<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 2, 1998
REGISTRATION NO. 333-53589
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 2
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2
(CHECK APPROPRIATE BOX OR BOXES)
---------------------
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
(713) 526-5251
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE)
---------------------
NORI L. GABERT, ESQ.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
P.O. BOX 3206, HOUSTON, TEXAS 77253
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
JOHN A. DUDLEY, ESQ.
SULLIVAN & WORCESTER, LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
It is proposed that this filing will become effective (check appropriate box):
---------------------
<TABLE>
<S> <C>
___ immediately upon filing pursuant to paragraph (b) ___ on (date) pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (b) ___ 75 days after filing pursuant to paragraph (a)(2)
___ 60 days after filing pursuant to paragraph (a)(1) ___ on (date) pursuant to paragraph (a)(2) of Rule (a)(1)
</TABLE>
Title of Securities being Registered: Shares of Beneficial Interest.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date at the Commission, acting pursuant to said Section 8(a)
may determine.
===============================================================================
<PAGE> 2
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
---------------------
FORM N-1A
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
---------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(a))
PART A
<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
1. Cover Page........................................ Cover Page
2. Synopsis.......................................... Expense Summary
3. Condensed Financial Information................... Inapplicable
4. General Description of Registrant................. Welcome; About the Series Company; About the
Funds; Types of Investments
5. Management of the Fund............................ About the Fund's Management
6. Capital Stock and Other Securities................ About the Series Company
7. Purchase of Securities Being Offered.............. About the Series Company
8. Redemption and Repurchase......................... About the Series Company
9. Pending Legal Proceedings......................... Inapplicable
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------- -------------------------------------------
<C> <S> <C>
10. Cover Page........................................ Cover Page
11. Table of Contents................................. Table of Contents
12. General Information and History................... General Information and History
13. Investment Objectives and Policies................ Fundamental Investment Restrictions; Investment
Practices
14. Management of the Registrant...................... Trustees and Officers; Investment Adviser;
Investment Sub-Advisers
15. Control Persons and Principal Holders of
Securities........................................ Other Information
16. Investment Advisory and Other Services............ Investment Adviser; Investment Sub-Advisers;
Other Information
17. Brokerage Allocation.............................. Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................ Other Information
19. Purchase, Redemption and Pricing of Securities
Being Offered..................................... Offering, Purchase and Redemption of Fund Shares
20. Tax Status........................................ Taxation
21. Underwriters...................................... Offering, Purchase and Redemption of Fund Shares
22. Calculation of Performance Data................... Calculation of Yield for Money Market Fund
23. Financial Statements.............................. Financial Statements
</TABLE>
PART C
Information required to be set forth in Part C is set forth under the
appropriate item, so numbered in Part C of the Registration Statement.
<PAGE> 3
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 2, 1998
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 3
2929 ALLEN PARKWAY
HOUSTON TEXAS 77019
SEPTEMBER 2, 1998
PROSPECTUS
The American General Series Portfolio Company 3 (the "Series Company") is a
mutual fund made up of 18 separate Funds (the "Funds"). Each of the Funds has a
different investment objective. Each Fund is explained in more detail on its
Fact Sheet contained in this prospectus. Here is a summary of the goals of the
18 Funds:
ACTIVELY MANAGED EQUITY FUNDS:
AMERICAN GENERAL INTERNATIONAL GROWTH FUND ("INTERNATIONAL GROWTH FUND")
Long-term capital appreciation through investments in non-U.S. companies,
the majority of which are expected to be in developed markets.
AMERICAN GENERAL LARGE CAP GROWTH FUND ("LARGE CAP GROWTH FUND")
Long-term growth through investments in large cap U.S. issuers. Dividend
income is a secondary objective.
AMERICAN GENERAL MID CAP GROWTH FUND ("MID CAP GROWTH FUND")
Capital appreciation through investments in medium capitalization equity
securities. Current income is a secondary objective.
AMERICAN GENERAL SMALL CAP GROWTH FUND ("SMALL CAP GROWTH FUND")
Long-term growth through investments in small growth companies.
AMERICAN GENERAL INTERNATIONAL VALUE FUND ("INTERNATIONAL VALUE FUND")
Growth of capital and future income through investments in non-U.S.
issuers.
AMERICAN GENERAL LARGE CAP VALUE FUND ("LARGE CAP VALUE FUND")
Total returns exceeding the Russell 1000 Value Index through investments
in equity securities.
AMERICAN GENERAL MID CAP VALUE FUND ("MID CAP VALUE FUND")
Growth through investments in medium capitalization companies.
AMERICAN GENERAL SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND")
Maximum long-term return through investments in small capitalization
companies.
SPECIALTY EQUITY FUND:
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND ("SOCIALLY RESPONSIBLE FUND")
Growth through investments in companies meeting social criteria of the
Fund.
BALANCED FUND:
AMERICAN GENERAL BALANCED FUND ("BALANCED FUND")
Conservation of principal and long-term growth of capital and income
through investments in fixed income and equity securities.
INCOME FUNDS:
AMERICAN GENERAL HIGH YIELD BOND FUND ("HIGH YIELD BOND FUND")
Highest possible total return and income consistent with conservation of
capital through investments in high yielding, high risk fixed income
securities. INVESTMENTS OF THIS TYPE ARE REGARDED BY THE RATING AGENCIES
AS PREDOMINANTLY SPECULATIVE WITH RESPECT TO AN ISSUER'S CONTINUING
ABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS.
AMERICAN GENERAL STRATEGIC BOND FUND ("STRATEGIC BOND FUND")
Highest possible total return and income consistent with conservation of
capital through investments in income producing securities. THE LOWER
RATED FIXED INCOME SECURITIES IN WHICH THE FUND MAY INVEST ARE REGARDED BY
THE RATING AGENCIES AS SPECULATIVE WITH RESPECT TO AN ISSUER'S CONTINUING
ABILITY TO MEET PRINCIPAL AND INTEREST PAYMENTS.
AMERICAN GENERAL DOMESTIC BOND FUND ("DOMESTIC BOND FUND")
High total return consistent with conservation of capital through
investments primarily in investment grade fixed income securities.
AMERICAN GENERAL CORE BOND FUND ("CORE BOND FUND")
Highest possible total return consistent with conservation of capital
through investments in medium to high quality fixed income securities.
MONEY MARKET FUND:
AMERICAN GENERAL MONEY MARKET FUND ("MONEY MARKET FUND")
Income through investments in short-term money market securities.
LIFESTYLE FUNDS:
AMERICAN GENERAL GROWTH LIFESTYLE FUND ("GROWTH LIFESTYLE FUND")
Growth through investments in Series Company Funds.
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND ("MODERATE GROWTH
LIFESTYLE FUND")
Growth and current income through investments in Series Company Funds.
AMERICAN GENERAL CONSERVATIVE GROWTH LIFESTYLE FUND ("CONSERVATIVE GROWTH
LIFESTYLE FUND")
Current income and a low to moderate level of growth through investments
in Series Company Funds.
- --------------------------------------------------------------------------------
SHARES OF THE MONEY MARKET FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THIS FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
These Funds are available to you only through a variable annuity contract or
variable life insurance policy you or your employer bought from The Variable
Annuity Life Insurance Company ("VALIC") or one of its affiliates, or employee
thrift plans maintained by VALIC or American General Corporation. VALIC is a
member of the American General Corporation group of companies.
This prospectus sets forth concisely the information you should know before
investing in the Funds.
Because different contracts contain different combinations of Funds, all of the
Funds in this prospectus may not be available to you. And, there may be some
Funds that are available to you that don't appear in this prospectus. See the
separate prospectus that describes your, or your employer's annuity contract for
a complete list of Funds in which you may invest. BE SURE TO READ BOTH
PROSPECTUSES IN FULL BEFORE YOU START PARTICIPATING AND KEEP THEM FOR FUTURE
REFERENCE.
VALIC has filed a Statement of Additional Information, dated September 2, 1998,
with the Securities and Exchange Commission ("SEC"). This Statement contains
additional information about these Funds and is part of this prospectus. For a
free copy, write to the Series Portfolio at the address above or call
1-800-44-VALIC. The Statement of Additional Information has been filed with the
SEC and is available along with other related materials at the SEC's internet
web site (http://www.sec.gov.).
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
FUNDS. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
DO NOT COPY
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE
WELCOME....................................... 1
EXPENSE SUMMARY............................... 3
ABOUT THE SERIES COMPANY'S MANAGEMENT......... 4
Investment Adviser....................... 4
Investment Sub-advisers.................. 4
Portfolio Manager........................ 6
How Advisers Are Paid for Their
Services............................... 6
The Sub-advisers......................... 7
About the Board of Trustees.............. 8
ABOUT THE FUNDS............................... 9
Growth, Balanced, Income, Stability and
Lifestyle Categories................... 9
About Level of Risk...................... 9
About Portfolio Turnover................. 9
About Fund Performance................... 10
HOW TO READ A FUND FACT SHEET................. 11
SERIES COMPANY FUND FACT SHEETS
ACTIVELY MANAGED EQUITY FUNDS
International Growth Fund........... 12
Large Cap Growth Fund............... 16
Mid Cap Growth Fund................. 18
Small Cap Growth Fund............... 21
International Value Fund............ 23
Large Cap Value Fund................ 25
Mid Cap Value Fund.................. 28
Small Cap Value Fund................ 30
SPECIALTY EQUITY FUND
Socially Responsible Fund........... 32
BALANCED FUND
Balanced Fund....................... 34
INCOME FUNDS
High Yield Bond Fund................ 37
Strategic Bond Fund................. 38
Domestic Bond Fund.................. 41
Core Bond Fund...................... 43
MONEY MARKET FUND
Money Market Fund................... 45
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LIFESTYLE FUNDS
Growth Lifestyle Fund............... 47
Moderate Growth Lifestyle Fund...... 49
Conservative Growth Lifestyle
Fund.............................. 51
TYPES OF INVESTMENTS.......................... 53
Equity Securities........................ 53
Fixed Income Securities.................. 53
Asset-Backed Securities.................. 54
Loan Participations...................... 54
Variable Amount Demand Master Notes...... 54
Structured Securities.................... 54
Real Estate Securities................... 54
Illiquid and Restricted Securities....... 54
Depository Receipts...................... 55
Investment Funds......................... 55
Foreign Currency......................... 55
When-Issued Securities................... 55
Money Market Securities.................. 55
Investment Companies..................... 55
Derivatives.............................. 56
Options............................. 56
Call Option......................... 56
Put Option.......................... 56
Swap Agreements.......................... 56
Warrants and Rights...................... 56
Repurchase Agreements.................... 57
A Word About Risk........................ 57
Investment Practices..................... 59
Limitations......................... 59
Lending Portfolio Securities........ 59
ABOUT THE SERIES COMPANY...................... 60
Series Company Shares.................... 60
Administrative Services Agreement........ 61
Net Asset Value of the Series Company
Shares................................. 60
Dividends and Capital Gains.............. 61
Diversification.......................... 61
Taxes.................................... 61
Voting Rights............................ 61
Year 2000 Risks.......................... 62
Reports.................................. 62
APPENDIX -- DESCRIPTION OF BOND RATINGS....... 63
APPENDIX -- DESCRIPTION OF COMMERCIAL PAPER
RATINGS........................... 65
</TABLE>
(i)
<PAGE> 5
WELCOME
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, and VALIC mean
The Variable Annuity Life Insurance Company and any Investment Sub-adviser that
we work with. The words you and your mean the participant.
American General Series Portfolio Company 3 (the "Series Company") was organized
as a Delaware business trust on May 6, 1998.
The Series Company is an open-end management investment company and currently
consists of 18 different Funds, each of which is described in detail in this
prospectus. We serve as each Fund's Investment Adviser and, in this role, report
directly to the Series Company's Board of Trustees. As Investment Adviser, we
oversee the Funds' day to day operations, supervise the purchase and sale of
Fund investments and perform the cash management function. Investment
Sub-advisers make the investment decisions for the Funds that they manage, as
described more fully in this prospectus. However, we make investment decisions
for, and are directly responsible for the day to day management of, the Socially
Responsible Fund, the Money Market Fund and the Lifestyle Funds. For more
information, see "About the Funds' Management" in this prospectus.
Individuals can't invest in the shares of these Funds directly. Instead, they
participate through an annuity or variable life contracts or employer plan with
VALIC or one of its affiliates, or employee thrift plans maintained by VALIC or
American General Corporation. Most often employers set up these contracts so
they can offer their employees a way to save for retirement. Retirement plans
through employers may be entitled to tax benefits that individual retirement
plans may not be entitled to. These tax benefits are fully explained in your
contract prospectus.
After you invest in a Fund, you participate in Fund earnings or losses, in
proportion to the amount of money you invest. Depending on your contract, if you
withdraw your money before retirement, you may incur charges and additional tax
liabilities. However, to save for retirement, you generally should let your
investments and their earnings build. At retirement, you may withdraw all or a
portion of your money, leave it in the account until you need it, or start
receiving annuity payments. At a certain age you may be required to begin
withdrawals.
All inquiries regarding this prospectus should be directed, in writing, to VALIC
Customer Service, A3-01, 2929 Allen Parkway, Houston, Texas 77019, or by calling
1-800-633-8960.
All inquiries regarding contracts issued by American General Life Insurance
Company (AGL) should be directed to AGL's Annuity Administration Department,
2727-A Allen Parkway, Houston, Texas 77019-2191 or call 1-800-813-5065. AGL is a
member of the American General Corporation group of companies, as is VALIC.
Open-end means shares
of the Funds can be
bought or sold by the
Series Company at any
time. Also, there is no limit
on the number of investors
who may buy shares.
1
<PAGE> 6
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2
<PAGE> 7
EXPENSE SUMMARY
- --------------------------------------------------------------------------------
Annual fund operating expenses are the fees paid out of the assets of a Fund.
Each Fund pays a management fee to VALIC. The expenses paid by a Fund are
factored into the calculation of its share price or dividends and are not
charged directly to investors. The expenses reflected in the tables below are
based on the Funds' anticipated expenses for the first year of operation on an
annualized basis.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES:
(after expense reimbursements, as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL LARGE CAP MID CAP SMALL CAP INTERNATIONAL LARGE CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND VALUE FUND VALUE FUND
------------- ----------- ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fee(a) .47% .30% .43% .56% .37% .25%
Other Expenses(c) .71% .58% .64% .62% .70% .58%
---- ----- ----- ----- ----- -----
Total Fund Operating Expenses(a): 1.18% .88% 1.07% 1.18% 1.07% .83%
==== ===== ===== ===== ===== =====
<CAPTION>
SOCIALLY
MID CAP SMALL CAP RESPONSIBLE
VALUE FUND VALUE FUND FUND
---------- ---------- -----------
<S> <C> <C> <C>
Management Fee(a) .43% .38% --%
Other Expenses(c) .64% .63% .58%
----- ----- -----
Total Fund Operating Expenses(a): 1.07% 1.01% .58%
===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursements, as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MODERATE
MONEY GROWTH GROWTH
BALANCED HIGH YIELD STRATEGIC DOMESTIC CORE MARKET LIFESTYLE LIFESTYLE
FUND BOND FUND BOND FUND BOND FUND BOND FUND FUND FUND(b) FUND(b)
-------- ---------- --------- --------- --------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee(a) .05% .20% .03% .24% --% --% .10% .10%
Other Expenses(a)(c) .80% .83% .90% .57% .83% .58% --% --%
----- ----- ----- ----- ----- ----- ----- -----
Total Fund Operating Expenses(a): .85% 1.03% .93% .81% .83% .58% .10% .10%
===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
CONSERVATIVE
GROWTH
LIFESTYLE
FUND(b)
------------
<S> <C>
Management Fee(a) .10%
Other Expenses(a)(c) --%
-----
Total Fund Operating Expenses(a): .10%
=====
</TABLE>
(a) After expense reimbursement. VALIC has voluntarily agreed to waive a
portion of its management fee or to reimburse certain expenses of each
Fund, other than the Lifestyle Funds, during the first fiscal year. In the
absence of the expense reimbursement, management fees, other expenses and
total fund operating expenses, respectively, would be: International Growth
Fund, 0.90%, .71% and 1.61%; Large Cap Growth Fund, .55%, .58% and 1.13%;
Mid Cap Growth Fund, .65%, .64% and 1.29%; Small Cap Growth Fund, .85%,
0.62% and 1.47%; International Value Fund, 1.00%, .70% and 1.70%; Large Cap
Value Fund, .50%, .58% and 1.08%; Mid Cap Value Fund, .75%, .64% and 1.39%;
Small Cap Value Fund, .75%, .63% and 1.38%; Socially Responsible Fund,
.25%, .87% and 1.12%; Balanced Fund, .80%, .80% and 1.60%; High Yield Bond
Fund, .70%, .83% and 1.53%; Strategic Bond Fund, .60%, .90% and 1.50%;
Domestic Bond Fund, .60%, .57% and 1.17%; Core Bond Fund, .50%, .86% and
1.36%; Money Market Fund, .25%, .86% and 1.11%. No expense reimbursements
apply to the Growth Lifestyle Fund, the Moderate Growth Lifestyle Fund and
the Conservative Lifestyle Fund.
(b) The Growth Lifestyle Fund, the Moderate Growth Lifestyle Fund and the
Conservative Growth Lifestyle Fund seek to accomplish their respective
objectives by investing primarily in a number of other Series Company Funds
("Underlying Series Company Funds"). Each Lifestyle Fund will bear
indirectly its pro rata share of the fees and expenses incurred by the
Underlying Series Company Funds in which the Lifestyle Fund is invested.
(c) Other Expenses, which include custody, accounting, reports to shareholders,
audit, legal, administrative, recordkeeping and other miscellaneous
services provided to the Funds, are based on estimated amounts for the
current fiscal year.
- --------------------------------------------------------------------------------
TOTAL COMBINED OPERATING EXPENSES(a)
(including indirect expenses) (after expense reimbursements, as a percentage of
net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ESTIMATED TOTAL COMBINED
OPERATING EXPENSES(b)
------------------------
<S> <C>
Growth Lifestyle Fund 1.09%
Moderate Growth Lifestyle Fund 1.03%
Conservative Growth Lifestyle Fund 1.00%
</TABLE>
(a) Estimated Total Combined Operating Expenses of each Lifestyle Fund is based
on the Total Fund Operating Expenses of the Underlying Series Company Funds
and the Lifestyle Funds, assuming each Lifestyle Fund's projected asset
allocation among the Underlying Series Company Funds is maintained.
(b) Reflects estimated total average weighted combined operating expenses.
The purpose of the expense tables above is to assist investors in understanding
the various costs and expenses that a shareholder of a Fund will bear directly
or indirectly. Each Fund's annual operating expenses do not reflect expenses
imposed by separate accounts of VALIC through which an investment in each Fund
is made or their related contracts. A separate account's expenses are fully
explained in your contract prospectus.
3
<PAGE> 8
ABOUT THE SERIES COMPANY'S MANAGEMENT
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC, a stock life insurance company, has been in the investment advisory
business since 1960. VALIC, as of June 30, 1998, had over $8.5 billion in assets
under management. VALIC has been the Investment Adviser for the Funds that
comprise the Series Company since their inception.
VALIC is a member of the American General Corporation group of companies. The
American General Corporation group of companies is a leading provider of
retirement services, life insurance and consumer loans. Members of the American
General Corporation group of companies operate in each of the 50 states and
Canada.
As Investment Adviser, VALIC oversees the Funds' day to day operations. Also,
VALIC supervises the purchase and sale of Fund investments and performs the cash
management function. For the International Growth Fund, the Large Cap Growth
Fund, the Mid Cap Growth Fund, the Small Cap Growth Fund, the International
Value Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the Small Cap
Value Fund, the Balanced Fund, the High Yield Bond Fund, the Strategic Bond
Fund, the Domestic Bond Fund, and the Core Bond Fund, VALIC employs Investment
Sub-advisers who make investment decisions for such Fund(s). However, we make
investment decisions for, and are directly responsible for the day to day
management of, the Socially Responsible Fund, the Money Market Fund and the
Lifestyle Funds. VALIC serves as Investment Adviser through an Investment
Advisory Agreement it enters into with the Series Company. The Investment
Advisory Agreement provides for the Series Company to pay all expenses not
specifically assumed by VALIC. Examples of the expenses paid by the Series
Company include transfer agency fees, custodial fees, the fees of outside legal
and auditing firms, the costs of reports to shareholders and expenses of
servicing shareholder accounts (e.g., daily calculation of the net asset value).
The Series Company allocates these expenses to each Fund in a manner approved by
the Board of Trustees. After the second year, this agreement will be renewed
once each year, by the Series Company Board of Trustees.
One Investment Advisory Agreement dated August 26, 1998 covers all 18 Funds.
For more information about the Advisory Agreement, see the "Investment Adviser"
section in the Statement of Additional Information.
INVESTMENT SUB-ADVISERS
For some of the Funds, VALIC works with Investment Sub-advisers, financial
service companies that specialize in certain types of investing. However, VALIC
still retains ultimate responsibility for managing the Funds. The Sub-adviser's
role is to make investment decisions for the Funds according to each Fund's
investment objectives and restrictions.
In selecting Sub-advisers, the Series Company's Trustees carefully evaluated:
(i) the nature and quality of the services expected to be rendered to the
Fund(s) by the Sub-adviser, (ii) the distinct investment objective and policies
of the Fund(s); (iii) the history, reputation, qualification and background of
the Sub-advisers' personnel and its financial condition; (iv) its performance
track record; and (v) other factors deemed relevant. The Trustees also reviewed
the fees to be paid to each Sub-adviser.
The Sub-advisers are:
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P. ("AGIM")
AGIM is the Sub-adviser for the Core Bond Fund, the Strategic Bond Fund and the
High Yield Bond Fund. AGIM is a limited partnership whose sole general partner
and sole limited partner are wholly-owned subsidiaries of American General
Corporation. AGIM provides investment management and advisory services to
pension and profit sharing plans, financial institutions and other investors. As
of June 30, 1998, AGIM had approximately $70 billion in assets under management.
BANKERS TRUST COMPANY
("BANKER'S TRUST")
Bankers Trust is one of two Sub-advisers for the Small Cap Value Fund. Bankers
Trust first offered investment management services in 1938 and began managing
index funds in 1977. As of June 30, 1998 Bankers Trust was the seventh largest
U.S. financial services
VALIC'S ADDRESS is 2929 Allen
Parkway, Houston, Texas 77019.
AMERICAN GENERAL INVESTMENT
MANAGEMENT'S PRINCIPAL OFFICES
are located at 2929 Allen
Parkway, Houston, Texas 77019.
BANKERS TRUST'S PRINCIPAL OFFICES
are located at 130 Liberty Street,
New York, New York 10006.
BROWN CAPITAL MANAGEMENT'S
PRINCIPAL OFFICES are located at
809 Cathedral Street, Baltimore,
Maryland 21201.
CAPITAL GUARDIAN'S PRINCIPAL
OFFICES are located at 333 South
Hope Street, Los Angeles,
California 90071.
FMA'S PRINCIPAL OFFICES are located at 55 West Monroe Street, Suite #2550,
Chicago, Illinois 60603.
4
<PAGE> 9
- --------------------------------------------------------------------------------
institution and managed over $360 billion in assets. Bankers Trust is entirely
owned by Bankers Trust New York Corporation, a bank holding company.
BROWN CAPITAL MANAGEMENT, INC. ("BROWN CAPITAL MANAGEMENT")
Brown Capital Management is the Sub-adviser for the Mid Cap Growth Fund.
Established as a Maryland corporation in 1983, Brown Capital Management served
as investment adviser to approximately $4 billion in assets as of June 30, 1998.
CAPITAL GUARDIAN TRUST COMPANY
("CAPITAL GUARDIAN")
Capital Guardian is the Sub-adviser for the International Value Fund, the
Balanced Fund and the Domestic Bond Fund. Capital Guardian provides investment
management services to a limited number of large institutional clients such as
employee benefit funds, foundations and endowment funds. As of June 30, 1998,
Capital Guardian had more than $79.5 billion in assets under management.
FIDUCIARY MANAGEMENT ASSOCIATES, INC. ("FMA")
FMA is one of two Sub-advisers for the Small Cap Value Fund. FMA is a
wholly-owned subsidiary of United Asset Management Corporation, and provides
investment management services to corporations, foundations, endowments, pension
and profitsharing plans, trusts, estates and other institutions as well as
individuals. As of June 30, 1998, FMA had over $1.9 billion in assets under
management.
GOLDMAN SACHS ASSET MANAGEMENT ("GSAM")
GSAM is the Sub-adviser for the Large Cap Growth Fund. GSAM is a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"). GSAM provides a
wide range of fully discretionary investment advisory services quantitatively
driven and actively managed to U.S. and international equity portfolios, U.S.
and global fixed income portfolios, commodity and currency products and money
market accounts. As of June 30, 1998, GSAM and its affiliates served as
investment adviser or distributor for assets exceeding $162.2 billion.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("JP MORGAN")
JP Morgan is the Sub-adviser for the Small Cap Growth Fund. Known for its
commitment to proprietary research and its disciplined investment strategies, JP
Morgan provides asset management services to corporations, financial
institutions, governments and individuals. As of June 30, 1998, JP Morgan and
its affiliates employed over 300 analysts and portfolio managers around the
world and had more than $300 billion in assets under management.
JACOBS ASSET MANAGEMENT
Jacobs Asset Management is the Sub-adviser for the International Growth Fund.
Jacobs Asset Management is a Delaware limited partnership. United Asset
Management Corporation is a limited partner of, and owns a controlling interest
in, Jacobs Asset Management. Jacobs Asset Management provides investment
management and advisory services to corporations, unions, pensions and
profit-sharing plans, trusts and estates and other institutions and investors.
As of June 30, 1998, Jacobs Asset Management had more than $431 million in
assets under management.
NEUBERGER&BERMAN MANAGEMENT INC. ("N&B MANAGEMENT")
N&B Management is the Sub-adviser for the Mid Cap Value Fund. N&B Management and
its predecessor firms have specialized in the management of no-load mutual funds
since 1950. As of June 30, 1998, N&B Management and its affiliates managed
approximately $59 billion in aggregate net assets, including approximately $24
billion in mutual fund assets.
STATE STREET BANK & TRUST COMPANY ("STATE STREET BANK")/STATE STREET GLOBAL
ADVISORS ("STATE STREET GLOBAL ADVISORS")
State Street Global Advisors is the Sub-adviser for the Large Cap Value Fund.
State Street Global Advisors is an operating division of State Street Bank, a
wholly-owned subsidiary of State Street Corporation, which had more than $390
billion under management as of June 30, 1998.
GSAM'S PRINCIPAL OFFICES are
located at One New York Plaza,
New York, New York 10004.
JP MORGAN'S PRINCIPAL OFFICES
are located at 522 Fifth Avenue,
New York, NY 10036.
JACOBS ASSET MANAGEMENT'S
PRINCIPAL OFFICES are located at 200 East Broward
Boulevard, Suite 1920,
Fort Lauderdale, Florida 33301.
N&B MANAGEMENT'S PRINCIPAL
OFFICES are located 605 Third
Avenue, Second Floor, New York,
New York 10158-0180.
STATE STREET GLOBAL ADVISOR'S
PRINCIPAL OFFICES are located at
2 International Place, Boston,
Massachusetts 02110.
5
<PAGE> 10
- --------------------------------------------------------------------------------
These financial service companies act as Investment Sub-advisers through an
agreement each entered into with VALIC. For more information on these agreements
and on these Sub-advisers, see the "Investment Sub-Advisers" section in the
Statement of Additional Information.
PORTFOLIO MANAGER
A manager is a person or team of persons VALIC or one of its Sub-advisers, has
assigned to be primarily responsible for the day to day management of a Fund's
investments. A Fund's investments are called its portfolio.
HOW ADVISERS ARE PAID FOR
THEIR SERVICES
VALIC
Each Fund pays VALIC a fee based on its average daily net asset value. A Fund's
net asset value is the total value of the Fund's assets minus any money it owes
for operating expenses, such as the fee paid to its Custodian to safeguard the
Fund's investments.
Here is a list of the percentages each Fund pays VALIC.
<TABLE>
<S> <C>
International Growth Fund 0.90% on the first $100 million
0.80% on assets over $100 million
Large Cap Growth Fund 0.55%
Mid Cap Growth Fund 0.65% on the first $25 million
0.55% on the next $25 million
0.45% on assets over $50 million
Small Cap Growth Fund 0.85%
International Value Fund 1.00% on the first $25 million
0.85% on the next $25 million
0.675% on the next $200 million
0.625% on assets over $250 million
Large Cap Value Fund 0.50%
Mid Cap Value Fund 0.75% on the first $100 million
0.725% on the next $150 million
0.70% on the next $250 million
0.675% on the next $250 million
0.65% on the assets over $750 million
Small Cap Value Fund 0.75% on the first $50 million
0.65% on the assets over $50 million
</TABLE>
<TABLE>
<S> <C>
Socially Responsible
Fund 0.25%
Balanced Fund 0.80% on the first $25 million
0.65% on the next $25 million
0.45% on assets over $50 million
High Yield Bond Fund 0.70% on the first $200 million
0.60% on the next $300 million
0.55% on assets over $500 million
Strategic Bond Fund 0.60% on the first $200 million
0.50% on the next $300 million
0.45% on assets over $500 million
Domestic Bond Fund 0.60% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% on the assets over $300 million
Core Bond Fund 0.50% on the first $200 million
0.45% on the next $300 million
0.40% on assets over $500 million
Money Market Fund 0.25%
Conservative Growth
Lifestyle Fund 0.10%
Moderate Growth
Lifestyle Fund 0.10%
Growth Lifestyle Fund 0.10%
</TABLE>
The Investment Advisory Agreement we entered into with each Fund does not limit
how much the Funds pay in monthly expenses each year.
As shareholders of other Series Company Funds, the Lifestyle Funds incur their
proportionate share of the underlying Series Company Funds' fees and expenses,
including the fees paid to VALIC.
From time to time VALIC, the Sub-advisers and/or the Distributor may voluntarily
undertake to reduce a Fund's expenses by reducing the fees payable to them to
the extent of, or bearing expenses in excess of, such limitations as they may
establish.
6
<PAGE> 11
- --------------------------------------------------------------------------------
THE SUB-ADVISERS
The Funds do not pay the Sub-advisers directly. According to the agreements,
VALIC pays them periodically a fee based upon the Funds' average daily net asset
values. We pay them a percentage of what is paid to us by the Funds. We and the
Sub-advisers may agree to change the amount of money we pay them. Any such
change increasing the charge paid by a Fund to VALIC would have to be approved
by the Series Company Board of Trustees and the shareholders of the Fund.
The Series Company was issued an exemptive order by the Securities and Exchange
Commission (the "SEC") on September [9], 1998 for an exemption (the "Exemption")
from certain provisions of the Investment Company Act of 1940 ("1940 Act") which
would otherwise require VALIC to obtain formal shareholder approval prior to
engaging and entering into sub-advisory agreements with Sub-advisers. The relief
is based on the conditions set forth in the Exemption that, among other things:
(1) VALIC will select, monitor, evaluate and allocate assets to the Sub-advisers
and oversee the Sub-advisers' compliance with the relevant Fund's investment
objective, policies and restrictions; (2) before a Fund may rely on the
Exemption, the Exemption must be approved by the shareholders of the Funds
operating under the Exemption; (3) the Series Company will provide to
shareholders certain information about a new Sub-adviser; (4) the Series Company
will disclose in this prospectus the existence, substance and effect of the
Exemption; and (5) the Trustees, including a majority of the "independent"
Trustees, must approve each sub-advisory agreement in the manner required under
the 1940 Act. Any changes to the Investment Advisory Agreement between the
Series Company and VALIC would still require shareholder approval. As required
by the Exemption, the initial shareholder of each Fund, by unanimous written
consent dated August 26, 1998, voted to permit VALIC to terminate, replace or
add Sub-advisers and to enter into sub-advisory agreements with Sub-advisers
upon approval of the Board of Trustees but without formal shareholder approval.
Under the Investment Sub-advisory Agreement we have with AGIM, we pay AGIM a
monthly fee based on the average daily net asset values of the Core Bond Fund at
an annual rate of 0.25% of the first $200 million, 0.20% of the next $300
million and 0.15% on assets over $500 million and the Strategic Bond Fund at an
annual rate of 0.35% of the first $200 million, 0.25% of the next $300 million
and 0.20% on assets over $500 million. We pay AGIM a monthly fee based on the
average daily net asset values of the High Yield Bond Fund at an annual rate of
0.45% of the first $200 million, 0.35% of the next $300 million and 0.30% on
assets over $500 million.
Under the Investment Sub-Advisory Agreement we have with Bankers Trust, we pay
Bankers Trust monthly fees based on the average daily net asset values of the
portion of the Small Cap Value Fund portfolio it manages at an annual rate of
0.03%.
Under the Investment Sub-Advisory Agreement we have with Brown Capital
Management, we pay Brown Capital Management a monthly fee based on the average
daily net asset values of the Mid Cap Growth Fund at the annual rate of 0.40% of
the first $25 million, 0.30% of the next $25 million and 0.20% on assets over
$50 million.
Under the Investment Sub-Advisory Agreement we have with Capital Guardian, we
pay Capital Guardian a quarterly fee based on the average daily net asset values
of the International Value Fund at an annual rate of 0.75% of the first $25
million, 0.60% of the next $25 million, 0.425% of the next $200 million and
0.375% on assets over $250 million and the Domestic Bond Fund at an annual rate
of 0.35% of the first $50 million, 0.20% on the next $50 million, 0.18% on the
next $200 million and 0.15% of assets over $300 million. We pay Capital Guardian
a quarterly fee based on the average daily net asset values of the Balanced Fund
at an annual rate of 0.55% of the first $25 million, 0.40% of the next $25
million and 0.20% on assets over $50 million. Capital Guardian aggregates fees
with respect to the International Value Fund, the Domestic Bond Fund and the
Balanced Fund and applies a 5% discount to all fees if total fees are between
$1.25 million and $4 million, a 7.5% discount to all fees if total fees are
between $4 million and $8 million, a 10% discount to all fees if total fees are
between $8 million and $12 million, and a 12.5% discount to all fees in excess
of $12 million.
Under the Investment Sub-Advisory Agreement we have with FMA, we pay FMA a
monthly fee based on the average daily net asset values of the portion of the
Small Cap Value Fund portfolio it manages at the annual rate of 0.50% of the
first $50 million and 0.40% on assets over $50 million.
Under the Investment Sub-Advisory Agreement we have with GSAM, we pay GSAM a
monthly fee based on the average daily net asset values of the Large Cap Growth
Fund at the annual rate of 0.30%.
Under the Investment Sub-Advisory Agreement we have with JP Morgan, we pay JP
Morgan a monthly fee based on the average daily net asset values of the Small
Cap Growth Fund at the annual rate of 0.60%.
For more information on WHAT THE
SUB-ADVISERS ARE PAID, see the
"Investment Sub-Advisers" section
in the Statement of Additional
Information.
7
<PAGE> 12
- --------------------------------------------------------------------------------
Under the Investment Sub-Advisory Agreement we have with Jacobs Asset
Management, we pay Jacobs Asset Management a monthly fee based on the average
daily net asset values of the International Growth Fund at an annual rate of
0.65% of the first $100 million and 0.55% on assets over $100 million.
Under the Investment Sub-Advisory Agreement we have with N&B Management, we pay
N&B Management a monthly fee based on the average daily net asset values of the
Mid Cap Value Fund at the annual rate of 0.50% of the first $100 million, 0.475%
of the next $150 million, 0.45% of the next $250 million, 0.425% of the next
$250 million and 0.40% on assets over $750 million.
Under the Investment Sub-Advisory Agreement we have with State Street Global
Advisors, we pay State Street Global Advisors a monthly fee based on the average
daily net asset values of the Large Cap Value Fund at the annual rate of 0.25%
but no less than $50,000 per year.
According to the agreements 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 can not be greater than
the usual and customary brokers commission if the sale was completed on a
securities exchange. The Series Company has adopted procedures, as required by
the 1940 Act, which provide that any commissions received by a Sub-adviser's
affiliated broker are reasonable and fair if compared to the commission received
by other brokers for the same type of securities transaction.
The Securities Exchange Act of 1934 prohibits members of national securities
exchanges from effecting exchange transactions for accounts that they or their
affiliates manage, except as allowed under rules adopted by the SEC. The Series
Company and the Sub-advisers have entered into written contracts, as required by
the 1940 Act, to allow the Sub-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.
We and the Sub-advisers may enter into simultaneous purchase and sale
transactions for the Funds or affiliates of the Funds.
ABOUT THE BOARD OF TRUSTEES
The Series Company Board of Trustees currently consists of twelve members: nine
are independent Trustees and three are VALIC employees.
The Board of Trustees may change each Fund's investment objective, investment
policies and non-fundamental investment restrictions without shareholder
approval. The Board may not change any fundamental restrictions placed on the
types of investments each Fund may buy. The fundamental restrictions appear in
the Statement of Additional Information. Changes to these restrictions may be
made with shareholder approval only.
8
<PAGE> 13
ABOUT THE FUNDS
- --------------------------------------------------------------------------------
GROWTH, BALANCED, INCOME, STABILITY AND LIFESTYLE CATEGORIES
The Funds offered in this prospectus fall into five general investment
categories: growth, balanced, income, stability and lifestyle.
GROWTH CATEGORY
The goal of a Fund in the growth category is to increase the value of your
investment over the long term by investing mostly in stocks. Stocks are a type
of investment that can increase in value over a period of years. Companies sell
stock to get the money they need to grow. These companies often keep some of
their profits to reinvest in their business. As they grow, the value of their
stock may increase. This is how the value of your investment may increase.
Series Company Growth Category includes:
International Growth Fund
Large Cap Growth Fund
Mid Cap Growth Fund
Small Cap Growth Fund
International Value Fund
Large Cap Value Fund
Mid Cap Value Fund
Small Cap Value Fund
Socially Responsible Fund
BALANCED CATEGORY
(Combination of Growth and Income Categories)
The goal of a Fund in the balanced category is to increase the value of your
investment over the long term and to provide income. Funds in the balanced
category seek to conserve the value of your initial investment and promote
long-term growth and income by investing in stocks and income producing
securities.
Series Company Balanced Category includes:
Balanced Fund
INCOME CATEGORY
Unlike Funds in the growth category, where the objective is to make the Fund's
investments increase in value, Funds in the income category try to keep the
value of their investments from falling, while providing an increase in the
value of your investment through the income earned on the Fund's investments. To
meet this objective, Funds in the income category buy investments that are
expected to pay interest to the Fund on a regular basis.
Series Company Income Category includes:
High Yield Bond Fund
Strategic Bond Fund
Domestic Bond Fund
Core Bond Fund
STABILITY CATEGORY
Funds in the stability category provide liquidity, protection of capital and
current income through investments in high quality securities.
Series Company Stability Category includes:
Money Market Fund
LIFESTYLE CATEGORY
The proliferation of mutual funds over the last several years has left many
investors in search of a simple means to manage their long-term investments.
With new investment categories emerging each year and with each mutual fund
reacting differently to political, economic and business events, many investors
are forced to make complex investment decisions in the face of limited
experience, time and personal resources. The Lifestyle Funds are designed to
meet the needs of investors who prefer to have their asset allocation decisions
made by professional money managers, are looking for an appropriate core
investment for their retirement portfolio and appreciate the advantages of broad
diversification.
A Lifestyle Fund does not invest directly in portfolio securities but, rather,
invests in a combination of Series Company Funds in order to meet its investment
objective. In this manner, the Lifestyle Funds offer you the opportunity to
diversify your investment portfolio by investing in one Fund, rather than in a
variety of Series Company Funds.
Series Company Lifestyle Category includes:
Growth Lifestyle Fund
Moderate Growth Lifestyle Fund
Conservative Growth Lifestyle Fund
ABOUT LEVEL OF RISK
The risks involved in each Fund are described in each Fund's Fact Sheet. These
risks may include market risk, credit risk, interest rate risk and risk
associated with foreign securities. These risks are described in the "Types of
Investments" section in this prospectus. The money you invest in the Series
Company is not insured. And, we can't guarantee that any of the Funds will meet
their investment objectives. There's a chance you may lose money and end up with
less than you invested.
ABOUT PORTFOLIO TURNOVER
Portfolio turnover occurs when a Fund sells its investments and buys new ones.
In some Funds, high portfolio turnover occurs when these Funds
9
<PAGE> 14
- --------------------------------------------------------------------------------
sell and buy investments as part of their investment strategy. In other Funds,
portfolio turnover is lower because the make up of the index stays fairly
constant.
High portfolio turnover may cause a Fund's expenses to increase. For example, a
Fund may have to pay brokerage fees and other related expenses.
The anticipated annual portfolio turnover rates for each of the Funds except the
Money Market Fund are as follows:
<TABLE>
<CAPTION>
ANTICIPATED
ANNUAL
PORTFOLIO
NAME OF FUND TURNOVER RATE
------------ -------------
<S> <C>
International Growth Fund 50%
Large Cap Growth Fund 50-75%
Mid Cap Growth Fund 30-60%
Small Cap Growth Fund 100%
International Value Fund 150%
Large Cap Value Fund 100%
Mid Cap Value Fund 100%
Small Cap Value Fund 100%
Socially Responsible Fund 120%
Balanced Fund 150%
High Yield Bond Fund 100-200%
Strategic Bond Fund 100-200%
Domestic Bond Fund 150%
Core Bond Fund 100-200%
Growth Lifestyle Fund 10-20%
Moderate Growth Lifestyle 10-20%
Fund
Conservative Growth Lifestyle 10-20%
Fund
</TABLE>
A portfolio turnover rate of 100% or more a year is considered high. A high rate
increases a Fund's transaction costs and expenses.
ABOUT FUND PERFORMANCE
From time to time the Series Company may advertise Fund performance information
such as Fund average total return and index total return. Information as to how
this Fund performance information is calculated appears in the Statement of
Additional Information. Additionally, information on separate account
performance appears in your contract prospectus.
10
<PAGE> 15
HOW TO READ A FUND FACT SHEET
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS
Gives you a quick recap of each Fund.
FUND NAME
INVESTMENT ADVISER; INVESTMENT SUB-ADVISER
They make the investment decisions for the Fund. See "About the Series Company's
Management" for more information.
PORTFOLIO MANAGER
Some Funds have a specific person or persons assigned as the portfolio manager.
This person is described here. The portfolio manager's role is explained in
"About the Series Company's Management."
INVESTMENT OBJECTIVE
This is the goal of the Fund, which is set by the Series Company Board of
Trustees.
INVESTMENT RISK
Shows some of the investment risks of the Fund.
INVESTMENT STRATEGY
This section explains how the Investment Advisers go about meeting the Fund's
investment objective.
FUND INVESTMENTS
Shows the types of investments the Fund makes.
PERFORMANCE INFORMATION OF OTHER INVESTMENT COMPANIES AND PRIVATE ACCOUNTS
This shows the average annual total return for a mutual fund, a managed account
or a composite of mutual funds and/or managed accounts, managed in substantially
the same manner and by the same individuals as those employed by VALIC or a
Sub-adviser to manage a Fund, for the time period indicated. Information about
how the mutual fund, managed account or composite performed for the periods
shown is presented net of fees and expenses. However, insurance company separate
account fees and charges are not deducted. The performance results presented
would be lower if fees associated with the variable annuity contracts and
variable life insurance policies issued by separate accounts had been deducted.
11
<PAGE> 16
INTERNATIONAL GROWTH
FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM CAPITAL
APPRECIATION THROUGH
INVESTMENTS IN NON-U.S.
COMPANIES, THE MAJORITY OF
WHICH ARE EXPECTED TO BE IN
DEVELOPED MARKETS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Jacobs Asset Management
PORTFOLIO MANAGER
This Fund is managed by an investment committee comprised of the following
individuals: Daniel L. Jacobs, Wai W. Chin, Robert J. Jurgens and Cynthia A.
New. Mr. Jacobs has been President of the Sub-adviser since July 1, 1995. From
1984 to 1995, Mr. Jacobs was Executive Vice President and Director of Templeton
Investment Counsel. Mr. Jacobs was portfolio manager of Templeton's Smaller
Companies Growth Fund. Ms. Chin has been Managing Director of Asian Research and
Portfolio Management of the Sub-adviser since July 1995. Prior to this, Ms. Chin
was Vice President of the Global Equity Group of Scudder, Stevens & Clark from
1989 to April 1995. Mr. Jurgens has been Managing Director of European Research
and Portfolio Management of the Sub-adviser since August 1995. From 1993 to
1995, Mr. Jurgens was Vice President and head of AIG Global Investors'
International Equity Division. Ms. New has been Director, Latin American
Research, of the Sub-adviser since July 1998. Prior to this, Ms. New was an
equity analyst at Pioneer Management Corporation from December 1997 to June 1998
and was at Templeton International Council from June 1993 to December 1997,
where she had research and portfolio management responsibilities for developed
and emerging market corporate and government debt securities.
INVESTMENT OBJECTIVE
Seeks to provide long-term capital appreciation by investing in equity
securities of non-U.S. companies, the majority of which are expected to be in
developed markets. The Fund may invest across the capitalization spectrum,
although it intends to emphasize smaller capitalization stocks.
INVESTMENT RISK
As described in the Investment Strategy section below, this Fund invests almost
all its assets in foreign securities, which have risks that U.S. investments do
not have, including foreign political and economic developments, fluctuations in
foreign exchange rates and limited publicly available information. For a further
explanation of the risks associated with foreign securities, see "A Word About
Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund will invest in equity securities in the markets of at least three
countries outside the United States. The Fund will diversify its investments
among developed and emerging market countries. Emerging market country
investments will be made only where we believe 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.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
12
<PAGE> 17
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Foreign equity securities** at least 85%
Equity securities including
common stock, preferred
stock, convertible
preferred stock, rights and
warrants, and American
Depository Receipts
("ADRs"), European
Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs")
- --------------------------------------------
Equity securities of issuers up to 40%
in emerging countries***
- --------------------------------------------
Equity securities of small generally 50%
capitalization
companies****
- --------------------------------------------
Equity securities of open-end up to 10%
or closed-end investment
companies
- --------------------------------------------
Forward currency exchange up to 100%
contracts
- --------------------------------------------
Illiquid securities***** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 25%
- --------------------------------------------
Short term investments****** up to 10%
- --------------------------------------------
</TABLE>
* At time of purchase.
** We intend to invest at least 85% of this Fund's total
assets in the equity securities of at least three countries outside the
United States.
*** "Emerging countries" are countries with economies
or securities markets that are considered by the Sub-adviser not to be
fully developed. An "emerging country" security is issued by a company
that in our opinion has one or more of the following characteristics: (i)
its principal securities trading market is in an emerging country; (ii)
alone or on a consolidated basis, it derives 50% or more of its annual
revenue from either goods produced, sales made or services performed in
emerging countries, or (iii) it is organized under the laws of, and has a
principal office in, an emerging country. "Emerging countries" are
countries with economies or securities markets that are considered by the
Sub-adviser not to be fully developed.
**** Small capitalization companies are companies with
market capitalizations of less than $1 billion at the time of purchase.
In certain countries, companies at the high end of the $1 billion
capitalization range would be considered to be mid cap or large cap
companies.
***** Percent of Fund's net assets applied at all times.
****** For temporary defensive reasons, we may invest up
to 100% of the Fund's total assets in short-term (less than twelve months
to maturity) securities or cash, including domestic and foreign money
market instruments, certificates of deposit, bankers' acceptances, time
deposits, U.S. Government obligations, U.S. Government agency securities,
short-term corporate debt securities, and commercial paper rated A-1 or
A-2 by S&P or Prime 1 or Prime 2 by Moody's or if unrated, in our opinion
of comparable quality. In no event will the Fund purchase short term
securities rated below Baa by Moody's or BBB by S&P. We may do this when
we think economic, political or market conditions make it too risky for
us to follow our general guidelines.
13
<PAGE> 18
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
1. The Templeton Performance Information
The International Growth Fund recently commenced operations and, therefore, has
no investment performance record. The performance information shown herein is
for the Templeton International Fund, a series of the Templeton Variable
Products Series Fund, which was managed by Mr. Jacobs, a principal of the
Sub-adviser. The Templeton International Fund has substantially similar, though
not necessarily identical objectives, policies and strategies as the
International Growth Fund. The chart below shows the historical investment
performance for the year-ended June 30, 1995 and the three-years ended 1995, net
of the Templeton International Fund's fees and expenses. The inception date for
the Templeton International Fund was May 1, 1992. During Mr. Jacobs tenure as
the portfolio manager of the Templeton International Fund, from May 1, 1992 to
June 30, 1995, he was primarily responsible for the day-to-day management and no
other person had a significant role in achieving the Templeton International
Fund's performance.
The International Growth Fund is subject to investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the International Growth Fund are
higher than the total fees incurred by the Templeton International Fund.
Consequently, the performance results for the Templeton International Fund would
have been lower if the Templeton International Fund had the same expenses as the
International Growth Fund. The performance of the Templeton International Fund
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON THE TEMPLETON INTERNATIONAL FUND WHICH WAS MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUAL WHO MANAGED THE
INTERNATIONAL GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
INTERNATIONAL GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF TEMPLETON INTERNATIONAL FUND
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
10.14% 12.33%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992
[CHART]
PERIOD ENDED JUNE 30, 1995
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the International Growth
Fund is likely to differ from the Templeton International Fund in size, cash
flow patterns and certain tax matters. Accordingly, the portfolio holdings and
performance of the International Growth Fund may vary from those of the
Templeton International Fund.
14
<PAGE> 19
INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
2. The Separate Account Performance Information
Although the International Growth Fund has no performance record, the Fund's
investment objectives, policies and strategies will be substantially similar,
though not necessarily identical, to those employed by the Sub-adviser with
respect to separately managed accounts of the Sub-adviser ("Separately Managed
Accounts"). The chart herein shows the historical investment performance for a
composite of the Sub-adviser's Separately Managed Accounts ("Sub-adviser
Composite") which were managed by the Sub-adviser in substantially the same
manner and by the same individuals who manage the International Growth Fund. The
Sub-adviser Composite represents the total return, net of all fees and expenses,
of all Separately Managed Accounts of the Sub-adviser. The inception date of the
Sub-adviser Composite was October 1, 1995.
The Separately Managed Accounts in the Sub-adviser Composite were not subject to
the investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Separately Managed Accounts included in the
Sub-adviser Composite had been subject to the requirements imposed on registered
mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the International Growth Fund are
higher than the total fees incurred by the Separately Managed Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser's Separately
Managed Accounts had the same expenses as the International Growth Fund. The
performance of the Sub-adviser Composite has been calculated in accordance with
SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE
SUB-ADVISER'S SEPARATELY MANAGED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE
SAME MANNER AND BY THE SAME INDIVIDUALS WHO MANAGE THE INTERNATIONAL GROWTH FUND
AND DOES NOT REFLECT THE PERFORMANCE OF THE INTERNATIONAL GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF SUB-ADVISER COMPOSITE
<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
19.02% 22.04%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1995
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the International Growth
Fund is likely to differ from the Sub-adviser's Separately Managed Accounts in
size, cash flow patterns and certain tax matters. Accordingly, the portfolio
holdings of the International Growth Fund may vary from those of the
Sub-adviser's Separately Managed Accounts and performance of the International
Growth Fund may vary from those of the Sub-adviser Composite.
15
<PAGE> 20
LARGE CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN LARGE CAP
U.S. ISSUERS. DIVIDEND
INCOME IS A SECONDARY
OBJECTIVE.
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Goldman Sachs Asset Management
PORTFOLIO MANAGER
The Fund is managed by the following individuals: Robert C. Jones; Kent A.
Clark; Victor H. Pinter; and Melissa Brown. Mr. Jones, Managing Director, joined
the Sub-adviser in 1989. From 1987 to 1989, he was the senior quantitative
analyst in the Goldman Sachs Investment Research Department and the author of
the monthly Stock Selection publication. Mr. Clark, Vice President, joined the
Sub-adviser's quantitative equity management team in 1992. Prior to joining the
Sub-adviser, Mr. Clark studied for a Ph.D in finance at the University of
Chicago. Mr. Pinter, Vice President, joined the Sub-adviser in 1990. From 1985
to 1990, he was a project manager in the Sub-adviser's Information Technology
Division. Ms. Brown, Vice President, joined the Sub-adviser in 1998. From 1994
to 1998, Ms. Brown was the director of Quantitative Equity Research and served
on the Investment Policy Committee at Prudential Securities.
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary objective.
INVESTMENT RISK
This Fund invests almost entirely in equity securities. The value of equity
securities can rise and fall over both short and long periods of time. The
Fund's investments are selected to maintain a risk profile similar to the
Russell 1000 Growth Index, and your investment may experience similar changes in
value and share similar risks such as market risk, credit risk, interest rate
risk and risk associated with foreign securities. For more information about
market risk, credit risk, interest rate risk and risk associated with foreign
securities, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests primarily in the equity securities of large cap U.S. issuers.
Large cap U.S. issuers are companies that meet the market capitalization range
of companies comprising the Russell 1000 Growth Index.
The Fund will be managed utilizing Goldman Sachs' Quantitative Equity Strategy.
The acronym "CORE" (Computer-Optimized and Research Enhanced) reflects the three
step investment process the team uses to select securities. First, we estimate
the returns of 3000 U.S. stocks and foreign securities using a combination of
research from the Goldman Sachs Global Investment Research Department, other
industry sources and objective quantitative analysis. Next, the Fund's
investment portfolio is constructed by balancing expected returns against
portfolio risk, trading fees and investment objectives. The Fund is intended to
be constructed with minimum deviations from the sector, risk statistics and
macroeconomic sensitivity of the benchmark. A proprietary multi-factor model is
used in seeking to ensure risks taken are both intended and are warranted due to
expected return. Lastly, the Fund is traded regularly and rebalanced in seeking
to ensure all positions are in line with current market outlooks and benchmark
weights.
We follow the guidelines listed below for making the primary investments for
this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of large cap at least 65%
U.S. issuers
- --------------------------------------------
Other equity securities of up to 25%
U.S. and foreign issuers**,
including convertible
securities, ADRs and GDRs
- --------------------------------------------
Investment grade fixed income up to 100%
securities***
- --------------------------------------------
Futures and options**** up to 5%
- --------------------------------------------
Illiquid securities***** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 100%
- --------------------------------------------
Warrants and stock purchase up to 5%
rights
- --------------------------------------------
Investment companies up to 5%
- --------------------------------------------
Unseasoned companies up to 5%
- --------------------------------------------
</TABLE>
* At time of purchase.
** This Fund may invest in the equity securities of a
foreign issuer only if the securities are traded in the U.S.
*** For temporary defensive purposes, we may invest up to 100% of the Fund's
total assets in fixed income securities, including U.S. Government
securities, repurchase agreements collateralized by U.S. Government
securities, commercial paper rated at least A-2 by S&P or P-2 by Moody's,
certificates of deposit, bankers' acceptances, repurchase agreements,
non-convertible preferred stocks, non-convertible corporate bonds with a
remaining maturity of less than one year. The Sub-adviser will not
necessarily dispose of a fixed income security when its ratings are down
graded to below investment grade.
**** The Fund may purchase or sell futures contracts
only with respect to a representative index. At no time will the aggregate
margin deposit required on all futures or options held, exceed 5% of the
Fund's total assets.
***** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
16
<PAGE> 21
LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Large Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Large Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser with respect to sixteen accounts ("Combined Accounts"),
including fourteen advisory accounts ("Accounts") and two registered mutual
funds ("Funds"). The chart herein shows the historical investment performance
for a composite of the Combined Accounts ("Combined Accounts Composite"), which
were managed by the Sub-adviser in substantially the same manner and by the same
individuals who manage the Large Cap Growth Fund. The Combined Accounts
Composite includes all Combined Accounts net of average fees and expenses
charged by the Accounts and the Funds. These expenses include investment
advisory fees but do not include custodial fees (other than for the mutual
funds), which, if included, could lessen the performance presented. The
inception dates of the Combined Accounts comprising the Combined Accounts
Composite range from November 11, 1991 to January 30, 1998.
The Accounts included in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Accounts included in the Combined Accounts
Composite had been subject to the requirements imposed on registered mutual
funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Large Cap Growth Fund are
higher than the total fees historically incurred by the Combined Accounts
comprising the Combined Accounts Composite. Consequently, the performance
results for the Combined Accounts Composite would have been lower if the
Combined Accounts Composite had the same expenses as the Large Cap Growth Fund.
The performance of the Combined Accounts Composite has been calculated in
accordance with performance presentation standards of the Association for
Investment Management and Research ("AIMR"). The AIMR method of calculating
performance is different from SEC performance standards, which are described
under "Performance and Yield Information" in the Statement of Additional
Information. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE
SUB-ADVISER'S COMBINED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME
MANNER AND BY THE SAME INDIVIDUALS AS THE LARGE CAP GROWTH FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE LARGE CAP GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
51.22% 26.08% 22.95%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE NOVEMBER 11, 1991
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Large Cap Growth Fund
is likely to differ from the Sub-Adviser's Accounts and Funds in size, cash flow
patterns and certain tax matters. Accordingly, the portfolio holdings of the
Large Cap Growth Fund may vary from those of the Sub-adviser's Combined Accounts
and the performance of the Large Cap Growth Fund may vary from that of the
Combined Accounts Composite.
17
<PAGE> 22
MID CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CAPITAL APPRECIATION THROUGH
INVESTMENTS IN MEDIUM
CAPITALIZATION EQUITY
SECURITIES. CURRENT INCOME
IS A SECONDARY OBJECTIVE.
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Brown Capital Management, Inc.
PORTFOLIO MANAGER
The Fund is managed by a team led by Eddie C. Brown. Mr. Brown is Founder,
President and controlling shareholder of the Sub-adviser. Mr. Brown has been
with the Sub-adviser since its inception in 1983. Robert E. Hall, Theodore M.
Alexander III, Noreen A. Frost, and Stephon A. Jackson assist Mr. Brown in the
management of the Fund. Mr. Hall, Senior Vice President and Portfolio
Manager/Analyst, joined the Sub-adviser in September 1993. Mr. Alexander, Vice
President and Portfolio Manager/Analyst, joined the Sub-adviser in October 1995.
Prior to this, Mr. Alexander was a Securities Analyst at Legg Mason Wood Walker
from June 1994 to October 1995. From June 1990 to January 1994, Mr. Alexander
was a Securities Analyst at Alex Brown & Sons, Inc. Ms. Frost, Vice President
and Portfolio Manager/Analyst, joined the Sub-adviser in February 1996. Prior to
this, Ms. Frost was in institutional sales at Duff & Phelps Securities Co. from
December 1994 to October 1996. From 1983 to 1993, Ms. Frost was
Investment/Broker-Dealer Analyst at Alex Brown & Sons, Inc. Mr. Jackson, Vice
President and Portfolio Manager/Analyst, joined the Sub-adviser in July 1997.
Prior to this, Mr. Jackson was Portfolio Manager/Director of Research at NCM
Capital Management from March 1994 to June 1997. From March 1993 to March 1994,
Mr. Jackson was an Analyst at Putnam Investments.
INVESTMENT OBJECTIVE
Seeks capital appreciation principally through investments in medium
capitalization equity securities, such as common and preferred stocks and
securities convertible into common stocks. Current income is a secondary
objective.
INVESTMENT RISK
This Fund invests mostly in equity securities of medium sized companies that we
believe are undervalued in the marketplace. The value of any equity security may
rise or fall over long or short periods of time. Although these equity
securities present an opportunity for capital appreciation, they may not be
broadly traded and involve market risk and risk associated with foreign
securities. For a discussion of market risk and risk associated with foreign
securities, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund will invest principally in the equity securities of medium
capitalization companies. Medium capitalization companies include companies with
a market capitalization of $1 to $7 billion. We will seek to achieve capital
appreciation through an opportunistic investment strategy with a growth bias.
This Fund will purchase equity securities of those companies that we feel are
undervalued relative to their growth potential in the securities markets,
because the companies are presently out of favor, not well known or possess
value that is not currently recognized by the investment community. We use a
"bottom up" approach to select specific investments, employing analysis that
contains elements of traditional dividend discount and earnings yield models,
establishes predicted relative valuation for equity and fixed income markets,
and determines the attractiveness of individual securities through evaluation of
growth and risk characteristics of the underlying company relative to the
overall equity market. Although the Fund's portfolio securities generally will
be acquired for the long term, they may be sold under some of the following
circumstances when the Sub-adviser believes that: a) the anticipated price
appreciation has been achieved or is no longer probable; b) alternative
investments offer superior total return prospects; or c) fundamentals change
adversely.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
18
<PAGE> 23
MID CAP GROWTH FUND
Fact Sheet -- (Continued)
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for
this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of medium at least 65%
capitalization companies
- --------------------------------------------
Other equity securities at least 25%
Common stocks, convertible
preferred stocks, preferred
stocks and convertible bonds
traded on domestic exchanges
or in over-the-counter
markets
- --------------------------------------------
Foreign equity securities, up to 10%
ADRs**
- --------------------------------------------
Money market instruments*** up to 10%
and fixed income
securities****, U.S.
Government securities,
corporate fixed income
securities**** (including
those subject to repurchase
agreements), bankers
acceptances and certificates
of deposit of domestic
branches of U.S. banks,
commercial paper (including
variable amount demand
master notes) rated in one
of the two highest ratings
categories of organizations
or, if not rated, of
equivalent quality and cash
and cash equivalents
- --------------------------------------------
Illiquid securities***** up to 10%
- --------------------------------------------
Rule 144A securities (liquid) up to 100%
- --------------------------------------------
Real estate securities****** up to 10%
- --------------------------------------------
</TABLE>
* At time of purchase.
** Foreign equity securities held by this Fund will be
held in the form of ADRs.
*** For temporary defensive reasons, we may invest up
to 100% of the Fund's assets in money market instruments and cash and
cash equivalents. We may do this when we think economic and market
conditions make it too risky to follow its general guidelines.
**** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***** Percent of Fund's net assets applied at all times.
****** This Fund will not invest directly in real estate, but
rather, in interests in or readily marketable securities issued by
companies that invest in real estate, including real estate investment
trusts (REITs).
19
<PAGE> 24
MID CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Mid Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Mid Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser with respect to discretionary investment management accounts
under their management ("Combined Accounts"). The chart herein shows the
investment performance for a composite of these Combined Accounts ("Combined
Accounts Composite") which were managed by the Sub-adviser in substantially the
same manner and by the same individuals who manage the Mid Cap Growth Fund. The
Combined Accounts Composite includes all Combined Accounts, net of account fees
and expenses. The inception dates of the Combined Accounts comprising the
Combined Accounts Composite range from January 1, 1993 to March 31, 1998.
The Combined Accounts in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Combined Accounts included in the Combined
Accounts Composite had been subject to the requirements imposed on mutual funds,
their performance might have been lower.
Total fees (after expense reimbursements) for the Mid Cap Growth Fund are lower
than the total fees historically incurred by the Combined Accounts comprising
the Combined Accounts Composite. Consequently, the performance results for the
Combined Accounts Composite would have been lower if the Combined Accounts
Composite had the same expenses as the Mid Cap Growth Fund. The performance of
the Combined Accounts Composite has been calculated in accordance with SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
COMBINED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE
SAME INDIVIDUALS AS THE MID CAP GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE
OF THE MIDCAP GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
47.95% 23.51% 21.86%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1993
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Mid Cap Growth Fund is
likely to differ from the Sub-adviser's Combined Accounts in size, cash flow
patterns and certain tax matters. Accordingly the portfolio holdings of the Mid
Cap Growth Fund may vary from those of the Sub-adviser's Combined Accounts and
the performance of the Mid Cap Growth Fund may vary from that of the Combined
Accounts Composite.
20
<PAGE> 25
SMALL CAP GROWTH FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN SMALL GROWTH
COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
J.P. Morgan Investment Management Inc.
PORTFOLIO MANAGER
Candice Eggerss, Stephen J. Rich and Saira Malik are the members of the
Sub-adviser's team who will be primarily responsible for the day-to-day
management of the Fund. Ms. Eggerss, who has been with the Sub-adviser since
1996, is Vice President and specializes in portfolio investments in small
capitalization technology companies. Prior to this, Ms. Eggerss was employed at
Weiss, Peck and Greer from April 1993 to April 1996 and at Equitable Capital
Management prior to 1993. Mr. Rich is a portfolio manager in the Small Cap
Equity Group. He manages a portion of the J.P. Morgan U.S. Small Company Fund
and other small cap portfolios. In addition to his present position, his 7 years
of experience in equity portfolio management include positions in J.P. Morgan
Investment Management Inc.'s Structured Equity and Balanced/Equity groups.
Before joining J.P. Morgan Investment Management Inc. in 1991, Mr. Rich received
an AB from Princeton University. Mr. Rich currently is pursuing a Master's in
Business Administration at New York University. Ms. Malik joined the Sub-adviser
in 1995 after completing her graduate studies at the University of Wisconsin.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth from a portfolio of equity securities of small
capitalization growth companies.
INVESTMENT RISK
Small capitalization companies may not have the financial strength to do well in
difficult times. Because they are small, the prices of their equity securities
may fluctuate more over the short term but they have more potential to grow.
This means their value may offer greater potential for appreciation. The equity
securities that the Fund invests in involve certain risks such as market risks.
For a discussion of these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund invests in small capitalization U.S. companies, which are companies
whose market capitalizations are greater than $150 million and less than $1.25
billion. On an industry by industry basis, the Fund's weightings are similar to
those of the Russell 2000 Growth Index. Within each industry, the Fund invests
in equity securities that the Sub-adviser's research and valuation process
indicate are the most undervalued. The greater a company's estimated worth
compared to the current market price of its equity securities, the more
undervalued the company.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -----------------------------------------------
<S> <C>
Equity securities of at least 65%
small capitalization
growth companies
- -----------------------------------------------
Other equity securities up to 35%
U.S. and foreign common
stocks, convertible
securities, preferred
stocks, warrants,
rights and investment
company securities
- -----------------------------------------------
Foreign investments up to 5%
- -----------------------------------------------
Futures and options up to 25%
- -----------------------------------------------
Illiquid securities** up to 15%
- -----------------------------------------------
Rule 144A securities up to 100%
(liquid)
- -----------------------------------------------
Investment grade short up to 10%
term fixed income
securities***
- -----------------------------------------------
Swaps up to 5%
- -----------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
*** During severe market downturns, we may invest up to
100% of the Fund's assets in investment grade short term securities,
including repurchase agreements and, for temporary or extraordinary
purposes, the Fund may borrow from banks up to 10% of its total assets. This
borrowing limitation applies at all times. The Fund may not purchase
additional securities if such borrowings exceed 5% of its net assets. The
Sub-adviser will not necessarily dispose of a fixed income security when its
rating is down graded to below investment grade.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
21
<PAGE> 26
SMALL CAP GROWTH FUND
- --------------------------------------------------------------------------------
The Small Cap Growth Fund recently commenced operations and, therefore, has no
investment performance record. However, the Small Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser and its affiliates with respect to discretionary investment
management accounts under their management ("Combined Accounts"). The chart
herein shows the historical investment performance for a composite of these
Combined Accounts ("Combined Accounts Composite") which was managed by the
Sub-adviser in substantially the same manner and by the same individuals who
manage the Small Cap Growth Fund. The Combined Accounts Composite includes all
Combined Accounts, net of account fees and expenses. The inception dates of the
Combined Accounts comprising the Combined Accounts Composite range from
September 1, 1994 to June 1, 1997.
The Combined Accounts in the Combined Accounts Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Combined Accounts included in the Combined
Accounts Composite had been subject to the requirements imposed on registered
mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Small Cap Growth Fund are
higher than the total fees historically incurred by the Combined Accounts
comprising the Combined Accounts Composite. Consequently, the performance
results for the Combined Accounts Composite would have been lower if the
Combined Accounts Composite had the same expenses as the Small Cap Growth Fund.
