AS FILED WITH THE SEC December 23, 1999
REGISTRATION NO. 333-58979/811-08875
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 1 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [X]
_______________
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
(EXACT NAME OF REGISTRANT AS SPECIFIED IN
CHARTER)
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 526-5251
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING
AREA CODE)
_______________
KATHERINE L. STONER, ESQ.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
P.O. BOX 3206, HOUSTON, TEXAS 77253
(NAME AND ADDRESS OF AGENT FOR SERVICE)
_______________
Copy to: 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):
[ ] immediately upon filing pursuant to
paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to
paragraph (a)(1)
[ ] on March 1, 2000 pursuant to paragraph
(a)(1)
[ ] 75 days after filing pursuant to
paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2)
of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment
designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
American General Series Portfolio Company 2
Class A Shares
Class B Shares
March 1, 2000
The American General Series Portfolio
Company 2 (the "Series Company") is an open-
end mutual fund made up of 23 separate Funds
(the "Funds"). Each of the Funds has a
different investment objective. Here are
summaries of the investment goals for the 23
Funds:
ACTIVELY MANAGED EQUITY FUNDS:
These Funds invest mostly in stocks and are
designed to increase the value of your
investment over the long term.
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 International Value Fund
("International Value Fund")
Growth of capital and future income
through investments in non-U.S. issuers.
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 Large Cap Value Fund
("Large Cap Value Fund")
Total returns exceeding the Russell 1000r
Value Index through investments in equity
securities.
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 Mid Cap Value Fund ("Mid
Cap Value Fund")
Growth through investments in medium
capitalization companies.
American General Small Cap Growth Fund
("Small Cap Growth Fund")
Long-term growth through investments in
small growth companies.
American General Small Cap Value Fund
("Small Cap Value Fund")
Maximum long-term return through
investments in small capitalization
companies.
American General Socially Responsible Fund
("Socially Responsible Fund") Growth
through investments in companies meeting
social criteria of the Fund.
BALANCED FUND:
This Fund invests in a combination of stocks
and bonds to allow for long-term growth
while reducing market risks.
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:
These Funds are designed to provide current
income while conserving capital.
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 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 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.
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.
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.
INDEX EQUITY FUNDS:
These Funds track different indices in order
to provide growth over the long term.
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 2000r Index.
American General Stock Index Fund ("Stock
Index Fund")
Total return through investments tracking
the S&P 500 Index.
LIFESTYLE FUNDS:
These Funds allocate assets to other
American General Funds in order to provide a
diversified, less risky investment.
American General Conservative Growth
Lifestyle Fund ("Conservative Growth
Lifestyle Fund")
Current income and a low to moderate
level of growth through investments in a
combination of the Series Company Funds.
American General Growth Lifestyle Fund
("Growth Lifestyle Fund")
Growth through investments in a
combination of the Series Company Funds.
American General Moderate Growth Lifestyle
Fund ("Moderate Growth Lifestyle Fund")
Growth and current income through
investments in a combination of the Series
Company Funds.
MONEY MARKET FUNDS:
These Funds provide liquidity and
preservation of capital.
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.
In this prospectus, "we", "us", and "our"
refers to the American General Fund Group.
Neither the Securities and Exchange
Commission ("SEC") nor any state securities
commission has approved or disapproved of
these securities or determined if this
prospectus is truthful or complete. Any
representation to the contrary is a criminal
offense.
The SEC maintains an internet website at
http://www.sec.gov that contains the
Statement of Additional Information ("SAI"),
material incorporated by reference, and
other information regarding registrants that
file electronically with the SEC.
<PAGE>
Table of Contents
Topic Page
Risk/Return Summaries: Investments, Risks,
and Performance
Balanced Fund 4
Conservative Growth Lifestyle Fund7
Core Bond Fund 10
Domestic Bond Fund 13
Growth Lifestyle Fund 16
High Yield Bond Fund 19
International Growth Fund 22
International Value Fund 25
Large Cap Growth Fund 28
Large Cap Value Fund 31
Mid Cap Growth Fund 34
Mid Cap Index Fund 37
Mid Cap Value Fund 40
Moderate Growth Lifestyle Fund 43
Money Market Fund 46
Municipal Bond Fund 49
Municipal Money Market Fund 52
Small Cap Growth Fund 55
Small Cap Index Fund 58
Small Cap Value Fund 61
Socially Responsible Fund 64
Stock Index Fund 67
Strategic Bond Fund 70
More About Portfolio Investments 73
More About Risk 77
More About Index Funds and Tracking an Index
79
Welcome to American General Corporation
(Adviser and Sub-Adviser Information)
80
Shareholder Account Information 86
Management's Discussion of Fund Performance
94
Financial Highlights ___
<PAGE>
Risk/Return Summaries: Investments, Risks,
and Performance
BALANCED FUND
INVESTMENT CATEGORY
Balanced
INVESTMENT ADVISER
The Variable Annuity Life Insurance Company
("VALIC")
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
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. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
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. We
select securities for the Fund's portfolio
by identifying fixed-income (bonds and
preferred stock) and equity (stock)
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.
Fixed-income Portion: Up to 75% of the
Fund's total assets may be invested in fixed
income securities rated A or better by
Moody's Investors Service ("Moody's") or
Standard & Poor ("S&P") or of comparable
investment quality. The Sub-Adviser is not
required to sell the security, however, if
the rating is downgraded. At all times, at
least 25% of the Fund's total assets are
invested in fixed-income senior securities.
The Fund may hold up to 20% of its total
assets in high-yielding, high risk fixed
income securities ("junk bonds").
Equity Portion: Up to 75% of the Fund's
total assets may be invested in equity
securities listed on national securities
exchanges or in the over-the-counter market
("NASDAQ"). Equity securities include
American Depositary Receipts ("ADRs"), which
are certificates issued by a U.S. depositary
bank, representing foreign shares held by
the bank. ADRs carry the same currency,
political and economic risks as the
underlying foreign shares. Up to 10% of the
Fund's total assets may be invested in the
securities of U.S. small capitalization
companies ("Small Caps"). Small Caps are
companies that have total assets
(capitalization) of approximately $150
million to $1.25 billion. See "More About
Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Risk of Lower Rated Fixed-Income Securities:
A 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 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.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgment that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of a blend of
two indices ("Balanced Blend"). The Balanced
Blend is composed of 40% Lehman Brothers
Government and Corporate Index and 60% S&P
500 Index. Each is a widely recognized,
unmanaged index. The average total return
table shows returns with the maximum front
end sales charge deducted. No sales charge
has been applied to the indices used for
comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) Footnote1
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote2
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
CONSERVATIVE GROWTH LIFESTYLE FUND
INVESTMENT CATEGORY
Lifestyle
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks current income and low to moderate
growth of capital through investments in a
combination of the Series Company Funds
("Underlying Funds"). This Fund is suitable
for investors who wish to invest in equity
securities, but who are not willing to
assume the market risks of either the Growth
Lifestyle Fund or the Moderate Growth
Lifestyle Fund. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
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 and sample Underlying Fund choices
for this Fund.
International Equity Securities5%-15%
Sample Underlying Funds:
American General International
Value Fund
American General International
Growth Fund
Small Capitalization Equity Securities
5%-15%
Sample Underlying Funds:
American General Small Cap Value
Fund
American General Small Cap Growth
Fund
Medium Capitalization Equity Securities
5%-15%
Sample Underlying Funds:
American General Mid Cap Value
Fund
American General Mid Cap Growth
Fund
Large Capitalization Equity Securities
25%-35%
Sample Underlying Funds:
American General Large Cap Growth
Fund
American General Large Cap Value
Fund
Bonds
30%-50%
Sample Underlying Funds:
American General Core Bond Fund
American General Domestic Bond
Fund
This Fund is managed so that it can serve as
a complete investment program for you or as
a core part of your larger portfolio. The
Underlying Funds have been selected to
represent a reasonable spectrum of
investment options for the Fund. We have
based the target investment percentages for
the Fund on the degree to which we believe
the Underlying Funds, in combination, to be
appropriate for the Fund's investment
objective. We may change the asset
allocation ranges and the particular
Underlying Funds in which the Fund may
invest from time to time.
INVESTMENT RISKS
The Fund is a non-diversified investment
company under the Investment Company Act of
1940 (the "1940 Act") because it invests in
a limited number of the Underlying Funds.
However, the Underlying Funds themselves are
diversified companies.
The allocation among the different
Underlying 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 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, 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 Funds
in which it invests. Changes in the net
asset values of the Underlying 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 Funds to meet their investment
objectives.
Investment in the Underlying Funds involves
manager risk. Manager Risk is the risk that
the Fund's management strategy may not
achieve the desired results and the Fund's
performance may lag behind that of similar
funds. The Fund is also subject to the risk
that a Fund that is non-diversified under
the 1940 Act will invest more of its assets
in fewer issuers and, therefore, is more
likely to be adversely affected by a
downturn in any one issuer or security. The
securities that Underlying Funds invest in
also involve various risks.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of a blended
index, calculated by including the pro rata
portion of each of the Underlying Fund's
respective indices, and the S&P 500 Index,
composed of 500 common stocks which are
chosen by Standard & Poor's Corporation. The
S&P 500 Index approximates the general
distribution of industries in the U.S.
economy, captures the price performance of a
large cross-section of the publicly traded
stock market.. The average total return
table shows returns with the maximum front
end sales charge deducted. No sales charge
has been applied to the index used for
comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price) 5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) Footnote3
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees None
Other expenses _.__%
Total annual fund operating expenses _.__%
Fee waiver and/or expense reimbursement _.__%
Net Expenses _.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price) None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote4
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees None
Other expenses _.__%
Total annual fund operating expenses _.__%
Fee waiver and/or expense reimbursement _.__%
Net Expenses _.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
CORE BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P.
("AGIM")
INVESTMENT OBJECTIVE
Seeks the highest possible total return
consistent with conservation of capital
through investments in medium to high
quality fixed-income securities. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of its total
assets in medium to high quality fixedincome
securities, or in securities issued or
guaranteed by the U.S. Government, mortgage-
backed or asset-backed securities. U.S.
Government securities are securities issued
or guaranteed by the U.S. Government which
are supported by the full faith and credit
of the U.S. Government; the right of the
issuer to borrow from the U.S. Treasury; the
credit of the issuing government agency; or
the authority of the U.S. Government to
purchase obligations of the agency. A
portion of the 65% may also be invested in
U.S. dollar-denominated fixed-income
securities issued by foreign issuers,
although the Fund currently intends to limit
these investments to no more than 40% of its
total assets. These fixed-income securities
are rated investment grade or higher. The
Sub-Adviser is not required to dispose of a
security if its rating is downgraded,
however. Up to 10% of the Fund's total
assets may be invested in lower quality
fixed-income securities, those rated below
Baa3 by Moody's and BBB by S&P.
Up to 35% of the Fund's total assets may be
invested in interest-bearing short-term
investments, such as commercial paper,
bankers' acceptances, bank certificates of
deposit, and other cash equivalents and
cash. Equity securities, including common or
preferred stocks, convertible securities,
and warrants, may comprise up to 20% of the
Fund's total assets. See "More About
Portfolio Investments."
The Fund's transactions are reflected in its
portfolio turnover rate, ___% for the fiscal
year ended October 31, 1999. The rate of
portfolio turnover is calculated by dividing
the lesser of the amount of purchases or
sales of portfolio securities during the
fiscal year by the average of the value of
the portfolio securities. A high rate of
portfolio turnover generally involves
correspondingly greater brokerage commission
expenses, thus increasing the Fund's
operating expenses. The Fund's active
trading strategy may cause the Fund to have
a relatively high amount of short-term
capital gains, which are taxable to you at
your ordinary income tax rate.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Risk of Lower Rated Fixed-income Securities:
A 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 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
become worth less than what the Fund paid
for them.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Aggregate Bond Index, a total
return index measuring both the capital
price changes and the income underlying the
universe of securities, weighted by market
value outstanding. The average total return
table shows returns with the maximum front
end sales charge deducted. No sales charge
has been applied to the index used for
comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
4.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) Footnote5
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote6
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
DOMESTIC BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests in high quality fixedincome
securities to provide you with the highest
possible total return from current income
and capital gains while preserving your
investment. At least 65% of the Fund's total
assets will be invested in investment grade
U.S. corporate fixed-income securities rated
at least A by Moody's or S&P, in securities
issued or guaranteed by the U.S. Government,
Yankee bonds, or in mortgagebacked or asset-
backed securities. U.S. Government
securities are securities issued or
guaranteed by the U.S. Government which are
supported by the full faith and credit of
the U.S. Government; the right of the issuer
to borrow from the U.S. Treasury; the credit
of the issuing government agency; or the
authority of the U.S. Government to purchase
obligations of the agency. The SubAdviser is
not required to dispose of a security if its
rating is downgraded.
Up to 35% of total assets may be invested in
non-U.S. investment grade intermediate and
long-term corporate fixed-income securities
rated at least A by Moody's or S&P,
including Eurodollar fixed-income
securities, securities issued or guaranteed
by the Canadian Government, its provinces or
their instrumentalities, or interest bearing
short-term investments, such as commercial
paper, bankers' acceptances, bank
certificates of deposit and other cash
equivalents and cash. Currently, Eurodollar
fixed-income securities will be limited to
no more than 20% of the Fund's total assets.
To increase the Fund's earning potential, we
may use up to 25% of the Fund's assets to
make some higher risk investments in
mortgage-related securities or bonds rated
less than A by Moody's or S&P. No minimum
rating requirement applies to these junk
bonds. See "More About Portfolio
Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Risk of Lower Rated Fixed-income Securities:
A 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 SubAdviser's
investment analysis. Accordingly, the Fund's
investments may be worth less than what the
Fund paid for them.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Aggregate Bond Index, a total
return index measuring both the capital
price changes and the income underlying the
universe of securities, weighted by market
value outstanding. The average total return
table shows returns with the maximum front
end sales charge deducted. No sales charge
has been applied to the index used for
comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
4.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) Footnote7
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote8
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
GROWTH LIFESTYLE FUND
INVESTMENT CATEGORY
Lifestyle
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks growth through investments in a
combination of the Series Company Funds
("Underlying Funds"). This Fund is suitable
for investors seeking the potential for
capital growth that a fund investing
predominately in equity securities may
offer. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
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 and sample Underlying Fund choices
for this Fund.
International Equity Securities25%-35%
Sample Underlying Funds:
American General International
Value Fund
American General International
Growth Fund
Small Capitalization Equity Securities
15%-25%
Sample Underlying Funds:
American General Small Cap Value
Fund
American General Small Cap Growth
Fund
Medium Capitalization Equity Securities
10%-20%
Sample Underlying Funds:
American General Mid Cap Value
Fund
American General Mid Cap Growth
Fund
Large Capitalization Equity Securities
20%-30%
Sample Underlying Funds:
American General Large Cap Growth
Fund
American General Large Cap Value
Fund
Bonds
5%-15%
Sample Underlying Funds:
American General Core Bond Fund
American General Domestic Bond
Fund
American General High Yield Bond
Fund
This Fund is managed so that it can serve as
a complete investment program for you or as
a core part of your larger portfolio. The
Underlying Funds have been selected to
represent a reasonable spectrum of
investment options for the Fund. We have
based the target investment percentages for
the Fund on the degree to which we believe
the Underlying Funds, in combination, to be
appropriate for the Fund's investment
objective. We may change the asset
allocation ranges and the particular
Underlying Funds in which the Fund may
invest from time to time.
INVESTMENT RISKS
The Fund is a "non-diversified" investment
company under the 1940 Act because it
invests in a limited number of the
Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
The allocation among the different
Underlying 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 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, 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 Funds
in which it invests. Changes in the net
asset values of the Underlying 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 Funds to meet their investment
objectives.
Investment in the Underlying Funds involves
manager risk. Manager risk is the risk that
the Fund's management strategy may not
achieve the desired results and the Fund's
performance may lag behind that of similar
funds. The Fund is also subject to the risk
that a Fund that is non-diversified under
the 1940 Act will invest more of its assets
in fewer issuers and, therefore, is more
likely to be adversely affected by a
downturn in any one issuer or security. The
securities that Underlying Funds invest in
also involve various risks.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of a blended
index, calculated by including the pro rata
portion of each of the Underlying Fund's
respective indices, and the S&P 500 Index,
composed of 500 common stocks which are
chosen by Standard & Poor's Corporation. The
S&P 500 Index approximates the general
distribution of industries in the U.S.
economy, captures the price performance of a
large cross-section of the publicly traded
stock market.. The average total return
table shows returns with the maximum front
end sales charge deducted. No sales charge
has been applied to the index used for
comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) Footnote9
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
None
Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote10
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
None Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
HIGH YIELD BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
AGIM
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. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
Up to 65% of the Fund's total assets are
invested in below-investment grade junk
bonds. These high yielding, high risk fixed
income securities are rated below Baa3 by
Moody's and BBB- by S&P. Up to 15% can be
rated below Caa3 by Moody's or CCC- by S&P.
The Fund may also invest up to 35% of total
assets in below-investment grade foreign
fixed-income securities.
To balance this risk, the Fund may invest up
to 35% in investment grade securities, those
rated Baa3 or higher by Moody's and BBB- or
higher by S&P. In addition, the Fund may
invest up to 15% in zero coupon securities
(securities not paying current cash
interest), and up to 20% of total assets in
equity securities. Equity securities
includes common or preferred stocks,
warrants, and convertible securities. The
Sub-Adviser is not required to dispose of a
bond that is downgraded to below-investment
grade. See "More About Portfolio
Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Risk of Lower Rated Fixed-income Securities:
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 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.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Salomon Smith Barney High Yield Market
Index, a widely recognized, unmanaged index
covering a significant portion of the below
investment grade U.S. corporate bond market.
The average total return table shows returns
with the maximum front-end sales charge
deducted. No sales charge has been applied
to the index used for comparison in the
table. The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
4.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote11
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote12
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
INTERNATIONAL GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Jacobs Asset Management
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund must invest at least 65% of its
total assets in the foreign equity
securities of at least three countries
outside the United States. Since the Fund
normally intends to be fully invested,
foreign equity securities will usually
represent closer to 80-85% of the Fund's
total assets. Foreign equity securities
include common and preferred stock,
convertible preferred stock, rights, and
warrants, American Depositary Receipts
("ADRs"), European Depositary Receipts
("EDRs"), and Global Depositary Receipts
("GDRs"). ADRs are certificates issued by a
U.S. depositary bank, representing foreign
shares held by the bank, to facilitate
trading in foreign securities. GDRs and EDRs
are very similar to ADRs. Generally, ADRs
are designed for use in U.S. securities
markets and EDRs are designed for use in
European securities markets. GDRs are
designed for use when the issuer is raising
capital in more than one market
simultaneously, such as the issuer's local
market and the U.S. ADRs, EDRs and GDRs each
carry the same currency, political and
economic risks as the underlying foreign
shares.
The Fund may invest up to 40% of total
assets in the equity securities of issuers
located in emerging market countries. 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 (known as "The World Bank") and
the International Finance Corporation. 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.
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 ("Small Caps"). Up to 50% of the
Fund's total assets may be invested in Small
Caps, which are companies that have total
assets (capitalization) of approximately
$150 million to $1.25 billion. See "More
About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Salomon Smith Barney Primary Market Index.
The Salomon Smith Barney Primary Market
Index is a sub-index of the Salomon Smith
Barney Broad Market Index, which measures
the performance of equities from 23
countries and 18 regions throughout the
world. Each company with equity capital of
at least $100 million is tracked by the
Salomon Smith Barney Index. The average
total return table shows returns with the
maximum front-end sales charge deducted. No
sales charge has been applied to the index
used for comparison in the table. The Fund's
past performance does not necessarily
indicate how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote13
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote14
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
INTERNATIONAL VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
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. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
The Fund must invest at least 65% of its
total assets in foreign securities. Since
the Fund normally intends to be fully
invested, foreign equity securities will
usually represent closer to 80-85% of the
Fund's total assets. 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.
Up to 90% of the amount invested in foreign
securities may be invested in put and call
options on foreign currencies and forward
currency contracts. A put option on foreign
currency is a security that gives the Fund
the right to sell a particular foreign
currency within a stated period of time. A
call option on foreign currency gives the
Fund the right to buy a particular foreign
currency within a stated period of time. A
forward currency contract is an agreement to
buy or sell foreign currency at an agreed
upon price and date.
The Fund may invest in the equity securities
of issuers located in emerging market
countries. 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 (known as "The World Bank")
and the International Finance Corporation.
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.
This Fund may invest up to 10% of total
assets in the securities of foreign small
capitalization companies ("Foreign Small
Caps"). Foreign Small Caps are companies
that have total assets (capitalization) of
approximately $150 million to $1.25 billion.
See "More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Salomon Smith Barney Primary Market Index.
The Salomon Smith Barney Primary Market
Index is a sub-index of the Salomon Smith
Barney Broad Market Index, which measures
the performance of equities from 23
countries and 18 regions throughout the
world. Each company with equity capital of
at least $100 million is tracked by the
Salomon Smith Barney Index. The average
total return table shows returns with the
maximum front-end sales charge deducted. No
sales charge has been applied to the index
used for comparison in the table. The Fund's
past performance does not necessarily
indicate how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote15
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote16
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
LARGE CAP GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Goldman Sachs Asset Management
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests up to 65% of its total
assets 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 Fund's benchmark, the
Russell 1000r Growth Index. 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.
The Fund may invest up to 25% of total
assets in the equity securities of other
U.S. and foreign issuers. The securities of
the foreign issuers must be traded in the
United States. This includes convertible
securities, ADRs and GDRs. ADRs are
certificates issued by a U.S. depositary
bank, representing foreign shares held by
the bank, to facilitate trading in foreign
securities. GDRs are very similar to ADRs.
Generally, ADRs are designed for use in the
United States securities markets, while GDRs
are designed for use when the issuer is
raising capital in more than one market
simultaneously, such as the issuer's local
market and the U.S. ADRs and GDRs each carry
the same currency, political and economic
risks as the underlying foreign shares. See
"More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Derivatives Risk: The risk that loss may
result from a Fund's investments in options,
futures, swaps, structured securities and
other derivative instruments. These
instruments may be leveraged so that small
changes may produce disproportionate losses
to a Fund.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 1000r Growth Index. The Russell
1000r Growth Index is a sub-index of the
Russell 3000r Index. The Russell 3000r Index
follows the 3,000 largest U.S. companies,
based on total market capitalization. The
Russell 1000r Growth Index measures the
performance of the 1,000 largest companies
in the Russell 3000r Index, focusing on
those with higher price-to-book ratios and
higher forecasted growth values. The average
total return table shows returns with the
maximum front-end sales charge deducted. No
sales charge has been applied to the index
used for comparison in the table. The Fund's
past performance does not necessarily
indicate how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote17
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote18
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
LARGE CAP VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
State Street Bank & Trust Company/State
Street Global Advisers
INVESTMENT OBJECTIVE
Seeks to provide total returns that exceed
over time the Russell 1000r Value Index
("Index") through investment in equity
securities. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
The Index is a sub-index of the Russell
3000r Index. The Russell 3000r Index follows
the 3,000 largest U.S. companies, based on
total market capitalization. The Index
measures the performance of the 1,000
largest companies in the Russell 3000r
Index, focusing on those with lower price-to
book ratios and lower forecasted growth
values.
INVESTMENT STRATEGY
The Fund will invest at least 65% of total
assets in the equity securities of the
largest 1200 companies by market
capitalization traded in the United States.
The Sub-Adviser combines financial
accounting data with earnings forecasts
provided by many security analysts. This
quantitative method allows the Sub-Adviser
to quickly and systematically evaluate large
amounts of data. The constructed portfolio
is well-diversified, maintaining industry
and sector exposures and macroeconomic and
risk characteristics that are similar to the
Index.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Market Risk also refers to the risk that the
value of the securities purchased by the
Fund may decline as a result of economic,
political or market conditions or an
issuer's financial circumstances. 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. 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.
Quantitative Risk: The different factors
that go into the quantitative analysis can
be changed periodically. The weight of each
factor may also change; thus, the analytical
model may have different historical or
future performance compared to the Fund.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 1000r Value Index. The average total
return table shows returns with the maximum
front-end sales charge deducted. No sales
charge has been applied to the index used
for comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) Footnote19
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote20
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
MID CAP GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Brown Capital Management, Inc.
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
This Fund will invest at least 65% of total
assets in the equity securities of medium
capitalization companies. Medium
capitalization companies generally include
companies with a market capitalization of $1
to $10 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 appear to
be 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. The Sub-Adviser uses 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.
Up to 35% of the Fund's total assets may be
invested in other domestic equity
securities, including common and preferred
stocks, and convertible securities. See
"More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Style Risk: The risk that the portfolio
manager's judgments that a particular
security is undervalued relative to its
growth potential in the securities markets
may prove incorrect.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell MidcapTM Growth Index. The Russell
MidcapTM Growth Index focuses on Russell
Midcap companies with higher price-to-book
ratios and higher forecasted growth values.
The average total return table shows returns
with the maximum front-end sales charge
deducted. No sales charge has been applied
to the index used for comparison in the
table. The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote21
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote22
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
MID CAP INDEX FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
The Mid Cap Index Fund seeks to provide
investment results that are similar to the
performance of the S&P 400 Mid Cap Index
("Index"). As a group, the investment
results, before expenses, are expected to
approximate the total return (the
combination of capital changes and income)
of selected common stocks that statistically
reflect the Index. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of total
assets in companies that are listed in the
Index. Since it may not be possible for this
Fund to buy every stock included in the
Index, or in the same proportions, the Fund
invests in a sampling of common stocks in
the Index. The common stocks of the 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, priceto-
earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the
Index. The common stocks held by the Fund
are weighted to make the Fund's aggregate
investment characteristics similar to those
of the Index as a whole. Companies are
chosen for the Index because of their market
size, liquidity, and industry group
representation. The Index is a market-value
weighted index. For information on how
closely the fund may track the index, see
"More on Index Funds and Tracking an Index"
below.
The S&P 400 Mid Cap Index is composed of 400
domestic stocks, chosen for market size,
liquidity, and industry group
representation. Four industry groups are
represented: Industrials, Utilities,
Financials, and Transportation. The Index is
market-value weighted, meaning that it holds
each stock in proportion to its total value
in the stock market. Therefore, if a stock
increases in price, its total value
increases and its share in the Index is
increased. Correspondingly, if a stock
decreases in price, its total value and its
share in the Index decrease also.
Up to 35% of the Fund's total assets may be
invested in equities that are not listed in
the Index. This includes common and
preferred stock and related securities. The
Fund may also invest in high quality money
market securities. [Insert info re futures
and options if primary strategy.] See "More
About Portfolio Investments."
INVESTMENT RISKS
Investment Style Risk: The Index is made up
of the stocks of many medium sized U.S.
companies, which generally includes
companies that are valued from $1 billion to
approximately $7 billion. Medium-sized
companies tend to be more established and
stable than small companies, and are faster
growing than large companies, but may be
somewhat more volatile than large companies.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Market Risk may also occur because of daily
changes in value. The Index fluctuates every
day, depending on changes in the stock
market. Stock markets often have times when
the prices rise and fall every day or every
few days. There is no guarantee that the
value of your investment will increase.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the S&P
Mid Cap 400 Index. The average total return
table shows returns with the maximum front
end sales charge deducted. No sales charge
has been applied to the index used for
comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote23
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote24
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
MID CAP VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Neuberger Berman Management Inc.
INVESTMENT OBJECTIVE
Seeks capital growth, through investment in
equity securities of medium capitalization
companies using a value-oriented investment
approach. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
INVESTMENT STRATEGY
This Fund invests at least 65% of total
assets 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, 1999, the largest
company included in the Russell Midcap TM
Index had an approximate market
capitalization of $11.2 billion, while the
average market capitalization was
approximately $3.9 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. Up to 35% of the Fund's total assets
may be invested in other equity securities,
including common and preferred stocks,
convertible securities, and related
equities. See "More About Portfolio
Investments."
The Fund's transactions are reflected in its
portfolio turnover rate, ___% for the fiscal
year ended October 31, 1999. The rate of
portfolio turnover is calculated by dividing
the lesser of the amount of purchases or
sales of portfolio securities during the
fiscal year by the average of the value of
the portfolio securities. A high rate of
portfolio turnover generally involves
correspondingly greater brokerage commission
expenses, thus increasing the Fund's
operating expenses. The Fund's active
trading strategy may cause the Fund to have
a relatively high amount of short-term
capital gains, which are taxable to you at
your ordinary income tax rate.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell Midcap TM Value Index. The Russell
Midcap TM Value Index measures the
performance of the 800 smallest companies in
the Russell 1000r Index, focusing on those
with lower price-to-book ratios and lower
forecasted growth values. The Russell 1000r
Index is a sub-index of the Russell 3000r
Index. The Russell 3000r Index follows the
3,000 largest U.S. companies, based on total
market capitalization. The average total
return table shows returns with the maximum
front-end sales charge deducted. No sales
charge has been applied to the index used
for comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote25
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote26
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
MODERATE GROWTH LIFESTYLE FUND
INVESTMENT CATEGORY
Lifestyle
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks growth and current income through
investments in a combination of the Series
Company Funds ("Underlying Funds"). This
Fund is suitable for investors who wish to
invest in equity securities, but who are not
willing to assume the substantial market
risks of the Growth Lifestyle Fund. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
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 and sample Underlying Fund choices
for this Fund.
International Equity Securities10%-20%
Sample Underlying Funds:
American General International
Value Fund
American General International
Growth Fund
Small Capitalization Equity Securities
10%-20%
Sample Underlying Funds:
American General Small Cap Value
Fund
American General Small Cap Growth
Fund
Medium Capitalization Equity Securities
10%-20%
Sample Underlying Funds:
American General Mid Cap Value
Fund
American General Mid Cap Growth
Fund
Large Capitalization Equity Securities
25%-35%
Sample Underlying Funds:
American General Large Cap Growth
Fund
American General Large Cap Value
Fund
Bonds 20%-
30%
Sample Underlying Funds:
American General Core Bond Fund
American General Domestic Bond
Fund
This Fund is managed so that it can serve as
a complete investment program for you or as
a core part of your larger portfolio. The
Underlying Funds have been selected to
represent a reasonable spectrum of
investment options for the Fund. We have
based the target investment percentages for
the Fund on the degree to which we believe
the Underlying Funds, in combination, to be
appropriate for the Fund's investment
objective. We may change the asset
allocation ranges and the particular
Underlying Funds in which the Fund may
invest from time to time.
INVESTMENT RISKS
The Fund is a "non-diversified" investment
company under the 1940 Act because it
invests in a limited number of the
Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
The allocation among the different
Underlying 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 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, 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 Funds
in which it invests. Changes in the net
asset values of the Underlying 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 Funds to meet their investment
objectives.
Investment in the Underlying Funds involves
manager risk. Manager risk is the risk that
the Fund's management strategy may not
achieve the desired results and the Fund's
performance may lag behind that of similar
funds. The Fund is also subject to the risk
that a Fund that is non-diversified under
the 1940 Act will invest more of its assets
in fewer issuers and, therefore, is more
likely to be adversely affected by a
downturn in any one issuer or security. The
securities that Underlying Funds invest in
also involve various risks.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of a blended
index, calculated by including the pro rata
portion of each of the Underlying Fund's
respective indices, and the S&P 500 Index,
composed of 500 common stocks which are
chosen by Standard & Poor's Corporation. The
S&P 500 Index approximates the general
distribution of industries in the U.S.
economy, captures the price performance of a
large cross-section of the publicly traded
stock market.. The average total return
table shows returns with the maximum front
end sales charge deducted. No sales charge
has been applied to the index used for
comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote27
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote28
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
MONEY MARKET FUND
INVESTMENT CATEGORY
Stability
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and
current income through investments in short
term money market instruments. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests in short-term money market
securities to provide you with liquidity,
protection of your investment and current
income. In accordance with Rule 2a-7 of the
1940 Act, such securities must mature in 13
months or less and the Fund must have a
dollar-weighted average portfolio maturity
of 90 days or less. 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
- - Variable Rate Demand Notes
- - Illiquid and restricted securities
(limited to 10% of the Fund's net assets
at all times)
- - Rule 144A securities (liquid)
INVESTMENT RISKS
The Fund invests in short-term money market
securities, which present low credit and
interest rate risks. Because the risk to the
money you invest is low, the potential for
profit is also low. The rate of income for
the Money Market Fund varies daily depending
on short-term interest rates.
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the
value of your investment at $1.00 per share,
it is possible to lose money by investing in
the Fund.
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table shows the Fund's seven-day yield
as of a recent date. Please call Customer
Service at 1-877-999-2434 for the most
current yield information. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and the fund yield as of a
recent date (Dec. 31 is fine) (both Class A
and B)]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote29
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
MUNICIPAL BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT SUB-ADVISER
AGIM
INVESTMENT STRATEGY
The Fund invests at least 80% of total
assets in investment grade municipal fixed
income securities, such as municipal bonds,
municipal notes, and other municipal
obligations. Investment grade bonds are
those rated at least Baa3 by Moody's or BBB
by S&P or Fitch, or of comparable quality.
The municipal notes are short-term
obligations rated high quality or better by
Moody's, S&P, or Fitch. If the Fund invests
in municipal securities issued for certain
private purposes, a portion of the Fund's
dividends may be subject to the alternative
minimum tax.
The Fund may invest up to 20% of total
assets in taxable fixed-income securities,
including money market instruments, U.S.
Government obligations, and other investment
grade securities rated as above. U.S.
Government securities are securities issued
or guaranteed by the U.S. Government which
are supported by the full faith and credit
of the U.S. Government; the right of the
issuer to borrow from the U.S. Treasury; the
credit of the issuing government agency; or
the authority of the U.S. Government to
purchase obligations of the agency. See
"More About Portfolio Investments."
If adverse conditions prevail in the market
for municipal obligations, the Fund may, as
a temporary defensive position, invest in
taxable high quality short-term money market
instruments, without the normal limitations.
If the Fund assumes such a defensive
position, it may not achieve its investment
objective.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Long Municipal Bond Index, a widely
recognized, unmanaged index of long-term
municipal bonds. The average total return
table shows returns with the maximum front
end sales charge deducted. No sales charge
has been applied to the index used for
comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
4.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote30
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote31
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
MUNICIPAL MONEY MARKET FUND
INVESTMENT CATEGORY
Stability
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
AGIM
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. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
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 mandated by Rule
2a-7 of the 1940 Act and are designed to
minimize fluctuation in the value of the
Fund's portfolio.
The investments this Fund may buy include: -
Municipal fixed-income securities with
remaining maturities of 13 months or less
- - Commercial paper sold by municipalities
rated at least MIG1 or MIG2 by Moody's or
A1 or A2 by S&P
- - Variable rate demand notes
- - Auction rate preferred stock and other
adjustable rate obligations that are
exempt from federal income taxation
- - Illiquid and restricted securities,
limited to 10% of the Fund's net assets at
all times
- - Rule 144A securities (liquid)
If adverse conditions prevail in the market
for municipal short-term obligations, the
Fund may, as a temporary defensive position,
invest in taxable high quality short-term
money market instruments, without the normal
limitations. If the Fund assumes such a
defensive position, it may not achieve its
investment objective.
INVESTMENT RISKS
The Fund invests in short-term money market
securities, which present low credit and
interest rate risks. Because the risk to the
money you invest is low, the potential for
profit is also low. The rate of income for
the Municipal Money Market Fund varies daily
depending on short-term interest rates.
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the
value of your investment at $1.00 per share,
it is possible to lose money by investing in
the Fund.
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table shows the Fund's seven-day yield
as of a recent date. Please call Customer
Service at 1-877-999-2434 for the most
current yield information. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and the fund yield as of a
recent date (Dec. 31 is fine) (both Class A
and B). CAN show tax-equivalent yield if
desired.]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote32
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
SMALL CAP GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
J.P. Morgan Investment Management Inc.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth from a
portfolio of equity securities of small
capitalization growth companies. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
At least 65% of the Fund's total assets are
invested in the equity securities of small
capitalization companies, which are
companies whose approximate market
capitalizations are greater than $150
million and less than $1.25 billion. These
equities include U.S. and foreign common and
preferred stocks, warrants and rights, and
convertible securities. On an industry-by
industry basis, the Fund's weightings are
similar to those of the Russell 2000r 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.
The Fund may invest up to 35% of total
assets in other equity securities of U.S.
and foreign large and medium capitalization
issuers, including those equities listed
above, and the securities of investment
companies. Large and medium capitalization
issuers are those companies with total
assets of approximately $1 billion or more.
See "More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you may lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 2000r Growth Index. The Russell
2000r Growth Index is a sub-index of the
Russell 3000r Index. The Russell 3000r Index
follows the 3,000 largest U.S. companies,
based on total market capitalization. The
Russell 2000r Growth Index measures the
performance of the 2,000 smallest companies
in the Russell 3000r Index, focusing on
those with higher price-to-book ratios and
higher forecasted growth values. The average
total return table shows returns with the
maximum front-end sales charge deducted. No
sales charge has been applied to the index
used for comparison in the table. The Fund's
past performance does not necessarily
indicate how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote33
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote34
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
SMALL CAP INDEX FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
The Small Cap Index Fund seeks to provide
investment results that are similar to the
total return of the Russell 2000r Index
("Index"). As a group, the investment
results, before expenses, are expected to
approximate the total return (the
combination of capital changes and income)
of selected common stocks that statistically
reflect the Index. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests up to 65% of its total
assets in a sampling of common stocks in the
Index that, as a group, should reflect the
performance of the Index. Since it may not
be possible for the Fund to buy every common
stock included in the Index or in the same
proportions, the Fund will select stocks to
purchase by 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, priceto-
earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the
Index. The common stocks held by the Fund
are weighted to make the Fund's aggregate
investment characteristics similar to those
of the Index as a whole. For information on
how closely the fund may track the index,
see "More on Index Funds and Tracking an
Index" below.
