<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON: SEPTEMBER 22, 1998
REGISTRATION NO. 2-83631/811-3738
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. 26 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 27 [X]
------------------------
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(713) 526-5251
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
NORI L. GABERT, ESQ.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
P.O. BOX 3206, HOUSTON, TEXAS 77253
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
Copy to:
JOHN A. DUDLEY, ESQ.
SULLIVAN & WORCESTER, LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
------------------------
It is proposed that this filing will become effective:
<TABLE>
<C> <S>
---- immediately upon filing pursuant to paragraph (b)
X on October 1, 1998 pursuant to paragraph (b)
----
---- 60 days after filing pursuant to paragraph (a)(1)
---- on (date) pursuant to paragraph (a)(1)
----
---- 75 days after filing pursuant to paragraph (a)(2)
---- on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>
------------------------
PURSUANT TO RULE 24F-2(a)(1) UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES OF ITS COMMON STOCK.
THE REGISTRANT FILED A RULE 24F-2 NOTICE ON AUGUST 26, 1998 FOR ITS MOST RECENT
FISCAL YEAR ENDED MAY 31, 1998.
Sequential Numbering System: Page 1 of ___ Pages
Exhibit Index on Sequential Page Number __
================================================================================
<PAGE> 2
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
------------------------
FORM N-1A
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940
------------------------
CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(a))
<TABLE>
<S> <C>
PART A
ITEM NO. PROSPECTUS CAPTION
1. Cover Page......................................... Cover Page
2. Synopsis........................................... Expense Summary
3. Condensed Financial Information.................... Financial Highlights
4. General Description of Registrant.................. Welcome
5. Management of the Fund............................. About the Series Company's
Management, About the Funds, Types
of Investments
6. Capital Stock and Other Securities................. About the Series Company, Voting
Rights
7. Purchase of Securities Being Offered............... Series Company Shares
8. Redemption and Repurchase.......................... Series Company Shares
9. Pending Legal Proceedings.......................... Inapplicable
PART B
STATEMENT OF ADDITIONAL
ITEM NO. INFORMATION CAPTION
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................. Additional Information Regarding
Certain Funds; Fundamental
Investment Restrictions;
Investment Practices
14. Management of the Registrant....................... Directors and Officers; Investment
Adviser; Investment Sub-Advisers
15. Control Persons and Principal Holders of
Securities......................................... Voting and Other Rights
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......................................... Accounting and Tax Treatment
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
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.
</TABLE>
<PAGE> 3
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
PROSPECTUS OCTOBER 1, 1998
The American General Series Portfolio Company (the "Series Company") is a mutual
fund made up of 13 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
13 Funds:
INDEX EQUITY FUNDS:
INTERNATIONAL EQUITIES FUND
Growth through investments tracking the EAFE Index.
MIDCAP INDEX FUND
Growth through investments tracking the S&P MidCap 400 Index.
SMALL CAP INDEX FUND
Growth through investments tracking the Russell 2000 Index.
STOCK INDEX FUND
Growth through investments tracking the S&P 500 Index.
ACTIVELY MANAGED EQUITY FUNDS:
GROWTH FUND
Growth through investments in service sector companies.
GROWTH & INCOME FUND
Growth and income through investments in stocks (or securities
convertible into stocks).
INCOME FUNDS:
CAPITAL CONSERVATION FUND
Income and possible growth through investments in high quality debt
securities.
GOVERNMENT SECURITIES FUND
Income and possible growth through investments in intermediate and
long-term government debt securities.
INTERNATIONAL GOVERNMENT BOND FUND
Income and possible growth through investments in high quality foreign
government debt securities.
SPECIALTY EQUITY FUNDS:
SCIENCE & TECHNOLOGY FUND
Growth through investments in stocks of companies which benefit from
development of science and technology.
SOCIAL AWARENESS FUND
Growth through investments in stocks of companies meeting social
criteria of the Fund.
MONEY MARKET FUND:
MONEY MARKET FUND
Income through investments in short-term money market securities.
ASSET ALLOCATION FUND:
ASSET ALLOCATION FUND
Maximum return through investments in a mix of stocks, bonds and money
market securities.
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 October 1, 1998,
with the Securities and Exchange Commission ("SEC"). This Statement contains
additional information about these Funds and is part of this prospectus. For
a free copy, write to the American General Series Portfolio Company 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.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE
WELCOME........................................ 1
EXPENSE SUMMARY................................ 2
FINANCIAL HIGHLIGHTS........................... 3
ABOUT THE SERIES COMPANY'S MANAGEMENT.......... 11
Investment Adviser........................ 11
Investment Sub-advisers................... 11
Portfolio Manager......................... 12
How Advisers Are Paid for Their
Services................................ 12
About the Board of Directors.............. 13
ABOUT THE FUNDS................................ 14
Growth, Income and Stability Categories... 14
About Level of Risk....................... 14
About Portfolio Turnover.................. 14
About Fund Performance.................... 15
ABOUT INDEX EQUITY FUNDS....................... 16
HOW TO READ A FUND FACT SHEET.................. 18
FUND FACT SHEETS............................... 19
Asset Allocation Fund..................... 19
Capital Conservation Fund................. 21
Government Securities Fund................ 23
Growth Fund............................... 25
Growth & Income Fund...................... 27
International Equities Fund............... 29
International Government Bond Fund........ 31
MidCap Index Fund......................... 33
Money Market Fund......................... 35
Science & Technology Fund................. 37
Small Cap Index Fund...................... 39
Social Awareness Fund..................... 41
Stock Index Fund.......................... 43
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TYPES OF INVESTMENTS........................... 45
Stocks.................................... 45
Bonds..................................... 45
Asset-Backed Securities.............. 45
Loan Participations.................. 45
Mortgage-Related Securities............... 46
Illiquid and Restricted Securities........ 46
Foreign Securities........................ 46
ADRs...................................... 47
Foreign Currency.......................... 47
When-Issued Securities.................... 47
Money Market Securities................... 47
Derivatives............................... 47
Options.............................. 47
Futures Contracts.................... 48
Repurchase Agreements..................... 48
A Word About Risk......................... 48
Investment Practices...................... 49
Limitations.......................... 49
Lending Portfolio Securities......... 49
ABOUT THE SERIES COMPANY....................... 50
Series Company Shares..................... 50
Net Asset Value of the Series Company
Shares.................................. 50
Dividends and Capital Gains............... 51
Diversification........................... 51
Taxes..................................... 52
Voting Rights............................. 52
Year 2000 Risks........................... 52
Euro Conversion........................... 52
Reports................................... 53
</TABLE>
(i)
<PAGE> 5
WELCOME
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, and VALIC mean
The Variable Annuity Life Insurance Company. The words you and your mean the
participant.
American General Series Portfolio Company (the "Series Company") was
incorporated under the laws of Maryland on December 7, 1984.
The Series Company is an open-end management investment company and currently
consists of 13 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 Directors. As Investment Adviser, we
make investment decisions for the Funds, are responsible for their day to day
operations and perform the cash management function. For more information, see
"About the Series Company's Management" in this prospectus.
Individuals can't invest in these Funds directly. Instead, they participate
through an annuity contract, variable life policy, 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 annuity
contracts so they can offer their employees a way to save for retirement or
assist them in estate planning. 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 and annuity contracts issued by VALIC
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 annuity contracts or variable life policies 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
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' annual operating expenses for the fiscal year ended May 31,
1998.
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSET CAPITAL GOVERNMENT
ALLOCATION CONSERVATION SECURITIES GROWTH GROWTH & INTERNATIONAL
FUND FUND FUND FUND INCOME FUND EQUITIES FUND
---------- ------------ ---------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Management Fee(a) 0.50% 0.50% 0.50% 0.80% 0.75% 0.35%
Other Expenses(a)(c) 0.04% 0.04% 0.04% 0.04% 0.05% 0.05%
----- ----- ----- ----- ----- ----
Total Fund Operating Expenses(a): 0.54% 0.54% 0.54% 0.84% 0.80% 0.40%
===== ===== ===== ===== ===== ====
<CAPTION>
INTERNATIONAL
GOVERNMENT
BOND FUND
-------------
<S> <C>
Management Fee(a) 0.50%
Other Expenses(a)(c) 0.05%
-----
Total Fund Operating Expenses(a): 0.55%
=====
</TABLE>
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES:
(as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCIENCE & SOCIAL
MID CAP MONEY MARKET TECHNOLOGY SMALL CAP AWARENESS STOCK
INDEX FUND FUND FUND INDEX FUND FUND INDEX FUND
---------- ------------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Management Fee(a) 0.32% 0.50% 0.90% 0.35% 0.50% 0.27%
Other Expenses(c) 0.04% 0.04% 0.05% 0.04% 0.04% 0.04%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses(a): 0.36% 0.54% 0.95% 0.39% 0.54% 0.31%
===== ===== ===== ===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
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.
2
<PAGE> 7
FINANCIAL HIGHLIGHTS
A FUND'S FISCAL YEAR ends every May 31st.
Financial highlights are provided below for each of the Funds. The financial
highlights are for the last 10 years of the Funds or if the Fund has been in
operation a shorter period of time, since the date the Fund began operation.
Ernst & Young LLP, Independent Auditors for the Series Company, has audited the
Series Company's financial statements which include the information presented
here. Their unqualified report appears in those audited financial statements,
which are included in the Statement of Additional Information.
Per share data assumes that you held each share from the beginning to the end of
each fiscal year. Total return assumes that you bought additional shares with
dividends paid by the Fund. Total returns for periods of less than one year are
not annualized. The average commission rate paid on investment equity securities
(on a per share basis) is presented for the period beginning June 1, 1996.
ASSET ALLOCATION FUND(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $12.57 $12.55 $11.24 $10.84 $11.18 $10.66 $11.05
-------- -------- -------- -------- -------- -------- --------
+ INCOME (LOSS)
from net investment income 0.41 0.77 0.44 0.44 0.37 0.35 0.30
from net realized & unrealized
gain (loss) on securities 2.24 1.44 1.53 0.82 (0.15) 0.61 (0.19)
-------- -------- -------- -------- -------- -------- --------
total income from investment
operations 2.65 2.21 1.97 1.26 0.22 0.96 0.11
-------- -------- -------- -------- -------- -------- --------
- - DISTRIBUTIONS
from net investment income (0.41) (0.78) (0.44) (0.44) (0.37) (0.35) (0.30)
from net realized gain on
securities (0.79) (1.41) (0.22) (0.42) (0.19) (0.09) (0.20)
-------- -------- -------- -------- -------- -------- --------
total distributions (1.20) (2.19) (0.66) (0.86) (0.56) (0.44) (0.50)
-------- -------- -------- -------- -------- -------- --------
= SHARE VALUE
AT END OF YEAR $14.02 $12.57 $12.55 $11.24 $10.84 $11.18 $10.66
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN 21.94% 15.89% 17.90% 12.43% 1.86% 9.17% 0.87%
======== ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.54% 0.57% 0.57% 0.58% 0.59% 0.70% 0.90%
Ratio of net investment income to
average net assets 3.02% 3.26% 3.62% 4.03% 3.24% 3.28% 2.72%
Portfolio turnover rate 24% 103% 119% 133% 76% 78% 111%
Number of shares outstanding at
end of year (000's) 14,269 14,107 15,142 16,319 17,956 14,758 13,341
Net assets at end of year (000's) $200,099 $177,347 $190,024 $183,393 $194,576 $165,002 $142,213
Average net assets during the year
(000's) $188,184 $179,615 $187,576 $186,487 $185,036 $151,450 $137,179
Average commission rate paid $0.0205 $0.0401 N/A N/A N/A N/A N/A
<CAPTION>
FISCAL YEAR ENDED MAY 31,
------------------------------
1991 1990 1989
-------- -------- --------
<S> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $10.48 $10.06 $9.40
-------- -------- --------
+ INCOME (LOSS)
from net investment income 0.40 0.55 0.62
from net realized & unrealized
gain (loss) on securities 0.57 0.44 0.65
-------- -------- --------
total income from investment
operations 0.97 0.99 1.27
-------- -------- --------
- - DISTRIBUTIONS
from net investment income (0.40) (0.57) (0.61)
from net realized gain on
securities -- -- --
-------- -------- --------
total distributions (0.40) (0.57) (0.61)
-------- -------- --------
= SHARE VALUE
AT END OF YEAR $11.05 $10.48 $10.06
======== ======== ========
TOTAL RETURN 9.75% 10.06% 14.00%
======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.92% 0.92% 1.00%
Ratio of net investment income to
average net assets 3.94% 5.38% 6.43%
Portfolio turnover rate 55% 51% 93%
Number of shares outstanding at
end of year (000's) 11,891 11,158 9,969
Net assets at end of year (000's) $131,416 $116,966 $100,248
Average net assets during the year
(000's) $116,266 $107,626 $ 92,364
Average commission rate paid N/A N/A N/A
</TABLE>
(1) The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
3
<PAGE> 8
FINANCIAL HIGHLIGHTS -- CONTINUED
CAPITAL CONSERVATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $9.31 $9.23 $9.52 $9.13 $9.87 $9.29 $8.81
------- -------- ------- ------- ------- ------- -------
+ INCOME (LOSS)
from net investment income 0.61 0.62 0.62 0.63 0.61 0.65 0.69
from net realized & unrealized
gain (loss) on securities 0.37 0.08 (0.29) 0.39 (0.69) 0.58 0.48
------- -------- ------- ------- ------- ------- -------
total income (loss) from
investment operations 0.98 0.70 0.33 1.02 (0.08) 1.23 1.17
------- -------- ------- ------- ------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.61) (0.62) (0.62) (0.63) (0.61) (0.65) (0.69)
from net realized gain on
securities -- -- -- -- (0.05) -- --
------- -------- ------- ------- ------- ------- -------
total distributions (0.61) (0.62) (0.62) (0.63) (0.66) (0.65) (0.69)
------- -------- ------- ------- ------- ------- -------
= SHARE VALUE
AT END OF YEAR $9.68 $9.31 $9.23 $9.52 $9.13 $9.87 $9.29
======= ======== ======= ======= ======= ======= =======
TOTAL RETURN 10.76% 7.75% 3.41% 11.80% (1.13)% 13.60% 13.72%
======= ======== ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.54% 0.57% 0.57% 0.58% 0.59% 0.67% 0.77%
Ratio of net investment income to
average net assets 6.32% 6.59% 6.47% 6.88% 6.24% 6.77% 7.80%
Portfolio turnover rate 14% 45% 80% 100% 55% 58% 121%
Number of shares outstanding at
end of period (000's) 6,577 7,168 7,604 6,935 6,712 5,095 3,939
Net assets at end of period
(000's) $63,654 $66,747 $70,212 $66,031 $61,305 $50,290 $36,609
Average net assets during the
period (000's) $66,996 $69,352 $70,271 $61,568 $59,210 $43,316 $29,793
<CAPTION>
FISCAL YEAR ENDED MAY 31,
------------------------------
1991 1990 1989
-------- -------- --------
<S> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $9.08 $9.48 $9.29
------- ------- -------
+ INCOME (LOSS)
from net investment income 0.73 0.80 0.75
from net realized & unrealized
gain (loss) on securities (0.27) (0.36) 0.17
------- ------- -------
total income (loss) from
investment operations 0.46 0.44 0.92
------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.73) (0.84) (0.73)
from net realized gain on
securities -- -- --
------- ------- -------
total distributions (0.73) (0.84) (0.73)
------- ------- -------
= SHARE VALUE
AT END OF YEAR $8.81 $9.08 $9.48
======= ======= =======
TOTAL RETURN 5.40% 4.73% 10.45%
======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.83% 0.83% 0.88%
Ratio of net investment income to
average net assets 8.25% 8.64% 8.82%
Portfolio turnover rate 142% 125% 55%
Number of shares outstanding at
end of period (000's) 2,333 1,983 1,429
Net assets at end of period
(000's) $20,541 $18,006 $13,544
Average net assets during the
period (000's) $19,105 $16,278 $9,562
</TABLE>
GOVERNMENT SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $9.67 $9.61 $9.89 $9.55 $10.30 $9.84 $9.34
------- -------- ------- ------- ------- ------- -------
+ INCOME (LOSS)
from investment income 0.58 0.59 0.61 0.60 0.55 0.61 0.65
from net realized & unrealized
gain (loss) on securities 0.42 0.06 (0.28) 0.35 (0.59) 0.59 0.49
------- -------- ------- ------- ------- ------- -------
total income (loss) from
investment operations 1.00 0.65 0.33 0.95 (0.04) 1.20 1.14
------- -------- ------- ------- ------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.58) (0.59) (0.61) (0.61) (0.55) (0.61) (0.64)
from net realized gain on
securities -- -- -- -- (0.16) (0.13) --
------- -------- ------- ------- ------- ------- -------
total distributions (0.58) (0.59) (0.61) (0.61) (0.71) (0.74) (0.64)
------- -------- ------- ------- ------- ------- -------
= SHARE VALUE
AT END OF YEAR $10.09 $9.67 $9.61 $9.89 $9.55 $10.30 $9.84
======= ======== ======= ======= ======= ======= =======
TOTAL RETURN 10.60% 6.94% 3.32% 10.43% (0.66)% 12.56% 12.60%
======= ======== ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.54% 0.56% 0.56% 0.58% 0.59% 0.67% 0.76%
Ratio of net investment income to
average net assets 5.82% 6.11% 6.21% 6.36% 5.44% 6.08% 6.77%
Portfolio turnover rate 24% 38% 36% 229% 85% 105% 78%
Number of shares outstanding at
end of year (000's) 9,129 8,672 8,164 5,478 4,544 3,110 2,090
Net assets at end of year (000's) $92,120 $83,827 $78,423 $54,174 $43,401 $32,023 $20,559
Average net assets during the year
(000's) $87,574 $83,293 $68,017 $45,200 $41,596 $26,145 $17,069
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------
1991 1990 1989
-------- ------ ------
<S> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $9.20 $9.42 $9.24
------- ------ ------
+ INCOME (LOSS)
from investment income 0.66 0.70 0.71
from net realized & unrealized
gain (loss) on securities 0.14 (0.17) 0.15
------- ------ ------
total income (loss) from
investment operations 0.80 0.53 0.86
------- ------ ------
- - DISTRIBUTIONS
from net investment income (0.66) (0.75) (0.68)
from net realized gain on
securities -- -- --
------- ------ ------
total distributions (0.66) (0.75) (0.68)
------- ------ ------
= SHARE VALUE
AT END OF YEAR $9.34 $9.20 $9.42
======= ====== ======
TOTAL RETURN 9.28% 5.76% 9.57%
======= ====== ======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.87% 0.86% 0.85%
Ratio of net investment income to
average net assets 7.25% 7.77% 7.89%
Portfolio turnover rate 87% 85% 38%
Number of shares outstanding at
end of year (000's) 1,468 978 570
Net assets at end of year (000's) $13,711 $8,997 $5,374
Average net assets during the year
(000's) $11,393 $7,233 $4,565
</TABLE>
4
<PAGE> 9
FINANCIAL HIGHLIGHTS -- CONTINUED
GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, PERIOD FROM
------------------------------------------------------------------- APRIL 29, 1994
1998 1997 1996 1995 TO MAY 31, 1994
---------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF PERIOD $17.62 $16.49 $11.43 $9.87 $10.00(1)
---------- -------- -------- -------- -------
+ INCOME (LOSS)
from net investment income (0.02) 0.02 0.11 0.04 0.01
from net realized & unrealized
gain (loss) on securities 4.82 1.45 5.27 1.56 (0.13)
---------- -------- -------- -------- -------
total income (loss) from
investment operations 4.80 1.47 5.38 1.60 (0.12)
---------- -------- -------- -------- -------
- - DISTRIBUTIONS
from net investment income (0.01) (0.01) (0.09) (0.04) (0.01)
from net realized gain on
securities (0.33) (0.33) (0.23) -- --
---------- -------- -------- -------- -------
total distributions (0.34) (0.34) (0.32) (0.04) (0.01)
---------- -------- -------- -------- -------
= SHARE VALUE
AT END OF PERIOD $22.08 $17.62 $16.49 $11.43 $9.87
========== ======== ======== ======== =======
TOTAL RETURN 27.41% 9.00% 47.46% 16.25% (1.19)%
========== ======== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.84% 0.86% 0.83% 0.91% 0.08%
Ratio of net investment income to
average net assets (0.11)% 0.09% 0.89% 0.41% 0.11%
Portfolio turnover rate 43% 40% 36% 61% 0%
Number of shares outstanding at
end of year (000's) 49,832 42,422 25,826 8,800 1,001
Net assets at end of year (000's) $1,100,137 $747,654 $425,787 $100,614 $9,885
Average net assets during the
year (000's) $946,335 $588,056 $238,228 $ 42,232 $9,944
Average commission rate paid $0.0474 $0.0499 N/A N/A N/A
</TABLE>
- ------------
(1) The net asset value at the beginning of the period is as of commencement of
operations on April 29, 1994.
GROWTH & INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL YEAR ENDED MAY 31, APRIL 29, 1994
----------------------------------------------------------------- TO
1998 1997 1996 1995 MAY 31, 1994
-------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF PERIOD $16.86 $14.78 $11.09 $9.87 $10.00(1)
-------- -------- -------- ------- -------
+ INCOME (LOSS)
from net investment income 0.08 0.10 0.08 0.09 0.02
from net realized & unrealized
gain (loss) on securities 3.26 2.38 3.77 1.22 (0.13)
-------- -------- -------- ------- -------
total income (loss) from
investment operations 3.34 2.48 3.85 1.31 (0.11)
-------- -------- -------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.08) (0.10) (0.07) (0.09) (0.02)
from net realized gain on
securities (0.21) (0.29) (0.09) -- --
-------- -------- -------- ------- -------
total distributions (0.29) (0.39) (0.16) (0.09) (0.02)
-------- -------- -------- ------- -------
= SHARE VALUE
AT END OF PERIOD $19.91 $16.87 $14.78 $11.09 $9.87
======== ======== ======== ======= =======
TOTAL RETURN 19.87% 17.08% 34.85% 13.35% (1.11)%
======== ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.80% 0.81% 0.79% 0.86% 0.07%
Ratio of net investment income to
average net assets 0.43% 0.70% 0.63% 0.93% 0.22%
Portfolio turnover rate 78% 45% 64% 97% 11%
Number of shares outstanding at end
of year (000's) 13,619 12,422 7,685 3,867 1,002
Net assets at end of year (000's) $271,159 $209,545 $113,546 $42,867 $9,890
Average net assets during the year
(000's) $252,647 $161,226 $75,158 $21,910 $9,946
Average commission rate paid $0.0500 $0.0500 N/A N/A N/A
</TABLE>
- ------------
(1) The net asset value at the beginning of the period is as of commencement of
operations on April 29, 1994.
5
<PAGE> 10
FINANCIAL HIGHLIGHTS -- CONTINUED
INTERNATIONAL EQUITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 2,
FISCAL YEAR ENDED MAY 31, 1989
------------------------------------------------------------------------------------- TO MAY 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF
PERIOD $11.44 $11.15 $10.42 $10.14 $8.99 $8.03 $8.58 $9.17 $10.00(1)
-------- -------- -------- -------- -------- ------- ------- ------- --------
+ INCOME (LOSS)
from net investment
income 0.23 0.20 0.17 0.15 0.11 0.18 0.15 0.23 0.10
from net realized &
unrealized gain (loss)
on securities 0.85 0.63 0.97 0.34 1.17 0.93 (0.55) (0.59) (0.83)
-------- -------- -------- -------- -------- ------- ------- ------- --------
total income (loss) from
investment operations 1.08 0.83 1.14 0.49 1.28 1.11 (0.40) (0.36) (0.73)
-------- -------- -------- -------- -------- ------- ------- ------- --------
- - DISTRIBUTIONS
from net investment
income (0.24) (0.19) (0.17) (0.15) (0.11) (0.15) (0.15) (0.23) (0.10)
from net realized gain on
securities (0.33) (0.35) (0.24) (0.06) (0.02) -- -- -- --
-------- -------- -------- -------- -------- ------- ------- ------- --------
total distributions (0.57) (0.54) (0.41) (0.21) (0.13) (0.15) (0.15) (0.23) (0.10)
-------- -------- -------- -------- -------- ------- ------- ------- --------
= SHARE VALUE
AT END OF PERIOD $11.95 $11.44 $11.15 $10.42 $10.14 $8.99 $8.03 $8.58 $9.17
======== ======== ======== ======== ======== ======= ======= ======= ========
TOTAL RETURN 9.92% 7.74% 11.14% 4.92% 14.31% 14.18% (4.69)% (3.71)% (7.42)%
======== ======== ======== ======== ======== ======= ======= ======= ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to
average net assets 0.40% 0.42% 0.42% 0.45% 0.47% 0.53% 0.65% 0.37% 0.19%
Ratio of net investment
income to average net
assets 1.92% 1.75% 1.65% 1.47% 1.43% 2.33% 1.84% 2.67% 1.10%
Portfolio turnover rate 9% 12% 20% 14% 7% 9% 5% 3% 0%
Number of shares
outstanding at end of
year (000's) 13,009 15,857 18,497 20,074 17,273 7,429 4,256 2,451 1,310
Net assets at end of year
(000's) $155,469 $181,437 $206,259 $209,091 $175,183 $66,809 $34,182 $21,036 $12,005
Average net assets during
the year (000's) $165,984 $191,117 $204,792 $199,235 $117,264 $45,509 $26,542 $15,693 $ 7,853
Average commission rate
paid $0.0332 $0.0236 N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- ------------
(1) The net asset value at the beginning of the period is as of commencement of
operations on October 2, 1989.
INTERNATIONAL GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 1,
FISCAL YEAR ENDED MAY 31, 1991 TO
--------------------------------------------------------------- MAY 31,
1998 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF PERIOD $11.33 $11.79 $12.72 $10.97 $11.16 $10.43 $10.00(1)
-------- -------- -------- ------- ------- ------- -------
+ INCOME (LOSS)
from net investment income 0.56 0.63 0.65 0.65 0.62 0.76 0.48
from net realized & unrealized gain (loss) on
securities and foreign currencies (0.26) (0.49) (0.89) 1.80 (0.20) 0.70 0.42
-------- -------- -------- ------- ------- ------- -------
total income (loss) from investment operations 0.30 0.14 (0.24) 2.45 0.42 1.46 0.90
-------- -------- -------- ------- ------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.20) (0.58) (0.68) (0.70) (0.60) (0.73) (0.47)
from net realized gain on securities (0.01) (0.02) (0.01) -- (0.01) -- --
-------- -------- -------- ------- ------- ------- -------
total distributions (0.21) (0.60) (0.69) (0.70) (0.61) (0.73) (0.47)
-------- -------- -------- ------- ------- ------- -------
= SHARE VALUE
AT END OF PERIOD $11.42 $11.33 $11.79 $12.72 $10.97 $11.16 $10.43
======== ======== ======== ======= ======= ======= =======
TOTAL RETURN 2.65% 1.13% (1.91)% 23.23% 3.87% 14.50% 9.18%
======== ======== ======== ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets 0.55% 0.56% 0.56% 0.59% 0.48% 0.14% 0.08%
Ratio of net investment income to average net
assets 4.70% 5.13% 5.45% 5.83% 5.87% 7.02% 4.62%
Portfolio turnover rate 17% 4% 11% 6% 3% 26% 12%
Number of shares outstanding at end of year
(000's) 13,646 15,680 12,073 6,111 3,741 2,062 1,259
Net assets at end of year (000's) $155,783 $177,709 $142,383 $77,734 $41,028 $23,009 $13,126
Average net assets during the year (000's) $168,439 $166,147 $114,693 $51,451 $33,561 $18,135 $11,938
</TABLE>
- ------------
(1) The net asset value at the beginning of the period is as of commencement of
operations on October 1, 1991.
6
<PAGE> 11
FINANCIAL HIGHLIGHTS -- CONTINUED
MIDCAP INDEX FUND(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $20.83 $19.09 $15.68 $14.54 $14.38 $12.86 $12.51
-------- -------- -------- -------- -------- -------- --------
+ INCOME (LOSS)
from net investment income 0.23 0.24 0.24 0.26 0.23 0.24 0.23
from net realized & unrealized
gain (loss) on securities 5.80 2.95 4.06 1.59 0.28 1.93 0.39
-------- -------- -------- -------- -------- -------- --------
total income (loss) from
investment operations 6.03 3.19 4.30 1.85 0.51 2.17 0.62
-------- -------- -------- -------- -------- -------- --------
- - DISTRIBUTIONS
from net investment income (0.23) (0.24) (0.24) (0.26) (0.23) (0.24) (0.23)
from net realized gain on
securities (1.36) (1.21) (0.65) (0.45) (0.12) (0.41) (0.04)
-------- -------- -------- -------- -------- -------- --------
total distributions (1.59) (1.45) (0.89) (0.71) (0.35) (0.65) (0.27)
-------- -------- -------- -------- -------- -------- --------
= SHARE VALUE
AT END OF YEAR $25.27 $20.83 $19.09 $15.68 $14.54 $14.38 $12.86
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN 29.62% 17.48% 28.10% 13.26% 3.52% 17.21% 5.01%
======== ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.36% 0.40% 0.41% 0.44% 0.46% 0.47% 0.54%
Ratio of net investment income to
average net assets 0.95% 1.24% 1.36% 1.73% 1.62% 1.79% 1.82%
Portfolio turnover rate 26% 19% 21% 23% 17% 5% 112%
Number of shares outstanding at
end of year (000's) 31,830 29,137 28,322 25,988 24,001 14,673 8,862
Net assets at end of year (000's) $804,318 $607,061 $540,688 $407,557 $349,041 $210,931 $113,992
Average net assets during the year
(000's) $722,652 $554,397 $477,372 $376,486 $285,247 $154,979 $88,456
Average commission rate paid $0.0278 $0.0277 N/A N/A N/A N/A N/A
<CAPTION>
FISCAL YEAR ENDED MAY 31,
------------------------------
1991 1990 1989
-------- -------- --------
<S> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $12.92 $12.25 $10.86
------- ------- -------
+ INCOME (LOSS)
from net investment income 0.28 0.28 0.30
from net realized & unrealized
gain (loss) on securities (0.30) 0.71 1.51
------- ------- -------
total income (loss) from
investment operations (0.02) 0.99 1.81
------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.28) (0.32) (0.27)
from net realized gain on
securities (0.11) -- (0.15)
------- ------- -------
total distributions (0.39) (0.32) (0.42)
------- ------- -------
= SHARE VALUE
AT END OF YEAR $12.51 $12.92 $12.25
======= ======= =======
TOTAL RETURN 0.20% 8.22% 17.06%
======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.67% 0.68% 0.74%
Ratio of net investment income to
average net assets 2.41% 2.29% 2.72%
Portfolio turnover rate 101% 131% 67%
Number of shares outstanding at
end of year (000's) 6,168 5,712 5,354
Net assets at end of year (000's) $77,146 $73,815 $65,586
Average net assets during the year
(000's) $69,696 $67,421 $57,398
Average commission rate paid N/A N/A N/A
</TABLE>
- ------------
(1) Effective October 1, 1991 the Fund's name was changed from the Capital
Accumulation Fund to the MidCap Index Fund. Additionally, on October 1, 1991
the investment objectives and investment program for the Fund were changed.
Bankers Trust has been the Fund's Sub-adviser since May 1, 1992.
MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- ------- -------- -------- ------- -------
+ INCOME
from net investment income 0.05 0.05 0.05 0.05 0.03 0.03 0.05
-------- -------- ------- -------- -------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.05) (0.05) (0.05) (0.05) (0.03) (0.03) (0.05)
-------- -------- ------- -------- -------- ------- -------
= SHARE VALUE
AT END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======= ======== ======== ======= =======
TOTAL RETURN 5.25% 5.02% 5.26% 4.90% 2.83% 2.85% 4.47%
======== ======== ======= ======== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.54% 0.57% 0.57% 0.57% 0.58% 0.63% 0.67%
Ratio of net investment income to
average net assets 5.14% 4.95% 5.14% 4.75% 2.78% 2.81% 4.42%
Number of shares outstanding at
end of year (000's) 190,975 128,125 83,618 82,256 50,534 45,323 48,355
Total net assets at end of year
(000's) $190,975 $128,125 $83,618 $82,254 $50,533 $45,322 $48,353
Average net assets during the year
(000's) $150,625 $113,882 $84,271 $67,021 $46,222 $45,562 $46,305
<CAPTION>
FISCAL YEAR ENDED MAY 31,
------------------------------
1991 1990 1989
-------- -------- --------
<S> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $1.00 $1.00 $1.00
------- ------- -------
+ INCOME
from net investment income 0.07 0.08 0.08
------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.07) (0.08) (0.08)
------- ------- -------
= SHARE VALUE
AT END OF YEAR $1.00 $1.00 $1.00
======= ======= =======
TOTAL RETURN 7.11% 8.31% 8.63%
======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.68% 0.74% 0.46%
Ratio of net investment income to
average net assets 6.86% 7.93% 8.39%
Number of shares outstanding at
end of year (000's) 38,572 27,628 21,445
Total net assets at end of year
(000's) $38,570 $27,628 $21,445
Average net assets during the year
(000's) $34,733 $22,563 $13,385
</TABLE>
7
<PAGE> 12
FINANCIAL HIGHLIGHTS -- CONTINUED
SCIENCE & TECHNOLOGY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL YEAR ENDED MAY 31, APRIL 29, 1994
------------------------------------------------------------------- TO
1998 1997 1996 1995 MAY 31, 1994
---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF PERIOD $19.88 $20.48 $14.43 $9.83 $10.00(1)
---------- -------- -------- -------- -------
+ INCOME (LOSS)
from net investment income (0.09) -- -- 0.03 --
from realized & unrealized gain
(loss) on securities 2.28 0.33 8.08 4.72 (0.17)
---------- -------- -------- -------- -------
total income (loss) from
investment operations 2.19 0.33 8.08 4.75 (0.17)
---------- -------- -------- -------- -------
- - DISTRIBUTIONS
from net investment income -- -- -- (0.02) --
from net realized gain on
securities -- (0.93) (2.03) (0.13) --
---------- -------- -------- -------- -------
total distributions -- (0.93) (2.03) (0.15) --
---------- -------- -------- -------- -------
= SHARE VALUE
AT END OF PERIOD $22.07 $19.88 $20.48 $14.43 $9.83
========== ======== ======== ======== =======
TOTAL RETURN 10.85% 1.81% 58.28% 48.61% (1.66)%
========== ======== ======== ======== =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.95% 0.96% 0.94% 1.00% 0.08%
Ratio of net investment income
(loss) to average net assets (0.46)% (0.29)% (0.07)% 0.36% 0.04%
Portfolio turnover rate 128% 122% 116% 121% 0%
Number of shares outstanding at
end of year (000's) 46,355 40,484 27,696 11,550 1,001
Net assets at end of year (000's) $1,023,141 $804,982 $567,187 $166,683 $ 9,834
Average net assets during the year
(000's) $949,947 $664,608 $363,087 $ 64,974 $ 9,918
Average commission rate paid $0.0455 $0.0393 N/A N/A N/A
</TABLE>
- ------------
(1) The net asset value at the beginning of the period is as of commencement of
operations on April 29, 1994.
SMALL CAP INDEX FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31, PERIOD FROM
--------------------------------------------------------------- MAY 1, 1992
1998 1997 1996 1995 1994 1993 TO MAY 31, 1992
-------- -------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF PERIOD $16.18 $16.25 $12.49 $11.52 $11.28 $ 9.93 $10.00(1)
-------- -------- -------- -------- -------- -------- --------
+ INCOME (LOSS)
from net investment income 0.19 0.19 0.20 0.17 0.13 0.15 0.02
from net realized & unrealized gain
(loss) on securities 3.17 0.93 4.04 0.97 0.58 1.48 (0.07)
-------- -------- -------- -------- -------- -------- --------
total income (loss) from investment
operations 3.36 1.12 4.24 1.14 0.71 1.63 (0.05)
-------- -------- -------- -------- -------- -------- --------
- - DISTRIBUTIONS
from net investment income (0.19) (0.19) (0.20) (0.17) (0.13) (0.15) (0.02)
from net realized gain on
securities (1.41) (1.00) (0.28) -- (0.34) (0.13) --
-------- -------- -------- -------- -------- -------- --------
total distributions (1.60) (1.19) (0.48) (0.17) (0.47) (0.28) (0.02)
-------- -------- -------- -------- -------- -------- --------
= SHARE VALUE
AT END OF PERIOD $17.94 $16.18 $16.25 $12.49 $11.52 $11.28 $ 9.93
======== ======== ======== ======== ======== ======== ========
TOTAL RETURN 21.34% 7.51% 34.50% 9.98% 6.18% 16.64% (0.50)%
======== ======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.39% 0.41% 0.41% 0.44% 0.47% 0.47% 0.04%
Ratio of net investment income to
average net assets 1.05% 1.34% 1.36% 1.44% 1.10% 1.40% 0.21%
Portfolio turnover rate 36% 42% 31% 34% 16% 20% 0%
Number of shares outstanding at end
of year (000's) 13,777 11,893 11,129 10,136 9,381 3,687 1,107
Net assets at end of year (000's) $247,183 $192,459 $180,785 $126,567 $108,050 $ 41,581 $10,989
Average net assets during the year
(000's) $227,757 $178,368 $150,448 $120,298 $70,690 $ 22,142 $10,989
Average commission rate paid $0.0162 $0.0297 N/A N/A N/A N/A N/A
</TABLE>
- ------------
(1) The net asset value at the beginning of the period is as of commencement of
operations on May 1, 1992. Bankers Trust has been the Fund's Sub-adviser
since May 1, 1992.
8
<PAGE> 13
FINANCIAL HIGHLIGHTS -- CONTINUED
SOCIAL AWARENESS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991
-------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF PERIOD $17.90 $15.49 $13.02 $11.98 $12.12 $11.43 $11.13 $10.59
-------- --------- ------- ------- ------- ------- ------- -------
+ INCOME (LOSS)
from net investment income 0.23 0.24 0.26 0.27 0.26 0.24 0.26 0.26
from net realized & unrealized
gain (loss) on securities 5.07 4.19 3.37 1.75 (0.02) 1.22 0.30 0.54
-------- --------- ------- ------- ------- ------- ------- -------
total income from investment
operations 5.30 4.43 3.63 2.02 0.24 1.46 0.56 0.80
-------- --------- ------- ------- ------- ------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.23) (0.24) (0.25) (0.27) (0.26) (0.24) (0.26) (0.26)
from net realized gain on
securities (0.81) (1.78) (0.91) (0.71) (0.12) (0.53) -- --
-------- --------- ------- ------- ------- ------- ------- -------
total distributions (1.04) (2.02) (1.16) (0.98) (0.38) (0.77) (0.26) (0.26)
-------- --------- ------- ------- ------- ------- ------- -------
= SHARE VALUE
AT END OF PERIOD $22.16 $17.90 $15.49 $13.02 $11.98 $12.12 $11.43 $11.13
======== ========= ======= ======= ======= ======= ======= =======
TOTAL RETURN 30.34% 30.48% 28.85% 18.19% 1.97% 13.08% 5.08% 7.89%
======== ========= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.54% 0.56% 0.56% 0.58% 0.60% 0.63% 0.16% 0.44%
Ratio of net investment income to
average net assets 1.17% 1.53% 1.80% 2.22% 2.19% 2.14% 2.34% 2.66%
Portfolio turnover rate 120% 109% 117% 148% 83% 106% 203% 100%
Number of shares outstanding at
end of year (000's) 15,080 8,677 5,220 4,143 3,817 2,819 1,799 973
Net assets at end of year (000's) $334,167 $155,349 $80,887 $53,927 $45,729 $34,166 $20,570 $10,835
Average net assets during the year
(000's) $240,782 $106,139 $66,888 $47,942 $41,002 $26,920 $15,365 $ 7,959
Average commission rate paid $0.0431 $0.0400 N/A N/A N/A N/A N/A N/A
<CAPTION>
PERIOD FROM
OCTOBER 2, 1989
TO
MAY 31, 1990
---------------
<S> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF PERIOD $10.00(1)
---------
+ INCOME (LOSS)
from net investment income 0.20
from net realized & unrealized
gain (loss) on securities 0.59
---------
total income from investment
operations 0.79
---------
- - DISTRIBUTIONS
from net investment income (0.20)
from net realized gain on
securities --
---------
total distributions (0.20)
---------
= SHARE VALUE
AT END OF PERIOD $10.59
=========
TOTAL RETURN 8.09%
=========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.23%
Ratio of net investment income to
average net assets 2.04%
Portfolio turnover rate 95%
Number of shares outstanding at
end of year (000's) 612
Net assets at end of year (000's) $ 6,485
Average net assets during the year
(000's) $ 5,358
Average commission rate paid N/A
</TABLE>
- ------------
(1) The net asset value at the beginning of the period is as of commencement of
operations on October 2, 1989.
9
<PAGE> 14
FINANCIAL HIGHLIGHTS -- CONTINUED
STOCK INDEX FUND(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $26.09 $20.69 $16.81 $14.39 $14.36 $13.34 $12.60
---------- ---------- ---------- ---------- ---------- -------- --------
+ INCOME (LOSS)
from net investment income 0.40 0.39 0.39 0.37 0.35 0.34 0.32
from net realized & unrealized
gain (loss) on securities 7.44 5.57 4.26 2.45 0.12 1.20 0.74
---------- ---------- ---------- ---------- ---------- -------- --------
total income (loss) from
investment operations 7.84 5.96 4.65 2.82 0.47 1.54 1.06
---------- ---------- ---------- ---------- ---------- -------- --------
- - DISTRIBUTIONS
from net investment income (0.40) (0.39) (0.38) (0.37) (0.35) (0.34) (0.32)
from net realized gain on
securities (0.15) (0.17) (0.39) (0.03) (0.09) (0.18) --
---------- ---------- ---------- ---------- ---------- -------- --------
total distributions (0.55) (0.56) (0.77) (0.40) (0.44) (0.52) (0.32)
---------- ---------- ---------- ---------- ---------- -------- --------
= SHARE VALUE
AT END OF YEAR $33.38 $26.09 $20.69 $16.81 $14.39 $14.36 $13.34
========== ========== ========== ========== ========== ======== ========
TOTAL RETURN 30.30% 29.24% 28.17% 19.98% 3.29% 11.74% 8.57%
========== ========== ========== ========== ========== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.31% 0.34% 0.35% 0.38% 0.39% 0.43% 0.50%
Ratio of net investment income to
average net assets 1.33% 1.76% 2.05% 2.44% 2.44% 2.52% 3.12%
Portfolio turnover rate 3% 3% 3% 14% 3% 1% 45%
Number of shares outstanding at
end of year (000's) 104,334 93,687 85,117 75,451 75,494 66,224 55,598
Net assets at end of year (000's) 3,482,655 $2,444,200 $1,760,786 $1,267,992 $1,086,459 $951,200 $741,667
Average net assets during the year
(000's) $2,968,059 $2,019,826 $1,498,398 $1,140,085 $1,030,581 $836,510 $167,262
Average commission rate paid $0.0238 $0.0281 N/A N/A N/A N/A N/A
<CAPTION>
FISCAL YEAR ENDED MAY 31,
------------------------------
1991 1990 1989
-------- -------- --------
<S> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $11.86 $10.69 $8.90
------- ------- --------
+ INCOME (LOSS)
from net investment income 0.31 0.33 0.27
from net realized & unrealized
gain (loss) on securities 0.81 1.32 1.86
------- ------- --------
total income (loss) from
investment operations 1.12 1.65 2.13
------- ------- --------
- - DISTRIBUTIONS
from net investment income (0.31) (0.35) (0.25)
from net realized gain on
securities (0.07) (0.13) (0.09)
------- ------- --------
total distributions (0.38) (0.48) (0.34)
------- ------- --------
= SHARE VALUE
AT END OF YEAR $12.60 $11.86 $10.69
======= ======= ========
TOTAL RETURN 9.98% 15.78% 24.40%
======= ======= ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.67% 0.61% 0.78%
Ratio of net investment income to
average net assets 2.82% 3.05% 3.05%
Portfolio turnover rate 6% 8% 14%
Number of shares outstanding at
end of year (000's) 6,662 3,456 1,924
Net assets at end of year (000's) $83,970 $40,969 $20,572
Average net assets during the year
(000's) $55,147 $29,824 $14,060
Average commission rate paid N/A N/A N/A
</TABLE>
- ------------
(1) Bankers Trust has been the Fund's Sub-adviser since May 1, 1992.
10
<PAGE> 15
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. Since May 30, 1985, VALIC has been the Investment Adviser for
the Funds that comprise the Series Company.
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 and collectively provide financial services with activities heavily
weighted toward insurance.
As Investment Adviser, VALIC is responsible for each Fund's day to day
operations. Also, VALIC supervises the purchase and sale of Fund Investments and
performs the cash management function. For the MidCap Index Fund, the Stock
Index Fund, the Small Cap Index Fund, the Growth Fund, the Science & Technology
Fund, and the Growth & Income 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 Asset Allocation Fund, the Money Market Fund, the Capital Conservation Fund,
the Government Securities Fund, the International Equities Fund, the Social
Awareness Fund, and the International Government Bond Fund. VALIC serves as
Investment Adviser through an Investment Advisory Agreement it enters into with
each Fund. These agreements are renewed once each year, by the Series Company
Board of Directors.
One Investment Advisory Agreement covers these Funds:
<TABLE>
<CAPTION>
Effective Date of
Fund Name Agreement
--------- -----------------
<S> <C>
Asset Allocation Fund
Money Market Fund
Capital Conservation Fund
September 7, 1990
Government Securities Fund
International Equities Fund
Social Awareness Fund
International Government Bond October 1, 1991
Fund
</TABLE>
Another Investment Advisory Agreement covers these Funds:
<TABLE>
<CAPTION>
Effective Date of
Fund Name Agreement
--------- -----------------
<S> <C>
MidCap Index Fund
Stock Index Fund May 1, 1992
Small Cap Index Fund
Growth Fund
Growth & Income Fund May 1, 1994
Science & Technology Fund
</TABLE>
For more information on these agreements, 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.
The Sub-advisers are:
BANKERS TRUST COMPANY ("BANKERS TRUST")
Since May 1, 1992, Bankers Trust has been the Sub-adviser for the MidCap Index
Fund, the Stock Index Fund, and the Small Cap Index Fund. Bankers Trust first
offered investment management services in 1938 and began managing index funds in
1977. As of March 31, 1998, Bankers Trust managed $337.8 billion in assets.
Bankers Trust is entirely owned by the Bankers Trust New York Corporation, a
bank holding company. Bankers Trust is the seventh largest U.S. financial
services institution as of December 31, 1996.
T. ROWE PRICE ASSOCIATES, INC.
("T. ROWE PRICE")
Since May 1, 1994, T. Rowe Price has been the Sub-adviser for the Growth Fund
and the Science & Technology Fund. T. Rowe Price was incorporated in Maryland in
1947.
The firm, which was founded by Thomas Rowe Price, Jr. in 1937, is one of the
pioneers of the growth stock theory of investing. T. Rowe Price, one of the
nation's leading no-load fund managers, and its affiliates manage over $141
billion of assets as of June 30, 1998. Its approach to managing money is based
on proprietary research and a strict investment discipline developed over six
decades.
VALUE LINE, INC. ("VALUE LINE")
Since May 1, 1994, Value Line has been the Sub-adviser for the Growth & Income
Fund.
Value Line, with assets under management in excess of $5 billion as of June 30,
1998, provides investment counseling services to companies and others.
Investment selection is based on the Value Line Ranking System for TimelinessTM,
which has evolved over many years of research. Value Line also publishes the
Value Line Investment Survey, one of the best known U.S. investment advisory
services covering about 1,700 stocks, organized into 90 industries. The majority
of Value Line's outstanding stock is owned by Arnold Bernhard & Co., Inc. Value
Line is a New York corporation.
VALIC'S ADDRESS is
2929 Allen Parkway,
Houston, Texas 77019.
BANKERS TRUST'S PRINCIPAL
OFFICES are located at
One Bankers Trust Plaza,
130 Liberty St. 36th Floor,
New York, New York 10006.
T. ROWE PRICE'S
PRINCIPAL OFFICES
are located at
100 East Pratt Street,
Baltimore, Maryland
21202.
VALUE LINE'S PRINCIPAL
OFFICES are located at
220 East 42nd Street,
6th Floor, New York,
New York 10017-5981.
11
<PAGE> 16
- --------------------------------------------------------------------------------
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 portfolio 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>
<CAPTION>
Advisory Fee
Fund Name (Annual Rate)
--------- -------------
<S> <C>
Index Equity Funds
International Equities 0.35% on the first
Fund $500 million;
MidCap Index Fund 0.25% on assets
Small Cap Index Fund over
Stock Index Fund $500 million
Growth Fund 0.80%
Growth & Income Fund 0.75%
Capital Conservation Fund 0.50%
Government Securities Fund 0.50%
International Government Bond
Fund 0.50%
Science & Technology Fund 0.90%
Social Awareness Fund 0.50%
Money Market Fund 0.50%
Asset Allocation Fund* 0.50%
</TABLE>
The Investment Advisory Agreements we entered into with each Fund do not limit
how much the Funds pay in monthly expenses each year. However, we voluntarily
limit the Funds' monthly expenses as follows:
If a Fund's average monthly expenses, when annualized, are more than 2% of the
Fund's estimated average daily net assets, we will pay the difference. As a
result the Fund's yield or total return will increase. If VALIC decides to stop
voluntarily reducing a Fund's expenses, it may do so by giving 30 days' notice,
in writing, to the Series Company. To date, VALIC has not had to reduce expenses
of any Fund as a result of this 2% voluntary reduction.
For the fiscal year ended May 31, 1998, the total expenses paid by the Series
Company of each Fund's average net assets were, as a percentage, as follows:
<TABLE>
<CAPTION>
Total
Expenses
Fund Name Ratio
--------- --------
<S> <C>
International Equities Fund 0.40%
MidCap Index Fund 0.36%
Small Cap Index Fund 0.39%
Stock Index Fund 0.31%
Growth Fund 0.84%
Growth & Income Fund 0.80%
Capital Conservation Fund 0.54%
Government Securities Fund 0.54%
International Government Bond Fund 0.55%
Science & Technology Fund 0.95%
Social Awareness Fund 0.54%
Money Market Fund 0.54%
Asset Allocation Fund* 0.54%
</TABLE>
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
12
<PAGE> 17
The Sub-advisers
According to the agreements we have with the Sub-advisers, we pay them directly
out of the fee we receive from the Funds. The Funds do not pay the Sub-advisers
directly. 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 would have to be approved by the Series Company
Board of Directors and by the shareholders of the Fund.
Under the Investment Sub-Advisory
Agreement we have with Bankers Trust, we pay to Bankers Trust a monthly fee
based on the respective average daily net asset values of the MidCap Index Fund
at an annual rate of 0.03% on the first $300 million and 0.02% on assets over
$300 million, the Stock Index Fund at an annual rate of 0.02% on the first $2
billion and 0.01% on assets over $2 billion and on the Small Cap Index Fund at
an annual rate of 0.03% on the first $150 million and 0.02% on assets over $150
million.
Under the Investment Sub-Advisory
Agreement we have with T. Rowe Price, we pay T. Rowe Price a monthly fee based
on the average daily net asset values of the Growth Fund at an annual rate of
0.50% on the first $500 million and 0.45% on assets over $500 million and on the
Science & Technology Fund at an annual rate of 0.60% on the first $500 million
and 0.55% on assets over $500 million.
Under the Investment Sub-Advisory
Agreement we have with Value Line, we pay Value Line a monthly fee based on the
average daily net asset value of the Growth & Income Fund at an annual rate of
0.45%.
VALIC is required to pay a minimum yearly sub-advisory fee of $50,000 for the
Small Cap Index Fund. There are no minimum yearly sub-advisory fees for the
Stock Index Fund, MidCap Index Fund, Growth Fund, Growth & Income Fund and the
Science & Technology Fund.
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 manage these Funds and 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. Further, in the case of T.
Rowe Price, it may include any indirectly related broker.
The Investment Company Act of 1940 ("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 broker's
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 Securities and
Exchange Commission ("SEC"). The Series Company and the Sub-advisers have
entered into a written contract, 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 DIRECTORS
The Series Company Board of Directors currently consists of eight members: five
are independent directors and three are VALIC employees.
The Board of Directors 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.
For more information on
WHAT THE SUB-ADVISERS
ARE PAID, see the
"Investment Sub-Advisers"
section in the Statement of
Additional Information.
13
<PAGE> 18
ABOUT THE FUNDS
- --------------------------------------------------------------------------------
GROWTH, INCOME AND STABILITY
CATEGORIES
The Funds offered in this prospectus fall into three general investment
categories: growth, income and stability.
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:
Asset Allocation Fund
Growth Fund
Growth & Income Fund
International Equities Fund
MidCap Index Fund
Science & Technology Fund
Small Cap Index Fund
Social Awareness Fund
Stock Index 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:
Capital Conservation Fund
Government Securities Fund
International Government 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
ABOUT LEVEL OF RISK
The risks involved in each Fund are described in each Fund's Fact Sheet. These
risks 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 sell and buy
investments as part of their investment strategy. In other Funds, like the Index
Funds discussed below, portfolio turnover is lower because the make up of the
index stays fairly constant.
High portfolio turnover may cause a fund's expenses to increase. For example, a
fund may have to pay brokerage fees and other related expenses.
14
<PAGE> 19
- --------------------------------------------------------------------------------
For each of the last two fiscal years the portfolio turnover rates for each of
the Funds except the Money Market Fund were as follows:
<TABLE>
<CAPTION>
Fiscal Year
Ending
-----------------------
May 31, May 31,
1997 1998
------- -------
<S> <C> <C>
International Equities Fund 12% 9%
MidCap Index Fund 19% 26%
Small Cap Index Fund 42% 36%
Stock Index Fund 3% 3%
Growth Fund 40% 43%
Growth & Income Fund 45% 78%
Capital Conservation Fund 45% 14%
Government Securities Fund 38% 24%
International Government Bond
Fund 4% 17%
Science & Technology Fund 122% 128%
Social Awareness Fund 109% 120%
Asset Allocation Fund 103% 24%
</TABLE>
A portfolio turnover rate over 100% a year is higher than the rates of many
other mutual fund companies. 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. Current Fund
performance and 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.
15
<PAGE> 20
ABOUT INDEX EQUITY FUNDS
- --------------------------------------------------------------------------------
Four of the 13 Funds in the Series Company are Index Equity Funds investing
mostly in stocks. Their investment strategy is to track the performance of a
specific index. This strategy is followed whether markets go up or down. As part
of this investment strategy, each Fund may also invest in futures contracts and
options. Because these Funds do not have a defensive investment strategy, when
the market goes down, you will bear the risk of such market decline.
Index Funds perform best over the long term. This means you should plan to keep
your money in an Index Fund for a period of years.
WHAT IS AN INDEX?
An index reflects the average performance of a particular class of securities.
Examples of indexes include large company stocks (S&P 500 Index), mid-size
company stocks (S&P MidCap 400 Index), the bond market, or stocks of companies
in specific industries. Indexes are not managed funds, and cannot be bought.
Investment advisers compare the results of the funds they manage to indexes that
are close to the investment style of the fund. Information about the Series
Company's use of Standard & Poor's Indexes is in the Statement of Additional
Information.
WHICH INDEXES DO THESE FUNDS TRY
TO TRACK?
While there are more than a hundred different indexes, the Index Funds in this
prospectus try to track four very prominent stock indexes:
The Stock Index Fund tracks the
Standard & Poor's 500 Stock Index(R)*
The Standard & Poor's 500 Stock Index(R) (S&P 500) tracks the common stock
performance of large U.S. companies in the manufacturing, utilities,
transportation, and financial industries. These companies are usually listed on
the New York Stock Exchange. It also tracks performance of common stocks sold by
foreign and smaller U.S. companies in similar industries. The smaller U.S.
companies are usually listed on the American Stock Exchange. In total, this
index tracks 500 common stocks.
This index may periodically change some of the stocks it tracks. And, different
indexes sometimes track some of the same stocks. For example, as of May 31,
1998, this Index was tracking 18 of the same stocks tracked by the Russell 2000
Index.
The MidCap Index Fund tracks the
Standard & Poor's MidCap 400(R) Index*
The Standard & Poor's MidCap 400(R) Index (S&P MidCap 400) tracks the common
stock performance of 400 medium capitalized U.S. and foreign companies that are
in the manufacturing, utilities, transportation, and financial industries. The
average market capitalization of the S&P MidCap 400 Index was $3.4 billion as of
May 31, 1998.
Standard & Poor's created this Index in 1991 to give investors an idea of how
the stocks of medium capitalized companies generally perform.
Standard & Poor's may periodically change some of the stocks in the index. And,
different indexes sometimes include some of the same stocks. For example, as of
May 31, 1998, this Index was tracking 130 of the same stocks tracked by the
Russell 2000 Index. This Index does not track the same stocks as the S&P 500
Index.
The Small Cap Index Fund tracks
The Russell 2000(R) Index**
The Russell 2000 Index is provided by The Frank Russell Company. This Index
tracks the common stock performance of 2,000 small capitalized U.S. companies in
various industries. Small capitalized means these companies have a market value
below $1 billion.
The Frank Russell Company created this Index in 1979 to give investors an idea
of how the stocks of small capitalized companies generally perform. The average
market capitalization of the Russell 2000 Index was $820 million as of May 31,
1998.
The stocks tracked by this Index are updated annually because many small
capitalized companies eventually become medium capitalized companies and some
fail.
- ------------
* "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "S&P MidCap 400(R)" are
trademarks of Standard & Poor's ("S&P"). Neither the MidCap Index Fund nor
the Stock Index Fund is sponsored, endorsed, sold or promoted by S&P, and S&P
makes no representation regarding the advisability of investment in these
Funds.
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. The Small Cap Index Fund is not promoted, sponsored or
endorsed by, nor in any way affiliated with Frank Russell Company. Frank
Russell Company is not responsible for and has not reviewed the Fund or any
associated literature or publications and makes no representation or
warranty, express or implied, as to their accuracy, or completeness, or
otherwise.
INDEX FUNDS have
outperformed most mutual
funds over consecutive ten
year periods. However,
because they are managed
to track an index they will
rise and fall with the
market.
16
<PAGE> 21
- --------------------------------------------------------------------------------
The International Equities Fund tracks
The Morgan Stanley Capital International,
Europe, Australia and the Far East
(EAFE) Index.
The EAFE Index tracks the performance of about 1,000 common stocks of companies
in 20 foreign countries. This index provides a measure of the performance of
companies in the more developed countries in Europe, Australia and the Far East.
Morgan Stanley publishes the EAFE Index daily and, at times, may change some of
the stocks in the index.
HOW CLOSELY CAN INDEX FUNDS TRACK
THE PERFORMANCE OF THEIR INDEX?
The factors that cause a Fund to perform differently from the Index it tries to
track are called tracking differences. There is no assurance that an Index Fund
can track its index.
The coefficient of correlation (r) is an index number which shows how closely
two variables are related. If r=0 there is no tendency for one variable to
change with the other. A value of +1 means that one variable will vary exactly
with the other. Index funds try to keep their coefficient of correlation as
close to 1 as possible. As a practical matter, any coefficient above 0.95, when
measured against the comparison index, shows good tracking.
The index may remove one stock and substitute another requiring the sub-adviser
of the Fund to do the same. When a stock is sold and the new stock purchased,
the Fund incurs transaction costs. The index incurs no transaction costs.
Therefore, the portfolio manager cannot match exactly the performance of an
index.
Also, it may not be possible for a Fund to buy every stock in its index or in
the same proportions. Fund portfolio managers may rely on a statistical
selection technique to figure out, of the stocks tracked by their index, how
many and which ones to buy. Stocks are bought and sold when they are added to or
dropped from the Index. This keeps brokerage fees and other transaction costs
low. For more information, see the "Investment Strategy" sections on each Fund's
Fact Sheet.
17
<PAGE> 22
HOW TO READ A FUND FACT SHEET
- --------------------------------------------------------------------------------
FACT SHEET DESCRIPTION
18
<PAGE> 23
ASSET ALLOCATION
FUND
Fact Sheet
- -------------------------------------------------
Investment Goal MAXIMUM RETURN
THROUGH INVESTMENT
IN A MIX OF STOCKS,
BONDS AND MONEY
MARKET SECURITIES
- -------------------------------------------------
Investment Category GROWTH
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER: Leon A. Olver, C.F.A., who is Vice President and Investment
Officer for the Series Company is the Portfolio Manager of this Fund. Mr. Olver
was an Assistant Vice President for Pulte Financial Companies, Denver, Colorado,
from 1984 to 1991. From 1991 to 1995 Mr. Olver worked for First Heights Bank,
Houston, Texas; he was Vice President, Assistant Treasurer 1991-1994, and Vice
President, Treasurer from 1994-1995. He is also the Portfolio Manager for the
Capital Conservation Fund and Government Securities Fund.
INVESTMENT OBJECTIVE
Seeks maximum aggregate rate of return over the long-term through controlled
investment risk by adjusting its investment mix among stocks, long-term debt
securities and short-term money market securities.
INVESTMENT RISK
The Fund uses the Bankers Trust Tactical Asset Allocation Model (Model) which
allocates the Fund's assets. The Model tries to get the best return from three
types of securities. A part of that program also tries to reduce risk.
The mix of securities the Fund invests in involves market risk, credit risk,
interest rate 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 is an asset allocation fund that attempts to maximize returns with a
mix of stocks, bonds and money market securities. We buy and sell securities for
the Fund by changing its investment mix among stocks, intermediate and long-term
bonds and money market securities. As a result, the Fund's investments may
change often. Also, the Fund can invest 100% in just one of these market
sectors.
Unlike an index fund, which tries to increase the money you invest by matching a
specific index's performance, the Asset Allocation Fund tries to perform better
than a blend of three market sectors measured by:
- - the S&P 500 Index;
- - the Merrill Lynch Corporate and
Government Master Index; and
- - the Certificate of Deposit Primary
Offering by New York City Banks,
30-Day Rate
To help us decide how to allocate the Fund's assets, we rely on the Model. The
Model analyzes many factors that affect the performance of securities that
comprise certain indexes.
Based on the Model, we intend to allocate the Fund's assets around the following
benchmarks:
<TABLE>
<S> <C>
stocks (common stock, preferred 55%
stock and convertible preferred
stock)
intermediate and long-term bonds 35%
high quality money market securities 10%
</TABLE>
The Fund has established separate sub-objectives for investments in each of the
three market sectors. Within the stock sector, the Fund seeks appreciation of
capital by selecting investments that it expects will participate in the growth
of the nation's economy. Within the bond sector, the Fund will generally seek
high current income consistent with reasonable investment risk. Within the money
market sector, the Fund seeks the highest level of current income consistent
with liquidity, stability, and preservation of capital.
As of May 31, 1998, the Fund's assets were invested as follows:
<TABLE>
<S> <C>
stocks 58.36%
intermediate and long-term bonds 32.53%
high quality money market securities 9.11%*
</TABLE>
- ------------
* After taking the contract value of futures positions into consideration. See
"Types of Investments".
Because there is no limit as to how often we may buy and sell securities for
this Fund, this can increase what is called the "portfolio turnover" rate. A
higher rate of portfolio turnover will also increase the brokerage fees and
expenses payable out of the Fund's assets. For more information about portfolio
turnover, see "About the Funds" in this prospectus.
For additional information
about THE FUND'S
INVESTMENTS see "Types
of Investments" in the
prospectus.
19
<PAGE> 24
ASSET ALLOCATION FUND
Fact Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- -----------------------------------------------------------------
<S> <C>
Foreign securities up to 20%
- -----------------------------------------------------------------
Futures and options no more than 33%
- -----------------------------------------------------------------
Illiquid and restricted up to 10%
securities
- -----------------------------------------------------------------
</TABLE>
*At time of purchase.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE ASSET ALLOCATION FUND*
AND THE S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------------
21.94% 13.79% 11.21%
- -----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
For the fiscal year ended May 31, 1998, the Fund had a return of 22.48% before
subtracting expenses of 0.54%. This represents a positive tracking difference of
1.26% compared to the Fund's benchmark, a blended Index of the S&P 500 Index,
the Merrill Lynch Corporate and Government Master Index and the Certificate of
Deposit Primary Offering to New York City Banks, 30 Day Rate. Bond performance
lagged the relevant index due to one Asian holding, and stock performance
tracked the index. Over-allocation to stocks resulted in overall outperformance
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE ASSET ALLOCATION FUND*
AND THE MODEL BENCHMARK
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C>
- ----------------------------------------------------------------
1 YEAR SINCE 9/1/92**
- ----------------------------------------------------------------
21.94% 13.59%
- ----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
** Beginning September 1, 1992 we began to use the Bankers Trust Tactical Asset
Allocation Model to manage this Fund. The performance of the Fund may be
compared to a benchmark comprised of a weighted average of three market
sectors in which the Fund invests. This benchmark is described above.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
20
<PAGE> 25
CAPITAL CONSERVATION
FUND
Fact Sheet
- -------------------------------------------------
Investment Goal INCOME AND POSSIBLE
GROWTH THROUGH
INVESTMENTS IN
HIGH QUALITY DEBT
SECURITIES
- -------------------------------------------------
Investment Category INCOME
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER: Leon A. Olver, C.F.A., Vice President and Investment Officer
for the Series Company is this Fund's Portfolio Manager. Mr. Olver was an
Assistant Vice President for Pulte Financial Companies, Denver, Colorado, from
1984 to 1991. From 1991 to 1995 Mr. Olver worked for First Heights Bank,
Houston, Texas; he was Vice President, Assistant Treasurer 1991-1994, and Vice
President, Treasurer from 1994 to 1995. He is also the Portfolio Manager for the
Government Securities Fund and the Asset Allocation Fund.
INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with preservation of capital
through current income and capital gains on investments in intermediate and
long-term debt instruments 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 debt instruments 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 bonds 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 Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Investment grade at least 75%
intermediate and long-term
corporate bonds rated at
least Baa by Moody's or
another rating organiza-
tion**, securities issued or
guaranteed by the U.S.
Government***, mortgage
backed securities, asset-
backed securities,
collateralized mortgage
obligations and high quality
money market securities
- ----------------------------------------------------
Debt securities up to 25%
rated at least B by
Moody's or another rating
organization****
Preferred or convertible
preferred stock,
Convertible debt securities
- ----------------------------------------------------
Foreign securities, mostly up to 20%
foreign bonds that are of
the same quality as other
bonds purchased by this
Fund
- ----------------------------------------------------
Common stocks***** up to 10%
- ----------------------------------------------------
Futures and options up to 33%
- ----------------------------------------------------
Illiquid and restricted up to 10%
securities
- ----------------------------------------------------
*At time of purchase.
