.
The yield quoted by the Fund at any time represents the amount being earned
on a current basis for the indicated period and is a function of the types of
instruments in the Fund's portfolio, their quality and length of maturity, and
the Fund's operating expenses. The length of maturity for the portfolio is the
average dollar weighted maturity of the portfolio. In other words, the portfolio
has an average maturity for all of its issues, stated in numbers of days and
weighted according to the relative value of each investment.
The yield fluctuates daily as the income earned on the investments of the
Fund fluctuates. Accordingly, neither the Series Company nor VALIC can assure
the yield quoted on any given occasion will remain constant for any period of
time. For example, the Fund's yield will change if it experiences a net inflow
of new assets which it then invests in securities whose yield is higher or lower
than that being currently earned on investments. Investments in the Fund are not
insured and investors comparing results of the Fund with investment results and
yields from other sources such as banks or savings and loan associations should
understand this distinction. In addition, other money market funds as well as
banks and savings and loan associations may calculate their yields on a
different basis and the yield quoted by the Fund from time-to-time could vary
upwards or downwards if another method of calculation or base period were used.
TAXATION
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Fund of the Series Company. This summary does
not address special tax rules applicable to certain classes of investors, such
as tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his own tax adviser with respect to
the specific federal, state, local and foreign tax consequences of investing in
each Fund. The summary is based on the laws in effect on the date of this
Statement of Additional Information, which are subject to change.
GENERAL
Each Fund is a separate taxable entity. Each Fund has elected to be treated
and intends to qualify for each taxable year as a regulated investment company
under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) a Fund derives at least 90% of its gross income for
its taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of stocks or securities or
foreign currencies, or other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities
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or currencies (the "90% gross income test"); and (b) such Fund diversify its
holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of such Fund's total (gross) assets is comprised of
cash, cash items, U.S. Government securities, securities of other regulated
investment companies and other securities limited in respect of any one issuer
to an amount not greater in value than 5% of the value of such Fund's total
assets and to not more than 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total (gross) assets is
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies) or two or
more issuers controlled by the Fund and engaged in the same, similar or related
trades or businesses. For purposes of the 90% gross income test, income that a
Fund earns from equity interests in certain entities that are not treated as
corporations (e.g., partnerships or trusts) for U.S. tax purposes will generally
have the same character for such Fund as in the hands of such an entity;
consequently, a Fund may be required to limit its equity investments in such
entities that earn fee income, rental income, or other nonqualifying income. In
addition, future Treasury regulations could provide that qualifying income under
the 90% gross income test will not include gains from foreign currency
transactions that are not directly related to a Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities. Using foreign currency positions or entering into foreign currency
options, futures and forward or swap contracts for purposes other than hedging
currency risk with respect to securities in a Fund's portfolio or anticipated to
be acquired may not qualify as "directly-related" under these tests.
If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares owned
by a shareholder of the Fund will be increased by an amount equal under current
law to 65% of the amount of undistributed net capital gain included in the
shareholder's gross income. Each Fund intends to distribute for each taxable
year to its shareholders all or substantially all of its investment company
taxable income, net capital gain and any net tax-exempt interest. Exchange
control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors and may therefore make it more difficult for certain Funds
to satisfy the distribution requirements described above, as well as the excise
tax distribution requirements described below. However, each Fund generally
expects to be able to obtain sufficient cash to satisfy such requirements from
new investors, the sale of securities or other sources. If for any taxable year
a Fund does not qualify as a regulated investment company, it will be taxable on
all of its investment company taxable income and net capital gain at corporate
rates, and its distributions to shareholders will be taxable as ordinary
dividends to the extent of its current and accumulated earnings and profits.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of
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the one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by a Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by such Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of a Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and a Fund may therefore be required to
limit its participation in such transactions. Certain tax elections may be
available to a Fund to mitigate some of the unfavorable consequences described
in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed a Fund's investment company
taxable income (computed without regard to such loss) for a taxable year, the
resulting loss would not be deductible by the Fund or its shareholders in future
years. Net loss, if any, from certain foreign currency transactions or
instruments would exceed net investment income otherwise calculated for
accounting purposes with the result being either no dividends being paid or a
portion of a Fund's dividends being treated as a return of capital for tax
purposes, nontaxable to the extent of a shareholder's tax basis in his shares
and, once such basis is exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest
securities, certain structured securities or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark-to-market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
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Certain Funds may be subject to foreign taxes on income (possibly
including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases. If, as may occur for certain Funds, more than 50% of a
Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund would be
required to (i) include in ordinary gross income (in addition to taxable
dividends actually received) their pro rata shares of foreign income taxes paid
by the Fund that are treated as income taxes under U.S. tax regulations (which
excludes, for example, stamp taxes, securities transaction taxes, and similar
taxes) even though not actually received by such shareholders, and (ii) treat
such respective pro rata portions as foreign income taxes paid by them.
If a Fund makes this election, its respective shareholders may then deduct
such pro rata portions of qualified foreign taxes in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by a Fund,
although such shareholders will be required to include their shares of such
taxes in gross income if the election is made.
If a shareholder chooses to take credit for the foreign taxes deemed paid
by such shareholder as a result of any such election by a Fund, the amount of
the credit that may be claimed in any year may not exceed the same proportion of
the U.S. tax against which such credit is taken which the shareholder's taxable
income from foreign sources (but not in excess of the shareholder's entire
taxable income) bears to his entire taxable income. For this purpose,
distributions from long-term and short-term capital gains or foreign currency
gains by a Fund will generally not be treated as income from foreign sources.
This foreign tax credit limitation may also be applied separately to certain
specific categories of foreign-source income and the related foreign taxes. As a
result of these rules, which have different effects depending upon each
shareholder's particular tax situation, certain shareholders of a Fund which has
made this election may not be able to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by such Fund even if the
election is made by such a Fund.
Shareholders who are not liable for U.S. federal income taxes, including
tax-exempt shareholders, will ordinarily not benefit from this election. Each
year, if any, that a Fund files the election described above, its shareholders
will be notified of the amount of (i) each Shareholder's pro rata share of
qualified foreign taxes paid by a Fund and (ii) the portion of Fund dividends
which represents income from each foreign country. The other Funds will not be
entitled to elect to pass foreign taxes and associated credits or deductions
through to their shareholders because they will not satisfy the 50% requirement
described above. If a Fund cannot or does not make this election, it may deduct
such taxes in computing the amount it is required to distribute.
If a Fund acquires stock (including, under proposed regulations, an option
to acquired stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, rents, royalties or capital gain) or hold
at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the Fund could be subject to federal
income tax and additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders any
credit or deduction for such a tax. In some cases, elections may be available
that would ameliorate these adverse tax consequences, but such elections would
require the Fund to include certain amounts as income or gain (subject to the
distribution requirements described above) without a concurrent receipt of cash.
Each Fund may limit and/or manage its holdings in passive foreign investment
companies to minimize its tax liability or maximize its return from these
investments.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deduc-
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tions may be taken for bad debts or worthless securities; how payments received
on obligations in default should be allocated between principal and income; and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by a Fund, in the event it invests in such
securities, in order to seek to eliminate or minimize any adverse tax
consequences.
Interest accrued by a Fund from inflation-indexed bonds will be includable
in the Fund's gross income in the period in which it accrues. Periodic
adjustments for inflation in the principal value of these securities also may
give rise to original issue discount, which, likewise, will be includable in the
Fund's gross income on a current basis, regardless of whether the Fund receives
any cash payments. See "Original Issue Discount." Amounts includable in a Fund's
gross income become subject to tax-related distribution requirements.
Accordingly, a Fund may be required to make annual distributions to shareholders
in excess of the cash received in a given period from these investments. As a
result, the Fund may be required to liquidate certain investments at a time when
it is not advantageous to do so. If the principal value of an inflation-indexed
bond is adjusted downward in any period as a result of deflation, the reduction
may be treated as a loss to the extent the reduction exceeds coupon payments
received in that period; in that case, the amount distributable by the Fund may
be reduced and amounts distributed previously in the taxable year may be
characterized in some circumstances as a return of capital.
ORIGINAL ISSUE DISCOUNT AND MARKET DISCOUNT
Some of the fixed income securities (with a fixed maturity date of more
than one year from the date of issuance) that may be acquired by a Fund may be
treated as fixed income securities that are issued originally at a discount.
Generally, the amount of the original issue discount ("OID") is treated as
interest income and is included in income over the term of the fixed income
security, even though payment of that amount is not received until a later time,
usually when the debt security matures. A portion of the OID includable in
income with respect to certain high-yield corporate fixed income securities may
be treated as a dividend for Federal income tax purposes.
Some of the fixed income securities (with a fixed maturity date of more
than one year from the date of issuance) that may be acquired by a Fund in the
secondary market may be treated as having market discount. Generally, any gain
recognized on the disposition of, and any partial payment of principal on, a
fixed income security having market discount is treated as ordinary income to
the extent the gain, or principal payment, does not exceed the "accrued market
discount" on such fixed income security. Market discount generally accrues in
equal daily installments. A Fund may make one or more of the elections
applicable to fixed income securities having market discount, which could affect
the character and timing of recognition of income.
Some fixed income securities (with a fixed maturity date of one year or
less from the date of issuance) that may be acquired by a Fund may be treated as
having acquisition discount, or OID in the case of certain types of fixed income
securities. Generally, the Fund will be required to include the acquisition
discount, or OID, in income over the term of the fixed income security, even
though payment of that amount is not received until a later time, usually when
the fixed income security matures. The Fund may make one or more of the
elections applicable to fixed income securities having acquisition discount, or
OID, which could affect the character and timing of recognition of income.
A Fund generally will be required to distribute dividends to shareholders
representing discount on fixed income securities that is currently includable in
income, even though cash representing such income may not have been received by
the Fund. Cash to pay such dividends may be obtained from sales proceeds of
securities held by the Fund.
TAX EXEMPT INFORMATION
The Municipal Bond Fund and the Municipal Money Market Fund intend to
qualify to pay "exempt-interest dividends," as that term is defined in the Code,
by holding at the end of each quarter of its taxable year at least 50% of the
value of its total assets in the form of municipal obligations described in
section 103(a) of the Code. Because the Municipal Bond Fund and the Municipal
Money Market Fund will primarily invest in municipal obligations, dividends from
these Funds will generally be exempt from regular federal income tax in the
hands of shareholders subject to the possible application of the alternative
minimum tax. Further, gain from a sale or redemption of shares of the Municipal
Bond Fund and the Municipal Money Market Fund will
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be taxable to shareholders as capital gain even though the increase in value of
such shares is attributable to tax-exempt income. Thus, it will normally be
advantageous for the Municipal Bond Fund and the Municipal Money Market Fund to
declare exempt-interest dividends frequently.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals based on certain items of tax preference. Interest
on certain municipal obligations, such as bonds issued for private entities (but
not to certain tax-exempt organizations such as universities and non-profit
hospitals) is included as an item of tax preference in determining the amount of
a taxpayer's alternative minimum taxable income. To the extent that the
Portfolio receives income from municipal obligations treated as a tax preference
item for purposes of the alternative minimum tax, a portion of the dividends
paid by it, although otherwise exempt from federal income tax, will be taxable
to shareholders to the extent that their tax liability will be determined under
the alternative minimum tax. The Funds will annually supply shareholders with a
report indicating the percentage of portfolio income attributable to municipal
obligations subject to the alternative minimum tax. Additionally, taxpayers must
disclose to the Internal Revenue Service on their tax returns the entire amount
of tax-exempt interest (including exempt-interest dividends on shares of the
Portfolio) received or accrued during the year.
In addition, for corporations, the alternative minimum taxable income is
increased by a percentage of the amount by which an alternative measure of
income ("adjusted current earnings," referred to as "ACE") exceeds the amount
otherwise determined to be the alternative minimum taxable income. Interest on
all municipal obligations, and therefore all exempt-interest dividends paid by
the Portfolio, is included in calculating ACE. Taxpayers that may be subject to
the alternative minimum tax should consult their tax advisers before investing
in these Funds.
Under the Omnibus Budget Reconciliation Act of 1993, all or a portion of
the Municipal Bond Fund's and the Municipal Money Market Fund's gain from the
sale or redemption of tax-exempt obligations acquired after April 30, 1993
attributable to market discount will be treated as ordinary income rather than
capital gain. This rule may increase the amount of ordinary income dividends
received by shareholders.
Shares of these Funds would not be a suitable investment for tax-exempt
institutions and may not be a suitable investment for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans and individual retirement accounts,
because such plans and accounts are generally tax-exempt and, therefore, would
not gain any additional benefit from the receipt of exempt-interest dividends
from the Portfolio. Moreover, subsequent distributions of such dividends to the
beneficiaries will be taxable.
In addition, these Funds may not be an appropriate investment for entities
that are "substantial users" of facilities financed by private activity bonds or
"related persons" thereof. A "substantial user" is defined under United States
Treasury Regulations to include a non-exempt person who regularly uses a part of
such facilities in his trade or business and, unless such facility, or part
thereof, is constructed, reconstructed or acquired specifically for the non-
exempt person, whose gross revenue derived with respect to the facilities
financed by the issuance of bonds is more than 5% of the total revenue derived
by all users of such facilities. "Related persons" include certain related
natural persons, affiliated corporations, partnerships and their partners and S
Corporations and their shareholders. The foregoing is not a complete statement
of all of the provisions of the Code covering the definitions of "substantial
user" and "related person." For additional information, investors should consult
their tax advisers before investing in these Funds.
In addition, the receipt of exempt-interest dividends from each of the
Funds affects the federal tax liability of certain foreign corporations, S
corporations and insurance companies. The Code may also require shareholders
that receive exempt-interest dividends to treat as taxable income a portion of
certain otherwise nontaxable social security and railroad retirement benefit
payments.
TAXABLE U.S. SHAREHOLDERS -- DISTRIBUTIONS
For U.S. federal income tax purposes, distributions by a Fund, whether
reinvested in additional shares or paid in cash, generally will be taxable to
shareholders who are subject to tax. Shareholders receiving a distribution in
the form of newly issued shares will be treated for U.S. federal income tax
purposes as receiving a distribution in an amount equal to the amount of cash
they would
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have received had they elected to receive cash and will have a cost basis in
each share received equal to such amount divided by the number of shares
received.
Distributions from investment company taxable income for the year will be
taxable as ordinary income. Distributions designated as derived from a Fund's
dividend income, if any, that would be eligible for the dividends received
deduction if such Fund were not a regulated investment company may be eligible,
for the dividends-received deduction for corporations. The dividends-received
deduction, if available, is reduced to the extent the shares with respect to
which the dividends are received are treated as debt-financed under federal
income tax law and is eliminated if the shares are deemed to have been held for
less than a minimum period, generally 46 days. Because eligible dividends are
limited to those a Fund receives from U.S. domestic corporations, it is unlikely
that a substantial portion of the distributions made by certain Funds will
qualify for the dividends-received deduction. The entire dividend, including the
deducted amount, is considered in determining the excess, if any, of a
corporation shareholder's adjusted current earnings over its alternative minimum
taxable income, which may increase its liability for the federal alternative
minimum tax, and the dividend may, if it is treated as an "extraordinary
dividend" under the Code, reduce such shareholder's tax basis in its shares of a
Fund. Capital gain dividends (i.e., dividends from net capital gain) if
designated as such in a written notice to shareholders mailed not later than 60
days after a Fund's taxable year closes, will be taxed to shareholders as
long-term capital gain regardless of how long shares have been held by
shareholders, but are not eligible for the dividends-received deduction for
corporations. For an individual, a capital gains dividend will generally be
taxed at 10% or 20%, depending on the shareholders marginal tax rate. Capital
gains dividends not described in the previous sentence will generally be taxed
at the maximum rate of 28%, or at the shareholder's marginal federal tax rate,
whichever is less. Distributions, if any, that are in excess of a Fund's current
and accumulated earnings and profits will first reduce a shareholder's tax basis
in his shares and, after such basis is reduced to zero, will generally
constitute capital gains to a shareholder who holds his shares as capital
assets.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Distributions from such plans, or from
annuity contracts which may invest in these shares, are generally tax reported
to the participant as ordinary income taxable at the participant's marginal tax
rate for the year of the distribution to the participant, rather than as capital
gains or losses for the year of the sale or other disposition.
TAXABLE U.S. SHAREHOLDERS -- SALES OF SHARES
When a shareholder sells, redeems or otherwise disposes of a share in a
transaction that is treated as a sale for tax purposes, the shareholder will
generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. Assuming that an individual shareholder holds
the shares as a capital asset at the time of such sale, the treatment of the
gain or loss may vary, depending upon the tax holding period for the shares. The
rules that individuals can use to determine the status of the gain or loss, and
to net gains and losses, are complex. In general, gain is short term gain for an
individual and is taxed at ordinary income rates, for federal income tax
purposes, if the tax holding period is one year or less. If the tax holding
period is more than one year, the gain is generally eligible for the most
favorable treatment, and is taxed at either 20% or 10%, depending on the
individual shareholder's marginal income tax rate. Shareholders should consult
their own tax advisers with reference to their particular circumstances to
determine whether a redemption (including an exchange) or other disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in
this discussion. If a shareholder receives a capital gain dividend with respect
to shares and such shares have a tax holding period of six months or less at the
time of a sale or redemption of such shares, then any loss the shareholder
realizes on the sale or redemption will be treated as a long-term capital loss
to the extent of such capital gain dividend. All or a portion of any sales load
paid upon the purchase of shares of a Fund will not be taken into account in
determining gain or loss on the redemption or exchange of such shares within 90
days after their purchase to the extent the redemption proceeds are reinvested,
or the exchange is effected, without payment of an additional sales load
pursuant to the reinvestment or
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exchange privilege. The load not taken into account will be added to the tax
basis of the newly-acquired shares. Additionally, any loss realized on a sale or
redemption of shares of a Fund may be disallowed under "wash sale" rules to the
extent the shares disposed of are replaced with other shares of the same Fund
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to a dividend reinvestment in shares of
such Fund. If disallowed, the loss will be reflected in an adjustment to the
basis of the shares acquired.
Each Fund may be required to withhold, as "backup withholding," federal
income tax at a rate of 31% from dividends (including capital gain dividends)
and share redemption and exchange proceeds to individuals and other non-exempt
shareholders who fail to furnish such Fund with a correct taxpayer
identification number ("TIN") certified under penalties of perjury, or if the
Internal Revenue Service or a broker notifies the Fund that the payee is subject
to backup withholding as a result of failing to properly report interest or
dividend income to the Internal Revenue Service or that the TIN furnished by the
payee to be the Fund is incorrect, or if (when required to do so) the payee
fails to certify under penalties of perjury that it is not subject to backup
withholding. A Fund may refuse to accept an application that does not contain
any required TIN or certification that the TIN provided is correct. If the
backup withholding provisions are applicable, any such dividends and proceeds,
whether paid in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld. Any amounts withheld may be credited against a
shareholders' U.S. federal income tax liability.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
NON-U.S. SHAREHOLDERS
The discussion above relates solely to U.S. federal income tax law as it
applies to "U.S. persons" subject to tax under such law. Shareholders who, as to
the United States, are not "U.S. persons," (i.e., are nonresident aliens,
foreign corporations, fiduciaries of foreign trusts or estates, foreign
partnerships or other non-U.S. investors) generally will be subject to U.S.
federal withholding tax at the rate of 30% on distributions treated as ordinary
income unless the tax is reduced or eliminated pursuant to a tax treaty or the
dividends are effectively connected with a U.S. trade or business of the
shareholder. In the latter case, the dividends will be subject to tax on a net
income basis at the graduated rates applicable to U.S. individuals or domestic
corporations. Distributions of net capital gain, including amounts retained by a
Fund which are designated as undistributed capital gains, to a non-U.S.
shareholder will not be subject to U.S. federal income or withholding tax unless
the distributions are effectively connected with the shareholder's trade or
business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the United States
for 183 days or more during the taxable year and certain other conditions are
met. Non-U.S. shareholders may also be subject to U.S. federal withholding tax
on deemed income resulting from any election by a Fund to treat qualified
foreign taxes it pays as passed through to shareholders (as described above),
but they may not be able to claim a U.S. tax credit or deduction with respect to
such taxes.
Any capital gain realized by a non-U.S. shareholder upon a sale or
redemption of shares of a Fund will not be subject to U.S. federal income or
withholding tax unless the gain is effectively connected with the shareholders
trade or business in the U.S., or in the case of a shareholder who is a
nonresident alien individual, the shareholder is present in the U.S. for 183
days or more during the taxable year and certain other conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or an
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from the Funds.
STATE AND LOCAL
Each Fund may be subject to state or local taxes in jurisdictions in which
such Fund may be deemed to be doing business. In addition, in those
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states or localities which have income tax laws, the treatment of such Fund and
its shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in such Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
OTHER INFORMATION
SHAREHOLDER REPORTS
Annual Reports containing audited financial statements of the Series
Company and Semiannual Reports containing unaudited financial statements, as
well as proxy materials, are sent to investors.
VOTING AND OTHER RIGHTS
The Series Company was organized under the laws of the state of Delaware as
a business trust, and presently is authorized to sell 23 series. Each of these
series is authorized to issue an unlimited number of shares of beneficial
interest, par value $0.01 per share, divided into classes. VALIC, as the initial
sole shareholder of each of the Funds as of the commencement date of the Series
Company, controls each Fund. VALIC does not anticipate that its initial control
of each Fund will adversely effect the rights of future shareholders.
CUSTODY OF ASSETS
Pursuant to a Custodian Contract with the Series Company, State Street Bank
and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, holds the
cash and portfolio securities of the Series Company as custodian.
The Custodian is responsible for holding all securities and cash of each
Fund, receiving and paying for securities purchased, delivering against payment
securities sold, receiving and collecting income from investments, making all
payments covering expenses of the Series Company, and performing other
administrative duties, all as directed by persons authorized by the Series
Company. The Custodian does not exercise any supervisory function in such
matters as the purchase and sale of portfolio securities, payment of dividends,
or payment of expenses of the Funds or the Series Company. Portfolio securities
of the Funds purchased domestically are maintained in the custody of the
Custodian and may be entered into the book entry systems of securities
depositories approved by the Board of Trustees. Pursuant to the Custodian
Contract, portfolio securities purchased outside the United States will be
maintained in the custody of various foreign branches of the Custodian and such
other custodians, including foreign banks and foreign securities depositories,
as are approved by the Board of Trustees, in accordance with regulations under
the 1940 Act.
The Custodian holds securities of the Funds on which call options have been
written and certain assets of the Funds constituting margin deposits with
respect to financial futures contracts at the disposal of the FCMs through which
such transactions are effected. The Funds may also be required to post margin
deposits with respect to covered call and put options written on stock indices
and for this purpose certain assets of those Funds may be held by the custodian
pursuant to similar arrangements with the brokers involved.
This arrangement regarding margin deposits essentially consists of the
Custodian creating a separate segregated account into which it transfers (upon
the Series Company's instructions) assets from a Fund's general (regular)
custodial account. The custody agreement for such arrangement provides that FCMs
or brokers will have access to the funds in the segregated accounts when and if
the FCMs or brokers represent that the Series Company has defaulted on its
obligation to the FCMs or brokers and that the FCMs or brokers have met all the
conditions precedent to their right to receive such funds under the agreement
between the Series Company and the FCMs or brokers. The Series Company has an
agreement with each FCM or broker which provides (1) that the assets of any Fund
held by the FCM or broker will be in the possession of State Street Bank until
released or sold or otherwise disposed of in accordance with or under the terms
of such agreement, (2) that such assets would not otherwise be pledged or
encumbered by the FCM or broker, (3) that when requested by the Series Company
the FCM or broker will cause State Street Bank to release to its general
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custodial account any assets to which a Fund is entitled under the terms of such
agreement, and (4) that the assets in the segregated account shall otherwise be
used only to satisfy the Series Company's obligations to the FCM or broker under
the terms of such agreement.
If on any day a Fund experiences net realized or unrealized gains with
respect to financial futures contracts or covered options on stock indices held
through a given FCM or broker, it is entitled immediately to receive from the
FCM or broker, and usually will receive by the next business day, the net amount
of such gains. Thereupon, such assets will be deposited in its general or
segregated account with the Custodian, as appropriate.
INDEX FUNDS
The Small Cap Index Fund is not promoted, sponsored or endorsed by, nor in
any way affiliated with Frank Russell Company. Frank Russell Company is not
responsible for and has not reviewed the Fund nor any associated literature or
publications and Frank Russell Company makes no representation or warranty,
express or implied, as to their accuracy, or completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without notice,
to alter, amend, terminate or in any way change its Index(es). Frank Russell
Company has no obligation to take the needs of any particular fund or its
participants or any product or person into consideration in determining,
comprising or calculating the Index(es).
Frank Russell Company's publication of the Index(es) in no way suggests or
implies an opinion by Frank Russell Company as to the attractiveness or
appropriateness of investment in any or all securities upon which the Index(es)
is (are) based. FRANK RUSSELL COMPANY MAKES NO REPRESENTATION, WARRANTY, OR
GUARANTEE AS TO THE ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE
INDEX(ES) OR ANY DATA INCLUDED IN THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO
REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE RESULTS OF USE, OF THE
INDEX(ES) OR ANY DATA INCLUDED THEREIN, OR ANY SECURITY (OR COMBINATION THEREOF)
COMPRISING THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO OTHER EXPRESS OR
IMPLIED WARRANTY, AND EXPRESSLY DISCLAIMS ANY WARRANTY, OF ANY KIND, INCLUDING
WITHOUT MEANS OR LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX(ES) OR ANY DATA OR ANY SECURITY (OR
COMBINATION THEREOF) INCLUDED THEREIN.
The S&P 500 Index Fund and the Mid Cap Index Fund are not sponsored,
endorsed, sold or promoted by Standard & Poor's Corporation ("S&P"). S&P makes
no representation or warranty, express or implied, to the Series Company or its
participants regarding the advisability of investing in securities generally or
in the S&P 500 Index Fund or the Mid Cap Index Fund particularly or the ability
of the S&P 500 Index or the S&P Mid Cap 400 Index to track general stock market
performance. S&P has no obligation to take the need of the Series Company or its
investors into consideration in determining, composing or calculating the S&P
500 Index or S&P Mid Cap 400 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the S&P 500 Index
Fund or the Mid Cap Index Fund or the timing of the issuance or sale of such
Funds or in the determination or calculation of the equation by which such Funds
are to be converted into cash. S&P has no obligation or liability in connection
with the administration, marketing or trading of the Funds.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR S&P MID CAP 400 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE
NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE SERIES COMPANY
FROM THE USE OF THE S&P 500 INDEX OR S&P MID CAP 400 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR S&P MID CAP 400 INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF
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THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
NAME POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
----------- ---------------- -----------------------
<S> <C> <C>
Thomas L. West, Jr.*.............. Trustee and Chairman, Chief Executive Officer and
2929 Allen Parkway Chairman since 1998 Director, VALIC and American General Annuity
Houston, Texas 77019 Insurance Company ("AGAIC"); Director,
Date of Birth: 06/07/37 VAMCO. Formerly, Senior Vice
President -- Annuity Business Unit, Aetna
Life Insurance & Annuity Co.
(1987-1994).(4)(6)
Judith L. Craven.................. Trustee since 1998 Physician, Administrator; President, United
3212 Ewing St. Way of the Texas Gulf Coast (1992-Present);
Houston, Texas 77004 Director, A.H. Belo Corporation; Director,
Date of Birth: 10/06/45 Sysco Corporation; Board Member, Sisters of
Charity of the Incarnate Word.(6)(7)
Timothy J. Ebner.................. Trustee since 1998 Professor, Departments of Neurosurgery and
17994 N.W. Union Street Physiology, University of Minnesota (1991-
Elk River, Minnesota 55330 Present). Formerly, Consultant, EMPI, Inc.
Date of Birth: 07/15/49 (1994- 1995) and Medtronic Inc.
(1997-1998).(6)(7)
Gustavo E. Gonzales, Jr........... Trustee since 1998 Municipal Court Judge, Dallas, Texas;
8320 Coolgreen Dr. Director, Downtown Dallas YMCA Board
Dallas, Texas 75228 (1996-Present); Director, Dallas Easter
Date of Birth: 07/27/40 Seals Society (1997- Present). Formerly,
Attorney in private practice
(1981-1995).(6)(7)
John A. Graf*..................... Trustee and President and Director, VALIC and AGAIC;
2929 Allen Parkway President since Director, Boy Scouts of America. Formerly,
Houston, Texas 77019 1998 Vice Chairman and Chief Marketing and
Date of Birth: 09/14/59 Administrative Officer, Western National
Corporation and Senior Vice President,
Conseco, Inc.(6)
Dr. Norman Hackerman.............. Trustee since 1998 Chairman -- Scientific Advisory Board for
5555 San Felipe The Robert A. Welch Foundation
Suite 1900 (1983-Present); Director, Electro-source,
Houston, Texas 77056-2727 Inc.; President Emeritus, Rice University,
Date of Birth: 03/02/12 Houston, Texas. Formerly, Professor
Emeritus, University of Texas, Austin, Texas
(1970-1985).(1)(2)(3)(6)(7)
Dr. John Wm. Lancaster............ Trustee since 1998 Retired. Pastor Emeritus and Director of
4624 Braeburn Planned Giving, First Presbyterian Church,
Bellaire, Texas 77401 Houston, Texas. Formerly, Pastor, First
Date of Birth: 12/15/23 Presbyterian Church, Houston,
Texas.(3)(6)(7)
Ben H. Love....................... Trustee since 1998 Retired. Formerly, Chief Executive, Boy
4407 Eaton Circle Scouts of America. (1985-1993).(3)(6)(7)
Colleyville, Texas 76034
Date of Birth: 09/26/30
</TABLE>
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<TABLE>
<CAPTION>
NAME POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
----------- ---------------- -----------------------
<S> <C> <C>
John E. Maupin, Jr................ Trustee since 1998 President, Meharry Medical College,
2 Morningside Ct. Nashville, Tennessee; Nashville Advisory
Nashville, Tennessee 37215 Board Member, First American National Bank
Date of Birth: 10/28/46 (1996-Present); Director, Monarch Dental
Corporation (1997-Present). Formerly,
Executive Vice President, Morehouse School
of Medicine, Atlanta, Georgia (1989-
1994).(6)(7)
Dr. F. Robert Paulsen............. Trustee since 1998 Dean Emeritus and Professor Emeritus,
2801 N. Indian Ruins College of Higher Education, University of
Tucson, Arizona 85715 Arizona, Tucson, Arizona. Formerly, Dean and
Date of Birth: 07/05/22 Professor, University of Connecticut,
Storrs, Connecticut and Carnegie Fellow,
University of Michigan, Ann Harbor,
Michigan.(1)(2)(3)(6)(7)
Craig R. Rodby*................... Trustee and Vice Vice Chairman, Chief Financial Officer and
2929 Allen Parkway Chairman since 1998 Director, VALIC and AGAIC. Formerly, Senior
Houston, Texas 77019 Vice President -- Financial Management,
Date of Birth: 07/05/49 ReliaStar (1994-1997) and President and
Chief Executive Officer, Northern Life
Insurance Company (1990-1994).(5)(6)
Dr. R. Miller Upton............... Trustee since 1998 Consultant; President Emeritus, Beloit
914 Tarrant Dr. College, Beloit, Wisconsin. Formerly,
Fontana, Wisconsin 53125 Director, Home Life Insurance Company of New
Date of Birth: 12/27/16 York (1961-1991) and Director, Household
International, Inc.
(1965-1989).(1)(2)(3)(6)(7)
</TABLE>
- ---------------
* Interested persons of the Series Company as defined in the 1940 Act
specifically because of their capacity as officers, trustees or consultants
of the Series Company, VALIC or American General Corporation.
(1) Retired Managing General Partner of Van Kampen American Capital Exchange
Fund.
(2) Retired Trustee of Van Kampen American Capital Bond Fund, Van Kampen
American Capital Income Trust, Van Kampen American Capital Convertible
Securities Fund and the Common Sense Trust.
(3) Director or Trustee of American General Series Portfolio Company, a
registered open-end investment company advised by VALIC, and USLIFE Income
Fund, Inc., a registered closed-end investment company advised by VALIC.
(4) Director of American General Series Portfolio Company, a registered open-end
investment company advised by VALIC.
(5) Director of USLIFE Income Fund, Inc., a registered closed-end investment
company advised by VALIC.
(6) Trustee of American General Series Portfolio Company 3.
(7) Trustees who are not interested persons of the Series Company receive an
annual retainer of $5,000. In addition, such trustees are paid per board
meeting, committee meeting and telephone meeting, a fee of $500, $250 and
$250, respectively, plus expenses, if any.
82
<PAGE> 330
Listed below are the Series Company's officers and their principal
occupations. All are affiliates of VALIC and are located at 2929 Allen Parkway,
Houston, Texas 77019. Each officer serves until his or her successor is elected
and shall qualify.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH REGISTRANT DURING PAST 5 YEARS
---- ---------------- -----------------------
<S> <C> <C>
Michael G. Atnip.................. Executive Vice Executive Vice President of Administration
Date of Birth: 07/08/48 President since and Information Systems and Director, VALIC
1998 and AGAIC. Formerly, Senior Vice President,
Operations Support, American General
Corporation (1994-1997); Senior Vice
President, Insurance and Administration,
American General Finance (1991-1993).
Joe. C. Osborne................... Executive Vice Executive Vice President of Marketing and
Date of Birth: 09/17/48 President since Director, VALIC and AGAIC.
1998
Teresa S. Moro.................... Vice President and Trader -- VALIC. Formerly, Money Market
Date of Birth: 08/14/60 Investment Officer Trader, VALIC (1986-1990); AIM Management
since 1998 Group Inc. (1983-1986).
William Trimbur, Jr............... Vice President and Portfolio Manager, VALIC. Formerly, Second
Date of Birth: 06/15/51 Investment Officer Vice President, VALIC (1985-1990);
since 1998 Controller, VALIC (1985-1986); Assistant
Controller, VALIC (1982-1985) and Assistant
Treasurer, VALIC (1982-1986).
Brent C. Nelson................... Vice President Senior Vice President, Controller and
Date of Birth: 07/24/51 since 1998 Director, VALIC and AGAIC. Formerly, Vice
President and Controller, VALIC (1990-1994);
Controller, VALIC (1987-1990); Second Vice
President and Controller, VALIC (1986-1987);
Second Vice President -- Fund Operations,
VALIC (1985-1986); Assistant Vice
President -- Controller, Lomas Financial
Security Insurance Co. (1982-1985).
Peter V. Tuters................... Senior Investment Executive Vice President, American General
Date of Birth: 04/18/52 Officer since 1998 Investment Management, L.P., Vice President
and Investment Officer, VALIC and AGAIC;
Senior Vice President and Chief Investment
Officer, American General Corporation
(1993-1998).
Maruti D. More.................... Vice President -- Vice President, American General Investment
Date of Birth: 02/02/44 Investments since Management, L.P.; Vice President,
1998 Investments, VALIC. Formerly, Managing
Director, Marketing Securities, Paul Revere
Investment Management Corporation; Senior
Portfolio Manager, Dewey Square Investors;
Investment Vice President, New York Life
Insurance Company.
</TABLE>
83
<PAGE> 331
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH REGISTRANT DURING PAST 5 YEARS
---- ---------------- -----------------------
<S> <C> <C>
Cynthia A. Toles.................. Vice President and Senior Vice President, General Counsel and
Date of Birth: 03/28/51 Secretary since Secretary, VALIC and AGAIC; Secretary and
1998 Assistant Treasurer, VAMCO. Formerly, Senior
Associate General Counsel and Secretary
(1990-1998) and Vice President, Associate
General Counsel and Secretary, VALIC
(1988-1989); Second Vice President,
Associate General Counsel and Assistant
Secretary, VALIC (1986-1988); Assistant Vice
President, Assistant General Counsel and
Assistant Secretary, VALIC (1983-1986).
Nori L. Gabert.................... Vice President and Associate General Counsel, VALIC. Formerly,
Date of Birth: 08/15/53 Assistant Secretary Of Counsel, Winstead Sechrest & Minick P.C.
since 1998 (1997); Vice President and Associate General
Counsel of Van Kampen American Capital, Inc.
(1981-1996).
Gregory R. Seward................. Treasurer since Vice President -- Variable Product
Date of Birth: 06/27/56 1998 Accounting, VALIC and AGAIC. Formerly,
Director of Fund Operations and Assistant
Controller, VALIC and AGAIC; Controller,
Avanti Health Systems, Inc. (1988-1991);
Reports Manager, American Capital Asset
Management, Inc. (1986-1988); Senior
Auditor, Price Waterhouse (1982-1986).
Kathryn A. Pearce................. Controller since Associate Director of Fund Operations,
Date of Birth: 02/05/47 1998 VALIC. Formerly, Supervisor -- Mutual Fund
Accounting, Van Kampen American Capital,
Inc. (1977-1996).
Earl E. Allen, Jr................. Assistant Treasurer Manager -- Fund Reporting, VALIC. Formerly,
Date of Birth: 03/16/60 since 1998 Senior Auditor, Texas Treasury Department;
Manager, American General Corporation;
Assistant Vice President, Texas Commerce
Bank.
Cynthia A. Gibbons................ Assistant Vice Senior Compliance Analyst, VALIC.
Date of Birth: 12/06/67 President since
1998
Jaime M. Sepulveda................ Assistant Treasurer Director -- Variable Product Accounting and
Date of Birth: 01/09/52 since 1998 Financial Reporting, VALIC. Formerly,
Accounting Manager, Metro Networks, Inc.
(1997-1998); Controller and Investment
Officer, Port of Houston Authority
(1994-1997); Chief Financial Officer, Intile
Designs, Inc. (1993-1994).
Donna L. Hathaway................. Assistant Manager -- Variable Product Accounting,
Date of Birth: 09/17/64 Controller since VALIC. Formerly, Gas Revenue Accountant,
1998 Texaco Inc.; Accounting Manager, Hewitt
Associates, LLC; Revenue Accounting Manager,
Trans Texas Gas.
</TABLE>
The officers conduct and supervise the daily business operations of the
Series Company, while the trustees, in addition to their functions set forth
under "Investment Adviser," review such actions and decide on general policy.
The Series Company has an Audit Committee. The Series Company's Audit
Committee consists of Messrs. Lancaster, Hackerman, Paulsen, Upton, and Love.
The Audit Committee recommends to the Board the selection of independent
auditors for the Series Company and reviews with such independent auditors the
84
<PAGE> 332
scope and results of the annual audit, reviews the performance of the accounts,
and considers any comments of the independent auditors regarding the Series
Company's financial statements or books of account. The Series Company does not
have a standing nominating or compensation committee.
The nine trustees of the Series Company who are not affiliated with VALIC
are each paid annual trustees' fees and are reimbursed for certain out-of-pocket
expenses by the Series Company.
The trustees and officers of the Series Company and members of their
families, as a group, beneficially owned less than 1% of the shares of
beneficial interest of each Fund outstanding as of the commencement of
operations.
COMPENSATION OF TRUSTEES AND CERTAIN OFFICERS
The following table sets forth information regarding the estimated
compensation and benefits to be earned by the Trustees for the fiscal year
ending October 31, 1999.
COMPENSATION TABLE
FISCAL YEAR ENDING OCTOBER 31, 1998
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPENSATION
AGGREGATE ACCRUED AS ANNUAL FROM
COMPENSATION PART OF BENEFITS FUND
FROM SERIES COMPANY UPON COMPLEX(1)
NAME OF PERSON, POSITION SERIES COMPANY EXPENSES RETIREMENT PAID TO TRUSTEES
------------------------ -------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C>
Thomas L. West, Jr.**...................... $0 $0 $0 $ 0
Judith L. Craven........................... $0 $0 $0 $ 0
Timothy J. Ebner........................... $0 $0 $0 $ 0
Gustavo E. Gonzales, Jr.................... $0 $0 $0 $ 0
John A. Graf**............................. $0 $0 $0 $ 0
Dr. Norman Hackerman....................... $0 $0 $0 $46,322
Dr. John W. Lancaster...................... $0 $0 $0 $38,322
Ben L. Love................................ $0 $0 $0 $46,322
John E. Maupin, Jr......................... $0 $0 $0 $ 0
Dr. F. Robert Paulsen...................... $0 $0 $0 $38,322
Craig R. Rodby**........................... $0 $0 $0 $ 0
Dr. R. Miller Upton........................ $0 $0 $0 $36,322
</TABLE>
- ---------------
** "Interested person," as defined in the 1940 Act, specifically because of
their capacity as officers, trustees or consultants of the Series Company,
VALIC or American General Corporation.
(1) Includes the investment companies managed by VALIC.
MARKETING INFORMATION
VALIC, and its affiliates (collectively, referred to as the "Company"),
have targeted organizations in specific market sectors as the central focus of
their marketing efforts for the Series Company Funds. The Company has utilized
as its general marketing theme the concept that the Company is "America's
Retirement Plan Specialists." This marketing concept has proven to be
successful.
The Company's growth can be attributed to targeting the following market
segments: public and private, primary and secondary schools; colleges and
universities, healthcare; state and local governments; and in certain states,
Optional Retirement Plans.
85
<PAGE> 333
The Company may, from time to time, refer to a general investment strategy
known as indexing. Several of the Series Company Funds employ this investment
strategy. The Company may compare the performance of these Series Company Funds
to the S&P 500 Index, S&P MidCap 400 Index, Russell 2000 Index, Morgan Stanley
Capital International Europe, Australia, and Far East (EAFE) Index, or any other
appropriate market index. The indexes are not managed funds and have no
identifiable investment objectives.
The Company may, from time to time, refer, individually or collectively, to
its package of retirement plan services. Collectively, this package of services
may be referred to as easy Retirement Plan. Easy Retirement Planning includes:
(1) personal, face-to-face service from highly trained Company Retirement
Planning Specialists; (2) informative retirement-investment education programs,
seminars and materials; (3) specialized computer-aided services for retirement
planning and developing asset allocation strategies; (4) a wide selection of
innovative, market-responsive investment options; (5) advanced and efficient
administration of retirement accounts; and (6) a financially strong and stable
Company with which to do business.
From time to time the Company may refer to the diversifying process of
asset allocation based on the Modern Portfolio Theory developed by Nobel
Prize-winning economist Harry Markowitz. The basic assumptions of Modern
Portfolio Theory are that the selection of individual investments has little
impact on portfolio performance, market timing strategies seldom work, markets
are efficient and selecting the suitable mix of asset classes is more important
when creating a long-term investment portfolio. Modern Portfolio Theory allows
an investor to determine an "efficient" or "optimized" portfolio that has
historically provided a higher return with the same risk or the same return with
lower risk.
When presenting the asset allocation process the Company may outline the
process of personal and investment risk analysis including determining
individual risk tolerances and a discussion of the different types of investment
risk. The Company may classify investors into five categories based on their
personal risk tolerance and will quote various industry experts on which types
of investments are best suited to each of the five risk categories. The industry
experts quoted may include Ibbotson Associates, CDA Investment Technologies,
Lipper Analytical Services, Laffer-Cantos, Inc., VARDS Report, Wilson
Associates, Morningstar, Inc. and any other expert which has been deemed by the
Company to be appropriate. The Company may also provide a historical overview of
the performance of a variety of investment market indexes and different asset
categories, such as stocks, bonds, cash equivalents, etc. The Company may also
discuss investment volatility (standard deviation) including the range of
returns for different asset categories and classes over different time horizons,
and the correlation between the returns of different asset categories and
classes. The Company may also discuss the basis of portfolio optimization
including the required inputs and the construction of efficient portfolios using
sophisticated computer-based techniques. Finally, the Company may describe
various investment strategies and methods of implementation such as the use of
index funds vs. actively managed funds, the use of dollar cost averaging
techniques, the tax status of contributions, and the periodic rebalancing of
diversified portfolios.
The Company, in its marketing efforts to each of the market segments, may
from time to time design sales literature and material specifically for that
market segment, e.g., the healthcare segment. This sales literature and material
may also be specific to a certain group. For example, sales literature and
material may be designed for a specific hospital.
The Company, in its marketing efforts, may also refer to the following
investment advisers referenced in the Prospectus and this Statement of
Additional Information: American General Investment Management, L.P., Bankers
Trust Company, Capital Guardian Trust Company, Jacobs Asset Management, State
Street Bank and Trust Company/State Street Global Advisors, Goldman Sachs Asset
Management, Neuberger&Berman Management, Inc., Fiduciary Management Associates,
Inc. and J.P. Morgan Investment Management, Inc.
The Company may, from time to time, refer in advertisements or sales
materials to certain milestones which are intended to emphasize the Company's
growth and development in assets, groups and various market segments.
Additionally the Company may refer from time to time in advertisements or sales
materials to marketing strategies it utilizes to promote the Company's business
objectives. Further, the Company may
86
<PAGE> 334
refer from time to time in advertisements or sales materials to certain
value-added services it provides to its investors.
The Company may, from time to time, refer in its advertisements to Schwab
Personal Choice Retirement Accounts ("PCRA"). The PCRA is a self-directed
brokerage account that may be used by investors to directly invest in publicly
available mutual funds. PCRA is marketed through the VALIC Investment Services
Company.
The Company may from time to time compare the performance of the Series
Company Funds to the performance of certain market indices. These market indices
are described in the "Performance and Yield Information" Section of this
Statement of Additional Information.