The performance of the Combined Accounts Composite has been calculated in
accordance with performance presentation standards of the Association for
Investment Management and Research ("AIMR"). The AIMR method of calculating
performance is different from SEC performance standards, which are described
under "Performance and Yield Information" in the Statement of Additional
Information. THE PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE
SUB-ADVISER'S COMBINED ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME
MANNER AND BY THE SAME INDIVIDUALS AS THE SMALL CAP GROWTH FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE SMALL CAP GROWTH FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF COMBINED ACCOUNTS COMPOSITE
<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
53.70% 30.54%
- -----------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 1, 1994
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Small Cap Growth Fund
is likely to differ from the Sub-adviser's Combined Accounts in size, cash flow
patterns and certain tax matters. Accordingly the portfolio holdings of the
Small Cap Growth Fund may vary from those of the Sub-adviser's Combined Accounts
and the performance of the Small Cap Growth Fund may vary from that of the
Combined Accounts Composite.
22
<PAGE> 27
INTERNATIONAL VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH OF CAPITAL AND FUTURE
INCOME THROUGH INVESTMENTS
IN NON-U.S. ISSUERS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
The Fund's portfolio managers include: (i) Robert Ronus, President of the
Sub-adviser, who has been an investment professional for 29 years and has been
with the Sub-adviser or an affiliate for 25 years; (ii) David Fisher, Vice
Chairman of the Sub-adviser, who has been an investment professional for 32
years and has been with the Sub-adviser or an affiliate for 28 years; (iii)
Harmut Giesecke, Senior Vice President and Director of Capital International,
Inc., an affiliate of the Sub-adviser, who has been an investment professional
for 26 years and has been with the Sub-adviser or an affiliate for 25 years;
(iv) Nancy Kyle, Senior Vice President of the Sub-adviser, who has been an
investment professional for 24 years and has been with the Sub-adviser or an
affiliate for 7 years; (v) John McIlwraith, Senior Vice President of the
Sub-adviser, who has been an investment professional for 28 years and has been
with the Sub-adviser or an affiliate for 14 years; (vi) Nilly Sikorsky, Director
of The Capital Group of Companies, Inc., an affiliate of the Sub-adviser, who
has been an investment professional for 35 years and has been with the
Sub-adviser or an affiliate for 35 years; (vii) Lionel Sauvage, Vice President
of the Sub-adviser, who has been an investment professional for 11 years and has
been with the Sub-adviser or an affiliate for 11 years; (viii) Richard Havas,
Sr., Vice President of the Sub-adviser, who has been an investment professional
for 16 years and has been with the Sub-adviser or an affiliate for 12 years; and
(ix) Rudolf Staehelin, Sr., Vice President of Capital Research International, an
affiliate the Sub-adviser, who has been an investment professional for 20 years
and has been with the Sub-adviser or an affiliate for 16 years.
INVESTMENT OBJECTIVE
Seeks to provide growth of capital and future income through investments
primarily in securities of non-U.S. issuers and securities whose principal
markets are outside of the United States.
INVESTMENT RISK
As described in the Investment Strategy section below, this Fund invests almost
all of its assets in foreign securities, which have risks that U.S. investments
do not have, including future foreign political and economic developments,
fluctuations in foreign exchange rates and limited publicly available
information. For a further explanation of the risks associated with foreign
securities and market risk, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a portfolio consisting primarily of equity and fixed income
securities of non-U.S. issuers.
While the assets of the Fund can be invested with geographical flexibility, the
emphasis will be on securities of companies located in Europe, Canada,
Australia, and the Far East, giving due consideration to economic, social, and
political developments, currency risks and the liquidity of various national
markets.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Total Assets*
- -----------------------------------------------
<S> <C>
Foreign securities** at least 80%
Equity securities,
investment grade fixed
income securities
- -----------------------------------------------
Futures and options Put up to 90% of the
and call options on amount in foreign
foreign currencies and securities
forward currency
contracts
- -----------------------------------------------
Cash, cash equivalents, up to 100%
government securities,
nonconvertible
preferred stocks, or
investment grade fixed
income securities***
- -----------------------------------------------
Rule 144A securities up to 15%
(liquid)
- -----------------------------------------------
Illiquid securities**** up to 15%
- -----------------------------------------------
</TABLE>
* At the time of purchase.
** We may invest up to 10% of the Fund's assets in the
securities of foreign small capitalization companies. The Fund also may
invest in securities of issuers located in emerging market countries.
*** We may invest up to 100% of the Fund's assets in
these instruments in varying proportions as a temporary defensive position,
when we think economic, political and market conditions in foreign
countries make it too risky to follow our general guidelines.
**** Percent of Fund's net assets applied at all times.
For additional
information about THE
FUND'S INVESTMENTS see
"Types of Investments."
23
<PAGE> 28
INTERNATIONAL VALUE FUND
- --------------------------------------------------------------------------------
The International Value Fund recently commenced operations and, therefore, has
no investment performance record. However, the International Value Fund's
investment objectives, policies and strategies are substantially similar, but
not necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. The chart herein shows the historical investment performance for a
composite of the Sub-adviser's Discretionary Accounts ("Sub-adviser Composite")
which were managed by the Sub-adviser in substantially the same manner as the
International Value Fund. The Sub-adviser Composite represents the total return
of all Discretionary Accounts net of the highest management fee charged and
other account fees and expenses. The inception dates of the Discretionary
Accounts comprising the Sub-Adviser Composite range from December 31, 1978 to
March 31, 1998.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-Adviser
Composite had been subject to the requirements imposed on registered mutual
funds, their performance might have been lower.
Total fees (after expense reimbursements) for the International Value Fund are
higher than the total fees historically incurred by the Discretionary Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser Composite had
the same expenses as the International Value Fund.
The performance of the Sub-adviser Composite has been calculated in accordance
with performance presentation standards of the Association for Investment
Management and Research ("AIMR"). The AIMR method of calculating performance is
different from SEC performance standards, which are described under "Performance
and Yield Information" in the Statement of Additional Information. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
DISCRETIONARY ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE
INTERNATIONAL VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
INTERNATIONAL VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
SUB-ADVISER COMPOSITE
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- ---------------------------------------------------------
24.02% 14.85% 11.35%
- ---------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the International Value
Fund is likely to differ from the Sub-adviser's Discretionary Accounts in size,
cash flow patterns and certain tax matters. Accordingly the portfolio holdings
of the International Value Fund may vary from those of the Sub-adviser's
Discretionary Accounts and the performance of the International Value Fund may
vary from that of the Sub-adviser Composite.
24
<PAGE> 29
LARGE CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURNS EXCEEDING THE
RUSSELL 1000 VALUE INDEX
THROUGH INVESTMENTS IN
EQUITY SECURITIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
State Street Bank & Trust Company/
State Street Global Advisors
PORTFOLIO MANAGER
The Fund's portfolio managers include Jeffrey P. Adams, Jennifer W. Bardsley,
David A. Hanna, Douglas T. Holmes, CFA, Ben J. Salm, Peter Stonberg, CFA,
Richard B. Weed and Peter B. Wiley, CFA. Mr. Adams, Principal, US Active Equity
who joined the Sub-adviser in June 1989, where he has been the team leader of
the Small Cap Strategy since its inception and is responsible for the research
initiatives for this product. Mr. Adams' responsibilities include the management
of global active portfolios and research and development of new U.S. active
processes. Ms. Bardsley, Principal, US Active Equity, joined the Sub-Adviser in
1993 as a member of the Investment Systems group and moved to the U.S. Active
Equity group in January 1996, where her responsibilities include product
development, portfolio management and maintenance of the modeling and portfolio
construction processes. Mr. Hanna, Principal, US Active Equity, joined the
Sub-adviser in May 1997 and is a Portfolio Manager for the Hedged Matrix
(Long/Short Market Neutral) Product and participates in group research projects
involving the development of modeling and portfolio development techniques.
Prior to joining the Sub-adviser, Mr. Hanna was director of equity and
quantitative research at Standish, Ayer & Wood, from January 1992 to April 1997,
where he both managed a group of quantitative analysts and worked on equity
research projects. Mr. Holmes, Managing Director, Global Enhanced Equity, joined
the Sub-adviser in 1984 and specializes in the portfolio construction, risk
control and trading of accounts managed by the Sub-adviser in this area. Mr.
Page, Principal, Investments, joined the Sub-adviser in March 1998 and is a
member of the US Active Equity portfolio management team, where he focuses on
product development. Prior to joining the Sub-adviser, Mr. Page was at
Wellington Management Company from August 1994 to February 1998, where he
concentrated on product development, product management and investment
communications. Prior to joining the Sub-adviser, Mr. Salm, Principal, US Active
Equity, joined the Sub-adviser in 1992 and is responsible for research, product
development and portfolio management within the US Active strategy. Mr.
Stonberg, Principal and Head of US Active Equity, joined the Sub-adviser in 1981
and is responsible for all of the Sub-adviser's US Active Equity investment
strategies. Mr. Weed, Principal, US Active Equity, joined the Sub-adviser in
April 1994, where his responsibilities include portfolio management, product
development and research. Previously, Mr. Weed was with Valuequest, an
investment adviser, from December 1993 to March 1994 and with Brattle Group, an
economic consulting firm, from May 1992 to November 1993. Mr. Wiley, Principal,
US Active Equity, joined the Sub-adviser in April 1997. Previously, Mr. Wiley
was with Colonial Management Associates, an investment management firm, from
August 1992 to April 1997.
INVESTMENT OBJECTIVE
Seeks to provide total returns that exceed over time the Russell 1000 Value
Index (Index) through investment in equity securities.
INVESTMENT RISK
This Fund invests primarily in the equity securities of large, well-established
companies that generally possess the strength to withstand difficult financial
periods. Nevertheless, the value of any equity security can rise or fall over
short and long periods of time. As described below, in order to avoid unintended
exposures to economic factors, including the direction of the economy, interest
rates, energy prices and inflation, we maintain the proportion of equity
securities from different economic sectors in this Fund's portfolio at a level
similar to that of the Index. There is no assurance that the Fund will be
unaffected by such economic factors.
Because the Fund maintains sector weights at a similar level to that of the
Index, your investment may experience similar changes in value and share similar
risks such as market risk and risk associated with foreign securities. For more
information about market risk and risk associated with foreign securities, see
"A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund will invest primarily in equity securities of large capitalization
companies. Large capitalization companies are companies with market
capitalization over $1 billion. Equity securities will be selected and ranked
according to two separate and uncorrelated measures: value and the momentum of
Wall Street sentiment. The value measure compares a company's assets, projected
earnings growth and cash flow growth with the price of its equity securities
within the context of its historical valuation. The measure of
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
25
<PAGE> 30
LARGE CAP VALUE FUND
Fact Sheet -- (Continued)
- --------------------------------------------------------------------------------
Wall Street sentiment examines changes in Wall Street analysts' earnings
estimates and ranks stocks by the strength and consistency of those changes.
These two measures will be combined to create a single composite score of an
equity security's attractiveness. These scores are used to determine their
relative attractiveness. Sector weights are maintained at a similar level to
that of the Index to avoid unintended exposure to factors such as the direction
of the economy, interest rates, energy prices and inflation.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Equity securities of large at least 65%
capitalization companies
- ---------------------------------------------
ADRs up to 5%
- ---------------------------------------------
Debentures up to 5%
- ---------------------------------------------
Notes up to 5%
- ---------------------------------------------
Warrants** up to 5%
- ---------------------------------------------
Illiquid and restricted up to 15%
securities**
- ---------------------------------------------
Rule 144A securities (liquid) up to 15%
- ---------------------------------------------
Securities lending up to 33 1/3%
- ---------------------------------------------
When-issued securities** up to 25%
- ---------------------------------------------
Put and call options up to 5%
Covered put and call options
on securities
Put and call options on
securities indices
- ---------------------------------------------
Futures and options up to 5%
Initial margin deposits on
futures and premiums for
options and futures
- ---------------------------------------------
High quality short-term fixed up to 100%
income securities***
- ---------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
*** For temporary defensive purposes, to invest uncommitted cash balances or
to meet shareholder redemptions, we may invest up to 100% of the Fund's
assets in high quality short-term fixed income securities such as U.S.
Government securities, repurchase agreements collateralized by these
obligations, variable amount master demand notes, commercial paper, bank
certificates of deposit, bankers' acceptances and time deposits. The
Sub-adviser will not necessarily dispose of a fixed income security when
its rating is down graded to below investment grade.
26
<PAGE> 31
LARGE CAP VALUE FUND
- --------------------------------------------------------------------------------
The Large Cap Value Fund recently commenced operations and, therefore, has no
investment performance record. However, the Large Cap Value Fund will be managed
by the Sub-adviser in substantially the same manner and by the same individuals
as those who manage discretionary accounts (the "Discretionary Accounts") with
substantially similar investment objectives, policies and strategies.
The chart herein shows the investment performance for all Discretionary
Accounts, net of account fees and expenses. The inception dates for the
Discretionary Accounts range from August 1, 1992 through August 1, 1997. The
Discretionary Accounts are not subject to the investment limitations,
diversification requirements and the other restrictions imposed on registered
mutual funds by the 1940 Act and Subchapter M of the Internal Revenue Code. If
the Discretionary Accounts had been subject to the requirements imposed on
registered mutual funds, their performance might have been lower.
Total fees (after expense reimbursements) for the Large Cap Value Fund are
higher than the total fees incurred by the Discretionary Accounts. Consequently,
the performance results for the Discretionary Accounts would have been lower if
the Discretionary Accounts had the same expenses as the Large Cap Value Fund.
The performance of the Discretionary Accounts has been calculated in accordance
with SEC performance standards. See "Performance and Yield Information" in the
Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE SUB-
ADVISER'S DISCRETIONARY ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME
MANNER AND BY THE SAME INDIVIDUALS AS THE LARGE CAP VALUE FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE LARGE CAP VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF DISCRETIONARY ACCOUNTS
<TABLE>
<S> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
58.95% 24.14% 24.04%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 1, 1992
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Large Cap Value Fund is
likely to differ from the Discretionary Accounts in size, cash flow patterns and
certain tax matters. Accordingly the portfolio holdings and performance of the
Large Cap Value Fund may vary from those of the Discretionary Accounts.
27
<PAGE> 32
MID CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN MEDIUM CAPITALIZATION
COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Neuberger&Berman Management Inc.
PORTFOLIO MANAGER
Michael M. Kassen and Robert I. Gendelman serve as co-managers of the Fund. Mr.
Kassen and Mr. Gendelman are Vice Presidents of the Sub-adviser and principals
of Neuberger&Berman, LLC. Messrs. Kassen and Gendelman have been associated with
the Sub-adviser since 1990 and 1994, respectively. Prior to 1994, Mr. Gendlemen
was portfolio manager for another mutual fund manager.
INVESTMENT OBJECTIVE
Seeks capital growth, through investment in equity securities of medium
capitalization companies using a value-oriented investment approach.
INVESTMENT RISK
The value of any equity security may rise or fall over long or short periods of
time. Although equity securities present an opportunity for capital
appreciation, they may not be broadly traded and involve market risk and risk
associated with foreign securities. For a discussion of these risks, see "A Word
About Risk" in this prospectus.
INVESTMENT STRATEGY
This Fund invests principally in equity securities of medium capitalization
established companies, using a value-oriented investment approach intended to
increase capital with reasonable risk. Medium capitalization companies include
companies with the characteristics of companies included in the Russell
Midcap(TM) Index. As of June 30, 1998, the largest company included in the
Russell Midcap(TM) Index had an approximate market capitalization of $10.3
billion. We choose securities we believe are undervalued based on strong
fundamentals, including a low price-to-earnings ratio, consistent cash flow, and
the company's track record through all parts of the market cycle. When selecting
securities for this Fund, we also consider other factors, including ownership by
a company's management of the company's stock and the dominance a company in its
particular field.
We follow the guidelines listed below for making the investments for this Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Equity securities of medium at least 65%
capitalization companies
- --------------------------------------------
Other equity securities up to 35%
Common stock, preferred
stock, convertible
securities
- --------------------------------------------
Covered call options up to 35%
- --------------------------------------------
Foreign currency transactions up to 5%
- --------------------------------------------
Options on foreign currencies up to 5%
- --------------------------------------------
Foreign securities up to 10%
- --------------------------------------------
Illiquid and restricted up to 15%
securities**
- --------------------------------------------
Rule 144A securities (liquid) up to 100%
- --------------------------------------------
Corporate fixed income up to 15%
securities rated C or higher
by Moody's or CC or higher
by S&P and comparable
unrated securities***
- --------------------------------------------
Investment grade fixed income less than 5%
securities**** corporate
bonds and debentures, U.S.
Government securities, money
market instruments, zero
coupon securities
- --------------------------------------------
Cash and cash equivalents***** up to 100%
- --------------------------------------------
</TABLE>
* At time of purchase.
** We may invest up to 15% of the Fund's net assets in
illiquid securities. This limitation applies at all times. Restricted
securities are explained under "Types of Investments."
*** This Fund may invest up to 15% of its net assets in
below investment grade fixed income securities only when we believe that
the anticipated return to the Fund warrants exposure to the additional
risk involved in these instruments.
**** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***** For temporary defensive reasons, we may invest up
to 100% of the Fund's assets in cash and cash equivalents, U.S. Government
securities, commercial paper and certain other money market instruments,
including repurchase agreements collateralized by the foregoing. We may do
this when we think economic and market conditions make it too risky to
follow its general investment guidelines.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
28
<PAGE> 33
MID CAP VALUE FUND
- --------------------------------------------------------------------------------
The Mid Cap Value Fund recently commenced operations and, therefore, has no
investment performance record. However, the Mid Cap Value Fund's investment
objectives, policies and strategies are substantially similar, though not
necessarily identical, to those of Neuberger&Berman Partners Fund and it is
managed by the Sub-adviser in substantially the same manner and by the same
individuals as Neuberger&Berman Partners Fund. Neuberger&Berman Partners Fund
seeks to achieve its objective by investing principally in common stocks of
medium-to large-capitalization companies. As a result, Neuberger&Berman Partners
Fund may in the future have, or in the past have had, greater exposure to larger
capitalization companies than the MidCap Value Fund will have. The chart
herein shows the investment performance for Neuberger&Berman Partners Fund for
the period April 1, 1988 through March 31, 1998, net of Neuberger&Berman
Partners Fund's fees and expenses. The date the Sub-Adviser assumed management
of Neuberger&Berman Partners Fund was January 20, 1975.
The Mid Cap Value Fund is subject to investment limitations, diversification
requirements and other restrictions imposed on registered mutual funds by the
1940 Act and Subchapter M of the Internal Revenue Code.
Total fees after (expense reimbursements) for the Mid Cap
Value Fund are higher than the total fees incurred by
Neuberger&Berman Partners Fund. Consequently, the performance results for
Neuberger&Berman Partners Fund would have been lower if Neuberger&Berman
Partners Fund had the same expenses as the Mid Cap Value Fund. The performance
of Neuberger&Berman Partners Fund has been calculated in accordance with SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance
standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON NEUBERGER&BERMAN
PARTNERS FUND WHICH IS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME
INDIVIDUALS AS THE MID CAP VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE OF
THE MID CAP VALUE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
NEUBERGER&BERMAN PARTNERS FUND
<TABLE>
<S> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
41.54% 21.80% 17.95%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Mid Cap Value Fund is
likely to differ from Neuberger&Berman Partners Fund in size, cash flow patterns
and certain tax matters. Neuberger&Berman Partners Fund may have greater
exposure to large capitalization companies than the Mid Cap Value Fund.
Accordingly, the portfolio holdings and performance of the Mid Cap Value Fund
may vary from those of Neuberger&Berman Partners Fund.
29
<PAGE> 34
SMALL CAP VALUE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal MAXIMUM LONG-TERM RETURN
THROUGH INVESTMENTS IN SMALL
CAPITALIZATION COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISERS
Fiduciary Management Associates, Inc.
Bankers Trust Company
PORTFOLIO MANAGER
The actively-managed portion of the Fund's portfolio is managed by Kathryn Maag
Vorisek, Lloyd J. Spicer, CFA, and Terry B. French. Ms. Vorisek, Senior Vice
President and Portfolio Manager/Analyst for the Sub-adviser's small cap
discipline, is the team leader. Ms. Vorisek joined the Sub-adviser in April
1996. Previously, Ms. Vorisek was with Duff & Phelps Investment Management from
June 1989 to April 1996, Citicorp from October 1988 to June 1989, and Lehman
Brothers from July 1984 to October 1988. Mr. Spicer, Senior Vice President and
Portfolio Manager/Small Cap Advisor, joined the Sub-adviser in March 1994. Mr.
Spicer's primary responsibilities include economic forecasting to identify the
thematic components of the Sub-adviser's small cap discipline. Mr. French,
Senior Vice President and Portfolio Manager, joined the Sub-adviser in November
1997. Mr. French's primary small cap responsibilities include the analysis of
specific industry sectors. Mr. French managed private investment portfolios from
January 1991 to November 1997.
Frank Salerno, Managing Director-Chief Investment Officer of Quantitative and
Equity Index of Bankers Trust, has been the portfolio manager for the
passively-managed portion of this Fund's portfolio since the Fund's inception.
Mr. Salerno has been with Bankers Trust since 1981.
INVESTMENT OBJECTIVE
Seeks maximum long-term return, consistent with reasonable risk to principal, by
investing primarily in equity securities of small capitalization companies in
terms of revenues and/or market capitalization.
INVESTMENT RISK
A portion of this Fund's portfolio is invested in a statistically-selected
sampling of the 2000 stocks in the Russell 2000 Index (Index). This part of the
Fund's investment portfolio avoids the risks of individual stock selection and
seeks to achieve and exceed the return of the smaller-sized company sector of
the market. On the average, that return has been positive, but has been negative
at certain times. There is no assurance that a positive return will occur in the
future.
Because this Fund invests in smaller capitalization equity securities, your
investment may exhibit greater market value volatility than investments in
common stocks of larger companies. Your investment also will experience similar
changes in value and share similar risks as stocks included in the Index, such
as market risk and risk associated with investment in foreign securities. For
more information about these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGIES
This Fund invests primarily in equity securities of small capitalization
companies, which are companies whose stock market capitalizations range from $50
million to $1 billion and companies included in the Index. One portion of the
Fund's investment portfolio will be actively managed and the other portion will
be passively managed. In analyzing and selecting investments for the
actively-managed portion of the Fund's investment portfolio, we look for market
themes and changes that signal opportunity. We seek companies with lower
price-to-earnings ratios, strong cash flow, good credit lines and clean or
improving balance sheets. At any given time, this portion of the Fund's
investment portfolio will be invested in a diversified group of small
capitalization equity securities in several industries. The Fund will invest
primarily in U.S. companies with seasoned management or a track record as part
of a larger company.
The passively-managed portion of the Fund's investment portfolio is comprised of
a sampling of stocks in the Index that, as a group, should reflect its
performance. The stocks of the Index to be included in the Fund will be selected
utilizing a statistical sampling technique known as "optimization." This process
selects stocks for the Fund so that various industry weightings, market
capitalizations and fundamental characteristics (e.g. price-to-book,
price-to-earnings, debt-to-asset ratios and dividend yields) closely approximate
those of the Index. The stocks held by the Fund are weighted to make the Fund's
aggregate investment characteristics similar to those of the Index as a whole.
Since it may not be possible for this Fund to buy every stock included
in the Index or in the same proportions, we rely on the aforementioned
statistical technique to figure out, of the stocks tracked by the index, how
many and which ones to buy.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
30
<PAGE> 35
SMALL CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Equity securities of small at least 65%
capitalization companies**
- ---------------------------------------------
Short-term investments Foreign up to 35%
and domestic money market
instruments, certificates of
deposit bankers'
acceptances, time deposits,
U.S. Government obligations,
U.S. Government agency
securities, short-term
corporate fixed income
securities***, commercial
paper rated A-1 or A-2 by
S&P or Prime-1 or Prime-2 by
Moody's or, if unrated, of
comparable quality,
repurchase agreements
- ---------------------------------------------
Illiquid securities**** up to 15%
- ---------------------------------------------
Futures and Options up to 20%
- ---------------------------------------------
Swap Agreements up to 10%
- ---------------------------------------------
Warrants***** up to 5%
- ---------------------------------------------
Time deposits****** up to 10%
- ---------------------------------------------
Foreign securities up to 10%
- ---------------------------------------------
Investment companies up to 10%
- ---------------------------------------------
Rule 144A securities (liquid) up to 10%
- ---------------------------------------------
</TABLE>
* At time of purchase.
** This Fund will invest at least 65% of its total assets
in equity securities of companies whose stock market capitalizations
range from $50 million to $1 billion, including stocks in the Russell
2000 Index.
*** The Fund will not purchase short-term fixed
income securities rated below Baa by Moodys or BBB by S&P. However, the
Sub-adviser will not necessarily dispose of a fixed income security when
its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
***** The Fund's investment in warrants will not exceed
2% of its assets with respect to warrants not listed on the New York or
American Stock Exchanges.
****** This Fund will invest only in time deposits
maturing in two to seven calendar days. The Fund will not purchase time
deposits maturing in more than seven days.
31
<PAGE> 36
SOCIALLY RESPONSIBLE
FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN COMPANIES MEETING SOCIAL
CRITERIA OF THE FUND
- -------------------------------------------------
Investment Category GROWTH
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
This Fund is managed by William Trimbur, Jr. Since June 1987, Mr. Trimbur has
served as Vice President and Investment Officer of American General Series
Portfolio Company, a registered open-end investment company managed by VALIC.
Mr. Trimbur has served as Portfolio Manager of the American General Series
Portfolio Company International Equities Fund since 1989, the American General
Series Portfolio Company International Government Bond Fund since 1991 and the
American General Series Portfolio Company Social Awareness Fund ("AGSPC" Social
Awareness Fund") since September 1998.
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in equity
securities, in companies which meet the social criteria established for the
Fund. The Fund does not invest in companies that:
- produce nuclear energy;
- make military weapons or delivery systems; or
- engage continuously in practices or produce products that significantly
pollute the environment (such products include tobacco products).
INVESTMENT RISK
This Fund may experience market risk, and risks associated with foreign
securities. For a discussion of these risks see "A Word About Risk" in this
prospectus.
If a company stops meeting the Fund's social criteria after the Fund invested in
it, the Fund will sell these investments even if this means the Fund loses
money. Also, if the Fund changes its social criteria and the companies the Fund
has already invested in no longer qualify, the Fund will sell these investments
even if this means the Fund loses money. Social criteria screening will limit
the availability of investment opportunities for the Fund more than for funds
having no such criteria.
To find out which companies meet the Fund's social criteria, we rely on industry
classifications, research services such as the Investor Responsibility Research
Center (IRRC), and special magazines and papers that publish this type of
information.
Since our definition of social criteria is not "fundamental," the Series
Company's Board of Trustees may change it without shareholder approval. When
deciding to make changes to the criteria, the Board will consider, among other
things, new or revised state laws that govern or affect the investments of
public funds. At least once a year, we survey state laws on this issue to look
for any new developments. If our survey shows that at least 20 states have
adopted laws that restrict public funds from being invested in a clearly
definable category of investments, this category is automatically added to our
social criteria list.
INVESTMENT STRATEGY
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund's Investments Assets*
- -----------------------------------------------
<S> <C>
Equity securities of at least 80%
companies meeting the
Fund's social criteria
- -----------------------------------------------
Other types of equity up to 20%
securities of companies
meeting social criteria
including:
Foreign securities
Preferred stock
Convertible
securities
- -----------------------------------------------
High quality money market up to 20%
securities and warrants
- -----------------------------------------------
Futures and options up to 33%
- -----------------------------------------------
Illiquid and restricted up to 10%
securities**
- -----------------------------------------------
Rule 144A securities up to 20%
(liquid)
- -----------------------------------------------
</TABLE>
* At time of purchase.
** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
32
<PAGE> 37
SOCIALLY RESPONSIBLE FUND
- --------------------------------------------------------------------------------
The Socially Responsible Fund recently commenced operations and, therefore, has
no investment performance record. However, the Socially Responsible Fund's
investment objectives, policies and strategies are substantially similar to
those of the AGSPC Social Awareness Fund and it is managed by VALIC in
substantially the same manner and by the same individuals as the AGSPC Social
Awareness Fund. The chart herein shows the historical investment performance for
the AGSPC Social Awareness Fund for the period of October 2, 1989 through March
31, 1998, net of AGSPC Social Awareness Fund's fees and expenses. The inception
date for the AGSPC Social Awareness Fund was October 2, 1989.
The AGSPC Social Awareness Fund is subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Socially Responsible Fund are
higher than the total fees incurred by the AGSPC Social Awareness Fund.
Consequently, the performance results for the AGSPC Social Awareness Fund would
have been lower if the AGSPC Social Awareness Fund had the same expenses as the
Socially Responsible Fund. The performance of the AGSPC Social Awareness Fund
has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON THE AGSPC SOCIAL AWARENESS FUND WHICH IS MANAGED IN
SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUALS AS THE SOCIALLY
RESPONSIBLE FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE SOCIALLY
RESPONSIBLE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF AGSPC SOCIAL AWARENESS FUND
<TABLE>
<S> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
47.45% 25.67% 16.57%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Socially Responsible
Fund is likely to differ from the AGSPC Social Awareness Fund in size, cash flow
patterns and certain tax matters. Accordingly the portfolio holdings and
performance of the Socially Responsible Fund may vary from those of the Social
Awareness Fund.
33
<PAGE> 38
BALANCED FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CONSERVATION OF PRINCIPAL
AND LONG-TERM GROWTH OF
CAPITAL AND INCOME THROUGH
INVESTMENTS IN FIXED INCOME
AND EQUITY SECURITIES
- -------------------------------------------------
Investment Category BALANCED
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
This Fund is managed using a system of multiple portfolio managers. Under this
system, the Fund is divided into segments, which are assigned to individual
managers.
The portfolio managers for the fixed income portion of the Fund include: (i) Jim
Mulally, Senior Vice President of the Sub-adviser, who has been an investment
professional for 21 years and has been with the Sub-adviser or an affiliate for
18 years; and (ii) Jim Baker, Vice President of the Sub-adviser, who has been an
investment professional for 17 years and has been with the Sub-adviser or an
affiliate for 11 years.
The portfolio managers for the U.S. large cap equity portion of the Fund
include: (i) David Fisher, Vice Chairman of the Sub-adviser, who has been an
investment professional for 32 years and has been with the Sub-adviser or an
affiliate for 28 years; (ii) Gene Stein, Executive Vice President of the
Sub-adviser, who has been an investment professional for 26 years and has been
with the Sub-adviser or an affiliate for 25 years; (iii) Michael Ericksen,
Senior Vice President of the Sub-adviser, who has been an investment
professional for 17 years and has been with the Sub-adviser or an affiliate for
11 years; (iv) Ted Samuels, Senior Vice President of the Sub-adviser, who has
been an investment professional for 19 years and has been with the Sub-adviser
or an affiliate for 17 years; (v) Donnalisa Barnum, Vice President of the
Sub-adviser, who has been an investment professional for 16 years and has been
with the Sub-adviser or an affiliate for 12 years; and (vi) R. Bryan Jacoboski,
Vice President of the Sub-adviser, who has been an investment professional for
17 years and has been with the Sub-adviser or an affiliate for 4 years.
Previously Mr. Jacoboski was Managing Director, Equity Research at Paine Webber
from 1983 to 1994.
The portfolio managers for the U.S. small cap equity portion of the Fund
include: (i) Bob Kirby, Chairman Emeritus of the Sub-adviser, who has been an
investment professional for 45 years and has been with the Sub-adviser or an
affiliate for 32 years; (ii) Michael Ericksen, Senior Vice President of the
Sub-adviser, who has been an investment professional for 17 years and has been
with the Sub-adviser or an affiliate for 11 years; (iii) James Kang, Vice
President of Capital Guardian Research Company, an affiliate of the Sub-adviser,
who has been an investment professional for 11 years and has been with the
Sub-adviser or an affiliate for 10 years; and (iv) R. Bryan Jacoboski, Vice
President of the Sub-adviser, who been an investment professional for 17 years
and has been with the Sub-adviser or an affiliate for 4 years. Previously Mr.
Jacoboski was Managing Director, Equity Research at Paine Webber from 1983 to
1994.
INVESTMENT OBJECTIVE
Seeks balanced accomplishment of (i) conservation of principal and (ii)
long-term growth of capital and income through investment in fixed income and
equity securities.
INVESTMENT RISK
This Fund invests principally in fixed income and equity securities. The value
of an equity security can rise and fall over long and short periods of time and
involve market risks. Like equity securities, fixed income securities involve
certain risks, including interest rate risk, credit risk, market risk and risk
associated with foreign securities. This may cause the fixed income securities
that the Fund owns to be worth less than the Fund paid. For a discussion of
these risk, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a combination of fixed income and equity securities in order
to maintain the value of your principal investment and provide you with capital
growth and income over the long-term. At all times at least 25% of the Fund's
total assets are invested in fixed income senior securities. We select
securities for the Fund's portfolio by identifying fixed income and equity
securities that represent fundamental values at reasonable prices. We implement
this philosophy using a system of portfolio managers, under which a different
group of portfolio managers makes investment decisions for the fixed income and
equity portions of the Fund.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
34
<PAGE> 39
BALANCED FUND
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -------------------------------------------
<S> <C>
Fixed income securities up to 75%
Securities rated "A"
or better by Moody's
or S&P or of
comparable investment
quality**; U.S.
Government securities,
mortgage-related
securities of
governmental issuers,
GNMA certificates of
private issuers,
collateralized
mortgage obligations,
mortgage-backed bonds,
cash or cash
equivalents, including
commercial bank
obligations and
commercial paper***
- -------------------------------------------
Fixed income senior at least 25%
securities
- -------------------------------------------
Equity securities**** up to 75%
- -------------------------------------------
High yield high risk up to 20%
fixed income
securities*****
- -------------------------------------------
Rule 144A securities up to 15%
(liquid)
- -------------------------------------------
Illiquid up to 15%
securities******
- -------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** These investments will constitute at least 75% of
the fixed income securities held by the Fund.
**** Equity securities held by the Fund will be listed on
national securities exchanges or in the national over-the-counter market
(NASDAQ) and may include American Depository Receipts. We may invest up
to 10% of the Fund's assets in the securities of U.S.
small-capitalization companies.
***** No minimum rating requirement applied.
Commonly referred to as high yield, high risk, junk or below investment
grade fixed income securities.
****** Percent of Fund's net assets applied at all times.
35
<PAGE> 40
BALANCED FUND
- --------------------------------------------------------------------------------
The Balanced Fund recently commenced operations and, therefore, has no
investment performance record. However, the Balanced Fund's investment
objectives, policies and strategies will be substantially similar, but not
necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. Although managed in substantially the same manner as the Balanced
Fund, the Discretionary Accounts may not invest as great a percentage of their
assets in fixed income senior securities as the Balanced Fund. As a result, the
Balanced Fund may have, or may in the past have had, greater exposure to fixed
income senior securities than the Discretionary Accounts. The chart herein shows
the historical investment performance for a composite of all of the
Sub-adviser's Discretionary Accounts ("Sub-adviser Composite") which were
managed by the Sub-adviser in substantially the same manner as the Balanced
Fund. The Sub-adviser Composite represents the total return of all Discretionary
Accounts net of the highest management fee charged and other account fees and
expenses. The inception dates of the Discretionary Accounts comprising
Sub-adviser Composite range from December 31, 1974 to September 30, 1997.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-adviser
Composite had been subject to the requirements imposed on mutual funds, their
performance might have been lower.
Total fees (after expense reimbursements) for the Balanced Fund are higher than
the total fees historically incurred by the Discretionary Accounts comprising
the Sub-adviser Composite. Consequently, the performance results for the
Sub-adviser Composite would have been lower if the Sub-adviser Composite had the
same expenses as the Balanced Fund.
The performance of the Sub-adviser Composite has been calculated in accordance
with performance presentation standards of the Association for Investment
Management and Research ("AIMR"). The AIMR method of calculating performance is
different from SEC performance standards, which are described under "Performance
and Yield Information". THE PERFORMANCE INFORMATION HEREIN IS BASED ON A
COMPOSITE OF THE SUB-ADVISER'S
DISCRETIONARY ACCOUNTS WHICH ARE
MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE BALANCED FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE BALANCED FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
SUB-ADVISER COMPOSITE
<TABLE>
<S> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
31.17% 15.84% 14.44%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Balanced Fund is likely
to differ from the Sub-adviser's Discretionary Accounts in size, cash flow
patterns and certain tax matters. Accordingly the portfolio holdings of the
Balanced Fund may vary from those of the Sub-adviser's Discretionary Accounts
and the performance of the Balanced Fund may vary from that of the Sub-adviser
Composite.
36
<PAGE> 41
HIGH YIELD BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN AND INCOME CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN HIGH
YIELDING, HIGH RISK FIXED
INCOME SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGERS
The Fund is managed by Gordon Massie, who is assisted by Jeffrey Gary and Mark
Pauly, CFA. Mr. Massie, Senior Vice President, joined the Sub-adviser in April
1998. Previously, Mr. Massie was Director of High Yield Research at American
General Corporation from August 1985 to April 1998. Mr. Gary, Vice President,
joined the Sub-adviser in June 1998. From 1996 to April 1998, Mr. Gary was
Managing Director at Koch Capital Services, Inc. and from 1993 to 1996, Mr. Gary
served as Senior Analyst/Trader at Cargill Financial Services. Mr. Pauly, Senior
Investment Manager, High Yield, joined the Sub-adviser in April 1998. From
August 1994 to August 1996, Mr. Pauly served as the Manager of Portfolio
Forecasting and Analysis for American General Corporation and, from June 1992 to
August 1994, Mr. Pauly was Director of Marketing Services for American General
of New York.
INVESTMENT OBJECTIVE
Seeks the highest possible total return and income consistent with conservation
of capital through investment in a diversified portfolio of high yielding, high
risk fixed income securities.
INVESTMENT RISK
High yielding, high risk fixed income securities are regarded as predominantly
speculative with respect to the issuer's continuing ability to meet principal
and interest payments. Because investment in lower rated fixed income securities
(commonly referred to as junk bonds) involves significantly greater credit risk,
market risk and interest rate risk than higher rated fixed income securities
achievement of the Fund's investment objective is dependent upon the
Sub-adviser's investment analysis. Accordingly, the Fund's investments may be
worth less than what the Fund paid for them. The Fund is also subject to risks
associated with foreign securities. For a discussion of these risks see "A Word
About Risk" in the prospectus.
INVESTMENT STRATEGY
The Fund invests in high yielding, high risk fixed income securities to provide
you with the highest possible total return from current income and capital gains
while preserving your investment.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Fixed income securities rated at least 65%
below Baa3 by Moody's and
below BBB- by S&P**
- --------------------------------------------
Foreign fixed income up to 35%
securities rated below Baa3
by Moody's and below BBB- by
S&P**
- --------------------------------------------
Fixed income securities rated up to 35%
Baa3 or higher by Moody's or
Rated BBB- or higher by
S&P***
- --------------------------------------------
Zero coupon securities (i.e., up to 15%
securities not paying
current cash interest)
- --------------------------------------------
Fixed income securities rated up to 15%
below Caa3 by Moody's or
CCC- by S&P***
- --------------------------------------------
Equity securities up to 20%
preferred stocks,
convertible securities,
common stocks and warrants
- --------------------------------------------
Illiquid securities**** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 30%
- --------------------------------------------
</TABLE>
* At time of purchase.
** Commonly referred to as high yield, high risk, junk
or below investment grade fixed income securities.
*** The Sub-adviser will not necessarily dispose of a fixed
income security when its rating is down graded to below investment grade.
**** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
37
<PAGE> 42
STRATEGIC BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN AND INCOME CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN
INCOME PRODUCING SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGERS
The Fund is managed by Steven Guterman, who is assisted by Gordon Massie, Robert
Hiebert, CFA, Craig Mitchell, CFA, James J. Roth, George Steelman, Edwin
Ferrell, CFA and William Trimbur, Jr., CFA. Mr. Guterman, Executive Vice
President, joined the Sub-adviser in June 1998. Previously, Mr. Guterman was
with Salomon Brothers, Inc. from 1983 to May 1998, where he served as Managing
Director from 1996 to May 1998 and with Salomon Brothers Asset Management, Inc.
("SBAM"), where he was a Senior Portfolio Manager and head of the U.S. Fixed
Income Portfolio Group from 1990 to May 1998. Mr. Massie, Senior Vice President,
joined the Sub-adviser in April 1998. Previously, Mr. Massie was Director of
High Yield Research at American General Corporation from August 1985 to April
1998. Mr. Hiebert, Vice President and Senior Portfolio Manager, joined the Sub-
adviser in April 1998. Previously, Mr. Hiebert served as Senior Corporate Bond
Trader at American General Corporation from August 1995 to April 1998. Prior to
that, Mr. Hiebert served as Senior Trader with Cargill Financial Services Corp.
from June 1992 to August 1995. Mr. Mitchell, Vice President and Senior Portfolio
Manager, joined the Sub-adviser in April 1998 and American General Corporation
in May 1995. From July 1992 to April 1995, Mr. Mitchell served as Assistant
Portfolio Manager and, subsequently, Portfolio Manager at Providian Corporation.
Mr. Roth, Vice President, Fixed Income Trading, joined the Sub-adviser in April
1998. Previously, Mr. Roth was Senior Portfolio Manager at American General
Corporation from August 1994 to March 1998. Prior to that, Mr. Roth was National
Sales Manager, Department of Capital Markets with the Resolution Trust
Corporation from February 1994 to July 1994 and Capital Markets Specialist from
June 1991 to January 1994. Mr. Steelman, Associate Portfolio Manager, joined the
Sub-adviser in April 1998. From April 1996 to April 1998, Mr. Steelman served as
Associate Portfolio Manager for American General Corporation. Mr. Steelman was
Senior Financial Analyst for American General Corporation's Treasury Department
from December 1994 to April 1996. Mr. Ferrell, Director, joined the Sub-adviser
in April 1998, where he has primary responsibility for sovereign political and
economic research. Previously, Mr. Ferrell was a sovereign analyst with The
Principal Financial Group from November 1993 to April 1998, where he was
involved in the co-ordination of its emerging market and non-dollar investment
efforts. Mr. Trimbur, Vice President and Investment Officer of the Series
Company, joined the Sub-adviser in May 1998. As Portfolio Manager for the
Sub-adviser, Mr. Trimbur is primarily responsible for the management and trading
of non-dollar denominated bonds and equities. Mr. Trimbur managed domestic bonds
and equities for VALIC from 1987 to 1991 and has been managing foreign bonds and
equities for VALIC since 1991.
INVESTMENT OBJECTIVE
Seeks the highest possible total return and income consistent with conservation
of capital through investment in a diversified portfolio of income producing
securities.
INVESTMENT RISK
A significant portion of the Fund's investments may be in high yielding, high
risk fixed income securities that are regarded as predominantly speculative with
respect to the issuer's continuing ability to meet principal and interest
payments. Because investment in lower rated fixed income securities (commonly
referred to as junk bonds) involves significantly greater credit risk, market
risk and interest rate risk than higher rated fixed income securities
achievement of the Fund's investment objective is dependent upon the Sub-
adviser's investment analysis. Accordingly, the Fund's investments may be worth
less than what the Fund paid for them. The Fund is also subject to risks
associated with foreign securities. For a discussion of these risks see "A Word
About Risk" in the prospectus.
INVESTMENT STRATEGY
The Fund invests in a broad range of fixed income securities including
investment grade bonds, U.S. Government and agency obligations, mortgage backed
securities, high yield bonds, emerging market debt and non-dollar bonds, to
provide you with the highest possible total return from current income and
capital gains, while preserving your investment. A substantial portion of the
Fund may be invested in high yielding, high risk securities.
Additional information
about THE FUND'S
INVESTMENTS provided
under "Types of
Investments."
38
<PAGE> 43
STRATEGIC BOND FUND
Fact Sheet -- (Continued)
<TABLE>
<S> <C>
</TABLE>
- --------------------------------------------------------------------------------
We follow the guidelines listed below for making the primary investment for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- --------------------------------------------
<S> <C>
Investment grade fixed income up to 100%
securities**, U.S.
Government and agency and
mortgage backed securities
- --------------------------------------------
U.S. and Canadian high yield, up to 50%
high risk corporate fixed
income securities rated C or
higher by Moody's or CC or
higher by S&P and comparable
unrated securities***
- --------------------------------------------
Foreign high yield, high risk up to 25%
corporate and government
fixed income securities
rated C or higher by Moody's
or CC or higher by S&P and
comparable unrated
securities***
- --------------------------------------------
Foreign non-dollar bonds up to 25%
(currency exposure may be
hedged or unhedged)
- --------------------------------------------
Illiquid securities**** up to 15%
- --------------------------------------------
Rule 144A securities (liquid) up to 30%
- --------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** Commonly referred to as high yield, high risk, junk
or below investment grade fixed income securities.
**** Percent of Fund's net assets applied at all times.
39
<PAGE> 44
STRATEGIC BOND FUND
- --------------------------------------------------------------------------------
The Strategic Bond Fund recently commenced operations and, therefore, has no
investment performance record. However the Strategic Bond Fund's investment
objectives, policies and strategies are substantially similar to those of the
Manufacturers Investment Trust Strategic Bond Trust, which was managed by Steven
Guterman, Executive Vice President of the Sub-adviser. The chart herein shows
the historical performance for Manufacturers Investment Trust Strategic Bond
Trust net of fees and expenses. The inception date of the Manufacturers
Investment Trust Strategic Bond Trust was February 24, 1993. During Mr.
Guterman's tenure as portfolio manager of the Manufacturers Investment Trust
Strategic Bond Trust from its inception to May 1998, he was primarily
responsible for the day-to-day management of the Manufacturers Investment Trust
Strategic Bond Trust, and no other person played a significant role in achieving
the fund's performance.
The Strategic Bond Fund is subject to investment limitations, diversification
requirements and other restrictions imposed on registered mutual funds by the
1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Strategic Bond Fund are higher
than the total fees incurred by the Manufacturers Investment Trust Strategic
Bond Trust. Consequently, the performance results for the Manufacturers
Investment Trust Strategic Bond Trust would have been lower if the Manufacturers
Investment Trust Strategic Bond Trust had the same expenses as the Strategic
Bond Fund. The performance of the Manufacturers Investment Trust Strategic Bond
Trust has been calculated in accordance with SEC performance standards. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of SEC performance standards. THE PERFORMANCE INFORMATION
HEREIN IS BASED ON THE MANUFACTURERS INVESTMENT TRUST STRATEGIC BOND TRUST WHICH
WAS MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUAL AS THE
STRATEGIC BOND FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE STRATEGIC BOND
FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF MANUFACTURERS INVESTMENT TRUST STRATEGIC BOND
TRUST
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
- -------------------------------------------------------------
13.19% 9.62% 9.54%
- -------------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE FEBRUARY 24, 1993
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Strategic Bond Fund is
likely to differ from the Manufacturers Investment Trust Strategic Bond Fund
Trust in size, cash flow patterns and certain tax matters. Accordingly, the
portfolio holdings and performance of the Strategic Bond Fund may vary from
those of the Manufacturers Investment Trust Strategic Bond Trust.
40
<PAGE> 45
DOMESTIC BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGH TOTAL RETURN CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS
PRIMARILY IN INVESTMENT
GRADE FIXED INCOME
SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Capital Guardian Trust Company
PORTFOLIO MANAGER
James S. Baker and James R. Mulally serve as the Fund's portfolio managers. Mr.
Baker, Vice President and fixed-income portfolio manager of an affiliate of the
Sub-adviser, has focused on the application of quantitative valuations to
investment grade bonds and portfolios for the Sub-adviser since 1987. Mr.
Mulally, Senior Vice President, Director and Chairman of the Sub-adviser's Fixed
Income Subcommittee, joined the Sub-adviser in 1980.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investments primarily in investment grade fixed income securities and
other income producing securities.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk, market risk and risk associated with foreign securities. This
may cause the investments that the Fund owns to be worth less than what the Fund
paid. For a discussion of these risks see "A Word About Risk" in this
prospectus.
INVESTMENT STRATEGY
The Fund invests in high quality fixed income securities to provide you with the
highest possible total return from current income and capital gains while
preserving your investment. To increase the Fund's earning potential, we may use
a small part of the Fund's assets to make some higher risk investments.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- ---------------------------------------------
<S> <C>
Investment grade U.S. at least 65%
corporate fixed income
securities rated at least A
by Moody's or S&P**, and
securities issued or
guaranteed by the U.S.
Government***, Yankee
bonds, asset backed bonds,
mortgage backed bonds,
interest bearing short term
investments such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ---------------------------------------------
Non-U.S. investment grade up to 35%
intermediate and long-term
corporate fixed income
securities rated at least A
by Moody's or S&P** or of
comparable quality,
Eurodollar fixed income
securities****, securities
issued or guaranteed by the
Canadian Government,
interest bearing short-term
investments, such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ---------------------------------------------
Other fixed income securities up to 25%
Corporate bonds rated less
than A by Moody's or S&P,
mortgage-related
securities, high yield,
high risk, bonds
- ---------------------------------------------
Rule 144A securities (liquid) up to 15%
- ---------------------------------------------
Illiquid Securities****** up to 15%
- ---------------------------------------------
</TABLE>
*At time of purchase.
**The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
***U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by (i) the full
faith and credit of the U.S. Government, (ii) the right of the issuer to
borrow from the U.S. Treasury, (iii) the credit of the issuing government
agency or (iv) the discretionary authority of the U.S. Government or GNMA
to purchase certain obligations of the agency.
****The Fund currently intends to limit these
investments to no more than 20% of its total assets.
*****No minimum rating requirement applies.
Commonly referred to as high yield, high risk, junk or below investment
grade fixed income securities.
******Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
41
<PAGE> 46
DOMESTIC BOND FUND
- --------------------------------------------------------------------------------
The Domestic Bond Fund recently commenced operations and, therefore, has no
investment performance record. However, the Domestic Bond Fund's investment
objectives, policies and strategies will be substantially similar, but not
necessarily identical, to those employed by the Sub-adviser with respect to
discretionary investment accounts ("Discretionary Accounts") managed by the
Sub-adviser. The chart herein shows the historical investment performance for a
composite of all of the Sub-adviser's Discretionary Accounts ("Sub-adviser
Composite") which were managed by the Sub-adviser in substantially the same
manner as the Domestic Bond Fund. The Sub-adviser Composite represents the total
return of all Discretionary Accounts net of the highest management fee charged
and other account fees and expenses. The inception dates of the Discretionary
Accounts comprising Sub-adviser Composite range from December 31, 1972 to March
1, 1998.
The Discretionary Accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and Subchapter M of the
Internal Revenue Code. If the Discretionary Accounts included in the Sub-adviser
Composite had been subject to the requirements imposed on mutual funds, their
performance might have been lower.
Total fees (after expense reimbursements) for the Domestic Bond Fund are higher
than the total fees historically incurred by the Discretionary Accounts
comprising the Sub-adviser Composite. Consequently, the performance results for
the Sub-adviser Composite would have been lower if the Sub-adviser Composite had
the same expenses as the Domestic Bond Fund.
The performance of the Sub-adviser Composite has been calculated in accordance
with performance presentation standards of the Association for Investment
Management and Research ("AIMR"). The AIMR method of calculating performance is
different from SEC performance standards, which are described under "Performance
and Yield Information" in the Statement of Additional Information. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON A COMPOSITE OF THE SUB-ADVISER'S
DISCRETIONARY ACCOUNTS WHICH ARE MANAGED IN SUBSTANTIALLY THE SAME MANNER AS THE
DOMESTIC BOND FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE DOMESTIC BOND
FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF SUB-ADVISER COMPOSITE
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -------------------------------------------------------------
9.12% 6.61% 9.12%
- -------------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Domestic Bond Fund is
likely to differ from the Sub-adviser's Discretionary Accounts in size, cash
flow patterns and certain tax matters. Accordingly the portfolio holdings of the
Domestic Bond Fund may vary from those of the Sub-adviser's Discretionary
Accounts and the performance of the Domestic Bond Fund may vary from that of the
Sub-adviser Composite.
42
<PAGE> 47
CORE BOND FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGHEST POSSIBLE TOTAL
RETURN CONSISTENT WITH
CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN
MEDIUM TO HIGH QUALITY FIXED
INCOME SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
American General Investment Management, L.P. The Sub-adviser was formed in April
1998 as successor to the Investment Management Division of American General
Corporation.
PORTFOLIO MANAGER
Roger E. Hahn, CFA, serves as the Fund's portfolio manager and is assisted by
Craig A. Mitchell, CFA, James J. Roth and Leon A. Olver. Mr. Hahn, Senior Vice
President, joined the Sub-adviser in April 1998. Previously, Mr. Hahn was with
American General Corporation from 1983 to April 1998, where he was responsible
for portfolio management and asset/liability management. Mr. Mitchell, Vice
President and Senior Portfolio Manager, joined the Sub-adviser in April 1998 and
American General Corporation in May 1995. From July 1992 to April 1995, Mr.
Mitchell served as Assistant Portfolio Manager and, subsequently, Portfolio
Manager at Providian Corporation. Mr. Roth, Vice President, Fixed Income
Trading, joined the Sub-adviser in April 1998. Previously, Mr. Roth was Senior
Portfolio Manager at American General Corporation from August 1994 to March
1998. Prior to that, Mr. Roth was National Sales Manager, Department of Capital
Markets, with the Resolution Trust Corporation from February 1994 to July 1994
and Capital Markets Specialist from June 1991 to January 1994. Leon A. Olver,
Vice President and Investment Officer for the Series Company, has been with the
Sub-adviser since April 1998. As Portfolio Manager for the Sub-adviser, Mr.
Olver is responsible for portfolio management of domestic fixed income assets.
Mr. Olver has been with VALIC since June 1995 and was with First Heights Bank as
manager of research and analysis from May 1991 to June 1995.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investments in medium to high quality fixed income securities.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk, market risk and risk associated with foreign securities. This
may cause the Fund's investments to be worth less than what the Fund paid for
them. For a discussion of these risks see "A Word About Risk" in this
prospectus.
INVESTMENT STRATEGY
The Fund invests in high quality fixed income securities to provide you with the
highest possible total return from current income and capital gains while
preserving your investment. To increase the Fund's earning potential, we may use
a small part of the Fund's assets to make some higher risk investments.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund's Total
Fund Investments Assets*
- -----------------------------------------------
<S> <C>
Investment grade up to 100%
intermediate and long-
term corporate fixed
income securities rated
at least Baa3 by
Moody's or BBB- by
S&P** or of comparable
quality, Eurodollar
fixed income
securities***,
securities issued or
guaranteed by the U.S.
Government****, or the
Canadian Government,
interest bearing
short-term investments,
such as commercial
paper, bankers'
acceptances, bank
certificates of deposit
and other cash
equivalents and cash
- -----------------------------------------------
Other fixed income up to 10%
securities
corporate bonds rated
below Baa3 by Moody's
and BBB- by S&P*****
- -----------------------------------------------
Illiquid securities****** up to 15%
- -----------------------------------------------
Rule 144A securities up to 30%
(liquid)
- -----------------------------------------------
</TABLE>
* At time of purchase.
** The Sub-adviser will not necessarily dispose of a
fixed income security when its rating is down graded to below investment
grade.
*** The Fund currently intends to limit these
investments to no more than 20% of its total assets.
**** U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by (i) the full
faith and credit of the U.S. Government, (ii) the right of the issuer to
borrow from the U.S. Treasury, (iii) the credit of the issuing government
agency or (iv) the discretionary authority of the U.S. Government or GNMA
to purchase certain obligations of the agency.
***** Commonly referred to as high yield, high risk,
junk or below investment grade bonds.
****** Percent of Fund's net assets applied at all times.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
43
<PAGE> 48
CORE BOND FUND
- --------------------------------------------------------------------------------
The Core Bond Fund recently commenced operations and, therefore, has no
investment performance record. However, the Fund's investment objectives,
policies and strategies will be substantially similar to those employed by the
Sub-adviser with respect to a separately managed account of the Sub-adviser
(Separately Managed Account). The chart herein shows the historical investment
performance for the Sub-adviser's Separately Managed Account which was managed
by the Sub-adviser in substantially the same manner and by the same individuals
who manage the Core Bond Fund. The performance presented is net of management
fees (after expense reimbursements) charged by the Core Bond Fund. No other fees
and expenses were incurred by the Separately Managed Account. The inception date
of the Separately Managed Account was November 1, 1948. The Sub-adviser manages
no other accounts or funds with investment objectives, policies and strategies
that are substantially similar to those of the Core Bond Fund.
The Separately Managed Account was not subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code. If the
Separately Managed Account had been subject to the requirements imposed on
registered mutual funds, its performance might have been lower.
The performance of the Separately Managed Account has been calculated in
accordance with SEC performance standards. See "Performance and Yield
Information" in the Statement of Additional Information for a description of SEC
performance standards. THE PERFORMANCE INFORMATION HEREIN IS BASED ON THE
SUB-ADVISER'S SEPARATELY MANAGED ACCOUNT WHICH WAS MANAGED IN SUBSTANTIALLY THE
SAME MANNER AND BY THE SAME INDIVIDUALS AS THE CORE BOND FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE CORE BOND FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN OF
SUB-ADVISER COMPOSITE
<TABLE>
<S> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
--------------------------------------------------
11.79% 7.00% 9.35%
--------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Core Bond Fund is
likely to differ from the Sub-adviser's Separately Managed Account in size, cash
flow patterns and certain tax matters. Accordingly the portfolio holdings and
performance of the Core Bond Fund may vary from those of the Sub-adviser's
Separately Managed Account.
44
<PAGE> 49
MONEY MARKET FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal INCOME THROUGH INVESTMENTS
IN SHORT-TERM MONEY MARKET
SECURITIES
- -------------------------------------------------
Investment Category STABILITY
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
Teresa Moro has been this Fund's portfolio manager and Vice President and
Investment Officer of the Series Company since its inception. Since 1991, Ms.
Moro has served as Vice President and Investment Officer of American General
Series Portfolio Company, a registered investment company managed by VALIC and
as Portfolio Manager of the American General Series Portfolio Company Money
Market Fund ("AGSPC Money Market Fund").
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
INVESTMENT RISK
The short-term money market securities that this Fund invests in are high
quality investments, posing low credit and interest rate risk. The current yield
of the Fund will generally go up or down with changes in the level of interest
rates. The Fund uses the amortized cost method to value its portfolio securities
and tries to keep its net asset value at $1.00 per share. There can be no
assurance that the net asset value will be $1.00 per share at all times.
Because the risk to the money you invest is low, the potential for profit is
also low. The Fund may experience risks including interest rate risk, market
risk, credit risk and risk associated with foreign securities. For a discussion
of these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in short-term money market securities to provide you with
liquidity, protection of your investment and current income. We use 95% of the
Fund's total assets to buy short-term securities that are rated within the
highest rating category for short term debt obligations by at least two
nationally recognized rating services or unrated securities of comparable
investment quality. These eligible securities must mature 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
- Illiquid and restricted securities*
- Rule 144A securities (liquid)
- ---------------
*Limited to 10% of the Fund's net assets at all times
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."
45
<PAGE> 50
MONEY MARKET FUND
- --------------------------------------------------------------------------------
The Money Market Fund recently commenced operations and, therefore, has no
investment performance record. However, the Money Market Fund's investment
objectives, policies and strategies are substantially similar to those of the
AGSPC Money Market Fund and it is managed by VALIC in substantially the same
manner and by the same individuals as the AGSPC Money Market Fund. The chart
herein shows the historical investment performance for the AGSPC Money Market
Fund for the period of April 1, 1988 through March 31, 1998, net of AGSPC Money
Market Fund's fees and expenses. The inception date for the AGSPC Money Market
Fund was December 16, 1985.
The AGSPC Money Market Fund is subject to the investment limitations,
diversification requirements and other restrictions imposed on registered mutual
funds by the 1940 Act and Subchapter M of the Internal Revenue Code.
Total fees (after expense reimbursements) for the Money Market Fund are higher
than the total fees incurred by the AGSPC Money Market Fund. Consequently, the
performance results for the AGSPC Money Market Fund would have been lower if the
AGSPC Money Market Fund had the same expenses as the Money Market Fund. The
performance of the AGSPC Money Market Fund has been calculated in accordance SEC
performance standards. See "Performance and Yield Information" in the Statement
of Additional Information for a description of SEC performance standards. THE
PERFORMANCE INFORMATION HEREIN IS BASED ON THE AGSPC MONEY MARKET FUND WHICH IS
MANAGED IN SUBSTANTIALLY THE SAME MANNER AND BY THE SAME INDIVIDUALS AS THE
MONEY MARKET FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE MONEY MARKET FUND
ITSELF.
AVERAGE ANNUAL TOTAL RETURN
OF AGSPC MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------
5.24% 4.51% 5.42%
- -----------------------------------------------------------
</TABLE>
VALUE AT MONTHLY INTERVALS OF $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988
[CHART]
PERIOD ENDED MARCH 31, 1998
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. THE PERFORMANCE
PRESENTED ABOVE DOES NOT REFLECT INSURANCE COMPANY SEPARATE ACCOUNT FEES AND
EXPENSES. Historical returns reflect investment management fees and other
operating expenses, if any. You should be aware that the Money Market Fund is
likely to differ from the AGSPC Money Market Fund in size, cash flow patterns
and certain tax matters. Accordingly, the portfolio holdings and performance of
the Money Market Fund may vary from those of the AGSPC Money Market Fund.
46
<PAGE> 51
GROWTH LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994.
INVESTMENT OBJECTIVE
Seeks growth through investments in Series Company Funds. This Fund is suitable
for investors seeking the potential for capital growth that a fund investing
predominately in equity securities may offer.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act, which
means that the Fund is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. However, in accordance with the
requirements of Subchapter M of the Code, the Fund will limit its investments so
that at the end of each quarter not more than 25% of its total assets will be
invested in a single issuer and investments representing over 5% of total assets
in one issuer will not exceed 50% of the Fund's total assets. The remaining 50%
of total assets may not include more than 5% of total assets in one issuer.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described herein, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Series
Company Funds in which it invests. Changes in the net asset values of the
underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
underlying Series Company Funds to meet their investment objective.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 25%-35%
Small Capitalization Equity
Securities 15%-25%
Medium Capitalization Equity
Securities 10%-20%
Large Capitalization Equity
Securities 25%-35%
Bonds 5%-15%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target investment percentages for the
Fund on the degree to which we believe the Underlying Series Company Funds, in
combination, to be appropriate for the Fund's investment objective.
47
<PAGE> 52
GROWTH LIFESTYLE FUND
Fact Sheet -- (Continued)
- --------------------------------------------------------------------------------
We may change the asset allocation ranges, the particular Underlying Series
Company Funds in which the Fund may invest and the target investment percentages
set from time to time by VALIC, subject to the supervision of the Series
Company's Board of Trustees.
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 15%
Value Fund
American General International 15%
Growth Fund
American General Small Cap 10%
Value Fund
American General Small Cap 10%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 13%
Growth Fund
American General Large Cap 12%
Value Fund
American General Domestic 10%
Bond Fund
</TABLE>
48
<PAGE> 53
MODERATE GROWTH
LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH AND CURRENT INCOME
THROUGH INVESTMENTS IN
SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994.
INVESTMENT OBJECTIVE
Seeks growth and current income through investments in Series Company Funds.
This Fund is suitable for investors who wish to invest in equity securities, but
who are not willing to assume the substantial market risks of the Growth
Lifestyle Fund.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act, which
means that the Fund is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. However, in accordance with the
requirements of Subchapter M of the Code, the Fund will limit its investments so
that at the end of each quarter not more than 25% of its total assets will be
invested in a single issuer and investments representing over 5% of total assets
in one issuer will not exceed 50% of the Fund's total assets. The remaining 50%
of total assets may not include more than 5% of total assets in one issuer.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described below, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Series
Company Funds in which it invests. Changes in the net asset values of the
underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
underlying Series Company Funds to meet their investment objective.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 10%-20%
Small Capitalization Equity
Securities 10%-20%
Medium Capitalization Equity
Securities 10%-20%
Large Capitalization Equity
Securities 25%-30%
Bonds 20%-30%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to
49
<PAGE> 54
MODERATE GROWTH LIFESTYLE FUND
Fact Sheet -- (Continued)
- --------------------------------------------------------------------------------
represent a reasonable spectrum of investment options for the Fund. We have
based the target investment percentages for the Fund on the degree to which we
believe the Underlying Series Company Funds, in combination, to be appropriate
for the Fund's investment objective. We may change the asset allocation ranges,
the particular Underlying Series Company Funds in which the Fund may invest and
the target investment percentages set from time to time by VALIC, subject to the
supervision of the Series Company's Board of Trustees.
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 8%
Value Fund
American General International 7%
Growth Fund
American General Small Cap 8%
Value Fund
American General Small Cap 7%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 25%
Bond Fund
</TABLE>
50
<PAGE> 55
CONSERVATIVE GROWTH
LIFESTYLE FUND
Fact Sheet
<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CURRENT INCOME AND LOW TO
MODERATE GROWTH THROUGH
INVESTMENTS IN SERIES
COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER
The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company managed by VALIC. Kirsten E. Mires and Jeanie G.
Weathington assist Mr. Trimbur in the management of the Fund. Ms. Mires,
Investment Analyst, joined VALIC in October 1997. Prior to this, Ms. Mires was
an Investment Officer at Chase Securities of Texas from November 1995 to October
1997. From June 1995 to November 1995, Ms. Mires was employed as an Investment
Account Executive at Copeland Companies. Prior to this, Ms. Mires was a
Marketing Specialist at Transamerica Investment Management from July 1993 to
June 1995. Ms. Weathington, Investment Analyst, joined VALIC in April 1998.
Prior to this, Ms. Weathington was a Financial Analyst at Bank One from December
1996 to April 1998. From July 1994 to December 1996, Ms. Weathington was
Director-Portfolio Management at Goodman Financial Corporation. Prior to this,
Ms. Weathington was a Portfolio Analyst at JMC Capital Management, Inc. from
February 1994 to July 1994.
INVESTMENT OBJECTIVE
Seeks current income and low to moderate growth of capital through investments
in Series Company Funds. This Fund is suitable for investors who wish to invest
in equity securities, but who are not willing to assume the market risks of
either the Growth Lifestyle Fund or the Moderate Growth Lifestyle Fund.
INVESTMENT RISK
The Fund is a "non-diversified" investment company under the 1940 Act, which
means that the Fund is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. However, in accordance with the
requirements of Subchapter M of the Code, the Fund will limit its investments so
that at the end of each quarter not more than 25% of its total assets will be
invested in a single issuer and investments representing over 5% of total assets
in one issuer will not exceed 50% of the Fund's total assets. The remaining 50%
of total assets may not include more than 5% of total assets in one issuer.
The allocation among the different Series Company Funds is designed to achieve
the Fund's investment objective and reduce risk. The allocation of assets within
the Fund is determined by VALIC according to fundamental quantitative analysis.
Modest shifts may be made among Underlying Series Company Funds and asset
classes based on VALIC's current outlook on financial markets and the world's
economies. Because the Fund's assets will be adjusted only periodically and only
within the investment ranges described below, there should not be any sudden
large-scale changes in the Fund's asset allocations.
The Fund's performance is directly related to the performance of the Series
Company Funds in which it invests. Changes in the net asset values of the
underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
underlying objectives.
Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
Asset allocation among the equity securities of international companies, large
capitalization companies, medium capitalization companies, small capitalization
companies and bonds is the most critical investment decision that you make as an
investor. Selecting the appropriate combination should be based on your personal
investment goals, time horizons and risk tolerance. The chart below reflects the
projected asset allocation ranges for this Fund.
<TABLE>
<S> <C>
International Equity Securities 5%-15%
Small Capitalization Equity
Securities 5%-15%
Medium Capitalization Equity
Securities 5%-15%
Large Capitalization Equity
Securities 25%-35%
Bonds 30%-50%
</TABLE>
This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Underlying Series Company
Funds have been selected to represent a reasonable spectrum of investment
options for the Fund. We have based the target
51
<PAGE> 56
CONSERVATIVE GROWTH LIFESTYLE FUND
Fact Sheet -- (Continued)
- --------------------------------------------------------------------------------
investment percentages for the Fund on the degree to which we believe the
Underlying Series Company Funds, in combination, to be appropriate for the
Fund's investment objective. We may change the asset allocation ranges, the
particular Underlying Series Company Funds in which the Fund may invest and the
target investment percentages set from time to time by VALIC, subject to the
supervision of the Series Company's Board of Trustees.