**For more information concerning ratings see
"Description of Corporate Bond Ratings" and
"Description of Commercial Paper Ratings" in
the Statement of Additional Information.
***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. For more information
see "Government Securities Fund" in the
Statement of Additional Information.
****The Fund currently intends to limit these
investments to no more than 5% of its total
assets. For the fiscal year ended May 31, 1998
approximately 3% of the Fund's average monthly
assets were invested in securities rated below
Baa determined on a dollar-weighted basis.
*****Only stocks acquired by conversion of income-
bearing securities or by exercising warrants
attached to income-bearing securities.
</TABLE>
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
21
<PAGE> 26
CAPITAL CONSERVATION FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 11.30% before
subtracting expenses of 0.54%. This represents a negative tracking difference of
1.05% from the Fund's benchmark; the Merrill Lynch Corporate Master Bond Index.
The Fund was impacted by the weak performance of two Asian holdings and the
uncertainty surrounding Columbia Healthcare.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE CAPITAL CONSERVATION FUND AND
THE MERRILL LYNCH CORPORATE MASTER INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------------
10.76% 6.41% 7.95%
- -----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
22
<PAGE> 27
GOVERNMENT
SECURITIES FUND
Fact Sheet
- -------------------------------------------------
Investment Goal INCOME AND POSSIBLE
GROWTH THROUGH
INVESTMENTS IN
INTERMEDIATE & LONG-
TERM GOVERNMENT
DEBT SECURITIES
- -------------------------------------------------
Investment Category INCOME
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER: Leon A. Olver, C.F.A., Vice President and Investment Officer
for the Series Company, is this Fund's Portfolio Manager. Mr. Olver was an
Assistant Vice President for Pulte Financial Companies, Denver, Colorado from
1984 to 1991. From 1991 to 1995 Mr. Olver worked for First Heights Bank,
Houston, Texas; he was Vice President, Assistant Treasurer 1991-1994; and Vice
President, Treasurer from 1994 to 1995. He is also the Portfolio Manager for the
Capital Conservation Fund and the Asset Allocation Fund.
INVESTMENT OBJECTIVE
Seeks high current income and protection of capital through investments in
intermediate and long-term U.S. Government debt securities.
INVESTMENT RISK
The securities the Fund invests in involve certain risks, including interest
rate risk, credit risk and risk associated with foreign securities. This may
cause the debt instruments 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 primarily invests in intermediate and long term U.S. Government and
government sponsored investments. The Fund may also use up to 20% of its assets
to make high quality foreign investments payable in U.S. dollars.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Debt securities issued or at least 80%
guaranteed by the U.S.
Government**, asset-
backed securities, high
quality domestic money
market securities
- ----------------------------------------------------
Mortgage-backed securities up to 25%
- ----------------------------------------------------
High quality foreign up to 20%
government securities and
high quality foreign money
market securities payable in
U.S. dollars
- ----------------------------------------------------
Futures and options up to 33%
Listed and unlisted call
and put options on
securities, stock indices
and currencies
- ----------------------------------------------------
Illiquid and restricted up to 10%
securities
- ----------------------------------------------------
*At time of purchase.
**U.S. Government securities are securities issued
or guaranteed by the U.S. Government and 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. For more information see "Government
Securities Fund" in the Statement of Additional
Information.
</TABLE>
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
23
<PAGE> 28
GOVERNMENT SECURITIES FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 11.14% before
subtracting expenses of 0.54%. This represents a negative tracking difference of
0.08% from the Fund's benchmark, the Lehman Brothers U.S. Treasury Composite
Index. Positions in callable agency notes and collateralized mortgage
obligations marginally lowered the Fund's yield.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE GOVERNMENT SECURITIES FUND AND
THE LEHMAN BROTHERS U.S. TREASURY COMPOSITE INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------------
10.60% 6.04% 7.96%
- -----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
24
<PAGE> 29
GROWTH FUND
Fact Sheet
- -------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS IN
SERVICE SECTOR
COMPANIES
- -------------------------------------------------
Investment Category GROWTH
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
T. Rowe Price
PORTFOLIO MANAGER: This Fund is managed by an Investment Advisory Committee
chaired by John H. Laporte. He has been chairman of this committee since it was
started in 1994. Mr. Laporte joined T. Rowe Price in 1976 and has been managing
investments since 1984.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
INVESTMENT RISK
This Fund invests in many companies that are small and/or new. These companies
face special risks because they may not have the financial strength to do well
during difficult times. The securities that the Fund invests in involve certain
risks, such as market 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 primarily in U.S. companies that are in the services industry.
Examples include: consumer services (retailing, entertainment/leisure, media
communications, restaurants/food
distribution) business services (healthcare, computer services), and financial
services (insurance, investment service). We believe if service companies
outpace overall economic growth, their stocks could generate above-average
returns. Currently, over 50% of the U.S. economy is made up of service
companies.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Common stocks and at least 75%
related securities, bonds,
preferred stock, convertible
stock of service industry
companies
- ----------------------------------------------------
Foreign securities up to 15%
- ----------------------------------------------------
Equity securities sold by up to 25%
non-service related
companies
- ----------------------------------------------------
Illiquid and restricted up to 15%
securities**
- ----------------------------------------------------
Futures and options up to 25%
- ----------------------------------------------------
High quality money market up to 100%
securities***
- ----------------------------------------------------
*At time of purchase.
**We may invest up to 15% of the Fund's assets in
illiquid securities. Restricted securities are
explained under "Types of Investments".
***If, for temporary defensive reasons, we invest
35% or more of the Fund's assets in money market
securities, it is likely 25% or more of the
Fund's assets will be invested in securities of
the banking industry. This type of concentration
in a single industry may increase the general
level of risk to the Fund.
</TABLE>
Additional information
about THE FUND'S
INVESTMENTS
is provided under
"Types of Investments".
25
<PAGE> 30
GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 28.25% before
subtracting expenses of 0.84%. This return represented a negative tracking
difference of 2.43% compared to the Fund's benchmark, the S&P 500 Index. The
Fund's focus on non-cyclical growth companies in service businesses, a strategy
that performs well in a slow growth economy, was not in favor as a surprisingly
strong economy drove favorable earnings reports in most industries.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE GROWTH FUND AND THE S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C>
- ----------------------------------------------------------------
1 YEAR SINCE INCEPTION*
- ----------------------------------------------------------------
27.41% 23.26%
- ----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the
annuity contract for mortality and expense guarantees, administrative fees or
surrender charges.
26
<PAGE> 31
GROWTH & INCOME
FUND
Fact Sheet
- -------------------------------------------------
Investment Goal GROWTH AND INCOME
THROUGH INVESTMENTS
IN STOCKS OR
SECURITIES CONVERTIBLE
INTO STOCKS
- -------------------------------------------------
Investment Category GROWTH
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Value Line
PORTFOLIO MANAGER: This Fund is managed by an Investment Committee comprised of
Value Line employees.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and, secondarily, current income
through investment in common stocks and equity-related securities.
INVESTMENT RISK
This Fund invests almost entirely in stocks. Stock values can rise and fall over
both short and long periods of time. However, we believe that our investment
strategy helps us to manage the risks the Fund is subject to such as market
risk, credit risk, interest rate risk and risk associated with foreign
securities. The Value Line Ranking System (the Ranking System) (discussed below)
does not eliminate these risks. The Sub-adviser believes that the Ranking System
provides objective standards for determining whether the market is undervaluing
or overvaluing a particular security. Using these rankings provides no assurance
that the Fund will perform better than the general market over any particular
period. For a discussion of 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 in stocks that provide long-term growth potential. As a
secondary goal, the Fund invests in securities that will provide current income.
We make investments which, according to the Value Line Ranking System, are
timely. Timely means that, in Value Line's opinion,
on a ranking scale of 1 (highest) to 5 (lowest), certain stocks in the Ranking
System are more likely to outperform the others over the coming year.
The Value Line Investment Survey covers about 1,700 stocks that are ranked for
Timeliness by the Ranking System. These rankings are updated weekly. Stocks
ranked 1 or 2 are expected to comprise the majority of the Fund's investments.
However, the Fund may invest in stocks ranked below 2 or hold stocks that have
fallen below 3, when the Sub-adviser decides it is appropriate.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Common stocks and equity generally 90-95%
related securities
bonds, preferred stock,
convertible stock and
warrants
- ----------------------------------------------------
Futures and options up to 25%
- ----------------------------------------------------
Foreign securities up to 20%
- ----------------------------------------------------
Illiquid and restricted up to 15%
securities**
- ----------------------------------------------------
High quality money market up to 100%
securities***
- ----------------------------------------------------
*At time of purchase.
**We may invest up to 15% of the Fund's assets in
illiquid securities, as long as no more than 5%
of the Fund's total assets are invested in
restricted securities that are also considered
illiquid.
Restricted investments are explained under
"Types of Investments".
***For temporary defensive reasons, we may invest
up to 100% of the Fund's assets in fixed income
securities such as U.S. Government securities,
bonds, commercial paper, repurchase agreements
and cash equivalents. We may do this when we
think economic and market conditions make it too
risky for us to follow our general guidelines.
</TABLE>
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
27
<PAGE> 32
GROWTH & INCOME FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 20.67% before
subtracting expenses of 0.80%. This return represented a negative tracking
difference of 10.01% compared to the Fund's benchmark, the S&P 500 Index. Large
capitalization stocks have led this market advance, with small and midcap stocks
lagging. This disparate performance impacted the Fund negatively as the small
and midcap stocks are well represented in the Value Line Timeliness Ranking
System. The Fund is managed using that system.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE GROWTH & INCOME FUND AND
THE S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C>
- ----------------------------------------------------------------
1 YEAR SINCE INCEPTION*
- ----------------------------------------------------------------
19.87% 20.19%
- ----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
28
<PAGE> 33
INTERNATIONAL EQUITIES
FUND
Fact Sheet
- -------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS TRACKING
THE EAFE INDEX
- -------------------------------------------------
Investment Category GROWTH
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER: This Fund attempts to track the performance of the EAFE
Index. William Trimbur, Jr. has been this Fund's Portfolio Manager since 1992.
He has been Vice President and Investment Officer for the Series Company since
1987. Mr. Trimbur is also the Portfolio Manager for the International Government
Bond Fund and the Social Awareness Fund.
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investments primarily in a
diversified portfolio of equity and equity related securities of foreign issuers
that, as a group, are expected to provide investment results closely
corresponding to the performance of the EAFE Index.
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. 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 sampling of about 100 foreign stocks of companies that are
either in the EAFE Index or are similar to stocks in the EAFE Index. These
stocks, as a group, should reflect EAFE's performance. Since it may not be
possible for this Fund to buy every stock included in this index or in the same
proportions, we buy as many stocks as are needed to closely track the
performance of the EAFE Index.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Stocks in the EAFE Index at least 65%**
- ----------------------------------------------------
Other investments not in no more than 35%
EAFE Index
Foreign equity and
related securities
including common
stocks, convertible
stocks, preferred stocks
and warrants
- ----------------------------------------------------
Futures and options no more than 33%
Covered put and call
options on foreign
currencies
Listed and unlisted put
and call options on
currency futures
Listed and unlisted
foreign currency
contracts
- ----------------------------------------------------
High quality foreign and up to 100%
domestic money market
securities**
- ----------------------------------------------------
Illiquid and restricted no more than 10%
securities
- ----------------------------------------------------
*At time of purchase.
**It is possible we may invest up to 100% of the
Fund's assets in short term, high quality, foreign
and domestic money market securities when we think
economic, political and market conditions in
foreign countries make it too risky to follow our
general guidelines.
</TABLE>
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
29
<PAGE> 34
INTERNATIONAL EQUITIES FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 10.32% before
subtracting expenses of 0.40%. This return represented a negative tracking
difference of 0.79% compared to the EAFE Index. The underperformance resulted
from low exposure to smaller capitalization stocks which did well in early 1998.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE INTERNATIONAL EQUITIES FUND AND
THE EAFE INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION*
- -----------------------------------------------------------------
9.92% 9.56% 5.04%
- -----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
30
<PAGE> 35
INTERNATIONAL
GOVERNMENT BOND
FUND
Fact Sheet
- -------------------------------------------------
Investment Goal INCOME AND POSSIBLE
GROWTH THROUGH
INVESTMENTS IN HIGH
QUALITY FOREIGN
GOVERNMENT DEBT
SECURITIES
- -------------------------------------------------
Investment Category INCOME
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER: William Trimbur, Jr. has been this Fund's Portfolio Manager
since the Fund was started in 1991. He has been Vice President and Investment
Officer for the American General Series Portfolio Company since 1987. Mr.
Trimbur is also the Portfolio Manager for the International Equities Fund and
the Social Awareness Fund.
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
INVESTMENT RISK
This Fund invests mostly in bonds that are issued by foreign governments.
Although these governments promise to pay the principal and interest due on
their bonds, it is still possible you may not get back all the money you invest.
For a discussion of the risks associated with foreign securities, credit risk,
and interest rate risk see "A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund aims to give you foreign investment opportunities primarily in high
quality government and government sponsored debt securities. Since the Fund
expects to concentrate in certain foreign government securities, it is
classified as a "non-diversified" investment company. Also, the Fund attempts to
have all of its investments payable in foreign currencies. The Fund may also
convert its cash to foreign currency. To help us choose which countries to
invest in we rely, in part, on the Salomon Brothers Non-U.S. Dollar World
Government Bond Index (Salomon Index).
The Salomon Index is a widely used, international government bond index. It
tracks the performance of government bonds sold in Austria, Australia, Belgium,
Canada, Denmark, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden,
and the United Kingdom. In addition, the Fund may invest in securities in other
countries, provided such securities are payable in the currencies of the
countries in the Salomon Index. We do not try to copy this index's performance.
Rather, we use it as a guide.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
High quality debt securities at least 65%
issued or guaranteed by
foreign governments
- ----------------------------------------------------
Other high quality debt no more than 35%
securities, including
Foreign corporate debt
and foreign money
market securities
sold in the countries
listed above
High quality domestic
money market
securities and debt
obligations issued or
guaranteed by the
U.S. Government
Foreign currency
exchange transactions
- ----------------------------------------------------
Futures and options no more than 33%
Covered put and
call options on
foreign currencies
Listed put and
call options on
currencies
Listed and
unlisted foreign
currency futures
contracts
- ----------------------------------------------------
Illiquid and restricted up to 10%
securities
- ----------------------------------------------------
*At time of purchase.
</TABLE>
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
31
<PAGE> 36
INTERNATIONAL GOVERNMENT BOND FUND
Fact Sheet
- --------------------------------------------------------------------------------
For temporary defensive reasons, we may invest up to 100% of the Fund's assets
in short term, high quality US money market securities, and US Government debt
securities. We may do this when we think economic, political or market
conditions in foreign countries make it too risky to follow our general
guidelines.
For the fiscal year ended May 31, 1998, the Fund had a return of 3.20% before
subtracting expenses of 0.55%. This represents a positive tracking difference of
0.82% compared to its benchmark, the Salomon Brothers Non-U.S. Dollar World
Government Bond Index. The yield was reduced by the strong dollar versus all
currencies in which the Fund is invested.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE INTERNATIONAL GOVERNMENT BOND FUND
AND THE SALOMON INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION*
- -----------------------------------------------------------------
2.65% 5.44% 7.61%
- -----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the
annuity contract for mortality and expense guarantees, administrative fees or
surrender charges.
32
<PAGE> 37
MIDCAP INDEX FUND
Fact Sheet
- -------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS TRACKING
THE S&P 400 MIDCAP
INDEX
- -------------------------------------------------
Investment Category GROWTH
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Bankers Trust
INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investments primarily in a
diversified portfolio of common stocks that, as a group, are expected to provide
investment results closely corresponding to the performance of the S&P MidCap
400 Index.
INVESTMENT RISK
The S&P MidCap 400 Index includes the stocks of many medium sized companies.
These companies usually do not have as much financial strength as very large
companies and so may not be able to do as well in difficult times. However,
because they are medium sized, they have more potential to grow, which means the
value of their stock may increase. The S&P MidCap 400 Index also includes stocks
of certain medium sized foreign companies. These stocks can be more risky than
large company stocks. An index fund holding nearly all of the 400 stocks in the
S&P MidCap 400 Index avoids the risk of individual stock selection and seeks to
provide the return of the medium-sized company sector of the market. On average
that return has been positive over many years but can be negative at certain
times. There is no assurance that a positive return will occur in the future.
Because this Fund invests in many of the stocks tracked by this Index, your
investment will experience similar changes in value and share similar risks such
as market risk and risk associated with foreign securities. For more information
about market risk and risk associated with foreign securities, see "A Word About
Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a sampling of stocks in the index that, as a group, should
reflect its performance. The stocks of the S&P 400 MidCap 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 character-istics
(e.g. price-to-book, price-to-earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the S&P 400 MidCap Index. The stocks held
by the Fund are weighted to make the Fund's aggregate investment characteristics
similar to those of the Index as a whole. Since it may not be possible for this
Fund to buy every stock included on this index or in the same proportions, we
rely on the aforementioned statistical technique to figure out, of the stocks
tracked by the index, how many and which ones to buy.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Stocks in the S&P MidCap at least 65%
400 Index
- ----------------------------------------------------
Foreign stocks (listed and no more than 20%
over-the-counter) in the
S&P MidCap 400 Index
- ----------------------------------------------------
Futures and options no more than 33%
- ----------------------------------------------------
Investments not in the S&P no more than 35%
MidCap 400 Index
Common stock and
related securities
High quality money
market securities
Illiquid and restricted
securities
- ----------------------------------------------------
*At time of purchase.
</TABLE>
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
33
<PAGE> 38
MIDCAP INDEX FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 29.98%, before
subtracting expenses of 0.36%. This represented a positive tracking difference
of 0.11% compared to the S&P MidCap 400 Index. The close tracking was the result
of low cost trading techniques, and the use of futures to maintain a fully
invested position.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE MIDCAP INDEX FUND AND
THE S&P MIDCAP 400 INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR SINCE 10/1/91*
- -----------------------------------------------------------------
29.62% 17.99% 17.61%
- -----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
*Effective October 1, 1991, the Fund's name was changed
from the Capital Accumulation Fund to the MidCap Index
Fund. Additionally, the investment objectives and
investment program for the Fund were changed.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
34
<PAGE> 39
MONEY MARKET FUND
Fact Sheet
- -------------------------------------------------
Investment Goal INCOME THROUGH
INVESTMENT IN SHORT-
TERM MONEY MARKET
SECURITIES
- -------------------------------------------------
Investment Category STABILITY
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER: Teresa Moro has been this Fund's Portfolio Manager and Vice
President and Investment Officer for the Series Company since 1991. From 1986 to
1991, Ms. Moro was an Assistant Vice President and Money Market Trader for the
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 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*
- ------------
*limited to 10% of the Fund's net assets
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
35
<PAGE> 40
MONEY MARKET FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 5.79%, before
subtracting expenses of 0.54%. This return represented a positive tracking
difference of 0.98% compared to the 30-Day Certificate of Deposit Primary
Offering Rate by New York City Banks.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE MONEY MARKET FUND
AND THE NYC 30 DAY CD RATE
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------------
5.25% 4.65% 5.45%
- -----------------------------------------------------------------
</TABLE>
[CHART]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
36
<PAGE> 41
SCIENCE &
TECHNOLOGY FUND
Fact Sheet
- -------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS IN
STOCKS OF COMPANIES
WHICH BENEFIT FROM
DEVELOPMENT OF
SCIENCE AND
TECHNOLOGY
- -------------------------------------------------
Investment Category GROWTH
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
T. Rowe Price
PORTFOLIO MANAGER: This Fund is managed by an Investment Advisory Committee
chaired by Charles A. Morris. He has been chairman of this committee since it
was started in 1994. Mr. Morris joined T. Rowe Price in 1987 as an investment
analyst. He has been managing investments since 1991.
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
INVESTMENT RISK
The Science & Technology Fund invests in many small and/or new companies that
develop and sell new products or services. These products or services may fail
or become quickly outdated. Also, small and new companies have limited product
lines and do not always have the financial strength to do well in difficult
times. Because these companies are small, their stock prices will go up and down
over the short-term, but may have greater growth potential.
The securities the Fund invests in involve certain risks, including market 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 companies that are expected to benefit from scientific
breakthroughs and advancements in technology. We believe that stocks of
companies that develop products using new technology or benefit from this
technology may greatly increase in value. These companies are in the following
industries: computer, pharmaceutical, defense, telecommunications and
electronics.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Common stocks of science at least 65%
and technology companies
- ----------------------------------------------------
Other equity-related up to 25%
securities of science and
technology companies
including convertible debt
securities, convertible
preferred stock
- ----------------------------------------------------
Foreign securities up to 30%
- ----------------------------------------------------
Illiquid and restricted up to 15%
securities**
- ----------------------------------------------------
Futures and options up to 25%
- ----------------------------------------------------
High quality money market up to 100%
securities***
- ----------------------------------------------------
</TABLE>
* At time of purchase.
** We may invest up to 15% of the Fund's assets in illiquid securities.
Restricted securities are explained under "Types of Investments".
*** For temporary defensive reasons, we may
invest up to 100% of the Fund's assets in cash and cash equivalents. We may
do this when we think economic and market conditions make it too risky for
us to follow our general guidelines.
Additional information
about THE FUND'S
INVESTMENTS
is provided under
"Types of Investments".
37
<PAGE> 42
SCIENCE & TECHNOLOGY FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 11.80% before
subtracting expenses of 0.95%. This represents a negative tracking difference of
18.88% compared to the Fund's benchmark, the S&P 500 Index. The market
performance for large capitalization stocks caused much of the negative tracking
as the Fund tends to hold significant amounts of small and midcap stocks. A
number of valuation compressions due to volatile market conditions, also weighed
on results.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE SCIENCE & TECHNOLOGY FUND
AND THE S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C>
- ----------------------------------------------------------------
1 YEAR SINCE INCEPTION*
- ----------------------------------------------------------------
10.85% 26.44%
- ----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
38
<PAGE> 43
SMALL CAP INDEX
FUND
Fact Sheet
- -------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS TRACKING
THE RUSSELL 2000
INDEX
- -------------------------------------------------
Investment Category GROWTH
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Bankers Trust
INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investment primarily in a diversified
portfolio of common stocks that, as a group, are expected to provide investment
results closely corresponding to the performance of the Russell 2000 Index.
INVESTMENT RISK
The Russell 2000 Index includes many small U.S. companies. Some of these
companies often do not have the financial strength needed to do well in
difficult times. Also, they often sell limited numbers of products, which can
make it harder for them to compete with medium and large companies. However,
because they are small, their stock prices may fluctuate more over the short-
term, but they have more potential to grow. This means their stock value may
offer greater potential for appreciation. An index fund holding a large sampling
of the 2,000 stocks in the Russell 2000 Index avoids the risks of individual
stock selection and seeks to provide the return of the smaller-sized company
sector of the market. On average that return has been positive over the years
but has been negative at certain times. There is no assurance that a positive
return will occur in the future.
Because this Fund invests in many of the stocks tracked by this Index, your
investment will experience similar changes in value and share similar risks such
as market risk and risk associated with foreign securities. For more information
about market risk and risk associated with foreign securities, see "A Word About
Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a sampling of stocks in the index that, as a group, should
reflect its performance. The stocks of the Russell 2000 Index to be included in
the Fund will be selected utilizing a statistical sampling technique known as
"optimization." This process selects stocks for the Fund so that various
industry weightings, market capitalizations and fundamental
characteristics (e.g. price-to-book, price-to-earnings, debt-to-asset ratios and
dividend yields) closely approximate those of the Russell 2000 Index. The stocks
held by the Fund are weighted to make the Fund's aggregate investment
characteristics similar to those of the Index as a whole. Since it may not be
possible for this Fund to buy every stock included on this index or in the same
proportions, we rely on the aforementioned statistical technique to figure out,
of the stocks tracked by the index, how many and which ones to buy.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Stocks in the Russell 2000 at least 65%
Index
- ----------------------------------------------------
Foreign stocks (listed and no more than 20%
over-the-counter) in the
Russell 2000 Index
- ----------------------------------------------------
Futures and options no more than 33%
- ----------------------------------------------------
Investments not in the no more than 35%
Russell 2000 Index
Common stock and
related securities
High quality money
market securities
Illiquid and restricted
securities
- ----------------------------------------------------
*At time of purchase.
</TABLE>
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
39
<PAGE> 44
SMALL CAP INDEX FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 21.73%, before
subtracting expenses of 0.39%. This represented a positive tracking difference
of 0.48% compared to the Russell 2000 Index. The Fund uses futures to maintain a
fully invested position to track its index but incurs fees and charges to
acquire securities which created a variance from the index.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE SMALL CAP INDEX FUND AND
THE RUSSELL 2000 INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION*
- -----------------------------------------------------------------
21.34% 15.43% 15.31%
- -----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the
annuity contract for mortality and expense guarantees, administrative fees or
surrender charges.
40
<PAGE> 45
SOCIAL AWARENESS
FUND
Fact Sheet
- -------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS IN
STOCKS OF COMPANIES
MEETING SOCIAL
CRITERIA OF THE FUND
- -------------------------------------------------
Investment Category GROWTH
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
PORTFOLIO MANAGER: William T. Trimbur, Jr. has been this Fund's Portfolio
Manager since September 1998. He has been Vice President and Investment Officer
for the American General Series Portfolio Company since 1987. Mr. Trimbur is
also the Portfolio Manager for the International Equities Fund and International
Government Bond Fund. Prior to Mr. Trimbur, this Fund was managed by John W.
Mossbarger.
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
The Fund invests only in companies which meet its social criteria. 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
Most of the companies this Fund invests in are included in the S&P 500 Index.
This Fund's degree of market risk is slightly greater than the Stock Index
Fund's degree of risk. This is because its investments are more limited by its
investment objective. This Fund may also experience market risk, and risks
associated with foreign securities. For a discussion of these risks see the
Stock Index Fund's Fact Sheet and "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.
INVESTMENT STRATEGY
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Common stocks of companies at least 80%
meeting Fund's social criteria
- ----------------------------------------------------
Other types of securities of up to 20%
companies meeting social
criteria including
Foreign securities
Preferred stock
Convertible securities
High quality money market
securities and warrants
- ----------------------------------------------------
Futures and options up to 33%
- ----------------------------------------------------
Illiquid and restricted up to 10%
securities
- ----------------------------------------------------
*At time of purchase.
</TABLE>
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 Directors 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.
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
41
<PAGE> 46
SOCIAL AWARENESS FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 30.88% before
subtracting expenses of 0.54%. This resulted in a positive tracking difference
of 0.20% compared to the Fund's benchmark, the S&P 500 Index. Concentration on
the larger capitalization growth sectors and avoidance of the volatile tobacco
industry aided performance.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE SOCIAL AWARENESS FUND
AND THE S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION*
- -----------------------------------------------------------------
30.34% 21.44% 16.16%
- -----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
42
<PAGE> 47
STOCK INDEX FUND
Fact Sheet
- -------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS TRACKING
THE S&P 500 INDEX
- -------------------------------------------------
Investment Category GROWTH
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
VALIC
INVESTMENT SUB-ADVISER
Bankers Trust
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the S&P 500 Index.
INVESTMENT RISK
The S&P 500 Index includes the stocks of many large, well-established companies.
These companies usually have the financial strength to weather difficult
financial times. However, the value of any stock can rise and fall over short
and long periods of time. This Fund which holds nearly all of the 500 stocks in
the S&P 500 Index avoids the risk of individual stock selection and seeks to
provide the return of the large company sector of the market. In the past that
return has been positive over many years but can be negative at certain times.
There is no assurance that a positive return will occur in the future.
Because the Fund invests in many of the stocks tracked by this Index, your
investment will experience similar changes in value and share similar risks,
such as market risk and risk associated with foreign securities. For more
information about market risk and risk associated with foreign securities, see
"A Word About Risk" in this prospectus.
INVESTMENT STRATEGY
The Fund invests in a sampling of stocks in the index that, as a group, should
reflect its performance. The stocks of the S&P 500 Index to be included in the
Fund will be selected utilizing a statistical sampling technique known as
"optimization." This process selects stocks for the Fund so that various
industry weightings, market capitalizations and fundamental
characteristics (e.g. price-to-book, price-to-earnings, debt-to-asset ratios and
dividend yields) closely approximate those of the S&P 500 Index. The stocks held
by the Fund are weighted to make the Fund's aggregate investment characteristics
similar to those of the Index as a whole. Since it may not be possible for this
Fund to buy every stock included on this index or in the same proportions, we
rely on the aforementioned statistical technique to figure out, of the stocks
tracked by the index, how many and which ones to buy.
We follow the guidelines listed below for making the primary investments for the
Fund.
<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------------
<S> <C>
Stocks in the S&P 500 at least 65%
Index
- ----------------------------------------------------
Foreign stocks (listed and no more than 20%
over-the-counter) in the
S&P 500 Index
- ----------------------------------------------------
Futures and options no more than 33%
- ----------------------------------------------------
Investments not in the S&P no more than 35%
500 Index
Common stock and
related securities
High quality money
market securities
Illiquid and restricted
securities
- ----------------------------------------------------
*At time of purchase.
</TABLE>
Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments".
43
<PAGE> 48
STOCK INDEX FUND
Fact Sheet
- --------------------------------------------------------------------------------
For the fiscal year ended May 31, 1998, the Fund had a return of 30.61%, before
subtracting expenses of 0.31%. This return represented a negative tracking
difference of 0.07% compared to the S&P 500 Index(C). A combination of careful
purchasing of securities, low cost trading techniques, and the use of futures to
maintain a fully invested position resulted in the close tracking of the Index.
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE STOCK INDEX FUND AND THE S&P 500 INDEX
AVERAGE ANNUAL TOTAL RETURN -- FUND
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------
1 YEAR 5 YEAR 10 YEAR
- -----------------------------------------------------------------
30.30% 21.75% 17.79%
- -----------------------------------------------------------------
</TABLE>
[CHART]
FISCAL YEAR ENDED MAY 31
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.
44
<PAGE> 49
TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------
STOCKS -- also called equity securities
If you own a share of stock, you own a part of the company that issued it.
Companies sell stock to get the money they need to grow.
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 Money Market Fund in this prospectus may invest in
common, preferred, and convertible preferred stock in accordance with their
investment strategies.
BONDS -- also called debt securities
Bonds 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 the Funds may invest in are as follows: U.S. Government bonds
and investment grade corporate bonds (the Capital Conservation Fund may also
invest in below investment grade bonds). For a description of 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 rated Ba or B by Moody's Investors Services, Inc. (generally known as
lower-medium and lower-quality bonds) are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and principal
in accordance with the terms of the obligation. While such bonds will likely
have some quality and protective characteristics, these are outweighed by
uncertainties or risk exposures to adverse conditions. Lower-medium and
lower-quality bonds may be more susceptible to real or perceived adverse
economic and individual corporate developments than would investment grade
bonds.
For example, a projected economic downturn or the possibility of an increase in
interest rates could cause a decline in high-yield, high-risk bond 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 secondary
trading market for lower-medium and lower-quality 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-grade portfolio
securities.
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 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 may invest in loan participations.
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.
For more information about
LOAN PARTICIPATIONS see
the Statement of Additional
Information.
45
<PAGE> 50
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MORTGAGE-RELATED SECURITIES
Mortgage-related securities include, but are not limited to, mortgage
pass-through securities, collateralized mortgage obligations and commercial
mortgage-backed securities.
Mortgage Pass-Through Securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property.
Payments of interest and principal on these securities are generally made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities). Mortgage-related securities are
subject to interest rate risk and prepayment risk.
Payment of principal and interest on some mortgage pass-through securities may
be guaranteed by the full faith and credit of the U.S. Government (i.e.,
securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities
of the U.S. Government (i.e., securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, private mortgage insurance companies and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. CMOs may be collateralized by whole mortgage loans or by portfolios
of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are
structured into multiple classes, with each class bearing a different stated
maturity. CMOs that are issued or guaranteed by the U.S. Government or by any of
its agencies or instrumentalities will be considered U.S. Government securities
by the Funds, while other CMOs, even if collateralized by U.S. Government
securities, will have the same status as other privately issued securities for
purposes of applying a Fund's diversification tests.
Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities is relatively small compared to
the market for residential single-family mortgage-backed securities. Many of the
risks of investing in commercial mortgage-backed securities reflect the risks of
investing in the real estate securing the underlying mortgage loans. These risks
reflect the effects of local and other economic conditions on real estate
markets, the ability of tenants to make loan payments, and the ability of a
property to attract and retain tenants. Commercial mortgage-backed securities
may be less liquid and exhibit greater price volatility than other types of
mortgage-related or asset-backed securities.
Mortgage-Related Securities include mortgage pass-through securities described
above and securities that directly or indirectly represent a participation in,
or are secured by and payable from, mortgage loans on real property, such as
mortgage dollar rolls, CMO residuals or stripped mortgage-backed securities.
These securities may be structured in classes with rights to receive varying
proportions of principal and interest.
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. For more
information about Rule 144A securities see the Statement of Additional
Information. 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
in illiquid securities. In addition, investing in Rule 144A securities could
have the effect of increasing the level of Fund illiquidity to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities.
All the Funds may buy illiquid and restricted securities, but are restricted as
to how much money they may invest in them. See "Limitations" below.
FOREIGN SECURITIES
All of the funds may invest in securities of foreign issuers. Such foreign
securities may be denominated in foreign currencies, except with respect to the
Government Securities Fund and the Money Market Fund which may only invest in
U.S. dollar-denominated securities of foreign issuers.
For more information about
MORTGAGE-RELATED SECURITIES,
see the Statement of
Additional Information.
For more information about
ILLIQUID AND RESTRICTED
SECURITIES see the
Statement of Additional
Information.
For more information about
FOREIGN SECURITIES, see the
Statement of Additional
information.
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<PAGE> 51
- --------------------------------------------------------------------------------
Securities of foreign issuers include obligations of foreign branches of U.S.
banks and of foreign banks, common and preferred stocks, fixed income securities
issued by foreign governments, corporations and supranational organizations, and
American Depository Receipts, European Depository Receipts and Global Depository
Receipts ("ADRs", "EDRs" and "GDRs"). See "ADRs" below.
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. We consider ADRs
foreign securities. ADRs in which a Fund may invest may be sponsored or
unsponsored. There may be less information available about foreign issuers of
unsponsored ADRs.
FOREIGN CURRENCY
All of the Funds, except the Government Securities 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. Funds may also buy foreign
currencies to pay for foreign securities bought for the Fund.
The Funds, except the Money Market Fund and the Government Securities Fund, may
purchase forward foreign currency exchange contracts to protect against a
decline in the value of the U.S. dollar.
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 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 Standard & Poor's or another
nationally recognized rating service or if unrated, deemed high quality by
VALIC.
These high quality money market securities include:
- - 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
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, except the Money Market Fund, may buy two types of derivatives:
futures and 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.
For more information about
FOREIGN CURRENCY
EXCHANGE TRANSACTIONS,
see the Statement of
Additional Information.
For more information about
WHEN-ISSUED SECURITIES,
see the Statement of
Additional Information.
For more information on
put and call OPTIONS AND
FINANCIAL FUTURES
CONTRACTS AND OPTIONS,
see the Statement of
Additional information.
For more information about
MONEY MARKET SECURITIES
OF FOREIGN ISSUERS the
Funds may purchase, see
the Statement of Additional
Information.
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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.
Futures Contracts
A futures contract is an agreement between a buyer and a seller to buy or sell
an investment on a future date at a price the buyer and seller set today. The
buyer thinks the price will go up between now and then, and the seller thinks
the price will go down or they may just want to receive today's price because
they do not know which way prices are going to go.
All of the Funds, except the Money Market Fund, may enter into certain types of
futures contracts. The Funds use futures contracts as a tool to earn more money,
and to protect against rising or falling prices in the stock and bond markets.
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 Money Market Fund can invest in these types of
futures and options:
- - Write 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 covered call options and purchase exchange traded put and call options
on financial futures contracts.
- - Write covered call options and purchase non-exchange traded call and put
options on financial futures contracts.
The Capital Conservation Fund, the Government Securities Fund, the International
Equities Fund, the International Government Bond Fund and the Science &
Technology Fund may write and purchase put and call options on securities and
stock indices that are not traded on an exchange.
REPURCHASE AGREEMENTS
A repurchase agreement requires the seller of the security to buy it back at a
set price at a certain time. If a Fund enters into a repurchase agreement, it is
really making a short term loan (usually for one day to one week). The Funds 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 four basic types of investment risk you may be subject to:
- - Market Risk
- - Credit (Financial) Risk
- - Interest Rate Risk
- - Risk Associated with Foreign Securities
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 four basic types of investment risks 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.
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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 Standard & Poor's (two nationally recognized bond rating services),
and on VALIC'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.
All 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 in the Statement of Additional
Information. 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.
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.
Risk Associated with Foreign Securities
Each of the Funds may, subject to limits stated in each Fund's Fact Sheet,
invest in foreign securities including ADRs. A foreign security is a security
issued by an entity domiciled or incorporated outside of the U.S.
There are three principal risks of owning foreign securities:
Political risk -- the chance of a change in government and the assets of the
company being taken away.
Currency risk -- a change in the value of the foreign currency compared to
the dollar. If the foreign currency declines in value, your investment valued in
U.S. dollars will decline even if the value of the foreign stock or bond is
unchanged.
Limited information -- foreign companies generally are not regulated to the
degree U.S. companies are and may not report all of the information we are used
to getting. To minimize taxes they may not report some income or they may report
higher expenses.
INVESTMENT PRACTICES
Limitations
Each Fund has limitations on the percentage of its assets that it may allocate
to certain investments. These limits are determined by the Fund's investment
objectives and risk level.
For example, the Stock Index Fund's investment goal is growth through
investments tracking the S&P 500 Index, an index that includes stocks of
domestic and foreign companies. As a result, this Fund may invest no more than
35% of its assets in stocks that are not part of the S&P 500 Index.
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 Growth Fund and the Science & Technology Fund may lend up
to 30% of its total assets to broker-dealers and other financial institutions to
earn more money for the Fund. The Growth Fund and the Science & Technology Fund
may lend up to 33 1/3% of their total assets. 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 Directors.
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.
For more information about
FOREIGN SECURITIES, see
the Statement of Additional
Information.
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<PAGE> 54
About the Series Company
- --------------------------------------------------------------------------------
SERIES COMPANY SHARES
The Series Company is an open-end mutual fund and may offer shares of the Funds
for sale at any time. However, the Series Company offers 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.
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. 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 Directors
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 Directors 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 on 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 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:
Step 1:
<TABLE>
<S> <C> <C>
Total value of the
Fund's assets*
(including money owed
to the fund but not yet The Fund's
collected) = Total
- -- The Fund's liabilities Net Asset Value
(including money owed
by the Fund but not yet
paid)
Step 2:
The Fund's total net
asset value (from
Step 1) NET ASSET VALUE
/ The total number of the = PER SHARE
Fund's shares that are
outstanding.
</TABLE>
* The Series Company uses the fair market value of 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 Directors or its delegate
will, in good faith, estimate fair market value of these investments.
When Net Asset Value is Calculated
The Series Company calculates the net asset value of each Fund's shares at
approximately 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.)
THE VARIABLE ANNUITY
MARKETING COMPANY
(VAMCO) acts as the
Series Company's
distributor.
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<PAGE> 55
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The separate accounts can buy, sell, and transfer shares in the Funds only on
days that the Series Company calculates the net asset value of each Fund's
shares. Through VAMCO, the separate accounts send orders to the Series Company
to buy, sell, or transfer shares based on requests they receive from
participants.
DIVIDENDS AND CAPITAL GAINS
Dividends from Net Investment Income
Net investment income generally includes stock dividends received and bond
interest earned less expenses paid by the Fund. Each Fund pays dividends from
net investment income occasionally. Dividends from net investment income are
automatically reinvested for you into additional shares of the Fund. The Money
Market Fund pays dividends daily and all other Funds pay dividends once a month.
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 Investment Company Act of 1940 ("the 1940 Act").
All of the Funds except International Government Bond Fund, Growth Fund and
Science & Technology Fund may 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 Growth Fund and the Science & Technology Fund may not invest more than 5% of
their total assets in one company and more than 10% of their total assets in the
voting securities of one company as long as the total of these investments does
not exceed 25% of total assets.
The International Government Bond Fund is "non-diversified" under the 1940 Act.
This means it can invest more of its assets in fewer issuers and for this reason
may be riskier than the other Funds. This Fund may invest up to 25% of its total
assets in a single issuer as long as those investments representing over 5% of
total assets in one issuer do not exceed 50% of total assets of the 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).
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TAXES
By paying out all earnings as described in the Dividends and Capital Gains
section above and by complying with the diversification requirements under the
Code, each Fund expects to qualify as a Registered Investment Company (RIC)
under Subchapter M of the Code. By qualifying as a RIC the Fund will not have to
pay federal income taxes.
VOTING RIGHTS
One Vote Per Share
Each outstanding share has one vote on all matters that shareholders vote on. As
a participant, 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 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.
Shareholder Meetings
Maryland 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 Directors if the
shareholders have elected less than a majority of the Directors.
Shareholders may call a meeting to remove a Director from the Board if at least
10% of the outstanding shares vote to have this meeting. Then, at the meeting,
at least 2/3 of all the outstanding shares of all the Funds must vote in favor
of removing the Director.
Shareholder Communications
The Series Company will assist in shareholder communications.
YEAR 2000 RISKS
VALIC is in the process of modifying its systems to achieve Year 2000 readiness.
This endeavor is directed and managed by VALIC and monitored by the parent
company, American General Corporation. VALIC has developed clearly defined and
documented plans that have been implemented to minimize the risk of significant
negative impact on its operations.
These plans include the following activities: (1) perform an inventory of
VALIC's information technology and non-information technology systems; (2)
assess which items in the inventory may expose VALIC to business interruptions
due to Year 2000 issues; (3) test systems for Year 2000 readiness; (4) reprogram
or replace systems that are not Year 2000 ready; and (5) return the systems to
operation. VALIC expects to complete the forgoing activities for all critical
business systems relevant to the Series Company by December 1998. Accordingly,
VALIC has no contingency plans because any open Year 2000 issues may be
addressed in 1999.
In addition, the Series Company and VALIC have business relationships with
various third parties, each of which must also be Year 2000 ready. Therefore,
VALIC's plans also include assessing and attempting to mitigate the risks
associated with the potential failure of third parties to achieve Year 2000
readiness. Due to the various stages of the third parties' Year 2000 readiness,
VALIC's efforts in this regard will extend through 1999.
Through June 30, 1998 VALIC has incurred and expensed $13 million (pretax)
related to Year 2000 readiness, including $6.5 million incurred during the first
six months of 1998. VALIC currently anticipates that it will incur future costs
of $3 million (pretax) for additional internal staff, third party vendors, and
other expenses to achieve Year 2000 readiness.
Due to the magnitude and complexity of this project, risks and uncertainties
exist. If conversion of VALIC's systems is not completed on a timely basis (due
to non-performance by significant third-party vendors or other unforeseen
circumstances), or if significant third parties fail to achieve Year 2000
readiness on a timely basis, the Year 2000 issue could have a material adverse
impact on the operations of VALIC and the Series Company.
EURO CONVERSION
The planned introduction of a single European currency, the Euro, on January 1,
1999 for participating European nations in the Economic and Monetary Union (EMU)
presents unique risks and uncertainties for investors in those countries. The
European Union currently consists of: Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, Sweden and the United Kingdom. The risks associated with the introduction
of the Euro include: (i) whether the payment and operational systems of banks
and
See the Statement of
Additional information and
your contract prospectus
for further tax discussions.
You should also CONSULT
YOUR TAX ADVISOR before
investing.
52
<PAGE> 57
other financial institutions will be ready by the scheduled launch date; (ii)
the creation of suitable clearing and settlement payment schemes for the Euro;
(iii) the legal treatment of outstanding financial contracts after January 1,
1999 that refer to existing currencies rather than the Euro; (iv) the
fluctuation of the Euro relative to non-Euro currencies during the transition
period from January 1, 1999 to December 31, 2000 and beyond; and (v) whether the
interest rate, tax and labor regimes of the European countries participating in
the Euro will converge over time. Further, the conversion of the currencies of
other EMU countries, such as the United Kingdom, and the admission of other
countries, including Central and Eastern European countries, to the EMU could
adversely affect the Euro. These or other factors may cause market disruptions
before or after the introduction of the Euro and could adversely affect the
value of foreign securities and currencies held by the Funds. The Euro
conversion also raises tax issues such as whether the conversion of a non-Euro
currency to the Euro creates a "realization event" for a financial instrument
denominated in the non-Euro currency and the appropriate time to recognize any
gain or loss. Depending on how the tax authorities rule on these issues, the
Euro conversion may result in taxable gain or loss on non-Euro denominated
instruments that have not been sold by the Funds at the time of conversion.
Additionally, while it is not possible to predict the impact of the Euro
implementation plan on the Funds, the transition to the Euro may change the
economic environment and behavior of investors, particularly in European
markets. For example, investors may begin to view those countries participating
in the EMU as a single entity, and VALIC and the Sub-advisers may need to adapt
their investment strategies accordingly. The process of implementing the Euro
also may adversely affect financial markets world-wide and may result in changes
in the relative strength and value of the U.S. dollar or other major currencies.
Also, the transition to the Euro is likely to have a significant impact on
fiscal and monetary policy in the participating countries and may produce
unpredictable effects on trade and commerce generally. These resulting
uncertainties could create increased volatility in financial markets world-wide.
REPORTS
The Series Company sends Annual Reports containing audited financial statements,
Semi-Annual Reports containing unaudited financial statements, and proxy
materials to 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.
53
<PAGE> 58
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.
Please send me a free copy of the Statement of Additional Information for
American General Series Portfolio Company.
<TABLE>
<S> <C>
Name: ________________________________________ GA. #: ______________________________
Address: ____________________________________ Policy #: ______________________________
Social Security Number: ____________________
</TABLE>
54
<PAGE> 59
INVESTMENT ADVISER:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
INVESTMENT SUB-ADVISERS:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty St., 36th Floor
New York, New York 10006
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Value Line, Inc.
220 East 42nd Street, 6th Floor
New York, New York 10017-5981
DISTRIBUTOR:
The Variable Annuity Marketing Company
2929 Allen Parkway
Houston, Texas 77019
CUSTODIAN:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS:
Ernst & Young LLP
1221 McKinney, Suite 2400
Houston, Texas 77010
TRANSFER AND SHAREHOLDER SERVICE AGENT:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
DIRECTORS AND OFFICERS
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
Norman Hackerman Thomas L. West, Jr. Chairman
John Wm. Lancaster John A. Graf President
Ben H. Love Craig R. Rodby Vice Chairman
Joe C. Osborne Michael G. Atnip Executive Vice President
F. Robert Paulsen Joe C. Osborne Executive Vice President
Peter V. Tuters Peter V. Tuters Senior Investment Officer
R. Miller Upton Maruti D. More Vice President -- Investments
Thomas L. West, Jr. Teresa S. Moro Vice President and
Investment Officer
Leon A. Olver Vice President and
Investment Officer
William Trimbur, Jr. Vice President and
Investment Officer
Brent C. Nelson Vice President
Cynthia A. Toles Vice President and
Secretary
Nori L. Gabert Vice President and
Assistant Secretary
Cynthia A. Gibbons Assistant Vice President
Gregory R. Seward Treasurer
Jaime M. Sepulveda Assistant Treasurer
Earl E. Allen, Jr. Assistant Treasurer
Kathryn A. Pearce Controller
Donna L. Hathaway Assistant Controller
</TABLE>
PRINTED MATTER
PRINTED IN U.S.A. RECYCLED PAPER
VA 9017 VER 10/97 LOGO
<PAGE> 60
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
ASSET ALLOCATION FUND
CAPITAL CONSERVATION FUND
GOVERNMENT SECURITIES FUND
GROWTH FUND
GROWTH & INCOME FUND
INTERNATIONAL EQUITIES FUND
INTERNATIONAL GOVERNMENT BOND FUND
MIDCAP INDEX FUND
MONEY MARKET FUND
SCIENCE & TECHNOLOGY FUND
SMALL CAP INDEX FUND
SOCIAL AWARENESS FUND
STOCK INDEX FUND
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------
FORM N-1A PART B
OCTOBER 1, 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 (the "Company"). It should be read in conjunction with the
Prospectus. The Statement of Additional Information and the related Prospectus
are both dated October 1, 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
Company or The Variable Annuity Marketing Company ("VAMCO") at 2929 Allen
Parkway, Houston, Texas 77019. All inquiries regarding variable annuity
contracts issued by American General Life Insurance Company ("AGL"), the
successor to California-Western States Life Insurance Company ("Cal-West"),
should be directed in writing to AGL's Annuity Administration Department, 2727-A
Allen Parkway, Houston, Texas 77019-2191 or by calling 1-800-813-5065. Shares in
the Company are available to the public only through the purchase of certain
variable annuity contracts issued and employee thrift plans maintained by VALIC
and its affiliates.
1
<PAGE> 61
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History............................. 4
Additional Information Regarding Certain Funds.............. 5
International Equities Fund............................... 5
Government Securities Fund................................ 5
Asset Allocation Fund..................................... 6
Performance and Yield Information........................... 7
Fundamental Investment Restrictions......................... 10
Fundamental Investment Restrictions Applicable to All
Funds.................................................. 10
MMF Investment Restrictions............................... 11
AAF, CCF, GSF, SIF, IEF, MIF and SCIF Investment
Restrictions........................................... 11
GIF Investment Restrictions............................... 11
GF and STF Investment Restrictions........................ 11
SAF Investment Restrictions............................... 12
IGBF Investment Restrictions.............................. 12
Investment Practices........................................ 13
Repurchase Agreements..................................... 13
Lending Portfolio Securities.............................. 13
Convertible Securities.................................... 14
Foreign Securities........................................ 14
Foreign Currency Exchange Transactions.................... 15
Bank Obligations.......................................... 15
When Issued Securities.................................... 16
Debt Securities........................................... 16
Emerging Markets.......................................... 17
Asset-Backed Securities................................... 18
Lower Rated Debt Securities............................... 18
Real Estate Securities and Real Estate Investment Trusts
("REITs").............................................. 19
Warrants.................................................. 19
Swap Agreements........................................... 19
Eurodollar Obligations.................................... 21
Mortgage-Related Securities............................... 21
Commercial Mortgage-Backed Securities..................... 23
Other Mortgage-Related Securities......................... 23
Loan Participations....................................... 24
Adjustable Rate Securities................................ 25
Illiquid Securities....................................... 25
Rule 144A Securities...................................... 25
Options on Securities and Securities Indices.............. 26
Writing Covered Call and Put Options and Purchasing Call
and Put Options........................................ 27
Financial Futures Contracts............................... 29
Options on Financial Futures Contracts.................... 31
Certain Additional Risks of Options and Financial Futures
Contracts.............................................. 31
Limitations............................................... 33
Money Market Securities of Foreign Issuers................ 33
Investment Adviser.......................................... 34
Investment Sub-Advisers..................................... 36
Portfolio Transactions and Brokerage........................ 38
</TABLE>
2
<PAGE> 62
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Offering, Purchase, and Redemption of Fund Shares........... 41
Determination of Net Asset Value............................ 42
Calculation of Yield for the Money Market Fund.............. 43
Accounting and Tax Treatment................................ 44
Calls and Puts............................................ 44
Financial Futures Contracts............................... 44
Subchapter M of the Internal Revenue Code of 1986......... 44
Section 817(h) of the Code................................ 45
Other Information........................................... 45
Shareholder Reports....................................... 45
Voting and Other Rights................................... 45
Custody of Assets......................................... 46
Index Funds............................................... 47
Description of Corporate Bond Ratings..................... 48
Description of Commercial Paper Ratings................... 48
Independent Auditors...................................... 49
Directors and Officers...................................... 50
Compensation of Directors and Certain Officers.............. 53
Financial Statements........................................ 53
</TABLE>
3
<PAGE> 63
GENERAL INFORMATION AND HISTORY
American General Series Portfolio Company (the "Company") was incorporated
in Maryland on December 7, 1984, 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 Investment Advisory Agreements with the Company
and subject to the authority of the Company's Board of Directors, VALIC serves
as the Company's investment adviser and conducts the business and affairs of the
Company. Additionally, VALIC has engaged an investment sub-adviser to provide
investment sub-advisory services for the Stock Index Fund, the MidCap Index
Fund, the Small Cap Index Fund, the Growth Fund, the Growth & Income Fund, and
the Science & Technology Fund, subject to VALIC's control, direction and
supervision. The Company consists of thirteen 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 common stock. The Company issues shares of common stock of
each Fund to registered and unregistered separate accounts of VALIC and its
affiliates to fund variable annuity contracts (the "Contracts"). Currently the
Company acts as an investment vehicle for assets of VALIC's Separate Account A,
and AGL Separate Account A and Separate Account D, each of which is a unit
investment trust registered as an investment company under the 1940 Act, and AGL
Separate Account B, a unit investment trust that is exempt from registration 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 Company and VALIC have Codes of Ethics which establish for their
officers, directors and certain employees procedures and restrictions as to
those individual's personal investment trading activities.
<TABLE>
<CAPTION>
DATE OPERATIONS
DATE OF DATE SEED COMMENCED
INCORPORATION OR MONEY WAS (BY ISSUANCE OR
BOARD APPROVAL FIRST PROVIDED AVAILABILITY
NAME OF FUND FOR ORGANIZATION TO THE COMPANY OF SHARES)
------------ ---------------- -------------- ---------------
<S> <C> <C> <C>
Asset Allocation Fund ("AAF")*............. 02-22-83 08-08-83 09-06-83
Capital Conservation Fund ("CCF").......... 12-07-84 12-16-85 01-16-86
Government Securities Fund ("GSF")......... 12-07-84 12-16-85 01-16-86
Growth Fund ("GF")......................... 01-25-94 04-29-94 04-29-94
Growth & Income Fund ("GIF")............... 01-25-94 04-29-94 04-29-94
International Equities Fund ("IEF")........ 07-18-89 09-29-89 10-02-89
International Government Bond Fund
("IGBF")................................. 07-30-91 10-01-91 10-01-91
MidCap Index Fund ("MIF").................. 03-16-82 08-30-82 10-13-82
Money Market Fund ("MMF").................. 12-07-84 12-16-85 01-16-86
Science & Technology Fund ("STF").......... 12-17-93 04-29-94 04-29-94
Small Cap Index Fund ("SCIF").............. 10-28-91 05-01-92 05-01-92
Social Awareness Fund ("SAF").............. 07-18-89 09-29-89 10-02-89
Stock Index Fund ("SIF")................... 02-02-87 04-20-87 04-20-87
</TABLE>
- ---------------
*The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
The MidCap Index Fund and the Asset Allocation Fund are the successors to
Capital Accumulation Fund, Inc. and Timed Opportunity Fund, Inc., respectively,
which were separately registered open-end diversified management investment
companies under the 1940 Act, pursuant to a reorganization entered into on
September 25, 1985. The MidCap Index Fund effected a change in its name and
investment objective, investment program and one of its restrictions as of
October 1, 1991. The Asset Allocation Fund effected a change in its name from
the Timed Opportunity Fund, effective as of October 1, 1997. In addition, the
Quality Growth Fund was combined into the Stock Index Fund, by means of a
reclassification of its shares, effective May 1, 1992.
4
<PAGE> 64
ADDITIONAL INFORMATION REGARDING CERTAIN FUNDS
The following disclosures supplement disclosures set forth in the
Prospectus and do not, standing alone, present a complete explanation of the
matters disclosed. Please refer also to the Prospectus for a complete
presentation of these matters.
INTERNATIONAL EQUITIES FUND
The International Equities Fund intends to provide long-term growth of
capital through investments primarily in a diversified portfolio of equity and
equity-related securities of foreign issuers that, as a group, are expected to
provide investment results closely corresponding to the Morgan Stanley's Capital
International, Europe, Australia and Far East Index ("EAFE Index"). The EAFE
Index, which commenced in 1969, is an unmanaged capitalization weighted stock
index consisting of more than 1000 companies operating in 21 countries in
Europe, Australia, and the Far East. The EAFE Index is a well known measure for
international stock performance. The EAFE Index does not reflect charges, fees,
and commissions applicable to the Fund.
The weighted breakdown by country of the EAFE Index (as of May 31, 1998) is
set forth below:
EAFE INDEX BREAKDOWN BY COUNTRY
<TABLE>
<CAPTION>
COUNTRY WEIGHT
------- ------
<S> <C> <C>
1 AUSTRALIA................................................... 2.40
2 AUSTRIA..................................................... 0.44
3 BELGIUM..................................................... 1.65
4 DENMARK..................................................... 1.04
5 FINLAND..................................................... 1.01
6 FRANCE...................................................... 9.32
7 GERMANY..................................................... 11.18
8 HONG KONG................................................... 1.86
9 IRELAND..................................................... 0.51
10 ITALY....................................................... 4.98
11 JAPAN....................................................... 20.91
12 MALAYSIA.................................................... 0.64
13 NETHERLANDS................................................. 6.12
14 NEW ZEALAND................................................. 0.23
15 NORWAY...................................................... 0.59
16 PORTUGAL.................................................... 0.73
17 SINGAPORE................................................... 0.63
18 SPAIN....................................................... 3.41
19 SWEDEN...................................................... 3.33
20 SWITZERLAND................................................. 8.13
21 UNITED KINGDOM.............................................. 20.90
</TABLE>
GOVERNMENT SECURITIES FUND
The Government Securities Fund may invest in intermediate and long-term
debt instruments issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. U.S. Government securities in which the Fund may invest
include: (1) U.S. Treasury bills, notes, and bonds; (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are supported
by any of the following: (a) the full faith and credit of the U.S. Government
(e.g., Government National Mortgage Association ("GNMA") Certificates); (b) the
right of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Treasury (e.g., debt of each of the Federal Home Loan banks); (c)
the discretionary authority of the U.S. Government or GNMA to purchase certain
financial obligations of the agency or instrumentality (e.g., Federal National
Mortgage Association); or (d) the credit of the issuing agency or
instrumentality (e.g., Federal Land Banks, Farmers, Farmers Home Administration
or Student Loan Marketing Association); and (3) collateralized mortgage
obligations ("CMOs") that are issued by governmental or non-governmental
entities and collateralized by U.S. Treasury Obligations or by U.S. Government
agency or instrumentality securities.
5
<PAGE> 65
No assurance can be given that the U.S.
Government will provide support to such U.S. Government sponsored agencies or
instrumentalities in the future, since it is not required to do so by law.
ASSET ALLOCATION FUND
In addition to its overall investment objective, the Fund has established
separate sub-objectives for investments in each of the three market sectors. The
following is a statement of the sub-objectives of each sector, which are
designed to maximize the unique investment return characteristics inherent in
that market sector:
1. Within the stock sector, the Fund seeks appreciation of capital by
selecting investments that it expects will participate in the growth of
the nation's economy.
2. Within the bond sector, the Fund will generally seek high current income
consistent with reasonable investment risk. The Fund will pursue the
above objective by investing only in (a) investment grade corporate debt
obligations rated e.g. at least Baa by Moody's Investor Services, Inc.
("Moody's") or by any other NRSRO or unrated debt obligations which
VALIC believes are of comparable investment quality, and (b) obligations
of, or debts guaranteed by, the U.S. Government, its agencies, or
instrumentalities. See "Government Securities Portfolio" for an
explanation of U.S. Government obligation and "Debt Securities" in this
Prospectus and the Appendix for an explanation of corporate debt
ratings.
3. Within the money market sector, the Fund seeks the highest level of
current income consistent with liquidity, stability, and preservation of
capital.
The chart below indicates the historic allocations, from June 1983 through
June 1998, based on the investment benchmarks of 55% in equity securities, 35%
in intermediate or long-term debt securities and 10% in money market or short
term debt instruments, as recommended by the Bankers Trust Company Tactical
Asset Allocation Model. The Bankers Trust Company Tactical Asset Allocation
Model is currently used in connection with the management of over $5.12 billion
of assets.
[CHART]
6
<PAGE> 66
PERFORMANCE AND YIELD INFORMATION
The Series Company may compute the total return of a Fund ("Average Annual
Total Return"), total return of a Fund before expenses ("Portfolio Total
Return"), and 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 the Adviser's investment selection) deviates from its
benchmark's Index Total Return. 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
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 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]
7
<PAGE> 67
30 DAY CURRENT YIELD
The Capital Conservation Fund, Government Securities Fund, and the
International Government 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>
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>
8
<PAGE> 68
PERFORMANCE RETURNS
MAY 31, 1998
<TABLE>
<CAPTION>
10 YEAR
INCEPTION OR SINCE
DATE 1 YEAR 3 YEAR 5 YEAR INCEPTION (A)
--------- ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
ASSET ALLOCATION FUND:* 09/06/83
Average Annual Total Return 21.94% 18.55% 13.79% 11.21%
Portfolio Total Return 22.48% 19.11% 14.36% 11.94%
Benchmark (B) 21.22% 19.12% 15.02% 14.07%
CAPITAL CONSERVATION FUND: 01/16/86
Average Annual Total Return 10.76% 7.27% 6.41% 7.95%
Portfolio Total Return 11.30% 7.83% 6.98% 8.63%
Merrill Lynch Corporate Master Index 12.35% 8.54% 8.05% 10.19%
GOVERNMENT SECURITIES FUND: 01/16/86
Average Annual Total Return 10.60% 6.91% 6.04% 7.96%
Portfolio Total Return 11.14% 7.46% 6.61% 8.64%
Lehman Brothers U.S. Treasury Index 11.22% 7.49% 6.87% 8.97%
GROWTH FUND: 04/29/94
Average Annual Total Return 27.41% 26.99% N/A 23.26%
Portfolio Total Return 28.25% 27.83% N/A 24.12%
S & P 500 30.68% 29.51% N/A 26.97%
GROWTH & INCOME FUND: 04/29/94
Average Annual Total Return 19.87% 23.69% N/A 20.19%
Portfolio Total Return 20.67% 24.49% N/A 21.00%
S & P 500 30.68% 29.51% N/A 26.97%
INTERNATIONAL EQUITIES FUND: 10/02/89
Average Annual Total Return 9.92% 9.59% 9.56% 5.04%
Portfolio Total Return 10.32% 10.00% 9.99% 5.49%
Morgan Stanley Capital International EAFE 11.11% 9.76% 9.52% 5.24%
INTERNATIONAL GOVERNMENT BOND FUND: 10/01/91
Average Annual Total Return 2.65% 0.61% 5.44% 7.61%
Portfolio Total Return 3.20% 1.17% 5.99% 8.05%
Salomon Brothers Non-U.S. Government Bond Index 2.38% 0.53% 5.79% 8.26%
MIDCAP INDEX FUND: 10/01/91
Average Annual Total Return 29.62% 24.95% 17.99% 17.61%
Portfolio Total Return 29.98% 25.34% 18.40% 18.05%
S & P MidCap 400 29.87% 25.40% 18.42% 18.38%
MONEY MARKET FUND: 01/16/86
Average Annual Total Return 5.25% 5.18% 4.65% 5.45%
Portfolio Total Return 5.79% 5.74% 5.22% 6.05%
30-Day Certificate of Deposit Primary Offering Rate
by New York City Banks 4.81% 4.72% 4.26% 5.22%
SCIENCE & TECHNOLOGY FUND: 04/29/94
Average Annual Total Return 10.85% 21.33% N/A 26.44%
Portfolio Total Return 11.80% 22.28% N/A 27.40%
S & P 500 30.68% 29.51% N/A 26.97%
SMALL CAP INDEX FUND: 05/01/92
Average Annual Total Return 21.34% 20.61% 15.43% 15.31%
Portfolio Total Return 21.73% 21.01% 15.85% 15.74%
Russell 2000 21.25% 20.79% 16.14% 16.68%
SOCIAL AWARENESS FUND: 10/02/89
Average Annual Total Return 30.34% 29.89% 21.44% 16.16%
Portfolio Total Return 30.88% 30.44% 22.01% 16.66%
S & P 500 30.68% 29.51% 22.17% 17.21%
STOCK INDEX FUND: 04/20/87
Average Annual Total Return 30.30% 29.23% 21.75% 17.79%
Portfolio Total Return 30.61% 29.56% 22.10% 18.27%
S & P 500 30.68% 29.51% 22.17% 18.62%
</TABLE>
- ------------
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.
(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 55% S&P 500 Index, 35% Merrill Lynch Corporate &
Government Master Index, and 10% of NYC 30 Day Primary CD Rate.
9
<PAGE> 69
FUNDAMENTAL 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 for each Fund 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.
FUNDAMENTAL INVESTMENT RESTRICTIONS
APPLICABLE TO ALL FUNDS
All the Funds, except the International Government Bond Fund, the Growth
Fund and the Science & Technology Fund have adopted each of the following
fundamental investment restrictions. The percentage limitations referenced in
some of the following fundamental investment restrictions are to be determined
at the time of purchase. The International Government Bond Fund has adopted
fundamental investment restrictions 2-10 below. (The Growth Fund and the Science
& Technology Fund have adopted investment restrictions 3, 6 and 7 as
non-fundamental operating policies. In addition, as a non-fundamental operating
policy, the Growth Fund and the Science & Technology Fund will not invest in
oil, gas or mineral exploration programs if, as a result, more than 5% of the
value of the total assets would be invested in such programs.) Such restrictions
provide that no Fund may:
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. 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 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. No 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. Acquire more than 3% of the voting securities of any single other
investment company or invest more than 10% of (the value of) the Fund's
assets in the securities of other investment companies (5% in the case of
each such other company). Additionally, investment company securities will
only be purchased on the open market or from brokers or dealers receiving
customary commissions.
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.
7. Effect short sales of securities or purchase securities on margin,
except in connection with investment in options and futures contracts. Each
Fund may use short-term credits when necessary to clear transactions.
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
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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 the Fund's total assets.
MMF INVESTMENT RESTRICTIONS
MMF may not:
1. Purchase any security which matures more than 13 months from the
date of purchase.
2. Purchase or sell commodity contracts.
3. Invest in warrants, or write, purchase or sell puts, calls,
straddles, spreads or combinations thereof.