The Series Company Funds may, from time to time, be referred to as the
American General Fund Group or the AG Funds.
ENDORSEMENTS AND PUBLISHED RATINGS
From time to time, in advertisements or in reports to shareholders, the
Company or the Series Company may refer to its endorsements. Endorsements are
often in the form of a list of organizations, individuals or other parties which
recommend the Company or the Series Company. The endorser's name will be used
only with the endorser's consent. It should be noted that the list of
endorsements may change from time to time.
The Company or the Series Company may from time to time, refer to Lipper
Analytical Services Incorporated ("Lipper"), Morningstar, Inc. ("Morningstar")
and CDA/Wiesenberger Investment Companies (CDA/Wiesenberger) when discussing the
performance of its Divisions. Lipper, Morningstar and CDA/Wiesenberger are
leading publishers of statistical data about the investment company industry in
the United States. Additionally, the Company may compare the performance of the
Series Company Funds to categories published by Lipper and Morningstar.
Finally the Company will utilize as a comparative measure for the
performance of the Series Company Funds the Consumer Price Index ("CPI"). The
CPI is a measure of change in consumer prices, as determined in a monthly survey
of the U.S. Bureau of Labor Statistics. Housing costs, transportation, food,
electricity, changes in taxes and labor costs are among the CPI components. The
CPI provides a tool for determining the impact of inflation on an individual's
purchasing power.
87
<PAGE> 335
FINANCIAL STATEMENTS
The financial statements of the Series Company for October 7, 1998, and the
report of independent auditors for such date are included herein.
88
<PAGE> 336
STATEMENT OF NET ASSETS
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 2
OCTOBER 7, 1998
<PAGE> 337
American General Series Portfolio Company 2
Statement of Net Assets
October 7, 1998
CONTENTS
Report of Independent Auditors................................................1
Statement of Net Assets.......................................................2
Notes to Statement of Net Assets..............................................3
<PAGE> 338
Report of Independent Auditors
To the Shareholder and Board of Trustees of
American General Series Portfolio Company 2
We have audited the accompanying statement of net assets of S&P 500 Index Fund,
Mid Cap Index Fund, Small Cap Index Fund, International Growth Fund,
International Value Fund, Small Cap Growth Fund, Small Cap Value Fund, Mid Cap
Growth Fund, Mid Cap Value Fund, Large Cap Growth Fund, Large Cap Value Fund,
Socially Responsible Fund, Balanced Fund, Domestic Bond Fund, Money Market
Fund, Growth Lifestyle Fund, Moderate Growth Lifestyle Fund, Conservative
Growth Lifestyle Fund, Core Bond Fund, Strategic Bond Fund, High Yield Bond
Fund, Municipal Bond Fund, Municipal Money Market Fund (such "Funds" comprising
the American General Series Portfolio Company 2) as of October 7, 1998. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of each of the respective Funds
comprising the American General Series Portfolio Company 2 at October 7, 1998,
in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
October 10, 1998
1
<PAGE> 339
American General Series Portfolio Company 2
Statement of Net Assets
October 7, 1998
<TABLE>
<CAPTION>
NET ASSET
NET NUMBER OF VALUE PER*
PORTFOLIO CASH ASSETS* SHARES* SHARES
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American General S&P 500 Index Fund $ 5,000 $ 5,000 500 $ 10
American General Mid Cap Index Fund 5,000 5,000 500 10
American General Small Cap Index Fund 5,000 5,000 500 10
American General International Growth Fund 3,650 3,650 365 10
American General International Value Fund 3,600 3,600 360 10
American General Small Cap Growth Fund 3,900 3,900 390 10
American General Small Cap Value Fund 3,850 3,850 385 10
American General Mid Cap Growth Fund 4,050 4,050 405 10
American General Mid Cap Value Fund 3,950 3,950 395 10
American General Large Cap Growth Fund 2,850 2,850 285 10
American General Large Cap Value Fund 2,900 2,900 290 10
American General Socially Responsible Fund 5,000 5,000 500 10
American General Balanced Fund 5,000 5,000 500 10
American General Domestic Bond Fund 1,250 1,250 125 10
American General Money Market Fund 5,000 5,000 5,000 1
American General Growth Lifestyle Fund 5,000 5,000 500 10
American General Moderate Growth
Lifestyle Fund 5,000 5,000 500 10
American General Conservative Growth
Lifestyle Fund 5,000 5,000 500 10
American General Core Bond Fund 5,000 5,000 500 10
American General Strategic Bond Fund 5,000 5,000 500 10
American General High Yield Bond Fund 5,000 5,000 500 10
American General Municipal Bond Fund 5,000 5,000 500 10
American General Municipal Money
Market Fund 5,000 5,000 5,000 1
----------- ----------
$100,000 $100,000
=========== ===========
</TABLE>
* Applicable to shares of beneficial interests issued and outstanding (Class A,
Class B, Class I, and Class II), $.01 par value, per share, unlimited shares
authorized. See note 4.
See accompanying notes.
2
<PAGE> 340
American General Series Portfolio Company 2
Notes to Statement of Net Assets
October 7, 1998
1. ORGANIZATION
American General Series Portfolio Company 2 (the "Series") was organized as a
Delaware business trust on March 16, 1998 by The Variable Annuity Life
Insurance Company ("VALIC") and is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company. The Series
consists of 23 separate investment portfolios (hereinafter collectively
referred to as the "Funds" or individually referred to as a "Fund"), each of
which is, in effect, a separate mutual fund issuing its own separate class of
shares of beneficial interest. Eighteen of the portfolios are comprised of four
classes of shares Class A, Class B, Institutional Class I ("Class I"), and
Institutional Class II ("Class II"). The remaining five portfolios offer two
classes of shares - Class A and Class B. Class A and Class B shares of the
funds are available to investors through VALIC Investment Services Company (the
"Distributor"), an affiliate of VALIC. Class I and Class II shares of the funds
are available to investors through an employer retirement plan purchased
through the Distributor.
American General S&P 500 Index Fund ("S&P 500 Index Fund")
American General Mid Cap Index Fund ("Mid Cap Index Fund")
American General Small Cap Index Fund ("Small Cap Index Fund")
American General International Growth Fund ("International Growth
Fund")
American General International Value Fund ("International Value Fund")
American General Small Cap Growth Fund ("Small Cap Growth Fund")
American General Small Cap Value Fund ("Small Cap Value Fund")
American General Mid Cap Growth Fund ("Mid Cap Growth Fund")
American General Mid Cap Value Fund ("Mid Cap Value Fund")
American General Large Cap Growth Fund ("Large Cap Growth Fund")
American General Large Cap Value Fund ("Large Cap Value Fund")
3
<PAGE> 341
American General Series Portfolio Company 2
Notes to Statement of Net Assets (continued)
1. ORGANIZATION (CONTINUED)
American General Socially Responsible Fund ("Socially Responsible
Fund")
American General Balanced Fund ("Balanced Fund")
American General Domestic Bond Fund ("Domestic Bond Fund")
American General Money Market Fund ("Money Market Fund")
American General Growth Lifestyle Fund ("Growth Lifestyle Fund") -
Growth through investments in Series Funds
American General Moderate Growth Lifestyle Fund ("Moderate Growth
Lifestyle Fund") - Growth and current income through investments in
Series Funds
American General Conservative Growth Lifestyle Fund ("Conservative
Growth Lifestyle Fund") Current income and a low to moderate level of
growth through investments in Series Funds
American General Core Bond Fund ("Core Bond Fund")
American General Strategic Bond Fund ("Strategic Bond Fund")
American General High Yield Bond Fund ("High Yield Bond Fund")
American General Municipal Bond Fund ("Municipal Bond Fund")
American General Municipal Money Market Fund ("Municipal Money Market
Fund")
The Lifestyle Funds have allocated the Fund's assets among the International
Value Fund, International Growth Fund, Small Cap Value Fund, Small Cap Growth
Fund, Mid Cap Value Fund, Mid Cap Growth Fund, Large Cap Growth Fund, Large Cap
Value Fund, and Domestic Bond Fund based on percentages determined by VALIC,
subject to supervision of the Board of Trustees.
4
<PAGE> 342
American General Series Portfolio Company 2
Notes to Statement of Net Assets (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP").
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Agreement with the Series and subject to the
authority of the Series' Board of Trustees, VALIC (the "Adviser") serves as the
Series' investment adviser and conducts the business and affairs of the Series.
Additionally, VALIC has engaged investment Sub-advisers to provide investment
sub-advisory services for each Fund other than the Socially Responsible Fund,
Money Market Fund, Conservative Growth Lifestyle Fund, Moderate Growth
Lifestyle Fund, and Growth Lifestyle Fund, subject to VALIC's control,
direction, and supervision. On October 7, 1998, the Adviser entered into a
sub-advisory agreement with the following Sub-advisers:
American General Investment Management, L.P. ("AGIM") - AGIM is the
Sub-adviser for the High Yield Bond Fund, the Strategic Bond Fund, the
Core Bond Fund, the Municipal Bond Fund, and the Municipal Money
Market Fund.
Bankers Trust Company ("Bankers Trust") - Bankers Trust is the
Sub-adviser for the S&P 500 Index Fund, the Mid Cap Index Fund, and
the Small Cap Index Fund and is one of two Sub-advisers for the Small
Cap Value Fund.
Brown Capital Management, Inc. ("Brown Capital Management") - Brown
Capital Management is the Sub-adviser for the Mid Cap Growth Fund.
Capital Guardian Trust Company ("Capital Guardian") - Capital Guardian
is the Sub-adviser for the International Value Fund, the Balanced
Fund, and the Domestic Bond Fund.
Fiduciary Management Associates, Inc. ("FMA") - FMA is one of two
Sub-advisers for the Small Cap Value Fund.
Goldman Sachs Asset Management ("GSAM") - GSAM is the Sub-adviser for
the Large Cap Growth Fund.
J.P. Morgan Investment Management Inc. ("JP Morgan") - JP Morgan is
the Sub-adviser for the Small Cap Growth Fund.
5
<PAGE> 343
American General Series Portfolio Company 2
Notes to Statement of Net Assets (continued)
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
Jacobs Asset Management - Jacobs Asset Management is the Sub-adviser
for the International Growth Fund.
Neuberger & Berman Management, Inc. ("N&B Management") - N&B
Management is the Sub-adviser for the Mid Cap Value Fund.
State Street Global Advisors ("State Street Global Advisors") - State
Street Global Advisors is the Sub-adviser for the Large Cap Value
Fund.
Sub-advisers are compensated for such services by the Adviser.
6
<PAGE> 344
American General Series Portfolio Company 2
Notes to Statement of Net Assets (continued)
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Adviser receives from the Series a monthly fee based on each Fund's average
daily net asset value at the following annual rates:
<TABLE>
<CAPTION>
CLASS A AND CLASS B
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index Fund 0.27% on the first $500 million Balanced Fund 0.80% on the first $25 million
0.26% on assets more than $500 million 0.65% on the next $25 million
0.45% on assets more than $50
million
Mid Cap Index Fund 0.28% on the first $500 million High Yield Bond Fund 0.70% on the first $200 million
0.27% on assets more than $500 million 0.60% on the next $300 million
0.55% on assets more than $500
million
Small Cap Index Fund 0.28% on the first $500 million Strategic Bond Fund 0.60% on the first $200 million
0.27% on assets more than $500 million 0.50% on the next $300 million
0.45% on assets more than $500
million
International Growth 0.90% on the first $100 million Domestic Bond Fund 0.60% on the first $50 million
Fund 0.80% on assets more than $100 million 0.45% on the next $50 million
0.43% on the next $200 million
0.40% on assets more than $300
million
Large Cap Growth Fund 0.55% Core Bond Fund 0.50% on the first $200 million
0.45% on the next $300 million
0.40% on assets more than $500
million
Mid Cap Growth Fund 0.65% on the first $25 million Municipal Bond Fund 0.50% on the first $200 million
0.55% on the next $25 million 0.45% on the next $300 million
0.45% on assets more than $50 million 0.40% on assets more than $500
million
Small Cap Growth Fund 0.85% Money Market Fund 0.25%
International Value 1.00% on the first $25 million Municipal Money Fund 0.50% on the first $200 million
0.85% on the next $25 million Market Fund 0.45% on the next $300 million
0.675% on the next $200 million 0.40% on assets more than $500
0.625% on assets more than $250 million million
Large Cap Value Fund 0.50% Conservative Growth
Lifestyle Fund 0.10%
Mid Cap Value Fund 0.75% on the first $100 million Moderate Growth
0.725% on the next $150 million Lifestyle Fund 0.10%
0.70% on the next $250 million
0.675% on the next $250 million
0.65% on assets more than $750 million
Small Cap Value Fund 0.75% on the first $50 million Growth Lifestyle Fund 0.10%
0.65% on assets more than $50 million
Socially Responsible 0.25%
Fund
</TABLE>
7
<PAGE> 345
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
<TABLE>
<CAPTION>
CLASS I AND CLASS II
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Growth Fund 0.90% on the first $100 million Balanced Fund 0.80% on the first $25 million
0.80% on assets more than $100 million 0.65% on the next $25 million
0.45% on assets more than $50
million
Large Cap Growth Fund 0.55% High Yield Bond Fund 0.70% on the first $200 million
0.60% on the next $300 million
0.55% on assets more than $500
million
Mid Cap Growth Fund 0.65% on the first $25 million Strategic Bond Fund 0.60% on the first $200 million
0.55% on the next $25 million 0.50% on the next $300 million
0.45% on assets more than $50 million 0.45% on assets more than $500
million
Small Cap Growth Fund 0.85% Domestic Bond Fund 0.60% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% on assets more than $300
million
International Value Fund 1.00% on the first $25 million Core Bond Fund 0.50% on the first $200 million
0.85% on the next $25 million 0.45% on the next $300 million
0.675% on the next $200 million 0.40% on assets more than $500
0.625% on assets more than $250 million
million
Large Cap Value Fund 0.50% Money Market Fund 0.25%
Mid Cap Value Fund 0.75% on the first $100 million Conservative
0.725% on the next $150 million Growth Lifestyle 0.10%
0.70% on the next $250 million Fund
0.675% on the next $250 million
0.65% on the assets more than $750
million
Small Cap Value Fund 0.75% on the first $50 million Moderate Growth
0.65% on the assets more than $50 Lifestyle Fund 0.10%
million
Socially Responsible Fund 0.25% Growth Lifestyle Fund 0.10%
</TABLE>
Advisory fees will not be assessed until the commencement of investment
operations.
8
<PAGE> 346
American General Series Portfolio Company 2
Notes to Statement of Net Assets (continued)
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Adviser has voluntarily agreed to waive a portion of its management fee or
to reimburse certain expenses of each Fund, other than the Lifestyle Funds,
during the first fiscal year. The Adviser may withdraw this voluntary
undertaking at any time. The table below reflects total operating expenses by
Fund, as voluntarily limited by the Adviser, shown as a percentage of net
assets:
<TABLE>
<CAPTION>
CLASS A* CLASS B* CLASS I* CLASS II
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index Fund .82% 1.57% N/A N/A
Mid Cap Index Fund .83% 1.58% N/A N/A
Small Cap Index Fund .83% 1.58% N/A N/A
International Growth Fund 1.40% 2.15% 1.28% 1.03%
Large Cap Growth Fund 1.10% 1.85% 0.98% 0.73%
Mid Cap Growth Fund 1.04% 1.79% 0.92% 0.67%
Small Cap Growth Fund 1.40% 2.15% 1.28% 1.03%
International Value Fund 1.29% 2.04% 1.17% 0.92%
Large Cap Value Fund 1.05% 1.80% 0.93% 0.68%
Mid Cap Value Fund 1.29% 2.04% 1.17% 0.92%
Small Cap Value Fund 1.23% 1.98% 1.11% 0.86%
Socially Responsible Fund .80% 1.55% 0.68% 0.43%
Balanced Fund 1.07% 1.82% 0.95% 0.70%
High Yield Bond Fund 1.25% 2.00% 1.13% 0.88%
Strategic Bond Fund 1.15% 1.90% 1.03% 0.78%
Domestic Bond Fund 1.03% 1.78% 0.91% 0.66%
Core Bond Fund 1.05% 1.80% 0.93% 0.68%
Municipal Bond Fund 1.05% 1.80% N/A N/A
Money Market Fund .80% 1.55% 0.68% 0.43%
Municipal Money Market Fund
1.05% 1.80% N/A N/A
</TABLE>
* Includes a Rule 12b-1 fee for Class A shares, Class B shares, and Class I
shares of .25%, 1.00%, and .25% of average daily net assets, respectively.
9
<PAGE> 347
American General Series Portfolio Company 2
Notes to Statement of Net Assets (continued)
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
Pursuant to an accounting services agreement with the Series, VALIC serves as
the accounting services agent to the Series and will provide certain accounting
and administrative services to the Series. For its services, VALIC will receive
an annual fee of 0.03% of average daily net assets.
Certain officers of VALIC are also officers and/or trustees of the Fund.
The initial seed money for the Series was funded by VALIC. VALIC owns 100% of
the outstanding shares of the Funds of the Series.
Certain start-up costs were incurred in connection with the organization of the
Series. These costs were paid by VALIC on behalf of the Series.
4. NET ASSETS
Each Fund offers four classes of shares - Class A, Class B, Class I, and Class
II, except for the S&P 500 Index Fund, Mid Cap Index Fund, Small Cap Index
Fund, Municipal Bond Fund, and Municipal Money Market Fund, which offer two
classes of shares - Class A and Class B. Each class of share has an initial net
asset value of $10 per share, except for the Money Market Fund and the
Municipal Money Market Fund, which each have an initial net asset value of $1
per share.
The Class A shares impose a sales charge at the time of purchase, the Class B
shares impose a sales charge at the time of redemption on a contingent deferred
basis, and the Class I and Class II shares do not impose a sales charge. For
the Class B shares, the contingent deferred sales charge is determined as a
percentage of the lesser of the current market value or the cost of shares
being redeemed. The percentage is initially 5% for the first year, and
decreases 1% each year until the sixth year.
Each class of shares represents an interest in the same assets of a Fund and
generally are identical in all respects except that each class bears certain
distribution expenses and has exclusive voting rights with respect to its
distribution fee. Class B shares automatically convert to Class A shares six
years after purchase, subject to certain conditions.
The seed money for each Fund has been allocated to each class of shares on a
pro rata basis, dependent on the number of classes of shares for the Fund.
10
<PAGE> 348
[VALIC LOGO]
PRINTED MATTER
PRINTED IN U.S.A. VA 10856-1 REV 11/98
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper [RECYCLED PAPER LOGO]
<PAGE> 349
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements Included in the Statement of Additional Information:
Financial Statements
Notes to Financial Statements
Report of Independent Auditors
(b) Exhibits
<TABLE>
<C> <S> <C> <C>
1. (a) (1.) Agreement and Declaration of Trust(1)
(2.) Amendment to Agreement and Declaration of Trust
(b) Certificate of Designation For:
(1) American General Core Bond Fund
(2) American General High Yield Bond Fund
(3) American General Strategic Bond Fund
(4) American General Municipal Bond Fund
(5) American General Municipal Money Market Fund
(c) Amended and Restated Certificate of Designation For:
(1) American General International Growth Fund
(2) American General Large Cap Growth
(3) American General Mid Cap Growth Fund
(4) American General Small Cap Growth Fund
(5) American General International Value Fund
(6) American General Large Cap Value Fund
(7) American General Mid Cap Value Fund
(8) American General Small Cap Value Fund
(9) American General Socially Responsible Fund
(10) American General Balanced Fund
(11) American General Domestic Bond Fund
(12) American General Money Market Fund
(13) American General Growth Lifestyle Fund
(14) American General Moderate Growth Lifestyle Fund
(15) American General Conservative Growth Lifestyle Fund
(16) American General S&P 500 Index Fund
(17) American General Mid Cap Index Fund
(18) American General Small Cap Index Fund
(19) Form of Amended and Restated Certificate of Designation for
American General Municipal Bond Fund
(20) Form of Amended and Restated Certificate of Designation for
American General Municipal Money Market Fund
</TABLE>
C-1
<PAGE> 350
<TABLE>
<C> <S> <C> <C>
(d) Certificate of Termination For:
(1) American General S&P 500 Index Fund
(2) American General Mid Cap Index Fund
(3) American General Small Cap Index Fund
(4) Form of Certificate of Termination for American General
Municipal Bond Fund
(5) Form of Certificate of Termination for American General
Municipal Money Market Fund
2. Bylaws(1)
3. Not Applicable
4. Not Applicable
5. (a) Form of Investment Advisory Agreement between the Registrant and The
Variable Annuity Life Insurance Company ("VALIC")
(b) Form of Investment Sub-Advisory Agreements between VALIC and each
Sub-Adviser on behalf of the following Funds:
(1) American General International Growth Fund
(2) American General Large Cap Growth
(3) American General Mid Cap Growth Fund
(4) American General Small Cap Growth Fund
(5) American General International Value Fund, American General
Balanced Fund and American General Domestic Bond Fund
(6) American General Large Cap Value Fund
(7) American General Mid Cap Value Fund
(8) American General Small Cap Value Fund
(9) American General High Yield Bond Fund, American General
Strategic Bond Fund, American General Core Bond Fund, American
General Municipal Bond Fund and American General Municipal Money
Market Fund
(10) American General S&P 500 Index Fund, American General Mid Cap
Index Fund, American General Small Cap Index Fund and American
General Small Cap Value Fund.
6. Form of Distribution and Service Agreement between the Registrant and VALIC
Investment Services Company ("VISCO")
7. Not Applicable
8. (a) Form of Custodian Contract between Registrant and State Street Bank and
Trust Company
(b) Form of Securities Lending Authorization Agreement between Registrant
and State Street Bank and Trust Company
9. (a) Form of Transfer Agency and Services Agreement between Registrant and
National Financial Data Services, Inc.
(b) Form of Data Access Services Agreement between Registrant and State
Street Bank and Trust Company
(c) Form of Accounting Services Agreement between Registrant and The
Variable Annuity Life Insurance Company
(d) Form of Administrative Service Agreement among Registrant, VISCO and
VALIC
(e) State Filing Services Agreement
</TABLE>
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<PAGE> 351
<TABLE>
<C> <S> <C> <C>
10. Opinion and Consent of Counsel
11. Consent of Independent Auditors
12. Not Applicable
13. Subscription Agreements
14. Not Applicable
15. Rule 12b-1 Distribution and Service Plan
16. Not Applicable
17. Not Applicable
18. Multi-Class Plan
19. (a) Powers of Attorney for Messrs. West, Rodby, Graf, Hackman, Lancaster, Paulsen, Upton and Love.(1)
(b) Powers of Attorney for Messrs. Ebner, Gonzales and Maupin and Ms. Craven
27. Financial Data Schedules
</TABLE>
- ---------------
1 Incorporated herein by reference to the Registrant's Form N-1A registration
statement filed with the Securities and Exchange Commission on July 13, 1998
(File No. 333-58979).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with the Registrant. All
of the outstanding common stock of the Registrant is, or will be, owned by The
Variable Annuity Life Insurance Company ("VALIC"), a Texas life insurance
corporation.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of October 7, 1998:
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
American General S&P 500 Index Fund
Shares of beneficial interest, $0.01 par value 1
American General Mid Cap Index Fund
Shares of beneficial interest, $0.01 par value 1
American General Small Cap Index Fund
Shares of beneficial interest, $0.01 par value 1
American General High Yield Bond Fund
Shares of beneficial interest, $0.01 par value 1
American General Strategic Bond Fund
Shares of beneficial interest, $0.01 par value 1
American General Core Bond Fund
Shares of beneficial interest, $0.01 par value 1
American General International Growth Fund
Shares of beneficial interest, $0.01 par value 1
American General Large Cap Growth
Shares of beneficial interest, $0.01 par value 1
American General Mid Cap Growth Fund
Shares of beneficial interest, $0.01 par value 1
American General Small Cap Growth Fund
Shares of beneficial interest, $0.01 par value 1
</TABLE>
C-3
<PAGE> 352
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
American General International Value Fund
Shares of beneficial interest, $0.01 par value 1
American General Large Cap Value Fund
Shares of beneficial interest, $0.01 par value 1
American General Mid Cap Value Fund
Shares of beneficial interest, $0.01 par value 1
American General Small Cap Value Fund
Shares of beneficial interest, $0.01 par value 1
American General Socially Responsible Fund
Shares of beneficial interest, $0.01 par value 1
American General Balanced Fund
Shares of beneficial interest, $0.01 par value 1
American General Domestic Bond Fund
Shares of beneficial interest, $0.01 par value 1
American General Municipal Bond Fund
Shares of beneficial interest, $0.01 par value 1
American General Money Market Fund
Shares of beneficial interest, $0.01 par value 1
American General Municipal Money Market Fund
Shares of beneficial interest, $0.01 par value 1
American General Growth Lifestyle Fund
Shares of beneficial interest, $0.01 par value 1
American General Moderate Growth Lifestyle Fund
Shares of beneficial interest, $0.01 par value 1
American General Conservative Growth Lifestyle Fund
Shares of beneficial interest, $0.01 par value 1
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense of
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such officer or trustee is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if
C-4
<PAGE> 353
the following conditions are met: (1) the trustee or officer provides a security
for the undertaking; (2) the Registrant is insured against losses arising from
lawful advances; or (3) a majority of a quorum of the Registrant's
disinterested, non-party trustees, or an independent legal counsel in a written
opinion, shall determine, based upon a review of readily available facts, that a
recipient of the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, 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 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 the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares 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 Act and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
See "About the Series Company Management" in Part A and "Investment
Adviser" and "Investment Sub-Advisers" in the Statement of Additional
Information regarding the businesses of VALIC.
Set out below is a list of each director and officer of VALIC indicating
each other business, profession, vocation, or employment of a substantial nature
in which each such person has been, at any time during the past two fiscal
years, engaged for his or her own account or in the capacity of director,
officer, partner, or trustee. Unless otherwise specified, the principal business
address of VALIC is 2929 Allen Parkway, Houston, Texas 77019. See also the
information set out under the caption "Trustees and Officers" in Part B of this
Registration Statement, which is incorporated herein by reference to the extent
applicable. Companies, other than VALIC, identified in the list below are VALIC
Investment Services Company ("VISCO"), American General Annuity Insurance
Company ("AGAIC") and American General Corporation ("AG Corporation").
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Robert M. Devlin.................. VALIC, AGAIC Director
AG Director, Chairman and Chief Executive
Corporation Officer
Jon P. Newton..................... VALIC, AGAIC Director and Senior Chairman of the Board
AG Director and Vice Chairman of the Board
Corporation
Thomas L. West, Jr................ VALIC, AGAIC Director, Chairman and Chief Executive
Officer
James S. D'Agostino, Jr........... VALIC, AGAIC Director and Vice Chairman of the Board
AG Director and President
Corporation
John A. Graf...................... VALIC, AGAIC Director and President
Craig R. Rodby.................... VALIC, AGAIC Director, Vice Chairman and Chief Financial
Officer
Bruce R. Abrams................... VALIC, AGAIC Director and Executive Vice
President -- Marketing
John E. Arant..................... VALIC, AGAIC Executive Vice President -- Sales
VISCO Director, Chairman and President
Michael G. Atnip.................. VALIC, AGAIC Director and Executive Vice President --
Administration and Information Systems
Joe C. Osborne.................... VALIC, AGAIC Director and Executive Vice
President -- Marketing
Dwight L. Cramer II............... VALIC, AGAIC Senior Vice President -- Specialty Markets
Patrick E. Grady.................. VALIC, AGAIC Director, Senior Vice President and Treasurer
</TABLE>
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<PAGE> 354
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Stephen G. Kellison............... VALIC, AGAIC Senior Vice President and Chief Actuary
Brent C. Nelson................... VALIC, AGAIC Director, Senior Vice President and
Controller
VISCO Senior Vice President
Charles D. Robinson............... VALIC, AGAIC Senior Vice President -- Institutional
Marketing
Donald L. Sharps.................. VALIC, AGAIC Senior Vice President -- Systems
Cynthia A. Toles.................. VALIC, AGAIC Senior Vice President, General Counsel and
Secretary
VISCO Vice President and Secretary
Dan W. Arnold..................... VALIC, AGAIC Vice President -- Customer Care Center
James D. Bonsall.................. VALIC, AGAIC Vice President -- Financial Reporting
Harry N. Bragg.................... VALIC, AGAIC Vice President -- Strategic Systems
Gregory S. Broer.................. VALIC, AGAIC Vice President -- Actuarial
Richard A. Combs.................. VALIC, AGAIC Vice President -- Actuarial
J. David Crank.................... VALIC, AGAIC Vice President -- Group Services
Neil J. Davidson.................. VALIC, AGAIC Vice President -- Actuarial
David H. denBoer.................. VALIC, AGAIC Vice President -- Compliance
Stephen R. Duff................... VALIC, AGAIC Vice President -- Financial Institution
Acquisitions
Daniel Fritz...................... VALIC, AGAIC Vice President -- Actuarial
Sharla A. Jackson................. VALIC, AGAIC Vice President -- Operations and Customer
Service
Jeff S. Johnson................... VALIC, AGAIC Vice President -- Marketing Communications
Kent W. Lamb...................... VALIC, AGAIC Vice President -- Financial Reporting
Richard Lindsay................... VALIC, AGAIC Vice President -- Personal Retirement
Services
James J. Michel................... VALIC, AGAIC Vice President -- Insurance Accounting and
Assistant Secretary
Stephen J. Poston................. VALIC, AGAIC Vice President -- National Sales Manager
Steven D. Rubinstein.............. VALIC, AGAIC Vice President -- Financial Planning and
Reporting
Phillip W. Schraub................ VALIC, AGAIC Vice President -- Houston Administration
Richard W. Scott.................. VALIC, AGAIC Director, Vice President and Chief Investment
Officer
AG Executive Vice President and Chief Investment
Corporation Officer
Gary N. See....................... VALIC, AGAIC Vice President -- Actuarial
Gregory R. Seward................. VALIC, AGAIC Vice President -- Variable Product Accounting
VISCO Director and Treasurer
Conway R. Shaw.................... VALIC, AGAIC Vice President -- Group Marketing
Norman A. Skinrood, Jr. .......... VALIC, AGAIC Vice President -- Group Plan Administration
Paula F. Snyder................... VALIC, AGAIC Vice President -- Marketing Services
Robert E. Steele.................. VALIC, AGAIC Vice President -- Structured Settlements
Kenneth R. Story.................. VALIC, AGAIC Vice President -- Amarillo Systems
Terry L. Swenson.................. VALIC, AGAIC Vice President -- Variable Products
Peter V. Tuters................... VALIC, AGAIC Vice President and Investment Officer
AG Senior Vice President -- Investments
Corporation
William C. Vetterling............. VALIC, AGAIC Vice President -- Marketing Administration
</TABLE>
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<PAGE> 355
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Garry B. Watts.................... VALIC, AGAIC Vice President -- Independent Agents/Brokers
William A. Wilson................. VALIC, AGAIC Vice President -- Government Affairs
Jane E. Bates..................... VALIC Chief Compliance Officer
Roger E. Hahn..................... VALIC, AGAIC Investment Officer
C. Scott Inglis................... VALIC, AGAIC Investment Officer
Julia S. Tucker................... VALIC, AGAIC Investment Officer
AG Senior Vice President -- Investments
Corporation
Rembert R. Owen, Jr............... VALIC, AGAIC Real Estate Investment Officer and Assistant
Secretary
D. Lynne Walters.................. VALIC, AGAIC, Tax Officer
VISCO
AG Vice President -- Taxes
Corporation
W. Joan Farmer.................... VALIC, AGAIC Assistant Secretary
Cheryl G. Hemley.................. VALIC, AGAIC, Assistant Secretary
VISCO
Susan A. Jacobs................... VALIC, AGAIC Assistant Secretary
Christine W. McGinnis............. VALIC, AGAIC Assistant Secretary
Patricia W. Neighbors............. VALIC, AGAIC Assistant Secretary
Daniel R. Cricks.................. VALIC, AGAIC, Assistant Tax Officer
VISCO
James L. Gleaves.................. VALIC, AGAIC, Assistant Treasurer
VISCO
AG Vice President and Treasurer
Corporation
Kristy L. McWilliams.............. VALIC, AGAIC Assistant Treasurer
William H. Murray................. VALIC, AGAIC Assistant Treasurer
Tara S. Rock...................... VALIC, AGAIC Assistant Treasurer
Carolyn Roller.................... VALIC, AGAIC Assistant Treasurer
Barbara G. Trygstad............... VALIC, AGAIC, Assistant Treasurer
VISCO
Marylyn S. Zlotnick............... VALIC, AGAIC, Assistant Controller
VISCO
Leslie K. Bates................... VALIC, AGAIC Administrative Officer
Mary C. Birmingham................ VALIC, AGAIC Administrative Officer
Donald L. Davis................... VALIC, AGAIC Administrative Officer
Robert A. Demchak................. VALIC, AGAIC Administrative Officer
Ruby K. Donelson.................. VALIC, AGAIC Administrative Officer
David E. Green.................... VALIC, AGAIC Administrative Officer
Ted D. Hennis..................... VALIC, AGAIC Administrative Officer
William L. Hinkle................. VALIC, AGAIC Administrative Officer
Joan M. Keller.................... VALIC, AGAIC Administrative Officer
William R. Keller, Jr............. VALIC, AGAIC Administrative Officer
Fred M. Lowery.................... VALIC, AGAIC Administrative Officer
James F. McCulloch................ VALIC, AGAIC Administrative Officer
</TABLE>
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<PAGE> 356
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Robert M. Mason................... VALIC, AGAIC Administrative Officer
Michael E. Mead................... VALIC, AGAIC Administrative Officer
Connie E. Pritchett............... VALIC, AGAIC Administrative Officer
Elliott L. Shifman................ VALIC, AGAIC Administrative Officer
Nancy K. Shumbera................. VALIC, AGAIC Administrative Officer
Kathryn T. Smith.................. VALIC, AGAIC Administrative Officer
John M. Stanton................... VALIC, AGAIC Administrative Officer
James P. Steele................... VALIC, AGAIC Administrative Officer
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) VISCO acts as exclusive distributor and principal underwriter of the
Registrant.
(b) The following information is furnished with respect to each officer and
director of VISCO.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VISCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
John E. Arant(*)................ Director, Chairman and President --
Cynthia A. Toles(*)............. Director and Secretary Vice President and Secretary
Gregory R. Seward(*)............ Director and Treasurer Treasurer
Brent C. Nelson(*).............. Senior Vice President Vice President
D. Lynne Walters(*)............. Tax Officer --
V. Keith Roberts(*)............. Compliance Officer --
Cheryl G. Hemley(*)............. Assistant Secretary --
Daniel R. Cricks(*)............. Assistant Tax Officer --
James D. Bonsall(*)............. Assistant Treasurer --
James L. Gleaves(*)............. Assistant Treasurer --
Steven D. Rubinstein(*)......... Assistant Treasurer --
Barbara G. Trygstad(*).......... Assistant Treasurer --
Marylyn S. Zlotnick(*).......... Assistant Treasurer --
</TABLE>
- ---------------
(*) 2929 Allen Parkway, Houston, Texas 77019
(c) Not Applicable
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated thereunder will be
in the physical possession of either:
THE ADVISER:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
THE PRINCIPAL UNDERWRITER:
VALIC Investment Services Company
2929 Allen Parkway
Houston, Texas 77019
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<PAGE> 357
THE CUSTODIAN:
The State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INVESTMENT SUB-ADVISERS:
American General Investment Management, L.P.
2929 Allen Parkway
Houston, Texas 77019
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street, 36th Floor
New York, New York 10006
Brown Capital Management
809 Cathedral Street
Baltimore, Maryland 21201
Capital Guardian Trust Company
11100 Santa Monica Boulevard
Los Angeles, California 90025
Fiduciary Management Associates, Inc.
211 Congress Street
Boston, Massachusetts 02110
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Jacobs Asset Management, Inc.
211 Congress Street
Boston, Massachusetts 02110
JP Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Neuberger&Berman Management Inc.
605 Third Avenue
New York, New York 10158
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
ITEM 31. MANAGEMENT SERVICES.
There is no management-related service contract not discussed in Parts A or
B of this Form N-1A.
ITEM 32. UNDERTAKINGS.
Not Applicable.
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<PAGE> 358
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, American General Series
Portfolio Company 2 has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of Houston,
State of Texas, on the 14th day of October, 1998.
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 2
By: /s/ THOMAS L. WEST, JR.
------------------------
Thomas L. West, Jr.
Chairman of the Board of
Trustees
<PAGE> 359
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 date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ THOMAS L. WEST JR.
- ----------------------- Chairman of the Board of October 14 , 1998
Thomas L. West, Jr. Trustees --------------
**
- ----------------------- Vice Chairman of the Board , 1998
Craig R. Rodby of Trustees --------------
**
- ----------------------- Trustee and President , 1998
John A. Graf --------------
/s/ GREGORY R. SEWARD
- ----------------------- Treasurer October 14 , 1998
Gregory R. Seward --------------
* , 1998
- ----------------------- Trustee --------------
Judith L. Craven
* , 1998
- ----------------------- Trustee --------------
Timothy J. Ebner
* , 1998
- ----------------------- Trustee --------------
Gustovo E. Gonzales, Jr.
*
- ----------------------- Trustee , 1998
Norman Hackerman --------------
*
- ----------------------- Trustee , 1998
John W. Lancaster --------------
*
- ----------------------- Trustee , 1998
Ben H. Love --------------
* , 1998
- ----------------------- Trustee --------------
John E. Maupin, Jr.
*
- ----------------------- Trustee , 1998
F. Robert Paulsen --------------
</TABLE>
<PAGE> 360
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*
- ---------------------------- Trustee , 1998
R. Miller Upton --------------
/s/ DAVID M. LEAHY
*By: ---------------------- October 14 , 1998
David M. Leahy --------------
Attorney-in-Fact
/s/ NORI L. GABERT
**By: ---------------------- October 14 , 1998
Nori L. Gabert --------------
Attorney-in-Fact
</TABLE>
<PAGE> 361
INDEX TO EXHIBITS
<TABLE>
<C> <S> <C> <C>
1. (a) (2.) Amendment to Agreement and Declaration of Trust
(b) Certificate of Designation For:
(1) American General Core Bond Fund
(2) American General High Yield Bond Fund
(3) American General Strategic Bond Fund
(4) American General Municipal Bond Fund
(5) American General Municipal Money Market Fund
(c) Amended and Restated Certificate of Designation For:
(1) American General International Growth Fund
(2) American General Large Cap Growth
(3) American General Mid Cap Growth Fund
(4) American General Small Cap Growth Fund
(5) American General International Value Fund
(6) American General Large Cap Value Fund
(7) American General Mid Cap Value Fund
(8) American General Small Cap Value Fund
(9) American General Socially Responsible Fund
(10) American General Balanced Fund
(11) American General Domestic Bond Fund
(12) American General Money Market Fund
(13) American General Growth Lifestyle Fund
(14) American General Moderate Growth Lifestyle Fund
(15) American General Conservative Growth Lifestyle Fund
(16) American General S&P 500 Index Fund
(17) American General Mid Cap Index Fund
(18) American General Small Cap Index Fund
(19) Form of Amended and Restated Certificate of Designation for
American General Municipal Bond Fund
(20) Form of Amended and Restated Certificate of Designation for
American General Municipal Money Market Fund
(d) Certificate of Termination For:
(1) American General S&P 500 Index Fund
(2) American General Mid Cap Index Fund
(3) American General Small Cap Index Fund
(4) Form of Certificate of Termination for American General
Municipal Bond Fund
(5) Form of Certificate of Termination for American General
Municipal Money Market Fund
</TABLE>
<PAGE> 362
<TABLE>
<C> <S> <C> <C>
5. (a) Form of Investment Advisory Agreement between the Registrant and The
Variable Annuity Life Insurance Company ("VALIC")
(b) Form of Investment Sub-Advisory Agreements between VALIC and each
Sub-Adviser on behalf of the following Funds:
(1) American General International Growth Fund
(2) American General Large Cap Growth
(3) American General Mid Cap Growth Fund
(4) American General Small Cap Growth Fund
(5) American General International Value Fund, American General
Balanced Fund and American General Domestic Bond Fund
(6) American General Large Cap Value Fund
(7) American General Mid Cap Value Fund
(8) American General Small Cap Value Fund
(9) American General High Yield Bond Fund, American General
Strategic Bond Fund, American General Core Bond Fund, American
General Municipal Bond Fund and American General Municipal Money
Market Fund
(10) American General S&P 500 Index Fund, American General Mid Cap
Index Fund, American General Small Cap Index Fund and American
General Small Cap Value Fund.
6. Form of Distribution and Service Agreement between the Registrant and VALIC
Investment Services Company ("VISCO")
8. (a) Form of Custodian Contract between Registrant and State Street Bank and
Trust Company
(b) Form of Securities Lending Authorization Agreement between Registrant
and State Street Bank and Trust Company
9. (a) Form of Transfer Agency and Services Agreement between Registrant and
National Financial Data Services, Inc.
(b) Form of Data Access Services Agreement between Registrant and State
Street Bank and Trust Company
(c) Form of Accounting Services Agreement between Registrant and The
Variable Annuity Life Insurance Company
(d) Form of Administrative Service Agreement among Registrant, VISCO and
VALIC
(e) State Filing Services Agreement
10. Opinion and Consent of Counsel
11. Consent of Independent Auditors
13. Subscription Agreements
15. Rule 12b-1 Distribution and Service Plan
18. Multi-Class Plan
19. (b) Powers of Attorney for Messrs. Ebner, Gonzales and Maupin and Ms. Craven
27. Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 1(a)(2)
AMENDMENT DATED AUGUST 26, 1998
TO THE AGREEMENT AND DECLARATION OF TRUST
OF
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
DATED MARCH 16, 1998
This Amendment dated August 26, 1998 to the Agreement and Declaration of Trust
of American General Series Portfolio Company 2 (the "Trust") dated March 16,
1998, is made in accordance with Section 9.5 thereof to restate paragraph (b) of
Section 4.1 to read as follows:
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase (to not more than twelve (12)) or
decrease the number of Trustees to a number other than the number theretofore
determined by a written instrument signed by a Majority of the Trustees (or by
an officer of the Trust pursuant to the vote of a Majority of the Trustees). No
decrease in the number of Trustees shall have the effect of removing any Trustee
from office prior to the expiration of his or her term, but the number of
Trustees may be decreased in conjunction with the removal of a Trustee pursuant
to Section (e) of this Section 4.1.
WITNESS the signature of the undersigned this 26th day of
August, 1998.
/s/ NORI L. GABERT
- -------------------------------
Nori L. Gabert,
Vice President and Assistant Secretary
<PAGE> 1
EXHIBIT 1(b)(1)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Designation
of
American General Core Bond Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Core Bond Fund (the "Fund") with the following
rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Assistant Secretary
<PAGE> 1
EXHIBIT 1(b)(2)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Designation
of
American General High Yield Bond Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General High Yield Bond Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(b)(3)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Designation
of
American General Strategic Bond Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Strategic Bond Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or
<PAGE> 2
with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(b)(4)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Designation
of
American General Municipal Bond Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Municipal Bond Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or
<PAGE> 2
with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(b)(5)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Designation
of
American General Municipal Money Market Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Municipal Money Market Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or
<PAGE> 2
with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(1)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate
of
Designation of American General International Growth Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General International Growth Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or
<PAGE> 2
with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(2)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Large Cap Growth Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Large Cap Growth Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(3)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Mid Cap Growth Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Mid Cap Growth Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(4)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Small Cap Growth Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Small Cap Growth Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(5)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate
of
Designation of American General International Value Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General International Value Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or
<PAGE> 2
with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(6)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Large Cap Value Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Large Cap Value Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(7)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Mid Cap Value Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Mid Cap Value Fund (the "Fund") with the following
rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or
<PAGE> 2
with respect to any other proper purpose affecting only holders of
shares of such Class at any time by a Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(8)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Small Cap Value Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Small Cap Value Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(9)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Socially Responsible Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Socially Responsible Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(10)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Balanced Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Balanced Fund (the "Fund") with the following
rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(11)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Domestic Bond Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Domestic Bond Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(12)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Money Market Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Money Market Fund (the "Fund") with the following
rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(13)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Growth Lifestyle Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Growth Lifestyle Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(14)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Moderate Growth Lifestyle Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Moderate Growth Lifestyle Fund (the "Fund") with
the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(15)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Conservative Growth Lifestyle Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Conservative Growth Lifestyle Fund (the "Fund")
with the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be initially divided
into four classes --Class A, Class B, Institutional Class I and
Institutional Class II. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A, Class B, Institutional Class I and
Institutional Class II Share shall be subject to such sales charges, if
any, as may be established from time to time by the Trustees in
accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of
Securities Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(16)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General S&P 500 Index Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General S&P 500 Index Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be divided into two
classes -- Class A and Class B. The Trustees shall have the authority
from time to time to authorize additional Classes of Shares of the
Fund.
3. Sales Charges. Each Class A and Class B Share shall be subject to
such sales charges, if any, as may be established from time to time by
the Trustees in accordance with the Investment Company Act of 1940
(the "1940 Act") and applicable rules and regulations of the National
Association of Securities Dealers, Inc., all as set forth in the
Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(17)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Mid Cap Index Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Mid Cap Index Fund (the "Fund") with the following
rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be divided into two
classes --Class A and Class B. The Trustees shall have the authority
from time to time to authorize additional Classes of Shares of the
Fund.