We intend to allocate the Fund's assets among the Series Company Funds as
follows:
<TABLE>
<S> <C>
American General International 5%
Value Fund
American General International 5%
Growth Fund
American General Small Cap 5%
Value Fund
American General Small Cap 5%
Growth Fund
American General Mid Cap 5%
Value Fund
American General Mid Cap 5%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 40%
Bond Fund
</TABLE>
52
<PAGE> 57
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Equity securities represent an ownership position in a company. The prices of
equity securities fluctuate based on changes in the financial condition of the
issuing company and on market and economic conditions. If you own a equity
security, you own a part of the company that issued it. Companies sell equity
securities to get the money they need to grow.
Stocks are one type of equity security. Generally, there are three types of
stocks:
Common stock -- Each share of common stock represents a part of the ownership of
the company. The holder of common stock participates in the growth of the
company through increasing stock price and receipt of dividends. If the company
runs into difficulty, the stock price can decline and dividends may not be paid.
Preferred stock -- Each share of preferred stock allows the holder to get a set
dividend before the common stock shareholders receive any dividends on their
shares.
Convertible preferred stock -- A stock with a set dividend which the holder may
exchange for a certain amount of common stock.
All of the Funds except the Lifestyle Funds, the Money Market Fund, the Core
Bond Fund and the Domestic Bond Fund, may invest in common, preferred, and
convertible preferred stock in accordance with their investment strategies.
Stocks are not the only type of equity security. Other equity securities include
but are not limited to convertible securities, depository receipts, warrants,
rights and partially paid shares, investment company securities, real estate
securities, convertible bonds and foreign equity securities such as ADRs, GDRs
and EDRs. More information about these equity securities is set forth herein or
contained in the Statement of Additional Information.
FIXED INCOME SECURITIES
Fixed income securities include a broad array of short, medium and long term
obligations, including notes and bonds. Fixed income securities generally
involve an obligation of the issuer to pay interest on either a current basis or
at the maturity of the security and to repay the principal amount of the
security at maturity.
Bonds are one type of fixed income security and are sold by governments on the
local, state, and federal levels, and by companies. There are many different
kinds of bonds. For example, each bond issue has specific terms. U.S. Government
bonds are guaranteed to pay interest and principal by the federal government.
Revenue bonds are usually only paid from the revenue of the issuer. An example
of that would be an airport revenue bond. Debentures are a very common type of
corporate bond (a bond sold by a company). Payment of interest and return of
principal is subject to the company's ability to pay. Convertible bonds are
corporate bonds that can be exchanged for stock. The types of bonds that most
Funds may invest in include, but are not limited to: U.S. Government bonds and
investment grade corporate bonds (the Mid Cap Value Fund, the Balanced Fund, the
Domestic Bond Fund, the High Yield Bond Fund, the Strategic Bond Fund and the
Core Bond Fund may also invest in below investment grade bonds). For a
description of investment grade bonds and below investment grade bonds see "A
Word about Risk -- Market Risk" in this prospectus.
Investing in a bond is like making a loan for a fixed period of time at a fixed
interest rate. During the fixed period, the bond pays interest on a regular
basis. At the end of the fixed period, the bond matures and the investor usually
gets back the principal amount of the bond. Fixed periods to maturity are
categorized as short term (generally less than 12 months), intermediate (one to
10 years), and long term (10 years or more). Commercial paper is a specific type
of corporate or short term note. In fact, it's very short term, being paid in
less than 270 days. Most commercial paper matures in 50 days or less.
Bonds that are unrated or rated below Baa3 by Moody's or BBB- by S&P (commonly
referred to as high yield, high risk or "junk bonds") are regarded, on balance,
as predominantly speculative. Changes in economic conditions or other
circumstances are more likely to weaken the issuer's capacity to pay interest
and principal in accordance with the terms of the obligation than is the case
with higher rated bonds. While such bonds may have some quality and protective
characteristics, these are outweighed by uncertainties or risk exposures to
adverse conditions. Lower rated bonds may be more susceptible to real or
perceived adverse economic and individual corporate developments than would
investment grade bonds. See "A Word about Risk -- Risks Associated with Lower
Rated Fixed Income Securities" herein.
For example, a projected economic downturn or the possibility of an increase in
interest rates may affect prices because such an event might lessen the ability
of highly leveraged high yield issuers to meet their principal and interest
payment obligations, meet projected business goals, or obtain additional
financing. In addition, the
ISSUED means the
Company (ISSUER) sold it
originally to the public.
For more information
about BONDS AND RATINGS
OF BONDS, see the
Statement of Additional
Information.
For more information about
ASSET-BACKED SECURITIES
see the Statement of
Additional Information.
53
<PAGE> 58
- --------------------------------------------------------------------------------
secondary trading market for lower rated bonds may be less liquid than the
market for investment grade bonds. This potential lack of liquidity may make it
more difficult to accurately value certain of these lower rated portfolio
securities.
VALIC and the Sub-advisers will not necessarily dispose of a bond when its
ratings are down graded to below investment grade.
ASSET-BACKED SECURITIES
Asset-backed securities are bonds or notes that are normally supported by a
specific property. If the issuer fails to pay the interest or return the
principal when the bond matures, then the issuer must give the property to the
bondholders or noteholders. All of the Funds in this prospectus, except the
Lifestyle Funds and the Mid Cap Value Fund, may invest in asset-backed
securities. Examples of assets supporting asset-backed securities include credit
card receivables, retail installment loans, home equity loans, auto loans, and
manufactured housing loans.
LOAN PARTICIPATIONS
A loan participation is an investment in a loan made to a U.S. company that is
secured by the company's assets. The assets must be, at all times, worth enough
money to cover the balance due on the loan. Major national and regional banks
make loans to companies and then sell the loans to investors. These banks don't
guarantee the companies will pay the principal and interest due on the loans.
All the Funds in this prospectus, other than the Lifestyle Funds and the Mid Cap
Value Fund, may invest in loan participations.
VARIABLE AMOUNT DEMAND MASTER NOTES
The Mid Cap Growth Fund, the Large Cap Value Fund, the Mid Cap Value Fund, the
Balanced Fund, the Domestic Bond Fund, the High Yield Bond Fund, the Strategic
Bond Fund and the Core Bond Fund may invest in variable amount demand master
notes. Variable amount master demand notes are unsecured obligations that are
redeemable upon demand and are typically unrated. These instruments are issued
pursuant to written agreements between their issuers and holders. The agreements
permit the holders to increase (subject to an agreed maximum) and the holders
and issuers to decrease the principal amount of the notes, and specify that the
rate of interest payable on the principal fluctuates according to an agreed
formula.
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, the Domestic Bond Fund, the High Yield Bond Fund, the
Strategic Bond Fund and the Core Bond Fund may invest in structured securities.
REAL ESTATE SECURITIES
All of the Funds in this prospectus, except the Lifestyle Funds and the Domestic
Bond Fund, may invest in real estate securities. Real estate securities are
securities issued by companies that invest in real estate or interests therein.
Certain Funds also may invest in real estate investment trusts ("REITs"). REITs
are generally publicly traded on the national stock exchanges and in the
over-the-counter market and have varying degrees of liquidity. More information
about REITs and real estate securities generally is contained in the Statement
of Additional Information.
ILLIQUID AND RESTRICTED SECURITIES
An illiquid security is one that may not be frequently traded. If it must be
sold quickly, it may have to be sold at a loss. For example, if a fund owns a
stock that is not sold very often and the fund needs to sell this stock quickly,
it may have to offer the investment at a low price for someone to buy it.
A restricted security is one that has not been registered with the SEC and
therefore can't be sold in the public market. Restricted securities do include
securities eligible for resale under Rule 144A of the Securities Act of 1933.
Some Rule 144A securities may be liquid as determined by VALIC or a Sub-adviser.
For more information about Rule 144A securities and the Fund's investment
limitations see the Statement of Additional Information. Excluded from the
Fund's investment limitations however, are any Rule 144A securities which have
been determined to be liquid by the Board of Trustees, VALIC or the Sub-adviser
pursuant to Board approved guidelines. These investments can be very risky
because the Fund's ability to sell a restricted security is very limited and
Rule 144A securities deemed to be illiquid will have the effect of increasing
the amount of the Fund's investments illiquid securities.
For more information
about LOAN PARTICIPANTS
see the Statement
of Additional Information.
For more information
about ILLIQUID AND RESTRICTED
SECURITIES see the
Statement of Additional
Information.
For more information
about REAL ESTATE
SECURITIES, see the Statement
of Additional Information.
54
<PAGE> 59
- --------------------------------------------------------------------------------
All the Funds, except the Lifestyle Funds, may buy illiquid and restricted
securities, but are restricted as to how much money they may invest in them.
DEPOSITORY RECEIPTS
All of the Funds in this prospectus, except the Lifestyle Funds, may invest in
ADRs. ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank. We
consider ADRs, EDRs and GDRs to be foreign securities. The International Growth
Fund, the Small Cap Growth Fund, the International Value Fund, the High Yield
Bond Fund, the Strategic Bond Fund, the Core Bond Fund and the MidCap Value Fund
may invest in EDRs and/or GDRs. The Large Cap Growth Fund may invest in GDRs but
may not invest in EDRs.
INVESTMENT FUNDS
Some countries have laws and regulations that currently preclude direct foreign
investment in the securities of their companies. However, indirect foreign
investment in the securities of companies listed and traded on the stock
exchanges in these countries is permitted through investment funds which have
been specifically authorized. The International Growth Fund, the Large Cap
Growth Fund, the Small Cap Growth Fund, the International Value Fund and the Mid
Cap Value Fund may invest in investment funds.
FOREIGN CURRENCY
All of the Funds, except the Lifestyle Funds, the Large Cap Value Fund, the
Small Cap Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the
Small Cap Growth Fund, the Balanced Fund, the Domestic Bond Fund and the Money
Market Fund, may buy and sell foreign currencies the same way they buy and sell
other investments. Funds buy foreign currencies when they believe the value of
the currency will increase. If it does increase, they sell the currency for a
profit. If it decreases they will experience a loss. Generally, the
International Growth Fund and the International Value Fund may also buy and sell
foreign currencies to settle transactions for foreign securities bought or sold
in the Fund.
The Funds, except the Lifestyle Funds, the Large Cap Value Fund, the Small Cap
Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the Small Cap
Growth Fund, the Balanced Fund, the Domestic Bond Fund and the Money Market
Fund, may purchase forward foreign currency exchange contracts to protect
against a decline in the value of the U.S. dollar, to effect cross-hedges
involving two non-U.S. currencies, or for, settlement purposes.
WHEN-ISSUED SECURITIES
When-issued securities are those investments that have been announced by the
issuer and will be on the market soon. The Funds negotiate the price with a
broker before it goes on the market. If the security ends up selling on the
market at a lower price than negotiated, the Funds may have a loss. If it sells
at a higher price, the Funds may have a profit.
All of the Funds, other than the Lifestyle Funds, the Money Market Fund and the
Mid Cap Value Fund, may buy when-issued securities in accordance with their
investment strategy.
MONEY MARKET SECURITIES
All of the Funds may invest part of their assets in high quality money market
securities payable in U.S. dollars. A listing of the types of money market
securities in which the Money Market Fund may invest is in that Fund's Fact
Sheet. A money market security is high quality when it is rated in one of the
two highest credit categories by Moody's or S&P or another nationally recognized
rating service or if unrated, deemed high quality by VALIC or a Sub-adviser.
These high quality money market securities may include:
- Cash and cash equivalents
- Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities
- Certificates of deposit and other obligations of domestic banks having total
assets in excess of $1 billion
- Commercial paper sold by corporations and finance companies
- Corporate debt obligations with remaining maturities of 13 months or less
- Repurchase agreements, money market securities of foreign issuers if payable
in U.S. dollars, asset-backed securities, loan participations, and
adjustable rate securities
INVESTMENT COMPANIES
The Funds may invest in the securities of other open-end or closed-end
investment companies subject to the limitations imposed by the 1940 Act. A Fund
will indirectly bear its proportionate share of any management fees and other
expenses paid by an investment company in which it invests.
For more information on put
and call options AND FINANCIAL
FUTURES CONTRACTS AND OPTIONS, see
the Statement of Additional
information.
For more information
about WHEN-ISSUED SECURITIES,
see the Statement
of Additional Information.
For more information about
MONEY MARKET SECURITIES OF
FOREIGN ISSUERS the Funds
may purchase, see the
Statement of Additional
Information.
For more information
about FOREIGN CURRENCY
EXCHANGE TRANSACTIONS, see
the Statement of
Additional Information.
55
<PAGE> 60
- --------------------------------------------------------------------------------
DERIVATIVES
Unlike stocks and bonds that represent actual ownership of that stock or bond,
derivatives are investments which "derive" their value from securities issued by
a company, government, or government agency. In certain cases, derivatives may
be purchased for non-speculative investment purposes or to protect ("hedge")
against a change in the price of the underlying security. There are some
investors who take higher risk ("speculate") and buy derivatives to profit from
a change in price of the underlying security. We may purchase derivatives to
hedge the investment portfolios and to earn additional income in order to help
achieve the Funds' objectives. Generally, we do not buy derivatives to
speculate.
The Funds, other than the Lifestyle Funds, the Money Market Fund, the Mid Cap
Growth Fund and the International Growth Fund may buy and sell derivatives, such
as futures and/or options.
Options
An option is the right to buy or sell any type of investment for a preset price
over a specific period of time.
Call Option
For example, you can buy an option from Mr. Smith that gives you the right to
buy 10 shares of stock X at $25.00 per share anytime between now and six weeks
from now. You believe stock X will be selling for more than $25.00 per share
between now and then. Mr. Smith believes it won't be. If you exercise this
option before it expires, Mr. Smith must sell you 10 shares of stock X at $25.00
per share.
On the other hand, you can sell an option to Mr. Smith that gives him the right
to buy 10 shares of stock X at $25.00 per share anytime between now and six
weeks from now. You believe stock X will be selling for less than $25.00 per
share between now and then. Mr. Smith believes it won't be. If he exercises this
option before it expires, you must sell to Mr. Smith 10 shares of stock X at
$25.00 per share.
Put Option
Or, you can buy an option from Mr. Smith that gives you the right to sell him 10
shares of X stock at $25.00 per share anytime between now and six weeks from
now. In this example, you believe stock X will be selling for less than $25.00
per share between now and then. Mr. Smith thinks it will be selling for more.
Or, you can sell an option to Mr. Smith that gives him the right to sell to you
10 shares of X stock at $25.00 per share anytime between now and six weeks from
now. In this example, he believes stock X will be selling for less than $25.00
per share between now and then.
The Funds use stock and bond futures to invest cash and cash equivalents. When
certain levels are reached the Fund will sell the futures and buy stocks or
bonds.
All of the Funds except the Lifestyle Funds, the Money Market Fund, the Mid Cap
Growth Fund, and the International Growth Fund may invest in one or more of the
following types of futures and options:
- Write (sell) exchange traded covered put and call options on securities and
stock indices.
- Purchase exchange traded put and call options on securities and stock
indices.
- Purchase and sell exchange traded financial futures contracts.
- Write (sell) covered call options and purchase exchange traded put and call
options on financial futures contracts.
- Write (sell) covered call options and purchase non-exchange traded call and
put options on financial futures contracts.
The International Value Fund, the Large Cap Value Fund and the Small Cap Growth
Fund may write and purchase put and call options on securities and stock indices
that are not traded on an exchange.
SWAP AGREEMENTS
Swap agreements are contracts between parties in which one party agrees to make
payments to the other party based on the change in market value of a specified
index or asset. In return, the other party agrees to make payments to the first
party based on the return of a different specified index or asset. Additional
information about swap agreements is contained in the Statement of Additional
Information.
The Small Cap Value Fund and the Small Cap Growth Fund may enter into swap
agreements.
WARRANTS AND RIGHTS
Warrants and rights are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. Changes in the value
of a warrant do not necessarily correspond to changes in the value of its
underlying securities.
The International Growth Fund, the Large Cap Value Fund, the Large Cap Growth
Fund, the Small Cap Value Fund, the International Value Fund, the Balanced Fund,
the Domestic Bond Fund, the High Yield Bond Fund, the Strategic
For more information about
SWAP AGREEMENTS, see the
Statement of Additional
Information.
56
<PAGE> 61
- --------------------------------------------------------------------------------
Bond Fund, the Core Bond Fund and the Small Cap Growth Fund are authorized to
use warrants or rights.
REPURCHASE AGREEMENTS
A repurchase agreement requires the seller of the security to buy it back at a
set price at a certain time. If a Fund enters into a repurchase agreement, it is
really making a short term loan (usually for one day to one week). A Fund may
enter into repurchase agreements only with well-established securities dealers
or banks that are members of the Federal Reserve System. All the Funds in this
prospectus may invest in repurchase agreements.
The risk in a repurchase agreement is the failure of the seller to be able to
buy the security back. If the value of the security declines, the Fund may have
to sell at a loss.
A repurchase agreement of more than 7 days duration is illiquid. A discussion of
repurchase agreements, illiquid securities and Fund limitations is contained in
the Statement of Additional Information.
A WORD ABOUT RISK
There are five basic types of investment risk you may be subject to:
- Market Risk
- Credit (Financial) Risk
- Interest Rate Risk
- Risk Associated with Foreign Securities
- Manager Risk (Lifestyle Funds only)
Generally stocks are considered to be subject to market risk, while debt
securities, such as U.S. government bonds and money market securities are
subject to interest rate risk. Other debt securities, such as corporate bonds,
involve both interest rate and credit (financial) risk. Lastly, risks associated
with foreign securities can involve political, currency and limited information
risks. Each of these types of investment risks, including manager risk, is
discussed below.
Market Risk
Market risk refers to the loss of capital resulting from changes in the prices
of investments. For example, market risk occurs when expectations of lower
corporate profits in general cause the broad market of stocks to fall in price.
When this happens, even though a company is experiencing growth in profits, the
price of its stock could fall.
Credit (Financial) Risk
Credit risk refers to the risk that the issuer of a bond may default or be
unable to pay interest or principal due on a bond.
To help the Funds' Investment Adviser or Sub-advisers decide which U.S.
corporate and foreign bonds 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 bond of a company that may
not pay the interest and principal on the bond.
Certain of the Funds in this prospectus may buy bonds that are rated as
investment grade. There are four different levels of investment grade, from AAA
to BBB; see Description of Corporate Bond Ratings herein. All bonds with these
ratings are considered to have adequate ability to pay interest and principal.
All of the Funds in this prospectus may buy bonds issued by the U.S. Government.
The U.S. Government guarantees it will always pay principal and interest.
Risks Associated with Lower Rated Fixed Income Securities
Certain of the Funds also may purchase fixed income securities that are rated
below investment grade. Fixed income securities rated below BBB- by S&P or Baa3
by Moody's are considered to be below investment grade. Fixed income securities
with a below investment grade rating present a comparatively greater risk of
default in the timely payment of interest and principal than fixed income
securities rated as investment grade.
The lower rated but higher yielding fixed income securities purchased by the
Funds may be issued in connection with corporate restructurings, such as
leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar
events. In addition, high yield fixed income securities are often issued by
smaller, less creditworthy companies or by companies with substantial debt. The
securities ratings by Moody's and S&P are based largely on the issuer's
historical financial condition and the rating agency's investment analysis at
the time of the rating. As a result, the rating assigned to a security does not
necessarily reflect the issuer's current financial condition, which may be
better or worse than the rating indicates. Credit ratings are only one factor a
Sub-adviser relies on in evaluating lower-rated fixed income securities. The
analysis by 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. The Sub-adviser also may consider relative values based on
anticipated cash flow, interest or
For more information about
REPURCHASE AGREEMENTS, see the
Statement of Additional
Information.
For more information about
FOREIGN SECURITIES AND EMERGING
MARKETS, see the Statement
of Additional Information.
57
<PAGE> 62
- --------------------------------------------------------------------------------
dividend coverage, balance sheet analysis, and earnings prospects.
The market for lower rated fixed income securities is relatively new and until
recently its growth has paralleled a long economic expansion. Past experience,
therefore, may not provide an accurate indication of future performance of this
market, particularly during an economic recession. An economic downturn or
increase in interest rates is likely to have a greater negative effect on the
ability of the issuers to pay principal and interest, meet projected business
goals, and obtain additional financing. These circumstances also may result in a
higher incidence of defaults compared to higher rated securities. As a result,
adverse changes in economic conditions and increases in interest rates may
adversely affect the market for lower rated fixed income securities, the value
of such securities in a Fund's portfolio, and, therefore, the Fund's net asset
value. As a result, investment in such Fund is more speculative than investment
in a fund that invests primarily in higher rated fixed income securities.
Although certain Funds intend generally to purchase lower rated securities that
have secondary markets, these markets may be less liquid and less active than
markets for higher rated securities. These factors may limit the ability of a
Fund to sell lower rated securities at their expected value. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis, may
decrease the values and liquidity of lower rated fixed income securities,
especially in a thinly traded market. If market quotations are not readily
available for the Fund's lower rated or nonrated securities, these securities
will be valued by a method 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.
See the Appendix to the prospectus for a description for corporate bond ratings.
Interest Rate Risk
Interest rate risk refers to the risk that fluctuations in interest rates may
affect the value of interest paying securities in a Fund. If a fund sells a bond
before it matures, it may lose money, even if the bond is guaranteed by the U.S.
Government. Say, for example, a fund bought an intermediate government bond last
year that was paying interest at a fixed rate of 6%. Now, intermediate
government bonds are paying interest at a rate of 7%. If the Fund wants to sell
the bond paying 6%, it will have to sell it at a discount (and realize a loss)
to attract buyers because they can buy new bonds paying 7% interest.
Manager Risk
The Lifestyle Funds, which do not hold securities directly, are subject to
manager risk, which is the possibility that the portfolio managers of the
underlying Funds may fail to execute the underlying Funds' investment strategies
effectively. As a result, the Lifestyle Funds may fail to meet their stated
objectives.
Risk Associated with Foreign Securities
Certain Funds may, subject to limits stated in the Fund's Fact Sheet, invest in
foreign securities including ADRs, EDRs and GDRs and securities of companies
domiciled in emerging market countries. A foreign security is a security issued
by an entity domiciled or incorporated outside of the U.S.
Among the principal risks of owning foreign securities:
Political risk -- the chance of a change in government and the assets of the
company being taken away.
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Currency risk -- a change in the value of the foreign currency compared to the
dollar. If the foreign currency declines in value, your investment valued in
U.S. dollars will decline even if the value of the foreign stock or bond is
unchanged.
Limited information -- foreign companies generally are not regulated to the
degree U.S. companies are and may not report all of the information we are used
to getting. To minimize taxes they may not report some income or they may report
higher expenses.
INVESTMENT PRACTICES
Limitations
Each Fund has limitations on the percentage of its assets that it may allocate
to certain investments.
These limits are determined by the Fund's investment objectives and risk level.
Some Funds are restricted from buying certain types of investments altogether.
For example, the Money Market Fund may not invest in futures and options.
Each Fund's limitations are shown in the Investment Strategy section of its Fact
Sheet.
Lending Portfolio Securities
Each Fund, except the Lifestyle Funds, may lend its investment securities to
broker-dealers and other financial institutions to earn more money for the Fund.
Assets are placed in a special account by the borrower to cover the market value
of the securities on loan. The assets serving as collateral for the loan are
valued daily.
A risk of lending portfolio investments is that there may be a delay in the Fund
getting its investments back when a loaned security is sold.
The Funds will only make loans to broker-dealers and other financial
institutions approved by its Custodian, as monitored by VALIC and authorized by
the Board of Trustees.
For more information about
LENDING PORTFOLIO SECURITIES, see
the Statement of Additional Information.
For more information about
INVESTMENT LIMITATIONS, see the
Statement of Additional
Information.
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ABOUT THE SERIES COMPANY
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SERIES COMPANY SHARES
The Series Company is an open-end mutual fund and may offer shares of the Funds
for sale at any time. However, the Series Company offers shares of the Funds
only to registered and unregistered separate accounts of VALIC, and its
affiliates, or employee thrift plans maintained by VALIC or American General
Corporation.
The Series Company was organized on May 6, 1998, under the laws of the state of
Delaware as a business trust, and presently is authorized to sell 18 series.
Each of these series is authorized to issue an unlimited number of shares of
beneficial interest, par value $0.01 per share.
The Series Company does not contemplate holding regular meetings of shareholders
to elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares of the Series Company may by written request require a
meeting to consider the removal of Trustees by a vote of two-thirds of the
shares then outstanding cast in person or by proxy at such meeting. The Series
Company will assist such holders in communicating with other shareholders of the
Series Company to the extent required by the 1940 Act. More detailed information
concerning the Series Company is set forth in the Statement of Additional
Information.
The Series Company's Declaration of Trust provides that no Trustee, officer or
shareholder of the Series Company shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or liability of the Series Company but the assets of the Fund only
shall be liable.
As a participant, you do not directly buy shares of the Funds that make up the
Series Company. Instead, you buy units in either a registered or unregistered
separate account of VALIC or of its affiliates. When you buy these units, you
specify which Funds you want the separate account to invest your money in. The
separate account, in turn, buys the shares of the Funds according to your
instructions. Share certificates are not available. See your contract prospectus
for more information on the separate account associated with your contract.
When the separate accounts buy, sell, or transfer shares of the Funds, they do
not pay any charges related to these transactions.
None of the Funds currently foresees any disadvantages to participants arising
out of the fact that it may offer its shares to separate accounts of various
insurance companies to serve as the investment medium for their variable annuity
and variable life insurance contracts. Nevertheless, the Board of Trustees
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response to such conflicts. If such a conflict were to occur, one or
more insurance companies' separate accounts might be required to withdraw their
investments in one or more Funds and shares of another Fund may be substituted.
This might force a Fund to sell portfolio securities at disadvantageous prices.
In addition, the Board of Trustees may refuse to sell shares of any Fund to any
separate account or may suspend or terminate the offering of shares of any Fund
if such action is required by law or regulatory authority or is in the best
interests of the shareholders of the Fund.
As distributor, VAMCO sells shares of the Funds to the separate accounts. VAMCO
is a wholly owned subsidiary of VALIC and acts as a distributor under an
agreement it has with the Series Company. VAMCO does not charge the Series
Company or the separate accounts for its services. Also, VAMCO is not required
to sell a minimum number of shares to the separate accounts.
VAMCO sends orders to buy, sell or transfer shares to the Series Company's
transfer agent daily. The price of any share affected by the request is the next
net asset value calculated after the order is received.
For more information on how to participate, see your contract prospectus.
NET ASSET VALUE OF THE SERIES COMPANY SHARES
How Net Asset Value is Calculated
Here is how the Series Company calculates the net asset value of each Fund's
shares:
<TABLE>
<S> <C> <C> <C>
Step 1:
Total value of the Fund's
assets* (including money The Fund's
owed to the Fund but not yet Total Net Asset
collected) = Value
- - The Fund's liabilities
(including money owed by the
Fund but not yet paid)
Step 2:
The Fund's total net asset
value (from Step 1)
/ The total number of the
Fund's shares that are NET ASSET VALUE
outstanding. = PER SHARE
</TABLE>
- ---------------
* The Series Company uses the fair market value of a Fund's
investments to calculate the Fund's total value. However, it uses the
amortized cost method to determine the values of all the Money Market Fund's
investments and of any other Fund's short-term securities maturing within 60
days. The amortized cost method approximates fair market value.
If a Fund's portfolio includes investments that are not sold often or are not
sold on any exchanges, the Series Company's Board of Trustees or its delegate
will, in good faith, estimate fair market value of these investments.
THE VARIABLE ANNUITY
MARKETING COMPANY
(VAMCO) acts as the
Series Company's
distributor.
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<PAGE> 65
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When Net Asset Value is Calculated
The Series Company calculates the net asset value of each Fund's shares at
approximately 4pm EST each day the New York Stock Exchange is open. (The New
York Stock Exchange is open Monday through Friday but is closed on certain
federal and other holidays.)
Through the Distributor, the separate accounts send orders to the Series Company
to buy, sell, or transfer shares based on requests received from participants.
ADMINISTRATIVE SERVICE AGREEMENT
The Series Company has entered into an Administrative Service Agreement
("Service Agreement") with VALIC 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 VALIC monthly, a fee equal to
0.25% of the aggregate net asset value of each Fund, other than the Lifestyle
Funds, on an annual basis. Under the Service Agreement, VALIC provides
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. Fees paid under the Service
Agreement may be for shareholder service and the maintenance of accounts and,
therefore, may constitute "service fees" for purposes of applicable rules of the
National Association of Securities Dealers, Inc.
DIVIDENDS AND CAPITAL GAINS
Dividends from Net Investment Income
Net investment income generally includes stock dividends received and bond
interest earned less expenses paid by a Fund. Each Fund pays dividends from net
investment income occasionally. Dividends from net investment income are
automatically reinvested for you into additional shares of the Fund. Each Fund,
except the Money Market Fund pays dividends quarterly. The Money Market Fund
pays dividends daily.
Distributions from Capital Gains
When a Fund sells a security for more than it paid for that security, a capital
gain results. Once a year, each Fund pays distributions from capital gains, as
long as total capital gains exceed total capital losses. Distributions from
capital gains are automatically reinvested for you into additional shares of the
Fund.
DIVERSIFICATION
Each Fund's diversification policy limits the amount that the Fund may invest in
certain securities. Each Fund's diversification policy is also designed to
comply with the diversification requirements of the Internal Revenue Code (the
"Code") as well as the 1940 Act.
All of the Funds, except the Lifestyle Funds, may, with respect to 75% of their
total assets, invest up to 5% of their total assets in a single issuer. An
issuer, or "company" does not include the U.S. Government or agencies of the
U.S. Government according to the Code and the 1940 Act. For diversification
purposes, repurchase agreements are considered to be issued by the U.S.
Government if backed by U.S. Government securities. Also, these Funds may not
own more than 10% of the voting securities of a company.
The Lifestyle Funds are "non-diversified" under the 1940 Act, which means that
the Lifestyle Funds are not limited in the proportion of their assets that may
be invested in the securities of a single issuer. However, in accordance with
the requirements of Subchapter M of the Code, the Lifestyle Funds will limit
their investments so that at the end of each quarter not more than 25% of their
total assets will be invested in a single issuer and investments representing
over 5% of total assets in one issuer do not exceed 50% of total assets of a
Lifestyle Fund. The remaining 50% of total assets may not include more than 5%
of total assets in one issuer.
Also, the Money Market Fund may not invest more than 5% of its total assets in
any company rated as "second tier" by a national rating service (as described in
Types of Investments).
TAXES
By paying out all earnings as described in the Dividends and Capital Gains
section above and by complying with the diversification requirements under the
Code, each Fund expects to qualify as a Registered Investment Company (RIC)
under Subchapter M of the Code. By qualifying as a RIC the Fund will not have to
pay federal income taxes.
VOTING RIGHTS
One Vote Per Share
Each outstanding share has one vote on all matters that shareholders vote on. As
a participant, you vote on these matters indirectly by voting your units. The
way you vote your units as a participant depends on your contract. See your
contract prospectus for specific details.
When a matter comes up for vote, the separate account will vote its shares in
the same proportion
See the Statement of
Additional information and
your contract prospectus for
further tax discussions. You
should also consult your tax
advisor before investing.
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<PAGE> 66
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as the unit votes it actually receives. If VALIC determines that it may, under
the current interpretation of the 1940 Act, vote shares directly instead of
voting through its units, it may decide to vote that way.
Controlling Shareholder
VALIC, as the initial sole shareholder of the Funds as of the commencement date
of the Series Company, controls each Fund. VALIC does not anticipate that its
initial control of each Fund will adversely effect the rights of future
shareholders.
Shareholder Meetings
Delaware law does not require the Series Company to hold regular, annual
shareholder meetings. But, the Series Company must hold shareholder meetings on
the following matters:
- to approve certain agreements as required by the 1940 Act;
- to change fundamental investment objectives in the Diversification section
and to change fundamental investment restrictions, above;
- to fill vacancies on the Series Company's Board of Trustees if the
shareholders have elected less than a majority of the Trustees.
Shareholder Communications
The Series Company will assist in shareholder communications.
YEAR 2000 RISKS
VALIC is in the process of modifying its systems to achieve Year 2000 readiness.
This endeavor is directed and managed by VALIC and monitored by the parent
company, American General Corporation. VALIC has developed clearly defined and
documented plans that have been implemented to minimize the risk of significant
negative impact on its operations.
These plans include the following activities: (1) perform an inventory of
VALIC's information technology and non-information technology systems; (2)
assess which items in the inventory may expose VALIC to business interruptions
due to Year 2000 issues; (3) test systems for Year 2000 readiness; (4) reprogram
or replace systems that are not Year 2000 ready; and (5) return the systems to
operation. VALIC expects to complete the forgoing activities for all critical
business systems relevant to the Series Company by December 1998. Accordingly,
VALIC has no contingency plans because any open Year 2000 issues may be
addressed in 1999.
In addition, the Series Company and VALIC have business relationships with
various third parties, each of which must also be Year 2000 ready. Therefore,
VALIC's plans also include assessing and attempting to mitigate the risks
associated with the potential failure of third parties to achieve Year 2000
readiness. Due to the various stages of the third parties' Year 2000 readiness,
VALIC's efforts in this regard will extend through 1999.
Through June 30, 1998 VALIC has incurred and expensed $13 million (pretax)
related to Year 2000 readiness, including $6.5 million incurred during the first
six months of 1998. VALIC currently anticipates that it will incur future costs
of $3 million (pretax) for additional internal staff, third party vendors, and
other expenses to achieve Year 2000 readiness.
Due to the magnitude and complexity of this project, risks and uncertainties
exist. If conversion of VALIC's systems is not completed on a timely basis (due
to non-performance by significant third-party vendors or other unforeseen
circumstances), or if significant third parties fail to achieve Year 2000
readiness on a timely basis, the Year 2000 issue could have a material adverse
impact on the operations of VALIC and the Series Company.
REPORTS
The Series Company sends Annual Reports containing audited financial statements,
Semi-Annual Reports containing unaudited financial statements, and proxy
materials to contract owners or participants. Also, the Series Company includes
an Annual Report with each Statement of Additional Information it sends out.
If you have any questions about the Annual or Semi-Annual Reports, call or write
to the Series Company at the phone number / address found on the cover page of
this prospectus.
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<PAGE> 67
APPENDIX -- DESCRIPTION OF BOND RATINGS
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MOODY'S INVESTORS SERVICE
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Nonrated: Where no rating has been assigned or where a rating has been suspended
or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a
matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believe
possess the strongest investment attributes are designated by the symbols Aa 1,
A 1, Baa 1, Ba 1 and B 1.
STANDARD & POOR'S CORPORATION
AAA: Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
63
<PAGE> 68
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CI: The rating CI is reserved for income bonds on which no interest is being
paid.
D: Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR: Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
PREFERRED STOCK RATINGS
Both Moody's and Standard & Poor's use the same designations for corporate bonds
as they do for preferred stock, except in the case of Moody's preferred stock
ratings, the initial letter rating is not capitalized. While the descriptions
are tailored for preferred stocks, the relative quality distinctions are
comparable to those described above for corporate bonds.
64
<PAGE> 69
APPENDIX -- DESCRIPTION OF COMMERCIAL PAPER RATINGS
- --------------------------------------------------------------------------------
A AND PRIME COMMERCIAL PAPER RATINGS.
Commercial paper rated A by S&P has the following characteristics: Liquidity
ratios are adequate to meet cash requirements. Long-term senior debt is rated
"A" or better, although, in some cases "BBB" credits may be allowed. The issuer
has access to at least two additional channels of borrowing. Basic earnings and
cash flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. The rating is described by S&P as the investment grade category,
the highest rating classification. Relative strength or weakness of the above
factors determine whether the issuer's commercial paper is rated A-1, A-2 or
A-3.
Among the factors considered by Moody's in assigning commercial paper ratings
are the following: (1) evaluation of the management of the issuer; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative differences in
strengths and weaknesses in respect of these criteria establish a rating in one
of three classifications. The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Its other two ratings, Prime-2 and Prime-3 are
designated Higher Quality and High Quality, respectively.
65
<PAGE> 70
Please tear off, complete and return the form below to Suite A3-01,
Communications Unit, The Variable Annuity Life Insurance Company, 2929 Allen
Parkway, Houston, Texas 77019 to order a Statement of Additional Information for
the Company. A Statement of Additional Information may also be ordered by
calling 1-800-44-VALIC.
................................................................................
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Please send me a free copy of the Statement of Additional Information for American General Series Portfolio Company 3.
Name: --------------------------------------------------- GA #:-------------------------------------------------
Address: Policy #:----------------------------------------------
-------------------------------------------------
- -----------------------------------------------------------
Social Security Number: --------------------------------
- -----------------------------------------------------------
</TABLE>
<PAGE> 71
(This page intentionally left blank)
<PAGE> 72
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INVESTMENT ADVISER:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
INVESTMENT SUB-ADVISERS:
American General Investment Management, L.P.
2929 Allen Parkway
Houston, Texas 71019
Bankers Trust Company
130 Liberty St.
New York, New York 10006
Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071
Fiduciary Management Associates, Inc.
55 West Monroe Street
Suite 2550
Chicago, Illinois 60603
Goldman Sachs Asset Management
One New York Plaza
New York, New York 10004
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Jacobs Asset Management
200 East Broward Boulevard
Suite 1920
Fort Lauderdale, Florida 33301
Neuberger&Berman Management Inc.
605 Third Avenue
Second Floor
New York, New York 10158-0180
State Street Global Advisors
2 International Place
Boston, Massachusetts 02110
DISTRIBUTOR:
The Variable Annuity Marketing Company
2929 Allen Parkway
Houston, TX 77019
CUSTODIAN:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS:
Ernst & Young LLP
1221 McKinney Street
Houston, Texas 77010
TRANSFER AND SHAREHOLDER SERVICE AGENT:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
-------- --------
<S> <C> <C>
Judith L. Craven Thomas L. West, Jr. Chairman
Timothy J. Ebner John A. Graf President
Gustavo E. Gonzales, Jr. Craig R. Rodby Vice Chairman
John A. Graf Michael G. Atnip Executive Vice President
Norman Hackerman Joe C. Osborne Executive Vice President
John William Lancaster Peter V. Tuters Senior Investment Officer
Ben H. Love Teresa S. Moro Vice President and Investment Officer
John E. Maupin, Jr. William Trimbur, Jr. Vice President and Investment Officer
F. Robert Paulsen Brent C. Nelson Vice President
Craig R. Rodby Cynthia A. Toles Vice President and Secretary
R. Miller Upton Nori L. Gabert Vice President and Assistant Secretary
Thomas L. West, Jr. Maruti D. More Vice President-Investments
Gregory R. Seward Treasurer
Kathryn A. Pearce Controller
Cynthia A. Gibbons Assistant Vice President
Jaime M. Sepulveda Assistant Treasurer
Donna L. Hathaway Assistant Controller
Earl E. Allen, Jr. Assistant Treasurer
</TABLE>
Printed Matter
Printed in U.S.A.
VA 10832 VER. 7/98 Recycled Paper LOGO
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 73
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This Statement of Additional Information shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there by any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED SEPTEMBER 2, 1998
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
AMERICAN GENERAL INTERNATIONAL GROWTH FUND
AMERICAN GENERAL LARGE CAP GROWTH
AMERICAN GENERAL MID CAP GROWTH FUND
AMERICAN GENERAL SMALL CAP GROWTH FUND
AMERICAN GENERAL INTERNATIONAL VALUE FUND
AMERICAN GENERAL LARGE CAP VALUE FUND
AMERICAN GENERAL MID CAP VALUE FUND
AMERICAN GENERAL SMALL CAP VALUE FUND
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND
AMERICAN GENERAL BALANCED FUND
AMERICAN GENERAL HIGH YIELD BOND FUND
AMERICAN GENERAL STRATEGIC BOND FUND
AMERICAN GENERAL DOMESTIC BOND FUND
AMERICAN GENERAL CORE BOND FUND
AMERICAN GENERAL MONEY MARKET FUND
AMERICAN GENERAL GROWTH LIFESTYLE FUND
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND
AMERICAN GENERAL CONSERVATIVE GROWTH LIFESTYLE FUND
--------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------
PART B
SEPTEMBER , 1998
This Statement of Additional Information is not a prospectus and contains
information in addition to that in the Prospectus for American General Series
Portfolio Company 3 (the "Series Company"). It should be read in conjunction
with the Prospectus. The Statement of Additional Information and the related
Prospectus are dated September , 1998. For an individual interested in a
variable annuity contract issued by The Variable Annuity Life Insurance Company
("VALIC") a Prospectus may be obtained by calling 1-800-44-VALIC or writing the
Series Company or The Variable Annuity Marketing Company ("VAMCO") at 2929 Allen
Parkway, Houston, Texas 77019. Shares in the Series Company are available to the
public only through the purchase of certain variable annuity contracts or
variable life insurance policies issued and employee thrift plans maintained by
VALIC and its affiliates.
DO NOT COPY
<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information and History............................. 4
Performance and Yield Information........................... 4
Average Annual Total Return............................... 4
Portfolio Total Return.................................... 5
Index Total Return........................................ 5
Seven Day Yields.......................................... 5
30 Day Current Yield...................................... 5
Seven Day Yields.......................................... 5
Performance Returns of Certain Other Investment Companies
and Private Accounts................................... 6
Investment Restrictions..................................... 8
American General International Growth Fund................ 8
American General Large Cap Growth Fund.................... 9
American General Mid Cap Growth Fund...................... 10
American General Small Cap Growth Fund.................... 11
American General International Value Fund................. 12
American General Large Cap Value Fund..................... 13
American General Mid Cap Value Fund....................... 14
American General Small Cap Value Fund..................... 15
American General Socially Responsible Fund................ 16
American General Balanced Fund............................ 17
American General High Yield Bond Fund..................... 18
American General Strategic Bond Fund...................... 18
American General Core Bond Fund........................... 18
American General Domestic Bond Fund....................... 20
American General Money Market Fund........................ 21
American General Growth Lifestyle Fund.................... 22
American General Moderate Growth Lifestyle Fund........... 22
American General Conservative Growth Lifestyle Fund....... 22
Investment Practices........................................ 22
Repurchase Agreements..................................... 22
Lending Portfolio Securities.............................. 23
Reverse Repurchase Agreements............................. 24
Convertible Securities.................................... 24
Foreign Securities........................................ 24
International Bonds....................................... 25
Emerging Markets.......................................... 25
Foreign Currency Exchange Transactions.................... 26
Standard and Poor's Depository Receipts................... 26
When-Issued Securities.................................... 26
Fixed Income Securities................................... 27
Lower Rated Fixed Income Securities....................... 27
Zero Coupon Bonds......................................... 28
Real Estate Securities and Real Estate Investment
Trusts................................................. 28
Warrants.................................................. 28
Swap Agreements........................................... 29
Eurodollar Obligations.................................... 29
Asset-Backed Securities................................... 29
Mortgage-Backed Securities................................ 30
Loan Participations....................................... 30
Adjustable Rate Securities................................ 30
Illiquid Securities....................................... 31
</TABLE>
2
<PAGE> 75
<TABLE>
<S> <C>
Rule 144A Securities...................................... 31
Options on Securities and Securities Indices.............. 32
Writing Covered Call and Put Options and Purchasing Call
and Put Options........................................ 33
Financial Futures Contracts............................... 35
Options on Financial Futures Contracts.................... 36
Certain Additional Risks of Options and Financial Futures
Contracts.............................................. 36
Limitations............................................... 38
Short Sales and Short Sales Against the Box............... 38
Money Market Securities of Foreign Issuers................ 38
Investment Adviser.......................................... 39
Investment Sub-Advisers..................................... 40
Portfolio Transactions and Brokerage........................ 42
Offering, Purchase, and Redemption of Fund Shares........... 44
Determination of Net Asset Value............................ 45
Calculation of Yield for the Money Market Fund.............. 46
Taxation.................................................... 47
General................................................... 47
Section 817(h) of the Code................................ 50
Other Information........................................... 51
Shareholder Reports....................................... 51
Voting and Other Rights................................... 51
Custody of Assets......................................... 51
Independent Auditors...................................... 52
Trustees and Officers....................................... 52
Financial Statements........................................ 57
</TABLE>
3
<PAGE> 76
GENERAL INFORMATION AND HISTORY
American General Series Portfolio Company 3 (the "Series Company") was
organized as a Delaware business trust on May 6, 1998 by VALIC and is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end, management investment company. Pursuant to an Investment Advisory
Agreement with the Series Company and subject to the authority of the Series
Company's Board of Trustees, VALIC serves as the Series Company's investment
adviser and conducts the business and affairs of the Series Company.
Additionally, VALIC has engaged investment sub-advisers to provide investment
sub-advisory services for each Fund other than the American General Socially
Responsible Fund, the American General Money Market Fund, the American General
Conservative Growth Lifestyle Fund, the American General Moderate Growth
Lifestyle Fund and the American General Growth Lifestyle Fund, subject to
VALIC's control, direction and supervision. The Series Company consists of
eighteen separate investment portfolios (hereinafter collectively referred to as
the "Funds" or individually as a "Fund"), each of which is, in effect, a
separate mutual fund issuing its own separate class of shares of beneficial
interest.
The Series Company issues shares of interest of each Fund to registered and
unregistered separate accounts of VALIC and its affiliates to fund variable
annuity or variable life contracts (the "Contracts"). Currently the Series
Company acts as an investment vehicle for assets of VALIC's Separate Account, a
unit investment trust registered as an investment company under the 1940 Act.
Additionally, retirement plans maintained by VALIC and American General
Corporation may own shares of certain of the Funds.
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 individual's personal investment trading activities.
PERFORMANCE AND YIELD INFORMATION
The Funds have not commenced operations and, therefore, have no
performance. Accordingly, the performance information for each Fund included in
the Prospectus is the performance of either: (i) a mutual fund with similar
investment objectives, policies and strategies as the Fund that is currently
managed by the same individuals; (ii) an unregistered discretionary account of
the Sub-adviser with similar investment objectives, policies and strategies that
is managed by the same individuals; and/or (iii) a composite of such registered
management investment companies or unregistered discretionary accounts. The
inception date indicated is that of the other mutual fund, account or composite.
See the Prospectus for detailed information relating to the mutual fund,
unregistered discretionary account or composite.
The total return of a Fund ("Average Annual Total Return"), is the total
return of a Fund before expenses ("Portfolio Total Return"). The Series Company
may compare Portfolio Total Return to the total return of the Fund's 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. If you invest in a Fund through an annuity
contract, you should be aware that fund performance does not reflect contract
charges or separate account charges which will reduce Fund values which are
available to Participants. Information about Separate Account performance is
available in the applicable contract prospectus.
AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for periods of 1, 3, 5, and 10
years, or, since inception of the Fund, are calculated according to the
following formula:
P (1+T)(n) = ERV
4
<PAGE> 77
Where:
<TABLE>
<S> <C>
P = A hypothetical initial Purchase Payment of $1,000.
T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a hypothetical $1,000 Purchase
Payment made at the beginning of the first period.
</TABLE>
Average Annual Total Return reflects the deduction of Fund expenses and
assumes that all dividends and distributions are reinvested when paid.
PORTFOLIO TOTAL RETURN
Portfolio Total Return quotations for periods of 1, 3, 5, and 10 years, or,
since inception are calculated by adding to the Average Total Annual Return
(described above) the expenses of the Fund. Expenses of the Fund are calculated
at the end of each Fund's fiscal year and are expressed as a percentage of
average net assets. Expenses as a percentage of average net assets are prorated
equally over the months in the fiscal year in which the ratio was calculated
when determining expenses for periods crossing over fiscal years.
INDEX TOTAL RETURN
Index Total Return quotations for periods 1, 3, 5, and 10 years, or, since
inception, are calculated by determining the percentage change in value of the
benchmark index over the applicable period including reinvestment of dividends
and interest as applicable. Index Total Return is calculated according to the
formula described above for Average Annual Total Return, however it does not
include an expense component; if an expense component were included the return
would be lower.
SEVEN DAY YIELDS
The American General Money Market Fund may quote a Seven Day Current Yield
and a Seven Day Effective Yield. The Seven Day Current Yield is calculated by
determining the total return for the current seven day period ("based period
return") and annualizing the base period return by dividing by seven days, then
multiplying the result by 365 days. The Seven Day Effective Yield annualizes the
base period return while compounding weekly the base period return according to
the following formula:
Seven Day Effective Yield = [(Base Period Return + 1)(365/7)-1]
30 DAY CURRENT YIELD
The American General Domestic Bond Fund, the American General High Yield
Bond Fund, the American General Strategic Bond Fund and the American General
Core Bond Fund may quote a 30 Day Current Yield which is determined based on the
current 30 day period, according to the following standardized formula:
Yield = 2[(1 + NII )(6)-1]
S X NAV
Where:
<TABLE>
<S> <C> <C>
NII = Net investment income (interest income, plus dividend
income, plus other income, less fund expenses.
S = Average daily shares outstanding.
NAV = Net asset value per share on the last day of the period.
</TABLE>
5
<PAGE> 78
PERFORMANCE RETURNS OF CERTAIN OTHER INVESTMENT COMPANIES AND PRIVATE ACCOUNTS*
MARCH 31, 1998
<TABLE>
<CAPTION>
10 YEAR
INCEPTION OR SINCE
DATE 1 YEAR 3 YEAR 5 YEAR INCEPTION (A)
--------- ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
AMERICAN GENERAL INTERNATIONAL GROWTH FUND 5/1/92
Average Annual Total Return 10.14% 14.13% -- 12.33%
Portfolio Total Return 10.85% 14.96% -- 13.28%
Salomon Brothers Primary Market Index 20.34% 10.92% -- 9.97%
AMERICAN GENERAL INTERNATIONAL GROWTH FUND 10/1/95
Average Annual Return 17.85% -- -- 20.74%
Portfolio Total Return 19.91% -- -- 22.84%
Salomon Brothers Primary Market Index 20.34% -- -- 13.68%
AMERICAN GENERAL LARGE CAP GROWTH 11/11/91
Average Annual Total Return 51.22% 35.03% 26.08% 22.95%
Portfolio Total Return 52.12% 35.93% 26.98% 23.85%
Russell 1000 Growth Index 48.32% 32.38% 21.96% 20.73%
AMERICAN GENERAL MID CAP GROWTH FUND 1/1/93
Average Annual Total Return 47.95% 30.62% 23.51% 21.86%
Portfolio Total Return 48.26% 31.13% 24.09% 22.44%
S&P Mid Cap 400 Index 49.00% 28.44% 19.51% 19.25%
AMERICAN GENERAL SMALL CAP GROWTH FUND 9/1/94
Average Annual Total Return 53.70% 33.56% -- 30.54%
Portfolio Total Return 54.89% 34.95% -- 31.93%
Russell 2000 Growth Index 41.17% 20.40% -- 12.94%
AMERICAN GENERAL INTERNATIONAL VALUE FUND 12/1/78
Average Annual Total Return 24.02% 18.71% 14.85% 11.35%
Portfolio Total Return 24.93% 19.59% 15.71% 12.18%
Salomon Brothers Primary Market Index 20.34% 10.92% 11.10% 5.34%
AMERICAN GENERAL LARGE CAP VALUE FUND 8/1/92
Average Annual Total Return 58.95% 36.98% 24.14% 24.04%
Portfolio Total Return 59.33% 37.32% 24.44% 24.35%
Russell 1000 Value Index 48.32% 32.38% 21.96% 20.73%
AMERICAN GENERAL MID CAP VALUE FUND 1/20/75
Average Annual Total Return 41.54% 31.07% 21.80% 17.95%
Portfolio Total Return 42.35% 31.90% 22.66% 18.76%
S&P Mid Cap 400 Index 49.00% 28.44% 19.51% 19.25%
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND 10/2/89
Average Annual Total Return 47.45% 12.76% 25.67% 19.02%
Portfolio Total Return 48.01% 13.32% 26.30% 19.52%
S&P 500 Index 47.97% 32.81% 22.40% 18.94%
AMERICAN GENERAL BALANCED FUND 12/31/74
Average Annual Total Return 31.17% 27.63% 15.84% 14.44%
Portfolio Total Return 31.88% 23.29% 16.48% 15.06%
Benchmark(B) 14.16% 8.07% 6.21% 8.50%
AMERICAN GENERAL STRATEGIC BOND FUND 2/24/93
Average Annual Total Return 13.19% 15.58% 9.62% 9.54%
Portfolio Total Return 14.06% 16.47% 10.53% 10.45%
Benchmark(C) 12.00% 9.18% 6.99% 8.93%
AMERICAN GENERAL DOMESTIC BOND FUND 12/31/72
Average Annual Total Return 11.78% 9.13% 6.61% 9.12%
Portfolio Total Return 12.17% 9.51% 6.98% 9.50%
Benchmark(C) 14.16% 8.07% 6.21% 8.50%
AMERICAN GENERAL CORE BOND FUND 11/1/48
Average Annual Total Return 11.79% 9.29% 7.00% 9.35%
Portfolio Total Return ** ** ** **
Benchmark(C) 12.00% 9.18% 6.97% 8.93%
</TABLE>
6
<PAGE> 79
<TABLE>
<CAPTION>
10 YEAR
INCEPTION OR SINCE
DATE 1 YEAR 3 YEAR 5 YEAR INCEPTION (A)
--------- ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
AMERICAN GENERAL MONEY MARKET FUND 1/16/86
Average Annual Total Return 5.24% 5.20% 4.51% 5.42%
Portfolio Total Return 5.87% 5.77% 5.14% 6.05%
30-Day Certificate of Deposit Primary Offering
Rate
by New York City Banks 4.82% 4.73% 4.19% 5.25%
</TABLE>
- ---------------
* American General High Yield Bond Fund, American General Small Cap Value
Fund, American General Growth Lifestyle Fund, American General Moderate
Growth Lifestyle Fund and American General Conservative Growth Lifestyle
Fund recently commenced operations. Accordingly, no performance for such
Funds is available.
** Since the performance information for the American General Core Bond Fund
is the performance of a managed account with which there were no fees and
expenses other than the management fee there is no portfolio total return
information.
(A) Amounts shown are returns for ten years or since inception if the fund has
been in existence for less than ten years.
(B) Benchmark consists of the S&P 500 Index and the Lehman Brothers Government
and Corporate Bond Index.
(C) Benchmark consists of the Lehman Brothers Aggregate Index.
7
<PAGE> 80
INVESTMENT RESTRICTIONS
The Funds have each adopted certain fundamental investment restrictions
which, unlike the other investment objective(s), policies, and investment
program of each Fund, may only be changed with the consent of a majority of the
outstanding voting securities of the particular Fund. The 1940 Act defines such
a majority as the lesser of (1) 67% or more of the voting securities present in
person or by proxy at a shareholders' meeting, if the holders of more than 50%
of the outstanding voting securities of a Fund are present or represented by
proxy, or (2) more than 50% of a Fund's outstanding voting securities. Also,
certain of the Funds have non-fundamental investment restrictions, which may be
changed by the Series Company's Board of Trustees without shareholder approval.
Calculation of each Fund's total assets for compliance with any of the
following fundamental or non-fundamental investment restrictions or any other
investment restrictions set forth in the Series Company's Prospectus or
Statement of Additional Information will not include cash collateral held in
connection with securities lending activities.
The fundamental and, in certain cases, non-fundamental, investment
restrictions of each Fund are listed below. The percentage limitations
referenced in some of the restrictions are to be determined at the time of
purchase. However, percentage limitations for illiquid securities and borrowings
apply at all times.
AMERICAN GENERAL 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 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 net 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.
8
<PAGE> 81
(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.
(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.
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) Purchase additional securities when borrowings exceed 5% of total assets.
(3) Pledge, mortgage or hypothecate any of its assets to an extent greater than
33 1/3% of its total assets at fair market value.
(4) Invest in futures and/or options on futures.
(5) Purchase on margin or sell short.
(6) Invest more than an aggregate of 15% of the Fund's net assets in illiquid
or restricted securities.
(7) 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.
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, but may not purchase additional
securities if such borrowings exceed 5% of its total assets, (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
9
<PAGE> 82
therein, securities of real estate investment trusts and mortgage-related
securities and may hold and sell real estate acquired by a Fund as a result
of the ownership of securities.
(7) Invest in commodities or commodity contracts, except that the Fund may
invest in currency and financial instruments and contracts that are
commodities or commodity contracts.
(8) Issue senior securities to the extent such issuance would violate
applicable law.
(9) 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.
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.
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 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.
(4) 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.
(5) 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.
(6) 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.
10
<PAGE> 83
(7) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions).
(8) 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.)
(9) Participate on a joint or joint and several basis in any trading account in
securities.
(10) Make loans of money, except that the Fund may invest in repurchase
agreements.
(11) 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.
(12) Invest more than 10% of the value of its net assets in illiquid securities.
(13) Issue senior securities, borrow money, or pledge its assets.
(14) Purchase foreign securities, except the Fund may invest up to 10% of total
assets in foreign securities sold as American Depository Receipts.
(15) Write, purchase, or sell puts, calls, warrants or combinations thereof, or
purchase or sell commodities, commodities contracts, futures contracts, or
related options.
(16) Invest in restricted securities.
(17) 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.
(18) Make loans to other persons, except the Fund may lend its portfolio
securities to broker-dealers and other financial institutions in an amount
up to 30% of the value of the Fund's total assets.
(19) Borrow money, 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.
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 more than 25% 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, 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 physical commodities unless acquired as a result of
ownership of securities or other instruments; provided that this policy
shall not prohibit the Fund from purchasing or selling options and futures
contracts or
11
<PAGE> 84
from investing in securities or other instruments backed by physical
commodities.
(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.
(9) 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.
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.
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 except as a temporary
measure for extraordinary or emergency purposes (such as to meet redemption
requests which might otherwise require the disadvantageous sale of
portfolio securities) and then not in excess of 5% of the Fund's total
assets. If borrowings exceed 5% of the Fund's net assets, the Fund will not
purchase additional securities. The Fund may mortgage, pledge or
hypothecate more than 5% of the value of its total assets, and then only to
secure borrowings made under this restriction.
(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.
(4) 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.
(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(6) 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.
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<PAGE> 85
(7) 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.
(8) 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.
(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.
(10) Make loans to other persons, except that the Fund may lend its portfolio
securities to broker-dealers and other financial institutions in an amount
up to 30% of the value of the Fund's total assets.
(11) 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.
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 (including reverse repurchase agreements), except 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) 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.
(4) 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.
(5) 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.
(6) Purchase or sell commodities or commodity futures contracts except that the
Fund may
13
<PAGE> 86
enter into futures contracts and options thereon to the extent provided in
the Prospectus.
(7) 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.
(8) 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.
(9) Issue senior securities, except as permitted by its investment objective,
policies and restrictions, and except as permitted by the 1940 Act.
(10) 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.
(11) 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.
(12) 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.
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.
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 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 at any time borrowings exceed 5% of total assets, the Fund
will not purchase additional securities and 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
14
<PAGE> 87
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.
(9) 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.
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) Except for the purchase of debt securities and engaging in repurchase
agreements, make any loans other than securities loans.
(3) 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.
(4) 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").
(5) Invest more than 15% of the Fund's net assets in illiquid and restricted
securities.
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
15
<PAGE> 88
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 net 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 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) 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.
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.
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 except as a temporary
measure for extraordinary or emer-
16
<PAGE> 89
gency purposes (such as to meet redemption requests which might otherwise
require the disadvantageous sale of portfolio securities) and then not in
excess of 5% of the Fund's total assets. If borrowings exceed 5% of the
Fund's net assets, the Fund will not purchase additional securities. The
Fund may mortgage, pledge or hypothecate more than 5% of the value of its
total assets, and then only to secure borrowings made under this
restriction.
(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.
(4) 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.
(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(6) 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.
(7) 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.
(8) 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.
(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.
(10) Make loans to other persons, except that the Fund may lend its portfolio
securities to broker-dealers and other financial institutions in an amount
up to 30% of the value of the Fund's total assets.
(11) 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.
(12) 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.
AMERICAN GENERAL BALANCED FUND ("BALANCED FUND") INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Balanced Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer; except
that the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief
17
<PAGE> 90
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 except as a temporary
measure for extraordinary or emergency purposes (such as to meet redemption
requests which might otherwise require the disadvantageous sale of
portfolio securities) and then not in excess of 5% of the Fund's total
assets. If borrowings exceed 5% of the Fund's net assets, the Fund will not
purchase additional securities. The Fund may mortgage, pledge or
hypothecate more than 5% of the value of its total assets, and then only to
secure borrowings made under this restriction.
(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.
(4) 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.
(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(6) 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.
(7) 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.
(8) 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.
(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.
(10) Make loans to other persons, except that the Fund may lend its portfolio
securities to broker-dealers and other financial institutions in an amount
up to 30% of the value of the Fund's total assets.
(11) 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.
AMERICAN GENERAL HIGH YIELD BOND FUND ("HIGH YIELD BOND FUND"); AMERICAN GENERAL
STRATEGIC BOND FUND ("STRATEGIC BOND FUND"); AND AMERICAN GENERAL CORE BOND FUND
("CORE BOND FUND") INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the High Yield Bond Fund, the Strategic Bond
Fund and the Core 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 securi-
18
<PAGE> 91
ties, 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. 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 except as a temporary
measure for extraordinary or emergency purposes (such as to meet redemption
requests which might otherwise require the disadvantageous sale of
portfolio securities) and then not in excess of 5% of a Fund's total
assets. If borrowings exceed 5% of a Fund's net assets, the Fund will not
purchase additional securities. A Fund may mortgage, pledge or hypothecate
more than 5% of the value of its total assets, and then only to secure
borrowings made under this restriction.
(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.
(4) 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.
(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(6) 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.
(7) 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.
(8) 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.
(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.
(10) Make loans to other persons, except that a Fund may lend its portfolio
securities to broker-dealers and other financial institutions in an amount
up to 30% of the value of a Fund's total assets.
(11) 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 a Fund but includes a
Fund's pro rata portion of the securities and other assets owned by any
such company.
As a matter of non-fundamental policy, the High Yield Fund, the Strategic
Bond Fund and the Core Bond Fund may not:
(1) Invest more than 15% of a Fund's net assets in illiquid and restricted
securities.
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<PAGE> 92
AMERICAN GENERAL DOMESTIC BOND FUND
("DOMESTIC BOND FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Domestic Bond Fund may not:
(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer; except
that the Fund may purchase securities of other investment companies without
regard to such limitation to the extent permitted by (i) the 1940 Act, as
amended from time to time, (ii) the rules and regulations promulgated by
the SEC under the 1940 Act, as amended from time to time, or (iii) an
exemption or other relief from the provisions of the 1940 Act. For purposes
of this restriction, all outstanding debt securities of an issuer are
considered as one class, and all preferred stock of an issuer is considered
as one class. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities. As a
matter of operating policy, the Series Company will not consider repurchase
agreements subject to the 5% limitation if the collateral underlying the
repurchase agreements are U.S. Government securities.
(2) (a) Issue senior securities except in connection with investments in
options and futures contracts; or (b) borrow money except as a temporary
measure for extraordinary or emergency purposes (such as to meet redemption
requests which might otherwise require the disadvantageous sale of
portfolio securities) and then not in excess of 5% of the Fund's total
assets. If borrowings exceed 5% of the Fund's net assets, the Fund will not
purchase additional securities. The Fund may mortgage, pledge or
hypothecate more than 5% of the value of its total assets, and then only to
secure borrowings made under this restriction.
(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.
(4) Acquire real estate, real estate contracts or real estate securities.
(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(6) 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.
(7) 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.
(8) 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.
(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.
(10) Make loans to other persons, except that the Fund may lend its portfolio
securities to broker-dealers and other financial institutions in an amount
up to 30% of the value of the Fund's total assets.
(11) Invest more than 25% of its total assets in issuers primarily engaged in a
single industry (excluding the U.S. Government or any of its agencies or
instrumentalities), provided, however, that this limitation excludes shares
of other open-end investment companies owned by the Fund but includes the
Fund's pro rata portion of the securities and other assets owned by any
such company.
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As a matter of non-fundamental policy, the Domestic Bond Fund may not:
(1) Invest more than 15% of the Fund's net assets in illiquid and restricted
securities.
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 except as a temporary
measure for extraordinary or emergency purposes (such as to meet redemption
requests which might otherwise require the disadvantageous sale of
portfolio securities) and then not in excess of 5% of the Fund's total
assets. If borrowings exceed 5% of the Fund's net assets, the Fund will not
purchase additional securities. The Fund may mortgage, pledge or
hypothecate more than 5% of the value of its total assets, and then only to
secure borrowings made under this restriction.
(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.
(4) 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.
(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.
(6) 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.
(7) 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.
(8) 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.
(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.
(10) Make loans to other persons, except that the Fund may lend its portfolio
securities to broker-dealers and other financial institutions in an amount
up to 30% of the value of the Fund's total assets.
(11) Purchase any security which matures more than 13 months from the date of
purchase.
(12) Purchase or sell commodity contracts.
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(13) Invest in warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof.
(14) 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.
AMERICAN GENERAL GROWTH LIFESTYLE FUND
("GROWTH LIFESTYLE FUND"); AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND
("MODERATE GROWTH LIFESTYLE FUND"); AND AMERICAN GENERAL CONSERVATIVE GROWTH
LIFESTYLE FUND ("CONSERVATIVE GROWTH LIFESTYLE FUND") INVESTMENT
RESTRICTIONS
As a matter of fundamental policy, the Growth Lifestyle Fund, the Moderate
Growth Lifestyle Fund and the Conservative Growth Lifestyle Fund may not:
(1) Issue senior securities.
(2) Purchase any securities on margin, make short sales of securities or
purchase or sell puts and calls, or combinations thereof.
(3) 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.
(4) Underwrite the securities of other issuers.
(5) 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.
(6) Purchase or sell commodities or commodity contracts.
(7) 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.
(8) 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.
(9) Make loans except by purchasing bonds, debentures or similar obligations
which are either publicly distributed or customarily purchased by
institutional investors.
(10) Invest in companies for the purpose of exercising control of management.
(11) Invest more than 25% of its assets in any one industry, other than Funds
that are part of the Series Company.
INVESTMENT PRACTICES
REPURCHASE AGREEMENTS
Each Fund may hold commercial paper, certificates of deposits, and
government obligations (including government guaranteed obligations) subject to
repurchase agreements with certain well established domestic banks and certain
broker-dealers, including primary government securities dealers, approved as
creditworthy by the Board of Trustees. The underlying security must be a U.S.
Government security or a security rated in the highest rating category by the
requisite NRSROs (Nationally Recognized Statistical Rating Organization) (except
for the International Growth Fund, the International Value Fund, the Strategic
Bond Fund 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, 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
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are generally for short periods, often less than a week. Repurchase agreements
typically obligate a seller, at the time it sells securities to a Fund, to
repurchase the securities at a specific future time and price. The price for
which the Fund resells the securities is calculated to exceed the price the Fund
initially paid for the same securities, thereby determining the yield during the
Fund's holding period. This result is a fixed market rate of interest, agreed
upon by that Fund and the seller, which is accrued as ordinary income. Most
repurchase agreements mature within seven days although some may have a longer
duration. The underlying securities constitute collateral for these repurchase
agreements, which are considered loans under the 1940 Act.
The Funds do not intend to sell the underlying securities subject to a
repurchase agreement (except to the seller upon maturity of the agreement).
During the term of the repurchase agreement, the Funds (i) retain the securities
subject to the repurchase agreement as collateral securing the seller's
obligation to repurchase the securities, (ii) monitor on a daily basis the
market value of the securities subject to the repurchase agreement, and (iii)
require the seller to deposit with the Series Company's custodian collateral
equal to any amount by which the market value of the securities subject to the
repurchase agreement falls below the resale amount provided under the repurchase
agreement. In the event that a seller defaults on its obligation to repurchase
the securities, the Funds must hold the securities until they mature or may sell
them on the open market, either of which may result in a loss to a Fund if, and
to the extent that, the values of the securities decline. Additionally, the
Funds may incur disposition expenses when selling the securities. Bankruptcy
proceedings by the seller may also limit or delay realization and liquidation of
the collateral by a Fund and may result in a loss to that Fund. The Board of
Trustees of the Series Company will evaluate the creditworthiness of all banks
and broker-dealers with which the Series Company proposes to enter into
repurchase agreements. The Funds will not invest in repurchase agreements that
do not mature within seven days if any such investment, together with any
illiquid assets held by a Fund, exceeds 10% of the value of that Fund's total
assets (15% in the case of the International Growth Fund, the Large Cap Growth
Fund, the Small Cap Growth Fund, the Large Cap Value Fund, the Mid Cap Value
Fund, the Small Cap Value Fund, the High Yield Bond Fund, the Balanced Fund, the
International Value Fund, the Domestic Bond Fund, the Strategic Bond Fund and
the Core Bond Fund).