4. 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.
AAF, CCF, GSF, SIF, IEF, MIF, AND SCIF
INVESTMENT RESTRICTIONS
AAF, CCF, GSF, SIF, IEF, MIF, and SCIF may not:
1. Enter into a financial futures contract (by exercise of any option
or otherwise) or acquire any options thereon, if, immediately thereafter,
the total of the initial margin deposits required with respect to all open
futures positions, at the time such positions were established, plus the
sum of the premiums paid for all unexpired options on futures contracts
would exceed 5% of the value of its total assets.
2. Invest more than 25% of the value of its total assets in the
securities of issuers primarily engaged in any one industry.
GIF INVESTMENT RESTRICTIONS
GIF may not:
1. Invest 25% or more of its assets in securities of issuers in any
one industry.
GF AND STF INVESTMENT RESTRICTIONS
GF and STF may not:
1. Borrow money except that the Funds may (i) borrow for
non-leveraging, temporary or emergency purposes and (ii) engage in reverse
repurchase agreements and make other investments or engage in other
transactions, which may involve a borrowing, in a manner consistent with
the Funds' investment objective and program, provided that the combination
of (i) and (ii) shall not exceed 33 1/3% of the value of the Funds' total
assets (including the amount borrowed) less liabilities (other than
borrowings) or such other percentage permitted by law. Any borrowings which
come to exceed this amount will be reduced in accordance with applicable
law. The Funds may borrow from banks, other T. Rowe Price Funds or other
persons to the extent permitted by law.
2. Purchase the securities of any issuer if, as a result, more than
25% of the value of the Funds' total assets would be invested in the
securities of issuers having their principal business activities in the
same industry; provided, however, the Growth Fund will normally concentrate
25% or more of its assets in the securities of the banking industry when
the Growth Fund's position in issues maturing in one year or less equals
35% or more of the Growth Fund's total assets.
3. Make loans, although the Funds may (i) lend portfolio securities;
provided that no such loan may be made if, as a result, the aggregate of
such loans would exceed 33 1/3% of the value of the Funds' total assets;
(ii) purchase money market securities and enter into repurchase agreements;
and (iii) acquire publicly-distributed or privately-placed debt securities
and purchase debt.
4. Purchase a security if, as a result, with respect to 75% of the
Funds' total assets, more than 5% of the value of its total assets would be
invested in the securities of a single issuer or more than 10% of the
outstanding voting securities of any issuer would be held by the Funds,
except securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities.
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5. Purchase or sell physical commodities; except that it may enter
into futures contracts and options thereon.
6. Purchase or sell real estate, including limited partnership
interests therein, unless acquired as a result of ownership of securities
or other instruments (but this shall not prevent the Funds from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business).
7. Issue senior securities except in compliance with the Investment
Company Act of 1940.
8. Underwrite securities issued by other persons, except to the extent
that the Funds may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment
program.
With respect to investment restriction (5), the Fund does not consider
forward foreign currency contracts or hybrid investments to be commodities.
For purposes of investment restriction (2), U.S., state or local
governments, or related agencies or instrumentalities, are not considered
an industry.
Notwithstanding anything in the above fundamental and operating
restrictions to the contrary, subject to any regulatory requirements, GF
and STF may each invest all of its assets in a single investment company or
a series thereof in connection with a "master-feeder" arrangement. Such an
investment would be made where the Fund (a "Feeder"), and one or more other
funds with the same investment objective and program as the Fund, sought to
accomplish its investment objective and program by investing all of its
assets in the shares of another investment company (the "Master"). The
Master would, in turn, have the same investment objective and program as
the Fund. The Funds would invest in this manner in an effort to achieve the
economies of scale associated with having a Master fund make investments in
portfolio companies on behalf of a number of Feeder funds.
SAF INVESTMENT RESTRICTIONS
SAF may not:
1. 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.
2. Invest more than 25% of the value of its total assets in the
securities of issuers primarily engaged in any one industry.
IGBF INVESTMENT RESTRICTIONS
IGBF may not:
1. With respect to 50% of its total assets, invest more than 5% of its
total assets in securities of any one issuer or purchase more than 10% of
the outstanding voting securities of any one issuer. With respect to the
remaining 50% of its total assets, invest more than 25% of its total assets
in the securities of any one issuer. This restriction does not apply to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
2. Enter into a financial futures contract (by exercise of any option
or otherwise) or acquire any options thereon, if, immediately thereafter,
the total of the initial margin deposits required with respect to all open
futures positions, at the time such positions were established, plus the
sum of the premiums paid for all unexpired options on futures contracts
would exceed 5% of the value of its total assets.
3. Invest more than 25% of the value of its total assets in the
securities of issuers primarily engaged in any one industry.
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INVESTMENT PRACTICES
REPURCHASE AGREEMENTS
Each Fund may hold commercial paper, certificates of deposits, and
government obligations (including government guaranteed obligations) subject to
repurchase agreements with certain well established domestic banks and certain
broker-dealers, including primary government securities dealers, approved as
creditworthy by the Board of Directors. The underlying security must be a
high-quality domestic money market security (except for the International
Equities Fund and International Government Bond Fund which 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 (Nationally
Recognized Statistical Rating Organization) and must be determined to present
minimal credit risk. Repurchase agreements are generally for short periods,
often less than a week. Repurchase agreements typically obligate a seller, at
the time it sells securities to a Fund, to repurchase the securities at a
specific future time and price. The price for which the Fund resells the
securities is calculated to exceed the price the Fund initially paid for the
same securities, thereby determining the yield during the Fund's holding period.
This results in 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 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
Directors of the Company will evaluate the creditworthiness of all banks and
broker-dealers with which the 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 Growth Fund, Growth & Income Fund and Science & Technology Fund).
LENDING PORTFOLIO SECURITIES
For purposes of realizing additional income, each Fund may make secured
loans of its portfolio securities amounting to no more than 30% of the value of
each Fund's total assets (33 1/3% in the case of Growth Fund and Science &
Technology Fund). This policy is a fundamental policy of each of the Funds.
Securities loans are made to broker-dealers and other financial institutions
approved by State Street Bank and Trust Company ("State Street"), 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. 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
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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 State Street considers the borrowing
broker-dealers or financial institutions to be creditworthy and of good standing
and the interest earned from such loans to justify the attendant risks. On
termination of the loan, the borrower will be required to return the securities
to the lending Fund. Any gain or loss in the market price during the loan would
inure to the lending Fund. The lending Fund may pay reasonable finders',
administrative, and custodial fees in connection with a loan of its securities.
CONVERTIBLE SECURITIES
Certain Funds may invest in convertible securities of foreign or domestic
issues. A convertible security is a security (a bond or preferred stock) which
may be converted at a stated price within a specified period of time into a
certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in a corporation's capital
structure but are usually subordinated to similar nonconvertible securities.
Convertible securities provide, through their conversion feature, an opportunity
to participate in capital appreciation resulting from a market price advance in
a convertible security's underlying common stock. The price of a convertible
security is influenced by the market value of the underlying common stock and
tends to increase as the market value of the underlying stock rises, whereas it
tends to decrease as the market value of the underlying stock declines.
A Fund may be required to permit the issuer of a convertible security to
redeem the security, convert it into the underlying common stock, or sell it to
a third party. Thus, a Fund may not be able to control whether the issuer of a
convertible security chooses to convert that security. If the issuer chooses to
do so, this action could have an adverse effect on a Fund's ability to achieve
its investment objectives.
FOREIGN SECURITIES
All Funds may invest in foreign securities. A foreign security includes
corporate debt securities of foreign issuers (including preferred or preference
stock), certain foreign bank obligations (see "Bank Obligations") and U.S.
dollar or foreign currency-denominated obligations of foreign governments or
their subdivisions, agencies and instrumentalities, international agencies and
supranational entities.
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 American
Depository Receipts (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 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.
Each 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 Government Securities 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
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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.
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.
BANK OBLIGATIONS
Each Fund may invest in bank obligations. Bank obligations in which the
Funds may invest include certificates of deposit, bankers' acceptances, and
fixed time deposits. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits. A Fund will not invest in fixed time deposits which (1) are
not subject to prepayment or (2) provide for withdrawal penalties upon
prepayment (other than overnight deposits) if, in the aggregate, more than 10%
of its net assets (15% in the case of Growth Fund, Growth & Income Fund and
Science & Technology Fund) would be invested in such deposits, repurchase
agreements maturing in more than seven days and other illiquid assets.
The Funds limit investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of
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investment and are members of the Federal Reserve
System or are examined by the Comptroller of the Currency or whose deposits are
insured by the Federal Deposit Insurance Corporation. A Fund also may invest in
certificates of deposit of savings and loan associations (federally or state
chartered and federally insured) having total assets in excess of $1 billion.
The Funds limit investments in foreign bank obligations to United States
dollar-or foreign currency-denominated obligations of foreign banks (including
United States branches of foreign banks) which at the time of investment (i)
have more than $10 billion, or the equivalent in other currencies, in total
assets; (ii) in terms of assets are among the 75 largest foreign banks in the
world; (iii) have branches or agencies (limited purpose offices which do not
offer all banking services) in the United States; and (iv) in the opinion of
VALIC or a Sub-adviser, are of an investment quality comparable to obligations
of United States banks in which the Funds may invest. The Government Securities
Fund may invest in the same types of bank obligations as the other Funds, but
they must be U.S. dollar-denominated. Subject to a Fund's limitation on
concentration in the securities of issuers in a particular industry, there is no
limitation on the amount of a Fund's assets which may be invested in obligations
of foreign banks which meet the conditions set forth herein.
Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of United States banks, including the
possibilities that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not generally subject to examination by any U.S.
Government agency or instrumentality.
WHEN-ISSUED SECURITIES
Each of the Funds except the Money Market 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 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.
DEBT SECURITIES
Debt securities are considered high-quality if they are rated at least Aa
by Moody's or its equivalent by any other NRSRO or, if unrated, are determined
to be of equivalent investment quality. High-quality debt securities are
considered to have a very strong capacity to pay principal and interest. Debt
securities are considered investment grade if they are rated, for example, at
least Baa by Moody's or BBB by S&P or their equivalent by any other NRSRO or, if
not rated, are determined to be of equivalent investment quality. Investment
grade debt securities are regarded as having an adequate capacity to pay
principal and interest. Lower-medium and lower-quality securities rated, for
example, Ba and B 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 Adviser
or Sub-Advisers will not dispose of an investment grade security that has been
downgraded to below investment grade. See the Section regarding "Description of
Corporate Bond Ratings" for a description of each rating category in this
Statement of Additional Information for a more complete description of lower-
medium and lower-quality debt securities and their risks.
The maturity of debt 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
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of capital loss. A decline in interest rates usually
produces an increase in the value of debt securities, while an increase in
interest rates generally reduces their value.
EMERGING MARKETS
Investments in companies domiciled in emerging market countries may be
subject to additional risks. Specifically, volatile social, political and
economic conditions may expose investments in emerging or developing markets to
economic structures that are generally less diverse and mature. Emerging market
countries may have less stable political systems than those of more developed
countries. As a result, it is possible that recent favorable economic
developments in certain emerging market countries may be suddenly slowed or
reversed by unanticipated political or social events in such countries.
Moreover, the economies of individual emerging market countries may differ
favorably or unfavorably from the US economy in such respects as the rate of
growth in gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
Another risk is that the small current size of the markets for such
securities and the currently low or nonexistent volume of trading can result in
a lack of liquidity and in greater price volatility. Until recently, there has
been an absence of a capital market structure or market-oriented economy in
certain emerging market countries. If a Fund's securities will generally be
denominated in foreign currencies, the value of such securities to the Fund will
be affected by changes in currency exchange rates and in exchange control
regulations. A change in the value of a foreign currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of a Fund's
securities. In addition, some emerging market countries may have fixed or
managed currencies which are not free-floating against the U.S. dollar. Further,
certain emerging market currencies may not be internationally traded. Certain of
these currencies have experienced a steady devaluation relative to the U.S.
dollar. Many emerging markets countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.
A further risk is that the existence of national policies may restrict a
Fund's investment opportunities and may include restrictions on investment in
issuers or industries deemed sensitive to national interests. Also, some
emerging markets countries may not have developed structures governing private
or foreign investment and may not allow for judicial redress for injury to
private property.
ASSET-BACKED SECURITIES
Each of the 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.
LOWER RATED DEBT 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
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greater than is the case with higher rated securities. For example, during an
economic downturn or a sustained period of rising interest rates, issuers of
high yield securities may be more likely to experience financial stress,
especially if such issuers are highly leveraged. During such periods, such
issuers may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific issuer developments, or the issuer's inability to
meet specific projected business forecasts, or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of lower rated securities because such securities may be
unsecured and may be subordinated to other creditors of the issuer.
Lower rated securities frequently have call or redemption features which
would permit an issuer to repurchase the security from a Fund. If a call were
exercised by the issuer during a period of declining interest rates, a Fund
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to a Fund and dividends to
shareholders.
A Fund may have difficulty disposing of certain lower rated securities
because there may be a thin trading market for such securities. The secondary
trading market for high yield securities is generally not as liquid as the
secondary market for higher rated securities. Reduced secondary market liquidity
may have an adverse impact on market price and a Fund's ability to dispose of
particular issues when necessary to meet a Fund's liquidity needs or in response
to a specific economic event such as a deterioration in the creditworthiness of
the issuer.
Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of lower rated
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of lower rated securities are likely to adversely affect a
Fund's net asset value. In addition, a Fund may incur additional expenses to the
extent it is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.
Finally, there are risks involved in applying credit ratings as a method
for evaluating lower rated fixed income securities. For example, credit ratings
evaluate the safety of principal and interest payments, not the market risks
involved in lower rated fixed income securities. Since credit rating agencies
may fail to change the credit ratings in a timely manner to reflect subsequent
events, the Sub-adviser will monitor the issuers of lower rated fixed income
securities in a Fund to determine if the issuers will have sufficient cash flow
and profits to meet required principal and interest payments, and to assure the
debt securities' liquidity within the parameters of the Fund's investment
policies. The Sub-adviser will not necessarily dispose of a portfolio security
when its ratings have been changed.
REAL ESTATE SECURITIES AND REAL ESTATE INVESTMENT TRUSTS ("REITS")
Each 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 de-
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pendent upon management skills, are not diversified (except to the extent the
Code requires), and are subject to the risks of financing projects. REITs are
subject to heavy cash flow dependency, default by borrowers, self-liquidation,
and the possibilities of failing to qualify for the exemption from tax for
distributed income under the Code and failing to maintain their exemptions from
the 1940 Act. REITs (especially mortgage REITs) are also subject to interest
rate risks.
WARRANTS
Certain Funds may invest in or acquire warrants to purchase equity or fixed
income securities. Bonds with warrants attached to purchase equity securities
have many characteristics of convertible bonds and their prices may, to some
degree, reflect the performance of the underlying stock. Bonds also may be
issued with warrants attached to purchase additional fixed income securities at
the same coupon rate. A decline in interest rates would permit a Fund to buy
additional bonds at the favorable rate or to sell the warrants at a profit. If
interest rates rise, the warrants would generally expire with no value. Warrants
do not entitle a holder to dividends or voting rights with respect to the
underlying securities and do not represent any rights in the assets of the
issuing company. In addition, the value of warrants does not, necessarily, in
all cases change to the same extent as the value of the underlying securities to
which they relate. Warrants cease to have value if they are not exercised prior
to the expiration date. These factors can make warrants more speculative than
other types of investments.
SWAP AGREEMENTS
Certain Funds may enter into interest rate, index and currency exchange
rate swap agreements. These transactions are entered into in an attempt to
obtain a particular return when it is considered desirable to do so, possibly at
a lower cost to the Fund than if the Fund had invested directly in an instrument
that yielded that desired return. Swap agreements are two party contracts
entered into primarily by institutional investors for periods ranging from a few
weeks to more than one year. In a standard "swap" transaction, two parties agree
to exchange the returns (or differentials in rates of return) earned or realized
on particular predetermined investments or instruments, which may be adjusted
for an interest factor. The gross returns to be exchanged or "swapped" between
the parties are generally calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested at a
particular interest rate, in a particular foreign currency, or in a "basket" of
securities representing a particular index. Forms of swap agreements include
interest rate caps, under which, in return for a premium, one party agrees to
make payments to the other to the extent that interest rates exceed a specified
rate, or "cap"; interest rate floors, under which, in return for a premium, one
party agrees to make payments to the other to the extent that interest rates
fall below a specified rate, or "floor"; and interest rate collars, under which
a party sells a cap and purchases a floor or vice versa in an attempt to protect
itself against interest rate movements exceeding minimum or maximum levels.
Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
segregation of assets determined to be liquid by VALIC or a Sub-adviser in
accordance with procedures established by the Board of Directors, to avoid any
potential leveraging of a Fund's portfolio. Obligations under swap agreements so
covered will not be construed to be "senior securities" for purposes of the
Fund's investment restriction concerning senior securities. A Fund will not
enter into a swap agreement with any single party if the net amount owed or to
be received under existing contracts with that party would exceed 5% of the
Fund's assets.
Whether a Fund's use of swap agreements will be successful in furthering
its investment objective of total return will depend on VALIC or a Sub-adviser's
ability to predict correctly whether certain types of investments are likely to
produce greater returns than other investments. Because they are two party
contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid. Moreover, a Fund bears the risk of
loss of the amount expected to be received under a swap agreement in the event
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of the default or bankruptcy of a swap agreement counterparty. The Funds will
enter into swap agreements only with counterparties that meet certain standards
of creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Fund's repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code may limit
the Funds' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the CFTC
effective February 22, 1993. To qualify for this exemption, a swap agreement
must be entered into by "eligible participants," which include the following,
provided the participants' total assets exceed established levels: a bank or
trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.
This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public.
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
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issuers registered domestically. In addition, foreign issuers, stock exchanges,
and brokers generally are subject to less government regulation. There are,
however, no risks of currency fluctuation since the obligations are U.S. dollar
denominated.
Certain Funds also may purchase and sell Eurodollar futures contracts,
which enable purchasers to obtain a fixed rate for the lending of funds and
sellers to obtain a fixed rate for borrowings. A Fund might use Eurodollar
futures contracts and options thereon to hedge against changes in a foreign
prime lending interest rate to which many interest swaps and fixed income
securities are linked.
MORTGAGE-RELATED SECURITIES
Mortgage-related securities are interests in pools of residential or
commercial mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. See "Mortgage Pass-Through
Securities." Certain of the Funds may also invest in fixed income securities
which are secured with collateral consisting of mortgage-related securities (see
"Collateralized Mortgage Obligations"), and in other types of mortgage-related
securities.
Mortgage Pass-Through Securities
Interests in pools of mortgage-related securities differ from other forms
of fixed income securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential or commercial mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by GNMA) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
The principal governmental guarantor of mortgage-related securities are
GNMA, Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA is a wholly owned United States Government
corporation within the Department of Housing and Urban Development. GNMA is
authorized to guarantee, with the full faith and credit of the United States
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks and mortgage bankers) and backed by pools of mortgages insured by the
Federal Housing Administration (the "FHA"), or guaranteed by the Department of
Veterans Affairs (the "VA").
Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States Government. FHLMC was created by Congress in 1970 for the
purpose of increasing the availability of mortgage credit for residential
housing. It is a government-sponsored corporation formerly owned by the twelve
Federal Home Loan Banks and now owned entirely by private stockholders. FHLMC
issues Participation Certificates
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("PCs") which represent interests in conventional mortgages from FHLMC's
national portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal, but PCs are not backed by the full faith and credit of
the United States Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Series Company's investment quality standards. There can be
no assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. Certain Funds may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, VALIC or a Sub-adviser determines that the securities meet the Series
Company's quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. No Fund will purchase mortgage-related securities or any
other assets which in VALIC's or the Sub-adviser's opinion are illiquid if, as a
result, more than 10% of the value of the Fund's net assets will be illiquid
(15% in the case of the Growth Fund, Growth & Income Fund and Science &
Technology Fund).
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Funds'
industry concentration restrictions, set forth below under "Investment
Restrictions," by virtue of the exclusion from that test available to all U.S.
Government securities. In the case of privately issued mortgage-related
securities, the Funds take the position that mortgage-related securities do not
represent interests in any particular "industry" or group of industries. The
assets underlying such securities may be represented by a portfolio of first
lien residential mortgages (including both whole mortgage loans and mortgage
participation interests) or portfolios of mortgage pass-through securities
issued or guaranteed by GNMA, FNMA or FHLMC. Mortgage loans underlying a
mortgage-related security may in turn be insured or guaranteed by the FHA or the
Veterans' Administration. In the case of private issue mortgage-related
securities whose underlying assets are neither U.S. Government securities nor
U.S. Government-insured mortgages, to the extent that real properties securing
such assets may be located in the same geographical region, the security may be
subject to a greater risk of default than other comparable securities in the
event of adverse economic, political or business developments that may affect
such region and, ultimately, the ability of residential homeowners to make
payments of principal and interest on the underlying mortgages.
Collateralized Mortgage Obligations (CMOs)
A CMO is a hybrid between a mortgage-backed bond and a mortgage pass-through
security. Similar to a bond, interest and prepaid principal is paid, in most
cases, monthly. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured in multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
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As an example of CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest on the Series Z Bond is accrued and added to
principal and a like amount is paid as principal on the Series A, B, or C Bond
currently being paid off. When the Series A, B, and C Bonds are paid in full,
interest and principal on the Series Z Bond begins to be paid currently. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
COMMERCIAL MORTGAGE-BACKED SECURITIES
Commercial mortgage-backed securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property. The
market for commercial mortgage-backed securities developed more recently and in
terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage- or asset-backed securities.
OTHER MORTGAGE-RELATED SECURITIES
Other mortgage-related securities include securities other than those
described above that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property, including mortgage
dollar rolls, CMO residuals or stripped mortgage-backed securities ("SMBS").
Other mortgage-related securities may be equity or fixed income securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
CMO Residuals
CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities -- Stripped Mortgage-Backed Securities." In
addition, if a series of a CMO includes a class that bears interest at an
adjustable rate, the yield to maturity on the related CMO residual will also be
extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances a Fund may fail to recoup
fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently may
not have the liquidity of other more established securities trading in other
markets. Transactions in CMO residuals are generally completed only after
careful
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review of the characteristics of the securities in question. In addition, CMO
residuals may, or pursuant to an exemption therefrom, may not have been
registered under the Securities Act of 1933, as amended (the "1933 Act"). CMO
residuals, whether or not registered under the 1933 Act, may be subject to
certain restrictions on transferability, and may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
Stripped Mortgage-Backed Securities ("SMBS")
SMBS are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal, a
Fund may fail to recoup some or all of its initial investment in these
securities even if the security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.
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
Each of the Funds may invest in adjustable rate money market securities.
Adjustable rate securities (i.e., variable rate and floating rate instruments)
are securities that have interest rates that are adjusted periodically,
according to a set formula. The maturity of some adjustable rate securities may
be shortened under certain special conditions described more fully below.
Variable rate instruments are obligations (usually certificates of deposit)
that provide for the adjustment of their interest rates on predetermined dates
or whenever a specific interest rate changes. A variable rate instrument whose
principal amount is scheduled to be paid in 13 months or less is considered to
have a maturity equal to the period remaining until the next readjustment of the
interest rate. Many variable rate instruments are subject to demand features
which entitle the purchaser to resell such securities to the issuer or another
designated party, either (1) at any time upon notice of usually 30 days or less,
or (2) at specified intervals, not exceeding 13 months, and upon 30 days notice.
A variable rate instrument subject to a demand feature is considered to have a
maturity equal to the longer of the period remaining until the next readjustment
of the interest rate or the period remaining until the principal amount can be
recovered through demand.
Floating rate instruments (generally corporate notes, bank notes, or
Eurodollar certificates of de-
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posit) 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 Growth Fund,
Growth & Income Fund and Science & Technology Fund) of the value of their 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% of the value of a Fund's net assets.
RULE 144A SECURITIES
Each Fund may purchase securities which, while privately placed, are
eligible for purchase and sale pursuant to Rule 144A under the Securities Act of
1933 (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 Company, under the
supervision of the Board of Directors, 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 Growth Fund,
Growth & Income Fund and Science & Technology Fund) of its assets in illiquid
securities. Determination of whether a Rule 144A security is liquid or not is a
question of fact. In making this determination the Company will consider the
trading markets for the specific security taking into account the unregistered
nature of a Rule 144A security. In addition the 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 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% of their assets in illiquid securities (15% in the case of the Growth
Fund, Growth & Income Fund and Science & Technology Fund). Investing in Rule
144A securities could have the effect of increasing the amount of the Funds'
investments in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. Each Fund 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 Money Market Fund, may write covered call and put
options on securities and securities indices. As a matter of operating policy,
the Growth & Income Fund will only write covered call options on securities. The
International Equities Fund and the International Government Bond Fund may also
write covered call and put options on foreign currencies that correlate with the
Fund's portfolio of foreign securities. 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.
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Each of these Funds may write options on securities and securities indices
and the International Equities Fund and the International Government Bond Fund
may write options on currencies for the purpose of increasing the Funds' return
on such securities or its entire portfolio of securities or to protect the value
of the entire portfolio. Such investment strategies will not be used for
speculation. 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 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. As a matter
of operating policy, the Growth & Income Fund will only purchase call options on
securities to close out open positions for covered call options it has written.
The International Equities Fund and the International Government Bond Fund also
may purchase put options on foreign currencies that correlate with the Fund's
portfolio securities in order to minimize or hedge against anticipated declines
in the exchange rate of the currencies in which the Fund's securities are
denominated and may purchase call options on foreign currencies that correlate
with its portfolio securities to take advantage of anticipated increases in
exchange rates. In the event that the anticipated changes in interest rates,
stock prices, or exchange rates occur, the Fund may be able to offset the
resulting adverse effect on the Fund, in whole or in part, through the options
purchased.
The premium paid for a put or call option plus any transaction costs will
reduce the benefit, if any, realized by the Fund upon exercise or liquidation of
the option, and, unless the price of the underlying security, securities index,
or currency changes sufficiently, the option may expire without value to the
Fund. To close option positions purchased by the Funds, the Funds may sell put
or call options identical to options previously purchased, which could result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put or call
option purchased.
Options used by the Funds may be traded on the national securities
exchanges or in the over-the-counter market. Only the Capital Conservation Fund,
the Government Securities Fund, the International Equities Fund and the
International Gov-
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ernment 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 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. As a matter
of operating policy, the Growth Fund and the Science & Technology Fund will not
write a covered option if, as a result, the aggregate market value of all
portfolio securities or currencies covering put or call options exceeds 25% of
the market value of that Fund's net assets. The Growth & Income Fund as a matter
of operating policy, will only write covered call options on securities. The
International Equities Fund and the International Government Bond Fund may also
write covered call and put options on foreign currencies that correlate with its
portfolio securities in order to earn additional income or in the case of call
options written to minimize or hedge against anticipated declines in the
exchange rate of the currencies in which the Fund's securities are denominated.
To "cover" an option means, for example, to identify and make available for sale
the specific portfolio security or foreign currency to which the option relates.
Through the writing of a covered call option a Fund receives premium income but
obligates itself to sell to the purchaser of such an option the particular
security or foreign currency underlying the option at a specified price at any
time prior to the expiration of the option period, regardless of the market
value of the security or the exchange rate for the foreign currency during this
period. Through the writing of a covered put option a Fund receives premium
income but obligates itself to purchase a particular security or foreign
currency underlying the option at a specified price at any time prior to the
expiration of the option period, regardless of market value or exchange rate
during the option period.
Certain Funds, in accordance with their investment objective(s) and
investment programs, may also write exchange-traded covered call and put options
on stock indices and may purchase call and put options on stock indices that
correlate with the Fund's portfolio securities. These Funds may engage in such
transactions for the same purposes as they may engage in such transactions with
respect to individual portfolio securities or foreign currencies, that is, to
generate additional income or as a hedging technique to minimize anticipated
declines in the value of the Fund's portfolio securities or the exchange rate of
the securities in which the Fund invested. In economic effect, a stock index
call or put option is similar to an option on a particular security, except that
the value of the option depends on the weighted value of the group of securities
comprising the index, rather than a particular security, and settlements are
made in cash rather than by delivery of a particular security.
Each Fund, other than 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. As a
matter of operating policy, the Growth & Income Fund will only purchase call
options on securities to close out open positions for covered call options
written by it. The International Equities Fund and the International Government
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Bond Fund may also purchase call and put options on foreign currencies that
correlate with the currencies in which the Fund's securities are denominated.
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 Capital Conservation Fund, the
Government Securities Fund, the International Equities Fund and the
International Government Bond Fund. Such options are not traded on an exchange
and may not be as actively traded as listed securities, making the valuation of
these securities more difficult. In addition, an unlisted option entails a risk
not found in connection with listed options -- that the party on the other side
of the option transaction will default. This may make it impossible to close out
an unlisted option position in some cases, and profits may be lost thereby. Such
unlisted, over-the-counter options, unless otherwise indicated, will be
considered illiquid securities. The Funds will engage in such transactions only
with firms of sufficient credit to minimize these risks. In instances in which a
Fund has entered into agreements with primary dealers with respect to the
unlisted, over-the-counter options it has written, and such agreements would
enable the Fund to have an absolute right to repurchase, at a pre-established
formula price, the over-the-counter options written by it, the Fund will treat
as illiquid only the amount equal to the formula price described above less the
amount by which the option is "in-the-money."
Although these investment practices will be used to generate additional
income and to attempt to reduce the effect of any adverse price movement in the
securities or currencies subject to the option, they do involve certain risks
that are different in some respects from investment risks associated with
similar funds which do not engage in such activities. These risks include the
following: writing covered call options -- the inability to effect closing
transactions at favorable prices and the inability to participate in the
appreciation of the underlying securities or currencies above the exercise
price; writing covered put options -- the inability to effect closing
transactions at favorable prices and the obligation to purchase the specified
securities or currencies or to make a cash settlement on the stock index at
prices which may not reflect current market values or exchange rates; and
purchasing put and call options -- possible loss of the entire premium paid. In
addition, the effectiveness of hedging through the purchase or sale (writing) of
stock index options will depend upon the extent to which price movements in the
portion of a Fund's portfolio being hedged correlate with price movements in the
selected stock index. Perfect correlation may not be possible because the
securities held or to be acquired by a Fund may not exactly match the
composition of the stock index on which options are purchased or written. If the
forecasts of VALIC regarding movements in securities prices, currencies or
interest rates are incorrect, a Fund's investment results may have been better
without the hedge.
FINANCIAL FUTURES CONTRACTS
Each Fund, except the 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
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purchase put and call options on financial futures contracts for the same
purposes or to earn additional income. The Growth Fund, the Growth & Income Fund
and the Science & Technology Fund may also write covered put options on stock
index futures contracts. Only the International Equities Fund and the
International Government Bond Fund may utilize currency futures contracts and
both listed and unlisted financial futures contracts and options thereon.
Financial futures contracts consist of interest rate futures contracts,
stock index futures contracts, and currency futures contracts. An interest rate
futures contract is a contract to buy or sell specified debt securities at a
future time for a fixed price. A stock index futures contract is similar in
economic effect, except that rather than being based on specific securities, it
is based on a specified index of stocks and not the stocks themselves. A
currency futures contract is a contract to buy or sell a specific foreign
currency at a future time for a fixed price.
An interest rate futures contract binds the seller to deliver to the
purchaser on a specified future date a specified quantity of one of several
listed financial instruments, against payment of a settlement price specified in
the contract. A public market currently exists for futures contracts covering a
number of indexes as well as financial instruments and foreign currencies,
including: U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates;
three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of
deposit; Eurodollar certificates of deposit; the Australian dollar; the Canadian
dollar; the British pound; the German mark; the Japanese yen; the French franc;
the Swiss franc; the Mexican peso; and certain multinational currencies, such as
the European Currency Unit ("ECU"). It is expected that other futures contracts
will be developed and traded in the future.
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 International Equities Fund and the International Government Bond Fund,
like unlisted options, are not traded on an exchange and, generally, are not as
actively traded as listed futures contracts or listed securities. Such financial
futures contracts generally do not have the following elements: standardized
contract terms, margin requirements relating to price movements, clearing
organizations that guarantee counter-party performance, open and competitive
trading in centralized markets, and public price dissemination. These elements
in listed instruments serve to facilitate their trading and accurate valuation.
As a result, the accurate valuation of unlisted financial futures contracts may
be difficult. In addi-
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tion, 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% (15% in the case of the Growth
Fund, the Growth & Income Fund and the Science & Technology Fund) 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. The International Equities Fund and the International Government Bond
Fund will engage in such transactions only with securities firms having
sufficient credit or other resources to minimize certain of these risks.
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
its custodian in a segregated account in the name of the FCM an initial margin
of cash or U.S. Treasury bills equalling 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 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. Except for options on currency futures
contracts used by the International Equities Fund and the International
Government Bond Fund, 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.
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CERTAIN ADDITIONAL RISKS OF OPTIONS AND
FINANCIAL FUTURES CONTRACTS
In addition to the risks described in the Company's Prospectus, the use of
options and financial futures contracts may entail the following risks. First,
although such instruments when used by the Funds are intended to correlate with
the Funds' portfolio securities or currencies, in many cases the options or
financial futures contracts used may be based on securities, currencies, or
stock indices the components of which are not identical to the portfolio
securities owned or intended to be acquired by the Funds. Second, due to supply
and demand imbalances and other market factors, the price movements of financial
futures contracts, options thereon, currency options, and stock index options
may not necessarily correspond exactly to the price movements of the securities,
currencies, or stock indices on which such instruments are based. Accordingly,
there is a risk that a Fund's transactions in those instruments will not in fact
offset the impact on the Fund of adverse market developments in the manner or to
the extent contemplated or that such transactions will result in losses to the
Fund which are not offset by gains with respect to corresponding portfolio
securities owned or to be purchased by that Fund.
To some extent, these risks can be minimized by careful management of
hedging activities. For example, where price movements in a financial futures or
option contract are expected to be less volatile than price movements in the
related portfolio securities owned or intended to be acquired by a Fund, it may,
in order to compensate for this difference, use an amount of financial futures
or option contracts which is greater than the amount of such portfolio
securities. Similarly, where the price movement of a financial futures or option
contract is anticipated to be more volatile, a Fund may use an amount of such
contracts which is smaller than the amount of portfolio securities to which such
contracts relate.
The risk that the hedging technique used will not actually or entirely
offset an adverse change in a Fund's portfolio securities is particularly
relevant to financial futures contracts and options written on stock indices and
currencies. A Fund, in entering into a futures purchase contract, potentially
could lose any or all of the contract's settlement price. In entering into a
futures sale contract, a Fund could potentially lose a sum equal to the excess
of the contract's value (marked to market daily) over the contract's settlement
price. In writing options on stock indices or currencies a Fund could
potentially lose a sum equal to the excess of the value of the index or currency
(marked to market daily) over the exercise price. In addition, because financial
futures contracts require delivery at a future date of either a specified
security or currency, or an amount of cash equal to a multiple of the difference
between the value of a specified stock index on that date and the settlement
price, an algebraic relationship exists between any price movement in the
underlying security or currency or index and the potential cost of settlement to
a Fund. A small increase or decrease in the value of the underlying security or
currency or stock index can, therefore, result in a much greater increase or
decrease in the cost to the Fund.
Stock index call options written also pose another risk as hedging tools.
Because exercises of stock index options are settled in cash, there is an
inherent timing risk that the value of a Fund's portfolio securities "covering"
a stock index call option written by it may decline during the time between
exercise of the option by the option holder 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
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sellers. In addition, the futures and options exchanges may suspend trading
after the price of such instruments has risen or fallen more than the maximum
amount specified by the exchange. Exercise of options could also be restricted
or delayed because of regulatory restrictions or other factors. A Fund may be
able, by adjusting investment strategy in the cash or other contract markets, to
offset to some extent any adverse effects of being unable to liquidate a hedge
position. Nevertheless, in some cases, a Fund may experience losses as a result
of such inability. Therefore it may have to liquidate other more advantageous
investments to meet its cash needs.
In addition, FCMs or brokers in certain circumstances will have access to a
Fund's assets posted as margin in connection with these transactions as
permitted under the 1940 Act. See "Other Information Custody of Assets" in this
Statement of Additional Information. The Funds will use only FCMs or brokers in
whose reliability and financial soundness they have full confidence and have
adopted certain other procedures and limitations to reduce the risk of loss with
respect to any assets which brokers hold or to which they may have access.
Nevertheless, in the event of a broker's insolvency or bankruptcy, it is
possible that a Fund could experience a delay or incur costs in recovering such
assets or might recover less than the full amount due. Also the value of such
assets could decline by the time a Fund could effect such recovery.
The success of a Fund in using hedging techniques depends, among other
things, on VALIC's 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 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 will use financial future 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.
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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. (Net assets in the case of Growth & Income Fund); 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 each Fund that is permitted to use
options and financial futures contracts.
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.
MONEY MARKET SECURITIES OF FOREIGN ISSUERS
Foreign money market instruments utilized by the Funds will be limited to:
(i) obligations of, or guaranteed by, a foreign government, its agencies or
instrumentalities; (ii) certificates of deposit, bankers' acceptances,
short-term notes, negotiable time deposits and other obligations of the ten
largest banks in each foreign country, measured in terms of net assets; and
(iii) other short-term unsecured corporate obligations (usually 1 to 270 day
commercial paper) of foreign companies. For temporary purposes or in light of
adverse foreign political or economic conditions, the Funds may invest in short-
term high quality foreign money market securities without limitation.
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<PAGE> 93
INVESTMENT ADVISER
VALIC serves as the investment adviser to Asset Allocation Fund, Money
Market Fund, Capital Conservation Fund, Government Securities Fund,
International Equities Fund and Social Awareness Fund pursuant to an Investment
Advisory Agreement dated September 30, 1987, approved by shareholders at a
meeting held on September 7, 1990. This Investment Advisory Agreement was also
made applicable to the International Government Bond Fund effective October 1,
1991. The Investment Advisory Agreement was approved by the shareholders of the
International Government Bond Fund on September 15, 1992. VALIC also serves as
investment adviser to the MidCap Index Fund, the Stock Index Fund, the Small Cap
Index Fund pursuant to an Investment Advisory Agreement effective May 1, 1992
that was approved by shareholders of the MidCap Index Fund and Stock Index Fund
on April 28, 1992 and approved by shareholders of the Small Cap Index Fund on
September 15, 1992. This Investment Advisory Agreement was also made applicable
to the Growth Fund, the Growth & Income Fund and the Science & Technology Fund
effective May 1, 1994. Prior to May 1, 1992, VALIC served as investment adviser
to the MidCap Index Fund and Stock Index Fund pursuant to the Investment
Advisory Agreement dated September 30, 1987. 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 sole 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,
with activities heavily weighted toward insurance. 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.
Pursuant to the Investment Advisory Agreements, the 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 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 Company may need to continue operations. The Investment Advisory
Agreement provides that the Company pay all expenses not specifically assumed by
VALIC under the Agreements. Examples of the expenses paid by the Company include
transfer agency fees, custodial fees, the fees of outside legal and auditing
firms, the costs of reports to shareholders, 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 Agreements require 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 Agreements
require VALIC to use its best efforts to recapture tender and exchange
solicitation offer fees for each Fund's benefits, and to advise the Company's
Board of Directors 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 Company.
The Company, by action of its Board of Directors determined to transfer the
function of providing accounting services from the Company's custodian State
Street Bank and Trust Company to VALIC. This transfer was effective October 31,
1996. Pursu-
34
<PAGE> 94
ant to this determination the Company entered into an Accounting Services
Agreement with VALIC ("Agreement"). The Agreement provides that the Company will
pay to VALIC an annual fee payable monthly based on average daily net assets for
providing the accounting services. For the fiscal year ended, May 31, 1998, the
Company paid VALIC $855,162 for accounting services provided by VALIC.
For the fiscal year ended May 31, 1996, the investment advisory fees paid
by the Company for the Stock Index Fund, the MidCap Index Fund, the Small Cap
Index Fund, the International Equities Fund, the Growth Fund, the Growth &
Income Fund, the Science & Technology Fund, the Social Awareness Fund, the Asset
Allocation Fund, the Capital Conservation Fund, the Government Securities Fund,
the International Government Bond Fund, and the Money Market Fund were
$4,242,848, $1,666,107, $523,833, $715,452, $1,871,756, $557,628, $3,228,500,
$333,783, $939,313, $352,058, $340,148, $573,962, and $421,853, respectively.
For the fiscal year ended May 31, 1997, the investment advisory fees paid
by the Company for the Stock Index Fund, the MidCap Index Fund, the Small Cap
Index Fund, the International Equities Fund, the Growth Fund, the Growth &
Income Fund, the Science & Technology Fund, the Social Awareness Fund, the Asset
Allocation Fund, the Capital Conservation Fund, the Government Securities Fund,
the International Government Bond Fund, and the Money Market Fund were
$5,543,535, $1,880,085, $622,719, $668,871, $4,704,380, $1,211,524, $5,973,280,
$525,440, $900,822, $347,154, $417,356, $833,117, and $572,063, respectively.
For the fiscal year ended May 31, 1998, the investment advisory fees paid
by the Company for the Stock Index Fund, the MidCap Index Fund, the Small Cap
Index Fund, the International Equities Fund, the Growth Fund, the Growth &
Income Fund, the Science & Technology Fund, the Social Awareness Fund, the Asset
Allocation Fund, the Capital Conservation Fund, the Government Securities Fund,
the International Government Bond Fund, and the Money Market Fund were
$7,946,046, $2,313,256, $798,980, $582,798, $7,593,303, $1,907,885, $8,602,906,
$1,204,327, $943,269, $335,861, $436,775, $846,176, and $752,732, respectively.
The Investment Advisory Agreements may be continued with respect to any
Fund if specifically approved at least annually by (a)(i) the Company's Board of
Directors 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
directors 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 Agreements also provide that
they shall terminate automatically if assigned. The Investment Advisory
Agreements may be terminated as to any Fund at any time by the Company's Board
of Directors, 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 either Investment Advisory
Agreement that VALIC shall not be liable to the Company, or any shareholder in
the 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.
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<PAGE> 95
INVESTMENT SUB-ADVISERS
Pursuant to an Investment Sub-Advisory Agreement which was approved by
shareholders of the Stock Index Fund and the MidCap Index Fund on April 28, 1992
and by shareholders of the Small Cap Index Fund on September 15, 1992, VALIC has
engaged Bankers Trust Company ("Bankers Trust") to provide investment
Sub-Advisory services for the Stock Index Fund, the MidCap Index Fund and the
Small Cap Index Fund. T. Rowe Price Associates, Inc. ("T. Rowe Price") provides
Sub-Advisory services for the Growth Fund and the Science & Technology Fund
pursuant to a Sub-Advisory Agreement. Value Line, Inc. ("Value Line") provides
Sub-Advisory services for the Growth & Income Fund pursuant to a Sub-Advisory
Agreement. Bankers Trust, T. Rowe Price and Value Line (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 Stock
Index Fund, the MidCap Index Fund, the Small Cap Index Fund, the Growth Fund,
the Growth & Income Fund and the Science & Technology Fund, respectively
(collectively the "Sub-Advised Funds").
In addition to acting as Sub-adviser to the MidCap Index Fund, the Stock
Index Fund and Small Cap Index Fund as of September 30, 1995, Bankers Trust and
Bankers Trust Australia collectively are the money managers to the following
registered investment companies: Accessor Funds, Inc. Short Intermediate Fixed
Income Portfolio; Asset Management Portfolio; Asset Management Portfolio II;
Asset Management Portfolio III; The Bank Fiduciary Fund -- Equity Portfolio and
Fixed Income Portfolio; Capital Appreciation Portfolio; Cash Management
Portfolio; Equity 500 Index Portfolio; Small Cap Index Portfolio; EAFE Equity
Index Portfolio; U.S. Bond Index Portfolio; Retirement Plus Portfolio; AARP U.S.
Stock Index Fund; USAA S&P100 Index Fund; AAS&P 100 Index Fund; Liquid Asset
Series and Emerging Market Series; Global High Yield Portfolio; Hercules Latin
American Value Fund; International Equity Portfolio; Intermediate Tax Free
Portfolio; Latin American Equity Portfolio; Liquid Assets Portfolio; NY Tax Free
Money Portfolio; Pacific Basin Equity Portfolio; Pacific Select Fund -- Equity
Index Series; Short Intermediate Government Securities Portfolio; Small Cap
Portfolio; Tax Free Money Portfolio and Treasury Money Portfolio and Utility
Portfolio.
In addition to acting as Sub-adviser to the Growth Fund and the Science &
Technology Fund, T. Rowe Price manages the following funds with which it is
affiliated: T. Rowe Price Growth Stock Fund, Inc.; T. Rowe Price New Horizons
Fund, Inc.; T. Rowe Price New Era Fund, Inc.; T. Rowe Price New Income Fund,
Inc.; T. Rowe Price Growth & Income Fund, Inc.; T. Rowe Price Prime Reserve
Fund, Inc.; T. Rowe Price Tax-Free Income Fund, Inc.; T. Rowe Price Tax-Exempt
Money Fund, Inc.; T. Rowe Price Short-Term Bond Fund, Inc.; T. Rowe Price
Tax-Free Insured Intermediate Bond Fund, Inc.; T. Rowe Price Tax-Free
Short-Intermediate, Inc.; T. Rowe Price High Yield Fund, Inc.; T. Rowe Price
Tax-Free High Yield Fund, Inc.; T. Rowe Price GNMA Fund; T. Rowe Price Equity
Income Fund; T. Rowe Price New America Growth Fund; T. Rowe Price Capital
Appreciation Fund; T. Rowe Price Science & Technology Fund, Inc.; T. Rowe Price
Small-Cap Value Fund, Inc.; T. Rowe Price U.S. Treasury Funds, Inc. (which
includes U.S. Treasury Money Fund, U.S. Treasury Intermediate Fund and U.S.
Treasury Long-Term Fund); T. Rowe Price State Tax-Free Income Trust (which
includes Maryland Tax-Free Bond Fund, New York Tax-Free Bond Fund, New York
Tax-Free Money Fund, Virginia Short-Term Tax-Free Bond Fund, Virginia Tax-Free
Bond Fund, New Jersey Tax-Free Bond Fund, Georgia Tax-Free Bond Fund, Florida
Insured Intermediate Tax-Free Fund, and Maryland Short-Term Tax-Free Bond Fund);
T. Rowe Price California Tax-Free Income Trust (which includes California
Tax-Free Bond Fund and California Tax-Free Money Fund); T. Rowe Price Index
Trust, Inc. (which includes the T. Rowe Price Equity Index 500 Fund, T. Rowe
Price Extended Equity Market Index Fund and T. Rowe Price Total Equity Market
Index Fund); T. Rowe Price Spectrum Fund, Inc. (which includes the Spectrum
Growth Fund, Spectrum Income Fund and Spectrum International Fund); T. Rowe
Price Short Term U.S. Government Fund, Inc. (formerly T. Rowe Price Adjustable
Rate U.S. Government Fund, Inc.); T. Rowe Price Balanced Fund, Inc.; T. Rowe
Price Mid-Cap Value Fund, Inc.; T. Rowe Price Small-Cap Stock Fund, Inc.
(formerly known as T. Rowe Price OTC Fund, Inc.), T. Rowe Price Blue Chip Growth
Fund, Inc., T. Rowe Price Dividend Growth Fund, Inc., T. Rowe Price Capital
Opportunity Fund, Inc., T. Rowe Price Financial Services
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<PAGE> 96
Fund, Inc., T. Rowe Price Health Sciences Fund, Inc., T. Rowe Price Mid-Cap
Growth Fund, Inc., T. Rowe Price Value Fund, Inc., T. Rowe Price Corporate
Income Fund, Inc., T. Rowe Price Summit Funds, Inc. (which includes T. Rowe
Price Summit Cash Reserves Fund, T. Rowe Price Summit Limited-Term Bond Fund and
Summit T. Rowe Price GNMA Fund), T. Rowe Price Summit Municipal Funds, Inc.
(which includes T. Rowe Price Summit Municipal Money Market Fund, T. Rowe Price
Summit Municipal Intermediate Fund, and T. Rowe Price Summit Municipal Income
Fund), Reserve Investment Funds, Inc. (which includes Government Reserve
Investment Fund and Reserve Investment Fund), T. Rowe Price Diversified
Small-Cap Growth Fund, Inc., T. Rowe Price Media & Telecommunications Fund,
Inc., T. Rowe Price Real Estate Fund, Inc., and T. Rowe Price Tax-Efficient
Balanced Fund, Inc., T. Rowe Price Equity Series, Inc. (which includes T. Rowe
Price Equity Income Portfolio, T. Rowe Price New America Growth Portfolio, T.
Rowe Price Mid-Cap Growth Portfolio, and T. Rowe Price Personal Strategy
Balanced Portfolio), T. Rowe Price Fixed Income Series, Inc. (which includes T.
Rowe Price Limited-Term Bond Portfolio and T. Rowe Price Prime Reserve
Portfolio), T. Rowe Price International Series, Inc. (which includes T. Rowe
Price International Stock Portfolio); T. Rowe Price Personal Strategy Funds,
Inc. (which includes T. Rowe Price Personal Strategy Income Fund, T. Rowe Price
Strategy Balanced Fund, and Personal Strategy Growth Fund) and Institutional
Equity Funds, Inc. (which includes Mid-Cap Equity Growth Fund). In addition, an
affiliate of T. Rowe Price, Rowe Price-Fleming International, Inc., acts as
investment adviser to the T. Rowe Price International Funds, Inc. (which
includes the T. Rowe Price International Stock Fund, T. Rowe Price International
Bond Fund, T. Rowe Price International Discovery Fund, T. Rowe Price Emerging
Markets Stock Fund, T. Rowe Price Emerging Markets Bond Fund, T. Rowe Price
European Stock Fund, T. Rowe Price New Asia Fund, T. Rowe Price Global Bond
Fund, formerly T. Rowe Price Global Government Bond Fund, T. Rowe Price Japan
Fund; T. Rowe Price Global Stock Fund, and T. Rowe Price Latin America Fund);
and the Institutional International Funds, Inc. (which includes the Foreign
Equity Fund).
In addition to acting as Sub-adviser to the Growth & Income Fund, Value
Line manages the following funds with which it is affiliated: The Value Line
Fund, Inc.; The Value Line Income Fund, Inc.; The Value Line Special Situations
Fund, Inc.; Value Line Leveraged Growth Investors, Inc.; The Value Line Cash
Fund, Inc.; Value Line Government Securities Fund, Inc.; Value Line Centurion
Fund, Inc.; The Value Line Tax Exempt Fund, Inc.; Value Line Convertible Fund,
Inc.; Value Line Aggressive Income Trust; Value Line New York Tax Exempt Trust;
Value Line Strategic Asset Management Trust; The Value Line Intermediate Bond
Fund, Inc.; Value Line Small-Cap Growth Fund, Inc.; Value Line Asset Allocation
Fund, Inc.; and Value Line U.S. Multi-National Fund, Inc.
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 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, from the compensation VALIC receives from the Company for
acting as investment adviser, pay to BTC, for the services rendered and expenses
paid by BTC, a monthly fee computed at the annual rate of 0.03% on the first
$300 million and 0.02% on assets over $300 million for the MidCap Index Fund,
0.02% on the first $2 billion and 0.01% on assets over $2 billion for the Stock
Index Fund and 0.03% on the first $150 million and 0.02% on assets over $150
million for the Small Cap Index Fund. VALIC shall, from the compensation VALIC
receives from the Company for acting as investment adviser, pay to T. Rowe
Price, for the services rendered and expenses paid by T. Rowe Price, a monthly
fee computed at the annual rate of 0.50% on the first $500 million and 0.45% on
assets
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<PAGE> 97
over $500 million for the Growth Fund and 0.60% on the first $500 million and
0.55% on assets over $500 million for the Science & Technology Fund. VALIC
shall, from the compensation VALIC receives from the Company for acting as
investment adviser, pay to Value Line, for services rendered and expenses paid
by Value Line, a monthly fee based on average daily net asset values of the
Growth & Income Fund at an annual rate of 0.45%. Notwithstanding the above
provision, VALIC is required to pay a minimum annual sub-advisory fee of $50,000
to BTC for the Small Cap Index Fund. There are no minimum sub-advisory fees for
the Stock Index Fund, MidCap Index Fund, the Growth Fund, the Growth & Income
Fund or the Science & Technology Fund.
The Investment Sub-Advisory Agreements require that each Sub-Adviser
promptly reduce its monthly fee by the amount of any commission, tender and
exchange offer solicitation fees, other fees or similar payments received by the
Sub-Adviser, or any affiliated person of the Sub-Adviser, in connection with
Sub-Advised Fund portfolio transactions. Such "commissions" or "other fees"
exclude those charged by brokers or dealers affiliated with a Sub-Adviser, as
referred to below. Such "tender and exchange offer solicitation fees" exclude
those received by a Sub-Adviser acting in the capacity of manager for any such
offer. In this regard, the Sub-Advisory Agreements require the Sub-Advisers to
use their best efforts to obtain tender and exchange solicitation offer fees for
each Fund's benefit, and to advise VALIC of any other fees or similar payments
that they (or any of their affiliates) may receive in connection with any Fund's
portfolio transactions or of other arrangements that may benefit any of the
Funds.
The Investment Sub-Advisory Agreements may be continued with respect to any
of the Funds if approved at least annually by the vote of the Company's Board of
Directors 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
Company's Board of Directors or a majority of the relevant Fund's outstanding
voting securities.
The Investment Sub-Advisory Agreements will automatically terminate in the
event of assignment or in the event of termination of the Investment Advisory
Agreement between VALIC and the Company as it relates to the relevant
Sub-Advised Fund. The Investment Sub-Advisory Agreements may be terminated at
any time by VALIC, the relevant Sub-Adviser, the Company's Board of Directors,
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 Company or to any shareholder of the 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 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 Stock Index Fund, the MidCap Index Fund, the Small Cap
Index Fund, the Growth Fund, the Growth & Income Fund and the Science &
Technology Fund. The Sub-Advisers may employ affiliated brokers or, in the case
of T. Rowe Price, indirectly related brokers for portfolio transactions under
circumstances described in the Prospectus under the heading "Investment
Management."
Virtually all of the over-the-counter transactions by the Asset Allocation
Fund, the Money Market Fund, the Capital Conservation Fund, the Government
Securities Fund, the International Government Bond Fund and the Growth & Income
Fund are principal transactions with issuers and dealers at net prices which
entail no brokerage commissions. The MidCap Index Fund, the Stock
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<PAGE> 98
Index Fund, the International Equities Fund, the Small Cap Index Fund, and the
Social Awareness Fund, each purchase and sell most of their portfolio securities
on a national securities exchange on an agency basis. The Growth Fund and the
Science & Technology Fund engage in over-the-counter transactions with
principals and transactions with national securities exchanges on an agency
basis. The Company normally enters into principal transactions directly with the
issuer or the market-maker.
When the 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 Company purchases securities from the issuer, an
underwriter usually receives a commission or "concession" paid by the issuer.
When the Company purchases securities from a market-maker, it pays no
commission, but the price includes a "spread" or "mark-up" (between the bid and
asked price) earned by the market-making dealer on the transaction.
In purchasing and selling each Fund's portfolio securities, it is the
policy of VALIC and the Sub-Advisers (collectively, the "Advisers") to seek the
best execution at the most favorable price through responsible broker-dealers
and, in the case of agency transactions, at competitive commission rates. When
selecting brokers or dealers, and in negotiating prices and commissions, the
Advisers consider such factors as: the broker or dealer's reliability; the
quality of the broker or dealer's execution services on a continuing basis; the
rate of the commission; the size and difficulty of the order and the timeliness
of execution; the reliability, integrity, financial condition, general
execution, and operational capabilities of that firm and competing
broker-dealers. In over-the-counter transactions, the Advisers place orders
directly with the principal market-maker unless they believe the 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 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 Company. The Advisers will not cause
the 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 com-
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<PAGE> 99
missions paid to firms providing research services are reviewed quarterly by the
Company's Board of Directors.
Brokerage commissions paid by the Stock Index Fund on portfolio
transactions for the fiscal years ended May 31, 1998, 1997, and 1996, totalled
$131,621, $122,723 and $84,226, respectively. For the fiscal year ended May 31,
1998 the Stock Index Fund paid no brokerage commissions to brokers for research
services provided to the Advisers.
Brokerage commissions paid by the MidCap Index Fund on portfolio
transactions for the fiscal years ended May 31, 1998, 1997, and 1996, totalled
$125,995, $80,089 and $93,068, respectively. For the fiscal year ended May 31,
1998, the MidCap Index Fund paid no brokerage commissions to brokers for
research services provided to the Advisers.
Brokerage commissions paid by the Small Cap Index Fund on portfolio
transactions for the fiscal year ended May 31, 1998, 1997 and 1996, totalled
$64,613, $90,498 and $37,454, respectively. For the fiscal year ended May 31,
1998, the Small Cap Index Fund paid no brokerage commissions to brokers for
research services provided to the Advisers.
Brokerage commissions paid by the International Equities Fund on portfolio
transactions for the fiscal years ended May 31, 1998, 1997, and 1996 totalled
$130,204, $153,793 and $250,882, respectively. For the fiscal year ended May 31,
1998, the International Equities Fund paid no brokerage commissions to brokers
for research services provided to VALIC.
Brokerage commissions paid by the Growth Fund on portfolio transactions for
the fiscal years ended May 31, 1998, 1997 and 1996, totalled $889,312, $757,865
and $486,285, respectively. For the fiscal year ended May 31, 1998, the Growth
Fund paid $101,840 in brokerage commissions, on transactions totalling
$40,156,191, to brokers selected on the basis of the quality of the execution
together with research services provided to the Advisers.
Brokerage commissions paid by the Growth & Income Fund on portfolio
transactions for the fiscal year ended May 31, 1998, 1997 and 1996, totalled
$276,322, $159,571 and $112,767, respectively. For the fiscal year ended May 31,
1997, the Growth & Income Fund paid $158,829 in brokerage commissions, on
transactions totalling $147,733,656, to brokers selected on the basis of the
quality of the execution together with research services provided to the
Advisers.
Brokerage commissions paid by the Social Awareness Fund on portfolio
transactions for the fiscal years ended May 31, 1998, 1997, and 1996, totalled
$518,012, $221,028 and $99,297, respectively. For the fiscal year ended May 31,
1998 the Social Awareness Fund paid no brokerage commissions to brokers for
research services provided to VALIC.
Brokerage commissions paid by the Science & Technology Fund on portfolio
transactions for the fiscal year ended May 31, 1998, 1997 and 1996, totalled
$1,031,246, $1,143,004 and $664,932, respectively. For the fiscal year ended May
31, 1998, the Science & Technology Fund paid $88,345 in brokerage commissions,
on transactions totalling $75,195,279, to brokers selected on the basis of the
quality of the execution together with research services provided to the
Advisers.
Brokerage commissions paid by the Asset Allocation Fund on portfolio
transactions for the fiscal years ended May 31, 1998, 1997 and 1996, totalled
$39,049, $239,365 and $235,223, respectively. For the fiscal year ended May 31,
1998, the Asset Allocation Fund paid no brokerage commissions to brokers for
research services provided to VALIC.
No brokerage commissions were paid by the Capital Conservation Fund,
Government Securities Fund, International Government Bond Fund and Money Market
Fund for fiscal years ended May 31, 1998, 1997 and 1996.
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 Company's Board of Directors. 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
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<PAGE> 100
an adverse effect on the price or quantity of securities available to the Funds.
However, the Funds may, alternatively, benefit from lower broker's commissions
and/or correspondingly lower costs for brokerage and research services by
engaging in such combined transactions. In the Advisers' opinion, the results of
this procedure will, on the whole, be in the best interest of each Fund.
OFFERING, PURCHASE, AND REDEMPTION OF FUND SHARES
Pursuant to a distribution agreement, the Variable Annuity Marketing
Company ("VAMCO") acts without remuneration as the Company's agent in the
distribution of Fund shares to the VALIC, AG Life and AGNY separate accounts.
VAMCO's address is the same as that of VALIC.
The distribution agreement between VAMCO and the Company provides that it
shall continue in force from year to year, provided that such continuance is
approved at least annually (a)(i) by the Board of Directors of the Company, or
(ii) by vote of a majority of the Company's outstanding voting securities (as
defined in the 1940 Act) and (b) by the affirmative vote of a majority of the
Company's Directors who are not 'interested persons' (as defined in the 1940
Act) of the Company by votes cast in person at a meeting called for such
purpose. The distribution agreement may be terminated at any time, without
penalty, by a vote of the Board of Directors of the Company or by a vote of a
majority of the outstanding voting securities of the Company, or by VAMCO, on
sixty days' written notice to the other party. The distribution agreement also
provides that it shall automatically terminate in the event of its assignment.
Pursuant to the distribution agreement, VAMCO pays promotional and
advertising expenses and the cost of printing prospectuses used to offer and
sell shares of the Company (after typesetting and printing the copies required
for regulatory filings by the 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
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 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 Securities and Exchange Commission
has so permitted by order for the protection of the Company's shareholders.
The Company normally redeems Fund shares for cash. Although the Company,
with respect to each Fund, may make full or partial payment by assigning to the
separate accounts investing in the Company portfolio securities at their value
used in determining the redemption price (i.e. by redemption-in-kind), the
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 Company has committed
itself to pay the separate accounts, in cash, all redemptions made during any 90
day period, up to the lesser of $250,000 or 1% of the Company's net asset value.
The securities to be paid in-kind to the separate accounts will be selected in
such manner as the Board of Directors deems fair and equitable. In such cases,
the separate accounts 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 Association of Securities Dealers Automated
Quotations) National Market System. In the absence of any National Market System
sales on that day, equity securities are valued at the last reported bid price
and call options written on all portfolio securities for which other
over-the-counter market quotations are readily available are valued at the last
reported asked price.
U.S. Treasury securities and other obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities, are valued at representative
quoted prices. Such quotations generally are obtained from government securities
pricing services; however, in circumstances where it is deemed appropriate to do
so, quotations may be obtained from dealers in government securities.
Publicly-traded corporate bonds are valued at prices obtained from State
Street Bank and Trust Company.
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 Company's Board of Directors,
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,
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the yield to investors may differ somewhat from that obtained by a similar fund
or portfolio which uses available market quotations to value all of its
portfolio securities. The Company's Board of Directors 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 Securities Act of 1933 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 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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ACCOUNTING AND TAX TREATMENT
CALLS AND PUTS
When a Fund writes a call or put option, an amount equal to the premium
received by it is included in that Fund's Statement of Assets and Liabilities as
an asset and as an equivalent liability. The amount of the liability is
subsequently "marked to market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded. If a call option
which a Fund has written either expires on its stipulated expiration date, or if
a Fund enters into a closing purchase transaction, it realizes a gain (or loss
if the cost of the closing transaction exceeds the premium received when the
option was sold) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a call
option which a Fund has written is exercised, the Fund realizes a capital gain
or loss from the sale of the underlying security and proceeds from such sale are
increased by the premium originally received.
The premium paid by a Fund for the purchase of a put option is included in
the asset section of its Statement of Assets and Liabilities as an investment
and subsequently adjusted daily to the current market value of the option. For
example, if the current market value of the option exceeds the premium paid, the
excess would be unrealized appreciation and, conversely, if the premium exceeds
the current market value, such excess would be unrealized depreciation. The
current market value of a purchased option is the last sale price on the
principal Exchange on which such option is traded. If a put option which a Fund
has purchased expires unexercised it realizes a capital loss equal to the cost
of the option. If a Fund exercises a put option, it realizes a capital gain or
loss from the sale of the underlying security and the proceeds from such sale
will be decreased by the premium originally paid.
FINANCIAL FUTURES CONTRACTS
Accounting for financial futures contracts will be in accordance with
generally accepted accounting principles. Initial margin deposits made upon
entering into financial futures contracts will be recognized as assets due from
the FCM (the Fund's agent in acquiring the futures position). During the period
the financial futures contract is open, changes in the value of the contract
will be recognized as unrealized gains or losses by "marking-to-market" on a
daily basis to reflect the market value of the contract at the end of each day's
trading. Variation (or maintenance) margin payments will be made or received,
depending upon whether gains or losses are incurred. Financial futures contracts
held by a Fund at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes (that is, treated as having been sold at
market value).
SUBCHAPTER M OF THE INTERNAL REVENUE CODE OF 1986
Each Fund of the Company intends to qualify annually as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). A Fund must meet several requirements to obtain and
maintain its status as a regulated investment company. Among these requirements
are that: (i) at least 90% of a Fund's gross income be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
disposition of securities; and (ii) at the close of each quarter of a Fund's
taxable year (a) at least 50% of the value of the Fund's assets consist of cash,
government securities, securities of other regulated investment companies and
other securities (such other securities of any one issuer being not greater than
5% of the value of a Fund and the Fund holding not more than 10% of the
outstanding voting securities of any such issuer) and (b) not more than 25% of
the value of a Fund's assets be invested in the securities of any one issuer
(other than United States government securities or securities of other regulated
investment companies). Each Fund of the Company is treated as a separate entity
for federal income tax purposes.
The Internal Revenue Service ("Service") has ruled publicly that an
exchange-traded call option is a security for purposes of the 50% of assets test
and that its issuer is the issuer of the underlying security, not the writer of
the option, for purposes of the diversification requirements. It has ruled
privately (at the request of a taxpayer other than the Company) that income from
closing financial futures contracts is considered gain from a disposition of
securities for purposes of the 90% of gross income test. However, since
taxpayers other than the taxpayer requesting a particular private ruling are not
entitled to rely on such ruling, the Company intends
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to keep its Funds' activity in futures contracts and options at a low enough
volume such that gains from closing futures contracts will not exceed 10% of a
Fund's gross income until the Service rules publicly on the issues or the
Company is otherwise satisfied that those gains are qualifying income.
SECTION 817(h) OF THE CODE
Each of the Funds intends to comply with Section 817(h) of the 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 Company may
cause the Contract Owner to be taxable with respect to assets allocated to the
separate account, before distributions are actually received under the Contract.
In order to comply with the requirements of Section 817(h) and the
regulations thereunder, the Company may find it necessary to take action to
ensure that a Contract funded by the Company continues to qualify as such under
federal tax laws. The 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 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.