3. Sales Charges. Each Class A and Class B Share shall be subject to
such sales charges, if any, as may be established from time to time by
the Trustees in accordance with the Investment Company Act of 1940 (the
"1940 Act") and applicable rules and regulations of the National
Association of Securities Dealers, Inc., all as set forth in the Fund's
prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(18)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Small Cap Index Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 2, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General Small Cap Index Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be divided into two
classes --Class A and Class B. The Trustees shall have the authority
from time to time to authorize additional Classes of Shares of the
Fund.
3. Sales Charges. Each Class A and Class B Share shall be subject to
such sales charges, if any, as may be established from time to time by
the Trustees in accordance with the Investment Company Act of 1940 (the
"1940 Act") and applicable rules and regulations of the National
Association of Securities Dealers, Inc., all as set forth in the Fund's
prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the
Shareholder thereof, into Class A Share of the Fund at such times and
pursuant to such terms, conditions and restrictions as may be
established by the Trustees and as set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses
under an administrative or service agreement, plan or other
arrangement, however designated) shall be borne by the Class and shall
be appropriately reflected (in a manner determined by the Trustees) in
the net asset value, dividends, distribution and liquidation rights of
the Shares of that Class.
<PAGE> 2
6. Special Meetings. A special meeting of Shareholders of a Class of
the Fund may be called with respect to the Rule 12b-1 distribution plan
applicable to such Class or with respect to any other proper purpose
affecting only holders of shares of such Class at any time by a
Majority of the Trustees.
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section
9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(19)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Municipal Bond Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 2, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the American General Municipal Bond Fund
(the "Fund") with the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be divided into two
classes -- Class A and Class B. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A and Class B Share shall be subject to such
sales charges, if any, as may be established from time to time by the Trustees
in accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Share of the Fund at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by the Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of the
Fund may be called with respect to the Rule 12b-1 distribution plan applicable
to such Class or with respect to any other proper purpose affecting only
holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
an Officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
October , 1998
- -------------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(20)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Amended and Restated Certificate of Designation
of
American General Municipal Money Market Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 2, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the American General Municipal Money Market
Fund (the "Fund") with the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.
2. Classes of Shares. The Shares of the Fund shall be divided into two
classes --Class A and Class B. The Trustees shall have the authority from time
to time to authorize additional Classes of Shares of the Fund.
3. Sales Charges. Each Class A and Class B Share shall be subject to such
sales charges, if any, as may be established from time to time by the Trustees
in accordance with the Investment Company Act of 1940 (the "1940 Act") and
applicable rules and regulations of the National Association of Securities
Dealers, Inc., all as set forth in the Fund's prospectus.
4. Conversion. Each Class B Share of the Fund shall be converted
automatically, and without any action or choice on the part of the Shareholder
thereof, into Class A Share of the Fund at such times and pursuant to such
terms, conditions and restrictions as may be established by the Trustees and as
set forth in the Fund's Prospectus.
5. Allocation of Expenses Among Classes. Expenses related solely to a
particular Class (including, without limitation, distribution expenses under an
administrative or service agreement, plan or other arrangement, however
designated) shall be borne by the Class and shall be appropriately reflected
(in a manner determined by the Trustees) in the net asset value, dividends,
distribution and liquidation rights of the Shares of that Class.
6. Special Meetings. A special meeting of Shareholders of a Class of the
Fund may be called with respect to the Rule 12b-1 distribution plan applicable
to such Class or with respect to any other proper purpose affecting only
holders of shares of such Class at any time by a Majority of the Trustees.
<PAGE> 2
7. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall be govern.
8. Amendments etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
an Officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
9. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms in the
Declaration.
October , 1998
- ------------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(d)(1)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Termination of
Institutional Class I and Institutional Class II
of American General S&P 500 Index Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 2, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees, and upon the finding that no
such Shares of these Classes are outstanding, does hereby terminate the
Institutional Class I and Institutional Class II Classes of Shares of the
American General S&P 500 Index Fund.
August 26, 1998
/s/ NORI L. GABERT
---------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(d)(2)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Termination
of Institutional Class I and Institutional Class II of
American General Mid Cap Index Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 2, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees, and upon the finding that no
such Shares of these Classes are outstanding, does hereby terminate the
Institutional Class I and Institutional Class II Classes of Shares of the
American General Mid Cap Index Fund.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(d)(3)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Termination
of Institutional Class I and Institutional Class II
American General Small Cap Index Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 2, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees, and upon the finding that no
such Shares of these Classes are outstanding, does hereby terminate the
Institutional Class I and Institutional Class II Classes of Shares of the
American General Small Cap Index Fund.
August 26, 1998
/s/ NORI L. GABERT
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(d)(4)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Termination
of Institutional Class I and Institutional Class II of
American General Municipal Bond Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 2, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees, and upon the finding that no
such Shares of these Classes are outstanding, does hereby terminate the
Institutional Class I and Institutional Class II Classes of Shares of the
American General Municipal Bond Fund.
October_____, 1998
------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(d)(5)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Certificate of Termination
of Institutional Class I and Institutional Class II of
American General Municipal Money Market Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 2, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees, and upon the finding that
no such Shares of these Classes are outstanding, does hereby terminate the
Institutional Class I and Institutional Class II Classes of Shares of the
American General Municipal Money Market Fund.
October , 1998
---------------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as the "ADVISER," and
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2, hereinafter referred to as the
"FUND."
The ADVISER and the FUND recognize the following:
(a) The ADVISER is a life insurance company organized under
Chapter 3 of the Texas Insurance Code and an investment adviser
registered under the Investment Advisers Act of 1940.
(b) The FUND is an investment company organized under the laws
of Delaware as a business trust, as a series type of investment company
issuing separate classes (or series) of shares of beneficial interest
and is registered as an open-end, management investment company under
the Investment Company Act of 1940 (the "1940 Act"). The 1940 Act
prohibits any person from acting as an investment adviser of a
registered investment company except pursuant to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General S&P 500 Index Fund, American General Mid
Cap Index Fund, American General Small Cap Index Fund, American General
Small Cap Value Fund, American General Mid Cap Growth Fund, American
General International Value Fund, American General Domestic Bond Fund,
American General Balanced Fund, American General Large Cap Growth Fund,
American General Small Cap Growth Fund, American General Mid Cap Value
Fund, American General Large Cap Value Fund, American General
International Growth Fund, American General Money Market Fund, American
General Socially Responsible Fund, American General Growth Lifestyle
Fund, American General Moderate Growth Lifestyle Fund, American General
Conservative Growth Lifestyle Fund, American General Municipal Market
Fund, American General Municipal Bond Fund, American General Core Bond
Fund, American General Strategic Bond Fund, and American General High
Yield Bond Fund. In accordance with the FUND's Agreement and
Declaration of Trust (the "Declaration") and Bylaws, new Funds may be
added to the FUND upon approval of the FUND's Board of Trustees without
approval of the FUND's shareholders. This Agreement will apply only to
the Fund(s) and any other Fund as may be added or deleted by amendment
to the attached Schedule A ("Covered Funds").
The ADVISER and the FUND AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction, and supervision of the
FUND's Board of Trustees and in conformity with the 1940 Act, applicable laws
and regulations thereunder, all other applicable federal and state laws and
regulations, the FUND's Declaration, Bylaws, registration statements, prospectus
and stated investment objectives, policies and restrictions shall:
(a) manage the investment and reinvestment of the assets of
the Covered Funds including, for example, the evaluation of pertinent
economic, statistical, financial, and other data, the determination of
the industries and companies to be represented in each Covered Fund's
portfolio, and the formulation and implementation of investment
programs.
(b) maintain a trading desk and place all orders for the
purchase and sale of portfolio investments for each Covered Fund's
account with brokers or dealers selected by the ADVISER, or arrange for
any other entity to provide a trading desk and to place orders with
brokers and dealers selected by the ADVISER, subject to the ADVISER's
control, direction, and supervision.
<PAGE> 2
(c) conduct and manage the day to day operations of each
Covered Fund including, for example, the preparation of registration
statements, prospectuses, reports, proxy solicitation materials and
amendments thereto, and the furnishing of legal services (except those
services provided by outside counsel to the FUND selected by the Board
of Trustees).
(d) furnish to the Covered Funds office space, facilities,
equipment and personnel adequate to provide the services described
above and pay the compensation to the FUND's trustees and officers who
are interested persons of the ADVISER.
In performing the services described in paragraph (b) above, the
ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to prior authorization by the
FUND's Board of Trustees of appropriate policies and procedures, the ADVISER may
cause the Covered Funds to pay to a broker a commission, for effecting a
portfolio transaction, in excess of the commission another broker would have
charged for effecting the same transaction, if the first broker provided
brokerage and\or research services, including statistical data, to the ADVISER.
The ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The ADVISER shall maintain records adequately demonstrating compliance
with its obligations under this Agreement and report periodically to the FUND's
Board of Trustees regarding the performance of services under this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
ADVISER shall bear the expense of discharging its responsibilities hereunder and
the FUND shall pay, or arrange for others to pay, all its expenses other than
those which part 2 of this Agreement expressly states are payable to the
ADVISER. Expenses payable by the FUND include, but are not limited to, (i)
interest and taxes; (ii) brokerage commissions and other expenses of purchasing
and selling portfolio investments; (iii) compensation of its trustees and
officers other than those persons who are interested persons of the ADVISER;
(iv) fees of outside counsel to and of independent auditors of the FUND selected
by the Board of Trustees; (v) fees for accounting services; (vi) custodial,
registration, and transfer agency fees; (vii) expenses related to the repurchase
or redemption of its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to the issuance of its
shares against payment therefor by, or on behalf of, the subscribers thereto;
(ix) fees and related expenses of registering and qualifying the FUND and its
shares for distribution under state and federal securities laws; (x) expenses of
printing and mailing to existing shareholders of registration statements,
prospectuses, reports, notices and proxy solicitation materials of the FUND;
(xi) all other expenses incidental to holding meetings of the FUND's
shareholders including proxy solicitations therefor; (xii) expenses for
servicing shareholder accounts; (xiii) insurance premiums for fidelity coverage
and errors and omissions insurance; (xiv) dues for the FUND's membership in
trade associations approved by the Board of Trustees; and (xv) such
non-recurring expenses as may arise, including those associated with actions,
suits, or proceedings to which the FUND is a party and the legal obligation
which the FUND may have to indemnify its officers, trustees and employees with
respect thereto. The FUND shall allocate the foregoing expenses among the
Covered Funds and, to the extent that any of the foregoing expenses are
allocated between the Covered Funds and any other Funds or entities, such
allocations shall be made pursuant to methods approved by the Board of Trustees.
2. COMPENSATION OF ADVISER
The FUND shall pay to the ADVISER, as compensation for the services
rendered, facilities furnished and expenses paid by the ADVISER, a monthly fee
based on each Covered Fund's average monthly net asset value computed for each
Covered Fund as provided for in the fee schedule attached hereto as Schedule A.
Schedule A may be amended from time to time, provided that amendments are made
in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any existing or new
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
2
<PAGE> 3
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. The FUND shall pay this fee for each calendar month as soon as
practicable after the end of that month.
The ADVISER shall promptly reduce its monthly fee by the amount of any
commissions, tender and exchange offer solicitation fees, other fees, or similar
payments received by the ADVISER, or any affiliated person of the ADVISER, in
connection with any Covered Fund's portfolio transactions, less the amount of
any direct expenses incurred by the ADVISER, or any affiliated person of the
ADVISER, in obtaining such commissions, fees, or payments.
If the ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
3. SCOPE OF ADVISER'S DUTIES
The ADVISER, and any person controlling, controlled by or under common
control with the ADVISER, shall remain free to provide similar investment
advisory services to other persons or engage in any other business or activity
which does not impair the services which the ADVISER renders to the Covered
Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
trustees, officers and employees of the FUND may be a shareholder, director,
officer or employee of, or be otherwise interested in, the ADVISER, and in any
person controlling, controlled by or under common control with the ADVISER; and
the ADVISER, and any person controlling, controlled by or under common control
with the ADVISER, may have an interest in the FUND.
The ADVISER shall not be liable to the FUND, or to any shareholder in
the FUND, for any act or omission in rendering services under this Agreement, or
for any losses sustained in the purchase, holding, or sale of any portfolio
security, so long as there has been no willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties on the part of the
ADVISER.
The ADVISER may from time to time employ or associate with itself any
person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided that any such person who
serves or acts as an investment adviser separate from the ADVISER will do so
pursuant to a sub-advisory agreement as provided in the following paragraph. The
compensation of any such persons will be paid by the ADVISER, and no obligation
will be incurred by, or on behalf of, the FUND with respect to them.
Notwithstanding any other provision of this Agreement, the FUND hereby
authorizes the ADVISER to employ an investment sub-adviser for any one or more
of the Covered Funds for the purpose of providing investment management services
with respect to such Covered Funds, provided that (a) the compensation to be
paid to such investment sub-adviser shall be the sole responsibility of the
ADVISER, (b) the duties and responsibilities of the investment sub-adviser shall
be as set forth in a sub-advisory agreement including the ADVISER and the
investment sub-adviser as parties, (c) such sub-advisory agreement shall be
adopted and approved in conformity with applicable laws and regulations, and (d)
such sub-advisory agreement may be terminated at any time, on not more than 60
days' written notice, by the ADVISER on notice to the sub-adviser and the FUND,
by the sub-adviser on notice to the ADVISER and the FUND, and by the FUND's
Board of Trustees or by a majority vote of the Covered Fund's outstanding voting
securities on notice to the sub-adviser and the ADVISER.
4. DURATION OF AGREEMENT
This Agreement shall become effective as to the Covered Funds set forth
on Schedule A on the date hereof and as to any other Funds on the date of the
Amendment to Schedule A adding such Fund in accordance with this
3
<PAGE> 4
Agreement. Unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from the effective date. Thereafter this
Agreement shall continue in effect, but with respect to any Covered Fund,
subject to the termination provisions and all other terms and conditions hereof,
only so long as such continuance is approved at least annually by the vote of a
majority of the FUND's trustees who are not parties to this Agreement or
interested persons of any such parties, cast in person at a meeting called for
the purpose of voting on such approval, and by a vote of a majority of the
FUND's Board of Trustees or a majority of that Fund's outstanding voting
securities.
This Agreement shall automatically terminate in the event of its
assignment. The Agreement may be terminated as to any Covered Fund at any time
by the FUND's Board of Trustees, by vote of a majority of that Fund's
outstanding voting securities, or by the ADVISER, on not more than 60 days' nor
less than 30 days' written notice, or upon such shorter notice as may be
mutually agreed upon. Such termination shall be without the payment of any
penalty.
5. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with applicable
federal securities laws and regulations, including definitions therein and such
exemptions as may be granted to the ADVISER or the FUND by the Securities and
Exchange Commission or such interpretive positions as may be taken by the
Commission or its staff. To the extent that the applicable law of the State of
Texas, or any of the provisions herein, conflict with applicable provisions of
the federal securities laws, the latter shall control.
6. MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the FUND or the Trustees of the FUND as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the FUND individually, but are binding only upon the
assets and property of the FUND. A Certificate of Trust in respect of the FUND
is on file with the Secretary of the State of Delaware.
All questions concerning the validity, meaning and effect of this
Agreement shall be determined in accordance with the laws (without giving effect
to the conflict-of-law principles thereof) of the State of Delaware applicable
to contracts made and to be performed in that state.
4
<PAGE> 5
The parties hereto have each caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
AMERICAN GENERAL SERIES PORTFOLIO
COMPANY 2
By:
-------------------------------
Name:
Title:
ATTEST:
- -------------------------------
Secretary
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
ATTEST:
- -------------------------------
Secretary
5
<PAGE> 6
SCHEDULE A
to Investment Advisory Agreement
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
American General International
Value Fund.............. 1.00% on the first $25 million
0.85% on the next $25 million
0.675% on the next $200 million
0.625% over $250 million
American General International
Growth Fund............ 0.90% on the first $100 million
0.80% over $100 million
American General Large Cap
Value Fund.............. 0.50%
American General Large Cap
Growth Fund............ 0.55%
American General Mid Cap
Value Fund.............. 0.75% on the first $100 million
0.725% on the next $150 million
0.70% on the next $250 million
0.675% on the next $250 million
0.65% over $750 million
American General Mid Cap
Growth Fund............ 0.65% on the first $25 million
0.55% on the next $25 million
0.45% over $50 million
6
<PAGE> 7
American General Small Cap
Value Fund.............. 0.75% on the first $50 million
0.65% over $50 million
American General Small Cap
Growth Fund............ 0.85%
American General Socially
Responsible Fund....... 0.25%
American General Money
Market Fund............ 0.25%
American General Domestic
Bond Fund............... 0.60% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% over $300 million
American General S&P 500
Index Fund............... 0.27% on the first $500 million
0.26% over $500 million
American General Mid Cap
Index Fund............... 0.28% on the first $500 million
0.27% over $500 million
American General Small Cap
Index Fund............... 0.28% on the first $500 million
0.27% over $500 million
American General Balanced
Fund..................... 0.80% on the first $25 million
0.65% on the next $25 million
0.45% over $50 million
7
<PAGE> 8
American General Conservative
Growth Lifestyle Fund.... 0.10%
American General Moderate
Growth Lifestyle Fund.... 0.10%
American General Growth
Lifestyle Fund........... 0.10%
American General Municipal
Money Market Fund........ 0.50% on first $200 million
0.45% on next $300 million
0.40% over $500 million
American General Municipal
Bond Fund................ 0.50% on first $200 million
0.45% on next $300 million
0.40% over $500 million
American General
Core Bond Fund........... 0.50% on first $200 million
0.45% on next $300 million
0.40% over $500 million
American General Strategic
Bond Fund................ 0.60% on first $200 million
0.50% on next $300 million
0.45% over $500 million
American General High
Yield Bond Fund.......... 0.70% on first $200 million
0.60% on next $300 million
0.55% over $500 million
8
<PAGE> 1
EXHIBIT 5(b)(1)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and JACOBS
ASSET MANAGEMENT, hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers
Act").
(b) VALIC is engaged as the investment adviser of American
General International Growth Fund pursuant to an Investment Advisory
Agreement dated October 7, 1998 between VALIC and American General
Series Portfolio Company 2 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of
1940, as amended ("1940 Act"). The 1940 Act prohibits any person from
acting as an investment adviser of a registered investment company
except pursuant to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund,
American General Domestic Bond Fund, American General S&P 500 Index
Fund, American General Mid Cap Index Fund, American General Small Cap
Index Fund, American General Balanced Fund, American General
Conservative Growth Lifestyle Fund, American General Moderate Growth
Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, American
General High Yield Bond Fund, American General Municipal Bond Fund and
American General Municipal Money Market Fund. In accordance with the
FUND's Agreement and Declaration of Trust (the "Declaration"), new
Funds may be added to the FUND upon approval of the FUND's Board of
Trustees without approval of the FUND's shareholders. This Agreement
will apply only to the Fund(s) set forth on the attached Schedule A,
and any other Funds as may be added or deleted by amendment to the
attached Schedule A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign
to the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"),
1
<PAGE> 2
the FUND's Declaration, Bylaws, registration statements, prospectus and stated
investment objectives, policies and restrictions and any applicable procedures
adopted by the FUND's Board of Trustees shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in compliance with respect to each Covered
Fund's securities transactions as required by the 1940 Act and the Advisers
Act, as well as other applicable laws. The SUB-ADVISER will furnish the FUND's
Board of Trustees such periodic and special reports as VALIC and the FUND's
Board of Trustees may reasonably request. The SUB-ADVISER will furnish to
regulatory authorities any information or reports in connection with such
services which may be requested in order to ascertain whether the operations of
the Covered Funds are being conducted in a manner consistent with applicable
laws and regulations. The SUB-ADVISER will not disclose or use any records or
information obtained pursuant to this Agreement in any manner whatsoever except
as expressly authorized in this Agreement, and will keep confidential any
information obtained pursuant to this service relationship, and disclose such
information only if VALIC or the Board of Trustees of the FUND has authorized
such disclosure, or if such information is or hereafter becomes ascertainable
from public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB- ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for the FUND, on
a daily basis, such confirmation, trade tickets and other documents as may be
necessary to enable it to perform its administrative responsibilities with
respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
2
<PAGE> 3
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in
furtherance of the SUB-ADVISER's duties and responsibilities as set forth in
this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities
hereunder and VALIC shall pay, or arrange for others to pay, all VALIC's
expenses, except that VALIC shall in all events pay the compensation described
in Section 2 of this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the
manner provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the
SUB-ADVISER under this Agreement shall be the sole responsibility of VALIC and
shall not be the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which
does not impair the services which the SUB-ADVISER renders to the Covered
Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB- ADVISER.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
3
<PAGE> 4
(a) The SUB-ADVISER (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so
long as this Agreement remains in effect: (ii) is not prohibited by the
1940 Act or the Advisers Act from performing the services contemplated
by this Agreement; (iii) has met, and will continue to meet for so long
as this Agreement remains in effect, any applicable federal or state
requirements, or the applicable requirements of any regulatory or
industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the
authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of
any event that would disqualify the SUB-ADVISER from serving as an
investment adviser of an investment company pursuant to Section 9(a) of
the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and if
it has not already done so, will provide VALIC and the FUND with a copy
of such code of ethics together with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a
copy of its Form ADV as most recently filed with the SEC and will
promptly after filing any amendment to its Form ADV with the SEC,
furnish a copy of such amendment to VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC:(i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the authority to
enter into and perform the services contemplated by this Agreement, and (v)
will immediately notify the SUB-ADVISER of the occurrence of any event that
would disqualify VALIC from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
4
<PAGE> 5
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at
any time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement,
or (ii) as the result of any untrue statement of a material fact or any
omission to state a material fact required to be stated or necessary to make
the statements, in light of the circumstances under which they were made, not
misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the FUND,
except insofar as any such statement or omission was made in reliance on
information provided by the SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub- Advisory
Agreement, including a negligent failure whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified in
section 817(h), and the qualification standards of Subchapter M of the Code, as
amended, and the regulations thereunder, (other than a failure which is
subsequently timely corrected by the SUB- ADVISER in accordance with applicable
law and regulations such that no loss is incurred by VALIC or a Covered Fund)
or (ii) as the result of any untrue statement of a material fact or any
omission to state a material fact required to be stated or necessary to make
the statements, in light of the circumstances under which they were made, not
misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to
5
<PAGE> 6
the FUND to the extent any such statement or omission was made in reliance on
information provided by the SUB-ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations,
including definitions therein and such exemptions as may be granted to VALIC or
the SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that
the applicable law of the State of Texas, or any of the provisions herein,
conflict with applicable provisions of the federal securities laws, the latter
shall control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
--------------------------------
Name:
Title:
ATTEST:
- ---------------------
JACOBS ASSET MANAGEMENT
By:
--------------------------------
Name:
Title:
ATTEST:
- ---------------------
6
<PAGE> 7
SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General International Growth Fund 0.65% of the first $100 million
0.55% on the excess over $100 million
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and GOLDMAN
SACHS ASSET MANAGEMENT, hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General Large Cap Growth Fund pursuant to an Investment Advisory
Agreement dated October 7, 1998 between VALIC and American General
Series Portfolio Company 2 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General S&P 500 Index Fund,
American General Mid Cap Index Fund, American General Small Cap Index
Fund, American General Balanced Fund, American General Conservative
Growth Lifestyle Fund, American General Moderate Growth Lifestyle Fund,
American General Growth Lifestyle Fund, American General Core Bond
Fund, American General Strategic Bond Fund, American General High Yield
Bond Fund, American General Municipal Bond Fund and American General
Municipal Money Market Fund. In accordance with the FUND's Agreement
and Declaration of Trust (the "Declaration"), new Funds may be added to
the FUND upon approval of the FUND's Board of Trustees without approval
of the FUND's shareholders. This Agreement will apply only to the
Fund(s) set forth on the attached Schedule A, and any other Funds as
may be added or deleted by amendment to the attached Schedule A
("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including the diversification requirements pursuant
to section 817(h) and Subchapter M
1
<PAGE> 2
of the Internal Revenue Code of 1986, as amended (the "Code"), the FUND's
Declaration, Bylaws, registration statements, prospectus and stated investment
objectives, policies and restrictions and any applicable procedures (which
procedures to the extent they govern transactions involving affiliates, will
identify any affiliate of VALIC or the Fund) adopted by the FUND's Board of
Trustees (provided that (i) the FUND or VALIC has provided the SUB-ADVISER with
copies of all applicable provisions of the foregoing FUND documents which relate
to the investment and management of the FUND and promptly notifies the
SUB-ADVISER of any changes in such FUND documents and (ii) VALIC informs the
SUB-ADVISER of all applicable state insurance laws relating to the investment
and management of the FUND, including restrictions or limitations on investments
in the Fund, and promptly notifies the SUB-ADVISER of any changes in such laws
or restrictions) shall:
(a) manage the investment and reinvestment of the assets.
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER will make available to VALIC and the FUND promptly
upon their request all of the Covered Funds' investment records and ledgers to
assist VALIC and the FUND in compliance with respect to each Covered Fund's
securities transactions as required by the 1940 Act and the Advisers Act, as
well as other applicable laws. The SUB-ADVISER will furnish the FUND's Board of
Trustees such periodic and special reports as VALIC and the FUND's Board of
Trustees may reasonably request. The SUB-ADVISER will furnish to regulatory
authorities any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Covered
Funds are being conducted in a manner consistent with applicable laws and
regulations. VALIC and the SUB-ADVISER will not disclose or use any records or
information obtained pursuant to this Agreement (excluding investment research
and investment advice) in any manner whatsoever except as expressly authorized
in this Agreement, or in the ordinary course of business of performing the
services described herein and will keep confidential any information obtained
pursuant to this service relationship, and disclose such information only if
VALIC and the SUB-ADVISER or the Board of Trustees of the FUND has authorized
such disclosure, or if such information is or hereafter becomes ascertainable
from public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities or as
may be required by the legal process or in connection with any litigation
arising out of this Agreement.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB- ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
2
<PAGE> 3
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for the FUND, on
a daily basis, such confirmation, trade tickets and other documents as may be
necessary to enable it to perform its administrative responsibilities with
respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
The SUB-ADVISER may on occasion when the purchase or sale of a security
is deemed to be in the best interest of the FUND as well as any other investment
advisory clients, to the extent permitted by applicable laws and regulations,
but shall not be obligated to aggregate the securities sold or purchased with
those of its other clients where such aggregation is not inconsistent with the
policies set forth in the FUND's registration statement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER,
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and any person controlling, controlled by or under common control with the
SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB- ADVISER.
VALIC shall perform quarterly and annual tax compliance tests and
promptly furnish reports of such tests to the SUB-ADVISER after each quarter end
to ensure that the Fund is in compliance with Subchapter M of the Code and
Section 817(h) of the Code. VALIC shall apprise the SUB-ADVISER promptly after
each quarter end of any potential non-compliance with the diversification
requirements in such Code provisions. If so advised, the SUB-ADVISER shall take
prompt action so that the Fund(s) comply with such Code diversification
provisions, as directed by VALIC.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv) has
the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of its
Form ADV as most recently filed with the SEC and will promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC:(i) is registered as an investment adviser under the Advisers Act
and will continue to be so registered for so long as this Agreement remains in
effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
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Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish SUB-ADVISER copies of any amendments or supplements thereto before or at
the time the amendments or supplements become effective. Until VALIC delivers
any amendments or supplements to the SUB-ADVISER, the SUB-ADVISER shall be
fully protected in relying on the documents previously furnished to it.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND by any of the
persons whose names, addresses and specimen signatures will be provided by VALIC
from time to time. The SUB-ADVISER shall not be liable for so acting in good
faith upon such instructions, confirmation or authority, notwithstanding that it
shall subsequently be shown that the same was not given or signed or sent by an
authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. It is understood that the name "Goldman, Sachs &
Co." or "Goldman Sachs" or any derivative thereof, any trade name, trade device,
service mark, symbol or logo associated with the names are the valuable property
of the SUB-ADVISER and that VALIC has the right to use such name (or simulation
or logo), in offering materials of the Fund with the prior written approval of
the SUB-ADVISER and for so long as the
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SUB-ADVISER is a SUB-ADVISER to the Fund. Upon termination of this Agreement
between the Fund, VALIC and the SUB-ADVISER, the Fund and VALIC shall forthwith
cease to use such name (or simulation or logo). In the event of termination of
this agreement, VALIC will continue to furnish to the SUB-ADVISER copies of any
of the above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC
shall furnish or otherwise make available to the SUB-ADVISER such other
information relating to the business affairs of VALIC and the FUND as the SUB-
ADVISER at any time, or from time to time, may reasonably request in order to
discharge obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND, except insofar as any
such statement or omission was made in reliance on information provided by the
SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by the SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub-Advisory
Agreement, including actions which may be based upon any willful malfeasance,
bad faith, or gross negligence of or by reckless disregard of, the SUB-ADVISER's
obligations and/or duties under this Agreement by the SUB-ADVISER or (ii) as the
result of any untrue statement of a material fact or any omission to state a
material fact required to be stated or necessary to make the statements, in
light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND to the extent any such
statement or omission was made in reliance on information provided by the
SUB-ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
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The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
---------------------------------------
Name:
Title:
ATTEST:
- ---------------------
GOLDMAN SACHS ASSET MANAGEMENT
By:
---------------------------------------
Name:
Title:
ATTEST:
- ---------------------
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SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
Covered Fund Fee
American General Large Cap Growth Fund 0.30%
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<PAGE> 1
EXHIBIT 5(b)(3)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and BROWN
CAPITAL MANAGEMENT, INC., hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General Mid Cap Growth Fund pursuant to an Investment Advisory
Agreement dated October 7, 1998 between VALIC and American General
Series Portfolio Company 2 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General S&P 500 Index Fund,
American General Mid Cap Index Fund, American General Small Cap Index
Fund, American General Balanced Fund, American General Conservative
Growth Lifestyle Fund, American General Moderate Growth Lifestyle Fund,
American General Growth Lifestyle Fund, American General Core Bond
Fund, American General Strategic Bond Fund, American General High Yield
Bond Fund, American General Municipal Bond Fund and American General
Municipal Money Market Fund. In accordance with the FUND's Agreement
and Declaration of Trust (the "Declaration"), new Funds may be added to
the FUND upon approval of the FUND's Board of Trustees without approval
of the FUND's shareholders. This Agreement will apply only to the
Fund(s) set forth on the attached Schedule A, and any other Funds as
may be added or deleted by amendment to the attached Schedule A
("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"),
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the FUND's Declaration, Bylaws, registration statements, prospectus and stated
investment objectives, policies and restrictions and any applicable procedures
adopted by the FUND's Board of Trustees shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in compliance with respect to each Covered
Fund's securities transactions as required by the 1940 Act and the Advisers Act,
as well as other applicable laws. The SUB-ADVISER will furnish the FUND's Board
of Trustees such periodic and special reports as VALIC and the FUND's Board of
Trustees may reasonably request. The SUB-ADVISER will furnish to regulatory
authorities any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Covered
Funds are being conducted in a manner consistent with applicable laws and
regulations. The SUB-ADVISER will not disclose or use any records or information
obtained pursuant to this Agreement in any manner whatsoever except as expressly
authorized in this Agreement, and will keep confidential any information
obtained pursuant to this service relationship, and disclose such information
only if VALIC or the Board of Trustees of the FUND has authorized such
disclosure, or if such information is or hereafter becomes ascertainable from
public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB-ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for the FUND, on
a daily basis, such confirmation, trade tickets and other documents as may be
necessary to enable it to perform its administrative responsibilities with
respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
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<PAGE> 3
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
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<PAGE> 4
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv) has
the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of its
Form ADV as most recently filed with the SEC and will promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
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<PAGE> 5
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND, except insofar as any
such statement or omission was made in reliance on information provided by the
the SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub- Advisory
Agreement, including a negligent failure whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified in
section 817(h), and the qualification standards of Subchapter M of the Code, as
amended, and the regulations thereunder, (other than a failure which is
subsequently timely corrected by the SUB- ADVISER in accordance with applicable
law and regulations such that no loss is incurred by VALIC or a Covered Fund) or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading
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<PAGE> 6
in any registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND to the extent any such
statement or omission was made in reliance on information provided by the SUB-
ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
Title:
ATTEST:
- -------------------
BROWN CAPITAL MANAGEMENT, INC.
By:
-----------------------------------
Name:
Title:
ATTEST:
- -------------------
6
<PAGE> 7
SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Mid Cap Growth Fund 0.40% of the first $25 million
0.30% of the next $25 million
0.20% on the excess over $50 million
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(4)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and J. P.
MORGAN INVESTMENT MANAGEMENT INC., hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General Small Cap Growth Fund pursuant to an Investment Advisory
Agreement dated October 7, 1998 between VALIC and American General
Series Portfolio Company 2 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General S&P 500 Index Fund,
American General Mid Cap Index Fund, American General Small Cap Index
Fund, American General Balanced Fund, American General Conservative
Growth Lifestyle Fund, American General Moderate Growth Lifestyle Fund,
American General Growth Lifestyle Fund, American General Core Bond
Fund, American General Strategic Bond Fund, American General High Yield
Bond Fund, American General Municipal Bond Fund and American General
Municipal Money Market Fund. In accordance with the FUND's Agreement
and Declaration of Trust (the "Declaration"), new Funds may be added to
the FUND upon approval of the FUND's Board of Trustees without approval
of the FUND's shareholders. This Agreement will apply only to the
Fund(s) set forth on the attached Schedule A, and any other Funds as
may be added or deleted by amendment to the attached Schedule A
("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"),
1
<PAGE> 2
the FUND's Declaration, Bylaws, registration statements, prospectus and stated
investment objectives, policies and restrictions and any applicable procedures
adopted by the FUND's Board of Trustees shall:
(a) manage the investment and reinvestment of the assets.
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In selecting brokers or dealers to execute transactions on behalf of
the Covered Funds, the SUB-ADVISER will seek the best overall terms available.
In assessing the best overall terms available for any transaction, the SUB-
ADVISER will consider factors it deems relevant, including, without limitation,
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the brokers or dealers and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms available, the SUB-ADVISER
is authorized to consider the brokerage and research services (within the
meaning of Section 28(e) of the Securities and Exchange Act of 1934, as amended)
provided to the Covered Funds and/or other accounts over which the SUB-ADVISER
or its affiliates exercise discretion.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in complying with regulations applicable to
each Covered Fund's securities transactions as required by the 1940 Act and the
Advisers Act, as well as other applicable laws. The SUB-ADVISER will furnish the
FUND's Board of Trustees such periodic and special reports as VALIC and the
FUND's Board of Trustees may reasonably request. The SUB-ADVISER will furnish to
regulatory authorities any information or reports in connection with such
services which may be requested in order to ascertain whether the operations of
the Covered Funds are being conducted in a manner consistent with applicable
laws and regulations. The SUB-ADVISER will not disclose or use any records or
information obtained pursuant to this Agreement in any manner whatsoever except
as expressly authorized in this Agreement, and will keep confidential any
information obtained pursuant to this service relationship, and disclose such
information only if VALIC or the Board of Trustees of the FUND has authorized
such disclosure, or if such information is or hereafter becomes ascertainable
from public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for the FUND, on
a daily basis, such confirmation, trade tickets and other documents as may be
necessary to enable it to perform its administrative responsibilities with
respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
2
<PAGE> 3
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
VALIC understands that the SUB-ADVISER and its affiliates now act, will
continue to act and may act in the future as investment adviser to fiduciary and
other managed accounts and as investment adviser to other investment companies,
and VALIC has no objection to the SUB-ADVISER so acting, provided that whenever
a Covered Fund and one or more other accounts or investment companies advised by
the SUB-ADVISER have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a methodology believed
to be equitable to each entity. The SUB-ADVISER similarly agrees to allocate
opportunities to sell securities. VALIC recognizes that, in some cases, this
procedure may limit the size of the position that may be acquired or sold for a
Covered Fund. In addition, VALIC understands that the persons employed by the
SUB-ADVISER to assist in the performance of the SUB-ADVISER's duties hereunder
will not devote their full time to such service and nothing contained herein
shall be deemed to limit or restrict the right of the SUB-ADVISER or any
affiliate of the SUB- ADVISER to engage in and devote time and attention to
other business or to render services of whatever kind or nature.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this Agreement relates, so
long as there has been no willful
3
<PAGE> 4
misfeasance, bad faith, gross negligence, or reckless disregard of obligations
or duties on the part of the SUB- ADVISER.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv) has
the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of its
Form ADV as most recently filed with the SEC and will promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the
4
<PAGE> 5
payment of any penalty, by vote of the FUND's Board of Trustees or by vote of a
majority of that Covered Fund's outstanding voting securities on at least 60
days' prior written notice to the SUB-ADVISER. This Agreement may also be
terminated by VALIC: (i) on at least 60 days' prior written notice to the
SUB-ADVISER, without the payment of any penalty; or (ii) if the SUB-ADVISER
becomes unable to discharge its duties and obligations under this Agreement. The
SUB-ADVISER may terminate this Agreement at any time, or preclude its renewal
without the payment of any penalty, on at least 60 days' prior written notice to
VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish SUB-ADVISER copies of any amendments or supplements thereto before or at
the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, advertisements or sales literature,
pertaining to the FUND, except insofar as any such statement or omission was
made in reliance on information provided in writing by the SUB-ADVISER or its
affiliates.
5
<PAGE> 6
The SUB-ADVISER shall indemnify and hold harmless VALIC (and its
affiliated companies and their respective officers, directors and employees)
from any and all claims, losses, liabilities or damages (including reasonable
attorney's fees and other related expenses) arising out of or in connection with
(1) any willful misfeasance, bad faith, gross negligence, or reckless disregard
of obligations or duties of the SUB-ADVISER in performing hereunder; or (2) any
untrue statement of material fact or any omission to state a material fact
required to be stated or necessary to make statements, in light of the
circumstances under which they are made, not misleading in any registration
statement, proxy materials, advertisements or sales literature, pertaining to
the Funds to the extent any such statement or omission was made in reliance on
information provided in writing by the SUB-ADVISER to VALIC for the express
purpose of inclusion in such materials.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
ATTEST:
- -------------------
J. P. MORGAN INVESTMENT MANAGEMENT INC.
By:
-------------------------------
Name:
Title:
ATTEST:
- -------------------
6
<PAGE> 7
SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Small Cap Growth Fund 0.60%
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(5)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and CAPITAL
GUARDIAN TRUST COMPANY, hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers
Act").
(b) VALIC is engaged as the investment adviser of American
General International Value Fund, American General Domestic Bond Fund
and American General Balanced Fund pursuant to an Investment Advisory
Agreement dated October 7, 1998 between VALIC and American General
Series Portfolio Company 2 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open- end,
management investment company under the Investment Company Act of
1940, as amended ("1940 Act"). The 1940 Act prohibits any person from
acting as an investment adviser of a registered investment company
except pursuant to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small
Cap Value Fund, American General Small Cap Growth Fund, American
General Socially Responsible Fund, American General Money Market Fund,
American General Domestic Bond Fund, American General S&P 500 Index
Fund, American General Mid Cap Index Fund, American General Small Cap
Index Fund, American General Balanced Fund, American General
Conservative Growth Lifestyle Fund, American General Moderate Growth
Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, American
General High Yield Bond Fund, American General Municipal Bond Fund and
American General Municipal Money Market Fund. In accordance with the
FUND's Agreement and Declaration of Trust (the "Declaration"), new
Funds may be added to the FUND upon approval of the FUND's Board of
Trustees without approval of the FUND's shareholders. This Agreement
will apply only to the Fund(s) set forth on the attached Schedule A,
and any other Funds as may be added or deleted by amendment to the
attached Schedule A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is exempt from registration
as an investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign
to the SUB- ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with provisions of:
(I) the 1940 Act; (ii) all applicable laws and regulations thereunder; and
1
<PAGE> 2
(iii) all other applicable federal and state laws and regulations, including
section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
as are set forth in the Fund's Compliance Manual as mutually agreed upon by
VALIC and the SUB-ADVISER and in conformity with the FUND's Declaration,
Bylaws, registration statements, prospectus and stated investment objectives,
policies and restrictions and any applicable procedures adopted by the FUND's
Board of Trustees, which are communicated in writing to the SUB-ADVISER, shall:
(a) manage the investment and reinvestment of the assets,
other than the investment of cash, of the Covered Funds including, for
example, the evaluation of pertinent economic, statistical, financial,
and other data, the determination of the industries and companies to
be represented in each Covered Fund's portfolio, and the formulation
and implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (which may include futures contracts
and options thereon) for each Covered Fund's account with brokers or
dealers (which may include futures commission merchants) selected by
the SUB-ADVISER, or arrange for any other entity to provide a trading
desk and to place orders with brokers and dealers (which may include
futures commission merchants) selected by the SUB-ADVISER, which
brokers or dealers may include brokers or dealers (which may include
futures commission merchants) affiliated with the SUB-ADVISER, subject
to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the
FUND promptly upon their request all of the Covered Funds' investment records
and ledgers to assist VALIC and the FUND in compliance with respect to each
Covered Fund's securities transactions as required by the 1940 Act and the
Advisers Act, as well as other applicable laws. The SUB-ADVISER will furnish
the FUND's Board of Trustees such periodic and special reports as VALIC and the
FUND's Board of Trustees may reasonably request. The SUB-ADVISER will furnish
to regulatory authorities any information or reports in connection with such
services which may be requested in order to ascertain whether the operations of
the Covered Funds are being conducted in a manner consistent with applicable
laws and regulations. The SUB-ADVISER will not disclose or use any records or
information obtained pursuant to this Agreement in any manner whatsoever except
as expressly authorized in this Agreement, and will keep confidential any
information obtained pursuant to this service relationship, and disclose such
information only if VALIC or the Board of Trustees of the FUND has authorized
such disclosure, or if such information is or hereafter becomes ascertainable
from public or published information or trade sources, or if such disclosure is
required or requested by applicable federal or state authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB-ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND.
The SUB-ADVISER will arrange for the transmission to the Custodian for the
FUND, on a daily basis, such confirmation, trade tickets and other documents as
may be necessary to enable it to perform its administrative responsibilities
with respect to the Covered Funds.
2
<PAGE> 3
The SUB-ADVISER will not invest cash for the Covered Funds. The
investment of cash will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in
furtherance of the SUB-ADVISER's duties and responsibilities as set forth in
this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities
hereunder and VALIC shall pay, or arrange for others to pay, all VALIC's
expenses, except that VALIC shall in all events pay the compensation described
in Section 2 of this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB- ADVISER, a quarterly fee or fees based
on each Covered Fund's average monthly net asset value computed for each
Covered Fund as provided for herein and in the fee schedule attached hereto as
Schedule A. Schedule A may be amended from time to time, provided that
amendments are made in conformity with applicable laws and regulations and the
Declaration and Bylaws of the FUND. Any change in Schedule A pertaining to any
new or existing Fund shall not be deemed to affect the interest of any other
Fund and shall not require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the
manner provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar quarter as soon as
practicable after the end of that quarter but in any event no later than thirty
(30) days following the end of the quarter.
If the SUB-ADVISER serves for less than a whole quarter, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the
SUB-ADVISER under this Agreement shall be the sole responsibility of VALIC and
shall not be the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which
does not impair the services which the SUB-ADVISER renders to the Covered
Funds.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this Agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (I) is exempt from registration as an investment
adviser under the Advisers Act: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state
3
<PAGE> 4
requirements, or the applicable requirements of any regulatory or industry
self-regulatory agency, necessary to be met in order to perform the services
contemplated by this Agreement, (iv) has the authority to enter into and
perform the services contemplated by this Agreement, and (v) will immediately
notify VALIC of the occurrence of any event that would disqualify the
SUB-ADVISER from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and if it has not
already done so, will provide VALIC and the FUND with a copy of such code of
ethics together with evidence of its adoption.
VALIC represents, warrants, and agrees as follows:
VALIC: (I) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the authority to
enter into and perform the services contemplated by this Agreement, and (v)
will immediately notify the SUB-ADVISER of the occurrence of any event that
would disqualify VALIC from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (I) on at least
60 days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
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<PAGE> 5
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
The parties agree that the name "Capital Guardian Trust Company," the
names of the SUB-ADVISER's affiliates within the Capital Group of Companies,
Inc., and any derivative or logo or trade or service mark, are the valuable
property of the SUB-ADVISER and its affiliates. VALIC shall have the right to
use such name(s), derivatives, logos, trade or service marks only with the
prior written approval of the SUB-ADVISER, which approval shall not be
unreasonably withheld so long as this Agreement is in effect. Upon termination
of this Agreement, VALIC shall forthwith cease to use such name(s),
derivatives, logos, trade or service marks. VALIC agrees that it will review
with the SUB-ADVISER any advertisement, sales literature or notice prior to its
use that makes reference to the SUB-ADVISER so that the SUB- ADVISER may review
the context in which it is referred to, it being agreed that the SUB-ADVISER
shall have no responsibility to ensure the adequacy of the form or content of
such materials for purposes of the 1940 Act or other applicable laws and
regulations. If the Covered Funds or VALIC makes any unauthorized use of the
SUB-ADVISER's name(s), derivatives, logos, trade or service marks, the parties
acknowledge that the SUB-ADVISER shall suffer irreparable harm for which
monetary damages are inadequate and thus, the SUB-ADVISER shall be entitle to
injunctive relief. VALIC shall furnish or otherwise make available to the
SUB-ADVISER such other information relating to the business affairs of VALIC
and the FUND as the SUB-ADVISER at any time, or from time to time, may
reasonably request in order to discharge obligations hereunder.