LENDING PORTFOLIO SECURITIES
For purposes of realizing additional income, each Fund, except the
Lifestyle Funds, may make secured loans of its portfolio securities. Securities
loans are made to broker-dealers and other financial institutions approved by
State Street Bank and Trust Company (the "Custodian"), custodian to the Funds
and pursuant to agreements requiring that the loans be continuously secured by
collateral at least equal at all times to the loaned securities marked to market
on a daily basis. VALIC will monitor the activities of the Custodian as
authorized by the Board of Trustees. The collateral received will consist of
cash, U.S. government securities, letters of credit or such other collateral as
permitted by interpretations or rules of the Securities and Exchange Commission
("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
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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.
REVERSE REPURCHASE AGREEMENTS
Certain of the Funds may enter into reverse repurchase agreements. In a
reverse repurchase agreement, a Fund sells a security and agrees to repurchase
the same security at a mutually agreed upon date and price. For purposes of the
1940 Act a reverse repurchase agreement is also considered as the borrowing of
money by the Fund and, therefore, a form of leverage. The Funds will invest the
proceeds of borrowings under reverse repurchase agreements. In addition, a Fund
will enter into a reverse repurchase agreement only when the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. A Fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. Those Funds that may enter into reverse repurchase
agreements will establish and maintain with the Custodian a separate account
with a segregated portfolio of securities in an amount at least equal to its
purchase obligations under its reverse repurchase agreements.
CONVERTIBLE SECURITIES
Certain Funds may invest in convertible securities of foreign or domestic
issues. A convertible security is a security (a bond or preferred stock) which
may be converted at a stated price within a specified period of time into a
certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in a corporation's capital
structure but are usually subordinated to similar nonconvertible securities.
Convertible securities provide, through their conversion feature, an opportunity
to participate in capital appreciation resulting from a market price advance in
a convertible security's underlying common stock. The price of a convertible
security is influenced by the market value of the underlying common stock and
tends to increase as the market value of the underlying stock rises, whereas it
tends to decrease as the market value of the underlying stock declines.
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 is a security issued by an entity domiciled or
incorporated outside of the United States.
Included within the definition of foreign securities are the following
depository receipts: American Depository Receipts (ADRs), European Depositary
Receipts (EDRs) and Global Depository Receipts (GDRs). Depository receipts that
are denominated in U.S. dollars are not considered foreign securities in
determining compliance with the Mid Cap Value Fund's investment restrictions.
ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank and traded on a United
States exchange or in an over-the-counter market. Generally, ADRs are in
registered form. Investment in ADRs has certain advantages over direct
investment in the underlying foreign securities since: (i) ADRs are U.S.
dollar-denominated investments that are easily transferable and for which market
quotations are readily available, and (ii) issuers whose securities are
represented by ADRs are generally subject to auditing, accounting and financial
reporting standards similar to those applied to domestic issuers. EDRs and GDRs
are receipts evidencing an arrangement with a non-U.S. bank similar to that for
ADRs and are designed for use in the non-U.S. securities markets. EDRs and GDRs
are not necessarily quoted in the same currency as the underlying security. In
addition, certain Funds may invest in other types of depositary securities such
as international depository receipts, global de-
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<PAGE> 97
pository shares, European depository shares and international depository shares.
A Fund may also, in accordance with its specific investment objective(s)
and investment program, policies and restrictions purchase U.S. dollar-
denominated money market securities of foreign issuers. Such money market
securities may be registered domestically and traded on domestic exchanges or in
the over-the-counter market (e.g., Yankee securities) or may be (1) registered
abroad and traded exclusively in foreign markets or (2) registered domestically
and issued in foreign markets (e.g., Eurodollar securities).
In addition, all the Funds, except the Lifestyle Funds, the Large Cap
Growth Fund, the Large Cap Value Fund, and the Money Market Fund, may invest in
non-U.S. dollar-denominated foreign securities, in accordance with their
specific investment objective(s), investment programs, policies, and
restrictions. Investing in foreign securities may involve advantages and
disadvantages not present in domestic investments. There may be less publicly
available information about securities not registered domestically, or their
issuers, than is available about domestic issuers or their domestically
registered securities. Stock markets outside the U.S. may not be as developed as
domestic markets, and there may also be less government supervision of foreign
exchanges and brokers. Foreign securities may be less liquid or more volatile
than U.S. securities. Trade settlements may be slower and could possibly be
subject to failure. In addition, brokerage commissions and custodial costs with
respect to foreign securities may be higher than those for domestic investments.
Accounting, auditing, financial reporting and disclosure standards for foreign
issuers may be different than those applicable to domestic issuers. Non-U.S.
dollar-denominated foreign securities may be affected favorably or unfavorably
by changes in currency exchange rates and exchange control regulations
(including currency blockage) and a Fund may incur costs in connection with
conversions between various currencies. Foreign securities may also involve
risks due to changes in the political or economic conditions of such foreign
countries, the possibility of expropriation of assets or nationalization, and
possible difficulty in obtaining and enforcing judgments against foreign
entities.
INTERNATIONAL BONDS
Certain Funds also may invest in international bonds, which include U.S.
dollar-denominated bonds issued by foreign corporations for which the primary
trading market is in the United States ("Yankee Bonds"), or for which the
primary trading market is abroad ("Euro Bonds"). International bonds may involve
special risks and considerations not typically associated with investing in U.S.
companies, including differences in accounting, auditing and financial reporting
standards; generally higher commission rates on foreign portfolio transactions;
the possibility of nationalization, expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations (which may include
suspension of the ability to transfer currency from a country); and political
instability which could affect U.S. investments in foreign countries.
Additionally, dispositions of foreign securities and dividends and interest
payable on those securities may be subject to foreign taxes, including
withholding taxes. Foreign securities often trade with less frequency and volume
than domestic securities and, therefore, may exhibit greater price volatility. A
Fund's investment in international bonds also may be affected either unfavorably
or favorably by fluctuations in the relative rates of exchange between
currencies of different nations, by exchange control regulations and by
indigenous economic and political developments.
EMERGING MARKETS
Investments in companies domiciled in emerging market countries may be
subject to additional risks. Specifically, volatile social, political and
economic conditions may expose investments in emerging or developing markets to
economic structures that are generally less diverse and mature. Emerging market
countries may have less stable political systems than those of more developed
countries. As a result, it is possible that recent favorable economic
developments in certain emerging market countries may be suddenly slowed or
reversed by unanticipated political or social events in such countries.
Moreover, the economies of individual emerging market countries may differ
favorably or unfavorably from the US economy in such respects as the rate of
growth in gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
Another risk is that the small current size of the markets for such
securities and the currently low
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or nonexistent volume of trading can result in a lack of liquidity and in
greater price volatility. Until recently, there has been an absence of a capital
market structure or market-oriented economy in certain emerging market
countries. If a Fund's securities will generally be denominated in foreign
currencies, the value of such securities to the Fund will be affected by changes
in currency exchange rates and in exchange control regulations. A change in the
value of a foreign currency against the U.S. dollar will result in a
corresponding change in the U.S. dollar value of a Fund's securities. In
addition, some emerging market countries may have fixed or managed currencies
which are not free-floating against the U.S. dollar. Further, certain emerging
market currencies may not be internationally traded. Certain of these currencies
have experienced a steady devaluation relative to the U.S. dollar. Many emerging
markets countries have experienced substantial, and in some periods extremely
high, rates of inflation for many years. Inflation and rapid fluctuations in
inflation rates have had, and may continue to have, negative effects on the
economies and securities markets of certain emerging market countries.
A further risk is that the existence of national policies may restrict a
Fund's investment opportunities and may include restrictions on investment in
issuers or industries deemed sensitive to national interests. Also, some
emerging markets countries may not have developed structures governing private
or foreign investment and may not allow for judicial redress for injury to
private property.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Foreign currency transactions used by certain of the Funds may be either:
(i) on the spot (i.e., cash) basis at the spot rate prevailing in the foreign
exchange market, or (ii) conducted through the use of forward foreign currency
exchange contracts. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date. In general,
forward foreign currency exchange contracts are not guaranteed by a third party
and, accordingly, each party to a forward foreign currency exchange contract is
dependent upon the creditworthiness and good faith of the other party.
A Fund will enter into forward foreign currency exchange contracts only
under two circumstances. First, a Fund may enter into a forward foreign currency
exchange contract to purchase an amount of foreign currency to protect itself
against a possible loss that might occur between trade and settlement dates for
a particular security, resulting from a decline in the U.S. dollar against the
foreign currency in which such security is denominated. This practice may limit
the potential gains that might result from a positive change in such currency
relationships. Second, when VALIC or a Sub-adviser believes that the currency of
a particular foreign country may suffer or enjoy a substantial movement against
the U.S. dollar, a Fund may enter into a forward foreign currency exchange
contract to purchase or sell an amount of foreign currency approximating the
value of some or all of that Fund's portfolio securities denominated in such
foreign currency. The forecasting of short-term currency market movements is
extremely difficult and it is uncertain whether such short-term hedging
strategies will be successful.
STANDARD AND POOR'S DEPOSITORY RECEIPTS
The Large Cap Growth Fund may, consistent with its objectives, purchase
Standard & Poor's Depository Receipts ("SPDR's"). SPDRs are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust, a trust
which has been established to accumulate and hold a portfolio of common stocks
that is intended to track the price performance and dividend yield of the S&P
500. This trust is sponsored by a subsidiary of the American Stock Exchange.
SPDRs may be used for several reasons, including but not limited to:
facilitating the handling of cash flows or trading, or reducing transaction
costs. The use of SPDRs would introduce additional risk to the Large Cap Growth
Fund as the price movement of the instrument does not perfectly correlate with
the price action of the underlying index.
WHEN-ISSUED SECURITIES
Each of the Funds except the Lifestyle Funds, the Money Market Fund and the
Mid Cap Value Fund may purchase securities on a when-issued or delayed delivery
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
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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
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meet required principal and interest payments, and to assure the debt
securities' liquidity within the parameters of the Fund's investment policies.
The Sub-adviser will not necessarily dispose of a portfolio security when its
ratings have been changed.
ZERO COUPON BONDS
The Large Cap Value Fund, the Mid Cap Value Fund, the Balanced Fund, the
High Yield Bond Fund, the Strategic Bond Fund, the US Core Bond Fund and the
Domestic Bond Fund may invest in zero coupon 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 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 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 securities generally are more volatile
than the prices of securities that pay interest periodically. Zero coupon
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.
REAL ESTATE SECURITIES AND REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each Fund other than the Lifestyle Funds and the Domestic Bond Fund may
invest in real estate securities. Real estate securities are equity securities
consisting of (i) common stocks, (ii) rights or warrants to purchase common
stocks, (iii) securities convertible into common stocks and (iv) preferred
stocks issued by real estate companies. A real estate company is one that
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or that has at least 50% of its assets invested in real estate.
Certain Funds also may invest in REITs. REITs are pooled investment
vehicles which invest primarily in income producing real estate or real estate
related loans or interest. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs. Equity REITs
invest the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive income
from the collection of interest payments. Like regulated investment companies
such as the Funds, REITs are not taxed on income distributed to shareholders
provided they comply with certain requirements under the Internal Revenue Code
(the "Code"). A Fund will indirectly bear its proportionate share of any
expenses paid by REITs in which it invests in addition to the expenses paid by a
Fund.
Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers,
self-liquidation, and the possibilities of failing to qualify for the exemption
from tax for distributed income under the Code and failing to maintain their
exemptions from the 1940 Act. REITs (especially mortgage REITs) are also subject
to interest rate risks.
WARRANTS
Warrants are securities that give the Funds the right to purchase equity
securities from the issuer at a specific price (the "strike price") for a
limited period of time. 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 war-
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rants more speculative than other types of investments.
SWAP AGREEMENTS
Certain of the Funds may enter into 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 the 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. Swap agreements
entail the risk that a party will default on its payment obligations thereunder.
Swap agreements also bear the risk that a Fund will not be able to meet its
obligation to the counterparty. The risk may be mitigated if a Fund invests in
the specific assets for which it is obligated to pay a return.
EURODOLLAR OBLIGATIONS
Certain Funds, in accordance with their investment objective(s), policies,
and investment program, may invest in Eurodollar obligations, including
Eurodollar bonds and Eurodollar certificates of deposit. A Eurodollar obligation
is a security denominated in U.S. dollars and originated principally in Europe,
giving rise to the term Eurodollar.
Such securities are not registered with the SEC and generally may only be
sold to U.S. investors after the initial offering and cooling-off periods. The
market for Eurodollar securities is dominated by foreign-based investors and the
primary trading market for these securities is London.
Eurodollar obligations, including Eurodollar bonds and Eurodollar
certificates of deposit, are principally obligations of foreign branches of U.S.
banks. These instruments represent the loan of funds actually on deposit in the
U.S. The Series Company believes that the U.S. bank would be liable in the event
that its foreign branch failed to pay on its U.S. dollar denominated
obligations. Nevertheless, the assets supporting the liability could be
expropriated or otherwise restricted if located outside the U.S. Exchange
controls, taxes, or political and economic developments also could affect
liquidity or repayment. Due to possibly conflicting laws or regulations, the
foreign branch of the U.S. bank could maintain and prevail that the liability is
solely its own, thus exposing a Fund to a possible loss. Such U.S. dollar
denominated obligations of foreign branches of Federal Deposit Insurance
Corporation ("FDIC") member U.S. banks are not covered by the usual $100,000 of
FDIC insurance if they are payable only at an office of such a bank located
outside the U.S., Puerto Rico, Guam, American Samoa, and the Virgin Islands.
Moreover, there may be less publicly available information about foreign
issuers whose securities are not registered with the SEC and such foreign
issuers may not be subject to the accounting, auditing, and financial reporting
standards applicable to issuers registered domestically. In addition, foreign
issuers, stock exchanges, and brokers generally are subject to less government
regulation. There are, however, no risks of currency fluctuation since the
obligations are U.S. dollar denominated.
ASSET-BACKED SECURITIES
Certain Funds may invest in asset-backed securities (unrelated to first
mortgage loans) that represent fractional interests in pools of retail
installment loans, both secured (such as certificates for automobile
receivables) and unsecured, and leases, or revolving credit receivables both
secured and unsecured (such as credit card receivable securities). These assets
are generally held by a trust and payments of principal and interest, or
interest only are passed through monthly or quarterly to certificate holders and
may be guaranteed up to certain amounts by letters of credit issued by a
financial institution affiliated or unaffiliated with the trustee or originator
of the trust.
Underlying automobile sales contracts, leases or credit card receivables
are subject to prepayment, which may reduce the overall return to certificate
holders. Nevertheless, principal repayment rates tend not to vary much with
interest rates and the short-term nature of the underlying loans, leases, or
receivables tends to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying loans, leases or receivables are not realized
by the trust because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If consistent with
its investment objective(s) and policies, a Fund may invest in other
asset-backed securities that may be developed in the future.
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MORTGAGE-BACKED SECURITIES
Certain of the Funds may invest in Government National Mortgage Association
("GNMA") Certificates. GNMA Certificates are securities representing part
ownership of a pool of mortgage loans. These loans, issued by lenders such as
mortgage bankers, commercial banks, and savings and loan associations, are
either insured by the Federal Housing Administration or guaranteed by the
Veterans Administration. Each pool of mortgage loans is assembled and, after
being approved by GNMA, is offered to investors through securities dealers in
the form of certificates representing participations in the pool. Once approved
by GNMA, the timely payment of interest and principal of each mortgage is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. GNMA Certificates differ from bonds in that principal is paid
monthly by the borrower over the term of the loan rather than returned in a lump
sum at maturity. GNMA Certificates are called "pass-through" certificates
because both principal and interest payments (including prepayments) are passed
through to the holder of the certificate.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments. Upon receipt, principal payments may be used by
the Funds to purchase additional GNMA Certificates or other U.S. Government
Securities. In addition, prepayments of the mortgages included in the underlying
mortgage pool will usually result in the return of the greatest part of
principal invested well before the maturity of the mortgages in the pool. The
volume of such prepayments of principal in a given pool of mortgages will
influence the actual yield of the GNMA Certificate, and principal returned to
the Funds may be reinvested in instruments whose yield may be higher or lower
than that which might have been obtained had such prepayments not occurred. In
quoting yields of GNMA Certificates, the standard practice is to assume that the
certificates will have a 12 year life. As previously noted, however, the actual
life of an individual pool may differ widely and actual yield may differ
significantly from estimated yields based on the 12 year life assumption.
Certain Funds may also invest in collateralized mortgage obligations
("CMOs") issued by governmental or nongovernmental entities, such as banks and
other mortgage lenders. Non-governmental securities may offer a higher yield but
may be subject to greater price fluctuation and risk than governmental
securities.
CMOs are obligations fully collateralized directly or indirectly by a pool
of mortgages on which payments of principal and interest are passed through to
the holders of the CMOs on the same schedule as they are received, although not
necessarily on a pro rata basis. In reliance on an SEC interpretation, the
Funds' investments in certain qualifying CMOs are not subject to legal
limitations on acquiring interests in other investment companies. In order to be
able to rely on the SEC's interpretation, the CMOs must be unmanaged,
fixed-asset issuers that (i) invest primarily in mortgage-backed securities,
(ii) do not issue redeemable securities, (iii) operate under general exemptive
orders exempting them from all provisions of the 1940 Act, and (iv) are not
registered or regulated under the 1940 Act as investment companies. To the
extent that a Fund selects CMOs that do not meet the above requirements, the
Fund may not invest more than 10% of its assets in all such entities and may not
acquire more than 3% of the voting securities of any single such entity.
LOAN PARTICIPATIONS
Loan Participations are debt obligations of corporations and are usually
purchased from major money center banks, selected regional banks, and major
foreign banks with branches in the U.S. which are regulated by the Federal
Reserve System or appropriate state regulatory authorities. VALIC and the
Sub-advisers believe that the credit standards imposed by such banks are
comparable to the standards such banks use in connection with loans originated
by them and in which they intend to maintain a full interest. The financial
institutions offering loan participations do not guarantee principal or interest
on the loan participations which they offer. VALIC and the Sub-advisers will not
purchase such securities for the Funds unless they believe that the collateral
underlying the corporate loans is adequate and the corporation will be able, in
a timely fashion, to pay scheduled interest and principal amounts.
ADJUSTABLE RATE SECURITIES
Certain of the Funds may invest in adjustable rate money market securities.
Adjustable rate securities (i.e., variable rate and floating rate instruments)
are securities that have interest rates that
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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.
ILLIQUID SECURITIES
The Funds will not invest more than 10% (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), of the
value of their net assets in securities or other investments that are illiquid
or not readily marketable (including repurchase agreements with maturities
exceeding seven days). Securities received as a result of a corporate
reorganization or similar transaction affecting readily-marketable securities
already held in the portfolio of a Fund will not be considered securities or
other investments that are not readily marketable. However, the Funds will
attempt, in an orderly fashion, to dispose of any securities received under
these circumstances, to the extent that such securities are considered not
readily marketable, and together with other illiquid securities, exceed 10% (or
15%) of the value of a Fund's net assets.
RULE 144A SECURITIES
Each Fund, other than the Lifestyle Funds, may purchase securities which,
while privately placed, are eligible for purchase and sale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Series Company, under the
supervision of the Board of Trustees, will consider whether securities purchased
under Rule 144A are illiquid and thus subject to the Funds' restriction on
investing more than 10% (15% in the case of the 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.
Invest-
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ing in Rule 144A securities could have the effect of
increasing the amount of the Funds' investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities. Each
Fund other than the Lifestyle Funds, may invest in Rule 144A securities (in
accordance with each Fund's investment restrictions as listed in the prospectus)
that have been determined to be liquid by Board approved guidelines.
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 and the Money Market Fund,
may write covered call and put options on securities and securities indices. The
Mid Cap Value Fund may write covered call options and purchase call options in
related closing transactions only. A call option is a contract that gives to the
holder the right to buy a specified amount of the underlying security or
currency at a fixed or determinable price (called the exercise or "strike"
price) upon exercise of the option. A put option is a contract that gives the
holder the right to sell a specified amount of the underlying security or
currency at a fixed or determinable price upon exercise of the option.
To "cover" a call option written, a Fund may, for example, identify and
have available for sale the specific portfolio security, group of securities, or
foreign currency to which the option relates. To cover a put option written, a
Fund may, for example, establish a segregated asset account with its custodian
containing cash or liquid assets that, when added to amounts deposited with its
broker or futures commission merchant ("FCM") as margin, equals the market value
of the instruments underlying the put option written.
Certain Funds may write options on securities and securities indices. If a
Fund writes an option which expires unexercised or is closed out by the Fund at
a profit, it will retain the premium received for the option, which will
increase its gross income. If the price of the underlying security or currency
moves adversely to the Fund's position, the option may be exercised and the
Fund, as the writer of the option, will be required to sell or purchase the
underlying security or currency at a disadvantageous price, which may only be
partially offset by the amount of premium received.
Options on stock indices are similar to options on stock, except that all
settlements are made in cash rather than by delivery of stock, and gains or
losses depend on price movements in the stock market generally (or in a
particular industry or segment of the market represented by the index) rather
than price movements of individual stocks. When a Fund writes an option on a
securities index, and the underlying index moves adversely to the Fund's
position, the option may be exercised. Upon such exercise, the Fund, as the
writer of the option, will be required to pay in cash an amount equal to the
difference between the exercise settlement value of the underlying index and the
exercise price of the option, multiplied by a specified index "multiplier."
Call or put options on a stock index may be written at an exercise or
"strike" price which is either below or above the current value of the index. If
the exercise price at the time of writing the option is below the current value
of the index for a call option or above the current value of the index for a put
option the option is considered to be "in the money." In such a case, the Fund
will cover such options written by segregating with its custodian or pledging to
its commodity broker as collateral cash, U.S. Government or other high-grade,
short-term debt obligations equal in value to the amount by which the option
written is in the money, times the multiplier, times the number of contracts.
Stock indices for which options are currently traded include the S&P 500
Index, Value Line Index, National OTC Index, Major Market Index, Computer
Technology Index, Oil Index, NYSE Options Index, Technology Index, Gold/Silver
Index, Institutional Index and NYSE Beta Index. The Funds may also use options
on such other indices as may now or in the future be available.
Each Fund, except the Large Cap Growth Fund, the Mid Cap Growth Fund, the
Lifestyle Funds, the International Growth Fund, the International Value Fund,
the Mid Cap Value Fund, and the Money Market Fund, may also purchase put or call
options on securities and securities indices in order to (i) hedge against
anticipated changes in interest rates or stock prices that may adversely affect
the prices of securities that the Fund intends to purchase at a later date, (ii)
hedge its investments against an anticipated decline in value, or (iii) attempt
to reduce the risk of missing a market or industry segment advance. Certain
Funds also may purchase put options on foreign currencies that correlate with
the Fund's portfolio securities in order to minimize or hedge against
anticipated de-
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clines 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 and the
Core Bond Fund may use over-the-counter options. Options traded in the
over-the-counter market may not be as actively traded as those on an exchange.
Accordingly, it may be more difficult to value such options. In addition, it may
be more difficult to enter into closing transactions with respect to options
traded over-the-counter. In this regard, the Funds may enter into contracts with
the primary dealers with whom they write over-the-counter options. The contracts
will provide that each Fund has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the fair market value
of such option, as determined in good faith through negotiations between the
parties, but which in no event will exceed a price determined pursuant to a
formula contained in the contract. Although the specific details of the formula
may vary between contracts with different primary dealers, the formula will
generally be based on a multiple of the premium received by each Fund for
writing the option, plus the amount, if any, of the option's intrinsic value
(i.e., the amount the option is "in-the-money"). The formula will also include a
factor to account for the difference between the price of the security and the
strike price of the option if the option is written "out-of-the-money." Although
the specific details of the formula may vary with different primary dealers,
each contract will provide a formula to determine the maximum price at which
each Fund can repurchase the option at any time. The Funds have established
standards of creditworthiness for these primary dealers.
WRITING COVERED CALL AND PUT OPTIONS AND PURCHASING CALL AND PUT OPTIONS
All of the Funds, except the Mid Cap Growth Fund, the International Growth
Fund, the Large Cap Growth Fund, the Lifestyle Funds and the Money Market Fund,
may write exchange-traded covered call and put options on or relating to
specific securities in order to earn additional income or, in the case of a call
written, to minimize or hedge against anticipated declines in the value of the
Fund's securities. The Mid Cap Value Fund may write exchange-traded covered call
options, but not put options in this connection. To "cover" an option means, for
example, to identify and make available for sale the specific portfolio security
or foreign currency to which the option relates. Through the writing of a
covered call option a Fund receives premium income but obligates itself to sell
to the purchaser of such an option the particular security or foreign currency
underlying the option at a specified price at any time prior to the expiration
of the option period, regardless of the market value of the security or the
exchange rate for the foreign currency during this period. Through the writing
of a covered put option a Fund receives premium income but obligates itself to
purchase a particular security or foreign currency underlying the option at a
specified price at any time prior to the expiration of the option period,
regardless of market value or exchange rate during the option period.
Certain Funds, in accordance with their investment objective(s) and
investment programs, may also write exchange-traded covered call and put options
on stock indices and may purchase call and put options on stock indices that
correlate with the Fund's portfolio securities. These Funds may engage in such
transactions for the same purposes as they may engage in such transactions with
respect to individual portfolio securities or foreign currencies, that is, to
generate additional income or as a hedging technique to minimize anticipated
declines in the value of the Fund's portfolio securities or the exchange rate of
the securities in which the Fund
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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 the Large Cap Growth Fund, the Mid Cap Growth Fund,
the International Growth Fund, the Lifestyle Funds and the Money Market Fund,
may also purchase exchange-traded call and put options with respect to
securities and stock indices that correlate with that Fund's particular
portfolio securities. In this connection, the Mid Cap Value Fund may purchase
exchange traded call options only.
A Fund may purchase put options for defensive purposes in order to protect
against an anticipated decline in the value of its portfolio securities or
currencies. As the holder of a put option with respect to individual securities
or currencies, the Fund has the right to sell the securities or currencies
underlying the options and to receive a cash payment at the exercise price at
any time during the option period. As the holder of a put option on an index, a
Fund has the right to receive, upon exercise of the option, a cash payment equal
to a multiple of any excess of the strike price specified by the option over the
value of the index.
A Fund may purchase call options on individual securities, currencies or
stock indices in order to take advantage of anticipated increases in the price
of those securities or currencies by purchasing the right to acquire the
securities or currencies underlying the option or, with respect to options on
indices, to receive income equal to the value of such index over the strike
price. As the holder of a call option with respect to individual securities or
currencies, a Fund obtains the right to purchase the underlying securities or
currencies at the exercise price at any time during the option period. As the
holder of a call option on a stock index, a Fund obtains the right to receive,
upon exercise of the option, a cash payment equal to the multiple of any excess
of the value of the index on the exercise date over the strike price specified
in the option.
Unlisted options may be used by the Large Cap Value Fund, the Small Cap
Growth Fund, the High Yield Bond Fund, the Strategic Bond Fund and the Core Bond
Fund. Such options are not traded on an exchange and may not be as actively
traded as listed securities, making the valuation of these securities more
difficult. In addition, an unlisted option entails a risk not found in
connection with listed options -- that the party on the other side of the option
transaction will default. This may make it impossible to close out an unlisted
option position in some cases, and profits may be lost thereby. Such unlisted,
over-the-counter options, unless otherwise indicated, will be considered
illiquid securities. The Funds will engage in such transactions only with firms
of sufficient credit to minimize these risks. In instances in which a Fund has
entered into agreements with primary dealers with respect to the unlisted,
over-the-counter options it has written, and such agreements would enable the
Fund to have an absolute right to repurchase, at a pre-established formula
price, the over-the-counter options written by it, the Fund will treat as
illiquid only the amount equal to the formula price described above less the
amount by which the option is "in-the-money."
Although these investment practices will be used to generate additional
income and to attempt to reduce the effect of any adverse price movement in the
securities or currencies subject to the option, they do involve certain risks
that are different in some respects from investment risks associated with
similar funds which do not engage in such activities. These risks include the
following: writing covered call options -- the inability to effect closing
transactions at favorable prices and the inability to participate in the
appreciation of the underlying securities or currencies above the exercise
price; writing covered put options -- the inability to effect closing
transactions at favorable prices and the obligation to purchase the specified
securities or currencies or to make a cash settlement on the stock index at
prices which may not reflect current market values or exchange rates; and
purchasing put and call options -- possible loss of the entire premium paid. In
addition, the effectiveness of hedging through the purchase or sale (writing) of
stock index options will depend upon the extent to which price movements in the
portion of a Fund's portfolio being hedged correlate with price movements in the
selected stock index. Perfect correlation may not be possible because the
securities held or to be acquired by a Fund may not exactly match the
composition of the stock index on which options are purchased or written. If the
forecasts of VALIC regarding movements in securities prices, currencies or
interest rates are incorrect, a Fund's investment results may have been better
without the hedge.
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FINANCIAL FUTURES CONTRACTS
Each Fund, except the Mid Cap Growth Fund, the International Growth Fund,
the Mid Cap Value Fund, the Lifestyle Funds 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 on GNMA
Certificates, long-term U.S. Treasury Bonds, three-month U.S. Treasury Bills,
short-term U.S. Treasury Notes, and bank certificates of deposit.
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 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
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 ele-
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ments 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."
A Fund, as an internal operating policy, may not hold financial futures
contracts in an amount greater than 33% of the Fund's net assets. A Fund may not
adhere to this internal operating policy in circumstances where the Fund is
required to invest a large cash infusion. In this circumstance the Fund's total
invested position, including the security value of the financial futures
contracts may not exceed 100% of the Fund's net assets.
Financial futures contracts generally are not entered into to acquire the
underlying asset and generally are not held to term. Prior to the contract
settlement date, the Funds will normally close all futures positions by entering
into an offsetting transaction which operates to cancel the position held, and
which usually results in a profit or loss.
OPTIONS ON FINANCIAL FUTURES CONTRACTS
For bona fide hedging purposes, each Fund, except the Mid Cap Growth Fund,
the International Growth Fund, the Mid Cap Value Fund, the Lifestyle Funds 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
In addition to the risks described in the Series Company's Prospectus, the
use of options and financial futures contracts may entail the following
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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
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cash or other contract markets, to offset to some
extent any adverse effects of being unable to liquidate a hedge position.
Nevertheless, in some cases, a Fund may experience losses as a result of such
inability. Therefore it may have to liquidate other more advantageous
investments to meet its cash needs.
In addition, FCMs or brokers in certain circumstances will have access to a
Fund's assets posted as margin in connection with these transactions as
permitted under the 1940 Act. See "Other Information -- Custody of Assets" in
this Statement of Additional Information. The Funds will use only FCMs or
brokers in whose reliability and financial soundness they have full confidence
and have adopted certain other procedures and limitations to reduce the risk of
loss with respect to any assets which brokers hold or to which they may have
access. Nevertheless, in the event of a broker's insolvency or bankruptcy, it is
possible that a Fund could experience a delay or incur costs in recovering such
assets or might recover less than the full amount due. Also the value of such
assets could decline by the time a Fund could effect such recovery.
The success of a Fund in using hedging techniques depends, among other
things, on VALIC's, or the Sub-adviser's ability to predict the direction and
volatility of price movements in both the futures and options markets as well as
the securities markets and on VALIC's or the Sub-adviser's ability to select the
proper type, time, and duration of hedges. There can be no assurance that these
techniques will produce their intended results. In any event, VALIC, or the
Sub-adviser will use financial futures contracts, options thereon, currency
options and stock index options only when it believes the overall effect is to
reduce, rather than increase, the risks to which a Fund is exposed. Hedging
transactions also, of course, may be more, rather than less, favorable to a Fund
than originally anticipated.
LIMITATIONS
No Fund will enter into any financial futures contract or purchase any
option thereon if, immediately thereafter, the total amount of its assets
required to be on deposit as initial margin to secure its obligations under
financial futures contracts, plus the amount of premiums paid by it for
outstanding options to purchase futures contracts, exceeds 5% of the market
value of its total assets; provided however, that in the case of an option that
is in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation. This is a fundamental policy of the Socially
Responsible Fund.
In addition, each Fund has an operating policy which provides that it will
not enter into financial futures contracts or write put or call options with
respect to financial futures contracts unless such transactions are either
"covered" or subject to segregation requirements considered appropriate by the
SEC staff. Further, each Fund has an operating policy which provides that it
will not enter into custodial arrangements with respect to initial or variation
margin deposits or marked-to-market amounts unless the custody of such initial
and variation margin deposits and marked-to-market amounts are in compliance
with current SEC staff interpretive positions or no-action letters or rules
adopted by the SEC.
SHORT SALES AND SHORT SALES AGAINST THE BOX
Certain Funds may engage in short sale transactions in securities listed on
one or more national securities exchanges or on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"). Short selling
involves the sale of borrowed securities. At the time a short sale is effected,
a Fund incurs an obligation to replace the security borrowed at whatever its
price may be at the time that the Fund purchases it for delivery to the lender.
When a short sale transaction is closed out by delivery of the securities, any
gain or loss on the transaction is taxable as a short term capital gain or loss.
Until the security is replaced, the Fund is required to pay to the lender
amounts equal to any dividends or interest which accrue during the period of the
loan. All short sales will be fully collateralized. A Fund may also engage in
short sales against the box, which involves selling a security the Fund holds in
its portfolio for delivery at a specified date in the future. A Fund will not
engage in short sales or short sales against the box if immediately following
such transaction the aggregate market value of all securities sold short and
sold short against the box would exceed 10% of the Fund's net assets (taken at
market value).
MONEY MARKET SECURITIES OF FOREIGN ISSUERS
Foreign money market instruments utilized by certain of the Funds will be
limited to: (i) obligations of, or guaranteed by, a foreign government, its
agencies or instrumentalities;
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(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's primary business consists of offering fixed and variable (and
combinations thereof) retirement annuity contracts. 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 August 26, 1998, that was
approved by the Board of Trustees on August 26, 1998. Under the Investment
Advisory Agreement, each Fund pays VALIC an annual fee, payable monthly, based
on its average daily net asset value.
Pursuant to the Investment Advisory Agreement, the Series Company retains
VALIC to manage the investment of the assets of each Fund, maintain a trading
desk, and place orders for the purchase and sale of portfolio securities. As
investment adviser, VALIC obtains and evaluates as appropriate economic,
statistical, and financial information in order to formulate and implement
investment programs in furtherance of each Fund's investment objective(s) and
investment program. Pursuant to the Investment Advisory Agreements, VALIC
provides other services including furnishing the services of the President and
such other executives and clerical personnel as the Series Company requires to
conduct its day-to-day operations, to prepare the various reports and statements
required by law, and to conduct any other recurring or nonrecurring activity
which the Series Company may need to continue operations. The Investment
Advisory Agreement provides that the Series Company pay all expenses not
specifically assumed by VALIC under the Agreement. Examples of the expenses paid
by the Series Company include transfer agency fees, custodial fees, the fees of
outside legal and auditing firms, the costs of reports to shareholders and
expenses of servicing shareholder accounts (e.g., daily calculation of the net
asset 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.
Pursuant to an Accounting Services Agreement dated August 26, 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.
The Investment Advisory Agreement may be continued with respect to any Fund
if specifically
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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.
INVESTMENT SUB-ADVISERS
Pursuant to Investment Sub-advisory Agreements dated August 26, 1998 with
each Sub-adviser, VALIC has engaged American General Investment Management, L.P.
("AGIM") to provide sub-advisory services to the High Yield Bond Fund, the
Strategic Bond Fund and the Core Bond Fund and Bankers Trust Company ("Bankers
Trust") to provide sub-advisory services for a portion of the Small Cap Value
Fund. In addition, Capital Guardian Trust Company ("Capital Guardian") provides
sub-advisory services for the International Value Fund, the Domestic Bond Fund
and the Balanced Fund, Jacobs Asset Management provides sub-advisory services
for the International Growth Fund, State Street Bank and Trust Company/State
Street Global Advisors ("State Street Global Advisors") provides sub-advisory
services for the Large Cap Value Fund, Goldman Sachs Asset Management ("GSAM")
provides sub-advisory services for the Large Cap Growth Fund and
Neuberger&Berman Management Inc. ("N&B Management") provides sub-advisory
services for the Mid Cap Value Fund pursuant to separate Sub-advisory
Agreements. Brown Capital Management, Inc. ("Brown Capital Management") provides
sub-advisory services for the Mid Cap Growth Fund, Fiduciary Management
Associates, Inc. ("FMA") provides sub-advisory services for a portion of the
Small Cap Value Fund and J.P. Morgan Investment Management, Inc. ("JP Morgan")
provides sub-advisory services for the Small Cap Growth Fund pursuant to
separate sub-advisory Agreements, as well. AGIM, Bankers Trust, Capital
Guardian, Jacobs Asset Management, State Street Global Advisors, GSAM, N&B
Management, Brown Capital Management, FMA 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
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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 August 26, 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 of the Core Bond Fund, 0.35% of the first
$200 million, 0.25% of the next $300 million and 0.20% of average daily net
asset values over $500 million of the Strategic Bond Fund and 0.45% of the first
$200 million, 0.35% of the next $300 million and 0.30% of average daily net
asset values over $500 million of the High Yield Bond Fund.
VALIC shall pay to Bankers Trust, for the services rendered and expenses
paid by Bankers Trust, a monthly fee computed at the annual rate of 0.03% of the
average daily net asset values of the portion of the Small Cap Value Fund
portfolio that it manages.
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
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Management, a monthly fee computed at the annual rate of 0.65% of the first $100
million and 0.55% of average daily net asset values on the excess over $100
million.
VALIC shall pay to N&B Management, for the services rendered to the Mid Cap
Value Fund and expenses paid by N&B Management, a monthly fee computed at the
annual rate of 0.50% of the first $100 million, 0.475% of the next $150 million,
0.45% of the next $250 million, 0.425% of the next $250 million and 0.40% of
average daily net asset values on the excess over $750 million.
VALIC shall pay to State Street Global Advisors, for the services rendered
to the Large Cap Value Fund and expenses paid by State Street, a monthly fee
computed at the annual rate of 0.25% of average daily net asset values of the
Large Cap Value Fund, but in no event less than $50,000 per year.
The Investment Sub-advisory Agreements may be continued with respect to any
of the Funds if approved, after the initial two year term, at least annually by
the vote of the Series Company's Board of Trustees who are not parties to the
Investment Sub-advisory Agreements or interested persons of any such parties,
cast in person at a meeting called for the purpose of voting on such approval
and by a vote of a majority of the Series Company's Board of Trustees or a
majority of the relevant Fund's outstanding voting securities.
Subject to the Exemption, the Investment Sub-advisory Agreements may be
terminated at any time by VALIC, the relevant Sub-adviser, the Series Company's
Board of Trustees, or by vote of a majority of the outstanding voting securities
of the relevant Sub-advised Fund, on not more than 60 days' nor less than 30
days' written notice to the other entities, or upon such shorter notice as may
be mutually agreed upon. Such termination shall be without the payment of any
penalty.
The Investment Sub-advisory Agreements provide that the Sub-advisers shall
not be liable to VALIC, the Series Company or to any shareholder of the Series
Company for any act or omission in rendering services under the Investment
Sub-advisory Agreements or for any losses sustained in the purchase, holding or
sale of any portfolio security, so long as there has been no willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties on the part of the Sub-advisers.
PORTFOLIO TRANSACTIONS AND BROKERAGE
As investment adviser to the Series Company, VALIC has responsibility for
placing (and deciding when to place) orders for the purchase and sale of
investments for the portfolio of each Fund, selecting brokers or dealers to
handle these transactions, and negotiating commissions on these transactions.
VALIC utilizes the assistance of Sub-advisers in selecting brokers or dealers to
handle transactions for the Sub-advised Funds. The Sub-advisers may employ
affiliated brokers for portfolio transactions under circumstances described in
the Prospectus under the heading "About the Series Company's Management."
Virtually all of the over-the-counter transactions by the actively managed
portion of the Small Cap Value Fund, the High Yield Bond Fund, the Strategic
Bond Fund, the Domestic Bond Fund and the Mid Cap Growth Fund, are principal
transactions with issuers and dealers at net prices which entail no brokerage
commissions. The International Value Fund, the Mid Cap Value Fund, and the
Socially Responsible Fund, each purchase and sell most of their portfolio
securities on a national securities exchange on an agency basis. The
International Growth Fund, the Balanced Fund, the Mid Cap Growth Fund, the Small
Cap Value Fund, and the Large Cap Value Fund engage in over-the-counter
transactions with principals and transactions with national securities exchanges
on an agency basis. The Series Company normally enters into principal
transactions directly with the issuer or the market-maker.
When the Series Company purchases or sells securities or financial futures
contracts on an exchange, it pays a commission to any FCM or broker executing
the transaction. When the Series Company purchases securities from the issuer,
an underwriter usually receives a commission or "concession" paid by the issuer.
When the Series Company purchases securities from a market-maker, it pays no
commission, but the price includes a "spread" or "mark-up" (between the bid and
asked price) earned by the market-making dealer on the transaction.
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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.
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 securi-
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ties 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.
OFFERING, PURCHASE, AND REDEMPTION OF FUND SHARES
Pursuant to a distribution and service agreement, The Variable Annuity
Marketing Company ("VAMCO") acts without remuneration as the Series Company's
agent in the distribution of Fund Shares to registered and unregistered separate
accounts of VALIC and its affiliates. VAMCO's address is the same as that of
VALIC.
The distribution and service agreement between VAMCO and the Series Company
provides that it shall continue in force from year to year, after the initial
two year term, provided that such continuance is approved at least annually
(a)(i) by the Board of Trustees of the Series Company, or (ii) by vote of a
majority of the Series Company's outstanding voting securities (as defined in
the 1940 Act) and (b) by the affirmative vote of a majority of the Series
Company's Trustees who are not 'interested persons' (as defined in the 1940 Act)
of the Series Company by votes cast in person at a meeting called for such
purpose. The distribution and service agreement may be terminated at any time,
without penalty, by a vote of the Board of Trustees of the Series Company or by
a vote of a majority of the outstanding voting securities of the Series Company,
or by VAMCO, on sixty days' written notice to the other party. The distribution
and service agreement also automatically terminates in the event of an
assignment.
Pursuant to the distribution and service agreement VAMCO 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). VALIC reimburses VAMCO for these
expenses. Thus all such expenses incurred by VAMCO are passed directly on to
VALIC, its parent. 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.
As explained in the prospectus for the Contracts, payments of surrender
values, as well as lump sum payments available under the annuity options of the
Contracts, may be suspended or postponed at any time when redemption of shares
is suspended. Normally, the Series Company redeems Fund shares within seven days
of receipt of request therefor, but may postpone redemptions beyond seven days
when: (1) the New York Stock Exchange is closed for other than weekends and
customary holidays, or trading on the New York Stock Exchange becomes
restricted; (2) an emergency exists making disposal or valuation of a Fund's
assets not reasonably practicable; or (3) the SEC has so permitted by order for
the protection of the Series Company's shareholders.
The Series Company normally redeems Fund shares for cash. Although the
Series Company, with respect to each Fund, may make full or partial payment by
assigning to investors, Series Company portfolio securities at their value used
in determining the redemption price (i.e. by redemption-in-kind), the Series
Company, pursuant to Rule 18f-1 under the 1940 Act, has filed a notification of
election on Form 18f-1. Pursuant to this election, the Series Company has
committed itself to pay investors, in cash, all redemptions made during any 90
day period, up to the lesser of $250,000 or 1% of the Series Company's net asset
value. The securities to be paid in-kind to an investor will be selected in such
manner as the Board of Trustees deems fair and equitable. In such cases,
investors would incur brokerage expenses should they wish to liquidate these
portfolio securities.
All shares are offered for sale and redeemed at net asset value. Net asset
value per share is determined by dividing the net assets of a Fund by the number
of that Fund's outstanding shares at such time.
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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 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.
Publicly-traded corporate bonds are valued at prices obtained from the
Custodian.
Short-term debt 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 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 portfo-
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lio securities. The Series Company's Board of Trustees has established
procedures reasonably designed, taking into account current market conditions
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
Money Market Fund's net asset value might still decline.
CALCULATION OF YIELD FOR THE MONEY MARKET FUND
The yield of the Money Market Fund is its net income expressed as a
percentage of assets on an annualized basis for a seven day period. Rule 482
under the 1933 Act requires that a yield quotation set forth in an advertisement
for a money market fund be computed by a standardized method based on an
historical seven calendar day period. The current yield is computed by
determining the net change (exclusive of realized gains and losses from the sale
of securities and unrealized appreciation and depreciation) in the value of a
hypothetical pre-existing account having a balance of one share at the beginning
of the period, and then dividing the net change in account value by the value of
the account at the beginning of the base period to obtain the base period
return. The base period return is then multiplied by (365/7) to annualize the
yield figure. The determination of net change in account value reflects the
value of additional shares purchased with dividends from the original share,
dividends declared on both the original share and such additional shares, and
any fees that are charged to all shareholder accounts, in proportion to the
length of the base period and the Money Market Fund's average account size. The
Money Market Fund may also calculate its compound effective yield by compounding
the unannualized base period return (calculated as described above) by adding
one to the base period return, raising the sum to a power equal to 365 divided
by 7, and subtracting one.
The yield quoted by the Money Market Fund at any time represents the amount
being earned on a current basis for the indicated period and is a function of
the types of instruments in the Money Market Fund's portfolio, their quality and
length of maturity, and the Money Market Fund's operating expenses. The length
of maturity for the portfolio is the average dollar weighted maturity of the
portfolio. In other words, the portfolio has an average maturity for all of its
issues, stated in numbers of days and weighted according to the relative value
of each investment.
The yield fluctuates daily as the income earned on the investments of the
Money Market Fund fluctuates. Accordingly, neither the Series Company nor VALIC
can assure the yield quoted on any given occasion will remain constant for any
period of time. For example, the Money Market Fund's yield will change if it
experiences a net inflow of new assets which it then invests in securities whose
yield is higher or lower than that being currently earned on investments.
Investments in the Money Market Fund are not insured and investors comparing
results of the Money Market Fund with investment results and yields from other
sources such as banks or savings and loan associations should understand this
distinction. In addition, other money market funds as well as banks and savings
and loan associations may calculate their yields on a different basis and the
yield quoted by the Money Market Fund from time-to-time could vary upwards or
downwards if another method of calculation or base period were used.
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TAXATION
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Fund of the Series Company. This summary does
not address special tax rules applicable to certain classes of investors, such
as tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his own tax adviser with respect to
the specific federal, state, local and foreign tax consequences of investing in
each Fund. The summary is based on the laws in effect on the date of this
Statement of Additional Information, which are subject to change.
GENERAL
Each Fund is a separate taxable entity. Each Fund has elected to be treated
and intends to qualify for each taxable year as a regulated investment company
under Subchapter M of the Code.
Qualification as a regulated investment company under the Code requires,
among other things, that (a) a Fund derives at least 90% of its gross income for
its taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of stocks or securities or
foreign currencies, or other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test");
and (b) such Fund diversifies its holdings so that, at the close of each quarter
of its taxable year, (i) at least 50% of the market value of such Fund's total
(gross) assets is comprised of cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater in value than 5% of the
value of such Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total (gross) assets is invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies) or two or more issuers controlled by the Fund and engaged in the
same, similar or related trades or businesses. For purposes of the 90% gross
income test, income that a Fund earns from equity interests in certain entities
that are not treated as corporations (e.g., partnerships or trusts) for U.S. tax
purposes will generally have the same character for such Fund as in the hands of
such an entity; consequently, a Fund may be required to limit its equity
investments in such entities that earn fee income, rental income, or other
nonqualifying income. In addition, future Treasury regulations could provide
that qualifying income under the 90% gross income test will not include gains
from foreign currency transactions that are not directly related to a Fund's
principal business of investing in stock or securities or options and futures
with respect to stock or securities. Using foreign currency positions or
entering into foreign currency options, futures and forward or swap contracts
for purposes other than hedging currency risk with respect to securities in a
Fund's portfolio or anticipated to be acquired may not qualify as
"directly-related" under these tests.
If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent
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the credit exceeds such liabilities. For U.S. federal income tax purposes, the
tax basis of shares owned by a shareholder of the Fund will be increased by an
amount equal under current law to 65% of the amount of undistributed net capital
gain included in the shareholder's gross income. Each Fund intends to distribute
for each taxable year to its shareholders all or substantially all of its
investment company taxable income, net capital gain and any net tax-exempt
interest. Exchange control or other foreign laws, regulations or practices may
restrict repatriation of investment income, capital or the proceeds of
securities sales by foreign investors and may therefore make it more difficult
for certain Funds to satisfy the distribution requirements described above, as
well as the excise tax distribution requirements described below. However, each
Fund generally expects to be able to obtain sufficient cash to satisfy such
requirements from new investors, the sale of securities or other sources. If for
any taxable year a Fund does not qualify as a regulated investment company, it
will be taxable on all of its investment company taxable income and net capital
gain at corporate rates, and its distributions to shareholders will be taxable
as ordinary dividends to the extent of its current and accumulated earnings and
profits.
In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal income tax purposes, each
Fund is permitted to carry forward a net capital loss in any year to offset its
own capital gains, if any, during the eight years following the year of the
loss.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by a Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by such Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of a Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and a Fund may therefore be required to
limit its participation in such transactions. Certain tax elections may be
available to a Fund to mitigate some of the unfavorable consequences described
in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available
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that would alter this treatment. If a net foreign exchange loss treated as
ordinary loss under Section 988 of the Code were to exceed a Fund's investment
company taxable income (computed without regard to such loss) for a taxable
year, the resulting loss would not be deductible by the Fund or its shareholders
in future years. Net loss, if any, from certain foreign currency transactions or
instruments would exceed net investment income otherwise calculated for
accounting purposes with the result being either no dividends being paid or a
portion of a Fund's dividends being treated as a return of capital for tax
purposes, nontaxable to the extent of a shareholder's tax basis in his shares
and, once such basis is exhausted, generally giving rise to capital gains.
A Fund's investment in zero coupon securities, deferred interest
securities, certain structured securities or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark-to-market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
Certain Funds may be subject to foreign taxes on income (possibly
including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases. If, as may occur for certain Funds, more than 50% of a
Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund would be
required to (i) include in ordinary gross income (in addition to taxable
dividends actually received) their pro rata shares of foreign income taxes paid
by the Fund that are treated as income taxes under U.S. tax regulations (which
excludes, for example, stamp taxes, securities transaction taxes, and similar
taxes) even though not actually received by such shareholders, and (ii) treat
such respective pro rata portions as foreign income taxes paid by them.
If a Fund makes this election, its respective shareholders may then deduct
such pro rata portions of qualified foreign taxes in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by a Fund,
although such shareholders will be required to include their shares of such
taxes in gross income if the election is made.
If a shareholder chooses to take credit for the foreign taxes deemed paid
by such shareholder as a result of any such election by a Fund, the amount of
the credit that may be claimed in any year may not exceed the same proportion of
the U.S. tax against which such credit is taken which the shareholder's taxable
income from foreign sources (but not in excess of the shareholder's entire
taxable income) bears to his entire taxable income. For this purpose,
distributions from long-term and short-term capital gains or foreign currency
gains by a Fund will generally not be treated as income from foreign sources.
This foreign tax credit limitation may also be applied separately to certain
specific categories of foreign-source income and the related foreign taxes. As a
result of these rules, which have different effects depending upon each
shareholder's particular tax situation, certain shareholders of a Fund which has
made this election may not be able to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by such Fund even if the
election is made by such a Fund.
Shareholders who are not liable for U.S. federal income taxes, including
tax-exempt shareholders, will ordinarily not benefit from this election. Each
year, if any, that a Fund files the election described above, its shareholders
will be notified of the amount of (i) each Shareholder's pro rata share of
qualified foreign taxes paid by a Fund and (ii) the portion of Fund dividends
which represents income from each foreign country. The other Funds will not be
entitled to elect to pass foreign taxes and associated credits or deductions
through to their shareholders because they will not satisfy the 50% requirement
described above. If a Fund cannot or does not make this election, it may deduct
such taxes in computing the amount it is required to distribute.
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If a Fund acquires stock (including, under proposed regulations, an option
to acquired stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, rents, royalties or capital gain) or hold
at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the Fund could be subject to federal
income tax and additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders any
credit or deduction for such a tax. In some cases, elections may be available
that would ameliorate these adverse tax consequences, but such elections would
require the Fund to include certain amounts as income or gain (subject to the
distribution requirements described above) without a concurrent receipt of cash.
Each Fund may limit and/or manage its holdings in passive foreign investment
companies to minimize its tax liability or maximize its return from these
investments.
Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
SECTION 817(h) OF THE CODE
Each of the Funds intends to comply with Section 817(h) of Code and the
regulations issued thereunder. Section 817(h) of the Code and Treasury
Department regulations thereunder impose certain diversification requirements on
variable annuity contracts based upon segregated asset accounts. These
requirements are in addition to the diversification requirements of Subchapter M
and the 1940 Act and may affect the securities in which a Fund may invest.
Failure to meet the requirements of Section 817(h) could result in immediate
taxation of the Contract owner to the extent of appreciation on investment under
the Contract.
The Section 817(h) diversification requirements do not apply to pension
plan contracts. "Pension plan contracts" for these purposes generally means
annuity contracts issued with respect to plans qualified under Section 401(a) or
403(a) of the Code, Section 403(b) annuities, Individual Retirement Accounts,
Individual Retirement Annuities and annuities issued with respect to Section 457
plans.
The Secretary of the Treasury may, in the future, issue additional
regulations that will prescribe the circumstances in which a Contract Owner's
control of the investments of the separate accounts investing in the Series
Company may cause the Contract Owner, rather than VALIC, to be treated as the
owner of the assets of that separate account.
In order to comply with the requirements of Section 817(h) and the
regulations thereunder, the Series Company may find it necessary to take action
to ensure that a Contract funded by the Series Company continues to qualify as
such under federal tax laws. The Series Company, for example, may be required to
alter the investment objectives of a Fund or Funds, or substitute the shares of
one fund for those of another. No such change of investment objectives or
substitution of securities will take place without notice to the shareholders of
the affected Fund, and the approval of a majority of such shareholders (as
defined in the 1940 Act) and without prior approval of the Securities and
Exchange Commission, to the extent legally required.
It is not feasible to comment on all of the federal income tax consequences
concerning the Funds. Each owner of a Contract funded by the Series Company
should consult a qualified tax adviser for more complete information. The reader
should refer to the appropriate prospectus related to his or her Contracts for a
more complete description of the taxation of the separate account and of the
owner of the particular Contract.
50
<PAGE> 123
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 Contract Owners, annuitants, or
beneficiaries as appropriate.
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 18 series. Each of these
series is authorized to issue an unlimited number of shares of beneficial
interest, par value $0.01 per share, divided into classes. VALIC, as the initial
sole shareholder of each of the Funds as of the commencement date of the Series
Company, controls each Fund. VALIC does not anticipate that its initial control
of each Fund will adversely effect the rights of future shareholders.
CUSTODY OF ASSETS
Pursuant to a Custodian Contract with the Series Company, State Street Bank
and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, holds the
cash and portfolio securities of the Series Company as custodian.
The Custodian is responsible for holding all securities and cash of each
Fund, receiving and paying for securities purchased, delivering against payment
securities sold, receiving and collecting income from investments, making all
payments covering expenses of the Series Company, and performing other
administrative duties, all as directed by persons authorized by the Series
Company. The Custodian does not exercise any supervisory function in such
matters as the purchase and sale of portfolio securities, payment of dividends,
or payment of expenses of the Funds or the Series Company. Portfolio securities
of the Funds purchased domestically are maintained in the custody of the
Custodian and may be entered into the book entry systems of securities
depositories approved by the Board of Trustees. Pursuant to the Custodian
Contract, portfolio securities purchased outside the United States will be
maintained in the custody of various foreign branches of the Custodian and such
other custodians, including foreign banks and foreign securities depositories,
as are approved by the Board of Trustees, in accordance with regulations under
the 1940 Act.
The Custodian holds securities of the Funds on which call options have been
written and certain assets of the Funds constituting margin deposits with
respect to financial futures contracts at the disposal of the FCMs through which
such transactions are effected. The Funds may also be required to post margin
deposits with respect to covered call and put options written on stock indices
and for this purpose certain assets of those Funds may be held by the custodian
pursuant to similar arrangements with the brokers involved.
This arrangement regarding margin deposits essentially consists of the
Custodian creating a separate segregated account into which it transfers (upon
the Series Company's instructions) assets from a Fund's general (regular)
custodial account. The custody agreement for such arrangement provides that FCMs
or brokers will have access to the funds in the segregated accounts when and if
the FCMs or brokers represent that the Series Company has defaulted on its
obligation to the FCMs or brokers and that the FCMs or brokers have met all the
conditions precedent to their right to receive such funds under the agreement
between the Series Company and the FCMs or brokers. The Series Company has an
agreement with each FCM or broker which provides (1) that the assets of any Fund
held by the FCM or broker will be in the possession of the Custodian 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 the Custodian 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
51
<PAGE> 124
be deposited in its general or segregated account with the Custodian, as
appropriate.
INDEPENDENT AUDITORS
Ernst & Young LLP, One Houston Center, 1221 McKinney, Suite 2400, Houston,
Texas 77010, serve as independent auditors of the Series Company.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
NAME POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
----------- ---------------- -----------------------
<S> <C> <C>
Thomas L. West, Jr.*.............. Trustee and Chairman and Chief Executive Officer and
2929 Allen Parkway Chairman since 1998 Director, VALIC; Director, The Variable
Houston, Texas 77019 Annuity Marketing Company ("VAMCO").
Date of Birth: 06/07/37 Formerly, Senior Vice President -- Annuity
Business Unit, Aetna Life Insurance &
Annuity Co. (1987-1994).(4)
Judith L. Craven.................. Trustee since 1998 Physician, Administrator; President, United
3212 Ewing St. Way of the Texas Gulf Coast (1992-Present);
Houston, Texas 77004 Director, A.H. Belo Corporation; Director,
Date of Birth: 10/06/45 Sysco Corporation; Member, Sisters of
Charity of the Incarnate World.
Timothy J. Ebner.................. Trustee since 1998 Professor, Department of Neurosurgery,
17994 N.W. Union Street University of Minnesota (1991-Present).
Elk River, Minnesota 55330 Formerly, Consultant, EMPI, Inc. (1994-1995)
Date of Birth: 07/15/49 and Medtronic Inc. (1997- 1998).
Gustavo E. Gonzales, Jr........... Trustee since 1998 Municipal Court Judge, Dallas, Texas.
8320 Coolgreen Dr. Formerly, Attorney in private practice
Dallas, Texas 75228 (1988-1995).
Date of Birth: 07/27/40
John A. Graf*..................... Trustee and President of VALIC and American General
2929 Allen Parkway President since Annuity Insurance Company; Director, Boy
Houston, Texas 77019 1998 Scouts of America. Formerly, Vice Chairman
Date of Birth: 09/14/59 and Chief Marketing and Administrative
Officer, Western National Corporation and
Senior Vice President, Conseco, Inc.
Dr. Norman Hackerman.............. Trustee since 1998 Chairman -- Scientific Advisory Board for
5555 San Felipe The Robert A. Welch Foundation
Suite 1900 (1983-Present); Director, Electro-source,
Houston, Texas 77056-2727 Inc.; Director, Radian Corporation;
Date of Birth: 03/02/12 Director, Scientific Measurement Systems,
Inc.; President Emeritus, Rice University,
Houston, Texas. Formerly, President, Rice
University, Houston, Texas (1970-
1985).(1)(2)(3)(6)
Dr. John W. Lancaster............. Trustee since 1998 Retired. Pastor Emeritus and Director of
5300 Main Planned Giving, First Presbyterian Church,
Houston, Texas 77004 Houston, Texas. Formerly, Pastor, First
Date of Birth: 12/15/23 Presbyterian Church, Houston, Texas.(3)(6)
Ben H. Love....................... Trustee since 1998 Retired. Formerly, Chief Executive, Boy
4407 Eaton Circle Scouts of America. (1985-1993).(3)(6)
Colleyville, Texas 76034
Date of Birth: 09/26/30
</TABLE>
52
<PAGE> 125
<TABLE>
<CAPTION>
NAME POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
----------- ---------------- -----------------------
<S> <C> <C>
John E. Maupin, Jr................ Trustee since 1998 President, Meharry Medical College,
2 Morningside Ct. Nashville, Tennessee; Nashville Advisory
Nashville, Tennessee 37215 Board Member, First American National Bank
Date of Birth: 10/28/46 (1996-Present); Director, Monarch Dental
Corporation (1997-Present). Formerly,
Executive Vice President, Morehouse School
of Medicine, Atlanta, Georgia (1989-1994).
Dr. F. Robert Paulsen............. Trustee since 1998 Dean Emeritus and Professor Emeritus,
2801 N. Indian Ruins College of Higher Education, University of
Tucson, Arizona 85715 Arizona, Tucson, Arizona.(1)(2)(3)(6)
Date of Birth: 07/05/22
Craig R. Rodby*................... Trustee and Vice Vice Chairman, VALIC. Formerly, Senior Vice
2929 Allen Parkway Chairman since 1998 President -- Financial Management, ReliaStar
Houston, Texas 77019 (1994-1997) and Chief Executive Officer,
Date of Birth: 07/05/49 Northern Life Insurance Company
(1980-1994).(5)
Dr. R. Miller Upton............... Trustee since 1998 Consultant. Formerly, Director, Home Life
914 Tarrant Dr. Insurance Company of New York (1965-1988)
Fontana, Wisconsin 53125 and Director, Household International, Inc.
Date of Birth: 12/27/16 (1965-1989).(1)(2)(3)(6)
</TABLE>
- ---------------
* Interested persons of the Series Company as defined in the 1940 Act
specifically because of their capacity as officers, trustees or consultants
of the Series Company, VALIC or American General Corporation.
(1) Retired Managing General Partner of Van Kampen American Capital Exchange
Fund.
(2) Retired Trustee of Van Kampen American Capital Bond Fund, Van Kampen
American Capital Income Trust, Van Kampen American Capital Convertible
Securities Fund and the Common Sense Trust.
(3) Director or Trustee of American General Series Portfolio Company, a
registered open-end investment company advised by VALIC, and USLIFE Income
Fund, Inc., a registered closed-end investment company advised by VALIC.
(4) Director of American General Series Portfolio Company, a registered open-end
investment company advised by VALIC.
(5) Director of USLIFE Income Fund, Inc., a registered closed-end investment
company advised by VALIC.
(6) 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.
53
<PAGE> 126
Listed below are the Series Company's officers and their principal
occupations. All are affiliates of VALIC and are located at 2929 Allen Parkway,
Houston, Texas 77019. Each officer serves until his or her successor is elected
and shall qualify.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH REGISTRANT DURING PAST 5 YEARS
---- ---------------- -----------------------
<S> <C> <C>
Michael G. Atnip.................. Executive Vice Executive Vice President, VALIC. Formerly,
Date of Birth: 07/08/48 President since Senior Vice President, Operations Support,
1998 American General Corporation (1994-1997);
Senior Vice President, Insurance and
Administration, American General Finance
(1991-1993).
Joe. C. Osborne................... Executive Vice Senior Vice President of Marketing, VALIC.
Date of Birth: 09/17/48 President since
1998
Teresa S. Moro.................... Vice President and Trader -- VALIC. Formerly, Money Market
Date of Birth: 08/14/60 Investment Officer Trader, VALIC (1986-1990); AIM Management
since 1998 Group Inc. (1983-1986).
William Trimbur, Jr............... Vice President and Portfolio Manager, VALIC. Formerly, Second
Date of Birth: 06/15/51 Investment Officer Vice President, VALIC (1985-1990);
since 1998 Controller, VALIC (1985-1986); Assistant
Controller, VALIC (1982-1985) and Assistant
Treasurer, VALIC (1982-1986).
Brent C. Nelson................... Vice President Senior Vice President and Controller,
Date of Birth: 07/24/51 since 1998 Director, VALIC. Formerly, Vice President
and Controller, VALIC (1990-1994);
Controller, VALIC (1987-1990); Second Vice
President and Controller, VALIC (1986-1987);
Second Vice President -- Fund Operations,
VALIC (1985-1986); Assistant Vice
President -- Controller, Lomas Financial
Security Insurance Co. (1982-1985).
Peter V. Tuters................... Senior Investment Executive Vice President, American General
Date of Birth: 04/18/52 Officer Investment Management, L.P., Senior Vice
President and Chief Investment Officer,
American General Corporation (1993-1998).
Maruti D. More.................... Vice President -- Vice President, American General Investment
Date of Birth: 02/02/44 Investments Management, L.P.; Vice President,
Investments, VALIC. Formerly, Portfolio
Manager, New York Life Insurance Company and
Paul Revere Investment Management
Corporation.
Cynthia A. Toles.................. Vice President and Senior Vice President, General Counsel and
Date of Birth: 03/28/51 Secretary since Secretary, VALIC; Secretary and Assistant
1998 Treasurer, VAMCO. Formerly, Vice President,
Associate General Counsel & Associate
Secretary (1988-1989); Second Vice
President, Associate General Counsel and
Assistant Secretary, VALIC (1986-1988);
Assistant Vice President, Assistant General
Counsel and Assistant Secretary, VALIC
(1983-1986).
</TABLE>
54
<PAGE> 127
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH REGISTRANT DURING PAST 5 YEARS
---- ---------------- -----------------------
<S> <C> <C>
Nori L. Gabert.................... Vice President and Associate General Counsel, VALIC. Formerly,
Date of Birth: 08/15/53 Assistant Secretary Of Counsel, Winstead Sechrest & Minick P.C.
since 1998 (1997); Vice President and Associate General
Counsel of Van Kampen American Capital, Inc.
(1981-1996).
Gregory R. Seward................. Treasurer since Director of Fund Operations and Assistant
Date of Birth: 06/27/56 1998 Controller, VALIC. Formerly, Controller,
Avanti Health Systems, Inc. (1988-1991);
Reports Manager, American Capital Asset
Management, Inc. (1986-1988); Senior
Auditor, Price Waterhouse (1982-1986).
Kathryn A. Pearce................. Controller since Associate Director of Fund Operations,
Date of Birth: 02/05/47 1998 VALIC. Formerly, Supervisor -- Mutual Fund
Accounting, Van Kampen American Capital,
Inc. (1977-1996).
Earl E. Allen, Jr................. Assistant Treasurer Manager -- Fund Reporting, VALIC. Formerly,
Date of Birth: 03/16/60 since 1998 Senior Auditor, Texas Treasury Department;
Manager, American General Corporation;
Assistant Vice President, Texas Commerce
Bank.
Cynthia A. Gibbons................ Assistant Vice Senior Compliance Analyst, VALIC.
Date of Birth: 12/06/67 President
Jaime M. Sepulveda................ Assistant Treasurer Director -- Variable Product Accounting and
Date of Birth: 01/09/52 Financial Reporting, VALIC. Formerly,
Accounting Manager, Metro Networks, Inc.
(1997-1998); Controller and Investment
Officer, Port of Houston Authority
(1994-1997); Chief Financial Officer, Intile
Designs, Inc. (1993-1994).
Donna L. Hathaway................. Assistant Manager -- Variable Product Accounting,
Date of Birth: 09/17/64 Controller VALIC. Formerly, Gas Revenue Accountant,
Texaco Inc.; Accounting Manager, Hewitt
Associates, LLC; Revenue Accounting Manager,
Trans Texas Gas.
</TABLE>
The officers conduct and supervise the daily business operations of the
Series Company, while the trustees, in addition to their functions set forth
under "Investment Adviser," review such actions and decide on general policy.
The Series Company has an Audit Committee. The Series Company's Audit
Committee consists of Messrs. Lancaster, Hackerman, Paulsen, Upton, and Love.