The Russell 2000r Index is a sub-index of
the Russell 3000r Index. The Russell 3000r
Index follows the 3,000 largest U.S.
companies, based on total market
capitalization. The Russell 2000r Index
measures the performance of the 2,000
smallest companies in the Russell 3000r
Index, and represents about 8% of the total
market capitalization of the Russell 3000r
Index. The average market capitalization in
the Russell 2000r Index is $526.4 million as
of June 30, 1999. As of the same date, the
largest company in the Index had a market
capitalization of nearly $1,350 million.
The Fund may invest up to 35% of total
assets in common stock and related
securities of issuers that are not in the
Index, including foreign securities, and may
invest up to 25% in high quality short-term
money market securities. See "More About
Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you may lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Index Risk: The Russell 2000r 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
2000r Index avoids the risks of individual
stock selection and seeks to provide the
return of the smaller-sized company sector
of the market. 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.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 2000r Index. The average total
return table shows returns with the maximum
front-end sales charge deducted. No sales
charge has been applied to the index used
for comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load) imposed on
purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote35
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote36
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
SMALL CAP VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Fiduciary Management Associates, Inc.
(actively managed portion)
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. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGIES
This Fund invests at least 65% of its total
assets in equity securities of small
capitalization companies, which are
companies whose total market capitalizations
range from approximately $150 million to
$1.25 billion and companies included in the
Russell 2000r Index ("Index"). One portion
of the Fund's investment portfolio will be
actively managed and the other portion will
be passively managed.
Actively Managed Portion: 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.
Passively Managed Portion: This portion of
the Fund is comprised of a sampling of
stocks in the Index that, as a group, should
reflect its performance. Since it may not be
possible for this Fund to buy every stock
included in the Index or in the same
proportions, the Fund will select stocks to
purchase by 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, priceto-
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.
The Fund may invest up to 35% of its total
assets in short-term investments, such as
foreign and domestic money market
instruments, certificates of deposit,
bankers acceptances, time deposits, U. S.
Government obligations, agency securities,
high quality commercial paper, repurchase
agreements, and short-term corporate fixed
income securities. U.S. Government
securities are securities issued or
guaranteed by the U.S. Government which are
supported by the full faith and credit of
the U.S. Government; the right of the issuer
to borrow from the U.S. Treasury; the credit
of the issuing government agency; or the
authority of the U.S. Government to purchase
obligations of the agency. See "More About
Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you may lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the
company's fundamental economic value may
prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 2000r Value Index. The Russell 2000r
Value Index is a sub-index of the Russell
3000r Index. The Russell 3000r Index follows
the 3,000 largest U.S. companies, based on
total market capitalization. The Russell
2000r Value Index measures the performance
of the 2,000 smallest companies in the
Russell 3000r Index, focusing on those with
lower price-to-book ratios and lower
forecasted growth values. The average total
return table shows returns with the maximum
front-end sales charge deducted. No sales
charge has been applied to the index used
for comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote37
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote38
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
SOCIALLY RESPONSIBLE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund will invest at least 80% of total
assets in the equity securities of companies
meeting the Fund's social 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").
The Fund does not invest in companies that
are significantly engaged in:
- - the production of nuclear energy;
- - the manufacture of weapons or delivery
systems;
- - the manufacture of alcoholic beverages
or tobacco products;
- - the operation of gambling casinos; or
- - business practices or the production of
products that significantly pollute the
environment.
At least once a year, the IRRC surveys state
laws to see if there are any new or revised
state laws that govern or affect the
investments of public funds. If the survey
shows that at least 20 states have adopted
laws that restrict public funds from being
invested in a clearly definable category of
investments, this category is automatically
added to our social criteria list.
Up to 20% of the Fund's total assets may be
invested in high quality money market
securities and warrants, or in other types
of equity securities of companies meeting
social criteria, including American
Depositary Receipts ("ADRs"), foreign
securities, preferred stock, and convertible
securities. ADRs are certificates issued by
a U.S. depositary bank, representing foreign
shares held by the bank, to facilitate
trading in foreign securities. ADRs carry
the same currency, political and economic
risks as the underlying foreign shares. See
"More About Portfolio Investments."
INVESTMENT RISKS
Because of these principal risks, the value
of your investment may fluctuate and you
could lose money:
Foreign Securities Risk:
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.
Sovereign Risk - the risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk - foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Developing Country Risk - the risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk - the risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Social Criteria Risk: 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.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the S&P
500 Index, composed of 500 common stocks
which are chosen by Standard & Poor's
Corporation. The Index approximates the
general distribution of industries in the
U.S. economy, captures the price performance
of a large cross-section of the publicly
traded stock market. The average total
return table shows returns with the maximum
front-end sales charge deducted. No sales
charge has been applied to the index used
for comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote39
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote40
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
STOCK INDEX FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
The Stock Index Fund seeks to provide
investment results that are similar to the
total return of the S&P 500 Index ("Index").
As a group, the investment results, before
expenses, are expected to approximate the
total return (the combination of capital
changes and income) of selected common
stocks that statistically reflect the Index.
This investment objective can be changed by
the Board of Trustees, without the approval
of the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of total
assets in a sampling of common stocks in the
Index that, as a group, should reflect its
performance. Since it may not be possible
for this Fund to buy every stock included on
this Index or in the same proportions, 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 (total value) 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. For information on how
closely the fund may track the index, see
"More on Index Funds and Tracking an Index"
below.
The S&P 500 Index is composed of 500 common
stocks which are chosen by Standard & Poor's
Corporation. The Index approximates the
general distribution of industries in the
U.S. economy, and captures the price
performance of a large cross-section of the
publicly traded stock market. The Index is
capitalization-weighted, meaning that it
holds each stock in proportion to its total
value in the stock market. Therefore, if a
stock increases in price, its total value
increases and its share in the Index is
increased. Correspondingly, if a stock
decreases in price, its total value and its
share in the Index decrease also.
The Fund may invest up to 35% of total
assets in investments that are not in the
Index, such as common stock and related
securities, and high quality money market
securities. Up to 20% of the total assets
may be invested in ADRs and foreign common
stocks, including securities of companies
domiciled in emerging market countries. ADRs
are certificates issued by a U.S. depositary
bank, representing foreign shares held by
the bank, to facilitate trading in foreign
securities. ADRs carry the same currency,
political and economic risks as the
underlying foreign shares.
INVESTMENT RISKS
Because of these principal risks, the value
of your investment may fluctuate and you
could lose money:
Index 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.
Foreign Securities Risk:
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.
Sovereign Risk - the risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk - foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Developing Country Risk - the risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk - the risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the S&P
500 Index, composed of 500 common stocks
which are chosen by Standard & Poor's
Corporation. The Index approximates the
general distribution of industries in the
U.S. economy, and captures the price
performance of a large cross-section of the
publicly traded stock market. The average
total return table shows returns with the
maximum front-end sales charge deducted. No
sales charge has been applied to the index
used for comparison in the table. The Fund's
past performance does not necessarily
indicate how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
5.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote41
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote42
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
STRATEGIC BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
AGIM
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.
This investment objective can be changed by
the Board of Trustees, without the approval
of the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of total
assets in a broad range of fixed-income
securities, including
- - investment grade bonds (rated Baa or
higher by Moody's and BBB or higher by S&P)
- - U.S. Government and agency obligations
- - mortgage backed securities
- - U.S., Canadian, and foreign high risk,
high yield bonds (rated C or higher by
Moody's and CC or higher by S&P, or
comparable unrated securities)
Up to 25% of the Fund's total assets may be
invested in foreign emerging market debt,
and up to an additional 25% in non-U.S.
dollar bonds. The Fund may also invest up to
20% of total assets in equity securities,
such as common and preferred stocks,
convertible securities, and warrants.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
for Class A Shares, assuming reinvestment of
dividends and distributions. The return for
the Fund's Class B Shares will differ from
the Class A returns shown in the bar chart,
due to the expenses of each Class. The bar
chart does not reflect any sales charge that
you may be required to pay upon purchase or
redemption of the Fund's shares. Any sales
charge will reduce your return.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Aggregate Bond Index, a total
return index measuring both the capital
price changes and the income underlying the
universe of securities, weighted by market
value outstanding. The average total return
table shows returns with the maximum front
end sales charge deducted. No sales charge
has been applied to the index used for
comparison in the table. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart (Class A only) for
calendar year 1999, best and worst quarter
information and average annual return table
(both Class A and B) for fiscal year 1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees Class A
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
4.75%
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower)
Footnote43
Maximum account fee None
Annual Fund operating expenses Class A
Management fees 0.__%
Distribution and service (12b-1) fees
0.25% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Shareholder fees Class B
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) 5%
Footnote44
Maximum account fee None
Annual Fund operating expenses Class B
Management fees 0.__%
Distribution and service (12b-1) fees
1.00% Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year. The Fund's Rule 12b-1 fees include an
asset-based sales charge, as discussed in
the Distribution and Service Plan section of
this Prospectus.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end
of those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain
the same.
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Without redemptions, your costs would be:
Class A 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
Class B 1 Year 3 Years 5 Years 10
Years
$___ $___ $___ $___
<PAGE>
More About Portfolio Investments
Each Fund's principal investment strategy
and risks are shown above. Funds may invest
in other investments and may use investment
techniques as described below. All Money
Market Fund investments must comply with
Rule 2a-7 of the 1940 Act, which allows the
purchase of only high quality money market
instruments. The Lifestyle Funds invest in
other Funds described in this Prospectus and
thus are not specifically mentioned below.
Please refer to the SAI for more information
about investments.
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.
Examples of assets supporting asset-backed
securities include credit card receivables,
retail installment loans, home equity loans,
auto loans, and manufactured housing loans.
All of the Funds except International Growth
Fund, International Value Fund, Large Cap
Growth, and Mid Cap Growth may invest in
asset-backed securities.
Depositary Receipts
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. All of the Funds except
for the Money Market Fund, Municipal Bond
Fund, Municipal Money Market Fund and the
Strategic Bond Fund may purchase 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 Balanced Fund, Core Bond
Fund, Domestic Bond Fund, High Yield Bond
Fund, International Growth Fund,
International Value Fund, Large Cap Value
Fund, Mid Cap Index Fund, Mid Cap Value
Fund, Small Cap Index Fund, Small Cap Growth
Fund, Small Cap Value Fund, Socially
Responsible Fund, and the Stock Index Fund
may invest in EDRs and GDRs. The Large Cap
Growth Fund may invest in GDRs but may not
invest in EDRs.
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. Each
share of stock represents a part of the
ownership of the company. The holder of
stock participates in the growth of the
company through the stock price and receipt
of dividends. All the Funds may invest in
equities except for the Money Market Fund
and the Municipal Money Market Fund, though
equities may not be a primary strategy for
each Fund.
Generally, there are three types of stocks:
1. Common stock - Common stock usually has
voting rights, which allow an investor to
vote for the company Board of Directors.
Common stock also gives each owner a share
in a company's profits through dividend
payments or the capital appreciation of the
security.
2. Preferred stock - Each share of
preferred stock allows the holder to get a
fixed dividend before the common stock
shareholders receive any dividends on
their shares.
3. Convertible preferred stock - A stock
with a fixed dividend which the holder may
exchange for a certain amount of common
stock.
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.
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 purchase,
for example, includes U.S. Government bonds
and investment grade corporate bonds. VALIC
and the Sub-Advisers will not necessarily
dispose of a bond if its ratings are
downgraded to below investment grade. All of
the Funds except Mid Cap Growth Fund and the
Money Market Fund may invest in investment
grade bonds. Of those that invest in bonds,
only the Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Bond Fund,
Mid Cap Value Fund, Municipal Bond Fund,
Small Cap Growth Fund, Small Cap Value, and
Strategic Bond Fund may also invest in below
investment grade bonds.
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 longterm
(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, though most
commercial paper matures in 50 days or less.
Bonds are not the only type of fixed-income
security. Other fixed-income securities
include, for example, 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.
Foreign Currency
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. All the Funds except
for the Large Cap Growth Fund, Large Cap
Value Fund, Mid Cap Growth Fund, Money
Market Fund, Municipal Bond Fund, Municipal
Money Market Fund and the Small Cap Value
Fund may invest in foreign currency.
Foreign Securities
Securities of foreign issuers 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. The Large Cap Growth Fund
may only invest in the equity securities of
foreign issuers that are traded in the
United States. Generally, all of the Funds
may invest in foreign securities except for
Mid Cap Growth Fund, Municipal Bond Fund,
and the Municipal Money Market Fund.
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 "Depositary Receipts".
Futures and Options
Futures and options are considered
derivative securities, since the value of
the future or option is derived in part from
the value and characteristics of another
security. A "future" is a contract which
involves the sale of a security for future
delivery. An "option" gives the buyer the
opportunity to buy or sell a security at a
set price on or before a date specified in
the contract. A call option buyer thinks the
stock price may go up in the future, while a
put option buyer thinks the stock price may
go down. All of the Funds except for
International Growth Fund, Mid Cap Growth
Fund, Money Market Fund and Municipal Money
Market Fund may invest in derivatives.
The Funds use stock and bond futures to
invest cash and cash equivalents to:
- - 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.
Illiquid Securities
An illiquid security is one that may not be
frequently traded or cannot be disposed of
promptly within seven days and in the usual
course of business without taking a
materially reduced price. Illiquid
securities include, but are not limited to,
time deposits and repurchase agreements not
maturing within seven days and restricted
securities. Non-money market funds may
invest up to 15% in illiquid securities,
while money market funds are limited to 10%.
This restriction applies at all times to all
assets.
A restricted security is one that has not
been registered with the SEC and, therefore,
cannot be sold in the public market.
Securities eligible for sale under Rule 144A
and commercial paper offered pursuant to
Section 4(2) of the Securities Act of 1933,
as amended, are not deemed by VALIC or the
Fund's Sub-Adviser to be illiquid solely by
reason of being restricted. Instead, VALIC
or the Sub-Adviser will determine whether
such securities are liquid based on trading
markets and pursuant to guidelines adopted
by the Series Company's Board of Trustees.
If VALIC or the Sub-Adviser concludes that a
security is not liquid, that investment will
be included within the Fund's limitation on
illiquid securities.
Investment Companies
All of 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.
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. International
Growth Fund, International Value Fund, Large
Cap Growth Fund, Mid Cap Index Fund, Mid Cap
Value Fund, Small Cap Growth Fund, Small Cap
Index Fund, and Stock Index Fund may invest
in investment funds.
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 of the Funds except the Mid Cap Value
Fund may invest in loan participations.
Money Market Securities
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. All the Funds may invest in
money market securities, though it is not a
primary strategy for all Funds.
Examples of high quality money market
securities 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.
Mortgage-Related Securities
Mortgage-related securities include, but are
not limited to, mortgage pass-through
securities, collateralized mortgage
obligations and commercial mortgage-backed
securities. All of the Funds except for
International Growth Fund, International
Value Fund, Mid Cap Growth Fund, Mid Cap
Index Fund, Money Market Fund, Small Cap
Index Fund, Socially Responsible Fund, and
the Stock Index Fund may invest in mortgage
related 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. 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 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, coupon, and
prepayment preference. 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.
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.
Real Estate Securities
Real estate securities are securities issued
by companies that invest in real estate or
interests therein. All of the Funds except
for the Domestic Bond Fund and the High
Yield Bond Fund may invest in real estate
securities and 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.
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). 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
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.
Reverse Repurchase Agreements and Dollar
Rolls
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. If a Fund's positions in
reverse repurchase agreements or similar
transactions are not covered by liquid
assets in a segregated account, such
transactions would be subject to the Funds'
limitations on borrowings. The Funds will
not borrow money, except as provided in each
Fund's investment restrictions. Reverse
repurchase agreements may be entered into by
all Funds except the Mid Cap Growth Fund.
The Core Bond Fund, High Yield Bond Fund,
Large Cap Value Fund, Mid Cap Value Fund,
Small Cap Growth Fund, Small Cap Value Fund,
and the Strategic Bond Fund 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.
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.
The Balanced Fund, Core Bond Fund, Domestic
Bond Fund, High Yield Bond Fund, and the
Strategic Bond Fund may enter into
structured securities.
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. The Large Cap Growth Fund, Large Cap
Value Fund, Mid Cap Value Fund, Small Cap
Growth Fund, Small Cap Value Fund, and the
Strategic Bond Fund may enter into swap
agreements.
U.S. Government Securities
All the Funds may invest in 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.
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. The Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Bond Fund,
Large Cap Value Fund, Mid Cap Growth Fund,
Mid Cap Value Fund, Municipal Bond Fund, and
the Strategic Bond Fund may invest in the
variable amount demand master notes.
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
Money Market Fund and the Municipal Funds
may also may invest in participation VRDNs,
which provide a Fund with an undivided
interest in underlying VRDNs held by major
investment banking institutions. All the
Funds may invest in VRDNs.
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. All of
the Funds except for the Mid Cap Growth
Fund, Money Market Fund, Municipal Bond
Fund, and the Municipal Money Market Fund
may invest in warrants and rights.
When-Issued Securities
When-issued securities are those investments
that have been announced by the issuer and
will soon be on the market. 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 except the Mid
Cap Value Fund and the Money Market Fund may
invest in when-issued securities.
More about Risk
There are several basic types of investment
risk. 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. Several types
of investment risks are discussed below.
Credit (Financial) Risk: Credit risk refers
to the risk that the issuer of a fixedincome
security may default or be unable to pay
interest or principal due on a fixedincome
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 bond 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.
Derivatives Risk: Derivatives risk refers to
the risk that loss may result from a Fund's
investments in options, futures, swaps,
structured securities and other derivative
instruments. These instruments may be
leveraged so that small changes may produce
disproportionate losses to a Fund.
Foreign Securities Risk: Certain Funds may
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.
Sovereign Risk - the risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk - foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Developing Country Risk - the risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
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.
Lower Rated Fixed-Income Securities Risk:
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 by
VALIC or the Sub-Adviser 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 the
Sub-Adviser also may consider relative
values based on anticipated cash flow,
interest or dividend coverage, balance sheet
analysis, and earnings prospects.
An economic downturn or increase in interest
rates is likely to have a greater negative
effect on the ability of the issuers of
lower rated fixed-income securities 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 a Fund in lower rated
fixed-income securities 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 the 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.
Manager Risk: Manager risk refers to the
risk that the Fund's management strategy may
not achieve the desired results and the
Fund's performance may lag behind that of
similar funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Settlement and Clearance Risk - the risks
associated with the clearance and settlement
procedures in non-U.S. markets, which may be
unable to keep pace with the volume of
securities transactions and may cause
delays.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: Value investing risk
refers to the risk that the portfolio
manager's judgments that a particular
security is undervalued in relation to the
company's fundamental economic value may
prove incorrect.
More about Index Funds and Tracking an Index
The factors that cause a Fund to perform
differently from the index it tries to track
are called tracking differences. There is no
assurance that an Index Fund can track its
index.
The coefficient of correlation (r) is an
index number which shows how closely two
variables are related. If r = 0 there is no
tendency for one variable to change with the
other. A value of +1 means that one variable
will vary exactly with the other. Index
funds try to keep their coefficient of
correlation as close to 1 as possible. As a
practical matter, any coefficient above
0.95, when measured against the comparison
index, shows good tracking.
Tracking accuracy is reviewed daily by VALIC
for each of the Index Funds. If an Index
Fund does not accurately track an index,
VALIC will rebalance the Fund's portfolio by
selecting securities which will provide a
more representative sampling of the
securities in the index as a whole or the
sector diversification within the index, as
appropriate.
The index may remove one stock and
substitute another, requiring the Fund to do
the same. When a stock is sold and the new
stock purchased, the Fund incurs transaction
costs. The index incurs no transaction
costs. Therefore, any index fund portfolio
manager cannot match exactly the performance
of an index.
An index fund may not buy every single stock
in its index or in the same proportions as
the index. VALIC 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 helps to keep brokerage fees
and other transaction costs lower than other
funds, generally.
Welcome to American General Corporation
American General Corporation, with assets of
$___ billion and shareholders' equity of
$___ billion as of December 31, 1999, is the
parent company of one of the nation's
largest diversified financial services
organizations. American General's operating
divisions deliver a wide range of retirement
services, life insurance, and consumer
finance products and services to diverse
markets through focused distribution
channels. American General, headquartered in
Houston, was incorporated as a general
business corporation in Texas in 1980 and is
the successor to American General Insurance
Company, an insurance company incorporated
in Texas in 1926.
American General Fund Group is the mutual
fund division of American General
Corporation. The address of American General
Corporation and its subsidiaries, including
VALIC and AGIM, is 2929 Allen Parkway,
Houston, Texas 77019.
Investment Adviser
VALIC, a stock life insurance company, has
been in the investment advisory business
since 1960, and is the investment adviser
for all the Funds. VALIC had $____ billion
in assets under management, as of December
31, 1999. VALIC and AGIM, a Sub-Adviser, are
both members of the American General
Corporation group of companies. Each entity
is a registered investment adviser with the
SEC. Several of VALIC's principal officers,
directors and portfolio managers hold
similar positions with AGIM.
As Investment Adviser, VALIC oversees the
Fund's day to day operations, supervises the
purchase and sale of Fund investments, and
performs the cash management function. VALIC
employs Investment Sub-Advisers who make
investment decisions for the Funds,
including Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Bond Fund,
International Growth Fund, International
Value Fund, Large Cap Growth Fund, Large Cap
Value Fund, Mid Cap Growth Fund, Mid Cap
Value Fund, Municipal Bond Fund, Municipal
Money Market Fund, Small Cap Growth Fund,
Small Cap Value Fund, and Strategic Bond
Fund.
VALIC makes investment decisions for and is
directly responsible for the day-to-day
management of the Lifestyle Funds, Mid Cap
Index Fund, Money Market Fund, Small Cap
Index Fund, Socially Responsible Fund, Stock
Index Fund, and the passively managed
portion of Small Cap Value Fund. The
investment advisory agreement between VALIC
and the Series Company 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. These expenses are allocated to
each Fund in a manner approved by the Board
of Trustees.
Investment decisions for the Index Funds,
Socially Responsible Fund and the passively
managed portion of the Small Cap Value Fund
are made by a team of portfolio managers,
assistant portfolio managers and analysts
organized for that purpose. The teams meet
regularly to review portfolio holdings and
discuss purchase and sale activity.
Teresa Moro has been the Money Market 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.
The Lifestyle Funds are managed by a team
led by William Trimbur, Jr. Mr. Trimbur has
been the Lifestyle Funds' 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.
How VALIC is Paid for Its Services
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. 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 or bearing certain expenses.
Advisory fee paid to
Fund Name VALIC
(as a % of average daily
net assets)
Balanced Fund 0.80% on the first $25
million
0.65% on the next $25
million
0.45% on assets over $50
million
Conservative 0.10%
Growth
Lifestyle Fund
Core Bond Fund 0.50% on the first $200
million
0.45% on the next $300
million
0.40% on assets over
$500 million
Domestic Bond 0.60% on the first $50
Fund million
0.45% on the next $50
million
0.43% on the next $200
million
0.40% over $300 million
Growth 0.10%
Lifestyle Fund
High Yield 0.70% on the first $200
Bond Fund million
0.60% on the next $300
million
0.55% on assets over
$500 million
International 0.90% on the first $100
Growth million
Fund 0.80% on assets over
$100 million
International 1.00% on the first $25
Value million
Fund 0.85% on the next $25
million
0.675% on the next $200
million
0.625% on assets over $250
million
Large Cap 0.55%
Growth Fund Large Cap 0.50%
Value Fund
Mid Cap Growth 0.65% on the first $25 Fund
million
0.55% on the next $25 million
0.45% on assets over $50
million
Mid Cap Index 0.28% on the first $500 Fund
million
0.27% on assets over $500
million
Mid Cap Value 0.75% on the first $100 Fund
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
Moderate 0.10%
Growth
Lifestyle Fund
Money Market 0.25%
Fund
Municipal Bond 0.50% on the first $200 Fund
million
0.45% on the next $300
million
0.40% on assets over $500
million
Municipal 0.50% on the first $200
Money million
Market Fund 0.45% on the next $300
million
0.40% on assets over $500
million
Small Cap 0.85%
Growth Fund
Small Cap 0.28% on the first $500
Index Fund million
0.27% on assets over $500
million
Small Cap 0.75% on the first $50
Value Fund million
0.65% on the assets over $50
million
Socially 0.25%
Responsible
Fund
Stock Index 0.27% on the first $500
Fund million
0.26% on assets over
$500 million
Strategic Bond 0.60% on the first $200
Fund million
0.50% on the next $300
million
0.45% on assets over
$500 million
Investment Sub-Advisers
For some of the Funds, VALIC works with
investment Sub-Advisers through an agreement
each entered into with VALIC. Sub-Advisers
are 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.
According to the agreements we have 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 may be considered
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-Adviser's affiliate to
effect these type 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.
In selecting Sub-Advisers, the Trustees of
the Series Company 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 by VALIC to each SubAdviser.
The Sub-Advisory fees are not paid by the
Funds.
The Series Company relies upon an exemptive
order from the SEC which permits VALIC,
subject to certain conditions, to select new
sub-advisers or replace existing subadvisers
without first obtaining shareholder approval
for the change. The Board of Directors,
including a majority of the "independent"
Directors, must approve each new sub-
advisory agreement. This allows VALIC to act
more quickly to change subadvisers when it
determines that a change is beneficial to
shareholders by avoiding the delay of
calling and holding shareholder meetings to
approve each change. In accordance with the
exemptive order, the Series Company will
provide investors with information about
each new sub-adviser and its sub-advisory
agreement within 90 days of the hiring of a
new sub-adviser. VALIC is responsible for
selecting, monitoring, evaluating and
allocating assets to the Subadvisers and
oversees the Sub-advisers' compliance with
the relevant Fund's investment objective,
policies and restrictions.
The Sub-Advisers are:
AGIM
2929 Allen Parkway, Houston, Texas 77015
AGIM is the Sub-Adviser for the Core Bond
Fund, Domestic Bond Fund, High Yield Bond
Fund, Money Market Fund, Municipal Bond
Fund, Municipal Money Market Fund, and the
Strategic Bond Fund. AGIM was formed in 1998
as a successor to the investment management
division of American General Corporation,
and is an indirect wholly-owned subsidiary
of American General Corporation. AGIM also
provides investment management and advisory
services to pension and profit sharing
plans, financial institutions and other
investors. Investment decisions for several
Funds are made by teams as noted below. Each
team meets regularly to review portfolio
holdings and discuss purchase and sale
activity.
Magali E. Azema-Barac is responsible for
AGIM's equity group. She heads the team
making investment decisions for each of the
Index Funds, as well as Socially Responsible
Fund and the passively managed portion of
the Small Cap Value Fund. Ms. Azema-Barac
joined American General in September, 1999.
Prior to that, she worked on the equity desk
of USWest Investment Management Company in
Englewood, Colorado, where she incepted and
managed an enhanced equity portfolio.
Robert N. Kase, CF, has been the Core Bond
Fund's Portfolio Manager since November
1998. He has been Investment Officer of
VALIC since September 1998, and Senior
Portfolio Manager of AGIM since September
1998. Previously, Mr. Kase was Senior
Portfolio Manager with CL Capital
Management, Inc. from September 1992 until
July 1998.
Investment decisions for the Strategic Bond
Fund are made by a team, headed by Steven
Guterman. 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.
Investment decisions for the High Yield Bond
Fund are made by a team, headed by Gordon
Massie. 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.
Marybeth Whyte serves as the Portfolio
Manager for the Municipal Money market Fund
and the Municipal Bond Fund. She 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.
Brown Capital Management, Inc. ("Brown
Capital")
1201 N. Calvert St., Baltimore, Maryland
21202
Brown Capital is the Sub-Adviser for the Mid
Cap Growth Fund. Established as a Maryland
corporation in 1983, Brown Capital served as
investment adviser to approximately $___
billion in assets as of December 31, 1999.
Investment decisions for the Mid Cap Growth
Fund are made by a team of portfolio
managers/analysts organized for that
purpose. The team meets regularly to review
portfolio holdings and discuss purchase and
sale activity.
Capital Guardian Trust Company ("Capital
Guardian")
333 South Hope Street, Los Angeles,
California 90071
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
December 31, 1999, Capital Guardian had more
than $____ billion in assets under
management.
The Balanced 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 22 years and has been with
the Sub-Adviser or an affiliate for 19
years; and (ii) Jim Baker, Vice President of
the Sub-Adviser, who has been an investment
professional for 18 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 33 years and has been with
the Sub-Adviser or an affiliate for 29
years; (ii) Gene Stein, Executive Vice
President of the Sub-Adviser, who has been
an investment professional for 27 years and
has been with the Sub-Adviser or an
affiliate for 26 years; (iii) Michael
Ericksen, Senior Vice President of the Sub
Adviser, who has been an investment
professional for 18 years and has been with
the Sub-Adviser or an affiliate for 12
years; (iv) Ted Samuels, Senior Vice
President of the Sub-Adviser, who has been
an investment professional for 20 years and
has been with the Sub-Adviser or an
affiliate for 18 years; and (v) Donnalisa
Barnum, 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 13 years.
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 46 years and has been with
the Sub-Adviser or an affiliate for 33
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; and (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.
The International Value Fund's portfolio
managers include: (i) Robert Ronus,
President of the Sub-Adviser, who has been
an investment professional for 30 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 33 years
and has been with the Sub-Adviser or an
affiliate for 29 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 27 years and has
been with the Sub-Adviser or an affiliate
for 26 years; (iv) Nancy Kyle, Senior Vice
President of the Sub-Adviser, who has been
an investment professional for 25 years and
has been with the Sub-Adviser or an
affiliate for 8 years; (v) Nilly Sikorsky,
Director of The Capital Group of Companies,
Inc., the ultimate parent of the SubAdviser,
who has been an investment professional for
36 years and has been with the Sub-Adviser
or an affiliate for 36 years; (vi) Lionel
Sauvage, Senior Vice President of the Sub-
Adviser, who has been an investment
professional for 12 years and has been with
the Sub-Adviser or an affiliate for 12
years; (vii) Richard Havas, Sr., Senior Vice
President of the SubAdviser, who has been an
investment
professional for 17 years and has been with
the Sub-Adviser or an affiliate for 13
years; and (viii) Rudolf Staehelin, Sr.,
Senior Vice President of Capital
International Research, Inc., an affiliate
the Sub-Adviser, who has been an investment
professional for 21 years and has been with
the Sub-Adviser or an affiliate for 17
years.
James S. Baker and James R. Mulally serve as
the Domestic Bond 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.
Fiduciary Management Associates, Inc.
("FMA")
55 West Monroe Street, Suite #2550, Chicago,
Illinois 60603
FMA is the Sub-Adviser for the actively
managed portion of the assets of 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
December 31, 1999, FMA had over $___ billion
in assets under management.
Investment decisions are made by a team that
consists of portfolio managers and analysts
who specialize their research by sectors.
Kathryn Vorisek is the lead portfolio
manager. The team meets regularly to review
portfolio holdings and to discuss purchase
and sale activity.
Goldman Sachs Asset Management ("GSAM")
32 Old Slip, New York, New York 10005
GSAM is the Sub-Adviser for the Large Cap
Growth Fund. As of September 1, 1999, the
Investment Management Division ("IMD") was
established as a new operating division of
Goldman, Sachs & Co. ("Goldman Sachs"). The
newly created entity includes GSAM. 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 December 31, 1999, GSAM,
along with other units of IMD, had assets
under management of $___ billion.
The Large Cap Growth 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. Mr. Clark, Managing
Director, joined the Sub-Adviser's
quantitative equity management team as a
portfolio manager in 1992. Mr. Pinter, Vice
President, joined the Sub-Adviser as a
research analyst in 1990, and became a
portfolio manager in 1992. 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.
J.P. Morgan Investment Management, Inc.
("J.P. Morgan")
522 Fifth Avenue, New York, New York 10036
J.P. Morgan is the Sub-Adviser for the Small
Cap Growth Fund. Known for its commitment to
proprietary research and its disciplined
investment strategies, J.P. Morgan provides
asset management services to corporations,
financial institutions, governments and
individuals. As of December 31, 1999, J.P.
Morgan and its affiliates employed over ___
analysts and portfolio managers around the
world and had more than $___ billion in
assets under management.
Candice Eggerss, Saira Malik and Carolyn
Jones are the members of the Sub-Adviser's
team who will be primarily responsible for
the day-to-day management of the Small Cap
Growth 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. Ms.
Malik joined the Sub-Adviser in 1995 as a
small company equity analyst and portfolio
manager after completing her graduate
studies at the University of Wisconsin. Ms.
Jones has been with the Sub-Adviser since
July 1998. Prior to this, Ms. Jones served
as a portfolio manager in J.P. Morgan's
private banking group and as a product
specialist at Merrill Lynch Asset
Management.
Jacobs Asset Management
200 East Broward Boulevard, Suite 1920, Fort
Lauderdale, Florida 33301
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 December
31, 1999, Jacobs Asset Management had more
than $___ million in assets under
management.
Investment decisions for the International
Growth Fund are made by a team that consists
of portfolio managers and analysts who
specialize their research by region. Dan
Jacobs, President, is the lead portfolio
manager and has final approval on purchase
and sales. The team meets regularly to
review portfolio holdings and discuss
purchase and sale activity.
Neuberger Berman Management, Inc. ("NB
Management")
605 Third Avenue, Second Floor, New York,
New York 10158-0180
NB Management is the Sub-Adviser for the Mid
Cap Value Fund. NB Management and its
predecessor firms have specialized in the
management of no-load mutual funds since
1950. As of December 31, 1999, NB Management
and its affiliates managed approximately $__
billion in aggregate net assets, including
approximately $__ billion in mutual fund
assets.
Robert I. Gendelman and S. Basu Mullick
serve as co-managers of the Mid Cap Value
Fund. Messrs. Gendelman and Mullick are Vice
Presidents of the Sub-Adviser and Mr.
Gendelman is a managing director of
Neuberger Berman, LLC. Messrs. Gendelman and
Mullick have been associated with the Sub
Adviser since 1994 and 1998, respectively.
State Street Bank & Trust Company ("State
Street Bank")/State Street Global Advisors
("State Street Global Advisors")
2 International Place, Boston, Massachusetts
02110
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 whollyowned
subsidiary of State Street Corporation,
which had more than $___ billion under
management as of December 31, 1999.
The Large Cap Value Fund is managed by a
team of investment professionals. In
addition to the ongoing activity of
portfolio management, the team is
responsible for research focused on
enhancing the Sub-Adviser's quantitative
process.
Shareholder Account Information
There are several references below to
Customer Service or the Transfer Agent.
Customer Service and all Transfer Agent
functions are provided by National Financial
Data Systems, Inc., in Kansas City,
Missouri.
Types of Accounts
The different ways you may set up an account
are listed below.
Individual
Individual accounts are owned by one person.
You can designate a beneficiary for the
account if you choose to have a Transfer on
Death account ("TOD").
Joint Tenants
Joint accounts can have two or more owners.
You can set the account up as joint tenants
with rights of survival ("JTWROS"), which
means that if one owner dies, the other
owner will receive the funds without going
through probate court.
You can also choose joint tenants in common
("JTIC"). This means that each tenant owns a
specific portion of the account. We assume
50/50 ownership unless we are otherwise
notified. When one tenant dies, that portion
of the account belongs to the estate of the
deceased.
Retirement Plans
Retirement plans provide individuals with
tax-advantaged ways to save for retirement,
either with tax-deductible contributions, or
tax-deferred growth. Retirement accounts
require special applications and have a
lower initial purchase requirement.
Retirement accounts include:
Traditional Individual Retirement
Accounts ("IRAs")
Roth IRAs
Roth Conversion IRAs
Rollover IRAs
Profit-Sharing or Money Purchase Pension
Plans
Simplified Employee Pension ("SEP") IRAs
SIMPLE IRAs
401(k) Plans
Transfer or Gift to Minor
You can set up a custodial account for a
child under your state's Uniform Transfer or
Gift to Minors Act ("UTMA" or "UGMA"). Any
individual can give the child up to $10,000
each year without paying the federal gift
tax. The gift to the child is irrevocable,
meaning that it cannot be taken back. In
addition, the account and all the money in
it must be conveyed to the child upon
reaching the age of majority, which is 18-21
in most states.
Trust
The trust must be established before the
account is open. We need to know the date of
establishment and the name of the trustee.
Businesses or Organizations
You may open an account for your
corporation, association, or partnership.
The application must be accompanied by a
corporate resolution so that we know who is
authorized to transact on the account.
Investment Minimums
The table below illustrates the minimum
investment requirements for initial and
subsequent investments for any of the Funds.
Initial Subsequent
Type of Account Investment
Investment
Retirement Plans $500 $50
UTMA/UGMA $250 $50
Automatic Investment Program $50 $50 All
other accounts $2,000 $50 Available
Classes of Shares
You may choose to purchase either Class A
and Class B shares. The decision as to which
class is best for you depends on your
investment goals, how much you want to
invest and how long you plan to keep the
investment. The fees and expenses are
different for each Class and affect a Fund's
total return. The fees and expenses are
shown in the Fee Table and Example of
Expenses earlier in this Prospectus.
Shares of the Money Market Fund and the
Municipal Money Market Fund are sold without
a sales charge. You should choose Class A
for a money market fund, unless you intend
to exchange the money market shares for
Class B shares of another fund.
Class A features.
- - Front-end sales charge, except for
money market funds
- - Reduced sales charges for larger
purchases
- - Cumulative purchase discount (see
Rights of Accumulation below)
- - No sales charges for purchases of $1
million or more
Class A Sales Charge Tables
If you choose Class A shares, you will pay a
sales charge at the time of each purchase,
except for the money market funds. These
tables show the charges both as a percentage
of offering price and as a percentage of the
amount you invest. The term "offering price"
includes the front-end sales charge. If you
invest more, the sales charge will be lower.