The SUB-ADVISER shall indemnify and hold harmless VALIC (and its
affiliated companies and their respective officers, directors and employees)
from any and all claims, losses, liabilities or damages (including reasonable
attorney's fees and other related expenses) arising out of or in connection
with (1) any willful misfeasance, bad faith, gross negligence, or reckless
disregard of obligations or duties of the SUB-ADVISER in performing hereunder;
or (2) any untrue statement of a material fact or any omission to state a
material fact required to be stated or necessary to make statements, in light
of the circumstances under which they are made, not misleading in any
registration statement, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the Funds to the extent any such
statement or omission was made in reliance on information provided by the
SUB-ADVISER to VALIC for the express purpose of inclusion in such materials.
VALIC shall indemnify and hold harmless the SUB-ADVISER (and its
affiliated companies and their respective officers, directors and employees)
from any and all claims, losses, liabilities or damages (including reasonable
attorney's fees and other related expenses) arising out of any matter which
does not require the SUB-ADVISER to provide an indemnity under the preceding
paragraph, including without limitation, any claim that is based upon any
untrue statement of a material fact or any omission to state a material fact
required to be stated or necessary to make statements, in light of the
circumstances under which they are made, not misleading not misleading
contained
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<PAGE> 6
in the registration statement, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the Funds except those statements
that were provided by the SUB-ADVISER to VALIC for the express purpose of
inclusion in such materials.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations,
including definitions therein and such exemptions as may be granted to VALIC or
the SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that
the applicable law of the State of Texas, or any of the provisions herein,
conflict with applicable provisions of the federal securities laws, the latter
shall control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-------------------------------
Name:
Title:
ATTEST:
- ---------------------
CAPITAL GUARDIAN TRUST COMPANY
By:
-------------------------------
Name:
Title:
ATTEST:
- ---------------------
6
<PAGE> 7
SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable quarterly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General International Value Fund* 0.75% of the first $25 million
0.60% of the next $25 million
0.425% of the next $200 million
0.375% on the excess over $250 million
American General Domestic Bond Fund* 0.35% of the first $50 million
0.20% of the next $50 million
0.18% of the next $200 million
0.15% on the excess over $300 million
American General Balanced Fund* 0.55% of the first $25 million
0.40% of the next $25 million
0.20% on the excess over $50 million
</TABLE>
*Fees with respect to each Fund are aggregated and the Sub-Adviser
applies a 5% discount to all fees if all fees are between $1.25
million and $4 million, a 7.5% discount to all fees between $4 million
and $8 million, and a 12.5% discount to all fees if total fees exceed
$12 million.
7
<PAGE> 1
EXHIBIT 5(b)(6)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and STATE
STREET BANK & TRUST COMPANY, through its division, STATE STREET GLOBAL ADVISORS,
hereinafter referred to as the "SUB- ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General Large Cap Value Fund pursuant to an Investment Advisory
Agreement dated October 7, 1998 between VALIC and American General
Series Portfolio Company 2 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General S&P 500 Index Fund,
American General Mid Cap Index Fund, American General Small Cap Index
Fund, American General Balanced Fund, American General Conservative
Growth Lifestyle Fund, American General Moderate Growth Lifestyle Fund,
American General Growth Lifestyle Fund, American General Core Bond
Fund, American General Strategic Bond Fund, American General High Yield
Bond Fund, American General Municipal Bond Fund and American General
Municipal Money Market Fund. In accordance with the FUND's Agreement
and Declaration of Trust (the "Declaration"), new Funds may be added to
the FUND upon approval of the FUND's Board of Trustees without approval
of the FUND's shareholders. This Agreement will apply only to the
Fund(s) set forth on the attached Schedule A, and any other Funds as
may be added or deleted by amendment to the attached Schedule A
("Covered Funds").
(d) The SUB-ADVISER is engaged in the business of rendering
investment advisory services and is a "bank" as defined under the
Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal
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<PAGE> 2
and state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), the FUND's Declaration, Bylaws,
registration statements, prospectus and stated investment objectives, policies
and restrictions and any applicable procedures adopted by the FUND's Board of
Trustees and provided to the SUB- ADVISER shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in compliance with respect to each Covered
Fund's securities transactions as required by the 1940 Act and the Advisers Act,
as well as other applicable laws. The SUB-ADVISER will furnish the FUND's Board
of Trustees such periodic and special reports as VALIC and the FUND's Board of
Trustees may reasonably request. The SUB-ADVISER will furnish to regulatory
authorities any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Covered
Funds are being conducted in a manner consistent with applicable laws and
regulations. The SUB-ADVISER will not disclose or use any records or information
obtained pursuant to this Agreement in any manner whatsoever except as expressly
authorized in this Agreement, and will keep confidential any information
obtained pursuant to this service relationship, and disclose such information
only if VALIC or the Board of Trustees of the FUND has authorized such
disclosure, or if such information is or hereafter becomes ascertainable from
public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB- ADVISER of such determination in writing,
the SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND (the
"Custodian"). The SUB-ADVISER will arrange for the transmission to the Custodian
for the FUND, on a daily basis, such confirmation, trade tickets and other
documents as may be necessary to enable it to perform its administrative
responsibilities the with respect to the Covered Funds. The SUB- ADVISER further
shall have the authority to instruct the custodian of the FUND (i) to pay cash
for securities and other
2
<PAGE> 3
property delivered to the Custodian for the FUND (ii) to deliver securities and
other property against payment for the FUND, and (iii) to transfer assets and
funds to such brokerage accounts as the SUB-ADVISER may designate, all
consistent with the powers, authorities and limitations set forth herein. The
SUB-ADVISER shall not have the authority to cause the Custodian to deliver
securities and other property except as expressly provided for in this
Agreement.
The SUB-ADVISER may aggregate sales and purchase orders of securities
held by the FUND with similar orders being made simultaneously for other
accounts managed by the SUB-ADVISER or with accounts of the affiliates of the
SUB-ADVISER, if in the SUB-ADVISER's reasonable judgment such aggregation shall
result in an overall economic benefit to the FUND considering the advantageous
selling or purchase price, brokerage commission and other expenses. In
accounting for such aggregated order price, commission and other expenses shall
be averaged on a per bond or share basis daily. VALIC acknowledges that the
determination of such economic benefit to the FUND by the SUB- ADVISER is
subjective and represents the SUB-ADVISER's evaluation that the FUND is
benefited by relatively better purchase or sales prices, lower commission
expenses and beneficial timing of transactions or a combination of these and
other factors.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time with the express written consent
of the parties hereto, provided that amendments are made in conformity with
applicable laws and regulations and the Declaration and Bylaws of the FUND. Any
change in Schedule A pertaining to any new or existing Fund shall not be deemed
to affect the interest of any other Fund and shall not require the approval of
shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER terminates its services prior to month end, the
foregoing compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
VALIC agrees that the
3
<PAGE> 4
SUB-ADVISER may give advice and take action in the performance of its duties
with respect to any of its other clients which differ from action taken with
respect to any Covered Fund.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB- ADVISER.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is a "bank" as defined under the Advisers Act
and will continue to maintain such status for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify VALIC of the occurrence of any event that would disqualify
the SUB-ADVISER from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement including the authority to appoint a
SUB-ADVISER to the FUND, (iv) has the authority to enter into and perform the
services contemplated by this Agreement, and (v) will immediately notify the
SUB-ADVISER of the occurrence of any event that would disqualify VALIC from
serving as an investment adviser of an investment company pursuant to Section
9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least
4
<PAGE> 5
annually by the vote of a majority of the FUND's trustees who are not parties to
this Agreement or interested persons of any such parties, cast in person at a
meeting called for the purpose of voting on such approval, and by a vote of a
majority of the FUND's Board of Trustees or a majority of that Fund's
outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory
5
<PAGE> 6
Agreement, or (ii) as the result of any untrue statement of a material fact or
any omission to state a material fact required to be stated or necessary to make
the statements, in light of the circumstances under which they were made, not
misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the FUND,
except insofar as any such statement or omission was made in reliance on
information provided by the SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub- Advisory
Agreement, including a negligent failure whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified in
section 817(h), and the qualification standards of Subchapter M of the Code, as
amended, and the regulations thereunder, (other than a failure which is
subsequently timely corrected by the SUB- ADVISER in accordance with applicable
law and regulations such that no loss is incurred by VALIC or a Covered Fund) or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND to the extent any such
statement or omission was made in reliance on information provided by the SUB-
ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
------------------------------
Name:
Title:
ATTEST:
- -------------------
STATE STREET BANK & TRUST COMPANY, through its
division,
STATE STREET GLOBAL ADVISORS
By:
------------------------------
Name:
Title:
ATTEST:
- -------------------
6
<PAGE> 7
SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Large Cap Value Fund 0.25%
$50,000 minimum annual fee
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(7)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and
NEUBERGER&BERMAN MANAGEMENT, INC., hereinafter referred to as the "SUB-ADVISER."
VALIC represents the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General Mid Cap Value Fund pursuant to an Investment Advisory Agreement
dated October 7, 1998 between VALIC and American General Series
Portfolio Company 2 ("FUND"), an investment company organized under the
laws of Delaware as a business trust, as a series type of investment
company issuing separate classes (or series) of shares of beneficial
interest and is registered as a diversified, open-end, management
investment company under the Investment Company Act of 1940, as amended
("1940 Act"). The 1940 Act prohibits any person from acting as an
investment adviser of a registered investment company except pursuant
to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General S&P 500 Index Fund,
American General Mid Cap Index Fund, American General Small Cap Index
Fund, American General Balanced Fund, American General Conservative
Growth Lifestyle Fund, American General Moderate Growth Lifestyle Fund,
American General Growth Lifestyle Fund, American General Core Bond
Fund, American General Strategic Bond Fund, American General High Yield
Bond Fund, American General Municipal Bond Fund and American General
Municipal Money Market Fund. In accordance with the FUND's Agreement
and Declaration of Trust (the "Declaration"), new Funds may be added to
the FUND upon approval of the FUND's Board of Trustees without approval
of the FUND's shareholders. This Agreement will apply only to the
Fund(s) set forth on the attached Schedule A, and any other Funds as
may be added or deleted by amendment to the attached Schedule A
("Covered Funds").
(d) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Fund(s) set forth on the attached Schedule A, and any other Funds
as may be added or deleted by amendment to the attached Schedule A
("Covered Funds") which VALIC determines from time to time to assign to
the SUB-ADVISER.
(e) The SUB-ADVISER represents that it is engaged principally
in the business of rendering investment advisory services and is
registered as an investment adviser under the Advisers Act.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
This Agreement will apply only to the Covered Funds.
1
<PAGE> 2
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), the FUND's Declaration, Bylaws,
registration statements, prospectus and stated investment objectives, policies
and restrictions and any applicable procedures adopted by the FUND's Board of
Trustees shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their reasonable request all of the Covered Funds' investment
records and ledgers to assist VALIC and the FUND in compliance with respect to
each Covered Fund's securities transactions as required by the 1940 Act and the
Advisers Act, as well as other applicable laws. The SUB-ADVISER will furnish the
FUND's Board of Trustees such periodic and special reports as VALIC and the
FUND's Board of Trustees may reasonably request. The SUB-ADVISER will furnish to
regulatory authorities any information or reports in connection with such
services which may be requested in order to ascertain whether the operations of
the Covered Funds are being conducted in a manner consistent with applicable
laws and regulations. The SUB-ADVISER will not disclose any records or
information obtained pursuant to this Agreement in any manner whatsoever except
as expressly authorized in this Agreement, and will keep confidential any
information obtained pursuant to this service relationship, and disclose such
information only if VALIC or the Board of Trustees of the FUND has authorized
such disclosure, or if such information is or hereafter becomes ascertainable
from public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
Notwithstanding the foregoing, the SUB-ADVISER may disclose the total return
earned by the Covered Funds and may include such total return in the calculation
of composite performance information without prior approval by VALIC or the
Board of Trustees of the Fund.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB- ADVISER of such determination in writing,
the SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for
2
<PAGE> 3
the FUND, on a daily basis, such confirmation, trade tickets and other documents
as may be necessary to enable it to perform its administrative responsibilities
with respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than ten (10)
days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
claims, damages, liabilities or litigation (including reasonable counsel fees
and expenses) sustained in connection with the matters to which this Agreement
relates, so long as there has been no willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties on the part of the
SUB-ADVISER.
3
<PAGE> 4
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser
under the Advisers Act and will continue to be so registered for so
long as this Agreement remains in effect: (ii) is not prohibited by the
1940 Act or the Advisers Act from performing the services contemplated
by this Agreement; (iii) has met, and will continue to meet for so long
as this Agreement remains in effect, any applicable federal or state
requirements, or the applicable requirements of any regulatory or
industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the
authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of
any event that would disqualify the SUB-ADVISER from serving as an
investment adviser of an investment company pursuant to Section 9(a) of
the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the 1940 Act and if
it has not already done so, will provide VALIC and the FUND with a copy
of such code of ethics together with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a
copy of its Form ADV as most recently filed with the SEC and will
promptly after filing any amendment to its Form ADV with the SEC,
furnish a copy of such amendment to VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also
4
<PAGE> 5
be terminated by VALIC: (i) on at least 60 days' prior written notice to the
SUB-ADVISER, without the payment of any penalty; or (ii) if the SUB-ADVISER
becomes unable to discharge its duties and obligations under this Agreement. The
SUB-ADVISER may terminate this Agreement at any time, or preclude its renewal
without the payment of any penalty, on at least 60 days' prior written notice to
VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder. Subject to provisions of this paragraph, SUB-ADVISER
grants VALIC and the FUND a non-exclusive right to use the "Neuberger&Berman"
name in connection with the SUB-ADVISER's management of the FUND (i) for so long
as the Agreement, any other investment management agreement between VALIC and
SUB-ADVISER with respect to the FUND, or to any extension, renewal or amendment
thereof, remain in effect, and (ii) for subsequent periods as long as required
by law, rule or regulation or to the extent necessary to refer to or illustrate
the historical performance of the FUND.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials
5
<PAGE> 6
pertaining to the FUND, except insofar as any such statement or omission was
made in reliance on information provided by the SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by the SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub- Advisory
Agreement, including a negligent failure whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified in
section 817(h), and the qualification standards of Subchapter M of the Code, as
amended, and the regulations thereunder, (other than a failure which is
subsequently timely corrected by the SUB- ADVISER in accordance with applicable
law and regulations such that no loss is incurred by VALIC or a Covered Fund) or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND to the extent any such
statement or omission was made in reliance on information provided by the SUB-
ADVISER or its affiliates. Provided, however, that the SUB-ADVISER's
responsibility for indemnification pursuant to this paragraph shall not, for any
Covered Fund, exceed the lesser of $1,000,000 or 2% of the Covered Fund's net
assets (measured as of the end of the first calendar quarter during which
non-compliance occurred) for any failure to comply with the diversification
requirements specified in section 817(h) or the qualification of Subchapter M of
the Code.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
--------------------------------------
Name:
Title:
ATTEST:
- --------------------------
NEUBERGER&BERMAN MANAGEMENT, INC.
By:
--------------------------------------
Name:
Title:
ATTEST:
- --------------------------
6
<PAGE> 7
SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
Covered Fund Fee
- ------------ ---
American General Mid Cap Value Fund 0.50% of the first $100 million
0.475% of the next $150 million
0.45% of the next $250 million
0.425% of the next $250 million
0.40% on the excess over $750 million
7
<PAGE> 1
EXHIBIT 5(b)(8)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and
FIDUCIARY MANAGEMENT ASSOCIATES, INC., hereinafter referred to as the "SUB-
ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers
Act").
(b) VALIC is engaged as the investment adviser of American
General Small Cap Value Fund pursuant to an Investment Advisory
Agreement dated October 7, 1998 between VALIC and American General
Series Portfolio Company 2 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of
1940, as amended ("1940 Act"). The 1940 Act prohibits any person from
acting as an investment adviser of a registered investment company
except pursuant to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small
Cap Value Fund, American General Small Cap Growth Fund, American
General Socially Responsible Fund, American General Money Market Fund,
American General Domestic Bond Fund, American General S&P 500 Index
Fund, American General Mid Cap Index Fund, American General Small Cap
Index Fund, American General Balanced Fund, American General
Conservative Growth Lifestyle Fund, American General Moderate Growth
Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, American
General High Yield Bond Fund, American General Municipal Bond Fund and
American General Municipal Money Market Fund. In accordance with the
FUND's Agreement and Declaration of Trust (the "Declaration"), new
Funds may be added to the FUND upon approval of the FUND's Board of
Trustees without approval of the FUND's shareholders. This Agreement
will apply only to the Fund(s) set forth on the attached Schedule A,
and any other Funds as may be added or deleted by amendment to the
attached Schedule A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign
to the SUB- ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"),
1
<PAGE> 2
the FUND's Declaration, Bylaws, registration statements, prospectus and stated
investment objectives, policies and restrictions and any applicable procedures
adopted by the FUND's Board of Trustees shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB- ADVISER, subject to applicable
law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the
FUND promptly upon their request all of the Covered Funds' investment records
and ledgers to assist VALIC and the FUND in compliance with respect to each
Covered Fund's securities transactions as required by the 1940 Act and the
Advisers Act, as well as other applicable laws. The SUB-ADVISER will furnish
the FUND's Board of Trustees such periodic and special reports as VALIC and the
FUND's Board of Trustees may reasonably request. The SUB-ADVISER will furnish
to regulatory authorities any information or reports in connection with such
services which may be requested in order to ascertain whether the operations of
the Covered Funds are being conducted in a manner consistent with applicable
laws and regulations. The SUB-ADVISER will not disclose or use any records or
information obtained pursuant to this Agreement in any manner whatsoever except
as expressly authorized in this Agreement, and will keep confidential any
information obtained pursuant to this service relationship, and disclose such
information only if VALIC or the Board of Trustees of the FUND has authorized
such disclosure, or if such information is or hereafter becomes ascertainable
from public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB-ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND.
The SUB-ADVISER will arrange for the transmission to the Custodian for the
FUND, on a daily basis, such confirmation, trade tickets and other documents as
may be necessary to enable it to perform its administrative responsibilities
with respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
2
<PAGE> 3
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in
furtherance of the SUB-ADVISER's duties and responsibilities as set forth in
this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities
hereunder and VALIC shall pay, or arrange for others to pay, all VALIC's
expenses, except that VALIC shall in all events pay the compensation described
in Section 2 of this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB- ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the
manner provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the
SUB-ADVISER under this Agreement shall be the sole responsibility of VALIC and
shall not be the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which
does not impair the services which the SUB-ADVISER renders to the Covered
Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
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<PAGE> 4
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv)
has the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and if it has not
already done so, will provide VALIC and the FUND with a copy of such code of
ethics together with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of
its Form ADV as most recently filed with the SEC and will promptly after filing
any amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the authority to
enter into and perform the services contemplated by this Agreement, and (v)
will immediately notify the SUB-ADVISER of the occurrence of any event that
would disqualify VALIC from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least
60 days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
4
<PAGE> 5
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC
shall furnish or otherwise make available to the SUB-ADVISER such other
information relating to the business affairs of VALIC and the FUND as the
SUB-ADVISER at any time, or from time to time, may reasonably request in order
to discharge obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement,
or (ii) as the result of any untrue statement of a material fact or any
omission to state a material fact required to be stated or necessary to make
the statements, in light of the circumstances under which they were made, not
misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the FUND,
except insofar as any such statement or omission was made in reliance on
information provided by the SUB- ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub-Advisory
Agreement, including a negligent failure whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified in
section 817(h), and the qualification standards of Subchapter M of the Code, as
amended, and the regulations thereunder, (other than a failure which is
subsequently timely corrected by the SUB- ADVISER in accordance with applicable
law and regulations such that no loss is incurred by VALIC or a Covered Fund)
or (ii) as the result of any untrue statement of a material fact or any
omission to state a material fact required to be stated or necessary to make
the statements, in light of the circumstances under which they were made, not
misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to
5
<PAGE> 6
the FUND to the extent any such statement or omission was made in reliance on
information provided by the SUB-ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations,
including definitions therein and such exemptions as may be granted to VALIC or
the SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that
the applicable law of the State of Texas, or any of the provisions herein,
conflict with applicable provisions of the federal securities laws, the latter
shall control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
---------------------------------------
Name:
Title:
ATTEST:
- -------------------
FIDUCIARY MANAGEMENT ASSOCIATES, INC.
By:
---------------------------------------
Name:
Title:
ATTEST:
- -------------------
6
<PAGE> 7
SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Small Cap Value Fund 0.50% of the first $50 million
0.40% on the excess over $50 million
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(9)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P., hereinafter referred to as the
"SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers
Act").
(b) VALIC is engaged as the investment adviser of American
General Core Bond Fund, American General Strategic Bond Fund, American
General High Yield Bond Fund, American General Municipal Bond Fund and
American General Municipal Money Market Fund pursuant to an Investment
Advisory Agreement dated October 7, 1998 between VALIC and American
General Series Portfolio Company 2 ("FUND"), an investment company
organized under the laws of Delaware as a business trust, as a series
type of investment company issuing separate classes (or series) of
shares of beneficial interest and is registered as a diversified,
open-end, management investment company under the Investment Company
Act of 1940, as amended ("1940 Act"). The 1940 Act prohibits any
person from acting as an investment adviser of a registered investment
company except pursuant to a written contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small
Cap Value Fund, American General Small Cap Growth Fund, American
General Socially Responsible Fund, American General Money Market Fund,
American General Domestic Bond Fund, American General S&P 500 Index
Fund, American General Mid Cap Index Fund, American General Small Cap
Index Fund, American General Balanced Fund, American General
Conservative Growth Lifestyle Fund, American General Moderate Growth
Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, American
General High Yield Bond Fund, American General Municipal Bond Fund and
American General Municipal Money Market Fund. In accordance with the
FUND's Agreement and Declaration of Trust (the "Declaration"), new
Funds may be added to the FUND upon approval of the FUND's Board of
Trustees without approval of the FUND's shareholders. This Agreement
will apply only to the Fund(s) set forth on the attached Schedule A,
and any other Funds as may be added or deleted by amendment to the
attached Schedule A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign
to the SUB- ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in material conformity with the 1940
Act, all applicable laws and regulations thereunder, all other
1
<PAGE> 2
applicable federal and state securities and tax laws and regulations, including
section 817(h) and Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), the FUND's Declaration, Bylaws, registration statements,
prospectus and stated investment objectives, policies and restrictions and any
applicable procedures adopted by the FUND's Board of Trustees and provided to
the SUB-ADVISER shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB- ADVISER, subject to applicable
law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the best
execution of portfolio transactions. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services to the SUB-ADVISER. The SUB-ADVISER shall not be deemed to
have acted unlawfully, or to have breached any duty created by this Agreement,
or otherwise, solely by reason of acting in accordance with such
authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of its
services under this Agreement. The SUB-ADVISER will make available to VALIC
and the FUND promptly upon their reasonable written request all of the Covered
Funds' investment records and ledgers to assist VALIC and the FUND in
compliance with respect to each Covered Fund's securities transactions as
required by the 1940 Act and the Advisers Act, as well as other applicable
laws. The SUB-ADVISER will furnish the FUND's Board of Trustees such periodic
and special reports as VALIC and the FUND's Board of Trustees may reasonably
request. The SUB-ADVISER will furnish to regulatory authorities any
information or reports in connection with such services which may be requested
in order to ascertain whether the operations of the Covered Funds are being
conducted in a manner consistent with applicable laws and regulations. The
SUB-ADVISER will not disclose or use any records or information obtained
pursuant to this Agreement in any manner whatsoever except as expressly
authorized in this Agreement, and will keep confidential any non-public
information obtained directly as a result of this service relationship, and the
SUB-ADVISER shall disclose such non-public information only if VALIC or the
Board of Trustees of the FUND has authorized such disclosure, or if such
information is or hereafter otherwise is known by the SUB-ADVISER or has been
disclosed, directly or indirectly, by VALIC or the Fund to others becomes
ascertainable from public or published information or trade sources, or if such
disclosure is expressly required or requested by applicable federal or state
regulatory authorities, or to the extent such disclosure is reasonably required
by auditors or attorneys of the SUB-ADVISER in connection with the performance
of their professional services. Notwithstanding the foregoing, the SUB-ADVISER
may disclose the total return earned by the Covered Funds and may include such
total return in the calculation of composite performance information without
prior approval by VALIC or the Board of Trustees of the FUND.
Should VALIC at any time make any definite determination as to any
investment policy and notify the SUB-ADVISER in writing of such determination,
the SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked, provided such determination will permit SUB-ADVISER to comply
with the first paragraph of this Section.
2
<PAGE> 3
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND.
The SUB-ADVISER will arrange for the transmission to the Custodian for the
FUND, on a daily basis, such confirmation, trade tickets and other documents as
may be necessary to enable it to perform its administrative responsibilities
with respect to the Covered Funds. The SUB-ADVISER further shall have the
authority to instruct the custodian of the FUND (i) to pay cash for securities
and other property delivered to the Custodian for the FUND (ii) to deliver
securities and other property against payment for the FUND, and (iii) to
transfer assets and funds to such brokerage accounts as the SUB-ADVISER may
designate, all consistent with the powers, authorities and limitations set
forth herein. The SUB-ADVISER shall not have the authority to cause the
Custodian to deliver securities and other property except as expressly provided
for in this Agreement.
The SUB-ADVISER may aggregate sales and purchase orders of securities
held by the FUND with similar orders being made simultaneously for other
accounts managed by the SUB-ADVISER or with accounts of the affiliates of the
SUB- ADVISER, if in the SUB-ADVISER's reasonable judgment such aggregation
shall result in an overall economic benefit to the FUND considering the
advantageous selling or purchase price, brokerage commission and other
expenses. In accounting for such aggregated order price, commission and other
expenses shall be averaged on a per bond or share basis daily. VALIC
acknowledges that the determination of such economic benefit to the FUND by the
SUB-ADVISER is subjective and represents the SUB-ADVISER's evaluation that the
FUND is benefited by relatively better purchase or sales prices, lower
commission expenses and beneficial timing of transactions or a combination of
these and other factors.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act or represent VALIC or the Fund other than in furtherance of
the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities
hereunder and VALIC shall pay, or arrange for others to pay, all VALIC's
expenses, except that VALIC shall in all events pay the compensation described
in Section 2 of the Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB- ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the
manner provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than ten
(10) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the
SUB-ADVISER under this Agreement shall be the sole responsibility of VALIC and
shall not be the responsibility of the FUND.
3
<PAGE> 4
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
VALIC understands that the SUB-ADVISER and its affiliates now act,
will continue to act and may act in the future as investment adviser to
fiduciary and other managed accounts and as investment adviser to other
investment companies, and VALIC has no objection to the SUB-ADVISER so acting,
provided that whenever a Covered Fund and one or more other accounts or
investment companies advised by the SUB-ADVISER have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a methodology believed to be equitable to each entity. The
SUB-ADVISER similarly agrees to allocate opportunities to sell securities.
VALIC recognizes that, in some cases, this procedure may limit the size of the
position that may be acquired or sold for a Covered Fund. In addition, VALIC
understands that the persons employed by the SUB-ADVISER to assist in the
performance of the SUB-ADVISER's duties hereunder will not devote their full
time to such service and nothing contained herein shall be deemed to limit or
restrict the right of the SUB-ADVISER or any affiliate of the SUB-ADVISER to
engage in and devote time and attention to other business or to render services
of whatever kind or nature.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER in
performing its duties under this Agreement.
VALIC shall perform quarterly and annual tax compliance tests and
promptly furnish reports of such tests to the SUB-ADVISER after each quarter
end to ensure that the Fund is in compliance with Subchapter M of the Code and
Section 817(h) of the Code. VALIC shall apprise the SUB-ADVISER promptly after
each quarter end of any potential non-compliance with the diversification
requirements in such Code provisions. If so advised, the SUB-ADVISER shall take
prompt action so that the Fund(s) comply with such Code diversification
provisions, as directed by VALIC.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv)
has the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and if it has not
already done so, will provide VALIC and the FUND with a copy of such code of
ethics together with evidence of its adoption.
4
<PAGE> 5
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of
its Form ADV as most recently filed with the SEC and will promptly after filing
any amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the authority to
enter into and perform the services contemplated by this Agreement, and (v)
will immediately notify the SUB-ADVISER of the occurrence of any event that
would disqualify VALIC from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (I) on at least
60 days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fit to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in
accordance with the 1940 Act and rules thereunder. The SUB-ADVISER further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the 1940 Act.
5
<PAGE> 6
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective. Until VALIC
delivers any amendments or supplements to the SUB-ADVISER, the SUB-ADVISER
shall be fully protected in relying on the documents previously furnished to
it.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC
shall furnish or otherwise make available to the SUB-ADVISER such other
information relating to the business affairs of VALIC and the FUND as the
SUB-ADVISER at any time, or from time to time, may reasonably request in order
to discharge obligations hereunder. Subject to provisions of this paragraph,
SUB-ADVISER grants VALIC and the FUND a non-exclusive right to use the
"American General Investment Management" name in connection with the
SUB-ADVISER's management of the FUND (i) for so long as the this Agreement, any
other investment management agreement between VALIC and SUB-ADVISER with
respect to the FUND, or to any extension, renewal or amendment thereof, remain
in effect, and (ii) for subsequent periods as long as required by law, rule or
regulation or to the extent necessary to refer to or illustrate the historical
performance of the FUND.
VALIC agrees to indemnify the SUB-ADVISER for losses, costs, fees,
expenses and claims which arise directly or indirectly (i) as a result of a
failure by VALIC to provide the services or furnish materials required under
the terms of this Investment Sub-Advisory Agreement, or (ii) as the result of
any untrue statement of a material fact or any omission to state a material
fact required to be stated or necessary to make the statements, in light of the
circumstances under which they were made, not misleading in any registration
statements, proxy materials, reports, advertisements, sales literature, or
other materials pertaining to the FUND, except insofar as any such statement or
omission was specifically made in reliance on written information provided by
the SUB-ADVISER to VALIC.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub-Advisory
Agreement, or (ii) as the result of any untrue statement of a material fact or
any omission to state a material fact required to be stated or necessary to
make the statements, in light of the circumstances under which they were made,
not misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the FUND,
but only to the extent that such statement or omission was specifically made in
reliance on written information provided by the SUB-ADVISER to VALIC. Provided,
however, that the SUB-ADVISER's responsibility, if any, to provide VALIC with
indemnification pursuant to this paragraph or any other provision of this
Agreement for any failure on the SUB-ADVISER's part to comply with the
diversification requirements specified in Section 817(h) of the Code or the
qualification standards of Subchapter M of the Code shall not for any Covered
Fund exceed the lesser of $1 million or 2% of the Covered Fund's net assets
(measured as of the end of the first calendar quarter during which
non-compliance with Section 817(h) or Subchapter M of the Code first occurred).
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
6
<PAGE> 7
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations,
including definitions therein and such exemptions as may be granted to VALIC or
the SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that
the applicable law of the State of Texas, or any of the provisions herein,
conflict with applicable provisions of the federal securities laws, the latter
shall control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
---------------------------
Name:
Title:
ATTEST:
- -----------------------
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P.
By:
---------------------------
Name:
Title:
ATTEST:
- -----------------------
7
<PAGE> 8
SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
Covered Fund Fee
------------ ---
American General Core Bond Fund 0.25% on first $200 million
0.20% on next $300 million
0.15% over $500 million
American General Strategic Bond Fund 0.35% on first $200 million
0.25% on next $300 million
0.20% over $500 million
American General High Yield Bond Fund 0.45% on first $200 million
0.35% on next $300 million
0.30% over $500 million
American General Municipal Bond Fund 0.25% on first $200 million
0.20% on first $300 million
0.15% on first $500 million
American General Municipal Money Market Fund 0.25% on first $200 million
0.20% on first $300 million
0.15% on first $500 million
8
<PAGE> 1
EXHIBIT 5(b)(10)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 7th day of October, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and BANKERS
TRUST COMPANY, hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General S&P 500 Index Fund, American General Mid Cap Index Fund,
American General Small Cap Index Fund and American General Small Cap
Value Fund pursuant to an Investment Advisory Agreement dated
October 7, 1998 between VALIC and American General Series Portfolio
Company 2 ("FUND"), an investment company organized under the laws of
Delaware as a business trust, as a series type of investment company
issuing separate classes (or series) of shares of beneficial interest
and is registered as a diversified, open-end, management investment
company under the Investment Company Act of 1940, as amended ("1940
Act"). The 1940 Act prohibits any person from acting as an investment
adviser of a registered investment company except pursuant to a written
contract.
(c) The FUND currently consists of twenty-three portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General S&P 500 Index Fund,
American General Mid Cap Index Fund, American General Small Cap Index
Fund, American General Balanced Fund, American General Conservative
Growth Lifestyle Fund, American General Moderate Growth Lifestyle Fund,
American General Growth Lifestyle Fund, American General Core Bond
Fund, American General Strategic Bond Fund, American General High Yield
Bond Fund, American General Municipal Bond Fund and American General
Municipal Money Market Fund. In accordance with the FUND's Agreement
and Declaration of Trust (the "Declaration"), new Funds may be added to
the FUND upon approval of the FUND's Board of Trustees without approval
of the FUND's shareholders. This Agreement will apply only to the
Fund(s) set forth on the attached Schedule A, and any other Funds as
may be added or deleted by amendment to the attached Schedule A
("Covered Funds").
(d) The SUB-ADVISER is engaged in the business of rendering
investment advisory services and is a "bank" as defined under the
Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"),
1
<PAGE> 2
the FUND's Declaration, Bylaws, registration statements, prospectus and stated
investment objectives, policies and restrictions and any applicable procedures
adopted by the FUND's Board of Trustees shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in compliance with respect to each Covered
Fund's securities transactions as required by the 1940 Act and the Advisers Act,
as well as other applicable laws. The SUB-ADVISER will furnish the FUND's Board
of Trustees such periodic and special reports as VALIC and the FUND's Board of
Trustees may reasonably request. The SUB-ADVISER will furnish to regulatory
authorities any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Covered
Funds are being conducted in a manner consistent with applicable laws and
regulations. The SUB-ADVISER will not disclose or use any records or information
obtained pursuant to this Agreement in any manner whatsoever except as expressly
authorized in this Agreement, and will keep confidential any information
obtained pursuant to this service relationship, and disclose such information
only if VALIC or the Board of Trustees of the FUND has authorized such
disclosure, or if such information is or hereafter becomes ascertainable from
public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities or to
the extent such disclosure is reasonably required by auditors or attorneys of
the SUB-ADVISER in connection with the performance of their professional
services.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB- ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for the FUND, on
a daily basis, such information with respect to transactions as may be necessary
to enable it to perform its administrative responsibilities with respect to the
Covered Funds.
2
<PAGE> 3
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB- ADVISER.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
3
<PAGE> 4
(a) The SUB-ADVISER (i) is a "bank" as defined under the Advisers Act
and will continue to be so registered for so long as this Agreement remains in
effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify VALIC of the occurrence of any event that would disqualify
the SUB-ADVISER from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the
4
<PAGE> 5
1940 Act. The compensation of any such persons will be paid by the SUB-ADVISER,
and no obligation will be incurred by, or on behalf of, VALIC or the FUND with
respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND, except insofar as any
such statement or omission was made in reliance on information provided by the
the SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by the SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub- Advisory
Agreement, including a negligent failure whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified in
section 817(h), and the qualification standards of Subchapter M of the Code, as
amended, and the regulations thereunder, (other than a failure which is
subsequently timely corrected by the SUB- ADVISER in accordance with applicable
law and regulations such that no loss is incurred by VALIC or a Covered Fund) or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND to the extent any such
statement or omission was made in reliance on information provided by the SUB-
ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
5
<PAGE> 6
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-----------------------------------------
Name:
Title:
ATTEST:
- -----------------------
BANKERS TRUST COMPANY
By:
-----------------------------------------
Name:
Title:
ATTEST:
- -----------------------
6
<PAGE> 7
SCHEDULE A
(Effective October 7, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General S & P 500 0.02% of the first $2 billion
Index Fund 0.01% on the excess over $2 billion
No minimum annual fee
American General Mid Cap 0.03% of the first $300 million
Index Fund 0.02% on the excess over $300 million
No minimum annual fee
American General Small Cap 0.03% of the first $150 million
Index Fund 0.02% on the excess over $150 million
No minimum annual fee
American General Small Cap 0.03%
Value Fund
</TABLE>
7
<PAGE> 8
SCHEDULE B
(Effective October 7, 1998)
Pursuant to Section 6, the following person has been given signature authority
to sign on behalf of VALIC:
x
---------------------
The person holding the office indicated above, whose signature appears above, is
authorized to sign pursuant to Section 6.
Accepted:
VALIC BANKERS TRUST COMPANY
By: By:
------------------------------ ----------------------
8
<PAGE> 1
EXHIBIT 6
DISTRIBUTION AND SERVICE AGREEMENT
BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
AND
VALIC INVESTMENT SERVICES COMPANY
THIS AGREEMENT made this 7th day of October, 1998 by and between
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2, a Delaware business trust,
hereafter referred to as the "Fund" and VALIC INVESTMENT SERVICES COMPANY, a
Texas corporation hereafter referred to as the "Distributor."
THE FUND AND THE DISTRIBUTOR RECOGNIZE THE FOLLOWING:
1. The Fund is registered as a diversified, open-end management
investment company under the Investment Company Act of 1940 (the "1940
Act"). The Fund consists of a number of investment portfolios, as may
now exist and may hereinafter be established (each, a "Portfolio"), as
set forth on Schedule A hereto. In addition, each Portfolio issues
several classes of shares, as may now exist and may hereinafter be
established (each, a "Class") as set forth on Schedule B hereto. The
Fund intends to continuously offer Classes of the Portfolio's shares
for sale to the public. Under certain circumstances, applicable sales
charges with respect to a Class may be reduced or waived on the terms
set forth in the Fund's then current registration statement or related
prospectus. The Fund may suspend sales of the shares of any one or
more Portfolios or Classes at any time, and may resume sales of any
such Portfolio(s) or Class(es) at a later date.
2. The Distributor is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is currently a member of the National
Association of Securities Dealers, Inc. (the "NASD").
THE FUND AND THE DISTRIBUTOR AGREE AS FOLLOWS:
1. The Fund hereby appoints the Distributor as principal underwriter and
distributor to sell to the public the Classes of the Portfolios'
shares (hereinafter "its shares" or "the Fund's shares"). The
appointment of the Distributor hereunder shall not preclude the Fund
from selling its shares directly to the public.
(a) The Distributor, subject to applicable federal and state law
and the Fund's Agreement and Declaration of Trust and Bylaws,
shall: (i) provide services to the Fund primarily intended to
result in sale of its shares; (ii) solicit orders for the
purchase of its shares subject to such terms and conditions as
the Fund may specify; and (iii) accept orders for the purchase
of its shares on behalf of the Fund (collectively,
"Distribution Services").
1
<PAGE> 2
(b) The Distributor shall provide ongoing shareholder liaison
services, including responding to shareholder inquiries,
providing shareholders with information on their investments
and any other services now or hereafter deemed to be
appropriate subjects for the payment of "service fees" under
Rule 2830 of the Conduct Rules of the NASD (collectively,
"Shareholder Services").
2. The Distributor accepts such appointment. The Distributor shall offer
the Fund's shares only on the terms set forth in the Fund's then
current registration statement or related prospectus.
3. The Distributor may enter into agreements with registered and
qualified securities dealers and financial intermediaries it may
select for the performance of Distribution Services, Shareholder
Services, record keeping and sub-accounting services, the form of such
agreements to be as mutually agreed upon and approved by the Fund and
the Distributor. In making such arrangements, the Distributor shall
act only as principal and not as agent for the Fund. No such dealer,
financial intermediary or other entity is authorized to act as agent
for the Fund in connection with the offering or sale of its shares or
otherwise.
4. As compensation for providing the Distribution Services and/or
Shareholder Services under this Agreement with respect to all Classes
of the Fund's shares, other than the Class(es) of the Fund's shares
set forth on Schedule C hereto, the Distributor shall receive from the
Fund a distribution fee and/or a service fee at the rates and under
the terms and conditions of the Distribution and Service Plan (the
"Plan") adopted by the Fund, as such Plan is in effect from time to
time, and subject to any further limitations on such fees as the
Fund's Board of Trustees may impose. The Distributor may reallow any
or all of the distribution fee and/or service fee that is has received
under this Agreement to such dealers or other qualified entities as it
may from time to time determine.
With respect to the Class(es) of the Fund's shares that are not
subject to the Plan, set forth on Schedule C hereto, the Distributor
will receive no compensation and, will assume and pay from its own
resources, all expenses related to the provision of Distribution and
Shareholder Services.
5. Allocation of Expenses.
(a) The Fund will pay (or will enter into arrangements providing
that persons other than the Fund will pay) for all expenses of
the offering of its shares incurred in connection with:
(1) The registration of the Fund or the registration or
qualification of the Fund's shares for offer or sale
under the federal securities laws and the securities
laws of any state or other jurisdiction in which the
Distributor may arrange for the sale of the Fund's
shares; and
2
<PAGE> 3
(2) The printing and distribution of the Fund's
prospectuses to existing shareholders as may be
required under the federal securities laws and the
applicable securities laws of any state or other
jurisdiction; and
(3) The preparation, printing and distribution of any
proxy statements, notices and reports, and the
performance of any acts required to be performed by
the Fund by and under the federal securities laws and
the applicable securities laws of any state or other
jurisdiction; and
(4) The issuance of the Fund's shares, including any
share issue and transfer taxes.
(b) The Distributor will pay from its own resources (or will enter
into arrangements providing that persons other than the
Distributor or the Fund shall pay), or promptly reimburse the
Fund, for all expenses in connection with:
(1) The printing and distribution of the Fund's
prospectuses utilized in connection with the
provision of Distribution Services;
(2) The preparation, printing and distribution of
advertising and sales literature for use in the
offering of the Fund's shares and printing and
distribution of reports to shareholders used as sales
literature;
(3) The qualification of the Distributor as a distributor
or broker or dealer under any applicable federal or
state securities laws;
(4) Any investment program of the Fund, including the
reinvestment of dividends and capital gains
distributions, to the extent such expenses exceed the
Fund's normal costs of issuing its shares; and
(5) All other expenses in connection with the provision
of Shareholder Services and Distribution Services
which have not been herein specifically allocated to
the Fund.
6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to
effect sales of the Fund's shares, but it shall not be
obligated to sell any specific number of shares.
3
<PAGE> 4
(b) The Distributor shall use its best efforts in all respects
duly to conform with the requirements of all federal and state
laws and regulations and the regulations of the NASD, in
providing Distribution Services and Shareholder Services.
Neither the Distributor nor any other person is authorized by
the Fund to give any information or to make any
representations, other than those contained in the Fund's then
current registration statement or related prospectus and any
sales literature authorized by responsible officers of the
Distributor.
(c) The Distributor shall act as an independent contractor and
nothing herein contained shall constitute the Distributor, its
agents or representatives, or any employees thereof as
employees of the Fund in connection with the sale of the
Fund's shares.
The Distributor is responsible for its own conduct and the
employment, control and conduct of its agents and employees
and for injury to such agents or employees or to others
through its agents or employees. The Distributor assumes full
responsibility for its agents and employees under applicable
statutes and agrees to pay all employer taxes thereunder.
7. Sale and Redemption of the Fund's Shares
(a) Orders for the purchase and redemption of the Fund's shares
(and payment for the Fund's shares, in the case of a purchase)
shall be transmitted directly from the Purchaser to the Fund
or its agent.
(b) The Fund shall have the right to suspend the redemption of the
Fund's shares pursuant to the conditions set forth in the
Fund's then current registration statement or related
prospectus. The Fund shall also have the right to suspend the
sale of the Fund's shares at any time.
(c) The Fund will give the Distributor prompt notice of any such
suspension and shall promptly furnish such other information
in connection with the sale and redemption of the Fund's
shares as the Distributor reasonably requests.
(d) The Fund (or its agent) will make appropriate book entries
upon receipt by the Fund (or its agent) of orders and payments
for the Fund's shares or requests for redemption thereof, and
will issue and redeem the Fund's shares and confirm such
transactions in accordance with applicable laws and
regulations.