The Audit Committee recommends to the Board the selection of independent
auditors for the Series Company and reviews with such independent auditors the
scope and results of the annual audit, reviews the performance of the accounts,
and considers any comments of the independent auditors regarding the Series
Company's financial statements or books of account. The Series Company does not
have a standing nominating or compensation committee.
The nine trustees of the Series Company who are not affiliated with VALIC
are each paid annual trustees' fees and are reimbursed for certain out-of-pocket
expenses by the Series Company.
The trustees and officers of the Series Company and members of their
families, as a group, beneficially owned less than 1% of the shares of
beneficial interest of each Fund outstanding as of the commencement of
operations.
55
<PAGE> 128
COMPENSATION OF TRUSTEES AND CERTAIN OFFICERS
The following table sets forth information regarding compensation and
benefits earned by the Trustees for the fiscal year ending August 31, 1998.
COMPENSATION TABLE
FISCAL YEAR ENDING AUGUST 31, 1998
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPENSATION
AGGREGATE ACCRUED AS ANNUAL FROM
COMPENSATION PART OF BENEFITS FUND
FROM SERIES COMPANY UPON COMPLEX(1)
NAME OF PERSON, POSITION SERIES COMPANY EXPENSES RETIREMENT PAID TO TRUSTEES
------------------------ -------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C>
Thomas L. West, Jr.**...................... $0 $0 $0 $ 0
Judith L. Craven........................... $0 $0 $0 $ 0
Timothy J. Ebner........................... $0 $0 $0 $ 0
Gustavo E. Gonzales, Jr.................... $0 $0 $0 $ 0
John A. Graf**............................. $0 $0 $0 $ 0
Dr. Norman Hackerman....................... $0 $0 $0 $46,322
Dr. John W. Lancaster...................... $0 $0 $0 $38,322
Ben L. Love................................ $0 $0 $0 $46,322
John E. Maupin, Jr......................... $0 $0 $0 $ 0
Dr. F. Robert Paulsen...................... $0 $0 $0 $38,322
Craig R. Rodby**........................... $0 $0 $0 $ 0
Dr. R. Miller Upton........................ $0 $0 $0 $36,322
</TABLE>
- ---------------
** "Interested person," as defined in the 1940 Act, specifically because of
their capacity as officers, trustees or consultants of the Series Company,
VALIC or American General Corporation.
(1) Includes all investment companies managed by VALIC.
56
<PAGE> 129
FINANCIAL STATEMENTS
The financial statements of the Series Company are included herein.
57
<PAGE> 130
STATEMENT OF NET ASSETS
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 3
AUGUST 26, 1998
<PAGE> 131
American General Series Portfolio Company 3
Statement of Net Assets
August 26, 1998
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors................................................1
Audited Statement of Net Assets...............................................2
Notes to Statement of Net Assets..............................................3
</TABLE>
<PAGE> 132
Report of Independent Auditors
To the Shareholder and Board of Trustees of
American General Series Portfolio Company 3
We have audited the accompanying statement of net assets of International Growth
Fund, Large Cap Growth Fund, Mid Cap Growth Fund, Small Cap Growth Fund,
International Value Fund, Large Cap Value Fund, Mid Cap Value Fund, Small Cap
Value Fund, Socially Responsible Fund, Balanced Fund, High Yield Bond Fund,
Strategic Bond Fund, Domestic Bond Fund, Core Bond Fund, Money Market Fund,
Growth Lifestyle Fund, Moderate Growth Lifestyle Fund, and Conservative Growth
Lifestyle Fund (such "Funds" comprising the American General Series Portfolio
Company 3) as of August 26, 1998. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of each of the respective Funds
comprising the American General Series Portfolio Company 3 at August 26, 1998,
in conformity with generally accepted accounting principles.
August 28, 1998
1
<PAGE> 133
American General Series Portfolio Company 3
Statement of Net Assets
August 26, 1998
<TABLE>
<CAPTION>
NET ASSET
NET NUMBER OF VALUE PER
PORTFOLIO CASH ASSETS* SHARES SHARE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
American General International Growth Fund $ 4,867 $ 4,867 486.7 $10
American General International Value Fund 4,800 4,800 480.0 10
American General Small Cap Growth Fund 5,200 5,200 520.0 10
American General Small Cap Value Fund 5,133 5,133 513.3 10
American General Mid Cap Growth Fund 5,400 5,400 540.0 10
American General Mid Cap Value Fund 5,267 5,267 526.7 10
American General Large Cap Growth Fund 3,800 3,800 380.0 10
American General Large Cap Value Fund 3,867 3,867 386.7 10
American General Socially Responsible Fund 6,667 6,667 666.7 10
American General Balanced Fund 6,667 6,667 666.7 10
American General Domestic Bond Fund 1,667 1,667 166.7 10
American General Money Market Fund 6,667 6,667 666.7 10
American General Growth Lifestyle Fund 6,667 6,667 666.7 10
American General Moderate Growth Lifestyle Fund
6,667 6,667 666.7 10
American General Conservative Growth Lifestyle
Fund 6,666 6,666 666.6 10
American General Core Bond Fund 6,666 6,666 666.6 10
American General Strategic Bond Fund 6,666 6,666 666.6 10
American General High Yield Bond Fund 6,666 6,666 666.6 10
--------------- -------------
$ 100,000 $ 100,000
=============== =============
</TABLE>
* Applicable to shares of beneficial interests issued and outstanding,
$.01 per value, per share, unlimited shares authorized.
See accompanying notes.
2
<PAGE> 134
American General Series Portfolio Company 3
Notes to Statement of Net Assets
August 26, 1998
1. ORGANIZATION
American General Series Portfolio Company 3 (the "Series") was organized as a
Delaware business trust on May 6, 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 consists of 18 separate investment portfolios (hereinafter collectively
referred to as the "Funds" or individually referred to as a "Fund"), each of
which is, in effect, a separate mutual fund issuing its own separate class of
shares of beneficial interest.
American General International Growth Fund ("International Growth
Fund")
American General Large Cap Growth Fund ("Large Cap Growth Fund")
American General Mid Cap Growth Fund ("Mid Cap Growth Fund")
American General Small Cap Growth Fund ("Small Cap Growth Fund")
American General International Value Fund ("International Value Fund")
American General Large Cap Value Fund ("Large Cap Value Fund")
American General Mid Cap Value Fund ("Mid Cap Value Fund")
American General Small Cap Value Fund ("Small Cap Value Fund")
American General Socially Responsible Fund ("Socially Responsible
Fund")
American General Balanced Fund ("Balanced Fund")
American General High Yield Bond Fund ("High Yield Bond Fund")
American General Strategic Bond Fund ("Strategic Bond Fund")
American General Domestic Bond Fund ("Domestic Bond Fund")
American General Core Bond Fund ("Core Bond Fund")
American General Money Market Fund ("Money Market Fund")
3
<PAGE> 135
American General Series Portfolio Company 3
Notes to Statement of Net Assets (continued)
1. ORGANIZATION (CONTINUED)
American General Growth Lifestyle Fund ("Growth Lifestyle Fund") -
Growth through investment in Series Funds
American General Moderate Growth Lifestyle Fund ("Moderate Growth
Lifestyle Fund") - Growth and current income through investments in
Series Funds
American General Conservative Growth Lifestyle Fund ("Conservative
Growth Lifestyle Fund") Current income and a low to moderate level of
growth through investments in Series Funds
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP").
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Pursuant to an Investment Advisory Agreement with the Series and subject to the
authority of the Series' Board of Trustees, VALIC (the "Adviser") serves as the
Series' investment adviser and conducts the business and affairs of the Series.
Additionally, VALIC has engaged investment Sub-advisers to provide investment
sub-advisory services for each Fund other than the American General Socially
Responsible Fund, the American General Money Market Fund, the American General
Conservative Growth Lifestyle Fund, the American General Moderate Growth
Lifestyle Fund, and the American General Growth Lifestyle Fund, subject to
VALIC's control, direction, and supervision. On August 26, 1998, the Adviser
entered into a sub-advisory agreement with the following Sub-advisers:
American General Investment Management, L.P. ("AGIM") - AGIM is the
Sub-adviser for the High Yield Bond Fund, the Strategic Bond Fund, and
the Core Bond Fund.
Bankers Trust Company ("Bankers Trust") - Bankers Trust is one of two
Sub-advisers for the Small Cap Value Fund.
4
<PAGE> 136
American General Series Portfolio Company 3
Notes to Statement of Net Assets (continued)
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
Brown Capital Management, Inc. ("Brown Capital Management") - Brown
Capital Management is the Sub-adviser for the Mid Cap Growth Fund.
Capital Guardian Trust Company ("Capital Guardian") - Capital Guardian
is the Sub-adviser for the International Value Fund, the Balanced Fund,
and the Domestic Bond Fund.
Fiduciary Management Associates, Inc. ("FMA") - FMA is one of two
Sub-advisers for the Small Cap Value Fund.
Goldman Sachs Asset Management ("GSAM") - GSAM is the Sub-adviser for
the Large Cap Growth Fund.
J.P. Morgan Investment Management Inc. ("JP Morgan") - JP Morgan is the
Sub-adviser for the Small Cap Growth Fund.
Jacobs Asset Management - Jacobs Asset Management is the Sub-adviser
for the International Growth Fund.
Neuberger & Berman Management, Inc. ("N&B Management") - N&B Management
is the Sub-adviser for the Mid Cap Value Fund.
State Street Global Advisors ("State Street Global Advisors") - State
Street Global Advisors is the Sub-adviser for the Large Cap Value Fund.
Sub-advisers are compensated for such services by the Adviser.
5
<PAGE> 137
American General Series Portfolio Company 3
Notes to Statement of Net Assets (continued)
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Adviser receives from the Series a monthly fee based on each Fund's average
daily net asset value at the following annual rates:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
International Growth 0.90% on the first $100 million Socially Responsible Fund 0.25%
Fund 0.80% on assets more than $100
million
Large Cap Growth Fund 0.55% Balanced Fund 0.80% on the first $25 million
0.65% on the next $25 million
0.45% on assets more than $50 million
Mid Cap Growth Fund 0.65% on the first $25 million High Yield Bond Fund 0.70% on the first $200 million
0.55% on the next $25 million 0.60% on the next $300 million
0.45% on assets more than $50 0.55% on assets more than $500 million
million
Small Cap Growth Fund 0.85% Strategic Bond Fund 0.60% on the first $200 million
0.50% on the next $300 million
0.45% on assets more than $500 million
International Value 1% on the first $25 million Domestic Bond Fund 0.60% on the first $50 million
Fund 0.85% on the next $25 million 0.45% on the next $50 million
0.675% on the next $200 million 0.43% on the next $200 million
0.625% on assets more than $250 0.40% on assets more than $300 million
million
Large Cap Value Fund 0.50% Core Bond Fund 0.50% on the first $200 million
0.45% on the next $300 million
0.40% on assets more than $500 million
Mid Cap Value Fund 0.75% on the first $100 million Money Market Fund 0.25%
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 more than $750
million
Small Cap Value Fund 0.75% on the first $50 million Conservative Growth
0.65% on the assets more than $50 Lifestyle Fund 0.10%
million
Moderate Growth Lifestyle
Fund 0.10%
Growth Lifestyle Fund 0.10%
</TABLE>
Advisory fees will not be assessed until the commencement of investment
operations.
6
<PAGE> 138
American General Series Portfolio Company 3
Notes to Statement of Net Assets (continued)
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Adviser has voluntarily agreed to waive a portion of its management fee or
to reimburse certain expenses of each Fund, other than the Lifestyle Funds,
during the first fiscal year. The Adviser may withdraw this voluntary
undertaking at any time. The table below reflects total operating expenses by
Fund, as voluntarily limited by the Adviser, shown as a percentage of net
assets:
<TABLE>
<CAPTION>
<S> <C>
International Growth Fund 1.18%
Large Cap Growth Fund .88%
Mid Cap Growth Fund .82%
Small Cap Growth Fund 1.18%
International Value Fund 1.07%
Large Cap Value Fund .83%
Mid Cap Value Fund 1.07%
Small Cap Value Fund 1.01%
Socially Responsible Fund .58%
Balanced Fund .85%
High Yield Bond Fund 1.03%
Strategic Bond Fund .93%
Domestic Bond Fund .81%
Core Bond Fund .83%
Money Market Fund .58%
Conservative Growth Lifestyle Fund .10%
Moderate Growth Lifestyle Fund .10%
Growth Lifestyle Fund .10%
</TABLE>
Pursuant to an accounting services agreement with the Series, VALIC serves as
the accounting services agent to the Series and will provide certain accounting
and administrative services to the Series. For its services, VALIC will receive
an annual fee of .03% of average daily net assets.
Certain officers of VALIC are also officers and/or trustees of the Fund.
The initial seed money for the Series was funded by VALIC Separate Account A (a
registered separate account of VALIC). VALIC Separate Account A owns 100% of the
outstanding shares of the Funds of the Series.
7
<PAGE> 139
American General Series Portfolio Company 3
Notes to Statement of Net Assets (continued)
3. ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED)
Certain start-up costs were incurred in connection with the organization of the
Series. These costs were paid by VALIC on behalf of the Series.
4. SUBSEQUENT EVENT (UNAUDITED)
On September 1, 1998, VALIC contributed an additional $74,900,000 to the Series
for additional funding. At that time, investment operations of each Fund
commenced.
8
<PAGE> 140
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements Included in the Statement of Additional Information:
Financial Statements
Notes to Financial Statements
Report of Independent Auditors
(b) Exhibits
<TABLE>
<C> <S> <C> <C>
1. (a) 1. Agreement and Declaration of Trust(1)
2. Amendment to Agreement and Declaration of Trust
(b) Certificate of Designation For:
(1) American General International Growth Fund(1)
(2) American General Large Cap Growth(1)
(3) American General Mid Cap Growth Fund(1)
(4) American General Small Cap Growth Fund(1)
(5) American General International Value Fund(1)
(6) American General Large Cap Value Fund(1)
(7) American General Mid Cap Value Fund(1)
(8) American General Small Cap Value Fund(1)
(9) American General Socially Responsible Fund(1)
(10) American General Balanced Fund(1)
(11) American General High Yield Bond Fund
(12) American General Strategic Bond Fund
(13) American General Domestic Bond Fund(1)
(14) American General Core Bond Fund
(15) American General Money Market Fund(1)
(16) American General Growth Lifestyle Fund(1)
(17) American General Moderate Growth Lifestyle Fund(1)
(18) American General Conservative Growth Lifestyle Fund(1)
(19) American General S&P 500 Index Fund(1)
(20) American General Mid Cap Index Fund(1)
(21) American General Small Cap Index Fund(1)
(c) Certificate of Termination For:
(1) American General S&P 500 Index Fund
(2) American General Mid Cap Index Fund
(3) American General Small Cap Index Fund
2. Bylaws(1)
3. Not Applicable
4. Not Applicable
</TABLE>
C-1
<PAGE> 141
<TABLE>
<C> <S> <C> <C>
5. (a) Investment Advisory Agreement between the Registrant and The Variable
Annuity Life Insurance Company ("VALIC")
(b) Form of Investment Sub-Advisory Agreements between VALIC and each
Sub-Adviser on behalf of the following Funds:
(1) American General International Growth Fund
(2) American General Large Cap Growth
(3) American General Mid Cap Growth Fund
(4) American General Small Cap Growth Fund
(5) American General International Value Fund, American General
Balanced Fund and American General Domestic Bond Fund
(6) American General Large Cap Value Fund
(7) American General Mid Cap Value Fund
(8) American General Small Cap Value Fund
(9) American General High Yield Bond Fund, American General
Strategic Bond Fund and American General Core Bond Fund
6. Form of Distribution Agreement between the Registrant and The Variable
Annuity Marketing Company ("VAMCO)"
7. Not Applicable
8. (a) Form of Custodian Agreement between Registrant and State Street Bank and
Trust Company
(b) Form of Securities Lending Authorization Agreement between Registrant
and State Street Bank and Trust Company
9. (a) Form of Transfer Agency and Services Agreement between Registrant and
The Variable Annuity Life Insurance Company
(b) Form of Data Access Services Agreement between Registrant and State
Street Bank and Trust Company
(c) Form of Accounting Services Agreement between Registrant and The
Variable Annuity Life Insurance Company
(d) Form of Administrative Services Agreement among Registrant and VALIC
10. Opinion and Consent of Counsel
11. Consent of Independent Auditors
12. Not Applicable
13. Subscription Agreements
14. Not Applicable
15. Not Applicable
16. Not Applicable
17. Not Applicable
18. Not Applicable
</TABLE>
C-2
<PAGE> 142
<TABLE>
<C> <S> <C> <C>
19. (a) Powers of Attorney for Messrs. West, Rodby, Graf, Hackman, Lancaster,
Paulsen, Upton and Love.(1)
(b) Powers of Attorney for Messrs. Ebner, Gonzales and Maupin and Ms. Craven
27. Financial Data Schedule
</TABLE>
- ---------------
1 Incorporated herein by reference to the Registrant's Form N-1A registration
statement filed with the Securities and Exchange Commission on July 6, 1998
(File No. 333-53589).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
No person is controlled by or under common control with the Registrant. All
of the outstanding common stock of the Registrant is, or will be, owned by The
Variable Annuity Life Insurance Company ("VALIC"), a Texas life insurance
corporation, 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).
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of August 31, 1998:
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
American General High Yield Bond Fund
Shares of beneficial interest, $0.01 par value 1
American General Strategic Bond Fund
Shares of beneficial interest, $0.01 par value 1
American General Core Bond Fund
Shares of beneficial interest, $0.01 par value 1
American General International Growth Fund
Shares of beneficial interest, $0.01 par value 1
American General Large Cap Growth
Shares of beneficial interest, $0.01 par value 1
American General Mid Cap Growth Fund
Shares of beneficial interest, $0.01 par value 1
American General Small Cap Growth Fund
Shares of beneficial interest, $0.01 par value 1
American General International Value Fund
Shares of beneficial interest, $0.01 par value 1
American General Large Cap Value Fund
Shares of beneficial interest, $0.01 par value 1
American General Mid Cap Value Fund
Shares of beneficial interest, $0.01 par value 1
American General Small Cap Value Fund
Shares of beneficial interest, $0.01 par value 1
American General Socially Responsible Fund
Shares of beneficial interest, $0.01 par value 1
American General Balanced Fund
Shares of beneficial interest, $0.01 par value 1
American General Domestic Bond Fund
Shares of beneficial interest, $0.01 par value 1
American General Money Market Fund
Shares of beneficial interest, $0.01 par value 1
</TABLE>
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<PAGE> 143
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
American General Growth Lifestyle Fund
Shares of beneficial interest, $0.01 par value 1
American General Moderate Growth Lifestyle Fund
Shares of beneficial interest, $0.01 par value 1
American General Conservative Growth Lifestyle Fund
Shares of beneficial interest, $0.01 par value 1
</TABLE>
ITEM 27. INDEMNIFICATION
Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.
Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense of
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent trustees, after
review of the facts, that such officer or trustee is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.
Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C-4
<PAGE> 144
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND SUB-ADVISERS
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. For
information as to the businesses, profession, vocation and employment of a
substantial nature of the directors of VALIC, reference is made to VALIC's
current Form ADV (File No. 801-8138) filed under the Investment Advisers Act of
1940, as amended, incorporated herein by reference. With respect to each
Sub-adviser (other than Bankers Trust Company ["Banker's Trust"], Capital
Guardian Trust Company ["Capital Guardian"] and State Street Bank and Trust
Company ["State Street"]), reference is made to their current Form ADV as noted
below which is incorporated herein by reference.
American General Investment Management L.P. Form ADV (File No. 801-55358)
Brown Capital Management, Inc. Form ADV (File No. 801-19287)
Goldman Sachs Asset Management Form ADV (File No. 801-38157)
J.P. Morgan Investment Management Inc. Form ADV (File No. 801-21011)
Jacobs Asset Management Form ADV (File No. 801-49790)
Neuberger&Berman Management Inc. Form ADV (File No. 801-08259)
Fiduciary Management Associates Form ADV (File No. 801-21271)
Set out below is a list of each director and officer of Bankers Trust,
Capital Guardian and State Street, 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 each organization listed
in the table below is: (a) in the case of directors and officers of Capital
Guardian, 11100 Santa Monica Blvd., Los Angeles, California 90025; (b) in the
case of Bankers Trust, 130 Liberty Street, New York, New York 10006; and (c) in
the case of State Street, 225 Franklin Street, Boston, Massachusetts 02110. 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.
C-5
<PAGE> 145
BANKERS TRUST
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Lee A. Ault III...................... Bankers Trust Corporation Director
Bankers Trust Company Director
Equifax, Inc., Sunrise Director
Medical Inc., Viking Office
Products, Inc. and Pacific
Crest Outward Bound School
Neil R. Austrian..................... Bankers Trust Corporation Director
Bankers Trust Company Director
National Football League President and Chief Operating
Officer
Rafac Technology and Director
Viking Office Products, Inc.
Swarthmore College Trustee
George B. Beitzel.................... Bankers Trust Corporation Director
Bankers Trust Company Director
Computer Task Group, Phillips Director
Petroleum Company, Rohm and
Haas Company and TIG
Holdings
Amherst College Chairman Emeritus
Colonial Williamsburg Chairman
Foundation
Phillip A. Griffiths................. Bankers Trust Corporation Director
Bankers Trust Company Director
North Carolina School of Trustee
Science and Mathematics
Woodward Academy Trustee
William R. Howell.................... Bankers Trust Corporation Director
Bankers Trust Company Director
J.C. Penney Company, Inc. Chairman Emeritus
Exxon Corporation, Director
Halliburton Company,
Warner-Lambert Company,
Williams, Inc., Central &
South West Corp., and
National Retail Federation
Vernon E. Jordan, Jr. ............... Bankers Trust Corporation Director
Bankers Trust Company Director
Akin, Gump, Strauss Hauer & Senior Partner
Feld, LLP
American Express Company, Director
Dow Jones, Inc., J.C. Penney
Company, Inc., Revlon Group
Incorporated, Ryder System,
Inc., Sara Lee Corporation,
Union Carbide Corporation,
Xerox Corporation and
Chancellor Media
Corporation
Brookings Institution, The Trustee
Ford Foundation and Howard
University
</TABLE>
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<PAGE> 146
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Hamish Maxwell....................... Bankers Trust Corporation Director
Bankers Trust Company Director
Sola International Inc. Director
WPP Group plc Chairman
N. J. Nicholas Jr. .................. Bankers Trust Corporation Director
Bankers Trust Company Director
Xerox Corporation and Director
Boston Scientific Corporation
Donald L. Staheli.................... Bankers Trust Corporation Director
Bankers Trust Company Director
Continental Grain Company Retired Chairman of the Board
and Chief Executive Officer
Director
ContiFinancial Corporation Director
National Committee on United Director
States -- China Relations
America's Promise Director
Prudential Insurance Company Director
of America
The Points of Light Chairman
Foundation
Fresenius Medical Care, A.G. Director
Russell E. Palmer.................... Bankers Trust Corporation Director
Bankers Trust Company Director
The Palmer Group Chairman and Chief Executive
Officer
Allied-Signal Inc., Federal Director
Home Loan Mortgage
Corporation, GTE
Corporation, The May
Department Stores Company,
and Safeguard Scientifics,
Inc.
University of Pennsylvania Trustee
Frank N. Newman...................... Bankers Trust Corporation Chairman of the Board, Chief
Executive Officer and
President
Bankers Trust Company Chairman of the Board, Chief
Executive Officer and
President
Carnegie Hall Trustee
Cornell University Medical Member, Board of Overseers
College
Cornell University Graduate Member, Board of Overseers
School of Medical Sciences
Dow Jones, Inc. Director
Patricia Carry Stewart............... Bankers Trust Corporation Director
Bankers Trust Company Director
Community Foundation for Palm Director
Beach and Martin Counties
CVS Corporation Director
Cornell University Trustee Emerita
</TABLE>
C-7
<PAGE> 147
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
George J. Vojta...................... Bankers Trust Corporation Vice Chairman of the Board
Bankers Trust Company Vice Chairman of the Board
Alicorp, S.A., Northwest Director
Airlines and Private Export
Funding Corp.
St. Luke's-Roosevelt Hospital Vice Chairman of the Board of
Center Trustees
New York City Partnership Partner
Wharton Financial Services Chairman
Center
Paul A. Volcker...................... Bankers Trust Corporation Director
Bankers Trust Company Director
American Stock Exchange, Director
Nestle S.A., Prudential
Insurance Company of
America, and UAL
Corporation
American Council on Germany, Director
Council on Foreign
Relations and The Japan
Society
The American Assembly Trustee
</TABLE>
CAPITAL GUARDIAN
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
David I. Fisher...................... Capital Guardian Trust Chairman and Director
Company
The Capital Group Companies, Chairman and Director
Inc.
Capital International, Inc. Vice Chairman and Director
Capital International K.K. Vice Chairman and Director
Capital International Limited Vice Chairman and Director
Emerging Markets Growth Fund, Vice Chairman and Director
Inc.
Capital Group International, President and Director
Inc.
Capital International Limited President and Director
(Bermuda)
Capital International S.A. Presidente du Conseil
Capital Group Research, Inc. Director
Capital Research Director
International
EuroPacific Growth Fund Director
New Perspective Fund Director
Robert G. Kirby...................... Capital Guardian Trust Chairman Emeritus
Company
The Capital Group Partners Senior Partner
L.P.
</TABLE>
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<PAGE> 148
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Robert Ronus......................... Capital Guardian Trust President and Director
Company
Capital Guardian Research Chairman and Director
Company
Capital Research Chairman and Director
International
The Capital Group Companies, Director
Inc.
Capital Group International, Director
Inc.
Capital International Fund Director
S.A.
Capital International S.A. Directeur
Capital International Limited Senior Vice President
John H. Seiter....................... Capital Guardian Trust Executive Vice President of
Company Client Relations & Marketing
and Director
Capital Group International, Senior Vice President
Inc.
The Capital Group Companies, Vice President
Inc.
Eugene P. Stein...................... Capital Guardian Trust Executive Vice President and
Company Director
Capital Guardian Research Director
Company
Michael D. Beckman................... Capital Guardian Trust Senior Vice President,
Company Treasurer and Director
Capital Guardian Trust Director
Company of Nevada
Capital Guardian Research Treasurer
Company
Roberta A. Conroy.................... Capital Guardian Trust Senior Vice President, Director
Company and Counsel
Capital International, Inc. Senior Vice President and
Secretary
Emerging Markets Growth Fund, Senior Vice President and
Inc. Secretary
The Capital Group Companies, Assistant General Counsel
Inc.
Capital Management Services, Secretary
Inc.
William H. Hurt...................... Capital Guardian Trust Senior Vice President and
Company Director
Capital Guardian Trust Chairman
Company of Nevada
Capital Strategy Research, Chairman
Inc.
Nancy J. Kyle........................ Capital Guardian Trust Senior Vice President and
Company Director
Emerging Markets Growth Fund, Vice President
Inc.
John R. McIlwraith................... Capital Guardian Trust Senior Vice President and
Company Director
Capital International Limited Senior Vice President and
Director
</TABLE>
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<PAGE> 149
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
James R. Mulally..................... Capital Guardian Trust Senior Vice President and
Company Director
Capital International Limited Senior Vice President
Capital Guardian Research Director
Company
Capital Research Company Vice President
Theodore R. Samuels.................. Capital Guardian Trust Senior Vice President and
Company Director
Capital Guardian Research Director
Company
Andrew F. Barth...................... Capital Guardian Trust Director
Company
Capital Guardian Research Executive Vice President and
Company Research Manager
Larry P. Clemmensen.................. Capital Guardian Trust Director
Company
American Funds Distributors, Director
Inc.
American Funds Service Chairman of the Board
Company
The Capital Group Companies, Director and President
Inc.
Capital Research and Senior Vice President and
Management Company Director
Capital Management Services, President and Director
Inc.
Capital Strategy Research, Treasurer
Inc.
Capital Income Builder, Inc. Senior Vice President
Capital World Growth & Income Senior Vice President
Fund, Inc.
Karin L. Larson...................... Capital Guardian Trust Director
Company
The Capital Group Companies, Director
Inc.
Capital Guardian Research President, Director and
Company Director of Research
Capital Group Research, Inc. Chairperson, President and
Director
Capital Research President, Director and
International Director of International
Research
D. James Martin...................... Capital Guardian Trust Director
Company
Capital Guardian Research Senior Vice President and
Company Director
Jason M. Pilalas..................... Capital Guardian Trust Director
Company
Capital Guardian Research Senior Vice President and
Company Director
</TABLE>
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<PAGE> 150
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Shaw B. Wagener...................... Capital Guardian Trust Director
Company
Capital International Asia Director
Pacific Management Company
S.A.
Capital International Director
Management Company
Capital International Director
Emerging Countries Fund
Capital International Latin Director
American Fund
Capital International, Inc. President and Director
Capital Group International, Senior Vice President
Inc.
Emerging Markets Growth Fund, Senior Vice President
Inc.
Stephen E. Embs...................... Capital Guardian Trust Senior Vice President
Company
Fidelity Accounting and Vice President and Manager
Custody Services
John B. Emerson...................... Capital Guardian Trust Senior Vice President
Company
The White House Deputy Assistant to the
President, White House
Coordinator, Deputy Director
of Presidential Personnel
Michael E. Ericksen.................. Capital Guardian Trust Senior Vice President
Company
Capital International Limited Senior Vice President
Richard N. Havas..................... Capital Guardian Trust Senior Vice President
Company
Capital International Limited Senior Vice President
Capital Research Senior Vice President
International
Frederick M. Hughes, Jr. ............ Capital Guardian Trust Senior Vice President
Company
Shelby Notkin........................ Capital Guardian Trust Senior Vice President
Company
Capital Guardian Trust Director
Company of Nevada
Mary M. O'Hern....................... Capital Guardian Trust Senior Vice President
Company
Capital International Limited Senior Vice President
Capital International, Inc. Vice President
Jeffrey C. Paster.................... Capital Guardian Trust Senior Vice President
Company
Robert V. Pennington................. Capital Guardian Trust Senior Vice President
Company
Capital Guardian Trust President
Company of Nevada
Robert L. Spare...................... Capital Guardian Trust Senior Vice President
Company
</TABLE>
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<PAGE> 151
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Philip A. Swan....................... Capital Guardian Trust Senior Vice President
Company
</TABLE>
STATE STREET
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Marshall N. Carter................... State Street Bank and Trust Chairman and CEO
Company
Tenley E. Albright, M.D.............. State Street Bank and Trust Director
Company
Western Resources, Inc. Chairman
Joseph A. Baute...................... State Street Bank and Trust Director
Company
Markem Corporation Former Chairman and CEO
I. MacAlister Booth.................. State Street Bank and Trust Director
Company
Polaroid Corporation Retired Chairman, President and
CEO
James I. Cash, Jr. .................. State Street Bank and Trust Director
Company
Harvard Business School The James E. Robison Professor
of Business Administration
Truman S. Casner..................... State Street Bank and Trust Director
Company
Ropes & Gray Partner
Nader F. Darehshori.................. State Street Bank and Trust Director
Company
Houghton Mifflin Company Chairman, President and CEO
Arthur L. Goldstein.................. State Street Bank and Trust Director
Company
Ionics, Inc. Chairman and CEO
David P. Gruber...................... State Street Bank and Trust Director
Company
Wyman-Gordon Company President and CEO
Charles F. Kaye...................... State Street Bank and Trust Director
Company
Transportation Investments, President
Inc.
John M. Kucharski.................... State Street Bank and Trust Director
Company
EG&G, Inc. Chairman and CEO
Charles R. LaMantia.................. State Street Bank and Trust Director
Company
Arthur D. Little, Inc. President and CEO
David B. Perini...................... State Street Bank and Trust Director
Company
Perini Corporation Chairman and President
Dennis J. Picard..................... State Street Bank and Trust Director
Company
Raytheon Company Chairman and CEO
</TABLE>
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<PAGE> 152
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Alfred Poe........................... State Street Bank and Trust Director
Company
Meal Enhancement Group, Former President
Campbell Soup Company
Bernard W. Reznicek.................. State Street Bank and Trust Director
Company
Premier Group President
Boston Edison Company Retired Chairman and CEO
Diana Chapman Walsh.................. State Street Bank and Trust Director
Company
Wellesley College President
Robert E. Weissman................... State Street Bank and Trust Director
Company
Cognizant Corporation Chairman and CEO
David A. Spina....................... State Street Corporation President and Chief Operating
Officer
</TABLE>
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<PAGE> 153
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The Variable Annuity Marketing Company ("VAMCO") acts as exclusive
distributor and principal underwriter of the Registrant and as principal
underwriter for VALIC Separate Account A.
(b) The following information is furnished with respect to each officer and
director of VAMCO.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
Thomas L. West Jr. .................. Chairman of the Board of Chairman of the Board of
Directors Trustees
(*)
John A. Graf......................... Director
(*)
John E. Arant........................ Director and President
(*)
Joe C. Osborne....................... Executive Vice President Executive Vice President
(*)
Charles D. Robinson.................. Executive Vice President
(*)
Cynthia A. Toles..................... Director and Secretary Vice President and Secretary
(*)
Jim C. Lehan......................... Senior Vice President
945 Concord Street
Suite 123 and 124
Framingham, MA 01701
Jane E. Bates........................ Treasurer and Chief Compliance --
Officer
(*)
D. Lynne Walters..................... Tax Officer --
(*)
Todd M. Adams........................ Vice President --
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
Edward K. Boero...................... Vice President --
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
Steven P. Boero...................... Senior Vice President --
1900 O'Farrell Street
Suite 390
San Mateo, CA 94403-1311
Joe H. Connell....................... Vice President --
10851 N. Black Canyon Hwy.
Suite 700
Phoenix, AZ 85029
James J. Costello.................... Vice President --
1767 Sentry Pkwy West 19
Suite 300
Blue Bell, PA 19422
</TABLE>
C-14
<PAGE> 154
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
Paige T. Davis....................... Vice President --
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
Robert G. Fillmore................... Vice President --
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
James M. Garrison.................... Vice President --
Two International Plaza
Suite 601
Nashville, TN 37217
James K. Graham...................... Vice President --
1301 West Long Lake Road
Suite 340
Troy, MI 48098
James T. Griffin..................... Vice President --
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
Richard R. Gumpert................... Vice President --
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
Ernest Jordan III.................... Vice President --
4266 Interstate 55N
Suite 108
Jackson, MS 39211
Alden D. Lewis....................... Vice President --
1800 S.W. First Avenue
Suite 505
Portland, OR 97201
David R. Lyle........................ Vice President --
University Tower
3100 Tower Blvd.
Suite 1601, Box 50
Durham, NC 27707
John MacTavish....................... Vice President
2450 Venture Oaks Way
Suite 220
Sacramento, CA 45833
Bryce Malsbary....................... Vice President
110 University Park Dr.
Suite 110
Winter Park, FL 32792
</TABLE>
C-15
<PAGE> 155
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
Sharon J. Novickas................... Vice President --
230 West Monroe
Suite 1900
Chicago, IL 60606
Robert A. Obester.................... Vice President --
800 Gessner
Suite 1280
Houston, TX 77024
Suzanne L. Perez..................... Vice President
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
Evan Cole............................ Vice President --
410 Amherst Street
Suite 250
Nashua, NH 03063
Keith A. Poch........................ Vice President
1900 O'Farrell Street
Suite 390
San Mateo, CA 94403-1311
Fred Roberts......................... Vice President
100 Ashford Center North
Suite 100
Atlanta, GA 30338
F. William Scott..................... Vice President
Two Summit Park Drive
Suite 410
Independence, OH 44131
William G. Tubbs..................... Vice President --
11711 N. Meridian St.
Suite 300
Carmel, IN 46032
Donald R. Van Putten................. Senior Vice President --
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
Donna M. Zucchi...................... Vice President
90 Woodbridge Center Dr.
Suite 300
Woodbridge, NJ 07095
</TABLE>
- ---------------
(*) 2929 Allen Parkway, Houston, Texas 77019
(c) Not Applicable
ITEM 30. LOCATION OF BOOKS AND RECORDS.
The books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated thereunder will be
in the physical possession of either:
C-16
<PAGE> 156
THE DEPOSITOR:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
THE PRINCIPAL UNDERWRITER:
The Variable Annuity Marketing Company
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
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street, 36th Floor
New York, New York 10006
Brown Capital Management
809 Cathedral Street
Baltimore, Maryland 21201
Capital Guardian Trust Company
11100 Santa Monica Boulevard
Los Angeles, California 90025
Fiduciary Management Associates, Inc.
211 Congress Street
Boston, Massachusetts 02110
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Jacobs Asset Management, Inc.
211 Congress Street
Boston, Massachusetts 02110
JP Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Neuberger&Berman Management Inc.
605 Third Avenue
New York, New York 10158
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
ITEM 31. MANAGEMENT SERVICES.
There is no management-related service contract not discussed in Parts A or
B of this Form N-1A
ITEM 32. UNDERTAKINGS.
Not Applicable.
C-17
<PAGE> 157
[VALIC LOGO]
PRINTED MATTER
PRINTED IN U.S.A. VA 10832-1 REV 7/98
(C)The Variable Annuity Life Insurance Company, Houston, Texas
Recycled Paper [RECYCLED PAPER LOGO]
<PAGE> 158
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, American General Series
Portfolio Company 3 has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of Houston,
State of Texas, on the 2nd day of September, 1998.
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 3
By: /s/ THOMAS L. WEST, JR.
------------------------
Thomas L. West, Jr.
Chairman of the Board of
Trustees
<PAGE> 159
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ THOMAS L. WEST JR.
- ----------------------- Chairman of the Board of September 2, 1998
Thomas L. West, Jr. Trustees -----------------
**
- ----------------------- Vice Chairman of the Board , 1998
Craig R. Rodby of Trustees -----------------
**
- ----------------------- Trustee and President , 1998
John A. Graf -----------------
/s/ GREGORY R. SEWARD
- ----------------------- Treasurer September 2, 1998
Gregory R. Seward -----------------
*
- ----------------------- Trustee , 1998
Judith L. Craven -----------------
*
- ----------------------- Trustee , 1998
Timothy J. Ebner -----------------
*
- ----------------------- Trustee , 1998
Gustovo E. Gonzales, Jr. -----------------
*
- ----------------------- Trustee , 1998
Norman Hackerman -----------------
*
- ----------------------- Trustee , 1998
John W. Lancaster -----------------
*
- ----------------------- Trustee , 1998
Ben H. Love -----------------
*
- ----------------------- Trustee , 1998
John E. Maupin, Jr. -----------------
*
- ----------------------- Trustee , 1998
F. Robert Paulsen -----------------
</TABLE>
<PAGE> 160
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*
- ---------------------------- Trustee , 1998
R. Miller Upton -----------------
/s/ DAVID M. LEAHY
*By: ---------------------- September 2, 1998
David M. Leahy -----------------
Attorney-in-Fact
/s/ NORI L. GABERT
**By: ---------------------- September 2, 1998
Nori L. Gabert -----------------
Attorney-in-Fact
</TABLE>
<PAGE> 161
INDEX TO EXHIBITS
(b) Exhibits
<TABLE>
<C> <S> <C> <C>
1. (a) 2. Amendment to Agreement and Declaration of Trust
(b) Certificate of Designation For:
(11) American General High Yield Bond Fund
(12) American General Strategic Bond Fund
(14) American General Core Bond Fund
(c) Certificate of Termination For:
(1) American General S&P 500 Index Fund
(2) American General Mid Cap Index Fund
(3) American General Small Cap Index Fund
5. (a) Form of Investment Advisory Agreement between the Registrant and The
Variable Annuity Life Insurance Company ("VALIC")
(b) Form of Investment Sub-Advisory Agreements between VALIC and each
Sub-Adviser on behalf of the following Funds:
(1) American General International Growth Fund
(2) American General Large Cap Growth
(3) American General Mid Cap Growth Fund
</TABLE>
<PAGE> 162
<TABLE>
<C> <S> <C> <C>
(4) American General Small Cap Growth Fund
(5) American General International Value Fund, American General Balanced Fund and American General
Domestic Bond Fund
(6) American General Large Cap Value Fund
(7) American General Mid Cap Value Fund
(8) American General Small Cap Value Fund
(9) American General High Yield Bond Fund, American General Strategic Bond Fund and American General
Core Bond Fund
6. Form of Distribution Agreement between the Registrant and The Variable Annuity Marketing Company ("VAMCO)"
8. (a) Form of Custodian Agreement between Registrant and State Street Bank and Trust Company
(b) Form of Securities Lending Authorization Agreement between Registrant and State Street Bank and Trust
Company
9. (a) Form of Transfer Agency and Services Agreement between Registrant and The Variable Annuity Life Insurance
Company
(b) Form of Data Access Services Agreement between Registrant and State Street Bank and Trust Company
(c) Form of Accounting Services Agreement between Registrant and The Variable Annuity Life Insurance Company
(d) Form of Administrative Services Agreement among Registrant and VALIC
10. Opinion and Consent of Counsel
11. Consent of Independent Auditors
13. Subscription Agreements
19. (b) Powers of Attorney for Messrs. Ebner, Gonzales and Maupin and Ms. Craven
27. Financial Data Schedules
</TABLE>
<PAGE> 1
EXHIBIT 1(a)(2)
AMENDMENT DATED AUGUST 26, 1998
TO THE AGREEMENT AND DECLARATION OF TRUST
OF
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
DATED MAY 6, 1998
This Amendment dated August 26, 1998 to the Agreement and Declaration of Trust
of American General Series Portfolio Company 3 (the "Trust") dated May 6, 1998,
is made in accordance with Section 9.5 thereof to restate paragraph (b) of
Section 4.1 to read as follows:
(b) Number. The Trustees serving as such, whether named above or
hereafter becoming Trustees, may increase (to not more than twelve (12)) or
decrease the number of Trustees to a number other than the number theretofore
determined by a written instrument signed by a Majority of the Trustees (or by
an officer of the Trust pursuant to the vote of a Majority of the Trustees).
No decrease in the number of Trustees shall have the effect of removing any
Trustee from office prior to the expiration of his or her term, but the number
of Trustees may be decreased in conjunction with the removal of a Trustee
pursuant to Section (e) of this Section 4.1.
WITNESS the signature of the undersigned this 26th day of August, 1998.
/s/ NORI L. GABERT
- --------------------------------------
Nori L. Gabert,
Vice President and Assistant Secretary
<PAGE> 1
EXHIBIT 1(b)(11)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
Certificate of Designation
of
American General High Yield Bond Fund
The undersigned, being the Vice President and Assistant Secretary of
American General Series Portfolio Company 3, a Delaware business trust
(the "Trust"), pursuant to the authority conferred upon the Trustees of
the Trust by Section 6.1 of the Trust's Agreement and Declaration of
Trust ("Declaration"), and by the affirmative vote of a Majority of the
Trustees does hereby establish and designate as a Series of the Trust
the American General High Yield Bond Fund (the "Fund") with the
following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into
Shares having a nominal or par value of $0.01 per Share, of which an
unlimited number may be issued, which Shares shall represent interests
only in the Fund. The Trustees shall have the authority from time to
time to authorize separate Series of Shares for the Trust as they deem
necessary or desirable.
2. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of
any Series of the Trust or with respect to any Class of Shares set
forth in the Declaration shall apply to Shares of the Fund unless
otherwise specified in this Certificate of Designation, in which case
this Certificate of Designation shall govern.
3. Amendments etc. Subject to the provisions and limitations of
Section 9.5 of the Declaration and applicable law, this Certificate of
Designation may be amended by an instrument signed in writing by a
Majority of the Trustees (or by an Officer of the Trust pursuant to the
vote of a Majority of the Trustees) or when authorized to do so by the
vote in accordance with the Declaration of the holders of a majority of
all the Shares of the Fund outstanding and entitled to vote or, if such
amendment affects the Shares of one or more but not all of the Classes
of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.
4. Incorporation of Defined Terms. All capitalized terms which are not
defined herein shall have the same meaning as ascribed to those terms
in the Declaration.
August 26, 1998
/s/ NORI L. GABERT
-------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(b)(12)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
Certificate of Designation
of
American General Strategic Bond Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 3, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the American General Strategic Bond Fund (the
"Fund") with the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate Series
of Shares for the Trust as they deem necessary or desirable.
2. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in this
Certificate of Designation, in which case this Certificate of Designation shall
govern.
3. Amendments etc. Subject to the provisions and limitations of Section 9.5 of
the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
an Officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the affected
Classes outstanding and entitled to vote.
4. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.
August 26, 1998
/s/ NORI L. GABERT
- ------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(b)(14)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
Certificate of Designation
of
American General Core Bond Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 3, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the American General Core Bond Fund (the
"Fund") with the following rights, preferences and characteristics:
1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate Series
of Shares for the Trust as they deem necessary or desirable.
2. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in this
Certificate of Designation, in which case this Certificate of Designation shall
govern.
3. Amendments etc. Subject to the provisions and limitations of Section 9.5 of
the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
an Officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the affected
Classes outstanding and entitled to vote.
4. Incorporation of Defined Terms. All capitalized terms which are not defined
herein shall have the same meaning as ascribed to those terms in the
Declaration.
August 26, 1998
/s/ NORI L. GABERT
- --------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(1)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
Certificate of Termination
of
American General S&P 500 Index Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 3, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees, and upon the finding that no
such Shares of this Fund are outstanding, does hereby terminate the American
General S&P 500 Index Fund.
August 26, 1998
/s/ NORI L. GABERT
- ------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(2)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
Certificate of Termination
of
American General Mid Cap Index Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 3, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees, and upon the finding that no
such Shares of this Fund are outstanding, does hereby terminate the American
General Mid Cap Index Fund.
August 26, 1998
/s/ NORI L. GABERT
- ------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 1(c)(3)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
Certificate of Termination
of
American General Small Cap Index Fund
The undersigned, being the Vice President and Assistant Secretary of American
General Series Portfolio Company 3, a Delaware business trust (the "Trust"),
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1 of the Trust's Agreement and Declaration of Trust ("Declaration"), and by
the affirmative vote of a Majority of the Trustees, and upon the finding that no
such Shares of this Fund are outstanding, does hereby terminate the American
General Small Cap Index Fund.
August 26, 1998
/s/ NORI L. GABERT
- ------------------
Nori L. Gabert,
Vice President and
Assistant Secretary
<PAGE> 1
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as the "ADVISER," and
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3, hereinafter referred to as the
"FUND."
The ADVISER and the FUND recognize the following:
(a) The ADVISER is a life insurance company organized under
Chapter 3 of the Texas Insurance Code and an investment adviser
registered under the Investment Advisers Act of 1940.
(b) The FUND is an investment company organized under the laws
of Delaware as a business trust, as a series type of investment company
issuing separate classes (or series) of shares of beneficial interest
and is registered as an open-end, management investment company under
the Investment Company Act of 1940 (the "1940 Act"). The 1940 Act
prohibits any person from acting as an investment adviser of a
registered investment company except pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General Small Cap Value Fund, American General Mid
Cap Growth Fund, American General International Value Fund, American
General Domestic Bond Fund, American General Balanced Fund, American
General Large Cap Growth Fund, American General Small Cap Growth Fund,
American General Mid Cap Value Fund, American General Large Cap Value
Fund, American General International Growth Fund, American General
Money Market Fund, American General Socially Responsible Fund, American
General Growth Lifestyle Fund, American General Moderate Growth
Lifestyle Fund, American General Conservative Growth Lifestyle Fund,
American General Core Bond Fund, American General Strategic Bond Fund,
and American General High Yield Bond Fund. In accordance with the
FUND's Agreement and Declaration of Trust (the "Declaration") and
Bylaws, new Funds may be added to the FUND upon approval of the FUND's
Board of Trustees without approval of the FUND's shareholders. This
Agreement will apply only to the Fund(s) and any other Fund as may be
added or deleted by amendment to the attached Schedule A ("Covered
Funds").
The ADVISER and the FUND AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY ADVISER
The ADVISER, subject to the control, direction, and supervision of the
FUND's Board of Trustees and in conformity with the 1940 Act, all applicable
laws and regulations thereunder, all other applicable federal and state laws and
regulations, including 817(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), the FUND's Declaration, Bylaws, registration statements,
prospectus and stated investment objectives, policies and restrictions shall:
(a) manage the investment and reinvestment of the assets of
the Covered Funds including, for example, the evaluation of pertinent
economic, statistical, financial, and other data, the determination of
the industries and companies to be represented in each Covered Fund's
portfolio, and the formulation and implementation of investment
programs.
(b) maintain a trading desk and place all orders for the
purchase and sale of portfolio investments for each Covered Fund's
account with brokers or dealers selected by the ADVISER, or arrange for
any other entity to provide a trading desk and to place orders with
brokers and dealers selected by the ADVISER, subject to the ADVISER's
control, direction, and supervision.
(c) conduct and manage the day to day operations of each
Covered Fund including, for example, the preparation of registration
statements, prospectuses, reports, proxy solicitation materials and
amendments
<PAGE> 2
thereto, and the furnishing of legal services (except those services
provided by outside counsel to the FUND selected by the Board of
Trustees).
(d) furnish to the Covered Funds office space, facilities,
equipment and personnel adequate to provide the services described
above and pay the compensation to the FUND's trustees and officers who
are interested persons of the ADVISER.
In performing the services described in paragraph (b) above, the
ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to prior authorization by the
FUND's Board of Trustees of appropriate policies and procedures, the ADVISER may
cause the Covered Funds to pay to a broker a commission, for effecting a
portfolio transaction, in excess of the commission another broker would have
charged for effecting the same transaction, if the first broker provided
brokerage and\or research services, including statistical data, to the ADVISER.
The ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The ADVISER shall maintain records adequately demonstrating compliance
with its obligations under this Agreement and report periodically to the FUND's
Board of Trustees regarding the performance of services under this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
ADVISER shall bear the expense of discharging its responsibilities hereunder and
the FUND shall pay, or arrange for others to pay, all its expenses other than
those which part 2 of this Agreement expressly states are payable to the
ADVISER. Expenses payable by the FUND include, but are not limited to, (i)
interest and taxes; (ii) brokerage commissions and other expenses of purchasing
and selling portfolio investments; (iii) compensation of its trustees and
officers other than those persons who are interested persons of the ADVISER;
(iv) fees of outside counsel to and of independent auditors of the FUND selected
by the Board of Trustees; (v) fees for accounting services; (vi) custodial,
registration, and transfer agency fees; (vii) expenses related to the repurchase
or redemption of its shares including expenses related to a program of periodic
repurchases or redemptions; (viii) expenses related to issuance of its shares
against payment therefor by, or on behalf of, the subscribers thereto; (ix) fees
and related expenses of registering and qualifying the FUND and its shares for
distribution under state and federal securities laws; (x) expenses of printing
and mailing to existing shareholders of registration statements, prospectuses,
reports, notices and proxy solicitation materials of the FUND; (xi) all other
expenses incidental to holding meetings of the FUND's shareholders including
proxy solicitations therefor; (xii) expenses for servicing shareholder accounts;
(xiii) insurance premiums for fidelity coverage and errors and omissions
insurance; (xiv) dues for the FUND's membership in trade associations approved
by the Board of Trustees; and (xv) such non-recurring expenses as may arise,
including those associated with actions, suits, or proceedings to which the FUND
is a party and the legal obligation which the FUND may have to indemnify its
officers, trustees and employees with respect thereto. The FUND shall allocate
the foregoing expenses among the Covered Funds and, to the extent that any of
the foregoing expenses are allocated between the Covered Funds and any other
Funds or entities, such allocations shall be made pursuant to methods approved
by the Board of Trustees.
2. COMPENSATION OF ADVISER
The FUND shall pay to the ADVISER, as compensation for the services
rendered, facilities furnished and expenses paid by the ADVISER, a monthly fee
based on each Covered Fund's average monthly net asset value computed for each
Covered Fund as provided for in the fee schedule attached hereto as Schedule A.
Schedule A may be amended from time to time, provided that amendments are made
in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any existing or new
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during
2
<PAGE> 3
a given calendar month. The FUND shall pay this fee for each calendar month as
soon as practicable after the end of that month.
The ADVISER shall promptly reduce its monthly fee by the amount of any
commissions, tender and exchange offer solicitation fees, other fees, or similar
payments received by the ADVISER, or any affiliated person of the ADVISER, in
connection with any Covered Fund's portfolio transactions, less the amount of
any direct expenses incurred by the ADVISER, or any affiliated person of the
ADVISER, in obtaining such commissions, fees, or payments.
If the ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
3. SCOPE OF ADVISER'S DUTIES
The ADVISER, and any person controlling, controlled by or under common
control with the ADVISER, shall remain free to provide similar investment
advisory services to other persons or engage in any other business or activity
which does not impair the services which the ADVISER renders to the Covered
Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
trustees, officers and employees of the FUND may be a shareholder, director,
officer or employee of, or be otherwise interested in, the ADVISER, and in any
person controlling, controlled by or under common control with the ADVISER; and
the ADVISER, and any person controlling, controlled by or under common control
with the ADVISER, may have an interest in the FUND.
The ADVISER shall not be liable to the FUND, or to any shareholder in
the FUND, for any act or omission in rendering services under this Agreement, or
for any losses sustained in the purchase, holding, or sale of any portfolio
security, so long as there has been no willful misfeasance, bad faith,
negligence, or reckless disregard of obligations or duties on the part of the
ADVISER.
The ADVISER may from time to time employ or associate with itself any
person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided that any such person who
serves or acts as an investment adviser separate from the ADVISER will do so
pursuant to a sub-advisory agreement as provided in the following paragraph. The
compensation of any such persons will be paid by the ADVISER, and no obligation
will be incurred by, or on behalf of, the FUND with respect to them.
Notwithstanding any other provision of this Agreement, the FUND hereby
authorizes the ADVISER to employ an investment sub-adviser for any one or more
of the Covered Funds for the purpose of providing investment management services
with respect to such Covered Funds, provided that (a) the compensation to be
paid to such investment sub-adviser shall be the sole responsibility of the
ADVISER, (b) the duties and responsibilities of the investment sub-adviser shall
be as set forth in a sub-advisory agreement including the ADVISER and the
investment sub-adviser as parties, (c) such sub-advisory agreement shall be
adopted and approved in conformity with applicable laws and regulations, and (d)
such sub-advisory agreement may be terminated at any time, on not more than 60
days' written notice, by the ADVISER on notice to the sub-adviser and the FUND,
by the sub-adviser on notice to the ADVISER and the FUND, and by the FUND's
Board of Trustees or by a majority vote of the Covered Fund's outstanding voting
securities on notice to the sub-adviser and the ADVISER.
4. DURATION OF AGREEMENT
This Agreement shall become effective as to the Covered Funds set forth
on Schedule A on the date hereof and as to any other Funds on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from the effective date. Thereafter this Agreement shall
continue in effect, but with respect to any Covered Fund, subject
3
<PAGE> 4
to the termination provisions and all other terms and conditions hereof, only so
long as such continuance is approved at least annually by the vote of a majority
of the FUND's trustees who are not parties to this Agreement or interested
persons of any such parties, cast in person at a meeting called for the purpose
of voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment. The Agreement may be terminated as to any Covered Fund at any time
by the FUND's Board of Trustees, by vote of a majority of that Fund's
outstanding voting securities, or by the ADVISER, on not more than 60 days' nor
less than 30 days' written notice, or upon such shorter notice as may be
mutually agreed upon. Such termination shall be without the payment of any
penalty.
5. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with applicable
federal securities laws and regulations, including definitions therein and such
exemptions as may be granted to the ADVISER or the FUND by the Securities and
Exchange Commission or such interpretive positions as may be taken by the
Commission or its staff. To the extent that the applicable law of the State of
Texas, or any of the provisions herein, conflict with applicable provisions of
the federal securities laws, the latter shall control.
6. MISCELLANEOUS PROVISIONS
For the purposes of this Agreement, the terms "affiliated person,"
"assignment," "interested person," and "majority of outstanding voting
securities" shall have their respective meanings defined in the 1940 Act and the
Rules and Regulations thereunder, subject, however, to such exemptions as may be
granted to either the ADVISER or the FUND by the Securities and Exchange
Commission (the "Commission"), or such interpretive positions as may be taken by
the Commission or its staff, under the 1940 Act, and the term "brokerage and
research services" shall have the meaning given in the Securities Exchange Act
of 1934 and the Rules and Regulations thereunder.
The execution of this Agreement has been authorized by the FUND's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the FUND or the Trustees of the FUND as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the FUND individually, but are binding only upon the
assets and property of the FUND. A Certificate of Trust in respect of the FUND
is on file with the Secretary of the State of Delaware.
All questions concerning the validity, meaning and effect of this
Agreement shall be determined in accordance with the laws (without giving effect
to the conflict-of-law principles thereof) of the State of Delaware applicable
to contracts made and to be performed in that state.
4
<PAGE> 5
The parties hereto have each caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
AMERICAN GENERAL SERIES PORTFOLIO
COMPANY 3
By:
----------------------------------
Name:
Title:
ATTEST:
- -----------------------------
Secretary
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY
By:
----------------------------------
Name:
Title:
ATTEST:
- -----------------------------
Secretary
5
<PAGE> 6
SCHEDULE A
to Investment Advisory Agreement
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
<TABLE>
<S> <C>
American General International
Value Fund...................... 1.00% on the first $25 million
0.85% on the next $25 million
0.675% on the next $200 million
0.625% over $250 million
American General International
Growth Fund..................... 0.90% on the first $100 million
0.80% over $100 million
American General Large Cap
Value Fund...................... 0.50%
American General Large Cap
Growth Fund..................... 0.55%
American General Mid Cap
Value Fund...................... 0.75% on the first $100 million
0.725% on the next $150 million
0.70% on the next $250 million
0.675% on the next $250 million
0.65% over $750 million
American General Mid Cap
Growth Fund..................... 0.65% on the first $25 million
0.55% on the next $25 million
0.45% over $50 million
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C>
American General Small Cap
Value Fund...................... 0.75% on the first $50 million
0.65% over $50 million
American General Small Cap
Growth Fund..................... 0.85%
American General Socially
Responsible Fund................ 0.25%
American General Money
Market Fund..................... 0.25%
American General Domestic
Bond Fund....................... 0.60% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% over $300 million
American General Balanced
Fund............................ 0.80% on the first $25 million
0.65% on the next $25 million
0.45% over $50 million
American General Conservative
Growth Lifestyle Fund........... 0.10%
American General Moderate
Growth Lifestyle Fund........... 0.10%
American General Growth
Lifestyle Fund.................. 0.10%
American General Core
Bond Fund....................... 0.50% on first $200 million
0.45% on next $300 million
0.40% over $500 million
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C>
American General Strategic
Bond Fund....................... 0.60% on first $200 million
0.50% on next $300 million
0.45% over $500 million
American General High
Yield Bond Fund................. 0.70% on first $200 million
0.60% on next $300 million
0.55% over $500 million
</TABLE>
8
<PAGE> 1
EXHIBIT 5(b)(1)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and JACOBS
ASSET MANAGEMENT, hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General International Growth Fund pursuant to an Investment Advisory
Agreement dated August 26, 1998 between VALIC and American General
Series Portfolio Company 3 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General Balanced Fund, American
General Conservative Growth Lifestyle Fund, American General Moderate
Growth Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, and
American General High Yield Bond Fund. In accordance with the FUND's
Agreement and Declaration of Trust (the "Declaration"), new Funds may
be added to the FUND upon approval of the FUND's Board of Trustees
without approval of the FUND's shareholders. This Agreement will apply
only to the Fund(s) set forth on the attached Schedule A, and any other
Funds as may be added or deleted by amendment to the attached Schedule
A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), the FUND's Declaration, Bylaws,
registration statements, prospectus and stated investment objectives, policies
and restrictions and any applicable procedures adopted by the FUND's Board of
Trustees shall:
1
<PAGE> 2
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in compliance with respect to each Covered
Fund's securities transactions as required by the 1940 Act and the Advisers Act,
as well as other applicable laws. The SUB-ADVISER will furnish the FUND's Board
of Trustees such periodic and special reports as VALIC and the FUND's Board of
Trustees may reasonably request. The SUB-ADVISER will furnish to regulatory
authorities any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Covered
Funds are being conducted in a manner consistent with applicable laws and
regulations. The SUB-ADVISER will not disclose or use any records or information
obtained pursuant to this Agreement in any manner whatsoever except as expressly
authorized in this Agreement, and will keep confidential any information
obtained pursuant to this service relationship, and disclose such information
only if VALIC or the Board of Trustees of the FUND has authorized such
disclosure, or if such information is or hereafter becomes ascertainable from
public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB- ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for the FUND, on
a daily basis, such confirmation, trade tickets and other documents as may be
necessary to enable it to perform its administrative responsibilities with
respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
2
<PAGE> 3
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
3
<PAGE> 4
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv) has
the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of its
Form ADV as most recently filed with the SEC and will promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC:(i) is registered as an investment adviser under the Advisers Act
and will continue to be so registered for so long as this Agreement remains in
effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
4
<PAGE> 5
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND, except insofar as any
such statement or omission was made in reliance on information provided by the
SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub- Advisory
Agreement, including a negligent failure whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified in
section 817(h), and the qualification standards of Subchapter M of the Code, as
amended, and the regulations thereunder, (other than a failure which is
subsequently timely corrected by the SUB- ADVISER in accordance with applicable
law and regulations such that no loss is incurred by VALIC or a Covered Fund) or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to
5
<PAGE> 6
the FUND to the extent any such statement or omission was made in reliance on
information provided by the SUB- ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-----------------------------------------
Name: Cynthia A. Toles
Title: Senior Vice President, General
Counsel and Secretary
ATTEST:
- --------------------------
JACOBS ASSET MANAGEMENT
By:
-----------------------------------------
Name:
Title:
ATTEST:
- ---------------------------
6
<PAGE> 7
SCHEDULE A
(Effective August 26, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General International Growth Fund 0.65% of the first $100 million
0.55% on the excess over $100 million
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(2)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and GOLDMAN
SACHS ASSET MANAGEMENT, hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General Large Cap Growth Fund pursuant to an Investment Advisory
Agreement dated August 26, 1998 between VALIC and American General
Series Portfolio Company 3 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General Balanced Fund, American
General Conservative Growth Lifestyle Fund, American General Moderate
Growth Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, and
American General High Yield Bond Fund. In accordance with the FUND's
Agreement and Declaration of Trust (the "Declaration"), new Funds may
be added to the FUND upon approval of the FUND's Board of Trustees
without approval of the FUND's shareholders. This Agreement will apply
only to the Fund(s) set forth on the attached Schedule A, and any other
Funds as may be added or deleted by amendment to the attached Schedule
A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including the diversification requirements pursuant
to section 817(h) and Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), the FUND's Declaration, Bylaws, registration statements,
prospectus and stated investment objectives, policies and restrictions and any
applicable procedures (which procedures to the extent they govern transactions
involving affiliates, will identify any affiliate of VALIC or the Fund)
1
<PAGE> 2
adopted by the FUND's Board of Trustees (provided that (i) the FUND or VALIC has
provided the SUB-ADVISER with copies of all applicable provisions of the
foregoing FUND documents which relate to the investment and management of the
FUND and promptly notifies the SUB-ADVISER of any changes in such FUND documents
and (ii) VALIC informs the SUB-ADVISER of all applicable state insurance laws
relating to the investment and management of the FUND, including restrictions or
limitations on investments in the Fund, and promptly notifies the SUB-ADVISER of
any changes in such laws or restrictions) shall:
(a) manage the investment and reinvestment of the assets.
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER will make available to VALIC and the FUND promptly
upon their request all of the Covered Funds' investment records and ledgers to
assist VALIC and the FUND in compliance with respect to each Covered Fund's
securities transactions as required by the 1940 Act and the Advisers Act, as
well as other applicable laws. The SUB-ADVISER will furnish the FUND's Board of
Trustees such periodic and special reports as VALIC and the FUND's Board of
Trustees may reasonably request. The SUB-ADVISER will furnish to regulatory
authorities any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Covered
Funds are being conducted in a manner consistent with applicable laws and
regulations. VALIC and the SUB-ADVISER will not disclose or use any records or
information obtained pursuant to this Agreement (excluding investment research
and investment advice) in any manner whatsoever except as expressly authorized
in this Agreement, or in the ordinary course of business of performing the
services described herein and will keep confidential any information obtained
pursuant to this service relationship, and disclose such information only if
VALIC and the SUB-ADVISER or the Board of Trustees of the FUND has authorized
such disclosure, or if such information is or hereafter becomes ascertainable
from public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities or as
may be required by the legal process or in connection with any litigation
arising out of this Agreement.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB- ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for
2
<PAGE> 3
the FUND, on a daily basis, such confirmation, trade tickets and other documents
as may be necessary to enable it to perform its administrative responsibilities
with respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
The SUB-ADVISER may on occasion when the purchase or sale of a security
is deemed to be in the best interest of the FUND as well as any other investment
advisory clients, to the extent permitted by applicable laws and regulations,
but shall not be obligated to aggregate the securities sold or purchased with
those of its other clients where such aggregation is not inconsistent with the
policies set forth in the FUND's registration statement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER,
3
<PAGE> 4
and any person controlling, controlled by or under common control with the
SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
VALIC shall perform quarterly and annual tax compliance tests and
promptly furnish reports of such tests to the SUB-ADVISER after each quarter end
to ensure that the Fund is in compliance with Subchapter M of the Code and
Section 817(h) of the Code. VALIC shall apprise the SUB-ADVISER promptly after
each quarter end of any potential non-compliance with the diversification
requirements in such Code provisions. If so advised, the SUB-ADVISER shall take
prompt action so that the Fund(s) comply with such Code diversification
provisions, as directed by VALIC.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv) has
the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of its
Form ADV as most recently filed with the SEC and will promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC:(i) is registered as an investment adviser under the Advisers Act
and will continue to be so registered for so long as this Agreement remains in
effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
4
<PAGE> 5
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish SUB-ADVISER copies of any amendments or supplements thereto before or at
the time the amendments or supplements become effective. Until VALIC delivers
any amendments or supplements to the SUB-ADVISER, the SUB- ADVISER shall be
fully protected in relying on the documents previously furnished to it.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND by any of the
persons whose names, addresses and specimen signatures will be provided by VALIC
from time to time. The SUB-ADVISER shall not be liable for so acting in good
faith upon such instructions, confirmation or authority, notwithstanding that it
shall subsequently be shown that the same was not given or signed or sent by an
authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. It is understood that the name "Goldman, Sachs &
Co." or "Goldman Sachs" or
5
<PAGE> 6
any derivative thereof, any trade name, trade device, service mark, symbol or
logo associated with the names are the valuable property of the SUB-ADVISER and
that VALIC has the right to use such name (or simulation or logo), in offering
materials of the Fund with the prior written approval of the SUB-ADVISER and for
so long as the SUB- ADVISER is a SUB-ADVISER to the Fund. Upon termination of
this Agreement between the Fund, VALIC and the SUB-ADVISER, the Fund and VALIC
shall forthwith cease to use such name (or simulation or logo). In the event of
termination of this agreement, VALIC will continue to furnish to the SUB-ADVISER
copies of any of the above-mentioned materials that refer in any way to the
SUB-ADVISER. VALIC shall furnish or otherwise make available to the SUB-ADVISER
such other information relating to the business affairs of VALIC and the FUND as
the SUB- ADVISER at any time, or from time to time, may reasonably request in
order to discharge obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND, except insofar as any
such statement or omission was made in reliance on information provided by the
SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by the SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub- Advisory
Agreement, including actions which may be based upon any willful malfeasance,
bad faith, or gross negligence of or by reckless disregard of, the SUB-ADVISER's
obligations and/or duties under this Agreement by the SUB-ADVISER or (ii) as the
result of any untrue statement of a material fact or any omission to state a
material fact required to be stated or necessary to make the statements, in
light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND to the extent any such
statement or omission was made in reliance on information provided by the
SUB-ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
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<PAGE> 7
The parties hereto have each caused this Agreement to be signed in duplicate on
its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-----------------------------------------
Name: Cynthia A. Toles
Title: Senior Vice President, General
Counsel and Secretary
ATTEST:
- -------------------------
GOLDMAN SACHS ASSET MANAGEMENT
By:
-----------------------------------------
Name:
Title:
ATTEST:
- -------------------------
7
<PAGE> 8
SCHEDULE A
(Effective August 26, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Large Cap Growth Fund 0.30%
</TABLE>
8
<PAGE> 1
EXHIBIT 5(b)(3)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and BROWN
CAPITAL MANAGEMENT, INC., hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General Mid Cap Growth Fund pursuant to an Investment Advisory
Agreement dated August 26, 1998 between VALIC and American General
Series Portfolio Company 3 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General Balanced Fund, American
General Conservative Growth Lifestyle Fund, American General Moderate
Growth Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, and
American General High Yield Bond Fund. In accordance with the FUND's
Agreement and Declaration of Trust (the "Declaration"), new Funds may
be added to the FUND upon approval of the FUND's Board of Trustees
without approval of the FUND's shareholders. This Agreement will apply
only to the Fund(s) set forth on the attached Schedule A, and any other
Funds as may be added or deleted by amendment to the attached Schedule
A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), the FUND's Declaration, Bylaws,
registration statements, prospectus and stated investment objectives, policies
and restrictions and any applicable procedures adopted by the FUND's Board of
Trustees shall:
1
<PAGE> 2
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in compliance with respect to each Covered
Fund's securities transactions as required by the 1940 Act and the Advisers Act,
as well as other applicable laws. The SUB-ADVISER will furnish the FUND's Board
of Trustees such periodic and special reports as VALIC and the FUND's Board of
Trustees may reasonably request. The SUB-ADVISER will furnish to regulatory
authorities any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Covered
Funds are being conducted in a manner consistent with applicable laws and
regulations. The SUB-ADVISER will not disclose or use any records or information
obtained pursuant to this Agreement in any manner whatsoever except as expressly
authorized in this Agreement, and will keep confidential any information
obtained pursuant to this service relationship, and disclose such information
only if VALIC or the Board of Trustees of the FUND has authorized such
disclosure, or if such information is or hereafter becomes ascertainable from
public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB- ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for the FUND, on
a daily basis, such confirmation, trade tickets and other documents as may be
necessary to enable it to perform its administrative responsibilities with
respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
2
<PAGE> 3
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
3
<PAGE> 4
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv) has
the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of its
Form ADV as most recently filed with the SEC and will promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
4
<PAGE> 5
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND, except insofar as any
such statement or omission was made in reliance on information provided by the
the SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub- Advisory
Agreement, including a negligent failure whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified in
section 817(h), and the qualification standards of Subchapter M of the Code, as
amended, and the regulations thereunder, (other than a failure which is
subsequently timely corrected by the SUB- ADVISER in accordance with applicable
law and regulations such that no loss is incurred by VALIC or a Covered Fund) or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to
5
<PAGE> 6
the FUND to the extent any such statement or omission was made in reliance on
information provided by the SUB-ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-----------------------------------------
Name: Cynthia A. Toles
Title: Senior Vice President, General
Counsel and Secretary
ATTEST:
- ------------------------------------
BROWN CAPITAL MANAGEMENT, INC.