Equity Funds
Balanced Mid Cap Index
Conservative Growth Lifestyle Mid Cap Value
Growth Lifestyle Moderate
Growth Lifestyle
International Growth Small Cap
Growth
International Value Small Cap
Index
Large Cap Growth Small Cap
Value
Large Cap Value Socially
Responsible
Mid Cap Growth Stock Index
Your Sales charge as a
percentage of:
Investment Net Investment
Offering Price
Less than $25,000 6.10% 5.75%
$25,000 - $49,999 5.82% 5.50%
$50,000 - $99,999 4.99% 4.75%
$100,000 - $249,999 3.90% 3.75%
$250,000 - $499,999 2.56% 2.50%
$500,000 - $999,999 2.04% 2.00%
$1,000,000 or more No sales charge, but
subject to CDSC45
Your Maximum Commission
Investment to Broker-Dealer
Less than $25,000 5.25%
$25,000 - $49,999 5.00%
$50,000 - $99,999 4.25%
$100,000 - $249,999 3.25% $250,000 -
$499,999 2.00% $500,000 - $999,999 1.75%
$1,000,000 or more See Payments to Broker
Dealers below
Fixed-Income (Bond) Funds
Core Bond Municipal Bond
Domestic Bond Strategic Bond
High Yield Bond
Your Sales charge as a
percentage of:
Investment Net Investment
Offering Price
Less than $49,999 4.99% 4.75%
$50,000 - $99,999 4.71% 4.50%
$100,000 - $249,999 3.63% 3.50%
$250,000 - $499,999 2.56% 2.50%
$500,000 - $999,999 2.04% 2.00%
$1,000,000 or more No sales charge, but
subject to CDSC46
Your Maximum Commission
Investment to Broker-Dealer
Less than $49,999 4.25%
$50,000 - $99,999 4.00%
$100,000 - $249,999 3.00% $250,000 -
$499,999 2.00% $500,000 - $999,999 1.75%
$1,000,000 or more See Payments to Broker
Dealers below
When the sales charge on Class A Shares will
be reduced or waived
- - Rights of Accumulation (cumulative
purchase discount): Previous Class A
purchases may help you to qualify for a
lower sales charge. The sales charge is
calculated by adding the dollar amount of
the new purchase of shares to the higher
of the original cost or current value of
Class A Fund shares previously purchased.
- - Volume Discounts (groups or grouped
accounts): Related accounts may be
aggregated for the purposes of receiving a
reduced sales charge. You must contact
Customer Service to see if you or your
group is eligible for a volume discount
purchase, and notice may be required for
each subsequent purchase. For purposes of
determining eligibility for the volume
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.
- - Letter of Intent: If you intend to
purchase a specific amount over the next
13 months, it may be to your benefit to
sign a Letter of Intent. This allows you
to receive a lower breakpoint for each
purchase, based on the total amount you
intend to purchase. Up to 5% of the total
amount you intend to purchase may be held
in escrow to cover additional sales
charges, just in case you do not purchase
the total amount. A Letter of Intent can
be obtained by calling Customer Service at
1-877-999-2434.
- - Purchases of Class A Shares without
sales charges: Class A Shares may be
purchased without a sales charge by: 1.
Current and retired Trustees;
2. Current and retired employees of
American General Corporation and its
affiliates;
3. Directors, officers, and employees
(and when permitted, registered
representatives and their employees) of
financial intermediaries that have
entered into a selling agreement with
the Distributor;
4. Immediate family members (spouse,
children under 21, grandchildren under
21, and parents) of 1 through 3 above;
5. Financial institution trust departments
investing an aggregate of $1 million in
the Funds;
6. Accounts for which broker-dealers,
financial institutions, or financial
planners charge an account management
fee (also called a wrap fee);
7. Tax-qualified plans with more than $1
million in plan assets;
8. Tax-qualified plans purchasing shares
with loan repayments from participants;
and 9. By a Fund in connection with the
acquisition of another investment
company.
Class B features.
- - No front-end sales charges
- - Contingent deferred sales charge
("CDSC") on redemptions
- - Keeping the shares longer will reduce
the CDSC
- - No CDSC is charged for shares acquired
by reinvesting dividends or capital gains
- - Class B shares automatically convert to
Class A shares after 6 years
Class B CDSC Table
If you choose Class B shares, you will not
pay an initial sales charge, but you will
have to pay a CDSC if the shares are sold
within the first five years, as shown below.
Year 1 2 3 4 5 6
Charge 5% 4% 3% 2% 1% 0%
Shares not subject to a CDSC will be
redeemed first, followed by shares held the
longest during the CDSC period. The amount
of the CDSC is calculated as a percentage of
the lesser of the current market value or
the original cost of the shares being
redeemed. This means that you do not pay a
CDSC on any gain in the value of the shares
sold. The CDSC may be waived under certain
circumstances.
When the CDSC will be waived
No CDSC will be charged for:
- - Exchanges of Class B Shares from one
Fund to another
- - Required minimum distributions from tax-
deferred retirement plans and IRAs
- - Redemptions from tax-deferred
retirement plans for termination of
employment, participant loans, or hardship
withdrawals
- - The return of an excess contribution or
deferral, pursuant to sections 401(k)(8),
401(m)(6), 402(g)(2), or 408(d)(4) or (5)
of the Internal Revenue Code.
- - Redemptions due to the death of an
individual investor
- - Redemptions due to the deaths of all
the investors, for a joint account
- - Redemptions taken due to a disability,
as determined by the Social Security
Administration
- - Systematic withdrawals of at least $50,
provided that the amounts withdrawn do not
exceed 12% of the account value, on an
annual basis (you must have a minimum
balance of $5,000 to be eligible for this
program)
- - Redemptions due to the failure to meet
the minimum balance requirements
Distribution and Service Plan (except for
Lifestyle Funds)
Each Fund (except for the Lifestyle Funds)
has adopted a Distribution and Service Plan
("Plan") under Rule 12b-1 of the 1940 Act.
The Plan allows each Fund to pay
distribution fees for the sale and
distribution of its shares and for services
provided to shareholders. Each Fund paid
service fees of 0.25% for Class A Shares and
1% for Class B Shares during the most recent
fiscal period. Because these fees are paid
out of a Fund's assets on an on-going basis,
over time these fees will increase the cost
of your investment and may cost you more
than paying other types of sales charges.
Payments to Broker-Dealers
The distribution and service fees are paid
to the distributor of the Funds, American
General Distributors, Inc., an affiliate of
VALIC (the "Distributor"). The Distributor
may then pay broker-dealers a commission for
selling Fund Shares. The maximum commission
for Class A Shares is shown above, as a
percentage of the offering price. The
Distributor may pay a maximum commission of
4.00% on Class B Shares at the time of
purchase.
The Distributor may occasionally pay broker
dealers the full amount of the Class A front
end sales charge as a special sales
incentive. Broker-dealers may also receive
additional compensation and finder's fees,
based on assets held through the broker
dealer firm. Finder's fees may be paid on
Class A Share purchases of $1 million or
more, excluding Money Market Funds. The
finder's fee is 0.50% on sales of $1 to $2
million, plus 0.40% on the next $1 million,
and 0.25% on the excess over $3 million.
The Distributor may also provide promotional
incentives or payments to its registered
representatives, its affiliated broker
dealer, or to other broker-dealers in
connection with the sales of Fund Shares.
These incentives or payments may include
payments for travel and lodging expenses
incurred for meetings and seminars of a
business nature. The Distributor makes these
payments at its own expense, in accordance
with rules set forth by the National
Association of Securities Dealers, Inc.
How Shares are Valued
The price of each Class of shares for a Fund
is based on net asset value ("NAV"). NAV is
computed by adding the value of a Fund's
holdings plus other assets, subtracting
liabilities, and then dividing the result by
the number of shares outstanding. The NAV of
each Class will be different, depending on
the number of Class shares outstanding.
Portfolio securities and other assets are
valued based on market price quotations. If
market quotations are not readily available,
securities are valued by a method that
reflects fair value. These are reviewed by
the Fund's Board of Trustees. Some Funds
hold securities that are primarily listed on
foreign exchanges. Foreign exchanges may
trade at times or on days when the New York
Stock Exchange ("NYSE") is closed, such as
on weekends or other days. This will affect
the value of the Fund's shares; thus, the
value of the Fund's shares may change on
days when you will not be able to buy or
sell your shares.
The Money Market Fund and the Municipal
Money Market Fund and any securities
maturing within 60 days are valued according
to the "amortized cost" method, which is
intended to stabilize the NAV at $1 per
share.
The NAV is calculated as of the close of
each business day, which coincides with the
closing of the regular session of the NYSE
(normally 4 p.m. Eastern Time). Each Fund is
open for business each day the NYSE is open.
Please note that there are some federal
holidays, however, such as Columbus Day and
Veterans' Day, when the NYSE is open and the
Funds are open but purchases cannot be made
due to the closure of the banking system.
Opening Your Account
You may open an account through a registered
representative or by completing the enclosed
application. Please be sure to indicate the
Fund and the Class of shares you wish to
purchase.
Please take special care when completing
your application that you sign up for any
services you may desire, including telephone
privileges. If your bank is a member of the
Automated Clearing House ("ACH"), you may
sign up for the electronic transfer service.
To sign up, you MUST include a voided check
for a checking account, or a deposit slip
for a savings account. If you wish to add
services at a later date, a signature
guarantee may be required.
Send the new account application and your
purchase check to:
American General Fund Group
P.O. Box 219502
Kansas City, MO 64141-6502
If you purchase shares through a registered
representative or financial institution
You should read the program materials
together with this Prospectus. Certain
features may be modified in these programs.
Investors may be charged a fee if they
effect transactions in Fund shares through a
broker or agent.
General Purchase Information
If your purchase order is received by 3:00
p.m. Central Time, then your purchase will
be processed at the next NAV calculated
after your order is received. Any check
purchase received without an investment slip
may cause delayed crediting. All purchases
must be made in U.S. dollars and should be
drawn only on U.S. banks. If your check does
not clear your bank, you may be charged a
fee by the Transfer Agent. All purchases,
except those made by wire, will be on hold
and unavailable for redemptions for 15
calendar days. Each Fund reserves the right
to reject any specific purchase order and
may suspend the offering of shares in
response to conditions in the securities
markets or for other reasons.
Additional Account Purchases
You may make additional purchases by
contacting your registered representative or
by:
Mail
You may use the investment remittance slip
attached to your account statement or
confirmations. Make your check payable to
the Fund in which you are investing and mail
to:
American General Fund Group
P.O. Box 219502
Kansas City, MO 64141-6502
Wire
Please call 1-877-999-2434 before you send a
wire purchase.
Your financial institution may charge you a
fee for wiring funds.
Electronic Transfers - $50 or more
If you have already signed up for our ACH
service, you may call Customer Service at 1
877-999-2434 to transfer money from your
bank to the Fund through our electronic
transfer service. Your bank account will be
debited for the desired amount. Allow one or
two business days after you place your
request for the transfer to take place. This
ACH service allows you to purchase
additional shares quickly and conveniently
without mail delays.
Automatic Investment Programs
Please call 1-877-999-2434 to set up an
automatic investment program. You may change
amounts or Funds or discontinue a program at
any time.
Automatic Investing
You may request an automatic ACH transfer of
$50 or more from your bank to the Fund. You
may choose when you want this to occur,
whether monthly, bimonthly, quarterly, or
some other time.
Payroll Deductions
You may make regular investments of $50 or
more through automatic payroll deduction you
initiate through your employer. Your
employer may have special forms and other
rules for this program.
Systematic Exchanges
If you have a Fund balance of at least
$5,000, you may request an automatic
exchange of $25 or more from that Fund
account to another Fund account. The
automatic exchange will occur once per
month.
Exchanges of Shares from one Fund to another
Please call Customer Service at 1-877-999
2434 to make an exchange. You must have
telephone privileges for this service.
An exchange of shares occurs when you sell
shares in one Fund and buy shares in another
Fund. Each exchange may produce a taxable
gain or loss, unless in a tax-deferred
account.
Exchanges between accounts will only be
accepted if the accounts are registered
identically.
Exchanges may be requested by mail or by
telephone. Please refer to "Selling Your
Shares" for more details on requests by
mail.
If you exchange Class A Shares of the Money
Market Fund or the Municipal Money 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 may only be exchanged for shares of
the same class of another Fund.
No CDSC is imposed on exchanges of Class B
Shares subject to a CDSC at the time of the
exchange because the shares are still within
the American General Fund Group. The CDSC
will be charged for all other sales.
Because excessive trading can increase Fund
expenses and hurt performance for other
shareholders, we may refuse any exchange
that we believe is due to market timing or
which may otherwise significantly affect a
Fund.
We may modify these exchange policies upon
60 days' prior notice to shareholders.
Selling Your Shares
When you request a redemption by 3:00 p.m.
Central Time, the proceeds of the sale will
normally be mailed, wired, or sent by
electronic transfer (ACH) the next business
day, provided all necessary documents have
been received by the Transfer Agent, and the
funds are available for redemption. If your
recent purchase is on hold and not available
for redemption, you may exchange it into
another Fund. The Funds have the right to
redeem shares in assets other than cash for
redemption amounts exceeding, in any 90-day
period, $250,000 or 1% of the net asset
value of the affected Fund, whichever is
less.
When the NYSE is closed (or when trading is
restricted) for any reason other than its
customary weekend or holiday closings, or
under any emergency circumstances as
determined by the SEC, redemptions may be
suspended or payment dates postponed. Please
note that there are some federal holidays,
however, such as Columbus Day and Veterans'
Day, when the NYSE is open and the Funds are
open but redemptions cannot be made due to
the closure of the banking system.
You may sell shares by contacting your
registered representative or by:
Telephone: Check redemptions, ACH, or bank
wires
You may redeem up to $25,000 daily by
calling Customer Service at 1-877-999-2434
before 3:00 p.m. Central Time. The proceeds
of the sale may be sent only to pre
authorized destinations, such as your
address of record or your bank account by
wire or by ACH.
Bank wires must be for at least $500. You
may be charged up to $25 for a wire to your
bank, and your bank may charge to receive
the wire. International wires are more
expensive; therefore, the charge to you may
be higher.
ACH transfers must be for at least $50.
There is no charge for an ACH transfer.
Allow one or two business days after you
place your request for the transfer to take
place.
Mail
Your written request should include the
following information:
1. Your name, address, and daytime
telephone number;
2. Your account number;
3. The name or number of the Fund from
which you wish to sell shares;
4. The Class of Shares to be sold, if
applicable;
5. The dollar or share amount of the sale;
and
6. Your signature, guaranteed (see below).
Send the written request to:
American General Fund Group P.O. Box 219502
Kansas City, MO 64141-6502
Special Requirements
A signature guarantee is required for any:
1. Redemption when the account address has
been listed less than 30 days; or
2. Redemption to an address other than
that on the account.
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.
Check Writing - Money Market Fund and
Municipal Money Market Fund only
The Money Market Funds offer check writing
privileges for Class A Shares. You can
choose this redemption option by completing
the appropriate portions of the account
application. The Transfer Agent will provide
you with a supply of checks.
- - Checks may be written for $100 or more.
- - Checks will not be honored if you do
not have enough money in your account to
cover the check, or if the money in the
account is still on hold from a recent
purchase (see "General Purchase Information"
above.)
- - If we do not honor a check, you may be
charged a fee of $25.
- - You may not completely close your
account by writing a check.
Automatic Redemptions
- - You may request an automatic monthly or
quarterly ACH transfer of $50 or more from
the Fund to your bank, provided your
account balance is $5,000 or more.
- - You may request a monthly or quarterly
automatic check redemption of $50 or more,
provided your account balance is $5,000 or
more.
Minimum Account Balances
If the balance in your account falls below
the required minimum initial investment, you
will be notified that you should bring the
balance up to the required minimum amount
within 60 days. If your account remains
below the minimum required, it may be closed
and the proceeds mailed to the address of
record.
Dividends, Capital Gains and Taxes
Each Fund pays dividends from its net
investment income as shown below. Net
investment income consists of interest
income, net short-term capital gains, if
any, and dividends declared and paid on
investments, less expenses. Distributions of
net short-term capital gains (treated as
dividends for tax purposes) and net longterm
capital gains, if any, are normally paid
once a year; however, the Funds do not
anticipate making any such distributions
unless available capital loss carryovers
have been used or have expired. Dividend and
distribution payments will vary between
classes; dividend payments are anticipated
to be generally higher for Class A shares.
Dividends declared and paid daily:
Money Market Fund
Municipal Money Market Fund
Dividends declared daily and paid monthly:
Core Bond Municipal Bond
Domestic Bond Strategic Bond
High Yield Bond
Dividends paid quarterly:
Balanced Mid Cap Value
Conservative Growth Lifestyle Moderate
Growth Lifestyle
Growth Lifestyle Small Cap Growth
Large Cap Growth Small Cap Index
Large Cap Value Small Cap Value
Mid Cap Growth Socially
Responsible
Mid Cap Index Stock Index
Dividends paid semi-annually: International
Growth
International Value
Dividend Payment Options
Dividends and any distributions are
automatically reinvested in the same Fund
without a sales charge, unless you elect to
have dividends paid in cash or in shares of
the Money Market Fund or the Municipal Money
Market Fund. You may make this election on
the account application.
Buying a Dividend
(Not Applicable to Money Market Funds)
At the time of purchase, the share price of
each class may reflect undistributed income,
capital gains or unrealized appreciation of
securities. Any income or capital gains from
these amounts which are later distributed to
you are fully taxable. On the record date
for a distribution, share value is reduced
by the amount of the distribution. If you
buy shares just before the record date
("buying a dividend") you will pay the full
price for the shares and then receive a
portion of the price back as a taxable
distribution.
Federal Taxes
In January, each Fund will mail you Form
1099-DIV indicating the federal tax status
of dividends and any capital gain
distributions paid to you during the past
year. Generally, dividends and distributions
are taxable in the year they are paid.
However, any dividends and distributions
paid in January but declared during the
prior three months are taxable in the year
declared. Dividends and distributions are
taxable to you regardless of whether they
are taken in cash or reinvested. Dividends,
including short-term capital gains, are
taxable as ordinary income, except that the
Municipal Money Market Fund and Municipal
Bond Fund intend to pay dividends which are
tax-exempt on the Federal level. Income
exempt from federal tax may be subject to
state and local taxes. Distributions from
long-term capital gains are taxable as long
term capital gains, regardless of how long
you have owned shares.
For Non-Money Market Funds
You may realize a capital gain or loss when
you sell or exchange shares. This capital
gain or loss will be short- or long-term,
depending on how long you have owned the
shares which were sold. In January, these
Funds will mail you Form 1099-B indicating
the total amount of all sales, including
exchanges. You should keep your account
statements to help determine the cost basis
of the shares to report on your tax returns.
Taxpayer Identification Number
If we do not have your correct Social
Security or Taxpayer Identification Number
("TIN") and a signed certified application
or Form W-9, Federal law requires us to
withhold 31% of your reportable dividends,
and possibly 31% of certain redemptions. In
addition, you may be subject to a fine by
the Internal Revenue Service. We reserve the
right to reject any new account or any
purchase order for failure to supply a
certified TIN.
<PAGE>
Management's Discussion of Fund Performance
(Not applicable to the Money Market Funds)
[Alpha by Fund - insert discussion of
factors that affected each Fund's
performance, market conditions, and relevant
strategies, followed by the line graph for
each Class (both classes can be shown in one
graph) and the Fund's index for the past
fiscal year. The graph must be followed by a
table with the Fund's average annual total
return.]
<PAGE>
Financial Highlights
The financial highlights tables are intended
to help you understand each Fund's financial
performance for its period of operations.
Certain information reflects financial
results for a single Fund share. The total
return numbers in the tables represent the
rate that an investor would have earned or
lost on an investment in a Fund, assuming
reinvestment of all dividends and
distributions. This information has been
audited by Ernst & Young, L.P., whose
reports, along with the Fund's financial
statements, are included in the Annual
Report, which is available upon request and
which is incorporated into this document by
this reference.
[Insert financial highlights here for each
Fund]
<PAGE>
For investors who want more information
about the Funds, the following documents are
available free upon request:
Annual/Semi-Annual Reports: Additional
information about each Fund's investments is
available in the Fund's Annual and Semi
Annual reports to shareholders.
Statement of Additional Information ("SAI"):
The SAI provides more detailed information
about the Funds and is incorporated into
this prospectus by reference.
You can get free copies of reports and SAIs,
request other information and discuss your
questions about the Funds by contacting your
broker, or the Funds at:
Telephone: 1-877-999-2434
American General Web-Site Address:
http://www.agfundgroup.com
You can review the Funds' reports and SAI at
the public Reference Room of the SEC.
You can get text only copies:
- - For a fee, by writing to or calling the
Public Reference Room of the Commission,
Washington, D.C. 20549-6009, Telephone: 1
800-SEC-0330.
- - Free from the Commission's Internet
website at http://www.sec.gov.
Investment Company Act File No. 811-08875
(AGSPC 2)
_______________________________
1 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
2 A CDSC is imposed on the proceeds of Class
B shares redeemed within 5 years, subject to
certain exceptions. The charge is a
percentage of net asset value at the time of
purchase or redemption, whichever is less,
and declines from 5% in the first year that
shares are held, to 4% in the second year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
3 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
4 A CDSC is imposed on the proceeds of Class
B shares redeemed within 5 years, subject to
certain exceptions. The charge is a
percentage of net asset value at the time of
purchase or redemption, whichever is less,
and declines from 5% in the first year that
shares are held, to 4% in the second year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
5 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
6 A CDSC is imposed on the proceeds of Class
B shares redeemed within 5 years, subject to
certain exceptions. The charge is a
percentage of net asset value at the time of
purchase or redemption, whichever is less,
and declines from 5% in the first year that
shares are held, to 4% in the second year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
7 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
8 A CDSC is imposed on the proceeds of Class
B shares redeemed within 5 years, subject to
certain exceptions. The charge is a
percentage of net asset value at the time of
purchase or redemption, whichever is less,
and declines from 5% in the first year that
shares are held, to 4% in the second year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
9 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
10 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
11 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
12 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
13 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
14 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
15 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
16 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
17 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
18 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
19 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
20 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less,
and declines from 5% in the first year that
shares are held, to 4% in the second year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
21 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
22 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
23 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
24 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
25 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
26 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
27 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
28 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
29 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that
shares are held, to 4% in the second year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
30 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
31 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
32 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
33 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
34 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
35 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
36 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
37 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
38 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
39 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
40 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
41 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
42 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
43 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% contingent deferred sales charge
("CDSC"). Redemptions within 2 years will be
charged a CDSC of 0.50%.
44 A CDSC is imposed on the proceeds of
Class B shares redeemed within 5 years,
subject to certain exceptions. The charge is
a percentage of net asset value at the time
of purchase or redemption, whichever is
less, and declines from 5% in the first year
that shares are held, to 4% in the second
year,
3% in the third year, 2% in the fourth year,
and 1% in the fifth year.
45 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% CDSC. Redemptions within 2 years will be
charged a CDSC of 0.50%.
46 Purchases of $1 million or more which are
redeemed within one year will be charged a
1% CDSC. Redemptions within 2 years will be
charged a CDSC of 0.50%.
<PAGE>
American General Series Portfolio Company 2
Institutional Class I Shares
March 1, 2000
The American General Series Portfolio
Company 2 (the "Series Company") is an open-
end mutual fund made up of 23 separate Funds
(the "Funds"). Institutional Class I Shares
of these Funds are available to you only
through an employer retirement plan.
Different employer plans choose different
combinations of funds, so all of the funds
discussed in this prospectus may not be
available in your plan. Please check your
employer-provided plan documents for
available investments. Each of the American
General Funds has a different investment
objective. Here are summaries of the
investment goals for the 23 Funds:
ACTIVELY MANAGED EQUITY FUNDS:
These Funds invest mostly in stocks and are
designed to increase the value of your
investment over the long term.
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 International Value Fund
("International Value Fund")
Growth of capital and future income
through investments in non-U.S. issuers.
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 Large Cap Value Fund
("Large Cap Value Fund")
Total returns exceeding the Russell
1000(r) Value Index through investments in
equity securities.
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 Mid Cap Value Fund ("Mid
Cap Value Fund")
Growth through investments in medium
capitalization companies.
American General Small Cap Growth Fund
("Small Cap Growth Fund")
Long-term growth through investments in
small growth companies.
American General Small Cap Value Fund
("Small Cap Value Fund")
Maximum long-term return through
investments in small capitalization
companies.
American General Socially Responsible Fund
("Socially Responsible Fund") Growth
through investments in companies meeting
social criteria of the Fund.
BALANCED FUND:
This Fund invests in a combination of stocks
and bonds to allow for long-term growth
while reducing market risks.
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:
These Funds are designed to provide current
income while conserving capital.
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 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 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.
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.
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.
INDEX EQUITY FUNDS:
These Funds track different indices in order
to provide growth over the long term.
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(r) Index.
American General Stock Index Fund ("Stock
Index Fund")
Total return through investments tracking
the S&P 500 Index.
LIFESTYLE FUNDS:
These Funds allocate assets to other
American General Funds in order to provide a
diversified, less risky investment.
American General Conservative Growth
Lifestyle Fund ("Conservative Growth
Lifestyle Fund")
Current income and a low to moderate
level of growth through investments in a
combination of the Series Company Funds.
American General Growth Lifestyle Fund
("Growth Lifestyle Fund")
Growth through investments in a
combination of the Series Company Funds.
American General Moderate Growth Lifestyle
Fund ("Moderate Growth Lifestyle Fund")
Growth and current income through
investments in a combination of the Series
Company Funds.
MONEY MARKET FUNDS:
These Funds provide liquidity and
preservation of capital.
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.
In this prospectus, "we", "us", and "our"
refers to the American General Fund Group.
Neither the Securities and Exchange
Commission ("SEC") nor any state securities
commission has approved or disapproved of
these securities or determined if this
prospectus is truthful or complete. Any
representation to the contrary is a criminal
offense.
The SEC maintains an internet website at
http://www.sec.gov that contains the
Statement of Additional Information ("SAI"),
material incorporated by reference, and
other information regarding registrants that
file electronically with the SEC.
<PAGE>
Table of Contents
Topic
Page
Risk/Return Summaries: Investments, Risks,
and Performance
Balanced Fund 4
Conservative Growth Lifestyle Fund7
Core Bond Fund 10
Domestic Bond Fund 13
Growth Lifestyle Fund 16
High Yield Bond Fund 19
International Growth Fund 22
International Value Fund 25
Large Cap Growth Fund 28
Large Cap Value Fund 31
Mid Cap Growth Fund 34
Mid Cap Index Fund 37
Mid Cap Value Fund 40
Moderate Growth Lifestyle Fund 43
Money Market Fund 46
Municipal Bond Fund 49
Municipal Money Market Fund 52
Small Cap Growth Fund 55
Small Cap Index Fund 58
Small Cap Value Fund 61
Socially Responsible Fund 64
Stock Index Fund 67
Strategic Bond Fund 70
More About Portfolio Investments 73
More About Risk 77
More About Index Funds and Tracking an Index
79
Welcome to American General Corporation
(Adviser and Sub-Adviser Information)
80
Account Information 86
Management's Discussion of Fund Performance
94
Financial Highlights ___
<PAGE>
Risk/Return Summaries: Investments, Risks,
and Performance
BALANCED FUND
INVESTMENT CATEGORY
Balanced
INVESTMENT ADVISER
The Variable Annuity Life Insurance Company
("VALIC")
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
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. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
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. We
select securities for the Fund's portfolio
by identifying fixed-income (bonds and
preferred stock) and equity (stock)
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.
Fixed-income Portion: Up to 75% of the
Fund's total assets may be invested in fixed
income securities rated A or better by
Moody's Investors Service ("Moody's") or
Standard & Poor ("S&P") or of comparable
investment quality. The Sub-Adviser is not
required to sell the security, however, if
the rating is downgraded. At all times, at
least 25% of the Fund's total assets are
invested in fixed-income senior securities.
The Fund may hold up to 20% of its total
assets in high-yielding, high risk fixed
income securities ("junk bonds").
Equity Portion: Up to 75% of the Fund's
total assets may be invested in equity
securities listed on national securities
exchanges or in the over-the-counter market
("NASDAQ"). Equity securities include
American Depositary Receipts ("ADRs"), which
are certificates issued by a U.S. depositary
bank, representing foreign shares held by
the bank. ADRs carry the same currency,
political and economic risks as the
underlying foreign shares. Up to 10% of the
Fund's total assets may be invested in the
securities of U.S. small capitalization
companies ("Small Caps"). Small Caps are
companies that have total assets
(capitalization) of approximately $150
million to $1.25 billion. See "More About
Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Risk of Lower Rated Fixed-Income Securities:
A 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 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.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgment that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of a blend of
two indices ("Balanced Blend"). The Balanced
Blend is composed of 40% Lehman Brothers
Government and Corporate Index and 60% S&P
500 Index. Each is a widely recognized,
unmanaged index. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses
Management fees 0.__%
Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
CONSERVATIVE GROWTH LIFESTYLE FUND
INVESTMENT CATEGORY
Lifestyle
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks current income and low to moderate
growth of capital through investments in a
combination of the Series Company Funds
("Underlying Funds"). This Fund is suitable
for investors who wish to invest in equity
securities, but who are not willing to
assume the market risks of either the Growth
Lifestyle Fund or the Moderate Growth
Lifestyle Fund. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
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 and sample Underlying Fund choices
for this Fund.
International Equity Securities5%-15%
Sample Underlying Funds:
American General International
Value Fund
American General International
Growth Fund
Small Capitalization Equity Securities
5%-15%
Sample Underlying Funds:
American General Small Cap Value
Fund
American General Small Cap Growth
Fund
Medium Capitalization Equity Securities
5%-15%
Sample Underlying Funds:
American General Mid Cap Value
Fund
American General Mid Cap Growth
Fund
Large Capitalization Equity Securities
25%-35%
Sample Underlying Funds:
American General Large Cap Growth
Fund
American General Large Cap Value
Fund
Bonds
30%-50%
Sample Underlying Funds:
American General Core Bond Fund
American General Domestic Bond
Fund
This Fund is managed so that it can serve as
a complete investment program for you or as
a core part of your larger portfolio. The
Underlying Funds have been selected to
represent a reasonable spectrum of
investment options for the Fund. We have
based the target investment percentages for
the Fund on the degree to which we believe
the Underlying Funds, in combination, to be
appropriate for the Fund's investment
objective. We may change the asset
allocation ranges and the particular
Underlying Funds in which the Fund may
invest from time to time.
INVESTMENT RISKS
The Fund is a non-diversified investment
company under the Investment Company Act of
1940 (the "1940 Act") because it invests in
a limited number of the Underlying Funds.
However, the Underlying Funds themselves are
diversified companies.
The allocation among the different
Underlying 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 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, 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 Funds
in which it invests. Changes in the net
asset values of the Underlying 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 Funds to meet their investment
objectives.
Investment in the Underlying Funds involves
manager risk. Manager Risk is the risk that
the Fund's management strategy may not
achieve the desired results and the Fund's
performance may lag behind that of similar
funds. The Fund is also subject to the risk
that a Fund that is non-diversified under
the 1940 Act will invest more of its assets
in fewer issuers and, therefore, is more
likely to be adversely affected by a
downturn in any one issuer or security. The
securities that Underlying Funds invest in
also involve various risks.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of a blended
index, calculated by including the pro rata
portion of each of the Underlying Fund's
respective indices, and the S&P 500 Index,
composed of 500 common stocks which are
chosen by Standard & Poor's Corporation. The
S&P 500 Index approximates the general
distribution of industries in the U.S.
economy, captures the price performance of a
large cross-section of the publicly traded
stock market. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
CORE BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P.
("AGIM")
INVESTMENT OBJECTIVE
Seeks the highest possible total return
consistent with conservation of capital
through investments in medium to high
quality fixed-income securities. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of its total
assets in medium to high quality fixedincome
securities, or in securities issued or
guaranteed by the U.S. Government, mortgage-
backed or asset-backed securities. U.S.
Government securities are securities issued
or guaranteed by the U.S. Government which
are supported by the full faith and credit
of the U.S. Government; the right of the
issuer to borrow from the U.S. Treasury; the
credit of the issuing government agency; or
the authority of the U.S. Government to
purchase obligations of the agency. A
portion of the 65% may also be invested in
U.S. dollar-denominated fixed-income
securities issued by foreign issuers,
although the Fund currently intends to limit
these investments to no more than 40% of its
total assets. These fixed-income securities
are rated investment grade or higher. The
Sub-Adviser is not required to dispose of a
security if its rating is downgraded,
however. Up to 10% of the Fund's total
assets may be invested in lower quality
fixed-income securities, those rated below
Baa3 by Moody's and BBB by S&P.
Up to 35% of the Fund's total assets may be
invested in interest-bearing short-term
investments, such as commercial paper,
bankers' acceptances, bank certificates of
deposit, and other cash equivalents and
cash. Equity securities, including common or
preferred stocks, convertible securities,
and warrants, may comprise up to 20% of the
Fund's total assets. See "More About
Portfolio Investments."
The Fund's transactions are reflected in its
portfolio turnover rate, ___% for the fiscal
year ended October 31, 1999. The rate of
portfolio turnover is calculated by dividing
the lesser of the amount of purchases or
sales of portfolio securities during the
fiscal year by the average of the value of
the portfolio securities. A high rate of
portfolio turnover generally involves
correspondingly greater brokerage commission
expenses, thus increasing the Fund's
operating expenses. The Fund's active
trading strategy may cause the Fund to have
a relatively high amount of short-term
capital gains, which are taxable to you at
your ordinary income tax rate.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Risk of Lower Rated Fixed-income Securities:
A 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 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
become worth less than what the Fund paid
for them.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Aggregate Bond Index, a total
return index measuring both the capital
price changes and the income underlying the
universe of securities, weighted by market
value outstanding. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
DOMESTIC BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests in high quality fixedincome
securities to provide you with the highest
possible total return from current income
and capital gains while preserving your
investment. At least 65% of the Fund's total
assets will be invested in investment grade
U.S. corporate fixed-income securities rated
at least A by Moody's or S&P, in securities
issued or guaranteed by the U.S. Government,
Yankee bonds, or in mortgagebacked or asset-
backed securities. U.S. Government
securities are securities issued or
guaranteed by the U.S. Government which are
supported by the full faith and credit of
the U.S. Government; the right of the issuer
to borrow from the U.S. Treasury; the credit
of the issuing government agency; or the
authority of the U.S. Government to purchase
obligations of the agency. The SubAdviser is
not required to dispose of a security if its
rating is downgraded.
Up to 35% of total assets may be invested in
non-U.S. investment grade intermediate and
long-term corporate fixed-income securities
rated at least A by Moody's or S&P,
including Eurodollar fixed-income
securities, securities issued or guaranteed
by the Canadian Government, its provinces or
their instrumentalities, or interest bearing
short-term investments, such as commercial
paper, bankers' acceptances, bank
certificates of deposit and other cash
equivalents and cash. Currently, Eurodollar
fixed-income securities will be limited to
no more than 20% of the Fund's total assets.
To increase the Fund's earning potential, we
may use up to 25% of the Fund's assets to
make some higher risk investments in
mortgage-related securities or bonds rated
less than A by Moody's or S&P. No minimum
rating requirement applies to these junk
bonds. See "More About Portfolio
Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Risk of Lower Rated Fixed-income Securities:
A 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 SubAdviser's
investment analysis. Accordingly, the Fund's
investments may be worth less than what the
Fund paid for them.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Aggregate Bond Index, a total
return index measuring both the capital
price changes and the income underlying the
universe of securities, weighted by market
value outstanding. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
GROWTH LIFESTYLE FUND
INVESTMENT CATEGORY
Lifestyle
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks growth through investments in a
combination of the Series Company Funds
("Underlying Funds"). This Fund is suitable
for investors seeking the potential for
capital growth that a fund investing
predominately in equity securities may
offer. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
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 and sample Underlying Fund choices
for this Fund.
International Equity Securities25%-35%
Sample Underlying Funds:
American General International
Value Fund
American General International
Growth Fund
Small Capitalization Equity Securities
15%-25%
Sample Underlying Funds:
American General Small Cap Value
Fund
American General Small Cap Growth
Fund
Medium Capitalization Equity Securities
10%-20%
Sample Underlying Funds:
American General Mid Cap Value
Fund
American General Mid Cap Growth
Fund
Large Capitalization Equity Securities
20%-30%
Sample Underlying Funds:
American General Large Cap Growth
Fund
American General Large Cap Value
Fund
Bonds
5%-15%
Sample Underlying Funds: American
General Core Bond Fund American
General Domestic Bond
Fund
American General High Yield Bond
Fund
This Fund is managed so that it can serve as
a complete investment program for you or as
a core part of your larger portfolio. The
Underlying Funds have been selected to
represent a reasonable spectrum of
investment options for the Fund. We have
based the target investment percentages for
the Fund on the degree to which we believe
the Underlying Funds, in combination, to be
appropriate for the Fund's investment
objective. We may change the asset
allocation ranges and the particular
Underlying Funds in which the Fund may
invest from time to time.
INVESTMENT RISKS
The Fund is a "non-diversified" investment
company under the 1940 Act because it
invests in a limited number of the
Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
The allocation among the different
Underlying 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 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, 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 Funds
in which it invests. Changes in the net
asset values of the Underlying 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 Funds to meet their investment
objectives.
Investment in the Underlying Funds involves
manager risk. Manager risk is the risk that
the Fund's management strategy may not
achieve the desired results and the Fund's
performance may lag behind that of similar
funds. The Fund is also subject to the risk
that a Fund that is non-diversified under
the 1940 Act will invest more of its assets
in fewer issuers and, therefore, is more
likely to be adversely affected by a
downturn in any one issuer or security. The
securities that Underlying Funds invest in
also involve various risks.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of a blended
index, calculated by including the pro rata
portion of each of the Underlying Fund's
respective indices, and the S&P 500 Index,
composed of 500 common stocks which are
chosen by Standard & Poor's Corporation. The
S&P 500 Index approximates the general
distribution of industries in the U.S.
economy, captures the price performance of a
large cross-section of the publicly traded
stock market. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__%
Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
HIGH YIELD BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
AGIM
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. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
Up to 65% of the Fund's total assets are
invested in below-investment grade junk
bonds. These high yielding, high risk fixed
income securities are rated below Baa3 by
Moody's and BBB- by S&P. Up to 15% can be
rated below Caa3 by Moody's or CCC- by S&P.