8. Indemnification.
The Distributor agrees to indemnify, defend and hold the Fund, its
officers and trustees (or former officers and trustees) and any person
who controls the Fund within the meaning of Section 15 of the
Securities Act of 1933 (the "1933 Act"), (collectively, "Indemnities")
free
4
<PAGE> 5
and harmless from and against any and all claims, demands, liabilities
and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in
connection therewith) incurred by any Indemnitee under the 1933 Act or
under common law or otherwise, which arise out of or are based upon
(1) any untrue or alleged untrue statement of a material fact or
omission or alleged omission of a material fact in information
furnished by the Distributor to the Fund's registration statement or
related prospectus, (2) any misrepresentation or omission or alleged
misrepresentation or omission to state a material fact on the part of
the Distributor or any agent or employee of the Distributor or any
other person for whose acts the Distributor is responsible or is
alleged to be responsible, unless such misrepresentation or omission
or alleged misrepresentation or omission was made in reliance on
written information furnished by the Fund, or (3) the willful
misconduct or failure to exercise reasonable care and diligence on the
part of any such persons with respect to services rendered under this
Agreement. The foregoing rights of indemnification shall be in
addition to any other rights to which any Indemnitee may be entitled
as a matter of law. The Fund agrees promptly to notify the
Distributor of any action brought against any Indemnitee, such
notification being given to the Distributor by letter or telegram
addressed to the Distributor at its principal business office and the
Distributor's agreement to indemnify the Indemnities pursuant to this
paragraph is expressly conditioned upon such notification.
The Fund agrees to indemnify, defend and hold the Distributor, its
officers and trustees (or former officers and trustees) and any person
who controls the Distributor within the meaning of Section 15 of the
1933 Act, (collectively, "Indemnities") free and harmless from and
against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
incurred by any Indemnitee under the 1933 Act or under common law or
otherwise, arising out of or based upon any alleged untrue statement
of a material fact contained in the Fund's registration statement or
related prospectus or arising out of or based upon any alleged
omission to state a material fact required to be stated or necessary
to make the Fund's registration statement or related prospectus not
misleading, provided that in no event shall anything contained in this
Agreement be construed so as to protect the Distributor against any
liability to the Fund or its shareholders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by
reason of its reckless disregard of its obligations and duties under
this Agreement, and further provided that the Fund shall not indemnify
the Distributor for any claims, demands, liabilities and expenses
arising out of or based upon any alleged untrue statement of a
material fact or omission to state a material fact in information
furnished by the Distributor to the Fund's registration statement or
related prospectus.
9. This Agreement is effective as of October 7, 1998 and unless sooner
terminated as provided herein, shall continue in effect for two years
from said date. Thereafter this Agreement shall continue in effect
from year- to-year, provided, that such continuance of effectiveness
is specifically approved at least annually (a)(i) by the Board of
Trustees of the Fund, or (ii) by
5
<PAGE> 6
vote of a majority of the Fund's outstanding voting securities (as
defined in Section 2(a)(42) of the 1940 Act), and (b) by the
affirmative vote of a majority of the Trustees who are not interested
persons (as defined in Section 2(a)(19) of the 1940 Act) of the Fund
by votes cast in person at a meeting called for such purpose.
10. (a) This Agreement may be terminated at any time, without penalty,
by a vote of the Board of Trustees of the Fund or by a vote of
a majority of the outstanding voting securities of the Fund,
or by the Distributor, on sixty (60) days' written notice to
the other party.
(b) This Agreement shall automatically terminate in the event of
its assignment, as defined in Section 2(a)(4) of the 1940 Act.
11. Notwithstanding anything to the contrary contained in this Agreement,
the Fund acknowledges and agrees that, as provided by Section 8.1 of
the Fund's Agreement and Declaration of Trust, this Agreement is
executed on behalf of the Fund or the Trustees of the Fund as Trustees
and not individually and that the obligations of this Agreement are
not binding upon any of the Trustees, Officers or shareholders
individually, but are binding only upon the assets and property of the
Fund. A Certificate of Trust in respect of the Fund is on file with
the Secretary of the State of Delaware
12. Each party shall mail (postage paid) or deliver, in writing, all
notices to the other party, at an address designated for this purpose
by the other party. Until changed, this address for both parties is:
2929 Allen Parkway, Houston, Texas 77019.
13. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED BY, THE LAWS OF THE
STATE OF TEXAS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto execute this Agreement on the date
above.
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
on behalf of the Portfolios:
By:
--------------------------------
Name:
----------------------
Title:
---------------------
ATTEST:
- -----------------------------
Name:
------------------------
Title:
-----------------------
VALIC INVESTMENT SERVICES COMPANY
By:
--------------------------------
Name:
----------------------
Title:
---------------------
ATTEST:
- -----------------------------
Name:
------------------------
Title:
-----------------------
7
<PAGE> 8
SCHEDULE A
American General Series Portfolio Company 2 Portfolios
American General Balanced Fund American General Moderate Growth
American General Conservative Growth Lifestyle Fund
Lifestyle Fund American General Money Market Fund
American General Domestic Bond Fund American General Municipal Bond Fund
American General Growth Lifestyle Fund American General Municipal Money
American General High Yield Market Fund
Bond Fund American General S&P 500 Index
American General International Fund
Growth Fund American General Small Cap Growth
American General International Value Fund Fund
American General Large Cap Growth Fund American General Small Cap Index
American General Large Cap Value Fund
Fund American General Small Cap Value
American General Mid Cap Index Fund
Fund American General Socially
American General Mid Cap Growth Responsible Fund
Fund American General Strategic Bond Fund
American General Mid Cap Value Fund American General Core Bond Fund
8
<PAGE> 9
SCHEDULE B
American General Series Portfolio Company 2 Classes of Shares
Class A Shares: Class A shares are sold at net asset value plus an
initial sales charge.
Class B Shares: Class B shares are sold at net asset value, and are
subject to a contingent deferred sales charge upon redemption within a
specified period.
Institutional Class I Shares: Institutional Class I shares are sold at
net asset value to employer retirement plans.
Institutional Class II Shares: Institutional Class II shares are sold
at net asset value to employer retirement plans.
9
<PAGE> 10
SCHEDULE C
American General Series Portfolio Company 2
Classes Not Subject to Distribution and Service Plan
Institutional Class I Shares
Institutional Class II Shares
10
<PAGE> 1
EXHIBIT 8(a)
CUSTODIAN CONTRACT
This Contract between AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2, a
business trust organized and existing under the laws of Delaware, having its
principal place of business at 2929 Allen Parkway, Houston, Texas 77019,
hereinafter called the "Fund," and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110, hereinafter called the
"Custodian."
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund intends to initially offer shares in twenty-three
(23) series listed on Exhibit A hereto (such series together with all other
series subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 19, being herein referred to as the "Portfolio(s)")
and desires to retain the Custodian to perform certain services therefor;
WHEREAS, each series of each Fund may offer classes of shares as
reflected in their Certificates of Designation; and
WHEREAS, certain Portfolios (hereinafter sometimes referred to as the
"Lifestyle Portfolio(s)") may invest in uncertificated shares of certain other
Portfolios or uncertificated shares of any registered investment company, or
series thereof, which is part of the same "group of investment companies" (as
defined in Section 12 of the Investment Company Act of 1940, as amended (the
"1940 Act")) (hereinafter sometimes referred to as the "Underlying Portfolios").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Agreement and
Declaration of Trust (the "Declaration of Trust"). The Fund on behalf of the
Portfolio(s) agrees to deliver to the Custodian all securities and cash of the
Portfolios, and all payments of income, payments of principal or capital
distributions received by it with respect to all securities owned by the
Portfolio(s) from time to time, and the cash consideration received by it for
such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios, ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Portfolio and not delivered to the Custodian. With
respect to uncertificated shares of the Underlying Portfolios (the "Underlying
Shares") the holding of
<PAGE> 2
confirmation statements that identify the shares as being recorded in the
Custodian's name on behalf of the Lifestyle Portfolios will be deemed custody
for purposes hereof.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury (each, a "U.S. Securities System"); (b) commercial paper of an
issuer for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11; and (c) the Underlying Shares owned by the
Lifestyle Portfolios which are maintained pursuant to Section 2.10A in
an account with State Street Bank and Trust Company or such other
entity which may from time to time act as a transfer agent for the
Underlying Portfolios and with respect to which the Custodian is
provided with Proper Instructions (the "Underlying Transfer Agent").
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
or in an account at the Underlying Transfer Agent, only upon receipt of
Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed appropriate
by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
2.
<PAGE> 3
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
3.
<PAGE> 4
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption;
15) In the case of a sale processed through the Underlying
Transfer Agent for the Underlying Shares, in accordance with
Section 2.10A hereof; and
16) For any other proper corporate purpose, but only upon receipt
of Proper Instructions from the Fund on behalf of the
applicable Portfolio specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian
4.
<PAGE> 5
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund
directs the Custodian to maintain securities in "street name", the
Custodian shall utilize its best efforts only to timely collect income
due the Fund on such securities and to notify the Fund on a best
efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall on behalf of
each applicable Portfolio be approved by vote of a majority of the
Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent and shall credit such income, as collected, to
such Portfolio's custodian account. Without limiting the generality of
the foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to
the provisions of Section 2.2 (10) shall be the responsibility of the
Fund except for securities loaned pursuant to a securities lending
agreement with the Custodian, in which case any income due shall be the
responsibility of the Custodian. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such
5.
<PAGE> 6
information or data as may be necessary to assist the Fund in arranging
for the timely delivery to the Custodian of the income to which the
Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase of
Underlying Shares, in accordance with the conditions set forth
in Section 2.10A hereof; (d) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (e) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio; or (f) for transfer to a time deposit account
of the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
6.
<PAGE> 7
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short; and
7) For any other proper corporate purpose, but only upon receipt
of Proper Instructions from the Fund on behalf of the
Portfolio specifying the amount of such payment, setting forth
the purpose for which such payment is to be made, declaring
such purpose to be a proper corporate purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder. The Underlying Transfer Agent shall not be deemed an agent
or subcustodian of the Custodian for purposes of this Section 2.9 or
any other provision of this Contract.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
U.S. Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian
or otherwise for customers;
7.
<PAGE> 8
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request, the Custodian shall furnish the
Fund on behalf of the Portfolio confirmation of each transfer
to or from the account of the Portfolio in the form of a
written advice or notice and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets
reflecting each day's transactions in the U.S. Securities
System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System; and
5) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.10A Deposit of Fund Assets with the Underlying Transfer Agent. Underlying
Shares shall be deposited and/or maintained in an account or accounts
maintained with the Underlying Transfer Agent. The Underlying Transfer
Agent shall be deemed to be acting as if it is a "depository" for
purposes of Rule 17f-4 under the 1940 Act. The Fund hereby directs the
Custodian to deposit and/or maintain such Underlying Shares with the
Underlying Transfer Agent, subject to the following provisions:
8.
<PAGE> 9
1) The Custodian shall keep Underlying Shares owned by a
Lifestyle Portfolio with the Underlying Transfer Agent
provided that such Underlying Shares are maintained in an
account or accounts on the books and records of the Underlying
Transfer Agent in the name of the Custodian as custodian for
the Portfolio.
2) The records of the Custodian with respect to Underlying Shares
which are maintained with the Underlying Transfer Agent shall
identify by book-entry those Underlying Shares belonging to a
Lifestyle Portfolio;
3) The Custodian shall pay for Underlying Shares purchased for
the account of a Lifestyle Portfolio upon (i) receipt of
advice from the Lifestyle Portfolio's investment adviser that
such Underlying Shares have been purchased and will be
transferred to the account of the Custodian, on behalf of the
Lifestyle Portfolio, on the books and records of the
Underlying Transfer Agent, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Lifestyle Portfolio. The
Custodian shall receive confirmation from the Underlying
Transfer Agent of the purchase of such Underlying Shares and
the transfer of such Underlying Shares to the Custodian's
account with the Underlying Transfer Agent only after such
payment is made. The Custodian shall transfer Underlying
Shares redeemed for the account of a Lifestyle Portfolio (i)
upon receipt of an advice from the Lifestyle Portfolio's
investment adviser that such Underlying Shares have been
redeemed and that payment for such Underlying Shares will be
transferred to the Custodian and (ii) the making of an entry
on the records of the Custodian to reflect such transfer and
payment for the account of the Lifestyle Portfolio. The
Custodian will receive confirmation from the Underlying
Transfer Agent of the redemption of such Underlying Shares and
payment therefor only after such Underlying Shares are
redeemed. Copies of all advices from the Lifestyle Portfolio's
investment adviser of purchases and sales of Underlying Shares
for the account of the Lifestyle Portfolio shall identify the
Lifestyle Portfolio, be maintained for the Lifestyle Portfolio
by the Custodian, and be provided to the investment adviser at
its request; and
4) The Custodian shall be not be liable to the Fund or any
Lifestyle Portfolio for any loss or damage to the Fund or any
Lifestyle Portfolio resulting from maintenance of Underlying
Shares with the Underlying Transfer Agent except for losses
resulting directly from the negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of
its or their employees.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
9.
<PAGE> 10
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the U.S. Securities System for the
account of the Portfolio; and
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper
10.
<PAGE> 11
corporate purposes, but only, in the case of clause (iv), upon receipt
of Proper Instructions from the Fund on behalf of the applicable
Portfolio setting forth the purpose or purposes of such segregated
account and declaring such purposes to be a proper corporate purpose.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Fund on behalf of the Portfolio such
proxies, all proxy soliciting materials and all notices relating to
such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Fund on behalf of the Portfolio. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the
Fund on behalf of the Portfolio all written information received by the
Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange
offer. If the Fund on behalf of the Portfolio desires to take action
with respect to any tender offer, exchange offer or any other similar
transaction, the Fund shall notify the Custodian at least three
business days prior to the date on which the Custodian is to take such
action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Fund's assets.
11.
<PAGE> 12
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a
12.
<PAGE> 13
foreign sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
13.
<PAGE> 14
banking institution, a foreign securities depository or a branch of a
U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Nothwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
14.
<PAGE> 15
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of America
or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax
law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Proper Instructions may include
15.
<PAGE> 16
communications effected directly between electro-mechanical or electronic
devices. For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three-party agreement
which requires a segregated asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund on behalf of
the Portfolio, checks, drafts and other negotiable
instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund on behalf of the Portfolio except as otherwise
directed by the Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
Share of the outstanding Shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per Share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so,
16.
<PAGE> 17
shall advise the Transfer Agent periodically of the division of such net income
among its various components. The Fund acknowledges and agrees that, with
respect to investments maintained with the Underlying Transfer Agent, the
Underlying Transfer Agent is the sole source of information on the number of
shares of an Underlying Portfolio held by it on behalf of a Lifestyle Portfolio
and that the Custodian has the right to rely on holdings information furnished
by the Underlying Transfer Agent to the Custodian in performing its duties under
this Contract, including without limitation, the duties set forth in this
Section 8 and in Section 9 hereof; provided, however, that the Custodian shall
be obligated to reconcile information as to purchases and sales of Underlying
Shares contained in trade instructions and confirmations received by the
Custodian and to report promptly any discrepancies to the Underlying Transfer
Agent. The calculations of the net asset value per Share and the daily income of
each Portfolio shall be made at the time or times described from time to time in
the Fund's currently effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
17.
<PAGE> 18
12. Rights of Inspection
The Custodian shall allow the inspection of the Fund's securities, at
any time as may be requested by the Fund's Independent Public Accountants
pursuant to Rule 17f-2 under the 1940 Act.
13. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as provided in Schedule B, as agreed upon
from time to time between the Fund on behalf of each applicable Portfolio and
the Custodian.
14. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including
non-receipt of bonus,
18.
<PAGE> 19
dividends and rights and other accretions or benefits; (vi) delays or inability
to perform its duties due to any disorder in market infrastructure with respect
to any particular security or Securities System; and (vii) any provision of any
present or future law or regulation or order of the United States of America, or
any state thereof, or any other country, or political subdivision thereof or of
any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
15. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Declaration of Trust, and further provided, that the Fund on behalf of
one or more of the Portfolios may at any time by action of its Board of Trustees
(i) substitute another bank or trust company for the Custodian by giving notice
as described above to the Custodian, or (ii) immediately terminate this Contract
in the event of the appointment of a conservator or receiver for the Custodian
by the Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
19.
<PAGE> 20
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
16. Notices
Except as otherwise provided under this Contract, notices and other
writings shall be delivered or mailed postage prepaid to:
If to the Company: The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
Attention: Gregory R. Seward, Treasurer
If to the Custodian: State Street Bank and Trust Company
Insurance and Bank Services Division
105 Rosemont Road - WES/2S
Westwood, Massachusetts 02090-2318
Attention: Kenneth A. Bergeron, Vice President
or to such other address as the parties may hereafter specify in writing and any
notice or other writing when mailed shall be deemed to have been received on the
fifth business day after it was mailed.
Telephone and facsimile notices shall be sufficient if communicated to
the party entitled to receive such notice at the following numbers:
If to the Company:
Telephone: (713) 831-5301 Facsimile: (713) 831-5380
If to the Custodian:
Telephone: (781) 302-5348 Facsimile: (781) 302-8048
or to such other numbers as the parties may specify by written notice under this
Section and any facsimile notice shall be deemed to have been received on the
date of its transmission provided that if such day is not a business day or it
is received after normal business hours on the day of its transmission, it shall
be deemed to have been received at the opening of business on the first business
day next following the transmission thereof.
17. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities
20.
<PAGE> 21
and other assets of each applicable Portfolio then held by it hereunder and
shall transfer to an account of the successor custodian all of the securities
and other assets of each such Portfolio held in a Securities System or at the
Underlying Transfer Agent.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System or at the Underlying Transfer Agent.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
18. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
19. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to those listed on Exhibit A hereto, with respect to which it desires
to have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in writing
to provide such services, such series of Shares shall become a Portfolio
hereunder.
21.
<PAGE> 22
20. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
21. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
22. Counterparts
This Contract may be executed in several counterparts, each of which
shall be deemed to be an original, and all such counterparts taken together
shall constitute but one and the same Contract.
23. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
24. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
22.
<PAGE> 23
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [X] The Custodian is not authorized to release the Fund's name,
address, and share positions.
25. Miscellaneous Provision
The execution of this Contract has been authorized by the Fund's
Trustees and by the sole shareholder. This Contract is executed on behalf of the
Fund or the Trustees of the Fund as Trustees and not individually and that the
obligations of this Contract are not binding upon any of the Trustees, officers
or shareholders of the Fund individually, but are binding only upon the assets
and property of the Fund. A Certificate of Trust in respect of the Fund is on
file with the Secretary of the State of Delaware.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
23.
<PAGE> 24
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the _______ day of _______________, 1998.
ATTEST AMERICAN GENERAL SERIES PORTFOLIO
COMPANY 2
By:
- ------------------------------- ----------------------------------
Name:
Its:
ATTEST STATE STREET BANK AND TRUST COMPANY
By:
- ------------------------------- ----------------------------------
Name: Mark J. Bowler
Its: Senior Vice President
<PAGE> 25
EXHIBIT A
to
Custodian Contract
by and between
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
and
STATE STREET BANK AND TRUST COMPANY
American General S&P 500 Index Fund
American General Mid Cap Index Fund
American General Small Cap Index Fund
American General International Growth Fund
American General Large Cap Growth Fund
American General Mid Cap Growth Fund
American General Small Cap Growth Fund
American General International Value Fund
American General Large Cap Value Fund
American General Mid Cap Value Fund
American General Small Cap Value Fund
American General Socially Responsible Fund
American General Balanced Fund
American General Domestic Bond Fund
American General Money Market Fund
American General Growth Lifestyle Fund
American General Moderate Growth Lifestyle Fund
American General Conservative Growth Lifestyle Fund
American General Core Bond Fund
American General Strategic Bond Fund
American General High Yield Bond Fund
American General Municipal Bond Fund
American General Municipal Money Market Fund
<PAGE> 1
EXHIBIT 8(b)
SECURITIES LENDING AUTHORIZATION AGREEMENT
Between
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS .......................................................... 1
2. APPOINTMENT OF STATE STREET .......................................... 2
3. SECURITIES TO BE LOANED .............................................. 2
4. BORROWERS ............................................................ 2
5. SECURITIES LOAN AGREEMENTS ........................................... 4
6. LOANS OF AVAILABLE SECURITIES ........................................ 4
7. DISTRIBUTIONS ON AND VOTING RIGHTS WITH RESPECT TO
LOANED SECURITIES ...................................... 5
8. COLLATERAL ........................................................... 6
9. INVESTMENT OF CASH COLLATERAL AND COMPENSATION ....................... 7
10. FEE DISCLOSURE ....................................................... 8
11. RECORDKEEPING AND REPORTS ............................................ 8
12. STANDARD OF CARE ..................................................... 9
13. REPRESENTATIONS AND WARRANTIES ....................................... 10
14. INDEMNIFICATION ...................................................... 11
15. CONTINUING AGREEMENT AND TERMINATION ................................. 12
16. NOTICES .............................................................. 12
17. MISCELLANEOUS ........................................................ 13
18. SECURITIES INVESTORS PROTECTION ACT .................................. 14
19. COUNTERPARTS ......................................................... 14
20. MODIFICATION ......................................................... 14
</TABLE>
<PAGE> 3
EXHIBITS AND SCHEDULES
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT A
SCHEDULE A
SCHEDULE B
SCHEDULE 8.1
<PAGE> 4
SECURITIES LENDING AUTHORIZATION AGREEMENT
Agreement dated the 7th day of October, 1998 between AMERICAN GENERAL
SERIES PORTFOLIO COMPANY 2, a registered management investment company
organized and existing under the laws of ----------- (the "Client"), and STATE
STREET BANK AND TRUST COMPANY, its affiliates or subsidiaries ("State Street"),
setting forth the terms and conditions under which State Street is authorized
to act on behalf of the Client with respect to the lending of certain
securities of the Client held by State Street as trustee, agent or custodian.
NOW, THEREFORE, in consideration of the mutual promises and of the
mutual covenants contained herein, each of the parties does hereby covenant and
agree as follows:
1. Definitions. For the purposes hereof:
(a) "Available Securities" means the securities of the Client that are
available for Loans pursuant to Section 3.
(b) "Borrower" means any of the entities to which Available Securities
may be loaned under a Securities Loan Agreement, as described in Section 4.
(c) "Collateral" means collateral delivered by a Borrower to secure
its obligations under a Securities Loan Agreement.
(d) "Investment Manager" when used in any provision, means the person
or entity who has discretionary authority over the investment of the Available
Securities to which the provision applies.
(e) "Loan" means a loan of Available Securities to a Borrower.
(f) "Loaned Security" shall mean any "security" which is delivered as
a Loan under a Securities Loan Agreement; provided that, if any new or
different security shall be exchanged for any Loaned Security by
recapitalization, merger, consolidation, or other corporate action, such new or
different security shall, effective upon such exchange, be deemed to become a
Loaned Security in substitution for the former Loaned Security for which such
exchange was made.
(g) "Market Value" of a security means the market value of such
security (including, in the case of a Loaned Security that is a debt security,
the accrued interest on such security) as determined by the independent pricing
service designated by State Street, or such other independent sources as may be
selected by State Street on a reasonable basis.
1
<PAGE> 5
(h) "Securities Loan Agreement" means the agreement between a Borrower
and State Street (on behalf of the Client) that governs Loans, as described in
Section 5.
(i) "Replacement Securities" means securities of the same issuer,
class and denomination as Loaned Securities.
2. Appointment of State Street.
The Client hereby appoints and authorizes State Street, its affiliates
or subsidiaries, as its agent to lend Available Securities to Borrowers in
accordance with the terms of this Agreement. State Street shall have the
responsibility and authority to do or cause to be done all acts State Street
shall determine to be desirable, necessary, or appropriate to implement and
administer this securities lending program. The Client agrees that State Street
is acting as a fully disclosed agent and not as principal in connection with
the securities lending program. State Street may take action as agent of the
Client on an undisclosed or a disclosed basis. State Street is also hereby
authorized to request a third party bank to undertake certain custodial
functions in connection with holding of the Collateral provided by a Borrower
pursuant to the terms hereof. In connection therewith, State Street may
instruct said third party to establish and maintain a Borrower's account and a
State Street account wherein all Collateral, including cash shall be maintained
by said third party in accordance with the terms of a form of custodial
arrangement which shall also be consistent with the terms hereof.
3. Securities to be Loaned.
State Street acts or will act as agent, trustee or custodian of
certain securities owned by the Client. All of the Client's securities held by
State Street as agent, trustee or custodian shall be subject to this securities
lending program and constitute Available Securities hereunder, except those
securities which the Client or the Investment Manager specifically identifies
in notices to State Street as not being Available Securities. In the absence of
any such notice identifying specific securities, State Street shall have no
authority or responsibility for determining whether any of the Client's
securities should be excluded from the lending program.
4. Borrowers.
The Available Securities may be loaned to any Borrower identified on
the Schedule of Borrowers, as such Schedule may be modified from time to time
by State Street and Client, including without limitation, the Financial Markets
Group of State Street; provided, however, if Available Securities are loaned to
the Financial Markets Group, in addition to being consistent with the terms
hereof, said Loan shall be made in accordance with the terms of the Securities
Loan Agreement attached hereto as Exhibit 4.1, as modified form time to time in
accordance with the provisions hereof (hereinafter, the "State Street
Securities Loan
2
<PAGE> 6
Agreement"). The form of the State Street Securities Loan Agreement may be
modified by State Street from time to time, without the consent of the Client,
in order to comply with the requirements of law or any regulatory authority
having jurisdiction over State Street, the Client or the securities lending
program or in any other manner that is not material and adverse to the
interests of the Client.
The Client acknowledges that it is aware that State Street, acting as
"Lender's Agent" hereunder and thereunder, is or may be deemed to be the same
legal entity as State Street acting as "Borrower" under the State Street
Securities Loan Agreement, notwithstanding the different designations used
herein and therein or the dual roles assumed by State Street hereunder and
thereunder. Client represents that the power granted herein to State Street, as
agent, to lend U.S. Securities owned by Client (including, in legal effect, the
power granted to State Street to make Loans to itself) and the other powers
granted to State Street, as agent herein, are given expressly for the purpose
of averting and waiving any prohibitions upon such lending or other exercise of
such powers which might exist in the absence of such powers, and that
transactions effected pursuant to and in compliance with this Agreement and the
State Street Securities Loan Agreement will not constitute a breach of trust or
other fiduciary duty by State Street.
The Client further acknowledges that it has granted State Street the
power to effect securities lending transactions with the Financial Markets
Group of State Street and other powers assigned to State Street hereunder and
under the Securities Loan Agreements and the State Street Securities Loan
Agreement as a result of the Client's desire to increase the opportunity for it
to lend securities held in its account on fair and reasonable terms to
qualified Borrowers without such loans being considered a breach of State
Street's fiduciary duty. In connection therewith, each party hereby agrees that
it shall furnish to the other party, upon request (i) the most recent available
audited statement of its financial condition, and (ii) the most recent
available unaudited statement of its financial condition, if more recent than
the audited statement. As long as any Loan is outstanding under this Agreement,
each party shall also promptly deliver to the other party all such financial
information that is subsequently available, and any other financial information
or statements that such other party may reasonably request.
In the event any such Loan is made to the Financial Markets Group,
State Street hereby covenants and agrees for the benefit of the Clients that it
has adopted and implemented procedural safeguards to help ensure that all
actions taken by it hereunder will be effected by individuals other than, and
not under the supervision of, individuals who are acting in a capacity as
Borrower thereunder, and that all trades effected hereunder will take place at
the same fully negotiated "arms length" prices offered to similarly situated
third parties by State Street when it acts as lending agent, notwithstanding
the inherent conflict of interest with respect to Loans to be effected by State
Street to the Financial Markets Group.
3
<PAGE> 7
In the event the Client approves lending to borrowers resident in the
United Kingdom, the Client shall complete Part 1 of the document known as a
"MOD-2 form," which is attached hereto as Exhibit 4.2.
In the event that securities lending activity is undertaken through
its London office, State Street becomes subject to additional regulation in the
UK, and State Street is obliged to notify the you of the following matters:
i. State Street shall make available to you established
procedures in accordance with the requirements of the
Securities and Futures Authority for the effective
consideration of complaints concerning State Street's
activities carried on in the UK.
ii. Where a liability in one currency is to be matched by an
asset in a different currency, or where an investment
transaction relates to an investment denominated in a
currency other than sterling, a movement of exchange rates
may have a separate effect, favorable or unfavorable, on the
gain or loss which would otherwise be experienced on the
investment.
iii. State Street or an affiliate may have an interest that is
material to the investment or transaction concerned and
neither State Street nor any such affiliate shall be obliged
to disclose such interest or account to you for any profits
or benefits made or derived by it or any of its associates
from any such transaction.
iv. Any assets which State Street holds in the form of money
shall not be treated by State Street as the Clients' Money as
defined by The Financial Services (Client Money) Regulations
1991 of the United Kingdom as amended (the "Clients' Money
Regulations") and will not be held in accordance with the
Clients' Money Regulations or such other regulations as shall
amend or replace the Clients' Money Regulations from time to
time.
5. Securities Loan Agreements.
The Client authorizes State Street to enter into one or more
Securities Loan Agreements with such Borrowers as may be selected by State
Street. Each Securities Loan Agreement shall have such terms and conditions as
State Street may negotiate with the Borrower, however certain terms of
individual loans, including rebate fees to be paid to the Borrower for the use
of cash Collateral, shall be negotiated at the time a loan is made.
4
<PAGE> 8
6. Loans of Available Securities.
State Street shall have authority to make Loans of Available
Securities to Borrowers, and to deliver such securities to Borrowers. State
Street shall be responsible for determining whether any such Loan shall be
made, and for negotiating and establishing the terms of each such Loan. State
Street shall have the authority to terminate any Loan in its discretion, at any
time and without prior notice to the Client.
The Client acknowledges that State Street administers securities
lending programs for other clients of State Street. State Street will allocate
securities lending opportunities among its clients, using reasonable and
equitable methods established by State Street from time to time. State Street
does not represent or warrant that any amount or percentage of the Client's
Available Securities will in fact be loaned to Borrowers. The Client agrees
that it shall have no claim against State Street and State Street shall have no
liability arising from, based on, or relating to, loans made for other clients,
or loan opportunities refused hereunder, whether or not State Street has made
fewer or more loans for any other client, and whether or not any loan for
another client, or the opportunity refused, could have resulted in loans made
under this Agreement.
The Client also acknowledges that, under the applicable Securities
Loan Agreements, the Borrowers will not be required to return Loaned Securities
immediately upon receipt of notice from State Street terminating the applicable
Loan, but instead will be required to return such Loaned Securities within such
period of time following such notice as is specified in the applicable
Securities Loan Agreement. Upon receiving a notice from the Client or the
Investment Manager that Available Securities which have been loaned to a
Borrower should no longer be considered Available Securities (whether because
of the sale of such securities or otherwise), State Street shall use its
reasonable efforts to notify promptly thereafter the Borrower which has
borrowed such securities that the Loan of such securities is terminated and
that such securities are to be returned within the time specified by the
applicable Securities Loan Agreement.
7. Distributions on and Voting Rights with Respect to Loaned Securities.
The Client represents and warrants that it is the beneficial owner of
(or exercises complete investment discretion over) all Available Securities
free and clear of all liens, claims, security interests and encumbrances and no
such security has been sold, and that it is entitled to receive all
distributions made by the issuer with respect to Loaned Securities. Except as
provided in the next sentence, all interest, dividends, and other distributions
paid with respect to Loaned Securities shall be credited to the Client's
account on the date such amounts are delivered by the Borrower to State Street.
Any non-cash distribution on Loaned Securities which is in the nature of a
stock split or a stock dividend shall be added to the Loan (and shall be
considered to constitute Loaned Securities) as of the date such non-cash
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<PAGE> 9
distribution is received by the Borrower; provided that the Client (or
Investment Manager) may, by giving State Street ten (10) business days' notice
prior to the date of such non-cash distribution, direct State Street to request
that the Borrower deliver such non-cash distribution to State Street, pursuant
to the applicable Securities Loan Agreement, in which case State Street shall
credit such non-cash distribution to the Client's account on the date it is
delivered to State Street.
The Client acknowledges that it will not be entitled to participate in
any dividend reinvestment program or to vote with respect to securities that
are on loan on the applicable record date for such securities.
The Client also acknowledges that any payments of distributions from
Borrower to the Client are in substitution for the interest or dividend accrued
or paid in respect of Loaned Securities and that the tax treatment of such
payment may differ from the tax treatment of such interest or dividend.
If an installment, call or rights issue becomes payable on or in
respect of any Loaned Securities, State Street shall use all reasonable
endeavors to ensure that any timely instructions from the Client are complied
with, but State Street shall not be required to make any payment unless the
Client has first placed it in funds to make such payment.
8. Collateral.
(a) Receipt of Collateral. The Client authorizes State Street, or a
third party bank, to receive and to hold, on the Client's behalf, Collateral
from Borrowers to secure the obligations of Borrowers with respect to any loan
of securities made on behalf of the Client pursuant to the Securities Loan
Agreements. All investments of cash Collateral shall be for the account and at
the risk of the Client. Concurrently with the delivery of the Loaned Securities
to the Borrower under any Loan, State Street shall receive from the Borrower
Collateral in any of the forms listed on Schedule 8.1. Said Schedule may be
amended from time to time by State Street upon written notice to the Client.
With respect to foreign cash Collateral, State Street will provide the Client
with a multicurrency investment vehicle through which the foreign cash will be
converted to U.S. dollars and invested pursuant to Section 9 hereof ("MCIV").
The Client acknowledges that State Street, in providing MCIV, may receive
additional compensation by managing its interest rate exposure.
Collateral shall have a Market Value of not less than one hundred
percent (100%) of the Market Value of the Loaned Securities. Thereafter, State
Street shall take such action as is appropriate with respect to the Collateral
under the applicable Securities Loan Agreement.
(b) Marking to Market. State Street shall value all Loaned Securities
in accordance with its customary practice.
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<PAGE> 10
(c) Return of Collateral. The Collateral shall be returned to Borrower
at the termination of the Loan upon the return of the Loaned Securities by
Borrower to State Street in accordance with the applicable Securities Loan
Agreement.
(d) Limitations. State Street shall invest cash Collateral in
accordance with any directions, including any limitations established by the
Client in a writing identified to this Agreement and acknowledged in writing by
State Street and shall exercise reasonable care, skill, diligence and prudence
in the investment of Collateral. Subject to the foregoing limits and standard
of care, State Street does not assume any market or investment risk of loss
with respect to the currency conversions associated with the use of MCIV or the
investment of cash Collateral. If the value of the cash Collateral so invested
is insufficient to return the rebate fee (i.e., the return to the Borrower for
use of cash Collateral), the full amount of the Collateral (U.S. dollar or
otherwise), or any and all other amounts due to such Borrower pursuant to the
Securities Loan Agreement, the Client shall be solely responsible for such
shortfall and State Street may debit the Client's account. In addition, State
Street shall be entitled to charge the Client's accounts for such shortfall in
accordance with Section 9.
9. Investment of Cash Collateral and Compensation.
To the extent that a Loan is secured by cash Collateral, such cash
Collateral, including money received with respect to the investment of the
same, or upon the maturity, sale, or liquidation of any such investments, shall
be invested by State Street, subject to the directions referred to above, if
any, in short-term instruments, short term investment funds maintained by State
Street, money market mutual funds and such other investments as State Street
may from time to time select, including without limitation investments in
obligations or other securities of State Street or of any State Street
affiliate and investments in any short-term investment fund, mutual fund,
securities lending trust or other collective investment fund with respect to
which State Street and/or its affiliates provide investment management or
advisory, trust, custody, transfer agency, shareholder servicing and/or other
services for which they are compensated.
The Client acknowledges that interests in such mutual funds,
securities lending trusts and other collective investment funds, to which State
Street and/or one or more of its affiliates provide services are not guaranteed
or insured by State Street or any of its affiliates or by the Federal Deposit
Insurance Corporation or any government agency. The Client hereby authorizes
State Street to purchase or sell investments of cash Collateral to or from
other accounts held by State Street or its affiliates.
The net income generated by any investment made pursuant to the
preceding paragraph of this Section 9 shall be allocated among the Borrower,
State Street, and the Client, as follows: (a) a portion of such income shall be
paid to the Borrower in accordance
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<PAGE> 11
with the agreement negotiated between the Borrower and State Street; (b) the
balance, if any, shall be split between State Street [as compensation for its
services in connection with this securities lending program and the Client [as
such income shall be credited to the Client's account], in accordance with the
fee schedule attached hereto as Schedule A.
In the event the net income generated by any investment made pursuant
to the first paragraph of this Section 9 does not equal or exceed the amount
due the Borrower in accordance with the agreement between Borrower and State
Street, State Street shall debit the Client's account by an amount equal to the
difference between the net income generated and the amounts to be paid to the
Borrower pursuant to the Securities Loan Agreement. In the event debits to the
Client's account produce a deficit therein, State Street shall sell or
otherwise liquidate investments made with cash Collateral and credit the net
proceeds of such sale or liquidation to satisfy the deficit. In the event the
foregoing does not eliminate the deficit, State Street shall have the right to
charge the deficiency to any other account or accounts maintained by the Client
with State Street.
In the event of a Loan to a Borrower resident in Canada, which is
made over record date for a dividend reinvestment program ("DRP") and is
secured by cash Collateral, the Borrower shall pay the Client a substitute
payment equal to the full amount of the cash dividend declared, and may pay a
loan premium, the amount of which shall be negotiated by State Street, above
the amount of the cash dividend. Such loan premium shall be allocated between
State Street and the Client as follows: (a) a portion of such loan premium
shall be paid to State Street as compensation for its services in connection
with this securities lending program, in accordance with Schedule A and (b) the
remainder of such loan premium shall be credited to the Client's account.
To the extent that a Loan is secured by non-cash Collateral, the
Borrower shall be required to pay a loan premium, the amount of which shall be
negotiated by State Street. Such loan premium shall be allocated between State
Street and the Client as follows: (a) a portion of such loan premium shall be
paid to State Street as compensation for its services in connection with this
securities lending program, in accordance with Schedule A hereto; and (b) the
remainder of such loan premium shall be credited to the Client's account.
The Client acknowledges that in the event that the Client's
participation in securities lending generates income for the Client, State
Street may be required to withhold tax or may claim such tax from the Client as
is appropriate in accordance with applicable law.
The Client shall reimburse State Street for such reasonable fees and
expenses that State Street may incur in connection with the performance of its
obligations hereunder, including, without limitation: (i) the ordinary
telecommunication charges associated with the movement of securities in
connection with the securities lending activity contemplated by this Agreement;
and (ii) any and all funds advanced by State Street on behalf of the Client as
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<PAGE> 12
a consequence of the Client's obligations hereunder, including the Client's
obligation to return cash Collateral to the Borrower and to pay any fees due
the Borrower, all as provided in Section 8 hereof.
10. Fee Disclosure.
The fees associated with the investment of cash Collateral in funds
maintained or advised by State Street are disclosed on Schedule A hereto. Said
Schedule may be replaced from time to time by State Street upon notice to the
Client. An annual report with respect to such funds is available to the Client,
at no expense, upon request.
11. Recordkeeping and Reports.
State Street will establish and maintain such records as are
reasonably necessary to account for Loans that are made and the income derived
therefrom. On a monthly basis, State Street will provide the Client with a
statement describing the Loans made, and the income derived from the Loans,
during the period covered by such statement. Each party to this Agreement shall
comply with the reasonable requests of the other for information necessary to
the requester's performance of its duties in connection with this securities
lending program.
12. Standard of Care
Subject to the requirements of applicable law, State Street shall not
be liable for any loss or damage, including counsel fees and court costs,
whether or not resulting from their acts or omissions to act hereunder or
otherwise, unless the loss damage arises out of State Street's own gross
negligence. Except for any liability, loss, or expense arising from or
connected with State Street's own gross negligence, the Client agrees to
reimburse and hold State Street harmless from and against any liability, loss
and expense, including counsel fees and expenses and court costs, arising in
connection with any breach of any representation, covenant or agreement of the
Client contained in this Agreement or any Loan or arising from or connected
with claims of any third parties, including any Borrower, from and against all
taxes and other governmental charges, and from and against any out-of-pocket or
incidental expenses. State Street may charge any amounts to which it is
entitled hereunder against the Client's account. Without limiting the
generality of the foregoing, the Client agrees: (i) that State Street shall not
be responsible for any statements, representations or warranties which any
Borrower makes in connection with any securities loans hereunder, or for the
performance by any Borrower of the terms of a Loan, or any agreement related
thereto, and shall not be required to ascertain or inquire as to the
performance or observance of, or a default under the terms of, a Loan or any
agreement related thereto; (ii) that State Street shall be fully protected in
acting in accordance with the oral or written instructions of any person
believed by State Street to be authorized to execute this Agreement on behalf
of the Client
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<PAGE> 13
(an "Authorized Person"); (iii) that in the event of a default by a Borrower
under a Loan, State Street shall be fully protected in acting in its sole
discretion in a manner it deems appropriate; (iv) that State Street shall not
be under any duty or obligation to take action to effect payment by a Borrower
of any amounts owed by the Borrower pursuant to the Loan Agreement, provided
State Street timely advises the Client of the non-payment by the Borrower of
any such amount; and (v) that the records of State Street shall be presumed to
reflect accurately any oral instructions given by an Authorized Person or a
person believed by State Street to be an Authorized Person.
The Client acknowledges that, when lending Gilt securities, there is
intraday settlement exposure from the Borrower's settlement bank. In
particular, Client has daily exposure that the Gilt collateral position backed
by the assured payment from the Borrower's settlement bank is unsecured.
State Street, in determining the Market Value of Securities, including
without limitation, Collateral, may rely upon any recognized pricing service
and shall not be liable for any errors made by such service.
13. Representations and Warranties.
Each party hereto represents and warrants that (a) it has the power to
execute and deliver this Agreement, to enter into the transactions contemplated
hereby, and to perform its obligations hereunder; (b) it has taken all
necessary action to authorize such execution, delivery, and performance; (c)
this Agreement constitutes a legal, valid, and binding obligation enforceable
against it; and (d) the execution, delivery, and performance by it of this
Agreement will at all times comply with all applicable laws and regulations.
The Client represents and warrants that (a) it has made its own
determination as to the tax treatment of any dividends, remuneration or other
funds received hereunder; and (b) the financial statements delivered to State
Street pursuant to Section 4 fairly present its financial condition and there
has been no material adverse change in its financial condition or the financial
condition of any parent company since the date of the balance sheet included
within such financial statements. Each Loan shall constitute a present
representation by the Client that there has been no material adverse change in
its financial condition or the financial condition of any parent company that
has not been disclosed in writing to State Street since the date of the most
recent financial statements furnished to State Street pursuant to Section 4.
The person executing this Agreement on behalf of the Client represents
that he or she has the authority to execute this Agreement on behalf of the
Client.
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<PAGE> 14
In the event that Client directs State Street to invest cash
Collateral in the State Street Global Securities Lending Trust, the Client also
represents and warrants to, and agrees and covenants with, State Street Global
Securities Lending Trust (the "Trust") and the Trustee of the Trust, as of the
date hereof and as of the date or dates on which any units of the Trust
("Units") are purchased (collectively, the "Date of Purchase") that:
(a) The Units will be purchased for the account of the
Client for investment only and not with a view to,
or with any intention of, a distribution or resale
thereof, in whole or in part, or the grant of any
participation therein. The Client is aware of the
risks associated with an investment in the Trust and
has not received any form of general solicitation or
advertising in connection with its decision to
purchase Units.
(b) The Client understands that the Trust will not be
registered under the Investment Company Act of 1940
(the "1940 Act") because the Trust will be qualified
as an excepted entity under Section 3(c)(7) of the
1940 Act. Pursuant to such exception the Trust will
be beneficially owned only by "qualified purchasers"
as defined in the 1940 Act and the rules and
regulations promulgated thereunder and by such other
persons as are otherwise entitled to participate in
an entity qualified under Section 3(c)(7) of the
1940 Act. Accordingly, the Client hereby represents
that as of the date hereof and as of the Date of
Purchase of the Units, the Client is either:
[Please check and initial the appropriate box or boxes]
______ [ ] a qualified institutional buyer as defined in
Initial of paragraph (a) of Rule 144A (the "Rule") of the Act,
Authorized acting for its own account, the account of another
Signer qualified institutional buyer, or the account of a
qualified purchaser, and is not: (i) a dealer
described in paragraph (a)(1)(ii) of the Rule that
owns and invests on a discretionary basis less than
$25 million in securities of issuers that are not
affiliated persons of the dealer; or (ii) a plan
referred to in paragraph (a)(1)(D) or (a)(1)(E) of
the Rule, or a trust fund referred to in paragraph
(a)(1)(F) of the Rule that holds the assets of such
a plan, if investment decisions with respect to the
plan are made by the beneficiaries of the plan; or
______ [ ] an entity that in the aggregate owns and invests on
Initial of a discretionary basis $25 million or more in
Authorized Qualified Purchaser Investments (as defined in
Signer Exhibit A). In making this determination, the amount
of any outstanding indebtedness incurred to make the
Qualified Purchaser Investments held by the Client
shall be subtracted from the Qualified Purchaser
Investments.
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<PAGE> 15
(c) No beneficiary or investor of the Client has any right to
consult with regard to, advise or direct the investments made by or on behalf
of the Client, and the Client has not been organized for the purpose of
purchasing Units.
(d) If the Client: is (A) classified as a partnership for
federal income tax purposes, (B) a "grantor trust," any portion of which is
treated as owned by the grantor(s) or other person(s) under sections 671-679 of
the Code, or (C) an "S corporation" within the meaning of section 1361(a) of
the Code (any of (A), (B), or (C), a "Flow-Through Entity"), the beneficial
owners of the Client which is a Flow-Through Entity are not investing in the
Trust through the Client for the principal purpose of avoiding the 100-partner
limitation in Treasury Regulations section.1.7704-1(h)(i)(ii).