By:
-----------------------------------------
Name:
Title:
ATTEST:
- ------------------------------------
6
<PAGE> 7
SCHEDULE A
(Effective August 26, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Mid Cap Growth Fund 0.40% of the first $25 million
0.30% of the next $25 million
0.20% on the excess over $50 million
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(4)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and J. P.
MORGAN INVESTMENT MANAGEMENT INC., hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General Small Cap Growth Fund pursuant to an Investment Advisory
Agreement dated August 26, 1998 between VALIC and American General
Series Portfolio Company 3 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General Balanced Fund, American
General Conservative Growth Lifestyle Fund, American General Moderate
Growth Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, and
American General High Yield Bond Fund. In accordance with the FUND's
Agreement and Declaration of Trust (the "Declaration"), new Funds may
be added to the FUND upon approval of the FUND's Board of Trustees
without approval of the FUND's shareholders. This Agreement will apply
only to the Fund(s) set forth on the attached Schedule A, and any other
Funds as may be added or deleted by amendment to the attached Schedule
A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), the FUND's Declaration, Bylaws,
registration statements, prospectus and stated investment objectives, policies
and restrictions and any applicable procedures adopted by the FUND's Board of
Trustees shall:
1
<PAGE> 2
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In selecting brokers or dealers to execute transactions on behalf of
the Covered Funds, the SUB-ADVISER will seek the best overall terms available.
In assessing the best overall terms available for any transaction, the SUB-
ADVISER will consider factors it deems relevant, including, without limitation,
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the brokers or dealers and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. In selecting brokers or dealers to execute a particular
transaction, and in evaluating the best overall terms available, the SUB-ADVISER
is authorized to consider the brokerage and research services (within the
meaning of Section 28(e) of the Securities and Exchange Act of 1934, as amended)
provided to the Covered Funds and/or other accounts over which the SUB-ADVISER
or its affiliates exercise discretion.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in complying with regulations applicable to
each Covered Fund's securities transactions as required by the 1940 Act and the
Advisers Act, as well as other applicable laws. The SUB-ADVISER will furnish the
FUND's Board of Trustees such periodic and special reports as VALIC and the
FUND's Board of Trustees may reasonably request. The SUB-ADVISER will furnish to
regulatory authorities any information or reports in connection with such
services which may be requested in order to ascertain whether the operations of
the Covered Funds are being conducted in a manner consistent with applicable
laws and regulations. The SUB-ADVISER will not disclose or use any records or
information obtained pursuant to this Agreement in any manner whatsoever except
as expressly authorized in this Agreement, and will keep confidential any
information obtained pursuant to this service relationship, and disclose such
information only if VALIC or the Board of Trustees of the FUND has authorized
such disclosure, or if such information is or hereafter becomes ascertainable
from public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for the FUND, on
a daily basis, such confirmation, trade tickets and other documents as may be
necessary to enable it to perform its administrative responsibilities with
respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
2
<PAGE> 3
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
VALIC understands that the SUB-ADVISER and its affiliates now act, will
continue to act and may act in the future as investment adviser to fiduciary and
other managed accounts and as investment adviser to other investment companies,
and VALIC has no objection to the SUB-ADVISER so acting, provided that whenever
a Covered Fund and one or more other accounts or investment companies advised by
the SUB-ADVISER have available funds for investment, investments suitable and
appropriate for each will be allocated in accordance with a methodology believed
to be equitable to each entity. The SUB-ADVISER similarly agrees to allocate
opportunities to sell securities. VALIC recognizes that, in some cases, this
procedure may limit the size of the position that may be acquired or sold for a
Covered Fund. In addition, VALIC understands that the persons employed by the
SUB-ADVISER to assist in the performance of the SUB-ADVISER's duties hereunder
will not devote their full time to such service and nothing contained herein
shall be deemed to limit or restrict the right of the SUB-ADVISER or any
affiliate of the SUB-ADVISER to engage in and devote time and attention to
other business or to render services of whatever kind or nature.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this Agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
3
<PAGE> 4
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv) has
the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of its
Form ADV as most recently filed with the SEC and will promptly after filing any
amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
4
<PAGE> 5
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish SUB-ADVISER copies of any amendments or supplements thereto before or at
the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, advertisements or sales literature,
pertaining to the FUND, except insofar as any such statement or omission was
made in reliance on information provided in writing by the SUB-ADVISER or its
affiliates.
5
<PAGE> 6
The SUB-ADVISER shall indemnify and hold harmless VALIC (and its
affiliated companies and their respective officers, directors and employees)
from any and all claims, losses, liabilities or damages (including reasonable
attorney's fees and other related expenses) arising out of or in connection with
(1) any willful misfeasance, bad faith, gross negligence, or reckless disregard
of obligations or duties of the SUB-ADVISER in performing hereunder; or (2) any
untrue statement of material fact or any omission to state a material fact
required to be stated or necessary to make statements, in light of the
circumstances under which they are made, not misleading in any registration
statement, proxy materials, advertisements or sales literature, pertaining to
the Funds to the extent any such statement or omission was made in reliance on
information provided in writing by the SUB-ADVISER to VALIC for the express
purpose of inclusion in such materials.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-----------------------------------------
Name: Cynthia A. Toles
Title: Senior Vice President, General
Counsel and Secretary
ATTEST:
- ------------------------------------
J.P. MORGAN INVESTMENT MANAGEMENT INC.
By:
-----------------------------------------
Name:
Title:
ATTEST:
- ------------------------------------
6
<PAGE> 7
SCHEDULE A
(Effective August 26, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Small Cap Growth Fund 0.60%
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(5)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and CAPITAL
GUARDIAN TRUST COMPANY, hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General International Value Fund, American General Domestic Bond Fund
and American General Balanced Fund pursuant to an Investment Advisory
Agreement dated August 26, 1998 between VALIC and American General
Series Portfolio Company 3 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General Balanced Fund, American
General Conservative Growth Lifestyle Fund, American General Moderate
Growth Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, and
American General High Yield Bond Fund. In accordance with the FUND's
Agreement and Declaration of Trust (the "Declaration"), new Funds may
be added to the FUND upon approval of the FUND's Board of Trustees
without approval of the FUND's shareholders. This Agreement will apply
only to the Fund(s) set forth on the attached Schedule A, and any other
Funds as may be added or deleted by amendment to the attached Schedule
A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is exempt from registration
as an investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with provisions of: (i)
the 1940 Act; (ii) all applicable laws and regulations thereunder; and (iii) all
other applicable federal and state laws and regulations, including section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), as are set
forth in the Fund's Compliance Manual as mutually agreed upon by VALIC and the
SUB-ADVISER and in conformity with the FUND's Declaration, Bylaws, registration
statements, prospectus
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<PAGE> 2
and stated investment objectives, policies and restrictions and any applicable
procedures adopted by the FUND's Board of Trustees, which are communicated in
writing to the SUB-ADVISER, shall:
(a) manage the investment and reinvestment of the assets,
other than the investment of cash, of the Covered Funds including, for
example, the evaluation of pertinent economic, statistical, financial,
and other data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (which may include futures contracts
and options thereon) for each Covered Fund's account with brokers or
dealers (which may include futures commission merchants) selected by
the SUB-ADVISER, or arrange for any other entity to provide a trading
desk and to place orders with brokers and dealers (which may
include futures commission merchants) selected by the SUB-ADVISER,
which brokers or dealers may include brokers or dealers (which may
include futures commission merchants) affiliated with the SUB-ADVISER,
subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in compliance with respect to each Covered
Fund's securities transactions as required by the 1940 Act and the Advisers Act,
as well as other applicable laws. The SUB-ADVISER will furnish the FUND's Board
of Trustees such periodic and special reports as VALIC and the FUND's Board of
Trustees may reasonably request. The SUB-ADVISER will furnish to regulatory
authorities any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Covered
Funds are being conducted in a manner consistent with applicable laws and
regulations. The SUB-ADVISER will not disclose or use any records or information
obtained pursuant to this Agreement in any manner whatsoever except as expressly
authorized in this Agreement, and will keep confidential any information
obtained pursuant to this service relationship, and disclose such information
only if VALIC or the Board of Trustees of the FUND has authorized such
disclosure, or if such information is or hereafter becomes ascertainable from
public or published information or trade sources, or if such disclosure is
required or requested by applicable federal or state authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB-ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND. The
SUB-ADVISER will arrange for the transmission to the Custodian for the FUND, on
a daily basis, such confirmation, trade tickets and other documents as may be
necessary to enable it to perform its administrative responsibilities with
respect to the Covered Funds.
The SUB-ADVISER will not invest cash for the Covered Funds. The
investment of cash will be performed by VALIC.
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<PAGE> 3
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a quarterly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar quarter as soon as
practicable after the end of that quarter but in any event no later than thirty
(30) days following the end of the quarter.
If the SUB-ADVISER serves for less than a whole quarter, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this Agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is exempt from registration as an investment
adviser under the Advisers Act: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv) has
the authority to enter into and perform the
3
<PAGE> 4
services contemplated by this Agreement, and (v) will immediately notify VALIC
of the occurrence of any event that would disqualify the SUB-ADVISER from
serving as an investment adviser of an investment company pursuant to Section
9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify the SUB-ADVISER of the occurrence of any event that would
disqualify VALIC from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the
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<PAGE> 5
periods prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
The parties agree that the name "Capital Guardian Trust Company," the
names of the SUB-ADVISER's affiliates within the Capital Group of Companies,
Inc., and any derivative or logo or trade or service mark, are the valuable
property of the SUB-ADVISER and its affiliates. VALIC shall have the right to
use such name(s), derivatives, logos, trade or service marks only with the prior
written approval of the SUB-ADVISER, which approval shall not be unreasonably
withheld so long as this Agreement is in effect. Upon termination of this
Agreement, VALIC shall forthwith cease to use such name(s), derivatives, logos,
trade or service marks. VALIC agrees that it will review with the SUB-ADVISER
any advertisement, sales literature or notice prior to its use that makes
reference to the SUB-ADVISER so that the SUB-ADVISER may review the context in
which it is referred to, it being agreed that the SUB-ADVISER shall have no
responsibility to ensure the adequacy of the form or content of such materials
for purposes of the 1940 Act or other applicable laws and regulations. If the
Covered Funds or VALIC makes any unauthorized use of the SUB-ADVISER's name(s),
derivatives, logos, trade or service marks, the parties acknowledge that the
SUB-ADVISER shall suffer irreparable harm for which monetary damages are
inadequate and thus, the SUB-ADVISER shall be entitle to injunctive relief.
VALIC shall furnish or otherwise make available to the SUB-ADVISER such other
information relating to the business affairs of VALIC and the FUND as the
SUB-ADVISER at any time, or from time to time, may reasonably request in order
to discharge obligations hereunder.
The SUB-ADVISER shall indemnify and hold harmless VALIC (and its
affiliated companies and their respective officers, directors and employees)
from any and all claims, losses, liabilities or damages (including reasonable
attorney's fees and other related expenses) arising out of or in connection with
(1) any willful misfeasance, bad faith, gross negligence, or reckless disregard
of obligations or duties of the SUB-ADVISER in performing hereunder; or (2) any
untrue statement of a material fact or any omission to state a material fact
required to be stated or necessary to make statements, in light of the
circumstances under which they are made, not misleading in any registration
statement, proxy materials, reports, advertisements, sales literature, or other
materials pertaining to the Funds to the extent any such statement or omission
was made in reliance on information provided by the SUB-ADVISER to VALIC for the
express purpose of inclusion in such materials.
VALIC shall indemnify and hold harmless the SUB-ADVISER (and its
affiliated companies and their respective officers, directors and employees)
from any and all claims, losses, liabilities or damages (including reasonable
attorney's fees and other related expenses) arising out of any matter which does
not require the SUB-ADVISER to provide an indemnity under the preceding
paragraph, including without limitation, any claim that is based upon any untrue
statement of a material fact or any omission to state a material fact required
to be stated or necessary to make statements, in light of the circumstances
under which they are made, not misleading not misleading contained in the
registration statement, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the Funds except those statements
that were provided by the SUB-ADVISER to VALIC for the express purpose of
inclusion in such materials.
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<PAGE> 6
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-----------------------------------------
Name: Cynthia A. Toles
Title: Senior Vice President, General
Counsel and Secretary
ATTEST:
- ---------------------------
CAPITAL GUARDIAN TRUST COMPANY
By:
-----------------------------------------
Name:
Title:
ATTEST:
- ---------------------------
6
<PAGE> 7
SCHEDULE A
(Effective August 26, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable quarterly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General International Value Fund* 0.75% of the first $25 million
0.60% of the next $25 million
0.425% of the next $200 million
0.375% on the excess over $250 million
American General Domestic Bond Fund* 0.35% of the first $50 million
0.20% of the next $50 million
0.18% of the next $200 million
0.15% on the excess over $300 million
American General Balanced Fund* 0.55% of the first $25 million
0.40% of the next $25 million
0.20% on the excess over $50 million
</TABLE>
*Fees with respect to each Fund are aggregated and the Sub-Adviser
applies a 5% discount to all fees if all fees are between $1.25
million and $4 million, a 7.5% discount to all fees between $4
million and $8 million, and a 12.5% discount to all fees if total
fees exceed $12 million.
7
<PAGE> 1
EXHIBIT 5(b)(6)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and STATE
STREET BANK & TRUST COMPANY, through its division, STATE STREET GLOBAL ADVISORS,
hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers Act").
(b) VALIC is engaged as the investment adviser of American
General Large Cap Value Fund pursuant to an Investment Advisory
Agreement dated August 26, 1998 between VALIC and American General
Series Portfolio Company 3 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of 1940,
as amended ("1940 Act"). The 1940 Act prohibits any person from acting
as an investment adviser of a registered investment company except
pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small Cap
Value Fund, American General Small Cap Growth Fund, American General
Socially Responsible Fund, American General Money Market Fund, American
General Domestic Bond Fund, American General Balanced Fund, American
General Conservative Growth Lifestyle Fund, American General Moderate
Growth Lifestyle Fund, American General Growth Lifestyle Fund, American
General Core Bond Fund, American General Strategic Bond Fund, and
American General High Yield Bond Fund. In accordance with the FUND's
Agreement and Declaration of Trust (the "Declaration"), new Funds may
be added to the FUND upon approval of the FUND's Board of Trustees
without approval of the FUND's shareholders. This Agreement will apply
only to the Fund(s) set forth on the attached Schedule A, and any other
Funds as may be added or deleted by amendment to the attached Schedule
A ("Covered Funds").
(d) The SUB-ADVISER is engaged in the business of rendering
investment advisory services and is a "bank" as defined under the
Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign to
the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), the FUND's Declaration, Bylaws,
registration statements, prospectus and stated investment objectives, policies
and
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<PAGE> 2
restrictions and any applicable procedures adopted by the FUND's Board of
Trustees and provided to the SUB-ADVISER shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the FUND
promptly upon their request all of the Covered Funds' investment records and
ledgers to assist VALIC and the FUND in compliance with respect to each Covered
Fund's securities transactions as required by the 1940 Act and the Advisers Act,
as well as other applicable laws. The SUB-ADVISER will furnish the FUND's Board
of Trustees such periodic and special reports as VALIC and the FUND's Board of
Trustees may reasonably request. The SUB-ADVISER will furnish to regulatory
authorities any information or reports in connection with such services which
may be requested in order to ascertain whether the operations of the Covered
Funds are being conducted in a manner consistent with applicable laws and
regulations. The SUB-ADVISER will not disclose or use any records or information
obtained pursuant to this Agreement in any manner whatsoever except as expressly
authorized in this Agreement, and will keep confidential any information
obtained pursuant to this service relationship, and disclose such information
only if VALIC or the Board of Trustees of the FUND has authorized such
disclosure, or if such information is or hereafter becomes ascertainable from
public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB-ADVISER of such determination in writing,
the SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination has
been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND (the
"Custodian"). The SUB-ADVISER will arrange for the transmission to the Custodian
for the FUND, on a daily basis, such confirmation, trade tickets and other
documents as may be necessary to enable it to perform its administrative
responsibilities the with respect to the Covered Funds. The SUB-ADVISER further
shall have the authority to instruct the custodian of the FUND (i) to pay cash
for securities and other property delivered to the Custodian for the FUND (ii)
to deliver securities and other property against payment for the FUND, and (iii)
to transfer assets and funds to such brokerage accounts as the SUB-ADVISER may
designate, all
2
<PAGE> 3
consistent with the powers, authorities and limitations set forth herein. The
SUB-ADVISER shall not have the authority to cause the Custodian to deliver
securities and other property except as expressly provided for in this
Agreement.
The SUB-ADVISER may aggregate sales and purchase orders of securities
held by the FUND with similar orders being made simultaneously for other
accounts managed by the SUB-ADVISER or with accounts of the affiliates of the
SUB-ADVISER, if in the SUB-ADVISER's reasonable judgment such aggregation shall
result in an overall economic benefit to the FUND considering the advantageous
selling or purchase price, brokerage commission and other expenses. In
accounting for such aggregated order price, commission and other expenses shall
be averaged on a per bond or share basis daily. VALIC acknowledges that the
determination of such economic benefit to the FUND by the SUB-ADVISER is
subjective and represents the SUB-ADVISER's evaluation that the FUND is
benefited by relatively better purchase or sales prices, lower commission
expenses and beneficial timing of transactions or a combination of these and
other factors.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in furtherance
of the SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities hereunder
and VALIC shall pay, or arrange for others to pay, all VALIC's expenses, except
that VALIC shall in all events pay the compensation described in Section 2 of
this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB-ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time with the express written consent
of the parties hereto, provided that amendments are made in conformity with
applicable laws and regulations and the Declaration and Bylaws of the FUND. Any
change in Schedule A pertaining to any new or existing Fund shall not be deemed
to affect the interest of any other Fund and shall not require the approval of
shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the manner
provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER terminates its services prior to month end, the
foregoing compensation shall be prorated.
The payment of advisory fees related to the services of the SUB-ADVISER
under this Agreement shall be the sole responsibility of VALIC and shall not be
the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which does
not impair the services which the SUB-ADVISER renders to the Covered Funds.
VALIC agrees that the
3
<PAGE> 4
SUB-ADVISER may give advice and take action in the performance of its duties
with respect to any of its other clients which differ from action taken with
respect to any Covered Fund.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is a "bank" as defined under the Advisers Act
and will continue to maintain such status for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement, (iv) has the authority to enter into
and perform the services contemplated by this Agreement, and (v) will
immediately notify VALIC of the occurrence of any event that would disqualify
the SUB-ADVISER from serving as an investment adviser of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying with
the requirements of Rule 17j-1 under the 1940 Act and if it has not already done
so, will provide VALIC and the FUND with a copy of such code of ethics together
with evidence of its adoption.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any applicable
federal or state requirements, or the applicable requirements of any regulatory
or industry self-regulatory agency, necessary to be met in order to perform the
services contemplated by this Agreement including the authority to appoint a
SUB-ADVISER to the FUND, (iv) has the authority to enter into and perform the
services contemplated by this Agreement, and (v) will immediately notify the
SUB-ADVISER of the occurrence of any event that would disqualify VALIC from
serving as an investment adviser of an investment company pursuant to Section
9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least
4
<PAGE> 5
annually by the vote of a majority of the FUND's trustees who are not parties to
this Agreement or interested persons of any such parties, cast in person at a
meeting called for the purpose of voting on such approval, and by a vote of a
majority of the FUND's Board of Trustees or a majority of that Fund's
outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least 60
days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement, or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not
5
<PAGE> 6
misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the FUND,
except insofar as any such statement or omission was made in reliance on
information provided by the SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub- Advisory
Agreement, including a negligent failure whether unintentional or in good faith
or otherwise, to comply with the diversification requirements specified in
section 817(h), and the qualification standards of Subchapter M of the Code, as
amended, and the regulations thereunder, (other than a failure which is
subsequently timely corrected by the SUB- ADVISER in accordance with applicable
law and regulations such that no loss is incurred by VALIC or a Covered Fund) or
(ii) as the result of any untrue statement of a material fact or any omission to
state a material fact required to be stated or necessary to make the statements,
in light of the circumstances under which they were made, not misleading in any
registration statements, proxy materials, reports, advertisements, sales
literature, or other materials pertaining to the FUND to the extent any such
statement or omission was made in reliance on information provided by the SUB-
ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations, including
definitions therein and such exemptions as may be granted to VALIC or the
SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that the
applicable law of the State of Texas, or any of the provisions herein, conflict
with applicable provisions of the federal securities laws, the latter shall
control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-----------------------------------------
Name: Cynthia A. Toles
Title: Senior Vice President, General
Counsel and Secretary
ATTEST:
- ----------------------
STATE STREET BANK & TRUST COMPANY, through
its division, STATE STREET GLOBAL ADVISORS
By:
-----------------------------------------
Name:
Title:
ATTEST:
- ----------------------
6
<PAGE> 7
SCHEDULE A
(Effective August 26, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Large Cap Value Fund 0.25%
$50,000 minimum annual fee
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(7)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and
NEUBERGER&BERMAN MANAGEMENT, INC., hereinafter referred to as the
"SUB-ADVISER."
VALIC represents the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers
Act").
(b) VALIC is engaged as the investment adviser of American
General Mid Cap Value Fund pursuant to an Investment Advisory
Agreement dated August 26, 1998 between VALIC and American General
Series Portfolio Company 3 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of
1940, as amended ("1940 Act"). The 1940 Act prohibits any person from
acting as an investment adviser of a registered investment company
except pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small
Cap Value Fund, American General Small Cap Growth Fund, American
General Socially Responsible Fund, American General Money Market Fund,
American General Domestic Bond Fund, American General Balanced Fund,
American General Conservative Growth Lifestyle Fund, American General
Moderate Growth Lifestyle Fund, American General Growth Lifestyle
Fund, American General Core Bond Fund, American General Strategic Bond
Fund, and American General High Yield Bond Fund. In accordance with
the FUND's Agreement and Declaration of Trust (the "Declaration"), new
Funds may be added to the FUND upon approval of the FUND's Board of
Trustees without approval of the FUND's shareholders. This Agreement
will apply only to the Fund(s) set forth on the attached Schedule A,
and any other Funds as may be added or deleted by amendment to the
attached Schedule A ("Covered Funds").
(d) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Fund(s) set forth on the attached Schedule A, and any other Funds
as may be added or deleted by amendment to the attached Schedule A
("Covered Funds") which VALIC determines from time to time to assign
to the SUB-ADVISER.
(e) The SUB-ADVISER represents that it is engaged
principally in the business of rendering investment advisory services
and is registered as an investment adviser under the Advisers Act.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
This Agreement will apply only to the Covered Funds.
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"),
1
<PAGE> 2
the FUND's Declaration, Bylaws, registration statements, prospectus and stated
investment objectives, policies and restrictions and any applicable procedures
adopted by the FUND's Board of Trustees shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB- ADVISER, subject to applicable
law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the
FUND promptly upon their reasonable request all of the Covered Funds'
investment records and ledgers to assist VALIC and the FUND in compliance with
respect to each Covered Fund's securities transactions as required by the 1940
Act and the Advisers Act, as well as other applicable laws. The SUB-ADVISER
will furnish the FUND's Board of Trustees such periodic and special reports as
VALIC and the FUND's Board of Trustees may reasonably request. The SUB-ADVISER
will furnish to regulatory authorities any information or reports in connection
with such services which may be requested in order to ascertain whether the
operations of the Covered Funds are being conducted in a manner consistent with
applicable laws and regulations. The SUB-ADVISER will not disclose any records
or information obtained pursuant to this Agreement in any manner whatsoever
except as expressly authorized in this Agreement, and will keep confidential
any information obtained pursuant to this service relationship, and disclose
such information only if VALIC or the Board of Trustees of the FUND has
authorized such disclosure, or if such information is or hereafter becomes
ascertainable from public or published information or trade sources, or if such
disclosure is expressly required or requested by applicable federal or state
authorities. Notwithstanding the foregoing, the SUB-ADVISER may disclose the
total return earned by the Covered Funds and may include such total return in
the calculation of composite performance information without prior approval by
VALIC or the Board of Trustees of the Fund.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB-ADVISER of such determination in writing,
the SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND.
The SUB-ADVISER will arrange for the transmission to the Custodian for the
FUND, on a daily basis, such confirmation, trade tickets and other documents as
may be necessary to enable it to perform its administrative responsibilities
with respect to the Covered Funds.
2
<PAGE> 3
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in
furtherance of the SUB-ADVISER's duties and responsibilities as set forth in
this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities
hereunder and VALIC shall pay, or arrange for others to pay, all VALIC's
expenses, except that VALIC shall in all events pay the compensation described
in Section 2 of this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB- ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the
manner provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than ten
(10) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the
SUB-ADVISER under this Agreement shall be the sole responsibility of VALIC and
shall not be the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which
does not impair the services which the SUB-ADVISER renders to the Covered
Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
claims, damages, liabilities or litigation (including reasonable counsel fees
and expenses) sustained in connection with the matters to which this Agreement
relates, so long as there has been no willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligations or duties on the part of the
SUB-ADVISER.
3
<PAGE> 4
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv)
has the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and if it has not
already done so, will provide VALIC and the FUND with a copy of such code of
ethics together with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of
its Form ADV as most recently filed with the SEC and will promptly after filing
any amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the authority to
enter into and perform the services contemplated by this Agreement, and (v)
will immediately notify the SUB-ADVISER of the occurrence of any event that
would disqualify VALIC from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least
60 days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement.
4
<PAGE> 5
The SUB-ADVISER may terminate this Agreement at any time, or preclude its
renewal without the payment of any penalty, on at least 60 days' prior written
notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to SUB-ADVISER. VALIC shall
furnish or otherwise make available to the SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as the SUB-ADVISER at
any time, or from time to time, may reasonably request in order to discharge
obligations hereunder. Subject to provisions of this paragraph, SUB-ADVISER
grants VALIC and the FUND a non-exclusive right to use the "Neuberger&Berman"
name in connection with the SUB-ADVISER's management of the FUND (i) for so
long as the Agreement, any other investment management agreement between VALIC
and SUB-ADVISER with respect to the FUND, or to any extension, renewal or
amendment thereof, remain in effect, and (ii) for subsequent periods as long as
required by law, rule or regulation or to the extent necessary to refer to or
illustrate the historical performance of the FUND.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement,
or (ii) as the result of any untrue statement of a material fact or any
omission to state a material fact required to be stated or necessary to make
the statements, in light of the circumstances under which they were made, not
misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials
5
<PAGE> 6
pertaining to the FUND, except insofar as any such statement or omission was
made in reliance on information provided by the SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by the SUB-ADVISER to provide the services
or furnish the materials required under the terms of this Investment
Sub-Advisory Agreement, including a negligent failure whether unintentional or
in good faith or otherwise, to comply with the diversification requirements
specified in section 817(h), and the qualification standards of Subchapter M of
the Code, as amended, and the regulations thereunder, (other than a failure
which is subsequently timely corrected by the SUB- ADVISER in accordance with
applicable law and regulations such that no loss is incurred by VALIC or a
Covered Fund) or (ii) as the result of any untrue statement of a material fact
or any omission to state a material fact required to be stated or necessary to
make the statements, in light of the circumstances under which they were made,
not misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the FUND to
the extent any such statement or omission was made in reliance on information
provided by the SUB-ADVISER or its affiliates. Provided, however, that the
SUB-ADVISER's responsibility for indemnification pursuant to this paragraph
shall not, for any Covered Fund, exceed the lesser of $1,000,000 or 2% of the
Covered Fund's net assets (measured as of the end of the first calendar quarter
during which non-compliance occurred) for any failure to comply with the
diversification requirements specified in section 817(h) or the qualification
of Subchapter M of the Code.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations,
including definitions therein and such exemptions as may be granted to VALIC or
the SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that
the applicable law of the State of Texas, or any of the provisions herein,
conflict with applicable provisions of the federal securities laws, the latter
shall control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
---------------------------------------
Name: Cynthia A. Toles
Title: Senior Vice President, General
Counsel and Secretary
ATTEST:
- ---------------------------
NEUBERGER&BERMAN MANAGEMENT, INC.
By:
---------------------------------------
Name:
Title:
ATTEST:
- ---------------------------
6
<PAGE> 7
SCHEDULE A
(Effective August 26, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Mid Cap Value Fund 0.50% of the first $100 million
0.475% of the next $150 million
0.45% of the next $250 million
0.425% of the next $250 million
0.40% on the excess over $750 million
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(8)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and BANKERS
TRUST COMPANY, hereinafter referred to as the "SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers
Act").
(b) VALIC is engaged as the investment adviser of American
General Small Cap Value Fund pursuant to an Investment Advisory
Agreement dated August 26, 1998 between VALIC and American General
Series Portfolio Company 3 ("FUND"), an investment company organized
under the laws of Delaware as a business trust, as a series type of
investment company issuing separate classes (or series) of shares of
beneficial interest and is registered as a diversified, open-end,
management investment company under the Investment Company Act of
1940, as amended ("1940 Act"). The 1940 Act prohibits any person from
acting as an investment adviser of a registered investment company
except pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small
Cap Value Fund, American General Small Cap Growth Fund, American
General Socially Responsible Fund, American General Money Market Fund,
American General Domestic Bond Fund, American General Balanced Fund,
American General Conservative Growth Lifestyle Fund, American General
Moderate Growth Lifestyle Fund, American General Growth Lifestyle
Fund, American General Core Bond Fund, American General Strategic Bond
Fund, and American General High Yield Bond Fund. In accordance with
the FUND's Agreement and Declaration of Trust (the "Declaration"), new
Funds may be added to the FUND upon approval of the FUND's Board of
Trustees without approval of the FUND's shareholders. This Agreement
will apply only to the Fund(s) set forth on the attached Schedule A,
and any other Funds as may be added or deleted by amendment to the
attached Schedule A ("Covered Funds").
(d) The SUB-ADVISER is engaged in the business of rendering
investment advisory services and is a "bank" as defined under the
Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign
to the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in conformity with the 1940 Act, all
applicable laws and regulations thereunder, all other applicable federal and
state laws and regulations, including section 817(h) of the Internal Revenue
Code of 1986, as amended (the "Code"), the FUND's Declaration, Bylaws,
registration statements, prospectus and stated investment objectives, policies
and restrictions and any applicable procedures adopted by the FUND's Board of
Trustees shall:
1
<PAGE> 2
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB- ADVISER, subject to applicable
law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services, including statistical data, to the SUB-ADVISER. The
SUB-ADVISER shall not be deemed to have acted unlawfully, or to have breached
any duty created by this Agreement, or otherwise, solely by reason of acting
according to such authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of services
under this Agreement. The SUB-ADVISER will make available to VALIC and the
FUND promptly upon their request all of the Covered Funds' investment records
and ledgers to assist VALIC and the FUND in compliance with respect to each
Covered Fund's securities transactions as required by the 1940 Act and the
Advisers Act, as well as other applicable laws. The SUB-ADVISER will furnish
the FUND's Board of Trustees such periodic and special reports as VALIC and the
FUND's Board of Trustees may reasonably request. The SUB-ADVISER will furnish
to regulatory authorities any information or reports in connection with such
services which may be requested in order to ascertain whether the operations of
the Covered Funds are being conducted in a manner consistent with applicable
laws and regulations. The SUB-ADVISER will not disclose or use any records or
information obtained pursuant to this Agreement in any manner whatsoever except
as expressly authorized in this Agreement, and will keep confidential any
information obtained pursuant to this service relationship, and disclose such
information only if VALIC or the Board of Trustees of the FUND has authorized
such disclosure, or if such information is or hereafter becomes ascertainable
from public or published information or trade sources, or if such disclosure is
expressly required or requested by applicable federal or state authorities or
to the extent such disclosure is reasonably required by auditors or attorneys
of the SUB-ADVISER in connection with the performance of their professional
services.
Should VALIC at any time make any definite determination as to
investment policy and notify the SUB-ADVISER of such determination, the
SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND.
The SUB-ADVISER will arrange for the transmission to the Custodian for the
FUND, on a daily basis, such information with respect to transactions as may be
necessary to enable it to perform its administrative responsibilities with
respect to the Covered Funds.
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
2
<PAGE> 3
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act for or represent VALIC or the FUND other than in
furtherance of the SUB-ADVISER's duties and responsibilities as set forth in
this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities
hereunder and VALIC shall pay, or arrange for others to pay, all VALIC's
expenses, except that VALIC shall in all events pay the compensation described
in Section 2 of this Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB- ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the
manner provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than thirty
(30) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the
SUB-ADVISER under this Agreement shall be the sole responsibility of VALIC and
shall not be the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which
does not impair the services which the SUB-ADVISER renders to the Covered
Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER.
3
<PAGE> 4
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is a "bank" as defined under the Advisers Act
and will continue to be so registered for so long as this Agreement remains in
effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the authority to
enter into and perform the services contemplated by this Agreement, and (v)
will immediately notify VALIC of the occurrence of any event that would
disqualify the SUB-ADVISER from serving as an investment adviser of an
investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and if it has not
already done so, will provide VALIC and the FUND with a copy of such code of
ethics together with evidence of its adoption.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the authority to
enter into and perform the services contemplated by this Agreement, and (v)
will immediately notify the SUB-ADVISER of the occurrence of any event that
would disqualify VALIC from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment, as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least
60 days' prior written notice to the SUB-ADVISER, without the payment of any
penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties and
obligations under this Agreement. The SUB-ADVISER may terminate this Agreement
at any time, or preclude its renewal without the payment of any penalty, on at
least 60 days' prior written notice to VALIC.
4
<PAGE> 5
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fitted to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in accordance
with the 1940 Act and rules thereunder. The SUB-ADVISER further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC
shall furnish or otherwise make available to the SUB-ADVISER such other
information relating to the business affairs of VALIC and the FUND as the
SUB-ADVISER at any time, or from time to time, may reasonably request in order
to discharge obligations hereunder.
VALIC agrees to indemnify the SUB-ADVISER for losses and claims which
arise (i) as a result of a failure by VALIC to provide the services or furnish
materials required under the terms of this Investment Sub-Advisory Agreement,
or (ii) as the result of any untrue statement of a material fact or any
omission to state a material fact required to be stated or necessary to make
the statements, in light of the circumstances under which they were made, not
misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the FUND,
except insofar as any such statement or omission was made in reliance on
information provided by the the SUB-ADVISER or its affiliates.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by the SUB-ADVISER to provide the services
or furnish the materials required under the terms of this Investment
Sub-Advisory Agreement, including a negligent failure whether unintentional or
in good faith or otherwise, to comply with the diversification requirements
specified in section 817(h), and the qualification standards of Subchapter M of
the Code, as amended, and the regulations thereunder, (other than a failure
which is subsequently timely corrected by the SUB- ADVISER in accordance with
applicable law and regulations such that no loss is incurred by VALIC or a
Covered Fund) or (ii) as the result of any untrue statement of a material fact
or any omission to state a material fact required to be stated or necessary to
make the statements, in light of the circumstances under which they were made,
not misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to
5
<PAGE> 6
the FUND to the extent any such statement or omission was made in reliance on
information provided by the SUB-ADVISER or its affiliates.
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations,
including definitions therein and such exemptions as may be granted to VALIC or
the SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that
the applicable law of the State of Texas, or any of the provisions herein,
conflict with applicable provisions of the federal securities laws, the latter
shall control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
--------------------------------------
Name: Cynthia A. Toles
Title: Senior Vice President, General
Counsel and Secretary
ATTEST:
- -------------------------
BANKERS TRUST COMPANY
By:
--------------------------------------
Name:
Title:
ATTEST:
- ------------------------
6
<PAGE> 7
SCHEDULE A
(Effective August 26, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Small Cap 0.03%
Value Fund
</TABLE>
7
<PAGE> 1
EXHIBIT 5(b)(9)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 26th day of August, 1998, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and
AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P., hereinafter referred to as the
"SUB-ADVISER."
VALIC and the SUB-ADVISER recognize the following:
(a) VALIC is a life insurance company organized under Chapter
3 of the Texas Insurance Code and an investment adviser registered
under the Investment Advisers Act of 1940, as amended ("Advisers
Act").
(b) VALIC is engaged as the investment adviser of American
General Core Bond Fund, American General Strategic Bond Fund and
American General High Yield Bond Fund pursuant to an Investment
Advisory Agreement dated August 26, 1998 between VALIC and American
General Series Portfolio Company 3 ("FUND"), an investment company
organized under the laws of Delaware as a business trust, as a series
type of investment company issuing separate classes (or series) of
shares of beneficial interest and is registered as a diversified,
open- end, management investment company under the Investment Company
Act of 1940, as amended ("1940 Act"). The 1940 Act prohibits any
person from acting as an investment adviser of a registered investment
company except pursuant to a written contract.
(c) The FUND currently consists of eighteen portfolios
("Funds"): American General International Value Fund, American General
International Growth Fund, American General Large Cap Value Fund,
American General Large Cap Growth Fund, American General Mid Cap Value
Fund, American General Mid Cap Growth Fund, American General Small
Cap Value Fund, American General Small Cap Growth Fund, American
General Socially Responsible Fund, American General Money Market Fund,
American General Domestic Bond Fund, American General Balanced Fund,
American General Conservative Growth Lifestyle Fund, American General
Moderate Growth Lifestyle Fund, American General Growth Lifestyle
Fund, American General Core Bond Fund, American General Strategic Bond
Fund, and American General High Yield Bond Fund. In accordance with
the FUND's Agreement and Declaration of Trust (the "Declaration"), new
Funds may be added to the FUND upon approval of the FUND's Board of
Trustees without approval of the FUND's shareholders. This Agreement
will apply only to the Fund(s) set forth on the attached Schedule A,
and any other Funds as may be added or deleted by amendment to the
attached Schedule A ("Covered Funds").
(d) The SUB-ADVISER is engaged principally in the business of
rendering investment advisory services and is registered as an
investment adviser under the Advisers Act.
(e) VALIC desires to enter into an Investment Sub-Advisory
Agreement with the SUB-ADVISER for all or a portion of the assets of
the Covered Funds which VALIC determines from time to time to assign
to the SUB-ADVISER.
VALIC and the SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY THE SUB-ADVISER
The SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Trustees and in material conformity with the 1940
Act, all applicable laws and regulations thereunder, all other applicable
federal and state securities and tax laws and regulations, including section
817(h) and Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the FUND's Declaration, Bylaws, registration statements,
1
<PAGE> 2
prospectus and stated investment objectives, policies and restrictions and any
applicable procedures adopted by the FUND's Board of Trustees shall:
(a) manage the investment and reinvestment of the assets,
other than cash, of the Covered Funds including, for example, the
evaluation of pertinent economic, statistical, financial, and other
data, the determination of the industries and companies to be
represented in each Covered Fund's portfolio, and the formulation and
implementation of investment programs.
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments (including futures contracts and
options thereon) for each Covered Fund's account with brokers or
dealers (including futures commission merchants) selected by the
SUB-ADVISER, or arrange for any other entity to provide a trading desk
and to place orders with brokers and dealers (including futures
commission merchants) selected by the SUB-ADVISER, subject to the
SUB-ADVISER's control, direction, and supervision, which brokers or
dealers may include brokers or dealers (including futures commission
merchants) affiliated with the SUB- ADVISER, subject to applicable
law.
In performing the services described in paragraph (b) above, the
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the best
execution of portfolio transactions. Subject to approval by the FUND's Board
of Trustees of appropriate policies and procedures, the SUB-ADVISER may cause
the Covered Funds to pay to a broker a commission, for effecting a portfolio
transaction, in excess of the commission another broker would have charged for
effecting the same transaction, if the first broker provided brokerage and/or
research services to the SUB-ADVISER. The SUB-ADVISER shall not be deemed to
have acted unlawfully, or to have breached any duty created by this Agreement,
or otherwise, solely by reason of acting in accordance with such
authorization.
The SUB-ADVISER shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and report periodically to
VALIC and the FUND's Board of Trustees regarding the performance of its
services under this Agreement. The SUB-ADVISER will make available to VALIC
and the FUND promptly upon their reasonable written request all of the Covered
Funds' investment records and ledgers to assist VALIC and the FUND in
compliance with respect to each Covered Fund's securities transactions as
required by the 1940 Act and the Advisers Act, as well as other applicable
laws. The SUB-ADVISER will furnish the FUND's Board of Trustees such periodic
and special reports as VALIC and the FUND's Board of Trustees may reasonably
request. The SUB-ADVISER will furnish to regulatory authorities any
information or reports in connection with such services which may be requested
in order to ascertain whether the operations of the Covered Funds are being
conducted in a manner consistent with applicable laws and regulations. The
SUB-ADVISER will not disclose or use any records or information obtained
pursuant to this Agreement in any manner whatsoever except as expressly
authorized in this Agreement, and will keep confidential any non-public
information obtained directly as a result of this service relationship, and the
SUN-ADVISER shall disclose such non-public information only if VALIC or the
Board of Trustees of the FUND has authorized such disclosure, or if such
information is or hereafter otherwise is known by the SUB-ADVISER or has been
disclosed, directly or indirectly, by VALIC or the Fund to others becomes
ascertainable from public or published information or trade sources, or if such
disclosure is expressly required or requested by applicable federal or state
regulatory authorities.
Should VALIC at any time make any definite determination as to any
investment policy and notify the SUB-ADVISER in writing of such determination,
the SUB-ADVISER shall be bound by such determination for the period, if any,
specified in such notice or until similarly notified that such determination
has been revoked, provided such determination will permit SUB-ADVISER to comply
with the first paragraph of this Section.
The SUB-ADVISER will not hold money or investments on behalf of the
FUND. The money and investments will be held by the Custodian of the FUND.
The SUB-ADVISER will arrange for the transmission to the Custodian for the
FUND, on a daily basis, such confirmation, trade tickets and other documents as
may be necessary to enable it to perform its administrative responsibilities
with respect to the Covered Funds.
2
<PAGE> 3
The SUB-ADVISER will not perform cash management services for the
Covered Funds. The cash management function will be performed by VALIC.
The SUB-ADVISER shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise provided or authorized, have
no authority to act or represent VALIC or the Fund other than in furtherance of
the SUB- ADVISER's duties and responsibilities as set forth in this Agreement.
Except as otherwise agreed, or as otherwise provided herein, the
SUB-ADVISER shall bear the expense of discharging its responsibilities
hereunder and VALIC shall pay, or arrange for others to pay, all VALIC's
expenses, except that VALIC shall in all events pay the compensation described
in Section 2 of the Agreement.
2. COMPENSATION OF THE SUB-ADVISER
VALIC shall pay to the SUB-ADVISER, as compensation for the services
rendered and expenses paid by the SUB- ADVISER, a monthly fee or fees based on
each Covered Fund's average monthly net asset value computed for each Covered
Fund as provided for herein and in the fee schedule attached hereto as Schedule
A. Schedule A may be amended from time to time, provided that amendments are
made in conformity with applicable laws and regulations and the Declaration and
Bylaws of the FUND. Any change in Schedule A pertaining to any new or existing
Fund shall not be deemed to affect the interest of any other Fund and shall not
require the approval of shareholders of any other Fund.
The average monthly net asset value shall be determined by taking the
mean average of all of the determinations of net asset value, made in the
manner provided in the FUND's Declaration, for each business day during a given
calendar month. VALIC shall pay this fee for each calendar month as soon as
practicable after the end of that month, but in any event no later than ten
(10) days following the end of the month.
If the SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
The payment of advisory fees related to the services of the
SUB-ADVISER under this Agreement shall be the sole concern of VALIC and the
SUB-ADVISER and shall not be the responsibility of the FUND.
3. SCOPE OF THE SUB-ADVISER'S ACTIVITIES
The SUB-ADVISER, and any person controlled by or under common control
with the SUB-ADVISER, shall remain free to provide similar investment advisory
services to other persons or engage in any other business or activity which
does not impair the services which the SUB-ADVISER renders to the Covered
Funds.
Except as otherwise required by the 1940 Act, any of the shareholders,
directors, officers and employees of VALIC may be a shareholder, director,
officer or employee of, or be otherwise interested in, the SUB-ADVISER, and in
any person controlling, controlled by or under common control with the
SUB-ADVISER; and the SUB-ADVISER, and any person controlling, controlled by or
under common control with the SUB-ADVISER, may have an interest in VALIC.
The SUB-ADVISER shall not be liable to VALIC, the FUND, or to any
shareholder in the FUND, and VALIC shall indemnify the SUB-ADVISER, for any act
or omission in rendering services under this Agreement, or for any losses
sustained in connection with the matters to which this agreement relates, so
long as there has been no willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties on the part of the SUB-ADVISER in
performing its duties under this Agreement.
3
<PAGE> 4
4. REPRESENTATIONS OF THE SUB-ADVISER AND VALIC
The SUB-ADVISER represents, warrants, and agrees as follows:
(a) The SUB-ADVISER (i) is registered as an investment adviser under
the Advisers Act and will continue to be so registered for so long as this
Agreement remains in effect: (ii) is not prohibited by the 1940 Act or the
Advisers Act from performing the services contemplated by this Agreement; (iii)
has met, and will continue to meet for so long as this Agreement remains in
effect, any applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement, (iv)
has the authority to enter into and perform the services contemplated by this
Agreement, and (v) will immediately notify VALIC of the occurrence of any event
that would disqualify the SUB-ADVISER from serving as an investment adviser of
an investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
(b) The SUB-ADVISER has adopted a written code of ethics complying
with the requirements of Rule 17j-1 under the 1940 Act and if it has not
already done so, will provide VALIC and the FUND with a copy of such code of
ethics together with evidence of its adoption.
(c) The SUB-ADVISER has provided VALIC and the FUND with a copy of
its Form ADV as most recently filed with the SEC and will promptly after filing
any amendment to its Form ADV with the SEC, furnish a copy of such amendment to
VALIC.
VALIC represents, warrants, and agrees as follows:
VALIC: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Agreement remains
in effect: (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Agreement; (iii) has met, and will
continue to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Agreement, (iv) has the authority to
enter into and perform the services contemplated by this Agreement, and (v)
will immediately notify the SUB-ADVISER of the occurrence of any event that
would disqualify VALIC from serving as an investment adviser of an investment
company pursuant to Section 9(a) of the 1940 Act or otherwise.
5. TERM OF AGREEMENT
This Agreement shall become effective as to the Fund(s) set forth on
Schedule A on the date hereof and as to any other Fund on the date of the
Amendment to Schedule A adding such Fund in accordance with this Agreement.
Unless sooner terminated as provided herein, this Agreement shall continue in
effect for two years from its effective date. Thereafter, this Agreement shall
continue in effect, but with respect to any Covered Fund, subject to the
termination provisions and all other terms and conditions hereof, only so long
as such continuance is approved at least annually by the vote of a majority of
the FUND's trustees who are not parties to this Agreement or interested persons
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval, and by a vote of a majority of the FUND's Board of
Trustees or a majority of that Fund's outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment as that term is defined in the 1940 Act, or in the event of the
termination of the Investment Advisory Agreement between VALIC and the FUND as
it relates to any Covered Fund. The Agreement may be terminated as to any
Covered Fund at any time, without the payment of any penalty, by vote of the
FUND's Board of Trustees or by vote of a majority of that Covered Fund's
outstanding voting securities on at least 60 days' prior written notice to the
SUB-ADVISER. This Agreement may also be terminated by VALIC: (i) on at least
60 days' prior written notice to the SUB-ADVISER, without the payment of
4
<PAGE> 5
any penalty; or (ii) if the SUB-ADVISER becomes unable to discharge its duties
and obligations under this Agreement. The SUB-ADVISER may terminate this
Agreement at any time, or preclude its renewal without the payment of any
penalty, on at least 60 days' prior written notice to VALIC.
6. OTHER MATTERS
The SUB-ADVISER may from time to time employ or associate with itself
any person or persons believed to be particularly fit to assist in its
performance of services under this Agreement, provided no such person serves or
acts as an investment adviser separate from the SUB-ADVISER so as to require a
new written contract pursuant to the 1940 Act. The compensation of any such
persons will be paid by the SUB-ADVISER, and no obligation will be incurred by,
or on behalf of, VALIC or the FUND with respect to them.
The SUB-ADVISER agrees that all books and records which it maintains
for the FUND are the FUND's property. The SUB-ADVISER also agrees upon request
of VALIC or the FUND, to promptly surrender the books and records in
accordance with the 1940 Act and rules thereunder. The SUB-ADVISER further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the 1940 Act.
VALIC has herewith furnished the SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Declaration and Bylaws as
currently in effect and agrees during the continuance of this Agreement to
furnish the SUB-ADVISER copies of any amendments or supplements thereto before
or at the time the amendments or supplements become effective.
The SUB-ADVISER is authorized to honor and act on any notice,
instruction or confirmation given by VALIC on behalf of the FUND in writing
signed or sent by any of the persons whose names, addresses and specimen
signatures will be provided by VALIC from time to time. The SUB-ADVISER shall
not be liable for so acting in good faith upon such instructions, confirmation
or authority, notwithstanding that it shall subsequently be shown that the same
was not given or signed or sent by an authorized person.
VALIC agrees to furnish the SUB-ADVISER at its principal office prior
to use thereof, copies of all prospectuses, proxy statements, reports to
shareholders, sales literature, or other material prepared for distribution to
interest holders of the FUND or the public that refer in any way to the
SUB-ADVISER, and not to use such material if the SUB-ADVISER reasonably objects
in writing within ten (10) business days (or such other time as may be mutually
agreed) after receipt thereof. In the event of termination of this agreement,
VALIC will continue to furnish to the SUB-ADVISER copies of any of the
above-mentioned materials that refer in any way to the SUB-ADVISER. VALIC
shall furnish or otherwise make available to the SUB-ADVISER such other
information relating to the business affairs of VALIC and the FUND as the
SUB-ADVISER at any time, or from time to time, may reasonably request in order
to discharge obligations hereunder. Subject to provisions of this paragraph,
SUB-ADVISER grants VALIC and the FUND a non-exclusive right to use the
"American General Investment Management" name in connection with the
SUB-ADVISER's management of the FUND (i) for so long as the this Agreement, any
other investment management agreement between VALIC and SUB-ADVISER with
respect to the FUND, or to any extension, renewal or amendment thereof, remain
in effect, and (ii) for subsequent periods as long as required by law, rule or
regulation or to the extent necessary to refer to or illustrate the historical
performance of the FUND.
VALIC agrees to indemnify the SUB-ADVISER for losses, costs, fees,
expenses and claims which arise directly or indirectly (i) as a result of a
failure by VALIC to provide the services or furnish materials required under
the terms of this Investment Sub-Advisory Agreement, or (ii) as the result of
any untrue statement of a material fact or any omission to state a material
fact required to be stated or necessary to make the statements, in light of the
circumstances under which they were made, not misleading in any registration
statements, proxy materials, reports, advertisements,
5
<PAGE> 6
sales literature, or other materials pertaining to the FUND, except insofar as
any such statement or omission was specifically made in reliance on written
information provided by the the SUB-ADVISER to VALIC.
The SUB-ADVISER agrees to indemnify VALIC for losses and claims which
arise (i) as a result of a failure by SUB-ADVISER to provide the services or
furnish the materials required under the terms of this Investment Sub-Advisory
Agreement, or (ii) as the result of any untrue statement of a material fact or
any omission to state a material fact required to be stated or necessary to
make the statements, in light of the circumstances under which they were made,
not misleading in any registration statements, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to the FUND,
but only to the extent that such statement or omission was specifically made in
reliance on written information provided by the SUB-ADVISER to VALIC. Provided,
however, that the SUB-ADVISER's responsibility, if any, to provide VALIC with
indemnification pursuant to this paragraph or any other provision of this
Agreement for any failure on the SUB-ADVISER's part to comply with the
diversification requirements specified in Section 817(h) of the Code or the
qualification standards of Subchapter M of the Code shall not for any Covered
Fund exceed the lesser of $1 million or 2% of the Covered Fund's net assets
(measured as of the end of the first calendar quarter during which
non-compliance with Section 817(h) or Subchapter M of the Code first occurred).
7. APPLICABILITY OF FEDERAL SECURITIES LAWS
This Agreement shall be interpreted in accordance with the laws of the
State of Texas and applicable federal securities laws and regulations,
including definitions therein and such exemptions as may be granted to VALIC or
the SUB-ADVISER by the Securities and Exchange Commission or such interpretive
positions as may be taken by the Commission or its staff. To the extent that
the applicable law of the State of Texas, or any of the provisions herein,
conflict with applicable provisions of the federal securities laws, the latter
shall control.
The parties hereto have each caused this Agreement to be signed in
duplicate on its behalf by its duly authorized officer on the above date.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
---------------------------------------
Name: Cynthia A. Toles
Title: Senior Vice President, General
Counsel and Secretary
ATTEST:
- -------------------------
AMERICAN GENERAL INVESTMENT MANAGEMENT,
L.P.
By:
---------------------------------------
Name:
Title:
ATTEST:
- -------------------------
6
<PAGE> 7
SCHEDULE A
(Effective August 26, 1998)
Annual Fee computed at the following annual rate, based on average daily net
asset value for each month and payable monthly:
<TABLE>
<CAPTION>
Covered Fund Fee
------------ ---
<S> <C>
American General Core Bond Fund 0.25% on first $200 million
0.20% on next $300 million
0.15% over $500 million
American General Strategic Bond Fund 0.35% on first $200 million
0.25% on next $300 million
0.20% over $500 million
American General High Yield Bond Fund 0.45% on first $200 million
0.35% on next $300 million
0.30% over $500 million
</TABLE>
7
<PAGE> 1
EXHIBIT 6
DISTRIBUTION AND SERVICE AGREEMENT
BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
AND
THE VARIABLE ANNUITY MARKETING COMPANY
THIS AGREEMENT made this 26th day of August, 1998 by and between
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3, a Delaware business trust,
hereafter referred to as the "Fund" and THE VARIABLE ANNUITY MARKETING COMPANY,
a Texas corporation hereafter referred to as the "Distributor."
THE FUND AND THE DISTRIBUTOR RECOGNIZE THE FOLLOWING:
1. The Fund is registered as a diversified, open-end management
investment company under the Investment Company Act of 1940 (the "1940
Act"). The Fund consists of a number of investment portfolios, as may
now exist and may hereinafter be established ("Portfolios"), as set
forth on Schedule A hereto. The Fund intends to continuously offer
the shares of its various Portfolios for sale to The Variable Annuity
Life Insurance Company Separate Account A, other separate accounts of
VALIC, separate accounts of life insurance companies that are
affiliated with VALIC, employee thrift plans maintained by VALIC or
its affiliates, separate accounts of life insurance companies that are
not affiliated with VALIC and, subject to applicable law, the public
(all eligible purchasers of such shares being referred to collectively
as the "Purchasers"). The Fund also intends that the Purchasers may
provide certain beneficial ownership rights to individuals under
variable annuity and variable life insurance contracts, employee
thrift plans or other such arrangements (such individuals together
with any Purchasers who retain all beneficial ownership rights being
referred to collectively as the "Participants"). The Fund may suspend
sales of the shares of any one or more Portfolios at any time, and may
resume sales of any such Portfolio(s) at a later date.
2. The Distributor is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is currently a member of the National
Association of Securities Dealers, Inc. (the "NASD").
THE FUND AND THE DISTRIBUTOR AGREE AS FOLLOWS:
1. The Fund hereby appoints the Distributor as principal underwriter and
distributor to sell to the Purchasers the shares of the Portfolios
(hereinafter "its shares" or "the Fund's shares"). The appointment of
the Distributor hereunder shall not preclude the Fund from selling its
shares directly to the Purchasers.
1
<PAGE> 2
2. The Distributor accepts such appointment. The Distributor shall offer
the Fund's shares only on the terms set forth in the Fund's then
current registration statement or related prospectus.
3. The Fund has no load or redemption charge and the Distributor will
receive no compensation for acting in such capacity. Notwithstanding
this, the Distributor assumes and will pay, from its own resources,
all expenses related to distribution of the Fund's shares and will
bear all other costs and expenses attributable to any activity
primarily intended to result in the sale of shares.
4. Allocation of Expenses.
(a) The Fund will pay (or will enter into arrangements providing
that persons other than the Fund will pay) for all expenses of
the offering of its shares incurred in connection with:
(1) The registration of the Fund or the registration or
qualification of the Fund's shares for offer or sale
under the federal securities laws and the securities
laws of any state or other jurisdiction in which the
Distributor may arrange for the sale of the Fund's
shares; and
(2) The printing and distribution of the Fund's
prospectuses to existing Participants as may be
required under the federal securities laws and the
applicable securities laws of any state or other
jurisdiction; and
(3) The preparation, printing and distribution of any
proxy statements, notices and reports, and the
performance of any acts required to be performed by
the Fund by and under the federal securities laws and
the applicable securities laws of any state or other
jurisdiction; and
(4) The issuance of the Fund's shares, including any
share issue and transfer taxes.
(b) The Distributor will pay from its own resources (or will enter
into arrangements providing that persons other than the
Distributor or the Fund shall pay), or promptly reimburse the
Fund, for all expenses in connection with:
(1) The printing and distribution of the Fund's
prospectuses utilized in the marketing of the
Portfolios to eligible Purchasers;
(2) The preparation, printing and distribution of
advertising and sales literature for use in the
offering of the Fund's shares and printing and
distribution of reports to Purchasers and/or
Participants used as sales literature;
2
<PAGE> 3
(3) The qualification of the Distributor as a distributor
or broker or dealer under any applicable federal or
state securities laws;
(4) Any investment program of the Fund, including the
reinvestment of dividends and capital gains
distributions, to the extent such expenses exceed the
Fund's normal costs of issuing its shares; and
(5) All other expenses in connection with offering for
sale and sale of the Fund's shares which have not
been herein specifically allocated to the Fund.
5. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and effort to
effect sales of the Fund's shares, but it shall not be
obligated to sell any specific number of shares.
(b) The Distributor shall use its best efforts in all respects
duly to conform with the requirements of all federal and state
laws and regulations and the regulations of the NASD, in
relating to the sale of such securities. Neither the
Distributor nor any other person is authorized by the Fund to
give any information or to make any representations, other
than those contained in the Fund's then current registration
statement or related prospectus and any sales literature
authorized by responsible officers of the Distributor.
(c) The Distributor shall act as an independent contractor and
nothing herein contained shall constitute the Distributor, its
agents or representatives, or any employees thereof as
employees of the Fund in connection with the sale of the
Fund's shares.
The Distributor is responsible for its own conduct and the
employment, control and conduct of its agents and employees
and for injury to such agents or employees or to others
through its agents or employees. The Distributor assumes full
responsibility for its agents and employees under applicable
statutes and agrees to pay all employer taxes thereunder.
6. Sale and Redemption of the Fund's Shares
(a) Orders for the purchase and redemption of the Fund's shares
(and payment for the Fund's shares, in the case of a purchase)
shall be transmitted directly from the Purchaser to the Fund
or its agent.
(b) The Fund shall have the right to suspend the redemption of the
Fund's shares pursuant to the conditions set forth in the
Fund's then current registration statement or related
prospectus. The Fund shall also have the right to suspend the
sale of the Fund's shares at any time.
3
<PAGE> 4
(c) The Fund will give the Distributor prompt notice of any such
suspension and shall promptly furnish such other information
in connection with the sale and redemption of the Fund's
shares as the Distributor reasonably requests.
(d) The Fund (or its agent) will make appropriate book entries
upon receipt by the Fund (or its agent) of orders and payments
for the Fund's shares or requests for redemption thereof, and
will issue and redeem the Fund's shares and confirm such
transactions in accordance with applicable laws and
regulations.
7. Indemnification.
The Distributor agrees to indemnify, defend and hold the Fund,
its officers and trustees (or former officers and trustees)
and any person who controls the Fund within the meaning of
Section 15 of the Securities Act of 1933 (the "1933 Act")
(collectively, "Indemnities") free and harmless from and
against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in
connection therewith) incurred by any Indemnitee under the
1933 Act or under common law or otherwise, which arise out of
or are based upon (1) any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a
material fact in information furnished by the Distributor to
the Fund's registration statement or related prospectus, (2)
any misrepresentation or omission or alleged misrepresentation
or omission to state a material fact on the part of the
Distributor or any agent or employee of the Distributor or any
other person for whose acts the Distributor is responsible or
is alleged to be responsible, unless such misrepresentation or
omission or alleged misrepresentation or omission was made in
reliance on written information furnished by the Fund, or (3)
the willful misconduct or failure to exercise reasonable care
and diligence on the part of any such persons with respect to
services rendered under this Agreement. The foregoing rights
of indemnification shall be in addition to any other rights to
which any Indemnitee may be entitled as a matter of law. The
Fund agrees promptly to notify the Distributor of any action
brought against any Indemnitee, such notification being given
to the Distributor by letter or telegram addressed to the
Distributor at its principal business office, and the
Distributor's agreement to indemnify the Indemnities pursuant
to this paragraph is expressly conditioned upon such
notification.
The Fund agrees to indemnify, defend and hold the Distributor,
its officers and trustees (or former officers and trustees)
and any person who controls the Distributor within the meaning
of Section 15 of the 1933 Act (collectively, "Indemnities")
free and harmless from and against any and all claims,
demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities
and any counsel fees incurred in connection therewith)
incurred by any Indemnitee
4
<PAGE> 5
under the 1933 Act or under common law or otherwise, arising
out of or based upon any alleged untrue statement of a
material fact contained in the Fund's registration statement
or related prospectus arising out of or based upon any alleged
omission to state a material fact required to be stated or
necessary to make the Fund's registration statement or related
prospectus not misleading, provided that in no event shall
anything contained in this Agreement be construed so as to
protect the Distributor against any liability to the Fund, the
Purchasers or the Participants to which the Distributor would
otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and
duties under this Agreement, and further provided that the
Fund shall not indemnify the Distributor for any claims,
demands, liabilities and expenses arising out of or based upon
any alleged untrue statement of a material fact or omission to
state a material fact in information furnished by the
Distributor to the Fund's registration statement or related
prospectus.
8. This Agreement is effective as of August 26, 1998 and shall
continue in force from year-to-year thereafter, provided that
such continuance for more than two years is specifically
approved at least annually (a)(I) by the Board of Trustees of
the Fund, or (ii) by vote of a majority of the Fund's
outstanding voting securities (as defined in Section 2(a)(42)
of the 1940 Act), and (b) by the affirmative vote of a
majority of the Trustees who are not interested persons (as
defined in Section 2(a)(19) of the 1940 Act) of the Fund by
votes cast in person at a meeting called for such purpose.
9. (a) This Agreement may be terminated at any time, without
penalty, by a vote of the Board of Trustees of the
Fund or by a vote of a majority of the outstanding
voting securities of the Fund, or by the Distributor,
on sixty (60) days' written notice to the other
party.
(b) This Agreement shall automatically terminate in the
event of its assignment, as defined in Section
2(a)(4) of the 1940 Act.
10. Notwithstanding anything to the contrary contained in this
Agreement, the Fund acknowledges and agrees that, as provided
by Section 8.1 of the Fund's Agreement and Declaration of
Trust, this Agreement is executed on behalf of the Fund or the
Trustees of the Fund as Trustees and not individually and that
the obligations of this Agreement are not binding upon any of
the Trustees, Officers, Purchasers or Participants
individually, but are binding only upon the assets and
property of the Fund. A Certificate of Trust in respect of
the Fund is on file with the Secretary of the State of
Delaware.
5
<PAGE> 6
11. Each party shall mail (postage paid) or deliver, in writing,
all notices to the other party, at an address designated for
this purpose by the other party. Until changed, this address
for both parties is: 2929 Allen Parkway, Houston, Texas 77019.
12. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE GOVERNED
BY, THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICT OF LAWS.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto execute this Agreement
on the date above.
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
on behalf of the Portfolios:
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
ATTEST:
- ----------------------------
Name:
-----------------------
Title:
----------------------
THE VARIABLE ANNUITY MARKETING COMPANY
By:
-------------------------------
Name:
----------------------------
Title:
---------------------------
- ----------------------------
Name:
-----------------------
Title:
----------------------
7
<PAGE> 8
SCHEDULE A
American General Series Portfolio Company 3 Portfolios
<TABLE>
<S> <C>
American General Balanced Fund American General Mid Cap Index Fund
American General Conservative Growth American General Mid Cap Value Fund
Lifestyle Fund American General Moderate Growth
American General Domestic Bond Fund Lifestyle Fund
American General Growth Lifestyle Fund American General Money Market Fund
American General High Yield Bond Fund American General Small Cap Growth Fund
American General International Growth Fund American General Small Cap Value Fund
American General International Value Fund American General Socially Responsible Fund
American General Large Cap Growth Fund American General Strategic Bond Fund
American General Large Cap Value Fund American General Core Bond Fund
</TABLE>
8
<PAGE> 1
EXHIBIT 8(a)
CUSTODIAN CONTRACT
This Contract between AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3, a
business trust organized and existing under the laws of Delaware, having its
principal place of business at 2929 Allen Parkway, Houston, Texas 77019,
hereinafter called the "Fund," and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110, hereinafter called the
"Custodian."