OTHER INFORMATION
SHAREHOLDER REPORTS
Annual Reports containing audited financial statements of the 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 Company has an authorized capitalization of 13 billion shares of common
stock, $0.01 par value per share, 13 billion of which are authorized to be
issued in thirteen classes comprising 1 billion shares each. Each of the
thirteen classes of stock corresponds to one of the Funds and represents an
ownership interest in that Fund. See "Voting and Other Rights" in the Prospectus
for a full discussion of the manner in which shares of the Fund are voted.
VALIC has made initial organization investments in each of the following
Funds, and, as of May 31, 1998, owned of record the following percentage of the
outstanding shares of these Funds: 0% of the Stock Index Fund, 0% of the MidCap
Index Fund, 0% of the Small Cap Index Fund, 0% of the International Equities
Fund, 0% of the Growth Fund, 0% of the Growth & Income Fund, 0.53% of the
Capital Conservation Fund, 0% of the Government Securities Fund, 0% of the
International Government Bond Fund, 0% of the Social Awareness Fund, 0% of the
Science & Technology
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Fund, 0% of the Money Market Fund, and 0% of the Asset Allocation Fund.
VALIC's ownership of more than 25% of the outstanding shares may result in
VALIC's being deemed a controlling entity of each of those Funds as that term is
defined in the 1940 Act. Such control will dilute the effect of the votes of
other shareholders and contract owners.
As of May 31, 1998, VALIC Separate Account A owned of record the following
percentage of the outstanding shares of each Fund: 96.95% of the Stock Index
Fund, 100% of the MidCap Index Fund, 100% of the Small Cap Index Fund, 99.96% of
the International Equities Fund, 97.69% of the Growth Fund, 100% of the Growth &
Income Fund, 99.47% of the Capital Conservation Fund, 100% of the Government
Securities Fund, 100% of the International Government Bond Fund, 99.99% of the
Social Awareness Fund, 100% of the Science & Technology Fund, 100% of the Money
Market Fund, and 99.95% of the Asset Allocation Fund.
As of May 31, 1998, the other shareholders of the Funds included AGL
Separate Account A, AGL Separate Account B, AGL Separate Account D, AGL Select
Reserve, AGL Platinum Investor, American General Corporation Thrift Plan and
VALIC Agents' and Managers' Thrift Plan. None of these other shareholders owned
of record more than 5% of any Fund's outstanding shares.
CUSTODY OF ASSETS
Pursuant to a Custodian Contract with the Company, State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, holds the cash and portfolio securities of the Company as custodian.
State Street 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 Company, and performing other administrative
duties, all as directed by persons authorized by the Company. State Street 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 Company. Portfolio securities of the Funds purchased domestically
are maintained in the custody of State Street and may be entered into the book
entry systems of securities depositories approved by the Board of Directors.
Pursuant to the Custodian Contract, portfolio securities purchased outside the
United States will be maintained in the custody of various foreign branches of
State Street and such other custodians, including foreign banks and foreign
securities depositories, as are approved by the Board of Directors, in
accordance with regulations under the 1940 Act.
State Street 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 State
Street creating a separate segregated account into which it transfers (upon the
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 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
Company and the FCMs or brokers. The Company has an agreement with each FCM or
broker which provides (1) that the assets of any Fund held by the FCM or broker
will be in the possession of State Street 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 Company the FCM or broker will cause State Street
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 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
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contracts or covered options on stock indices held through a given FCM or
broker, it is entitled immediately to receive from the FCM or broker, and
usually will receive by the next business day, the net amount of such gains.
Thereupon, such assets will be deposited in its general or segregated account
with State Street, as appropriate.
INDEX FUNDS
The Small Cap Index Fund is not promoted, sponsored or endorsed by, nor in
any way affiliated with Frank Russell Company. Frank Russell Company is not
responsible for and has not reviewed the Fund nor any associated literature or
publications and Frank Russell Company makes no representation or warranty,
express or implied, as to their accuracy, or completeness, or otherwise.
Frank Russell Company reserves the right, at any time and without notice,
to alter, amend, terminate or in any way change its Index(es). Frank Russell
Company has no obligation to take the needs of any particular fund or its
participants or any product or person into consideration in determining,
comprising or calculating the Index(es).
Frank Russell Company's publication of the Index(es) in no way suggests or
implies an opinion by Frank Russell Company as to the attractiveness or
appropriateness of investment in any or all securities upon which the Index(es)
is (are) based. FRANK RUSSELL COMPANY MAKES NO REPRESENTATION, WARRANTY, OR
GUARANTEE AS TO THE ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE
INDEX(ES) OR ANY DATA INCLUDED IN THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO
REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE RESULTS OF USE, OF THE
INDEX(ES) OR ANY DATA INCLUDED THEREIN, OR ANY SECURITY (OR COMBINATION THEREOF)
COMPRISING THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO OTHER EXPRESS OR
IMPLIED WARRANTY, AND EXPRESSLY DISCLAIMS ANY WARRANTY, OF ANY KIND, INCLUDING
WITHOUT MEANS OR LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX(ES) OR ANY DATA OR ANY SECURITY (OR
COMBINATION THEREOF) INCLUDED THEREIN.
The Stock Index Fund and the MidCap Index Fund are not sponsored, endorsed,
sold or promoted by Standard & Poor's Corporation ("S&P"). S&P makes no
representation or warranty, express or implied, to the Company or its
participants regarding the advisability of investing in securities generally or
in the Stock Index Fund or MidCap Index Fund particularly or the ability of the
S&P Index or the S&P MidCap 400 Index Fund to track general stock market
performance. S&P has no obligation to take the need of the Company or the
Company's participants into consideration in determining, composing or
calculating the S&P 500 Index or S&P MidCap 400 Index. S&P is not responsible
for and has not participated in the determination of the prices and amount of
the Stock Index Fund or MidCap Index Fund or the timing of the issuance or sale
of such Funds or in the determination or calculation of the equation by which
such Funds are to be converted into cash. S&P has no obligation or liability in
connection with the administration, marketing or trading of the Funds.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO
LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE COMPANY FROM
THE USE OF THE S&P 500 INDEX OR S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR S&P MIDCAP 400 INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
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DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Service, Inc.'s corporate bond ratings are as follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. 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 some time 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 and
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safe-guarded during both 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.
Standard & Poor's Corporation classifications are as follows:
AAA -- This is the highest rating assigned by Standard & Poor's to a
financial obligation and indicates an extremely strong capacity to meet its
financial commitment.
AA -- An obligation rated "AA" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is strong.
A -- An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB -- Obligations rated "BBB" exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
BB-B-CCC-CC -- Obligations rated "BB", "B", "CCC" and "CC" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "CC" a higher degree of speculation. While such obligations
will likely have some quality and protective characteristics, they may be
outweighed by large uncertainties or major exposures to adverse conditions.
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
48
<PAGE> 108
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.
INDEPENDENT AUDITORS
Ernst & Young LLP, One Houston Center, 1221 McKinney, Suite 2400, Houston,
Texas 77010, serve as independent auditors of the Company.
49
<PAGE> 109
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
---------------- --------------- -------------------
<S> <C> <C>
Thomas L. West, Jr.*.............. Chairman of the Board and Chairman, Chief Executive Officer and
2929 Allen Parkway Director since 1994 Director, VALIC and American General
Houston, Texas 77019 Annuity Insurance Company ("AGAIC");
Date of Birth: 06/07/37 Director, VAMCO. Formerly Senior Vice
President Annuity Business
Unit -- Aetna Life Insurance &
Annuity Co. (1987-1994).
Joe C. Osborne*................... Director since 1992 Executive Vice President of Marketing
2929 Allen Parkway and Director, VALIC and AGAIC.
Houston, Texas 77019
Date of Birth: 09/17/48
Peter V. Tuters*.................. Director since 1992 Executive Vice President, American
2929 Allen Parkway General Investment Management, L.P.;
Houston, Texas 77019 Vice President and Investment
Date of Birth: 04/18/52 Officer, VALIC and AGAIC; Senior Vice
President and Chief Investment
Officer, American General Corporation
(1993-1998).
Dr. Norman Hackerman.............. Director since 1984 Chairman -- Scientific Advisory Board
5555 San Felipe for The Robert A. Welch Foundation
Suite 1900 (1983- Present); Director,
Houston, Texas 77056-2727 Electrosource, Inc.; Director, Radian
Date of Birth: 03/02/12 Corporation; Director, Scientific
Measurement Systems, Inc.; President
Emeritus, Rice University, Houston,
Texas. Formerly, President, Rice
University, Houston, Texas
(1970-1985).(1)(2)(4)
Dr. John Wm. Lancaster............ Director since 1984 Retired. Pastor Emeritus and Director
4642 Braeburn of Planned Giving, First Presbyterian
Bellaire, Texas 77401 Church, Houston, Texas. Formerly,
Date of Birth: 12/15/23 Pastor, First Presbyterian Church,
Houston, Texas.(4)
Dr. F. Robert Paulsen............. Director since 1985 Dean Emeritus and Professor Emeritus,
2801 N. Indian Ruins College of Higher Education,
Tucson, Arizona 85715 University of Arizona, Tucson,
Date of Birth: 07/05/22 Arizona.(1)(2)(4)
</TABLE>
- ------------
* Interested persons of the Company as defined in the 1940 Act specifically
because of their capacity as officers, directors or consultants of the
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, Inc., Van Kampen
American Capital Income Trust, Van Kampen American Capital Convertible
Securities Fund, Inc. and the Common Sense Trust.
(3) Retired Trustee of Van Kampen American Capital Income Trust and Common Sense
Trust and retired Director of Van Kampen American Capital Bond Fund and Van
Kampen American Capital Convertible Securities Fund.
(4) Directors who are not interested persons of the Company receive an annual
retainer of $18,000. In addition, such Directors are paid per board meeting,
committee meeting, telephone meeting and committee chair, a fee of $1,500,
$250, $250 and $250, respectively, plus expenses incurred, if any.
50
<PAGE> 110
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
---------------- --------------- -------------------
<S> <C> <C>
Dr. R. Miller Upton............... Director since 1984 Consultant. Formerly, Director, Home
914 Tarrant Dr. Life Insurance Company of New York
Fontana, Wisconsin 53125 (1965- 1988) and Director, Household
Date of Birth: 12/27/16 International, Inc.
(1965-1989).(1)(3)(4)
Ben H. Love....................... Director since 1991 Retired. Formerly, Chief Executive,
4407 Eaton Circle Boy Scouts of America.
Colleyville, Texas 76034 (1985-1993).(4)
Date of Birth: 09/26/30
</TABLE>
Listed below are the 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>
Teresa S. Moro.................... Vice President and Investment Trader -- VALIC. Formerly, Money Mar-
Date of Birth: 08/14/60 Officer since 1990 ket Trader, VALIC (1986-1990); AIM
Management Group Inc. (1983-1986).
Leon A. Olver..................... Vice President and Investment Portfolio Manager, VALIC. Formerly
Date of Birth: 06/27/51 Officer since 1995 Vice President and Treasurer, First
Heights Bank (1994-1995); Vice
President and Assistant Treasurer,
First Heights Bank (1991-1994);
Assistant Vice President, Pulte
Financial Companies (1984-1991).
William Trimbur, Jr............... Vice President and Investment Portfolio Manager, VALIC. Formerly,
Date of Birth: 06/15/51 Officer since 1987 Second Vice President, VALIC
(1985-1990); Controller, VALIC
(1985-1986); Assistant Controller,
VALIC (1982-1985) and Assistant
Treasurer, VALIC (1982-1986).
Michael G. Atnip.................. Executive Vice President since Executive Vice President of
Date of Birth: 07/08/48 1998 Administration and Information
Systems and Director, VALIC and
AGAIC, Formerly, Senior Vice
President, Operations Support, Ameri-
can General Corporation (1994-1997);
Senior Vice President, Insurance and
Administration, American General
Finance (1991-1993).
Maruti D. More.................... Vice President -- Vice President, American General
Date of Birth: 02/02/44 Investments Investment Management, L.P.; Vice
President, Investments, VALIC.
Formerly, Managing Director,
Marketable Securities, Paul Revere
Investment Management Corporation;
Senior Portfolio Manager, Dewey
Square Investors; Investment Vice
President, New York Life Insurance
Company.
</TABLE>
51
<PAGE> 111
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH REGISTRANT DURING PAST 5 YEARS
---- --------------- -------------------
<S> <C> <C>
Brent C. Nelson................... Vice President since 1987 Senior Vice President and Controller
Date of Birth: 07/24/51 and Director, VALIC and AGAIC.
Formerly, Vice President and
Controller, VALIC (1990-1994);
Controller, VALIC (1987-1990); Second
Vice President and Controller, VALIC
(1986-1987); Second Vice
President -- Fund Operations, VALIC
(1985-1986); Assistant Vice President
--Controller, Lomas Financial
Security Insurance Co. (1982-1985).
Cynthia A. Toles.................. Vice President and Secretary Senior Vice President and AGAIC,
Date of Birth: 03/28/51 since 1985 General Counsel and Secretary, VALIC
and AGAIC. Secretary and Assistant
Treasurer, VAMCO. Formerly, Senior
Associate General Counsel &
Secretary, VALIC (1990-1998); Vice
President, Associate General Counsel
& Secretary, VALIC (1988-1989);
Second Vice President, Associate
General Counsel and Assistant
Secretary, VALIC (1986-1988);
Assistant Vice President, Assistant
General Counsel and Assistant Sec-
retary, VALIC (1983-1986).
Gregory R. Seward................. Treasurer since 1991 Vice President -- Variable Product
Date of Birth: 06/27/56 Accounting, Director of Fund
Operations and Assistant Controller,
VALIC and AGAIC. 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 1996 Associate Director of Fund
Date of Birth: 02/05/47 Operations, VALIC. Formerly,
Supervisor -- Mutual Fund Accounting,
Van Kampen American Capital
(1977-1996).
Nori L. Gabert.................... Vice President and Assistant Associate General Counsel, VALIC.
Date of Birth: 08/15/53 Secretary since 1998 Formerly, Of Counsel, Winstead
Sechrest & Minick P.C. (1997); Vice
President and Associate General
Counsel of Van Kampen American
Capital, Inc. (1981-1996).
Cynthia A. Gibbons................ Assistant Vice President since Senior Compliance Analyst, VALIC.
Date of Birth: 12/06/67 1998
Jaime M. Sepulveda................ Assistant Treasurer since 1998 Director -- Variable Product
Date of Birth: 01/09/52 Accounting and Financial Reporting,
VALIC. Formerly, Accounting Manager,
Metro Networks, Inc. (1997-1998);
Controller and Investment Officer,
Port of Houston Authority
(1994-1997); Chief Financial Of-
ficer, Intile Designs, Inc.
(1993-1994).
Earl E. Allen, Jr................. Assistant Treasurer since 1998 Manager -- Fund Reporting, VALIC.
Date of Birth: 03/16/60 Formerly, Senior Auditor, Texas
Treasury Department; Manager,
American General Corporation;
Assistant Vice President, Texas
Commerce Bank.
Donna L. Hathaway................. Assistant Controller since 1998 Manager -- Variable Product
Date of Birth: 09/17/64 Accounting, VALIC. Formerly, Gas
Revenue Accountant, Texaco Inc.;
Accounting Manager, Hewitt
Associates, LLC; Revenue Accounting
Manager, Trans Texas Gas.
</TABLE>
52
<PAGE> 112
The officers conduct and supervise the daily business operations of the
Company, while the directors, in addition to their functions set forth under
"Investment Adviser," review such actions and decide on general policy.
The Company has an Audit Committee. The 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 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 Company's financial statements or books
of account. The Company does not have a standing nominating or compensation
committee.
The five directors of the Company who are not affiliated with VALIC are
each paid annual directors' fees and are reimbursed for certain out-of-pocket
expenses by the Company.
The directors and officers of the Company and members of their families as
a group, beneficially owned less than 1% of the common stock of each Fund
outstanding as of May 31, 1998.
COMPENSATION OF DIRECTORS AND CERTAIN OFFICERS
The following table sets forth information regarding compensation and
benefits earned by the Directors for the fiscal year ending May 31, 1998.
COMPENSATION TABLE
FISCAL YEAR ENDING MAY 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(3)
NAME OF PERSON, POSITION SERIES COMPANY EXPENSES(1) RETIREMENT PAID TO DIRECTORS
------------------------ -------------- -------------- ---------- -----------------
<S> <C> <C> <C> <C>
Thomas L. West, Jr.**..................... $ 0 $ 0 $ 0 $ 0
Joe C. Osborne**.......................... $ 0 $ 0 $ 0 $ 0
Peter V. Tuters**......................... $ 0 $ 0 $ 0 $ 0
Dr. Norman Hackerman...................... $33,000 $24,500 (2) $39,073
Dr. John Wm. Lancaster.................... $27,000 $25,000 (2) $31,073
Ben L. Love............................... $33,000 $24,500 (2) $39,073
Dr. F. Robert Paulsen..................... $27,000 $24,500 (2) $31,073
Dr. R. Miller Upton....................... $25,500 $24,500 (2) $29,073
</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) The total present value of accumulated benefits as of May 31, 1998 under
expense assumptions to be used for the fiscal year ending May 31, 1999 for
Messrs. Hackerman, Lancaster, Love, Paulson, and Upton is $749,000.
(2) All current directors would earn ten or more years of service as of their
normal retirement date. Complete years of service earned as of May 31, 1998
are as follows: Messrs. Hackerman, Lancaster, Paulson, and Upton -- 10 or
greater; Mr. Love -- approximately 7 years.
PENSION TABLE -- ESTIMATED BENEFITS AT NORMAL RETIREMENT
<TABLE>
<CAPTION>
SERVICE UNDER 5 10 OR MORE
AT RETIREMENT YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS YEARS
- ------------- ------- ------- ------- ------- ------- ----------
COMPENSATION
AT RETIREMENT
<S> <C> <C> <C> <C> <C> <C>
$20,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000
$30,000 $15,000 $18,000 $21,000 $24,000 $27,000 $30,000
$40,000 $20,000 $24,000 $28,000 $32,000 $36,000 $40,000
$50,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000
$60,000 $30,000 $36,000 $42,000 $48,000 $54,000 $60,000
</TABLE>
(3) Includes all investment companies managed by VALIC.
53
<PAGE> 113
FINANCIAL STATEMENTS
The financial statements for the year ended May 31, 1998 and the report of
independent auditors for that period are included in the American General Series
Portfolio Company Annual Report for that period.
The Annual Report to shareholders as of May 31, 1998 is incorporated by
reference in this Statement of Additional Information. The financial statements
included in the Annual Report and incorporated by reference in this Statement of
Additional Information have been audited by Ernst & Young LLP, Independent
Auditors, as set forth in their report thereon which appears in the Annual
Report and have been incorporated by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
54
<PAGE> 114
================================================================================
AMERICAN GENERAL SERIES PORTFOLIO COMPANY - ANNUAL REPORT MAY 31, 1998
================================================================================
TABLE OF CONTENTS
President's Letter ......................... 1
Stock Index Fund ........................... 4
MidCap Index Fund .......................... 11
Small Cap Index Fund ....................... 17
International Equities Fund ................ 33
Growth Fund ................................ 39
Growth & Income Fund ....................... 42
Science & Technology Fund .................. 46
Social Awareness Fund ...................... 49
Asset Allocation Fund ...................... 56
Capital Conservation Fund .................. 64
Government Securities Fund ................. 67
International Government Bond Fund.......... 69
Money Market Fund .......................... 73
Notes to Financial Statements .............. 76
Financial Highlights ....................... 79
Report of Independent Auditors ............. 85
<PAGE> 115
===============================================================================
AGSPC PRESIDENT'S LETTER
1
===============================================================================
Dear Valued Customer,
In today's environment of rapidly changing markets, the commitment to your
financial security remains American General Series Portfolio Company's highest
priority. This dedication is reflected in the performance of our funds, and it
is my pleasure to introduce AGSPC's May 31, 1998 Annual Report for your review.
In this report, you will find financial and performance information for AGSPC's
thirteen funds for the period ended May 31, 1998.
Through your variable annuity contract, you are permitted to invest in one or
more of the funds described in this report. Please refer to the chart on page 3
to determine which funds are available under your contract.
MARKET CONDITIONS
Securities markets provided significantly above average returns for the year
ended May 31, 1998. The Standard & Poor's 500 Index (S&P 500(R)) provided a
total return of 30.68% for the 12 months. The Standard & Poor's MidCap 400 Index
(MidCap 400(R)) returned 29.87% and the Russell 2000(R) had a total return of
21.25%. The emphasis for the year was on large capitalization stocks.
The United States economy continues to expand at an above-trend pace, despite
trade and fiscal drag, a strong dollar, and a relatively high real interest
environment. The primary factor stimulating the economy is the strength of the
U.S. equity market. By raising household net worth the market is fueling
spending. People do not have to save as much of their income if the equity
market is increasing their net worth. Also, the "wealth effect" - the feeling
that he or she is wealthier and should spend more - is bolstering consumer
spending.
Another positive in the economy is the extremely low level of inflation.
Consumer price increases have been held to less than 3% annually and for 1998
less than 2% is expected. Wages and salaries are expanding at the rate of 3.5 to
4.0%. When the inflation rate is subtracted, workers are enjoying real wage
increases.
The combination of above average economic growth and contained inflation is
providing a strong background for the stock and bond markets. In addition, the
financial services industry is sending a very strong message, through the media,
that saving for retirement is essential. That message is being received and
unprecedented amounts of money are being invested in mutual funds.
International markets have experienced widely divergent trends. European
investors have seen equity markets appreciate more than 50% while most Asian
markets have experienced dramatic decreases. The Asian markets declined in local
currencies and the international investor saw a greater decrease as the currency
values fell precipitously.
FUND RETURNS
INDEXED FUNDS
The AGSPC index funds continued to emulate their respective indices with close
correlation dependent upon the liquidity of the sector. The large capitalization
Stock Index Fund tracked the S&P 500 Index(R) with a -0.07% difference for the
year, returning 30.61% before expenses. The MidCap Index Fund tracked the MidCap
400(R) with a positive 0.11% difference, returning 29.98% before expenses. The
Small Cap Index Fund tracked the Russell 2000 Index with a positive 0.48%
variance, returning 21.73% before expenses. The International Equities Fund had
a wider than normal variance to the EAFE Index as smaller capitalization names
outperformed in January and February. The fund has low exposure to the smaller
names and relies on the large benchmark names to track its index. In early 1998,
the larger names did not provide the high correlation to local market returns
that they have provided historically. The fund varied from the EAFE index by
- -0.79%, returning 10.32% before expenses.
MANAGED FUNDS
The Growth Fund earned 28.25% before expenses, a -2.43% variance from the S&P
500 Index. The fund concentrates on stocks with above average growth potential
in the service sector. The Science & Technology Fund invests in the highly
volatile electronic and health care industries. Concerns surrounding computer
pricing and demand have produced substantial variance compared to the basic
market index - S&P 500. For the year the fund returned 11.80%, a -18.88%
variance from the index.
The Social Awareness Fund benefited from the emphasis on large capitalization
growth stocks and it returned 30.88%, a positive 0.20% variance above the S&P
500. The Growth and Income Fund continues to use the Value Line Ranking System
which emphasizes the small and mid-sized growth companies. The return for the
year of 20.67% is closer to the Russell 2000 than the return of the larger
capitalization issues in the S&P 500. The fund under performed the S&P 500 by
10.01%.
The Asset Allocation Fund (previously the Timed Opportunity Fund) returned
22.48%, outperforming its benchmark by 1.26%. Bonds lagged the relevant index,
stocks tracked the index and the over allocation to stocks resulted in the
outperformance.
BOND FUNDS
The Capital Conservation Fund was impacted by two Asian holdings and uncertainty
surrounding Columbia Healthcare. Those factors caused the fund to under-perform
its relevant index by 1.05%, returning 11.30%. The Government Securities Fund
emphasized Agency securities over Treasuries and returned 11.14%,
under-performing its index by 0.08%.
The International Government Bond Fund benefited from rising bond prices but the
Dollar's strength eroded the local market gains. The fund returned 3.20%,
out-performing the index by 0.82%.
FUTURE OUTLOOK
Both the equity and bond markets have provided outstanding returns over the past
four years. Even the currency and credit crises in Southeast Asia have had only
minor impact on the stock market. The bond market has been aided as foreign
investors have sought safety in U.S. Treasury issues.
An added benefit of the Asian crises is the devaluation of those currencies
which have resulted in lower cost goods being exported to the United States. The
other side of the coin is that U.S. exports have become more expensive overseas
and the trade deficit has increased. Nevertheless, the domestic economy
continues to expand at levels in excess of 3% and could well maintain that pace
over the intermediate term. On balance, the less expensive imports have kept
prices low and the flow of funds to U.S. bonds have caused interest rates to
fall to decades lows. That has had a very positive affect on the real estate
market with housing demand at very high levels.
Positive economic growth combined with low interest rates augers well for the
stock market. The current U.S. Treasury long bond yield of 5.6% compared with a
Gross Domestic Product Deflator (a broad measure of inflation) of 1.0% provides
an extraordinary real rate of return - 4.6%. That compares with a century long
standard of 3.0 - 3.5%. In that context, the bond market should improve
modestly.
Thank you for your continued confidence in the VALIC investment management.
Sincerely,
/s/ THOMAS L. WEST, JR.
Thomas L. West, Jr., Chairman and President
June 22, 1998 American General Series Portfolio Company
FUND RETURNS(1) TO INDEX
[GRAPH]
(1) Represents fund performance before subtracting expenses. See page two for
applicable fund expenses and fund level returns after expenses.
<PAGE> 116
================================================================================
AGSPC PRESIDENT'S LETTER CONTINUED
2
================================================================================
FUND RETURNS AND TRACKING DIFFERENCES
For the period ended May 31, 1998
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
FUND TOTAL
PERFORMANCE INDEX
BEFORE RETURN
SUBTRACTING INCLUDING TRACKING
FUND FUND EXPENSES REINVESTED DIFFERENCE
AGSPC FUND/RELEVANT MARKET INDEX RETURN(a) EXPENSES (1) + (2) DIVIDENDS (3) - (4)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INDEXED FUNDS:
Stock Index Fund / S&P 500............. 30.30% 0.31% 30.61% 30.68% (0.07)%
MidCap Index Fund /
Standard & Poor's MidCap 400......... 29.62 0.36 29.98 29.87 0.11
Small Cap Index Fund / Russell 2000.... 21.34 0.39 21.73 21.25 0.48
International Equities Fund / EAFE..... 9.92 0.40 10.32 11.11 (0.79)
MANAGED FUNDS:
Growth Fund / S&P 500.................. 27.41 0.84 28.25 30.68 (2.43)
Growth & Income Fund / S&P 500......... 19.87 0.80 20.67 30.68 (10.01)
Science & Technology Fund / S&P 500.... 10.85 0.95 11.80 30.68 (18.88)
Social Awareness Fund / S&P 500........ 30.34 0.54 30.88 30.68 0.20
Asset Allocation Fund / Benchmark(b)... 21.94 0.54 22.48 21.22 1.26
Capital Conservation Fund /
Merrill Lynch Corporate Master Bond.. 10.76 0.54 11.30 12.35 (1.05)
Government Securities Fund /
Lehman Brothers U.S. Treasury........ 10.60 0.54 11.14 11.22 (0.08)
Int'l Gov't Bond Fund /
Salomon Non U.S. Gov't Bond.......... 2.65 0.55 3.20 2.38 0.82
Money Market Fund / 30 Day Certificate
of Deposit
Primary Offering Rate by New York
City Banks (NYC 30 Day CD Rate)...... 5.25 0.54 5.79 4.81 0.98
</TABLE>
(a)Fund level returns are net of investment management fees and other fund
expenses, but do not reflect charges specified in annuity contracts for
mortality and expense guarantees, administrative fees, or surrender charges.
(b)Benchmark consists of 55% S&P 500 Index, 35% Merrill Lynch Corporate and
Government Master Index, and 10% NYC 30 Day CD Rate.
SUMMARY OF NET ASSET VALUES PER SHARE
AND PER SHARE DISTRIBUTIONS
<TABLE>
<CAPTION>
DISTRIBUTIONS FROM NET
INVESTMENT INCOME AND
NET REALIZED GAINS ON
NET ASSET VALUES (PER SHARE) SECURITIES (PER SHARE)
----------------------------------- -------------------------
MAY 31, NOVEMBER 30, MAY 31, 6/1/97 to 12/1/97 to
FUND 1997 1997 1998 11/30/97 5/31/98
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stock Index (emulate S&P 500)...........$26.09 $29.38 $33.38 $0.19 $0.36
MidCap Index (emulate MidCap 400)....... 20.83 23.98 25.27 0.12 1.47
Small Cap Index (emulate Russell 2000).. 16.18 18.32 17.94 0.10 1.50
International Equities
(foreign long term growth stocks)..... 11.44 10.83 11.95 0.14 0.43
Growth Fund (long term growth of
capital).............................. 17.62 20.01 22.08 0.00 0.34
Growth & Income Fund (long term growth
of capital and current income)........ 16.87 19.20 19.91 0.04 0.25
Science & Technology Fund (long term
growth of capital).................... 19.88 20.98 22.07 0.00 0.00
Social Awareness (social criteria
growth stocks)........................ 17.90 20.12 22.16 0.11 0.93
Asset Allocation (asset allocation)..... 12.57 13.65 14.02 0.20 1.00
Capital Conservation (quality corporate
bonds)................................ 9.31 9.61 9.68 0.29 0.32
Government Securities (intermediate and
long term government bonds)........... 9.67 9.99 10.09 0.29 0.29
International Government Bond (high
quality foreign government debt
securities)........................... 11.33 11.27 11.42 0.19 0.02
Money Market (money market instruments). 1.00 1.00 1.00 0.03 0.02
</TABLE>
The change in net asset value of the funds will not be the same as the change in
the accumulation unit value of your annuity contract because (1) the change in
net asset value does not reflect the reinvestment of income and capital gain
distributions and (2) the mortality and expense charges described in your
annuity contract are not included.
<PAGE> 117
================================================================================
AGSPC PRESIDENT'S LETTER CONTINUED
3
================================================================================
FUNDS AVAILABLE UNDER VARIABLE ANNUITY CONTRACTS
<TABLE>
<CAPTION>
VALIC SEPARATE ACCOUNT A CONTRACT FORM
--------------------------------------------------------------
PORTFOLIO PORTFOLIO PORTFOLIO INDEPEN- GROUP
DIRECTOR DIRECTOR DIRECTOR DENCE UNIT
FUND 2 1 T PLUS IMPACT PURCHASE
- ----------------------------------- --------- --------- --------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Stock Index
(emulate S&P 500)................ Yes Yes Yes Yes Yes Yes
MidCap Index
(emulate MidCap 400)............. No Yes No Yes Yes No
Small Cap Index
(emulate Russell 2000)........... No Yes Yes Yes No No
International Equities
(foreign long term growth stocks) No Yes Yes Yes No No
Growth Fund
(long term growth of capital).... Yes Yes No No No No
Growth & Income Fund (long term
growth of capital and current
income).......................... No Yes No No No No
Science & Technology Fund
(long term growth of capital).... Yes Yes No No No No
Social Awareness
(social criteria growth stocks).. Yes Yes Yes Yes No No
Timed Opportunity
(asset allocation)............... No Yes Yes Yes Yes No
Capital Conservation
(quality corporate bonds)........ No Yes No Yes Yes No
Government Securities (intermediate
and long term government bonds).. No Yes No Yes No No
Int'l Government Bond (high quality
foreign government debt
securities)...................... Yes Yes No Yes No No
Money Market
(money market instruments)....... Yes Yes Yes Yes Yes No
</TABLE>
<TABLE>
<CAPTION>
AMERICAN GENERAL LIFE INSURANCE COMPANY
---------------------------------------------------------------------
SEPARATE ACCOUNT A
-------------------- SEPARATE SEPARATE
NON ACCOUNT ACCOUNT SELECT PLATINUM
FUND QUALIFIED QUALIFIED B D PRESERVE INVESTOR
- ------------------------------------ --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock Index
(emulate S&P 500)................ Yes Yes Yes Yes No Yes
MidCap Index
(emulate MidCap 400)............. Yes Yes Yes No No Yes
Small Cap Index
(emulate Russell 2000)........... No No No No No No
International Equities
(foreign long term growth stocks) No No No Yes No Yes
Growth Fund
(long term growth of capital).... No No No No No No
Growth & Income Fund (long term
growth of capital and current
income).......................... No No No No No No
Science & Technology Fund
(long term growth of capital).... No No No No No No
Social Awareness
(social criteria growth stocks).. No No No Yes No No
Timed Opportunity
(asset allocation)............... Yes Yes Yes No No No
Capital Conservation
(quality corporate bonds)........ Yes Yes Yes No No No
Government Securities (intermediate
and long term government bonds).. Yes Yes Yes No No No
Int'l Government Bond (high quality
foreign government debt
securities)...................... No No No No No No
Money Market
(money market instruments)....... Yes Yes Yes No Yes Yes
</TABLE>
<PAGE> 118
================================================================================
STOCK INDEX FUND - STATEMENT OF NET ASSETS
4 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
COMMON STOCKS - 99.25%
ADVERTISING - 0.17%
43,350 Interpublic Group Cos., Inc.... $ 2,571,197
71,700 Omnicom Group, Inc............. 3,356,456
-----------
5,927,653
-----------
AEROSPACE/DEFENSE - 1.54%
403,008 Boeing Co...................... 19,193,255
29,000 EG & G, Inc.................... 913,500
55,960 General Dynamics Corp.......... 2,486,723
15,400 Goodrich (B.F.) Co............ 789,250
80,076 Lockheed Martin Corp........... 8,988,531
30,800 Northrop Grumman Corp.......... 3,301,375
112,500 Raytheon Co. Class B........... 6,152,344
44,000 TRW Inc........................ 2,356,750
101,300 United Technologies Corp....... 9,522,200
-----------
53,703,928
-----------
AIRLINES - 0.41%
36,300* AMR Corp....................... 5,587,931
31,600 Delta Air Lines, Inc........... 3,634,000
82,800 Southwest Airlines Co.......... 2,209,725
41,400* US Airways Group, Inc.......... 2,898,000
-----------
14,329,656
-----------
APPAREL & PRODUCTS - 0.10%
21,178* Abercrombie & Fitch Co. Class A 894,749
27,000* Fruit of the Loom, Inc. Class A 970,313
32,900 Liz Claiborne, Inc............. 1,667,619
-----------
3,532,681
-----------
APPLIANCES/FURNISHINGS - 0.11%
35,000 Maytag Corp.................... 1,765,313
30,200 Whirlpool Corp................. 2,063,037
-----------
3,828,350
-----------
AUTO - CARS - 1.70%
275,774 Chrysler Corp.................. 15,339,929
450,000 Ford Motor Co.................. 23,343,750
284,900 General Motors Corp............ 20,494,994
-----------
59,178,673
-----------
AUTO - REPLACEMENT PARTS - 0.33%
73,900* AutoZone, Inc.................. 2,457,175
18,700 Cooper Tire & Rubber Co........ 442,956
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
AUTO - REPLACEMENT PARTS - Continued
14,300 Echlin Inc..................... $ 679,250
74,400 Genuine Parts Co............... 2,524,950
71,700 Goodyear Tire & Rubber Co...... 5,153,438
15,800 Pep Boys-Manny, Moe & Jack..... 351,550
------------
11,609,319
------------
BANKS - NEW YORK CITY - 2.01%
161,100 Bank of New York Co., Inc...... 9,847,238
174,882 Chase Manhattan Corp........... 23,773,022
178,700 CitiCorp....................... 26,648,637
79,200 J. P. Morgan & Co. Inc........ 9,835,650
------------
70,104,547
------------
BANKS - OTHER - 3.08%
278,836 BankAmerica Corp............... 23,056,251
61,300 BankBoston Corp................ 6,459,488
122,223 First Chicago Corp............. 10,686,873
419,200 First Union Corp............... 23,187,000
105,393 Fleet Financial Group, Inc..... 8,642,226
116,500 Mellon Bank Corp............... 7,856,469
133,000 National City Corp............. 9,010,750
51,600 Providian Financial Corp....... 3,283,050
14,000 Republic of New York Corp...... 1,798,125
37,033 Wells Fargo & Co............... 13,387,430
------------
107,367,662
------------
BANKS - REGIONAL - 3.55%
261,349 Banc One Corp.................. 14,406,863
67,950 Comerica Inc................... 4,467,713
106,275 Fifth Third Bancorp............ 5,234,044
59,600 Huntington Bancshares, Inc..... 1,951,900
172,340 KeyCorp........................ 6,538,149
51,500 Mercantile Bancorporation Inc.. 2,632,938
389,917 NationsBank Corp............... 29,536,212
53,900 Northern Trust Corp............ 3,801,637
328,200 Norwest Corp................... 12,758,775
135,900 PNC Bank Corp.................. 7,848,225
61,200 State Street Corp.............. 4,218,975
84,200 Summit Bancorporation.......... 4,220,525
72,200 SunTrust Banks, Inc............ 5,703,800
102,150 Synovus Financial Corp......... 2,291,991
309,990 U.S. Bancorp................... 12,128,359
71,513 Wachovia Corp.................. 5,725,510
------------
123,465,616
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
BEVERAGE - BREWERS/
DISTRIBUTORS - 0.47%
11,900 Adolph Coors Class B........... $ 446,250
202,800 Anheuser-Busch Companies, Inc.. 9,316,125
18,915 Brown-Forman Corp Class B...... 1,089,977
128,400 Seagram Co. Ltd................ 5,641,575
------------
16,493,927
------------
BEVERAGE - SOFT DRINKS - 2.97%
995,000 Coca-Cola Co................... 77,983,125
624,500 PepsiCo, Inc................... 25,487,406
------------
103,470,531
------------
BROADCASTING - 1.46%
293,158 CBS Corp....................... 9,307,767
38,600* Clear Channel Communications,
Inc......................... 3,700,775
141,750 Comcast Corp. Class A Special.. 4,859,374
197,178 Tele-Comm Liberty Media Group
Class A..................... 6,765,670
215,200 U S West Communications Group.. 10,921,400
226,800 U S West Media Group........... 8,405,775
122,700* Viacom, Inc Class B............ 6,748,500
------------
50,709,261
------------
BUILDING MATERIALS - 0.38%
8,900 Armstrong World Industries,
Inc......................... 748,713
75,300 Lowe's Companies, Inc.......... 5,962,818
81,400 Masco Corp..................... 4,578,750
60,700 Sherwin-Williams Co............ 2,018,275
------------
13,308,556
------------
CHEMICAL - MAJOR - 2.06%
99,700 Dow Chemical Co................ 9,658,437
446,600 E.I. du Pont de Nemours and Co. 34,388,200
47,500 Hercules, Inc.................. 2,092,969
243,800 Monsanto Co.................... 13,500,425
54,900 Morton International, Inc...... 1,671,019
66,500 PPG Industries, Inc............ 4,846,187
18,300 Rohm and Haas Co............... 2,010,713
68,300 Union Carbide Corp............. 3,410,731
------------
71,578,681
------------
CHEMICAL - MISCELLANEOUS - 0.44%
42,100 Air Products and Chemicals,
Inc......................... 3,662,700
30,637 Eastman Chemical Co............ 2,052,678
17,100 Ecolab Inc..................... 527,963
15,300* FMC Corp....................... 1,169,494
</TABLE>
<PAGE> 119
================================================================================
STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 5
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
CHEMICAL - MISCELLANEOUS - Continued
26,500 Great Lakes Chemical Corp...... $ 1,060,000
15,428 Millipore Corp................. 514,910
20,300 Nalco Chemical Co.............. 761,250
6,625* Octel Corp..................... 144,508
64,700 Praxair, Inc................... 3,190,518
39,500 Sigma Aldrich Corp............. 1,441,750
41,400 W.R. Grace & Co................ 768,488
-----------
15,294,259
-----------
CONGLOMERATES - 1.01%
232,500 Allied Signal Inc.............. 9,939,375
38,800 ITT Inds, Inc.................. 1,430,750
39,400 Loews Corp..................... 3,575,550
65,200 Tenneco Inc.................... 2,713,950
58,300 Textron Inc.................... 4,325,131
237,000 Tyco International Ltd......... 13,123,875
-----------
35,108,631
-----------
CONSUMER FINANCE - 0.28%
25,000 Beneficial Corp................ 3,350,000
204,275 MBNA Corp...................... 6,472,964
-----------
9,822,964
-----------
CONTAINERS - METAL/GLASS - 0.31%
4,700 Ball Corp...................... 185,356
101,100 Corning Inc.................... 3,987,132
65,600 Crown Cork & Seal Co., Inc..... 3,403,000
12,100 Owens Corning.................. 453,750
61,200* Owens-Illinois, Inc............ 2,750,175
-----------
10,779,413
-----------
CONTAINERS - PAPER - 0.10%
6,500 Bemis Co., Inc................. 274,219
39,214* Sealed Air Corp................ 2,097,949
17,700 Temple-Inland Inc.............. 1,039,875
-----------
3,412,043
-----------
COSMETICS/TOILETRIES - 0.98%
6,800 Alberto-Culver Co. Class B..... 202,300
62,700 Avon Products, Inc............. 5,129,644
220,300 Gillette Co.................... 25,802,637
60,000 International Flavors &
Fragrances, Inc............. 2,880,000
-----------
34,014,581
-----------
DRUGS - 7.86%
22,500 Allergan, Inc.................. 945,000
43,200* ALZA Corp...................... 2,089,800
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
DRUGS - Continued
543,000 American Home Products Corp.... $26,233,687
112,100* Amgen Inc...................... 6,782,050
23,900 Bausch & Lomb Inc.............. 1,190,519
399,400 Bristol Myers Squibb Co........ 42,935,500
444,400 Eli Lilly and Co............... 27,302,825
480,400 Merck & Co., Inc............... 56,236,825
519,800 Pfizer, Inc.................... 54,481,537
219,870* Pharmacia & Upjohn, Inc........ 9,715,506
298,200 Schering-Plough Corp........... 24,955,613
326,700 Warner-Lambert Co.............. 20,847,544
-----------
273,716,406
-----------
ELECTRICAL EQUIPMENT - 3.75%
105,800 AMP Inc........................ 4,020,400
62,000 Cabletron Systems, Inc......... 798,250
181,200 Emerson Electric Co............ 11,007,900
1,314,100 General Electric Co............ 109,563,087
30,500 National Service Industries,
Inc......................... 1,555,500
48,300 Raychem Corp................... 1,817,288
6,800 Thomas & Betts Corp............ 363,375
14,200 W. W. Grainger Inc............. 1,498,988
-----------
130,624,788
-----------
ELECTRONIC INSTRUMENTS - 0.16%
1* Commscope Inc.................. 16
28,100 General Signal Corp............ 1,155,612
27,100* Perkin-Elmer Corp.............. 1,856,350
5,400 Tektronix, Inc................. 206,550
70,400* Thermo Electron Corp........... 2,472,800
-----------
5,691,328
-----------
ENTERTAINMENT - 1.68%
39,400* Harrah's Entertainment, Inc.... 985,000
67,475 Hasbro, Inc.................... 2,580,919
49,400* King World Productions, Inc.... 1,259,700
127,987 Mattel, Inc.................... 4,847,508
216,700 Time Warner Inc................ 16,861,969
283,252 Walt Disney Co................. 32,042,882
-----------
58,577,978
-----------
FINANCE COMPANIES - 0.71%
141,800 Associates First Capital Corp.. 10,608,412
69,600 Green Tree Financial Corp...... 2,797,050
48,800 Household International, Inc... 6,603,250
96,350 SunAmerica, Inc................ 4,685,019
-----------
24,693,731
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
FINANCIAL SERVICES - 0.64%
180,400 American Express Co............ $18,513,550
39,800 Countrywide Credit Industries,
Inc......................... 1,840,750
40,100 H & R Block Inc................ 1,764,400
-----------
22,118,700
-----------
FOODS - 2.16%
215,192 Archer Daniels Midland Co...... 4,061,748
124,000 BestFoods...................... 6,998,250
174,400 Campbell Soup Co............... 9,504,800
178,700 ConAgra, Inc................... 5,226,975
65,900 General Mills, Inc............. 4,497,675
156,350 H J Heinz Co................... 8,296,322
47,000 Hershey Foods Corp............. 3,254,750
162,800 Kellogg Co..................... 6,725,675
79,380 Pioneer Hi-Bred International,
Inc......................... 3,021,401
60,900 Quaker Oats Co................. 3,513,169
47,600 Ralston Purina Co.............. 5,298,475
182,600 Sara Lee Corp.................. 10,750,575
42,500 Wm. Wrigley Jr. Co............. 4,090,625
-----------
75,240,440
-----------
FOOTWEAR - 0.11%
73,700 NIKE, Inc. Class B............ 3,390,200
18,900* Reebok International Ltd....... 543,375
-----------
3,933,575
-----------
FREIGHT - 0.13%
52,560* FDX Corp....................... 3,370,410
37,200 Ryder System, Inc.............. 1,267,125
-----------
4,637,535
-----------
FUNERAL SERVICES - 0.10%
83,800 Service Corp. International.... 3,425,325
-----------
GOLD MINING - 0.15%
151,700 Barrick Gold Corp.............. 2,920,225
52,100 Battle Mountain Gold Co........ 276,781
86,400 Homestake Mining Co............ 939,600
93,800 Placer Dome Inc................ 1,166,638
-----------
5,303,244
-----------
GOVERNMENT SPONSORED - 1.08%
272,600 Federal Home Loan Mortg. Corp.. 12,403,300
418,500 Federal National Mortgage
Association ................... 25,057,688
-----------
37,460,988
-----------
</TABLE>
<PAGE> 120
================================================================================
STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
6 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
HARDWARE & TOOLS - 0.13%
31,300 Black & Decker Corp............ $ 1,827,138
11,550 Snap-on Inc.................... 506,756
42,600 Stanley Works.................. 2,023,500
-----------
4,357,394
-----------
HEALTHCARE - 0.45%
49,400 Cardinal Health, Inc........... 4,402,775
154,900* HealthSouth Corp............... 4,395,288
54,400* Humana Inc..................... 1,689,800
79,800 United HealthCare Corp......... 5,107,200
-----------
15,595,063
-----------
HEAVY DUTY TRUCKS/PARTS - 0.26%
19,700 Cummins Engine Co., Inc........ 1,024,400
30,700 Dana Corp...................... 1,600,238
37,800 Eaton Corp..................... 3,394,913
39,010* Navistar International Corp.... 1,177,614
35,710 PACCAR Inc..................... 1,971,863
-----------
9,169,028
-----------
HOME BUILDERS - 0.06%
33,200 Centex Corp.................... 1,186,900
14,456 Kaufman & Broad Home Corp...... 371,339
7,900 Pulte Corp..................... 421,168
-----------
1,979,407
-----------
HOSPITAL MANAGEMENT - 0.38%
250,484 Columbia/HCA Healthcare Corp... 8,187,695
13,000 Manor Care, Inc................ 410,313
13,100 Shared Medical Systems Corp.... 953,025
105,200* Tenet Healthcare Corp.......... 3,682,000
-----------
13,233,033
-----------
HOSPITAL SUPPLIES - 2.64%
315,500 Abbott Laboratories............ 23,406,155
8,400 Bard (C. R.), Inc.............. 291,375
112,000 Baxter International Inc....... 6,405,000
55,200 Becton, Dickinson and Co....... 3,905,400
64,100 Biomet, Inc.................... 1,850,888
70,477* Boston Scientific Corp......... 4,492,909
531,900 Johnson & Johnson.............. 36,734,343
37,900 Mallinckrodt, Inc.............. 1,167,794
200,900 Medtronic, Inc................. 11,175,063
37,833* St. Jude Medical, Inc.......... 1,352,530
25,700 United States Surgical Corp.... 1,021,575
-----------
91,803,032
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- ------------
<S> <C> <C>
HOUSEHOLD PRODUCTS - 2.95%
43,200 Clorox Co...................... $ 3,607,200
127,300 Colgate-Palmolive Co........... 11,075,100
173,100 Minnesota Mining &
Manufacturing Co............ 16,033,388
59,000 Newell Co...................... 2,846,750
537,852 Procter & Gamble Co............ 45,145,951
63,100 Rubbermaid, Inc................ 2,058,638
35,300 Tupperware Corp................ 953,100
267,300 Unilever N V - ADR............. 21,099,994
-----------
102,820,121
-----------
INFORMATION PROCESSING - 9.95%
1* A.C. Nielson................... 26
38,200 Adobe Systems Inc.............. 1,525,613
61,400* Apple Computer, Inc............ 1,634,775
27,800 Autodesk, Inc.................. 1,181,500
122,600 Automatic Data Processing, Inc. 7,800,425
78,400* Bay Networks, Inc.............. 2,170,700
319,521* Cendant Corp................... 6,929,612
27,452* Ceridian Corp.................. 1,482,408
409,850* Cisco Systems, Inc............. 30,994,907
68,600 Cognizant Corp................. 3,652,950
622,490 Compaq Computer Corp........... 17,001,758
211,230 Computer Associates
International, Inc.......... 11,089,574
49,400* Computer Sciences Corp......... 2,565,713
265,200* Dell Computer Corp............. 21,854,150
66,200* Digital Equipment Corp......... 3,632,725
213,500* E M C Corp..................... 8,846,906
180,554 First Data Corp................ 6,003,421
60,000* Gateway 2000, Inc.............. 2,703,750
45,300* General Instrument Corp........ 1,078,706
94,900 HBO & Co....................... 5,477,514
408,500 Hewlett Packard Co............. 25,378,062
58,500 Honeywell Inc.................. 4,910,344
382,700 International Business Machine. 44,919,412
988,700* Microsoft Corp................. 83,854,119
164,900* Novell, Inc ................... 1,731,450
412,687* Oracle Corp.................... 9,749,730
120,200* Parametric Technology Corp..... 3,684,887
112,900 Pitney Bowes Inc............... 5,306,300
96,300* Seagate Technology............. 2,226,938
58,100* Silicon Graphics, Inc.......... 697,200
161,400* Sun Microsystems, Inc.......... 6,466,088
137,600* 3Com Corp...................... 3,491,600
96,900* Unisys Corp.................... 2,374,050
138,900 Xerox Corp..................... 14,271,975
-----------
346,689,288
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- ------------
<S> <C> <C>
INSURANCE - CASUALTY - 0.41%
67,800 Chubb Corp..................... $ 5,394,337
27,800 Progressive Corp............... 3,832,925
58,000 SAFECO Corp.................... 2,697,000
56,442 St. Paul Companies, Inc........ 2,504,614
-----------
14,428,876
-----------
INSURANCE - LIFE - 0.67%
63,192 Aetna Inc...................... 4,940,825
101,400 Conseco Inc.................... 4,727,775
66,112 Jefferson-Pilot Corp........... 3,784,911
57,000 Lincoln National Corp.......... 5,122,875
54,900 Torchmark Corp................. 2,353,838
21,209 Transamerica Corp.............. 2,439,035
-----------
23,369,259
-----------
INSURANCE - MISCELLANEOUS - 0.50%
37,600 General Re Corp................ 8,267,300
31,600 MBIA, Inc...................... 2,356,175
51,200 MGIC Investment Corp........... 3,068,800
67,400 UNUM Corp...................... 3,744,913
-----------
17,437,188
-----------
INSURANCE - MULTILINE - 3.05%
183,820 Allstate Corp.................. 17,302,057
281,627 American International Group,
Inc......................... 34,868,942
52,400 Aon Corp....................... 3,356,875
110,400 CIGNA Corp..................... 7,562,400
54,000 Cincinnati Financial Corp...... 2,268,000
57,500 Hartford Financial Services
Group....................... 6,328,594
79,900 March & McLennan Companies,
Inc......................... 6,996,244
453,421 Travelers Group, Inc........... 27,658,681
-----------
106,341,793
-----------
LEISURE TIME - 0.06%
17,900 Brunswick Corp................. 562,731
70,900* Mirage Resorts, Inc............ 1,475,607
-----------
2,038,338
-----------
LODGING - 0.19%
108,800 Hilton Hotels Corp............. 3,420,400
94,000 Marriott International Inc..... 3,266,500
-----------
6,686,900
-----------
MACHINE TOOLS - 0.01%
4,700 Cincinnati Milacron, Inc....... 140,706
-----------
</TABLE>
<PAGE> 121
================================================================================
STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 7
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
MACHINERY - AGRICULTURE - 0.22%
38,000 Case Corp...................... $ 2,199,250
103,100 Deere & Co..................... 5,348,313
-----------
7,547,563
-----------
MACHINERY - CONSTRUCTION &
CONTRACTS - 0.31%
158,400 Caterpillar Inc................ 8,702,100
34,200 Fluor Corp..................... 1,630,913
2,600 Foster Wheeler Corp............ 65,975
10,800 Harnischfeger Industries Inc... 340,200
-----------
10,739,188
-----------
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.60%
1,600 Aeroquip-Vickers, Inc.......... 98,800
14,600 Briggs & Stratton Corp......... 662,475
42,700 Cooper Industries, Inc......... 2,748,813
95,600 Dover Corp..................... 3,585,000
89,400 Illinois Tool Works Inc........ 5,900,400
64,300 Ingersoll-Rand Co.............. 2,897,518
32,000 Johnson Controls, Inc.......... 1,904,000
59,533 Pall Corp...................... 1,179,498
33,375 Parker Hannifin Corp........... 1,370,461
12,800 Timken Co...................... 481,600
-----------
20,828,565
-----------
MEDICAL TECHNOLOGY - 0.13%
68,900 Guidant Corp................... 4,439,744
-----------
MERCHANDISE - DRUG - 0.46%
75,600 CVS Corp....................... 5,306,175
16,600 Longs Drug Stores Corp......... 503,188
100,600 Rite Aid Corp.................. 3,602,738
191,400 Walgreen Co.................... 6,734,887
-----------
16,146,988
-----------
MERCHANDISE - SPECIALTY - 1.71%
41,000 American Greetings Corp.
Class A..................... 1,947,500
27,100 Circuit City Stores, Inc....... 1,148,363
53,600* Consolidated Stores Corp....... 2,046,849
95,522* CostCo Companies, Inc.......... 5,528,336
74,400 Fortune Brands, Inc........... 2,859,750
164,700 Gap, Inc....................... 8,893,800
304,200 Home Depot, Inc................ 23,898,712
49,600 Ikon Office Solutions Inc...... 1,050,900
973 Jostens, Inc................... 24,568
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
MERCHANDISE - SPECIALTY - Continued
73,873 Limited, Inc................... $ 2,456,277
39,600 Nordstrom, Inc................. 2,853,675
33,600 Tandy Corp..................... 1,486,800
54,000 TJX Companies, Inc............. 2,524,500
109,525* Toys "R" Us, Inc............... 2,902,413
-----------
59,622,443
-----------
MERCHANDISING - DEPARTMENT - 0.64%
186,200 Dayton Hudson Corp............. 8,635,025
30,800 Dillards, Inc. Class A......... 1,295,525
90,800* Federated Department Stores,
Inc......................... 4,704,575
99,800 May Department Stores Co....... 6,418,388
16,000 Mercantile Stores Co., Inc..... 1,258,000
-----------
22,311,513
-----------
MERCHANDISING - FOOD - 0.57%
113,900 Albertsons, Inc................ 5,274,993
119,200 American Stores Co............. 2,972,550
17,400 Giant Food Inc. Class A........ 748,200
15,300 Great Atlantic & Pacific Tea
Co., Inc.................... 489,600
98,300* Kroger Co...................... 4,220,756
16,700 Supervalu Inc.................. 699,313
143,800 SYSCO Corp..................... 3,352,338
52,000 Winn-Dixie Stores, Inc......... 2,115,750
-----------
19,873,500
-----------
MERCHANDISING - MASS - 2.03%
109,900 J.C. Penney Co., Inc........... 7,892,194
190,300* Kmart Corp..................... 3,687,063
148,400 Sears Roebuck and Co........... 9,172,975
891,800 Wal-Mart Stores, Inc........... 49,216,212
35,000 Woolworth Corp................. 691,250
-----------
70,659,694
-----------
METALS - ALUMINUM - 0.25%
76,500 Alcan Aluminium Ltd............ 2,180,250
67,200 Aluminum Co. of America........ 4,662,000
33,100 Reynolds Metals Co............. 1,919,800
-----------
8,762,050
-----------
METALS - COPPER - 0.11%
19,300 ASARCO Inc..................... 437,869
67,631 Newmont Mining Corp............ 1,686,548
27,200 Phelps Dodge Corp.............. 1,659,200
-----------
3,783,617
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
METALS - MISCELLANEOUS - 0.09%
31,350 Cyprus Amax Minerals Co........$ 497,681
57,075 Engelhard Corp................. 1,187,874
48,500 Freeport - McMoRan Copper &
Gold Inc. Class B........... 812,375
52,400 Inco Limited................... 753,250
-----------
3,251,180
-----------
METALS - STEEL - 0.20%
59,525 Allegheny Teldyne Inc.......... 1,383,956
22,300* Armco Inc...................... 121,256
46,100* Bethlehem Steel Corp........... 564,725
20,200 Inland Steel Industries, Inc... 578,225
31,100 Nucor Corp..................... 1,601,650
48,920 USX-US Steel Group, Inc........ 1,755,005
53,625 Worthington Industries, Inc.... 945,141
-----------
6,949,958
-----------
MISCELLANEOUS - 0.16%
51,800 BB&T Corp...................... 3,428,513
57,800 Equifax Inc.................... 2,102,475
-----------
5,530,988
-----------
MOBILE HOMES - 0.02%
14,600 Fleetwood Enterprises, Inc..... 584,000
-----------
NATURAL GAS-DIVERSIFIED - 0.13%
43,900 Coastal Corp................... 3,094,950
37,900 Sonat Inc...................... 1,485,206
-----------
4,580,156
-----------
OIL - INTEGRATED DOMESTIC - 1.57%
35,700 Amerada Hess Corp.............. 1,930,031
405,000 Amoco Corp..................... 16,934,063
26,900 Ashland Oil, Inc............... 1,341,638
125,800 Atlantic Richfield Co.......... 9,922,475
69,067 Burlington Resources, Inc..... 2,909,447
19,400 Kerr-McGee Corp................ 1,227,050
150,600 Occidental Petroleum Corp...... 4,160,325
40,800* Oryx Energy Co................. 951,150
18,500 Pennzoil Co.................... 1,069,531
96,300 Phillips Petroleum Co.......... 4,821,019
40,916 Sun Co., Inc................... 1,738,930
105,400 Unocal Corp.................... 3,754,875
114,100 USX-Marathon Group............. 3,993,500
-----------
54,754,034
-----------
</TABLE>
<PAGE> 122
================================================================================
STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
8 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- ------------
<S> <C> <C>
OIL - INTEGRATED
INTERNATIONAL - 5.04%
262,000 Chevron Corp................... $ 20,927,250
973,700 Exxon Corp..................... 68,645,850
320,500 Mobil Corp..................... 24,999,000
853,300 Royal Dutch Petroleum Co.
- ADR ....................... 47,838,130
226,900 Texaco Inc..................... 13,103,475
------------
175,513,705
------------
OIL - SERVICES - 0.90%
58,800 Baker Hughes Inc............... 2,116,800
85,500 Dresser Industries, Inc........ 3,981,094
115,000 Halliburton Co................. 5,448,125
34,300 McDermott International, Inc... 1,309,831
35,500* Rowan Companies, Inc........... 907,469
193,400 Schlumberger Ltd............... 15,097,287
26,800* Western Atlas Inc.............. 2,319,875
------------
31,180,481
------------
OIL/GAS PRODUCERS - 0.15%
25,300 Anadarko Petroleum Corp........ 1,669,800
33,700 Apache Corp.................... 1,152,119
6,000 Helmerich & Payne, Inc......... 151,500
113,842 Union Pacific Resources Group
Inc......................... 2,305,300
------------
5,278,719
------------
PAPER/FOREST PRODUCTS - 1.18%
54,200 Avery Dennison Corp............ 2,808,238
10,566 Boise Cascade Corp............. 352,640
45,400 Champion International Corp.... 2,179,200
88,000 Fort James Corp................ 4,207,500
39,200 Georgia-Pacific Corp........... 2,516,150
127,718 International Paper Co......... 5,875,028
240,432 Kimberly-Clark Corp............ 11,916,410
41,600 Louisiana Pacific Corp......... 829,400
39,200 Mead Corp...................... 1,220,100
4,900 Potlatch Corp.................. 214,681
57,364* Stone Container Corp........... 1,018,211
35,450 Union Camp Corp................ 1,938,672
26,850 Westvaco Corp.................. 765,225
79,500 Weyerhaeuser Co................ 4,039,594
35,000 Willamette Industries, Inc..... 1,200,938
------------
41,081,987
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
PHOTOGRAPHY - 0.29%
130,750 Eastman Kodak Co............... $ 9,332,282
18,100 Polaroid Corp.................. 734,181
-----------
10,066,463
-----------
POLLUTION CONTROL - 0.30%
83,300 Browning-Ferris Industries,
Inc......................... 2,962,356
97,400* Laidlaw Inc.................... 1,205,325
198,000 Waste Management, Inc.......... 6,435,000
-----------
10,602,681
-----------
PUBLISHING - NEWS - 0.53%
35,600 Dow Jones & Co., Inc........... 1,713,250
112,000 Gannett Co., Inc............... 7,385,000
42,400 Knight-Ridder, Inc............. 2,419,450
27,500 New York Times Co. Class A... 1,938,750
40,632 Times Mirror Co................ 2,600,448
36,300 Tribune Co..................... 2,427,563
-----------
18,484,461
-----------
PUBLISHING/PRINTING - 0.31%
50,800 Deluxe Corp.................... 1,704,975
64,500 Dun & Bradstreet Corp.......... 2,176,875
19,217 Harcourt General, Inc.......... 1,047,327
30,100 McGraw-Hill, Inc............... 2,353,443
21,600 Moore Corp. Ltd................ 313,200
71,800 R R Donnelley and Son.......... 3,231,000
-----------
10,826,820
-----------
RAILROAD - 0.60%
68,517 Burlington Northern Santa Fe... 6,817,441
76,600 CSX Corp....................... 3,648,075
170,400 Norfolk Southern Corp.......... 5,335,650
103,600 Union Pacific Corp............. 5,011,650
-----------
20,812,816
-----------
RESTAURANTS - 0.65%
55,800 Darden Restaurants, Inc........ 861,413
285,000 McDonald's Corp................ 18,703,124
77,920* Tricon Global Restaurants, Inc. 2,420,390
30,000 Wendy's International, Inc..... 740,625
-----------
22,725,552
-----------
SAVINGS & LOAN - 0.38%
25,100 Golden West Financial Corp..... 2,710,800
31,700 H.F. Ahmanson & Co............. 2,417,125
113,925 Washington Mutual, Inc......... 8,045,953
-----------
13,173,878
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
SECURITIES RELATED - 1.22%
97,650 Charles Schwab Corp............ $ 3,222,450
95,500 Franklin Resources, Inc........ 4,667,562
45,600 Lehman Brothers Hldings, Inc... 3,234,750
134,900 Merrill Lynch & Co., Inc....... 12,073,550
249,201 Morgan St Dean Witter Discover. 19,453,254
-----------
42,651,566
-----------
SEMICONDUCTOR EQUIPMENT - 0.19%
158,000* Applied Materials, Inc......... 5,056,000
42,600* KLA-Tencor Corp................ 1,443,075
-----------
6,499,075
-----------
SEMICONDUCTORS - 2.21%
57,700* Advanced Micro Devices, Inc.... 1,125,150
653,300 Intel Corp..................... 46,670,118
55,500* LSI Logic Corp................. 1,182,844
93,300* Micron Technology, Inc......... 2,198,381
231,600 Motorola, Inc.................. 12,260,325
51,000* National Semiconductor Corp.... 828,750
95,400 Rockwell International Corp.... 5,247,000
146,900 Texas Instruments Inc.......... 7,546,988
-----------
77,059,556
-----------
TELECOMMUNICATIONS - 2.70%
211,200* Airtouch Communications, Inc... 10,058,400
56,300 ALLTEL Corp.................... 2,220,331
32,335* Andrew Corp.................... 710,361
57,000* DSC Communications Corp........ 974,347
54,300 Frontier Corp.................. 1,652,756
43,800 Harris Corp.................... 2,110,613
515,980 Lucent Technologies, Inc....... 36,602,330
89,900* Nextel Communications, Inc.
Class A....................... 2,118,269
203,200 Northern Telecom Ltd........... 13,004,800
29,500 Scientific-Atlanta, Inc........ 650,844
80,100* Tellabs, Inc................... 5,504,376
402,600* WorldCom, Inc.................. 18,318,300
-----------
93,925,727
-----------
TEXTILE - PRODUCTS - 0.09%
26,100 Russell Corp................... 711,225
48,800 V F Corp....................... 2,595,550
-----------
3,306,775
-----------
</TABLE>
<PAGE> 123
================================================================================
STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 9
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
TOBACCO - 1.13%
981,900 Philip Morris Cos Inc.......... $36,698,512
94,300 UST Inc........................ 2,510,738
-----------
39,209,250
-----------
UTILITIES - COMMUNICATION - 5.50%
654,926 AT & T Corp.................... 39,868,620
451,400 Ameritech Corp................. 19,156,288
327,505 Bell Atlantic Corp............. 30,007,646
384,700 BellSouth Corp................. 24,813,149
403,300 GTE Corp....................... 23,517,431
285,000 MCI Communications Corp........ 15,238,608
733,358 SBC Communications, Inc........ 28,509,291
145,500 Sprint Corp.................... 10,439,625
-----------
191,550,658
-----------
UTILITIES - ELECTRIC - 2.39%
38,300 Ameren Corp.................... 1,498,488
67,000 American Electric Power, Inc... 3,040,125
35,200 Baltimore Gas and Electric Co.. 1,071,400
60,100 Carolina Power & Light Co...... 2,464,100
105,700 Central & South West Corp...... 2,794,444
42,964 Cinergy Corp................... 1,388,274
114,200 Consolidated Edison, Inc....... 4,889,187
57,650 Dominion Resources, Inc........ 2,287,984
42,300 DTE Energy Co.................. 1,673,494
154,451 Duke Energy Corp............... 8,900,238
170,200 Edison International........... 5,020,900
126,300 Entergy Corp................... 3,323,269
74,200 FirstEnergy Corp............... 2,202,813
87,100 FPL Group, Inc................. 5,351,206
32,600 GPU Inc........................ 1,255,100
168,979 Houston Industries, Inc........ 4,837,023
37,500* Niagara Mohawk Power Corp...... 464,063
26,000 Northern States Power Co....... 1,478,750
161,800 P G & E Corp................... 5,096,700
44,500 P P & L Resources Inc.......... 984,563
85,800 PacifiCorp..................... 1,978,763
109,300 Peco Energy Co................. 3,087,725
121,150 Public Serv Enterprise Group... 4,005,522
262,200 Southern Co.................... 6,964,687
109,420 Texas Utilities Co............. 4,322,090
83,800 Unicom Corp.................... 2,880,625
-----------
83,261,533
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
----------- -----------
<S> <C> <C>
UTILITIES - GAS, DISTRIBUTION - 0.03%
23,700 NICOR Inc...................... $ 915,413
-------------
UTILITIES - GAS, PIPELINE - 0.56%
25,200 Columbia Energy Group.......... 2,126,250
44,100 Consolidated Natural Gas Co.... 2,494,406
142,000 Enron Corp..................... 7,117,750
18,300 ONEOK Inc...................... 714,844
16,400 Pacific Enterprises............ 624,225
2,200 Peoples Energy Corp............ 81,125
196,500 Williams Companies, Inc........ 6,373,969
-------------
19,532,569
-------------
TOTAL COMMON STOCKS
(Cost $1,669,898,794)........ 3,456,579,262
-------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
-----------
<C> <C> <C>
CORPORATE SHORT TERM
COMMERCIAL PAPER - 0.52%
FINANCE COMPANIES - 0.14%
$5,060,000 Ford Motor Credit Co.