(e) The execution and delivery of this Agreement by the
Client does not require any approval, authorization, license, or filing from or
with any foreign, federal, state or municipal board or agency on the part of
the Client or in connection with the offer and sale of the Units on the part of
the Trust or the Trustee or any of its affiliates.
(f) No provision of any applicable law, regulation or
document by which the Client is bound prohibits the purchase of Units in the
Trust by the Client.
(g) Simultaneously herewith the Client has completed,
executed and delivered to the Trust a Form W-8 setting forth certain taxpayer
identification information required by the Trust.
The Client hereby represents to State Street that: (i) its policies
generally permit it to engage in securities lending transactions; (ii) its
policies permit it to purchase shares of the Navigator Securities Lending Trust
with cash Collateral; (iii) its participation in State Street's securities
lending program, including the investment of cash Collateral in the Navigator
Securities Lending Trust, and the existing series thereof has been approved by
a majority of the directors or trustees which directors and trustees are not
"interested persons" within the meaning of section 2(a)(19) of the Investment
Company Act of 1940, and such directors or trustees will evaluate the
securities lending program no less frequently than annually to determine that
the investment of cash Collateral in the Navigator Securities Lending Trust,
including any series thereof, is in the Client's best interest; and (iv) its
prospectus provides appropriate disclosure concerning its securities lending
activity.
The Client hereby further represents that it is not subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") with
respect to this Agreement and the Securities; that it qualifies as an
"accredited investor" within the meaning of Rule 501 of
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<PAGE> 16
Regulation D under the Securities Act of 1933, as amended; and that the
taxpayer identification number(s) and corresponding tax year-end are as set
forth on Schedule B.
14. Indemnification.
(a) If at the time of a default by a Borrower with respect to a Loan
(within the meaning of the applicable Securities Loan Agreement) some or all of
the Loaned Securities under such Loan have not been returned by the Borrower,
and subject to the terms of this Agreement, State Street shall indemnify the
Client against the failure of the Borrower as follows. State Street shall
purchase a number of Replacement Securities equal to the number of such
unreturned Loaned Securities, to the extent that such Replacement Securities
are available on the open market. Such Replacement Securities shall be
purchased by applying the proceeds of the Collateral with respect to such Loan
to the purchase of such Replacement Securities. Subject to the Client's
obligations pursuant to Section 8 hereof, if and to the extent that such
proceeds are insufficient or the Collateral is unavailable, the purchase of
such Replacement Securities shall be made at State Street's expense.
(b) If State Street is unable to purchase Replacement Securities
pursuant to Paragraph (a) hereof, State Street shall credit to the Client's
account an amount equal to the Market Value of the unreturned Loaned Securities
for which replacement securities are not so purchased, determined as of (i) the
last day the Collateral continues to be successfully marked to market against
the unreturned Loaned Securities; or (ii) the next business day following the
day referred to in (i) above, if higher.
(c) In addition to making the purchases or credits required by
Paragraphs (a) and (b) hereof, State Street shall credit to the Client's
account the value of all distributions on the Loaned Securities (not otherwise
credited to the Client's accounts with State Street), the record dates for
which occur before the date that State Street purchases Replacement Securities
pursuant to Paragraph (a) or credits the Client's account pursuant to Paragraph
(b).
(d) Any credits required under Paragraphs (b) and (c) hereof shall be
made by application of the proceeds of the Collateral (if any) that remains
after the purchase of Replacement Securities pursuant to Paragraph (a). If and
to the extent that the Collateral is unavailable or the value of the proceeds
of the remaining Collateral is less than the value of the sum of the credits
required to be made under Paragraphs (b) and (c), such credits shall be made at
State Street's expense.
(e) If after application of Paragraphs (a) through (d) hereof,
additional Collateral remains or any previously unavailable Collateral becomes
available or any additional amounts owed by the Borrower with respect to such
Loan are received from the Borrower, State Street shall apply the proceeds of
such Collateral or such additional amounts first to reimburse itself for any
amounts expended by State Street pursuant to Paragraphs (a) through
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<PAGE> 17
(d) above, and then to credit to the Client's account all other amounts owed by
the Borrower to the Client with respect to such Loan under the applicable
Securities Loan Agreement.
(f) In the event that State Street is required to make any payment
and/or incur any loss or expense under this Section, State Street shall, to the
extent of such payment, loss, or expense, be subrogated to, and succeed to, all
of the rights of the Client against the Borrower under the applicable
Securities Loan Agreement.
(g) The provisions of this Section 14 shall not apply to losses
attributable to war, riot, revolution, acts of government or other causes
beyond the reasonable control or apprehension of State Street.
15. Continuing Agreement and Termination.
It is the intention of the parties hereto that this Agreement shall
constitute a continuing agreement in every respect and shall apply to each and
every Loan, whether now existing or hereafter made. The Client and State Street
may each at any time terminate this Agreement upon five (5) business days'
written notice to the other to that effect. The only effects of any such
termination of this Agreement will be that (a) following such termination, no
further Loans shall be made hereunder by State Street on behalf of the Client,
and (b) State Street shall, within a reasonable time after termination of this
Agreement, terminate any and all outstanding Loans. The provisions hereof shall
continue in full force and effect in all other respects until all Loans have
been terminated and all obligations satisfied as herein provided.
16. Notices.
Except as otherwise specifically provided herein, notices under this
Agreement may be made orally, in writing, or by any other means mutually
acceptable to the parties. If in writing, a notice shall be sufficient if
delivered to the party entitled to receive such notices at the following
addresses:
If to Client:
[insert name and address]
If to State Street:
State Street Bank and Trust Company
Global Securities Lending Division
Two International Place, Floor 31
Boston, Massachusetts 02110
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<PAGE> 18
or to such other addresses as either party may furnish the other party by
written notice under this section.
Whenever this Agreement permits or requires the Client to give notice
to, direct, provide information to State Street, such notice, direction, or
information shall be provided to State Street on the Client's behalf by any
individual designated for such purpose by the Client in a written notice to
State Street. (This Agreement shall be considered such a designation of the
person executing the Agreement on the Client's behalf.) After its receipt of
such a notice of designation, and until its receipt of a notice revoking such
designation, State Street shall be fully protected in relying upon the notices,
directions, and information given by such designee.
17. Miscellaneous.
This Agreement supersedes any other agreement between the parties or
any representations made by one party to the other, whether oral or in writing,
concerning loans of securities by State Street on behalf of the Client. This
Agreement may be assigned by State Street without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
representatives, successors, and assigns. This Agreement shall be governed and
construed in accordance with the laws of the Commonwealth of Massachusetts. The
Client hereby irrevocably submits to the jurisdiction of any Massachusetts state
or Federal court sitting in The Commonwealth of Massachusetts in any action or
proceeding arising out of or related to this Agreement and hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such Massachusetts state or Federal court except that this
provision shall not preclude any party from removing any action to Federal
court. The Client hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding. Client hereby irrevocably appoints as its
agent to receive on its behalf service of copies of the summons and complaint
and any other process which may be served in any such action or proceeding (the
"Process Agent"). Such service may be made by mailing or delivering a copy of
such process, in care of the Process Agent at the above address. The Client
hereby irrevocably authorizes and directs the Process Agent to accept such
service on its behalf. As an alternative method of service, the Client also
irrevocably consents to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to the Client at its address
specified in Section hereof. The Client agrees that a final judgment in
any such action or proceeding, all appeals having been taken or the time period
for such appeals having expired, shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. The provisions of this Agreement are severable and the invalidity or
unenforceability of
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<PAGE> 19
any provision hereof shall not affect any other provision of this Agreement. If
in the construction of this Agreement any court should deem any provision to be
invalid because of scope or duration, then such court shall forthwith reduce
such scope or duration to that which is appropriate and enforce this Agreement
in its modified scope or duration.
The execution of this Agreement has been authorized by the Client's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Client or the Trustees of the Client as Trustees and not individually and
that the obligations of this Agreement are not binding upon any of the
Trustees, officers or shareholders of the Client individually, but are binding
only upon the assets and property of the Client. A certificate of Trust in
respect of the Client is on file with the Secretary of the State of Delaware.
18. Securities Investors Protection Act of 1970 Notice.
CLIENT IS HEREBY ADVISED AND ACKNOWLEDGES THAT THE PROVISIONS OF THE
SECURITIES INVESTOR PROTECTION ACT OF 1970 MAY NOT PROTECT THE CLIENT WITH
RESPECT TO THE LOAN OF SECURITIES HEREUNDER AND THAT, THEREFORE, THE COLLATERAL
DELIVERED TO THE CLIENT MAY CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF THE
BROKER'S OR DEALER'S OBLIGATION IN THE EVENT THE BROKER OR DEALER FAILS TO
RETURN THE SECURITIES.
19. Counterparts.
The Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one (1) instrument.
20. Modification.
This Agreement shall not be modified, except by an instrument in
writing signed by the party against whom enforcement is sought.
[CLIENT]
Name:
----------------------------
By:
------------------------------
Its:
-----------------------------
STATE STREET BANK AND TRUST COMPANY
Name:
----------------------------
By:
------------------------------
Its:
-----------------------------
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SCHEDULE A
This Schedule is attached to and made part of the Securities Lending
Authorization Agreement, dated the 26th day of August, 1998 between AMERICAN
GENERAL SERIES PORTFOLIO COMPANY 3 ("Client") and STATE STREET BANK AND TRUST
COMPANY ("State Street").
SCHEDULE OF FEES
1. Subject to Paragraph 2 below, all proceeds collected by State Street on
investment of Cash Collateral or any fee income shall be allocated as follows
- - ____ percent (__%) payable to the Client, and
- - ____ percent (__%) payable to State Street.
2. All payments to be allocated under Paragraph 1 above shall be made
after deduction of such other amounts payable to State Street or to the
Borrower under the terms of the attached Securities Lending Authorization
Agreement.
3. Investment Management Fees
<PAGE> 21
SCHEDULE 8.1
This Schedule is attached to and made part of the Securities Lending
Authorization Agreement, dated the 7th day of October, 1998 between AMERICAN
GENERAL SERIES PORTFOLIO COMPANY 2 ("Client") and STATE STREET BANK AND TRUST
COMPANY ("State Street").
ACCEPTABLE FORMS OF COLLATERAL
- Cash (U.S. and foreign currency);
- Securities issued or guaranteed by the United States
government or its agencies or instrumentalities;
- Sovereign debt rated A or better
- Canadian Provincial Debt
- Convertible Bonds
- Irrevocable bank letters of credit issued by a person other
than the Borrower or an affiliate of the Borrower may be
accepted as Collateral, if State Street has determined that
it is appropriate to accept such letters of credit as
Collateral under the securities lending programs it
administers; and
- Such other Collateral as the parties may agree to in writing
from time to time.
<PAGE> 22
SCHEDULE B
This Schedule is attached to and made part of the Securities Lending
Authorization Agreement, dated the 7th day of October, 1998 between AMERICAN
GENERAL SERIES PORTFOLIO COMPANY 2 ("Client") and STATE STREET BANK AND TRUST
COMPANY ("State Street").
TAXPAYER IDENTIFICATION NUMBER TAX YEAR-END
<PAGE> 23
EXHIBIT A
QUALIFIED PURCHASER INVESTMENTS
This Exhibit is designed to assist the Client in determining which of
its assets are Qualified Purchaser Investments and the appropriate method of
valuing those assets. Although the definition of Qualified Purchaser
Investments includes most of what are ordinarily considered "investments" or
"securities" (but excludes assets such as jewelry, artwork, antiques and other
similar collectibles), issues may arise as to whether a particular holding
falls within the definition. The Client is encouraged to consult its legal
and/or investment advisors for guidance on these issues.
TYPES OF INVESTMENTS. The term "Qualified Purchaser Investment" includes the
investments described below.
(a) Cash and cash equivalents (including foreign currency) held for
investment purposes, including bank deposits, certificates of deposit,
bankers acceptances, and the net cash surrender value of an insurance
policy.
(b) Securities such as
(i) shares of (and other interests in) mutual funds, closed-end
funds, hedge funds, and commodity pools;
(ii) securities, including common stock, preferred stock and other
equity instruments as well as bonds, notes, debentures and
other debt obligations, of public companies (including
companies listed on certain foreign exchanges);
(iii) securities, including common stock, preferred stock and other
equity instruments as well as bonds, notes, debentures and
other debt obligations, of private companies with at least
$50 million in shareholders' equity;
(iv) interests in family-owned or closely-held businesses
controlled by the Client if they fall in one of categories
(i)-(iii) above; and
(v) bonds, notes and similar debt obligations issued by federal,
state and local governments and agencies.
(c) Real estate held for investment purposes (which does not include a
place of business used by the Client or the Subscriber's family, or a
personal residence used by the
<PAGE> 24
Client or the Subscriber's family unless the residence is treated as
an investment for tax purposes).
(d) Commodity futures contracts, options on commodity futures contracts,
and options on physical commodities traded on or subject to the rules
of a major commodities exchange held for investment purposes.
(e) Physical commodities such as gold or silver with respect to which a
commodity interest is traded on or subject to the rules of a major
commodities exchange held for investment purposes.
(f) Financial contracts entered into for investment purposes including
swaps and similar contracts.
VALUATION. A Qualified Purchaser Investment should be valued at its fair market
value as of the most recent practicable date or its cost, provided that
commodity interests should be valued at the initial margin or option premium
deposited in connection with such interests.
INVESTMENTS BY SUBSIDIARIES. The amount of Qualified Purchaser Investments
owned by an Entity other than a so-called "Family Company" may include
investments owned by majority-owned subsidiaries of the Entity and investments
owned by an Entity ("Parent Entity") of which the Entity is a majority-owned
subsidiary, or by a majority-owned subsidiary of the Entity and other
majority-owned subsidiaries of the Parent Entity.
<PAGE> 1
EXHIBIT 9(a)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
and
NATIONAL FINANCIAL DATA SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Terms of Appointment; Duties of NFDS...............................1
2. Fees and Expenses..................................................4
3. Representations and Warranties of NFDS.............................4
4. Representations and Warranties of the Fund.........................5
5. Wire Transfer Operating Guidelines.................................6
6. Data Access and Proprietary Information............................7
7. Indemnification....................................................9
8. Standard of Care..................................................10
9. Year 2000.........................................................10
10. Confidentiality...................................................11
11. Covenants of the Fund and NFDS....................................11
12. Termination of Agreement..........................................12
13. Additional Funds..................................................12
14. Assignment........................................................12
15. Amendment.........................................................13
16. Massachusetts Law to Apply........................................13
17. Force Majeure.....................................................13
18. Consequential Damages.............................................13
19. Merger of Agreement...............................................13
20. Counterparts......................................................13
21. Reproduction of Documents.........................................14
22. Limitations of Liability of the Trustees and Shareholders ........14
</TABLE>
<PAGE> 3
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 7th day of October, 1998, by and between AMERICAN
GENERAL SERIES PORTFOLIO COMPANY 2, a Delaware business trust, having its
principal office and place of business at 2929 Allen Parkway, Houston, Texas
77253-3206 (the "Fund"), NATIONAL FINANCIAL DATA SERVICES, INC., a
Massachusetts corporation having its principal office and place of business at
1004 Baltimore, Kansas City, Missouri 64105-1807 ("NFDS").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Fund intends to initially offer shares in twenty-three (23) series,
such series shall be named in the attached Schedule A which may be amended by
the parties from time to time (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 13, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, each Portfolio may issue several classes of shares, as may now exist
and may hereafter be established (each class, together with all other classes
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 13, being referred to as a "Class," and collectively as
"Classes"); and
WHEREAS, the Fund on behalf of the Portfolios desires to appoint NFDS as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and NFDS desires to
accept such appointment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment; Duties of NFDS
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints NFDS
to act as, and NFDS agrees to act as its transfer agent for the
Fund's authorized and issued shares of its beneficial interest,
$0.01 par value, ("Shares"), dividend disbursing agent and agent in
connection with any accumulation, open-account or similar plans
provided to the shareholders of each of the respective Portfolios of
the Fund ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of
the Fund on behalf of the applicable Portfolio, including without
limitation any periodic investment plan or periodic withdrawal
program.
<PAGE> 4
1.2 NFDS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by the Fund on behalf of each of the Portfolios, as
applicable or by agreement between the Fund and NFDS, NFDS
shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and
appropriate documentation thereof to the Custodian
of the Fund authorized pursuant to the Agreement
and Declaration of Trust of the Fund (the
"Custodian");
(ii) Pursuant to purchase orders, issue the appropriate
number of Shares and hold such Shares in the
appropriate Shareholder account;
(iii) Receive for acceptance redemption requests and
redemption directions and deliver the appropriate
documentation thereof to the Custodian;
(iv) In respect to the transactions in items (i), (ii)
and (iii) above, VALIC Retirement Services Company,
shall execute transactions directly with
broker-dealers authorized by the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over
in the appropriate manner such monies as instructed
by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners
thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit or credit to Shareholders'
accounts payments for dividends and distributions
declared by the Fund on behalf of the applicable
Portfolio;
(viii) Issue replacement certificates for those
certificates alleged to have been lost, stolen or
destroyed upon receipt by NFDS of indemnification
satisfactory to NFDS and protecting NFDS and the
Fund, and NFDS at its option, may issue replacement
certificates in place of mutilated stock
certificates upon presentation thereof and without
such indemnity;
(ix) Maintain records of account for and advise the Fund
and its Shareholders as to the foregoing; and
2
<PAGE> 5
(x) Record the issuance of shares of the Fund
and maintain pursuant to SEC Rule 17Ad-10(e) a
record of the total number of shares of the Fund
which are authorized, based upon data provided to
it by the Fund, and issued and outstanding. NFDS
shall also provide the Fund and/or its agent on a
daily basis with the total number of Shares which
are authorized and issued and outstanding and shall
have no obligation, when recording the issuance of
Shares, to monitor the issuance of such Shares or
to take cognizance of any laws relating to the
issue or sale of such Shares, which functions shall
be the sole responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention
of the services set forth in the above paragraph (a), NFDS
will: (i) perform the customary services of a transfer
agent, dividend disbursing agent, and agent in connection
with accumulation, open-account or similar plans (including,
without limitation, any periodic investment plan or periodic
withdrawal program) of a registered open-end management
investment company, including, but not limited to,
maintaining all Shareholder accounts, preparing Shareholder
meeting lists, mailing Shareholder proxies, Shareholder
reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department
Forms 1099 and other appropriate forms required with respect
to dividends, distributions and sales of Shares, by federal
authorities for all Shareholders, preparing and mailing
Shareholders' annual notice of dividends and capital gains
distributions, preparing and mailing confirmation forms and
statements of accounts to Shareholders for all purchases and
redemptions of Shares, and other confirmable transactions in
Shareholder accounts, preparing and mailing activity
statements to Shareholders for purposes of capital gains
reporting, and providing Shareholder account information;
and (ii) provide a system which will enable the Fund, or its
agent, to monitor the total number of Shares purchased and
redeemed in each State.
(c) In addition, the Fund, or its agent, shall (i) identify to
NFDS in writing those transactions and assets to be treated
as exempt from blue sky reporting for each State and (ii)
verify the establishment of transactions for each State on
the system prior to activation and thereafter monitor the
daily activity for each State. The responsibility of NFDS
for the Fund's blue sky State registration status is solely
limited to the initial establishment of transactions subject
to blue sky compliance by the Fund, or its agent, and the
reporting of such transactions to the Fund, or its agent, as
provided above.
3
<PAGE> 6
(d) Procedures as to who shall provide certain of these services
in Section 1 may be established from time to time by
agreement between the Fund on behalf of each Portfolio and
NFDS per the attached service responsibility schedule. NFDS
may at times perform only a portion of these services and
the Fund or its agent may perform these services on the
Fund's behalf.
(e) NFDS shall provide additional services on behalf of the Fund
(e.g., escheatment services) which may be agreed upon in
writing between the Fund and NFDS.
2. Fees and Expenses
2.1 For the performance by NFDS pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay NFDS an annual
maintenance fee for each Shareholder account as set out in the
initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between
the Fund and NFDS.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees
on behalf of each of the Portfolios to reimburse NFDS for
out-of-pocket expenses, including but not limited to confirmation
production, postage, forms, telephone, microfilm, microfiche, mailing
and tabulating proxies, records storage, or advances incurred by NFDS
for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by NFDS at the request or with
the consent of the Fund, will be reimbursed by the Fund on behalf of
the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within thirty days following the receipt of
the respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all shareholder accounts
shall be advanced to NFDS by the Fund at least seven (7) days prior
to the mailing date of such materials.
3. Representations and Warranties of NFDS
NFDS represents and warrants to the Fund that:
3.1 It is a corporation duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is empowered under applicable laws and by its Agreement and
Declaration of Trust and By-Laws to enter into and perform this
Agreement.
4
<PAGE> 7
3.3 All corporate proceedings required by said Agreement and Declaration
of Trust and By-Laws have been taken to authorize it to enter into
and perform this Agreement.
3.4 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
3.5 It is, and will continue to be, a registered transfer agent.
3.6 It has and will maintain a sufficient disaster recovery program that
complies with all federal and state laws and regulations, as well as
of the rules of any applicable organization to NFDS belongs.
3.7 It will provide, at least annually, a SAS 70 report to the Fund. Such
reports, may be, in turn, provided to the Fund's outside auditors and
other interested parties in determining regulatory compliance with
industry standard processing and control procedures.
4. Representations and Warranties of the Fund
The Fund represents and warrants to NFDS that:
4.1 It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
4.2 It is empowered under applicable laws and by its Agreement and
Declaration of Trust and By-Laws to enter into and perform this
Agreement.
4.3 All proceedings required by said Agreement and Declaration of Trust
and By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.4 It is an open-end diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended
on behalf of the Fund has been filed with the Securities and Exchange
Commission and is currently effective and will remain effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of the Fund being
offered for sale.
5
<PAGE> 8
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform
Commercial Code
5.1 NFDS is authorized to promptly debit the appropriate Fund account(s)
upon the receipt of a payment order in compliance with the selected
security procedure (the "Security Procedure") chosen for funds
transfer and in the amount of money that NFDS has been instructed to
transfer. NFDS shall execute payment orders in compliance with the
Security Procedure and with the Fund instructions on the execution
date provided that such payment order is received by the customary
deadline (presently 3:00 P.M. Eastern Time) for processing such a
request, unless the payment order specifies a later time. All payment
orders and communications received after this the customary deadline
will be deemed to have been received the next business day.
5.2 The Fund acknowledges that the Security Procedure it has designated
on the Fund Selection Form was selected by the Fund from security
procedures offered by NFDS. The Fund shall restrict access to
confidential information relating to the Security Procedure to
authorized persons as communicated to NFDS in writing. The Fund must
notify NFDS immediately if it has reason to believe unauthorized
persons may have obtained access to such information or of any change
in the Fund's authorized personnel. NFDS shall verify the
authenticity of all Fund instructions according to the Security
Procedure.
5.3 NFDS shall process all payment orders on the basis of the account
number contained in the payment order. In the event of a discrepancy
between any name indicated on the payment order and the account
number, the account number shall take precedence and govern.
5.4 NFDS reserves the right to decline to process or delay the processing
of a payment order which (a) is in excess of the collected balance in
the account to be charged at the time of NFDS' receipt of such
payment order; (b) if initiating such payment order would cause NFDS,
in NFDS' sole judgement, to exceed any volume, aggregate dollar,
network, time, credit or similar limits which are applicable to NFDS;
or (c) if NFDS, in good faith, is unable to satisfy itself that the
transaction has been properly authorized.
5.5 NFDS shall use reasonable efforts to act on all authorized requests
to cancel or amend payment orders received in compliance with the
Security Procedure provided that such requests are received in a
timely manner affording NFDS reasonable opportunity to act. NFDS
shall not be held liable if, despite NFDS's exhaustion of reasonable
efforts, the request for amendment or cancellation cannot be
satisfied.
5.6 NFDS shall assume no responsibility for failure to detect any
erroneous payment order, unless NFDS knew or should have known that
the payment order was erroneous, and provided that NFDS complied with
the payment order instructions as received and
6
<PAGE> 9
NFDS complied with the Security Procedure. NFDS represents to the
Fund that the Security Procedure is established for the purpose of
authenticating payment orders only and not for the detection of
errors in payment orders.
5.7 NFDS shall assume no responsibility for lost interest with respect to
the refundable amount of any unauthorized payment order, unless NFDS
is notified of the unauthorized payment order within thirty (30) days
of notification by NFDS of the acceptance of such payment order. In
no event (including failure to execute a payment order) shall NFDS be
liable for special, indirect or consequential damages, even if
advised of the possibility of such damages.
5.8 When the Fund initiates or receives Automated Clearing House credit
and debit entries pursuant to these guidelines and the rules of the
National Automated Clearing House Association and the New England
Clearing House Association, NFDS will act as an Originating
Depository Financial Institution and/or receiving depository
Financial Institution, as the case may be, with respect to such
entries. Credits given by NFDS with respect to an ACH credit entry
are provisional until NFDS receives final settlement for such entry
from the Federal Reserve Bank. If NFDS does not receive such final
settlement, the Fund agrees that NFDS shall receive a refund of the
amount credited to the Fund in connection with such entry, and the
party making payment to the Fund via such entry shall not be deemed
to have paid the amount of the entry.
5.9 Confirmation of State Street Bank and Trust Company's (the "Bank's")
execution of payment orders shall ordinarily be provided within
twenty four (24) hours notice of which may be delivered through NFDS'
proprietary information systems, or by facsimile or call-back. Fund
must report any objections to the execution of an order within thirty
(30) days.
6. Data Access and Proprietary Information
6.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by NFDS as part of the
Fund's ability to access certain Fund-related data ("Customer Data")
maintained by NFDS on data bases under the control and ownership of
NFDS ("Data Access Services") constitute copyrighted, trade secret,
or other proprietary information (collectively, "Proprietary
Information") of substantial value to NFDS or other third party. In
no event shall Proprietary Information be deemed Customer Data. The
Fund agrees to treat all Proprietary Information as proprietary to
NFDS and further agrees that it shall not divulge any Proprietary
Information to any person or organization except as may be provided
hereunder. Without limiting the foregoing, the Fund agrees for itself
and its employees and agents:
7
<PAGE> 10
(a) to access Customer Data solely from locations as may be
designated in writing by NFDS and solely in accordance with
NFDS' applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with
NFDS' instructions;
(d) to refrain from causing or allowing the data acquired
hereunder from being retransmitted to any other computer
facility or other location, except with the prior written
consent of NFDS;
(e) that the Fund shall have access only to those authorized
transactions (e.g. look-ups) agreed upon by the parties;
(f) to honor all reasonable written requests made by NFDS to
protect at NFDS' expense the rights of NFDS in Proprietary
Information at common law, under federal copyright law and
under other federal or state law.
6.2 If the Fund notifies NFDS that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, NFDS shall endeavor in a timely
manner to correct such failure. Organizations from which NFDS may
obtain certain data (i.e., NSCC, 401(k) third party administrators
included in the Data Access Services are solely responsible for the
contents of such data and the Fund agrees to make no claim against
NFDS arising out of the contents of such third-party data, including,
but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND
ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION
THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. NFDS
EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED
HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
6.3 If the transactions available to the Fund include the ability to
originate electronic instructions to NFDS in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information, then in such event NFDS shall be
entitled to rely on the validity and authenticity of such instruction
without undertaking any further inquiry as long as such instruction
is undertaken in conformity with security procedures established by
NFDS from time to time.
8
<PAGE> 11
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 6. The obligations of this Section shall
survive any earlier termination of this Agreement.
7. Indemnification
7.1 NFDS shall not be responsible for, and the Fund shall on behalf of
the applicable Portfolio indemnify and hold NFDS and with respect to
Section 7.1(f) herein, also the Bank, harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) all actions of NFDS or its agents or subcontractors required
to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or
willful misconduct;
(b) the Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any
representation or warranty of the Fund hereunder;
(c) the reliance on or use by NFDS or its agents or
subcontractors of information, records, documents or
services which (i) are received by NFDS or its agents or
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf
of the Fund including but not limited to any previous
transfer agent or registrar;
(d) the reliance on, or the carrying out by NFDS or its agents
or subcontractors of any instructions or requests of the
Fund on behalf of the applicable Portfolio;
(e) the offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be
registered or in violation of any stop order or other
determination or ruling by any federal or any state agency
with respect to the offer or sale of such Shares;
(f) the negotiations and processing of checks made payable to
prospective or existing Shareholders tendered to NFDS for
the purchase of Shares, such checks are commonly known as
"third party checks"; and
(g) upon the Fund's request entering into any agreements
required by the National Securities Clearing Corporation
(the "NSCC") required by the NSCC for the transmission of
Fund or Shareholder data through the NSCC clearing systems.
7.2 At any time NFDS may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the
9
<PAGE> 12
services to be performed by NFDS under this Agreement, and NFDS and
its agents or subcontractors shall not be liable and shall be
indemnified by the Fund on behalf of the applicable Portfolio for any
action taken or omitted by it in reliance upon such instructions or
upon the opinion of such counsel. NFDS, its agents and subcontractors
shall be protected and indemnified in acting upon any paper or
document, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction,
information, data, records or documents provided NFDS or its agents
or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to
have notice of any change of authority of any person, until receipt
of written notice thereof from the Fund. NFDS, its agents and
subcontractors shall also be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
7.3 In order that the indemnification provisions contained in this
Section 7 shall apply, upon the assertion of a claim for which the
Fund may be required to indemnify NFDS, NFDS shall promptly notify
the Fund of such assertion, and shall keep the Fund advised with
respect to all developments concerning such claim. The Fund shall
have the option to participate with NFDS in the defense of such claim
or to defend against said claim in its own name or in the name of
NFDS. NFDS shall in no case confess any claim or make any compromise
in any case in which the Fund may be required to indemnify NFDS
except with the Fund's prior written consent.
8. Standard of Care
NFDS shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to
errors unless said errors are caused by its negligence, bad faith, or
willful misconduct or that of its employees.
9. Year 2000
NFDS will take reasonable steps to ensure that its products (and
those of its third-party suppliers) reflect the available technology
to offer products that are Year 2000 ready, including, but not
limited to, century recognition of dates, calculations that correctly
compute same century and multi century formulas and date values, and
interface values that reflect the date issues arising between now and
the next one-hundred years, and if any changes are required, NFDS
will make the changes to its products at a price to be agreed upon by
the parties and in a commercially reasonable time frame and will
require third-party suppliers to do likewise.
10
<PAGE> 13
10. Confidentiality
10.1 NFDS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law.
10.2 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, NFDS will endeavor to notify the
Fund and to secure instructions from an authorized officer of the
Fund as to such inspection. NFDS reserves the right, however, to
exhibit the Shareholder records to any person whenever it is advised
by its counsel that it may be held liable for the failure to exhibit
the Shareholder records to such person.
11. Covenants of the Fund and NFDS
11.1 The Fund shall on behalf of each of the Portfolios promptly furnish
to NFDS the following:
(a) A certified copy of the resolution of the Board of Trustees
of the Fund authorizing the appointment of NFDS and the
execution and delivery of this Agreement.
(b) A copy of the Agreement and Declaration of Trust and By-Laws
of the Fund and all amendments thereto.
11.2 NFDS hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of Share
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
11.3 NFDS shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable, however,
all such records shall comply in both form and substance with all
applicable statutes and regulations including, but not limited to,
Section 31 of the Investment Company Act of 1940 and Rule 31a-1
thereunder, and/or their successors, replacements or equivalents.
NFDS agrees that all such records prepared or maintained by NFDS
relating to the services performed by NFDS hereunder are the property
of the Fund and will be preserved, maintained and made available in
accordance with such Section and Rules, and will be surrendered
promptly to the Fund on and in accordance with its request.
11
<PAGE> 14
11.4 In the event that any requests or demands are made for the inspection
of the Shareholder records of the Fund, other than request for records
of Shareholders pursuant to standard subpoenas from state or federal
government authorities (i.e., divorce and criminal actions), NFDS will
endeavor to notify the Fund and to secure instructions from an
authorized officer of the Fund as to such inspection. NFDS expressly
reserves the right, however, to exhibit the Shareholder records to any
person whenever it is advised by counsel that it may be held liable for
the failure to exhibit the Shareholder records to such person.
12. Termination of Agreement
12.1 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
12.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, NFDS reserves the right to charge for any other
reasonable expenses associated with such termination and a charge
equivalent to the average of one (1) month's fees.
13. Additional Funds
In the event that the Fund establishes one or more series of Shares, in
addition to those named in Schedule A, or one or more Classes, in
addition to those named in the attached Schedule A, with respect to
which it desires to have NFDS render services as transfer agent under
the terms hereof, it shall so notify NFDS in writing, and if NFDS
agrees in writing to provide such services, such series of Shares shall
become a Portfolio hereunder.
14. Assignment
14.1 Except as provided in Section 14.3 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
14.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
14.3 NFDS may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as
a transfer agent pursuant to Section 17A(c)(2) of the Securities
Exchange Act of 1934, as amended ("Section 17A(c)(2)"),
12
<PAGE> 15
(ii) a BFDS subsidiary duly registered as a transfer agent pursuant
to Section 17A(c)(2) or (iii) a BFDS affiliate; provided, however,
that NFDS shall be as fully responsible to the Fund for the acts and
omissions of any subcontractor as it is for its own acts and
omissions.
15. Amendment
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution
of the Board of Trustees of the Fund.
16. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
17. Force Majeure
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage beyond its control, or
other unforeseeable causes beyond its control, such party shall not
be liable for damages to the other for any damages resulting from
such failure to perform or otherwise from such actions.
18. Consequential Damages
Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to
act hereunder.
19. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
20. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
13
<PAGE> 16
21. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and
amendments hereto may be reproduced by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar
process. The parties hereto each agree that any such reproduction
shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is
in existence and whether or not such reproduction was made by a party
in the regular course of business, and that any enlargement,
facsimile or further reproduction shall likewise be admissible in
evidence.
22. Limitations of Liability of the Trustees and Shareholders
The Fund acknowledges and agrees that, as provided by Section 8.1 of
the Fund's Agreement and Declaration of Trust, this Agreement is
executed on behalf of the Fund or the Trustees of the Fund as
Trustees and not individually and that the obligations of this
Agreement are not binding upon any of the Trustees, officers or
shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of
the Fund is on file with the Secretary of the State of Delaware.
14
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
AMERICAN GENERAL SERIES PORTFOLIO
COMPANY 2
BY:
--------------------------------------
ATTEST:
- -------------------------
NATIONAL FINANCIAL DATA SERVICES,
INC.
BY:
--------------------------------------
ATTEST:
- -------------------------
<PAGE> 18
NATIONAL FINANCIAL DATA SERVICES, INC.
FUND SERVICE RESPONSIBILITIES *
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
NFDS Fund
---- ----
<S> <C> <C>
1. Receives orders for the purchase X
of Shares.
2. Issue Shares and hold Shares in X Shareholders accounts.
3. Receive redemption requests. X
4. Effect transactions 1-3 above X directly with broker-dealers.
5. Pay over monies to redeeming X Shareholders.
6. Effect transfers of Shares. X
7. Prepare and transmit dividends X and distributions.
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and X
accurate control book for each
issue of securities.
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current X Shareholders.
15. Withhold taxes on U.S. resident and non-resident X alien accounts and
promptly remit, as required under applicable laws, to government taxing
authorities.
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
NFDS Fund
---- ----
<S> <C> <C> <C>
16. Prepare and file U.S. Treasury Department forms. X
17. Prepare and mail account and X
confirmation statements for
Shareholders.
18. Provide Shareholder account information. X
19. Blue sky reporting. X
</TABLE>
* Such services are more fully described in Section 1.2 (a), (b) and (c) of the
Agreement.
AMERICAN GENERAL SERIES PORTFOLIO
COMPANY 2
BY:
--------------------------------------
ATTEST:
- -------------------------
NATIONAL FINANCIAL DATA SERVICES,
INC.
BY:
--------------------------------------
ATTEST:
- -------------------------
<PAGE> 20
SCHEDULE A
The following Funds are structured as four share classes. The classes are A,B,
Institutional I and Institutional II. Funds marked with an * are structured as
two classes only, A and B.
<TABLE>
<S> <C>
American General International Value Fund American General International Growth Fund
American General Large Cap Value Fund American General Large Cap Growth Fund
American General Mid Cap Value Fund American General Mid Cap Growth Fund
American General High Yield Bond Fund American General Small Cap Value Fund
American General Small Cap Growth Fund American General Balanced Fund
American General Socially Responsible Fund American General Domestic Bond Fund
American General Money Market Fund American General Aggressive Lifestyle Fund
American General Conservative Lifestyle Fund American General Core Bond Fund
American General Moderate Lifestyle Fund American General Strategic Bond Fund
American General Municipal Money Market Fund*
American General Small Cap Index Fund*
American General S&P 500 Index Fund*
American General Municipal Bond Fund*
American General Mid Cap Index Fund*
</TABLE>
<PAGE> 1
EXHIBIT 9(b)
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
Addendum to the Custodian Contract between American General Series
Portfolio Company 2 (the "Customer") and State Street Bank and Trust Company
("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain
assets of the Customer pursuant to a certain Custodian Contract dated as of
______, 1998 (the "Custodian Contract");
WHEREAS, State Street has developed and utilizes proprietary
accounting and other systems, including State Street's proprietary Multicurrency
HORIZON(SM) Accounting System, in its role as custodian of the Customer, and
maintains certain Customer-related data ("Customer Data") in databases under
the control and ownership of State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to the Customer certain Data
Access Services solely for the benefit of the Customer, and intends to provide
additional services, consistent with the terms and conditions of this Addendum.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration, the
parties agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Addendum, State
Street hereby agrees to provide the Customer with access to State Street's
Multicurrency HORIZON(SM) Accounting System and such other information systems
(collectively, the "System") as may be selected and described in Attachment A,
on a remote basis for the purpose of obtaining reports and information, solely
on computer hardware, system software and telecommunication links as listed in
Attachment B (the "Designated Configuration") of the Customer, or certain third
parties approved by State Street that serve as investment advisors or investment
managers of the Customer (the "Investment Advisor"), and solely with respect to
the Customer or on any designated substitute or back-up equipment configuration
with State Street's written consent, such consent not to be unreasonably
withheld.
b. Data Access Services. State Street agrees to make available to the
Customer the Data Access Services subject to the terms and conditions of this
Addendum and data access operating standards and procedures as may be issued by
State Street from time to time. The ability of the Customer to originate
electronic instructions to State Street on behalf of the Customer in order to
(i) effect the transfer or movement of cash or securities held under custody by
State Street or (ii) transmit accounting or other information (such transactions
are referred to herein as "Client Originated Electronic Financial
Instructions"), and (iii) access data for the purpose of reporting and analysis,
shall be deemed to be Data Access Services for purposes of this Addendum.
c. Additional Services. State Street may from time to time agree to
make available to the Customer additional Systems that are not described in the
attachments to this Addendum. In the absence of any other written agreement
concerning such additional systems, the term "System" shall include, and this
Addendum shall govern, the Customer's access to and use of any additional
System made available by State Street and/or accessed by the Customer.
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Customer acknowledge that in connection with the
Data Access Services provided under this Addendum, the Customer will have
access, through the Data Access Services, to Customer Data and to functions of
State Street's proprietary systems; provided, however that in no event will the
Customer have direct access to any third party systems-level software that
retrieves data for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment; Designated Location. The System and the Data
Access Services shall be used and accessed solely on and through the Designated
Configuration at the offices of the Customer or the Investment Advisor located
in ____________________ ("Designated Location").
<PAGE> 2
b. Designated Configuration: Trained Personnel. State Street shall be
responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and the Customer agree
that each will engage or retain the services of trained personnel to enable both
parties to perform their respective obligations under this Addendum. State
Street agrees to use commercially reasonable efforts to maintain the System so
that it remains serviceable, provided, however, that State Street does not
guarantee or assure uninterrupted remote access use of the System.
c. Scope of Use. The Customer will use the System and the Data Access
Services only for the processing of securities transactions, the keeping of
books of account for the Customer and accessing data for purposes of reporting
and analysis. The Customer shall not, and shall cause its employees and agents
not to (i) permit any third party to use the System or the Date Access Services,
(ii) sell, rent, license or otherwise use the System or the Data Access Services
in the operation of a service bureau or for any purpose other than as expressly
authorized under this Addendum, (iii) use the System or the Data Access Services
for any fund, trust or other investment vehicle without the prior written
consent of State Street, (iv) allow access to the System or the Data Access
Services through terminals or any other computer or telecommunications
facilities located outside the Designated Locations, (v) allow or cause any
information (other than portfolio holdings, valuations of portfolio holdings,
and other information reasonably necessary for the management or distribution of
the assets of the Customer) transmitted from State Street's databases, including
data from third party sources. available through use of the System or the Data
Access Services to be redistributed or retransmitted to another computer,
terminal or other device for other than use for or on behalf of the Customer or
(vi) modify the System in any way, including without limitation, developing any
software for or attaching any devices or computer programs to any equipment,
system, software or database which forms a part of or is resident on the
Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned
System shutdown, the Customer's access to services performed by the System or to
Data Access Services at the Designated Location may be transferred to a
different location only upon the prior written consent of State Street. In the
event of an emergency or System shutdown, the Customer may use any back-up site
included in the Designated Configuration or any other back-up site agreed to by
State Street, which agreement will not be unreasonably withheld. The Customer
may secure from State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or devices complying
with the Designated Configuration at additional locations only upon the prior
written consent of State Street and on terms to be mutually agreed upon by the
parties.
e. Title. Title and all ownership and proprietary rights to the System,
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street,
the Customer shall not modify, enhance or otherwise create derivative works
based upon the System, nor shall the Customer reverse engineer, decompile or
otherwise attempt to secure the source code for all or any part of the System.
g. Security Procedures. The Customer shall comply with data access
operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and to
access the Date Access Services. The Customer shall have access only to the
Customer Data and authorized transactions agreed upon from time to time by State
Street and, upon notice from State Street, the Customer shall discontinue remote
use of the System and access to Data Access Services for any security reasons
cited by State Street; provided, that, in such event, State Street shall, for a
period not less than 180 days (or such other shorter period specified by the
Customer) after such discontinuance, assume responsibility to provide accounting
services under the terms of the Custodian Contract.
h. Inspections. State Street shall have the right to inspect the use of
the System and the Data Access Services by the Customer and the Investment
Advisor to ensure compliance with this Addendum. The on-site inspections shall
be upon prior written notice to the Customer and the Investment Advisor and at
reasonably convenient times and frequencies so as not to result in an
unreasonable disruption of the Customer's or the Investment Advisor's business.
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Customer acknowledges and State Street
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information made available to the Customer by State Street as part of the Data
Access Services and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State
2
<PAGE> 3
Street. Any and all such information provided by State Street to the Customer
shall be deemed proprietary and confidential information of State Street
(hereinafter "Proprietary Information"). The Customer agrees that it will hold
such Proprietary Information in the strictest confidence and secure and protect
it in a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder. The Customer further
acknowledges that State Street shall not be required to provide the Investment
Advisor with access to the System unless it has first received from the
Investment Advisor an undertaking with respect to State Street's Proprietary
Information in the form of Attachment C to this Addendum. The Customer also
acknowledges that State Street shall not be required to provide Customer's
independent auditor with access to the System unless it has first received from
such independent auditor an undertaking with respect to State Street's
Proprietary Information in the form of Attachment C-1 to this Addendum. The
Customer shall use all commercially reasonable efforts to assist State Street
in identifying and preventing any unauthorized use, copying or disclosure of
the Proprietary Information or any portions thereof or any of the logic,
formats or designs contained therein.
b. Cooperation. Without limitation of the foregoing, the Customer shall
advise State Street immediately in the event the Customer learns or has reason
to believe that any person to whom the Customer has given access to the
Proprietary Information, or any portion thereof, has violated or intends to
violate the terms of this Addendum, and the Customer will, at its expense,
co-operate with State Street in seeking injunctive or other equitable relief in
the name of the Customer or State Street against any such person.
c. Injunctive Relief. The Customer acknowledges that the disclosure of
any Proprietary Information, or of any information which at law or equity ought
to remain confidential, will immediately give rise to continuing irreparable
injury to State Street inadequately compensable in damages at law. In addition,
State Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival. The provisions of this Section 4 shall survive the
termination of this Addendum.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. The Customer
agrees that any liability of State Street to the Customer or any third party
arising out of State Street's provision of Data Access Services or the System
under this Addendum shall be limited to the amount paid by the Customer for the
preceding 24 months for such services. In no event shall State Street be liable
to the Customer or any other party for any special, indirect, punitive or
consequential damages even if advised of the possibility of such damages. No
action, regardless of form, arising out of this Addendum may be brought by the
Customer more than two years after the Customer has knowledge that the cause of
action has arisen.
b. Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET.
c. Third-Party Data. Organizations from which State Street may obtain
certain data included in the System or the Data Access Services are solely
responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and the Customer,
the Customer shall be solely responsible for the accuracy of any accounting
statements or reports produced using the Data Access Services and the System and
the conformity thereof with any requirements of law.
e. Force Majeure. Neither party shall be liable for any costs or
damages due to delay or nonperformance under this Addendum arising out of any
cause or event beyond such party's control, including without limitation,
cessation of services hereunder or any damages resulting therefrom to the other
party, or the Customer as a result of work stoppage, power or other mechanical
failure, computer virus, natural disaster, governmental action, or communication
disruption.