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets;
WHEREAS, the Fund intends to initially offer shares in eighteen (18)
series listed on Exhibit A hereto (such series together with all other series
subsequently established by the Fund and made subject to this Contract in
accordance with paragraph 19, being herein referred to as the "Portfolio(s)")
and desires to retain the Custodian to perform certain services therefor; and
WHEREAS, certain Portfolios (hereinafter sometimes referred to as the
"Lifestyle Portfolio(s)") may invest in uncertificated shares of certain other
Portfolios or uncertificated shares of any registered investment company, or
series thereof, which is part of the same "group of investment companies" (as
defined in Section 12 of the Investment Company Act of 1940, as amended (the
"1940 Act")) (hereinafter sometimes referred to as the "Underlying
Portfolios").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets
of the Portfolios of the Fund, including securities which the Fund, on behalf
of the applicable Portfolio desires to be held in places within the United
States ("domestic securities") and securities it desires to be held outside the
United States ("foreign securities") pursuant to the provisions of the
Agreement and Declaration of Trust (the "Declaration of Trust"). The Fund on
behalf of the Portfolio(s) agrees to deliver to the Custodian all securities
and cash of the Portfolios, and all payments of income, payments of principal
or capital distributions received by it with respect to all securities owned by
the Portfolio(s) from time to time, and the cash consideration received by it
for such new or treasury shares of beneficial interest of the Fund representing
interests in the Portfolios, ("Shares") as may be issued or sold from time to
time. The Custodian shall not be responsible for any property of a Portfolio
held or received by the Portfolio and not delivered to the Custodian. With
respect to uncertificated shares of the Underlying Portfolios (the "Underlying
Shares") the holding of confirmation statements that identify the shares as
being recorded in the Custodian's name on behalf of the Lifestyle Portfolios
will be deemed custody for purposes hereof.
<PAGE> 2
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only
in accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by
such Portfolio, other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury (each, a "U.S. Securities System"); (b)
commercial paper of an issuer for which State Street Bank and Trust
Company acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the
Custodian (the "Direct Paper System") pursuant to Section 2.11; and
(c) the Underlying Shares owned by the Lifestyle Portfolios which are
maintained pursuant to Section 2.10A in an account with State Street
Bank and Trust Company or such other entity which may from time to
time act as a transfer agent for the Underlying Portfolios and with
respect to which the Custodian is provided with Proper Instructions
(the "Underlying Transfer Agent").
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
or in an account at the Underlying Transfer Agent, only upon receipt
of Proper Instructions from the Fund on behalf of the applicable
Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio
and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a U.S. Securities
System, in accordance with the provisions of Section 2.10
hereof;
2.
<PAGE> 3
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment
for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if any,
are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
3.
<PAGE> 4
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption;
15) In the case of a sale processed through the Underlying
Transfer Agent for the Underlying Shares, in accordance with
Section 2.10A hereof; and
16) For any other proper corporate purpose, but only upon receipt
of Proper Instructions from the Fund on behalf of the
applicable Portfolio specifying the securities of the
Portfolio to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian
4.
<PAGE> 5
on behalf of the Portfolio under the terms of this Contract shall be
in "street name" or other good delivery form. If, however, the Fund
directs the Custodian to maintain securities in "street name", the
Custodian shall utilize its best efforts only to timely collect income
due the Fund on such securities and to notify the Fund on a best
efforts basis only of relevant corporate actions including, without
limitation, pendency of calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained
by the Portfolio in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for a Portfolio may be deposited by it to its credit
as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or trust
company and the funds to be deposited with each such bank or trust
company shall on behalf of each applicable Portfolio be approved by
vote of a majority of the Board of Trustees of the Fund. Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis
all income and other payments with respect to bearer domestic
securities if, on the date of payment by the issuer, such securities
are held by the Custodian or its agent and shall credit such income,
as collected, to such Portfolio's custodian account. Without limiting
the generality of the foregoing, the Custodian shall detach and
present for payment all coupons and other income items requiring
presentation as and when they become due and shall collect interest
when due on securities held hereunder. Income due each Portfolio on
securities loaned pursuant to the provisions of Section 2.2 (10) shall
be the responsibility of the Fund except for securities loaned
pursuant to a securities lending agreement with the Custodian, in
which case any income due shall be the responsibility of the
Custodian. The Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such
5.
<PAGE> 6
information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian
(or any bank, banking firm or trust company doing business in
the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
of Underlying Shares, in accordance with the conditions set
forth in Section 2.10A hereof; (d) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (e) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of
the receipt evidencing purchase by the Portfolio of
securities owned by the Custodian along with written evidence
of the agreement by the Custodian to repurchase such
securities from the Portfolio; or (f) for transfer to a time
deposit account of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to receipt of a
confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund as defined in
Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following
payments for the account of the Portfolio: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as deferred
expenses;
6.
<PAGE> 7
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short; and
7) For any other proper corporate purpose, but only upon receipt
of Proper Instructions from the Fund on behalf of the
Portfolio specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received
by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder. The Underlying Transfer Agent shall not be
deemed an agent or subcustodian of the Custodian for purposes of this
Section 2.9 or any other provision of this Contract.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
U.S. Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
7.
<PAGE> 8
2) The records of the Custodian with respect to securities of
the Portfolio which are maintained in a U.S. Securities
System shall identify by book-entry those securities
belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities
System that payment for such securities has been transferred
to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment
for the account of the Portfolio. Copies of all advices from
the U.S. Securities System of transfers of securities for the
account of the Portfolio shall identify the Portfolio, be
maintained for the Portfolio by the Custodian and be provided
to the Fund at its request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of
each transfer to or from the account of the Portfolio in the
form of a written advice or notice and shall furnish to the
Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the U.S. Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the U.S.
Securities System; and
5) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for the benefit of
the Portfolio for any loss or damage to the Portfolio
resulting from use of the U.S. Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or
any of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or
any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent
that the Portfolio has not been made whole for any such loss
or damage.
2.10A Deposit of Fund Assets with the Underlying Transfer Agent. Underlying
Shares shall be deposited and/or maintained in an account or accounts
maintained with the Underlying Transfer Agent. The Underlying Transfer
Agent shall be deemed to be acting as if it is a "depository" for
purposes of Rule 17f-4 under the 1940 Act. The Fund hereby directs the
Custodian to deposit and/or maintain such Underlying Shares with the
Underlying Transfer Agent, subject to the following provisions:
8.
<PAGE> 9
1) The Custodian shall keep Underlying Shares owned by a
Lifestyle Portfolio with the Underlying Transfer Agent
provided that such Underlying Shares are maintained in an
account or accounts on the books and records of the
Underlying Transfer Agent in the name of the Custodian as
custodian for the Portfolio.
2) The records of the Custodian with respect to Underlying
Shares which are maintained with the Underlying Transfer
Agent shall identify by book-entry those Underlying Shares
belonging to a Lifestyle Portfolio;
3) The Custodian shall pay for Underlying Shares purchased for
the account of a Lifestyle Portfolio upon (i) receipt of
advice from the Lifestyle Portfolio's investment adviser that
such Underlying Shares have been purchased and will be
transferred to the account of the Custodian, on behalf of the
Lifestyle Portfolio, on the books and records of the
Underlying Transfer Agent, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Lifestyle Portfolio. The
Custodian shall receive confirmation from the Underlying
Transfer Agent of the purchase of such Underlying Shares and
the transfer of such Underlying Shares to the Custodian's
account with the Underlying Transfer Agent only after such
payment is made. The Custodian shall transfer Underlying
Shares redeemed for the account of a Lifestyle Portfolio (i)
upon receipt of an advice from the Lifestyle Portfolio's
investment adviser that such Underlying Shares have been
redeemed and that payment for such Underlying Shares will be
transferred to the Custodian and (ii) the making of an entry
on the records of the Custodian to reflect such transfer and
payment for the account of the Lifestyle Portfolio. The
Custodian will receive confirmation from the Underlying
Transfer Agent of the redemption of such Underlying Shares
and payment therefor only after such Underlying Shares are
redeemed. Copies of all advices from the Lifestyle
Portfolio's investment adviser of purchases and sales of
Underlying Shares for the account of the Lifestyle Portfolio
shall identify the Lifestyle Portfolio, be maintained for the
Lifestyle Portfolio by the Custodian, and be provided to the
investment adviser at its request; and
4) The Custodian shall be not be liable to the Fund or any
Lifestyle Portfolio for any loss or damage to the Fund or any
Lifestyle Portfolio resulting from maintenance of Underlying
Shares with the Underlying Transfer Agent except for losses
resulting directly from the negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of
its or their employees.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following
provisions:
9.
<PAGE> 10
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper Instructions
from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented
in an account ("Account") of the Custodian in the Direct
Paper System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to securities of
the Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to
the Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the
account of the Portfolio, in the form of a written advice or
notice, of Direct Paper on the next business day following
such transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the U.S. Securities System for the
account of the Portfolio; and
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal
accounting control as the Fund may reasonably request from
time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon
purchased or
10.
<PAGE> 11
sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio setting forth the purpose or purposes of such
segregated account and declaring such purposes to be a proper
corporate purpose.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Fund on behalf of the
Portfolio such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund for each Portfolio all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on
behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Fund on behalf of the
Portfolio. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Fund on behalf of the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Fund on behalf
of the Portfolio desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall
notify the Custodian at least three business days prior to the date on
which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the
Portfolio's securities and other assets maintained outside the United
States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, the Custodian and the Fund may agree to
amend Schedule A hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to
act as sub-custodian. Upon
11.
<PAGE> 12
receipt of Proper Instructions, the Fund may instruct the Custodian to
cease the employment of any one or more such sub-custodians for
maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign
securities transactions. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems").
Where possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
foreign sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are
maintained in such account shall identify by book-entry those
securities and other non-cash property belonging to the Fund and (ii)
the Custodian shall require that securities and other non-cash
property so held by the foreign sub-custodian be held separately from
any assets of the foreign sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of
money or value other than for custody or administration; (c) adequate
records will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or
other representatives of the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Fund, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the
Custodian or its agents.
12.
<PAGE> 13
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance
with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable
care in the performance of its duties and to indemnify, and hold
harmless, the Custodian and the Fund from and against any loss,
damage, cost, expense, liability or claim arising out of or in
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
13.
<PAGE> 14
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Nothwithstanding the foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State Street London Ltd. not
caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns
of a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such
foreign sub-custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of
the Portfolios assets are maintained in a foreign
14.
<PAGE> 15
branch of a banking institution which is a "bank" as defined by
Section 2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The appointment
of any such branch as a sub-custodian shall be governed by paragraph 1
of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be
subject to the direction of the Custodian, State Street London Ltd. or
both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations
imposed on the Fund or the Custodian as custodian of the Fund by the
tax law of jurisdictions other than those mentioned in the above
sentence, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such
information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that
Portfolio issued or sold from time to time by the Fund. The Custodian will
provide timely notification to the Fund on behalf of each such Portfolio and
the Transfer Agent of any receipt by it of payments for Shares of such
Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board
of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt
of instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In connection with
the redemption or repurchase of Shares of the Fund, the Custodian shall honor
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon
from time to time between the Fund and the Custodian.
15.
<PAGE> 16
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes
them to have been given by a person authorized to give such instructions with
respect to the transaction involved. The Fund shall cause all oral instructions
to be confirmed in writing. Proper Instructions may include communications
effected directly between electro-mechanical or electronic devices. For
purposes of this Section, Proper Instructions shall include instructions
received by the Custodian pursuant to any three-party agreement which requires
a segregated asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from
the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Fund on behalf of the
Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund on behalf of
the Portfolio, checks, drafts and other negotiable
instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Fund on behalf of the Portfolio except as otherwise
directed by the Board of Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Trustees of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or
of any action by the Board of Trustees pursuant to the Declaration of Trust as
described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
16.
<PAGE> 17
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
Share of the outstanding Shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per Share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such
Portfolio and shall advise the Fund and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing by an officer of the
Fund to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The Fund acknowledges and agrees
that, with respect to investments maintained with the Underlying Transfer
Agent, the Underlying Transfer Agent is the sole source of information on the
number of shares of an Underlying Portfolio held by it on behalf of a Lifestyle
Portfolio and that the Custodian has the right to rely on holdings information
furnished by the Underlying Transfer Agent to the Custodian in performing its
duties under this Contract, including without limitation, the duties set forth
in this Section 8 and in Section 9 hereof; provided, however, that the
Custodian shall be obligated to reconcile information as to purchases and sales
of Underlying Shares contained in trade instructions and confirmations received
by the Custodian and to report promptly any discrepancies to the Underlying
Transfer Agent. The calculations of the net asset value per Share and the daily
income of each Portfolio shall be made at the time or times described from time
to time in the Fund's currently effective prospectus related to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the
Fund and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed
upon between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
17.
<PAGE> 18
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, futures contracts and
options on futures contracts, including securities deposited and/or maintained
in a Securities System, relating to the services provided by the Custodian
under this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so
state.
12. Rights of Inspection
The Custodian shall allow the inspection of the Fund's securities, at
any time as may be requested by the Fund's Independent Public Accountants
pursuant to Rule 17f-2 under the 1940 Act.
13. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian as provided in Schedule B, as agreed upon
from time to time between the Fund on behalf of each applicable Portfolio and
the Custodian.
14. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract,
but shall be kept indemnified by and shall be without liability to the Fund for
any action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances
beyond the reasonable control of the Custodian or any sub-custodian or
Securities
18.
<PAGE> 19
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls
or restrictions, the interruption, suspension or restriction of trading on or
the closure of any securities market, power or other mechanical or
technological failures or interruptions, computer viruses or communications
disruptions, acts of war or terrorism, riots, revolutions, work stoppages,
natural disasters or other similar events or acts; (ii) errors by the Fund or
the Investment Advisor in their instructions to the Custodian provided such
instructions have been in accordance with this Contract; (iii) the insolvency
of or acts or omissions by a Securities System; (iv) any delay or failure of
any broker, agent or intermediary, central bank or other commercially prevalent
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge of registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any
consequential losses arising out of such delay or failure to transfer such
securities including non-receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security
or Securities System; and (vii) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or
any other country, or political subdivision thereof or of any court of
competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund on behalf of a Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not
limited to securities settlements, foreign exchange contracts and assumed
settlement) or in the event that the Custodian or its nominee shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay the
Custodian promptly, the Custodian shall be entitled to utilize available cash
and to dispose of such Portfolio's assets to the extent necessary to obtain
reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
19.
<PAGE> 20
15. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however, that the Fund shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or any provision
of the Declaration of Trust, and further provided, that the Fund on behalf of
one or more of the Portfolios may at any time by action of its Board of
Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately
terminate this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the Comptroller of the Currency or upon the
happening of a like event at the direction of an appropriate regulatory agency
or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
16. Notices
Except as otherwise provided under this Contract, notices and other
writings shall be delivered or mailed postage prepaid to:
If to the Company: The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
Attention: Gregory R. Seward, Treasurer
If to the Custodian: State Street Bank and Trust Company
Insurance and Bank Services Division
105 Rosemont Road - WES/2S
Westwood, Massachusetts 02090-2318
Attention: Kenneth A. Bergeron, Vice President
or to such other address as the parties may hereafter specify in writing and
any notice or other writing when mailed shall be deemed to have been received
on the fifth business day after it was mailed.
Telephone and facsimile notices shall be sufficient if communicated to
the party entitled to receive such notice at the following numbers:
If to the Company:
Telephone: (713) 831-5301 Facsimile: (713) 831-5380
If to the Custodian:
Telephone: (781) 302-5348 Facsimile: (781) 302-8048
20.
<PAGE> 21
or to such other numbers as the parties may specify by written notice under
this Section and any facsimile notice shall be deemed to have been received on
the date of its transmission provided that if such day is not a business day or
it is received after normal business hours on the day of its transmission, it
shall be deemed to have been received at the opening of business on the first
business day next following the transmission thereof.
17. Successor Custodian
If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Trustees of the Fund, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities and other assets of each applicable Portfolio then held by it
hereunder and shall transfer to an account of the successor custodian all of
the securities and other assets of each such Portfolio held in a Securities
System or at the Underlying Transfer Agent.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or
trust company, which is a "bank" as defined in the Investment Company Act of
1940, doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to
transfer to an account of such successor custodian all of the securities of
each such Portfolio held in any Securities System or at the Underlying Transfer
Agent. Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
21.
<PAGE> 22
18. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of
the Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
19. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to those listed on Exhibit A hereto, with respect to which it desires
to have the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees in
writing to provide such services, such series of Shares shall become a
Portfolio hereunder.
20. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
21. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
22. Counterparts
This Contract may be executed in several counterparts, each of which
shall be deemed to be an original, and all such counterparts taken together
shall constitute but one and the same Contract.
23. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as
the original itself in any judicial or administrative proceeding, whether or
not the original is in existence and whether or not such reproduction was made
by a party in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
22.
<PAGE> 23
24. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below,
the Custodian is required by the rule to treat the Fund as consenting to
disclosure of this information for all securities owned by the Fund or any
funds or accounts established by the Fund. For the Fund's protection, the Rule
prohibits the requesting company from using the Fund's name and address for any
purpose other than corporate communications. Please indicate below whether the
Fund consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [X] The Custodian is not authorized to release the Fund's name,
address, and share positions.
25. Miscellaneous Provision
The execution of this Contract has been authorized by the Fund's
Trustees and by the sole shareholder. This Contract is executed on behalf of
the Fund or the Trustees of the Fund as Trustees and not individually and that
the obligations of this Contract are not binding upon any of the Trustees,
officers or shareholders of the Fund individually, but are binding only upon
the assets and property of the Fund. A certificate of Trust in respect of the
Fund is on file with the Secretary of the State of Delaware.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
23.
<PAGE> 24
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed as of the 26th day of August, 1998.
ATTEST AMERICAN GENERAL SERIES PORTFOLIO
COMPANY 3
By:
- ------------------ --------------------------------
Name: Nori L. Gabert
Its: Vice President and Assistant
Secretary
ATTEST STATE STREET BANK AND TRUST COMPANY
By:
- ------------------ --------------------------------
Name: Mark J. Bowler
Its: Senior Vice President
<PAGE> 25
EXHIBIT A
to
Custodian Contract
by and between
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
and
STATE STREET BANK AND TRUST COMPANY
American General International Growth Fund
American General Large Cap Growth Fund
American General Mid Cap Growth Fund
American General Small Cap Growth Fund
American General International Value Fund
American General Large Cap Value Fund
American General Mid Cap Value Fund
American General Small Cap Value Fund
American General Socially Responsible Fund
American General Balanced Fund
American General Domestic Bond Fund
American General Money Market Fund
American General Growth Lifestyle Fund
American General Moderate Growth Lifestyle Fund
American General Conservative Growth Lifestyle Fund
American General Core Bond Fund
American General Strategic Bond Fund
American General High Yield Bond Fund
<PAGE> 1
EXHIBIT 8(b)
SECURITIES LENDING AUTHORIZATION AGREEMENT
Between
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
and
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. DEFINITIONS .......................................................... 1
2. APPOINTMENT OF STATE STREET .......................................... 2
3. SECURITIES TO BE LOANED .............................................. 2
4. BORROWERS ............................................................ 2
5. SECURITIES LOAN AGREEMENTS ........................................... 4
6. LOANS OF AVAILABLE SECURITIES ........................................ 4
7. DISTRIBUTIONS ON AND VOTING RIGHTS WITH RESPECT TO
LOANED SECURITIES ...................................... 5
8. COLLATERAL ........................................................... 6
9. INVESTMENT OF CASH COLLATERAL AND COMPENSATION ....................... 7
10. FEE DISCLOSURE ....................................................... 8
11. RECORDKEEPING AND REPORTS ............................................ 8
12. STANDARD OF CARE ..................................................... 9
13. REPRESENTATIONS AND WARRANTIES ....................................... 10
14. INDEMNIFICATION ...................................................... 11
15. CONTINUING AGREEMENT AND TERMINATION ................................. 12
16. NOTICES .............................................................. 12
17. MISCELLANEOUS ........................................................ 13
18. SECURITIES INVESTORS PROTECTION ACT .................................. 14
19. COUNTERPARTS ......................................................... 14
20. MODIFICATION ......................................................... 14
</TABLE>
<PAGE> 3
EXHIBITS AND SCHEDULES
EXHIBIT 4.1
EXHIBIT 4.2
EXHIBIT A
SCHEDULE A
SCHEDULE B
SCHEDULE 8.1
<PAGE> 4
SECURITIES LENDING AUTHORIZATION AGREEMENT
Agreement dated the 26th day of August, 1998 between AMERICAN GENERAL
SERIES PORTFOLIO COMPANY 3, a registered management investment company
organized and existing under the laws of ----------- (the "Client"), and STATE
STREET BANK AND TRUST COMPANY, its affiliates or subsidiaries ("State Street"),
setting forth the terms and conditions under which State Street is authorized
to act on behalf of the Client with respect to the lending of certain
securities of the Client held by State Street as trustee, agent or custodian.
NOW, THEREFORE, in consideration of the mutual promises and of the
mutual covenants contained herein, each of the parties does hereby covenant and
agree as follows:
1. Definitions. For the purposes hereof:
(a) "Available Securities" means the securities of the Client that are
available for Loans pursuant to Section 3.
(b) "Borrower" means any of the entities to which Available Securities
may be loaned under a Securities Loan Agreement, as described in Section 4.
(c) "Collateral" means collateral delivered by a Borrower to secure
its obligations under a Securities Loan Agreement.
(d) "Investment Manager" when used in any provision, means the person
or entity who has discretionary authority over the investment of the Available
Securities to which the provision applies.
(e) "Loan" means a loan of Available Securities to a Borrower.
(f) "Loaned Security" shall mean any "security" which is delivered as
a Loan under a Securities Loan Agreement; provided that, if any new or
different security shall be exchanged for any Loaned Security by
recapitalization, merger, consolidation, or other corporate action, such new or
different security shall, effective upon such exchange, be deemed to become a
Loaned Security in substitution for the former Loaned Security for which such
exchange was made.
(g) "Market Value" of a security means the market value of such
security (including, in the case of a Loaned Security that is a debt security,
the accrued interest on such security) as determined by the independent pricing
service designated by State Street, or such other independent sources as may be
selected by State Street on a reasonable basis.
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(h) "Securities Loan Agreement" means the agreement between a Borrower
and State Street (on behalf of the Client) that governs Loans, as described in
Section 5.
(i) "Replacement Securities" means securities of the same issuer,
class and denomination as Loaned Securities.
2. Appointment of State Street.
The Client hereby appoints and authorizes State Street, its affiliates
or subsidiaries, as its agent to lend Available Securities to Borrowers in
accordance with the terms of this Agreement. State Street shall have the
responsibility and authority to do or cause to be done all acts State Street
shall determine to be desirable, necessary, or appropriate to implement and
administer this securities lending program. The Client agrees that State Street
is acting as a fully disclosed agent and not as principal in connection with
the securities lending program. State Street may take action as agent of the
Client on an undisclosed or a disclosed basis. State Street is also hereby
authorized to request a third party bank to undertake certain custodial
functions in connection with holding of the Collateral provided by a Borrower
pursuant to the terms hereof. In connection therewith, State Street may
instruct said third party to establish and maintain a Borrower's account and a
State Street account wherein all Collateral, including cash shall be maintained
by said third party in accordance with the terms of a form of custodial
arrangement which shall also be consistent with the terms hereof.
3. Securities to be Loaned.
State Street acts or will act as agent, trustee or custodian of
certain securities owned by the Client. All of the Client's securities held by
State Street as agent, trustee or custodian shall be subject to this securities
lending program and constitute Available Securities hereunder, except those
securities which the Client or the Investment Manager specifically identifies
in notices to State Street as not being Available Securities. In the absence of
any such notice identifying specific securities, State Street shall have no
authority or responsibility for determining whether any of the Client's
securities should be excluded from the lending program.
4. Borrowers.
The Available Securities may be loaned to any Borrower identified on
the Schedule of Borrowers, as such Schedule may be modified from time to time
by State Street and Client, including without limitation, the Financial Markets
Group of State Street; provided, however, if Available Securities are loaned to
the Financial Markets Group, in addition to being consistent with the terms
hereof, said Loan shall be made in accordance with the terms of the Securities
Loan Agreement attached hereto as Exhibit 4.1, as modified form time to time in
accordance with the provisions hereof (hereinafter, the "State Street
Securities Loan
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Agreement"). The form of the State Street Securities Loan Agreement may be
modified by State Street from time to time, without the consent of the Client,
in order to comply with the requirements of law or any regulatory authority
having jurisdiction over State Street, the Client or the securities lending
program or in any other manner that is not material and adverse to the
interests of the Client.
The Client acknowledges that it is aware that State Street, acting as
"Lender's Agent" hereunder and thereunder, is or may be deemed to be the same
legal entity as State Street acting as "Borrower" under the State Street
Securities Loan Agreement, notwithstanding the different designations used
herein and therein or the dual roles assumed by State Street hereunder and
thereunder. Client represents that the power granted herein to State Street, as
agent, to lend U.S. Securities owned by Client (including, in legal effect, the
power granted to State Street to make Loans to itself) and the other powers
granted to State Street, as agent herein, are given expressly for the purpose
of averting and waiving any prohibitions upon such lending or other exercise of
such powers which might exist in the absence of such powers, and that
transactions effected pursuant to and in compliance with this Agreement and the
State Street Securities Loan Agreement will not constitute a breach of trust or
other fiduciary duty by State Street.
The Client further acknowledges that it has granted State Street the
power to effect securities lending transactions with the Financial Markets
Group of State Street and other powers assigned to State Street hereunder and
under the Securities Loan Agreements and the State Street Securities Loan
Agreement as a result of the Client's desire to increase the opportunity for it
to lend securities held in its account on fair and reasonable terms to
qualified Borrowers without such loans being considered a breach of State
Street's fiduciary duty. In connection therewith, each party hereby agrees that
it shall furnish to the other party, upon request (i) the most recent available
audited statement of its financial condition, and (ii) the most recent
available unaudited statement of its financial condition, if more recent than
the audited statement. As long as any Loan is outstanding under this Agreement,
each party shall also promptly deliver to the other party all such financial
information that is subsequently available, and any other financial information
or statements that such other party may reasonably request.
In the event any such Loan is made to the Financial Markets Group,
State Street hereby covenants and agrees for the benefit of the Clients that it
has adopted and implemented procedural safeguards to help ensure that all
actions taken by it hereunder will be effected by individuals other than, and
not under the supervision of, individuals who are acting in a capacity as
Borrower thereunder, and that all trades effected hereunder will take place at
the same fully negotiated "arms length" prices offered to similarly situated
third parties by State Street when it acts as lending agent, notwithstanding
the inherent conflict of interest with respect to Loans to be effected by State
Street to the Financial Markets Group.
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In the event the Client approves lending to borrowers resident in the
United Kingdom, the Client shall complete Part 1 of the document known as a
"MOD-2 form," which is attached hereto as Exhibit 4.2.
In the event that securities lending activity is undertaken through
its London office, State Street becomes subject to additional regulation in the
UK, and State Street is obliged to notify the you of the following matters:
i. State Street shall make available to you established
procedures in accordance with the requirements of the
Securities and Futures Authority for the effective
consideration of complaints concerning State Street's
activities carried on in the UK.
ii. Where a liability in one currency is to be matched by an
asset in a different currency, or where an investment
transaction relates to an investment denominated in a
currency other than sterling, a movement of exchange rates
may have a separate effect, favorable or unfavorable, on the
gain or loss which would otherwise be experienced on the
investment.
iii. State Street or an affiliate may have an interest that is
material to the investment or transaction concerned and
neither State Street nor any such affiliate shall be obliged
to disclose such interest or account to you for any profits
or benefits made or derived by it or any of its associates
from any such transaction.
iv. Any assets which State Street holds in the form of money
shall not be treated by State Street as the Clients' Money as
defined by The Financial Services (Client Money) Regulations
1991 of the United Kingdom as amended (the "Clients' Money
Regulations") and will not be held in accordance with the
Clients' Money Regulations or such other regulations as shall
amend or replace the Clients' Money Regulations from time to
time.
5. Securities Loan Agreements.
The Client authorizes State Street to enter into one or more
Securities Loan Agreements with such Borrowers as may be selected by State
Street. Each Securities Loan Agreement shall have such terms and conditions as
State Street may negotiate with the Borrower, however certain terms of
individual loans, including rebate fees to be paid to the Borrower for the use
of cash Collateral, shall be negotiated at the time a loan is made.
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6. Loans of Available Securities.
State Street shall have authority to make Loans of Available
Securities to Borrowers, and to deliver such securities to Borrowers. State
Street shall be responsible for determining whether any such Loan shall be
made, and for negotiating and establishing the terms of each such Loan. State
Street shall have the authority to terminate any Loan in its discretion, at any
time and without prior notice to the Client.
The Client acknowledges that State Street administers securities
lending programs for other clients of State Street. State Street will allocate
securities lending opportunities among its clients, using reasonable and
equitable methods established by State Street from time to time. State Street
does not represent or warrant that any amount or percentage of the Client's
Available Securities will in fact be loaned to Borrowers. The Client agrees
that it shall have no claim against State Street and State Street shall have no
liability arising from, based on, or relating to, loans made for other clients,
or loan opportunities refused hereunder, whether or not State Street has made
fewer or more loans for any other client, and whether or not any loan for
another client, or the opportunity refused, could have resulted in loans made
under this Agreement.
The Client also acknowledges that, under the applicable Securities
Loan Agreements, the Borrowers will not be required to return Loaned Securities
immediately upon receipt of notice from State Street terminating the applicable
Loan, but instead will be required to return such Loaned Securities within such
period of time following such notice as is specified in the applicable
Securities Loan Agreement. Upon receiving a notice from the Client or the
Investment Manager that Available Securities which have been loaned to a
Borrower should no longer be considered Available Securities (whether because
of the sale of such securities or otherwise), State Street shall use its
reasonable efforts to notify promptly thereafter the Borrower which has
borrowed such securities that the Loan of such securities is terminated and
that such securities are to be returned within the time specified by the
applicable Securities Loan Agreement.
7. Distributions on and Voting Rights with Respect to Loaned Securities.
The Client represents and warrants that it is the beneficial owner of
(or exercises complete investment discretion over) all Available Securities
free and clear of all liens, claims, security interests and encumbrances and no
such security has been sold, and that it is entitled to receive all
distributions made by the issuer with respect to Loaned Securities. Except as
provided in the next sentence, all interest, dividends, and other distributions
paid with respect to Loaned Securities shall be credited to the Client's
account on the date such amounts are delivered by the Borrower to State Street.
Any non-cash distribution on Loaned Securities which is in the nature of a
stock split or a stock dividend shall be added to the Loan (and shall be
considered to constitute Loaned Securities) as of the date such non-cash
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distribution is received by the Borrower; provided that the Client (or
Investment Manager) may, by giving State Street ten (l0) business days' notice
prior to the date of such non-cash distribution, direct State Street to request
that the Borrower deliver such non-cash distribution to State Street, pursuant
to the applicable Securities Loan Agreement, in which case State Street shall
credit such non-cash distribution to the Client's account on the date it is
delivered to State Street.
The Client acknowledges that it will not be entitled to participate in
any dividend reinvestment program or to vote with respect to securities that
are on loan on the applicable record date for such securities.
The Client also acknowledges that any payments of distributions from
Borrower to the Client are in substitution for the interest or dividend accrued
or paid in respect of Loaned Securities and that the tax treatment of such
payment may differ from the tax treatment of such interest or dividend.
If an installment, call or rights issue becomes payable on or in
respect of any Loaned Securities, State Street shall use all reasonable
endeavors to ensure that any timely instructions from the Client are complied
with, but State Street shall not be required to make any payment unless the
Client has first placed it in funds to make such payment.
8. Collateral.
(a) Receipt of Collateral. The Client authorizes State Street, or a
third party bank, to receive and to hold, on the Client's behalf, Collateral
from Borrowers to secure the obligations of Borrowers with respect to any loan
of securities made on behalf of the Client pursuant to the Securities Loan
Agreements. All investments of cash Collateral shall be for the account and at
the risk of the Client. Concurrently with the delivery of the Loaned Securities
to the Borrower under any Loan, State Street shall receive from the Borrower
Collateral in any of the forms listed on Schedule 8.1. Said Schedule may be
amended from time to time by State Street upon written notice to the Client.
With respect to foreign cash Collateral, State Street will provide the Client
with a multicurrency investment vehicle through which the foreign cash will be
converted to U.S. dollars and invested pursuant to Section 9 hereof ("MCIV").
The Client acknowledges that State Street, in providing MCIV, may receive
additional compensation by managing its interest rate exposure.
Collateral shall have a Market Value of not less than one hundred
percent (l00%) of the Market Value of the Loaned Securities. Thereafter, State
Street shall take such action as is appropriate with respect to the Collateral
under the applicable Securities Loan Agreement.
(b) Marking to Market. State Street shall value all Loaned Securities
in accordance with its customary practice.
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(c) Return of Collateral. The Collateral shall be returned to Borrower
at the termination of the Loan upon the return of the Loaned Securities by
Borrower to State Street in accordance with the applicable Securities Loan
Agreement.
(d) Limitations. State Street shall invest cash Collateral in
accordance with any directions, including any limitations established by the
Client in a writing identified to this Agreement and acknowledged in writing by
State Street and shall exercise reasonable care, skill, diligence and prudence
in the investment of Collateral. Subject to the foregoing limits and standard
of care, State Street does not assume any market or investment risk of loss
with respect to the currency conversions associated with the use of MCIV or the
investment of cash Collateral. If the value of the cash Collateral so invested
is insufficient to return the rebate fee (i.e., the return to the Borrower for
use of cash Collateral), the full amount of the Collateral (U.S. dollar or
otherwise), or any and all other amounts due to such Borrower pursuant to the
Securities Loan Agreement, the Client shall be solely responsible for such
shortfall and State Street may debit the Client's account. In addition, State
Street shall be entitled to charge the Client's accounts for such shortfall in
accordance with Section 9.
9. Investment of Cash Collateral and Compensation.
To the extent that a Loan is secured by cash Collateral, such cash
Collateral, including money received with respect to the investment of the
same, or upon the maturity, sale, or liquidation of any such investments, shall
be invested by State Street, subject to the directions referred to above, if
any, in short-term instruments, short term investment funds maintained by State
Street, money market mutual funds and such other investments as State Street
may from time to time select, including without limitation investments in
obligations or other securities of State Street or of any State Street
affiliate and investments in any short-term investment fund, mutual fund,
securities lending trust or other collective investment fund with respect to
which State Street and/or its affiliates provide investment management or
advisory, trust, custody, transfer agency, shareholder servicing and/or other
services for which they are compensated.
The Client acknowledges that interests in such mutual funds,
securities lending trusts and other collective investment funds, to which State
Street and/or one or more of its affiliates provide services are not guaranteed
or insured by State Street or any of its affiliates or by the Federal Deposit
Insurance Corporation or any government agency. The Client hereby authorizes
State Street to purchase or sell investments of cash Collateral to or from
other accounts held by State Street or its affiliates.
The net income generated by any investment made pursuant to the
preceding paragraph of this Section 9 shall be allocated among the Borrower,
State Street, and the Client, as follows: (a) a portion of such income shall be
paid to the Borrower in accordance
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with the agreement negotiated between the Borrower and State Street; (b) the
balance, if any, shall be split between State Street [as compensation for its
services in connection with this securities lending program and the Client [as
such income shall be credited to the Client's account], in accordance with the
fee schedule attached hereto as Schedule A.
In the event the net income generated by any investment made pursuant
to the first paragraph of this Section 9 does not equal or exceed the amount
due the Borrower in accordance with the agreement between Borrower and State
Street, State Street shall debit the Client's account by an amount equal to the
difference between the net income generated and the amounts to be paid to the
Borrower pursuant to the Securities Loan Agreement. In the event debits to the
Client's account produce a deficit therein, State Street shall sell or
otherwise liquidate investments made with cash Collateral and credit the net
proceeds of such sale or liquidation to satisfy the deficit. In the event the
foregoing does not eliminate the deficit, State Street shall have the right to
charge the deficiency to any other account or accounts maintained by the Client
with State Street.
In the event of a Loan to a Borrower resident in Canada, which is
made over record date for a dividend reinvestment program ("DRP") and is
secured by cash Collateral, the Borrower shall pay the Client a substitute
payment equal to the full amount of the cash dividend declared, and may pay a
loan premium, the amount of which shall be negotiated by State Street, above
the amount of the cash dividend. Such loan premium shall be allocated between
State Street and the Client as follows: (a) a portion of such loan premium
shall be paid to State Street as compensation for its services in connection
with this securities lending program, in accordance with Schedule A and (b) the
remainder of such loan premium shall be credited to the Client's account.
To the extent that a Loan is secured by non-cash Collateral, the
Borrower shall be required to pay a loan premium, the amount of which shall be
negotiated by State Street. Such loan premium shall be allocated between State
Street and the Client as follows: (a) a portion of such loan premium shall be
paid to State Street as compensation for its services in connection with this
securities lending program, in accordance with Schedule A hereto; and (b) the
remainder of such loan premium shall be credited to the Client's account.
The Client acknowledges that in the event that the Client's
participation in securities lending generates income for the Client, State
Street may be required to withhold tax or may claim such tax from the Client as
is appropriate in accordance with applicable law.
The Client shall reimburse State Street for such reasonable fees and
expenses that State Street may incur in connection with the performance of its
obligations hereunder, including, without limitation: (i) the ordinary
telecommunication charges associated with the movement of securities in
connection with the securities lending activity contemplated by this Agreement;
and (ii) any and all funds advanced by State Street on behalf of the Client as
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a consequence of the Client's obligations hereunder, including the Client's
obligation to return cash Collateral to the Borrower and to pay any fees due
the Borrower, all as provided in Section 8 hereof.
10. Fee Disclosure.
The fees associated with the investment of cash Collateral in funds
maintained or advised by State Street are disclosed on Schedule A hereto. Said
Schedule may be replaced from time to time by State Street upon notice to the
Client. An annual report with respect to such funds is available to the Client,
at no expense, upon request.
11. Recordkeeping and Reports.
State Street will establish and maintain such records as are
reasonably necessary to account for Loans that are made and the income derived
therefrom. On a monthly basis, State Street will provide the Client with a
statement describing the Loans made, and the income derived from the Loans,
during the period covered by such statement. Each party to this Agreement shall
comply with the reasonable requests of the other for information necessary to
the requester's performance of its duties in connection with this securities
lending program.
12. Standard of Care
Subject to the requirements of applicable law, State Street shall not
be liable for any loss or damage, including counsel fees and court costs,
whether or not resulting from their acts or omissions to act hereunder or
otherwise, unless the loss damage arises out of State Street's own gross
negligence. Except for any liability, loss, or expense arising from or
connected with State Street's own gross negligence, the Client agrees to
reimburse and hold State Street harmless from and against any liability, loss
and expense, including counsel fees and expenses and court costs, arising in
connection with any breach of any representation, covenant or agreement of the
Client contained in this Agreement or any Loan or arising from or connected
with claims of any third parties, including any Borrower, from and against all
taxes and other governmental charges, and from and against any out-of-pocket or
incidental expenses. State Street may charge any amounts to which it is
entitled hereunder against the Client's account. Without limiting the
generality of the foregoing, the Client agrees: (i) that State Street shall not
be responsible for any statements, representations or warranties which any
Borrower makes in connection with any securities loans hereunder, or for the
performance by any Borrower of the terms of a Loan, or any agreement related
thereto, and shall not be required to ascertain or inquire as to the
performance or observance of, or a default under the terms of, a Loan or any
agreement related thereto; (ii) that State Street shall be fully protected in
acting in accordance with the oral or written instructions of any person
believed by State Street to be authorized to execute this Agreement on behalf
of the Client
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(an "Authorized Person"); (iii) that in the event of a default by a Borrower
under a Loan, State Street shall be fully protected in acting in its sole
discretion in a manner it deems appropriate; (iv) that State Street shall not
be under any duty or obligation to take action to effect payment by a Borrower
of any amounts owed by the Borrower pursuant to the Loan Agreement, provided
State Street timely advises the Client of the non-payment by the Borrower of
any such amount; and (v) that the records of State Street shall be presumed to
reflect accurately any oral instructions given by an Authorized Person or a
person believed by State Street to be an Authorized Person.
The Client acknowledges that, when lending Gilt securities, there is
intraday settlement exposure from the Borrower's settlement bank. In
particular, Client has daily exposure that the Gilt collateral position backed
by the assured payment from the Borrower's settlement bank is unsecured.
State Street, in determining the Market Value of Securities, including
without limitation, Collateral, may rely upon any recognized pricing service
and shall not be liable for any errors made by such service.
13. Representations and Warranties.
Each party hereto represents and warrants that (a) it has the power to
execute and deliver this Agreement, to enter into the transactions contemplated
hereby, and to perform its obligations hereunder; (b) it has taken all
necessary action to authorize such execution, delivery, and performance; (c)
this Agreement constitutes a legal, valid, and binding obligation enforceable
against it; and (d) the execution, delivery, and performance by it of this
Agreement will at all times comply with all applicable laws and regulations.
The Client represents and warrants that (a) it has made its own
determination as to the tax treatment of any dividends, remuneration or other
funds received hereunder; and (b) the financial statements delivered to State
Street pursuant to Section 4 fairly present its financial condition and there
has been no material adverse change in its financial condition or the financial
condition of any parent company since the date of the balance sheet included
within such financial statements. Each Loan shall constitute a present
representation by the Client that there has been no material adverse change in
its financial condition or the financial condition of any parent company that
has not been disclosed in writing to State Street since the date of the most
recent financial statements furnished to State Street pursuant to Section 4.
The person executing this Agreement on behalf of the Client represents
that he or she has the authority to execute this Agreement on behalf of the
Client.
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In the event that Client directs State Street to invest cash
Collateral in the State Street Global Securities Lending Trust, the Client also
represents and warrants to, and agrees and covenants with, State Street Global
Securities Lending Trust (the "Trust") and the Trustee of the Trust, as of the
date hereof and as of the date or dates on which any units of the Trust
("Units") are purchased (collectively, the "Date of Purchase") that:
(a) The Units will be purchased for the account of the
Client for investment only and not with a view to,
or with any intention of, a distribution or resale
thereof, in whole or in part, or the grant of any
participation therein. The Client is aware of the
risks associated with an investment in the Trust and
has not received any form of general solicitation or
advertising in connection with its decision to
purchase Units.
(b) The Client understands that the Trust will not be
registered under the Investment Company Act of 1940
(the "1940 Act") because the Trust will be qualified
as an excepted entity under Section 3(c)(7) of the
1940 Act. Pursuant to such exception the Trust will
be beneficially owned only by "qualified purchasers"
as defined in the 1940 Act and the rules and
regulations promulgated thereunder and by such other
persons as are otherwise entitled to participate in
an entity qualified under Section 3(c)(7) of the
1940 Act. Accordingly, the Client hereby represents
that as of the date hereof and as of the Date of
Purchase of the Units, the Client is either:
[Please check and initial the appropriate box or boxes]
______ [ ] a qualified institutional buyer as defined in
Initial of paragraph (a) of Rule 144A (the "Rule") of the Act,
Authorized acting for its own account, the account of another
Signer qualified institutional buyer, or the account of a
qualified purchaser, and is not: (i) a dealer
described in paragraph (a)(1)(ii) of the Rule that
owns and invests on a discretionary basis less than
$25 million in securities of issuers that are not
affiliated persons of the dealer; or (ii) a plan
referred to in paragraph (a)(1)(D) or (a)(1)(E) of
the Rule, or a trust fund referred to in paragraph
(a)(1)(F) of the Rule that holds the assets of such
a plan, if investment decisions with respect to the
plan are made by the beneficiaries of the plan; or
______ [ ] an entity that in the aggregate owns and invests on
Initial of a discretionary basis $25 million or more in
Authorized Qualified Purchaser Investments (as defined in
Signer Exhibit A). In making this determination, the amount
of any outstanding indebtedness incurred to make the
Qualified Purchaser Investments held by the Client
shall be subtracted from the Qualified Purchaser
Investments.
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(c) No beneficiary or investor of the Client has any right to
consult with regard to, advise or direct the investments made by or on behalf
of the Client, and the Client has not been organized for the purpose of
purchasing Units.
(d) If the Client: is (A) classified as a partnership for
federal income tax purposes, (B) a "grantor trust," any portion of which is
treated as owned by the grantor(s) or other person(s) under sections 671-679 of
the Code, or (C) an "S corporation" within the meaning of section 1361(a) of
the Code (any of (A), (B), or (C), a "Flow-Through Entity"), the beneficial
owners of the Client which is a Flow-Through Entity are not investing in the
Trust through the Client for the principal purpose of avoiding the 100-partner
limitation in Treasury Regulations section.1.7704-1(h)(i)(ii).
(e) The execution and delivery of this Agreement by the
Client does not require any approval, authorization, license, or filing from or
with any foreign, federal, state or municipal board or agency on the part of
the Client or in connection with the offer and sale of the Units on the part of
the Trust or the Trustee or any of its affiliates.
(f) No provision of any applicable law, regulation or
document by which the Client is bound prohibits the purchase of Units in the
Trust by the Client.
(g) Simultaneously herewith the Client has completed,
executed and delivered to the Trust a Form W-8 setting forth certain taxpayer
identification information required by the Trust.
The Client hereby represents to State Street that: (i) its policies
generally permit it to engage in securities lending transactions; (ii) its
policies permit it to purchase shares of the Navigator Securities Lending Trust
with cash Collateral; (iii) its participation in State Street's securities
lending program, including the investment of cash Collateral in the Navigator
Securities Lending Trust, and the existing series thereof has been approved by
a majority of the directors or trustees which directors and trustees are not
"interested persons" within the meaning of section 2(a)(19) of the Investment
Company Act of 1940, and such directors or trustees will evaluate the
securities lending program no less frequently than annually to determine that
the investment of cash Collateral in the Navigator Securities Lending Trust,
including any series thereof, is in the Client's best interest; and (iv) its
prospectus provides appropriate disclosure concerning its securities lending
activity.
The Client hereby further represents that it is not subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") with
respect to this Agreement and the Securities; that it qualifies as an
"accredited investor" within the meaning of Rule 501 of
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Regulation D under the Securities Act of 1933, as amended; and that the
taxpayer identification number(s) and corresponding tax year-end are as set
forth on Schedule B.
14. Indemnification.
(a) If at the time of a default by a Borrower with respect to a Loan
(within the meaning of the applicable Securities Loan Agreement) some or all of
the Loaned Securities under such Loan have not been returned by the Borrower,
and subject to the terms of this Agreement, State Street shall indemnify the
Client against the failure of the Borrower as follows. State Street shall
purchase a number of Replacement Securities equal to the number of such
unreturned Loaned Securities, to the extent that such Replacement Securities
are available on the open market. Such Replacement Securities shall be
purchased by applying the proceeds of the Collateral with respect to such Loan
to the purchase of such Replacement Securities. Subject to the Client's
obligations pursuant to Section 8 hereof, if and to the extent that such
proceeds are insufficient or the Collateral is unavailable, the purchase of
such Replacement Securities shall be made at State Street's expense.
(b) If State Street is unable to purchase Replacement Securities
pursuant to Paragraph (a) hereof, State Street shall credit to the Client's
account an amount equal to the Market Value of the unreturned Loaned Securities
for which replacement securities are not so purchased, determined as of (i) the
last day the Collateral continues to be successfully marked to market against
the unreturned Loaned Securities; or (ii) the next business day following the
day referred to in (i) above, if higher.
(c) In addition to making the purchases or credits required by
Paragraphs (a) and (b) hereof, State Street shall credit to the Client's
account the value of all distributions on the Loaned Securities (not otherwise
credited to the Client's accounts with State Street), the record dates for
which occur before the date that State Street purchases Replacement Securities
pursuant to Paragraph (a) or credits the Client's account pursuant to Paragraph
(b).
(d) Any credits required under Paragraphs (b) and (c) hereof shall be
made by application of the proceeds of the Collateral (if any) that remains
after the purchase of Replacement Securities pursuant to Paragraph (a). If and
to the extent that the Collateral is unavailable or the value of the proceeds
of the remaining Collateral is less than the value of the sum of the credits
required to be made under Paragraphs (b) and (c), such credits shall be made at
State Street's expense.
(e) If after application of Paragraphs (a) through (d) hereof,
additional Collateral remains or any previously unavailable Collateral becomes
available or any additional amounts owed by the Borrower with respect to such
Loan are received from the Borrower, State Street shall apply the proceeds of
such Collateral or such additional amounts first to reimburse itself for any
amounts expended by State Street pursuant to Paragraphs (a) through
13
<PAGE> 17
(d) above, and then to credit to the Client's account all other amounts owed by
the Borrower to the Client with respect to such Loan under the applicable
Securities Loan Agreement.
(f) In the event that State Street is required to make any payment
and/or incur any loss or expense under this Section, State Street shall, to the
extent of such payment, loss, or expense, be subrogated to, and succeed to, all
of the rights of the Client against the Borrower under the applicable
Securities Loan Agreement.
(g) The provisions of this Section 14 shall not apply to losses
attributable to war, riot, revolution, acts of government or other causes
beyond the reasonable control or apprehension of State Street.
15. Continuing Agreement and Termination.
It is the intention of the parties hereto that this Agreement shall
constitute a continuing agreement in every respect and shall apply to each and
every Loan, whether now existing or hereafter made. The Client and State Street
may each at any time terminate this Agreement upon five (5) business days'
written notice to the other to that effect. The only effects of any such
termination of this Agreement will be that (a) following such termination, no
further Loans shall be made hereunder by State Street on behalf of the Client,
and (b) State Street shall, within a reasonable time after termination of this
Agreement, terminate any and all outstanding Loans. The provisions hereof shall
continue in full force and effect in all other respects until all Loans have
been terminated and all obligations satisfied as herein provided.
16. Notices.
Except as otherwise specifically provided herein, notices under this
Agreement may be made orally, in writing, or by any other means mutually
acceptable to the parties. If in writing, a notice shall be sufficient if
delivered to the party entitled to receive such notices at the following
addresses:
If to Client:
[insert name and address]
If to State Street:
State Street Bank and Trust Company
Global Securities Lending Division
Two International Place, Floor 31
Boston, Massachusetts 02110
14
<PAGE> 18
or to such other addresses as either party may furnish the other party by
written notice under this section.
Whenever this Agreement permits or requires the Client to give notice
to, direct, provide information to State Street, such notice, direction, or
information shall be provided to State Street on the Client's behalf by any
individual designated for such purpose by the Client in a written notice to
State Street. (This Agreement shall be considered such a designation of the
person executing the Agreement on the Client's behalf.) After its receipt of
such a notice of designation, and until its receipt of a notice revoking such
designation, State Street shall be fully protected in relying upon the notices,
directions, and information given by such designee.
17. Miscellaneous.
This Agreement supersedes any other agreement between the parties or
any representations made by one party to the other, whether oral or in writing,
concerning loans of securities by State Street on behalf of the Client. This
Agreement may be assigned by State Street without the prior written consent of
the other party. Subject to the foregoing, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
representatives, successors, and assigns. This Agreement shall be governed and
construed in accordance with the laws of the Commonwealth of Massachusetts. The
Client hereby irrevocably submits to the jurisdiction of any Massachusetts state
or Federal court sitting in The Commonwealth of Massachusetts in any action or
proceeding arising out of or related to this Agreement and hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such Massachusetts state or Federal court except that this
provision shall not preclude any party from removing any action to Federal
court. The Client hereby irrevocably waives, to the fullest extent it may
effectively do so, the defense of an inconvenient forum to the maintenance of
such action or proceeding. Client hereby irrevocably appoints as its
agent to receive on its behalf service of copies of the summons and complaint
and any other process which may be served in any such action or proceeding (the
"Process Agent"). Such service may be made by mailing or delivering a copy of
such process, in care of the Process Agent at the above address. The Client
hereby irrevocably authorizes and directs the Process Agent to accept such
service on its behalf. As an alternative method of service, the Client also
irrevocably consents to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to the Client at its address
specified in Section hereof. The Client agrees that a final judgment in
any such action or proceeding, all appeals having been taken or the time period
for such appeals having expired, shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. The provisions of this Agreement are severable and the invalidity or
unenforceability of
15
<PAGE> 19
any provision hereof shall not affect any other provision of this Agreement. If
in the construction of this Agreement any court should deem any provision to be
invalid because of scope or duration, then such court shall forthwith reduce
such scope or duration to that which is appropriate and enforce this Agreement
in its modified scope or duration.
The execution of this Agreement has been authorized by the Client's
Trustees and by the sole shareholder. This Agreement is executed on behalf of
the Client or the Trustees of the Client as Trustees and not individually and
that the obligations of this Agreement are not binding upon any of the
Trustees, officers or shareholders of the Client individually, but are binding
only upon the assets and property of the Client. A certificate of Trust in
respect of the Client is on file with the Secretary of the State of Delaware.
18. Securities Investors Protection Act of 1970 Notice.
CLIENT IS HEREBY ADVISED AND ACKNOWLEDGES THAT THE PROVISIONS OF THE
SECURITIES INVESTOR PROTECTION ACT OF 1970 MAY NOT PROTECT THE CLIENT WITH
RESPECT TO THE LOAN OF SECURITIES HEREUNDER AND THAT, THEREFORE, THE COLLATERAL
DELIVERED TO THE CLIENT MAY CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF THE
BROKER'S OR DEALER'S OBLIGATION IN THE EVENT THE BROKER OR DEALER FAILS TO
RETURN THE SECURITIES.
19. Counterparts.
The Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but such counterparts shall, together,
constitute only one (1) instrument.
20. Modification.
This Agreement shall not be modified, except by an instrument in
writing signed by the party against whom enforcement is sought.
[CLIENT]
Name:
----------------------------
By:
------------------------------
Its:
-----------------------------
STATE STREET BANK AND TRUST COMPANY
Name:
----------------------------
By:
------------------------------
Its:
-----------------------------
16
<PAGE> 20
SCHEDULE A
This Schedule is attached to and made part of the Securities Lending
Authorization Agreement, dated the 26th day of August, 1998 between AMERICAN
GENERAL SERIES PORTFOLIO COMPANY 3 ("Client") and STATE STREET BANK AND TRUST
COMPANY ("State Street").
SCHEDULE OF FEES
1. Subject to Paragraph 2 below, all proceeds collected by State Street on
investment of Cash Collateral or any fee income shall be allocated as follows
- - ____ percent (__%) payable to the Client, and
- - ____ percent (__%) payable to State Street.
2. All payments to be allocated under Paragraph 1 above shall be made
after deduction of such other amounts payable to State Street or to the
Borrower under the terms of the attached Securities Lending Authorization
Agreement.
3. Investment Management Fees
<PAGE> 21
SCHEDULE 8.1
This Schedule is attached to and made part of the Securities Lending
Authorization Agreement, dated the 26th day of August, 1998 between AMERICAN
GENERAL SERIES PORTFOLIO COMPANY 3 ("Client") and STATE STREET BANK AND TRUST
COMPANY ("State Street").
ACCEPTABLE FORMS OF COLLATERAL
- Cash (U.S. and foreign currency);
- Securities issued or guaranteed by the United States
government or its agencies or instrumentalities;
- Sovereign debt rated A or better
- Canadian Provincial Debt
- Convertible Bonds
- Irrevocable bank letters of credit issued by a person other
than the Borrower or an affiliate of the Borrower may be
accepted as Collateral, if State Street has determined that
it is appropriate to accept such letters of credit as
Collateral under the securities lending programs it
administers; and
- Such other Collateral as the parties may agree to in writing
from time to time.
<PAGE> 22
SCHEDULE B
This Schedule is attached to and made part of the Securities Lending
Authorization Agreement, dated the 26th day of August, 1998 between AMERICAN
GENERAL SERIES PORTFOLIO COMPANY 3 ("Client") and STATE STREET BANK AND TRUST
COMPANY ("State Street").
TAXPAYER IDENTIFICATION NUMBER TAX YEAR-END
<PAGE> 23
EXHIBIT A
QUALIFIED PURCHASER INVESTMENTS
This Exhibit is designed to assist the Client in determining which of
its assets are Qualified Purchaser Investments and the appropriate method of
valuing those assets. Although the definition of Qualified Purchaser
Investments includes most of what are ordinarily considered "investments" or
"securities" (but excludes assets such as jewelry, artwork, antiques and other
similar collectibles), issues may arise as to whether a particular holding
falls within the definition. The Client is encouraged to consult its legal
and/or investment advisors for guidance on these issues.
TYPES OF INVESTMENTS. The term "Qualified Purchaser Investment" includes the
investments described below.
(a) Cash and cash equivalents (including foreign currency) held for
investment purposes, including bank deposits, certificates of deposit,
bankers acceptances, and the net cash surrender value of an insurance
policy.
(b) Securities such as
(i) shares of (and other interests in) mutual funds, closed-end
funds, hedge funds, and commodity pools;
(ii) securities, including common stock, preferred stock and other
equity instruments as well as bonds, notes, debentures and
other debt obligations, of public companies (including
companies listed on certain foreign exchanges);
(iii) securities, including common stock, preferred stock and other
equity instruments as well as bonds, notes, debentures and
other debt obligations, of private companies with at least
$50 million in shareholders' equity;
(iv) interests in family-owned or closely-held businesses
controlled by the Client if they fall in one of categories
(i)-(iii) above; and
(v) bonds, notes and similar debt obligations issued by federal,
state and local governments and agencies.
(c) Real estate held for investment purposes (which does not include a
place of business used by the Client or the Subscriber's family, or a
personal residence used by the
<PAGE> 24
Client or the Subscriber's family unless the residence is treated as
an investment for tax purposes).
(d) Commodity futures contracts, options on commodity futures contracts,
and options on physical commodities traded on or subject to the rules
of a major commodities exchange held for investment purposes.
(e) Physical commodities such as gold or silver with respect to which a
commodity interest is traded on or subject to the rules of a major
commodities exchange held for investment purposes.
(f) Financial contracts entered into for investment purposes including
swaps and similar contracts.
VALUATION. A Qualified Purchaser Investment should be valued at its fair market
value as of the most recent practicable date or its cost, provided that
commodity interests should be valued at the initial margin or option premium
deposited in connection with such interests.
INVESTMENTS BY SUBSIDIARIES. The amount of Qualified Purchaser Investments
owned by an Entity other than a so-called "Family Company" may include
investments owned by majority-owned subsidiaries of the Entity and investments
owned by an Entity ("Parent Entity") of which the Entity is a majority-owned
subsidiary, or by a majority-owned subsidiary of the Entity and other
majority-owned subsidiaries of the Parent Entity.
<PAGE> 1
EXHIBIT 9(a)
AMENDED AND RESTATED
TRANSFER AGENCY and SERVICE AGREEMENT
BETWEEN
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
AND
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
1
<PAGE> 2
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the _ day of 1998, by and between American
General Series Portfolio Company 3, a Delaware business trust, having its
principal office and place of business at Houston, Texas (the "Fund"), and
The Variable Annuity Life Insurance Company, a stock life insurance company
organized under the Texas Insurance Code having its principal office and
place of business at Houston, Texas (the "Transfer Agent").
WHEREAS, the Fund desires to appoint the Transfer Agent as its transfer
agent, dividend disbursing agent and agent in connection with certain other
activities, and the Transfer Agent desires to accept such appointments;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1. Terms of Appointment: Duties of the Transfer Age .
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund hereby employs and appoints the Transfer Agent as its transfer
agent, dividend disbursing agent and agent in connection with any
accumulation, open-account or similar plans provided to the
shareholders of the Fund ("Shareholders') and set forth in the
currently effective prospectus of the Fund.
1.02 The Transfer Agent hereby accepts such employment and appointment and
agrees that on and after the effective date of this Agreement it will
act as the Fund's transfer agent, dividend disbursing agent and agent
in connection with the other activities described in paragraph 1.01
hereof, on the terms and conditions set forth herein.
1.03 The Transfer Agent agrees that its duties and obligations hereunder
will be performed in a competent, efficient and workman-like manner
with due diligence in accordance with reasonable industry practice,
and that the necessary facilities, equipment and personnel for such
performance will be provided.
Article 2. Expenses.
2.01 The Fund agrees to reimburse the Transfer Agent promptly for its
reasonable costs of performing its duties and obligations under this
Agreement, including overhead and out-of-pocket expenses or advances
paid by the Transfer Agent for postage, envelopes, checks, drafts,
continuous forms, reports and statements, telephone, telegraph, cost of
outside mailing firms, necessary outside record storage costs, media
for storage of records (e.g., microfile, microfiche, computer tapes)
and printing costs incurred due to special requirements of the Fund. In
addition, any other costs or special out-of-pocket expenses paid by the
Transfer
2
<PAGE> 3
Agent at the specific request of the Fund will be promptly reimbursed
by the Fund. Any postage for mailings of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be
advanced to the Transfer Agent three business days prior to the mailing
date of such materials.
Article 3, Representations and Warranties of the Transfer Agent.
The Transfer Agent represents and warrants to the Fund that:
3.01 It is a stock life insurance company duly organized and existing and in
good standing under the laws of the State of Texas.
3.02 It is duly qualified to carry on its business in the State of Texas.
3.03 It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05 It has and will continue to have during the term of this Agreement
access to the necessary facilities, equipment and personnel to perform
its duties and obligations hereunder.
Article 4. Representations and Warranties of the Fund
4.01 It is duly organized and existing and in good standing under the laws
of the State of Delaware.
4.02 It is empowered under applicable laws and regulations any by its
Agreement and Declaration of Trust and Bylaws to enter into and perform
this Agreement.
4.03 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
4.04 It is an open-end diversified management investment company registered
under the Investment Company Act of 1940.
4.05 A registration statement under the Securities Act of 1933 is currently
effective and will remain effective, and appropriate state securities
laws filing have been made and will continue to be made, with respect
to all shares of the Fund being offered for sale.
3
<PAGE> 4
Article 5. Indemnification.
5.01 The Transfer Agent shall not be responsible and the Fund shall
indemnify and hold the Transfer Agent harmless from and against any and
all losses, damages, costs, charges, reasonable counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) All actions of the Transfer Agent required to be taken by the
Transfer Agent pursuant to this Agreement, provided the Transfer
Agent has acted in good faith with due diligence and without
negligence or willful misconduct,
(b) The reasonable reliance by the Transfer Agent on, or reasonable
use of the Transfer Agent of, information, records and documents
which have been prepared or maintained by or on behalf of the Fund
or have been furnished to the Transfer Agent or on behalf of the
Fund.
(c) The reasonable reliance by the Transfer Agent on, or the carrying
out by the Transfer Agent of, any instructions or requests of the
Fund.
(d) The offer or sale of Fund shares in violation of any requirement
under the Federal securities laws or regulations or the securities
laws or regulations of any state or in violation of any stop order
or other determination or ruling by any Federal agency or any
state with respect to the offer or sale of such shares in such
state unless such violation results from any failure by the
Transfer Agent to comply with written instructions of the Fund
that no offers or sales of Fund shares be made in general or to
the residents of a particular state.
(e) The Fund's refusal or failure to comply with the terms of this
Agreement, or the Fund's lack of good faith, negligence or willful
misconduct or the breach of any representative or warranty of the
Fund hereunder.
5.02 The Transfer Agent shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, reasonable counsel
fees, payments, expenses and liability arising out of or attributable
to the Transfer Agent's refusal or failure with the terms of this
agreement, or the Transfer Agent's lack of good faith, negligence or
willful misconduct, or the breach of any representation or warranty of
the Transfer Agent hereunder.
5.03 At any time the Transfer Agent may apply to any authorized officer of
the Fund for instructions, and may consult with the Fund's legal
counsel, at the expense of the Fund, with respect to any matter arising
in connection with the services to be performed by the Transfer Agent
under this Agreement, and the Transfer Agent shall not be liable and
shall be indemnified by the Fund for any action taken or omitted by it
in good faith in reasonable reliance upon such instructions or upon the
opinion of such counsel. The Transfer Agent shall be protected and
indemnified in acting upon any paper or document reasonably believed
4
<PAGE> 5
by the Transfer Agent to be genuine and to have been signed by the
proper person or persons and shall not be held to have notice of any
change of authority of any person, until receipt of written notice
thereof from the Fund. The Transfer Agent shall also be protected and
indemnified in recognizing stock certificates which the Transfer Agent
reasonably believes to bear the proper manual or facsimile signatures
of the officers of the Fund, and the proper countersignature of any
former transfer agent or registrar, or of a co-transfer agent or
coregistrar.
5.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment
or transmission failure or damage, or other causes reasonably beyond
its control, such party shall not be liable for damages to the other
for any damages resulting from such failure to perform or otherwise
from such causes.
5.05 In no event and under no circumstances shall either party to this
Agreement be liable to the other party for consequential damages under
any provision of this Agreement or for any act or failure to act
hereunder.
5.06 In order that the indemnification provisions contained in this
Article 5 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
Article 6. Covenants of the Fund and the Transfer Agent.
6.01 The Fund shall promptly furnish to the Transfer Agent the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Transfer Agent and the
execution and delivery of this Agreement,
(b) A certified copy of the Agreement and Declaration of Trust and
Bylaws of the Fund and all amendments thereto.
6.02 The Transfer Agent hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of
stock certificates, check forms and facsimile signature imprinting
devices, if any; and for the preparation or use and for keeping account
of, such certificates, forms and devices.
5
<PAGE> 6
6.03 The Transfer Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable;
provided, however, that all accounts, books and other records of the
Fund (hereinafter referred to as "Fund Records") prepared or maintained
by the Transfer Agent hereunder shall be maintained and kept current in
compliance with Section 31 of the Investment company Act of 1940 and
the Rules thereunder (such Section and Rules being hereinafter referred
to as the ("1940 Act Requirements"). To the extent required by the
1940 Act Requirements, the Transfer Agent agrees that all Fund Records
prepared or maintained by the Transfer Agent hereunder are the property
of the Fund and shall be preserved and made available in accordance
with the 1940 Act Requirements, and shall be surrendered promptly to
the Fund on its request. The Transfer Agent agrees at such reasonable
times as may be requested by the Board of Directors of the Fund and at
least semiannually to provide (i) written confirmation to such Board
that all Fund Records are maintained and kept current in accordance
with the 1940 Act Requirements, and (ii) such other reports regarding
its performance hereunder as may be reasonably requested by such Board.
6.04 The Transfer Agent and the Fund agree that all books, records,
information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall remain confidential, and shall not
be voluntarily disclosed to any other person, except as may be required
by law.
6.05 In case of any requires or demands for the inspection of the
Shareholder records of the Fund, the Transfer Agent will endeavor to
notify the Fund and to secure instructions from an authorized officer
of the Fund as to such inspection. The Transfer Agent reserves the
right, however, to exhibit the Shareholder records to any person
whenever it is advised by its counsel that it may be held liable for
the failure to exhibit the Shareholder records to such person.
Article 7. Term and Termination of Agreement.
7.01 This Agreement shall remain in effect until terminated as hereinafter
provided. This Agreement may be terminated by the Fund at any time by
giving written notice to the Transfer Agent at least 120 days prior to
the date on which such termination is to be effective; and provided,
further, that this Agreement may be terminated by the Transfer Agent
for good and reasonable cause at any time by giving written notice to
the Fund at least 120 days prior to the date on which such termination
is to be effective, Any reimbursable expenses payable to the Transfer
Agent shall be due on any such termination date. The Transfer Agent
agrees to use its best efforts to cooperate with the Fund and the
successor transfer agent in accomplishing an orderly transition.
6
<PAGE> 7
Article 8. Miscellaneous.
8.01 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the written consent of the other;
provided, however, that no consent shall be required for any merger of
the Fund with, or any sale of all or substantially all the assets of
the Fund to, another investment company.
8.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns,
8.03 This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof, and supersedes any
prior agreement with respect thereto, whether oral or written and this
Agreement may not be modified except by written instrument executed by
both parties.
IN WITNESS WHEREOF, the parties hereto have cause this Agreement to be
executed in their names and on their behalf under their seals by any through
their duly authorized officers, as of the date first above written.
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
By:
--------------------------------
Thomas L. West, Jr.