5.45% due 6/1/98.............. 5,060,000
-----------
SECURITIES RELATED - 0.38%
Merrill Lynch & Co.:
7,248,000 5.60% due 6/3/98.............. 7,245,745
6,000,000 5.58% due 6/2/98.............. 5,999,070
-----------
13,244,815
-----------
TOTAL CORPORATE SHORT TERM
COMMERCIAL PAPER
(Cost $18,304,815)............. 18,304,815
-----------
UNITED STATES GOVERNMENT -
SHORT TERM - 0.04%
U.S. TREASURY BILLS - 0.04%
United States Treasury Bills:
1,100,000 4.94% due 6/4/98.............. 1,099,547
100,000 4.91% due 6/4/98.............. 99,959
100,000 4.85% due 6/4/98.............. 99,960
-----------
1,299,466
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
-----------
<S> <C>
TOTAL UNITED STATES GOVERNMENT
SHORT TERM
(Cost $1,299,466)............ $ 1,299,466
--------------
TOTAL INVESTMENTS
(Cost $1,689,503,075) -
99.81%.................... 3,476,183,543
Other assets and liabilities,
net - 0.19%.................. 6,471,280
--------------
NET ASSETS (equivalent
to $33.38 per share on
104,333,547 shares
outstanding) - 100%......... $3,482,654,823
--------------
* Non-income producing
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ------------- -------------
<S> <C> <C>
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at 5/31/98)
71(2) S&P 500 Index Futures
(June/$1,090.80)........... $ (390,837)
-------------
</TABLE>
(1)U.S.Treasury Bills with a market value of
approximately $1,300,000 were maintained
in a segregated account with a portion
placed as collateral for futures
contracts.
(2)Per 250
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
104,333,547 shares outstanding........ $ 1,043,335
Additional paid in capital.............. 1,679,728,220
Undistributed net realized gain on
securities......................... 15,215,726
Undistributed net investment income..... 377,911
--------------
Unrealized appreciation (depreciation) of:
Investments........... $1,786,680,468
Futures .............. (390,837) 1,786,289,631
------------- --------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING........................... $3,482,654,823
==============
</TABLE>
<PAGE> 124
================================================================================
STOCK INDEX FUND - FINANCIAL STATEMENTS
10
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ............................................................................... $ 47,362,348
Interest ................................................................................ 1,373,987
------------
Total investment income ............................................................... 48,736,335
------------
EXPENSES:
Advisory fees ........................................................................... 7,946,046
Custodian and accounting services ....................................................... 669,324
Reports to shareholders ................................................................. 249,861
Audit fees and tax services ............................................................. 83,909
Directors' fees and expenses ............................................................ 58,141
Miscellaneous ........................................................................... 161,192
------------
Total expenses ........................................................................ 9,168,473
------------
NET INVESTMENT INCOME ................................................................... 39,567,862
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES:
Net realized gain on:
Investments ........................................................ $ 10,730,926
Futures contracts .................................................. 6,012,002 16,742,928
------------
Net unrealized appreciation (depreciation) during the year:
Investments ........................................................ 714,529,418
Futures contracts .................................................. (714,337) 713,815,081
------------ ------------
Net realized and unrealized gain on securities during the year ........................ 730,558,009
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................ $770,125,871
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................................... $ 39,567,862 $ 35,492,537
Net realized gain on securities ................................. 16,742,928 14,778,898
Net unrealized appreciation of securities during the year ....... 713,815,081 489,128,221
--------------- ---------------
Increase in net assets resulting from operations .............. 770,125,871 539,399,656
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ........................................... (39,570,522) (35,484,625)
Net realized gain on securities ................................. (14,847,655) (14,806,928)
--------------- ---------------
Decrease in net assets resulting from distributions
to shareholders ............................................... (54,418,177) (50,291,553)
--------------- ---------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold ................................ 367,059,600 241,746,270
Proceeds from capital stock issued for distributions
reinvested .................................................... 54,418,177 50,291,553
--------------- ---------------
421,477,777 292,037,823
Cost of capital stock repurchased ............................... (98,730,173) (97,732,690)
--------------- ---------------
Increase in net assets resulting from capital stock
transactions .................................................. 322,747,604 194,305,133
--------------- ---------------
TOTAL INCREASE IN NET ASSETS .................................... 1,038,455,298 683,413,236
NET ASSETS:
Beginning of year ............................................... 2,444,199,525 1,760,786,289
--------------- ---------------
End of year (including undistributed net investment income
of $377,911 and $380,571) ..................................... $ 3,482,654,823 $ 2,444,199,525
=============== ===============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold .................................... 12,118,343 10,718,393
Shares issued for distributions reinvested ...................... 1,806,919 2,200,590
Shares of capital stock repurchased ............................. (3,279,150) (4,348,853)
--------------- ---------------
Increase in shares outstanding ................................ 10,646,112 8,570,130
Shares outstanding:
Beginning of year ............................................. 93,687,435 85,117,305
--------------- ---------------
End of year ................................................... 104,333,547 93,687,435
=============== ===============
</TABLE>
<PAGE> 125
================================================================================
MIDCAP INDEX FUND - STATEMENT OF NET ASSETS
May 31, 1998 11
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
COMMON STOCKS - 99.36%
AEROSPACE/DEFENSE - 0.93%
29,180 Gencorp Inc.................... $ 869,929
49,400* SCI Systems, Inc............... 1,685,775
7,500* Sequa Corp. Class A............ 518,438
51,874 Sunstrand Corp................. 3,216,188
29,420 Teleflex Inc................... 1,189,671
-----------
7,480,001
-----------
AIRLINES - 0.22%
13,021* Alaska Air Group, Inc.......... 603,035
28,974 ASA Holdings, Inc.............. 1,139,040
-----------
1,742,075
-----------
APPAREL & PRODUCTS - 0.89%
77,306 Cintas Corp.................... 3,531,918
43,671 Claire's Stores, Inc........... 821,561
27,324* Land's End, Inc................ 882,907
47,000 Warnaco Group Inc. Class A..... 1,938,750
-----------
7,175,136
-----------
APPLIANCES/FURNISHINGS - 0.99%
39,859 Heilig-Meyers Co............... 478,308
79,656 Herman Miller, Inc............. 2,205,476
37,801 Lancaster Colony Corp.......... 1,516,765
75,176 Leggett & Platt, Inc........... 3,777,594
-----------
7,978,143
-----------
AUTO - CARS - 0.75%
130,340 Harley-Davidson, Inc........... 4,659,655
57,000 Meritor Automotive, Inc........ 1,371,563
-----------
6,031,218
-----------
AUTO - ORIGINAL EQUIPMENT - 1.34%
19,725 Arvin Industries, Inc.......... 731,058
22,900 Carlisle Cos Inc............... 1,107,788
46,942 Danaher Corp................... 3,394,493
38,836 Donaldson Co., Inc............. 847,110
34,670 Federal-Mogul Corp............. 2,052,031
50,245 Mark IV Industries, Inc........ 1,105,390
24,928 Modine Manufacturing Co........ 847,552
23,200 Superior Industries
International, Inc........... 675,700
-----------
10,761,122
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
AUTO - REPLACEMENT PARTS - 0.16%
31,642 Kaydon Corp.................... $ 1,247,881
-----------
BANKS - OTHER - 1.48%
109,204 First Tennessee National Corp.. 3,467,227
116,100 Firstar Corp................... 4,259,418
70,900 Union Planters Corp............ 4,147,650
-----------
11,874,295
-----------
BANKS - REGIONAL - 5.81%
40,000 Associated Banc-Corp........... 1,980,000
38,455 City National Corp............. 1,413,221
88,972 Crestar Financial Corp......... 5,110,328
139,211 First Security Corp............ 3,167,050
39,862 First Virginia Banks, Inc...... 2,082,790
106,400 Hibernia Corp. Class A......... 2,234,400
79,448 Marshall & Ilsley Corp......... 4,290,192
57,534 Mercantile Bankshares Corp..... 2,049,649
106,650 North Fork Bancorporation Inc.. 2,566,266
76,400 Old Kent Financial Corp........ 3,046,450
64,468 Pacific Century Finl Corp...... 1,615,729
112,718 Regions Financial Corp......... 4,635,528
132,030 SouthTrust Corp................ 5,355,466
73,000 TCF Financial Corp............. 2,377,063
28,678 Wilmington Trust Corp.......... 1,738,604
59,700 Zions Bancorporation........... 3,044,700
-----------
46,707,436
-----------
BEVERAGE - SOFT DRINKS - 1.47%
314,009 Coca Cola Enterprises, Inc..... 11,794,963
-----------
BROADCASTING - 0.66%
50,228 A.H. Belo Corp................. 2,586,741
26,192* Chris-Craft Industries, Inc.... 1,376,717
22,416 TCA Cable TV, Inc.............. 1,365,975
-----------
5,329,433
-----------
BUILDING MATERIALS - 1.39%
18,366 CalMat Co...................... 461,446
34,000 Fastenal Co.................... 1,683,000
49,050 Hon Industries Inc............. 1,569,600
38,500 Martin Marietta Materials...... 1,771,000
79,456 RPM, Inc....................... 1,350,751
17,900 Southdown, Inc................. 1,174,687
28,200 Vulcan Materials Co............ 3,200,700
-----------
11,211,184
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
CHEMICAL - MAJOR - 0.63%
44,425 Albemarle Corp................. $ 1,080,083
18,700 Borg-Warner Automotive, Inc.... 1,065,900
106,100 Solutia Inc.................... 2,911,119
-----------
5,057,102
-----------
CHEMICAL - MISCELLANEOUS - 2.28%
29,173 A. Schulman, Inc............... 579,813
53,200* Airgas, Inc.................... 807,975
27,080 Betz Laboratories, Inc......... 1,333,690
64,937 Crompton & Knowles Corp........ 1,749,240
36,000* Cytec Industries, Inc.......... 1,764,000
19,368 Dexter Corp.................... 798,930
49,000 Ethyl Corp..................... 346,063
31,570 Ferro Corp..................... 903,691
26,833 Georgia Gulf Corp.............. 672,502
11,264 H.B. Fuller Co................. 705,408
37,193 Lawter International, Inc...... 357,983
52,619 Lubrizol Corp.................. 1,828,510
64,278 Lyondell Petrochemical Co...... 2,004,670
42,336 M.A. Hanna Co.................. 849,366
18,100 Minerals Technologies Inc...... 958,169
5,955 NCH Corp....................... 379,259
40,242 Olin Corp...................... 1,740,467
28,425 Rollins, Inc................... 586,266
-----------
18,366,002
-----------
CONGLOMERATES - 1.36%
39,698 Alexander & Baldwin, Inc....... 1,141,318
80,900 Dial Corp...................... 2,007,331
37,000* Litton Industries, Inc......... 2,143,687
6,200 MAXXAM, Inc.................... 365,413
40,200 Ogden Corp..................... 1,148,213
78,400 Viad Corp...................... 2,116,800
91,500 Whitman Corp................... 1,984,406
-----------
10,907,168
-----------
CONSUMER FINANCE - 0.71%
56,900 Capital One Financial Corp..... 5,679,331
-----------
CONTAINERS - PAPER - 0.46%
18,914 Chesapeake Corp................ 671,447
86,280 Sonoco Products Co............. 3,014,394
-----------
3,685,841
-----------
</TABLE>
<PAGE> 126
================================================================================
MIDCAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
12 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
DRUGS - 4.03%
44,180 Bergen Brunswig Corp. Cl A..... $ 1,833,470
63,552* Biogen, Inc.................... 2,796,288
37,246 Carter-Wallace Inc............. 663,444
59,488* Centocor, Inc.................. 2,320,032
139,180 Chiron Corp.................... 2,513,939
55,625* Covance Inc.................... 1,178,555
66,482* Forest Laboratories, Inc....... 2,193,906
61,442* Genzyme Corp................... 1,681,975
56,700 ICN Pharmaceuticals, Inc....... 2,448,731
109,736* IVAX Corp...................... 1,008,200
73,700 McKesson Corp.................. 5,757,812
105,534 Mylan Laboratories Inc......... 3,166,020
19,100 R.P. Scherer Corp.............. 1,576,944
75,500* Watson Pharmaceuticals, Inc.... 3,303,125
-----------
32,442,441
-----------
ELECTRICAL EQUIPMENT - 1.59%
82,086* American Power Conversion...... 2,462,580
29,031 AMETEK, Inc.................... 838,270
53,970 Hubbell Inc. Class B........... 2,539,963
125,957 Molex Inc...................... 3,511,051
68,846* Teradyne, Inc.................. 2,117,015
41,800* UCAR International, Inc........ 1,337,600
-----------
12,806,479
-----------
ELECTRONIC INSTRUMENTS - 1.24%
80,552* Arrow Electronics, Inc......... 2,028,904
39,450* Imation Corp................... 717,497
72,000* Integrated Device Technology... 675,000
25,521* MagnaTek, Inc.................. 432,262
33,800 Pittston Brink's Group......... 1,307,638
59,579* Sensormatic Electronics Corp... 763,356
47,413 Symbol Technologies, Inc....... 1,668,345
24,316 Varian Associates, Inc......... 1,168,688
54,313* Vishay Intertechnology, Inc... 1,211,867
-----------
9,973,557
-----------
ENTERTAINMENT - 0.14%
34,800* GTECH Holdings Corp............ 1,128,825
-----------
FERTLIIZERS - 0.36%
88,946* IMC Global, Inc................ 2,890,745
-----------
FINANCE COMPANIES - 0.41%
59,800 Finova Group, Inc.............. 3,307,688
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
FOODS - 2.99%
32,282 Dean Foods Co.................. $ 1,589,889
48,109 Dole Food Co., Inc............. 2,222,034
27,036 Dreyer's Grand Ice Cream, Inc.. 684,349
80,204 Flowers Industries, Inc........ 1,654,208
63,000 Hormel Foods Corp.............. 2,118,375
74,000 IBP, Inc....................... 1,433,750
14,612 International Multifoods Corp.. 434,707
59,600 Interstate Bakeries Corp....... 1,922,100
22,871 J.M. Smucker Co. Class A....... 544,616
24,771 Lance, Inc..................... 520,191
67,178 McCormick & Co., Inc........... 2,250,463
34,621 Trinity Industries, Inc........ 1,653,153
182,386 Tyson Foods, Inc. Class A...... 3,852,903
39,200* U. S. Foodservice.............. 1,298,500
44,258 Universal Foods Corp........... 1,053,894
37,200* Vlasic Foods Int'l Inc......... 806,775
-----------
24,039,907
-----------
FOOTWEAR - 0.36%
28,800* Nine West Group, Inc........... 811,800
30,100* Payless ShoeSource, Inc........ 2,108,881
-----------
2,920,681
-----------
FREIGHT - 0.37%
37,246 Airborne Freight Corp.......... 1,387,413
34,700 J.B. Hunt Transport Services,
Inc.......................... 1,038,831
30,271 Overseas Shipholding Group..... 586,501
Inc. -----------
3,012,745
-----------
FUNERAL SERVICES - 0.29%
86,200 Stewart Enterprises Inc........ 2,327,400
-----------
HEALTHCARE - 3.34%
45,000 Allegiance Corp................ 2,250,000
49,000* Apria Healthcare Group, Inc.... 373,625
426* Coram Healthcare Corp.......... 879
26,286* First Health Group Corp........ 1,493,373
104,949* Foundation Health Systems
Class A...................... 3,194,385
131,600 Health Management Assoc........ 3,923,325
49,391* NovaCare, Inc.................. 543,301
63,000 Omnicare, Inc.................. 2,208,938
65,500* Oxford Health Plans, Inc....... 1,129,875
34,574* PacifiCare Health System, Inc.
Class B....................... 2,856,678
59,700* Quintiles Transnational Corp... 2,902,912
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
HEALTHCARE - Continued
66,800* Quorum Health Group Inc........ $ 2,008,175
78,000* Sybron International Corp...... 1,867,125
67,900* Total Renal Care Holdings...... 2,083,681
-----------
26,836,272
-----------
HEAVY DUTY TRUCKS/PARTS - 0.20%
17,000 Bandag, Inc.................... 786,250
37,404 Federal Signal Corp............ 836,915
-----------
1,623,165
-----------
HOME BUILDERS - 0.22%
95,125 Clayton Homes, Inc............. 1,789,539
-----------
HOSPITAL MANAGEMENT - 0.51%
87,000* Beverly Enterprises, Inc....... 1,245,188
43,400* Concentra Managed Care, Inc.... 1,014,475
36,900 Health Care & Retirement Corp.. 1,427,568
60,400* Medaphis Corp.................. 453,000
-----------
4,140,231
-----------
HOSPITAL SUPPLIES - 1.38%
11,410 ATL Ultrasound, Inc............ 517,017
26,335* Acuson Corp.................... 503,658
22,733 Beckman Coulter Inc............ 1,267,366
43,400 DENTSPLY International Inc..... 1,464,751
55,200 Hillenbrand Industries, Inc.... 3,408,601
62,700* PSS World Medical, Inc......... 783,750
77,082 Stryker Corp................... 3,141,093
-----------
11,086,236
-----------
HOUSEHOLD PRODUCTS - 0.89%
59,700* Bed Bath & Beyond, Inc......... 2,996,194
16,014 Church & Dwight Co., Inc....... 485,424
22,300* Culligan Water Technologies.... 1,244,619
32,446 First Brands Corp.............. 807,094
50,200 Premark International Inc...... 1,609,538
-----------
7,142,869
-----------
HUMAN RESOURCES - 1.08%
30,603 Kelly Services Inc. Class A.... 1,124,660
65,800 Manpower Inc................... 2,825,288
63,950 Olsten Corp.................... 795,378
77,700* Robert Half International, Inc. 3,933,562
-----------
8,678,888
-----------
</TABLE>
<PAGE> 127
================================================================================
MIDCAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 13
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
INFORMATION PROCESSING - 10.42%
46,373* A.C. Nielson................... $ 1,197,003
173,300* America Online, Inc............ 14,438,056
171,808* BMC Software, Inc.............. 7,913,906
59,458 Comdisco, Inc.................. 2,162,785
146,000* Compuware Corp................. 6,706,875
35,000 Comverse Technology, Inc....... 1,748,908
58,051 Diebold, Inc................... 1,697,992
48,900* Electronic Arts................ 2,127,150
45,864* Fiserv, Inc.................... 2,704,545
22,768* Information Resources, Inc..... 398,440
125,700* Informix Corp.................. 856,331
54,800* Keane, Inc..................... 2,459,150
56,800* Lexmark Intl Group, Inc........ 3,152,400
52,107* Mentor Graphics Corp........... 576,434
86,373* NCR Corp....................... 2,931,284
60,300* Networks Associates, Inc....... 3,693,375
16,971 OEA, Inc....................... 290,628
140,286 Paychex, Inc................... 5,050,279
14,618* Policy Management Systems
Corp.......................... 1,205,985
112,492* Quantum Corp................... 2,460,763
73,208 Reynolds and Reynolds Co.
Class A...................... 1,532,793
35,225* Sequent Computer Systems, Inc.. 583,414
92,000* Solectron Corp................. 3,806,500
74,152* Sterling Commerce Inc.......... 2,942,908
58,500* Sterling Software, Inc......... 1,590,469
45,990* Storage Technology Corp........ 3,857,411
18,525* Stratus Computer, Inc.......... 668,058
32,595* Structural Dynamic Research
Corp......................... 825,061
88,100* SunGard Data Systems, Inc...... 3,006,413
50,612* Symantec Corp.................. 1,208,362
-----------
83,793,678
-----------
INSURANCE - CASUALTY - 0.52%
47,333 American Financial Group, Inc.. 2,138,860
27,027 Transatlantic Holdings, Inc.... 2,021,958
-----------
4,160,818
-----------
INSURANCE - MISCELLANEOUS - 0.82%
61,500 AMBAC Financial Group Inc...... 3,363,281
24,699 HSB Group Inc.................. 1,086,756
29,000 PMI Group Inc.................. 2,180,438
-----------
6,630,475
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
INSURANCE - MULTILINE - 1.75%
110,025 AFLAC Inc...................... $ 7,034,723
107,100 Old Republic International
Corp......................... 3,052,350
108,172 Provident Companies Inc........ 3,988,843
-----------
14,075,916
-----------
LEISURE TIME - 0.63%
66,400 Callaway Golf Co............... 1,369,500
78,425* Circus Circus Enterprises...... 1,392,044
92,802 International Game Technology.. 2,291,049
-----------
5,052,593
-----------
LODGING - 0.40%
74,257* Promus Hotel Corp.............. 3,211,615
-----------
MACHINERY - AGRICULTURE - 0.16%
50,200 AGCO Corp...................... 1,261,275
-----------
MACHINERY - CONSTRUCTION &
CONTRACTS - 0.14%
15,171 Granite Construction, Inc...... 428,581
21,268* Jacobs Engineering Group, Inc.. 683,235
-----------
1,111,816
-----------
MACHINERY - INDUSTRIAL/
SPECIALTY - 1.05%
24,573 Albany International Corp.
Class A...................... 712,617
29,722 Cordant Technologies Inc....... 1,482,385
28,718 Flowserve Corp................. 832,822
27,800 Newport News Shipbuilding...... 778,400
14,414 Nordson Corp................... 655,837
26,633 Stewart & Stevenson Services,
Inc.......................... 552,635
17,600 Tecumseh Products Co. Class A.. 877,800
53,292 Tidewater, Inc................. 2,025,096
21,724 Watts Industries, Inc. Class A. 506,441
-----------
8,424,033
-----------
MERCHANDISE - DRUG - 0.09%
62,900* Perrigo Co..................... 691,900
-----------
MERCHANDISE - SPECIALTY - 4.79%
28,386* BJ's Wholesale Club Inc........ 1,121,247
53,500* Barnes & Noble, Inc............ 1,812,313
72,400* Best Buy Co., Inc.............. 2,362,050
75,400* CompUSA, Inc................... 1,187,550
120,190 Dollar General Corp............ 4,582,243
15,764 Enesco Group Inc............... 481,787
37,100 Fingerhut Companies, Inc....... 1,087,494
70,800* General Nutrition Cos., Inc.... 2,234,625
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
MERCHANDISE - SPECIALTY - Continued
125,800* Kohl's Corp.................... $ 5,983,363
28,500* Micro Warehouse, Inc........... 498,750
130,437* Office Depot, Inc.............. 3,847,892
110,300* OfficeMax, Inc................. 1,813,056
45,311 Sotheby's Holdings, Inc.
Class A...................... 1,042,153
206,225* Staples, Inc................... 5,181,403
29,436 Tiffany & Co................... 1,409,249
114,200* US Office Products, Co......... 1,934,263
68,900 Viking Office Products, Inc.... 1,970,113
-----------
38,549,551
-----------
MERCHANDISING - DEPARTMENT - 0.52%
75,400* Proffit's Inc.................. 2,959,450
52,500* Saks Holding, Inc.............. 1,237,031
-----------
4,196,481
-----------
MERCHANDISING - FOOD - 0.27%
34,700 Hannaford Bros. Co............. 1,533,306
36,200 Ruddick Corp................... 647,075
-----------
2,180,381
-----------
MERCHANDISING - MASS - 0.93%
141,720 Family Dollar Stores, Inc...... 2,347,238
119,900* Fred Meyer, Inc................ 5,155,700
-----------
7,502,938
-----------
METALS - ALUMINUM - 0.26%
44,167* Alumax Inc..................... 2,067,568
-----------
METALS - MISCELLANEOUS - 0.31%
13,600 Brush Wellman Inc.............. 331,500
21,306 Kennametal, Inc................ 1,025,351
19,350 Precision Castparts Corp....... 1,115,044
-----------
2,471,895
-----------
METALS - STEEL - 0.55%
47,800 AK Steel Holding Corp.......... 890,275
15,710 Carpenter Technology Corp...... 832,630
9,157 Cleveland-Cliffs Inc........... 484,749
39,742 Harsco Corp.................... 1,733,745
21,123 Oregon Steel Mills, Inc........ 510,913
-----------
4,452,312
-----------
MISCELLANEOUS - 0.18%
65,400* Corrections Corp. of America... 1,487,850
-----------
</TABLE>
<PAGE> 128
================================================================================
MIDCAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
14 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
MULTIMEDIA - 1.08%
176,956* Cadence Design Systems, Inc.... $ 6,237,699
57,300* Synopsys Inc................... 2,460,319
-----------
8,698,018
-----------
NATURAL GAS - DIVERSIFIED - 0.79%
104,400 El Paso Natural Gas Co......... 4,032,450
33,343 Questar Corp................... 1,352,475
59,632* Seagull Energy Corp............ 987,655
-----------
6,372,580
-----------
OIL - INTEGRATED DOMESTIC - 0.08%
37,114 Quaker State Corp.............. 628,618
-----------
OIL - INTEGRATED
INTERNATIONAL - 0.23%
36,446 Murphy Oil Corp................ 1,833,689
-----------
OIL - SERVICE - PRODUCTS - 1.37%
61,842* BJ Services Co................. 2,021,460
79,168* Evi Weatherford Inc,........... 4,002,928
105,700 Noble Drilling Corp............ 3,118,150
61,125* Parker Drilling Co............. 515,742
51,372* Varco International, Inc....... 1,338,883
-----------
10,997,163
-----------
OIL - SERVICES - 2.45%
32,900 Camco International, Inc....... 2,294,775
115,700 ENSCO International, Inc....... 2,928,656
137,915* Global Marine Inc.............. 3,077,229
87,439* Nabors Industries, Inc......... 2,060,281
33,446* Smith International, Inc....... 1,640,944
85,300 Transocean Offshore, Inc....... 4,206,357
46,046 Witco Corp..................... 1,746,870
34,300 York International Corp........ 1,715,000
-----------
19,670,112
-----------
OIL/GAS PRODUCERS - 1.50%
55,380 Cabot Corp..................... 1,844,846
49,935* Noble Affiliates, Inc.......... 1,950,586
86,670* Ocean Energy, Inc.............. 1,738,817
89,300 Pioneer Natural Resources Corp. 2,098,550
85,366* Ranger Oil Ltd................. 549,544
74,380 Ultramar Diamond Shamrock Corp. 2,375,511
46,991 Valero Energy Corp............. 1,533,081
-----------
12,090,935
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
PAPER/FOREST PRODUCTS - 1.48%
36,339 Bowater Inc.................... $ 1,839,662
72,070 Consolidated Papers, Inc....... 2,085,526
79,200 Georgia-Pacific Corp. Timber
Group........................ 1,866,150
40,939 Longview Fibre Co.............. 675,494
33,300 P. H. Glatfelter Co............ 543,206
30,676 Pentair Inc.................... 1,345,910
23,100 Rayonier Inc................... 1,084,256
23,570 Standard Register Co........... 849,993
57,016 Unisource Worldwide, Inc....... 730,518
40,061 Wausau-Mosinee Paper Corp...... 856,304
-----------
11,877,019
-----------
POLLUTION CONTROL - 1.39%
33,033 Calgon Carbon Corp............. 353,040
81,400* United States Filter Corp...... 2,477,613
176,500* USA Waste Services, Inc........ 8,328,594
-----------
11,159,247
-----------
PUBLISHING - NEWS - 0.83%
34,700 Lee Enterprises, Inc........... 1,054,012
22,168 Media General, Inc. Class A.... 1,019,728
8,561 Washington Post Co. Class B.... 4,625,080
-----------
6,698,820
-----------
PUBLISHING/PRINTING - 0.40%
23,886 Banta Corp..................... 756,888
29,232 Houghton Mifflin Co............ 1,015,812
12,900* Scholastic Corp................ 516,000
34,928 Wallace Computer Svcs, Inc..... 934,324
-----------
3,223,024
-----------
RAILROAD - 0.86%
20,612 GATX Corp...................... 1,692,760
13,359 Illinois Central Corp.......... 495,953
88,796 Kansas City Southern Ind....... 3,762,730
41,500* Wisconsin Central Transport.... 972,656
-----------
6,924,099
-----------
RESTAURANTS - 1.31%
36,633 Bob Evans Farms, Inc........... 780,741
61,155* Brinker International, Inc..... 1,330,121
37,432* Buffets, Inc................... 610,610
48,966 Cracker Barrel, Inc............ 1,579,153
33,100* Lone Star Steakhouse & Saloon.. 558,563
43,500* Outback Steakhouse Inc......... 1,604,062
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
RESTAURANTS - Continued
16,888* Sbarro, Inc.................... $ 493,974
75,000* Starbucks Corp................. 3,600,000
-----------
10,557,224
-----------
SAVINGS & LOAN - 0.83%
109,700 Charter One Financial, Inc..... 3,757,225
99,000 Dime Bancorp, Inc.............. 2,889,563
-----------
6,646,788
-----------
SECURITIES RELATED - 1.82%
96,014 A.G. Edwards, Inc.............. 3,882,567
111,184 Bear Stearns Co. Inc........... 6,031,730
109,200 Paine Webber Group Inc......... 4,688,775
-----------
14,603,072
-----------
SEMICONDUCTORS - 2.56%
73,540* Altera Corp.................... 2,472,783
129,938* Analog Devices, Inc............ 3,207,836
82,200* Atmel Corp..................... 1,217,588
36,188 Avnet, Inc..................... 2,135,091
56,136 Cirrus Logic, Inc.............. 561,360
74,982* Cypress Semiconductor Corp..... 642,033
62,554 Linear Technology Corp......... 4,374,870
110,500 Maxim Integrated Products, Inc. 3,687,937
61,281* Xilinx, Inc.................... 2,330,596
-----------
20,630,094
-----------
TELECOMMUNICATIONS - 1.75%
110,128* ADC Communications, Inc........ 3,097,350
39,742 COMSAT Corp.................... 1,386,002
86,700 LCI International, Inc......... 3,245,831
56,900* QUALCOMM, Inc.................. 2,965,912
97,901* 360 Communications Co.......... 2,796,297
34,640* Vanguard Cellular Systems, Inc.
Class A....................... 621,355
-----------
14,112,747
-----------
TEXTILE - PRODUCTS - 1.00%
47,600* Burlington Industries, Inc..... 835,975
44,500 Jones Apparel Group, Inc....... 2,820,187
101,623 Shaw Industries Inc............ 1,625,968
55,429 Unifi, Inc..................... 2,158,266
24,984 Wellman, Inc................... 601,178
-----------
8,041,574
-----------
</TABLE>
<PAGE> 129
================================================================================
MIDCAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 15
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
TOBACCO - 0.13%
28,435 Universal Corp................. $ 1,068,090
-----------
TRUCKERS - 0.26%
20,214 Arnold Industries, Inc......... 315,844
42,700 CNF Transportation, Inc........ 1,753,368
-----------
2,069,212
-----------
UTILITIES - COMMUNICATION - 1.63%
28,818 Aliant Communications, Inc..... 668,217
72,675 Century Telephone Enterprises,
Inc.......................... 3,220,411
110,000 Cincinnati Bell, Inc........... 3,499,375
56,964 Southern New England Telecom... 3,667,057
47,791 Telephone and Data Systems..... 2,090,855
-----------
13,145,915
-----------
UTILITIES - ELECTRIC - 9.05%
140,472* AES Corp....................... 6,681,200
107,914 Allegheny Energy, Inc.......... 3,028,336
16,279 Black Hills Corp............... 357,121
62,300* Calenergy, Inc................. 1,884,575
27,916 Central Maine Power Co......... 533,894
18,459 Cleco Corp..................... 552,616
75,364 CMS Energy Corp................ 3,283,043
87,538 Conectiv, Inc.................. 1,789,058
55,421 Energy East Corp............... 2,251,478
79,262 Florida Progress Corp.......... 3,269,557
24,166 Hawaiian Electric Industries,
Inc.......................... 924,350
30,123 Idaho Power Co................. 1,029,830
68,300 Illinova Corp.................. 1,984,969
16,859 Indiana Energy, Inc............ 520,522
61,916 Interstate Energy Corp......... 1,861,350
39,564 IPALCO Enterprises, Inc........ 1,666,634
59,019 Kansas City Power & Light Co... 1,696,796
104,342 LG&E Energy Corp............... 2,771,583
75,334 Mid American Energy Holdings
Co........................... 1,567,888
23,218 Minnesota Power Inc............ 915,660
51,457 Montana Power Co............... 1,865,316
37,633 Nevada Power Co................ 898,488
92,322 New Century Energies, Inc...... 4,246,811
60,017 New England Electrical System.. 2,505,710
101,544 NIPSCO Industries, Inc......... 2,728,995
104,133* Northeast Utilities............ 1,659,620
32,946 OGE Energy Corp................ 1,766,729
68,023 Pinnacle West Capital Corp..... 3,056,783
106,964 Potomac Electric Power Co...... 2,613,933
33,537 Public Service Co. of
New Mexico................... 727,334
69,062 Puget Sound Energy Inc......... 1,804,245
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- -----------
<S> <C> <C>
UTILITIES - ELECTRIC - Continued
84,688 Scana Corp..................... $ 2,440,073
95,820 TECO Energy, Inc............... 2,509,286
45,388 UtiliCorp United Inc........... 1,614,111
34,424 Washington Gas Light Co........ 897,176
96,752 Wisconsin Energy Corp.......... 2,854,184
-----------
72,759,254
-----------
UTILITIES - GAS, DISTRIBUTION - 1.61%
45,536 AGL Resources, Inc............. 910,720
138,305* Keyspan Energy Corp............ 4,659,150
58,268 MCN Energy Group Inc........... 2,097,647
31,178 National Fuel Gas Co........... 1,321,168
125,446 Tosco Corp..................... 3,982,910
-----------
12,971,595
-----------
WATER SERVICES - 0.23%
64,000 American Water Works Co., Inc.. 1,880,000
-----------
TOTAL COMMON STOCKS
(Cost $534,296,502)............ 799,157,983
-----------
PAR
VALUE
- ----------
CORPORATE SHORT TERM
COMMERCIAL PAPER - 0.35%
FINANCE COMPANIES - 0.16%
$1,259,000 Ford Motor Credit Co.,
5.45% due 06/01/98.......... 1,259,000
-----------
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.19%
1,560,000 Cooper Industries, Inc.,
5.67% due 06/01/98.......... 1,560,000
-----------
TOTAL CORPORATE SHORT
TERM COMMERCIAL PAPER
(Cost $2,819,000).............. 2,819,000
-----------
UNITED STATES GOVERNMENT -
SHORT TERM - 0.07%
U.S. TREASURY BILLS - 0.07%
United States Treasury Bills:
200,000 4.94 % due 6/4/98........... 199,918
250,000 4.74 % due 6/4/98........... 249,901
100,000 4.65 % due 6/4/98........... 99,961
-----------
549,780
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
------------
<S> <C> <C>
TOTAL UNITED STATES GOVERNMENT
SHORT TERM -
(Cost $549,780)................ $ 549,780
------------
TOTAL INVESTMENTS
(Cost $537,665,282) - 99.78%... 802,526,763
Other assets and liabilities,
net - 0.22%................... 1,790,866
------------
NET ASSETS (equivalent
to $25.27 per share on
31,829,893 shares
outstanding) -100%........... $804,317,629
============
* Non-income producing
UNREALIZED
CONTRACTS DEPRECIATION
- --------- ------------
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at 5/31/98)
18 (2) S&P MidCap 400 Index Futures
(June/$357.75)................. $ (40,725)
===========
(1)U.S.Treasury Bills with a market value of
approximately $550,000 were maintained in a
segregated account with a portion placed as
collateral for futures contracts.
(2)Per 500
- --------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
31,829,893 shares outstanding........... $ 318,299
Additional paid in capital................ 471,400,467
Undistributed net realized gain on
securities.............................. 67,735,760
Undistributed net investment income....... 42,347
Unrealized appreciation (depreciation) of:
Investments........... $264,861,481
Futures............... (40,725) 264,820,756
------------ ------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING............................. $804,317,629
============
</TABLE>
<PAGE> 130
===============================================================================
MIDCAP INDEX FUND - FINANCIAL STATEMENTS
16
===============================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends............................................................................. $ 8,911,421
Interest.............................................................................. 609,816
------------
Total investment income............................................................. 9,521,237
------------
EXPENSES:
Advisory fees......................................................................... 2,313,256
Custodian and accounting services..................................................... 165,053
Reports to shareholders............................................................... 58,613
Audit fees and tax services........................................................... 18,922
Directors' fees and expenses.......................................................... 14,303
Miscellaneous......................................................................... 49,866
------------
Total expenses...................................................................... 2,620,013
------------
NET INVESTMENT INCOME................................................................. 6,901,224
------------
REALIZED AND UNREALIZED GAIN ON SECURITIES:
Net realized gain on:
Investments....................................................... $ 67,034,658
Futures contracts................................................. 1,444,055 68,478,713
------------
Net unrealized appreciation (depreciation) during the year:
Investments....................................................... 104,256,508
Futures contracts................................................. (160,580) 104,095,928
------------ ------------
Net realized and unrealized gain on securities during the year..................... 172,574,641
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................................... $179,475,865
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................... $ 6,901,224 $ 6,894,820
Net realized gain on securities..................................... 68,478,713 39,709,142
Net unrealized appreciation of securities during the year........... 104,095,928 45,603,667
------------ ------------
Increase in net assets resulting from operations.................. 179,475,865 92,207,629
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................... (6,915,741) (6,892,259)
Net realized gain on securities..................................... (39,892,715) (33,690,297)
------------ ------------
Decrease in net assets resulting from distributions
to shareholders.................................................. (46,808,456) (40,582,556)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold.................................... 54,227,081 33,601,532
Proceeds from capital stock issued for distributions reinvested..... 46,808,456 40,582,556
------------ ------------
101,035,537 74,184,088
Cost of capital stock repurchased................................... (36,446,663) (59,435,374)
------------ ------------
Increase in net assets resulting from
capital stock transactions....................................... 64,588,874 14,748,714
------------ ------------
TOTAL INCREASE IN NET ASSETS........................................ 197,256,283 66,373,787
NET ASSETS:
Beginning of year................................................... 607,061,346 540,687,559
------------ ------------
End of year (including undistributed net investment income
of $42,347 and $ 56,864) ......................................... $804,317,629 $607,061,346
============ ============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold........................................ 2,234,398 1,775,391
Shares issued for distributions reinvested.......................... 1,997,359 2,124,784
Shares of capital stock repurchased ................................ (1,539,198) (3,084,568)
------------ ------------
Increase in shares outstanding.................................... 2,692,559 815,607
Shares outstanding:
Beginning of year................................................. 29,137,334 28,321,727
------------ ------------
End of year....................................................... 31,829,893 29,137,334
============ ============
</TABLE>
<PAGE> 131
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SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS
May 31, 1998 17
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
---------- ----------
<S> <C> <C>
COMMON STOCKS - 97.11%
ADVERTISING - 0.82%
9,025* ADVO, Inc...................... $ 226,189
4,300* American Business Information
Class B....................... 54,288
5,100* Catalina Marketing Corp........ 230,775
400 Grey Advertising, Inc.......... 178,800
4,525* HA-LO Industries, Inc.......... 139,992
6,000* Lamar Advertising Co........... 190,500
6,600* NFO Worldwide Inc.............. 112,200
9,200* National Media Corp............ 12,075
10,200* Outdoor Systems Inc............ 306,000
4,000* Snyder Communications, Inc..... 161,250
7,100 True North Communications Inc.. 225,868
6,900* Westwood One, Inc.............. 184,575
----------
2,022,512
----------
AEROSPACE/DEFENSE - 0.77%
2,300* Alliant Techsystems, Inc....... 148,350
6,700* Aviall, Inc.................... 97,988
1,600* Banner Aerospace, Inc.......... 18,900
6,600* BE Aerospace, Inc.............. 190,782
2,700 Cubic Corp..................... 79,313
9,800 EG & G, Inc.................... 308,700
5,200* Fairchild Corp. Class A........ 103,025
6,800 Gencorp Inc.................... 202,725
14,900* Geotek Communications, Inc..... 5,587
7,800* Orbital Sciences Corp.......... 318,825
3,400* Remec, Inc..................... 48,875
2,000* Sequa Corp. Class A............ 138,250
3,700* Tech-Sym Corp.................. 107,068
7,200* Trimble Navigation Ltd......... 141,750
----------
1,910,138
----------
AIRLINES - 0.56%
9,300* Airtran Holdings Inc........... 67,135
3,800* Alaska Air Group, Inc.......... 175,988
14,100* American West Holdings Corp.
Class B....................... 399,206
5,500 ASA Holdings, Inc.............. 216,219
3,300 Circle International Grp, Inc.. 89,306
6,100 Expeditors International
of WA......................... 244,000
----------
1,050* Mesaba Holdings, Inc........... 22,838
1,950* Midwest Express Holdings, Inc.. 55,940
11,100* Transport World Airls, Inc..... 115,162
----------
1,385,794
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
---------- ----------
<S> <C> <C>
APPAREL & PRODUCTS - 1.42%
1,800* Abercrombie and Fitch Co....... $ 76,050
9,400* Ann Taylor Stores Corp......... 205,038
5,600 Authentic Fitness Corp......... 101,850
1,000* Buckle, Inc.................... 51,000
11,925 Claire's Stores, Inc........... 224,339
6,300* Dress Barn, Inc................ 182,503
1,200 Fab Industries, Inc............ 32,550
8,900* Footstar Inc................... 393,269
2,900* Gadzooks, Inc.................. 80,928
6,200* Gymboree Corp.................. 98,038
6,000* Hartmarx Corp.................. 47,250
5,250 Kellwood Co.................... 173,578
5,300* Land's End, Inc................ 171,256
4,400 Mens Wearhouse, Inc............ 187,550
8,900* Nautica Enterprises, Inc....... 260,325
3,600 OshKosh B'Gosh, Inc. Class A... 138,600
900 Oxford Inds Inc................ 31,388
4,050* Pacific Sunwear of California.. 181,364
8,900 Phillips-Van Heusen Corp....... 115,700
3,600 St. John Knits, Inc............ 138,375
6,200* Stage Stores, Inc.............. 289,075
4,400 Talbots, Inc................... 125,675
2,400 UniFirst Corp.................. 61,800
2,400* Urban Outfitters, Inc.......... 39,300
3,700* Wet Seal, Inc.................. 111,000
----------
3,517,801
----------
APPLIANCES/FURNISHINGS - 1.14%
4,850 Bassett Furniture Industries... 147,925
5,000* CORT Business Services Corp.... 195,625
6,800 Ethan Allen Interiors Inc...... 342,125
15,600* Furniture Brands
International................. 460,200
8,997* Griffon Corp................... 124,833
17,500 Heilig-Meyers Co............... 210,000
5,800* Helen Of Troy, Ltd............. 110,925
4,100 Hunt Corp...................... 95,325
9,200 Kimball International, Inc.
Class B....................... 226,550
2,700 La-Z-Boy Chair Co.............. 138,206
9,085* Metromedia International
Group......................... 122,648
1,500 National Presto Industries..... 60,656
4,650 Oneida Ltd..................... 129,909
5,500* Renters Choice, Inc............ 146,439
2,850* SLI, Inc....................... 81,225
6,800* Windmere Corp.................. 215,475
9,523* Zenith Electronics Corp........ 4,285
----------
2,812,351
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
---------- ----------
<S> <C> <C>
AUTO - CARS - 0.09%
3,900* Budget Group, Inc.............. $ 115,050
5,100* United Auto Group, Inc......... 104,550
----------
219,600
----------
AUTO - ORIGINAL EQUIPMENT - 0.95%
5,900* Allen Telecom, Inc............. 70,800
5,000 Arvin Industries, Inc.......... 185,313
5,100 Breed Technologies, Inc........ 97,219
8,400 Carlisle Cos Inc............... 406,350
10,200 Donaldson Co., Inc............. 222,488
9,600 Federal-Mogul Corp............. 568,200
6,800 Hayes Lemmerz Intl, Inc........ 266,475
7,150* Miller Industries, Inc......... 50,944
5,700 Modine Manufacturing Co........ 193,800
5,100 Superior Industries
International, Inc............ 148,537
3,100* Tower Automotive, Inc.......... 145,505
----------
2,355,631
----------
AUTO - REPLACEMENT PARTS - 0.68%
2,800* Aftermarket Technology Corp.... 47,950
3,400 A.O. Smith Corp................ 171,700
15,100* Collins & Aikman Corp.......... 105,700
3,900 Discount Auto Parts, Inc....... 100,181
5,400 Furon Co....................... 86,063
8,200 Kaydon Corp.................... 323,388
3,457 Myers Industries, Inc.......... 73,029
1,600* O'Reilly Automotive, Inc....... 52,000
3,200* SPX Corp....................... 221,200
5,350 Simpson Industries, Inc........ 74,900
3,200* Standard Motor Products, Inc... 70,400
4,450 Standard Products Co. Class A.. 130,719
6,700* TBC Corp....................... 54,019
3,300* Walbro Corp.................... 34,031
6,468 Wynn's International, Inc...... 135,827
----------
1,681,107
----------
BANKS - OTHER - 0.41%
1 BankBoston Corp................ 105
700 Citizens Bancshares, Inc....... 48,913
1,600 Irwin Financial Corp........... 43,600
38,612 Sovereign Bancorp, Inc......... 682,950
14,200 Westernbank Puerto Rico........ 241,400
----------
1,016,968
----------
</TABLE>
<PAGE> 132
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS
18 May 31, 1998
===============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
BANKS - REGIONAL - 6.45%
7,350 AMCORE Financial, Inc.......... $ 180,994
3,850 Anchor BanCorp Wisconsin, Inc.. 163,144
12,396 Associated Banc-Corp........... 613,602
1,207* BOK Financial Corp............. 59,747
2,600 BancFirst Corp................. 123,500
9,400 BancorpSouth, Inc.............. 200,338
1,785 Bank of Granite Corp........... 73,185
9,200 Bank United Corp............... 460,000
6,400 Banknorth Group, Inc........... 233,600
4,464 CNB Bancshares, Inc............ 206,460
2,100 Capital City Bank Group, Inc... 97,519
4,110 Chemical Financial Corp........ 173,648
6,450 Citizens Banking Corp.......... 223,331
10,400 Colonial BancGroup, Inc........ 336,700
5,249 Commerce Bancorp, Inc.......... 291,648
8,175 Commercial Federal Corp........ 272,330
7,500 Commonwealth Bancorp, Inc...... 177,188
13,000 Community First Bankshares..... 316,875
760 Community Trust Bancorp........ 23,180
3,850 Corus Bankshares, Inc.......... 162,181
5,740 Cullen/Frost Bankers, Inc...... 311,036
3,500 F & M Bancorporation, Inc...... 141,750
4,742 F & M National Corp............ 139,593
6,510 FNB Corp....................... 231,105
5,586 First American
Financial Corp. Class A....... 402,890
2,450 First Citizens
BancShares, Inc. Class A...... 259,700
8,800 First Colorado Bancorp., Inc... 250,800
1,500 First Commerce Bancshares, Inc
Class B....................... 40,500
5,600 First Commonwealth Financial... 158,200
3,872 First Financial Bancorp........ 222,156
900 First Financial Bankshares..... 36,844
531 First Financial Corp........... 27,280
5,875 First Midwest Bancorp, Inc..... 269,883
700 First United Bancshares........ 36,400
5,208 First Western Bancorp, Inc..... 160,635
3,805 Firstbank of Illinois Co....... 162,664
5,800 FirstBank Puerto Rico.......... 324,075
11,346 Fulton Financial Corp.......... 297,839
2,000 GBC Bancorp.................... 57,250
5,124 HUBCO, Inc..................... 180,621
3,346 Harleysville National Corp..... 136,350
2,850 Heritage Financial Services.... 100,106
10,339* Imperial Bancorp............... 302,416
8,700 Magna Group, Inc............... 483,394
NUMBER MARKET
OF SHARES VALUE
--------- ----------
BANKS - REGIONAL - Continued
1,100 MainStreet Financial Corp...... $ 33,413
10,118 Mid-Am, Inc.................... 258,009
2,400 Mississippi Valley Bancshares,. 92,700
7,700 National Bancorp of Alaska..... 245,438
4,336 National City Bancshares, Inc.. 173,711
2,421 National Penn Bancshares, Inc.. 81,709
6,200 Ocean Financial Corp........... 119,059
8,800* Ocwen Financial Corp........... 214,500
6,546 Old National Bancorp Indiana... 314,208
3,900* Omega Financial Corp........... 145,275
9,258 One Valley Bancorp of West Va.. 324,030
8,100* PFF Bancorp, Inc............... 158,456
2,200 Park National Corp............. 209,550
1,031 Peoples First Corp............. 35,344
7,100 Riggs National Corp............ 194,363
9,900 Roslyn Bancorp, Inc............ 232,960
3,690 S&T Bancorp, Inc............... 198,337
12,250 St. Paul Bancorp, Inc.......... 309,312
4,600* Silicon Valley Bancshares...... 150,650
1,400* Southwest Bancorporation of TX. 55,125
2,200 Sumitomo Bank of California.... 82,225
4,912 Susquehanna Bancshares, Inc.... 182,357
5,400 Texas Regional
Bancshares Class A............ 172,800
4,700 Trans Financial, Inc........... 250,862
1,800 Triangle Bancorp, Inc.......... 52,537
6,700 Trust Co. of New Jersey........ 182,575
5,992 TrustCo Bank Corp. NY.......... 170,771
19,100 Trustmark Corp................. 408,262
5,892 UMB Financial Corp............. 324,060
8,700 UST Corp....................... 241,968
7,400 United Bankshares Inc. WV...... 185,925
400 USBANCORP, Inc................. 31,950
1,200 Vermont Financial Services..... 33,975
8,600 Webster Financial Corp......... 290,250
12,561 Westamerica Bankcorporation.... 387,820
2,294 Westcorp....................... 27,815
4,300 Whitney Holding Corp........... 237,037
----------
15,931,995
----------
BEVERAGE - BREWERS/
DISTRIBUTORS - 0.24%
9,300 Adolph Coors Class B........... 348,750
3,200* Boston Beer, Inc. Class A...... 35,200
3,300* Canandaigua Brands, Inc.
Class A....................... 152,213
1,300 * Robert Mondavi Corp. Class A... 46,312
----------
582,475
----------
NUMBER MARKET
OF SHARES VALUE
--------- -----------
BEVERAGE - SOFT DRINKS - 0.05%
1,400 Coca-Cola Bottling Co.......... $ 87,238
4,500* National Beverage Corp......... 46,406
----------
133,644
----------
BROADCASTING - 1.57%
3,200 Ackerley Group, Inc............ 64,000
7,900* American Mobile
Satellite Corp................ 90,850
4,870 American Radio
Systems, Corp. Class A........ 322,029
8,900* ANTEC Corp..................... 170,491
9,000* Cablevision
Systems Corp. Class A......... 498,375
12,600* Century Communications Corp.
Class A....................... 200,813
1,300* Cox Radio, Inc. Class A........ 54,763
3,100* Emmis Broadcasting Corp.
Class A....................... 136,981
6,400 Heftel Broadcasting Corp.
Class A....................... 242,400
14,100* Jacor Communications, Inc...... 745,538
2,500* Paxson Communications Corp..... 29,531
2,400 SFX Broadcasting, Inc.
Class A....................... 181,200
2,675* SAGA Communications, Inc.
Class A....................... 55,506
4,200 TCA Cable TV, Inc.............. 255,938
9,800* United International
Holdings Class A.............. 161,700
12,500* United States Satellite
Broadcasting Co., Inc
Class A....................... 119,530
1,700 United Television, Inc......... 185,938
4,100* United Video
Satellite Group Class A....... 159,643
4,200* Young Broadcasting Inc.
Class A....................... 217,875
----------
3,893,101
----------
BUILDING MATERIALS - 1.28%
3,800* ABT Building Products Corp..... 54,150
1,100 Ameron, Inc.................... 66,138
6,900 Apogee Enterprises, Inc........ 96,169
1,850 Butler Manufacturing Co........ 64,750
8,400 CalMat Co...................... 211,050
3,000 Centex Construction Production. 114,750
2,600* Cooper Companies, Inc.......... 102,700
7,300* Dal-Tile International, Inc.... 101,288
3,450 Elcor Corp..................... 91,425
19,100 Fedders USA Inc................ 119,375
3,400 Florida Rock Industries, Inc... 105,825
5,200 Interface, Inc. Class A........ 203,775
3,800 Lone Star Industries, Inc...... 285,713
4,200 Medusa Corp.................... 242,025
1,000* Mestek, Inc.................... 19,125
1,700* NCI Building Systems, Inc...... 90,206
1,100 Puerto Rican Cement Co., Inc... 58,781
</TABLE>
<PAGE> 133
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SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 19
===============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
BUILDING MATERIALS - Continued
7,000 Southdown, Inc................. $ 459,375
5,700 Texas Industries, Inc.......... 338,437
3,800* Triangle Pacific Corp.......... 167,675
5,700 Watsco, Inc.................... 167,437
----------
3,160,169
----------
CHEMICAL - MAJOR - 0.34%
8,100 Albemarle Corp................. 196,931
4,100 Chemed Corp.................... 150,931
6,409* Hexcel Corp.................... 175,446
6,900 Polymer Group, Inc............. 82,369
4,100* Synetic, Inc................... 242,669
----------
848,346
----------
CHEMICAL - MISCELLANEOUS - 1.81%
4,150 Cambrex Corp................... 232,141
7,900 ChemFirst, Inc................. 202,931
5,800 Dexter Corp.................... 239,250
9,600 Ferro Corp..................... 274,800
8,500* Fisher Scientific Int'l., Inc.. 113,156
3,600 Foamex International, Inc...... 55,800
3,500 H.B. Fuller Co................. 219,188
4,500 General Chemical Group, Inc.... 114,750
5,900 Geon, Co....................... 127,588
7,100 Georgia Gulf Corp.............. 177,944
9,100 M.A. Hanna Co.................. 182,569
12,200 Lawter International, Inc...... 117,425
4,950 LeaRonal, Inc.................. 146,643
6,600 MacDermid, Inc................. 270,600
1,600 McWhorter Technologies, Inc.... 44,200
5,600 Minerals Technologies Inc...... 296,450
5,600* Mycogen Corp................... 132,300
1,200 NCH Corp....................... 76,425
8,200 NL Industries, Inc............. 164,000
7,300 OM Group, Inc.................. 302,950
8,500 Rollins, Inc................... 175,312
9,400 A. Schulman, Inc............... 186,825
2,000 Stepan Co...................... 63,250
4,000* TETRA Technologies, Inc........ 87,250
4,450* VWR Scientific Products Corp... 126,825
6,750 W.H. Brady Co. Class A......... 195,750
5,000 WD-40 Co....................... 137,187
----------
4,463,509
----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
COAL - 0.13%
1,634 NACCO Industries, Inc.
Class A....................... $ 239,381
4,100 Zeigler Coal Holding Co........ 74,569
----------
313,950
----------
CONGLOMERATES - 0.22%
2,700 MAXXAM, Inc.................... 159,131
12,400 Ogden Corp..................... 354,175
1,400* PEC Israel Economic Corp....... 30,975
----------
544,281
----------
CONSUMER FINANCE - 0.67%
7,700* AmeriCredit Corp............... 251,213
12,100* Arcadia Financial Ltd.......... 90,750
6,875 Chittenden Corp................ 256,094
5,800 Eaton Vance Corp............... 260,638
1,050 Fund American Enterprises...... 153,890
9,200* IMC Mortgage Co................ 120,750
44,400* Mercury Finance Co............. 11,100
3,830* National Auto Credit, Inc...... 3,830
5,000 SEI Corp....................... 333,750
6,450 WesBanco, Inc.................. 169,312
----------
1,651,327
----------
CONTAINERS - METAL/GLASS - 0.59%
1,900* Alltrista Corp................. 48,450
4,500 AptarGroup, Inc................ 291,656
9,500 Ball Corp...................... 374,656
1,400* CSS Industries, Inc............ 45,850
9,150* CLARCOR, Inc................... 210,450
5,500 Greif Brothers Corp. Class A... 200,063
1,125 Liqui-Box Corp................. 48,164
4,000* Silgan Holdings, Inc........... 133,000
6,100* U.S. Can Corp.................. 103,319
----------
1,455,608
----------
CONTAINERS - PAPER - 0.22%
5,300 Chesapeake Corp................ 188,150
13,000* Gaylord Container Corp.
Class A....................... 108,875
8,190 Rock-Tenn Co. Class A.......... 120,291
9,000* Shorewood Packaging Corp....... 124,312
----------
541,628
----------
COSMETICS/TOILETRIES - 0.09%
2,100 Alberto-Culver Co. Class B..... 62,475
11,500 Playtex Products, Inc.......... 165,313
----------
227,788
----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
DRUGS - 2.76%
7,500* Agouron Pharmaceuticals, Inc... $ 255,000
2,000* Algos Pharmaceuticals Corp..... 73,125
6,100* Alkermes, Inc.................. 133,438
9,600* Alliance Pharmaceutical Corp... 45,000
3,500 A.L. Pharma Inc. Class A....... 76,125
6,200* AmeriSource Health Corp
Class A....................... 337,125
8,500* Amylin Pharmaceuticals, Inc.... 36,125
1,700* Aphton Corp.................... 21,781
2,700* Barr Laboratories, Inc......... 110,194
2,700 Bindley Western Industries..... 95,850
5,300* CNS, Inc....................... 21,863
7,900 Carter-Wallace Inc............. 140,719
7,900* Cephalon, Inc.................. 83,938
7,000* Columbia Laboratories, Inc..... 59,063
7,300* COR Therapeutics, Inc.......... 125,469
18,000* Covance Inc.................... 381,375
6,400* Cygnus, Inc.................... 59,200
4,500* GelTex Pharmaceuticals, Inc.... 103,781
14,500* Gensia, Inc.................... 61,625
5,000* Guilford Pharmaceuticals, Inc.. 90,313
2,100 Herbalife International, Inc.
Class A....................... 54,075
2,200 Herbalife International, Inc.
Class B....................... 51,425
4,900* Human Genome Sciences, Inc..... 178,850
15,697 ICN Pharmaceuticals, Inc....... 677,914
11,200* ICOS Corp...................... 235,900
4,400* IDEC Pharmaceuticals Corp...... 138,600
5,500* Incyte Pharmaceuticals, Inc.... 201,953
4,400* Inhale Therapeutic Systems..... 145,200
5,900* Interneuron Pharmaceuticals.... 26,919
5,600 Jones Pharma Inc............... 172,200
5,000* KOS Pharmaceuticals, Inc....... 57,188
4,450 Life Technologies, Inc......... 152,134
9,558* Ligand Pharmaceuticals, Inc.
Class B....................... 133,215
4,300* Martek Biosciences Corp........ 53,213
4,100* Medicis Pharmaceutical
Class A....................... 167,331
7,300* Millennium Pharmaceuticals..... 128,663
2,400* Miravant Medical Technologies.. 64,800
4,030 Natures Sunshine
Products, Inc................. 93,193
6,700* Neoprobe Corp.................. 29,312
2,900* Neurogen Corp.................. 49,662
8,300* NeXstar Pharmaceuticals, Inc... 83,518
11,000* P-Com, Inc..................... 165,000
4,800* Parexel International Corp..... 144,000
5,300* Pathogenesis Corp.............. 191,462
6,600* Regeneron Pharmaceuticals Inc.. 61,669
</TABLE>
<PAGE> 134
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
20 May 31, 1998
===============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER MARKET
OF SHARES VALUE
--------- ------
DRUGS - Continued
2,900* Roberts Pharmaceutical Corp.... $ 47,850
5,200* SangStat Medical Corp.......... 136,500
8,400* Sepracor Inc................... 361,200
12,400* SEQUUS Pharmaceuticals, Inc.... 141,050
5,600* Vertex Pharmaceuticals Inc..... 161,000
5,750* Vitalink Pharmacy Services..... 124,703
8,000* Vivus Inc...................... 74,000
----------
6,814,808
----------
ELECTRICAL EQUIPMENT - 1.83%
8,200 AMETEK, Inc.................... 236,775
3,800* Amphenol Corp. Class A......... 206,625
6,200* Applied Magnetics Corp......... 34,875
5,257* BancTec, Inc................... 122,882
6,100 Belden, Inc.................... 242,094
6,900* Cable Design Technologies...... 162,581
4,300* California Microwave, Inc...... 92,181
9,600 Digital Microwave Corp......... 92,700
6,950* Electro Rent Corp.............. 165,714
2,900* Electro Scientific Industries.. 97,150
6,600* Esterline Technologies Corp.... 141,900
5,700 General Cable Corp............. 151,050
7,000* GenRad, Inc.................... 122,500
2,800* Holophane Corp................. 73,500
4,800* Hutchinson Technology, Inc..... 120,000
4,800* Identix Inc.................... 34,200
14,600* Intergraph Corp................ 128,663
7,400 Juno Lighting, Inc............. 157,250
9,400* Kemet Corp..................... 151,282
8,900* Kent Electronics Corp.......... 186,900
5,100 Kuhlman Corp................... 215,475
4,800* Littelfuse, Inc................ 109,800
5,100* Mail-Well, Inc................. 234,600
4,600* Plexus Corp.................... 98,900
2,700* Spectrian Corp................. 44,213
4,900 Standex International Corp..... 147,613
1,200* Thermo Ecotek Corp............. 19,050
6,450 Thomas Industries Inc.......... 165,281
2,000* Triumph Group, Inc............. 98,000
9,400* Uniphase Corp.................. 479,400
7,900* Vicor Corp..................... 123,438
5,100 X-Rite, Inc.................... 68,850
----------
4,525,442
----------
NUMBER MARKET
OF SHARES VALUE
--------- ------
ELECTRONIC INSTRUMENTS - 2.36%
2,300* ADE Corp....................... $ 34,500
13,800* Ampex Corp. Class A............ 31,050
1,950 Analogic Corp.................. 88,725
7,100 BMC Industries................. 104,281
7,600* Berg Electronics Corp.......... 156,750
7,300* C-Cube Microsystems, Inc....... 142,806
6,700 CTS Corp....................... 209,375
11,500 Checkpoint Systems, Inc........ 202,688
8,300* Cognex Corp.................... 157,700
4,300 Daniel Industries, Inc......... 87,344
3,000 Dionex Corp.................... 156,750
1,950* Dynatech Corp. W/I............. 7,800
2,100* Eltron International, Inc...... 46,200
2,800* Evans & Sutherland Computer.... 70,350
7,600* Exabyte Corp................... 74,100
5,400 Fluke Corp..................... 173,475
10,800* Gentex Corp.................... 395,550
6,800 Gerber Scientific, Inc......... 171,275
2,200* HADCO Corp..................... 70,675
4,575 Harman International
Industries.................... 194,723
9,000* Imation Corp................... 163,688
23,000* Integrated Device Technology... 215,625
16,300* InterDigital Communication..... 89,650
9,500* LTX Corp....................... 36,516
7,000* LoJack Corp.................... 87,938
7,700* MagnaTek, Inc.................. 130,419
4,200* Marshall Industries............ 129,938
7,350 Methode Electronics, Inc.
Class A....................... 93,713
10,400 National Computer Systems, Inc. 252,200
3,800* Nimbus CD International, Inc... 40,850
18,900* OIS Optical Imaging Systems.... 23,625
2,600* Optical Cable Corp............. 24,700
4,400 Park Electrochemical Corp...... 104,500
4,700* Performance Food Group Co...... 88,125
93* Perkin-Elmer Corp. (Warrants).. 395
9,537 Pioneer-Standard Electronics... 118,616
4,800 Pittston Bax Group............. 84,300
12,600* Read-Rite Corp................. 111,038
5,100* Robotic Vision Systems, Inc.... 32,193
5,000 Technitrol, Inc................ 201,875
5,700* Telxon Corp.................... 189,525
3,900* Thermedics Detection, Inc...... 37,538
4,300* Thermospectra Corp............. 47,568
7,000* Thermedics, Inc................ 99,750
5,500* Tracor, Inc.................... 217,250
NUMBER MARKET
OF SHARES VALUE
--------- ------
ELECTRONIC INSTRUMENTS - Continued
6,400* Waters Corp.................... $ 372,800
3,400 Watkins-Johnson Co............. 85,637
5,100 ZERO Corp...................... 147,262
1,600* Zygo Corp...................... 28,700
----------
5,832,051
----------
ENTERTAINMENT - 0.57%
3,200* AMC Entertainment, Inc......... 57,600
17,200* Aztar Corp..................... 120,400
1,800* BET Holdings, Inc. Class A..... 112,388
3,900* Carmike Cinemas, Inc. Class A.. 102,131
10,500* Florida Panthers
Holdings, Inc................. 203,438
1,900* GC Companies, Inc.............. 94,763
6,100* Hollywood Entertainment Corp... 64,050
6,946* Midway Games Inc............... 93,771
3,000 NN Ball & Roller, Inc.......... 36,000
1,600* Penn National Gaming, Inc...... 14,200
4,000 Playboy Enterprises, Inc....... 71,500
3,300* Primadonna Resorts, Inc........ 57,337
2,400* SFX Entertainment Inc.
Class A....................... 106,200
6,700* Sodak Gaming, Inc.............. 42,294
9,300* TCI Satellite Entmt Inc.