The Fund may also invest up to 35% of total
assets in below-investment grade foreign
fixed-income securities.
To balance this risk, the Fund may invest up
to 35% in investment grade securities, those
rated Baa3 or higher by Moody's and BBB- or
higher by S&P. In addition, the Fund may
invest up to 15% in zero coupon securities
(securities not paying current cash
interest), and up to 20% of total assets in
equity securities. Equity securities
includes common or preferred stocks,
warrants, and convertible securities. The
Sub-Adviser is not required to dispose of a
bond that is downgraded to below-investment
grade. See "More About Portfolio
Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed-
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Risk of Lower Rated Fixed-income Securities:
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 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.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Salomon Smith Barney High Yield Market
Index, a widely recognized, unmanaged index
covering a significant portion of the below
investment grade U.S. corporate bond market.
The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
INTERNATIONAL GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Jacobs Asset Management
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund must invest at least 65% of its
total assets in the foreign equity
securities of at least three countries
outside the United States. Since the Fund
normally intends to be fully invested,
foreign equity securities will usually
represent closer to 80-85% of the Fund's
total assets. Foreign equity securities
include common and preferred stock,
convertible preferred stock, rights, and
warrants, American Depositary Receipts
("ADRs"), European Depositary Receipts
("EDRs"), and Global Depositary Receipts
("GDRs"). ADRs are certificates issued by a
U.S. depositary bank, representing foreign
shares held by the bank, to facilitate
trading in foreign securities. GDRs and EDRs
are very similar to ADRs. Generally, ADRs
are designed for use in U.S. securities
markets and EDRs are designed for use in
European securities markets. GDRs are
designed for use when the issuer is raising
capital in more than one market
simultaneously, such as the issuer's local
market and the U.S. ADRs, EDRs and GDRs each
carry the same currency, political and
economic risks as the underlying foreign
shares.
The Fund may invest up to 40% of total
assets in the equity securities of issuers
located in emerging market countries. 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 (known as "The World Bank") and
the International Finance Corporation. 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.
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 ("Small Caps"). Up to 50% of the
Fund's total assets may be invested in Small
Caps, which are companies that have total
assets (capitalization) of approximately
$150 million to $1.25 billion. See "More
About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Salomon Smith Barney Primary Market Index.
The Salomon Smith Barney Primary Market
Index is a sub-index of the Salomon Smith
Barney Broad Market Index, which measures
the performance of equities from 23
countries and 18 regions throughout the
world. Each company with equity capital of
at least $100 million is tracked by the
Salomon Smith Barney Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
INTERNATIONAL VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
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. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
The Fund must invest at least 65% of its
total assets in foreign securities. Since
the Fund normally intends to be fully
invested, foreign equity securities will
usually represent closer to 80-85% of the
Fund's total assets. 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.
Up to 90% of the amount invested in foreign
securities may be invested in put and call
options on foreign currencies and forward
currency contracts. A put option on foreign
currency is a security that gives the Fund
the right to sell a particular foreign
currency within a stated period of time. A
call option on foreign currency gives the
Fund the right to buy a particular foreign
currency within a stated period of time. A
forward currency contract is an agreement to
buy or sell foreign currency at an agreed
upon price and date.
The Fund may invest in the equity securities
of issuers located in emerging market
countries. 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 (known as "The World Bank")
and the International Finance Corporation.
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.
This Fund may invest up to 10% of total
assets in the securities of foreign small
capitalization companies ("Foreign Small
Caps"). Foreign Small Caps are companies
that have total assets (capitalization) of
approximately $150 million to $1.25 billion.
See "More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Salomon Smith Barney Primary Market Index.
The Salomon Smith Barney Primary Market
Index is a sub-index of the Salomon Smith
Barney Broad Market Index, which measures
the performance of equities from 23
countries and 18 regions throughout the
world. Each company with equity capital of
at least $100 million is tracked by the
Salomon Smith Barney Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
LARGE CAP GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Goldman Sachs Asset Management
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests up to 65% of its total
assets 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 Fund's benchmark, the
Russell 1000(r) Growth Index. 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.
The Fund may invest up to 25% of total
assets in the equity securities of other
U.S. and foreign issuers. The securities of
the foreign issuers must be traded in the
United States. This includes convertible
securities, ADRs and GDRs. ADRs are
certificates issued by a U.S. depositary
bank, representing foreign shares held by
the bank, to facilitate trading in foreign
securities. GDRs are very similar to ADRs.
Generally, ADRs are designed for use in the
United States securities markets, while GDRs
are designed for use when the issuer is
raising capital in more than one market
simultaneously, such as the issuer's local
market and the U.S. ADRs and GDRs each carry
the same currency, political and economic
risks as the underlying foreign shares. See
"More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Derivatives Risk: The risk that loss may
result from a Fund's investments in options,
futures, swaps, structured securities and
other derivative instruments. These
instruments may be leveraged so that small
changes may produce disproportionate losses
to a Fund.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 1000(r) Growth Index. The Russell
1000(r) Growth Index is a sub-index of the
Russell 3000(r) Index. The Russell 3000(r)
Index follows the 3,000 largest U.S.
companies, based on total market
capitalization. The Russell 1000(r) Growth
Index measures the performance of the 1,000
largest companies in the Russell 3000(r)
Index, focusing on those with higher priceto-
book ratios and higher forecasted growth
values. The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
LARGE CAP VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
State Street Bank & Trust Company/State
Street Global Advisers
INVESTMENT OBJECTIVE
Seeks to provide total returns that exceed
over time the Russell 1000(r) Value Index
("Index") through investment in equity
securities. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
The Index is a sub-index of the Russell
3000(r) Index. The Russell 3000(r) Index
follows the 3,000 largest U.S. companies,
based on total market capitalization. The
Index measures the performance of the 1,000
largest companies in the Russell 3000(r)
Index, focusing on those with lower price-to
book ratios and lower forecasted growth
values.
INVESTMENT STRATEGY
The Fund will invest at least 65% of total
assets in the equity securities of the
largest 1200 companies by market
capitalization traded in the United States.
The Sub-Adviser combines financial
accounting data with earnings forecasts
provided by many security analysts. This
quantitative method allows the Sub-Adviser
to quickly and systematically evaluate large
amounts of data. The constructed portfolio
is well-diversified, maintaining industry
and sector exposures and macroeconomic and
risk characteristics that are similar to the
Index.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Market Risk also refers to the risk that the
value of the securities purchased by the
Fund may decline as a result of economic,
political or market conditions or an
issuer's financial circumstances. 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. 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.
Quantitative Risk: The different factors
that go into the quantitative analysis can
be changed periodically. The weight of each
factor may also change; thus, the analytical
model may have different historical or
future performance compared to the Fund.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 1000(r) Value Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MID CAP GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Brown Capital Management, Inc.
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
This Fund will invest at least 65% of total
assets in the equity securities of medium
capitalization companies. Medium
capitalization companies generally include
companies with a market capitalization of $1
to $10 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 appear to
be 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. The Sub-Adviser uses 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.
Up to 35% of the Fund's total assets may be
invested in other domestic equity
securities, including common and preferred
stocks, and convertible securities. See
"More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Style Risk: The risk that the portfolio
manager's judgments that a particular
security is undervalued relative to its
growth potential in the securities markets
may prove incorrect.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell MidcapTM Growth Index. The Russell
MidcapTM Growth Index focuses on Russell
Midcap companies with higher price-to-book
ratios and higher forecasted growth values.
The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MID CAP INDEX FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
The Mid Cap Index Fund seeks to provide
investment results that are similar to the
performance of the S&P 400 Mid Cap Index
("Index"). As a group, the investment
results, before expenses, are expected to
approximate the total return (the
combination of capital changes and income)
of selected common stocks that statistically
reflect the Index. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of total
assets in companies that are listed in the
Index. Since it may not be possible for this
Fund to buy every stock included in the
Index, or in the same proportions, the Fund
invests in a sampling of common stocks in
the Index. The common stocks of the 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, priceto-
earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the
Index. The common stocks held by the Fund
are weighted to make the Fund's aggregate
investment characteristics similar to those
of the Index as a whole. Companies are
chosen for the Index because of their market
size, liquidity, and industry group
representation. The Index is a market-value
weighted index. For information on how
closely the fund may track the index, see
"More on Index Funds and Tracking an Index"
below.
The S&P 400 Mid Cap Index is composed of 400
domestic stocks, chosen for market size,
liquidity, and industry group
representation. Four industry groups are
represented: Industrials, Utilities,
Financials, and Transportation. The Index is
market-value weighted, meaning that it holds
each stock in proportion to its total value
in the stock market. Therefore, if a stock
increases in price, its total value
increases and its share in the Index is
increased. Correspondingly, if a stock
decreases in price, its total value and its
share in the Index decrease also.
Up to 35% of the Fund's total assets may be
invested in equities that are not listed in
the Index. This includes common and
preferred stock and related securities. The
Fund may also invest in high quality money
market securities. [Insert info re futures
and options if primary strategy.] See "More
About Portfolio Investments."
INVESTMENT RISKS
Investment Style Risk: The Index is made up
of the stocks of many medium sized U.S.
companies, which generally includes
companies that are valued from $1 billion to
approximately $7 billion. Medium-sized
companies tend to be more established and
stable than small companies, and are faster
growing than large companies, but may be
somewhat more volatile than large companies.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Market Risk may also occur because of daily
changes in value. The Index fluctuates every
day, depending on changes in the stock
market. Stock markets often have times when
the prices rise and fall every day or every
few days. There is no guarantee that the
value of your investment will increase.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the S&P
Mid Cap 400 Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MID CAP VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Neuberger Berman Management Inc.
INVESTMENT OBJECTIVE
Seeks capital growth, through investment in
equity securities of medium capitalization
companies using a value-oriented investment
approach. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
INVESTMENT STRATEGY
This Fund invests at least 65% of total
assets 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, 1999, the largest
company included in the Russell Midcap TM
Index had an approximate market
capitalization of $11.2 billion, while the
average market capitalization was
approximately $3.9 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. Up to 35% of the Fund's total assets
may be invested in other equity securities,
including common and preferred stocks,
convertible securities, and related
equities. See "More About Portfolio
Investments."
The Fund's transactions are reflected in its
portfolio turnover rate, ___% for the fiscal
year ended October 31, 1999. The rate of
portfolio turnover is calculated by dividing
the lesser of the amount of purchases or
sales of portfolio securities during the
fiscal year by the average of the value of
the portfolio securities. A high rate of
portfolio turnover generally involves
correspondingly greater brokerage commission
expenses, thus increasing the Fund's
operating expenses. The Fund's active
trading strategy may cause the Fund to have
a relatively high amount of short-term
capital gains, which are taxable to you at
your ordinary income tax rate.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell Midcap TM Value Index. The Russell
Midcap TM Value Index measures the
performance of the 800 smallest companies in
the Russell 1000(r) Index, focusing on those
with lower price-to-book ratios and lower
forecasted growth values. The Russell
1000(r) Index is a sub-index of the Russell
3000(r) Index. The Russell 3000(r) Index
follows the 3,000 largest U.S. companies,
based on total market capitalization. The
Fund's past performance does not necessarily
indicate how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MODERATE GROWTH LIFESTYLE FUND
INVESTMENT CATEGORY
Lifestyle
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks growth and current income through
investments in a combination of the Series
Company Funds ("Underlying Funds"). This
Fund is suitable for investors who wish to
invest in equity securities, but who are not
willing to assume the substantial market
risks of the Growth Lifestyle Fund. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
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 and sample Underlying Fund choices
for this Fund.
International Equity Securities10%-20%
Sample Underlying Funds:
American General International
Value Fund
American General International
Growth Fund
Small Capitalization Equity Securities
10%-20%
Sample Underlying Funds:
American General Small Cap Value
Fund
American General Small Cap Growth
Fund
Medium Capitalization Equity Securities
10%-20%
Sample Underlying Funds:
American General Mid Cap Value
Fund
American General Mid Cap Growth
Fund
Large Capitalization Equity Securities
25%-35%
Sample Underlying Funds:
American General Large Cap Growth
Fund
American General Large Cap Value
Fund
Bonds 20%-
30%
Sample Underlying Funds:
American General Core Bond Fund
American General Domestic Bond
Fund
This Fund is managed so that it can serve as
a complete investment program for you or as
a core part of your larger portfolio. The
Underlying Funds have been selected to
represent a reasonable spectrum of
investment options for the Fund. We have
based the target investment percentages for
the Fund on the degree to which we believe
the Underlying Funds, in combination, to be
appropriate for the Fund's investment
objective. We may change the asset
allocation ranges and the particular
Underlying Funds in which the Fund may
invest from time to time.
INVESTMENT RISKS
The Fund is a "non-diversified" investment
company under the 1940 Act because it
invests in a limited number of the
Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
The allocation among the different
Underlying 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 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, 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 Funds
in which it invests. Changes in the net
asset values of the Underlying 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 Funds to meet their investment
objectives.
Investment in the Underlying Funds involves
manager risk. Manager risk is the risk that
the Fund's management strategy may not
achieve the desired results and the Fund's
performance may lag behind that of similar
funds. The Fund is also subject to the risk
that a Fund that is non-diversified under
the 1940 Act will invest more of its assets
in fewer issuers and, therefore, is more
likely to be adversely affected by a
downturn in any one issuer or security. The
securities that Underlying Funds invest in
also involve various risks.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of a blended
index, calculated by including the pro rata
portion of each of the Underlying Fund's
respective indices, and the S&P 500 Index,
composed of 500 common stocks which are
chosen by Standard & Poor's Corporation. The
S&P 500 Index approximates the general
distribution of industries in the U.S.
economy, captures the price performance of a
large cross-section of the publicly traded
stock market. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MONEY MARKET FUND
INVESTMENT CATEGORY
Stability
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and
current income through investments in short
term money market instruments. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests in short-term money market
securities to provide you with liquidity,
protection of your investment and current
income. In accordance with Rule 2a-7 of the
1940 Act, such securities must mature in 13
months or less and the Fund must have a
dollar-weighted average portfolio maturity
of 90 days or less. 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
- - Variable Rate Demand Notes
- - Illiquid and restricted securities
(limited to 10% of the Fund's net assets
at all times)
- - Rule 144A securities (liquid)
INVESTMENT RISKS
The Fund invests in short-term money market
securities, which present low credit and
interest rate risks. Because the risk to the
money you invest is low, the potential for
profit is also low. The rate of income for
the Money Market Fund varies daily depending
on short-term interest rates.
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the
value of your investment at $1.00 per share,
it is possible to lose money by investing in
the Fund.
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table shows the Fund's seven-day yield
as of a recent date. Please call Customer
Service at 1-877-999-2434 for the most
current yield information. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and the
fund yield as of a recent date (Dec. 31 is
fine) ]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MUNICIPAL BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT SUB-ADVISER
AGIM
INVESTMENT STRATEGY
The Fund invests at least 80% of total
assets in investment grade municipal fixed
income securities, such as municipal bonds,
municipal notes, and other municipal
obligations. Investment grade bonds are
those rated at least Baa3 by Moody's or BBB
by S&P or Fitch, or of comparable quality.
The municipal notes are short-term
obligations rated high quality or better by
Moody's, S&P, or Fitch. If the Fund invests
in municipal securities issued for certain
private purposes, a portion of the Fund's
dividends may be subject to the alternative
minimum tax.
The Fund may invest up to 20% of total
assets in taxable fixed-income securities,
including money market instruments, U.S.
Government obligations, and other investment
grade securities rated as above. U.S.
Government securities are securities issued
or guaranteed by the U.S. Government which
are supported by the full faith and credit
of the U.S. Government; the right of the
issuer to borrow from the U.S. Treasury; the
credit of the issuing government agency; or
the authority of the U.S. Government to
purchase obligations of the agency. See
"More About Portfolio Investments."
If adverse conditions prevail in the market
for municipal obligations, the Fund may, as
a temporary defensive position, invest in
taxable high quality short-term money market
instruments, without the normal limitations.
If the Fund assumes such a defensive
position, it may not achieve its investment
objective.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Long Municipal Bond Index, a widely
recognized, unmanaged index of long-term
municipal bonds. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MUNICIPAL MONEY MARKET FUND
INVESTMENT CATEGORY
Stability
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
AGIM
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. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
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 mandated by Rule
2a-7 of the 1940 Act and are designed to
minimize fluctuation in the value of the
Fund's portfolio.
The investments this Fund may buy include:
- - Municipal fixed-income securities with
remaining maturities of 13 months or less
- - Commercial paper sold by municipalities
rated at least MIG1 or MIG2 by Moody's or
A1 or A2 by S&P
- - Variable rate demand notes
- - Auction rate preferred stock and other
adjustable rate obligations that are
exempt from federal income taxation
- - Illiquid and restricted securities,
limited to 10% of the Fund's net assets at
all times
- - Rule 144A securities (liquid)
If adverse conditions prevail in the market
for municipal short-term obligations, the
Fund may, as a temporary defensive position,
invest in taxable high quality short-term
money market instruments, without the normal
limitations. If the Fund assumes such a
defensive position, it may not achieve its
investment objective.
INVESTMENT RISKS
The Fund invests in short-term money market
securities, which present low credit and
interest rate risks. Because the risk to the
money you invest is low, the potential for
profit is also low. The rate of income for
the Municipal Money Market Fund varies daily
depending on short-term interest rates.
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the
value of your investment at $1.00 per share,
it is possible to lose money by investing in
the Fund.
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table shows the Fund's seven-day yield
as of a recent date. Please call Customer
Service at 1-877-999-2434 for the most
current yield information. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and the
fund yield as of a recent date (Dec. 31 is
fine) . CAN show tax-equivalent yield if
desired.]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
SMALL CAP GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
J.P. Morgan Investment Management Inc.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth from a
portfolio of equity securities of small
capitalization growth companies. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
At least 65% of the Fund's total assets are
invested in the equity securities of small
capitalization companies, which are
companies whose approximate market
capitalizations are greater than $150
million and less than $1.25 billion. These
equities include U.S. and foreign common and
preferred stocks, warrants and rights, and
convertible securities. On an industry-by
industry basis, the Fund's weightings are
similar to those of the Russell 2000(r)
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.
The Fund may invest up to 35% of total
assets in other equity securities of U.S.
and foreign large and medium capitalization
issuers, including those equities listed
above, and the securities of investment
companies. Large and medium capitalization
issuers are those companies with total
assets of approximately $1 billion or more.
See "More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you may lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 2000(r) Growth Index. The Russell
2000(r) Growth Index is a sub-index of the
Russell 3000(r) Index. The Russell 3000(r)
Index follows the 3,000 largest U.S.
companies, based on total market
capitalization. The Russell 2000(r) Growth
Index measures the performance of the 2,000
smallest companies in the Russell 3000(r)
Index, focusing on those with higher priceto-
book ratios and higher forecasted growth
values. The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__%
Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
SMALL CAP INDEX FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
The Small Cap Index Fund seeks to provide
investment results that are similar to the
total return of the Russell 2000(r) Index
("Index"). As a group, the investment
results, before expenses, are expected to
approximate the total return (the
combination of capital changes and income)
of selected common stocks that statistically
reflect the Index. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests up to 65% of its total
assets in a sampling of common stocks in the
Index that, as a group, should reflect the
performance of the Index. Since it may not
be possible for the Fund to buy every common
stock included in the Index or in the same
proportions, the Fund will select stocks to
purchase by 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, priceto-
earnings, debt-to-asset ratios and dividend
yields) closely approximate those
of the Index. The common stocks held by the
Fund are weighted to make the Fund's
aggregate investment characteristics similar
to those of the Index as a whole. For
information on how closely the fund may
track the index, see "More on Index Funds
and Tracking an Index" below.
The Russell 2000(r) Index is a sub-index of
the Russell 3000(r) Index. The Russell
3000(r) Index follows the 3,000 largest U.S.
companies, based on total market
capitalization. The Russell 2000(r) Index
measures the performance of the 2,000
smallest companies in the Russell 3000(r)
Index, and represents about 8% of the total
market capitalization of the Russell 3000(r)
Index. The average market capitalization in
the Russell 2000(r) Index is $526.4 million
as of June 30, 1999. As of the same date,
the largest company in the Index had a
market capitalization of nearly $1,350
million.
The Fund may invest up to 35% of total
assets in common stock and related
securities of issuers that are not in the
Index, including foreign securities, and may
invest up to 25% in high quality short-term
money market securities. See "More About
Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you may lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Index Risk: The Russell 2000(r) 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(r) Index avoids the
risks of individual stock selection and
seeks to provide the return of the smaller
sized company sector of the market. 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.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 2000(r) Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__%
Fee waiver and/or expense reimbursement
_.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
SMALL CAP VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Fiduciary Management Associates, Inc.
(actively managed portion)
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. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGIES
This Fund invests at least 65% of its total
assets in equity securities of small
capitalization companies, which are
companies whose total market capitalizations
range from approximately $150 million to
$1.25 billion and companies included in the
Russell 2000(r) Index ("Index"). One portion
of the Fund's investment portfolio will be
actively managed and the other portion will
be passively managed.
Actively Managed Portion: 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.
Passively Managed Portion: This portion of
the Fund is comprised of a sampling of
stocks in the Index that, as a group, should
reflect its performance. Since it may not be
possible for this Fund to buy every stock
included in the Index or in the same
proportions, the Fund will select stocks to
purchase by 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, priceto-
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.
The Fund may invest up to 35% of its total
assets in short-term investments, such as
foreign and domestic money market
instruments, certificates of deposit,
bankers acceptances, time deposits, U. S.
Government obligations, agency securities,
high quality commercial paper, repurchase
agreements, and short-term corporate fixed
income securities. U.S. Government
securities are securities issued or
guaranteed by the U.S. Government which are
supported by the full faith and credit of
the U.S. Government; the right of the issuer
to borrow from the U.S. Treasury; the credit
of the issuing government agency; or the
authority of the U.S. Government to purchase
obligations of the agency. See "More About
Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you may lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the
company's fundamental economic value may
prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 2000(r) Value Index. The Russell
2000(r) Value Index is a sub-index of the
Russell 3000(r) Index. The Russell 3000(r)
Index follows the 3,000 largest U.S.
companies, based on total market
capitalization. The Russell 2000(r) Value
Index measures the performance of the 2,000
smallest companies in the Russell 3000(r)
Index, focusing on those with lower price-to
book ratios and lower forecasted growth
values. The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
SOCIALLY RESPONSIBLE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund will invest at least 80% of total
assets in the equity securities of companies
meeting the Fund's social 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").
The Fund does not invest in companies that
are significantly engaged in:
- - the production of nuclear energy;
- - the manufacture of weapons or delivery
systems;
- - the manufacture of alcoholic beverages
or tobacco products;
- - the operation of gambling casinos; or
- - business practices or the production of
products that significantly pollute the
environment.
At least once a year, the IRRC surveys state
laws to see if there are any new or revised
state laws that govern or affect the
investments of public funds. If the survey
shows that at least 20 states have adopted
laws that restrict public funds from being
invested in a clearly definable category of
investments, this category is automatically
added to our social criteria list.
Up to 20% of the Fund's total assets may be
invested in high quality money market
securities and warrants, or in other types
of equity securities of companies meeting
social criteria, including American
Depositary Receipts ("ADRs"), foreign
securities, preferred stock, and convertible
securities. ADRs are certificates issued by
a U.S. depositary bank, representing foreign
shares held by the bank, to facilitate
trading in foreign securities. ADRs carry
the same currency, political and economic
risks as the underlying foreign shares. See
"More About Portfolio Investments."
INVESTMENT RISKS
Because of these principal risks, the value
of your investment may fluctuate and you
could lose money:
Foreign Securities Risk:
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.
Sovereign Risk - the risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk - foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Developing Country Risk - the risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk - the risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Social Criteria Risk: 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.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the S&P
500 Index, composed of 500 common stocks
which are chosen by Standard & Poor's
Corporation. The Index approximates the
general distribution of industries in the
U.S. economy, captures the price performance
of a large cross-section of the publicly
traded stock market. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load) imposed on
purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
STOCK INDEX FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
The Stock Index Fund seeks to provide
investment results that are similar to the
total return of the S&P 500 Index ("Index").
As a group, the investment results, before
expenses, are expected to approximate the
total return (the combination of capital
changes and income) of selected common
stocks that statistically reflect the Index.
This investment objective can be changed by
the Board of Trustees, without the approval
of the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of total
assets in a sampling of common stocks in the
Index that, as a group, should reflect its
performance. Since it may not be possible
for this Fund to buy every stock included on
this Index or in the same proportions, 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 (total value) 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. For information on how
closely the fund may track the index, see
"More on Index Funds and Tracking an Index"
below.
The S&P 500 Index is composed of 500 common
stocks which are chosen by Standard & Poor's
Corporation. The Index approximates the
general distribution of industries in the
U.S. economy, and captures the price
performance of a large cross-section of the
publicly traded stock market. The Index is
capitalization-weighted, meaning that it
holds each stock in proportion to its total
value in the stock market. Therefore, if a
stock increases in price, its total value
increases and its share in the Index is
increased. Correspondingly, if a stock
decreases in price, its total value and its
share in the Index decrease also.
The Fund may invest up to 35% of total
assets in investments that are not in the
Index, such as common stock and related
securities, and high quality money market
securities. Up to 20% of the total assets
may be invested in ADRs and foreign common
stocks, including securities of companies
domiciled in emerging market countries. ADRs
are certificates issued by a U.S. depositary
bank, representing foreign shares held by
the bank, to facilitate trading in foreign
securities. ADRs carry the same currency,
political and economic risks as the
underlying foreign shares.
INVESTMENT RISKS
Because of these principal risks, the value
of your investment may fluctuate and you
could lose money:
Index 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.
Foreign Securities Risk:
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.
Sovereign Risk - the risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk - foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Developing Country Risk - the risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk - the risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the S&P
500 Index, composed of 500 common stocks
which are chosen by Standard & Poor's
Corporation. The Index approximates the
general distribution of industries in the
U.S. economy, and captures the price
performance of a large cross-section of the
publicly traded stock market. The Fund's
past performance does not necessarily
indicate how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
STRATEGIC BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
AGIM
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.
This investment objective can be changed by
the Board of Trustees, without the approval
of the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of total
assets in a broad range of fixed-income
securities, including
- - investment grade bonds (rated Baa or
higher by Moody's and BBB or higher by S&P)
- - U.S. Government and agency obligations
- - mortgage backed securities
- - U.S., Canadian, and foreign high risk,
high yield bonds (rated C or higher by
Moody's and CC or higher by S&P, or
comparable unrated securities)
Up to 25% of the Fund's total assets may be
invested in foreign emerging market debt,
and up to an additional 25% in non-U.S.
dollar bonds. The Fund may also invest up to
20% of total assets in equity securities,
such as common and preferred stocks,
convertible securities, and warrants.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Aggregate Bond Index, a total
return index measuring both the capital
price changes and the income underlying the
universe of securities, weighted by market
value outstanding. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
More About Portfolio Investments
Each Fund's principal investment strategy
and risks are shown above. Funds may invest
in other investments and may use investment
techniques as described below. All Money
Market Fund investments must comply with
Rule 2a-7 of the 1940 Act, which allows the
purchase of only high quality money market
instruments. The Lifestyle Funds invest in
other Funds described in this Prospectus and
thus are not specifically mentioned below.
Please refer to the SAI for more information
about investments.
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.
Examples of assets supporting asset-backed
securities include credit card receivables,
retail installment loans, home equity loans,
auto loans, and manufactured housing loans.
All of the Funds except International Growth
Fund, International Value Fund, Large Cap
Growth, and Mid Cap Growth may invest in
asset-backed securities.
Depositary Receipts
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. All of the Funds except
for the Money Market Fund, Municipal Bond
Fund, Municipal Money Market Fund and the
Strategic Bond Fund may purchase 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 Balanced Fund, Core Bond
Fund, Domestic Bond Fund, High Yield Bond
Fund, International Growth Fund,
International Value Fund, Large Cap Value
Fund, Mid Cap Index Fund, Mid Cap Value
Fund, Small Cap Index Fund, Small Cap Growth
Fund, Small Cap Value Fund, Socially
Responsible Fund, and the Stock Index Fund
may invest in EDRs and GDRs. The Large Cap
Growth Fund may invest in GDRs but may not
invest in EDRs.
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. Each
share of stock represents a part of the
ownership of the company. The holder of
stock participates in the growth of the
company through the stock price and receipt
of dividends. All the Funds may invest in
equities except for the Money Market Fund
and the Municipal Money Market Fund, though
equities may not be a primary strategy for
each Fund.
Generally, there are three types of stocks:
1. Common stock - Common stock usually has
voting rights, which allow an investor to
vote for the company Board of Directors.
Common stock also gives each owner a share
in a company's profits through dividend
payments or the capital appreciation of the
security.
2. Preferred stock - Each share of
preferred stock allows the holder to get a
fixed dividend before the common stock
shareholders receive any dividends on
their shares.
3. Convertible preferred stock - A stock
with a fixed dividend which the holder may
exchange for a certain amount of common
stock.
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.
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 purchase,
for example, includes U.S. Government bonds
and investment grade corporate bonds. VALIC
and the Sub-Advisers will not necessarily
dispose of a bond if its ratings are
downgraded to below investment grade. All of
the Funds except Mid Cap Growth Fund and the
Money Market Fund may invest in investment
grade bonds. Of those that invest in bonds,
only the Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Bond Fund,
Mid Cap Value Fund, Municipal Bond Fund,
Small Cap Growth Fund, Small Cap Value, and
Strategic Bond Fund may also invest in below
investment grade bonds.
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 longterm
(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, though most
commercial paper matures in 50 days or less.
Bonds are not the only type of fixed-income
security. Other fixed-income securities
include, for example, 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.
Foreign Currency
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. All the Funds except
for the Large Cap Growth Fund, Large Cap
Value Fund, Mid Cap Growth Fund, Money
Market Fund, Municipal Bond Fund, Municipal
Money Market Fund and the Small Cap Value
Fund may invest in foreign currency.
Foreign Securities
Securities of foreign issuers 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. The Large Cap Growth Fund
may only invest in the equity securities of
foreign issuers that are traded in the
United States. Generally, all of the Funds
may invest in foreign securities except for
Mid Cap Growth Fund, Municipal Bond Fund,
and the Municipal Money Market Fund.
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 "Depositary Receipts".
Futures and Options
Futures and options are considered
derivative securities, since the value of
the future or option is derived in part from
the value and characteristics of another
security. A "future" is a contract which
involves the sale of a security for future
delivery. An "option" gives the buyer the
opportunity to buy or sell a security at a
set price on or before a date specified in
the contract. A call option buyer thinks the
stock price may go up in the future, while a
put option buyer thinks the stock price may
go down. All of the Funds except for
International Growth Fund, Mid Cap Growth
Fund, Money Market Fund and Municipal Money
Market Fund may invest in derivatives.
The Funds use stock and bond futures to
invest cash and cash equivalents to:
- - 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.
Illiquid Securities
An illiquid security is one that may not be
frequently traded or cannot be disposed of
promptly within seven days and in the usual
course of business without taking a
materially reduced price. Illiquid
securities include, but are not limited to,
time deposits and repurchase agreements not
maturing within seven days and restricted
securities. Non-money market funds may
invest up to 15% in illiquid securities,
while money market funds are limited to 10%.
This restriction applies at all times to all
assets.
A restricted security is one that has not
been registered with the SEC and, therefore,
cannot be sold in the public market.
Securities eligible for sale under Rule 144A
and commercial paper offered pursuant to
Section 4(2) of the Securities Act of 1933,
as amended, are not deemed by VALIC or the
Fund's Sub-Adviser to be illiquid solely by
reason of being restricted. Instead, VALIC
or the Sub-Adviser will determine whether
such securities are liquid based on trading
markets and pursuant to guidelines adopted
by the Series Company's Board of Trustees.
If VALIC or the Sub-Adviser concludes that a
security is not liquid, that investment will
be included within the Fund's limitation on
illiquid securities.
Investment Companies
All of 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.
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. International
Growth Fund, International Value Fund, Large
Cap Growth Fund, Mid Cap Index Fund, Mid Cap
Value Fund, Small Cap Growth Fund, Small Cap
Index Fund, and Stock Index Fund may invest
in investment funds.
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 of the Funds except the Mid Cap Value
Fund may invest in loan participations.
Money Market Securities
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. All the Funds may invest in
money market securities, though it is not a
primary strategy for all Funds.
Examples of high quality money market
securities 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.
Mortgage-Related Securities
Mortgage-related securities include, but are
not limited to, mortgage pass-through
securities, collateralized mortgage
obligations and commercial mortgage-backed
securities. All of the Funds except for
International Growth Fund, International
Value Fund, Mid Cap Growth Fund, Mid Cap
Index Fund, Money Market Fund, Small Cap
Index Fund, Socially Responsible Fund, and
the Stock Index Fund may invest in mortgage
related 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. 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 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, coupon, and
prepayment preference. 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.
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.
Real Estate Securities
Real estate securities are securities issued
by companies that invest in real estate or
interests therein. All of the Funds except
for the Domestic Bond Fund and the High
Yield Bond Fund may invest in real estate
securities and 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.
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). 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
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.
Reverse Repurchase Agreements and Dollar
Rolls
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. If a Fund's positions in
reverse repurchase agreements or similar
transactions are not covered by liquid
assets in a segregated account, such
transactions would be subject to the Funds'
limitations on borrowings. The Funds will
not borrow money, except as provided in each
Fund's investment restrictions. Reverse
repurchase agreements may be entered into by
all Funds except the Mid Cap Growth Fund.
The Core Bond Fund, High Yield Bond Fund,
Large Cap Value Fund, Mid Cap Value Fund,
Small Cap Growth Fund, Small Cap Value Fund,
and the Strategic Bond Fund 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.
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.
The Balanced Fund, Core Bond Fund, Domestic
Bond Fund, High Yield Bond Fund, and the
Strategic Bond Fund may enter into
structured securities.
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. The Large Cap Growth Fund, Large Cap
Value Fund, Mid Cap Value Fund, Small Cap
Growth Fund, Small Cap Value Fund, and the
Strategic Bond Fund may enter into swap
agreements.
U.S. Government Securities
All the Funds may invest in 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.
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. The Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Bond Fund,
Large Cap Value Fund, Mid Cap Growth Fund,
Mid Cap Value Fund, Municipal Bond Fund, and
the Strategic Bond Fund may invest in the
variable amount demand master notes.
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
Money Market Fund and the Municipal Funds
may also may invest in participation VRDNs,
which provide a Fund with an undivided
interest in underlying VRDNs held by major
investment banking institutions. All the
Funds may invest in VRDNs.
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. All of
the Funds except for the Mid Cap Growth
Fund, Money Market Fund, Municipal Bond
Fund, and the Municipal Money Market Fund
may invest in warrants and rights.
When-Issued Securities
When-issued securities are those investments
that have been announced by the issuer and
will soon be on the market. 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 except the Mid
Cap Value Fund and the Money Market Fund may
invest in when-issued securities.
More about Risk
There are several basic types of investment
risk. 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. Several types
of investment risks are discussed below.
Credit (Financial) Risk: Credit risk refers
to the risk that the issuer of a fixedincome
security may default or be unable to pay
interest or principal due on a fixedincome
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 bond 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.
Derivatives Risk: Derivatives risk refers to
the risk that loss may result from a Fund's
investments in options, futures, swaps,
structured securities and other derivative
instruments. These instruments may be
leveraged so that small changes may produce
disproportionate losses to a Fund.
Foreign Securities Risk: Certain Funds may
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.
Sovereign Risk - the risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk - foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Developing Country Risk - the risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
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.
Lower Rated Fixed-Income Securities Risk:
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 by
VALIC or the Sub-Adviser 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 the
Sub-Adviser also may consider relative
values based on anticipated cash flow,
interest or dividend coverage, balance sheet
analysis, and earnings prospects.
An economic downturn or increase in interest
rates is likely to have a greater negative
effect on the ability of the issuers of
lower rated fixed-income securities 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 a Fund in lower rated
fixed-income securities 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 the 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.
Manager Risk: Manager risk refers to the
risk that the Fund's management strategy may
not achieve the desired results and the
Fund's performance may lag behind that of
similar funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Settlement and Clearance Risk - the risks
associated with the clearance and settlement
procedures in non-U.S. markets, which may be
unable to keep pace with the volume of
securities transactions and may cause
delays.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: Value investing risk
refers to the risk that the portfolio
manager's judgments that a particular
security is undervalued in relation to the
company's fundamental economic value may
prove incorrect.
More about Index Funds and Tracking an Index
The factors that cause a Fund to perform
differently from the index it tries to track
are called tracking differences. There is no
assurance that an Index Fund can track its
index.
The coefficient of correlation (r) is an
index number which shows how closely two
variables are related. If r = 0 there is no
tendency for one variable to change with the
other. A value of +1 means that one variable
will vary exactly with the other. Index
funds try to keep their coefficient of
correlation as close to 1 as possible. As a
practical matter, any coefficient above
0.95, when measured against the comparison
index, shows good tracking.
Tracking accuracy is reviewed daily by VALIC
for each of the Index Funds. If an Index
Fund does not accurately track an index,
VALIC will rebalance the Fund's portfolio by
selecting securities which will provide a
more representative sampling of the
securities in the index as a whole or the
sector diversification within the index, as
appropriate.
The index may remove one stock and
substitute another, requiring the Fund to do
the same. When a stock is sold and the new
stock purchased, the Fund incurs transaction
costs. The index incurs no transaction
costs. Therefore, any index fund portfolio
manager cannot match exactly the performance
of an index.