3
<PAGE> 4
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street harmless from any loss,
damage or expense including reasonable attorney's fees, (a "loss") suffered by
State Street arising from (i) the negligence or willful misconduct in the use
by the Customer of the Data Access Services or the System, including any loss
incurred by Stale Street resulting from a security breach at the Designated
Location or committed by the Customer's employees or agents or the Investment
Advisor and (ii) any loss resulting from incorrect Client Originated Electronic
Financial Instructions. State Street shall be entitled to rely on the validity
and authenticity of Client Originated Electronic Financial Instructions without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by State Street from time to
time.
7. FEES
Fees and charges for the use of the System and the Data Access Services, if
any, and related payment terms shall be as set forth in the fee schedule in
effect from time to time between the parties related to the Custodian Contract
(the "Fee Schedule"). Any tariffs, duties or taxes imposed or levied by any
government or governmental agency by reason of the transactions contemplated by
this Addendum, including, without limitation, federal, state and local taxes,
use, value added and personal property taxes (other than income, franchise or
similar taxes which may be imposed or assessed against State Street) shall be
borne by the Customer. Any claimed exemption from such tariffs, duties or taxes
shall be supported by proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated
State Street training facility or at the Designated Location, to the Customer's
personnel in connection with the use of the System on the Designated
Configuration. The Customer agrees that it will set aside, during regular
business hours or at other times agreed upon by both parties, sufficient time to
enable all operators of the System and the Data Access Services, designated by
the Customer, to receive the training offered by State Street pursuant to this
Addendum.
b. Installation and Conversion. State Street shall be responsible for
the technical installation and conversion ("Installation and Conversion") of
the Designated Configuration. The Customer shall have the following
responsibilities in connection with Installation and Conversion of the System:
(i) The Customer shall be solely responsible for the
timely acquisition and maintenance of the hardware
and software that attach to the Designated
Configuration in order to use the Data Access
Services at the Designated Location.
(ii) State Street and the Customer each agree that they
will assign qualified personnel to actively
participate during the Installation and Conversion
phase of the System implementation to enable both
parties to perform their respective obligations
under this Addendum.
9. SUPPORT
During the term of this Addendum, State Street agrees to provide the
support services set out in Attachment D to this Addendum.
10. TERM OF ADDENDUM
a. Term of Addendum. This Addendum shall become effective
simultaneously with State Street's execution of the Custodian Contract and shall
remain in full force and effect until terminated as herein provided.
b. Termination of Addendum. Either party may terminate this Addendum
(i) for any reason by giving the other party at least one-hundred and eighty
days' prior written notice in the case of notice of termination by State Street
to the Customer or thirty days' notice in the case of notice from the Customer
to State Street of termination; or (ii) immediately for failure of the other
party to comply with any material term and condition of the Addendum by giving
the other party written notice of termination. In the event the Customer shall
cease doing business, shall become subject to proceedings under the bankruptcy
laws (other than a petition for reorganization or similar proceeding) or shall
be adjudicated bankrupt, this Addendum and the rights granted hereunder shall,
at the option of State Street, immediately terminate with notice to the
Customer. This Addendum shall in any event
4
<PAGE> 5
terminate as to any Customer within 90 days after the termination of the
Custodian Contract applicable to such Customer.
C. Termination of the Right to Use. Upon termination of this Addendum
for any reason, any right to use the System and access to the Data Access
Services shall terminate and the Customer shall immediately cease use of the
System and the Data Access Services. Immediately upon termination of this
Addendum for any reason, the Customer shall return to State Street all copies of
documentation and other Proprietary Information in its possession; provided,
however, that in the event that either party terminates this Addendum or the
Custodian Contract for any reason other than the Customer's breach, State
Street shall provide the Date Access Services for a period of time and at a
price to be agreed upon by the parties.
11. MISCELLANEOUS
a. Assignment; Successors. This Addendum and the rights and
obligations of the Customer and State Street hereunder shall not be assigned by
either party without the prior written consent of the other party, except that
State Street may assign this Addendum to a successor of all or a substantial
portion of its business, or to a party controlling, controlled by, or under
common control with State Street.
b. Survival. All provisions regarding indemnification, warranty,
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Addendum.
c. Entire Contract. This Addendum and the attachments hereto constitute
the entire understanding of the parties hereto with respect to the Data Access
Services and the use of the System and supersedes any and all prior or
contemporaneous representations or agreements, whether oral or written, between
the parties as such may relate to the Data Access Services or the System, and
cannot be modified or altered except in a writing duly executed by the parties.
This Addendum is not intended to supersede or modify the duties and liabilities
of the parties hereto under the Custodian Contract or any other agreement
between the parties hereto except to the extent that any such agreement
specifically refers to the Data Access Services or the System. No single waiver
of any right hereunder shall be deemed to be a continuing waiver.
d. Severability. If any provision or provisions of this Addendum shall
be held to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Addendum shall be interpreted and construed in
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
5
<PAGE> 6
ATTACHMENT A
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
MULTICURRENCY HORIZON(SM) ACCOUNTING SYSTEM
SYSTEM PRODUCT DESCRIPTION
[ ] The Multicurrency HORIZON(SM) Accounting System is designed to provide
lot level portfolio and general ledger accounting for SEC and ERISA
type requirements and includes the following services: 1) recording of
general ledger entries; 2) calculation of daily income and expense; 3)
reconciliation of daily activity with the trial balance; and 4)
appropriate automated feeding mechanisms to (i) domestic and
international settlement systems, (ii) daily, weekly and monthly
evaluation services, (iii) portfolio performance and analytic services,
(iv) customer's internal computing systems and (v) various State
Street provided information services products.
[ ] GlobalQuest(R) is designed to provide customer access to the following
information maintained on The Multicurrency HORIZON(SM) Accounting
System: 1) cash transactions and balances; 2) purchases and sales; 3)
income receivables; 4) tax refund receivables; 5) daily priced
positions; 6) open trades; 7) settlement status; 8) foreign exchange
transactions; 9) trade history; and 10) daily, weekly and monthly
evaluation services.
[ ] HORIZON(R) Gateway. HORIZON(R) Gateway provides customers with the
ability to (i) generate reports using information maintained on the
Multicurrency HORIZON(R) Accounting System which may be viewed or
printed at the customer's location; (ii) extract and download data
from the Multicurrency HORIZON(R) Accounting System; and (iii) access
previous day and historical data. The following information which may
be accessed for these purposes: 1) holdings; 2) holdings pricing; 3)
transactions; 4) open trades; 5) income; 6) general ledger and 7)
cash.
[ ] SaFIRe(SM). SaFIRe(SM) is designed to provide the customer with the
ability to prepare its own financial reports by permitting the
customer to access customer information maintained on the
Multicurrency HORIZON(R) Accounting System, to organize such
information in a flexible reporting format and to have such reports
printed on the customer's desktop or by its printing provider.
[ ] State Street Interchange. State street Interchange is an open
Information delivery architecture wherein proprietary communication
products, data formats and workstation tools are replaced by industry
standards and is designed to enable the connection of State Street's
network to customer networks, thereby facilitating the sharing of
information.
6
<PAGE> 7
ATTACHMENT B
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
7
<PAGE> 8
ATTACHMENT C
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
UNDERTAKING
The undersigned understands that in the course of its employment as
Investment Advisor to American General Series Portfolio Company 3 (the
"Customer") it will have access to State Street Bank And Trust Company's ("State
Street") Multicurrency HORIZON(SM) Accounting System and other information
systems (collectively, the "System").
The undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation and other information made available to the
undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade secret,
or other proprietary information of substantial value to State Street. Any and
all such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
[Investment Advisor]
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
8
<PAGE> 9
ATTACHMENT C-1
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
UNDERTAKING
The undersigned understands that in the course of its employment as
Independent Auditor to American General Series Portfolio Company 3 (the
"Customer") it will have access to State Street Bank and Trust Company's ("State
Street") Multicurrency HORIZON Accounting System and other information systems
(collectively, the "System").
The undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation, and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade secret,
or other proprietary information of substantial value to State Street. Any and
all such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
[Independent Auditor]
By:
Title:
Date:
9
<PAGE> 10
ATTACHMENT D
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
SUPPORT
During the term of this Addendum, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Customer Designated Persons may contact State
Street's Multicurrency HORIZON(SM) Help Desk and Customer Assistance Center
between the hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for
the purpose of obtaining answers to questions about the use of the System, or to
report apparent problems with the System. From time to time, the Customer shall
provide to State Street a list of persons, not to exceed five in number, who
shall be permitted to contact State Street for assistance (such persons being
referred to as "the Customer Designated Persons").
b. Technical Support. State Street will provide technical support to
assist the Customer in using the System and the Data Access Services. The total
amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Customer any
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Customer and shall offer the Customer reasonable
training on the enhancement. Charges for system enhancements shall be as
provided in the Fee Schedule. State Street retains the right to charge for
related systems or products that may be developed and separately made available
for use other than through the System.
e. Custom Modifications. In the event the Customer desires custom
modifications in connection with its use of the System, the Customer shall make
a written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
support the Customer's use of the System: (i) for use on any computer equipment
or telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Customer has modified the System in
breach of this Addendum.
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<PAGE> 1
EXHIBIT 9(c)
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, dated as of the 7th day of October, 1998, made by and between
American General Series Portfolio Company 2 (the "Company"), a business trust
operating as an open end investment company, duly organized and existing under
the laws of the State of Delaware, and The Variable Annuity Life Insurance
Company ("VALIC"), a stock insurance company duly organized and existing under
the laws of the State of Texas:
WITNESSETH THAT:
WHEREAS, The Company desires to appoint VALIC as its Administrative
Services Agent to maintain and keep current the books, accounts, records,
journals or other records of original entry relating to the business of the
Company as set forth in Section 1 of this Agreement (the "Accounts and
Records") and to perform certain daily functions in connection with such
Accounts and Records; and
WHEREAS, VALIC is authorized to contract on behalf of the Company with
service providers for the purpose of daily valuation of the Company portfolios;
and
WHEREAS, VALIC is willing to perform such functions upon the terms and
conditions set forth below; and
NOW, THEREFORE, In consideration of the premises and mutual covenants
herein contained, the parties hereto, intending to be legally bound, do hereby
agree as follows:
Section 1.
VALIC, upon receipt of necessary information and written or verbal instructions
from the Company, shall maintain and keep current the following books: Accounts
and Records, journals or other records of original entry relating to the
business of the Company, and necessary or advisable for compliance with
applicable regulations, including Rules 31(a)-1 and 31(a)-2 of the Investment
Company Act of 1940, as amended (the "1940 Act"), in such form as may be
mutually agreed to between the Company and VALIC:
(a) Cash Receipts
(b) Cash Disbursements
(c) Dividend Record
(d) Purchase and Sales of Portfolio Securities
(e) Subscription and Redemption Journals
(f) Security Ledgers
(g) Broker Ledger
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<PAGE> 2
(h) General Ledger
(i) Daily Expense Accruals
(j) Securities and Monies borrowed or loaned and collateral therefor
(k) Daily Trial Balances
It shall be the responsibility of the Company to furnish or cause to be
furnished to VALIC, the declaration, record, payment dates and amounts of any
dividends or income and any other special actions required on or concerning
each of its portfolio securities.
Section 2.
Upon receipt by VALIC of written or verbal instructions, VALIC shall make the
proper accounting entries in accordance therewith and notify the Company of all
cash and securities. VALIC, as Investment Adviser, shall direct that the
broker-dealer, or other person through whom a transaction has occurred, send a
confirmation to VALIC. VALIC shall verify this confirmation against the
written or verbal instructions when received from the Company.
Section 3.
VALIC shall calculate the Company's net asset value in accordance with the
Company's currently effective Registration Statement, once daily.
VALIC shall calculate the daily dividend rate for the Money Market Fund in
accordance with the prospectus of the Money Market Fund and with resolutions of
the Company's Board of Trustees. VALIC shall prepare and maintain a daily
evaluation of securities and other investments for which market quotations are
available by VALIC's approved pricing services; all other securities or
investments shall be evaluated in accordance with the Company's written
instructions.
Section 4.
For all purposes under this Agreement, VALIC is authorized to act upon receipt
of any written or verbal instructions it receives from the Company.
Section 5.
VALIC shall supply daily and periodic reports to the Company as requested by
the Company and agreed upon by VALIC.
Section 6.
VALIC shall compile daily reports of share purchases, redemptions, and total
shares outstanding. Reports of purchases and redemptions so received shall be
deemed to be share orders to the Company and shall be deemed to be orders
accepted by the Company when so received.
2
<PAGE> 3
Section 7.
The accounts and records, in the agreed upon format, maintained by VALIC shall
be the property of the Company, and shall be made available to the Company
within a reasonable period of time, upon proper demand. VALIC shall assist the
Company's independent auditors, or upon approval of the Company, or upon
demand, any regulatory body, in any requested review of the Company's accounts
and records but shall be reimbursed for all expenses and employee time invested
in such review outside of routine and normal periodic reviews. Upon receipt
from the Company of the necessary information VALIC shall supply the necessary
data for the Company or accountant's completion of any necessary tax return,
questionnaires, periodic reports to shareholders and such other reports and
information requests as the Company and VALIC shall agree upon from time to
time.
Section 8.
VALIC and the Company may from time to time adopt such procedures as they agree
upon, and VALIC may conclusively assume that any procedure approved in writing
by the Company or directed in writing by the Company, does not conflict with or
violate any requirements of its prospectus, Agreement and Declaration of Trust,
Bylaws, or any rule or regulation of any body or governmental agency. The
Company shall be responsible for notifying VALIC of any changes in regulations
or rules which might necessitate changes in VALIC's procedures.
Section 9.
VALIC may rely on information reasonably believed by it to be accurate and
reliable. Except as may otherwise be required by the 1940 Act and the rules
thereunder, neither VALIC nor its shareholders, officers, directors, employees,
agents, control persons or affiliates of any thereof shall be subject to any
liability for, or any damages, expenses or losses incurred by the Company in
connection with, any error of judgment, mistake of law, any act or omission
connected with or arising out of any services rendered under or payments made
pursuant to this Agreement or any other matter to which this Agreement relates,
except by reason of willful misfeasance, bad faith or gross negligence on the
part of any of such persons in the performance of the duties of VALIC under the
Agreement or by reason of reckless disregard by any of such persons of the
obligations and duties of VALIC under this Agreement.
Section 10.
The Company agrees to pay VALIC monthly compensation for its services as set
forth in Schedule A, which is hereby attached and made a part of this
Agreement.
Section 11.
Nothing contained in this Agreement is intended to or shall require VALIC, in
any capacity hereunder, to perform any functions or duties on any holiday, day
of special observance or any other
3
<PAGE> 4
day on which VALIC or the New York Stock Exchange is closed. Functions or
duties normally scheduled to be performed on such days shall be performed on
the next succeeding business day on which both the New York Stock Exchange and
VALIC are open.
Section 12.
VALIC may from time to time in its sole discretion delegate some or all of its
duties hereunto to an entity designated by VALIC, which entity shall perform
such functions as the agent of VALIC. To the extent of such delegation, the
term "VALIC" in this Agreement shall be deemed to refer to both VALIC and to
such entity designated by VALIC, or to either of them, as the context may
indicate.
Section 13.
The following terms used in this Agreement, or in any amendment or supplement
hereto, shall have the meanings herein specified unless the context otherwise
requires.
VALIC: The term "VALIC" shall mean The Variable Annuity Life Insurance Company
and if used in connection with or relative to any act or omission involving an
entity designated by VALIC, the term shall refer to The Variable Annuity Life
Insurance Company and such designated entity.
Verbal Instruction: The term "verbal instruction" shall mean an authorization,
instruction, approval, item or set of data, or information of any kind
transmitted to VALIC in person or by facsimile, telephone, telegram, telecopy,
or other mechanical, electronic or documentary means lacking original
signature, by a person or persons believed in good faith by VALIC to be a
person or persons authorized by a resolution of the Board of Trustees of the
Company to give verbal instructions on behalf of the Company.
Shares: The term "shares" shall mean the issued and outstanding shares of
common stock of the Company.
Written Instruction: The term "written instruction" shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to VALIC in original writing containing original
signatures believed in good faith by VALIC to be the signature of a person
authorized by a resolution of the Board of Trustees of the Company to give
written instructions on behalf of the Company.
Section 14.
The Company shall from time to time file with VALIC a certified copy of each
resolution of its Board of Trustees authorizing the transmittal of verbal
instructions and specifying the person or persons authorized to give verbal
instructions in accordance with the Agreement. If the certifying officer is
authorized to give verbal instructions, the certification also shall be signed
by a second officer of the Company. Upon transmitting any verbal instruction,
the Company shall promptly
4
<PAGE> 5
forward to VALIC a written instruction confirming the authorization,
instruction or approval transmitted by such verbal instruction.
Section 15.
Either the Company or VALIC may give written notice to the other of the
termination of this Agreement, such termination to take effect at the time
specified in the notice not less than sixty (60) days after the giving of the
notice.
Section 16.
This Agreement shall be governed by the laws of the State of Texas.
Section 17.
The execution of this Agreement has been authorized by the Company's Trustees
and by the sole shareholder. This Agreement is executed on behalf of the
Company or the Trustees of the Company as Trustees and not individually and
that the obligations of this Agreement are not binding upon any of the
Trustees, officers or shareholders of the Company individually, but are not
binding only upon the assets and property of the Company. A Certificate of
Trust in respect of the Company is on file with the Secretary of the State of
Delaware.
IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be signed
by their duly authorized officers and their corporate seals hereunto duly
affixed and attested, as of the day of year first above written.
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 2
By:
----------------------------
Title:
Witness:
----------------------------
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY
By:
----------------------------
Title:
Witness:
----------------------------
5
<PAGE> 6
SCHEDULE A
Accounting Services Compensation Schedule
(Effective October 7, 1998)
The Accounting Services Fee of 3 basis points is an annual fee payable monthly
based on average daily net assets.
6
<PAGE> 1
EXHIBIT 9(d)
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is entered into as of the 7th day of October, 1998, by
and among VALIC Retirement Services Company, a Texas corporation, ("Service
Provider"), VALIC Investment Services Company, a Texas corporation, ("Dealer"),
and American General Series Portfolio Company 2 (the "Trust"), a Delaware
business trust, all of which have their principal offices at 2929 Allen Parkway,
Houston, Texas 77019.
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"), and offers shares of
beneficial interests ("Shares") in several series (each a "Fund" and
collectively, the "Funds"), each Fund having its own investment objectives and
investment policies and issuing Shares in several classes ("Classes"); and
WHEREAS, a Certificate of Trust is on file with the Secretary of the
State of Delaware; and
WHEREAS, the Service Provider has been selected by certain employee
retirement benefit plans (each a "Plan" and collectively, the "Plans") to
provide certain administrative and recordkeeping services to the Plans and their
participants ("Participants") in connection with their investments in the Funds;
and
WHEREAS, the Dealer provides securities order processing services to
the trustee and/or custodian of the Plans and provides services to Plan
Participants; and
WHEREAS, the Service Provider, the Dealer, and the Trust desire that
the purchase and redemption of shares of the Funds be facilitated through one or
more omnibus accounts that has or have been established in the name of VALIC
Trust Company as trustee and/or custodian of the Plan; and
WHEREAS, the services to be provided by the Service Provider and the
Dealer hereunder will benefit the Trust by relieving it of the expense it would
incur if such services were to be provided by the Trust;
WHEREAS, the Trust desires that the Service Provider and the Dealer
provide services with respect to the Plans and the Service Provider and the
Dealer desire to provide such services; and
<PAGE> 2
WHEREAS, this Agreement is executed on behalf of the Trust or the
Trustees of the Trust as Trustees and not individually and that the obligations
of this Agreement are not binding upon any of the Trustees, officers or
shareholders of the Trust individually, but are binding only upon the assets and
property of the Trust. A Certificate of Trust in respect of the Trust is on file
with the Secretary of the State of Delaware.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. TERMS OF APPOINTMENT; DUTIES OF THE PARTIES
1.01. The Service Provider and the Dealer. The Service Provider and
the Dealer shall perform the services described herein, with
respect to the Funds and Classes identified on Schedule A hereto,
in accordance with procedures established from time to time by
agreement of the Trust, the Service Provider, and the Dealer, and
between the Service Provider and the Plans, in each case subject
to terms and conditions set forth in each of the Trust's current
prospectus. Except as specifically provided herein, neither the
Service Provider nor the Dealer shall be or be held out to be an
agent of the Trust or any Fund.
(a) The Service Provider shall receive from the Plans, Plan
Participants, Plan sponsors, authorized Plan committees or
Plan trustees, according to the Service Provider's agreement
with each Plan, by the close of regular trading on the New
York Stock Exchange (the "Close of Trading") each business
day that the New York Stock Exchange is open for business
("Business Day") instructions for the purchase, redemption
and exchange of Shares (together, "Instructions");
(b) Based on Instructions received each Business Day, the
Service Provider shall compute net purchase requests or net
redemption requests for Shares for each Fund for each Plan
(together, "Orders"); (solely for purposes of receiving
Instructions for the processing of Orders, and subject to
the terms and conditions set forth in this Agreement, the
Service Provider shall be deemed to be an agent for the
Funds);
(c) The Service Provider and the Dealer shall maintain records
as required by applicable law related to, and advise the
Trust as to the foregoing as instructed by the Trust. The
Service Provider and the Dealer agree that such records
maintained by them in connection with their activities under
this Agreement will be preserved,
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<PAGE> 3
maintained and made available in accordance with applicable
law and regulations, and copies or, if required, originals
will be surrendered promptly to the Trust on and in
accordance with its request. Records surrendered hereunder
shall be in machine readable form, except to the extent that
the Service Provider and the Dealer have maintained such
records only in paper form. This provision shall survive the
termination of this Agreement.
(d) The Dealer shall transmit Orders to the Trust or its agent
by the Close of Trading each Business Day. Such Orders shall
be based solely on Instructions received in proper form by
the Service Provider from the Plans, Plan Participants, Plan
sponsors, authorized Plan committees or Plan trustees,
according to the Service Provider's agreement with each
Plan, by the Close of Trading each Business Day.
Instructions received by the Service Provider after the
Close of Trading on any Business Day shall be treated as
though received on the next Business Day. The Dealer and the
Service Provider shall maintain internal controls reasonably
designed to prevent Plan Instructions received after the
Close of Trading on any Business Day from being aggregated
with any Order transmitted or otherwise communicated to the
Transfer Agent as if it were received prior to the Close of
Trading.
(e) The Dealer shall transmit Orders to the Trust or its agent
by no later than 9:00 AM Eastern Time on the first Business
Day following the Business Day on which the Order was
received. The Business Day on which Instructions are
received in proper form by the Service Provider prior to the
Close of Trading will be the Business Day as of which Orders
will be deemed received by the Trust or its agent. For
purposes of Section 1.01(d) and this Section 1.01(e), proper
form shall mean when amounts to be purchased or redeemed are
identified on the Service Provider's recordkeeping system by
Participant, Plan, and Fund.
(f) The Dealer shall promptly deliver, or instruct the Plans (or
the Plans' trustees as the case may be) to deliver to the
Trust or its agent, appropriate documentation and in the
case of purchase requests, payment therefor.
1.02. Equipment. The Service Provider and the Dealer shall maintain
adequate offices, personnel, computers and other equipment
necessary to perform the services contemplated by this Agreement.
The Service Provider and the Dealer shall notify the Trust or its
agent promptly in the event that either the Service Provider
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<PAGE> 4
or the Dealer becomes unable for any reason to perform the
services contemplated by, or any other of its obligations under,
this Agreement. The Service Provider or the Dealer shall maintain
or cause the maintenance of back-up files of the records required
to be maintained hereunder and shall store such back-up files in
a secure off-premises location, so that, in the event of a power
failure or other interruption of whatever cause at the location
of the records, the Service Provider's and the Dealer's records
are maintained intact and transactions can be processed at
another location.
1.03. Disclosure to Plans. The Service Provider shall take all steps
necessary to ensure that the arrangements provided for in this
Agreement are properly disclosed to the Plans.
1.04. Transmission of Information to the Service Provider. In
accordance with procedures established from time to time by
agreement of the Trust and the Service Provider, the Trust or its
agent shall transmit to the Service Provider the following
information for each Fund, as received by the Trust or its agent:
(a) net asset value information as of the Close of Trading each
Business Day;
(b) dividend and capital gains distribution information, as it
arises; and
(c) daily accrual for dividend rate factor (mil rate)
information with respect to the Funds which declare
dividends daily. The Trust or its agent shall transmit to
the Service Provider such information, using its best
efforts by 6:30 PM Eastern Time, on each Business Day that
such information is available.
1.05. Representations Regarding Shares. Any representation made by the
Service Provider regarding any Shares of a Fund shall be in its
capacity as agent for the Plans and not in its capacity as agent
of the Trust or any of the Funds. Similarly, any representation
made by the Dealer regarding any Shares of a Fund shall be in its
capacity as agent for the trustee and/or custodian of a Plan or
as agent of a Participant. Neither the Service Provider nor the
Dealer shall make any representation in any capacity regarding
any Shares of a Fund that is not set forth in the Trust's current
prospectus, statement of additional information or current sales
literature as furnished by the Trust or its agent. To the extent
that the Service Provider or the Dealer shall create sales
literature identifying the Trust or the Funds, all such sales
literature shall be submitted for approval to the Trust within
ten (10) days in advance of the earlier of (a) its intended use
or (b) its filing
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<PAGE> 5
with the National Association of Securities Dealers, Inc.
("NASD"). The Dealer shall be responsible for the expense and
filing of any sales literature that it, with the approval of the
Trust, creates.
1.06. Confidentiality of Information. The parties hereto agree that
all books, records, information, computer programs and data
pertaining to the business of any other party which are exchanged
or received pursuant to the negotiation or the carrying out of
this Agreement shall be kept confidential and shall not be
voluntarily disclosed to any other person, except as may be
permitted hereunder or may be required by law. This provision
shall not apply to information lawfully in the possession of a
party prior to the term hereof that has been lawfully obtained
from other sources or independently developed by a party without
reference to or reliance on information obtained from any other
party hereto. This provision shall survive the termination of
this Agreement.
1.07. Compliance with Law. All of the parties shall at all times
comply with all applicable federal and state laws and regulations
thereunder, including the rules of any self-regulatory
organization, in connection with the performance of each of the
parties' responsibilities under this Agreement.
1.08. Administrative Services. The Service Provider and the Dealer
shall perform the administrative and recordkeeping services (the
"Administrative Services") described in Schedule B attached
hereto, as such Schedule B may be amended from time to time with
the mutual consent of the parties hereto, with respect to Shares
purchased, held or redeemed by a Plan. Except as provided
specifically in Section 1.01(b) hereof, the Service Provider and
the Dealer shall perform the Administrative Services as
independent contractors and not as employees or agents of the
Trust or any Fund. The Service Provider and the Dealer shall
perform the Administrative Services in accordance with procedures
established from time to time by the agreement of the Trust, the
Service Provider, and the Dealer, and subject to terms and
conditions set forth in the Trust's current prospectus.
1.09. No Impairment of Trust's Authority. No provision of this
Agreement shall limit in any way the authority of the Trust to
take such action as it deems appropriate in connection with
matters relating to the operation of the Funds and the sale of
Shares.
1.10. Authority of the Service Provider and the Dealer. The Service
Provider and the Dealer acknowledge that neither is authorized by
the Trust or any Fund to register the transfer of Shares or to
transfer record ownership of Shares, and that only the Trust or
its agent is authorized to perform such activities.
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<PAGE> 6
2. COMPENSATION
2.01. Service Provider's Expenses. The Service Provider and the Dealer
shall bear all expenses arising out of the performance of the
Administrative Services and of the performance of their functions
described herein. Neither the Service Provider nor the Dealer
shall receive (nor shall any agent of the Service Provider or
Dealer receive) from the Trust or any Fund (or from any affiliate
of the Trust) any monetary compensation or reimbursement for such
expenses.
2.02. Trust's and Fund Expenses. The Trust shall bear all the expenses
of the Funds hereunder and shall not receive (nor shall any agent
of the Trust receive) from the Service Provider or the Dealer any
monetary compensation or reimbursement for such expenses.
2.03. Administrative Fees. In consideration of the Service Provider's
and the Dealer's performance of the Administrative Services, the
Trust, from the assets of each Fund, severally and not jointly,
shall pay either to the Service Provider or the Dealer the fees
(the "Administrative Fees") described in Schedule C attached
hereto, as such Schedule C may be amended from time to time with
the mutual consent of the Service Provider or the Dealer (as the
case may be) and the Trust and the relevant Fund. The Service
Provider or the Dealer must notify the Trust in writing
immediately upon the opening of any new omnibus account with the
Trust. The Dealer shall perform Administrative Services
hereunder without compensation therefor.
2.04. Calculation and Payment of Fees. The Administrative Fees shall
be calculated in the manner described in Schedule C hereto and
shall be due each calendar month from the Trust on behalf of each
Fund for which the Service Provider and the Dealer perform
Administrative Services pursuant to this Agreement. The Trust
shall make a payment for Administrative Fees for a calendar month
within thirty (30) days after the last day of such month. The
Service Provider or the Dealer shall have sixty (60) days
following receipt of the payment to verify the amount of the
payment and after such time the amount will be considered final.
3. REPRESENTATIONS AND WARRANTIES
3.01. Service Provider's Representations. The Service Provider
represents and warrants to the Trust that:
(a) it is a corporation duly organized and validly existing and
in good standing under the laws of the State of Texas;
(b) it has full power and authority under applicable law to
carry on its business, and is registered or licensed as
required, in each jurisdiction where it conducts its
business, and the performance of its obligations hereunder
does not and will not violate or conflict with any governing
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<PAGE> 7
document or agreement of the Service Provider or any
applicable law, including, but not limited to, the Employee
Retirement Income Security Act of 1974;
(c) it maintains and knows of no reason why it cannot or will
not during the term hereof maintain adequate offices,
personnel, computers and other equipment necessary to
perform the services contemplated by this Agreement;
(d) the Service Provider's internal control structure over the
processing and transmission of Plan Instructions is suitably
designed to (i) prevent Instructions received after the
Close of Trading from being aggregated and communicated to
the Trust with Instructions received before the Close of
Trading and (ii) minimize errors that could result in the
late transmission of such Instructions;
3.02. Dealer Representations. The Dealer represents and warrants to
the Trust and each Fund that:
(a) it is a corporation duly organized and validly existing and
in good standing under the laws of the State of Texas;
(b) it has full power and authority under applicable law to
carry on its business, and is registered or licensed as
required, in each jurisdiction where it conducts its
business;
(c) (i) it is duly registered as a broker-dealer under section
15 of the Securities Exchange Act of 1934, (ii) it is duly
registered as an investment adviser under section 203 of the
Investment Advisers Act of 1940, and (iii) is a member in
good standing of the NASD, and is in compliance with the
conditions and qualifications set forth in the Conduct Rules
of the NASD;
(d) it will not purchase Shares of a Fund for its own account or
otherwise act as principal in connection with the purchase
or the redemption of Shares of a Fund;
(e) it maintains and knows of no reason why it cannot or will
not, during the term hereof, maintain adequate offices,
personnel, procedures, computers and other equipment
necessary to perform the services contemplated by this
Agreement; and
(f) its entering into and performing this Agreement are duly
authorized by any necessary corporate actions and will not
violate any provision of
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<PAGE> 8
applicable law or regulation or order of any court,
governmental or regulatory body, or any agreement or
instrument by which it is bound.
3.03. Trust's Representations. The Trust represents on its own behalf,
and for each Fund, and warrants to the Service Provider and the
Dealer that:
(a) the Trust is registered with the SEC as an open-end
management investment company under the 1940 Act;
(b) and the Shares of each of the Funds identified in Schedule A
attached hereto are registered under the Securities Act of
1933 ("1933 Act");
(c) the Trust shall amend the Registration Statement for the
Shares on Form N-1A under the 1933 Act and the 1940 Act from
time to time in order to effect the continuous offering of
the Shares;
(d) the Trust shall register or qualify the Shares for sale in
accordance with the laws of various states only if and to
the extent deemed advisable by the Trust, the Service
Provider, or the Dealer; and
(e) the entering into and the performing of this Agreement by
the Trust are duly authorized and will not violate any
provision of applicable law, regulation or order of any
court, governmental or regulatory body, or any agreement or
instrument by which the Trust and the Funds are bound.
4. INDEMNIFICATION
4.01. By The Trust. The Trust, on behalf of each Fund, shall indemnify
and hold the Service Provider, the Dealer (including any
affiliate of the foregoing), and the directors, trustees,
officers and employees of the Service Provider and the Dealer
harmless from and against any and all losses, damages, costs,
charges, reasonable counsel fees, payments, expenses and
liabilities ("Losses") arising out of or attributable to:
(a) the Trust's, its agent's, or the Fund's refusal or failure
to comply with the provisions of this Agreement or
applicable law;
(b) the bad faith, negligence or willful misconduct of the
Trust, its agent, or any Fund; or
(c) the breach of any representation or warranty of the Trust on
behalf of itself or a Fund hereunder, in each case except to
the extent such Losses arise out of or are attributable to
another party's breach of any provision of this
8
<PAGE> 9
Agreement or the bad faith, negligence or willful misconduct
of another party in performing its obligations hereunder.
4.02. By Service Provider. The Service Provider shall indemnify and
hold the Trust, each affiliate of the Trust, each Fund, and the
trustees, officers and employees of the Trust harmless from and
against any and all Losses arising out of or attributable to:
(a) the Service Provider's or its agent's refusal or failure to
comply with the provisions of this Agreement or applicable
law or with instructions properly given hereunder, whether
it is performing functions on behalf of the Plans or
providing Administrative Services;
(b) the Service Provider's or its agent's performance of or
failure to perform the Administrative Services;
(c) the bad faith, negligence or willful misconduct of the
Service Provider or its agent, whether it is performing
functions on behalf of the Plans or providing Administrative
Services;
(d) the Service Provider's or its agent's furnishing to any
Plan, Plan Participant, Plan sponsor, authorized Plan
committee or Plan trustee any materially inaccurate,
misleading or untimely information regarding any Fund or the
Shares through no fault of the Trust or its agent; or
(e) the breach of any representation or warranty of the Service
Provider hereunder, in each case except to the extent such
Losses arise out of or are attributable to another party's
breach of any provision of this Agreement or the bad faith,
negligence or willful misconduct of another party in
performing its obligations hereunder.
4.03. By the Dealer. The Dealer shall indemnify and hold the Trust,
each affiliate of the Trust, each Fund, and the trustees,
officers and employees of the Trust and each harmless from and
against any and all Losses arising out of or attributable to:
(a) the Dealer's or its agent's refusal or failure to comply
with the provisions of this Agreement or applicable law or
with instructions properly given hereunder;
(b) the Dealer's or its agent's performance of or failure to
perform the Administrative Services;
(c) the bad faith, negligence or willful misconduct of the
Dealer or its agent;
9
<PAGE> 10
(d) the Dealer's or its agent's furnishing to any Plan, Plan
Participant, Plan sponsor, authorized Plan committee or Plan
trustee any materially inaccurate, misleading or untimely
information regarding any Fund or the Shares through no
fault of the Trust, its agent, or any Fund; or
(e) the breach of any representation or warranty of the Dealer
hereunder, in each case except to the extent such Losses
arise out of or are attributable to another party's breach
of any provision of this Agreement or the bad faith,
negligence or willful misconduct of another party in
performing its obligations hereunder.
4.04. Acts of God. In the event that any party is unable to perform
its obligations under the terms of this Agreement because of acts
of God, strikes, equipment or transmission failure or damage
beyond its reasonable control, or other causes beyond its
reasonable control, such party shall not be liable to any other
party for any damages resulting from such failure to perform or
otherwise from such causes.
4.05. No Consequential Damages. No party to this Agreement shall be
liable to any other party for consequential damages under any
provision of this Agreement.
4.06. Claim Procedure. In order that the indemnification provisions
contained herein shall apply, upon the assertion of a claim or
loss for which any party (the "Indemnitor") may be required to
indemnify another party (the "Indemnitee"), the Indemnitee shall
promptly notify the Indemnitor of such assertion or loss, and
shall keep the Indemnitor advised with respect to all
developments concerning any such claim. The Indemnitor shall have
the option to participate at its expense with the Indemnitee in
the defense of any such claim. In the event that there is more
than one Indemnitor with respect to any such claim, the
Indemnitors shall agree as to their exercise of this option. The
Indemnitee shall in no case confess any claim or make any
compromise in any case in which the Indemnitor may be required to
indemnify it except with the Indemnitor's prior written consent.
The obligations of the Trust, the Service Provider, and the
Dealer under this Section 4 shall survive the termination of this
Agreement.
10
<PAGE> 11
5. ACKNOWLEDGMENTS
5.01. Fees Solely for Administrative Services. The parties hereto
acknowledge that the Administrative Fees are for administrative
and recordkeeping services only and do not constitute payment in
any manner for investment advisory or distribution services or
services of an underwriter or principal underwriter within the
meaning of the 1933 Act or the 1940 Act. The parties acknowledge
that the Service Provider has been providing and will continue to
provide certain services to the Plans as agent of the Plans,
which, together with the Dealer, may involve, among other things,
preparing informational or promotional materials relating to
their services that may refer to the Funds and responding to
telephone inquiries from Plan Participants. The parties
acknowledge that the provision of such services and any other
actions of the Service Provider and the Dealer related to the
Funds and not specifically authorized herein are outside the
scope of this Agreement.
5.02. Service Provider Acting as Agent for the Plans; Supervision. The
parties acknowledge that the Service Provider has been selected
as a provider of administrative and recordkeeping services by the
Plans, and that, except as provided specifically in Section
1.01(b) hereof, the Service Provider will perform the
Administrative Services hereunder as an independent contractor
and not as an employee or agent of the Trust or any Fund. The
parties acknowledge, further, that neither the Trust nor any Fund
undertakes to supervise the Service Provider or the Dealer in the
performance of the Administrative Services; that neither the
Trust nor any Fund shall be responsible for the performance of
the Administrative Services by the Service Provider or the
Dealer; that neither the Trust nor any Fund shall be responsible
for the accuracy of the records maintained by the Service
Provider for the Plans; and that neither the Trust nor any Fund
shall be responsible for the performance of other functions by
the Service Provider or the Dealer for the Plans and the
Participants. This Agreement does not entitle the Service
Provider or the Dealer to purchase any Shares for each of its own
account.
5.03. Laws Applicable to Funds. The Service Provider acknowledges that
the Trust is a registered investment company under the 1940 Act,
is subject to the provisions of the 1940 Act and regulations
thereunder, and that the offer and sale of the Shares of the
Funds are subject to the provisions of federal and state laws and
regulations applicable to the offer and sale of securities. The
Trust acknowledges that the Service Provider and the Dealer are
not responsible for the Trust's or any Fund's compliance with
such laws and regulations. If the Trust or any Fund notifies the
Service Provider and the Dealer that a procedure or other
activity of the Service Provider or the Dealer related to the
discharge of either of its obligations hereunder has or may have
the effect of causing the Trust or any Fund to violate any of
such laws or regulations, the Service Provider, the Dealer, and
the Trust, on behalf of the Funds, shall develop a mutually
agreeable alternative procedure or activity which does not have
such effect.
11
<PAGE> 12
5.04. Agents of the Service Provider, the Dealer, and the Trust. Each
party shall notify the other parties to this Agreement prior to
the use of any agent. To the extent agents of the Service
Provider or the Dealer perform services under this Agreement that
are the responsibility of the Service Provider or the Dealer, as
the case may be, the Service Provider or the Dealer shall be
responsible for, and assume all liability for (including any
obligation for indemnification as provided in Sections 4.02 or
4.03 hereof, as applicable), the actions and inactions of such
agents as if such services had been provided by the Service
Provider or the Dealer. Similarly, to the extent agents of the
Trust perform services under this Agreement that are the
responsibility of the Trust, the Trust shall be responsible for,
and assume all liability for (including any obligation for
indemnification as provided in Section 4.01 hereof, as
applicable), the actions and inactions of such agents as if such
services had been provided by the Trust.
6. AMENDMENT AND TERMINATION OF AGREEMENT
6.01. Amendment. Except as otherwise provided herein, this Agreement
may be amended or modified only by a written instrument executed
by all the parties affected thereby; provided that an amendment
solely to add or remove any Fund may be made, and shall be valid
and binding, by the addition or removal of the relevant Fund's
listing on Schedule A and its signature below without requiring
the other parties' signatures and shall be effective as of the
date of execution, unless any other party objects in writing
within thirty (30) days after receiving notice of such amendment.
6.02. Termination Without Cause. This Agreement may be terminated by
any party upon ninety (90) days written notice to each other
party.
6.03. Termination by Trust for Cause. This Agreement may be terminated
by the Trust as to any Fund immediately upon notice to each other
party in the event that (a) the Service Provider or the Dealer
becomes unable for any reason to perform the services
contemplated by this Agreement, or (b) the performance by the
Service Provider or the Dealer of the services contemplated by
this Agreement becomes in the Trust's reasonable judgment
unlawful or ceases to satisfy the Trust's reasonable standards
and so becomes unacceptable to the Trust.
6.04. Termination by Service Provider or the Dealer for Cause. This
Agreement may be terminated by the Service Provider or the Dealer
immediately upon notice to the Trust in the event that (a) the
Trust becomes unable for any reason to fulfill the obligations
set forth in this Agreement or (b) the performance by the Trust
of the obligations contemplated by this Agreement becomes in the
reasonable judgment of the Service Provider or the Dealer
unlawful or ceases to satisfy the Service
12
<PAGE> 13
Provider's or the Dealer's reasonable standards and so becomes
unacceptable to the Service Provider or the Dealer.
6.05. Termination for Cause by Any Party. This Agreement may be
terminated by any party hereto immediately upon notice to each
other party in the event that (a) all the Funds cease to be
investment alternatives under all the Plans, (b) the Trust
declines to accept any additional purchase or redemption requests
for Shares, (c) the SEC issues any stop order suspending the
effectiveness of the registration statements or prospectus for
the Trust, or a current prospectus for the Trust is not on file
with the SEC as required by Section 10 of the 1933 Act, or (d)
any other party materially breaches this Agreement. To the extent
that any of the events enumerated (a) through (d) of this Section
6.05 occurs with respect to one or more Funds, but not with
respect to all the Funds, or that one or more Funds, but not all
the Funds, terminates this Agreement, in lieu of termination of
this Agreement, the Trust shall amend Schedule A hereto with
notice to the other parties to remove the relevant Funds from
such Schedule A.
6.06. Termination Procedures. Upon termination of this Agreement, each
party shall return to each other party all copies of confidential
or proprietary materials or information received from such other
party hereunder, other than materials or information required to
be retained by such party under applicable laws or regulations.
This provision shall survive the termination of this Agreement.
7. ASSIGNMENT AND DELEGATION
7.01. Assignment and Delegation. Except as otherwise provided herein,
neither this Agreement nor any rights, duties or obligations
hereunder may be assigned or delegated by any party without the
written consent of the other parties.
7.02. Successors. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted
successors and assigns.
13
<PAGE> 14
8. NOTICES
Notices hereunder shall be in writing, shall be signed by an authorized
officer, and shall be deemed to have been duly given if delivered personally,
sent by certified mail (return receipt requested), or sent by facsimile machine
in accordance with procedures established by agreement of the Trust and the
Service Provider or the Dealer, and if it is addressed to a party either at its
address below or at a changed address specified by it in a notice to the other
parties hereto:
Trust: AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
Service Provider: VALIC RETIREMENT SERVICES COMPANY
Dealer: VALIC INVESTMENT SERVICES COMPANY
2929 Allen Parkway
Houston, Texas 77019
9. MISCELLANEOUS
9.01. Texas Law to Apply. This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with
the laws of the State of Texas, without regard to conflicts of
laws principles.
9.02. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes any prior
agreement with respect to the subject matter hereof whether
oral or written. All exhibits and schedules hereto, as amended
from time to time, are incorporated herein and made a part
hereof. References herein to exhibits and schedules refer to
such exhibits and schedules as so amended. Nothing contained
in this Agreement is intended to convey rights to any third
parties, such as Plans, Plan trustees or Participants.
9.03. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original document and
all of which together shall be deemed one and the same
instrument.
9.04. Limitation of Liability of the Trust, Trustees and
Shareholders. It is understood and expressly stipulated that
none of the trustees, officers, agents, or shareholders of the
Trust or any Fund shall be personally liable hereunder. It is
understood and acknowledged that all persons dealing with the
Trust or any Fund must look solely to the property of such
Fund for the enforcement of any claims against the Fund as
neither the trustees, officers, agents or shareholders assume
any personal liability for obligations entered into on behalf
of any Fund. No Fund shall be liable for the obligations or
liabilities of any other Fund.
14
<PAGE> 15
9.05. Headings. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning
or interpretation of this Agreement.