ATTEST:
- -------------------------------------
Cynthia A. Toles
AMERICAN GENERAL SERIES PORTFOLIO
COMPANY 3
By:
--------------------------------
John A. Graf
ATTEST:
- -------------------------------------
Cynthia A. Toles
7
<PAGE> 1
EXHIBIT 9(b)
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
Addendum to the Custodian Contract between American General Series
Portfolio Company 3 (the "Customer") and State Street Bank and Trust Company
("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain
assets of the Customer pursuant to a certain Custodian Contract dated as of
______, 1998 (the "Custodian Contract");
WHEREAS, State Street has developed and utilizes proprietary
accounting and other systems, including State Street's proprietary Multicurrency
HORIZON(SM) Accounting System, in its role as custodian of the Customer, and
maintains certain Customer-related data ("Customer Data") in databases under
the control and ownership of State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to the Customer certain Data
Access Services solely for the benefit of the Customer, and intends to provide
additional services, consistent with the terms and conditions of this Addendum.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration, the
parties agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Addendum, State
Street hereby agrees to provide the Customer with access to State Street's
Multicurrency HORIZON(SM) Accounting System and such other information systems
(collectively, the "System") as may be selected and described in Attachment A,
on a remote basis for the purpose of obtaining reports and information, solely
on computer hardware, system software and telecommunication links as listed in
Attachment B (the "Designated Configuration") of the Customer, or certain third
parties approved by State Street that serve as investment advisors or investment
managers of the Customer (the "Investment Advisor"), and solely with respect to
the Customer or on any designated substitute or back-up equipment configuration
with State Street's written consent, such consent not to be unreasonably
withheld.
b. Data Access Services. State Street agrees to make available to the
Customer the Data Access Services subject to the terms and conditions of this
Addendum and data access operating standards and procedures as may be issued by
State Street from time to time. The ability of the Customer to originate
electronic instructions to State Street on behalf of the Customer in order to
(i) effect the transfer or movement of cash or securities held under custody by
State Street or (ii) transmit accounting or other information (such transactions
are referred to herein as "Client Originated Electronic Financial
Instructions"), and (iii) access data for the purpose of reporting and analysis,
shall be deemed to be Data Access Services for purposes of this Addendum.
c. Additional Services. State Street may from time to time agree to
make available to the Customer additional Systems that are not described in the
attachments to this Addendum. In the absence of any other written agreement
concerning such additional systems, the term "System" shall include, and this
Addendum shall govern, the Customer's access to and use of any additional
System made available by State Street and/or accessed by the Customer.
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Customer acknowledge that in connection with the
Data Access Services provided under this Addendum, the Customer will have
access, through the Data Access Services, to Customer Data and to functions of
State Street's proprietary systems; provided, however that in no event will the
Customer have direct access to any third party systems-level software that
retrieves data for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment; Designated Location. The System and the Data
Access Services shall be used and accessed solely on and through the Designated
Configuration at the offices of the Customer or the Investment Advisor located
in ____________________ ("Designated Location").
<PAGE> 2
b. Designated Configuration: Trained Personnel. State Street shall be
responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and the Customer agree
that each will engage or retain the services of trained personnel to enable both
parties to perform their respective obligations under this Addendum. State
Street agrees to use commercially reasonable efforts to maintain the System so
that it remains serviceable, provided, however, that State Street does not
guarantee or assure uninterrupted remote access use of the System.
c. Scope of Use. The Customer will use the System and the Data Access
Services only for the processing of securities transactions, the keeping of
books of account for the Customer and accessing data for purposes of reporting
and analysis. The Customer shall not, and shall cause its employees and agents
not to (i) permit any third party to use the System or the Date Access Services,
(ii) sell, rent, license or otherwise use the System or the Data Access Services
in the operation of a service bureau or for any purpose other than as expressly
authorized under this Addendum, (iii) use the System or the Data Access Services
for any fund, trust or other investment vehicle without the prior written
consent of State Street, (iv) allow access to the System or the Data Access
Services through terminals or any other computer or telecommunications
facilities located outside the Designated Locations, (v) allow or cause any
information (other than portfolio holdings, valuations of portfolio holdings,
and other information reasonably necessary for the management or distribution of
the assets of the Customer) transmitted from State Street's databases, including
data from third party sources. available through use of the System or the Data
Access Services to be redistributed or retransmitted to another computer,
terminal or other device for other than use for or on behalf of the Customer or
(vi) modify the System in any way, including without limitation, developing any
software for or attaching any devices or computer programs to any equipment,
system, software or database which forms a part of or is resident on the
Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned
System shutdown, the Customer's access to services performed by the System or to
Data Access Services at the Designated Location may be transferred to a
different location only upon the prior written consent of State Street. In the
event of an emergency or System shutdown, the Customer may use any back-up site
included in the Designated Configuration or any other back-up site agreed to by
State Street, which agreement will not be unreasonably withheld. The Customer
may secure from State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or devices complying
with the Designated Configuration at additional locations only upon the prior
written consent of State Street and on terms to be mutually agreed upon by the
parties.
e. Title. Title and all ownership and proprietary rights to the System,
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street,
the Customer shall not modify, enhance or otherwise create derivative works
based upon the System, nor shall the Customer reverse engineer, decompile or
otherwise attempt to secure the source code for all or any part of the System.
g. Security Procedures. The Customer shall comply with data access
operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and to
access the Date Access Services. The Customer shall have access only to the
Customer Data and authorized transactions agreed upon from time to time by State
Street and, upon notice from State Street, the Customer shall discontinue remote
use of the System and access to Data Access Services for any security reasons
cited by State Street; provided, that, in such event, State Street shall, for a
period not less than 180 days (or such other shorter period specified by the
Customer) after such discontinuance, assume responsibility to provide accounting
services under the terms of the Custodian Contract.
h. Inspections. State Street shall have the right to inspect the use of
the System and the Data Access Services by the Customer and the Investment
Advisor to ensure compliance with this Addendum. The on-site inspections shall
be upon prior written notice to the Customer and the Investment Advisor and at
reasonably convenient times and frequencies so as not to result in an
unreasonable disruption of the Customer's or the Investment Advisor's business.
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Customer acknowledges and State Street
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information made available to the Customer by State Street as part of the Data
Access Services and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State
2
<PAGE> 3
Street. Any and all such information provided by State Street to the Customer
shall be deemed proprietary and confidential information of State Street
(hereinafter "Proprietary Information"). The Customer agrees that it will hold
such Proprietary Information in the strictest confidence and secure and protect
it in a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder. The Customer further
acknowledges that State Street shall not be required to provide the Investment
Advisor with access to the System unless it has first received from the
Investment Advisor an undertaking with respect to State Street's Proprietary
Information in the form of Attachment C to this Addendum. The Customer also
acknowledges that State Street shall not be required to provide Customer's
independent auditor with access to the System unless it has first received from
such independent auditor an undertaking with respect to State Street's
Proprietary Information in the form of Attachment C-1 to this Addendum. The
Customer shall use all commercially reasonable efforts to assist State Street
in identifying and preventing any unauthorized use, copying or disclosure of
the Proprietary Information or any portions thereof or any of the logic,
formats or designs contained therein.
b. Cooperation. Without limitation of the foregoing, the Customer shall
advise State Street immediately in the event the Customer learns or has reason
to believe that any person to whom the Customer has given access to the
Proprietary Information, or any portion thereof, has violated or intends to
violate the terms of this Addendum, and the Customer will, at its expense,
co-operate with State Street in seeking injunctive or other equitable relief in
the name of the Customer or State Street against any such person.
c. Injunctive Relief. The Customer acknowledges that the disclosure of
any Proprietary Information, or of any information which at law or equity ought
to remain confidential, will immediately give rise to continuing irreparable
injury to State Street inadequately compensable in damages at law. In addition,
State Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival. The provisions of this Section 4 shall survive the
termination of this Addendum.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. The Customer
agrees that any liability of State Street to the Customer or any third party
arising out of State Street's provision of Data Access Services or the System
under this Addendum shall be limited to the amount paid by the Customer for the
preceding 24 months for such services. In no event shall State Street be liable
to the Customer or any other party for any special, indirect, punitive or
consequential damages even if advised of the possibility of such damages. No
action, regardless of form, arising out of this Addendum may be brought by the
Customer more than two years after the Customer has knowledge that the cause of
action has arisen.
b. Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET.
c. Third-Party Data. Organizations from which State Street may obtain
certain data included in the System or the Data Access Services are solely
responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and the Customer,
the Customer shall be solely responsible for the accuracy of any accounting
statements or reports produced using the Data Access Services and the System and
the conformity thereof with any requirements of law.
e. Force Majeure. Neither party shall be liable for any costs or
damages due to delay or nonperformance under this Addendum arising out of any
cause or event beyond such party's control, including without limitation,
cessation of services hereunder or any damages resulting therefrom to the other
party, or the Customer as a result of work stoppage, power or other mechanical
failure, computer virus, natural disaster, governmental action, or communication
disruption.
3
<PAGE> 4
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street harmless from any loss,
damage or expense including reasonable attorney's fees, (a "loss") suffered by
State Street arising from (i) the negligence or willful misconduct in the use
by the Customer of the Data Access Services or the System, including any loss
incurred by Stale Street resulting from a security breach at the Designated
Location or committed by the Customer's employees or agents or the Investment
Advisor and (ii) any loss resulting from incorrect Client Originated Electronic
Financial Instructions. State Street shall be entitled to rely on the validity
and authenticity of Client Originated Electronic Financial Instructions without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by State Street from time to
time.
7. FEES
Fees and charges for the use of the System and the Data Access Services, if
any, and related payment terms shall be as set forth in the fee schedule in
effect from time to time between the parties related to the Custodian Contract
(the "Fee Schedule"). Any tariffs, duties or taxes imposed or levied by any
government or governmental agency by reason of the transactions contemplated by
this Addendum, including, without limitation, federal, state and local taxes,
use, value added and personal property taxes (other than income, franchise or
similar taxes which may be imposed or assessed against State Street) shall be
borne by the Customer. Any claimed exemption from such tariffs, duties or taxes
shall be supported by proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated
State Street training facility or at the Designated Location, to the Customer's
personnel in connection with the use of the System on the Designated
Configuration. The Customer agrees that it will set aside, during regular
business hours or at other times agreed upon by both parties, sufficient time to
enable all operators of the System and the Data Access Services, designated by
the Customer, to receive the training offered by State Street pursuant to this
Addendum.
b. Installation and Conversion. State Street shall be responsible for
the technical installation and conversion ("Installation and Conversion") of
the Designated Configuration. The Customer shall have the following
responsibilities in connection with Installation and Conversion of the System:
(i) The Customer shall be solely responsible for the
timely acquisition and maintenance of the hardware
and software that attach to the Designated
Configuration in order to use the Data Access
Services at the Designated Location.
(ii) State Street and the Customer each agree that they
will assign qualified personnel to actively
participate during the Installation and Conversion
phase of the System implementation to enable both
parties to perform their respective obligations
under this Addendum.
9. SUPPORT
During the term of this Addendum, State Street agrees to provide the
support services set out in Attachment D to this Addendum.
10. TERM OF ADDENDUM
a. Term of Addendum. This Addendum shall become effective
simultaneously with State Street's execution of the Custodian Contract and shall
remain in full force and effect until terminated as herein provided.
b. Termination of Addendum. Either party may terminate this Addendum
(i) for any reason by giving the other party at least one-hundred and eighty
days' prior written notice in the case of notice of termination by State Street
to the Customer or thirty days' notice in the case of notice from the Customer
to State Street of termination; or (ii) immediately for failure of the other
party to comply with any material term and condition of the Addendum by giving
the other party written notice of termination. In the event the Customer shall
cease doing business, shall become subject to proceedings under the bankruptcy
laws (other than a petition for reorganization or similar proceeding) or shall
be adjudicated bankrupt, this Addendum and the rights granted hereunder shall,
at the option of State Street, immediately terminate with notice to the
Customer. This Addendum shall in any event
4
<PAGE> 5
terminate as to any Customer within 90 days after the termination of the
Custodian Contract applicable to such Customer.
C. Termination of the Right to Use. Upon termination of this Addendum
for any reason, any right to use the System and access to the Data Access
Services shall terminate and the Customer shall immediately cease use of the
System and the Data Access Services. Immediately upon termination of this
Addendum for any reason, the Customer shall return to State Street all copies of
documentation and other Proprietary Information in its possession; provided,
however, that in the event that either party terminates this Addendum or the
Custodian Contract for any reason other than the Customer's breach, State
Street shall provide the Date Access Services for a period of time and at a
price to be agreed upon by the parties.
11. MISCELLANEOUS
a. Assignment; Successors. This Addendum and the rights and
obligations of the Customer and State Street hereunder shall not be assigned by
either party without the prior written consent of the other party, except that
State Street may assign this Addendum to a successor of all or a substantial
portion of its business, or to a party controlling, controlled by, or under
common control with State Street.
b. Survival. All provisions regarding indemnification, warranty,
liability and limits thereon, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive the termination of this
Addendum.
c. Entire Contract. This Addendum and the attachments hereto constitute
the entire understanding of the parties hereto with respect to the Data Access
Services and the use of the System and supersedes any and all prior or
contemporaneous representations or agreements, whether oral or written, between
the parties as such may relate to the Data Access Services or the System, and
cannot be modified or altered except in a writing duly executed by the parties.
This Addendum is not intended to supersede or modify the duties and liabilities
of the parties hereto under the Custodian Contract or any other agreement
between the parties hereto except to the extent that any such agreement
specifically refers to the Data Access Services or the System. No single waiver
of any right hereunder shall be deemed to be a continuing waiver.
d. Severability. If any provision or provisions of this Addendum shall
be held to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
e. Governing Law. This Addendum shall be interpreted and construed in
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
5
<PAGE> 6
ATTACHMENT A
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
MULTICURRENCY HORIZON(SM) ACCOUNTING SYSTEM
SYSTEM PRODUCT DESCRIPTION
[ ] The Multicurrency HORIZON(SM) Accounting System is designed to provide
lot level portfolio and general ledger accounting for SEC and ERISA
type requirements and includes the following services: 1) recording of
general ledger entries; 2) calculation of daily income and expense; 3)
reconciliation of daily activity with the trial balance; and 4)
appropriate automated feeding mechanisms to (i) domestic and
international settlement systems, (ii) daily, weekly and monthly
evaluation services, (iii) portfolio performance and analytic services,
(iv) customer's internal computing systems and (v) various State
Street provided information services products.
[ ] GlobalQuest(R) is designed to provide customer access to the following
information maintained on The Multicurrency HORIZON(SM) Accounting
System: 1) cash transactions and balances; 2) purchases and sales; 3)
income receivables; 4) tax refund receivables; 5) daily priced
positions; 6) open trades; 7) settlement status; 8) foreign exchange
transactions; 9) trade history; and 10) daily, weekly and monthly
evaluation services.
[ ] HORIZON(R) Gateway. HORIZON(R) Gateway provides customers with the
ability to (i) generate reports using information maintained on the
Multicurrency HORIZON(R) Accounting System which may be viewed or
printed at the customer's location; (ii) extract and download data
from the Multicurrency HORIZON(R) Accounting System; and (iii) access
previous day and historical data. The following information which may
be accessed for these purposes: 1) holdings; 2) holdings pricing; 3)
transactions; 4) open trades; 5) income; 6) general ledger and 7)
cash.
[ ] SaFIRe(SM). SaFIRe(SM) is designed to provide the customer with the
ability to prepare its own financial reports by permitting the
customer to access customer information maintained on the
Multicurrency HORIZON(R) Accounting System, to organize such
information in a flexible reporting format and to have such reports
printed on the customer's desktop or by its printing provider.
[ ] State Street Interchange. State street Interchange is an open
Information delivery architecture wherein proprietary communication
products, data formats and workstation tools are replaced by industry
standards and is designed to enable the connection of State Street's
network to customer networks, thereby facilitating the sharing of
information.
6
<PAGE> 7
ATTACHMENT B
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
7
<PAGE> 8
ATTACHMENT C
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
UNDERTAKING
The undersigned understands that in the course of its employment as
Investment Advisor to American General Series Portfolio Company 3 (the
"Customer") it will have access to State Street Bank And Trust Company's ("State
Street") Multicurrency HORIZON(SM) Accounting System and other information
systems (collectively, the "System").
The undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation and other information made available to the
undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade secret,
or other proprietary information of substantial value to State Street. Any and
all such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
[Investment Advisor]
By:
-------------------------------------
Title:
----------------------------------
Date:
-----------------------------------
8
<PAGE> 9
ATTACHMENT C-1
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
UNDERTAKING
The undersigned understands that in the course of its employment as
Independent Auditor to American General Series Portfolio Company 3 (the
"Customer") it will have access to State Street Bank and Trust Company's ("State
Street") Multicurrency HORIZON Accounting System and other information systems
(collectively, the "System").
The undersigned acknowledges that the System and the databases,
computer programs, screen formats, report formats, interactive design
techniques, documentation, and other information made available to the
Undersigned by State Street as part of the Data Access Services provided to the
Customer and through the use of the System constitute copyrighted, trade secret,
or other proprietary information of substantial value to State Street. Any and
all such information provided by State Street to the Undersigned shall be deemed
proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Undersigned agrees that it will hold such
Proprietary Information in confidence and secure and protect it in a manner
consistent with its own procedures for the protection of its own confidential
information and to take appropriate action by instruction or agreement with its
employees who are permitted access to the Proprietary Information to satisfy its
obligations hereunder.
The Undersigned will not attempt to intercept data, gain access to data
in transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System
and access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
[Independent Auditor]
By:
Title:
Date:
9
<PAGE> 10
ATTACHMENT D
TO
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN CONTRACT
BY AND BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
AND
STATE STREET BANK AND TRUST COMPANY
- -------------------------------------------------------------------------------
SUPPORT
During the term of this Addendum, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Customer Designated Persons may contact State
Street's Multicurrency HORIZON(SM) Help Desk and Customer Assistance Center
between the hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for
the purpose of obtaining answers to questions about the use of the System, or to
report apparent problems with the System. From time to time, the Customer shall
provide to State Street a list of persons, not to exceed five in number, who
shall be permitted to contact State Street for assistance (such persons being
referred to as "the Customer Designated Persons").
b. Technical Support. State Street will provide technical support to
assist the Customer in using the System and the Data Access Services. The total
amount of technical support provided by State Street shall not exceed 10
resource days per year. State Street shall provide such additional technical
support as is expressly set forth in the fee schedule in effect from time to
time between the parties (the "Fee Schedule"). Technical support, including
during installation and testing, is subject to the fees and other terms set
forth in the Fee Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Customer any
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Customer and shall offer the Customer reasonable
training on the enhancement. Charges for system enhancements shall be as
provided in the Fee Schedule. State Street retains the right to charge for
related systems or products that may be developed and separately made available
for use other than through the System.
e. Custom Modifications. In the event the Customer desires custom
modifications in connection with its use of the System, the Customer shall make
a written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to
support the Customer's use of the System: (i) for use on any computer equipment
or telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Customer has modified the System in
breach of this Addendum.
10
<PAGE> 1
EXHIBIT 9(c)
ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT, dated as of the 26th day of August, 1998, made by and between
American General Series Portfolio Company 3 (the "Company"), a business trust
operating as an open end investment company, duly organized and existing under
the laws of the State of Delaware, and The Variable Annuity Life Insurance
Company ("VALIC"), a stock insurance company duly organized and existing under
the laws of the State of Texas:
WITNESSETH THAT:
WHEREAS, The Company desires to appoint VALIC as its Administrative
Services Agent to maintain and keep current the books, accounts, records,
journals or other records of original entry relating to the business of the
Company as set forth in Section 1 of this Agreement (the "Accounts and
Records") and to perform certain daily functions in connection with such
Accounts and Records; and
WHEREAS, VALIC is authorized to contract on behalf of the Company with
service providers for the purpose of daily valuation of the Company portfolios;
and
WHEREAS, VALIC is willing to perform such functions upon the terms and
conditions set forth below; and
NOW, THEREFORE, In consideration of the premises and mutual covenants herein
contained, the parties hereto, intending to be legally bound, do hereby agree
as follows:
Section 1.
VALIC, upon receipt of necessary information and written or verbal instructions
from the Company, shall maintain and keep current the following books:
Accounts and Records, journals or other records of original entry relating to
the business of the Company, and necessary or advisable for compliance with
applicable regulations, including Rules 31(a)-1 and 31(a)-2 of the Investment
Company Act of 1940, as amended (the "1940 Act"), in such form as may be
mutually agreed to between the Company and VALIC:
(a) Cash Receipts
(b) Cash Disbursements
(c) Dividend Record
(d) Purchase and Sales of Portfolio Securities
(e) Subscription and Redemption Journals
(f) Security Ledgers
(g) Broker Ledger
<PAGE> 2
(h) General Ledger
(i) Daily Expense Accruals
(j) Securities and Monies borrowed or loaned and collateral therefor
(k) Daily Trial Balances
It shall be the responsibility of the Company to furnish or cause to be
furnished to VALIC, the declaration, record, payment dates and amounts of any
dividends or income and any other special actions required on or concerning
each of its portfolio securities.
Section 2.
Upon receipt by VALIC of written or verbal instructions, VALIC shall make the
proper accounting entries in accordance therewith and notify the Company of all
cash and securities. VALIC, as Investment Adviser, shall direct that the
broker-dealer, or other person through whom a transaction has occurred, send a
confirmation to VALIC. VALIC shall verify this confirmation against the
written or verbal instructions when received from the Company.
Section 3.
VALIC shall calculate the Company's net asset value in accordance with the
Company's currently effective Registration Statement, once daily.
VALIC shall calculate the daily dividend rate for the Money Market Fund in
accordance with the prospectus of the Money Market Fund and with resolutions of
the Company's Board of Trustees. VALIC shall prepare and maintain a daily
evaluation of securities and other investments for which market quotations are
available by VALIC's approved pricing services; all other securities or
investments shall be evaluated in accordance with the Company's written
instructions.
Section 4.
For all purposes under this Agreement, VALIC is authorized to act upon receipt
of any written or verbal instructions it receives from the Company.
Section 5.
VALIC shall supply daily and periodic reports to the Company as requested by
the Company and agreed upon by VALIC.
Section 6.
VALIC shall compile daily reports of share purchases, redemptions, and total
shares outstanding. Reports of purchases and redemptions so received shall be
deemed to be share orders to the Company and shall be deemed to be orders
accepted by the Company when so received.
<PAGE> 3
Section 7.
The accounts and records, in the agreed upon format, maintained by VALIC shall
be the property of the Company, and shall be made available to the Company
within a reasonable period of time, upon proper demand. VALIC shall assist the
Company's independent auditors, or upon approval of the Company, or upon
demand, any regulatory body, in any requested review of the Company's accounts
and records but shall be reimbursed for all expenses and employee time invested
in such review outside of routine and normal periodic reviews. Upon receipt
from the Company of the necessary information VALIC shall supply the necessary
data for the Company or accountant's completion of any necessary tax return,
questionnaires, periodic reports to shareholders and such other reports and
information requests as the Company and VALIC shall agree upon from time to
time.
Section 8.
VALIC and the Company may from time to time adopt such procedures as they agree
upon, and VALIC may conclusively assume that any procedure approved in writing
by the Company or directed in writing by the Company, does not conflict with or
violate any requirements of its prospectus, Agreement and Declaration of Trust,
Bylaws, or any rule or regulation of any body or governmental agency. The
Company shall be responsible for notifying VALIC of any changes in regulations
or rules which might necessitate changes in VALIC's procedures.
Section 9.
VALIC may rely on information reasonably believed by it to be accurate and
reliable. Except as may otherwise be required by the 1940 Act and the rules
thereunder, neither VALIC nor its shareholders, officers, directors, employees,
agents, control persons or affiliates of any thereof shall be subject to any
liability for, or any damages, expenses or losses incurred by the Company in
connection with, any error of judgment, mistake of law, any act or omission
connected with or arising out of any services rendered under or payments made
pursuant to this Agreement or any other matter to which this Agreement relates,
except by reason of willful misfeasance, bad faith or gross negligence on the
part of any of such persons in the performance of the duties of VALIC under the
Agreement or by reason of reckless disregard by any of such persons of the
obligations and duties of VALIC under this Agreement.
Section 10.
The Company agrees to pay VALIC monthly compensation for its services as set
forth in Schedule A, which is hereby attached and made a part of this
Agreement.
Section 11.
Nothing contained in this Agreement is intended to or shall require VALIC, in
any capacity hereunder, to perform any functions or duties on any holiday, day
of special observance or any other
<PAGE> 4
day on which VALIC or the New York Stock Exchange is closed. Functions or
duties normally scheduled to be performed on such days shall be performed on
the next succeeding business day on which both the New York Stock Exchange and
VALIC are open.
Section 12.
VALIC may from time to time in its sole discretion delegate some or all of its
duties hereunto to an entity designated by VALIC, which entity shall perform
such functions as the agent of VALIC. To the extent of such delegation, the
term "VALIC" in this Agreement shall be deemed to refer to both VALIC and to
such entity designated by VALIC, or to either of them, as the context may
indicate.
Section 13.
The following terms used in this Agreement, or in any amendment or supplement
hereto, shall have the meanings herein specified unless the context otherwise
requires.
VALIC: The term "VALIC" shall mean The Variable Annuity Life Insurance Company
and if used in connection with or relative to any act or omission involving an
entity designated by VALIC, the term shall refer to The Variable Annuity Life
Insurance Company and such designated entity.
Verbal Instruction: The term "verbal instruction" shall mean an authorization,
instruction, approval, item or set of data, or information of any kind
transmitted to VALIC in person or by facsimile, telephone, telegram, telecopy,
or other mechanical, electronic or documentary means lacking original
signature, by a person or persons believed in good faith by VALIC to be a
person or persons authorized by a resolution of the Board of Trustees of the
Company to give verbal instructions on behalf of the Company.
Shares: The term "shares" shall mean the issued and outstanding shares of
common stock of the Company.
Written Instruction: The term "written instruction" shall mean an
authorization, instruction, approval, item or set of data, or information of
any kind transmitted to VALIC in original writing containing original
signatures believed in good faith by VALIC to be the signature of a person
authorized by a resolution of the Board of Trustees of the Company to give
written instructions on behalf of the Company.
Section 14.
The Company shall from time to time file with VALIC a certified copy of each
resolution of its Board of Trustees authorizing the transmittal of verbal
instructions and specifying the person or persons authorized to give verbal
instructions in accordance with the Agreement. If the certifying officer is
authorized to give verbal instructions, the certification also shall be signed
by a second officer of the Company. Upon transmitting any verbal instruction,
the Company shall promptly
<PAGE> 5
forward to VALIC a written instruction confirming the authorization,
instruction or approval transmitted by such verbal instruction.
Section 15.
Either the Company or VALIC may give written notice to the other of the
termination of this Agreement, such termination to take effect at the time
specified in the notice not less than sixty (60) days after the giving of the
notice.
Section 16.
This Agreement shall be governed by the laws of the State of Texas.
Section 17.
The execution of this Agreement has been authorized by the Company's Trustees
and by the sole shareholder. This Agreement is executed on behalf of the
Company or the Trustees of the Company as Trustees and not individually and
that the obligations of this Agreement are not binding upon any of the
Trustees, officers or shareholders of the Company individually, but are binding
only upon the assets and property of the Company. A Certificate of Trust in
respect of the Company is on file with the Secretary of the State of Delaware.
IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be signed
by their duly authorized officers and their corporate seals hereunto duly
affixed and attested, as of the day of year first above written.
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 3
By:
----------------------------
Title:
Witness:
-------------------------
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY
By:
----------------------------
Title:
Witness:
-------------------------
<PAGE> 6
SCHEDULE A
Accounting Services Compensation Schedule
(Effective August 26, 1998)
The Accounting Services Fee of 3 basis points is an annual fee payable monthly
based on average daily net assets.
<PAGE> 1
EXHIBIT 9(d)
ADMINISTRATIVE SERVICE AGREEMENT
This Agreement is entered into as of the 26th day of August, 1998, by
and among The Variable Annuity Life Insurance Company, ("VALIC"), a life
insurance company organized under the laws of the State of Texas, and American
General Series Portfolio Company 3 ("Trust"), a Delaware business trust, both
of which have their principal offices at 2929 Allen Parkway, Houston, Texas
77019.
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, a Certificate of Trust is on file with the Secretary of the
State of Delaware; and
WHEREAS, the Trust offers shares of beneficial interest ("Shares") in
several series or funds, each with its own investment objective and investment
policies ("Funds") to the registered and unregistered separate accounts of
VALIC and its affiliates to fund variable annuity contracts and variable life
insurance policies, and to employee thrift plans maintained by VALIC or
American General Corporation ("Contracts") ; and
WHEREAS, VALIC and affiliates of VALIC will provide subcustodian,
record keeping, account maintenance and other administrative and shareholder
services for Contract owners and participants; and
WHEREAS, VALIC and the Trust desire that the purchase and redemption
of Shares be facilitated through one or more omnibus accounts that has or have
been established in the name of VALIC; and
WHEREAS, the Trust desires that VALIC provide services with respect to
the Contract owners and participants, and that VALIC desires to provide such
services; and
WHEREAS, this Agreement is executed on behalf of the Trust or the
Trustees of the Trust as Trustees and not individually and that the
obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Trust individually, but are binding only upon
the assets and property of the Trust. A Certificate of Trust in respect of the
Trust is on file with the Secretary of the State of Delaware.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
<PAGE> 2
1. TERMS OF APPOINTMENT; DUTIES OF THE PARTIES
1.1. VALIC. VALIC shall perform the services described herein, with
respect to the Funds identified in Schedule A hereto, in
accordance with procedures established from time to time by
agreement of the Trust and VALIC, and between VALIC and the
Contract owners and participants, in each case subject to
terms and conditions set forth in the Trust's current
prospectus. Except as specifically provided herein, VALIC
shall not be nor be held out to be an agent of the Trust or
any Fund.
(a) According to Contract provisions and various other
agreements entered into between VALIC and Contract
owners and participants, VALIC shall receive from
these Contract owners and participants, or their
authorized sponsors, committees, or trustees, by the
close of regular trading on the New York Stock
Exchange (the "Close of Trading") each business day
that the New York Stock Exchange is open for business
("Business Day") instructions for the purchase,
redemption and exchange of Shares (together,
"Instructions");
(b) Based on Instructions received each Business Day,
VALIC shall compute net purchase requests and/or net
redemption requests ("Requests") for Shares of each
Fund for each the Instructions received various
Contract owners and participants;
(c) VALIC shall maintain records as required by
applicable law related to, and advise the Trust as
to, the foregoing, as instructed by the Trust. VALIC
agrees that such records maintained by it in
connection with its activities under this Agreement
will be preserved, maintained and made available in
accordance with applicable law and regulations, and
copies or, if required, originals will be surrendered
promptly to the Trust on and in accordance with its
request. Records surrendered hereunder shall be in
machine readable form, except to the extent that
VALIC has maintained such records only in paper form.
This provision shall survive the termination of this
Agreement;
(d) VALIC shall transmit Requests to the Trust or its
agent by the Close of Trading each Business Day.
Such Requests shall be based solely on Instructions
received in proper form by VALIC from the Contract
owners and participants, and/or their authorized
sponsors, committees, or trustees, according to
Contract provisions and various other agreements with
the Contract owners and participants. Instructions
received by VALIC after the Close of Trading on any
Business Day shall be treated as though received on
the next Business Day. VALIC shall maintain internal
controls reasonably designed to prevent Instructions
received after the Close of Trading on any Business
Day from being aggregated with any Request
transmitted or
2
<PAGE> 3
otherwise communicated to the Trust as if it were
received prior to the Close of Trading;
(e) VALIC shall transmit Requests in proper form to the
Trust or its agent by no later than 9:00 AM Eastern
Time on the next following Business Day. The
Business Day on which instructions are received in
proper form by VALIC prior to the Close of Trading
will be the Business Day as of which Requests will be
deemed received by the Trust or its agent. For
purposes of Section 1.01(d) and this Section 1.01(e),
proper form shall that amounts to be invested or
redeemed are identified on VALIC's computer system by
Contract, Contract owners and participants, and
Fund; and
(f) VALIC shall promptly deliver, or instruct the
authorized sponsor, committee, or trustees of the
Contracts, to deliver to the Trust or its agent,
appropriate documentation and in the case of
Requests, payment therefor.
1.2. Equipment. VALIC shall maintain adequate offices, personnel,
computers and other equipment necessary to perform the
services contemplated by this Agreement. VALIC shall notify
the Trust or its agent promptly in the event that VALIC
becomes unable for any reason to perform the services
contemplated by, or any other of its obligations under, this
Agreement. VALIC shall maintain or cause the maintenance of
back- up files of the records required to be maintained
hereunder and shall store such back-up files in a secure
off-premises location, so that, in the event of a power
failure or other interruption of whatever cause at the
location of the records, VALIC's records are maintained intact
and transactions can be processed at another location.
1.3. Disclosure to Contract Owners and Participants. VALIC shall
take all steps necessary to ensure that the arrangements
provided for in this Agreement are properly disclosed to the
Contract owners and participants.
1.4. Transmission of Information to VALIC. In accordance with
procedures established from time to time by agreement of the
Trust and VALIC, the Trust or its agent shall transmit to
VALIC the following information for each Fund as received by
the Trust or its agent: (a) net asset value information as of
the Close of Trading each Business Day; (b) dividend and
capital gains distribution information, as it arises; and (c)
daily accrual for dividend rate factor (mil rate) information
with respect to Funds which declare dividends daily. The
Trust or its agent shall transmit to VALIC such information,
using its best efforts by 6:30 PM Eastern Time, on each
Business Day that such information is available.
3
<PAGE> 4
1.06. Representations Regarding Shares. Any representation made by
VALIC regarding any Shares of a Fund shall be in its capacity
as agent for the Contracts and not in its capacity as agent of
the Trust or any of the Funds. Furthermore, any
representation made by the VALIC regarding any Shares of a
Fund shall be in its capacity as agent for the trustee or
custodian of a Contract, or as agent of a Contract owner or
participant. VALIC shall not make any representation in any
capacity regarding any Shares of a Fund that is not set forth
in the Trust's current prospectus, statement of additional
information or current sales literature as furnished by the
Trust or its agent. To the extent that VALIC shall create
sales literature identifying the Trust or a Fund, all such
sales literature shall be submitted for approval to the Trust
within ten (10) days in advance of the earlier of (i) its
intended use or (ii) its filing with the National Association
of Securities Dealers, Inc. ("NASD"). VALIC shall be
responsible for the expense and filing of any sales literature
that it, with the approval of the Trust, creates.
1.07. Confidentiality of Information. The parties hereto agree that
all books, records, information, computer programs and data
pertaining to the business of any other party which are
exchanged or received pursuant to the negotiation or the
carrying out of this Agreement shall be kept confidential and
shall not be voluntarily disclosed to any other person, except
as may be permitted hereunder or may be required by law. This
provision shall not apply to information lawfully in the
possession of a party prior to the term hereof that has been
lawfully obtained from other sources or independently
developed by a party without reference to or reliance on
information obtained from any other party hereto. This
provision shall survive the termination of this Agreement.
1.08. Compliance with Law. All of the parties shall at all times
comply with all applicable federal and state laws and
regulations thereunder, including the rules of any
self-regulatory organization, in connection with the
performance of each of the parties' responsibilities under
this Agreement.
1.09. Administrative Services. VALIC or an agent of VALIC shall
perform the administrative, record keeping, and shareholder
services (the "Administrative Services") described in Schedule
B hereto, as such Schedule B may be amended from time to time
with the mutual consent of the parties hereto, with respect to
Shares purchased, held or redeemed by a Contract. Except as
provided specifically in Section 1.01(b) hereof, VALIC shall
perform the Administrative Services as independent contractor
and not as employee or agent of the Trust or any Fund. VALIC
shall perform the Administrative Services in accordance with
procedures established from time to time by the agreement of
the Trust, and VALIC, and subject to terms and conditions set
forth in the Trust's current prospectus.
4
<PAGE> 5
1.10. No Impairment of Trust's Authority. No provision of this
Agreement shall limit in any way the authority of the Trust to
take such action as it deems appropriate in connection with
matters relating to the operation of the Funds and the sale of
Shares.
1.12. Authority of VALIC. VALIC acknowledges that it is not
authorized by the Trust or any Fund to register the transfer
of Shares or to transfer record ownership of Shares, and that
only the Trust or its agent is authorized to perform such
activities.
2. COMPENSATION
2.1. VALIC's Expenses. VALIC shall bear all expenses incident to
performance of the Administrative Services and of the
performance of its functions described herein. VALIC shall not
receive (nor shall any agent of VALIC receive) from the Trust
or any Fund (or from any affiliate of the Trust) any monetary
compensation or reimbursement for such expenses.
2.2. Transfer Agent's and Fund Expenses. The Trust shall bear the
expenses of the Funds hereunder and shall not receive (nor
shall any agent of the Trust receive) from VALIC any monetary
compensation or reimbursement for such expenses.
2.03. Administrative Fees. In consideration of VALIC's performance
of the Administrative Services, the Trust shall pay to VALIC
the fees (the "Administrative Fees") described in Schedule C
hereto, as such Schedule C may be amended from time to time
with the mutual consent of VALIC and the Trust. VALIC must
notify the Trust immediately upon the opening of any new
account that such account is subject to this Agreement. VALIC
will not be entitled to receive Administrative Fees with
respect to such new account until the Trust is so notified and
such Fees wil begin to accrue only at the point of
notification.
2.04. Calculation and Payment of Fees. The Administrative Fees
shall be calculated in the manner described in Schedule C
hereto and shall be due each calendar month from the Trust on
behalf of each Fund for which VALIC performs Administrative
Services pursuant to this Agreement. The Trust shall make a
payment for Administrative Fees for a calendar month within
thirty (30) days after the last day of such month. VALIC shall
have sixty (60) days following receipt of the payment to
verify the amount of the payment and after such time the
amount will be considered final.
3. REPRESENTATIONS AND WARRANTIES
3.1. VALIC's Representations. VALIC represents and warrants to the
Trust that:
(a) it is an insurance company duly organized and in good
standing under applicable law and that it is legally
and validly authorized to set up one or
5
<PAGE> 6
more omnibus accounts in its (VALIC's) own name,
including, but not limited to, a segregated asset
account under Texas law and has registered said
segregated asset account as a unit investment trust
under the 1940 Act;
(b) the Contracts are registered under the 1933 Act, and
said Contracts will be issued in compliance in all
material respects with all applicable federal and
state laws;
(c) it has full power and authority under applicable law
to carry on its business, and is registered or
licensed as required, in each jurisdiction where it
conducts its business and the performance of its
obligations hereunder does not and will not violate
or conflict with any governing document or agreement
of VALIC or any applicable law, including but not
limited to, the Employee Retirement Income Security
Act of 1974, as amended;
(d) it maintains and knows of no reason why it cannot or
will not during the term hereof maintain adequate
offices, personnel, computers and other equipment
necessary to perform the services contemplated by
this Agreement; and
(e) VALIC's internal control structure over the
processing and transmission of Instructions is
suitably designed to (i) prevent Instructions
received after the Close of Trading from being
aggregated and communicated to the Trust with
Instructions received before the Close of Trading
and (ii) minimize errors that could result in the
late transmission of such Instructions.
3.02. Trust Representations. The Trust, on its own behalf and on
behalf of the Funds, represents and warrants to VALIC:
(a) the Trust is duly registered as an investment company
under the 1940 Act;
(b) Shares of the Funds sold pursuant to this Agreement:
(i) shall be registered under the Securities Act of
1933, as amended (the "Securities Act"); (ii) duly
authorized for issuance; and (iii) sold in compliance
with the laws of the state of Delaware, and all
applicable federal and state securities laws;
(c) it shall amend the Registration Statement for the
Shares on Form N-1A under the Securities Act and the
1940 Act from time to time in order to effect the
continuous offering of the Shares;
(d) it shall register and qualify the Shares for sale in
accordance with the laws of the various states only
if and to the extent deemed advisable by the Trust or
VALIC;
6
<PAGE> 7
(e) each Fund is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended ("the Code") and the
Trust will make every effort to maintain such
qualification (under Subchapter M or any successor or
similar provision) and will notify VALIC immediately
upon having a reasonable basis for believing that a
Fund has ceased to qualify or might not so qualify in
the future; and
(f) the entering into and performing of this Agreement by
the Trust are duly authorized and will not violate
any provision of applicable law, regulation or order
of any court, governmental or regulatory body, or any
agreement or instrument by which the Trust and the
Funds are bound.
4. INDEMNIFICATION
4.1. By the Trust. The Trust, on behalf of each Fund, shall
indemnify and hold VALIC, (including any affiliate of the
foregoing), and the directors, trustees, officers and
employees of VALIC, harmless from and against any and all
losses, damages, costs, charges, reasonable counsel fees,
payments, expenses and liabilities ("Losses") arising out of
or attributable to:
(a) the Trust's, its agent's or any Fund's refusal or
failure to comply with the provisions of this
Agreement or applicable law;
(b) the bad faith, negligence or willful misconduct of
the Trust, its agent or any Fund; or
(c) the breach of any representation or warranty of the
Trust, its agent or of any Fund hereunder, in each
case except to the extent such Losses arise out of or
are attributable to another party's breach of any
provision of this Agreement or the bad faith,
negligence or willful misconduct of another party in
performing its obligations hereunder.
4.2. By VALIC. VALIC shall indemnify and hold the Trust, each
affiliate of the Trust, each Fund and the trustees, officers
and employees of the Trust harmless from and against any and
all Losses arising out of or attributable to:
(a) VALIC's or its agent's refusal or failure to comply
with the provisions of this Agreement or applicable
law or with instructions properly given hereunder,
whether it is performing functions on behalf of the
Contracts, or providing Administrative Services;
(b) VALIC's or its agent's performance of or failure to
perform the Administrative Services;
7
<PAGE> 8
(c) the bad faith, negligence or willful misconduct of
VALIC or its agent, whether it is performing
functions on behalf of the Contracts, or providing
Administrative Services;
(d) VALIC's or its agent's furnishing to any Contract,
Contract owner or participant, authorized Contract
committee or Contract trustee any materially
inaccurate, misleading or untimely information
regarding any Fund or the Shares through no fault of
the Trust or any Fund; or
(e) the breach of any representation or warranty of VALIC
hereunder, in each case except to the extent such
Losses arise out of or are attributable to another
party's breach of any provision of this Agreement or
the bad faith, negligence or willful misconduct of
another party in performing its obligations
hereunder.
4.03. Acts of God. In the event that any party is unable to perform
its obligations under the terms of this Agreement because of
acts of God, strikes, equipment or transmission failure or
damage beyond its reasonable control, or other causes beyond
its reasonable control, such party shall not be liable to any
other party for any damages resulting from such failure to
perform or otherwise from such causes.
4.04. No Consequential Damages. No party to this Agreement shall be
liable to any other party for consequential damages under any
provision of this Agreement.
4.05. Claim Procedure. In order that the indemnification provisions
contained herein shall apply, upon the assertion of a claim or
loss for which any party (the "Indemnitor") may be required to
indemnify another party (the "Indemnitee"), the Indemnitee
shall promptly notify the Indemnitor of such assertion or
loss, and shall keep the Indemnitor advised with respect to
all developments concerning any such claim. The Indemnitor
shall have the option to participate at its expense with the
Indemnitee in the defense of any such claim. In the event
that there is more than one Indemnitor with respect to any
such claim, the Indemnitors shall agree as to their exercise
of this option. The Indemnitee shall in no case confess any
claim or make any compromise in any case in which the
Indemnitor may be required to indemnify it except with the
Indemnitor's prior written consent. The obligations of the
Trust and VALIC under this Section 4 shall survive the
termination of this Agreement.
5. ACKNOWLEDGMENTS
5.1. Fees Solely for Administrative Services. The parties hereto
acknowledge that the Administrative Fees are for
administrative and recordkeeping services only and do not
constitute payment in any manner for investment advisory or
distribution services or services of an underwriter or
principal underwriter within the meaning of the Securities Act
or the 1940 Act. The parties acknowledge that VALIC has been
8
<PAGE> 9
providing and will continue to provide certain services to the
Contract owners and participants as agent of the Contracts,
which, may involve, among other things, preparing
informational or promotional materials relating to their
services that may refer to the Funds and responding to
telephone inquiries from Contract owners and participants.
The parties acknowledge that the provision of such services
and any other actions of VALIC related to the Funds and not
specifically authorized herein are outside the scope of this
Agreement.
5.2. VALIC Acting as Agent for the Contracts; Supervision. The
parties acknowledge that VALIC has been selected as a provider
of administrative and recordkeeping services by the Contracts,
and that, except as provided specifically in Section 1.01(b)
hereof, VALIC will perform the Administrative Services
hereunder as an independent contractor and not as an employee
or agent of the Trust or any Fund. The parties acknowledge,
further, that neither the Trust nor any Fund undertakes to
supervise VALIC in the performance of the Administrative
Services; that neither the Trust nor any Fund shall be
responsible for the performance of the Administrative Services
by VALIC; that neither the Trust nor any Fund shall be
responsible for the accuracy of the records maintained by
VALIC for the Contracts; and that neither the Trust nor any
Fund shall be responsible for the performance of other
functions by VALIC for the Contracts and the Contracts owners
and participants. This Agreement does not entitle VALIC to
purchase any Shares for its own account.
5.3. Laws Applicable to Funds. VALIC acknowledges that the Trust is
a registered investment company under the 1940 Act, is subject
to the provisions of the 1940 Act and regulations thereunder,
and that the offer and sale of Shares of the Funds are subject
to the provisions of federal and state laws and regulations
applicable to the offer and sale of securities. The Trust
acknowledges that VALIC is not responsible for the Trust's or
any Fund's compliance with such laws and regulations. If the
Trust or any Fund notifies VALIC that a procedure or other
activity of the VALIC related to the discharge of either of
its obligations hereunder has or may have the effect of
causing the Trust or any Fund to violate any of such laws or
regulations,VALIC and the Trust, on behalf of the Funds, shall
develop a mutually agreeable alternative procedure or activity
which does not have such effect.
5.4. Agents of VALIC and the Trust. Each party shall notify the
other parties to this Agreement prior to the use of any agent.
To the extent agents perform services under this Agreement
that are the responsibility of VALIC, as the case may be,
VALIC shall be responsible for, and assume all liability for
(including any obligation for indemnification as provided in
Sections 4.02 or 4.03 hereof, as applicable), the actions and
inactions of such agents as if such services had been provided
by VALIC. Similarly, to the extent agents of the Trust
perform services under this Agreement that are the
responsibility of the Trust, the Trust shall be responsible
for, and assume all liability for (including any obligation
for indemnification as provided in Section
9
<PAGE> 10
4.01 hereof), the actions and inactions of such agents as if
such services had been provided by the Trust.
6. DIVERSIFICATION
The Funds will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Internal Revenue Code and the regulations thereunder. Without
limiting the scope of the foregoing, the Funds will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment or life insurance
contracts and any amendments or other modifications to such Section or
Regulation.
7. AMENDMENT AND TERMINATION OF AGREEMENT
7.01. Amendment. Except as otherwise provided herein, this
Agreement may be amended or modified only by a written
instrument executed by all the parties affected thereby;
provided that an amendment solely to add or remove any Fund
may be made, and shall be valid and binding, by the addition
or removal of the relevant Fund's listing on Schedule A and
its signature below without requiring the other parties'
signatures and shall be effective as of the date of execution,
unless any other party objects in writing within thirty (30)
days after receiving notice of such amendment.
7.02. Termination Without Cause. This Agreement may be terminated
by any party upon ninety (90) days written notice to each
other party.
7.03. Termination by the Trust For Cause. This Agreement may be
terminated by the Trust as to any Fund immediately upon notice
to each other party in the event that (a)VALIC becomes unable
for any reason to perform the services contemplated by this
Agreement, or (b) the performance by VALIC of the services
contemplated by this Agreement becomes in the Trust's
reasonable judgment unlawful or ceases to satisfy the Trust's
reasonable standards and so becomes unacceptable to the
terminating party.
7.04. Termination by the VALIC For Cause. This Agreement may be
terminated by VALIC immediately upon notice to the Trust in
the event that (a) the Trust becomes unable for any reason to
fulfill the obligations set forth in the Agreement or (b) the
performance by the Trust of the obligations contemplated by
this Agreement becomes, in the reasonable judgment of VALIC,
unlawful or ceases to satisfy the VALIC's reasonable standards
and so becomes unacceptable to VALIC.
7.05. Termination For Cause By Any Party. This Agreement may be
terminated by any party hereto immediately upon notice to each
other party in the event that (a) all the Funds cease to be
investment alternatives under all the Contracts, (b) the Trust
declines to accept any additional purchase or redemption
requests for Shares, (c) the
10
<PAGE> 11
SEC issues any stop order suspending the effectiveness of the
registration statement or prospectus of the Trust, or the
current prospectus for the Trust is not on file with the SEC
as required by section 10 of the Securities Act or (d) any
other party materially breaches this Agreement. To the extent
that any of the events enumerated in paragraphs (a) - (d) of
this Section 7.05 occurs with respect to one or more Funds,
but not with respect to all the Funds, or that the Trust, on
behalf of one or more of the Funds, but not all the Funds,
terminates this Agreement, in lieu of termination of this
Agreement the Trust shall amend Schedule A hereto with notice
to the other parties to remove the affected Funds from such
Schedule A.
7.06. Termination Procedures. Upon termination of this Agreement,
each party shall return to each other party all copies of
confidential or proprietary materials or information received
from such other party hereunder, other than materials or
information required to be retained by such party under
applicable laws or regulations. This provision shall survive
the termination of this Agreement.
8 ASSIGNMENT AND DELEGATION
8.01. Assignment and Delegation. Except as otherwise provided
herein, neither this Agreement nor any rights, duties or
obligations hereunder may be assigned or delegated by any
party without the written consent of the other parties.
8.02. Successors. This Agreement shall inure to the benefit of and
be binding upon the parties and their respective permitted
successors and assigns.
9. NOTICES
Notices hereunder shall be in writing, shall be signed by an
authorized officer, and shall be deemed to have been duly given if delivered
personally, sent by certified mail (return receipt requested), or sent by
facsimile machine in accordance with procedures established by agreement of the
Trust and VALIC, and if it is addressed to a party either at its address below
or at a changed address specified by it in a notice to the other parties
hereto:
Trust: AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
Service Provider: THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 Allen Parkway
Houston, Texas 77019
Attention: Gregory R. Seward
cc: Cynthia A. Toles, Esq.
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<PAGE> 12
10. MISCELLANEOUS
10.01. Texas Law to Apply. This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with
the laws of The State of Texas, without regard to conflicts of
laws principles.
10.02. Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes any prior
agreement with respect to the subject matter hereof whether
oral or written. All exhibits and schedules hereto, as
amended from time to time, are incorporated herein and made a
part hereof. References herein to exhibits and schedules
refer to such exhibits and schedules as so amended. Nothing
contained in this Agreement is intended to convey rights to
any third parties.
10.03. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be an original document and
all of which together shall be deemed one and the same
instrument.
10.04. Limitation of Liability of the Trust, Trustees and
Shareholders. It is understood and expressly stipulated that
none of the trustees, officers, agents, or shareholders of the
Trust or any Fund shall be personally liable hereunder. It is
understood and acknowledged that all persons dealing with the
Trust or any Fund must look solely to the property of such
Fund for the enforcement of any claims against such Fund as
neither the trustees, directors, officers, agents or
shareholders assume any personal liability for obligations
entered into on behalf of any Fund. No Fund shall be liable
for the obligations or liabilities of any other Fund.
10.05. Headings. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning
or interpretation of this Agreement.
10.06. Severability. If any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any
reason, the remaining provisions and portions of the Agreement
shall be unaffected thereby and shall remain in full force and
effect to the fullest extent by law.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
By:
-------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
13
<PAGE> 14
SCHEDULE A
LIST OF AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
FUNDS COVERED BY THE AGREEMENT
American General International Growth Fund
American General Large Cap Growth Fund
American General Mid Cap Growth Fund
American General Small Cap Growth Fund
American General International Value Fund
American General Large Cap Value Fund
American General Mid Cap Value Fund
American General Small Cap Value Fund
American General Socially Responsible Fund
American General Balanced Fund
American General High Yield Bond Fund
American General Strategic Bond Fund
American General Domestic Bond Fund
American General Core Bond Fund
American General Money Market Fund
<PAGE> 15
SCHEDULE B
THE ADMINISTRATIVE SERVICES
1. VALIC shall maintain adequate records for each Contract
reflecting Shares purchased and redeemed, including the date, price and number
of Shares purchased, redeemed or exchanged; dividend reinvestment dates and
amounts of dividends paid for at least the current year to date; records of
distributions and dividend payments; Share transfers; investment allocation
changes; and overall control records. Such records shall be preserved,
maintained and made available in accordance with the provisions of applicable
law and regulations, and copies or, if required, originals shall be surrendered
promptly to the Trust on and in accordance with its request. Records
surrendered hereunder shall be in machine readable form, except to the extent
that such records have been maintained only in paper form.
2. VALIC shall disburse or credit to the Contracts, and maintain
records of, all proceeds of Share redemptions and distributions not reinvested
in Shares.
3. VALIC shall cause and oversee the timely and accurate transfer
of funds in connection with Contract accounts with the Funds.
4. VALIC shall prepare and deliver periodic account statements to
the Contract owners and participants showing for each Contract the total number
of Shares held as of the statement closing date, purchases and redemptions of
Shares during the statement period, and dividends and other distributions paid
during the statement period (whether paid in cash or reinvested in Shares),
including dates and prices for all transactions.
5. Subject to the terms of the agreements with each Contract, and
to the extent required by applicable law, VALIC shall deliver or cause the
delivery of prospectuses, proxy materials (where pass-through voting is
required), periodic reports to Contract owners and participants, and other
materials provided to VALIC by the Trust on behalf of the Funds.
6. VALIC shall transmit Requests to the Trust and, in accordance
with applicable law, send to the Contract owners and participants confirmations
related to the processing of Instructions and Requests.
7. VALIC shall maintain daily and monthly purchase summaries
(expressed in both Share and dollar amounts) for each Contract.
8. VALIC shall use its best efforts to arrange for payment for
net purchases of Shares attributable to all Requests executed prior to 4:00 PM
on a given Business Day to be wired to the Trust by 12:00 PM (noon) central
time the first Business Day following receipt of such orders. The Trust states
that it will use its best efforts to arrange for payment for net redemptions
for Shares
<PAGE> 16
attributable to all orders executed prior to 4:00 PM on a given Business Day to
be wired by 12:00 PM (noon) Eastern time the first Business Day following
receipt of such orders by the Trust.
9. VALIC shall transmit to the Trust, or to any Fund designated
by the Trust, such occasional and periodic reports as the Trust shall
reasonably request from time to time to enable it or such Fund to comply with
applicable laws and regulations.
10. VALIC shall establish a voice response system and make
customer services representatives accessible to respond to Contract owners' and
participants' inquires regarding, among other things, Share prices, account
balances, dividend amounts and dividend payment dates and information changes
concerning a Contract, or Contract owner or participant.
11. VALIC shall provide average cost basis reporting to Contract
owners and participants to assist them in preparing their income tax returns.
12. VALIC shall prepare and file with the appropriate governmental
agencies such tax-related information, returns and reports as are required
under applicable laws or regulations to be filed for reporting (a) dividends
and other distributions, (b) amounts withheld on dividends and other
distributions and payments, and (c) gross proceeds of sales transactions.
13. VALIC shall assist with the solicitation of proxies from
Contract owners and participants, as requested from time to time by the Trust.
14. VALIC shall establish Internet access for Contract owners and
participants to view account balances and perform certain limited transactions,
as determined by VALIC.
15. VALIC shall perform all testing and Contract compliance
services, including consulting on proposed Contract amendments, determining
Contract eligibility, calculating Contract service, vesting, and processing
forfeitures.
2
<PAGE> 17
SCHEDULE C
THE ADMINISTRATIVE FEES
The Trust, on behalf of the Funds, will pay VALIC a monthly fee at an
annualized rate of .25 percent (25 basis points) with respect to the Funds
listed on Schedule A, of the average daily account balance during the month for
each account for which VALIC performs Administrative Services. If VALIC begins
or ceases to perform Administrative Services during the month, such fee shall
be prorated according to the proportion which such portion of the month bears
to the full month.
<PAGE> 1
EXHIBIT 10
August 31, 1998
American General Series Portfolio Company 3
2929 Allen Parkway
Houston, Texas 77019
Registration Statement of
American General Series Portfolio Company 3
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters of
Delaware law in connection with the registration statement on Form N-1A
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") of American General Series Portfolio Company 3 (the
"Company") In connection with the registration under the Securities Act of
an indefinite number of shares of beneficial interest of the Company
authorized by the Agreement and Declaration of Trust of the Company to be
issued (the "Shares").
We have reviewed the actions taken by the Trustees of the Company to
organize the Company and to authorize the issuance and sale of the Shares.
In this connection we have examined the Agreement and Declaration of Trust
of the Company and the By-Laws of the Company, the Registration Statement of
the Trust to be filed with the Securities and Exchange Commission on or
about September 3, 1998, including the prospectus and statement of
additional information forming a part thereof, certificates of officers of
the Company and of public officials as to matters of fact, and such other
documents and instruments, certified or otherwise identified to our
satisfaction, and such questions of law and fact, as we have considered
necessary or appropriate for the purpose of rendering the opinions expressed
herein. In such examination we have assumed, without independent
verification, the genuineness of all signatures (whether original or
photostatic), the authenticity of all documents submitted to us as
originals, and the conformity to authentic original documents of all
documents submitted to us as certified or photostatic copies. As to all
questions of fact material to such opinions, we have relied upon the
representations contained in the certificates referred to above. We have
assumed, without independent verification, the accuracy of the relevant
facts stated therein.
<PAGE> 2
American General Series Portfolio Company 3
August 31, 1998
Page 2
We are admitted to the Bars of the District of Columbia, of the
Commonwealth of Massachusetts, and of the State of New York and generally do
not purport to be familiar with the laws of the State of Delaware. To the
extent that the conclusions based on the laws of the State of Delaware are
involved in the opinions set forth herein below, we have relied, in
rendering such opinions, upon our examination of Chapter 38 of Title 12 of
the Delaware Code Annotated, as amended, entitled "Treatment of Delaware
Business Trusts" (the "Delaware business trust law") and on our knowledge of
interpretation of analogous common law of The Commonwealth of Massachusetts.
This letter expresses our opinion as to the provisions of the Company's
Agreement and Declaration of Trust, but does not extend to the Delaware
Uniform Securities Act, or to other federal or state securities laws or
other federal laws.
Based upon the foregoing and subject to the qualifications set forth
herein, we hereby advise you that, in our opinion:
1 . The Company is validly existing as a trust with transferable shares
under the laws of the State of Delaware.
2. The Company Is authorized to issue an unlimited number of shares of
beneficial interest, $.01 par value per share; the Shares have been duly and
validly authorized by all action of the Trustees of the Company, and no
action of the shareholders of the Company is required in such connection.
3. When issued and paid for as described in the Registration
Statement, the Shares will be fully paid and nonassessable by the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations promulgated
thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER LLP
SULLIVAN & WORCESTER LLP
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our report dated August 28, 1998, as to American
General Series Portfolio Company 3, in Pre-Effective Amendment No. 2 to the
Registration Statement (Form N-1A No. 333-53589) of American General Series
Portfolio Company 3.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
August 28, 1998
<PAGE> 1
EXHIBIT 13
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,650,000, 365,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General International Growth Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 2
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $2,850,000, 285,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Large Cap Growth Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 3
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $4,050,000, 405,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Mid Cap Growth Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 4
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,900,000, 390,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Small Cap Growth Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 5
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,600,000, 360,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General International Value Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 6
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $2,900,000, 290,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Large Cap Value Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
---------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
------------------------ -------------------------
<PAGE> 7
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,950,000, 395,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Mid Cap Value Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
-------------------------- ----------------------------
Title: Chairman and CEO Title: Chairman and President
----------------------- -------------------------
<PAGE> 8
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $3,850,000, 385,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Small Cap Value Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
---------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
------------------------ -------------------------
<PAGE> 9
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000,000, 500,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Socially Responsible Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------ --------------------------
Title: Chairman and CEO Title: Chairman and President
--------------------- -----------------------
<PAGE> 10
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000,000, 500,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Balanced Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
-------------------------- ------------------------------
Title: Chairman and CEO Title: Chairman and President
----------------------- ---------------------------
<PAGE> 11
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000,000, 500,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General High Yield Bond Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying
on certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares
solely for its own account and solely for investment purposes and not with a
view to the resale or disposition of all or any part thereof, and that it has
no present plan or intention to sell or otherwise dispose of the Shares or any
part thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are
then in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
-------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
----------------------- --------------------------
<PAGE> 12
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000,000, 500,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Strategic Bond Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
------------------------------ ------------------------------
Title: Chairman and CEO Title: Chairman and President
--------------------------- ---------------------------
<PAGE> 13
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $1,250,000, 125,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Domestic Bond Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 14
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000,000, 500,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Core Bond Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 15
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000,000, 500,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Money Market Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 16
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000,000, 500,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Growth Lifestyle Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 17
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000,000, 500,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Moderate Growth Lifestyle Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 18
SUBSCRIPTION AGREEMENT
Agreement between The Variable Annuity Life Insurance Company
(hereinafter "VALIC"), a stock life insurance company existing under and by
virtue of the laws of the State of Texas and American General Series Portfolio
Company 3 (hereinafter the "Fund"), a business trust organized and existing
under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties
agree as follows:
1. The Fund agrees to sell to VALIC and VALIC agrees to purchase for
the aggregate amount of $5,000,000, 500,000 shares of beneficial interest, $.01
Par Value, of the Fund's series (hereinafter the "Shares") designated the
American General Conservative Growth Lifestyle Fund.
2. VALIC acknowledges that the Shares have not been registered under
any state or federal securities laws and that, therefore, the Fund is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
VALIC also understands that any resale of the Shares, or any part thereof, may
be subject to restrictions under state and federal securities laws, and that
VALIC may be required to bear the economic risk of an investment in the Shares
for an indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned shall have delivered to the Fund an
opinion of counsel acceptable to the Fund, in form and substance acceptable to
the Fund, that no such registration is necessary.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives this 1st day of September, 1998.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company 3
By: /s/ THOMAS L. WEST, JR. By: /s/ JOHN A. GRAF
----------------------------- -----------------------------
Title: Chairman and CEO Title: Chairman and President
-------------------------- --------------------------
<PAGE> 1
EXHIBIT 19(b)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Trustee of American
General Series Portfolio Company 3, does hereby constitute and appoint John A.
Dudley, David M. Leahy and Robert N. Hickey, or any of them, the true and
lawful agents and attorneys-in-fact of the undersigned with respect to all
matters arising in connection with the Registration Statement on Form N-1A of
American General Series Portfolio Company 3 and any and all amendments
(including post- effective amendments) thereto, with full power and authority
to execute said Registration Statement and any and all amendments for and on
behalf of the undersigned, in my name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and any state
securities authorities. The undersigned hereby gives to said agents and
attorneys-in-fact full power and authority to act in the premises, including,
but not limited to, the power to appoint a substitute or substitutes to act
hereunder with the same power and authority as said agents and
attorneys-in-fact would have if personally acting. The undersigned hereby
ratifies and confirms all that said agents and attorneys-in-fact, or any
substitute or substitutes, may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of August, 1998.
/s/ JUDITH L. CRAVEN
- -------------------------
Judith L. Craven, Trustee
<PAGE> 2
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Trustee of American
General Series Portfolio Company 3, does hereby constitute and appoint John A.
Dudley, David M. Leahy and Robert N. Hickey, or any of them, the true and
lawful agents and attorneys-in-fact of the undersigned with respect to all
matters arising in connection with the Registration Statement on Form N-1A of
American General Series Portfolio Company 3 and any and all amendments
(including post- effective amendments) thereto, with full power and authority
to execute said Registration Statement and any and all amendments for and on
behalf of the undersigned, in my name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and any state
securities authorities. The undersigned hereby gives to said agents and
attorneys-in-fact full power and authority to act in the premises, including,
but not limited to, the power to appoint a substitute or substitutes to act
hereunder with the same power and authority as said agents and
attorneys-in-fact would have if personally acting. The undersigned hereby
ratifies and confirms all that said agents and attorneys-in-fact, or any
substitute or substitutes, may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of August, 1998.
/s/ TIMOTHY J. EBNER
- -------------------------
Timothy J. Ebner, Trustee
<PAGE> 3
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Trustee of American
General Series Portfolio Company 3, does hereby constitute and appoint John A.
Dudley, David M. Leahy and Robert N. Hickey, or any of them, the true and
lawful agents and attorneys-in-fact of the undersigned with respect to all
matters arising in connection with the Registration Statement on Form N-1A of
American General Series Portfolio Company 3 and any and all amendments
(including post- effective amendments) thereto, with full power and authority
to execute said Registration Statement and any and all amendments for and on
behalf of the undersigned, in my name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and any state
securities authorities. The undersigned hereby gives to said agents and
attorneys-in-fact full power and authority to act in the premises, including,
but not limited to, the power to appoint a substitute or substitutes to act
hereunder with the same power and authority as said agents and
attorneys-in-fact would have if personally acting. The undersigned hereby
ratifies and confirms all that said agents and attorneys-in-fact, or any
substitute or substitutes, may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of August, 1998.
/s/ GUSTAVO E. GONZALES
- ----------------------------
Gustavo E. Gonzales, Trustee
<PAGE> 4
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Trustee of American
General Series Portfolio Company 3, does hereby constitute and appoint John A.
Dudley, David M. Leahy and Robert N. Hickey, or any of them, the true and
lawful agents and attorneys-in-fact of the undersigned with respect to all
matters arising in connection with the Registration Statement on Form N-1A of
American General Series Portfolio Company 3 and any and all amendments
(including post- effective amendments) thereto, with full power and authority
to execute said Registration Statement and any and all amendments for and on
behalf of the undersigned, in my name and in the capacity indicated below, and
to file the same, together with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission and any state
securities authorities. The undersigned hereby gives to said agents and
attorneys-in-fact full power and authority to act in the premises, including,
but not limited to, the power to appoint a substitute or substitutes to act
hereunder with the same power and authority as said agents and
attorneys-in-fact would have if personally acting. The undersigned hereby
ratifies and confirms all that said agents and attorneys-in-fact, or any
substitute or substitutes, may do by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
26th day of August, 1998.
/s/ JOHN E. MAUPIN, JR.
- ----------------------------
John E. Maupin, Jr., Trustee
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG INTERNATIONAL GROWTH FUND
[NUMBER] 33
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 4,867
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<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
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<NUMBER-OF-SHARES-SOLD> 0
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<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 4,867
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
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<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG INTERNATIONAL VALUE FUND
[NUMBER] 34
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 4,800
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,800
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 480
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,800
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 4,800
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG SMALL CAP GROWTH FUND
[NUMBER] 35
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,200
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,200
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 520
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,200
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,200
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG SMALL CAP VALUE FUND
[NUMBER] 36
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,133
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,133
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 513
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,133
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,133
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG LARGE CAP GROWTH FUND
[NUMBER] 37
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 3,800
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,800
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 380
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,800
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 3,800
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG LARGE CAP VALUE FUND
[NUMBER] 38
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 3,887
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,887
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 387
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,887
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 3,887
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG MID CAP GROWTH FUND
[NUMBER] 39
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,400
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,400
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 540
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,400
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,400
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG MID CAP VALUE FUND
[NUMBER] 40
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 5,267
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,267
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 527
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 5,267
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 5,267
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG SOCIALLY RESPONSIBLE FUND
[NUMBER] 41
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 6,667
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,667
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 667
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,667
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,667
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG BALANCED FUND
[NUMBER] 42
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 6,667
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,667
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 667
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,667
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,667
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG DOMESTIC BOND FUND
[NUMBER] 43
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 1,667
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,667
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 167
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,667
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 1,667
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG MONEY MARKET FUND
[NUMBER] 44
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 6,667
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,667
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 667
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,667
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,667
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG GROWTH LIFESTYLE FUND
[NUMBER] 45
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 6,667
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,667
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 667
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,667
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,667
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG MODERATE GROWTH LIFESTYLE FUND
[NUMBER] 46
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 6,667
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,667
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 667
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,667
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,667
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 10.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG CONSERVATIVE GROWTH LIFESTYLE FUND
[NUMBER] 47
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 6,666
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,666
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 667
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,666
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,666
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG CORE BOND FUND
[NUMBER] 48
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 6,666
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,666
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 667
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,666
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,666
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG HIGH YIELD BOND FUND
[NUMBER] 49
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 6,666
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,666
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 667
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,666
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,666
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 10.00
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<NAME> AG STRATEGIC BOND FUND
[NUMBER] 50
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-26-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 6,666
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,666
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 667
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,666
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 6,666
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