Class A....................... 52,312
4,900* Ticketmaster Group, Inc........ 134,750
5,900* Toy Biz, Inc. Class A.......... 57,525
----------
1,420,659
----------
FERTILIZERS - 0.24%
9,686 Delta & Pine Land Co........... 414,682
2,000* IMC Global, Inc. Warrant....... 6,625
6,504 Mississippi Chemical Corp...... 108,942
7,100 Terra Industries, Inc.......... 71,887
----------
602,136
----------
FINANCE COMPANIES - 1.05%
6,200 Aames Financial Corp........... 89,513
9,700* Amresco, Inc................... 327,375
2,600* Capital Factors Holdings, Inc.. 47,937
5,000* Cityscape Financial Corp....... 1,563
9,000* Credit Acceptance Corp......... 92,813
2,800* Delta Financial Corp........... 49,350
4,800 Doral Financial Corp........... 80,100
7,700* FIRSTPLUS Financial Group...... 307,037
5,734* Imperial Credit Industries..... 121,131
15,001 Keystone Financial, Inc........ 585,039
925 Oriental Financial Group....... 39,717
</TABLE>
<PAGE> 135
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 21
===============================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER MARKET
OF SHARES VALUE
--------- ------
FINANCE COMPANIES - Continued
16,400 Phoenix Investment
Partners, Ltd................. $ 153,750
106* Search Financial Services...... 10
3,700* Southern Pacific Funding....... 56,887
2,000 Student Loan Corp.............. 96,500
2,300* Triad Guaranty, Inc............ 75,900
6,000 U.S. Trust Corp................ 449,250
2,530* WFS Financial, Inc............. 21,821
----------
2,595,693
----------
FINANCIAL SERVICES - 0.01%
1,520 Omega Worldwide, Inc........... 12,920
----------
FOODS - 1.20%
6,400 Dreyer's Grand Ice Cream, Inc.. 162,000
5,000 Earthgrains Co................. 264,063
4,100 International Multifoods Corp.. 121,975
3,600 Interpool, Inc................. 53,325
7,600 Lance, Inc..................... 159,600
3,200 Michael Foods, Inc............. 89,200
17,400* NBTY, Inc...................... 303,413
4,200 Pilgrims Pride Corp............ 71,925
8,200* Ralcorp Holdings, Inc.......... 174,763
10,200 Richfood Holdings, Inc......... 249,263
6,800 J.M. Smucker Co. Class A....... 161,925
6,945* Suiza Foods Corp............... 405,847
10,263* U. S. Foodservice.............. 339,961
800* United Natural Foods, Inc...... 21,000
16,800 Universal Foods Corp........... 400,050
----------
2,978,310
----------
FOOTWEAR - 0.36%
7,000 Brown Group, Inc............... 125,562
2,100* Kenneth Cole Productions, Inc.
Class A....................... 48,169
5,400* Converse, Inc.................. 27,000
8,800* Genesco, Inc................... 113,300
8,250 Just For Feet, Inc............. 180,984
4,300 Justin Industries, Inc......... 68,263
12,000 Stride Rite Corp............... 159,750
2,000* Timberland Co. Class A......... 164,000
----------
887,028
----------
NUMBER MARKET
OF SHARES VALUE
--------- ------
FREIGHT - 0.69%
7,350 Air Express
International Corp............ $ 189,722
11,800 Airborne Freight Corp.......... 439,550
3,200* Eagle USA Airfreight, Inc...... 104,200
10,800* Greyhound Lines, Inc........... 67,500
8,700 J.B. Hunt Transport
Services, Inc................. 260,456
5,512* Kirby Corp..................... 118,508
14,000* OMI Corp....................... 128,625
10,300 Overseas Shipholding
Group Inc..................... 199,563
3,500* SEACOR Holdings, Inc........... 204,750
----------
1,712,874
----------
GOLD MINING - 0.10%
12,800 Amax Gold, Inc................. 40,800
5,600* Coeur d'Alene Mines Corp....... 49,350
8,230* Getchell Gold Corp............. 156,370
----------
246,520
----------
HARDWARE & TOOLS - 0.14%
4,700 Barnes Group Inc............... 139,825
6,200* Barnett, Inc................... 112,375
3,900 Lawson Products, Inc........... 105,788
----------
357,988
----------
HEALTHCARE - 2.19%
5,500* Access Health, Inc............. 140,938
11,000* Advanced Tissue Sciences, Inc.. 100,375
3,100* Alternative Living Services.... 84,088
8,900* American Oncology Resources.... 113,475
11,100* Apria Healthcare Group, Inc.... 84,638
2,612 Block Drug Co., Inc. Class A... 114,275
1,215 Coram Healthcare Corp.......... 2,506
218* Coram Healthcare Corp.
(Warrants)..................... 0
4,000* Curative Technologies, Inc..... 112,500
21,202* CYTOGEN Corp................... 21,201
3,300 Henry Schein, Inc.............. 127,050
4,900 HealthPlan Services Corp....... 108,718
12,544 Integrated Health Services..... 466,480
7,000 Invacare Corp.................. 184,625
11,900* Laboratory Corp. of America.... 25,287
7,800* Mariner Health Group, Inc...... 116,025
5,500* Maxicare Health Plans, Inc..... 51,562
1,800 Medquist, Inc.................. 78,975
6,200 Mentor Corp.................... 164,106
NUMBER MARKET
OF SHARES VALUE
--------- ------
HEALTHCARE - Continued
3,600 NCS HealthCare, Inc. Class A... $ 103,950
4,650* National Surgery Centers, Inc.. 129,618
15,900* NovaCare, Inc.................. 174,900
3,000 PHP Healthcare Corp............ 27,375
21,873* Paragon Health Network, Inc.... 336,298
5,475* Patterson Dental Co............ 177,938
5,199* Pharmaceutical Product Dev..... 110,479
5,250* Renal Care Group, Inc.......... 190,313
9,896* Respironics Inc................ 162,666
4,000* RightCHOICE Managed Care, Inc.
Class A....................... 46,250
4,400* Rural/Metro Corp............... 103,950
3,800* Sierra Health Services, Inc.... 141,075
2,600* SpaceLabs Medical, Inc......... 43,063
10,488* Sun Healthcare Group, Inc...... 176,330
5,500* Sunrise Medical Inc............ 85,250
2,500* Superior Consultant
Holdings C.................... 105,000
20,343* Total Renal Care Holdings...... 624,276
9,700* Trigon Healthcare, Inc......... 329,800
4,000* VISX, Inc...................... 196,500
2,300 Vital Signs, Inc............... 39,963
----------
5,401,818
----------
HEAVY DUTY TRUCKS/PARTS - 0.17%
6,100 Cascade Corp................... 104,463
2,200* Detroit Diesel Corp............ 53,900
8,000 Titan International, Inc....... 155,500
4,450 Wabash National Corp........... 115,421
----------
429,284
----------
HOME BUILDERS - 0.89%
7,905 D R Horton, Inc................ 142,290
6,100 Del Webb Corp.................. 147,925
11,500* Fairfield Communities, Inc..... 235,031
12,300 Kaufman & Broad Home Corp...... 315,956
4,100* NVR, Inc....................... 131,713
5,125* Palm Harbor Homes, Inc......... 213,648
5,500 Pulte Corp..................... 293,219
6,700 Ryland Group, Inc.............. 134,419
11,100 Standard Pacific Corp.......... 192,169
7,700* Toll Brothers, Inc............. 198,275
4,670* U.S. Home Corp................. 188,843
----------
2,193,488
----------
</TABLE>
<PAGE> 136
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
22 May 31, 1998
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
HOSPITAL MANAGEMENT - 0.57%
7,400* ABR Information Services, Inc.. $ 189,625
9,929* Concentra Managed Care, Inc.... 232,090
11,000* Coventry Health Care Inc....... 159,500
6,000* FPA Medical Management......... 26,250
7,700* Magellan Health Services, Inc.. 207,900
16,700 Medaphis Corp.................. 125,250
8,000* Orthodontic Centers of America. 169,500
2,700* Pediatrix Medical Group........ 97,706
10,300 Physicians Resource Group...... 52,788
3,800* Prime Medical Services, Inc.... 39,900
4,100* Sunquest Information Systems,.. 35,363
2,800* Sunrise Assisted Living Inc.... 84,350
----------
1,420,222
----------
HOSPITAL SUPPLIES - 1.37%
3,700 ATL Ultrasound, Inc............ 167,656
5,400* Acuson Corp.................... 103,275
4,700 Arrow International, Inc....... 162,444
16,600* Arterial Vascular Engineering.. 513,045
6,900 Ballard Medical Products....... 154,388
11,600* Bio-Technology General Corp.... 98,600
2,600* Closure Medical Corp........... 66,300
5,800* Coherent, Inc.................. 133,763
3,600* CONMED Corp.................... 76,050
5,300* Datascope Corp................. 149,063
4,200 Diagnostic Products Corp....... 130,200
5,500* Immunomedics, Inc.............. 28,187
8,300* Isis Pharmaceuticals, Inc...... 115,162
2,100 Landauer, Inc.................. 59,850
5,500* Marquette Medical Systems,Inc.. 154,000
1,600* MiniMed, Inc................... 80,000
9,350 Owens & Minor, Inc............. 109,862
16,875* PSS World Medical, Inc......... 210,938
4,100* Physio-Control International... 86,100
8,200* Safeskin Corp.................. 287,000
1,233* SonoSight, Inc................. 8,322
9,500* Summit Technology, Inc......... 51,062
4,400 TECHE Corp..................... 77,000
7,200* Theragenics Corp............... 200,700
5,200 West Co., Inc.................. 153,400
----------
3,376,367
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
HOUSEHOLD PRODUCTS - 0.48%
6,500 Church & Dwight Co., Inc....... $ 197,031
6,061* Culligan Water Technologies.... 338,280
8,200 First Brands Corp.............. 203,975
3,900 Libbey, Inc.................... 153,563
8,800* Linens `N Things, Inc.......... 282,700
1,500* USA Detergents, Inc............ 20,906
----------
1,196,455
----------
HUMAN RESOURCES - 0.48%
3,100* Data Processing Resources...... 90,288
6,000* Employee Solutions, Inc........ 24,375
12,200* Interim Services Inc........... 354,563
3,200 Kelly Services Inc. Class A.... 117,600
6,200* Metamor Worldwide, Inc......... 186,194
3,300 Norrell Corp................... 74,455
8,400* Personnel Group of America..... 170,100
4,800* Staffmark, Inc................. 176,400
----------
1,193,975
----------
INFORMATION PROCESSING -9.11 %
16,400* A.C. Nielson................... 423,325
3,200* Activision, Inc................ 32,200
12,100* Acxiom Corp.................... 261,663
4,733* ADAC Laboratories.............. 94,068
2,600* Advent Software, Inc........... 92,950
11,300* Affiliated Computer
Services Class A.............. 376,431
9,300* American Management Systems.... 252,263
7,800 Analysts International Corp.... 228,150
8,800* Anixter Internationall, Inc.... 177,100
2,120* Applied Graphics Technology.... 102,290
3,800* Arbor Software Corp............ 129,913
8,494* Artesyn Technologies, Inc...... 139,355
1,300* Aspect Development, Inc........ 74,344
5,100* Aspen Technology, Inc.......... 227,110
8,900* Auspex Systems, Inc............ 49,506
6,808* Avant! Corp.................... 174,881
2,918* Baan Company NV................ 132,040
2,550* Barra, Inc..................... 51,956
5,200* Bea Systems, Inc............... 104,325
4,100* Bell & Howell Co............... 110,700
5,800* BISYS Group, Inc............... 215,325
4,100* Black Box Corp................. 163,488
9,337* Boole & Babbage, Inc........... 229,924
2,600* BRC Holdings, Inc.............. 48,588
5,200* Broderbund Software, Inc....... 83,200
6,900* CCC Information Services....... 156,544
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
INFORMATION PROCESSING - Continued
2,400* CDW Computer Centers, Inc...... $ 98,850
4,200* Centennial Technologies, Inc... 12,600
6,000* Cerner Corp.................... 153,750
12,600* Checkfree Holdings Corp........ 285,862
9,750* CHS Electronics, Inc........... 193,781
6,200* Ciber, Inc..................... 198,788
10,050* Citrix Systems, Inc............ 524,484
6,500 Clarify, Inc................... 79,625
8,125 Computer Horizons Corp......... 271,426
1,950* Computer Management Sciences... 46,313
4,700 Computer Task Group, Inc....... 148,638
11,660* Comverse Technology, Inc....... 582,636
16,900* CopyTele, Inc.................. 57,038
6,900* CSG Systems
International, Inc............ 294,760
3,000* CyberMedia, Inc................ 18,375
2,900* Data Dimensions, Inc........... 40,963
9,900* Data General Corp.............. 150,975
3,800* Data Transmission Network...... 146,300
2,900* Davox Corp..................... 53,288
3,100* Dialogic Corp.................. 102,300
11,400* Diamond Multimedia Systems..... 86,925
1,160 DocuCorp International, Inc.... 8,845
2,300* Documentum, Inc................ 108,388
4,700* Edify Corp..................... 49,350
4,600* Envoy Corp..................... 201,825
3,200 Fair Issac & Co., Inc.......... 116,200
5,400* FileNet Corp................... 297,169
5,900* Forte Software, Inc............ 29,500
7,500* FTP Software, Inc.............. 19,688
6,800* General DataComm Industries.... 31,025
8,000* GT Interactive Software Corp... 75,000
6,000* Harbinger Corp................. 139,687
2,900 HCIA, Inc...................... 23,925
4,450 Henry Jack & Associates........ 145,181
10,500* HMT Technology Corp............ 122,063
4,500* HNC Software, Inc.............. 155,531
5,800* Hyperion Software Corp......... 187,413
2,000* IDX Systems Corp............... 84,125
5,400* IKOS Systems, Inc.............. 31,725
3,400* Imnet Systems, Inc............. 37,719
7,600* In Focus Systems, Inc.......... 59,850
7,800* Industri-Matematik
Int'l. Corp................... 125,288
5,700* Information Management
Resourc....................... 128,428
9,700* Information Resources, Inc..... 169,750
4,600 Innovex, Inc................... 85,388
11,800 Inprise Corp. Borland
International, Inc............ 98,088
</TABLE>
<PAGE> 137
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 23
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C>
INFORMATION PROCESSING - Continued
3,000* Inso Corp...................... $ 40,875
2,400* Integrated Circuit Systems..... 33,075
3,800* Integrated Systems, Inc........ 71,250
6,700* International Network
Services...................... 210,003
5,800* INTERSOLV, Inc................. 83,375
2,800* Intevac, Inc................... 26,600
2,900 JDA Software Group, Inc........ 130,953
1,900* JPM Co......................... 19,475
2,000* Kronos, Inc.................... 71,500
11,600* Learning Co., Inc.............. 330,600
3,300* Learning Tree International.... 52,800
10,600 Legato Systems, Inc............ 303,425
4,800* LHS Group, Inc................. 277,500
3,600* Lycos, Inc..................... 190,913
10,000* Macromedia, Inc................ 158,438
3,900* Manugistics Group, Inc......... 111,028
11,800* Mentor Graphics Corp........... 130,538
5,800* Mercury Interactive Corp....... 192,850
2,600* Metro Information
Services, Inc................. 84,825
4,000* Micrel, Inc.................... 125,125
1,400* MicroProse, Inc................ 7,525
2,700* MICROS Systems, Inc............ 158,625
8,000 MTS Systems Corp............... 150,000
5,200* Mylex Corp..................... 36,075
5,250* National Instruments Corp...... 174,891
3,900* National TechTeam, Inc......... 35,344
6,800* Network Appliance, Inc......... 236,513
6,800* Network Computing Devices...... 58,225
4,200* NOVA Corp...................... 138,338
11,800* Oak Technology, Inc............ 64,900
6,100* ODS Networks, Inc.............. 41,556
4,100 OEA, Inc....................... 70,213
7,645* Paxar Corp..................... 94,607
2,800* Pegasystems, Inc............... 60,637
2,200* Perceptron, Inc................ 26,950
4,300* Periphonics Corp............... 43,538
4,700 Phoenix Technologies Ltd....... 47,881
7,500 Physician Computer Network..... 1,875
10,600 Picturetel Corp................ 99,375
17,300* PLATINUM technology, inc....... 473,587
7,100 PMC-Sierra, Inc................ 276,456
10,700 PMT Services, Inc.............. 208,650
4,700 Policy Management
Systems Corp.................. 387,750
5,800* Primark Corp................... 193,937
5,100* Progress Software Corp......... 165,112
2,300* Project Software
& Development................. 51,750
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C>
INFORMATION PROCESSING - Continued
11,000* PsiNet, Inc.................... $ 118,250
2,900 QuickResponse Services, Inc.... 102,860
1,500* Radisys Corp................... 39,843
4,000* Rambus Inc..................... 154,625
20,843* Rationale Software Corp........ 317,856
6,000* Remedy Corp.................... 96,938
2,320* Renaissance Worldwide Inc...... 43,645
12,000* S3, Inc........................ 78,750
5,900* Safeguard Scientifics, Inc..... 254,069
4,000* Sandisk Corp................... 64,500
900* Sapient Corp................... 40,275
9,200* Sequent Computer Systems, Inc.. 152,375
8,800* Shiva Corp..................... 82,500
12,958* Siebel Systems, Inc............ 294,795
2,600* Sipex Corp..................... 56,550
7,200* SMART Modular Technologies..... 98,550
3,500* Splash Technology Holdings..... 59,280
2,700* SPSS, Inc...................... 60,243
8,100* Stratus Computer, Inc.......... 292,105
8,700* Structural Dynamic
Research Corp................. 220,218
3,100* Sykes Enterprises, Inc......... 64,712
15,300* Symantec Corp.................. 365,287
9,650* System Software Associates..... 70,565
10,000* Systems & Computer Technology.. 256,250
4,300* Systemsoft Corp................ 8,062
6,450* Technology Solutions Co........ 194,708
5,800* Transition Systems, Inc........ 114,912
2,900* Trident Microsystems, Inc...... 20,300
6,800* USCS International, Inc........ 127,925
9,400* Vanstar Corp................... 136,888
3,600* Vantive Corp................... 96,750
1,600* Veeco Instruments, Inc......... 47,000
11,475* Veritas Software Corp.......... 462,945
4,400* Viasoft, Inc................... 67,925
4,100* VideoServer, Inc............... 33,825
5,100* Visio Corp..................... 239,063
2,800* Volt Information
Sciences, Inc................. 85,225
3,200* Wall Data, Inc................. 41,400
8,500* Wang Laboratories, Inc......... 204,000
4,850* Wind River Systems Inc......... 160,656
5,500* Xircom, Inc.................... 86,281
6,100* Yahoo!, Inc.................... 667,950
4,900* Zebra Technologies Corp.
Class A....................... 188,038
----------
22,528,819
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C>
INSURANCE - CASUALTY - 1.02%
5,000* Acceptance Insurance Co., Inc.. $ 115,000
4,700 Baldwin & Lyons, Inc. Class B.. 112,800
2,600 Citizens Corp.................. 83,525
5,100 Commerce Group, Inc............ 182,006
4,500 E.W. Blanch Holdings, Inc...... 169,313
6,370 Frontier Insurance Group, Inc.. 156,065
4,473 Gainsco, Inc................... 32,708
7,500 HCC Insurance Holdings, Inc.... 160,312
5,700* Highlands Insurance Group...... 118,987
3,600 NAC Re Corp.................... 168,075
1,100 Nymagic, Inc................... 32,175
6,362 Orion Capital Corp............. 358,260
1,500 RLI Corp....................... 78,188
6,500* Risk Capital Holdings, Inc..... 161,688
7,200 Selective Insurance Group...... 189,900
4,350 Trenwick Group Inc............. 165,300
1,805 United Fire & Casualty Co...... 69,493
3,100 Vesta Insurance Group, Inc..... 163,331
----------
2,517,126
----------
INSURANCE - LIFE - 0.78%
3,900 American Heritage Life Invest.. 81,900
2,500* Compdent Corp.................. 36,875
6,200 Hartford Life Inc. Class A..... 319,300
300 Kansas City Life Insurance Co.. 25,500
4,300 Life USA Holding, Inc.......... 69,606
500* National Western Life Ins. Co.
Class A...................... 56,531
1,900 Nationwide Financial Svcs Inc
Class A....................... 82,531
9,400 Presidential Life Corp......... 206,800
10,850 Reinsurance Group of America... 541,144
7,570 United Companies Financial..... 139,099
7,650 W.R. Berkley................... 357,638
----------
1,916,924
----------
INSURANCE - MISCELLANEOUS - 1.35%
5,512 ALLIED Group, Inc.............. 232,193
6,200* Amerin Corp.................... 186,388
4,100 Arthur J. Gallaher & Co........ 176,813
6,400 CMAC Investment Corp........... 387,200
2,700 Capital Re Corp................ 201,150
9,000 Crawford & Co. Class B......... 163,125
3,600 Executive Risk, Inc............ 226,575
5,364 Fidelity National Financial.... 179,024
</TABLE>
<PAGE> 138
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
24 May 31, 1998
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
INSURANCE - MISCELLANEOUS - Continued
5,700 Foremost Corp. of America...... $ 140,363
5,512 Fremont General Corp........... 315,218
7,650 HSB Group Inc.................. 336,600
3,200 Harleysville Group............. 77,600
3,250 Hilb, Rogal & Hamilton Co...... 56,875
2,747 Liberty Corp................... 138,207
4,400 MMI Companies, Inc............. 97,350
10,300* Mid Atlantic
Med Services, Inc............. 133,255
887 Poe & Brown Inc................ 33,152
4,200 SCPIE Holdings, Inc............ 152,250
4,100 Zenith National
Insurance Corp................ 117,619
----------
3,350,957
----------
INSURANCE - MULTILINE - 0.85%
4,650 Alfa Corp...................... 91,838
5,278 American Annuity Group, Inc.... 127,332
6,253 AmerUs Life Holdings, Inc...... 200,096
4,400 Argonaut Group, Inc............ 141,350
5,600* CNA Surety Corp................ 90,650
3,495* Delphi Financial Group, Inc.
Class A....................... 189,822
7,800 FBL Financial Group, Inc.
Class A....................... 218,888
8,700 John Alden Financal Corp....... 192,488
3,500 Life Re Corp................... 257,687
1,050* Markel Corp.................... 181,452
2,000 Meadowbrook Insurance Group.... 61,625
5,191* Medical Assurance, Inc......... 143,401
6,200 PennCorp Financial Group, Inc.. 137,175
3,000 United Wisconsin Services...... 93,000
----------
2,126,804
----------
LEISURE TIME - 1.14%
8,100* Acclaim Entertainment, Inc..... 52,144
3,800* Action Performance Co., Inc.... 105,688
2,100* Anchor Gaming.................. 191,100
9,000* Boyd Gaming Corp............... 60,188
6,000* Family Golf Centers, Inc....... 157,500
11,000* Grand Casinos Inc.............. 193,188
8,500* Handleman Co................... 104,125
6,100* Hollywood Park, Inc............ 78,918
5,000 Huffy Corp..................... 75,937
6,200 Lewis Galoob Toys, Inc......... 68,588
8,500 Polaris Industries, Inc........ 297,500
3,500 Premier Parks, Inc............. 185,937
4,900* Rio Hotel & Casino Inc......... 106,575
6,900* Sabre Group Holdings, Inc...... 241,930
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
LEISURE TIME - Continued
4,800* Scotts Co. Class A............. $ 167,400
6,100 Showboat Inc................... 186,812
5,150* Signature Resorts, Inc......... 79,825
5,200* Station Casinos, Inc........... 77,350
5,800* Trump Hotels & Casino Resorts.. 49,663
5,700* Vail Resorts Inc............... 165,300
3,300* Vistana, Inc................... 70,125
5,800* WMS Industries Inc............. 25,738
7,600 Winnebago Industries, Inc...... 85,025
----------
2,826,556
----------
LODGING - 0.53%
13,550* Bristol Hotel Co............... 359,075
4,900* CapStar Hotel Co............... 143,325
14,400 Choice Hotels Intl Inc......... 216,900
4,100 Deltic Timber Corp............. 113,519
12,600* Host Marriott Services Corp.... 179,550
4,400* Interstate Hotels Co........... 142,725
7,939 Marcus Corp.................... 140,421
8,200* Prime Hospitality Corp......... 147,087
4,300* Red Roof Inns, Inc............. 75,787
7,000* Sunburst Hospitality Corp...... 48,563
----------
1,566,952
----------
MACHINE TOOLS - 0.46%
2,300 Chase Industries, Inc.......... 71,156
9,100 Cincinnati Milacron, Inc....... 272,431
8,800* Gilead Sciences, Inc........... 284,900
3,200 Gleason Corp................... 94,600
5,000 OmniQuip International, Inc.... 109,688
2,900 PRI Automation Inc............. 58,816
7,600 Roper Industries, Inc.......... 252,225
----------
1,143,816
----------
MACHINERY - AGRICULTURE - 0.14%
2,700 Allied Products Corp........... 58,050
3,600 Lindsay Manufacturing Co....... 167,400
3,100 Toro Co........................ 108,306
----------
333,756
----------
MACHINERY - CONSTRUCTION &
CONTRACTS - 0.68%
5,400 Blount, Inc. Class A........... 152,213
3,700* CDI Corp....................... 136,206
7,600* Calpine Corp................... 135,375
5,200 Columbus McKinnon Corp......... 151,450
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
MACHINERY - CONSTRUCTION &
CONTRACTS - Continued
3,300 Granite Construction, Inc...... $ 93,225
3,900 J. Ray Mcdermott S.A........... 157,463
5,300* Jacobs Engineering Group, Inc.. 170,262
5,300 Kaman Corp. Class A............ 97,387
10,000 Lennar Corp.................... 265,000
3,522* Morrison Knudsen Corp.......... 41,824
2,900 Stone & Webster, Inc........... 117,450
5,600 TJ International Inc........... 162,050
----------
1,679,905
----------
MACHINERY - INDUSTRIAL/
SPECIALTY - 2.30%
7,350 AAR Corp....................... 194,315
4,700 Albany International Corp.
Class A....................... 136,300
6,075 Applied Industrial Tech., Inc.. 142,762
6,450 Applied Power, Inc. Class A.... 220,912
1,600* Asyst Technologies, Inc........ 26,400
6,373 Baldor Electric Co............. 166,095
7,080 Burlington Coat Factory Whse... 142,043
7,900 DII Group, Inc................. 148,619
5,400 Exide Corp..................... 97,538
12,500 Flowserve Corp................. 362,500
1,175 General Binding Corp........... 40,097
6,750 Graco, Inc..................... 233,719
5,800 Helix Technology Corp.......... 103,313
4,800 Hughes Supply, Inc............. 161,700
9,250 IDEX Corp...................... 342,250
2,550* Insilco Corp................... 111,244
4,700* Integrated Process Equipment... 65,213
5,700* Ionics, Inc.................... 255,075
9,200 JLG Industries, Inc............ 162,150
5,100* Kulicke & Soffa Industries..... 87,338
5,850 Lilly Industries, Inc.
Class A....................... 114,075
5,000 Lincoln Electric Holdings...... 220,938
4,275 Manitowoc CO.,Inc.............. 175,275
6,900 Newport News Shipbuilding...... 193,200
2,800 Nordson Corp................... 127,400
6,040* Oak Industries Inc............. 210,645
900* Osmonics Inc................... 13,331
5,200 Regal-Beloit Corp.............. 169,650
3,100 Robbins & Myers, Inc........... 92,031
3,800* SPS Technologies, Inc.......... 222,775
4,500 Scotsman Industries Inc........ 128,531
</TABLE>
<PAGE> 139
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 25
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
MACHINERY - INDUSTRIAL/
SPECIALTY - Continued
4,400* Specialty Equipment Companies.. $ 96,800
7,700 Stewart & Stevenson
Services, Inc................. 159,775
6,000* Stillwater Mining Co........... 145,500
3,800 Tennant Co..................... 162,094
6,700 Watts Industries, Inc.
Class A....................... 156,194
3,300* Zoltek Companies, Inc.......... 100,650
----------
5,688,447
----------
MEDICAL TECHNOLOGY - 1.55%
4,900* Affymetrix, Inc................ 131,688
4,800* Arqule, Inc.................... 68,400
2,200* Bio-Rad Laboratories, Inc.
Class A....................... 69,850
2,700* Biomatrix, Inc................. 91,800
4,100* Cadus Pharmaceutical Corp...... 24,088
7,700* Creative BioMolecules, Inc..... 45,960
3,800* Cytyc Corp..................... 63,650
8,900 Dekalb Genetics Corp. Class B.. 853,287
7,875* Enzo Biochem, Inc.............. 102,375
5,900* Haemonetics Corp............... 89,975
5,200 Heartport Inc.................. 41,600
3,900* Hologic, Inc................... 81,900
4,200* I-STAT Corp.................... 40,687
7,400* Idexx Laboratories, Inc........ 164,650
26,600* Imatron, Inc................... 73,982
1,235 Lab Holdings, Inc.............. 27,787
8,400* Liposome, Inc.................. 51,712
1,800* Lunar Corp..................... 32,737
2,700* Myriad Genetics, Inc........... 54,337
8,400* NABI, Inc...................... 30,450
5,800* Neopath, Inc................... 73,588
6,300* Neurex Corp.................... 176,794
7,400* Neuromedical Systems, Inc...... 11,563
9,218* Organogenesis, Inc............. 233,907
2,700* Perclose, Inc.................. 68,513
13,700 Pharmerica Inc................. 166,969
3,800* Protein Design Labs, Inc....... 95,475
12,200 Psychemedics Corp.............. 68,625
5,700* Quest Diagnostics Inc.......... 123,619
3,400* Sabratek Corp.................. 89,250
11,124* Scios Nova Inc................. 104,288
5,350* Serologicals Corp.............. 157,825
3,700* Thermo Cardiosystems, Inc...... 83,250
3,400* ThermoTrex Corp................ 67,575
3,800* Transkaryotic Therapies, Inc... 114,000
5,400* US Bioscience, Inc............. 50,625
----------
3,826,781
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
MERCHANDISE - DRUG - 0.38%
3,300* Express Scripts, Inc. Class A.. $ 253,893
7,600 Longs Drug Stores Corp......... 230,375
5,700 Medimmune, Inc................. 284,288
16,500* Perrigo Co..................... 181,500
----------
950,056
----------
MERCHANDISE - SPECIALTY - 3.53%
5,100* APAC Teleservices, Inc......... 46,378
2,700* Advanced Energy Industries..... 38,475
1,100* Amazon.com, Inc................ 96,938
4,200* Ames Department Stores, Inc.... 103,688
6,818 Arctic Cat, Inc................ 62,214
5,500* Avid Technology, Inc........... 222,922
11,800* BJ's Wholesale Club Inc........ 466,100
17,200* Best Buy Co., Inc.............. 561,150
1,600* Bush Boake Allen, Inc.......... 47,200
13,000 Caseys General Stores, Inc..... 184,438
6,567 Cash America International..... 110,818
7,500* Central Garden & Pet Co........ 221,719
24,700 Charming Shoppes, Inc.......... 125,044
3,000* Cole National Corp. Class A.... 116,438
5,600* Compucom Systems, Inc.......... 40,950
1,000* Copart, Inc.................... 17,938
2,900 Cross (A.T.) Co. Class A....... 33,531
4,200* Daisytek International Corp.... 107,100
4,500* Department 56, Inc............. 165,094
5,900* Eagle Hardware & Garden, Inc... 107,306
4,500 Enesco Group Inc............... 137,531
12,200 Fingerhut Companies, Inc....... 357,613
3,150* Fossil, Inc.................... 60,933
5,200* Franklin Covey Co.............. 104,000
5,000* Friedman's, Inc. Class A....... 98,750
5,950* Garden Ridge Corp.............. 104,125
6,100* Gibson Greetings, Inc.......... 147,163
7,200* Graham Field Health Products... 42,300
2,600* Guitar Center, Inc............. 68,738
8,800 Hancock Fabrics, Inc........... 116,600
3,105 Hancock Holding Co............. 175,044
8,300* Homebase, Inc.................. 72,106
3,200* Inacom Corp.................... 103,800
7,800 Jostens, Inc................... 196,950
3,578 K2, Inc........................ 71,560
2,000* Knoll, Inc..................... 63,125
3,700 LabOne, Inc.................... 65,675
5,500* Michaels Stores, Inc........... 164,656
5,200* MicroAge, Inc.................. 70,200
7,300* Micro Warehouse, Inc........... 127,750
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- --------
<S> <C> <C>
MERCHANDISE - SPECIALTY - Continued
4,000* Nu Skin Asia Pacific, Inc.
Class A....................... $104,000
7,000* Paragon Trade Brands, Inc...... 33,250
4,000* Petco Animal Supplies, Inc..... 77,500
5,900 Price Enterprises Inc.......... 105,093
9,300* Rexall Sundown, Inc............ 311,550
2,700 Russ Berrie and Co. Inc........ 68,175
7,400* Seitel, Inc.................... 125,800
9,600* Sitel Corp..................... 60,000
9,300 Sotheby's Holdings, Inc.
Class A....................... 213,900
1,614 South Jersey Industries, Inc... 44,081
6,200* Spiegel, Inc. Class A.......... 32,937
8,050* Sports Authority, Inc.......... 121,252
7,300 Sturm, Ruger & Co. Inc......... 135,962
18,700* Sunglass Hut International..... 227,906
3,500* Tractor Supply Co.............. 84,438
6,500* Twinlab Corp................... 241,313
33,150* US Office Products, Co......... 561,478
4,300* United Stationers Inc.......... 256,388
3,300 Unitog Co...................... 75,488
2,100* West Marine, Inc............... 40,294
11,800* Williams-Sonoma, Inc........... 325,975
8,600* Zale Corp...................... 266,063
----------
8,736,903
----------
MERCHANDISING - DEPARTMENT - 0.63%
1,300* Alexander's, Inc............... 114,806
19,272 Pier 1 Imports, Inc............ 463,732
21,667* Proffit's Inc.................. 850,430
7,500* Stein Mart, Inc................ 118,125
----------
1,547,093
----------
MERCHANDISING - FOOD - 0.70%
4,500 Dominick's Supermarkets, Inc... 194,063
75 Farmer Bros. Co................ 15,000
9,400 Fleming Companies, Inc......... 179,188
6,500 Great Atlantic &
Pacific Tea Co., Inc.......... 208,000
3,700* IHOP Corp...................... 149,850
1,500 Ingles Markets, Inc. Class A... 18,750
2,875 NashFinch Co................... 48,515
6,700 Ruddick Corp................... 119,762
1,600 Sanderson Farms, Inc........... 18,600
5,000* ShowBiz Pizza Time, Inc........ 177,500
3,000 Smart & Final Inc.............. 56,250
7,400* Smithfield Foods, Inc.......... 199,800
6,300* Whole Foods Market, Inc........ 346,500
----------
1,731,778
----------
</TABLE>
<PAGE> 140
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
26 MAY 31, 1998
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
MERCHANDISING - MASS - 0.13%
4,900* Global Directmail Corp............ $ 101,063
34,000 Service Merchandise Co., Inc...... 72,250
4,500* ShopKo Stores, Inc................ 156,937
----------
330,250
----------
METALS - ALUMINUM - 0.27%
5,300* ACX Technologies, Inc............. 120,243
8,300 Century Aluminum Co............... 124,500
5,700 Commonwealth Industries, Inc...... 83,363
4,400 IMCO Recycling, Inc............... 83,325
5,500* Kaiser Aluminum Corp.............. 57,063
2,300 Tredegar Industries, Inc.......... 198,950
----------
667,444
----------
METALS - COPPER - 0.11%
3,700* Essex International, Inc.......... 90,881
5,000* Wolverine Tube, Inc............... 182,500
----------
273,381
----------
METALS - MISCELLANEOUS - 0.59%
3,337 A.M. Castle & Co.................. 75,082
6,100 Brush Wellman Inc................. 148,687
4,033 Commercial Metals Co.............. 123,763
1,267* Freeport McMoran Sulphur.......... 17,580
19,700 Hecla Mining Co................... 99,731
7,800 Kennametal, Inc................... 375,375
4,050 Material Sciences Corp............ 40,753
4,500* RMI Titanium Co................... 96,469
5,000* Ryerson Tull, Inc. Class A........ 105,000
7,900* Steel Dynamics, Inc............... 153,063
5,900 Titanium Metals Corp.............. 143,444
1,300 Tremont Corp...................... 73,125
----------
1,452,072
----------
METALS - STEEL - 1.18%
14,200 AK Steel Holding Corp............. 264,475
3,000* Acme Metals, Inc.................. 23,625
2,400 Amcast Industrial Corp............ 51,750
25,300* Armco Inc......................... 137,569
8,600 Birmingham Steel Corp............. 120,400
4,500 Carpenter Technology Corp......... 238,500
1,800 Citation Corp..................... 34,425
2,800 Cleveland-Cliffs Inc.............. 148,225
3,650 Commercial Intertech Corp......... 69,350
3,000* Gibraltar Steel Corp.............. 65,250
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
METALS - STEEL - Continued
4,200* Intermedia Communications, Inc.... $ 311,325
7,200 Intermet Corp..................... 140,400
4,500 J & L Specialty Steel, Inc........ 31,500
6,100 Lukens Inc........................ 195,581
9,800* Mueller Industries, Inc........... 303,800
7,400 National Steel Corp. Class B...... 116,550
5,400 Oregon Steel Mills, Inc........... 130,613
3,700 Quanex Corp....................... 114,931
2,100 Reliance Steel & Aluminium Co..... 80,194
6,000 Rohn Industries, Inc.............. 26,250
3,300* Shiloh Industries, Inc............ 70,331
7,700 Valmont Industries, Inc........... 154,000
4,800* Wyman-Gordon Co................... 95,400
----------
2,924,444
----------
MISCELLANEOUS - 2.52%
2,900* Abacus Direct Corp................ 145,363
4,800* Alternative Resources Corp........ 97,800
9,300 AMCOL International Corp.......... 127,875
4,500* AMERCO, Inc....................... 146,250
4,600 Arch Coal, Inc.................... 111,263
5,200* Associated Group, Inc.
Class A.......................... 183,950
2,800* Avondale Industries, Inc.......... 78,750
5,000* Bacou U.S.A., Inc................. 94,375
7,600* Billing Concepts Corp............. 176,700
3,500* Borg-Warner Security Corp......... 77,219
11,750* Brightpoint, Inc.................. 185,797
3,400* Caribiner International, Inc...... 75,225
1,950 Central Parking Corp.............. 87,384
4,500* Century Business Services......... 77,344
3,300* Clin Trials, Inc.................. 17,944
4,500* Coach USA, Inc.................... 193,781
1,800* Coinmach Laundry Corp............. 43,875
3,800 Computer Learning Centers......... 65,075
6,700* DeVry, Inc........................ 266,744
3,600* Encad, Inc........................ 38,025
2,100* Equity Corp. International........ 49,875
6,600* Firearms Training Systems......... 28,257
3,758* Gemstar Group Ltd................. 163,473
4,100* Hvide Marine, Inc. Class A........ 62,013
1,275* ITT Educational Services, Inc..... 36,338
1,800 Matthews International Corp.
Class A.......................... 89,438
3,000* Metzler Group, Inc................ 83,813
2,850 Pinkerton's, Inc.................. 59,494
6,800 Prepaid Legal Services, Inc....... 241,400
2,900 The Profit Recovery Group......... 71,050
4,700 Regis Corp........................ 131,600
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
MISCELLANEOUS - Continued
5,800* Romac International, Inc.......... $ 163,488
3,100* Samsonite Corp.................... 89,125
7,500* Scott Technologies Inc -
Cl A Class A..................... 110,625
5,800* Sola International, Inc........... 229,462
9,225* Sylvan Learning Systems, Inc...... 281,362
4,200* Triangle Pharmaceuticals, Inc..... 65,887
4,200* Turbochef, Inc.................... 37,275
3,600* U.S. Rentals, Inc................. 116,775
7,700 Valhi, Inc........................ 75,555
5,300* Veritas DGC Inc................... 274,605
5,000* Veterinary Centers of America..... 94,375
5,000 Wackenhut Corp.................... 110,312
3,900* Wackenhut Corrections Corp........ 94,575
10,700 Washington Water Power Co......... 230,718
6,600* West Teleservices Corp............ 90,750
4,500* Westell Technologies, Inc.
Class A.......................... 44,437
5,600 Westinghouse Air Brake Co......... 154,700
3,100* Whittman-Hart, Inc................ 126,713
3,500 Woodward Governor Co.............. 101,500
5,100* World Access, Inc................. 160,013
9,800* Xlyan Corp........................ 236,425
4,700* Zitel Corp........................ 37,453
----------
6,233,620
----------
MOBILE HOMES - 0.54%
12,352* Champion Enterprises, Inc......... 332,732
3,800 Coachmen Industries, Inc.......... 90,488
8,800 Fleetwood Enterprises, Inc........ 352,000
2,500 McGrath Rentcorp.................. 51,875
12,400 Oakwood Homes Corp................ 337,125
4,200 Skyline Corp...................... 122,325
1,575 Thor Industries, Inc.............. 43,607
----------
1,330,152
----------
NATURAL GAS - DIVERSIFIED - 0.7 2%
8,450 Atmos Energy Corp................. 259,838
6,100 Bay State Gas Co.................. 232,181
4,800 Eastern Enterprises............... 192,600
4,500 Laclede Gas Co.................... 111,375
4,500 New Jersey Resources Corp......... 161,719
2,200* Southern Union Co................. 58,850
10,300 Southwest Gas Corp................ 225,313
8,300 UGI Corp.......................... 210,094
4,400 WICOR, Inc........................ 201,300
7,300 Western Gas Resources, Inc........ 118,168
----------
1,771,438
----------
</TABLE>
<PAGE> 141
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 27
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
OIL - INTEGRATED DOMESTIC - 0.21%
7,875 Cross Timbers Oil Co........... $ 136,336
12,700 Quaker State Corp.............. 215,106
9,100* Tesoro Petroleum Corp.......... 175,744
----------
527,186
----------
OIL - SERVICE - PRODUCTS - 0.73%
7,950* Barrett Resources Corp......... 276,759
3,100 Getty Realty Corp.............. 67,619
5,800* Global Industrial
Technologies.................. 98,238
13,000* Global Industries, Inc......... 277,063
32,300* Kelley Oil & Gas Corp.......... 72,675
6,800* Lone Star Technologies, Inc.... 129,200
1,500* Maverick Tube Corp............. 22,687
20,100* Parker Drilling Co............. 169,594
12,100* Pride International, Inc....... 271,494
6,300* TransMontaigne Oil Co.......... 101,981
4,900* Trico Marine Services, Inc..... 96,775
8,326* Varco International, Inc....... 216,996
----------
1,801,081
----------
OIL - SERVICES - 0.60%
3,800* Cliffs Drilling Company........ 156,750
2,800* Key Energy Group, Inc.......... 46,025
6,400 Lomak Petroleum, Inc........... 77,600
13,900* Marine Drilling
Companies, Inc................ 261,494
7,200 Mascotech, Inc................. 176,400
6,500* Oceaneering
International, Inc............ 139,750
7,100* Offshore Logistics, Inc........ 144,663
5,850 Pennsylvania Enterprises, Inc.. 152,100
4,800 Pool Energy Services Co........ 97,800
10,700* Tuboscope Inc.................. 242,087
----------
1,494,669
----------
OIL/GAS PRODUCERS - 1.40%
3,800* Atwood Oceanics, Inc........... 196,650
160* Aztec Energy Corp.............. 0
683* Bayard Drilling Technologies... 7,556
8,300* Benton Oil and Gas Co.......... 86,631
4,500 Berry Petroleum Co. Class A.... 64,125
7,600 Cabot Oil & Gas Corp. Class A.. 153,900
17,416 Chesapeake Energy Corp......... 75,106
4,200 Comstock Resources, Inc........ 42,000
6,700 Devon Energy Corp.............. 245,806
10,100 Equitable Resources, Inc....... 287,850
3,700* Forcenergy, Inc................ 68,913
8,000* Forest Oil Corp................ 115,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
OIL/GAS PRODUCERS - Continued
23,100* Grey Wolf, Inc................. $ 89,513
2,491* Gulfport Energy Corp........... 3,347
23,000* Harken Energy Corp............. 123,625
1,400 Holly Corp..................... 38,325
11,600* Input/Output, Inc.............. 255,200
5,900 KCS Energy, Inc................ 70,063
2,800* Louis Dreyfus Natural
Gas Corp...................... 49,000
8,500* Newfield Exploration Co........ 190,187
6,100* Nuevo Energy Co................ 198,250
6,000* Patterson Energy, Inc.......... 67,125
3,300* Plains Resources, Inc.......... 63,112
3,400 St. Mary Land & Exploration.... 92,650
10,200 Snyder Oil Corp................ 197,625
4,200* Stone Energy Corp.............. 148,837
5,610* Swift Energy Co................ 101,331
6,800* Titan Exploration, Inc......... 55,250
8,200 Tom Brown, Inc................. 137,350
3,800* Unit Corp...................... 29,688
10,800 Vintage Petroleum, Inc......... 195,750
----------
3,449,765
----------
PAPER/FOREST PRODUCTS - 0.56%
5,800* American Pad & Paper Co........ 38,425
7,200* Buckeye Technologies Inc....... 162,450
6,300 Caraustar Industries, Inc...... 193,331
6,000 P. H. Glatfelter Co............ 97,875
12,600 Longview Fibre Co.............. 207,900
4,700 Pope & Talbot, Inc............. 63,744
4,000 Schweitzer-Mauduit Inc......... 132,250
3,700 Standard Register Co........... 133,431
2,300 Universal Forest Products...... 39,532
14,334 Wausau-Mosinee Paper Corp...... 306,389
----------
1,375,327
----------
PHOTOGRAPHY - 0.21%
2,220 CPI Corp....................... 56,888
6,600* Panavision, Inc................ 174,075
6,100 Photronics Inc................. 160,887
2,000* Seattle Filmworks, Inc......... 17,250
5,900* Ultratech Stepper, Inc......... 119,475
----------
528,575
----------
POLLUTION CONTROL - 0.94%
28,800* Allied Waste Industries, Inc... 763,200
546 Arcadis N.V.................... 6,279
3,450* Cuno, Inc...................... 70,078
8,700 Calgon Carbon Corp............. 92,981
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
POLLUTION CONTROL - Continued
7,700 Dames & Moore, Inc............. $ 99,619
55,240* Laidlaw Environmental Srv Inc.. 214,055
1,625 Mine Safety Appliances Co...... 116,086
737* NCS Corp....................... 1,497
19,000* Newpark Resources, Inc......... 345,563
5,200 OHM Corp....................... 70,850
5,600* Superior Services, Inc......... 171,500
6,500* Tetra Tech, Inc................ 143,000
6,600* Thermo TerraTech, Inc.......... 31,350
4,900 Zurn Industries, Inc........... 203,350
----------
2,329,408
----------
PUBLISHING - NEWS - 0.27%
4,700 Media General, Inc. Class A.... 216,200
7,400* Network Equipment
Technologies.................. 116,088
3,833 Pulitzer Publishing Co......... 339,220
----------
671,508
----------
PUBLISHING/PRINTING - 1.23%
5,500 American Business Products..... 122,375
7,750 Banta Corp..................... 245,578
3,400* Berlitz International, Inc..... 94,350
6,000* Big Flower Holdings, Inc....... 184,125
4,300 Bowne & Co., Inc............... 184,094
2,900* Consolidated Graphics, Inc..... 148,444
8,700* Golden Books Family
Entertainment, Inc 70,144
11,400 John H. Harland Co............. 204,488
7,000 Houghton Mifflin Co............ 243,250
3,300 John Wiley & Sons, Inc.
Class A 178,200
14,200 Journal Register Co............ 284,000
5,975 McClatchy Company Class A...... 177,383
5,600 Merrill Corp................... 126,700
4,700 New England Business Service... 153,043
4,200* Scholastic Corp................ 168,000
2,800* Scientific Games Holdings...... 59,150
14,400* Topps Co. Inc.................. 49,500
6,509 Thomas Nelson, Inc............. 84,210
8,400* World Color Press, Inc......... 252,525
----------
3,029,559
----------
RAILROAD - 0.10%
1,200 Florida East Coast Industries.. 149,700
3,500* Motivepower Industries, Inc.... 96,906
----------
246,606
----------
</TABLE>
<PAGE> 142
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
28 May 31, 1998
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
REAL ESTATE - 0.57%
2,300* Avatar Holdings, Inc........... $ 62,388
3,700* CB Richard Ellis Services...... 124,413
3,800* Castle & Cooke, Inc............ 71,725
5,675 Cousins Properties, Inc........ 173,442
2,100 Forest City
Enterprises, Inc. Class A..... 118,387
7,200* Grubb & Ellis Co............... 86,400
7,800* Insignia Financial
Group, Inc. Class A.......... 191,587
7,100 LNR Property Corp.............. 183,712
8,800 Merry Land & Investment Co..... 195,250
7,467 Republic Bancorp Inc........... 140,940
2,100 Tejon Ranch Co................. 56,044
----------
1,404,288
----------
REAL ESTATE INVESTMENT
TRUSTS - 7.20%
7,000 Amli Residential Properties.... 157,063
8,300 American General Hospitality... 197,125
5,300 American Health Properties Com-
Core Group.................... 147,075
8,600 Apartment Investment & Mgt. Co
Class A....................... 335,400
13,100 Arden Realty, Inc.............. 359,431
2,800 Associated Estates Realty...... 53,200
7,600 Avalon Properties, Inc......... 213,750
8,230 BRE Properties, Inc. Class A... 218,095
8,600 Bay Apartment
Communities, Inc.............. 316,050
3,200 Bedford Prpty Investors, Inc... 61,600
9,200 Berkshire Realty Co., Inc...... 110,975
5,373 Bradley Real Estate, Inc....... 112,161
2,300 Burnham Pacific Properties..... 32,344
9,600 CBL & Associates Properties.... 235,800
16,241 Camden Property Trust.......... 496,366
6,500 Capstone Capital Corp.......... 151,531
17,850 Capstead Mortgage Corp......... 325,763
2,800 CenterPoint Properties Corp.... 94,850
5,400 Charles E. Smith, Realty Inc... 174,825
8,900 Chateau Communities, Inc....... 263,663
3,200 Chelsea GCA Properties......... 128,200
8,400 Colonial Properties Trust...... 255,150
9,800 Commercial Net Lease Realty.... 157,413
23,500 Cornerstone Properties, Inc.... 411,250
10,800 Cornerstone Reality Income..... 127,575
7,800 Criimi Mae, Inc................ 118,950
6,100 Crown American Realty Trust.... 61,763
7,200 Developers Diversified Realty.. 282,150
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C>
REAL ESTATE INVESTMENT
TRUSTS - Continued
10,400 Dynex Capital, Inc............. $ 124,150
800 EastGroup Properties, Inc...... 16,050
12,500 Equity Inns, Inc............... 178,906
4,900 Essex Property Trust, Inc...... 159,250
3,900* Excel Legacy Corp.............. 19,988
3,900 Excel Realty Trust, Inc........ 106,275
13,400 Federal Realty
Investment Trust.............. 331,650
7,600 FelCor Suite Hotels, Inc....... 261,725
11,100 First Industrial Realty Trust.. 344,100
4,000 First Union Real Estate........ 43,750
8,200 Franchise Finance Corp......... 213,200
4,800 Gables Residential Trust....... 133,800
7,000 General Growth Properties...... 259,000
6,400 Glenborough Realty Trust, Inc.. 180,000
5,800 Glimcher Realty Trust.......... 120,713
9,600 Health Care Property
Investors..................... 337,800
3,500 Healthcare Realty Trust, Inc... 99,094
3,500 Health Care REIT, Inc.......... 90,344
15,800 Highwoods Properties, Inc...... 521,400
2,600 Home Properties of NY, Inc..... 69,550
3,892 Horizon Group, Inc............. 43,299
5,300 Hospitality Properties Trust... 165,625
11,300 IRT Property Co................ 128,537
15,300 Indymac Mortgage Holdings...... 362,418
3,700 Innkeepers USA Trust........... 51,568
4,100 Irvine Apartment Communities... 122,487
5,400 JDN Realty Corp................ 175,500
3,300 JP Realty, Inc................. 75,487
4,400 Kilroy Realty Corp............. 115,225
7,200 Koger Equity, Inc.............. 151,200
5,800 LTC Properties, Inc............ 116,362
11,400 Liberty Property Trust......... 301,387
3,200 MGI Properties................. 77,800
3,500 Macerich Co.................... 94,500
15,100 Mack Cali Realty Corp.......... 543,600
8,500 Manufactured Home Communities.. 211,968
11,300 Meridian Indust. Trust, Inc.... 262,725
5,300 Mid-Amer Apartment
Communities................... 142,768
8,800 Mills Corp..................... 217,250
4,300 National Golf Properties, Inc.. 129,268
5,600 National Health
Investors, Inc................ 197,750
10,500 Nationwide Health Properties... 252,000
6,300 Ocwen Asset Investment Corp.... 107,100
4,586 Omega Healthcare Investors..... 157,930
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C>
REAL ESTATE INVESTMENT
TRUSTS - Continued
8,300 Pacific Gulf Properties, Inc... $ 180,525
4,500 Pennsylvania Real Estate Inv... 106,031
9,482 Post Properties, Inc........... 389,947
7,000 Prentiss Properties Trust...... 178,938
4,700 Price REIT, Inc................ 224,131
1,700 Prime Retail, Inc.............. 22,419
9,000 RFS Hotel Investors, Inc....... 178,875
5,800 Realty Income Corp............. 154,063
7,400 Reckson Associates
Realty Corp................... 184,075
2,500 Redwood Trust, Inc............. 58,594
5,300 Regency Realty Corp............ 129,850
2,900 Saul Centers, Inc.............. 50,388
5,200* Security Capital
Atlantic, Inc................. 116,025
369 Security Capital Group
(Warrants).................... 369
6,800 Shurgard Storage
Centers, Inc. Class A......... 195,075
1,600 Sovran Self Storage, Inc....... 43,700
6,200 Storage USA, Inc............... 230,563
5,800 Storage Trust Realty........... 139,925
5,600 Summit Properties, Inc......... 111,650
7,100 Sun Communities, Inc........... 240,956
5,300 Sunstone Hotel Investors, Inc.. 76,188
7,700 Taubman Centers, Inc........... 105,394
6,200 Thornburg Mortgage Asset Corp.. 87,188
10,000 Town & Country Trust........... 164,375
3,600 TriNet Corporate Realty Trust.. 125,550
3,600 Universal Health Realty Income. 70,425
7,100 Urban Shopping Centers, Inc.... 234,300
6,300 Walden Residential Properties.. 152,775
7,900 Washington Real Estate Inv..... 139,731
7,200 Weeks Corp..................... 229,950
4,300 Western Investment
Real Estate................... 59,125
----------
17,795,117
----------
RESTAURANTS - 1.41%
7,562 Apple South, Inc............... 99,251
7,850 Applebees International, Inc... 191,344
10,400 Bob Evans Farms, Inc........... 221,650
17,100* Brinker International, Inc..... 371,925
14,880* Buffets, Inc................... 242,730
11,145 CKE Restaurants, Inc........... 353,854
4,200 The Cheesecake Factory......... 84,788
2,500* Consolidated Products, Inc..... 49,531
9,900* Foodmaker, Inc................. 167,063
7,100* Landrys Seafood Restaurants.... 160,860
</TABLE>
<PAGE> 143
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 29
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
RESTAURANTS - Continued
7,600* Lone Star Steakhouse & Saloon.. $ 128,250
5,900 Luby's Cafeterias, Inc......... 109,150
2,700 Morrison Health Care, Inc...... 46,238
6,800* NPC International, Inc......... 84,150
4,625* Papa Johns International, Inc.. 192,516
7,800* Rainforest Cafe, Inc........... 108,469
11,800 Ruby Tuesday, Inc.............. 189,538
15,600* Ryan's Family Steak Houses..... 158,925
5,000* Sbarro, Inc.................... 146,250
16,200* Shoney's, Inc.................. 71,887
7,125* Sonic Corp..................... 147,398
6,100* Triarc Companies Inc. Class A.. 148,686
----------
3,474,453
----------
SAVINGS & LOAN - 1.63%
5,020 ALBANK Financial Corp.......... 261,040
6,540 Astoria Financial Corp......... 359,905
6,000 Bay View Capital Corp.......... 193,500
6,150 CitFed Bancorp, Inc............ 304,041
5,200* Coast Federal Litigation-CVF... 77,350
5,200 Dime Community Bancorp, Inc.... 150,800
5,155 Downey Financial Corp.......... 170,759
600 First Financial Holdings, Inc.. 13,875
4,700 First Indiana Corp............. 113,975
3,913 First Source Bancorp Inc....... 39,619
4,500 FirstFed Financial Corp........ 220,781
4,000 HFNC Financial Corp............ 50,500
2,900 JSB Financial, Inc............. 168,563
2,600 Klamath First Bancorp.......... 51,513
7,600 Long Island Bancorp, Inc....... 469,538
4,132 MAF Bancorp, Inc............... 155,983
18,184 Peoples Heritage
Financial Grp................. 409,140
7,625 Provident Bankshares Corp...... 238,281
3,748 Queens County Bancorp, Inc..... 164,911
400 Reliance Bancorp, Inc.......... 15,275
2,100 St Francis Capital Corp........ 86,625
7,100 TR Financial Corp.............. 317,725
----------
4,033,699
----------
SECURITIES RELATED - 1.17%
3,300 Dain Rauscher Corp............. 187,275
8,200* E*Trade Group, Inc............. 177,325
3,100 Enhanced Financial Services.... 201,888
8,017 Financial Security Assurance... 475,007
5,600* Hambrecht & Quist Group........ 172,200
3,099 Investors Financial Services... 154,950
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C>
SECURITIES RELATED - Continued
4,800 Jefferies Group, Inc........... $ 220,800
5,333 Legg Mason, Inc................ 321,647
6,600 McDonald & Co
Investments, Inc.............. 198,000
9,150 Morgan Keegan, Inc............. 209,878
5,400 Pioneer Group, Inc............. 153,562
9,150 Raymond James Financial Inc.... 276,787
1,700* White River Corp............... 151,725
----------
2,901,044
----------
SEMICONDUCTOR EQUIPMENT - 0.02%
3,000* ATMI Inc....................... 54,375
SEMICONDUCTORS - 1.04%
6,300* Actel Corp..................... 80,325
6,200* Alliance Semiconductor Corp.... 29,838
6,500* Altron, Inc.................... 71,906
3,600* Anadigics, Inc................. 51,975
9,300* Burr Brown Corp................ 238,604
13,400 Cirrus Logic, Inc.............. 134,000
3,100 Cohu, Inc...................... 95,325
6,650* Credence Systems Corp.......... 139,650
6,400* Cymer Inc...................... 121,800
12,600* DSP Communications, Inc........ 231,525
5,300* ESS Technology, Inc............ 24,015
5,700* Etec Systems, Inc.............. 208,405
4,300* Electroglas, Inc............... 58,587
8,000* FSI International, Inc......... 92,000
2,900* Fusion Systems Corp............ 272
11,000* International Rectifier Corp... 116,188
9,300* Level One Communications, Inc.. 248,194
4,600* MRV Communications, Inc........ 106,950
11,000* Ramtron International Corp..... 44,344
2,950* SDL, Inc....................... 64,900
7,400* Silicon Valley Group Inc....... 135,513
3,400* Siliconix, Inc................. 91,588
1,600* Speedfam International, Inc.... 31,200
2,700* Triquint Semiconductor, Inc.... 61,088
6,200* Unitrode Corp.................. 80,988
----------
2,559,180
----------
TELECOMMUNICATIONS - 3.00%
7,100 ABM Industries, Inc............ 196,581
6,000* Adtran, Inc.................... 145,875
4,600* Aerial Communications, Inc..... 27,888
14,100* Aspect Telecommunications Co... 363,956
700* CKS Group, Inc................. 14,000
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C>
TELECOMMUNICATIONS - Continued
5,250* Cellular Communications Int'l.. $ 247,406
4,200* CellStar Corp.................. 126,394
12,800* CellNet Data Systems, Inc...... 129,600
8,180* Cellular Technical Services.... 8,180
4,800* Centennial Cellular Corp.
Class A....................... 168,000
3,700* Cidco, Inc..................... 30,063
3,500* Coherent Communications........ 165,594
14,900 COMSAT Corp.................... 519,638
3,200* CoreComm Inc................... 68,000
13,400* Glenayre Technologies, Inc..... 205,187
7,100* HighwayMaster Communications... 25,737
5,000* IXC Communications, Inc........ 217,968
5,200 Inter-Tel, Inc................. 97,662
5,400* InterVoice, Inc................ 71,550
4,300* Itron, Inc..................... 66,380
2,750 MasTec, Inc.................... 56,719
9,000 McLeodUSA, Inc. Class A........ 373,500
2,794* Millicom International
Cellula....................... 108,617
6,766* NTL Inc........................ 274,869
3,200* Natural Microsystems Corp...... 68,500
1,600 North Pittsburgh Systems....... 25,200
7,300* Omnipoint Corp................. 150,106
1,900* Pacific Gateway Exchange, Inc.. 80,988
12,500* PageMart Wireless, Inc.
Class A....................... 113,281
29,700* Paging Network, Inc............ 406,519
4,400 Plantronics, Inc............... 201,300
74 Porta Systems Corp............. 315
7,800 Premisys Communications Inc.... 194,269
4,800 Premier Technologies, Inc...... 114,600
6,640* PriCellular Class A............ 90,055
3,500* Proxim, Inc.................... 45,938
1,200* Quintel Entertainment, Inc..... 6,525
7,000* RCN Corp....................... 150,500
4,900* Sanmina Corp................... 381,588
12,400* Skytel Communications Inc...... 280,550
9,100* Symmetricom, Inc............... 57,444
1,900* Tekelec........................ 84,431
7,700* Tel-Save Holdings, Inc......... 152,075
3,455* Teleport Communications
Gro Cl A...................... 193,238
4,100* Transaction Network Services... 83,538
8,200* Vanguard Cellular
Systems, Inc. Class A......... 147,088
17,000* Western Wireless Corp Class A.. 314,500
8,800* WinStar Communications, Inc.... 330,000
8,600* Wireless Telecom Group......... 30,100
----------
7,412,012
----------
</TABLE>
<PAGE> 144
===============================================================================
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
30 May 31, 1998
===============================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C> <C>
TEXTILE - PRODUCTS - 0.66%
14,200* Burlington Industries, Inc..... $ 249,388
6,100* Cone Mills Corp................ 58,713
4,100 Culp, Inc...................... 71,750
5,500* Fabri-Centers of
America, Inc. Class A......... 162,250
4,750 G & K Services, Inc. Class A... 185,250
7,650 Guilford Mills, Inc............ 206,550
6,600* Lydall, Inc.................... 115,500
8,100* Mohawk Industries, Inc......... 246,037
3,200 Springs Industries, Inc.
Class A....................... 179,600
6,800 Wellman, Inc................... 163,625
----------
1,638,663
----------
TOBACCO - 0.10%
3,000 Cons Cigar Holdings Inc........ 41,437
12,100 DIMON, Inc..................... 163,350
3,601* General Cigar Holdings, Inc.... 35,785
----------
240,572
----------
TRUCKERS - 0.68%
7,500* American Freightways Corp...... 85,781
4,950 Arnold Industries, Inc......... 77,344
7,800* Consolidated Freightways Corp.. 115,050
5,832 Heartland Express, Inc......... 127,575
750* Knight Transportation, Inc..... 14,297
5,200* Landstar System, Inc........... 175,825
2,300* M.S. Carriers, Inc............. 68,713
3,100 Roadway Express, Inc........... 58,319
18,862 Rollins Truck Leasing Corp..... 226,344
6,900* Swift Transportation Co., Inc.. 153,525
5,600 USFreightways Corp............. 176,400
4,687 Werner Enterprises, Inc........ 89,052
3,700 Xtra Corp...................... 194,250
6,500* Yellow Corp.................... 121,875
----------
1,684,350
----------
UTILITIES - COMMUNICATION - 0.24%
9,200 Aliant Communications, Inc..... 213,325
3,200 CFW Communications Co.......... 80,000
4,666 Commonwealth Telephone Ent..... 138,814
5,178 PXRE Corp...................... 163,107
----------
595,246
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C>
UTILITIES - ELECTRIC - 2.20%
5,400 Black Hills Corp............... $ 118,463
5,600 Cleco Corp..................... 167,650
13,100 Central Maine Power Co......... 250,538
3,400 CILCORP, Inc................... 149,813
4,600 Commonwealth Energy System Co.. 174,800
31,300 Conectiv, Inc.................. 639,694
1,900 Conectiv, Inc. Class A......... 61,512
9,300 Eastern Utilities Associates... 235,987
15,100* El Paso Electric Co............ 143,450
4,100 Empire District Electric Co.... 83,793
6,100 Hawaiian Electric
Industries, Inc............... 233,325
5,600 Indiana Energy, Inc............ 172,900
17,432 Interstate Energy Corp......... 524,050
7,525 Madison Gas & Electric Co...... 159,905
6,600 Minnesota Power Inc............ 260,287
11,600 Nevada Power Co................ 276,950
8,100 Northwestern Corp.............. 195,413
2,875 Otter Tail Power Co............ 92,000
10,400 Public Service Co.
of New Mexico................. 225,550
13,400 Rochester Gas & Electric Corp.. 412,050
5,950 SIG Corp, Inc.................. 185,566
2,700 TNP Enterprises, Inc........... 87,919
8,020* Unisource Energy Corp. Hldg.... 126,816
3,700 United Illuminating Co......... 175,288
10,500 Washington Gas Light Co........ 273,656
----------
5,427,375
----------
UTILITIES - GAS, DISTRIBUTION - 0.78%
18,600 AGL Resources, Inc............. 372,000
2,700 Connecticut Natural Gas Corp... 62,775
2,200 Colonial Gas Co................ 62,563
2,200 Connecticut Energy Corp........ 63,938
8,600 Energen Corp................... 174,688
1,200 NUI Corp....................... 29,550
12,600* National-Oilwell, Inc.......... 440,212
5,600 Northwest Natural Gas Co....... 154,000
7,400 Piedmont Natural Gas Co., Inc.. 234,487
7,800 Public Service Co. of NC....... 165,750
9,900 Southwestern Energy Co......... 104,568
2,550 Yankee Energy Systems, Inc..... 61,200
----------
1,925,731
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ----------
<S> <C>
UTILITIES - GAS, PIPELINE - 0.12%
2,400 North Carolina Natural Gas..... $ 55,500
5,900 ONEOK Inc...................... 230,469
----------
285,969
----------
UTILITIES - MISCELLANEOUS - 0.52%
4,400 Central Hudson Gas & Electric.. 192,225
7,150 MDU Resources Group, Inc....... 238,184
3,500 Orange and Rockland Utilities.. 187,031
7,700 Sierra Pacific Resources....... 264,206
2,900 Trigen Energy Corp............. 40,238
5,600 WPS Resources Corp............. 175,350
9,000* Walter Industries, Inc......... 172,125
----------
1,269,359
----------
WATER SERVICES - 0.23%
3,000 Aquarion Co.................... 100,125
2,800 California Water
Service Group................. 62,125
1,900 E'Town Corp.................... 65,550
9,700 Philadelphia Suburban Corp..... 190,968
2,150 Southern California Water Co... 46,897
6,200 United Water Resources......... 99,588
----------
565,253
----------
TOTAL COMMON STOCKS
(Cost $186,116,688)............ 240,043,605
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
- ----------
<S> <C> <C>
CORPORATE SHORT TERM
COMMERCIAL PAPER - 2.36%
FINANCE COMPANIES - 0.93%
$2,291,000 Ford Motor Credit Co.,
5.45% due 06/01/98........... 2,291,000
SECURITIES RELATED - 1.43%
Merrill Lynch & Co.