9.06. Severability. If any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any
reason, the remaining provisions and portions of the Agreement
shall be unaffected thereby and shall remain in full force and
effect to the fullest extent by law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
By:
-------------------------------------
Name:
Title:
VALIC RETIREMENT SERVICES COMPANY
By:
-------------------------------------
Name: J. David Crank
Title: Vice President
VALIC INVESTMENT SERVICES COMPANY
By:
-------------------------------------
Name:
Title:
15
<PAGE> 16
SCHEDULE A
LIST OF AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
FUNDS AND CLASSES OF SHARES COVERED BY THE AGREEMENT
American General International Growth Fund - Institutional Class I
American General Large Cap Growth Fund - Institutional Class I
American General Mid Cap Growth Fund - Institutional Class I
American General Small Cap Growth Fund - Institutional Class I
American General International Value Fund - Institutional Class I
American General Large Cap Value Fund - Institutional Class I
American General Mid Cap Value Fund - Institutional Class I
American General Small Cap Value Fund - Institutional Class I
American General Socially Responsible Fund - Institutional Class I
American General Balanced Fund - Institutional Class I
American General High Yield Bond Fund - Institutional Class I
American General Strategic Bond Fund - Institutional Class I
American General Domestic Bond Fund - Institutional Class I
American General Core Bond Fund - Institutional Class I
American General Money Market Fund - Institutional Class I
American General Municipal Bond Fund - Institutional Class I
American General Municipal Money Market Fund - Institutional Class I
<PAGE> 17
SCHEDULE B
THE ADMINISTRATIVE SERVICES
1. The Service Provider shall maintain adequate records for each Plan
reflecting Shares purchased and redeemed, including the date, price and number
of Shares purchased, redeemed or exchanged; dividend reinvestment dates and
amounts of dividends paid for at least the current year to date; records of
distributions and dividend payments; Share transfers; investment allocation
changes; and overall control records. Such records shall be preserved,
maintained and made available in accordance with the provisions of applicable
law and regulations, and copies or, if required, originals shall be surrendered
promptly to the Trust on and in accordance with its request. Records surrendered
hereunder shall be in machine readable form, except to the extent that such
records have been maintained only in paper form.
2. The Service Provider shall disburse or credit to the Plans, and
maintain records of, all proceeds of Share redemptions and distributions not
reinvested in Shares.
3. The Dealer shall cause and oversee the timely and accurate transfer
of funds in connection with Plan accounts with the Funds.
4. The Dealer or the Service Provider shall prepare and deliver
periodic account statements to the Plans showing for each Plan the total number
of Shares held as of the statement closing date, purchases and redemptions of
Shares during the statement period, and dividends and other distributions paid
during the statement period (whether paid in cash or reinvested in Shares),
including dates and prices for all transactions.
5. Subject to the terms of the agreements with each Plan, and to the
extent required by applicable law, the Service Provider shall deliver or cause
the delivery of prospectuses, proxy materials (where pass-through voting is
required), periodic reports to shareholders, and other materials provided to the
Service Provider by the Trust on behalf of the Funds.
6. The Dealer shall receive Instructions from the Service Provider or
the trustee and/or custodian of the Plans, and communicate Orders to the Trust
or its agent as specified in the Agreement.
7. The Dealer shall transmit Orders to the Trust or its agent and, in
accordance with applicable law, send to the Plans confirmations related to the
processing of Instructions and Orders.
8. The Service Provider shall maintain daily and monthly purchase
summaries (expressed in both Share and dollar amounts) for each Plan.
9. The Dealer shall use its best efforts to arrange for payment for net
purchases of Shares attributable to all Orders executed prior to 4:00 PM on a
given Business Day to be wired to the Trust or its agent by 12:00 PM (noon)
eastern time the first Business Day following receipt of such orders
<PAGE> 18
by the Service Provider. The Trust agrees that it will use its best efforts to
arrange for payment for net redemptions for Shares attributable to all orders
executed prior to 4:00 PM on a given Business Day to be wired to the trustee
and/or custodian of the Plans by 12:00 PM (noon) eastern time the first Business
Day following receipt of such orders by the Transfer Agent.
10. The Dealer and the Service Provider shall transmit to the Trust or
its agent, or to any Fund designated by the Trust, such occasional and periodic
reports as the Trust shall reasonably request from time to time to enable it or
such Fund to comply with applicable laws and regulations.
11. The Service Provider or the Dealer shall establish a voice response
system and make customer service representatives accessible to respond to Plan
or Participant inquiries regarding, among other things, Share prices, account
balances, dividend amounts, dividend payment dates, and any information changes
concerning a Plan or Participant.
12. The Service Provider shall provide average cost basis reporting to
Plan Participants to assist them in preparing their income tax returns.
13. The Service Provider shall prepare and file with the appropriate
governmental agencies such tax-related information, returns and reports as are
required under applicable laws or regulations to be filed for reporting (a)
dividends and other distributions, (b) amounts withheld on dividends and other
distributions and payments, and (c) gross proceeds of sales transactions.
14. The Service Provider shall assist with the solicitation of proxies
from Plan Participants, as requested from time to time by the Trust.
15. The Service Provider shall establish Internet access for
Participants to view account balances and perform certain limited transactions
as determined by the Service Provider and the Dealer.
16. The Service Provider shall perform all testing and Plan compliance
services, including consulting on proposed Plan amendments, determining Plan
eligibility, calculating Plan service and vesting, and processing forfeitures.
2
<PAGE> 19
SCHEDULE C
THE ADMINISTRATIVE FEES
The Trust, on behalf of the Funds, will pay the Service Provider or the
Dealer (but not both of them) a monthly fee at an annualized rate of .25 percent
(25 basis points) with respect to the Funds listed on Schedule A, of the average
daily account balance during the month for each account for which the Service
Provider and the Dealer perform Administrative Services. If the Service Provider
or the Dealer begins or ceases to perform Administrative Services during the
month, such fee shall be prorated according to the proportion which such portion
of the month bears to the full month.
<PAGE> 1
EXHIBIT 9(e)
STATE FILING SERVICES AGREEMENT
THIS AGREEMENT is made as of the 3rd day of August, 1998 by and between
The Variable Annuity Life Insurance Company ("VALIC"), a Texas life insurance
company, and Automated Business Development Corporation ("ABD"), a Massachusetts
corporation on behalf of ClearSky ("ClearSky"), a division of ABD.
WITNESSETH:
WHEREAS, VALIC has been retained to provide certain services to those
investment companies registered under the Investment Company Act of 1940, as
amended (the "1940 Act"), which, together with any portfolio series or class
thereof, are identified on Schedule A to this Agreement (the "Funds"); and
WHEREAS, VALIC wishes to retain ClearSky to provide certain administration
services with respect to the Funds, which services have been previously provided
by VALIC, and ClearSky is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. VALIC hereby appoints ClearSky to provide certain
administration services to the Funds for the period and on the terms set forth
in this Agreement. ClearSky accepts such appointment and agrees to furnish the
services herein set forth in return for the compensation as provided in
Paragraph 4 of this Agreement. In the event that VALIC decides to add one or
more new portfolio series or classes to a Fund, with respect to which it wishes
to retain ClearSky to provide services hereunder, VALIC shall notify ClearSky in
writing. If ClearSky is willing to render such services, it shall notify VALIC
in writing of any terms and compensation that differ from the provisions of this
Agreement, and upon acceptance by VALIC, such company, portfolio or class shall
become a Fund hereunder.
2. Delivery of Documents. VALIC will furnish ClearSky with copies of each
of the following:
(a) A listing of all jurisdictions in which each Fund is lawfully available
for sale as of the date of this Agreement and in which VALIC desires ClearSky to
effect such notice filing;
(b) Each Fund's most recent Post-Effective Amendment under the Securities
Act of 1933 and under the 1940 Act as filed with the Securities and Exchange
Commission (the "SEC") and all amendments thereto; and
(c) Each Fund's most recent prospectus and statement of additional
information and all amendments and supplements thereto (the "Prospectus").
<PAGE> 2
VALIC will furnish ClearSky from time to time with copies of all amendments
of or supplements to the foregoing, if any.
3. Services and Duties. Subject to the supervision and control of VALIC,
ClearSky undertakes to perform the following specific services:
(a) Effecting and maintaining, as the case may be, the qualification of
shares of the Funds for sale under the securities laws of the jurisdictions
indicated for each Fund on the list furnished to ClearSky pursuant to Paragraph
2(a) of this Agreement;
(b) Filing with each appropriate jurisdiction, as required, the appropriate
materials relating to the Funds, such filings to be made promptly after
receiving such materials from VALIC: Post Effective Amendments to the Funds'
Registration Statements; definitive copies of the Funds' Prospectuses and
Statements of Additional Information and any Supplements thereto; and Notices of
Special Meetings of Shareholders and related Proxy materials which propose the
merger, reorganization or liquidation of a Fund;
(c) Conveying to VALIC any comments received on such filings and, if
desired by VALIC, responding to such comments in such manner as authorized by
VALIC; and
(d) In connection with the foregoing, receiving limited power of attorney
on behalf of the Funds to sign all Blue Sky filings and other related documents.
Subject to payment to ClearSky in advance, ClearSky will remit to the
respective jurisdictions notice filing fees for the shares of any Fund, and any
fees for qualifying or continuing the qualification of any Fund. VALIC will,
from time to time as specifically agreed between the parties, wire transfer
funds to ClearSky for the payment of said fees payable pursuant to this
provision promptly upon request by ClearSky. ClearSky will request the funds
necessary for the payment of fees ten business days in advance of the date the
fees become due, whenever possible. Upon receipt of the funds by ClearSky, it
will issue checks for the payment of fees.
In performing its duties under this Agreement, ClearSky will act in
accordance with the instructions and directions of VALIC.
VALIC will provide ClearSky, upon notification by ClearSky of the
appropriate number of copies of each document, all documents which must be filed
pursuant to this provision.
4. Compensation. For the services provided by ClearSky under this
Agreement, VALIC will pay to ClearSky a monthly fee based upon the number of
state securities notice filings (permits). The fee shall be based upon the rate
of $143,352.00 per year and billed monthly in arrears; provided that, during any
period in which ClearSky provides the same or substantially similar ongoing
state registration services to any other entity at a lower rate, ClearSky shall
charge VALIC no more than the lowest such rate then in effect.
<PAGE> 3
5. Limitations of Liability and Indemnification. ClearSky shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Funds or VALIC in connection with the matters to which this Agreement
relates, so long as it acts in good faith and with due diligence and is not
negligent or guilty of any willful misconduct. Without in any way limiting the
foregoing, ClearSky shall have no liability for failing to file on a timely
basis any material to be provided by VALIC that it has not received on a timely
basis from VALIC; ClearSky shall have no responsibility to review the accuracy
or adequacy of materials it receives from VALIC for filing or bear any liability
arising out of the timely filing of such materials.
VALIC agrees and acknowledges that ClearSky has not prior to the date
hereof assumed, and will not assume, any obligations or liabilities arising out
of the conduct of VALIC prior to the date hereof of those duties which ClearSky
has agreed to perform pursuant to this Agreement. VALIC further agrees to
indemnify ClearSky against any losses, claims, damages or liabilities to which
ClearSky may become subject in connection with the conduct by VALIC of such
duties prior to the date hereof.
VALIC represents and warrants to ClearSky that as of the date hereof each
Fund is lawfully eligible for sale in each jurisdiction indicated for such Fund
on the list furnished to ClearSky pursuant to Paragraph 2(a) of this Agreement.
6. Service to Other Companies or Accounts. VALIC understands that the
persons employed by ClearSky to assist in the performance of ClearSky's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of ClearSky or any
affiliate of ClearSky to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
7. Notices. Any notice or other instrument or materials authorized or
required by this Agreement to be given in writing to VALIC or to ClearSky shall
be sufficiently given if addressed to such party and received by it at its
office set forth below or at such other place as it may from time to time
designate in writing.
TO VALIC:
VALIC
2929 Allen Parkway
Suite L4-01
Houston, DC 77019
Attention: Ms. Nori L. Gabert
TO ClearSky:
ClearSky
529 Main Street
Schrafft Center Annex
Boston, MA 02129
Attention: Elizabeth A. Nystedt
<PAGE> 4
8. Files. All files maintained by ClearSky with respect to the Funds shall
be the property of VALIC and shall be returned to VALIC at the termination of
this Agreement or as mutually agreeable to ClearSky and VALIC.
9. Duration and Termination. This Agreement shall continue thereafter until
termination by VALIC or ClearSky on 60 days written notice.
10. Conversion. There will be no charge for system conversion provided
VALIC allow ClearSky to administrate complete Blue Sky filing services for a
period of at least six months. In the event VALIC terminates this Agreement
prior to this six month obligation, a one time conversion fee equivalent to
$10/permit shall be applied.
11. Amendment to this Agreement. No provision of this Agreement may be
changed, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, discharge or
termination is sought
12. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
13. Confidentiality. ClearSky agrees to maintain all information about
VALIC and the Funds that ClearSky acquires pursuant to this Agreement in
confidence, and ClearSky agrees not to use, or permit the use of, any such
information for any purpose except that set forth herein, or to disclose any
such information to any person, without the prior written consent of VALIC.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their constructions or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the date and year first above
written.
Attest: The Variable Annuity Life Insurance Company
/s/ NORI A. GABERT /s/ CYNTHIA TOLES
- ----------------------------- -------------------------------------------
Attest: Automated Business
Development Corporation
NOT LEGIBLE NOT LEGIBLE
- ----------------------------- --------------------------------------------
<PAGE> 6
AMENDMENT TO SCHEDULE A
(Effective October 7, 1998)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
SERIES CLASSES OFFERED
American General S&P 500 Index Fund A,B
American General Mid Cap Index Fund A,B
American General Small Cap Index Fund A,B
American General Municipal Bond Fund A,B
American General Municipal Money Market Fund A,B
American General Small Cap Value Fund A,B,I,II
American General Mid Cap Growth Fund A,B,I,II
American General International Value Fund A,B,I,II
American General Domestic Bond Fund A,B,I,II
American General Balanced Fund A,B,I,II
American General Large Cap Growth Fund A,B,I,II
American General Small Cap Growth Fund A,B,I,II
American General Mid Cap Value Fund A,B,I,II
American General Large Cap Value Fund A,B,I,II
American General International Growth Fund A,B,I,II
American General Money Market Fund A,B,I,II
American General Socially Responsible Fund A,B,I,II
American General Growth Lifestyle Fund A,B,I,II
American General Moderate Growth Lifestyle Fund A,B,I,II
American General Conservative Growth Lifestyle Fund A,B,I,II
American General Core Bond Fund A,B,I,II
American General High Yield Bond Fund A,B,I,II
American General Strategic Bond Fund A,B,I,II
Accepted:
The Variable Annuity Life Insurance Company
By: /s/ CYNTHIA TOLES
----------------------------------------------------------
Name: Cynthia Toles
----------------------------------------------------------
Its: Senior Vice President, General Counsel and Secretary
----------------------------------------------------------
Automated Business Development Corporation
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
<PAGE> 1
EXHIBIT 10
[SULLIVAN & WORCESTER LLP LETTERHEAD]
October 7, 1998
American General Series Portfolio Company 2
2929 Allen Parkway
Houston, Texas 77019
Registration Statement of
American General Series Portfolio Company 2
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters of
Delaware law in connection with the registration statement on Form N-1A (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") of American General Series Portfolio Company 2 (the "Company")
in connection with the registration under the Securities Act of an indefinite
number of shares of beneficial interest of the Company authorized by the
Agreement and Declaration of Trust of the Company to be issued (the "Shares").
We have reviewed the actions taken by the Trustees of the Company to
organize the Company and to authorize the issuance and sale of the Shares. In
this connection we have examined the Agreement and Declaration of Trust of the
Company and the By-Laws of the Company, the Registration Statement of the Trust
to be filed with the Securities and Exchange Commission on or about October 14,
1998, including the prospectus and statement of additional information forming a
part thereof, certificates of officers of the Company and of public officials as
to matters of fact, and such other documents and instruments, certified or
otherwise identified to our satisfaction, and such questions of law and fact, as
we have considered necessary or appropriate for the purpose of rendering the
opinions expressed herein. In such examination we have assumed, without
independent verification, the genuineness of all signatures (whether original or
photostatic), the authenticity of all documents submitted to us as originals,
and the conformity to authentic original documents of all documents submitted to
us as certified or photostatic copies. As to all questions of fact material to
such opinions, we have relied upon the representations contained in the
certificates referred to above. We have assumed, without independent
verification, the accuracy of the relevant facts stated therein.
<PAGE> 2
American General Series Portfolio Company 2
October 7, 1998
Page 2
We are admitted to the Bars of the District of Columbia, of the
Commonwealth of Massachusetts, and of the State of New York and generally do not
purport to be familiar with the laws of the State of Delaware. To the extent
that the conclusions based on the laws of the State of Delaware are involved in
the opinions set forth herein below, we have relied, in rendering such opinions,
upon our examination of Chapter 38 of Title 12 of the Delaware Code Annotated,
as amended, entitled "Treatment of Delaware Business Trusts" (the "Delaware
business trust law") and on our knowledge of interpretation of analogous common
law of The Commonwealth of Massachusetts.
This letter expresses our opinion as to the provisions of the Company's
Agreement and Declaration of Trust, but does not extend to the Delaware Uniform
Securities Act, or to other federal or state securities laws or other federal
laws.
Based upon the foregoing and subject to the qualifications set forth
herein, we hereby advise you that, in our opinion:
1. The Company is validly existing as a trust with transferable shares
under the laws of the State of Delaware.
2. The Company is authorized to issue an unlimited number of shares of
beneficial interest, $.01 par value per share; the Shares have been duly and
validly authorized by all action of the Trustees of the Company, and no action
of the shareholders of the Company is required in such connection.
3. When issued and paid for as described in the Registration Statement,
the Shares will be fully paid and nonassessable by the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER LLP
SULLIVAN & WORCESTER LLP
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our report dated October 10, 1998, as to American
General Portfolio Company 2, in Pre-Effective Amendment No. 1 to the
Registration Statement (Form N-1A No. 333-58979) of American General Series
Portfolio Company 2.
/s/ ERNST & YOUNG LLP
-------------------------
ERNST & YOUNG LLP
Houston, Texas
October 10, 1998
<PAGE> 1
EXHIBIT 13
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Balanced Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 2
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 3
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Conservative Growth Lifestyle Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 4
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 5
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Core Bond Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 6
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 7
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $1,250, 125 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Domestic Bond Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 8
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 9
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Growth Lifestyle Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 10
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 11
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General High Yield Bond Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 12
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 13
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,650, 365 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General International Growth Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or nay
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 14
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 15
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,600, 360 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General International Value Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 16
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 17
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $2,850, 285 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Large Cap Growth Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 18
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 19
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $2,900, 290 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Large Cap Value Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 20
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 21
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $4,050, 405 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Mid Cap Growth Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 22
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 23
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Mid Cap Index Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 24
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 25
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,950, 395 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Mid Cap Value Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 26
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 27
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Money Market Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 28
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 29
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Moderate Growth Lifestyle Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 30
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 31
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Municipal Bond Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 32
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 33
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Municipal Money Market Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 34
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 35
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General S&P 500 Index Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 36
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 37
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,900, 390 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Small Cap Growth Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 38
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 39
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Small Cap Index Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 40
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 41
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,850, 385 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Small Cap Value Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 42
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 43
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Socially Responsible Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 44
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 45
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 2 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000, 500 shares of beneficial interest, $.01 Par
Value, of the Fund's series (hereinafter the "Shares") designated the American
General Strategic Bond Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
5. The execution of this Agreement has been authorized by the Fund's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon the
assets and property of the Fund. A Certificate of Trust in respect of the Fund
is on file with the Secretary of the State of Delaware.
1
<PAGE> 46
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 7th day of October, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 2
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: President
--------------------------- ---------------------------
2
<PAGE> 1
EXHIBIT 15
DISTRIBUTION AND SERVICE PLAN
American General Series Portfolio Company 2 (the "Company") is an open-end
management investment company, formed under the laws of the state of Delaware,
the shares of beneficial interest of the portfolios of which (each, a
"Portfolio") may be issued in multiple classes (each, a "Class").
This Plan is adopted by the Company, pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "Act"), to provide for payment
by the Company of certain expenses in connection with the distribution of the
Company's shares, the provision of personal services to the Company's
shareholders and/or the maintenance of its shareholder accounts. Payments
under the Plan are to be made to VALIC Investment Services Company (the
"Distributor"), which serves as the principal underwriter for the Portfolios'
shares under the terms of the Distribution and Servicing Agreement pursuant to
which the Distributor offers and sells each of the following Classes of the
Portfolios' shares as described below and in the Company's prospectus:1
o Class A Shares: Class A shares are sold at net asset
value plus an initial sales charge.
o Class B Shares: Class B shares are sold at net asset
value, and are subject to a contingent deferred sales
charge upon redemption within a specified period.
DISTRIBUTION FEE AND SERVICE FEE
CLASS A SHARES. The annual compensation payable by the Class A Shares of a
Portfolio to the Distributor is an amount equal to .25 of 1% on an annual basis
of the average net assets of that Class of a Portfolio's shares as either (1) a
"distribution fee" to finance the distribution of that Class of a Portfolio's
shares, or (2) a "service fee" to finance shareholder servicing by the
Distributor, its affiliated companies and broker-dealers who may sell that
Class of a Portfolio's shares and to encourage and foster the maintenance of
shareholder accounts, or as a combination of the two fees.
CLASS B SHARES. The annual compensation payable by the Class B Shares of a
Portfolio to the Distributor is an amount equal to 1% on an annual basis of the
average net assets of that Class of a Portfolio's shares such that (1) .75 of
1% shall be a "distribution fee" to finance the distribution of that Class of a
Portfolio's shares, and (2) .25 of 1% shall be a "service fee" to finance
shareholder servicing by the Distributor, its affiliated companies and
broker-dealers who may sell that Class of a Portfolio's shares and to encourage
and foster the maintenance of shareholder accounts.
- -------------------
1 The Company also offers Institutional Class I and Institutional
Class II shares. However, the Portfolios do not utilize Portfolio assets to
finance the distribution of Institutional Class I and Institutional Class II
shares, the provision of personal services to Institutional Class I and
Institutional Class II shareholders or the maintenance of Institutional Class I
and Institutional Class II shareholder accounts and, therefore, Institutional
Class I and Institutional Class II shares are not subject to the Plan.
<PAGE> 2
The amounts payable hereunder shall be paid to the Distributor monthly or at
such other intervals as the Board of Trustees may determine to compensate the
Distributor for services provided hereunder. The amount of the distribution
fee and/or service fee payable to the Distributor hereunder is not related
directly to expenses incurred by the Distributor on behalf of a Portfolio, or a
Class thereof, and the Company is not obligated to reimburse the Distributor
for such expenses.
NASD DEFINITION
For purposes of this Plan, the "distribution fee" may be considered as a sales
charge that is deducted from the net assets of a Class of a Portfolio and does
not include the service fee. The "service fee" shall be considered a payment
made by a Class of a Portfolio for personal service and/or maintenance of
shareholder accounts, as such is now defined by the National Association of
Securities Dealers Regulation, Inc. ("NASD"), provided , however, if the NASD
adopts a definition of "service fee" for purposes of Rule 2830 of the NASD
Conduct Rules that differs from the definition of "service fee" as presently
used, or if the NASD adopts a related definition intended to define the same
concept, the definition of "service fee" as used herein shall be automatically
amended to conform to the NASD definition.
QUARTERLY REPORTS
The Distributor shall provide to the Company's Board of Trustees and the Board
of Trustees shall review at least quarterly a written report of the amounts so
expended of the distribution fee and/or service fee paid under this Plan and
the purposes for which such expenditures were made.
APPROVAL OF PLAN
This Plan shall become effective when it has been approved by a vote of the
Company's Board of Trustees and of the Trustees who are not interested persons
of the Company and have no direct or indirect financial interest in the
operation of the Plan or any agreement related to this Plan (other than as
trustees or shareholders of the Company) ("Independent Trustees") cast in
person at a meeting called for the purposes of voting on such Plan.
CONTINUANCE
This Plan shall continue in effect for a period of one (1) year and thereafter
from year to year only so long as such continuance is approved by the Trustees,
including the Independent Trustees, as specified hereinabove for the adoption
of the Plan by the Trustees and Independent Trustees.
TRUSTEE CONTINUATION
In considering whether to adopt, continue or implement this Plan, the Trustees
shall have a duty to request and evaluate, and the Distributor shall have a
duty to furnish, such information as may be reasonably necessary to an informed
determination of whether this Plan should be adopted, implemented or continued.
2
<PAGE> 3
TERMINATION
This Plan may be terminated at any time with respect to a Portfolio, or a Class
thereof, by a vote of a majority of the Independent Trustees of the Company or
by a vote of the majority of the outstanding voting securities of such
Portfolio or Class thereof, without penalty. The distribution fee and service
fee will be paid by the Company, on behalf each Class of a Portfolio, to the
Distributor unless and until this Plan is terminated or not renewed, in which
event the Company, on behalf of a Portfolio or a Class thereof, shall pay the
Distributor for services provided on a pro-rata basis up through the date of
termination. Any expenses incurred by the Distributor, on behalf of a
Portfolio, or a Class thereof, in excess of the distribution fee and service
fee payable hereunder through the date of termination are the sole
responsibility and liability of the Distributor, and are not obligations of the
Company.
AMENDMENTS
This Plan may not be amended to increase materially the amount to be spent for
distribution of a Class of a Portfolio's shares, personal service and/or
maintenance of shareholder accounts without approval of that Class of the
Portfolio's shareholders, and all material amendments of this Plan must be
approved in the manner prescribed for the adoption of the Plan as provided
hereinabove.
TRUSTEES
While this Plan is in effect, the selection and nomination of the Trustees who
are not interested persons of the Company shall be committed to the discretion
of the Trustees who are not interested persons of the Company.
RECORDS
Copies of this Plan, the Distribution Agreement and reports made pursuant to
this Plan shall be preserved as provided in Rule 12b-1(f) under the Act.
3
<PAGE> 1
EXHIBIT 18
MULTI-CLASS PLAN
FOR
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
This Plan is adopted pursuant to Rule 18f-3 under the Act to provide for
the issuance and distribution of multiple classes of shares by each of the
separate Series of American General Series Portfolio Company 2 (the ATrust@) in
accordance with the terms, procedures and conditions set forth below. A majority
of the Trustees of the Trust, including a majority of the Trustees who are not
interested persons of the Trust within the meaning of the Act, found this
Multi-Class Plan, including the expense allocations, to be in the best interest
of the Trust and each Series of the Trust and each Class of Shares of each
Series and adopted this Plan on August 26, 1998.
A. Definitions. As used herein, the terms set forth below shall have the
meanings ascribed to them below.
1. The Act - Investment Company Act of 1940, as amended.
2. CDSC - contingent deferred sales charge.
3. CDSC Period - the period of years following acquisition during
which Shares are assessed a CDSC upon redemption.
4. Class - a class of Shares of a Series.
5. Class A Shares - shall have the meaning ascribed in Section B.1.
6. Class B Shares - shall have the meaning ascribed in Section B.1.
7. Institutional Class I Shares - shall have the meaning ascribed in
Section B.1.
8. Institutional Class II Shares - shall have the meaning ascribed
in Section B.1.
9. Distribution Expenses - expenses incurred in activities which are
primarily intended to result in the distribution and sale of
Shares as defined in a Distribution and Service Plan and/or board
resolutions.
10. Distribution Fee - a fee paid by a Series to the Distributor in
reimbursement of Distribution Expenses.
11. Distributor - VALIC Investment Services Company.
<PAGE> 2
12. Trust - American General Series Portfolio Company 2.
13. Series - each separate Series of the Trust.
14. Money Market Fund - American General Money Market Fund or
American General Municipal Money Market Fund, each a Series of
the Trust.
15. Distribution and Service Plan - Any plan adopted under Rule 12b-1
under the Act with respect to payment of a Distribution Fee.
16. Service Fee - a fee paid to the Distributor, Inc. for the ongoing
provision of personal services to Trust shareholders and/or the
maintenance of shareholder accounts.
17. Share - a share of beneficial interest in the Trust.
18. Trustees - the trustees of the Trust.
B. Classes. Certain Series may offer up to four Classes as noted below.
1. Class A Shares. Class A Shares shall be offered at net asset
value plus a front-end sales charge as approved from time to time
by the Trustees and set forth in the Trust=s prospectus, which
may be reduced or eliminated for Money Market Funds, larger
purchases, under a combined purchase privilege, under a right of
accumulation, under a letter of intent or for certain categories
of purchasers as permitted by Rule 22(d) of the Act and as set
forth in the Trust=s prospectus. Class A Shares that are not
subject to a front-end sales charge as a result of the foregoing,
may be subject to a CDSC for the CDSC Period set forth in Section
D.1. The offering price of Shares subject to a front-end sales
charge shall be computed in accordance with Rule 22c-1 and
Section 22(d) of the Act and the rules and regulation thereunder.
Class A Shares shall be subject to ongoing Service Fees approved
from time to time by the Trustees and set forth in the Trust=s
prospectus.
2. Class B Shares. Class B Shares shall be (1) offered at net asset
value, (2) subject to a CDSC for the CDSC Period set forth in
Section D.1, (3) subject to ongoing Distribution Fees and Service
Fees approved from time to time by the Trustees and set forth in
the Trust=s prospectus and (4) converted to Class A Shares six
years after the shares were purchased.
3. Institutional Class I and Institutional Class II Shares.
Institutional Class I and Institutional Class II Shares are those
shares as set forth in the Trust's prospectus.
2
<PAGE> 3
C. Rights and Privileges of Classes. Each Class of each Series will
represent an interest in the same portfolio of investments of
that Series and will have identical voting, dividend, liquidation
and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions except as
described otherwise herein.
D. CDSC. A CDSC may be imposed upon redemption of Class A Shares and
Class B Shares that do not incur a front-end sales charge subject
to the following conditions:
1. CDSC Period. The CDSC Period for Class A Shares shall be one
year. The CDSC Period for Class B Shares shall be at least
three but not more than ten years as recommended by the
Distributor and approved by the Trustees.
2. CDSC Rate. The CDSC rate shall be recommended by the
Distributor and approved by the Trustees. If a CDSC is
imposed for a period greater than one year the CDSC rate
must decline during the CDSC Period such that (a) the CDSC
rate is less in the last year of the CDSC Period than in the
first and (b) in each succeeding year the CDSC rate shall be
less than or equal to the CDSC rate in the preceding year.
3. Disclosure and Changes. The CDSC rates and CDSC Period shall
be disclosed in the Trust=s prospectus and may be decreased
at the discretion of the Distributor but may not be
increased unless approved as set forth in Section M.
4. Method of Calculation. The CDSC shall be assessed on an
amount equal to the lesser of the then current market value
or the cost of the Shares being redeemed. No CDSC shall be
imposed on increases in the net asset value of the Shares
being redeemed above the initial purchase price. No CDSC
shall be assessed on Shares derived from reinvestment of
dividends or capital gains distributions. The order in which
Class B Shares are to be redeemed when not all of such
Shares would be subject to a CDSC shall be as determined by
the Distributor in accordance with the provisions of Rule
6c-10 under the Act.
5. Waiver. The Distributor may in its discretion waive a CDSC
otherwise due upon the redemption of Shares under
circumstances previously approved by the Trustees and
disclosed in the Trust=s prospectus or statement of
additional information and as allowed under Rule 6c-10 under
the Act.
6. Calculation of Offering Price. The offering price of Shares
subject to a CDSC shall be computed in accordance with Rule
22c-1 and Section 22(d) of the Act and the rules and
regulations thereunder.
3
<PAGE> 4
7. Retention by Distributor. The CDSC paid with respect to
Shares of a Series may be retained by the Distributor to
reimburse the Distributor for commissions paid by it in
connection with the sale of Shares subject to a CDSC and
Distribution Expenses.
E. Service Fees and Distribution Fees. Class A Shares shall be
subject to either a Distribution Fee or a Service Fee of 0.25%
per annum of the average daily net assets of the Class and Class
B Shares shall be subject to a Service Fee of 0.25% per annum of
the average daily net assets of the Class and a Distribution Fee
of 0.75% per annum of the average daily net assets of the Class.
All other terms and conditions with respect to Service Fees and
Distribution Fees shall be governed by the Distribution and
Service Plan adopted by the Trust with respect to such fees and
Rule 12b-1 of the Act.
F. Conversion. Shares purchased through the reinvestment of
dividends and distributions paid on Shares subject to conversion
shall be treated as if held in a separate sub-account. Each time
any Shares in a Shareholder=s account (other than Shares held in
a sub-account) convert to Class A Shares, a proportionate number
of Shares held in the sub-account shall also convert to Class A
Shares. All conversions shall be effected on the basis of the
relative net asset values of the two Classes without the
imposition of any sales load or other charge. So long as any
Class of Shares converts into Class A Shares, the Distributor
shall waive or reimburse each Series, or take such other actions
with the approval of the Trustees as may be reasonably necessary,
to ensure the expenses, including payments authorized under a
Distribution and Service Plan, applicable to the Class A Shares
are not higher than the expenses, including payments authorized
under the Distribution and Service Plan, applicable to the class
of shares converting into Class A Shares.
G. Allocation of Expenses, Income and Gains Among Classes.
1. Expenses applicable to a particular class. Each Class of
each Series shall pay any Service Fee, Distribution Fee and
CDSC applicable to that Class. Other expenses applicable to
a particular Class such as incremental transfer agency fees,
but not including advisory or custodial fees or other
expenses related to the management of the Series= assets,
shall be allocated between Classes in different amounts if
they are actually incurred in different amounts by the
Classes or the Classes receive services of a different kind
or to a different degree than other Classes.
2. Distribution Expenses. Distribution Expenses actually
attributable to the sale of all Classes shall be allocated
to each Class based upon the ratio which sales of each Class
bears to the sales of all Shares of the Series. For this
purpose, Shares issued upon reinvestment of dividends or
distributions, upon
4
<PAGE> 5
conversion from Class B Shares to Class A Shares or upon
share splits will not be considered sales.
3. Income, capital gains and losses, and other expenses
applicable to all Classes. Income, realized and unrealized
capital gains and losses, and expenses such as advisory fees
applicable to all Classes shall be allocated to each Class
on the basis of the net asset value of that Class in
relation to the net asset value of the Series.
4. Determination of nature of expenses. The Trustees shall
determine in their sole discretion whether any expenses
other than those listed herein is properly treated as
attributed to a particular Class or all Classes.
H. Exchange Privilege. Exchanges of Shares shall be permitted
between Series of the Trust as follows.
1. General. Shares of one Series may be exchanged for Shares of
the same Class of another Series at net asset value and
without sales charge, provided that
a. The Distributor may specify that certain Series may not
be exchanged within a designated period which shall not
exceed 90 days after acquisition without prior
Distributor approval.
b. Class A Shares of the Money Market Funds that were not
acquired in exchange for Class B Shares of a Series may
be exchanged for Class A Shares of another Series only
upon payment of the excess, if any, of the sales charge
rate applicable to the Shares being acquired over the
sales charge rate previously paid.
c. Shares of the Money Market Funds acquired through an
exchange of Class B Shares may be exchanged only for
the same Class of another Series as the Class they were
acquired in exchange for or any Class into which those
shares were converted.
2. CDSC Computation. The acquired Shares will remain subject to
the CDSC rate schedule and CDSC Period, if applicable, for
the original Series upon the redemption of the Shares from
the Trust. For purposes of computing the CDSC payable on a
disposition of the new Shares, the holding period for the
original Shares shall be added to the holding period of the
new Shares.
5
<PAGE> 6
I. Voting Rights of Classes.
1. Shareholders of each Class shall have exclusive voting
rights on any matter submitted to them that relates solely
to the Distribution and Service Plan related to that Class,
provided that
a. If any amendment is proposed to the Distribution and
Service Plan under which Distribution Fees and/or
Service Fees are paid with respect to Class A Shares of
a Series that would increase materially the amount to
be borne by Class A Shares under that Distribution and
Service Plan, then no Class B Shares shall convert into
Class A Shares of that Series until the holders of
Class B Shares of that Series have also approved the
proposed amendment.
b. If the holders of the Class B Shares referred to in
subparagraph a. do not approve the proposed amendment,
the Trustees of the Trust and the Distributor shall
take such action as is necessary to ensure that the
Class voting against the amendment shall convert into
another Class identical in all material respects to
Class A Shares of the Series as constituted prior to
the amendment.
2. Shareholders shall have separate voting rights on any matter
submitted to shareholders in which the interest of one Class
differs from the interest of any other Class.
J. Dividends. Dividends paid by a Series with respect to each Class,
to the extent any dividends are paid, will be calculated in the
same manner at the same time on the same day and will be in
substantially the same amount, except any Distribution Fees,
Service Fees or incremental expenses relating to a particular
Class will be borne exclusively by that Class.
K. Reports to Trustees. The Distributor shall provide to the
Trustees of the Trust quarterly and annual statements concerning
distribution and shareholder servicing expenditures complying
with paragraph (b)(3)(ii) of Rule 12b-1 of the Act, as it may be
amended from time to time. The Distributors also shall provide
the Trustees such information as the Trustees may from time to
time deem to be reasonable necessary to evaluate this Plan.
L. Amendment. Any material amendment to this Plan shall be approved
by the affirmative vote of a majority of the Trustees of the
Trust, including the affirmative vote of the Trustees of the
Trust who are not interested persons of the Trust, except that
any amendment that increases the CDSC rate schedule or CDSC
Period must also be approved by the affirmative vote of a
majority of the Shares of the affected Class. The Distributor
shall provide the Trustees such information as may be reasonably
necessary to evaluate any amendment to this Plan.
6
<PAGE> 1
EXHIBIT 19(b)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Trustee of American
General Series Portfolio Company 2, does hereby constitute and appoint John A.
Dudley, David M. Leahy and Robert N. Hickey, or any of them, the true and lawful
agents and attorneys-in-fact of the undersigned with respect to all matters
arising in connection with the Registration Statement on Form N-1A of American
General Series Portfolio Company 2 and any and all amendments (including
post-effective amendments) thereto, with full power and authority to execute
said Registration Statement and any and all amendments for and on behalf of the
undersigned, in my name and in the capacity indicated below, and to file the
same, together with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and any state securities
authorities. The undersigned hereby gives to said agents and attorneys-in-fact
full power and authority to act in the premises, including, but not limited to,
the power to appoint a substitute or substitutes to act hereunder with the same
power and authority as said agents and attorneys-in-fact would have if
personally acting. The undersigned hereby ratifies and confirms all that said
agents and attorneys-in-fact, or any substitute or substitutes, may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this 14th day of October, 1998.
/s/ JUDITH L. CRAVEN
- ------------------------------
Judith L. Craven, Trustee
<PAGE> 2
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Trustee of American
General Series Portfolio Company 2, does hereby constitute and appoint John A.
Dudley, David M. Leahy and Robert N. Hickey, or any of them, the true and lawful
agents and attorneys-in-fact of the undersigned with respect to all matters
arising in connection with the Registration Statement on Form N-1A of American
General Series Portfolio Company 2 and any and all amendments (including
post-effective amendments) thereto, with full power and authority to execute
said Registration Statement and any and all amendments for and on behalf of the
undersigned, in my name and in the capacity indicated below, and to file the
same, together with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and any state securities
authorities. The undersigned hereby gives to said agents and attorneys-in-fact
full power and authority to act in the premises, including, but not limited to,
the power to appoint a substitute or substitutes to act hereunder with the same
power and authority as said agents and attorneys-in-fact would have if
personally acting. The undersigned hereby ratifies and confirms all that said
agents and attorneys-in-fact, or any substitute or substitutes, may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this 14th day of October, 1998.
/s/ TIMOTHY J. EBNER
- ------------------------------
Timothy J. Ebner, Trustee
<PAGE> 3
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Trustee of American
General Series Portfolio Company 2, does hereby constitute and appoint John A.
Dudley, David M. Leahy and Robert N. Hickey, or any of them, the true and lawful
agents and attorneys-in-fact of the undersigned with respect to all matters
arising in connection with the Registration Statement on Form N-1A of American
General Series Portfolio Company 2 and any and all amendments (including
post-effective amendments) thereto, with full power and authority to execute
said Registration Statement and any and all amendments for and on behalf of the
undersigned, in my name and in the capacity indicated below, and to file the
same, together with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and any state securities
authorities. The undersigned hereby gives to said agents and attorneys-in-fact
full power and authority to act in the premises, including, but not limited to,
the power to appoint a substitute or substitutes to act hereunder with the same
power and authority as said agents and attorneys-in-fact would have if
personally acting. The undersigned hereby ratifies and confirms all that said
agents and attorneys-in-fact, or any substitute or substitutes, may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this 14th day of October, 1998.
/s/ GUSTAVO E. GONZALES
- ------------------------------
Gustavo E. Gonzales, Trustee
<PAGE> 4
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Trustee of American
General Series Portfolio Company 2, does hereby constitute and appoint John A.
Dudley, David M. Leahy and Robert N. Hickey, or any of them, the true and lawful
agents and attorneys-in-fact of the undersigned with respect to all matters
arising in connection with the Registration Statement on Form N-1A of American
General Series Portfolio Company 2 and any and all amendments (including
post-effective amendments) thereto, with full power and authority to execute
said Registration Statement and any and all amendments for and on behalf of the
undersigned, in my name and in the capacity indicated below, and to file the
same, together with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission and any state securities
authorities. The undersigned hereby gives to said agents and attorneys-in-fact
full power and authority to act in the premises, including, but not limited to,
the power to appoint a substitute or substitutes to act hereunder with the same
power and authority as said agents and attorneys-in-fact would have if
personally acting. The undersigned hereby ratifies and confirms all that said
agents and attorneys-in-fact, or any substitute or substitutes, may do by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents
this 14th day of October, 1998.
/s/ JOHN E. MAUPIN, JR.
- ------------------------------
John E. Maupin, Jr., Trustee
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) INTERNATIONAL GROWTH FUND
<NUMBER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 3,650
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,650
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 365
<SHARES-COMMON-PRIOR> 0
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<AVERAGE-NET-ASSETS> 3,650
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<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) INTERNATIONAL VALUE FUND
<NUMBER> 2
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 3,600
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<TOTAL-ASSETS> 3,600
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<SHARES-COMMON-STOCK> 360
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 3,600
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<SHARES-REINVESTED> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 3,600
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<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) SMALL CAP VALUE FUND
<NUMBER> 3
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 3,850
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<TOTAL-ASSETS> 3,850
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 385
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,850
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
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<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 3,850
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<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) SMALL CAP GROWTH FUND
<NUMBER> 4
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 3,900
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<TOTAL-ASSETS> 3,900
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 390
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 3,900
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<SHARES-REINVESTED> 0
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<AVERAGE-NET-ASSETS> 3,900
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<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) MID CAP GROWTH FUND
<NUMBER> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
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<ASSETS-OTHER> 4,050
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<TOTAL-ASSETS> 4,050
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 405
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<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,050
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
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<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 4,050
<PER-SHARE-NAV-BEGIN> 0.00
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<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) MID CAP VALUE FUND
<NUMBER> 6
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 3,950
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<TOTAL-ASSETS> 3,950
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<SHARES-COMMON-STOCK> 395
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 3,950
<PER-SHARE-NAV-BEGIN> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) LARGE CAP GROWTH FUND
<NUMBER> 7
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 2,850
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<TOTAL-ASSETS> 2,850
<PAYABLE-FOR-SECURITIES> 0
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 285
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<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,850
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
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<NET-CHANGE-FROM-OPS> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,850
<PER-SHARE-NAV-BEGIN> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) LARGE CAP VALUE FUND
<NUMBER> 8
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
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<INVESTMENTS-AT-VALUE> 0
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<TOTAL-ASSETS> 2,900
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 290
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,900
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 2,900
<PER-SHARE-NAV-BEGIN> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) SOCIALLY RESPONSIBLE FUND
<NUMBER> 9
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,000
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<TOTAL-ASSETS> 5,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
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<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
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<PER-SHARE-DIVIDEND> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) BALANCED FUND
<NUMBER> 10
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,000
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
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<NET-CHANGE-FROM-OPS> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) DOMESTIC BOND FUND
<NUMBER> 11
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 1,250
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<TOTAL-ASSETS> 1,250
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<SHARES-COMMON-STOCK> 125
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<NET-ASSETS> 1,250
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<PER-SHARE-NAV-END> 10.00
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) MONEY MARKET FUND
<NUMBER> 12
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
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<ASSETS-OTHER> 5,000
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<TOTAL-ASSETS> 5,000
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 5,000
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
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<PER-SHARE-DIVIDEND> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) GROWTH LIFESTYLE FUND
<NUMBER> 13
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) MODERATE GROWTH LIFESTYLE FUND
<NUMBER> 14
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) CONSERVATIVE GROWTH LIFESTYLE FUND
<NUMBER> 15
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) CORE BOND FUND
<NUMBER> 16
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) STRATEGIC BOND FUND
<NUMBER> 17
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) HIGH YIELD BOND FUND
<NUMBER> 18
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
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<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) S&P 500 FUND
<NUMBER> 19
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,000
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<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
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<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
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<APPREC-INCREASE-CURRENT> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,000
<PER-SHARE-NAV-BEGIN> 0.00
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<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NAME> AGSPC (2) MID CAP INDEX FUND
<NUMBER> 20
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-07-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
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<ASSETS-OTHER> 5,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
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