An index fund may not buy every single stock
in its index or in the same proportions as
the index. VALIC 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 helps to keep brokerage fees
and other transaction costs lower than other
funds, generally.
Welcome to American General Corporation
American General Corporation, with assets of
$___ billion and shareholders' equity of
$___ billion as of December 31, 1999, is the
parent company of one of the nation's
largest diversified financial services
organizations. American General's operating
divisions deliver a wide range of retirement
services, life insurance, and consumer
finance products and services to diverse
markets through focused distribution
channels. American General, headquartered in
Houston, was incorporated as a general
business corporation in Texas in 1980 and is
the successor to American General Insurance
Company, an insurance company incorporated
in Texas in 1926.
American General Fund Group is the mutual
fund division of American General
Corporation. The address of American General
Corporation and its subsidiaries, including
VALIC and AGIM, is 2929 Allen Parkway,
Houston, Texas 77019.
Investment Adviser
VALIC, a stock life insurance company, has
been in the investment advisory business
since 1960, and is the investment adviser
for all the Funds. VALIC had $____ billion
in assets under management, as of December
31, 1999. VALIC and AGIM, a Sub-Adviser, are
both members of the American General
Corporation group of companies. Each entity
is a registered investment adviser with the
SEC. Several of VALIC's principal officers,
directors and portfolio managers hold
similar positions with AGIM.
As Investment Adviser, VALIC oversees the
Fund's day to day operations, supervises the
purchase and sale of Fund investments, and
performs the cash management function. VALIC
employs Investment Sub-Advisers who make
investment decisions for the Funds,
including Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Bond Fund,
International Growth Fund, International
Value Fund, Large Cap Growth Fund, Large Cap
Value Fund, Mid Cap Growth Fund, Mid Cap
Value Fund, Municipal Bond Fund, Municipal
Money Market Fund, Small Cap Growth Fund,
Small Cap Value Fund, and Strategic Bond
Fund.
VALIC makes investment decisions for and is
directly responsible for the day-to-day
management of the Lifestyle Funds, Mid Cap
Index Fund, Money Market Fund, Small Cap
Index Fund, Socially Responsible Fund, Stock
Index Fund, and the passively managed
portion of Small Cap Value Fund. The
investment advisory agreement between VALIC
and the Series Company 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. These expenses are allocated to
each Fund in a manner approved by the Board
of Trustees.
Investment decisions for the Index Funds,
Socially Responsible Fund and the passively
managed portion of the Small Cap Value Fund
are made by a team of portfolio managers,
assistant portfolio managers and analysts
organized for that purpose. The teams meet
regularly to review portfolio holdings and
discuss purchase and sale activity.
Teresa Moro has been the Money Market 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.
The Lifestyle Funds are managed by a team
led by William Trimbur, Jr. Mr. Trimbur has
been the Lifestyle Funds' 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.
How VALIC is Paid for Its Services
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. 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 or bearing certain expenses.
Advisory fee paid to
Fund Name VALIC
(as a % of average daily
net assets)
Balanced Fund 0.80% on the first $25
million
0.65% on the next $25
million
0.45% on assets over $50
million
Conservative 0.10%
Growth
Lifestyle Fund
Core Bond Fund 0.50% on the first $200
million
0.45% on the next $300
million
0.40% on assets over
$500 million
Domestic Bond 0.60% on the first $50
Fund million
0.45% on the next $50
million
0.43% on the next $200
million
0.40% over $300 million
Growth 0.10%
Lifestyle Fund
High Yield 0.70% on the first $200
Bond Fund million
0.60% on the next $300
million
0.55% on assets over $500
million
International 0.90% on the first $100
Growth million
Fund 0.80% on assets over
$100 million
International 1.00% on the first $25 Value
Fund million
0.85% on the next $25 million
0.675% on the next $200
million
0.625% on assets over $250
million
Large Cap 0.55%
Growth Fund Large Cap 0.50%
Value Fund
Mid Cap Growth 0.65% on the first $25 Fund
million
0.55% on the next $25 million
0.45% on assets over $50
million
Mid Cap Index 0.28% on the first $500 Fund
million
0.27% on assets over $500
million
Mid Cap Value 0.75% on the first $100 Fund
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
Moderate 0.10%
Growth
Lifestyle Fund
Money Market 0.25%
Fund
Municipal Bond 0.50% on the first $200 Fund
million
0.45% on the next $300
million
0.40% on assets over $500
million
Municipal 0.50% on the first $200
Money million
Market Fund 0.45% on the next $300
million
0.40% on assets over $500
million
Small Cap 0.85%
Growth Fund
Small Cap 0.28% on the first $500
Index Fund million
0.27% on assets over
$500 million
Small Cap 0.75% on the first $50
Value Fund million
0.65% on the assets over
$50 million
Socially 0.25%
Responsible
Fund
Stock Index 0.27% on the first $500
Fund million
0.26% on assets over
$500 million
Strategic Bond 0.60% on the first $200
Fund million
0.50% on the next $300
million
0.45% on assets over
$500 million
Investment Sub-Advisers
For some of the Funds, VALIC works with
investment Sub-Advisers through an agreement
each entered into with VALIC. Sub-Advisers
are 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.
According to the agreements we have 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 may be considered
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-Adviser's affiliate to
effect these type 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.
In selecting Sub-Advisers, the Trustees of
the Series Company 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 by VALIC to each SubAdviser.
The Sub-Advisory fees are not paid by the
Funds.
The Series Company relies upon an exemptive
order from the SEC which permits VALIC,
subject to certain conditions, to select new
sub-advisers or replace existing subadvisers
without first obtaining shareholder approval
for the change. The Board of Directors,
including a majority of the "independent"
Directors, must approve each new sub-
advisory agreement. This allows VALIC to act
more quickly to change subadvisers when it
determines that a change is beneficial to
shareholders by avoiding the delay of
calling and holding shareholder meetings to
approve each change. In accordance with the
exemptive order, the Series Company will
provide investors with
information about each new sub-adviser and
its sub-advisory agreement within 90 days of
the hiring of a new sub-adviser. VALIC is
responsible for selecting, monitoring,
evaluating and allocating assets to the Sub
advisers and oversees the Sub-advisers'
compliance with the relevant Fund's
investment objective, policies and
restrictions.
The Sub-Advisers are:
AGIM
2929 Allen Parkway, Houston, Texas 77015
AGIM is the Sub-Adviser for the Core Bond
Fund, Domestic Bond Fund, High Yield Bond
Fund, Money Market Fund, Municipal Bond
Fund, Municipal Money Market Fund, and the
Strategic Bond Fund. AGIM was formed in 1998
as a successor to the investment management
division of American General Corporation,
and is an indirect wholly-owned subsidiary
of American General Corporation. AGIM also
provides investment management and advisory
services to pension and profit sharing
plans, financial institutions and other
investors. Investment decisions for several
Funds are made by teams as noted below. Each
team meets regularly to review portfolio
holdings and discuss purchase and sale
activity.
Magali E. Azema-Barac is responsible for
AGIM's equity group. She heads the team
making investment decisions for each of the
Index Funds, as well as Socially Responsible
Fund and the passively managed portion of
the Small Cap Value Fund. Ms. Azema-Barac
joined American General in September, 1999.
Prior to that, she worked on the equity desk
of USWest Investment Management Company in
Englewood, Colorado, where she incepted and
managed an enhanced equity portfolio.
Robert N. Kase, CF, has been the Core Bond
Fund's Portfolio Manager since November
1998. He has been Investment Officer of
VALIC since September 1998, and Senior
Portfolio Manager of AGIM since September
1998. Previously, Mr. Kase was Senior
Portfolio Manager with CL Capital
Management, Inc. from September 1992 until
July 1998.
Investment decisions for the Strategic Bond
Fund are made by a team, headed by Steven
Guterman. 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.
Investment decisions for the High Yield Bond
Fund are made by a team, headed by Gordon
Massie. 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.
Marybeth Whyte serves as the Portfolio
Manager for the Municipal Money market Fund
and the Municipal Bond Fund. She 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.
Brown Capital Management, Inc. ("Brown
Capital")
1201 N. Calvert St., Baltimore, Maryland
21202
Brown Capital is the Sub-Adviser for the Mid
Cap Growth Fund. Established as a Maryland
corporation in 1983, Brown Capital served as
investment adviser to approximately $___
billion in assets as of December 31, 1999.
Investment decisions for the Mid Cap Growth
Fund are made by a team of portfolio
managers/analysts organized for that
purpose. The team meets regularly to review
portfolio holdings and discuss purchase and
sale activity.
Capital Guardian Trust Company ("Capital
Guardian")
333 South Hope Street, Los Angeles,
California 90071
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
December 31, 1999, Capital Guardian had more
than $____ billion in assets under
management.
The Balanced 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 22 years and has been with
the Sub-Adviser or an affiliate for 19
years; and (ii) Jim Baker, Vice President of
the Sub-Adviser, who has been an investment
professional for 18 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 33 years and has been with
the Sub-Adviser or an affiliate for 29
years; (ii) Gene Stein, Executive Vice
President of the Sub-Adviser, who has been
an investment professional for 27 years and
has been with the Sub-Adviser or an
affiliate for 26 years; (iii) Michael
Ericksen, Senior Vice President of the Sub
Adviser, who has been an investment
professional for 18 years and has been with
the Sub-Adviser or an affiliate for 12
years; (iv) Ted Samuels, Senior Vice
President of the Sub-Adviser, who has been
an investment professional for 20 years and
has been with the Sub-Adviser or an
affiliate for 18 years; and (v) Donnalisa
Barnum, 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 13 years.
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 46 years and has been with
the Sub-Adviser or an affiliate for 33
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; and (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.
The International Value Fund's portfolio
managers include: (i) Robert Ronus,
President of the Sub-Adviser, who has been
an investment professional for 30 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 33 years
and has been with the Sub-Adviser or an
affiliate for 29 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 27 years and has
been with the Sub-Adviser or an affiliate
for 26 years; (iv) Nancy Kyle, Senior Vice
President of the Sub-Adviser, who has been
an investment professional for 25 years and
has been with the Sub-Adviser or an
affiliate for 8 years; (v) Nilly Sikorsky,
Director of The Capital Group of Companies,
Inc., the ultimate parent of the SubAdviser,
who has been an investment professional for
36 years and has been with the Sub-Adviser
or an affiliate for 36 years; (vi) Lionel
Sauvage, Senior Vice President of the Sub-
Adviser, who has been an investment
professional for 12 years and has been with
the Sub-Adviser or an affiliate for 12
years; (vii) Richard Havas, Sr., Senior Vice
President of the SubAdviser, who has been an
investment professional for 17 years and has
been with the Sub-Adviser or an affiliate
for 13 years; and (viii) Rudolf Staehelin,
Sr., Senior Vice President of Capital
International Research, Inc., an affiliate
the Sub-Adviser, who has been an investment
professional for 21 years and has been with
the Sub-Adviser or an affiliate for 17
years.
James S. Baker and James R. Mulally serve as
the Domestic Bond 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.
Fiduciary Management Associates, Inc.
("FMA")
55 West Monroe Street, Suite #2550, Chicago,
Illinois 60603
FMA is the Sub-Adviser for the actively
managed portion of the assets of 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
December 31, 1999, FMA had over $___ billion
in assets under management.
Investment decisions are made by a team that
consists of portfolio managers and analysts
who specialize their research by sectors.
Kathryn Vorisek is the lead portfolio
manager. The team meets regularly to review
portfolio holdings and to discuss purchase
and sale activity.
Goldman Sachs Asset Management ("GSAM") 32
Old Slip, New York, New York 10005
GSAM is the Sub-Adviser for the Large Cap
Growth Fund. As of September 1, 1999, the
Investment Management Division ("IMD") was
established as a new operating division of
Goldman, Sachs & Co. ("Goldman Sachs"). The
newly created entity includes GSAM. 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 December 31, 1999, GSAM,
along with other units of IMD, had assets
under management of $___ billion.
The Large Cap Growth 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. Mr. Clark, Managing
Director, joined the Sub-Adviser's
quantitative equity management team as a
portfolio manager in 1992. Mr. Pinter, Vice
President, joined the Sub-Adviser as a
research analyst in 1990, and became a
portfolio manager in 1992. 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.
J.P. Morgan Investment Management, Inc.
("J.P. Morgan")
522 Fifth Avenue, New York, New York 10036
J.P. Morgan is the Sub-Adviser for the Small
Cap Growth Fund. Known for its commitment to
proprietary research and its disciplined
investment strategies, J.P. Morgan provides
asset management services to corporations,
financial institutions, governments and
individuals. As of December 31, 1999, J.P.
Morgan and its affiliates employed over ___
analysts and portfolio managers around the
world and had more than $___ billion in
assets under management.
Candice Eggerss, Saira Malik and Carolyn
Jones are the members of the Sub-Adviser's
team who will be primarily responsible for
the day-to-day management of the Small Cap
Growth 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. Ms.
Malik joined the Sub-Adviser in 1995 as a
small company equity analyst and portfolio
manager after completing her graduate
studies at the University of Wisconsin. Ms.
Jones has been with the Sub-Adviser since
July 1998. Prior to this, Ms. Jones served
as a portfolio manager in J.P. Morgan's
private banking group and as a product
specialist at Merrill Lynch Asset
Management.
Jacobs Asset Management
200 East Broward Boulevard, Suite 1920, Fort
Lauderdale, Florida 33301
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 December
31, 1999, Jacobs Asset Management had more
than $___ million in assets under
management.
Investment decisions for the International
Growth Fund are made by a team that consists
of portfolio managers and analysts who
specialize their research by region. Dan
Jacobs, President, is the lead portfolio
manager and has final approval on purchase
and sales. The team meets regularly to
review portfolio holdings and discuss
purchase and sale activity.
Neuberger Berman Management, Inc. ("NB
Management")
605 Third Avenue, Second Floor, New York,
New York 10158-0180
NB Management is the Sub-Adviser for the Mid
Cap Value Fund. NB Management and its
predecessor firms have specialized in the
management of no-load mutual funds since
1950. As of December 31, 1999, NB Management
and its affiliates managed approximately $__
billion in aggregate net assets, including
approximately $__ billion in mutual fund
assets.
Robert I. Gendelman and S. Basu Mullick
serve as co-managers of the Mid Cap Value
Fund. Messrs. Gendelman and Mullick are Vice
Presidents of the Sub-Adviser and Mr.
Gendelman is a managing director of
Neuberger Berman, LLC. Messrs. Gendelman and
Mullick have been associated with the Sub
Adviser since 1994 and 1998, respectively.
State Street Bank & Trust Company ("State
Street Bank")/State Street Global Advisors
("State Street Global Advisors")
2 International Place, Boston, Massachusetts
02110
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 whollyowned
subsidiary of State Street Corporation,
which had more than $___ billion under
management as of December 31, 1999.
The Large Cap Value Fund is managed by a
team of investment professionals. In
addition to the ongoing activity of
portfolio management, the team is
responsible for research focused on
enhancing the Sub-Adviser's quantitative
process.
Administrative Services
The Series Company has entered into an
Administrative Service Agreement ("Service
Agreement") with VALIC Retirement Services
Company ("Retirement Services") and the
Distributor for the provision of
recordkeeping and shareholder services to
retirement and employee benefit plans. Under
the terms of the Service Agreement, the
Series Company pays a fee to either
Retirement Services or the Distributor. The
annual fee, paid monthly, is 0.25% of the
aggregate net asset value of each Fund,
other than the Lifestyle Funds. Under the
Service Agreement, Retirement Services and
the Distributor provide recordkeeping
services, including the establishment and
maintenance of plan and participant accounts
and records; participant services, including
the provision of customer service
representatives to respond to participant
inquiries and process telephone
transactions; and plan services, including
the production of plan documentation and
summary plan descriptions.
American General Distributors, Inc.
American General Distributors, Inc. is the
Distributor of the Funds. The Distributor
sells Institutional Class I Shares of the
Funds to employer retirement plans. The
Distributor transmits the employer orders to
buy, sell or transfer shares to the Series
Company's designated agent daily. The
Distributor is a subsidiary of American
General Corp 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.
Account Information
Investment Minimums
The employer retirement plan may establish a
plan account with an initial purchase of $5
million.
How to Buy 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.
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.
How Shares are Valued
The price of each Class of shares for a Fund
is based on net asset value ("NAV"). NAV is
computed by adding the value of a Fund's
holdings plus other assets, subtracting
liabilities, and then dividing the result by
the number of shares outstanding. The NAV of
each Class will be different, depending on
the number of Class shares outstanding.
Portfolio securities and other assets are
valued based on market price quotations. If
market quotations are not readily available,
securities are valued by a method that
reflects fair value. These are reviewed by
the Fund's Board of Trustees. Some Funds
hold securities that are primarily listed on
foreign exchanges. Foreign exchanges may
trade at times or on days when the New York
Stock Exchange ("NYSE") is closed, such as
on weekends or other days. This will affect
the value of the Fund's shares; thus, the
value of the Fund's shares may change on
days when you will not be able to buy or
sell your shares.
The Money Market Fund and the Municipal
Money Market Fund and any securities
maturing within 60 days are valued according
to the "amortized cost" method, which is
intended to stabilize the NAV at $1 per
share.
The NAV is calculated as of the close of
each business day, which coincides with the
closing of the regular session of the NYSE
(normally 4 p.m. Eastern Time). Each Fund is
open for business each day the NYSE is open.
Transfer or exchange of balances
An employer retirement plan may allow you to
exchange all or part of your existing plan
balance from one investment option to
another. Check with your plan administrator
for details on the rules governing exchanges
in your plan. Exchanges will be accepted by
the 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.
Transaction Processing
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.
When the NYSE is closed (or when trading is
restricted) for any reason other than its
customary weekend or holiday closings, or
under any emergency circumstances as
determined by the SEC, redemptions may be
suspended or payment dates postponed. Please
note that there are some federal holidays,
however, such as Columbus Day and Veterans'
Day, when the NYSE is open and the Funds are
open but purchases and redemptions cannot be
made due to the closure of the banking
system.
Dividends, Capital Gains and Taxes Each Fund
pays dividends from its net investment
income as shown below. Net investment income
consists of interest
income, net short-term capital gains, if
any, and dividends declared and paid on
investments, less expenses. Distributions of
net short-term capital gains (treated as
dividends for tax purposes) and net longterm
capital gains, if any, are normally paid
once a year; however, the Funds do not
anticipate making any such distributions
unless available capital loss carryovers
have been used or have expired. Dividends
and any distributions are automatically
reinvested in the same Fund.
Dividends declared and paid daily:
Money Market Fund
Municipal Money Market Fund
Dividends declared daily and paid monthly:
Core Bond Municipal Bond
Domestic Bond Strategic Bond
High Yield Bond
Dividends paid quarterly:
Balanced Mid Cap Value
Conservative Growth Lifestyle Moderate
Growth Lifestyle
Growth Lifestyle Small Cap
Growth
Large Cap Growth Small Cap
Index
Large Cap Value Small Cap
Value
Mid Cap Growth Socially
Responsible
Mid Cap Index Stock Index
Dividends paid semi-annually:
International Growth
International Value
Taxpayer Identification Number
You are required to give us your correct
Social Security or Taxpayer Identification
Number ("TIN") when you make contributions
to the employer's plan. We reserve the right
to reject any new account or any purchase
order for failure to supply a certified TIN.
<PAGE>
Management's Discussion of Fund Performance
(Not applicable to the Money Market Funds)
[Alpha by Fund - insert discussion of
factors that affected each Fund's
performance, market conditions, and relevant
strategies, followed by the line graph for
the Class and the Fund's index for the past
fiscal year. The graph must be followed by a
table with the Fund's average annual total
return.]
<PAGE>
Financial Highlights
The financial highlights tables are intended
to help you understand each Fund's financial
performance for its period of operations.
Certain information reflects financial
results for a single Fund share. The total
return numbers in the tables represent the
rate that an investor would have earned or
lost on an investment in a Fund, assuming
reinvestment of all dividends and
distributions. This information has been
audited by Ernst & Young, L.P., whose
reports, along with the Fund's financial
statements, are included in the Annual
Report, which is available upon request and
which is incorporated into this document by
this reference.
[Insert financial highlights here for each
Fund]
<PAGE>
For investors who want more information
about the Funds, the following documents are
available free upon request:
Annual/Semi-Annual Reports: Additional
information about each Fund's investments is
available in the Fund's Annual and Semi-
annual reports to shareholders.
Statement of Additional Information ("SAI"):
The SAI provides more detailed information
about the Funds and is incorporated into
this prospectus by reference.
You can get free copies of reports and SAIs,
request other information and discuss your
questions about the Funds by contacting your
broker, or the Funds at:
Telephone: 1-877-999-2434
American General Web-Site Address:
http://www.agfundgroup.com
You can review the Funds' reports and SAI at
the public Reference Room of the SEC.
You can get text only copies:
For a fee, by writing to or calling the
Public Reference Room of the Commission,
Washington, D.C. 20549-6009, Telephone: 1800-
SEC-0330.
Free from the Commission's Internet
website at http://www.sec.gov.
Investment Company Act File No. 811-08875
(AGSPC 2)
<PAGE>
American General Series Portfolio Company 2
Institutional Class II Shares
March 1, 2000
The American General Series Portfolio
Company 2 (the "Series Company") is an open
end mutual fund made up of 23 separate Funds
(the "Funds"). Institutional Class II Shares
of these Funds are available to you only
through an employer retirement plan.
Different employer plans choose different
combinations of funds, so all of the funds
discussed in this prospectus may not be
available in your plan. Please check your
employer-provided plan documents for
available investments. Each of the American
General Funds has a different investment
objective. Here are summaries of the
investment goals for the 23 Funds:
ACTIVELY MANAGED EQUITY FUNDS:
These Funds invest mostly in stocks and are
designed to increase the value of your
investment over the long term.
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 International Value Fund
("International Value Fund")
Growth of capital and future income
through investments in non-U.S. issuers.
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 Large Cap Value Fund
("Large Cap Value Fund")
Total returns exceeding the Russell
1000(r) Value Index through investments in
equity securities.
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 Mid Cap Value Fund ("Mid
Cap Value Fund")
Growth through investments in medium
capitalization companies.
American General Small Cap Growth Fund
("Small Cap Growth Fund")
Long-term growth through investments in
small growth companies.
American General Small Cap Value Fund
("Small Cap Value Fund")
Maximum long-term return through
investments in small capitalization
companies.
American General Socially Responsible Fund
("Socially Responsible Fund") Growth
through investments in companies meeting
social criteria of the Fund.
BALANCED FUND:
This Fund invests in a combination of stocks
and bonds to allow for long-term growth
while reducing market risks.
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:
These Funds are designed to provide current
income while conserving capital.
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 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 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.
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.
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.
INDEX EQUITY FUNDS:
These Funds track different indices in order
to provide growth over the long term.
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(r) Index.
American General Stock Index Fund ("Stock
Index Fund")
Total return through investments tracking
the S&P 500 Index.
LIFESTYLE FUNDS:
These Funds allocate assets to other
American General Funds in order to provide a
diversified, less risky investment.
American General Conservative Growth
Lifestyle Fund ("Conservative Growth
Lifestyle Fund")
Current income and a low to moderate
level of growth through investments in a
combination of the Series Company Funds.
American General Growth Lifestyle Fund
("Growth Lifestyle Fund")
Growth through investments in a
combination of the Series Company Funds.
American General Moderate Growth Lifestyle
Fund ("Moderate Growth Lifestyle Fund")
Growth and current income through
investments in a combination of the Series
Company Funds.
MONEY MARKET FUNDS:
These Funds provide liquidity and
preservation of capital.
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.
In this prospectus, "we", "us", and "our"
refers to the American General Fund Group.
Neither the Securities and Exchange
Commission ("SEC") nor any state securities
commission has approved or disapproved of
these securities or determined if this
prospectus is truthful or complete. Any
representation to the contrary is a criminal
offense.
The SEC maintains an internet website at
http://www.sec.gov that contains the
Statement of Additional Information ("SAI"),
material incorporated by reference, and
other information regarding registrants that
file electronically with the SEC.
<PAGE>
Table of Contents
Topic Page
Risk/Return Summaries: Investments, Risks,
and Performance
Balanced Fund 4
Conservative Growth Lifestyle Fund7
Core Bond Fund 10
Domestic Bond Fund 13
Growth Lifestyle Fund 16
High Yield Bond Fund 19
International Growth Fund 22
International Value Fund 25
Large Cap Growth Fund 28
Large Cap Value Fund 31
Mid Cap Growth Fund 34
Mid Cap Index Fund 37
Mid Cap Value Fund 40
Moderate Growth Lifestyle Fund 43
Money Market Fund 46
Municipal Bond Fund 49
Municipal Money Market Fund 52
Small Cap Growth Fund 55
Small Cap Index Fund 58
Small Cap Value Fund 61
Socially Responsible Fund 64
Stock Index Fund 67
Strategic Bond Fund 70
More About Portfolio Investments 73
More About Risk 77
More About Index Funds and Tracking an Index
79
Welcome to American General Corporation
(Adviser and Sub-Adviser Information)
80
Account Information 86
Management's Discussion of Fund Performance
94
Financial Highlights ___
<PAGE>
Risk/Return Summaries: Investments, Risks,
and Performance
BALANCED FUND
INVESTMENT CATEGORY
Balanced
INVESTMENT ADVISER
The Variable Annuity Life Insurance Company
("VALIC")
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
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. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
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. We
select securities for the Fund's portfolio
by identifying fixed-income (bonds and
preferred stock) and equity (stock)
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.
Fixed-income Portion: Up to 75% of the
Fund's total assets may be invested in fixed
income securities rated A or better by
Moody's Investors Service ("Moody's") or
Standard & Poor ("S&P") or of comparable
investment quality. The Sub-Adviser is not
required to sell the security, however, if
the rating is downgraded. At all times, at
least 25% of the Fund's total assets are
invested in fixed-income senior securities.
The Fund may hold up to 20% of its total
assets in high-yielding, high risk fixed
income securities ("junk bonds").
Equity Portion: Up to 75% of the Fund's
total assets may be invested in equity
securities listed on national securities
exchanges or in the over-the-counter market
("NASDAQ"). Equity securities include
American Depositary Receipts ("ADRs"), which
are certificates issued by a U.S. depositary
bank, representing foreign shares held by
the bank. ADRs carry the same currency,
political and economic risks as the
underlying foreign shares. Up to 10% of the
Fund's total assets may be invested in the
securities of U.S. small capitalization
companies ("Small Caps"). Small Caps are
companies that have total assets
(capitalization) of approximately $150
million to $1.25 billion. See "More About
Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Risk of Lower Rated Fixed-Income Securities:
A 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 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.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgment that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of a blend of
two indices ("Balanced Blend"). The Balanced
Blend is composed of 40% Lehman Brothers
Government and Corporate Index and 60% S&P
500 Index. Each is a widely recognized,
unmanaged index. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses
Management fees 0.__%
Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
CONSERVATIVE GROWTH LIFESTYLE FUND
INVESTMENT CATEGORY
Lifestyle
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks current income and low to moderate
growth of capital through investments in a
combination of the Series Company Funds
("Underlying Funds"). This Fund is suitable
for investors who wish to invest in equity
securities, but who are not willing to
assume the market risks of either the Growth
Lifestyle Fund or the Moderate Growth
Lifestyle Fund. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
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 and sample Underlying Fund choices
for this Fund.
International Equity Securities5%-15%
Sample Underlying Funds:
American General International
Value Fund
American General International
Growth Fund
Small Capitalization Equity Securities
5%-15%
Sample Underlying Funds:
American General Small Cap Value
Fund
American General Small Cap Growth
Fund
Medium Capitalization Equity Securities
5%-15%
Sample Underlying Funds:
American General Mid Cap Value
Fund
American General Mid Cap Growth
Fund
Large Capitalization Equity Securities
25%-35%
Sample Underlying Funds:
American General Large Cap Growth
Fund
American General Large Cap Value
Fund
Bonds
30%-50%
Sample Underlying Funds:
American General Core Bond Fund
American General Domestic Bond
Fund
This Fund is managed so that it can serve as
a complete investment program for you or as
a core part of your larger portfolio. The
Underlying Funds have been selected to
represent a reasonable spectrum of
investment options for the Fund. We have
based the target investment percentages for
the Fund on the degree to which we believe
the Underlying Funds, in combination, to be
appropriate for the Fund's investment
objective. We may change the asset
allocation ranges and the particular
Underlying Funds in which the Fund may
invest from time to time.
INVESTMENT RISKS
The Fund is a non-diversified investment
company under the Investment Company Act of
1940 (the "1940 Act") because it invests in
a limited number of the Underlying Funds.
However, the Underlying Funds themselves are
diversified companies.
The allocation among the different
Underlying 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 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, 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 Funds
in which it invests. Changes in the net
asset values of the Underlying 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 Funds to meet their investment
objectives.
Investment in the Underlying Funds involves
manager risk. Manager Risk is the risk that
the Fund's management strategy may not
achieve the desired results and the Fund's
performance may lag behind that of similar
funds. The Fund is also subject to the risk
that a Fund that is non-diversified under
the 1940 Act will invest more of its assets
in fewer issuers and, therefore, is more
likely to be adversely affected by a
downturn in any one issuer or security. The
securities that Underlying Funds invest in
also involve various risks.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of a blended
index, calculated by including the pro rata
portion of each of the Underlying Fund's
respective indices, and the S&P 500 Index,
composed of 500 common stocks which are
chosen by Standard & Poor's Corporation. The
S&P 500 Index approximates the general
distribution of industries in the U.S.
economy, captures the price performance of a
large cross-section of the publicly traded
stock market. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
CORE BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P.
("AGIM")
INVESTMENT OBJECTIVE
Seeks the highest possible total return
consistent with conservation of capital
through investments in medium to high
quality fixed-income securities. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of its total
assets in medium to high quality fixedincome
securities, or in securities issued or
guaranteed by the U.S. Government, mortgage-
backed or asset-backed securities. U.S.
Government securities are securities issued
or guaranteed by the U.S. Government which
are supported by the full faith and credit
of the U.S. Government; the right of the
issuer to borrow from the U.S. Treasury; the
credit of the issuing government agency; or
the authority of the U.S. Government to
purchase obligations of the agency. A
portion of the 65% may also be invested in
U.S. dollar-denominated fixed-income
securities issued by foreign issuers,
although the Fund currently intends to limit
these investments to no more than 40% of its
total assets. These fixed-income securities
are rated investment grade or higher. The
Sub-Adviser is not required to dispose of a
security if its rating is downgraded,
however. Up to 10% of the Fund's total
assets may be invested in lower quality
fixed-income securities, those rated below
Baa3 by Moody's and BBB by S&P.
Up to 35% of the Fund's total assets may be
invested in interest-bearing short-term
investments, such as commercial paper,
bankers' acceptances, bank certificates of
deposit, and other cash equivalents and
cash. Equity securities, including common or
preferred stocks, convertible securities,
and warrants, may comprise up to 20% of the
Fund's total assets. See "More About
Portfolio Investments."
The Fund's transactions are reflected in its
portfolio turnover rate, ___% for the fiscal
year ended October 31, 1999. The rate of
portfolio turnover is calculated by dividing
the lesser of the amount of purchases or
sales of portfolio securities during the
fiscal year by the average of the value of
the portfolio securities. A high rate of
portfolio turnover generally involves
correspondingly greater brokerage commission
expenses, thus increasing the Fund's
operating expenses. The Fund's active
trading strategy may cause the Fund to have
a relatively high amount of short-term
capital gains, which are taxable to you at
your ordinary income tax rate.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Risk of Lower Rated Fixed-income Securities:
A 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 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
become worth less than what the Fund paid
for them.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Aggregate Bond Index, a total
return index measuring both the capital
price changes and the income underlying the
universe of securities, weighted by market
value outstanding. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
DOMESTIC BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests in high quality fixedincome
securities to provide you with the highest
possible total return from current income
and capital gains while preserving your
investment. At least 65% of the Fund's total
assets will be invested in investment grade
U.S. corporate fixed-income securities rated
at least A by Moody's or S&P, in securities
issued or guaranteed by the U.S. Government,
Yankee bonds, or in mortgagebacked or asset-
backed securities. U.S. Government
securities are securities issued or
guaranteed by the U.S. Government which are
supported by the full faith and credit of
the U.S. Government; the right of the issuer
to borrow from the U.S. Treasury; the credit
of the issuing government agency; or the
authority of the U.S. Government to purchase
obligations of the agency. The SubAdviser is
not required to dispose of a security if its
rating is downgraded.
Up to 35% of total assets may be invested in
non-U.S. investment grade intermediate and
long-term corporate fixed-income securities
rated at least A by Moody's or S&P,
including Eurodollar fixed-income
securities, securities issued or guaranteed
by the Canadian Government, its provinces or
their instrumentalities, or interest bearing
short-term investments, such as commercial
paper, bankers' acceptances, bank
certificates of deposit and other cash
equivalents and cash. Currently, Eurodollar
fixed-income securities will be limited to
no more than 20% of the Fund's total assets.
To increase the Fund's earning potential, we
may use up to 25% of the Fund's assets to
make some higher risk investments in
mortgage-related securities or bonds rated
less than A by Moody's or S&P. No minimum
rating requirement applies to these junk
bonds. See "More About Portfolio
Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Risk of Lower Rated Fixed-income Securities:
A 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 SubAdviser's
investment analysis. Accordingly, the Fund's
investments may be worth less than what the
Fund paid for them.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Aggregate Bond Index, a total
return index measuring both the capital
price changes and the income underlying the
universe of securities, weighted by market
value outstanding. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
GROWTH LIFESTYLE FUND
INVESTMENT CATEGORY
Lifestyle
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks growth through investments in a
combination of the Series Company Funds
("Underlying Funds"). This Fund is suitable
for investors seeking the potential for
capital growth that a fund investing
predominately in equity securities may
offer. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
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 and sample Underlying Fund choices
for this Fund.
International Equity Securities25%-35%
Sample Underlying Funds:
American General International
Value Fund
American General International
Growth Fund
Small Capitalization Equity Securities
15%-25%
Sample Underlying Funds:
American General Small Cap Value
Fund
American General Small Cap Growth
Fund
Medium Capitalization Equity Securities
10%-20%
Sample Underlying Funds:
American General Mid Cap Value
Fund
American General Mid Cap Growth
Fund
Large Capitalization Equity Securities
20%-30%
Sample Underlying Funds:
American General Large Cap Growth
Fund
American General Large Cap Value
Fund
Bonds
5%-15%
Sample Underlying Funds: American
General Core Bond Fund American
General Domestic Bond
Fund
American General High Yield Bond
Fund
This Fund is managed so that it can serve as
a complete investment program for you or as
a core part of your larger portfolio. The
Underlying Funds have been selected to
represent a reasonable spectrum of
investment options for the Fund. We have
based the target investment percentages for
the Fund on the degree to which we believe
the Underlying Funds, in combination, to be
appropriate for the Fund's investment
objective. We may change the asset
allocation ranges and the particular
Underlying Funds in which the Fund may
invest from time to time.
INVESTMENT RISKS
The Fund is a "non-diversified" investment
company under the 1940 Act because it
invests in a limited number of the
Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
The allocation among the different
Underlying 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 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, 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 Funds
in which it invests. Changes in the net
asset values of the Underlying 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 Funds to meet their investment
objectives.
Investment in the Underlying Funds involves
manager risk. Manager risk is the risk that
the Fund's management strategy may not
achieve the desired results and the Fund's
performance may lag behind that of similar
funds. The Fund is also subject to the risk
that a Fund that is non-diversified under
the 1940 Act will invest more of its assets
in fewer issuers and, therefore, is more
likely to be adversely affected by a
downturn in any one issuer or security. The
securities that Underlying Funds invest in
also involve various risks.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of a blended
index, calculated by including the pro rata
portion of each of the Underlying Fund's
respective indices, and the S&P 500 Index,
composed of 500 common stocks which are
chosen by Standard & Poor's Corporation. The
S&P 500 Index approximates the general
distribution of industries in the U.S.
economy, captures the price performance of a
large cross-section of the publicly traded
stock market. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
HIGH YIELD BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
AGIM
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. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
Up to 65% of the Fund's total assets are
invested in below-investment grade junk
bonds. These high yielding, high risk fixed
income securities are rated below Baa3 by
Moody's and BBB- by S&P. Up to 15% can be
rated below Caa3 by Moody's or CCC- by S&P.
The Fund may also invest up to 35% of total
assets in below-investment grade foreign
fixed-income securities.
To balance this risk, the Fund may invest up
to 35% in investment grade securities, those
rated Baa3 or higher by Moody's and BBB- or
higher by S&P. In addition, the Fund may
invest up to 15% in zero coupon securities
(securities not paying current cash
interest), and up to 20% of total assets in
equity securities. Equity securities
includes common or preferred stocks,
warrants, and convertible securities. The
Sub-Adviser is not required to dispose of a
bond that is downgraded to below-investment
grade. See "More About Portfolio
Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Risk of Lower Rated Fixed-income Securities:
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 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.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Salomon Smith Barney High Yield Market
Index, a widely recognized, unmanaged index
covering a significant portion of the below-
investment grade U.S. corporate bond market.
The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
INTERNATIONAL GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Jacobs Asset Management
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund must invest at least 65% of its
total assets in the foreign equity
securities of at least three countries
outside the United States. Since the Fund
normally intends to be fully invested,
foreign equity securities will usually
represent closer to 80-85% of the Fund's
total assets. Foreign equity securities
include common and preferred stock,
convertible preferred stock, rights, and
warrants, American Depositary Receipts
("ADRs"), European Depositary Receipts
("EDRs"), and Global Depositary Receipts
("GDRs"). ADRs are certificates issued by a
U.S. depositary bank, representing foreign
shares held by the bank, to facilitate
trading in foreign securities. GDRs and EDRs
are very similar to ADRs. Generally, ADRs
are designed for use in U.S. securities
markets and EDRs are designed for use in
European securities markets. GDRs are
designed for use when the issuer is raising
capital in more than one market
simultaneously, such as the issuer's local
market and the U.S. ADRs, EDRs and GDRs each
carry the same currency, political and
economic risks as the underlying foreign
shares.