1,534,000 5.60% due 06/06/98........... 1,533,523
2,000,000 5.58% due 06/02/98........... 1,999,690
----------
3,533,213
----------
TOTAL CORPORATE SHORT
TERM COMMERCIAL PAPER
(Cost $5,824,213).............. 5,824,213
==========
</TABLE>
<PAGE> 145
===============================================================================
May 31, 1998 31
SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED
===============================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- -----------
<S> <C> <C>
UNITED STATES GOVERNMENT -
SHORT TERM - 0.08%
U. S. TREASURY BILLS - 0.08%
$ 200,000 United States Treasury Bills,
4.94% due 06/04/98........... $ 199,918
------------
UNITED STATES GOVERNMENT -
SHORT TERM
(Cost $199,918)................ 199,918
------------
TOTAL INVESTMENTS
(Cost $192,140,819) - 99.55%... 246,067,736
Other assets and liabilities,
net - 0.45%................... 1,114,822
------------
NET ASSETS (equivalent
to $17.94 per share on
13,776,917 shares
outstanding) - 100%........... $247,182,558
============
* Non-income producing
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- --------- -------------
<S> <C>
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value
at 5/31/98)
26 (2) Russell 2000 Index Futures
(June/$456.45)................ $ (311,225)
=============
</TABLE>
(1) U.S. Treasury Bills with a market value of approximately
$200,000 were maintained in a segregated account with a
portion placed as collateral for futures contracts.
(2) Per 500
<TABLE>
<CAPTION>
MARKET
VALUE
------------
<S> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
13,776,917 shares outstanding........... $ 137,769
Additional paid in capital................ 174,700,392
Undistributed net realized
gain on securities....................... 18,696,806
Undistributed net investment income....... 31,899
Unrealized appreciation (depreciation) of:
Investments........... $53,926,917
Futures .............. (311,225) 53,615,692
----------- ------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING............................. $247,182,558
============
</TABLE>
<PAGE> 146
================================================================================
SMALL CAP INDEX FUND - FINANCIAL STATEMENTS
32
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends ........................................................................... $ 2,784,313
Interest ............................................................................ 493,266
------------
Total investment income ........................................................... 3,277,579
------------
EXPENSES:
Advisory fees ....................................................................... 798,980
Custodian and accounting services ................................................... 48,447
Reports to shareholders ............................................................. 18,071
Audit fees and tax services ......................................................... 5,971
Directors' fees and expenses ........................................................ 4,511
Miscellaneous ....................................................................... 20,829
Total expenses .................................................................... 896,809
------------
NET INVESTMENT INCOME ............................................................... 2,380,770
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES:
Net realized gain on:
Investments ...................................................... $ 18,026,929
Futures contracts ................................................ 1,045,986 19,072,915
------------
Net unrealized appreciation (depreciation) during the year:
Investments ...................................................... 20,249,083
Futures contracts ................................................ (623,225) 19,625,858
------------ ------------
Net realized and unrealized gain on securities during the year ................... 38,698,773
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................... $ 41,079,543
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income .................................................. $ 2,380,770 $ 2,388,474
Net realized gain on securities ........................................ 19,072,915 17,523,137
Net unrealized appreciation (depreciation) of securities
during the year ...................................................... 19,625,858 (6,382,053)
------------- -------------
Increase in net assets resulting from operations ..................... 41,079,543 13,529,558
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .................................................. (2,367,516) (2,385,945)
Net realized gain on securities ........................................ (17,477,319) (11,216,991)
------------- -------------
Decrease in net assets resulting from distributions
to shareholders ..................................................... (19,844,835) (13,602,936)
------------- -------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold ....................................... 39,604,509 20,665,121
Proceeds from capital stock issued for distributions reinvested ........ 19,844,835 13,602,936
------------- -------------
59,449,344 34,268,057
Cost of capital stock repurchased ...................................... (25,960,237) (22,521,418)
------------- -------------
Increase in net assets resulting from capital stock transactions ..... 33,489,107 11,746,639
------------- -------------
TOTAL INCREASE IN NET ASSETS ........................................... 54,723,815 11,673,261
NET ASSETS:
Beginning of year ...................................................... 192,458,743 180,785,482
------------- -------------
End of year (including undistributed net investment income
of $31,899 and $18,645) .............................................. $ 247,182,558 $ 192,458,743
============= =============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold ........................................... 2,173,506 1,339,448
Shares issued for distributions reinvested ............................. 1,157,942 890,371
Shares of capital stock repurchased .................................... (1,447,855) (1,465,127)
------------- -------------
Increase in shares outstanding ....................................... 1,883,593 764,692
Shares outstanding:
Beginning of year .................................................... 11,893,324 11,128,632
------------- -------------
End of year .......................................................... 13,776,917 11,893,324
============= =============
</TABLE>
<PAGE> 147
================================================================================
INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS
May 31, 1998 33
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
COMMON STOCKS - 98.63%
AIRLINES - 0.89%
4,100 British Airways plc - ADR...... $ 431,013
40,000* Japan Air Lines Co. Ltd........ 102,535
25,000 Lufthansa Ag................... 624,912
60,000 Malay Airline System Bhd....... 35,889
35,000 Singapore Airlines............. 194,386
-----------
1,388,735
-----------
APPAREL & PRODUCTS - 0.16%
20,000 Onward Kashiyama Co., Ltd...... 248,393
-----------
APPLIANCES/FURNISHINGS - 1.72%
4,200 Matsushita Electric Industrial
Co.Ltd. - ADR................. 656,250
10,000 Philips Electronics NV......... 950,250
33,000 Sanyo Electric Co. Ltd......... 94,599
3,400 Sanyo Electric Co. Ltd. - ADR.. 49,725
10,970 Sony Corp - ADR................ 919,423
-----------
2,670,247
-----------
AUTO - CARS - 3.99%
15,000 Daimler-Benz AG - ADR.......... 1,483,125
50,000 Fiat S.p.A..................... 223,834
16,500 Fiat S.p.A. - ADR.............. 368,156
12,500 Honda Motor Co., Ltd. - ADR.... 831,250
35,000 Nissan Motor Co., Ltd.......... 106,145
18,000 Nissan Motor Co., Ltd. - ADR... 112,500
500 Peugeot Citroen SA............. 97,693
78,000 Toyota Motor Corp.............. 1,931,836
500 Volkswagen Ag.................. 405,493
20,000 Volvo AB....................... 639,251
-----------
6,199,283
-----------
AUTO - ORIGINAL EQUIPMENT -
0.06%
25,000 Calsonic Corp.................. 88,996
-----------
AUTO - REPLACEMENT PARTS -
1.03%
26,000 Bridgestone Corp............... 593,256
5,550 Denso Corp..................... 376,501
10,093 Michelin (CGDE) Class B........ 624,508
-----------
1,594,265
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
BANKS - OTHER - 13.32%
60,000 AMMB Holdings BHD.............. $ 53,365
50,000 Asahi Bank Ltd................. 188,100
3,190 Asahi Bank Ltd. - ADR.......... 119,943
126,000 Bank of Tokyo - Mitsubishi..... 1,296,484
68,000 Bank of Yokohama Ltd........... 165,961
2,296 Bank of Yokohama Ltd. - ADR.... 56,006
38,287 Barclays plc................... 1,021,809
11,977 Bco Comm Portugues............. 396,588
25,000 Bco Santander.................. 1,258,660
7,000 Bco Totta E Acores............. 259,075
40,000 Chiba Bank Ltd................. 142,393
108,000 Commerce Asset Holding......... 57,017
11,250 Commerce Asset Holding
(Warrants).................... 1,082
6,300 Den Danske Bank AF 1871 - ADR.. 783,819
27,500 Deutsche Bank AG - ADR......... 2,369,315
13,000 Development Bank of Singapore
Ltd........................... 78,411
14,987 Development Bank of Singapore
Ltd. - ADR.................... 361,692
17,000 Dresdner Bank AG - ADR......... 956,420
10,000 Foreningssparbk................ 300,486
25,000 Hang Seng Bank................. 186,314
2,180 HSBC Holdings plc - ADR........ 528,894
15,000 Industrial Bank of Japan Ltd... 92,064
25,000* Ist Bc S.Paolo To.............. 391,780
13,500 Istituto Mobiliare Italiano
S.p.A. - ADR.................. 690,187
48,000 Joyo Bank...................... 170,525
147,654 Lloyds TSB Group plc........... 2,145,149
60,000* Malayan Bk Bhd................. 84,261
31,435 National Australia Bank Ltd.... 435,931
9,319 National Australia Bank Ltd. -
ADR........................... 642,429
10,591 National Westminster Bank plc.. 193,575
2,500 Paribas Banque................. 254,889
250,000 RHB Capital BHD................ 136,534
50,000 RHB Capital BHD (Warrants)..... 7,672
20,598 Royal Bank Scot Group.......... 347,866
98,000 Sakura Bank Ltd................ 290,837
2,000 Schweiz Bankverein............. 722,241
30,000 Shizuoka Bank.................. 324,500
74,000 Sumitomo Bank.................. 691,963
26,000 Tokai Bank..................... 143,996
2,225 Tokai Bank - ADR............... 246,321
1,000 Union Bank of Switzerland AG... 1,680,729
13,300 Westpac Banking Corp. Ltd. -
ADR........................... 438,900
-----------
20,714,183
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
BEVERAGE - BREWERS/
DISTRIBUTORS - 1.38%
34,642* Bass........................... $ 636,534
60,500 Diageo......................... 684,292
16,000 Kirin Brewery Co., Ltd......... 148,921
12,000 LVMH (Moet Hennessy Louis
Vuitton) - ADR................ 508,500
45,000 Sapporo Breweries.............. 170,590
-----------
2,148,837
-----------
BROADCASTING - 0.48%
50,000 British Sky Broadcasting Group
plc........................... 351,976
764 Canal Plus..................... 138,677
40,000 Mediaset....................... 256,542
-----------
747,195
-----------
BUILDING MATERIALS - 1.90%
20,000 Asahi Glass Co. Ltd............ 108,022
1,223 Cie De St Gobain............... 241,207
31,072 CRH plc........................ 447,547
2,505 Fletcher Challenge Building
Division...................... 41,959
2,700 Glaverbel SA................... 399,973
725 Holderbank Finance Glarus...... 926,865
40,000 Inax Corp...................... 135,750
343* Lafarge........................ 34,971
4,116 Lafarge SA..................... 417,585
15,000 Tostem Corp.................... 192,360
-----------
2,946,239
-----------
CHEMICAL - MAJOR - 1.36%
25,000 BASF AG........................ 1,158,750
10,000 Bayer AG....................... 478,072
10,000 Bayer AG - ADR................. 478,462
-----------
2,115,284
-----------
CHEMICAL - MISCELLANEOUS - 1.84%
13,603 Air Liquide - ADR.............. 536,136
5,100 Akzo Nobel N V- ADR............ 533,587
23,420 BOC Group plc.................. 371,044
7,500 Degussa Ag..................... 478,773
6,000 Imperial Chemical Industries
plc - ADR..................... 447,750
13,100 Shin Etsu Chemical Co.......... 243,574
50,000 Toray Industries Inc........... 249,115
-----------
2,859,979
-----------
</TABLE>
<PAGE> 148
================================================================================
INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS CONTINUED
34 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
CONGLOMERATES - 1.21%
6,890 Broken Hill Proprietary Co.
Ltd. - ADR.................... $ 118,422
34,942* Btr............................ 115,140
15,408* Btr Plc........................ 211,860
30,000 Hutchison Whampoa.............. 156,794
3,300 Itochu Corp. - ADR............. 74,305
71,250 Keppel Corp. Ltd............... 142,117
26,875 Keppel Corp. Ltd. - ADR........ 107,242
8,157 Lagardere Groupe............... 358,564
70,000 Marubeni Corp.................. 141,527
3,200 Marubeni Corp. - ADR........... 64,663
22,000 Mitsubishi Corp................ 132,804
50,000 Mitsui & Co.................... 256,336
----------
1,879,774
----------
CONSUMER FINANCE - 0.03%
37,000 Nippon Shinpan Co.............. 49,960
----------
COSMETICS/TOILETRIES - 1.44%
1,100 Loreal Co...................... 546,231
15,400 Loreal Co. - ADR............... 1,529,505
14,490 Shiseido Ltd. - ADR............ 168,359
----------
2,244,095
----------
DRUGS - 7.80%
26,666 Astra AB....................... 535,885
47,900 Glaxo Wellcome plc - ADR....... 2,583,606
7,700 Kissei Pharmaceutical Co....... 97,577
1,600 Novartis Ag.................... 2,708,606
5,000 Ono Pharmaceutical............. 111,560
200 Roche Holdings AG.............. 2,056,699
10,000 Sankyo Co. Ltd................. 241,173
148,897 Smithkline Beecham............. 1,613,590
35,000 Takeda Chemical Industries Ltd. 904,759
30,900 Zeneca Group plc - ADR......... 1,278,488
----------
12,131,943
----------
ELECTRICAL EQUIPMENT - 1.52%
1,000 Barco.......................... 255,776
15,000 Fanuc.......................... 552,387
30,000 Fujikura....................... 136,905
84,000 General Electric plc........... 688,730
10,400 General Electric plc - ADR..... 85,262
10,000 Murata Manufacturing Co........ 289,552
3,400 Sumitomo Electric Industries
Ltd.- ADR..................... 355,054
----------
2,363,666
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
ELECTRONIC INSTRUMENTS - 2.60%
50,000 Hitachi Ltd.................... $ 329,627
8,550 Hitachi Ltd. - ADR............. 567,506
6,000 Kyocera Corp................... 292,873
25,000 NEC Corp....................... 254,531
5,100 NEC Corp. - ADR................ 260,100
50,000 Racal Electronics plc.......... 307,877
7,110 Schneider SA................... 601,314
8,000 Siemens AG..................... 516,520
12,000 Siemens AG - ADR............... 775,412
25,000 Yokogawa Electric.............. 129,251
----------
4,035,011
----------
FINANCE COMPANIES - 2.94%
20,000 Abbey National................. 357,040
63,000 ABN Amro Holdings N V.......... 1,525,621
126 Dekia France................... 17,121
8,182 Fortis Amev NV................. 490,664
20,180 ING Groep NV................... 1,385,772
3,984 Societe Generale............... 789,076
----------
4,565,294
----------
FOODS - 3.29%
25,000 Ajinomoto Inc.................. 210,304
1,900 Ajinomoto Inc. - ADR........... 159,744
22,084 Cadbury Schweppes plc.......... 337,791
3,929 Cadbury Schweppes plc - ADR.... 240,651
31,794 Coca Cola Amatil Ltd........... 233,954
10,000 Daiei, Inc..................... 28,161
11,500 Daiei, Inc. - ADR.............. 63,250
100,000 Golden Hope Plantations........ 109,227
1,000 Groupe Danone.................. 269,263
30,000 Nestle S A - ADR............... 3,218,862
30,750 Tate & Lyle plc................ 250,116
----------
5,121,323
----------
FOOTWEAR - 0.17%
1,500 Adidas AG...................... 264,817
----------
FREIGHT - 0.67%
98,000 Mitsui Osk Lines Ltd........... 150,018
40,000 Nippon Yusen Kabushiki Kaish... 138,349
8,570 Nippon Yusen Kabushiki Kaish -
ADR.......................... 296,253
33,599 P & O Steam Navigation......... 462,890
----------
1,047,510
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
HOME BUILDERS - 0.27%
15,000 Daiwa House Industry Co. Ltd... $ 116,868
214* Sekisui Homes Ltd. - ADR....... 15,830
20,000 Sekisui House, Ltd............. 148,025
3,000 Skanska Ab..................... 141,630
----------
422,353
----------
HOSPITAL SUPPLIES - 0.65%
2,000 Novo-Nordisk A/S............... 314,803
8,800 Novo-Nordisk A/S - ADR......... 690,800
----------
1,005,603
----------
HOUSEHOLD PRODUCTS - 0.88%
7,000 Katokichi Co................... 77,991
16,400 Unilever N V - ADR.............. 1,294,575
----------
1,372,566
----------
INFORMATION PROCESSING - 1.03%
14,000 Fujitsu Ltd.................... 160,734
7,200 Fujitsu Ltd. - ADR............. 413,091
2,000 SAP AG......................... 1,033,487
----------
1,607,312
----------
INSURANCE - CASUALTY - 0.29%
25,000 Mitsui Marine & Fire........... 122,752
50,000 Nippon Fire & Marine
Insurance..................... 191,350
25,000 Sumitomo Marine & Fire......... 138,999
----------
453,101
----------
INSURANCE - LIFE - 1.19%
66,911 Irish Life plc................. 549,708
15,240 Prudential plc - ADR........... 1,010,849
20,000* Skandia Forsakring............. 292,192
----------
1,852,749
----------
INSURANCE - MULTILINE - 3.79%
3,000 Allianz AG..................... 948,298
88* Allianz AG..................... 27,570
27,313 Assic Generali................. 877,807
10,962 AXA UAP........................ 1,247,722
1,500 Munchener Ruckvers............. 681,379
55,267 Royal Sun Alliance............. 586,288
154,095 Sedgwick Group plc............. 372,492
500 Swiss Reinsurance AG........... 1,151,873
----------
5,893,429
----------
</TABLE>
<PAGE> 149
================================================================================
INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 35
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
LEISURE TIME - 1.16%
20,000 Canon, Inc. - ADR.............. $ 470,000
15,000 Fuji Photo..................... 507,979
53,882 Ladbroke Group plc............. 304,499
88,050 Rank Group..................... 513,409
-----------
1,795,887
-----------
LODGING - 0.15%
297,916 Hong Kong & Shanghai Hotels.... 159,550
22,916* Hong Kong & Shanghai Hotels
(Warrants).................... 29
180,000 Hotel Properties............... 65,572
-----------
225,151
-----------
MACHINE TOOLS - 0.39%
35,000 Amada Co., Ltd................. 176,908
16,000 Makita Corp. - ADR............. 167,000
25,000 Minebea Co. Ltd................ 256,517
-----------
600,425
-----------
MACHINERY - CONSTRUCTION &
CONTRACTS - 0.75%
3,501* Algeco......................... 377,427
2,000 Groupe Gtm..................... 186,528
2,000 Jean Lefebvre SA............... 165,134
52,000 Kajima Corp.................... 139,678
2,340 Kajima Corp. - ADR............. 62,821
80,000 Kumagai Gumi Co................ 40,263
16,000* Kumagai Gumi Co. (Warrants).... 21
70,000 Shimizu Corp................... 192,072
-----------
1,163,944
-----------
MACHINERY - INDUSTRIAL/
SPECIALTY - 2.62%
10,000 Atlas Copco AB Series A........ 289,641
125 Bobst SA....................... 236,247
61,056* British Aerospace.............. 541,495
8,000 Ebara Corp..................... 71,687
2,530 Ebara Corp. - ADR.............. 226,589
100,000 Halma plc...................... 209,063
50,000 Kawasaki Heavy Industries...... 93,509
70,000 Kubota Corp.................... 169,326
1,350 Kubota Corp. - ADR............. 67,162
750 Man AG......................... 298,445
1,000 Mannesmann AG.................. 978,002
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
MACHINERY - INDUSTRIAL/
SPECIALTY - Continued
612 Rauma Oy....................... $ 12,639
49,662 Rolls Royce.................... 236,647
25,367 Siebe plc...................... 635,980
-----------
4,066,432
-----------
MEDICAL TECHNOLOGY - 0.02%
20,000* Instrumentation Laboratory
S. p. A. ..................... 32,500
-----------
MERCHANDISE - SPECIALTY - 1.22%
42,487 BAA plc........................ 507,617
10,000 Esselte AB Series B............ 234,775
35,000 Great Universal Stores plc..... 497,626
10,000 Hennes and Mauritz............. 561,418
1,500 Herlitz AG..................... 94,157
-----------
1,895,593
-----------
MERCHANDISING -
DEPARTMENT - 0.99%
500 Karstadt AG.................... 261,314
15,000 Marks & Spencer plc............ 133,768
15,033 Marks & Spencer plc - ADR...... 804,559
16,000 Marui Co., Ltd................. 245,505
36,000 Mitsukoshi Ltd................. 91,761
200 Mitsukoshi Ltd. - ADR.......... 5,095
-----------
1,542,002
-----------
MERCHANDISING - FOOD - 1.47%
15,607 Ahold Kon Nv................... 492,800
1,550 Carrefour SA................... 947,150
10,000* Delhaize-Le Lion, S.A.......... 686,328
15,000 Melco International Development
Limited....................... 1,452
10,000 Uny Co. Ltd.................... 150,913
-----------
2,278,643
-----------
MERCHANDISING - MASS - 0.65%
4,356 Familymart Co.................. 163,559
10,200 Ito-Yokado Co. Ltd. - ADR...... 504,900
6,500 Jeronimo Martins Sgps.......... 293,416
20,000 Seiyu Ltd...................... 42,747
-----------
1,004,622
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
METALS - MISCELLANEOUS - 0.93%
200* Alusuisse Lonza Holdings....... $ 268,646
37,410 NMC............................ 117,140
109,658 North Ltd...................... 255,465
8,062 Rio Tinto Limited.............. 388,700
6,432 Rio Tinto plc.................. 80,419
6,700 Rio Tinto plc.................. 338,350
----------
1,448,720
----------
METALS - STEEL - 0.98%
500 Bekaert SA..................... 394,469
36,700 British Steel plc.............. 90,812
2,000 British Steel plc - ADR........ 50,875
50,000 Cockerill Sambre............... 297,635
60,000 Kawasaki Steel................. 96,180
5,420 Kawasaki Steel - ADR........... 86,836
78,000 Sumitomo Metal Industries Ltd.. 121,092
50,000 Sumitomo Metal Mining.......... 212,290
2,000* Vallourec Usin................. 169,480
-----------
1,519,669
-----------
MISCELLANEOUS - 0.39%
30,000 Rexam.......................... 152,142
8,000 Secom Co....................... 454,618
-----------
606,760
-----------
OIL - INTEGRATED
INTERNATIONAL - 6.05%
27,405 British Petroleum Co. PLC - ADR 2,428,768
20,946 Elf Aquitaine SA - ADR......... 1,436,110
225,000 Eni S.p.A...................... 1,590,870
10,000 Repsol S A - ADR............... 547,500
40,392 Royal Dutch Pete Co............ 2,264,477
9,207 Total.......................... 1,143,373
-----------
9,411,098
-----------
OIL/GAS PRODUCERS - 0.56%
2,505 Fletcher Challenge Energy
Division...................... 78,125
3,500 Norsk Hydro A/S - ADR.......... 157,281
3,000 OMV AG......................... 434,187
62,500 Santos Ltd..................... 205,488
-----------
875,081
-----------
</TABLE>
<PAGE> 150
================================================================================
INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS CONTINUED
36 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
PAPER/FOREST PRODUCTS - 0.92%
150,801 Fletcher Challenge Forest Ltd.. $ 92,902
4,326 Fletcher Challenge Ltd. - ADR.. 27,578
5,010 Fletcher Challenge Paper
Division...................... 65,756
22,000 New Oji Paper Co., Ltd......... 92,931
300 New Oji Paper Co., Ltd. - ADR.. 12,666
60,000 Nippon Paper Industries........ 259,080
15,000 Stora Kopparbergs.............. 243,068
22,000 UPM - Kymmene Corp............. 637,693
----------
1,431,674
----------
PUBLISHING - NEWS - 0.76%
50,651 Independent Newspapers plc..... 318,596
22,500 News Corp Ltd. - ADR........... 554,062
21,379 United News & Media plc........ 307,456
----------
1,180,114
----------
PUBLISHING/PRINTING - 0.68%
43,333 Reuters Group.................. 497,200
20,000 Trelleborg Ab.................. 283,261
2,020 Wolters Kluwer NV.............. 283,757
----------
1,064,218
----------
RAILROAD - 0.59%
30,000 Fukuyama Transporting Co....... 117,843
9,218 Nagoya Railroad Co. Ltd. - ADR. 274,746
101,970 Odakyu Electric Railway Co.
Ltd. ......................... 332,071
60,000 Tokyu Corp..................... 197,126
----------
921,786
----------
REAL ESTATE - 1.33%
6,000* Asticus Ab..................... 66,605
12,000 Diligentia..................... 110,242
41,427 Hammerson plc.................. 356,583
240,000 Hang Lung Development Co....... 247,774
43,000 Mitsubishi Estate Co. Ltd...... 377,868
35,000 Mitsui Fudosan................. 283,306
26,163 New World Development Co....... 61,786
83,597 Sun Hung Kai Properties Ltd.... 403,475
128,000 Wharf (Holdings) Ltd........... 163,531
----------
2,071,170
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
SECURITIES RELATED - 0.59%
25,000 Daiwa Securities Co. Ltd....... $ 95,133
46,000 Mitsubishi Trust & Banking
Corp. ........................ 408,549
3,800 Nomura Securities Co. Ltd. -
ADR .......................... 414,102
160,000* Peregrine Investment Holdings
Ltd. ......................... 0
6,000* Yamaichi Securities Co. Ltd. -
ADR........................... 0
----------
917,784
----------
TELECOMMUNICATIONS - 10.20%
2,000* Alcatel Alst Cge............... 427,879
35,550 British Telecommunications
plc. ......................... 371,028
13,379 British Telecommunications
plc - ADR ................... 1,396,433
45,924 Cable & Wireless plc........... 520,179
30,000 Deutsche Telekom............... 804,540
30,400 Ericsson LMTEL Co Class B - ADR 847,400
10,000* France Telecom................. 560,087
40,600 Hong Kong Telecommunications
Ltd. - ADR.................... 738,412
15,621 Kon Ptt Nederland.............. 873,076
5,000* Netcom Asa..................... 126,080
300 Nippon Tel+Tel Cp.............. 2,469,493
14,000* Nokia Ab Oy.................... 908,672
2,600 Telecom Corp. of New Zealand
Ltd. - ADR.................... 95,063
250,000 Telecom Italia Mobile.......... 1,478,242
186,111* Telecom Italia Spa............. 1,406,419
14,000 Telefonica de Espana........... 625,404
6,290 Telefonica de Espana - ADR..... 846,005
115,000 Telekom Malaysia Berhad........ 263,185
10,000 Vodafone Group plc - ADR....... 1,098,750
----------
15,856,347
----------
TEXTILE - PRODUCTS - 0.46%
20,000 Courtaulds Textiles plc........ 95,711
30,000* Marzotto & Figli S.p.A......... 460,751
15,000 Wacoal Corp.................... 151,636
----------
708,098
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- ------------
<S> <C> <C>
TOBACCO - 0.76%
77,759 B.A.T. Industries plc......... $ 700,426
20,100 B.A.T. Industries plc - ADR... 371,850
32,000 Swedish Match AB............... 112,692
------------
1,184,968
------------
UTILITIES - COMMUNICATION - 0.17%
1,500 Telecel Comuni Pes............. 262,798
------------
UTILITIES - ELECTRIC - 3.91%
55,000 Clp Holdings................... 237,063
48,000 Endesa S A..................... 1,152,000
6,500 Hidroel Cantabrico............. 304,520
30,000 Iberdrola SA................... 494,886
16,600 Kansai Electric Power Co. Inc.. 264,301
60,000 National Power................. 558,589
4,000 Oesterreichisch
Elektrizitatswirt Schafts -
AG Class A.................... 469,632
10,000 RWE AG - ADR................... 531,189
48,488 Scottish Power plc............. 437,951
95,000 Tenaga Nasional Berhad......... 156,884
25,200 Tokyo Electric Power........... 482,201
15,000 VEBA AG........................ 985,288
------------
6,074,504
------------
UTILITIES - GAS, DISTRIBUTION - 0.32%
44,117 Bg............................. 227,518
127,000 Osaka Gas Co................... 274,193
------------
501,711
------------
WATER SERVICES - 1.71%
21,503 Hyder plc...................... 343,131
26,385 Thames Water plc............... 428,576
43,780 United Utilities plc........... 593,499
6,349* Vivendi........................ 1,275,531
10,196 Vivendi (Warrants)............. 17,723
------------
2,658,460
------------
TOTAL COMMON STOCKS
(Cost $115,663,437)............ 153,332,301
------------
</TABLE>
<PAGE> 151
================================================================================
INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 37
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ----------- ------------
<S> <C> <C>
UNITED STATES GOVERNMENT -
SHORT TERM - 0.14%
U.S. TREASURY BILLS - 0.14%
$ 225,000 United States Treasury Bills:
4.94% due 6/4/98.............. $ 199,917
4.85% due 6/4/98.............. 24,990
------------
TOTAL UNITED STATES GOVERNMENT -
SHORT TERM
(Cost $224,907)................ 224,907
------------
TOTAL INVESTMENTS
(Cost $115,888,344) - 98.77%... 153,557,208
Other assets and liabilities,
net - 1.23%................... 1,911,959
------------
NET ASSETS (equivalent
to $11.95 per share on
13,009,276 shares
outstanding) - 100%........... $155,469,167
============
</TABLE>
* Non-income producing
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ----------- ------------
<S> <C> <C>
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at
5/31/98)
30 (2) Nikkei 225 Futures
(June/$113.22)................ $ (121,309)
===========
</TABLE>
(1) U.S. Treasury Bills with a market value of approximately
$225,000 were maintained in a segregated account with a portion
placed as collateral for futures contracts.
(2) Per 500
<TABLE>
<CAPTION>
MARKET
VALUE
------------
<S> <C> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
13,009,276 shares outstanding................. $ 130,093
Additional paid in capital..................... 106,757,575
Undistributed net realized gain on
securities.................................... 10,593,190
Undistributed net investment income............ 468,817
Unrealized appreciation (depreciation) of:
Investments................... $ 37,668,864
Futures ...................... (121,309)
Foreign currency translation.. (28,063) 37,519,492
------------ -------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING.................................. $ 155,469,167
=============
</TABLE>
<PAGE> 152
================================================================================
INTERNATIONAL EQUITIES FUND - FINANCIAL STATEMENTS
38
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $465,853)............. $ 3,358,662
Interest............................................................. 489,661
-----------
Total investment income............................................ 3,848,323
-----------
EXPENSES:
Advisory fees........................................................ 582,798
Custodian and accounting services.................................... 32,720
Reports to shareholders.............................................. 10,913
Audit fees and tax services.......................................... 3,182
Directors' fees and expenses......................................... 3,684
Insurance............................................................ 2,555
Miscellaneous........................................................ 32,300
-----------
Total expenses..................................................... 668,152
-----------
NET INVESTMENT INCOME................................................ 3,180,171
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
AND FOREIGN CURRENCIES:
Net realized gain (loss) on:
Investments.......................................... $11,174,773
Foreign currency translations........................ (153,279)
Futures contracts.................................... (93,539) 10,927,955
-----------
Net unrealized appreciation (depreciation)
during the year:
Investments.......................................... 1,952,789
Foreign currency translation......................... (52,149)
Futures contracts.................................... (423,327) 1,477,313
----------- -----------
Net realized and unrealized gain on securities and
foreign currencies during the year.............................. 12,405,268
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $15,585,439
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................. $ 3,180,171 $ 3,339,991
Net realized gain on securities and foreign
currency transactions................................ 10,927,955 6,077,411
Net unrealized appreciation of securities and
translation of foreign currencies during
the year............................................. 1,477,313 3,956,886
-------------- --------------
Increase in net assets resulting from operations.... 15,585,439 13,374,288
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (3,388,878) (3,206,176)
Net realized gain on securities........................ (4,595,687) (6,030,686)
-------------- --------------
Decrease in net assets resulting from distributions
to shareholders..................................... (7,984,565) (9,236,862)
-------------- --------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold....................... 58,848,665 74,488,255
Proceeds from capital stock issued for distributions
reinvested........................................... 7,984,565 9,236,862
-------------- --------------
66,833,230 83,725,117
Cost of capital stock repurchased...................... (100,401,920) (112,684,896)
-------------- --------------
Decrease in net assets resulting from capital
stock transactions................................. (33,568,690) (28,959,779)
-------------- --------------
TOTAL DECREASE IN NET ASSETS........................... (25,967,816) (24,822,353)
NET ASSETS:
Beginning of year...................................... 181,436,983 206,259,336
-------------- --------------
End of year (including undistributed net investment
income of $468,817 and $448,887)..................... $ 155,469,167 $ 181,436,983
-------------- --------------
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold........................... 5,111,681 6,846,567
Shares issued for distributions reinvested............. 728,332 848,956
Shares of capital stock repurchased ................... (8,688,179) (10,334,613)
-------------- --------------
Decrease in shares outstanding....................... (2,848,166) (2,639,090)
Shares outstanding:
Beginning of year.................................... 15,857,442 18,496,532
-------------- --------------
End of year.......................................... 13,009,276 15,857,442
============== ==============
</TABLE>
<PAGE> 153
================================================================================
GROWTH FUND - STATEMENT OF NET ASSETS
May 31, 1998 39
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS - 96.64%
ADVERTISING - 3.86%
415,000* ADVO, Inc...................... $ 10,400,937
330,000* Catalina Marketing Corp........ 14,932,500
570,000* Outdoor Systems Inc............ 17,100,000
------------
42,433,437
------------
AUTO - CARS - 0.73%
330,000* Avis Rent A Car Inc............ 8,002,500
------------
AUTO - REPLACEMENT PARTS - 1.89%
625,000* AutoZone, Inc.................. 20,781,250
------------
BANKS - REGIONAL - 2.59%
200,000 BANC ONE CORP.................. 11,025,000
450,000 Norwest Corp................... 17,493,750
------------
28,518,750
------------
BROADCASTING - 7.56%
195,000 CBS Corp....................... 6,191,250
285,000* Chancellor Media Corp.
Class A...................... 11,916,588
625,000 Comcast Corp. Class A Special.. 21,425,812
225,000* Jacor Communications, Inc...... 11,896,875
520,000* Sinclair Broadcast Group, Inc.. 13,227,500
559,350* Tele-Comm Liberty Media Group
Class A....................... 18,458,550
------------
83,116,575
------------
ENTERTAINMENT - 3.27%
280,000 Carnival Corp. Class A......... 18,970,000
150,000 Walt Disney Co................. 16,968,750
------------
35,938,750
------------
FINANCE COMPANIES - 1.29%
190,000 Associates First Capital Corp.. 14,214,375
------------
FINANCIAL SERVICES - 1.76%
560,000 CIT Group Inc.................. 17,640,000
60,000 Heller Financial Inc........... 1,672,500
------------
19,312,500
------------
GOVERNMENT SPONSORED - 3.59%
460,000 Federal Home Loan Mortgage
Corp. ........................ 20,930,000
220,000 Federal National Mortgage
Association................... 13,172,500
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ------------
<S> <C> <C>
GOVERNMENT SPONSORED - Continued
135,000 SLM Holding Corp............... $ 5,391,562
------------
39,494,062
------------
FUNERAL SERVICES - 2.04%
550,000 Service Corp. International.... 22,481,250
------------
HEALTHCARE - 6.24%
275,000 Cardinal Health, Inc........... 24,509,375
550,000 PhyCor, Inc.................... 9,281,250
700,000* Quorum Health Group Inc........ 21,043,750
450,000* Total Renal Care Holdings...... 13,809,375
------------
68,643,750
------------
HOSPITAL MANAGEMENT - 1.27%
600,000* Concentra Managed Care, Inc.... 14,025,000
------------
HOUSEHOLD PRODUCTS - 0.27%
90,000 ServiceMaster Co............... 2,975,625
------------
HUMAN RESOURCES - 4.05%
200,000* Accustaff, Inc................. 6,587,500
685,000* Interim Services Inc........... 19,907,813
600,000* Metamor Worldwide, Inc......... 18,018,780
------------
44,514,093
------------
INFORMATION PROCESSING - 11.80%
660,000* Acxiom Corp.................... 14,272,500
470,000* Affiliated Computer Services
Class A....................... 15,656,875
415,000* BISYS Group, Inc............... 15,406,875
1,000,000* Cendant Corp................... 21,687,500
550,000 First Data Corp................ 18,287,500
410,000* Galileo International Inc...... 16,143,750
337,500 Paychex, Inc................... 12,150,000
475,000* SunGard Data Systems, Inc...... 16,209,375
------------
129,814,375
------------
INSURANCE - MISCELLANEOUS - 1.79%
300,000 Ace Limited.................... 10,687,500
150,000 MGIC Investment Corp........... 8,990,625
------------
19,678,125
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ------------
<S> <C> <C>
INSURANCE - MULTILINE - 2.28%
36,300* Fairfax Financial Hldgs Ltd.... $ 14,002,747
182,500 Travelers Group, Inc........... 11,132,500
------------
25,135,247
------------
LEISURE TIME - 1.46%
185,500* Mirage Resorts, Inc............ 3,860,719
230,000* Premier Parks, Inc............. 12,218,750
------------
16,079,469
------------
LODGING - 1.80%
700,000* Extended Stay America, Inc..... 7,700,000
385,000 Hilton Hotels Corp............. 12,103,437
------------
19,803,437
------------
MERCHANDISE - SPECIALTY - 13.04%
410,000 Circuit City Stores, Inc....... 17,373,750
440,000* Cole National Corp. Class A.... 17,077,500
960,300* Corporate Express, Inc......... 11,133,526
320,000* CostCo Companies, Inc.......... 18,520,000
660,000* General Nutrition Cos., Inc.... 20,831,250
235,000 Home Depot, Inc................ 18,462,188
306,300 Ikon Office Solutions Inc...... 6,489,731
250,000* Kohl's Corp.................... 11,890,625
760,000* Viking Office Products, Inc.... 21,731,288
------------
143,509,858
------------
MERCHANDISING - FOOD - 1.46%
440,000* Safeway, Inc................... 16,032,500
------------
MERCHANDISING - MASS - 1.56%
400,000* Fred Meyer, Inc................ 17,200,000
------------
MISCELLANEOUS - 0.44%
215,000* Corrections Corp. of America... 4,891,250
------------
OIL - SERVICES - 3.62%
155,000 Camco International, Inc....... 10,811,250
100,000 Schlumberger Ltd............... 7,806,250
185,000* Smith International, Inc....... 9,076,563
140,000* Western Atlas Inc.............. 12,118,750
------------
39,812,813
------------
</TABLE>
<PAGE> 154
================================================================================
GROWTH FUND - STATEMENT OF NET ASSETS
40 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- --------------
<S> <C> <C>
POLLUTION CONTROL - 3.63%
395,000* Republic Industries, Inc...... $ 9,726,875
640,000* USA Waste Services, Inc....... 30,200,000
--------------
39,926,875
--------------
PUBLISHING - NEWS - 1.09%
180,000 Tribune Co.................... 12,037,500
--------------
RESTAURANTS - 1.63%
485,000* Outback Steakhouse Inc........ 17,884,375
--------------
SECURITIES RELATED - 3.37%
560,000 Franklin Resources, Inc....... 27,370,000
125,000 Morgan Stanley, Dean Witter,
Discover and Co.............. 9,757,813
--------------
37,127,813
--------------
TELECOMMUNICATIONS - 6.26%
550,000* Airtouch Communications, Inc.. 26,193,750
950,000* Paging Network, Inc........... 13,003,125
114,700* 360 Communications Co......... 3,276,119
600,000* Western Wireless Corp
Class A..................... 11,100,000
335,000* WorldCom, Inc................. 15,242,500
--------------
68,815,494
--------------
UTILITIES - COMMUNICATION - 1.00%
205,000 MCI Communications Corp....... 10,961,104
--------------
TOTAL COMMON STOCKS
(Cost $ 782,991,834).......... 1,063,162,152
--------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
----- --------------
<S> <C> <C>
CORPORATE SHORT TERM
COMMERCIAL PAPER - 3.63%
CONSUMER FINANCE - 1.57%
Beneficial Corp.,
$17,239,000 5.55% due 06/02/98....... $ 17,236,342
--------------
FINANCE COMPANIES - 1.59%
Ford Motor Credit Co.
17,536,000 5.50% due 06/01/98...... 17,536,000
--------------
SECURITIES RELATED - 0.47%
Merrill Lynch & Co., Inc.
5,218,000 5.60% due 06/03/98....... 5,216,377
--------------
TOTAL CORPORATE SHORT
TERM COMMERCIAL PAPER
(Cost $39,988,719)........... 39,988,719
--------------
TOTAL INVESTMENTS
(Cost $822,980,553) - 100.27% 1,103,150,871
Other assets and liabilities,
net - (0.27)%............... (3,013,808)
--------------
NET ASSETS (equivalent
to $22.08 per share on
49,832,259 shares
outstanding) - 100%......... $1,100,137,063
==============
</TABLE>
*Non-income producing
<TABLE>
<CAPTION>
MARKET
VALUE
--------------
<S> <C> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
49,832,259 shares outstanding.......... $ 498,323
Additional paid in capital............... 768,928,479
Undistributed net realized gain on
securities............................. 51,655,725
Accumulated net investment loss.......... (1,115,782)
Unrealized appreciation of securities.... 280,170,318
--------------
Net Assets Applicable to Shares
Outstanding............................ $1,100,137,063
==============
</TABLE>
<PAGE> 155
================================================================================
GROWTH FUND - FINANCIAL STATEMENTS
41
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends............................................................ $ 2,806,130
Interest............................................................. 4,126,518
------------
Total investment income............................................ 6,932,648
------------
EXPENSES:
Advisory fees........................................................ 7,593,303
Custodian and accounting services.................................... 213,073
Reports to shareholders.............................................. 81,027
Audit fees and tax services.......................................... 27,624
Directors' fees and expenses......................................... 18,286
Miscellaneous........................................................ 51,367
------------
Total expenses..................................................... 7,984,680
------------
NET INVESTMENT LOSS.................................................. (1,052,032)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES:
Net realized gain (loss) on:
Investments.......................................... $ 52,237,757
Foreign currency translation......................... (63,750) 52,174,007
------------
Net unrealized appreciation of securities during the year............ 165,960,273
------------
Net realized and unrealized gain on securities during the year..... 218,134,280
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $217,082,248
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income (loss)......................... $ (1,052,032) $ 552,393
Net realized gain on securities...................... 52,174,007 16,994,556
Net unrealized appreciation of securities during
the year........................................... 165,960,273 39,599,901
-------------- ------------
Increase in net assets resulting from operations... 217,082,248 57,146,850
-------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (303,215) (503,196)
Net realized gain on securities...................... (15,121,487) (11,891,551)
-------------- ------------
Decrease in net assets resulting from distributions
to shareholders................................... (15,424,702) (12,394,747)
-------------- ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold..................... 155,432,936 268,628,198
Proceeds from capital stock issued for
distributions reinvested........................... 15,424,702 12,394,747
-------------- ------------
170,857,638 281,022,945
Cost of capital stock repurchased.................... (20,032,134) (3,908,102)
-------------- ------------
Increase in net assets resulting from capital
stock transactions............................... 150,825,504 277,114,843
-------------- ------------
TOTAL INCREASE IN NET ASSETS......................... 352,483,050 321,866,946
NET ASSETS:
Beginning of year.................................... 747,654,013 425,787,067
-------------- ------------
End of year (including undistributed net investment
(loss)/income of ($1,115,782) and $303,215)........ $1,100,137,063 $747,654,013
============== ============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold......................... 7,600,994 16,096,764
Shares issued for distributions reinvested........... 769,312 733,851
Shares of capital stock repurchased ................. (959,921) (234,388)
-------------- ------------
Increase in shares outstanding..................... 7,410,385 16,596,227
Shares outstanding:
Beginning of year.................................. 42,421,874 25,825,647
-------------- ------------
End of year........................................ 49,832,259 42,421,874
============== ============
</TABLE>
<PAGE> 156
================================================================================
GROWTH & INCOME FUND - STATEMENT OF NET ASSETS
42 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ------------
<S> <C> <C>
COMMON STOCKS - 92.75%
ADVERTISING - 1.31%
76,000 Omnicom Group, Inc............. $ 3,557,750
------------
AIRLINES - 1.11%
65,000* Alaska Air Group, Inc.......... 3,010,313
------------
BANKS - NEW YORK CITY - 1.27%
23,000 CitiCorp....................... 3,429,875
------------
BANKS - OTHER - 2.35%
28,000 BankAmerica Corp............... 2,315,250
60,000 Mellon Bank Corp............... 4,046,250
------------
6,361,500
------------
BANKS - REGIONAL - 3.94%
90,000 Norwest Corp................... 3,498,750
54,000 Star Banc Corp................. 3,294,000
40,000 State Street Corp.............. 2,757,500
22,400 Zions Bancorporation........... 1,142,400
------------
10,692,650
------------
BROADCASTING - 1.94%
55,000* Clear Channel Communications,
Inc.......................... 5,273,125
------------
BUILDING MATERIALS - 1.98%
80,000 HON INDUSTRIES Inc............. 2,560,000
20,000 Lowe's Companies, Inc.......... 1,583,750
40,000* Nortek Inc. Com................ 1,230,000
------------
5,373,750
------------
CHEMICAL - MAJOR - 0.01%
600 Hercules, Inc.................. 26,438
------------
DRUGS - 7.37%
363* Crescendo Phamarceuticals Corp. 4,628
60,000 Eli Lilly and Co............... 3,686,250
105,321 ICN Pharmaceuticals, Inc....... 4,548,550
61,000 Pfizer, Inc.................... 6,393,562
60,000 Warner-Lambert Co.............. 3,828,750
35,000* Watson Pharmaceuticals, Inc.... 1,531,250
------------
19,992,990
------------
ELECTRICAL EQUIPMENT - 1.23%
40,000* General Electric Co............ 3,335,000
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ------------
<S> <C> <C>
FINANCE COMPANIES - 1.28%
15,000* Fleetwood Capital Trust........ $ 802,500
55,000 SunAmerica, Inc................ 2,674,375
------------
3,476,875
------------
FOODS - 2.54%
56,000 Campbell Soup Co............... 3,052,000
25,000 Trinity Industries, Inc........ 1,193,750
80,000* U. S. Foodservice.............. 2,650,000
------------
6,895,750
------------
FREIGHT - 0.48%
35,000 Airborne Freight Corp.......... 1,303,750
------------
HEALTHCARE - 2.86%
45,000 Cardinal Health, Inc........... 4,010,625
131,480* HealthSouth Corp............... 3,730,745
------------
7,741,370
------------
HOME BUILDERS - 0.82%
50,000 Centex Corp.................... 1,787,500
25,000 Standard Pacific Corp.......... 432,813
------------
2,220,313
------------
HOSPITAL SUPPLIES - 1.36%
35,000 Medtronic, Inc................. 1,946,875
50,000* Safeskin Corp.................. 1,750,000
------------
3,696,875
------------
HOUSEHOLD PRODUCTS - 1.02%
55,000* Bed Bath & Beyond, Inc......... 2,760,313
------------
INFORMATION PROCESSING - 16.31%
20,000* America Online, Inc............ 1,666,250
100,000* BMC Software, Inc.............. 4,606,250
52,500 Cisco Systems, Inc............. 3,970,312
80,000 Compaq Computer Corp........... 2,185,000
75,000 Computer Associates
International................ 3,937,500
120,000 Compuware Corp................. 5,512,500
52,083* Data General Corp.............. 794,266
50,000* Dell Computer Corp............. 4,120,315
110,000* E M C Corp..................... 4,558,125
5,000 Microsoft Corp................. 466,875
110,000 Parametric Technology Corp..... 3,372,193
120,000* Peoplesoft Inc................. 5,242,500
14,183* Storage Technology Corp........ 1,189,599
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ------------
<S> <C> <C>
INFORMATION PROCESSING - Continued
65,000 Sun Microsystems, Inc.......... $ 2,604,063
------------
44,225,748
------------
INSURANCE - CASUALTY - 1.02%
20,000 Progressive Corp............... 2,757,500
------------
INSURANCE - LIFE - 1.71%
40,000 Conseco Inc.................... 1,865,000
40,404 Equitable Cos., Inc............ 2,782,826
------------
4,647,826
------------
INSURANCE - MISCELLANEOUS - 1.28%
55,000 Executive Risk, Inc............ 3,461,563
------------
INSURANCE - MULTILINE - 4.78%
60,000 Allstate Corp.................. 5,647,500
70,000 Reliastar Financial Corp....... 3,027,500
69,999 Travelers Group, Inc........... 4,269,939
------------
12,944,939
------------
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.88%
36,000 Illinois Tool Works Inc........ 2,376,000
------------
MEDICAL TECHNOLOGY - 1.56%
40,000 Guidant Corp................... 2,577,500
20,000* Sofamor Danek Group, Inc....... 1,662,500
------------
4,240,000
------------
MERCHANDISE - DRUG - 1.06%
15,910 CVS Corp....................... 1,116,683
50,000 Walgreen Co.................... 1,759,375
------------
2,876,058
------------
MERCHANDISE - SPECIALTY - 3.85%
55,312* Consolidated Stores Corp....... 2,112,226
20,000 Home Depot, Inc................ 1,571,250
113,062* Staples, Inc................... 2,840,682
84,000 TJX Companies, Inc............. 3,927,000
------------
10,451,158
------------
MERCHANDISING - DEPARTMENT - 1.95%
114,000 Dayton Hudson Corp............. 5,286,750
------------
</TABLE>
<PAGE> 157
================================================================================
GROWTH & INCOME FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 43
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ------------
<S> <C> <C>
MERCHANDISING - FOOD - 3.49%
90,000 Albertsons, Inc................ $ 4,168,125
70,000* Safeway, Inc................... 2,550,625
50,000* Whole Foods Market, Inc........ 2,750,000
------------
9,468,750
------------
MERCHANDISING - MASS - 0.48%
25,000 Dollar Tree Stores Inc......... 1,293,750
------------
MOBILE HOMES - 1.05%
105,000 Oakwood Homes Corp............. 2,854,688
------------
MISCELLANEOUS - 1.97%
193,400* Brightpoint, Inc............... 3,058,138
100,000* Corrections Corp. of America... 2,275,000
------------
5,333,138
------------
MULTIMEDIA - 0.37%
25,000 Meredith Corp.................. 993,750
------------
OIL - INTEGRATED
INTERNATIONAL - 0.01%
180 British Petroleum Co. plc - ADR 15,953
------------
OIL - SERVICE - PRODUCTS - 1.81%
150,000 B.J. Services Co............... 4,903,125
------------
OIL - SERVICES - 5.29%
60,000 Baker Hughes Inc............... 2,160,000
80,000 Halliburton Co................. 3,790,000
35,000 Schlumberger Ltd............... 2,732,187
25,000* Smith International, Inc....... 1,226,562
90,000 Transocean Offshore, Inc....... 4,438,125
------------
14,346,874
------------
OIL/GAS PRODUCERS - 1.35%
27,285* Noble Affiliates, Inc.......... 1,065,820
90,000* R & B Falcon Corp.............. 2,581,875
------------
3,647,695
------------
POLLUTION CONTROL - 0.44%
45,000* Allied Waste Industries, Inc... 1,192,500
------------
PUBLISHING - NEWS - 0.91%
35,000 New York Times Co. Class A..... 2,467,500
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
--------- ------------
<S> <C> <C>
SAVINGS & LOAN - 0.84%
30,000 H.F. Ahmanson & Co............. $ 2,287,500
------------
SEMICONDUCTORS - 1.22%
30,000 Intel Corp..................... 2,143,125
35,000 Maxim Integrated Products,
Inc.......................... 1,168,125
------------
3,311,250
------------
TELECOMMUNICATIONS - 3.40%
50,000* Airtouch Communications, Inc... 2,381,250
50,000* Tellabs, Inc................... 3,435,940
75,000* WorldCom, Inc.................. 3,412,500
------------
9,229,690
------------
TOBACCO - 1.10%
80,000 Philip Morris Cos Inc.......... 2,990,000
------------
UTILITIES - ELECTRIC - 1.75%
100,000* AES Corp....................... 4,756,250
------------
TOTAL COMMON STOCKS
(Cost $186,482,335)............ 251,508,592
------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
-----
<S> <C> <C>
CONVERTIBLE BONDS - 6.43%
AEROSPACE/DEFENSE - 0.92%
$ 500,000 Rohr, Inc.,
7.75% due 05/15/04............ 1,732,591
500,000 SCI Systems, Inc.,
5.00% due 05/01/06............ 756,560
------------
2,489,151
------------
AIRLINES - 0.40%
500,000 Alaska Air Group, Inc.,
6.50% due 06/15/05............ 1,073,435
------------
BANKS - REGIONAL - 0.87%
2,000,000 Bank Atlantic Bancorp,
5.63% due 12/01/07............ 2,355,000
------------
DRUGS - 0.25%
500,000 ALZA Corp.,
5.00% due 05/01/06............ 681,250
------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
----- ------------
<S> <C> <C>
ELECTRONIC INSTRUMENTS - 0.10%
$ 300,000 C - Cube Microsystems, Inc.,
5.88% due 11/01/05............ $ 271,500
------------
HEALTHCARE - 0.32%
1,000,000 PhyCor, Inc.,
4.50% due 02/15/03............ 876,250
------------
INFORMATION PROCESSING - 0.81%
500,000 Adaptec, Inc.,
4.75% due 02/01/04............ 399,375
1,500,000 National Data Corp.,
5.00% due 11/01/03............ 1,515,000
300,000 Data General Corp.,
6.00% due 05/15/04........... 272,625
------------
2,187,000
------------
LODGING - 0.20%
500,000 Hilton Hotels Corp.,
5.00% due 05/15/06........... 552,500
------------
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.16%
500,000 Halter Marine Group, Inc.,
4.50% due 09/15/04............ 440,000
------------
MERCHANDISE - SPECIALTY - 0.41%
500,000 Home Depot, Inc.,
3.25% due 10/01/01............ 853,125
250,000 Inacom Corp.,
4.50% due 11/01/04............ 255,000
------------
1,108,125
------------
OIL - INTEGRATED DOMESTIC - 0.51%
1,000,000 Pennzoil Co.,
4.75% due 10/01/03............ 1,371,250
------------
OIL - SERVICE - 0.86%
2,000,000 Key Energy Group, Inc.,
5.00% due 09/15/04............ 1,642,500
500,000 Nabors Industries, Inc.,
5.00% due 05/15/06............ 695,000
------------
2,337,500
------------
</TABLE>
<PAGE> 158
================================================================================
GROWTH & INCOME FUND - STATEMENT OF NET ASSETS CONTINUED
44 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- --------- ------------
<S> <C> <C>
OIL/GAS PRODUCERS - 0.24%
$ 500,000 Diamond Offshore Drilling, Inc.,
3.75% due 02/15/07............ $ 646,250
------------
PUBLISHING/PRINTING - 0.38%
1,000,000 World Color Press, Inc.,
6.00% due 10/01/07............ 1,035,000
------------
TOTAL CONVERTIBLE BONDS
(Cost $15,210,128)............. 17,424,211
------------
CORPORATE SHORT
TERM COMMERCIAL PAPER - 0.87%
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.87%
2,365,000 Cooper Industries, Inc.,
5.67% due 06/01/98............ 2,365,000
------------
TOTAL CORPORATE SHORT
TERM COMMERCIAL PAPER
(Cost $2,365,000).............. 2,365,000
------------
TOTAL INVESTMENTS
(Cost $204,057,463) - 100.05%.. 271,297,803
Other assets and liabilities,
net - (0.05%)................. (138,805)
------------
NET ASSETS (equivalent
$19.91 per share on
13,618,559 shares
outstanding) - 100%........... $271,158,998
============
</TABLE>
* Non-income producing
<TABLE>
<CAPTION>
MARKET
VALUE
------------
<S> <C> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
13,618,559 shares outstanding........... $ 136,186
Additional paid in capital................ 183,647,905
Undistributed net realized gain on
securities.............................. 19,961,158
Undistributed net investment income....... 173,409
Unrealized appreciation of securities..... 67,240,340
------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING............................. $271,158,998
============
</TABLE>
<PAGE> 159
================================================================================
GROWTH & INCOME FUND - FINANCIAL STATEMENTS
45
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends............................................................ $ 1,491,393
Interest............................................................. 1,616,330
-----------
Total investment income............................................ 3,107,723
-----------
EXPENSES:
Advisory fees........................................................ 1,907,885
Custodian and accounting fees........................................ 57,561
Reports to shareholders.............................................. 20,611
Audit fees and tax services.......................................... 7,217
Directors' fees and expenses......................................... 5,166
Miscellaneous........................................................ 13,114
-----------
Total expenses..................................................... 2,011,554
-----------
NET INVESTMENT INCOME................................................ 1,096,169
-----------
REALIZED AND UNREALIZED GAIN ON SECURITIES:
Net realized gain on securities...................................... 20,112,463
Net unrealized appreciation on securities during the year............ 21,794,919
-----------
Net realized and unrealized gain on securities during the year.... 41,907,382
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $43,003,551
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income ................................................ $ 1,096,169 $ 1,134,645
Net realized gain on securities ...................................... 20,112,463 2,722,032
Net unrealized appreciation of securities during the year ............ 21,794,919 24,022,009
------------- -------------
Increase in net assets resulting from operations ................... 43,003,551 27,878,686
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ................................................ (1,084,032) (1,058,649)
Net realized gain on securities ...................................... (2,863,622) (3,131,642)
------------- -------------
Decrease in net assets resulting from distributions
to shareholders ................................................... (3,947,654) (4,190,291)
------------- -------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold ..................................... 31,809,939 70,892,821
Proceeds from capital stock issued for distributions reinvested ...... 3,947,654 4,190,291
------------- -------------
35,757,593 75,083,112
Cost of capital stock repurchased .................................... (13,199,616) (2,772,662)
------------- -------------
Increase in net assets resulting from capital stock transactions ... 22,557,977 72,310,450
------------- -------------
TOTAL INCREASE IN NET ASSETS ......................................... 61,613,874 95,998,845
NET ASSETS:
Beginning of year .................................................... 209,545,124 113,546,279
------------- -------------
End of year (including undistributed net investment income
of $173,409 and $161,272) .......................................... $ 271,158,998 $ 209,545,124
============= =============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold ......................................... 1,662,136 4,647,143
Shares issued for distributions reinvested ........................... 209,426 268,315
Shares of capital stock repurchased .................................. (675,165) (177,920)
------------- -------------
Increase in shares outstanding ..................................... 1,196,397 4,737,538
Shares outstanding:
Beginning of year .................................................. 12,422,162 7,684,624
------------- -------------
End of year ........................................................ 13,618,559 12,422,162
============= =============
</TABLE>
<PAGE> 160
================================================================================
SCIENCE & TECHNOLOGY FUND - STATEMENT OF NET ASSETS
46 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
COMMON STOCKS - 97.90%
AEROSPACE/DEFENSE - 0.55%
165,000* SCI Systems, Inc............... $ 5,630,625
-----------
ELECTRICAL EQUIPMENT - 0.09%
70,000* Brooks Automation, Inc......... 901,250
-----------
ELECTRONIC INSTRUMENTS - 0.65%
110,000* Cognex Corp.................... 2,090,000
55,000* Lattice Semiconductor Corp..... 2,124,375
80,000* Marshall Industries............ 2,475,000
-----------
6,689,375
-----------
ENTERTAINMENT - 0.09%
48,500* N2K Inc........................ 956,363
-----------
INFORMATION PROCESSING -
BUSINESS SOFTWARE - 10.18%
85,000* AXENT Technologies, Inc........ 2,093,125
440,000* BMC Software, Inc.............. 20,267,500
53,000* Great Plains Software, Inc..... 1,934,500
355,000* Microsoft Corp................. 30,108,438
1,245,000* Oracle Corp.................... 29,413,125
1,700* Peerless Systems Corp.......... 30,812
165,000* Peoplesoft Inc................. 7,208,437
135,000 PLATINUM technology, Inc....... 3,695,625
11,000* Sap............................ 6,087,997
82,500* Veritas Software Corp.......... 3,328,363
-----------
104,167,922
-----------
INFORMATION PROCESSING - COM-
PUTER HARDWARE SYSTEMS - 3.36%
167,500* Dell Computer Corp............. 13,803,055
625,000* Electronics for Imaging, Inc... 12,343,750
205,000* Sun Microsystems, Inc.......... 8,212,813
-----------
34,359,618
-----------
INFORMATION PROCESSING -
COMPUTER SERVICES - 13.93%
245,000* America Online, Inc............ 20,411,562
110,000 Automatic Data Processing, Inc. 6,998,750
101,100 Checkfree Holdings Corp........ 2,293,706
1,110,000 First Data Corp................ 36,907,500
522,200* Gartner Group, Inc............. 17,265,239
165,000 National Data Corp............. 6,187,500
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
INFORMATION PROCESSING -
COMPUTER SERVICES - Continued
410,000* Security Dynamics Technology...$ 8,661,250
750,000* Sterling Commerce Inc.......... 29,765,625
273,000* SunGard Data Systems, Inc...... 9,316,125
170,000* Vantive Corp................... 4,568,750
4,700 VeriSign, Inc.................. 150,106
-----------
142,526,113
-----------
INFORMATION PROCESSING -
CONSUMER SOFTWARE - 6.83%
435,000* Networks Associates, Inc....... 26,643,750
1,410,000 Parametric Technology Corp..... 43,225,383
-----------
69,869,133
-----------
INFORMATION PROCESSING -
DATA SERVICES - 15.13%
580,000 Adobe Systems Inc.............. 23,163,750
140,000 Affiliated Computer Services,
Inc. Class A.................. 4,663,750
555,000* Anixter International, Inc..... 11,169,375
275,000* Avant! Corp.................... 7,064,063
110,000* BISYS Group, Inc............... 4,083,750
95,000* Caere Corp..................... 1,330,000
294,800* CBT Group PLC.................. 14,666,300
660,000* E M C Corp..................... 27,348,750
140,000* Electronic Arts................ 6,090,000
50,000* Envoy Corp..................... 2,193,750
80,000 HCIA, Inc...................... 660,000
210,000 Hewlett Packard Co............. 13,046,250
75,000* Integrated Systems, Inc........ 1,406,250
110,000* Learning Co., Inc.............. 3,135,000
77,100* Legato Systems, Inc............ 2,206,988
85,000* Micrel, Inc.................... 2,658,911
32,300* National Instruments Corp...... 1,075,994
38,200* PsiNet, Inc.................... 410,650
60,000* Renaissance Worldwide Inc...... 1,128,750
320,000* Solectron Corp................. 13,240,000
140,000* Tech Data Corp................. 5,687,500
111,500* Technology Solutions Co........ 3,365,906
69,000* Transaction Systems
Architects Class A.......... 2,794,500
140,000* Viasoft, Inc................... 2,161,250
-----------
154,751,437
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
INFORMATION PROCESSING -
NETWORKING - 6.73%
775,000* Ascend Communications Inc...... $33,470,313
440,000 Cisco Systems, Inc............. 33,275,000
15,800* Concentric Network Corp........ 349,575
33,000* International Network Services. 1,034,345
20,000 PMC-Sierra, Inc................ 778,750
-----------
68,907,983
-----------
INSURANCE - CASUALTY - 0.04%
28,000* Atlantic Data Services, Inc.... 367,500
-----------
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.03%
18,500 Ortel Corp..................... 270,562
-----------
MISCELLANEOUS - 0.15%
65,000* Xlyan Corp..................... 1,568,125
-----------
MULTIMEDIA - 3.38%
140,000* Cadence Design Systems, Inc.... 4,935,000
690,000* Synopsys Inc................... 29,626,875
-----------
34,561,875
-----------
SECURITIES RELATED - 1.01%
480,000* E*Trade Group, Inc............. 10,380,000
-----------
SEMICONDUCTOR EQUIPMENT - 5.26%
360,000* Applied Materials, Inc......... 11,520,000
230,000 ASM Lithography Holding NV..... 8,811,875
330,000* KLA-Tencor Corp................ 11,178,750
445,000* LAM Research Corp.............. 10,596,562
430,000* Microchip Technology, Inc...... 10,535,000