The Fund may invest up to 40% of total
assets in the equity securities of issuers
located in emerging market countries. 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 (known as "The World Bank") and
the International Finance Corporation. 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.
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 ("Small Caps"). Up to 50% of the
Fund's total assets may be invested in Small
Caps, which are companies that have total
assets (capitalization) of approximately
$150 million to $1.25 billion. See "More
About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Salomon Smith Barney Primary Market Index.
The Salomon Smith Barney Primary Market
Index is a sub-index of the Salomon Smith
Barney Broad Market Index, which measures
the performance of equities from 23
countries and 18 regions throughout the
world. Each company with equity capital of
at least $100 million is tracked by the
Salomon Smith Barney Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
INTERNATIONAL VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
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. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
The Fund must invest at least 65% of its
total assets in foreign securities. Since
the Fund normally intends to be fully
invested, foreign equity securities will
usually represent closer to 80-85% of the
Fund's total assets. 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.
Up to 90% of the amount invested in foreign
securities may be invested in put and call
options on foreign currencies and forward
currency contracts. A put option on foreign
currency is a security that gives the Fund
the right to sell a particular foreign
currency within a stated period of time. A
call option on foreign currency gives the
Fund the right to buy a particular foreign
currency within a stated period of time. A
forward currency contract is an agreement to
buy or sell foreign currency at an agreed
upon price and date.
The Fund may invest in the equity securities
of issuers located in emerging market
countries. 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 (known as "The World Bank")
and the International Finance Corporation.
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.
This Fund may invest up to 10% of total
assets in the securities of foreign small
capitalization companies ("Foreign Small
Caps"). Foreign Small Caps are companies
that have total assets (capitalization) of
approximately $150 million to $1.25 billion.
See "More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Salomon Smith Barney Primary Market Index.
The Salomon Smith Barney Primary Market
Index is a sub-index of the Salomon Smith
Barney Broad Market Index, which measures
the performance of equities from 23
countries and 18 regions throughout the
world. Each company with equity capital of
at least $100 million is tracked by the
Salomon Smith Barney Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
LARGE CAP GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Goldman Sachs Asset Management
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests up to 65% of its total
assets 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 Fund's benchmark, the
Russell 1000(r) Growth Index. 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.
The Fund may invest up to 25% of total
assets in the equity securities of other
U.S. and foreign issuers. The securities of
the foreign issuers must be traded in the
United States. This includes convertible
securities, ADRs and GDRs. ADRs are
certificates issued by a U.S. depositary
bank, representing foreign shares held by
the bank, to facilitate trading in foreign
securities. GDRs are very similar to ADRs.
Generally, ADRs are designed for use in the
United States securities markets, while GDRs
are designed for use when the issuer is
raising capital in more than one market
simultaneously, such as the issuer's local
market and the U.S. ADRs and GDRs each carry
the same currency, political and economic
risks as the underlying foreign shares. See
"More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Derivatives Risk: The risk that loss may
result from a Fund's investments in options,
futures, swaps, structured securities and
other derivative instruments. These
instruments may be leveraged so that small
changes may produce disproportionate losses
to a Fund.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 1000(r) Growth Index. The Russell
1000(r) Growth Index is a sub-index of the
Russell 3000(r) Index. The Russell 3000(r)
Index follows the 3,000 largest U.S.
companies, based on total market
capitalization. The Russell 1000(r) Growth
Index measures the performance of the 1,000
largest companies in the Russell 3000(r)
Index, focusing on those with higher priceto-
book ratios and higher forecasted growth
values. The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
LARGE CAP VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
State Street Bank & Trust Company/State
Street Global Advisers
INVESTMENT OBJECTIVE
Seeks to provide total returns that exceed
over time the Russell 1000(r) Value Index
("Index") through investment in equity
securities. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
The Index is a sub-index of the Russell
3000(r) Index. The Russell 3000(r) Index
follows the 3,000 largest U.S. companies,
based on total market capitalization. The
Index measures the performance of the 1,000
largest companies in the Russell 3000(r)
Index, focusing on those with lower price-to
book ratios and lower forecasted growth
values.
INVESTMENT STRATEGY
The Fund will invest at least 65% of total
assets in the equity securities of the
largest 1200 companies by market
capitalization traded in the United States.
The Sub-Adviser combines financial
accounting data with earnings forecasts
provided by many security analysts. This
quantitative method allows the Sub-Adviser
to quickly and systematically evaluate large
amounts of data. The constructed portfolio
is well-diversified, maintaining industry
and sector exposures and macroeconomic and
risk characteristics that are similar to the
Index.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Market Risk also refers to the risk that the
value of the securities purchased by the
Fund may decline as a result of economic,
political or market conditions or an
issuer's financial circumstances. 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. 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.
Quantitative Risk: The different factors
that go into the quantitative analysis can
be changed periodically. The weight of each
factor may also change; thus, the analytical
model may have different historical or
future performance compared to the Fund.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 1000(r) Value Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MID CAP GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Brown Capital Management, Inc.
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
This Fund will invest at least 65% of total
assets in the equity securities of medium
capitalization companies. Medium
capitalization companies generally include
companies with a market capitalization of $1
to $10 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 appear to
be 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. The Sub-Adviser uses 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.
Up to 35% of the Fund's total assets may be
invested in other domestic equity
securities, including common and preferred
stocks, and convertible securities. See
"More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Style Risk: The risk that the portfolio
manager's judgments that a particular
security is undervalued relative to its
growth potential in the securities markets
may prove incorrect.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell MidcapTM Growth Index. The Russell
MidcapTM Growth Index focuses on Russell
Midcap companies with higher price-to-book
ratios and higher forecasted growth values.
The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MID CAP INDEX FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
The Mid Cap Index Fund seeks to provide
investment results that are similar to the
performance of the S&P 400 Mid Cap Index
("Index"). As a group, the investment
results, before expenses, are expected to
approximate the total return (the
combination of capital changes and income)
of selected common stocks that statistically
reflect the Index. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of total
assets in companies that are listed in the
Index. Since it may not be possible for this
Fund to buy every stock included in the
Index, or in the same proportions, the Fund
invests in a sampling of common stocks in
the Index. The common stocks of the 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, priceto-
earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the
Index. The common stocks held by the Fund
are weighted to make the Fund's aggregate
investment characteristics similar to those
of the Index as a whole. Companies are
chosen for the Index because of their market
size, liquidity, and industry group
representation. The Index is a market-value
weighted index. For information on how
closely the fund may track the index, see
"More on Index Funds and Tracking an Index"
below.
The S&P 400 Mid Cap Index is composed of 400
domestic stocks, chosen for market size,
liquidity, and industry group
representation. Four industry groups are
represented: Industrials, Utilities,
Financials, and Transportation. The Index is
market-value weighted, meaning that it holds
each stock in proportion to its total value
in the stock market. Therefore, if a stock
increases in price, its total value
increases and its share in the Index is
increased. Correspondingly, if a stock
decreases in price, its total value and its
share in the Index decrease also.
Up to 35% of the Fund's total assets may be
invested in equities that are not listed in
the Index. This includes common and
preferred stock and related securities. The
Fund may also invest in high quality money
market securities. [Insert info re futures
and options if primary strategy.] See "More
About Portfolio Investments."
INVESTMENT RISKS
Investment Style Risk: The Index is made up
of the stocks of many medium sized U.S.
companies, which generally includes
companies that are valued from $1 billion to
approximately $7 billion. Medium-sized
companies tend to be more established and
stable than small companies, and are faster
growing than large companies, but may be
somewhat more volatile than large companies.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Market Risk may also occur because of daily
changes in value. The Index fluctuates every
day, depending on changes in the stock
market. Stock markets often have times when
the prices rise and fall every day or every
few days. There is no guarantee that the
value of your investment will increase.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the S&P
Mid Cap 400 Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MID CAP VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Neuberger Berman Management Inc.
INVESTMENT OBJECTIVE
Seeks capital growth, through investment in
equity securities of medium capitalization
companies using a value-oriented investment
approach. This investment objective can be
changed by the Board of Trustees, without
the approval of the Fund shareholders.
INVESTMENT STRATEGY
This Fund invests at least 65% of total
assets 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, 1999, the largest
company included in the Russell Midcap TM
Index had an approximate market
capitalization of $11.2 billion, while the
average market capitalization was
approximately $3.9 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. Up to 35% of the Fund's total assets
may be invested in other equity securities,
including common and preferred stocks,
convertible securities, and related
equities. See "More About Portfolio
Investments."
The Fund's transactions are reflected in its
portfolio turnover rate, ___% for the fiscal
year ended October 31, 1999. The rate of
portfolio turnover is calculated by dividing
the lesser of the amount of purchases or
sales of portfolio securities during the
fiscal year by the average of the value of
the portfolio securities. A high rate of
portfolio turnover generally involves
correspondingly greater brokerage commission
expenses, thus increasing the Fund's
operating expenses. The Fund's active
trading strategy may cause the Fund to have
a relatively high amount of short-term
capital gains, which are taxable to you at
your ordinary income tax rate.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell Midcap TM Value Index. The Russell
Midcap TM Value Index measures the
performance of the 800 smallest companies in
the Russell 1000(r) Index, focusing on those
with lower price-to-book ratios and lower
forecasted growth values. The Russell
1000(r) Index is a sub-index of the Russell
3000(r) Index. The Russell 3000(r) Index
follows the 3,000 largest U.S. companies,
based on total market capitalization. The
Fund's past performance does not necessarily
indicate how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MODERATE GROWTH LIFESTYLE FUND
INVESTMENT CATEGORY
Lifestyle
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks growth and current income through
investments in a combination of the Series
Company Funds ("Underlying Funds"). This
Fund is suitable for investors who wish to
invest in equity securities, but who are not
willing to assume the substantial market
risks of the Growth Lifestyle Fund. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
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 and sample Underlying Fund choices
for this Fund.
International Equity Securities10%-20%
Sample Underlying Funds:
American General International
Value Fund
American General International
Growth Fund
Small Capitalization Equity Securities
10%-20%
Sample Underlying Funds:
American General Small Cap Value
Fund
American General Small Cap Growth
Fund
Medium Capitalization Equity Securities
10%-20%
Sample Underlying Funds:
American General Mid Cap Value
Fund
American General Mid Cap Growth
Fund
Large Capitalization Equity Securities
25%-35%
Sample Underlying Funds:
American General Large Cap Growth
Fund
American General Large Cap Value
Fund
Bonds 20%-
30%
Sample Underlying Funds:
American General Core Bond Fund
American General Domestic Bond
Fund
This Fund is managed so that it can serve as
a complete investment program for you or as
a core part of your larger portfolio. The
Underlying Funds have been selected to
represent a reasonable spectrum of
investment options for the Fund. We have
based the target investment percentages for
the Fund on the degree to which we believe
the Underlying Funds, in combination, to be
appropriate for the Fund's investment
objective. We may change the asset
allocation ranges and the particular
Underlying Funds in which the Fund may
invest from time to time.
INVESTMENT RISKS
The Fund is a "non-diversified" investment
company under the 1940 Act because it
invests in a limited number of the
Underlying Funds. However, the Underlying
Funds themselves are diversified companies.
The allocation among the different
Underlying 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 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, 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 Funds
in which it invests. Changes in the net
asset values of the Underlying 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 Funds to meet their investment
objectives.
Investment in the Underlying Funds involves
manager risk. Manager risk is the risk that
the Fund's management strategy may not
achieve the desired results and the Fund's
performance may lag behind that of similar
funds. The Fund is also subject to the risk
that a Fund that is non-diversified under
the 1940 Act will invest more of its assets
in fewer issuers and, therefore, is more
likely to be adversely affected by a
downturn in any one issuer or security. The
securities that Underlying Funds invest in
also involve various risks.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of a blended
index, calculated by including the pro rata
portion of each of the Underlying Fund's
respective indices, and the S&P 500 Index,
composed of 500 common stocks which are
chosen by Standard & Poor's Corporation. The
S&P 500 Index approximates the general
distribution of industries in the U.S.
economy, captures the price performance of a
large cross-section of the publicly traded
stock market. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MONEY MARKET FUND
INVESTMENT CATEGORY
Stability
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and
current income through investments in short
term money market instruments. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests in short-term money market
securities to provide you with liquidity,
protection of your investment and current
income. In accordance with Rule 2a-7 of the
1940 Act, such securities must mature in 13
months or less and the Fund must have a
dollar-weighted average portfolio maturity
of 90 days or less. 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
- - Variable Rate Demand Notes
- - Illiquid and restricted securities
(limited to 10% of the Fund's net assets
at all times)
- - Rule 144A securities (liquid)
INVESTMENT RISKS
The Fund invests in short-term money market
securities, which present low credit and
interest rate risks. Because the risk to the
money you invest is low, the potential for
profit is also low. The rate of income for
the Money Market Fund varies daily depending
on short-term interest rates.
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the
value of your investment at $1.00 per share,
it is possible to lose money by investing in
the Fund.
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table shows the Fund's seven-day yield
as of a recent date. Please call Customer
Service at 1-877-999-2434 for the most
current yield information. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and the
fund yield as of a recent date (Dec. 31 is
fine) ]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MUNICIPAL BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT SUB-ADVISER
AGIM
INVESTMENT STRATEGY
The Fund invests at least 80% of total
assets in investment grade municipal fixed
income securities, such as municipal bonds,
municipal notes, and other municipal
obligations. Investment grade bonds are
those rated at least Baa3 by Moody's or BBB
by S&P or Fitch, or of comparable quality.
The municipal notes are short-term
obligations rated high quality or better by
Moody's, S&P, or Fitch. If the Fund invests
in municipal securities issued for certain
private purposes, a portion of the Fund's
dividends may be subject to the alternative
minimum tax.
The Fund may invest up to 20% of total
assets in taxable fixed-income securities,
including money market instruments, U.S.
Government obligations, and other investment
grade securities rated as above. U.S.
Government securities are securities issued
or guaranteed by the U.S. Government which
are supported by the full faith and credit
of the U.S. Government; the right of the
issuer to borrow from the U.S. Treasury; the
credit of the issuing government agency; or
the authority of the U.S. Government to
purchase obligations of the agency. See
"More About Portfolio Investments."
If adverse conditions prevail in the market
for municipal obligations, the Fund may, as
a temporary defensive position, invest in
taxable high quality short-term money market
instruments, without the normal limitations.
If the Fund assumes such a defensive
position, it may not achieve its investment
objective.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Long Municipal Bond Index, a widely
recognized, unmanaged index of long-term
municipal bonds. The Fund's past performance
does not necessarily indicate how it will
perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
MUNICIPAL MONEY MARKET FUND
INVESTMENT CATEGORY
Stability
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
AGIM
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. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
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 mandated by Rule
2a-7 of the 1940 Act and are designed to
minimize fluctuation in the value of the
Fund's portfolio.
The investments this Fund may buy include:
- - Municipal fixed-income securities with
remaining maturities of 13 months or less
- - Commercial paper sold by municipalities
rated at least MIG1 or MIG2 by Moody's or
A1 or A2 by S&P
- - Variable rate demand notes
- - Auction rate preferred stock and other
adjustable rate obligations that are
exempt from federal income taxation
- - Illiquid and restricted securities,
limited to 10% of the Fund's net assets at
all times
- - Rule 144A securities (liquid)
If adverse conditions prevail in the market
for municipal short-term obligations, the
Fund may, as a temporary defensive position,
invest in taxable high quality short-term
money market instruments, without the normal
limitations. If the Fund assumes such a
defensive position, it may not achieve its
investment objective.
INVESTMENT RISKS
The Fund invests in short-term money market
securities, which present low credit and
interest rate risks. Because the risk to the
money you invest is low, the potential for
profit is also low. The rate of income for
the Municipal Money Market Fund varies daily
depending on short-term interest rates.
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
An investment in the Fund is not insured or
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Although the Fund seeks to preserve the
value of your investment at $1.00 per share,
it is possible to lose money by investing in
the Fund.
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table shows the Fund's seven-day yield
as of a recent date. Please call Customer
Service at 1-877-999-2434 for the most
current yield information. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and the
fund yield as of a recent date (Dec. 31 is
fine) . CAN show tax-equivalent yield if
desired.]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
SMALL CAP GROWTH FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
J.P. Morgan Investment Management Inc.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth from a
portfolio of equity securities of small
capitalization growth companies. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGY
At least 65% of the Fund's total assets are
invested in the equity securities of small
capitalization companies, which are
companies whose approximate market
capitalizations are greater than $150
million and less than $1.25 billion. These
equities include U.S. and foreign common and
preferred stocks, warrants and rights, and
convertible securities. On an industry-by
industry basis, the Fund's weightings are
similar to those of the Russell 2000(r)
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.
The Fund may invest up to 35% of total
assets in other equity securities of U.S.
and foreign large and medium capitalization
issuers, including those equities listed
above, and the securities of investment
companies. Large and medium capitalization
issuers are those companies with total
assets of approximately $1 billion or more.
See "More About Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you may lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the company's fundamental
economic value may prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 2000(r) Growth Index. The Russell
2000(r) Growth Index is a sub-index of the
Russell 3000(r) Index. The Russell 3000(r)
Index follows the 3,000 largest U.S.
companies, based on total market
capitalization. The Russell 2000(r) Growth
Index measures the performance of the 2,000
smallest companies in the Russell 3000(r)
Index, focusing on those with higher priceto-
book ratios and higher forecasted growth
values. The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
SMALL CAP INDEX FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
The Small Cap Index Fund seeks to provide
investment results that are similar to the
total return of the Russell 2000(r) Index
("Index"). As a group, the investment
results, before expenses, are expected to
approximate the total return (the
combination of capital changes and income)
of selected common stocks that statistically
reflect the Index. This investment objective
can be changed by the Board of Trustees,
without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund invests up to 65% of its total
assets in a sampling of common stocks in the
Index that, as a group, should reflect the
performance of the Index. Since it may not
be possible for the Fund to buy every common
stock included in the Index or in the same
proportions, the Fund will select stocks to
purchase by 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, priceto-
earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the
Index. The common stocks held by the
Fund are weighted to make the Fund's
aggregate investment characteristics similar
to those of the Index as a whole. For
information on how closely the fund may
track the index, see "More on Index Funds
and Tracking an Index" below.
The Russell 2000(r) Index is a sub-index of
the Russell 3000(r) Index. The Russell
3000(r) Index follows the 3,000 largest U.S.
companies, based on total market
capitalization. The Russell 2000(r) Index
measures the performance of the 2,000
smallest companies in the Russell 3000(r)
Index, and represents about 8% of the total
market capitalization of the Russell 3000(r)
Index. The average market capitalization in
the Russell 2000(r) Index is $526.4 million
as of June 30, 1999. As of the same date,
the largest company in the Index had a
market capitalization of nearly $1,350
million.
The Fund may invest up to 35% of total
assets in common stock and related
securities of issuers that are not in the
Index, including foreign securities, and may
invest up to 25% in high quality short-term
money market securities. See "More About
Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you may lose money:
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Currency Risk: The risk that a foreign
currency will decline in value. The Fund
generally will trade, for hedging
purposes, in currencies other than the
U.S. dollar. An increase in the value of
the U.S. dollar relative to a foreign
currency will adversely affect the value
of the Fund.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Index Risk: The Russell 2000(r) 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(r) Index avoids the
risks of individual stock selection and
seeks to provide the return of the smaller
sized company sector of the market. 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.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 2000(r) Index. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__%
Net Expenses _.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
SMALL CAP VALUE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Fiduciary Management Associates, Inc.
(actively managed portion)
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. This
investment objective can be changed by the
Board of Trustees, without the approval of
the Fund shareholders.
INVESTMENT STRATEGIES
This Fund invests at least 65% of its total
assets in equity securities of small
capitalization companies, which are
companies whose total market capitalizations
range from approximately $150 million to
$1.25 billion and companies included in the
Russell 2000(r) Index ("Index"). One portion
of the Fund's investment portfolio will be
actively managed and the other portion will
be passively managed.
Actively Managed Portion: 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.
Passively Managed Portion: This portion of
the Fund is comprised of a sampling of
stocks in the Index that, as a group, should
reflect its performance. Since it may not be
possible for this Fund to buy every stock
included in the Index or in the same
proportions, the Fund will select stocks to
purchase by 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, priceto-
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.
The Fund may invest up to 35% of its total
assets in short-term investments, such as
foreign and domestic money market
instruments, certificates of deposit,
bankers acceptances, time deposits, U. S.
Government obligations, agency securities,
high quality commercial paper, repurchase
agreements, and short-term corporate fixed
income securities. U.S. Government
securities are securities issued or
guaranteed by the U.S. Government which are
supported by the full faith and credit of
the U.S. Government; the right of the issuer
to borrow from the U.S. Treasury; the credit
of the issuing government agency; or the
authority of the U.S. Government to purchase
obligations of the agency. See "More About
Portfolio Investments."
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you may lose money:
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Small Capitalization Company Risk: The risk
that smaller companies may be subject to
more abrupt or erratic market movements than
securities of larger, more established
companies or markets, generally.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: The risk that the
portfolio manager's judgments that a
particular security is undervalued in
relation to the
company's fundamental economic value may
prove incorrect.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the
Russell 2000(r) Value Index. The Russell
2000(r) Value Index is a sub-index of the
Russell 3000(r) Index. The Russell 3000(r)
Index follows the 3,000 largest U.S.
companies, based on total market
capitalization. The Russell 2000(r) Value
Index measures the performance of the 2,000
smallest companies in the Russell 3000(r)
Index, focusing on those with lower price-to
book ratios and lower forecasted growth
values. The Fund's past performance does not
necessarily indicate how it will perform in
the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
SOCIALLY RESPONSIBLE FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
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. This investment
objective can be changed by the Board of
Trustees, without the approval of the Fund
shareholders.
INVESTMENT STRATEGY
The Fund will invest at least 80% of total
assets in the equity securities of companies
meeting the Fund's social 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").
The Fund does not invest in companies that
are significantly engaged in:
- - the production of nuclear energy;
- - the manufacture of weapons or delivery
systems;
- - the manufacture of alcoholic beverages
or tobacco products;
- - the operation of gambling casinos; or
- - business practices or the production of
products that significantly pollute the
environment.
At least once a year, the IRRC surveys state
laws to see if there are any new or revised
state laws that govern or affect the
investments of public funds. If the survey
shows that at least 20 states have adopted
laws that restrict public funds from being
invested in a clearly definable category of
investments, this category is automatically
added to our social criteria list.
Up to 20% of the Fund's total assets may be
invested in high quality money market
securities and warrants, or in other types
of equity securities of companies meeting
social criteria, including American
Depositary Receipts ("ADRs"), foreign
securities, preferred stock, and convertible
securities. ADRs are certificates issued by
a U.S. depositary bank, representing foreign
shares held by the bank, to facilitate
trading in foreign securities. ADRs carry
the same currency, political and economic
risks as the underlying foreign shares. See
"More About Portfolio Investments."
INVESTMENT RISKS
Because of these principal risks, the value
of your investment may fluctuate and you
could lose money:
Foreign Securities Risk:
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.
Sovereign Risk - the risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk - foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Developing Country Risk - the risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk - the risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Social Criteria Risk: 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.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the S&P
500 Index, composed of 500 common stocks
which are chosen by Standard & Poor's
Corporation. The Index approximates the
general distribution of industries in the
U.S. economy, captures the price performance
of a large cross-section of the publicly
traded stock market. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load) imposed on
purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
STOCK INDEX FUND
INVESTMENT CATEGORY
Growth
INVESTMENT ADVISER
VALIC
INVESTMENT OBJECTIVE
The Stock Index Fund seeks to provide
investment results that are similar to the
total return of the S&P 500 Index ("Index").
As a group, the investment results, before
expenses, are expected to approximate the
total return (the combination of capital
changes and income) of selected common
stocks that statistically reflect the Index.
This investment objective can be changed by
the Board of Trustees, without the approval
of the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of total
assets in a sampling of common stocks in the
Index that, as a group, should reflect its
performance. Since it may not be possible
for this Fund to buy every stock included on
this Index or in the same proportions, 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 (total value) 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. For information on how
closely the fund may track the index, see
"More on Index Funds and Tracking an Index"
below.
The S&P 500 Index is composed of 500 common
stocks which are chosen by Standard & Poor's
Corporation. The Index approximates the
general distribution of industries in the
U.S. economy, and captures the price
performance of a large cross-section of the
publicly traded stock market. The Index is
capitalization-weighted, meaning that it
holds each stock in proportion to its total
value in the stock market. Therefore, if a
stock increases in price, its total value
increases and its share in the Index is
increased. Correspondingly, if a stock
decreases in price, its total value and its
share in the Index decrease also.
The Fund may invest up to 35% of total
assets in investments that are not in the
Index, such as common stock and related
securities, and high quality money market
securities. Up to 20% of the total assets
may be invested in ADRs and foreign common
stocks, including securities of companies
domiciled in emerging market countries. ADRs
are certificates issued by a U.S. depositary
bank, representing foreign shares held by
the bank, to facilitate trading in foreign
securities. ADRs carry the same currency,
political and economic risks as the
underlying foreign shares.
INVESTMENT RISKS
Because of these principal risks, the value
of your investment may fluctuate and you
could lose money:
Index 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.
Foreign Securities Risk:
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.
Sovereign Risk - the risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk - foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Developing Country Risk - the risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk - the risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the S&P
500 Index, composed of 500 common stocks
which are chosen by Standard & Poor's
Corporation. The Index approximates the
general distribution of industries in the
U.S. economy, and captures the price
performance of a large cross-section of the
publicly traded stock market. The Fund's
past performance does not necessarily
indicate how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses
Management fees 0.__%
Other expenses _.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
STRATEGIC BOND FUND
INVESTMENT CATEGORY
Income
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
AGIM
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.
This investment objective can be changed by
the Board of Trustees, without the approval
of the Fund shareholders.
INVESTMENT STRATEGY
The Fund invests at least 65% of total
assets in a broad range of fixed-income
securities, including
- - investment grade bonds (rated Baa or
higher by Moody's and BBB or higher by S&P)
- - U.S. Government and agency obligations
- - mortgage backed securities
- - U.S., Canadian, and foreign high risk,
high yield bonds (rated C or higher by
Moody's and CC or higher by S&P, or
comparable unrated securities)
Up to 25% of the Fund's total assets may be
invested in foreign emerging market debt,
and up to an additional 25% in non-U.S.
dollar bonds. The Fund may also invest up to
20% of total assets in equity securities,
such as common and preferred stocks,
convertible securities, and warrants.
INVESTMENT RISKS
Because of the following principal risks,
the value of your investment may fluctuate
and you could lose money:
Credit Risk: The risk that an issuer of a
fixed-income security owned by the Fund may
be unable to make interest or principal
payments.
Foreign Securities Risks:
Political Risk: The risk that a change in
a foreign government will occur and that
the assets of a company in which the Fund
has invested will be affected.
Sovereign Risk: The risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk: Foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Limited Information Risk: The risk that
foreign companies may not be subject to
accounting standards or governmental
supervision comparable to U.S. companies
and that less public information about
their operations may exist.
Developing Country Risk: The risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
Settlement and Clearance Risk: The risks
associated with the clearance and
settlement procedures in non-U.S. markets,
which may be unable to keep pace with the
volume of securities transactions and may
cause delays.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
Manager Risk: There is a risk that the
Fund's management strategy may not achieve
the desired results and the Fund's
performance may lag behind that of similar
funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
PERFORMANCE INFORMATION
The bar chart below shows the Fund's returns
and performance for the 1999 calendar year,
assuming reinvestment of dividends and
distributions.
The table compares the Fund's performance
for calendar year 1999 to that of the Lehman
Brothers Aggregate Bond Index, a total
return index measuring both the capital
price changes and the income underlying the
universe of securities, weighted by market
value outstanding. The Fund's past
performance does not necessarily indicate
how it will perform in the future.
[insert bar chart for calendar year 1999,
best and worst quarter information and
average annual return table for fiscal year
1999]
FEES AND EXPENSES
This table describes the fees and expenses
that you may pay if you buy and hold shares
of the Fund. Shareholder fees are paid
directly from your account, while annual
Fund operating expenses are deducted from
Fund assets.
Shareholder fees
Maximum sales charge (load)
imposed on purchases
(as a percentage of offering price)
None
Maximum deferred sales charge (load)
(as a percentage of purchase or redemption
proceeds, whichever is lower) None
Maximum account fee None
Annual Fund operating expenses Management
fees 0.__% Other expenses
_.__%
Total annual fund operating expenses
_.__% Fee waiver and/or expense
reimbursement _.__% Net Expenses
_.__%
Annual Fund operating expenses are based on
expenses for the Fund's most recent fiscal
year.
Example
This example is intended to help you compare
the cost of investing in the Fund with the
cost of investing in other mutual funds. The
example assumes that:
- - You invest $10,000 in the Fund for the
time periods indicated;
- - You redeem all your shares at the end of
those periods;
- - Your investment has a 5% return each
year; and
- - The Fund's operating expenses remain the
same.
1 Year 3 Years 5 Years 10 Years
$___ $___ $___ $___
<PAGE>
More About Portfolio Investments
Each Fund's principal investment strategy
and risks are shown above. Funds may invest
in other investments and may use investment
techniques as described below. All Money
Market Fund investments must comply with
Rule 2a-7 of the 1940 Act, which allows the
purchase of only high quality money market
instruments. The Lifestyle Funds invest in
other Funds described in this Prospectus and
thus are not specifically mentioned below.
Please refer to the SAI for more information
about investments.
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.
Examples of assets supporting asset-backed
securities include credit card receivables,
retail installment loans, home equity loans,
auto loans, and manufactured housing loans.
All of the Funds except International Growth
Fund, International Value Fund, Large Cap
Growth, and Mid Cap Growth may invest in
asset-backed securities.
Depositary Receipts
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. All of the Funds except
for the Money Market Fund, Municipal Bond
Fund, Municipal Money Market Fund and the
Strategic Bond Fund may purchase 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 Balanced Fund, Core Bond
Fund, Domestic Bond Fund, High Yield Bond
Fund, International Growth Fund,
International Value Fund, Large Cap Value
Fund, Mid Cap Index Fund, Mid Cap Value
Fund, Small Cap Index Fund, Small Cap Growth
Fund, Small Cap Value Fund, Socially
Responsible Fund, and the Stock Index Fund
may invest in EDRs and GDRs. The Large Cap
Growth Fund may invest in GDRs but may not
invest in EDRs.
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. Each
share of stock represents a part of the
ownership of the company. The holder of
stock participates in the growth of the
company through the stock price and receipt
of dividends. All the Funds may invest in
equities except for the Money Market Fund
and the Municipal Money Market Fund, though
equities may not be a primary strategy for
each Fund.
Generally, there are three types of stocks:
1. Common stock - Common stock usually has
voting rights, which allow an investor to
vote for the company Board of Directors.
Common stock also gives each owner a share
in a company's profits through dividend
payments or the capital appreciation of the
security.
2. Preferred stock - Each share of
preferred stock allows the holder to get a
fixed dividend before the common stock
shareholders receive any dividends on
their shares.
3. Convertible preferred stock - A stock
with a fixed dividend which the holder may
exchange for a certain amount of common
stock.
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.
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 purchase,
for example, includes U.S. Government bonds
and investment grade corporate bonds. VALIC
and the Sub-Advisers will not necessarily
dispose of a bond if its ratings are
downgraded to below investment grade. All of
the Funds except Mid Cap Growth Fund and the
Money Market Fund may invest in investment
grade bonds. Of those that invest in bonds,
only the Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Bond Fund,
Mid Cap Value Fund, Municipal Bond Fund,
Small Cap Growth Fund, Small Cap Value, and
Strategic Bond Fund may also invest in below
investment grade bonds.
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 longterm
(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, though most
commercial paper matures in 50 days or less.
Bonds are not the only type of fixed-income
security. Other fixed-income securities
include, for example, 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.
Foreign Currency
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. All the Funds except
for the Large Cap Growth Fund, Large Cap
Value Fund, Mid Cap Growth Fund, Money
Market Fund, Municipal Bond Fund, Municipal
Money Market Fund and the Small Cap Value
Fund may invest in foreign currency.
Foreign Securities
Securities of foreign issuers 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. The Large Cap Growth Fund
may only invest in the equity securities of
foreign issuers that are traded in the
United States. Generally, all of the Funds
may invest in foreign securities except for
Mid Cap Growth Fund, Municipal Bond Fund,
and the Municipal Money Market Fund.
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 "Depositary Receipts".
Futures and Options
Futures and options are considered
derivative securities, since the value of
the future or option is derived in part from
the value and characteristics of another
security. A "future" is a contract which
involves the sale of a security for future
delivery. An "option" gives the buyer the
opportunity to buy or sell a security at a
set price on or before a date specified in
the contract. A call option buyer thinks the
stock price may go up in the future, while a
put option buyer thinks the stock price may
go down. All of the Funds except for
International Growth Fund, Mid Cap Growth
Fund, Money Market Fund and Municipal Money
Market Fund may invest in derivatives.
The Funds use stock and bond futures to
invest cash and cash equivalents to:
- - 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.
Illiquid Securities
An illiquid security is one that may not be
frequently traded or cannot be disposed of
promptly within seven days and in the usual
course of business without taking a
materially reduced price. Illiquid
securities include, but are not limited to,
time deposits and repurchase agreements not
maturing within seven days and restricted
securities. Non-money market funds may
invest up to 15% in illiquid securities,
while money market funds are limited to 10%.
This restriction applies at all times to all
assets.
A restricted security is one that has not
been registered with the SEC and, therefore,
cannot be sold in the public market.
Securities eligible for sale under Rule 144A
and commercial paper offered pursuant to
Section 4(2) of the Securities Act of 1933,
as amended, are not deemed by VALIC or the
Fund's Sub-Adviser to be illiquid solely by
reason of being restricted. Instead, VALIC
or the Sub-Adviser will determine whether
such securities are liquid based on trading
markets and pursuant to guidelines adopted
by the Series Company's Board of Trustees.
If VALIC or the Sub-Adviser concludes that a
security is not liquid, that investment will
be included within the Fund's limitation on
illiquid securities.
Investment Companies
All of 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.
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. International
Growth Fund, International Value Fund, Large
Cap Growth Fund, Mid Cap Index Fund, Mid Cap
Value Fund, Small Cap Growth Fund, Small Cap
Index Fund, and Stock Index Fund may invest
in investment funds.
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 of the Funds except the Mid Cap Value
Fund may invest in loan participations.
Money Market Securities
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. All the Funds may invest in
money market securities, though it is not a
primary strategy for all Funds.
Examples of high quality money market
securities 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.
Mortgage-Related Securities
Mortgage-related securities include, but are
not limited to, mortgage pass-through
securities, collateralized mortgage
obligations and commercial mortgage-backed
securities. All of the Funds except for
International Growth Fund, International
Value Fund, Mid Cap Growth Fund, Mid Cap
Index Fund, Money Market Fund, Small Cap
Index Fund, Socially Responsible Fund, and
the Stock Index Fund may invest in mortgage
related 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. 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 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, coupon, and
prepayment preference. 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.
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.
Real Estate Securities
Real estate securities are securities issued
by companies that invest in real estate or
interests therein. All of the Funds except
for the Domestic Bond Fund and the High
Yield Bond Fund may invest in real estate
securities and 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.
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). 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
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.
Reverse Repurchase Agreements and Dollar
Rolls
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. If a Fund's positions in
reverse repurchase agreements or similar
transactions are not covered by liquid
assets in a segregated account, such
transactions would be subject to the Funds'
limitations on borrowings. The Funds will
not borrow money, except as provided in each
Fund's investment restrictions. Reverse
repurchase agreements may be entered into by
all Funds except the Mid Cap Growth Fund.
The Core Bond Fund, High Yield Bond Fund,
Large Cap Value Fund, Mid Cap Value Fund,
Small Cap Growth Fund, Small Cap Value Fund,
and the Strategic Bond Fund 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.
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.
The Balanced Fund, Core Bond Fund, Domestic
Bond Fund, High Yield Bond Fund, and the
Strategic Bond Fund may enter into
structured securities.
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. The Large Cap Growth Fund, Large Cap
Value Fund, Mid Cap Value Fund, Small Cap
Growth Fund, Small Cap Value Fund, and the
Strategic Bond Fund may enter into swap
agreements.
U.S. Government Securities
All the Funds may invest in 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.
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. The Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Bond Fund,
Large Cap Value Fund, Mid Cap Growth Fund,
Mid Cap Value Fund, Municipal Bond Fund, and
the Strategic Bond Fund may invest in the
variable amount demand master notes.
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
Money Market Fund and the Municipal Funds
may also may invest in participation VRDNs,
which provide a Fund with an undivided
interest in underlying VRDNs held by major
investment banking institutions. All the
Funds may invest in VRDNs.
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. All of
the Funds except for the Mid Cap Growth
Fund, Money Market Fund, Municipal Bond
Fund, and the Municipal Money Market Fund
may invest in warrants and rights.
When-Issued Securities
When-issued securities are those investments
that have been announced by the issuer and
will soon be on the market. 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 except the Mid
Cap Value Fund and the Money Market Fund may
invest in when-issued securities.
More about Risk
There are several basic types of investment
risk. 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. Several types
of investment risks are discussed below.
Credit (Financial) Risk: Credit risk refers
to the risk that the issuer of a fixedincome
security may default or be unable to pay
interest or principal due on a fixedincome
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 bond 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.
Derivatives Risk: Derivatives risk refers to
the risk that loss may result from a Fund's
investments in options, futures, swaps,
structured securities and other derivative
instruments. These instruments may be
leveraged so that small changes may produce
disproportionate losses to a Fund.
Foreign Securities Risk: Certain Funds may
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.
Sovereign Risk - the risk that a foreign
government will interfere with currency
trading or transferring money out of the
country.
Liquidity Risk - foreign markets may be
less liquid and more volatile than U.S.
markets and offer less protection to
investors.
Developing Country Risk - the risks
associated with investment in foreign
securities are heightened in connection
with investments in the securities of
issuers in developing countries, as these
markets are generally more volatile than
the markets of developed countries.
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. When
interest rates rise, the value of fixed
income securities will usually fall, and
vice versa. Longer term securities are
subject to greater interest rate risk.
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.
Lower Rated Fixed-Income Securities Risk:
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 by
VALIC or the Sub-Adviser 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 the
Sub-Adviser also may consider relative
values based on anticipated cash flow,
interest or dividend coverage, balance sheet
analysis, and earnings prospects.
An economic downturn or increase in interest
rates is likely to have a greater negative
effect on the ability of the issuers of
lower rated fixed-income securities 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 a Fund in lower rated
fixed-income securities 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 the 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.
Manager Risk: Manager risk refers to the
risk that the Fund's management strategy may
not achieve the desired results and the
Fund's performance may lag behind that of
similar funds.
Market Risk: Market risk refers to the
potential 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 or
bonds to fall in price. When this happens,
even though a company is experiencing growth
in profits, the price of its stock or bonds
could fall.
Prepayment Risk: Prepayment risk refers to
the risk that issuers of fixed-income
securities will make payments earlier than
anticipated. During periods of falling
interest rates, the Fund may invest in new
securities with lower interest rates, thus
reducing the stream of cash payments that
flow through the Fund.
Settlement and Clearance Risk - the risks
associated with the clearance and settlement
procedures in non-U.S. markets, which may be
unable to keep pace with the volume of
securities transactions and may cause
delays.
Temporary Defensive Investment Risk: From
time to time, the Fund may take temporary
defensive positions that are inconsistent
with its principal investment strategies, in
attempting to respond to adverse market,
economic, political, or other conditions. If
the Fund takes such a temporary defensive
position, it may not achieve its investment
objective.
Value Investing Risk: Value investing risk
refers to the risk that the portfolio
manager's judgments that a particular
security is undervalued in relation to the
company's fundamental economic value may
prove incorrect.
More about Index Funds and Tracking an Index
The factors that cause a Fund to perform
differently from the index it tries to track
are called tracking differences. There is no
assurance that an Index Fund can track its
index.
The coefficient of correlation (r) is an
index number which shows how closely two
variables are related. If r = 0 there is no
tendency for one variable to change with the
other. A value of +1 means that one variable
will vary exactly with the other. Index
funds try to keep their coefficient of
correlation as close to 1 as possible. As a
practical matter, any coefficient above
0.95, when measured against the comparison
index, shows good tracking.
Tracking accuracy is reviewed daily by VALIC
for each of the Index Funds. If an Index
Fund does not accurately track an index,
VALIC will rebalance the Fund's portfolio by
selecting securities which will provide a
more representative sampling of the
securities in the index as a whole or the
sector diversification within the index, as
appropriate.
The index may remove one stock and
substitute another, requiring the Fund to do
the same. When a stock is sold and the new
stock purchased, the Fund incurs transaction
costs. The index incurs no transaction
costs. Therefore, any index fund portfolio
manager cannot match exactly the performance
of an index.
An index fund may not buy every single stock
in its index or in the same proportions as
the index. VALIC 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 helps to keep brokerage fees
and other transaction costs lower than other
funds, generally.
Welcome to American General Corporation
American General Corporation, with assets of
$___ billion and shareholders' equity of
$___ billion as of December 31, 1999, is the
parent company of one of the nation's
largest diversified financial services
organizations. American General's operating
divisions deliver a wide range of retirement
services, life insurance, and consumer
finance products and services to diverse
markets through focused distribution
channels. American General, headquartered in
Houston, was incorporated as a general
business corporation in Texas in 1980 and is
the successor to American General Insurance
Company, an insurance company incorporated
in Texas in 1926.
American General Fund Group is the mutual
fund division of American General
Corporation. The address of American General
Corporation and its subsidiaries, including
VALIC and AGIM, is 2929 Allen Parkway,
Houston, Texas 77019.
Investment Adviser
VALIC, a stock life insurance company, has
been in the investment advisory business
since 1960, and is the investment adviser
for all the Funds. VALIC had $____ billion
in assets under management, as of December
31, 1999. VALIC and AGIM, a Sub-Adviser, are
both members of the American General
Corporation group of companies. Each entity
is a registered investment adviser with the
SEC. Several of VALIC's principal officers,
directors and portfolio managers hold
similar positions with AGIM.
As Investment Adviser, VALIC oversees the
Fund's day to day operations, supervises the
purchase and sale of Fund investments, and
performs the cash management function. VALIC
employs Investment Sub-Advisers who make
investment decisions for the Funds,
including Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Bond Fund,
International Growth Fund, International
Value Fund, Large Cap Growth Fund, Large Cap
Value Fund, Mid Cap Growth Fund, Mid Cap
Value Fund, Municipal Bond Fund, Municipal
Money Market Fund, Small Cap Growth Fund,
Small Cap Value Fund, and Strategic Bond
Fund.
VALIC makes investment decisions for and is
directly responsible for the day-to-day
management of the Lifestyle Funds, Mid Cap
Index Fund, Money Market Fund, Small Cap
Index Fund, Socially Responsible Fund, Stock
Index Fund, and the passively managed
portion of Small Cap Value Fund. The
investment advisory agreement between VALIC
and the Series Company 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. These expenses are allocated to
each Fund in a manner approved by the Board
of Trustees.
Investment decisions for the Index Funds,
Socially Responsible Fund and the passively
managed portion of the Small Cap Value Fund
are made by a team of portfolio managers,
assistant portfolio managers and analysts
organized for that purpose. The teams meet
regularly to review portfolio holdings and
discuss purchase and sale activity.
Teresa Moro has been the Money Market 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.
The Lifestyle Funds are managed by a team
led by William Trimbur, Jr. Mr. Trimbur has
been the Lifestyle Funds' 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.
How VALIC is Paid for Its Services
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. 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 or bearing certain expenses.
Advisory fee paid to
F VALIC
und Name (as a % of average
daily net assets)
B 0.80% on the first
alanced $25 million
Fund 0.65% on the next
$25 million
0.45% on assets over $50
million
C 0.10%
onservativ
e Growth
Lifestyle
Fund
C 0.50% on the first
ore Bond $200 million
Fund 0.45% on the next
$300 million
0.40% on assets over $500
million
D 0.60% on the first
omestic $50 million
Bond Fund 0.45% on the next
$50 million
0.43% on the next
$200 million
0.40% over $300 million
G 0.10%
rowth
Lifestyle
Fund
H 0.70% on the first
igh Yield $200 million
Bond Fund 0.60% on the next
$300 million
0.55% on assets over $500
million
I 0.90% on the first
nternation $100 million
al Growth 0.80% on assets over
Fund $100 million
I 1.00% on the first
nternation $25 million
al Value 0.85% on the next
Fund $25 million
0.675% on the next $200
million
0.625% on assets over $250
million
L 0.55%
arge Cap
Growth
Fund
L 0.50%
arge Cap
Value Fund
M 0.65% on the first
id Cap $25 million
Growth 0.55% on the next
Fund $25 million
0.45% on assets over $50
million
M 0.28% on the first
id Cap $500 million
Index Fund 0.27% on assets over
$500 million
M 0.75% on the first
id Cap $100 million
Value Fund 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
M 0.10%
oderate
Growth
Lifestyle
Fund
M 0.25%
oney
Market
Fund
M 0.50% on the first
unicipal $200 million
Bond Fund 0.45% on the next
$300 million
0.40% on assets over $500
million
M 0.50% on the first
unicipal $200 million
Money 0.45% on the next
Market $300 million
Fund 0.40% on assets over
$500 million
S 0.85%
mall Cap
Growth
Fund
S 0.28% on the first
mall Cap $500 million
Index Fund 0.27% on assets over
$500 million
S 0.75% on the first
mall Cap $50 million
Value Fund 0.65% on the assets
over $50 million
S 0.25%
ocially
Responsibl
e Fund
S 0.27% on the first
tock Index $500 million
Fund 0.26% on assets over
$500 million
S 0.60% on the first
trategic $200 million
Bond Fund 0.50% on the next
$300 million
0.45% on assets over
$500 million
Investment Sub-Advisers
For some of the Funds, VALIC works with
investment Sub-Advisers through an agreement
each entered into with VALIC. Sub-Advisers
are 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.
According to the agreements we have 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 may be considered
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-Adviser's affiliate to
effect these type 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.
In selecting Sub-Advisers, the Trustees of
the Series Company 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 by VALIC to each SubAdviser.
The Sub-Advisory fees are not paid by the
Funds.
The Series Company relies upon an exemptive
order from the SEC which permits VALIC,
subject to certain conditions, to select new
sub-advisers or replace existing subadvisers
without first obtaining shareholder approval
for the change. The Board of Directors,
including a majority of the "independent"
Directors, must approve each new sub-
advisory agreement. This allows VALIC to act
more quickly to change subadvisers when it
determines that a change is beneficial to
shareholders by avoiding the delay of
calling and holding shareholder meetings to
approve each change. In accordance with the
exemptive order, the Series Company will
provide investors with information about
each new sub-adviser and its sub-advisory
agreement within 90 days of the hiring of a
new sub-adviser. VALIC is responsible for
selecting, monitoring, evaluating and
allocating assets to the Subadvisers and
oversees the Sub-advisers' compliance with
the relevant Fund's investment objective,
policies and restrictions.
The Sub-Advisers are:
AGIM
2929 Allen Parkway, Houston, Texas 77015
AGIM is the Sub-Adviser for the Core Bond
Fund, Domestic Bond Fund, High Yield Bond
Fund, Money Market Fund, Municipal Bond
Fund, Municipal Money Market Fund, and the
Strategic Bond Fund. AGIM was formed in 1998
as a successor to the investment management
division of American General Corporation,
and is an indirect wholly-owned subsidiary
of American General Corporation. AGIM also
provides investment management and advisory
services to pension and profit sharing
plans, financial institutions and other
investors. Investment decisions for several
Funds are made by teams as noted below. Each
team meets regularly to review portfolio
holdings and discuss purchase and sale
activity.
Magali E. Azema-Barac is responsible for
AGIM's equity group. She heads the team
making investment decisions for each of the
Index Funds, as well as Socially Responsible
Fund and the passively managed portion of
the Small Cap Value Fund. Ms. Azema-Barac
joined American General in September, 1999.
Prior to that, she worked on the equity desk
of USWest Investment Management Company in
Englewood, Colorado, where she incepted and
managed an enhanced equity portfolio.
Robert N. Kase, CF, has been the Core Bond
Fund's Portfolio Manager since November
1998. He has been Investment Officer of
VALIC since September 1998, and Senior
Portfolio Manager of AGIM since September
1998. Previously, Mr. Kase was Senior
Portfolio Manager with CL Capital
Management, Inc. from September 1992 until
July 1998.
Investment decisions for the Strategic Bond
Fund are made by a team, headed by Steven
Guterman. 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.
Investment decisions for the High Yield Bond
Fund are made by a team, headed by Gordon
Massie. 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.
Marybeth Whyte serves as the Portfolio
Manager for the Municipal Money market Fund
and the Municipal Bond Fund. She 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.
Brown Capital Management, Inc. ("Brown
Capital")
1201 N. Calvert St., Baltimore, Maryland
21202
Brown Capital is the Sub-Adviser for the Mid
Cap Growth Fund. Established as a Maryland
corporation in 1983, Brown Capital served as
investment adviser to approximately $___
billion in assets as of December 31, 1999.
Investment decisions for the Mid Cap Growth
Fund are made by a team of portfolio
managers/analysts organized for that
purpose. The team meets regularly to review
portfolio holdings and discuss purchase and
sale activity.
Capital Guardian Trust Company ("Capital
Guardian")
333 South Hope Street, Los Angeles,
California 90071
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
December 31, 1999, Capital Guardian had more
than $____ billion in assets under
management.
The Balanced 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 22 years and has been with
the Sub-Adviser or an affiliate for 19
years; and (ii) Jim Baker, Vice President of
the Sub-Adviser, who has been an investment
professional for 18 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 33 years and has been with
the Sub-Adviser or an affiliate for 29
years; (ii) Gene Stein, Executive Vice
President of the Sub-Adviser, who has been
an investment professional for 27 years and
has been with the Sub-Adviser or an
affiliate for 26 years; (iii) Michael
Ericksen, Senior Vice President of the Sub
Adviser, who has been an investment
professional for 18 years and has been with
the Sub-Adviser or an affiliate for 12
years; (iv) Ted Samuels, Senior Vice
President of the Sub-Adviser, who has been
an investment professional for 20 years and
has been with the Sub-Adviser or an
affiliate for 18 years; and (v) Donnalisa
Barnum, 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 13 years.
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 46 years and has been with
the Sub-Adviser or an affiliate for 33
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; and (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.
The International Value Fund's portfolio
managers include: (i) Robert Ronus,
President of the Sub-Adviser, who has been
an investment professional for 30 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 33 years
and has been with the Sub-Adviser or an
affiliate for 29 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 27 years and has
been with the Sub-Adviser or an affiliate
for 26 years; (iv) Nancy Kyle, Senior Vice
President of the Sub-Adviser, who has been
an investment professional for 25 years and
has been with the Sub-Adviser or an
affiliate for 8 years; (v) Nilly Sikorsky,
Director of The Capital Group of Companies,
Inc., the ultimate parent of the SubAdviser,
who has been an investment professional for
36 years and has been with the Sub-Adviser
or an affiliate for 36 years; (vi) Lionel
Sauvage, Senior Vice President of the Sub-
Adviser, who has been an investment
professional for 12 years and has been with
the Sub-Adviser or an affiliate for 12
years; (vii) Richard Havas, Sr., Senior Vice
President of the SubAdviser, who has been an
investment professional for 17 years and has
been with the Sub-Adviser or an affiliate
for 13 years; and (viii) Rudolf Staehelin,
Sr., Senior Vice President of Capital
International Research, Inc., an affiliate
the Sub-Adviser, who has been an investment
professional for 21 years and has been with
the Sub-Adviser or an affiliate for 17
years.
James S. Baker and James R. Mulally serve as
the Domestic Bond 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.
Fiduciary Management Associates, Inc.
("FMA")
55 West Monroe Street, Suite #2550, Chicago,
Illinois 60603
FMA is the Sub-Adviser for the actively
managed portion of the assets of 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
December 31, 1999, FMA had over $___ billion
in assets under management.
Investment decisions are made by a team that
consists of portfolio managers and analysts
who specialize their research by sectors.
Kathryn Vorisek is the lead portfolio
manager. The team meets regularly to review
portfolio holdings and to discuss purchase
and sale activity.
Goldman Sachs Asset Management ("GSAM")
32 Old Slip, New York, New York 10005
GSAM is the Sub-Adviser for the Large Cap
Growth Fund. As of September 1, 1999, the
Investment Management Division ("IMD") was
established as a new operating division of
Goldman, Sachs & Co. ("Goldman Sachs"). The
newly created entity includes GSAM. 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 December 31, 1999, GSAM,
along with other units of IMD, had assets
under management of $___ billion.
The Large Cap Growth 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. Mr. Clark, Managing
Director, joined the Sub-Adviser's
quantitative equity management team as a
portfolio manager in 1992. Mr. Pinter, Vice
President, joined the Sub-Adviser as a
research analyst in 1990, and became a
portfolio manager in 1992. 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.
J.P. Morgan Investment Management, Inc.
("J.P. Morgan")
522 Fifth Avenue, New York, New York 10036
J.P. Morgan is the Sub-Adviser for the Small
Cap Growth Fund. Known for its commitment to
proprietary research and its disciplined
investment strategies, J.P. Morgan provides
asset management services to corporations,
financial institutions, governments and
individuals. As of December 31, 1999, J.P.
Morgan and its affiliates employed over ___
analysts and portfolio managers around the
world and had more than $___ billion in
assets under management.
Candice Eggerss, Saira Malik and Carolyn
Jones are the members of the Sub-Adviser's
team who will be primarily responsible for
the day-to-day management of the Small Cap
Growth 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. Ms.
Malik joined the Sub-Adviser in 1995 as a
small company equity analyst and portfolio
manager after completing her graduate
studies at the University of Wisconsin. Ms.
Jones has been with the Sub-Adviser since
July 1998. Prior to this, Ms. Jones served
as a portfolio manager in J.P. Morgan's
private banking group and as a product
specialist at Merrill Lynch Asset
Management.
Jacobs Asset Management
200 East Broward Boulevard, Suite 1920, Fort
Lauderdale, Florida 33301
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 December
31, 1999, Jacobs Asset Management had more
than $___ million in assets under
management.
Investment decisions for the International
Growth Fund are made by a team that consists
of portfolio managers and analysts who
specialize their research by region. Dan
Jacobs, President, is the lead portfolio
manager and has final approval on purchase
and sales. The team meets regularly to
review portfolio holdings and discuss
purchase and sale activity.
Neuberger Berman Management, Inc. ("NB
Management")
605 Third Avenue, Second Floor, New York,
New York 10158-0180
NB Management is the Sub-Adviser for the Mid
Cap Value Fund. NB Management and its
predecessor firms have specialized in the
management of no-load mutual funds since
1950. As of December 31, 1999, NB Management
and its affiliates managed approximately $__
billion in aggregate net assets, including
approximately $__ billion in mutual fund
assets.
Robert I. Gendelman and S. Basu Mullick
serve as co-managers of the Mid Cap Value
Fund. Messrs. Gendelman and Mullick are Vice
Presidents of the Sub-Adviser and Mr.
Gendelman is a managing director of
Neuberger Berman, LLC. Messrs. Gendelman and
Mullick have been associated with the Sub
Adviser since 1994 and 1998, respectively.
State Street Bank & Trust Company ("State
Street Bank")/State Street Global Advisors
("State Street Global Advisors")
2 International Place, Boston, Massachusetts
02110
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 whollyowned
subsidiary of State Street Corporation,
which had more than $___ billion under
management as of December 31, 1999.
The Large Cap Value Fund is managed by a
team of investment professionals. In
addition to the ongoing activity of
portfolio management, the team is
responsible for research focused on
enhancing the Sub-Adviser's quantitative
process.
Administrative Services
The Series Company has entered into an
Administrative Service Agreement ("Service
Agreement") with VALIC Retirement Services
Company ("Retirement Services") and the
Distributor for the provision of
recordkeeping and shareholder services to
retirement and employee benefit plans. Under
the terms of the Service Agreement, the
Series Company pays a fee to either
Retirement Services or the Distributor. The
annual fee, paid monthly, is 0.25% of the
aggregate net asset value of each Fund,
other than the Lifestyle Funds. Under the
Service Agreement, Retirement Services and
the Distributor provide recordkeeping
services, including the establishment and
maintenance of plan and participant accounts
and records; participant services, including
the provision of customer service
representatives to respond to participant
inquiries and process telephone
transactions; and plan services, including
the production of plan documentation and
summary plan descriptions.
American General Distributors, Inc.
American General Distributors, Inc. is the
Distributor of the Funds. The Distributor
sells Institutional Class II Shares of the
Funds to employer retirement plans. The
Distributor transmits the employer orders to
buy, sell or transfer shares to the Series
Company's designated agent daily. The
Distributor is a subsidiary of American
General Corp 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.
Account Information
Investment Minimums
The employer retirement plan may establish a
plan account with an initial purchase of
$500 million.
How to Buy 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.
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.
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.
How Shares are Valued
The price of each Class of shares for a Fund
is based on net asset value ("NAV"). NAV is
computed by adding the value of a Fund's
holdings plus other assets, subtracting
liabilities, and then dividing the result by
the number of shares outstanding. The NAV of
each Class will be different, depending on
the number of Class shares outstanding.
Portfolio securities and other assets are
valued based on market price quotations. If
market quotations are not readily available,
securities are valued by a method that
reflects fair value. These are reviewed by
the Fund's Board of Trustees. Some Funds
hold securities that are primarily listed on
foreign exchanges. Foreign exchanges may
trade at times or on days when the New York
Stock Exchange ("NYSE") is closed, such as
on weekends or other days. This will affect
the value of the Fund's shares; thus, the
value of the Fund's shares may change on
days when you will not be able to buy or
sell your shares.
The Money Market Fund and the Municipal
Money Market Fund and any securities
maturing within 60 days are valued according
to the "amortized cost" method, which is
intended to stabilize the NAV at $1 per
share.
The NAV is calculated as of the close of
each business day, which coincides with the
closing of the regular session of the NYSE
(normally 4 p.m. Eastern Time). Each Fund is
open for business each day the NYSE is open.
Transfer or exchange of balances
An employer retirement plan may allow you to
exchange all or part of your existing plan
balance from one investment option to
another. Check with your plan administrator
for details on the rules governing exchanges
in your plan. Exchanges will be accepted by
the 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.
Transaction Processing
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.
When the NYSE is closed (or when trading is
restricted) for any reason other than its
customary weekend or holiday closings, or
under any emergency circumstances as
determined by the SEC, redemptions may be
suspended or payment dates postponed. Please
note that there are some federal holidays,
however, such as Columbus Day and Veterans'
Day, when the NYSE is open and the Funds are
open but purchases and redemptions cannot be
made due to the closure of the banking
system.
Dividends, Capital Gains and Taxes
Each Fund pays dividends from its net
investment income as shown below. Net
investment income consists of interest
income, net short-term capital gains, if
any, and dividends declared and paid on
investments, less expenses. Distributions of
net short-term capital gains (treated as
dividends for tax purposes) and net longterm
capital gains, if any, are normally paid
once a year; however, the Funds do not
anticipate making any such distributions
unless available capital loss carryovers
have been used or have expired. Dividends
and any distributions are automatically
reinvested in the same Fund.
Dividends declared and paid daily:
Money Market Fund
Municipal Money Market Fund
Dividends declared daily and paid monthly:
Core Bond Municipal Bond
Domestic Bond Strategic Bond
High Yield Bond
Dividends paid quarterly:
Balanced Mid Cap Value
Conservative Growth Lifestyle Moderate
Growth Lifestyle
Growth Lifestyle Small Cap
Growth
Large Cap Growth Small Cap
Index
Large Cap Value Small Cap
Value
Mid Cap Growth Socially
Responsible
Mid Cap Index Stock Index
Dividends paid semi-annually:
International Growth
International Value
Taxpayer Identification Number
You are required to give us your correct
Social Security or Taxpayer Identification
Number ("TIN") when you make contributions
to the employer's plan. We reserve the right
to reject any new account or any purchase
order for failure to supply a certified TIN.
<PAGE>
Management's Discussion of Fund Performance
(Not applicable to the Money Market Funds)
[Alpha by Fund - insert discussion of
factors that affected each Fund's
performance, market conditions, and relevant
strategies, followed by the line graph for
the Class and the Fund's index for the past
fiscal year. The graph must be followed by a
table with the Fund's average annual total
return.]
<PAGE>
Financial Highlights
The financial highlights tables are intended
to help you understand each Fund's financial
performance for its period of operations.
Certain information reflects financial
results for a single Fund share. The total
return numbers in the tables represent the
rate that an investor would have earned or
lost on an investment in a Fund, assuming
reinvestment of all dividends and
distributions. This information has been
audited by Ernst & Young, L.P., whose
reports, along with the Fund's financial
statements, are included in the Annual
Report, which is available upon request and
which is incorporated into this document by
this reference.
[Insert financial highlights here for each
Fund]
<PAGE>
For investors who want more information
about the Funds, the following documents are
available free upon request:
Annual/Semi-Annual Reports: Additional
information about each Fund's investments is
available in the Fund's Annual and Semi
Annual reports to shareholders.
Statement of Additional Information ("SAI"):
The SAI provides more detailed information
about the Funds and is incorporated into
this prospectus by reference.
You can get free copies of reports and SAIs,
request other information and discuss your
questions about the Funds by contacting your
broker, or the Funds at:
Telephone: 1-877-999-2434
American General Web-Site Address:
http://www.agfundgroup.com
You can review the Funds' reports and SAI at
the public Reference Room of the SEC.
You can get text only copies:
- For a fee, by writing to or
calling the
Public Reference Room of the
Commission, Washington, D.C. 20549-
6009, Telephone: 1800-SEC-0330.
- Free from the Commission's
Internet
website at http://www.sec.gov.
Investment Company Act File No. 811-08875
(AGSPC 2)
<PAGE>
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
AMERICAN GENERAL BALANCED FUND
AMERICAN GENERAL CONSERVATIVE GROWTH
LIFESTYLE FUND
AMERICAN GENERAL CORE BOND FUND AMERICAN
GENERAL DOMESTIC BOND FUND AMERICAN GENERAL
GROWTH LIFESTYLE FUND AMERICAN GENERAL HIGH
YIELD BOND FUND
AMERICAN GENERAL INTERNATIONAL GROWTH FUND
AMERICAN GENERAL INTERNATIONAL VALUE FUND
AMERICAN GENERAL LARGE CAP GROWTH FUND
AMERICAN GENERAL LARGE CAP VALUE FUND
AMERICAN GENERAL MID CAP GROWTH FUND
AMERICAN GENERAL MID CAP INDEX FUND AMERICAN
GENERAL MID CAP VALUE FUND AMERICAN GENERAL
MODERATE GROWTH LIFESTYLE FUND
AMERICAN GENERAL MONEY MARKET FUND AMERICAN
GENERAL MUNICIPAL BOND FUND
AMERICAN GENERAL MUNICIPAL MONEY MARKET FUND
AMERICAN GENERAL SMALL CAP GROWTH FUND
AMERICAN GENERAL SMALL CAP INDEX FUND
AMERICAN GENERAL SMALL CAP VALUE FUND
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND
AMERICAN GENERAL STOCK INDEX FUND
AMERICAN GENERAL STRATEGIC BOND FUND
STATEMENT OF ADDITIONAL INFORMATION PART B
March 1, 2000
This Statement of Additional
Information is not a prospectus and contains
information in addition to that in the
Prospectuses 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 March 1, 2000. Please call 1-877-999
2434 to request copies of the Prospectuses.
TABLE OF CONTENTS
[insert page numbers for 485(b) filing]
General Information and History
Performance and Yield Information
Performance Returns of Certain Investment
Companies and Private Accounts Other than
the Funds
Investment Restrictions
Investment Practices
Investment Adviser
Investment Sub-Advisers
Other Service Providers
Portfolio Transactions and Brokerage
Distribution and Service Plan Determination
of Net Asset Value Purchasing and Selling
Fund Shares Taxation
Trustees and Officers
Control Persons and Principal Holders of
Securities
Marketing Information
Endorsements and Published Rankings
Other Information
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 The Variable Annuity Life
Insurance Company ("VALIC") and is
registered under the Investment Company Act
of 1940, as amended, (the "1940 Act") as an
open-end management investment company. 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
issues its own separate classes 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
This section explains how performance
and yield information is calculated, per
federal law.
AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Returns for
periods of 1, 5 and 10 years (or since
inception) are calculated according to the
following formula:
P (1+T)n = ERV
Where:
P = A hypothetical initial payment of
$1,000.
T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the first period.
Average Annual Total Return reflects
the deduction of the sales charges and
expenses and assumes that all dividends and
distributions are reinvested when paid.
The Funds commenced operations on
November 2, 1998. For the fiscal year ended
October 31, 1999, the average annual total
returns were:
Class A Class B
Balanced Fund [____%] [____%]
Conservative Growth Lifestyle Fund [____%]
[____%]
Core Bond Fund [____%] [____%]
Domestic Bond Fund [____%] [____%]
Growth Lifestyle Fund [____%] [____%]
High Yield Bond Fund [____%] [____%]
International Growth Fund [____%] [____%]
International Value Fund [____%] [____%]
Large Cap Growth Fund [____%] [____%]
Large Cap Value Fund [____%] [____%]
Mid Cap Growth Fund [____%] [____%]
Mid Cap Index Fund [____%] [____%]
Mid Cap Value Fund [____%] [____%]
Moderate Growth Lifestyle Fund [____%] [____%]
Money Market Fund [____%] [____%]
Municipal Bond Fund [____%] [____%]
Municipal Money Market Fund [____%] [____%]
Small Cap Growth Fund [____%] [____%]
Small Cap Index Fund [____%] [____%]
Small Cap Value Fund [____%] [____%]
Socially Responsible Fund [____%] [____%]
Stock Index Fund [____%] [____%]
Strategic Bond Fund [____%] [____%]
[Insert average annual total return numbers
for the 485(b) filing.]
Class I Class II
Balanced Fund [____%] [____%]
Conservative Growth Lifestyle Fund [____%] [____%]
Core Bond Fund [____%] [____%]
Domestic Bond Fund [____%] [____%]
Growth Lifestyle Fund [____%] [____%]
High Yield Bond Fund [____%] [____%]
International Growth Fund [____%] [____%]
International Value Fund [____%] [____%]
Large Cap Growth Fund [____%] [____%]
Large Cap Value Fund [____%] [____%]
Mid Cap Growth Fund [____%] [____%]
Mid Cap Index Fund [____%] [____%]
Mid Cap Value Fund [____%] [____%]
Moderate Growth Lifestyle Fund [____%] [____%]
Money Market Fund [____%] [____%]
Municipal Bond Fund [____%] [____%]
Municipal Money Market Fund [____%] [____%]
Small Cap Growth Fund [____%] [____%]
Small Cap Index Fund [____%] [____%]
Small Cap Value Fund [____%] [____%]
Socially Responsible Fund [____%] [____%]
Stock Index Fund [____%] [____%]
Strategic Bond Fund [____%] [____%]
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
As of October 31, 1999, the seven day
yields were:
Current Yield Effective
Yield
Money Market Fund [_____%] [_____%]
Municipal Money Market Fund [_____%]
[_____%]
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 according to the following
standardized formula:
Yield = 2[(a-b/cd + 1)6 -1]
Where:
a = dividends and interest earned during the
period.
b = expenses accrued for the period (net of
reimbursements).
c = average daily number of shares
outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on
the last day of the period.
As of October 31, 1999, the 30 day
current yields were:
American General Core Bond Fund [____%]
American General Domestic Bond Fund
[____%]
American General High Yield Bond Fund
[____%]
American General Municipal Bond Fund
[____%]
American General Strategic Bond Fund
[____%]
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 December 31, 1999, the federal
income tax rate upon which the Fund's tax
equivalent yield quotations are based was
39.6%. The tax equivalent yield for the
Municipal Money Market Fund was [_____%],
and [____%] for the Municipal Bond Fund as
of December31, 1999.
PORTFOLIO TOTAL RETURN
Portfolio Total Return quotations for
periods of 1, 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.
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.
INDEX TOTAL RETURN
Index Total Return quotations for
periods 1, 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.
PERFORMANCE RETURNS OF CERTAIN INVESTMENT
COMPANIES AND PRIVATE ACCOUNTS OTHER THAN
THE FUNDS
This Statement of Additional
Information includes 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.
[insert performance info and charts in the
485(b) filing]
INVESTMENT RESTRICTIONS
The Funds have each adopted certain
fundamental investment restrictions which,
unlike the investment objectives, 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 be changed by the Series Company's Board
of Trustees without shareholder approval.
The fundamental and, if applicable, 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. Calculation
of each Fund's total assets for compliance
with any of the investment restrictions will
not include cash collateral held in
connection with securities lending
activities.
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 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. 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) 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 CONSERVATIVE GROWTH
LIFESTYLE FUND ("CONSERVATIVE GROWTH
LIFESTYLE FUND")
AMERICAN GENERAL GROWTH LIFESTYLE FUND
("GROWTH LIFESTYLE FUND"); AND
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE
FUND ("MODERATE GROWTH LIFESTYLE FUND")
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the
Conservative Growth Lifestyle Fund, the
Growth Lifestyle Fund and the Moderate
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.
AMERICAN GENERAL CORE BOND FUND ("CORE BOND
FUND")
AMERICAN GENERAL DOMESTIC BOND FUND
("DOMESTIC BOND FUND")
AMERICAN GENERAL HIGH YIELD BOND FUND ("HIGH
YIELD BOND FUND");
AMERICAN GENERAL MUNICIPAL BOND FUND
("MUNICIPAL BOND FUND"); AND
AMERICAN GENERAL STRATEGIC BOND FUND
("STRATEGIC BOND FUND")
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the
Core Bond Fund, Domestic Bond Fund, High
Yield Bond Fund, Municipal Bond Fund, and
Strategic 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, 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 Core Bond Fund, Domestic Bond Fund, High
Yield Fund, Municipal Bond Fund, and
Strategic 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
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 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 securities 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 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 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 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, 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 mortgagerelated
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 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.
(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 securities 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 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 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
Depositary 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 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 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 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 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 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 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 securities 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 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 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 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 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 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.
(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 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.
(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 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 STOCK INDEX FUND ("STOCK
INDEX FUND")
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the
Stock 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.
(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 Stock 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 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 Company, 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.
INVESTMENT PRACTICES
This discussion of investment practices
supplements that in the Prospectus. The
Lifestyle Funds may not be specifically
discussed below, since each Lifestyle Fund
actually invests in other American General
Funds mentioned in the Prospectus.
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 Nationally
Recognized Statistical Rating Organization
("NRSRO") (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. Repurchase agreement s that do
not mature in seven days are considered
illiquid.
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 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
Each Fund may borrow money, subject to
the Fund's investment restrictions. 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.
DOLLAR ROLLS
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
All of the Funds except for the Money
Market Fund and the Municipal 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
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
depositary receipts: American Depositary
Receipts (ADRs), European Depositary
Receipts (EDRs) and Global Depositary
Receipts (GDRs). Depositary 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 nonU.S.
securities markets. EDRs and GDRs are
not necessarily quoted in the same currency
as the underlying security. In addition, the
Balanced Fund, Core Bond Fund, Domestic Bond
Fund, High Yield Bond Fund, International
Growth Fund, International Value Fund, Mid
Cap Index Fund, Mid Cap Value Fund, Small
Cap Growth Fund, Small Cap Index Fund, Small
Cap Value Fund Socially Responsible Fund,
Stock Index Fund, and the Strategic Bond
Fund may invest in other types of depositary
securities such as international depositary
receipts, global depositary shares, European
depositary shares and international
depositary shares.
A Fund may also, in accordance with its
specific investment objective(s) and
investment program, policies and
restrictions purchase U.S. dollardenominated
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).
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.
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.
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 Stock 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 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
The Balanced Fund, Core Bond Fund,
Domestic Bond Fund, High Yield Fund,
International Value Fund, Large Cap Growth
Fund, Mid Cap Index Fund, Mid Cap Value
Fund, Small Cap Growth Fund, Small Cap Index
Fund, Small Cap Value Fund, Socially
Responsible Fund, Stock Index Fund, and the
Strategic Bond Fund 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
All of the Funds except for Large Cap
Growth Fund, Large Cap Value Fund, Mid Cap
Growth Fund, Money Market Fund, Municipal
Bond Fund, and the Municipal Money Market
Fund may invest in companies located in
emerging market countries. The investments
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
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
U.S. 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. Additionally, investments in
emerging countries may also be adversely
impacted due to the implementation of
certain capital control measures which could
limit the a Fund's ability to access U.S.
dollars, repatriate earned interest and/or
principal, and sell selected securities.
Investing in emerging market
securities, whether in the U.S. or another
country, 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.
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 agreed to by the debtor nation and its
creditors. Brady Plan debt restructurings
have been implemented in a number of
countries.
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, are generally
collateralized in full as to principal by
U.S. Treasury zero coupon bonds having the
same maturity as the Brady Bonds, but are
not backed by the U.S. Government. 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").
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.
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
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 DEPOSITARY RECEIPTS
The Large Cap Growth Fund may,
consistent with its objectives, purchase
Standard & Poor's Depositary 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
Securities may be purchased 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.
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.
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 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. 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. Inflation
indexed 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 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. 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")
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.
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
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
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 "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 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
All of the Funds except for the
International Growth Fund, Large Cap Growth
Fund, Large Cap Value Fund, Mid Cap Growth
Fund, Municipal Bond Fund and the Municipal
Money Market Fund 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.
The Core Bond Fund, High Yield Bond
Fund, Mid Cap Index Fund, Small Cap Growth
Fund, Small Cap Index Fund, Small Cap Value
Fund, Socially Responsible Fund, Stock Index
Fund and the Strategic Bond Fund 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. These securities may be
structured in classes with rights to receive
varying proportions of principal and
interest.
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
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. The 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
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
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.)
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, coupon, and prepayment preference.
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 mortgagebacked
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- 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 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
Asset-backed securities (unrelated to
first mortgage loans) 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.
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 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
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 shortterm
money market instruments: obligations of the
U.S. Government or its agencies or
instrumentalities; commercial paper of
issuers rated, at the time of purchase, "A2"
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 underlying 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.
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
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.
All of the Funds except for
International Growth Fund, International
Value Fund, Large Cap Growth Fund, Large Cap
Value Fund, Money Market Fund, Municipal
Bond Fund, and the Municipal Money Market
Fund 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 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 Money Market Fund and Municipal
Money Market Fund will not invest more than
10% (15% in the case of the Stock 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
Privately placed securities 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 Stock 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 that have been determined to
be liquid by Board approved guidelines.
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. 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.
All the Funds except for International
Growth Fund, Mid Cap Growth Fund, Money
Market Fund, and the Municipal Money Market
Fund 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.
All the Funds except for International
Growth Fund, Mid Cap Growth Fund, Money
Market Fund, and the Municipal 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. These
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 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 "inthe-
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 International
Growth Fund, Mid Cap Growth Fund, Large Cap
Growth Fund, Municipal Money Market Fund and
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.
All of the Funds, except International
Growth Fund, Mid Cap Growth Fund, Large Cap
Growth Fund, Municipal Money Market Fund and
Money Market Fund, 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 security,
and settlements are made in cash rather than
by delivery of a particular security.
Each Fund, other than International
Growth Fund, Large Cap Growth Fund, Mid Cap
Growth Fund, Money Market Fund, and the
Municipal Bond 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-themoney."
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 or the
Sub-Advisers 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 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 "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."
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. A Fund may not
adhere to its internal operating policy in
circumstances where the Fund is required to
invest a large cash infusion.
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 "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
The use of options and financial
futures contracts may entail some 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 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. 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.
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 the investment restrictions
concerning borrowing money, mortgaging, or
hypothecating assets of any Fund.
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-tomarket
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.
SHORT SALES AND SHORT SALES AGAINST THE BOX
The Balanced Fund, each Bond Fund,
International Value Fund, and Socially
Responsible Fund may enter in short sales in
connection with options and futures
contracts only. Mid Cap Value Fund, Small
Cap Index Fund, and Strategic Index Fund 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. The Large Cap
Growth Fund and Mid Cap Growth Fund may only
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. During the fiscal year ended
October 31, 1999, VALIC received the
following fees:
[For 485(b) filing, insert dollar
amount of fees paid from each Fund during
the fiscal year ended 10/31/99.]
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 dayto-
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 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 High
Yield Bond Fund, Strategic Bond Fund, Core
Bond Fund, Municipal Bond Fund, Municipal
Money Market Fund, Stock Index Fund, Mid Cap
Index Fund, Small Cap Index Fund and for a
portion of the Small Cap Value Fund. 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, Capital
Guardian, Jacobs Asset Management, State
Street Global Advisors, GSAM, N&B
Management, Brown Capital Management, FMA
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 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.
For the fiscal year ended October 31,
1999, VALIC paid the following fees to the
Sub-advisers:
[For the 485(b) filing, insert the
dollar amounts of sub-advisory fees paid for
the 1999 fiscal 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.
OTHER SERVICE PROVIDERS
National Financial Data Services, Inc.,
[insert address] is the "Transfer Agent")
for the Funds. The Transfer Agent receives a
fee from each Fund for services provided.
For the fiscal period ending October 31,
1999, the Funds paid transfer agent fees of:
[For the 485(b) filing, insert dollar
amounts paid to NFDS.]
The Series Company has entered into an
Accounting Services Agreement with VALIC
which appointed VALIC as accounting services
agent. Under the Agreement, VALIC provides
account and administrative services to each
Fund. For the fiscal year ended October 31,
1999, the Funds paid VALIC the following
fees for these services:
[For the 485(b) filing, insert dollar
amounts paid to VALIC for administrative and
accounting services.]
The Series Company has entered into an
Administrative Services Agreement with VALIC
Retirement Services Company ("VRSCO") and
VALIC Investment Services Company ("VISCO")
for the provision of recordkeeping and
shareholder services to retirement and
employee benefit plans purchasing Class I
shares. Under the terms of the Service
Agreement, the Series pays either VRSCO or
VISCO a fee on Class I Shares equal to 0.25%
of average net assets of each Fund's Class O
shares, except for the Lifestyle Funds. For
the fiscal year ended October 31, 1999, the
Funds paid VRSCO and VISCO the following
fees:
[For the 485(b) filing, insert dollar
amounts paid to VRSCO and VISCO.]
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 "Welcome
to American General Corporation."
Virtually all of the over-the-counter
transactions by the actively managed portion
of the Small Cap Value Fund, High Yield Bond
Fund, Strategic Bond Fund, Domestic Bond
Fund, Municipal Bond Fund and Mid Cap Growth
Fund are principal transactions with issuers
and dealers at net prices which entail no
brokerage commissions. The International
Value Fund, Mid Cap Value Fund and 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, Balanced Fund,
Mid Cap Growth Fund, Small Cap Value Fund,
and 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.
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. For the fiscal year ended October
31, 1999, the Funds paid aggregate brokerage
commissions as follows:
Balanced Fund [____]
Conservative Growth Lifestyle Fund [____]
Core Bond Fund [____]
Domestic Bond Fund [____]
Growth Lifestyle Fund [____]
High Yield Bond Fund [____]
International Growth Fund [____]
International Value Fund [____]
Large Cap Growth Fund [____]
Large Cap Value Fund [____]
Mid Cap Growth Fund [____]
Mid Cap Index Fund [____]
Mid Cap Value Fund [____]
Moderate Growth Lifestyle Fund [____]
Money Market Fund [____]
Municipal Bond Fund [____]
Municipal Money Market Fund [____]
Small Cap Growth Fund [____]
Small Cap Index Fund [____]
Small Cap Value Fund [____]
Socially Responsible Fund [____]
Stock Index Fund [____]
Strategic Bond Fund [____]
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.
DISTRIBUTION AND SERVICE PLAN
American General Distributors, Inc.
(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. For
the fiscal year ended October 31, 1999, the
Funds paid net commissions to the
Distributor as follows:
[For the 485(b) filing, insert the
dollar amount of net commissions received by
A.G.D.]
The Series Company, with respect to
each Fund (except for the Lifestyle Funds),
has adopted a Distribution and Service Plan
for Class A shares and Class B shares (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. The Plan 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 of the Series Company, as defined in
the 1940 Act, by votes cast in person at a
meeting called for such purpose. The Plan
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 Plan also
automatically terminates in the event of an
assignment.
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. Pursuant to the Plan, 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 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. During the fiscal
year ended October 31, 1999, the Funds paid
the following fees for distribution and
servicing:
Balanced Fund [____]
Conservative Growth Lifestyle Fund [____]
Core Bond Fund [____]
Domestic Bond Fund [____]
Growth Lifestyle Fund [____]
High Yield Bond Fund [____]
International Growth Fund [____]
International Value Fund [____]
Large Cap Growth Fund [____]
Large Cap Value Fund [____]
Mid Cap Growth Fund [____]
Mid Cap Index Fund [____]
Mid Cap Value Fund [____]
Moderate Growth Lifestyle Fund [____]
Money Market Fund [____]
Municipal Bond Fund [____]
Municipal Money Market Fund [____]
Small Cap Growth Fund [____]
Small Cap Index Fund [____]
Small Cap Value Fund [____]
Socially Responsible Fund [____]
Stock Index Fund [____]
Strategic Bond Fund [____]
[For 485(b) filing, insert dollar amounts
paid by each class and the manner in which
the dollars were spent (advertising,
printing and mailing of prospectuses, etc.)
during the first fiscal year ended
10/31/99.]
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 pricing
services, such as Merrill Lynch or
Interactive Data Services, or other
representative services.
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
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.
PURCHASING AND SELLING FUND SHARES
PURCHASE OF SHARES
Please see the Prospectus for a
complete discussion of how to buy shares.
Shares of the Funds are sold in a continuous
offering and may be purchased on any
business day through the Transfer Agent or
your registered representative.
SELLING FUND SHARES
(APPLICABLE TO ALL CLASSES OF SHARES)
Please see the Prospectus for a
complete discussion of how to sell shares.
CONTINGENT DEFERRED SALES CHARGE
(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 account of $1,000,000 or more, a
Qualified Purchaser may aggregate shares of
a Fund described in the Prospectus.
EXCHANGE PRIVILEGE
By use of the exchange privilege, as
discussed in the Prospectus, 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.
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.
If 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.
FOREIGN TAX ON INCOME
If a Fund invests in foreign
securities, the earnings 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 some 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.
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. 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. Further, gain from a
sale or redemption of shares of the
Municipal Bond Fund and the Municipal Money
Market Fund will 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
supply shareholders with an annual 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 may be
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.
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, 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 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. Capital gain dividends
(i.e., dividends from net capital gain) if
designated as such in a written notice to
shareholders, 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.
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.
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
REQUIRED
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 reportable
dividends and the redemption proceeds. 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 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.
TRUSTEES AND OFFICERS
The trustees, in addition to their
functions set forth under "Investment
Adviser," review such actions and decide on
general policy. The officers conduct and
supervise the daily business operations of
the Series Company. All officers are
affiliates of VALIC and are located at 2929
Allen Parkway, Houston, Texas 77019, unless
otherwise noted.
The Series Company has an Audit
Committee. The Series Company's Audit
Committee consists of Messrs. Lancaster,
Hackerman, Paulsen 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 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 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.
NAME AND POSITION(S) PRINCIPAL
OCCUPATION(S)
HELD WITH REGISTRANT DURING PAST 5 YEARS
Chairman of Vice Chairman and Group
the Board Executive, Retirement
Thomas L. Services, American
West, Jr. * General Corporation
2929 Allen ("American General")
Parkway (1998-Present).
Houston, Formerly, Chairman of
Texas 77019 the Board, VALIC and
Date of American General
Birth: Annuity Insurance
06/07/37 Company ("AGAIC") (1999-
Present); Chief Executive
Officer,
VALIC (1998-1999); President
of VALIC, (1994-1998);
President of the Funds (1998
1999).
Executive Executive Vice
Vice President and Chief
President and Financial Officer, Trustee
VALIC and AGAIC (1999-
Kent E. Present), Executive
Barrett * Vice President and
2929 Allen Chief Financial
Parkway Officer, American
Houston, General Life & Accident
Texas 77019 Insurance Company
Date of ("AGLA") (1998-1999),
Birth: Senior Vice President -
09/20/56 Finance and Treasurer,
AGLA (1997-1998), Senior Vice
President, Controller and
Treasurer, AGLA (19941997).
Trustee Retired Administrator;
Dr. Judith L. Formerly President, Craven
United Way of the Texas
3212 Ewing Gulf Coast (1992-1998);
St. Director, Houston
Houston, Branch, Federal Reserve
Texas 77004 Bank of Dallas (1992-
Date of Present), Compaq
Birth: Computer Corporation
10/06/45 (1998-Present), Luby's
Inc. (1998-Present), A.H.
Belo Corporation (journalism,
TV and radio) (1993-Present),
and Sysco Corporation
(marketing and distribution
of food) (1996-Present);
Formerly, Board Member,
Sisters of Charity of the
Incarnate Word (1996-1999).
Trustee Professor and Head,
Dr. Timothy Department of
J. Ebner Neuroscience and
17994 N.W. Visscher Chair of
Union Blvd. Physiology (1998-
Elk River, Present), Director,
Minnesota Graduate Program in
55330 Neuroscience,
Date of University of Minnesota
Birth: (1991-1999). Formerly,
07/15/49 Consultant to EMPI,
Inc. (1994-1995) and
Medtronic Inc. (19971998)
(manufacturers of medical
products).
Trustee Municipal Court Judge,
Judge Gustavo Dallas, Texas (1995-
E. Gonzales, Present); Director,
Jr. Downtown Dallas YMCA
8320 Board(1996-Present);
Coolgreen Dr. Director, Dallas Easter
Dallas, Texas Seals Society (199775228
Present). Formerly,
Date of private attorney
Birth: (litigation) (1980-
07/27/40 1995).
Trustee Chairman -- Scientific
Dr. Norman Advisory Board for The
Hackerman Robert A. Welch
2001 Pecos Foundation (1983-
Street Present); Director,
Austin, Texas Electrosource, Inc. 78703
(develops, manufactures
Date of and markets energy
Birth: storage products);
03/02/12 President Emeritus,
Rice University, Houston,
Texas.
President and President of American
Trustee General Fund Group
Alice T. Kane (1999-Present);
* Formerly, Executive
125 Maiden Vice President,
Lane American General
New York, New Investment Management, York
10038 L.P. (1998-1999);
Date of Formerly, Executive
Birth: Vice President, (1994-
01/16/48 1998) and General
Counsel (1986-1995) New York
Life Insurance Company;
Chair, MainStay Mutual Funds
(1994-1998). President of
other investment companies
advised by VALIC.
Trustee Pastor Emeritus and
Dr. John Wm. Director of Planned
Lancaster Giving, First
4624 Braeburn Presbyterian Church,
Bellaire, Houston Texas (1996-
Texas 77401 Present); Formerly,
Date of Pastor, First
Birth: Presbyterian Church,
12/15/23 Houston, Texas.
Trustee Retired. Formerly,
Ben H. Love Director, Mid-American
4407 Eaton (waste products) (1993-
Circle 1997); Formerly, Chief
Colleyville, Executive, Boy Scouts
Texas 76034 of America. (1985-
Date of 1993).
Birth:
09/26/30
Trustee President, Meharry
Dr. John E. Medical College,
Maupin, Jr. Nashville, Tennessee
Meharry (1994-Present);
Medical Nashville Advisory
College Board Member, First
1005 D.B. American National Bank
Todd Blvd. (1996-Present);
Nashville, Director, Monarch
Tennessee Dental Corporation
37208 (1997-Present),
Date of LifePoint Hospitals,
Birth: Inc. (1998-Present).
10/28/46
Trustee Dean and Professor
Dr. F. Robert Emeritus, University of
Paulsen Arizona, Tucson,
2801 N. Arizona. Formerly, Dean
Indian Ruins and Professor,
Tucson, University of
Arizona 85715 Connecticut, Storrs, Date of
Connecticut and
Birth: Carnegie Fellow,
07/05/22 University of Michigan,
Ann Arbor, Michigan.
Executive Executive Vice
Vice President - VALIC Sales
President (1998-Present) and
John E. Arant Senior Vice President Date of
(1998), VALIC and
Birth: AGAIC. Chairman and
09/07/44 President, the
Distributor (1998Present).
Vice Associate General
President Counsel and Assistant
Pauletta P. Secretary, American
Cohn General Life Companies
Date of (1998-Present), Senior
Birth: Attorney, American
06/06/48 General (1993-1998).
Vice Associate General
President and Counsel, VALIC (1997Assistant
Present). Formerly, Of
Secretary Counsel, Winstead
Nori L. Sechrest and Minick
Gabert P.C. (1997); Vice
Date of President and Associate
Birth: General Counsel of Van
08/15/53 Kampen American
Capital, Inc. (19811996).
Assistant Senior Compliance
Vice Analyst, VALIC (1995-
President Present).
Cynthia A.
Gibbons
Date of
Birth:
12/06/67
Assistant Manager -- Variable
Controller Product Accounting,
Donna L. VALIC (1998-Present).
Hathaway Formerly, Accounting
Date of Manager, Hewitt
Birth: Associates, LLC (1995-
09/17/64 1997); Revenue
Accounting Manager, Trans
Texas Gas (1998).
Assistant Vice President, Fund
Treasurer Accounting, AGIM (1999-
Gregory R. Present). Formerly,
Kingston Assistant Treasurer
Date of First Investor
Birth: Management Company
01/18/66 (1994-1999).
Vice Vice President,
President - Investments, VALIC
Investments (1998-Present),
Maruti D. Portfolio Manager,
More American General
Date of Corporation (1996-
Birth: 1998). Formerly,
02/02/44 Managing Director,
Marketing Securities, Paul
Revere Investment Management
Corporation (1993-1995).
Vice Trader -- VALIC (1991-
President and Present).
Investment
Officer
Teresa S.
Moro
Date of
Birth:
08/14/60
Controller Associate Director of
Kathryn A. Fund Accounting, AGIM
Pearce (1996-Present).
Date of Formerly, Supervisor,
Birth: Mutual Fund Accounting,
02/05/47 Van Kampen American
Capital, Inc. (19771996).
Assistant Director -- Variable
Treasurer Product Accounting and
Jaime M. Financial Reporting,
Sepulveda AGIM (1998-Present).
Date of Formerly, Accounting
Birth: Manager, Metro
01/09/52 Networks, Inc. (1997-
1998); Controller and
Investment Officer, Port of
Houston Authority (1994-
1997).
Treasurer Vice President --
Gregory R. Variable Product
Seward Accounting, AGIM (1998-
Date of Present); Assistant
Birth: Controller, AGAIC (1998-
06/27/56 Present) and VALIC
(1991-1998).
Vice Senior Vice President,
President and General Counsel and Secretary
Secretary, VALIC and
Cynthia A. AGAIC (1998-Present),
Toles Director and Secretary,
Date of the Distributor.
Birth: Formerly, Senior
03/28/51 Associate General
Counsel and Secretary, VALIC
(1990-1998).
Vice Portfolio Manager,
President and VALIC (1987-Present).
Investment
Officer
William
Trimbur, Jr.
Date of
Birth:
06/15/51
Senior Executive Vice
Investment President, Trading and
Officer Portfolio Management,
Peter V. AGIM (1998-Present);
Tuters Vice President and
Date of Investment Officer
Birth: (1998-Present), Vice
04/18/52 President and Chief
Investment Officer (1993-
1998), VALIC and AGAICX (1998-
Present). Formerly, Director,
VALIC, Senior Vice President
and Chief Investment Officer,
American General Corporation
(19931998).
Assistant Associate Director,
Controller Mutual Fund Accounting,
Heriberto AGIM (1999-Present);
Valdez Manager, Mutual Fund
Date of Accounting (1998-1999);
Birth: Manager, Variable
04/25/57 Product Accounting
(1997-1998); Staff
Accountant, Variable Products
Division, VALIC (1989-1997).
Formerly, self-employed
consultant (1998).
* Interested trustees of the Series Company
as defined in the 1940 Act.
The 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. 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. Each of the trustees
is a director or trustee of American General
Series Portfolio Company ("AGSPC"), AGSPC 3,
and USLife Income Fund, Inc., investment
companies for which VALIC serves as
investment adviser.
The following table sets forth
information regarding the estimated
compensation and benefits earned by the
disinterested Trustees for the fiscal year
ending October 31, 1999.
COMPENSATION TABLE
FISCAL YEAR ENDING OCTOBER 31, 1998
[insert table with 1999 fiscal year numbers
for the 485(b) filing]
Judith L. Craven
Timothy J. Ebner
Gustavo E. Gonzales, Jr. Norman Hackerman
John W. Lancaster
Ben L. Love
John E. Maupin, Jr.
F. Robert Paulsen
CONTROL PERSONS AND PRINCIPAL HOLDERS OF
SECURITIES
[For the 485(b) filing, insert info on
anyone who owns 5%+ of the Funds, including
VALIC and American General Retirement Plan]
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." The Series Company Funds may
be referred to as the American General Fund
Group or the AG Funds.
The Company may refer 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-toface
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.
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
quote various industry experts on which
types of investments are best suited to each
risk category. 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 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 discuss the basis of portfolio
optimization and may describe various
investment strategies and methods of
implementation.
The Company, in its marketing efforts
to each of the market segments, may 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 may refer 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 to
marketing strategies it utilizes to promote
the Company's business objectives. Further,
the Company may refer from time to time in
advertisements or sales materials to certain
value-added services it provides to its
investors.
The Company may 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.
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.
The Company or the Series Company may
refer to publishers of statistical data,
such as Lipper Analytical Services
Incorporated ("Lipper"), Morningstar, Inc.
("Morningstar") and CDA/Wiesenberger
Investment Companies (CDA/Wiesenberger).
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.
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. The
expenses of each class differ; therefore,
dividend payments and net asset value will
differ as well.
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 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 Stock 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 Stock 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 Stock 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
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.
BOND RATINGS
Moody's Bond Ratings
Aaa: Bonds that 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 that 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 that make the long-term
risks appear somewhat larger than in Aaa
securities.
A: Bonds that 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 that
suggest a susceptibility to impairment some
time in the future.
Baa: Bonds that 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 that 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 both good and
bad times over the future. Uncertainty of
position characterizes bonds in this class.
B: Bonds that are rated B generally
lack characteristics of the desirable
investment. Assurance of interest and
principal payments or maintenance of other
terms of the contract over any long period
of time may be small.
Caa: Bonds that 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 that are rated Ca represent
obligations that are speculative in a high
degree. Such issues are often in default or
have other marked shortcomings.
C: Bonds that 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.
Con. (...): 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 operating experience, (c)
rentals that begin when facilities are
completed, or (d) payments to which some
other limiting condition attaches.
Parenthetical rating denotes probable credit
stature upon completion of construction or
elimination of basis of condition.
Standard & Poor's Ratings
AAA: An obligation rated 'AAA' has the
highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its
financial commitment on the obligation is
extremely strong.
AA: An obligation rated 'AA' differs
from the highest rated obligations only in
small degree. The obligor's capacity to meet
its financial commitment on the obligation
is very strong.
A: An obligation rated 'A' is somewhat
more susceptible to the adverse effects of
changes in circumstances and economic
conditions than obligations in higher rated
categories. However, the obligor's capacity
to meet its financial commitment on the
obligation is still strong.
BBB: An obligation rated 'BBB' exhibits
adequate protection parameters. However,
adverse economic conditions or changing
circumstances are more likely to lead to a
weakened capacity of the obligor to meet its
financial commitment on the obligation.
Obligations rated 'BB', 'B', 'CCC', 'CC',
and 'C' are regarded as having significant
speculative characteristics. 'BB' indicates
the least degree of speculation and 'C' the
highest. While such obligations will likely
have some quality and protective
characteristics, these may be outweighed by
large uncertainties or major exposures to
adverse conditions.
BB: An obligation rated 'BB' is less
vulnerable to nonpayment than other
speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse
business, financial, or economic conditions
which could lead to the obligor's inadequate
capacity to meet its financial commitment on
the obligation.
B: An obligation rated 'B' is more
vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has
the capacity to meet its financial
commitment on the obligation. Adverse
business, financial, or economic conditions
will likely impair the obligor's capacity or
willingness to meet its financial commitment
on the obligation.
CCC: An obligation rated 'CCC' is
currently vulnerable to nonpayment, and is
dependent upon favorable business,
financial, and economic conditions for the
obligor to meet its financial commitment on
the obligation. In the event of adverse
business, financial, or economic conditions,
the obligor is not likely to have the
capacity to meet its financial commitment on
the obligation.
CC: An obligation rated 'CC' is
currently highly vulnerable to nonpayment.
C : A subordinated debt or preferred
stock obligation rated 'C' is currently
highly vulnerable to nonpayment. The 'C'
rating may be used to cover a situation
where a bankruptcy petition has been filed
or similar action taken, but payments on
this obligation are being continued. A 'C'
also will be assigned to a preferred stock
issue in arrears on dividends or sinking
fund payments, but that is currently paying.
D: An obligation rated 'D' is in
payment default. The 'D' rating category is
used when payments on an obligation are not
made on the date due even if the applicable
grace period has not expired, unless
Standard & Poor's believes that such
payments will be made during such grace
period. The 'D' rating also will be used
upon the filing of a bankruptcy petition or
the taking of a similar action if payments
on an obligation are jeopardized. 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.
<PAGE>
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 2
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS
(a) 1. Agreement and Declaration
1. of Trust(1)
2. Amendment to Agreement and
Declaration of Trust(2)
(b) Certificate of Designation
For:
(1) American General Core
Bond Fund (2)
(2) American General High
Yield Bond Fund (2)
(3) American General
Strategic Bond Fund (2)
(4) American General
Municipal Bond Fund (2)
(5) American General
Municipal Money Market Fund (2)
(c) Amended and Restated
Certificate of Designation For:
(1) American General
International Growth Fund(2)
(2) American General Large
Cap Growth(2)
(3) American General Mid Cap
Growth Fund(2)
(4) American General Small
Cap Growth Fund(2)
(5) American General
International Value Fund(2)
(6) American General Large
Cap Value Fund(2)
(7) American General Mid Cap
Value Fund(2)
(8) American General Small
Cap Value Fund(2)
(9) American General Socially
Responsible Fund(2)
(10) American General
Balanced Fund(2)
(11) American General
Domestic Bond Fund(2)
(12) American General Money
Market Fund(2)
(13) American General Growth
Lifestyle Fund(2)
(14) American General
Moderate Growth Lifestyle
Fund(2)
(15) American General
Conservative Growth Lifestyle
Fund(2)
(16) American General Stock
Index Fund(2)
(17) American General Mid Cap
Index Fund(2)
(18) American General Small
Cap Index Fund(2)
(19) American General
Municipal Bond Fund+
(20) American General
Municipal Money Market Fund+
(d) Certificate of Termination
For:
(1) American General Stock
Index Fund(2)
(2) American General Mid Cap
Index Fund(2)
(3) American General Small
Cap Index Fund(2)
Bylaws(1)
2.
Not Applicable
3.
Not Applicable
4.
5. (a) Investment Advisory Agreement
between the Registrant and The
Variable Annuity Life Insurance
Company ("VALIC")(3)
(b) Investment Sub-Advisory
Agreements between VALIC and each
Sub-Adviser on behalf of the
following Funds:
(1) American General
International Growth Fund(3)
(2) American General Large
Cap Growth(3)
(3) American General Mid Cap
Growth Fund(3)
(4) American General Small
Cap Growth Fund(3)
(5) American General
International Value Fund,
American General Balanced Fund and
American General Domestic Bond
Fund(3)
(6) American General Large
Cap Value Fund(3)
(7) American General Mid Cap
Value Fund(3)
(8) American General Small
Cap Value Fund(3)
(9) American General High
Yield Bond Fund, American
General Strategic Bond Fund,
American General Core Bond Fund,
American General Muncipal Bond
Fund and American General
Municipal Money Market Fund(3)
(10) American General Stock
Index Fund, American General Mid
Cap Index Fund, American General
Small Cap Index Fund and American
General Small Cap Value Fund(3)
6. Distribution Agreement between the
Registrant and American General
Distributors, Inc.+
7. Not Applicable
8. (a) Custodian Agreement between
Registrant and State Street
Bank and Trust Company+
(b) Securities Lending
Authorization Agreement between
Registrant and State Street Bank
and Trust Company+
9. (a) Transfer Agency and Services
Agreement between Registrant and
VALIC+
(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
VALIC+
(d) Administrative Services
Agreement among Registrant, VISCO
and VALIC+
(e) State Filing Services
Agreement(2)
1 Not Applicable
0.
1 Not Applicable
1.
1 Not Applicable
2.
1 Subscription Agreements(2)
3.
1 Not Applicable
4.
1 Rule 12b-1 Distribution and
5. Service Plan+
1 Not Applicable
6.
1 Not Applicable
7.
1 Multi-Class Plan+
8.
19 (a) Powers of Attorney for
. Messrs. West, Hackerman,
Lancaster, Paulsen, Upton and
Love(1)
(b) Powers of Attorney for
Messrs. Ebner, Gonzales and
Maupin and Ms. Craven(2)
(c) Powers of Attorney for Mr.
Barrett and Ms. Kane+
__________
1Incorporated herein by reference to
Initial Registration Statement to the
Registrant's Form N-1A Registration
Statement filed with the Securities and
Exchange Commission on July 13, 1998 (File
No. 333-58979/811-08875, Accession
No. 0000950129-98-002983).
2 Incorporated herein by reference to
Pre-Effective Amendment Number 1 to the
Registrant's Form N-1A Registration
Statement filed with the Securities and
Exchange Commission on October 15, 1998
(File No. 333-58979, 811-08875, Accession
No. 0000950129-98-004291).
3 Incorporated herein by reference to the
Registrant's Form N-SAR filed with the
Securities and Exchange Commission on
July 14, 1999 (File
No. 333-58979/811-08875, Accession
Nos. 0001058413-99-000017 and
0001058413-99-000019).
+ To be filed by amendment.
ITEM 24. 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 shares of beneficial interest of
Institutional Class I and Institutional
Class II of the Registrant is owned by
VALIC, a Texas life insurance corporation,
VALIC Separate Account A, a separate account
of VALIC which is registered as a unit
investment trust under the Investment
Company Act of 1940 (File No. 811-3240/33-
75292).
ITEM 25. INDEMNIFICATION
Incorporated herein by reference to Pre-
Effective Amendment Number 1 to the
Registrant's Form N-1A Registration
Statement filed with the Securities and
Exchange Commission on October 15, 1998
(File No. 333-58979/811-08875), Accession
No. 0000950129-98-004291).
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF
THE 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 and the Sub-advisers.
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
American General Distributors, Inc. ("AG
Distributors"), American General Annuity
Insurance Company ("AGAIC") and American
General Corporation ("AG Corporation").
NAME COMPANY TITLE
Robert M. VALIC, Director
Devlin AGAIC Director,
AG Chairman and
Corporation Chief Executive
Officer
John A. Graf VALIC, Chairman,
AGAIC Director,
President and
Chief Executive
Officer
Kent E. VALIC, Director,
Barrett AGAIC Executive Vice
President and
Chief Financial
Officer
Bruce R. VALIC, Director and
Abrams AGAIC Executive Vice
President -
AGAIC Sales
Rebecca G. VALIC, Director and
Campbell AGAIC Senior Vice
President -
Human Resources
Robert P. VALIC, Director and
Condon AGAIC Executive Vice
President -
Institutional
Marketing
Carl J. VALIC, Director and
Santillo AGAIC Executive Vice
President -
Operations
Kathleen VALIC, Senior Vice
Adamson AGAIC President -
Customer Service
Michael J. VALIC, Senior Vice
Akers AGAIC President and
Chief Actuary
Dick Baily VALIC, Senior Vice
AGAIC President -
Planning &
Expense
Management
Michael A. VALIC, Senior Vice
Betts AGAIC President -
Systems
Dwight L. VALIC, Senior Vice
Cramer II AGAIC President -- AG
Fund Group
Patrick E. VALIC, Senior Vice
Grady AGAIC President and
Treasurer
Stephen G. VALIC, Senior Vice
Kellison AGAIC President -
Product
Management
Richard J. VALIC, Senior Vice
Lindsay AGAIC President -
Marketing
Cynthia A. VALIC, Senior Vice
Toles AGAIC President,
AG General Counsel
Distributor and Secretary
s Director and
Secretary
Rosemary VALIC, Vice President -
Beauvais AGAIC Corporate
Technology
Services
James D. VALIC, Vice President -
Bonsall AGAIC - Financial
Reporting
Gregory S. VALIC, Vice President -
Broer AGAIC Actuarial
Richard A. VALIC, Vice President -
Combs AGAIC Actuarial
Neil J. VALIC, Vice President -
Davidson AGAIC Actuarial
David H. VALIC, Vice President -
denBoer AGAIC Compliance
Stephen R. VALIC, Vice President -
Duff AGAIC - New Account
Acquisitions
Daniel Fritz VALIC, Vice President -
AGAIC Actuarial
Michael D. VALIC, Vice President -
Gifford AGAIC - Case
Development
Joseph P. VALIC, Vice President -
Girgenti AGAIC - Sales Support
Sharla A. VALIC, Vice President -
Jackson AGAIC - Customer
Service -
Amarillo
Jeff S. VALIC, Vice President -
Johnson AGAIC - Marketing
Communications
Kent W. Lamb VALIC, Vice President -
AGAIC - Financial
Reporting
Traci P. VALIC, Vice President -
Langford AGAIC - Account
Management
James J. VALIC, Vice President -
Michel AGAIC - Operations
Support/Controll
er
Maruti More VALIC, Vice President -
AGAIC Investments
Thomas G. VALIC, Vice President -
Norwood AGAIC - Broker/Dealer
Operations
Stephen J. VALIC, Vice President -
Poston AGAIC - Training &
National
Accounts
Steven D. VALIC, Vice President -
Rubinstein AGAIC - Financial
Planning and
Reporting
Richard W. VALIC, Vice President
Scott AGAIC and Chief
Investment
AG Officer
Corporation Executive Vice
President and
Chief Investment
Officer
Gary N. See VALIC, Vice President -
AGAIC - Group
Actuarial
Gregory R. VALIC, Vice President -
Seward AGAIC - Variable
Product
Accounting
Nancy K. VALIC, Vice President -
Shumbera AGAIC Applications
Development
Norman A. VALIC, Vice President -
Skinrood, AGAIC - Investment
Jr. Products Group
David Snyder VALIC, Vice President -
AGAIC - Electronic
Commerce
Paula F. VALIC, Vice President -
Snyder AGAIC - AGRS Marketing
Communications
Robert E. VALIC, Vice President -
Steele AGAIC Specialty
Products
Kenneth R. VALIC, Vice President -
Story AGAIC Information
Technology
Brian R. VALIC, Vice President
Toldan AGAIC and General
Auditor
Michael A. VALIC, Vice President -
Tompkins AGAIC - PR
Acquisitions
Peter V. VALIC, Vice President
Tuters AGAIC and Investment
AG Officer
Corporation Senior Vice
President -
Investments
William C. VALIC, Vice President -
Vetterling AGAIC - Marketing
Administration
William A. VALIC, Vice President -
Wilson AGAIC Government
Affairs
Jane E. VALIC Chief Compliance
Bates Officer
Roger E. VALIC, Investment
Hahn AGAIC Officer
C. Scott VALIC, Investment
Inglis AGAIC Officer
Craig R. VALIC, Investment
Mitchell AGAIC Officer
Julia S. VALIC, Investment
Tucker AGAIC Officer
AG Senior Vice
Corporation President -
Investments
Rembert R. VALIC, Real Estate
Owen, Jr AGAIC Investment
Officer and
Assistant
Secretary
W. Lary Mask VALIC, Real Estate
AGAIC Investment
Officer and
Assistant
Secretary
D. Lynne VALIC, Tax Officer
Walters AGAIC,
AG Vice President -
Distributor Taxes
s
AG
Corporation
W. Joan VALIC, Assistant
Farmer AGAIC Secretary
Otto B. VALIC, Assistant
Gerlach, III AGAIC Secretary
Cheryl G. VALIC, Assistant
Hemley AGAIC Secretary
Susan Miller VALIC, Assistant
AGAIC Secretary
Connie E. VALIC, Assistant
Pritchett AGAIC Secretary
Daniel R. VALIC, Assistant Tax
Cricks AGAIC Officer
Terry VALIC, Assistant
Festervand AGAIC Treasurer
Eric VALIC, Assistant
Alexander AGAIC Treasurer
Kristy L. VALIC, Assistant
McWilliams AGAIC Treasurer
William VALIC, Assistant
H.Murray AGAIC Treasurer
Tara S. Rock VALIC, Assistant
AGAIC Treasurer
Carolyn VALIC, Assistant
Roller AGAIC Treasurer
Barbara G. VALIC, Assistant
Trygstad AGAIC Treasurer
Marylyn S. VALIC, Assistant
Zlotnick AGAIC Controller
Leslie K. VALIC, Administrative
Bates AGAIC Officer
Mary C. VALIC, Administrative
Birmingham AGAIC Officer
Donald L. VALIC, Administrative
Davis AGAIC Officer
Robert A. VALIC, Administrative
Demchak AGAIC Officer
Ruby K. VALIC, Administrative
Donelson AGAIC Officer
David E. VALIC, Administrative
Green AGAIC Officer
Ted D. VALIC, Administrative
Hennis AGAIC Officer
William L. VALIC, Administrative
Hinkle AGAIC Officer
Joan M. VALIC, Administrative
Keller AGAIC Officer
William R. VALIC, Administrative
Keller, Jr AGAIC Officer
Fred M. VALIC, Administrative
Lowery AGAIC Officer
James F. VALIC, Administrative
McCulloch AGAIC Officer
Michael E. VALIC, Administrative
Mead AGAIC Officer
Elliott L. VALIC, Administrative
Shifman AGAIC Officer
Kathryn T. VALIC, Administrative
Smith AGAIC Officer
John M. VALIC, Administrative
Stanton AGAIC Officer
James P. VALIC, Administrative
Steele AGAIC Officer
ITEM 27. PRINCIPAL UNDERWRITERS
(a) American General Distributors, Inc.
(the "Distributor") acts as exclusive
distributor and principal underwriter of the
Registrant and as principal underwriter for
VALIC Separate Account A, American General
Series Portfolio Company and American
General Series Portfolio Company 3.
(b) The following information is furnished
with respect to each officer and director of
the Distributor.
POSITIONS AND
NAME AND PRIN POSITIONS AND OFFICES
CIPAL OFFICES WITH THE REGI
BUSINESS ADDR WITH DISTRIBU STRANT
ESS TOR
(*)
Bruce R. Chairman, --
Abrams Director,
Chief
Executive
Officer and
President
(*)
Patrick E. Director, --
Grady Chief
Financial
Officer and
Treasurer
(*)
Cynthia A. Director and Vice
Toles Secretary President
and
Secretary
(*)
D. Lynne Tax Officer --
Walters
(*)
V. Keith Chief --
Roberts Compliance
Officer
(*)
Cheryl G. Assistant --
Hemley Secretary
(*)
Daniel R. Assistant Tax --
Cricks Officer
(*)
Terry Assistant --
Festervand Treasurer
(*)
Tara S. Rock Assistant --
Treasurer
(*)
Gregory R. Assistant Treasurer
Seward Treasurer
(*)
Barbara Assistant --
Trygstad Treasurer
(*)
Marylyn S. Assistant --
Zlotnick Treasurer
__________
(*) 2929 Allen Parkway, Houston, Texas
77019
(c) Not Applicable
ITEM 28. 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 DEPOSITOR:
The Variable Annuity Life Insurance
Company
2929 Allen Parkway
Houston, Texas 77019
THE PRINCIPAL UNDERWRITER:
American General Distributors, Inc.
2929 Allen Parkway
Houston, Texas 77019
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
Brown Capital Management
1201 N. Calvert St.
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
2 International Place
Boston, Massachusetts 02110
ITEM 29. MANAGEMENT SERVICES
There is no management-related service
contract not discussed in Parts A or B of
this Form N-1A
ITEM 30. UNDERTAKINGS
Not Applicable
<PAGE>
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, duly authorized, in the City of
Houston, and State of Texas, on the 23rd day
of December, 1999.
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
2
By: /s/ THOMAS L. WEST, JR.
__________________________
Thomas L. West, Jr.
Chairman of the Board of Trustees
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.
Signature Title Date
/s/ THOMAS L. Chairman of December 23,
WEST, JR. the Board 1999
of
Trustees
Thomas L.
West, Jr.
/s/ GREGORY R. Treasurer December 23,
SEWARD 1999
Gregory R.
Seward
* Trustee December 23,
1999
Kent E.
Barrett
* Trustee December 23,
1999
Judith Craven
* Trustee December 23,
1999
Timothy J.
Ebner
* Trustee December 23,
1999
Gustavo E.
Gonzales, Jr.
* Trustee December 23,
1999
Norman
Hackerman
* Trustee December 23,
1999
Alice T. Kane
* Trustee December 23,
1999
John Wm.
Lancaster
* Trustee December 23,
1999
Ben H. Love
* Trustee December 23,
1999
John E.
Maupin, Jr.
* Trustee December 23,
1999
F. Robert
Paulsen
* Trustee December 23,
1999
R. Miller
Upton
By: /s/ David December 23,
M. Leahy 1999
David M. Leahy
Attorney-in-
Fact