30,000* QLogic Corp.................... 1,215,000
-----------
53,857,187
-----------
SEMICONDUCTORS - 14.78%
415,000* Altera Corp.................... 13,954,375
1,040,000* Analog Devices, Inc............ 25,675,000
80,000* Applied Micro Circuits Corp.... 1,800,000
170,000* Burr Brown Corp................ 4,361,568
137,500 Intel Corp..................... 9,822,656
70,000* Level One Communications, Inc.. 1,868,125
180,000 Linear Technology Corp......... 12,588,750
950,000* Maxim Integrated Products, Inc. 31,706,250
55,000* Speedfam International, Inc.... 1,072,500
330,000 Texas Instruments Inc.......... 16,953,750
825,000* Xilinx, Inc.................... 31,375,823
-----------
151,178,797
-----------
</TABLE>
<PAGE> 161
================================================================================
SCIENCE & TECHNOLOGY FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 47
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
TELECOMMUNICATIONS - 14.64%
550,000* ADC Communications, Inc......... $ 15,468,750
245,000* Advanced Fibre Communications... 9,080,313
110,000* Airtouch Communications, Inc.... 5,238,750
135,000* CIENA Corp...................... 7,020,000
180,000 Ericsson (LM) Tel Co. -
ADR Series B................. 5,017,500
34,000* Excel Switching Corp............ 671,500
110,000* Glenayre Technologies, Inc...... 1,684,375
75,000 Lucent Technologies, Inc........ 5,320,312
50,000* Natural Microsystems Corp....... 1,070,315
110,000 Nokia Corp - ADR Series A....... 7,143,125
370,000* Paging Network, Inc............. 5,064,375
55,000 Pairgain Technologies Inc....... 859,375
103,400* PanAmSat Corp. New.............. 5,648,225
170,000 Premisys Communications Inc..... 4,234,071
610,000* QUALCOMM, Inc................... 31,796,250
80,000* Sanmina Corp.................... 6,230,000
54,000* Teledata Communications Ltd..... 634,500
95,000* Tellabs, Inc.................... 6,528,286
120,000* Transaction Network Services.... 2,445,000
55,000 Vodafone Group plc - ADR........ 6,043,125
495,000* WorldCom, Inc................... 22,522,500
-------------
149,720,647
-------------
UTILITIES - COMMUNICATION - 1.07%
205,000 MCI Communications Corp......... 10,961,104
-------------
TOTAL COMMON STOCKS
(Cost $891,023,542)............. 1,001,625,616
-------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ----------- -----------
<S> <C> <C>
CORPORATE SHORT TERM
COMMERCIAL PAPER - 2.27%
CONSUMER FINANCE - 0.73%
7,470,000 Beneficial Corp.,
5.55% due 06/02/98......... $ 7,468,849
--------------
FINANCE COMPANIES - 1.15%
11,761,000 Ford Motor Credit Co.,
5.50% due 06/01/98........ 11,761,000
--------------
SECURITIES RELATED - 0.39%
3,985,000 Merrill Lynch & Co.,
5.60% due 06/03/98........ 3,983,760
--------------
TOTAL CORPORATE SHORT TERM
COMMERCIAL PAPER
(Cost $23,213,609).......... 23,213,609
--------------
TOTAL INVESTMENT
(Cost $914,237,151) -
100.17%.................. 1,024,839,225
Other assets and
liabilities, net -
(0.17%).................. (1,698,287)
--------------
NET ASSETS (equivalent
to $22.07 per share on
46,355,160 shares
outstanding) - 100%........ $1,023,140,938
==============
</TABLE>
* Non-income producing
<TABLE>
<CAPTION>
FACE MARKET UNREALIZED
VALUE VALUE DEPRECIATION
----------- ----------- ------------
<S> <C> <C> <C>
Forward currency contracts sold:
Deutsche Mark 6/2/98........... $ 1,629,371 $ 1,627,315 ($ 2,056)
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
VALUE
-----------
<S> <C> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
46,355,160 shares outstanding.......... $ 463,552
Additional paid in capital............... 817,508,725
Undistributed net realized gain on
securities............................. 94,571,161
--------------
Unrealized appreciation (depreciation) of:
Investments............. $ 110,602,074
Forward contracts....... (2,056)
Foreign currency
translation.......... (2,518) 110,597,500
-------------- --------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING............................ $1,023,140,938
==============
</TABLE>
<PAGE> 162
================================================================================
SCIENCE & TECHNOLOGY FUND - FINANCIAL STATEMENTS
48
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends......................................................... $ 786,120
Interest.......................................................... 3,796,710
-----------
Total investment income......................................... 4,582,830
-----------
EXPENSES:
Advisory fees...................................................... 8,602,906
Custodian and accounting services.................................. 216,890
Reports to shareholders............................................ 73,409
Audit fees and tax services........................................ 24,471
Directors' fees and expenses....................................... 18,818
Miscellaneous...................................................... 46,100
-----------
Total expenses................................................... 8,982,594
-----------
NET INVESTMENT LOSS................................................ (4,399,764)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
AND FOREIGN CURRENCIES:
Net realized gain on:
Investments......................................... $111,216,186
Foreign currency translation........................ 12,822 111,229,008
------------
Net unrealized appreciation (depreciation) during the
year:
Investments......................................... (16,754,541)
Foreign currency translation........................ 55,815 (16,698,726)
------------ -----------
Net realized and unrealized gain on securities during the year... 94,530,282
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $90,130,518
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ------------
<S> <C> <C>
OPERATIONS:
Net investment loss............................... $ (4,399,764) $ (1,919,791)
Net realized gain (loss) on securities............ 111,229,008 (8,889,903)
Net unrealized appreciation (depreciation) of
securities during the year...................... (16,698,726) 33,692,829
--------------- ------------
Increase in net assets resulting from
operations................................... 90,130,518 22,883,135
--------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. - -
Net realized gain on securities................... - (32,117,202)
--------------- ------------
Decrease in net assets resulting from
distributions to shareholders.................. - (32,117,202)
--------------- ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold.................. 217,275,229 286,682,331
Proceeds from capital stock issued for
distributions reinvested........................ - 32,117,202
--------------- ------------
217,275,229 318,799,533
Cost of capital stock repurchased................. (89,246,756) (71,770,130)
--------------- ------------
Increase in net assets resulting from
capital stock transactions.................... 128,028,473 247,029,403
--------------- ------------
TOTAL INCREASE IN NET ASSETS...................... 218,158,991 237,795,336
NET ASSETS:
Beginning of year................................. 804,981,947 567,186,611
--------------- ------------
End of year (including accumulated net
investment losses of $0 and ($1,935,355)) ...... $1,023,140,938 $804,981,947
=============== ============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold...................... 10,004,608 14,868,580
Shares issued for distributions reinvested........ - 1,636,128
Shares of capital stock repurchased .............. (4,133,577) (3,716,452)
--------------- ------------
Increase in shares outstanding.................. 5,871,031 12,788,256
Shares outstanding:
Beginning of year............................... 40,484,129 27,695,873
--------------- ------------
End of year..................................... 46,355,160 40,484,129
=============== ============
</TABLE>
<PAGE> 163
================================================================================
SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS
May 31, 1998 49
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
COMMON STOCKS - 97.52%
ADVERTISING - 0.18%
<S> <C> <C>
5,352 Interpublic Group Cos., Inc.... $ 317,441
6,030 Omnicom Group, Inc............. 282,279
-----------
599,720
-----------
AEROSPACE/DEFENSE - 0.21%
12,604 Goodrich (B.F.) Co............ 645,955
1,349 Teleflex Inc................... 54,550
-----------
700,505
-----------
AIRLINES - 0.25%
2,418* AMR Corp....................... 372,221
265 Delta Air Lines, Inc........... 30,475
9,344 Southwest Airlines Co.......... 249,368
2,546* US Airways Group, Inc.......... 178,220
-----------
830,284
-----------
APPAREL & PRODUCTS - 0.05%
3,570 Liz Claiborne, Inc............. 180,954
-----------
APPLIANCES/FURNISHINGS - 0.05%
1,457 Herman Miller, Inc............. 40,341
2,612 Maytag Corp.................... 131,742
-----------
172,083
-----------
AUTO - CARS - 0.81%
48,472 Chrysler Corp.................. 2,696,255
-----------
AUTO - ORIGINAL EQUIPMENT - 0.02%
2,160 Arvin Industries, Inc.......... 80,055
-----------
AUTO - REPLACEMENT PARTS - 0.57%
3,174* AutoZone, Inc.................. 105,536
3,429 Echlin Inc..................... 162,878
19,107 Genuine Parts Co............... 648,444
13,617 Goodyear Tire & Rubber Co...... 978,721
-----------
1,895,579
-----------
BANKS - NEW YORK CITY - 2.61%
25,098 Bank of New York Co., Inc...... 1,534,115
22,509 Chase Manhattan Corp........... 3,059,817
20,409 CitiCorp....................... 3,043,493
8,717 J. P. Morgan & Co. Inc........ 1,082,542
-----------
8,719,967
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
BANKS - OTHER - 3.22%
<S> <C> <C>
37,866 BankAmerica Corp............... $ 3,131,045
5,115 BankBoston Corp................ 538,993
10,940 First Chicago Corp............. 956,566
46,963 First Union Corp............... 2,597,641
11,371 Fleet Financial Group, Inc..... 932,422
5,993 Mellon Bank Corp............... 404,153
18,719 National City Corp............. 1,268,212
2,238 Providian Financial Corp....... 142,393
2,222 Wells Fargo & Co............... 803,253
-----------
10,774,678
-----------
BANKS - REGIONAL - 3.63%
43,086 BANC ONE CORP.................. 2,375,116
5,444 Comerica Inc................... 357,943
9,709 Fifth Third Bancorp............ 478,168
1,170 Huntington Bancshares, Inc..... 38,318
12,758 KeyCorp........................ 484,007
45,383 NationsBank Corp............... 3,437,761
2,298 Northern Trust Corp............ 162,081
45,414 Norwest Corp................... 1,765,469
10,848 PNC Bank Corp.................. 626,472
214 Summit Bancorporation.......... 10,727
2,560 SunTrust Banks, Inc............ 202,240
6,650 Synovus Financial Corp......... 149,198
37,479 U.S. Bancorp................... 1,466,366
7,025 Wachovia Corp.................. 562,439
-----------
12,116,305
-----------
BEVERAGE - BREWERS/
DISTRIBUTORS - 0.79%
44,570 Anheuser-Busch Companies, Inc.. 2,047,435
13,258 Seagram Co. Ltd................ 582,523
-----------
2,629,958
-----------
BEVERAGE - SOFT DRINKS - 3.80%
121,862 Coca-Cola Co................... 9,550,934
77,247 PepsiCo, Inc................... 3,152,643
-----------
12,703,577
-----------
BROADCASTING - 1.47%
8,056* Clear Channel Communications,
Inc......................... 772,369
13,957 Comcast Corp. Class A Special.. 478,464
15,578* Tele-Comm Liberty Media Group
Class A..................... 534,520
33,716 U S West Communications Group.. 1,711,087
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
BROADCASTING - Continued
<S> <C> <C>
13,835 U S West Media Group........... $ 512,760
16,159* Viacom, Inc Class B............ 888,745
-----------
4,897,945
-----------
BUILDING MATERIALS - 0.49%
5,833 Lowe's Companies, Inc.......... 461,901
14,473 Masco Corp..................... 814,106
10,859 Sherwin-Williams Co............ 361,062
-----------
1,637,069
-----------
CHEMICAL - MAJOR - 0.70%
1,391 Albemarle Corp................. 33,819
12,352 Morton International, Inc...... 375,964
18,475 PPG Industries, Inc............ 1,346,365
5,402 Rohm and Haas Co............... 593,545
-----------
2,349,693
-----------
CHEMICAL - MISCELLANEOUS - 0.50%
6,287 A. Schulman, Inc............... 124,954
240* Airgas, Inc.................... 3,645
14,644 Ethyl Corp..................... 103,423
241 Ferro Corp..................... 6,899
5,577 Great Lakes Chemical Corp...... 223,080
7,763 Lawter International, Inc...... 74,719
3,750 Lubrizol Corp.................. 130,313
1,029 Lyondell Petrochemical Co...... 32,092
9,012 Nalco Chemical Co.............. 337,950
1,258 NCH Corp....................... 80,119
1,394* Octel Corp..................... 30,412
11,008 Praxair, Inc................... 542,831
-----------
1,690,437
-----------
CONGLOMERATES - 0.57%
12,845 Tenneco Inc.................... 534,673
24,449 Tyco International Ltd......... 1,353,864
-----------
1,888,537
-----------
CONSUMER FINANCE - 0.47%
3,648 Beneficial Corp................ 488,832
34,619 MBNA Corp...................... 1,096,990
-----------
1,585,822
-----------
</TABLE>
<PAGE> 164
================================================================================
SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS
50 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
CONTAINERS - METAL/GLASS - 0.43%
<S> <C> <C>
6,844 Corning Inc.................... $ 269,910
12,817 Crown Cork & Seal Co., Inc..... 664,882
11,688* Owens-Illinois, Inc............ 525,230
-----------
1,460,022
-----------
CONTAINERS - PAPER - 0.11%
867 Bemis Co., Inc................. 36,577
1,141* Sealed Air Corp................ 61,034
7,349 Sonoco Products Co............. 256,759
-----------
354,370
-----------
COSMETICS/TOILETRIES - 1.30%
3,477 Avon Products, Inc............. 284,462
34,025 Gillette Co.................... 3,985,178
1,242 International Flavors &
Fragrances, Inc............. 59,616
-----------
4,329,256
-----------
DRUGS - 7.52%
65,302 American Home Products Corp.... 3,154,903
6,253* Amgen Inc...................... 378,307
57,755 Bristol Myers Squibb Co........ 6,208,662
46,603 Eli Lilly and Co............... 2,863,172
58,320 Merck & Co., Inc............... 6,827,085
38,793 Schering-Plough Corp........... 3,246,489
38,538 Warner-Lambert Co.............. 2,459,206
-----------
25,137,824
-----------
ELECTRICAL EQUIPMENT - 1.10%
25,796 AMP Inc........................ 980,247
4,214* Cabletron Systems, Inc......... 54,255
35,767 Emerson Electric Co............ 2,172,845
857 Hubbell Inc. Class B........... 40,333
2,617 National Service Industries,
Inc......................... 133,467
2,297 Raychem Corp................... 86,425
2,652* Teradyne, Inc.................. 81,549
2,326 Thomas & Betts Corp............ 124,296
-----------
3,673,417
-----------
ELECTRONIC INSTRUMENTS - 0.05%
10,086* Integrated Device Technology... 94,556
847* Perkin-Elmer Corp.............. 58,020
273 Tektronix, Inc................. 10,442
481* Vishay Intertechnology, Inc... 10,730
-----------
173,748
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
ENTERTAINMENT - 1.94%
<S> <C> <C>
5,200 Hasbro, Inc.................... $ 198,900
1,880* King World Productions, Inc.... 47,940
17,295 Mattel, Inc.................... 655,048
28,933 Time Warner Inc................ 2,251,349
29,522 Walt Disney Co................. 3,339,676
-----------
6,492,913
-----------
FINANCE COMPANIES - 0.50%
833 Finova Group, Inc.............. 46,075
11,413 Household International, Inc... 1,544,321
1,908 SunAmerica, Inc................ 92,777
-----------
1,683,173
-----------
FINANCIAL SERVICES - 1.14%
30,448 American Express Co............ 3,124,726
6,641 Countrywide Credit Industries,
Inc......................... 307,146
8,421 H & R Block Inc................ 370,524
-----------
3,802,396
-----------
FOODS - 2.40%
24,423 BestFoods...................... 1,378,373
23,687 Campbell Soup Co............... 1,290,942
23,005 ConAgra, Inc................... 672,896
12,478 General Mills, Inc............. 851,624
31,300 H J Heinz Co................... 1,660,855
4,969 Hershey Foods Corp............. 344,103
26,133 Kellogg Co..................... 1,079,620
7,720 Quaker Oats Co................. 445,348
225 Ralston Purina Co.............. 25,045
3,109 Wm. Wrigley Jr. Co............. 299,241
-----------
8,048,047
-----------
FOOTWEAR - 0.17%
12,089 NIKE, Inc. Class B............ 556,094
-----------
FREIGHT - 0.06%
2,986* FDX Corp....................... 191,477
-----------
GOLD MINING - 0.16%
16,388 Barrick Gold Corp.............. 315,469
17,951 Placer Dome Inc................ 223,266
-----------
538,735
-----------
GOVERNMENT SPONSORED - 1.71%
39,749 Federal Home Loan Mortgage
Corp........................ 1,808,580
65,100 Federal National Mortgage
Association................. 3,897,862
-----------
5,706,442
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
FUNERAL SERVICES - 0.18%
<S> <C> <C>
14,805 Service Corp. International.... $ 605,154
-----------
HARDWARE & TOOLS - 0.20%
4,637 Black & Decker Corp............ 270,685
352 Snap-on Inc.................... 15,444
7,762 Stanley Works.................. 368,695
-----------
654,824
-----------
HEALTHCARE - 0.25%
6,605 HealthSouth Corp............... 187,417
1,291* PacifiCare Health System,
Inc. Class B................ 106,669
8,422 United HealthCare Corp......... 539,008
-----------
833,094
-----------
HEAVY DUTY TRUCKS/PARTS - 0.49%
16,392 Dana Corp...................... 854,433
6,175* Navistar International Corp.... 186,408
10,887 PACCAR Inc..................... 601,167
-----------
1,642,008
-----------
HOME BUILDERS - 0.03%
2,703 Centex Corp.................... 96,632
-----------
HOSPITAL MANAGEMENT - 0.43%
23,355 Columbia/HCA Healthcare Corp... 763,416
273 Manor Care, Inc................ 8,617
2,175 Medaphis Corp.................. 16,313
1,968 Shared Medical Systems Corp.... 143,172
14,264* Tenet Healthcare Corp.......... 499,240
-----------
1,430,758
-----------
HOSPITAL SUPPLIES - 3.74%
51,175 Abbott Laboratories............ 3,796,545
607 ATL Ultrasound, Inc............ 27,505
21,155 Baxter International Inc....... 1,209,802
3,665 Becton, Dickinson and Co....... 259,299
4,336 Boston Scientific Corp......... 276,420
73,937 Johnson & Johnson.............. 5,106,273
5,863 Mallinckrodt, Inc.............. 180,654
27,161 Medtronic, Inc................. 1,510,831
3,009 United States Surgical Corp.... 119,608
-----------
12,486,937
-----------
</TABLE>
<PAGE> 165
================================================================================
SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 51
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
HOUSEHOLD PRODUCTS - 3.45%
<S> <C> <C>
8,377 Clorox Co........................ $ 699,480
19,040 Colgate-Palmolive Co............. 1,656,480
1,750 Newell Co........................ 84,438
77,432 Procter & Gamble Co.............. 6,499,449
1,495 Rubbermaid, Inc.................. 48,774
32,171 Unilever N V - ADR............... 2,539,498
-----------
11,528,119
-----------
INFORMATION PROCESSING - 10.17%
2,834* Apple Computer, Inc.............. 75,455
15,833 Automatic Data Processing, Inc... 1,007,375
11,463* Bay Networks, Inc................ 317,382
32,522* Cendant Corp..................... 705,321
43,197* Cisco Systems, Inc............... 3,266,773
7,311 Cognizant Corp................... 389,311
58,595 Compaq Computer Corp............. 1,600,376
19,011 Computer Associates
International................. 998,078
3,654 Computer Sciences Corp........... 189,780
2,366* Data General Corp................ 36,082
23,747* Dell Computer Corp............... 1,956,902
846 Diebold, Inc..................... 24,746
7,099 Digital Equipment Corp........... 389,558
17,257* E M C Corp....................... 715,087
5,828 First Data Corp.................. 193,781
1,072* Gateway 2000, Inc................ 48,307
115* General Instrument Corp.......... 2,738
8,538 HBO & Co......................... 492,803
42,819 Hewlett Packard Co............... 2,660,130
42,490 International Business Machines.. 4,987,263
366* Keane, Inc....................... 16,424
98,648* Microsoft Corp................... 8,366,583
5,057* Novell, Inc ..................... 53,099
37,379* Oracle Corp...................... 883,079
3,691 Parametric Technology Corp....... 113,152
22,489 Pitney Bowes Inc................. 1,056,983
10,590* Seagate Technology............... 244,894
17,327* Silicon Graphics, Inc............ 207,924
229* Storage Technology Corp.......... 19,207
684* Stratus Computer, Inc............ 24,667
18,152* Sun Microsystems, Inc............ 727,215
15,838* 3Com Corp........................ 401,889
17,575 Xerox Corp....................... 1,805,831
-----------
33,978,195
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
INSURANCE - CASUALTY - 0.56%
<S> <C> <C>
8,021 Chubb Corp..................... $ 638,171
12,459 SAFECO Corp.................... 579,344
14,884 St. Paul Companies, Inc........ 660,477
-----------
1,877,992
-----------
INSURANCE - LIFE - 0.48%
5,136 Aetna Inc...................... 401,570
6,115 Conseco Inc.................... 285,112
1,430 Jefferson-Pilot Corp........... 81,868
4,001 Lincoln National Corp.......... 359,590
4,155 Transamerica Corp.............. 477,825
-----------
1,605,965
-----------
INSURANCE - MISCELLANEOUS - 0.25%
3,514 General Re Corp................ 772,641
877 MGIC Investment Corp........... 52,565
-----------
825,206
-----------
INSURANCE - MULTILINE - 4.03%
22,940 Allstate Corp.................. 2,159,228
35,148 American International Group,
Inc......................... 4,351,761
20,635 Aon Corp....................... 1,321,930
10,443 CIGNA Corp..................... 715,346
1,746 Cincinnati Financial Corp...... 73,332
2,107 Hartford Financial Services
Group....................... 231,902
15,767 March & McLennan Companies,
Inc......................... 1,380,598
52,917 Travelers Group, Inc........... 3,227,936
-----------
13,462,033
-----------
LEISURE TIME - 0.07%
5,220 Brunswick Corp................. 164,104
3,755* Mirage Resorts, Inc............ 78,151
-----------
242,255
-----------
LODGING - 0.07%
6,943 Marriott Services Inc.......... 241,269
-----------
MACHINE TOOLS - 0.01%
1,098 Cincinnati Milacron, Inc....... 32,871
-----------
MACHINERY - AGRICULTURE - 0.25%
1,636 Case Corp...................... 94,684
14,380 Deere & Co..................... 745,963
-----------
840,647
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
MACHINERY - CONSTRUCTION &
CONTRACTS - 0.31%
<S> <C> <C>
18,362 Caterpillar Inc................ $ 1,008,763
667 Foster Wheeler Corp............ 16,925
248 Harnischfeger Industries Inc... 7,812
-----------
1,033,500
-----------
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.85%
3,660 Aeroquip-Vickers, Inc.......... 226,005
6,426 Cooper Industries, Inc......... 413,674
6,943 Dover Corp..................... 260,363
11,285 Illinois Tool Works Inc........ 744,810
12,486 Ingersoll-Rand Co.............. 562,650
5,094 Johnson Controls, Inc.......... 303,093
7,985 Pall Corp...................... 158,203
709 Tecumseh Products Co. Class A.. 35,361
3,982 Tidewater, Inc................. 151,316
-----------
2,855,475
-----------
MEDICAL TECHNOLOGY - 0.17%
8,752 Guidant Corp................... 563,957
-----------
MERCHANDISE - DRUG - 0.54%
9,682 CVS Corp....................... 679,555
9,762 Rite Aid Corp.................. 349,602
21,809 Walgreen Co.................... 767,404
-----------
1,796,561
-----------
MERCHANDISE - SPECIALTY - 1.47%
4,516* Best Buy Co., Inc.............. 147,335
804 Circuit City Stores, Inc....... 34,070
158 CompUSA, Inc................... 2,489
2,338* Consolidated Stores Corp....... 89,282
1,059* CostCo Companies, Inc.......... 61,290
30,111 Fortune Brands, Inc........... 1,157,392
11,343 Gap, Inc....................... 612,522
31,623 Home Depot, Inc................ 2,484,382
5,249 Ikon Office Solutions Inc...... 111,213
7,534* Toys "R" Us, Inc............... 199,651
-----------
4,899,626
-----------
</TABLE>
<PAGE> 166
================================================================================
SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS CONTINUED
52 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
MERCHANDISING -
DEPARTMENT - 0.40%
<S> <C> <C>
16,268 Dayton Hudson Corp............. $ 754,429
1,450* Federated Department Stores,
Inc......................... 75,128
8,077 May Department Stores Co....... 519,452
-----------
1,349,009
-----------
MERCHANDISING - FOOD - 0.36%
11,629 Albertsons, Inc................ 538,568
1,069 American Stores Co............. 26,658
2,747* Kroger Co...................... 117,949
7,808 SYSCO Corp..................... 182,024
7,944 Winn-Dixie Stores, Inc......... 323,222
-----------
1,188,421
-----------
MERCHANDISING - MASS - 2.40%
18,255 J.C. Penney Co., Inc........... 1,310,937
7,550* Kmart Corp..................... 146,281
16,794 Sears Roebuck and Co........... 1,038,079
99,819 Wal-Mart Stores, Inc........... 5,508,762
527 Woolworth Corp................. 10,408
-----------
8,014,467
-----------
METALS - ALUMINUM - 0.20%
23,491 Alcan Aluminum Ltd............. 669,494
-----------
METALS - COPPER - 0.04%
5,732 Newmont Mining Corp............ 142,942
-----------
METALS - MISCELLANEOUS - 0.15%
9,537 Freeport - McMoRan Copper &
Gold Inc. Class B............. 159,745
17,391 Inco Limited................... 249,996
1,650 Precision Castparts Corp....... 95,081
-----------
504,822
-----------
METALS - STEEL - 0.06%
1,772 AK Steel Holding Corp.......... 33,004
1,028* Bethlehem Steel Corp........... 12,593
7,993 Worthington Industries, Inc.... 140,876
-----------
186,473
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
NATURAL GAS-DIVERSIFIED - 0.27%
<S> <C> <C>
3,475 Eastern Enterprises............ $ 139,434
5,944 El Paso Natural Gas Co......... 229,587
1,206 Questar Corp................... 48,918
12,348 Sonat Inc...................... 483,888
-----------
901,827
-----------
OIL - INTEGRATED DOMESTIC - 2.16%
11,073 Amerada Hess Corp.............. 598,634
8,737 Ashland Oil, Inc............... 435,758
29,509 Burlington Resources, Inc..... 1,243,067
8,364 Kerr-McGee Corp................ 529,023
900* Oryx Energy Co................. 20,981
8,332 Pennzoil Co.................... 481,694
46,171 Phillips Petroleum Co.......... 2,311,436
6,171 Quaker State Corp.............. 104,521
2,864 Sun Co., Inc................... 121,720
39,072 USX-Marathon Group............. 1,367,520
-----------
7,214,354
-----------
OIL - INTEGRATED
INTERNATIONAL - 1.47%
7,876 Murphy Oil Corp................ 396,261
77,982 Texaco Inc..................... 4,503,461
-----------
4,899,722
-----------
OIL - SERVICE - PRODUCTS - 0.07%
7,713 Noble Drilling Corp............ 227,534
-----------
OIL - SERVICES - 1.44%
22,192 Baker Hughes Inc............... 798,912
8,354 Dresser Industries, Inc........ 388,983
2,104* Global Marine Inc.............. 46,946
17,351 Halliburton Co................. 822,004
34,672 Schlumberger Ltd............... 2,706,582
1,094 Transocean Offshore, Inc....... 53,948
-----------
4,817,375
-----------
OIL/GAS PRODUCERS - 0.59%
4,410 Anadarko Petroleum Corp........ 291,060
10,523 Apache Corp.................... 359,755
6,270 Helmerich & Payne, Inc......... 158,318
9,513 Pioneer Natural Resources
Corp........................ 223,556
7,778 Ultramar Diamond Shamrock
Corp........................ 248,410
33,072 Union Pacific Resources Group
Inc......................... 669,707
1,026 Valero Energy Corp............. 33,473
-----------
1,984,279
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
PAPER/FOREST PRODUCTS - 1.21%
<S> <C> <C>
11,986 Avery Dennison Corp................ $ 621,025
13,069 Fort James Corp.................... 624,862
39,335 Kimberly-Clark Corp................ 1,949,540
15,063 Louisiana Pacific Corp............. 300,319
9,331 Mead Corp.......................... 290,427
11,783 Unisource Worldwide, Inc........... 150,970
2,884 Willamette Industries, Inc......... 98,957
-----------
4,036,100
-----------
POLLUTION CONTROL - 0.29%
8,715 Browning - Ferris Industries,
Inc............................. 309,927
19,929 Waste Management, Inc.............. 647,693
-----------
957,620
-----------
PUBLISHING - NEWS - 0.66%
6,029 Dow Jones & Co., Inc............... 290,146
20,914 Gannett Co., Inc................... 1,379,016
578 New York Times Co. Class A....... 40,749
7,190 Tribune Co......................... 480,831
-----------
2,190,742
-----------
PUBLISHING/PRINTING - 0.28%
8,020 Dun & Bradstreet Corp.............. 270,675
8,690 McGraw-Hill, Inc................... 679,449
-----------
950,124
-----------
RAILROAD - 0.97%
7,629 Burlington Northern Santa Fe....... 759,086
18,025 CSX Corp.......................... 858,441
35,920 Norfolk Southern Corp.............. 1,124,745
10,257 Union Pacific Corp................. 496,182
-----------
3,238,454
-----------
RESTAURANTS - 0.73%
37,338 McDonald's Corp.................... 2,450,305
163* Tricon Global Restaurants, Inc..... 5,063
-----------
2,455,368
-----------
SAVINGS & LOAN - 0.32%
4,017 H.F. Ahmanson & Co................. 306,296
10,796 Washington Mutual, Inc............. 762,468
-----------
1,068,764
-----------
</TABLE>
<PAGE> 167
================================================================================
SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 53
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
SECURITIES RELATED - 1.47%
10,173 Charles Schwab Corp............ $ 335,709
9,098 Franklin Resources, Inc........ 444,665
5,293 Lehman Brothers Holdings, Inc.. 375,472
16,296 Merrill Lynch & Co., Inc....... 1,458,492
29,310 Morgan St Dean Witter Discover. 2,288,015
-----------
4,902,353
-----------
SEMICONDUCTOR EQUIPMENT - 0.19%
17,737* Applied Materials, Inc......... 567,584
2,176* KLA-Tencor Corp................ 73,712
-----------
641,296
-----------
SEMICONDUCTORS - 1.92%
8,243* Advanced Micro Devices, Inc.... 160,739
69,714 Intel Corp..................... 4,980,193
6,444* LSI Logic Corp................. 137,338
10,409* Micron Technology, Inc......... 245,262
1,557* National Semiconductor Corp.... 25,301
15,718 Rockwell International Corp.... 864,490
-----------
6,413,323
-----------
TELECOMMUNICATIONS - 2.60%
5,172* Airtouch Communications, Inc... 246,317
3,618 ALLTEL Corp.................... 142,685
2,879* DSC Communications Corp........ 49,213
5,582 Frontier Corp.................. 169,902
58,688 Lucent Technologies, Inc....... 4,163,180
10,140* Nextel Communications, Inc.
Class A..................... 238,924
26,975 Northern Telecom Ltd........... 1,726,400
6,549* Tellabs, Inc................... 450,039
33,221* WorldCom, Inc.................. 1,511,556
-----------
8,698,216
-----------
TEXTILE - PRODUCTS - 0.18%
11,114 V F Corp....................... 591,126
-----------
TRUCKERS - 0.02%
4,542 Arnold Industries, Inc......... 70,969
-----------
UTILITIES - COMMUNICATION - 5.81%
55,805 Ameritech Corp................. 2,368,225
76,878 AT & T Corp.................... 4,679,947
39,345 Bell Atlantic Corp............. 3,604,985
49,159 BellSouth Corp................. 3,170,756
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -----------
<S> <C> <C>
UTILITIES - COMMUNICATION - Continued
24,143 MCI Communications Corp........ $ 1,290,897
81,739 SBC Communications, Inc........ 3,177,604
15,727 Sprint Corp.................... 1,128,412
-----------
19,420,826
-----------
UTILITIES - ELECTRIC - 2.36%
3,807 Black Hills Corp............... 83,516
27,665 Cinergy Corp................... 893,925
3,941 Cleco Corp..................... 117,984
5,568 Hawaiian Electric Industries,
Inc......................... 212,976
6,599 Idaho Power Co................. 225,603
4,645 IPALCO Enterprises, Inc........ 195,671
10,023 LG&E Energy Corp............... 266,236
5,860 Minnesota Power Inc............ 231,104
9,591 Montana Power Co............... 347,674
8,790 Nevada Power Co................ 209,861
19,391 New Century Energies, Inc...... 891,986
22,013 NIPSCO Industries, Inc......... 591,599
7,085 OGE Energy Corp................ 379,933
52,031 PacifiCorp..................... 1,199,965
20,791 Potomac Electric Power Co...... 508,080
14,837 Puget Sound Energy Inc......... 387,617
22,966 TECO Energy, Inc............... 601,422
9,433 UtiliCorp United Inc........... 335,461
7,441 Washington Gas Light Co........ 193,931
-----------
7,874,544
-----------
UTILITIES - GAS, DISTRIBUTION - 0.37%
9,966 AGL Resources, Inc............. 199,320
8,976* Marketspan Corp................ 302,379
3,002 MCN Energy Group Inc........... 108,072
6,711 National Fuel Gas Co........... 284,379
8,483 NICOR Inc...................... 327,656
-----------
1,221,806
-----------
UTILITIES - GAS, PIPELINE - 1.53%
3,322 Columbia Energy Group.......... 280,294
16,752 Consolidated Natural Gas Co.... 947,535
33,683 Enron Corp..................... 1,688,360
5,438 ONEOK Inc...................... 212,422
14,631 Pacific Enterprises............ 556,892
6,181 Peoples Energy Corp............ 227,924
37,307 Williams Companies, Inc........ 1,210,145
-----------
5,123,572
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ----------- -------------
<S> <C> <C>
WATER SERVICES - 0.02%
2,552 American Water Works Co., Inc.. $ 74,965
-------------
TOTAL COMMON STOCKS
(Cost $277,608,938)............ 325,861,302
-------------
</TABLE>
<TABLE>
<CAPTION>
PAR
VALUE
- -----------
<S> <C> <C>
CORPORATE SHORT TERM
COMMERCIAL PAPER - 2.19%
MACHINERY - INDUSTRIAL/SPECIALTY - 0.95%
$3,183,000 Cooper Industries, Inc.,
5.67% due 06/01/98............ 3,183,000
------------
SECURITIES RELATED - 1.24%
Merrill Lynch & Co.:
2,126,000 5.52% due 06/03/98............ 2,125,348
2,014,000 5.52% due 06/04/98............ 2,013,074
------------
4,138,422
------------
TOTAL CORPORATE SHORT TERM
COMMERCIAL PAPER
(Cost $7,321,422).............. 7,321,422
------------
UNITED STATES GOVERNMENT
SHORT TERM - 0.12%
U.S. TREASURY BILLS - 0.12%
United States Treasury Bills:
100,000 4.94% due 06/04/98.......... 99,959
100,000 4.91% due 06/04/98.......... 99,959
100,000 4.90% due 06/04/98.......... 99,959
100,000 4.65% due 06/04/98.......... 99,961
------------
399,838
------------
TOTAL UNITED STATES GOVERNMENT
SHORT TERM
(Cost $399,838)................ 399,838
------------
TOTAL INVESTMENTS
(Cost $285,330,198) - 99.83%... 333,582,562
Other assets and liabilities,
net - 0.17%................... 584,788
------------
NET ASSETS (equivalent
to $22.16 per share on
15,080,463 shares
outstanding) - 100 %..........$334,167,350
============
</TABLE>
<PAGE> 168
================================================================================
SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS CONTINUED
54 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- --------- ------------
<S> <C> <C>
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at
5/31/98)
27(2) S&P 500 Index Futures
(June/$1,090.80).............. $ (137,250)
===========
</TABLE>
(1)U.S. Treasury Bills with a market value of
approximately $400,000 were maintained in
a segregated account with a portion
placed as collateral for futures
contracts.
(2)Per 250
* Non-income producing
<TABLE>
<CAPTION>
MARKET
VALUE
------------
<S> <C> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
15,080,463 shares outstanding........... $ 150,805
Additional paid in capital................ 250,214,914
Undistributed net realized gain on
securities........................... 35,511,010
Undistributed net investment income....... 175,507
Unrealized appreciation (depreciation) of:
Investments........... $48,252,364
Futures .............. (137,250) 48,115,114
----------- ------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING............................. $334,167,350
============
</TABLE>
<PAGE> 169
================================================================================
SOCIAL AWARENESS FUND - FINANCIAL STATEMENTS
55
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends....................................................... $ 3,754,102
Interest........................................................ 371,484
-----------
Total investment income....................................... 4,125,586
-----------
EXPENSES:
Advisory fees................................................... 1,204,327
Custodian and accounting services............................... 51,735
Reports to shareholders......................................... 23,321
Audit fees and tax services..................................... 7,949
Directors' fees and expenses.................................... 4,216
Miscellaneous................................................... 13,183
-----------
Total expenses................................................ 1,304,731
-----------
NET INVESTMENT INCOME........................................... 2,820,855
-----------
REALIZED AND UNREALIZED GAIN ON SECURITIES:
Net realized gain on:
Investments..................................... 34,461,580
Futures contracts............................... 1,849,928 36,311,508
-----------
Net unrealized appreciation (depreciation) during
the year:
Investments..................................... 21,517,279
Futures contracts............................... (227,900) 21,289,379
----------- -----------
Net realized and unrealized gain on securities
during the year:........................................... 57,600,887
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $60,421,742
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 2,820,855 $ 1,619,474
Net realized gain on securities................... 36,311,508 13,356,463
Net unrealized appreciation of securities
during the year................................. 21,289,379 14,695,812
------------ ------------
Increase in net assets resulting from
operations.................................... 60,421,742 29,671,749
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (2,737,376) (1,578,118)
Net realized gain on securities................... (9,562,689) (10,727,011)
------------ ------------
Decrease in net assets resulting from
distributions to shareholders................. (12,300,065) (12,305,129)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold.................. 120,526,570 52,814,227
Proceeds from capital stock issued for
distributions reinvested........................ 12,300,065 12,305,129
------------ ------------
132,826,635 65,119,356
Cost of capital stock repurchased................. (2,130,016) (8,024,362)
------------ ------------
Increase in net assets resulting from capital
stock transactions............................ 130,696,619 57,094,994
------------ ------------
TOTAL INCREASE IN NET ASSETS...................... 178,818,296 74,461,614
NET ASSETS:
Beginning of year................................. 155,349,054 80,887,440
------------ ------------
End of year (including undistributed net
investment income of $175,507 and $92,028)...... $334,167,350 $155,349,054
------------ ------------
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold...................... 5,891,588 3,190,691
Shares issued for distributions reinvested........ 618,253 775,715
Shares of capital stock repurchased .............. (106,789) (509,440)
------------ ------------
Increase in shares outstanding.................. 6,403,052 3,456,966
Shares outstanding:
Beginning of year............................... 8,677,411 5,220,445
------------ ------------
End of year..................................... 15,080,463 8,677,411
============ ============
</TABLE>
<PAGE> 170
================================================================================
ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS
56 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------- ----------
<S> <C> <C>
COMMON STOCKS - 58.36%
ADVERTISING - 0.11%
1,795 Interpublic Group Cos., Inc.... $ 106,466
2,400 Omnicom Group, Inc............. 112,350
----------
218,816
----------
AEROSPACE/DEFENSE- 0.91%
13,811 Boeing Co...................... 657,749
521 Crane Co....................... 27,450
258 EG & G, Inc.................... 8,127
1,754 General Dynamics Corp.......... 77,943
842 Goodrich (B.F.) Co............ 43,153
2,383 Lockheed Martin Corp........... 267,492
932 Northrop Grumman Corp.......... 99,899
4,718 Raytheon Co. Class B........... 258,016
1,578 TRW Inc........................ 84,522
3,034 United Technologies Corp....... 285,195
----------
1,809,546
----------
AIRLINES - 0.23%
1,126* AMR Corp....................... 173,334
1,007 Delta Air Lines, Inc........... 115,805
2,876 Southwest Airlines Co.......... 76,753
1,413* US Airways Group, Inc.......... 98,910
----------
464,802
----------
APPAREL & PRODUCTS - 0.03%
1,010 Liz Claiborne, Inc............. 51,194
----------
APPLIANCES/FURNISHINGS - 0.08%
1,729 Maytag Corp.................... 87,206
1,029 Whirlpool Corp................. 70,294
----------
157,500
----------
AUTO - CARS - 1.01%
8,655 Chrysler Corp.................. 481,434
16,556 Ford Motor Co.................. 858,843
9,478 General Motors Corp............ 681,824
----------
2,022,101
----------
AUTO - REPLACEMENT PARTS - 0.20%
2,408* AutoZone, Inc.................. 80,066
200 Cooper Tire & Rubber Co........ 4,738
915 Echlin Inc..................... 43,462
2,726 Genuine Parts Co............... 92,513
2,176 Goodyear Tire & Rubber Co...... 156,400
982 Pep Boys-Manny, Moe & Jack..... 21,850
----------
399,029
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------- ----------
<S> <C> <C>
BANKS - NEW YORK CITY - 1.17%
5,608 Bank of New York Co., Inc...... $ 342,789
5,879 Chase Manhattan Corp........... 799,177
6,039 CitiCorp....................... 900,566
2,384 J. P. Morgan & Co. Inc........ 296,062
----------
2,338,594
----------
BANKS - OTHER - 1.73%
9,576 BankAmerica Corp............... 791,816
2,033 BankBoston Corp................ 214,227
3,954 First Chicago Corp............. 345,728
12,927 First Union Corp............... 715,025
3,688 Fleet Financial Group, Inc..... 302,416
3,288 Mellon Bank Corp............... 221,735
4,497 National City Corp............. 304,672
1,374 Providian Financial Corp....... 87,420
805 Republic of New York Corp...... 103,392
1,050 Wells Fargo & Co............... 379,575
----------
3,466,006
----------
BANKS - REGIONAL - 2.12%
9,270 Banc One Corp.................. 511,009
2,530 Comerica Inc................... 166,348
3,557 Fifth Third Bancorp............ 175,182
3,200 Huntington Bancshares, Inc..... 104,800
5,880 KeyCorp........................ 223,073
2,000 Mercantile Bancorporation Inc.. 102,250
12,591 NationsBank Corp............... 953,768
2,000 Northern Trust Corp............ 141,063
10,736 Norwest Corp................... 417,362
3,973 PNC Bank Corp.................. 229,441
2,200 State Street Corp.............. 151,663
2,800 Summit Bancorporation.......... 140,350
2,685 SunTrust Banks, Inc............ 212,115
3,900 Synovus Financial Corp......... 87,506
10,221 U.S. Bancorp................... 399,896
2,852 Wachovia Corp.................. 228,337
----------
4,244,163
----------
BEVERAGE - BREWERS/
DISTRIBUTORS - 0.29%
378 Adolph Coors Class B........... 14,175
6,996 Anheuser-Busch Companies, Inc.. 321,379
933 Brown-Forman Corp Class B...... 53,764
4,325 Seagram Co. Ltd................ 190,030
----------
579,348
----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- --------- ----------
<S> <C> <C>
BEVERAGE - SOFT DRINKS - 1.74%
33,599 Coca-Cola Co................... $ 2,633,322
20,761 PepsiCo, Inc................... 847,308
-----------
3,480,630
-----------
BROADCASTING - 0.91%
10,102 CBS Corp....................... 320,739
2,100* Clear Channel Communications,
Inc. ........................ 201,338
4,984 Comcast Corp. Class A Special.. 170,858
6,767* Tele-Comm Liberty Media Group
Class A........................ 232,193
6,565 U S West Communications Group.. 333,174
7,763 U S West Media Group........... 287,715
4,950* Viacom, Inc Class B............ 272,250
-----------
1,818,267
-----------
BUILDING MATERIALS - 0.23%
605 Armstrong World Industries,
Inc. ........................ 50,896
2,392 Lowe's Companies, Inc.......... 189,417
2,567 Masco Corp..................... 144,394
2,368 Sherwin-Williams Co............ 78,735
-----------
463,442
-----------
CHEMICAL - MAJOR - 1.20%
3,219 Dow Chemical Co................ 311,841
15,062 E.I. du Pont de Nemours and Co. 1,159,774
1,753 Hercules, Inc.................. 77,242
8,208 Monsanto Co.................... 454,518
1,910 Morton International, Inc...... 58,135
2,135 PPG Industries, Inc............ 155,587
843 Rohm and Haas Co............... 92,625
1,720 Union Carbide Corp............. 85,893
-----------
2,395,615
-----------
CHEMICAL - MISCELLANEOUS - 0.30%
1,461 Air Products and Chemicals,
Inc.......................... 127,107
1,088 Eastman Chemical Co............ 72,896
1,106 Ecolab Inc..................... 34,148
600* FMC Corp....................... 45,863
1,431 Great Lakes Chemical Corp...... 57,240
573 Millipore Corp................. 19,124
1,204 Nalco Chemical Co.............. 45,150
358* Octel Corp..................... 7,803
2,486 Praxair, Inc................... 122,591
1,336 Sigma Aldrich Corp............. 48,764
1,087 W.R. Grace & Co................ 20,177
-----------
600,863
-----------
</TABLE>
<PAGE> 171
================================================================================
ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 57
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
CONGLOMERATES - 0.60%
7,960 Allied Signal Inc.............. $ 340,290
1,600 ITT Industries, Inc............ 59,000
1,481 Loews Corp..................... 134,401
1,851 Tenneco Inc.................... 77,048
2,156 Textron Inc.................... 159,948
7,758 Tyco International Ltd......... 429,599
-----------
1,200,286
-----------
CONSUMER FINANCE - 0.15%
666 Beneficial Corp................ 89,244
6,941 MBNA Corp...................... 219,943
-----------
309,187
-----------
CONTAINERS - METAL/GLASS - 0.15%
2,892 Corning Inc.................... 114,053
1,693 Crown Cork & Seal Co., Inc..... 87,825
2,400* Owens-Illinois, Inc............ 107,850
-----------
309,728
-----------
CONTAINERS - PAPER - 0.05%
1,000 Bemis Co., Inc................. 42,188
1,082* Sealed Air Corp................ 57,887
-----------
100,075
-----------
COSMETICS/TOILETRIES - 0.55%
799 Alberto-Culver Co. Class B..... 23,770
1,457 Avon Products, Inc............. 119,201
7,746 Gillette Co.................... 907,250
1,071 International Flavors &
Fragrances, Inc................ 51,408
-----------
1,101,629
-----------
DRUGS - 4.59%
475 Allergan, Inc.................. 19,950
814* ALZA Corp...................... 39,377
17,956 American Home Products Corp.... 867,499
3,326* Amgen Inc...................... 201,223
592 Bausch & Lomb Inc.............. 29,489
13,614 Bristol Myers Squibb Co........ 1,463,505
14,760 Eli Lilly and Co............... 906,818
16,537 Merck & Co., Inc............... 1,935,863
6,911* Pharmacia & Upjohn, Inc........ 305,380
17,542 Pfizer, Inc.................... 1,838,620
10,254 Schering-Plough Corp........... 858,132
11,154 Warner-Lambert Co.............. 711,765
-----------
9,177,621
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
ELECTRICAL EQUIPMENT - 2.21%
3,337 AMP Inc........................ $ 126,806
2,284* Cabletron Systems, Inc......... 29,407
5,988 Emerson Electric Co............ 363,771
44,802 General Electric Co............ 3,735,367
710 National Service Industries,
Inc............................ 36,210
1,496 Raychem Corp................... 56,287
850 Thomas & Betts Corp............ 45,421
348 W. W. Grainger Inc............. 36,736
-----------
4,430,005
-----------
ELECTRONIC INSTRUMENTS - 0.08%
591 General Signal Corp............ 24,305
706* Perkin-Elmer Corp.............. 48,360
650 Tektronix, Inc................. 24,863
1,876* Thermo Electron Corp........... 65,895
-----------
163,423
-----------
ENTERTAINMENT - 0.96%
939* Harrah's Entertainment, Inc.... 23,475
1,766 Hasbro, Inc.................... 67,550
1,936* King World Productions, Inc.... 49,368
4,261 Mattel, Inc.................... 161,385
7,863 Time Warner Inc................ 611,840
8,904 Walt Disney Co................. 1,007,265
-----------
1,920,883
-----------
FINANCE COMPANIES - 0.41%
5,139 Associates First Capital Corp.. 384,460
1,256 Green Tree Financial Corp...... 50,476
1,778 Household International, Inc... 240,586
2,700 SunAmerica, Inc................ 131,288
-----------
806,810
-----------
FOODS - 1.29%
8,318 Archer Daniels Midland Co...... 157,002
4,438 BestFoods...................... 250,470
6,150 Campbell Soup Co............... 335,175
6,682 ConAgra, Inc................... 195,449
2,334 General Mills, Inc............. 159,296
5,234 H J Heinz Co................... 277,729
1,744 Hershey Foods Corp............. 120,772
5,832 Kellogg Co..................... 240,935
2,716 Pioneer Hi - Bred International
Inc............................ 103,378
2,119 Quaker Oats Co................. 122,240
1,100 Ralston Purina Co.............. 122,443
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
FOODS - Continued
6,496 Sara Lee Corp.................. $ 382,451
1,176 Wm. Wrigley Jr. Co............. 113,190
-----------
2,580,530
-----------
FINANCIAL SERVICES - 0.39%
6,221 American Express Co............ 638,430
1,600 Countrywide Credit Industries,
Inc............................ 74,000
1,459 H & R Block Inc................ 64,196
-----------
776,626
-----------
FOOTWEAR - 0.10%
3,731 NIKE, Inc. Class B............ 171,626
995* Reebok International Ltd....... 28,606
-----------
200,232
-----------
FREIGHT - 0.08%
1,954* FDX Corp....................... 125,300
1,263 Ryder System, Inc.............. 43,021
-----------
168,321
-----------
GOLD MINING - 0.09%
5,183 Barrick Gold Corp.............. 99,773
1,600 Battle Mountain Gold Co........ 8,500
1,971 Homestake Mining Co............ 21,435
3,779 Placer Dome Inc................ 47,001
-----------
176,709
-----------
GOVERNMENT SPONSORED - 0.66%
9,580 Federal Home Loan Mortgage..... 435,890
14,825 Federal National Mortgage
Association.................... 887,647
-----------
1,323,537
-----------
FUNERAL SERVICES - 0.07%
3,445 Service Corp. International.... 140,814
-----------
HARDWARE & TOOLS - 0.10%
1,684 Black & Decker Corp............ 98,304
984 Snap-on Inc.................... 43,173
1,188 Stanley Works.................. 56,430
-----------
197,907
-----------
HEALTHCARE - 0.23%
1,300 Cardinal Health, Inc........... 115,862
4,668 HealthSouth Corp............... 132,455
2,069* Humana Inc..................... 64,268
2,405 United HealthCare Corp......... 153,920
-----------
466,505
-----------
</TABLE>
<PAGE> 172
================================================================================
ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED
58 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
HEAVY DUTY TRUCKS/PARTS - 0.17%
506 Cummins Engine Co., Inc........ $ 26,312
1,824 Dana Corp...................... 95,076
1,078 Eaton Corp..................... 96,818
1,827* Navistar International Corp.... 55,153
1,388 PACCAR Inc..................... 76,643
-----------
350,002
-----------
HOME BUILDERS - 0.03%
1,032 Centex Corp.................... 36,894
895 Kaufman & Broad Home Corp...... 22,990
-----------
59,884
-----------
HOSPITAL MANAGEMENT - 0.25%
8,136 Columbia/HCA Healthcare Corp... 265,946
1,322 Manor Care, Inc................ 41,725
600 Shared Medical Systems Corp.... 43,650
4,281* Tenet Healthcare Corp.......... 149,835
-----------
501,156
-----------
HOSPITAL SUPPLIES - 1.56%
10,424 Abbott Laboratories............ 773,330
819 Bard (C. R.), Inc.............. 28,408
4,110 Baxter International Inc....... 235,040
1,597 Becton, Dickinson and Co....... 112,988
1,500 Biomet, Inc.................... 43,313
2,473* Boston Scientific Corp......... 157,654
18,448 Johnson & Johnson.............. 1,274,065
1,522 Mallinckrodt, Inc.............. 46,897
6,732 Medtronic, Inc................. 374,468
647* St. Jude Medical, Inc.......... 23,130
1,422 United States Surgical Corp.... 56,525
-----------
3,125,818
-----------
HOUSEHOLD PRODUCTS - 1.69%%
1,548 Clorox Co...................... 129,258
4,116 Colgate-Palmolive Co........... 358,092
5,543 Minnesota Mining &
Manufacturing Co............... 513,420
1,910 Newell Co...................... 92,158
18,438 Procter & Gamble Co............ 1,547,640
2,190 Rubbermaid, Inc................ 71,449
412 Tupperware Corp................ 11,124
8,332 Unilever N V - ADR............. 657,707
-----------
3,380,848
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
INFORMATION PROCESSING - 5.80%
700 Adobe Systems Inc.............. $ 27,956
1,828* Apple Computer, Inc............ 48,671
435 Autodesk, Inc.................. 18,488
3,929 Automatic Data
Processing, Inc............... 249,983
3,482* Bay Networks, Inc.............. 96,408
11,296* Cendant Corp................... 244,982
632* Ceridian Corp.................. 34,128
13,983* Cisco Systems, Inc............. 1,057,464
2,401 Cognizant Corp................. 127,853
20,579 Compaq Computer Corp........... 562,050
7,333 Computer Associates
International, Inc............. 384,983
2,270 Computer Sciences Corp......... 117,898
1,214* Data General Corp.............. 18,514
8,728* Dell Computer Corp............. 719,242
2,310 Digital Equipment Corp......... 126,761
6,622* E M C Corp..................... 274,399
4,898 First Data Corp................ 162,859
1,700* Gateway 2000, Inc.............. 76,606
1,547* General Instrument Corp........ 36,838
3,000 HBO & Co....................... 173,156
13,865 Hewlett Packard Co............. 861,363
1,565 Honeywell Inc.................. 131,362
13,274 International Business
Machines...................... 1,558,036
33,214* Microsoft Corp................. 2,816,962
4,684* Novell, Inc ................... 49,182
13,220* Oracle Corp.................... 312,323
3,256* Parametric Technology Corp..... 99,817
4,306 Pitney Bowes Inc............... 202,382
3,318* Seagate Technology............. 76,729
3,599* Silicon Graphics, Inc.......... 43,188
5,478* Sun Microsystems, Inc.......... 219,462
5,144* 3Com Corp...................... 130,529
2,900* Unisys Corp.................... 71,050
4,583 Xerox Corp..................... 470,902
-----------
11,602,526
-----------
INSURANCE - CASUALTY - 0.29%
2,484 Chubb Corp..................... 197,633
900 Progressive Corp............... 124,088
2,353 SAFECO Corp.................... 109,415
3,568 St. Paul Companies, Inc........ 158,330
-----------
589,466
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
INSURANCE - LIFE - 0.36%
2,197 Aetna Inc...................... $ 171,778
2,798 Conseco Inc.................... 130,457
1,596 Jefferson-Pilot Corp........... 91,370
1,340 Lincoln National Corp.......... 120,433
2,370 Torchmark Corp................. 101,614
887 Transamerica Corp.............. 102,005
-----------
717,657
-----------
INSURANCE - MISCELLANEOUS - 0.28%
1,097 General Re Corp................ 241,203
1,244 MBIA, Inc...................... 92,756
1,806 MGIC Investment Corp........... 108,247
2,214 UNUM Corp...................... 123,015
-----------
565,221
-----------
INSURANCE - MULTILINE - 1.75%
5,746 Allstate Corp.................. 540,842
9,590 American International Group,
Inc............................ 1,187,362
2,552 Aon Corp....................... 163,488
2,829 CIGNA Corp..................... 193,787
2,100 Cincinnati Financial Corp...... 88,200
1,503 Hartford Financial Services
Group.......................... 165,424
2,284 Marsh & McLennan
Companies Inc................. 199,992
15,662 Travelers Group, Inc........... 955,382
-----------
3,494,477
-----------
LEISURE TIME - 0.06%
1,543 Brunswick Corp................. 48,508
3,200* Mirage Resorts, Inc............ 66,600
-----------
115,108
-----------
LODGING - 0.10%
3,010 Hilton Hotels Corp............. 94,627
3,288 Marriott Services Inc.......... 114,258
-----------
208,885
-----------
MACHINERY - AGRICULTURE - 0.13%
1,311 Case Corp...................... 75,874
3,670 Deere & Co..................... 190,381
-----------
266,255
-----------
</TABLE>
<PAGE> 173
================================================================================
ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED
May 31 1998 59
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
MACHINERY - CONSTRUCTION &
CONTRACTS - 0.18%
4,640 Caterpillar Inc................ $ 254,910
1,303 Fluor Corp..................... 62,137
626 Foster Wheeler Corp............ 15,885
979 Harnischfeger Industries Inc... 30,838
-----------
363,770
-----------
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.34%
1,307 Cooper Industries, Inc......... 84,138
2,820 Dover Corp..................... 105,750
2,960 Illinois Tool Works Inc........ 195,360
2,434 Ingersoll-Rand Co.............. 109,682
1,087 Johnson Controls, Inc.......... 64,677
1,795 Pall Corp...................... 35,563
2,104 Parker Hannifin Corp........... 86,396
-----------
681,566
-----------
MACHINE TOOLS - 0.01%
844 Cincinnati Milacron, Inc....... 25,267
-----------
MEDICAL TECHNOLOGY - 0.08%
2,406 Guidant Corp................... 155,037
-----------
MERCHANDISING -
DEPARTMENT - 0.36%
5,952 Dayton Hudson Corp............. 276,024
1,630 Dillards, Inc. Class A......... 68,562
2,816* Federated Department Stores,
Inc ........................... 145,904
3,057 May Department Stores Co....... 196,603
358 Mercantile Stores Co., Inc..... 28,148
-----------
715,241
-----------
MERCHANDISING - FOOD - 0.33%
3,303 Albertsons, Inc................ 152,970
3,442 American Stores Co............. 85,835
570 Giant Food Inc. Class A........ 24,510
300 Great Atlantic & Pacific Tea
Co., Inc....................... 9,600
3,642* Kroger Co...................... 156,378
996 Supervalu Inc.................. 41,708
4,514 SYSCO Corp..................... 105,233
2,279 Winn-Dixie Stores, Inc......... 92,726
-----------
668,960
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
MERCHANDISING - MASS - 1.22%
3,548 J.C. Penney Co., Inc........... $ 254,791
6,176* Kmart Corp..................... 119,660
5,296 Sears Roebuck and Co........... 327,359
30,774 Wal-Mart Stores, Inc........... 1,698,340
2,461 Woolworth Corp................. 48,605
-----------
2,448,755
-----------
MERCHANDISE - DRUG - 0.30%
2,789 CVS Corp....................... 195,753
597 Longs Drug Stores Corp......... 18,097
3,762 Rite Aid Corp.................. 134,726
6,904 Walgreen Co.................... 242,935
-----------
591,511
-----------
MERCHANDISE - SPECIALTY - 1.01%
1,089 American Greetings Corp.
Class A........................ 51,727
1,351 Circuit City Stores, Inc....... 57,248
1,700* Consolidated Stores Corp....... 64,918
2,966* CostCo Companies, Inc.......... 171,657
3,357 Fortune Brands, Inc........... 129,035
5,147 Gap, Inc....................... 277,938
9,956 Home Depot, Inc................ 782,168
1,906 Ikon Office Solutions Inc...... 40,383
491 Jostens, Inc................... 12,398
2,944 Limited, Inc................... 97,888
1,033 Nordstrom, Inc................. 74,441
1,978 TJX Companies, Inc............. 92,472
1,382 Tandy Corp..................... 61,154
3,833* Toys "R" Us, Inc............... 101,575
-----------
2,015,002
-----------
METALS - MISCELLANEOUS - 0.06%
1,666 Cyprus Amax Minerals Co........ 26,448
774 Engelhard Corp................. 16,109
2,553 Freeport-McMoran Copper & Gold
Inc. Class B.................. 42,763
2,507 Inco Limited................... 36,038
-----------
121,358
-----------
METALS - ALUMINUM - 0.15%
2,843 Alcan Aluminum Ltd............. 81,025
2,290 Aluminum Co. of America........ 158,869
942 Reynolds Metals Co............. 54,636
-----------
294,530
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
METALS - COPPER - 0.06%
1,000 ASARCO Inc..................... $ 22,688
2,373 Newmont Mining Corp............ 59,177
559 Phelps Dodge Corp.............. 34,098
-----------
115,963
-----------
METALS - STEEL - 0.11%
2,679 Allegheny Teldyne Inc.......... 62,286
1,895* Bethlehem Steel Corp........... 23,213
300 Inland Steel Industries, Inc... 8,588
967 Nucor Corp..................... 49,801
1,415 USX-US Steel Group, Inc........ 50,763
1,500 Worthington Industries, Inc.... 26,438
-----------
221,089
-----------
MISCELLANEOUS - 0.10%
2,100 BB & T Corp.................... 138,994
1,500 Equifax Inc.................... 54,562
-----------
193,556
-----------
MOBILE HOMES - 0.01%
600 Fleetwood Enterprises, Inc..... 24,000
-----------
MULTIMEDIA - 0.02%
902 Meredith Corp.................. 35,855
-----------
NATURAL GAS-DIVERSIFIED - 0.07%
881 Coastal Corp................... 62,111
200 Eastern Enterprises............ 8,025
1,741 Sonat Inc...................... 68,225
-----------
138,361
-----------
OIL - INTEGRATED DOMESTIC - 0.92%
864 Amerada Hess Corp.............. 46,710
12,888 Amoco Corp..................... 538,880
1,162 Ashland Oil, Inc............... 57,955
4,508 Atlantic Richfield Co.......... 355,569
2,463 Burlington Resources, Inc..... 103,754
767 Kerr-McGee Corp................ 48,513
4,307 Occidental Petroleum Corp...... 118,980
1,373* Oryx Energy Co................. 32,008
832 Pennzoil Co.................... 48,100
3,684 Phillips Petroleum Co.......... 184,430
1,104 Sun Co., Inc................... 46,920
4,011 USX-Marathon Group............. 140,385
3,360 Unocal Corp.................... 119,700
-----------
1,841,904
-----------
</TABLE>
<PAGE> 174
================================================================================
ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED
60 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
OIL - INTEGRATED
INTERNATIONAL - 2.99%
8,859 Chevron Corp................... $ 707,613
33,628 Exxon Corp..................... 2,370,774
10,600 Mobil Corp..................... 826,800
29,492 Royal Dutch Pete Co. - ADR..... 1,653,395
7,474 Texaco Inc..................... 431,623
-----------
5,990,205
-----------
OIL - SERVICES - 0.51%
2,860 Baker Hughes Inc............... 102,960
2,177 Dresser Industries, Inc........ 101,367
3,714 Halliburton Co................. 175,951
881 McDermott International, Inc... 33,643
1,229* Rowan Companies, Inc........... 31,416
6,602 Schlumberger Ltd............... 515,369
658* Western Atlas Inc.............. 56,958
-----------
1,017,664
-----------
OIL/GAS PRODUCERS - 0.09%
700 Anadarko Petroleum Corp........ 46,200
1,400 Apache Corp.................... 47,863
1,400 Helmerich & Payne, Inc......... 35,350
2,711 Union Pacific Resources Group
Inc........................... 54,897
-----------
184,310
-----------
PAPER/FOREST PRODUCTS - 0.69%
1,863 Avery Dennison Corp............ 96,527
766 Boise Cascade Corp............. 25,565
1,507 Champion International Corp.... 72,336
3,338 Fort James Corp................ 159,598
833 Georgia-Pacific Corp........... 53,468
4,262 International Paper Co......... 196,052
7,734 Kimberly-Clark Corp............ 383,316
2,342 Louisiana Pacific Corp......... 46,694
1,568 Mead Corp...................... 48,804
215 Potlatch Corp.................. 9,420
272* Stone Container Corp........... 4,828
944 Union Camp Corp................ 51,625
1,821 Westvaco Corp.................. 51,899
2,544 Weyerhaeuser Co................ 129,267
1,378 Willamette Industries, Inc..... 47,282
-----------
1,376,681
-----------
PHOTOGRAPHY - 0.18%
4,334 Eastman Kodak Co............... 309,339
1,146 Polaroid Corp.................. 46,485
-----------
355,824
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
POLLUTION CONTROL - 0.19%
2,859 Browning - Ferris Industries,
Inc........................... $ 101,672
6,500* Laidlaw Inc.................... 80,438
5,931 Waste Management, Inc.......... 192,758
-----------
374,868
-----------
PUBLISHING - NEWS - 0.35%
1,527 Dow Jones & Co., Inc........... 73,487
4,238 Gannett Co., Inc............... 279,443
996 Knight-Ridder, Inc............. 56,834
1,129 New York Times Co. Class A... 79,595
1,267 Times Mirror Co................ 81,088
1,901 Tribune Co..................... 127,129
-----------
697,576
-----------
PUBLISHING/PRINTING - 0.16%
1,986 Dun & Bradstreet Corp.......... 67,028
971 Harcourt General, Inc.......... 52,920
1,578 McGraw-Hill, Inc............... 123,380
1,496 Moore Corp. Ltd................ 21,691
1,296 R R Donnelley and Son.......... 58,320
-----------
323,339
-----------
RAILROAD - 0.33%
2,033 Burlington Northern Santa Fe... 202,284
2,976 CSX Corp...................... 141,732
4,905 Norfolk Southern Corp.......... 153,588
3,346 Union Pacific Corp............. 161,862
-----------
659,466
-----------
RESTAURANTS - 0.37%
2,057 Darden Restaurants, Inc........ 31,755
9,261 McDonald's Corp................ 607,753
2,276* Tricon Global Restaurants,
Inc.......................... 70,698
1,600 Wendy's International, Inc..... 39,500
-----------
749,706
-----------
SAVINGS & LOAN - 0.21%
325 Golden West Financial Corp..... 35,100
1,785 H.F. Ahmanson & Co............. 136,106
3,664 Washington Mutual, Inc......... 258,770
-----------
429,976
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- -----------
<S> <C> <C>
SECURITIES RELATED - 0.72%
3,800 Charles Schwab Corp............ $ 125,400
3,300 Franklin Resources, Inc........ 161,288
1,800 Lehman Brothers Holdings, Inc.. 127,688
4,530 Merrill Lynch & Co., Inc....... 405,435
7,912 Morgan Stanley, Dean Witter,
Discover and Co............... 617,630
-----------
1,437,441
-----------
SEMICONDUCTOR EQUIPMENT - 0.11%
5,266* Applied Materials, Inc......... 168,512
1,300* KLA-Tencor Corp................ 44,038
-----------
212,550
-----------
SEMICONDUCTORS - 1.31%
2,157* Advanced Micro Devices, Inc.... 42,062
22,202 Intel Corp..................... 1,586,055
2,010* LSI Logic Corp................. 42,838
3,044* Micron Technology, Inc......... 71,724
8,290 Motorola, Inc.................. 438,852
2,337* National Semiconductor Corp.... 37,976
2,717 Rockwell International Corp.... 149,435
4,928 Texas Instruments Inc.......... 253,176
-----------
2,622,118
-----------
TELECOMMUNICATIONS - 1.63%
7,049* Airtouch Communications, Inc... 335,709
2,784 ALLTEL Corp.................... 109,794
524* Andrew Corp.................... 11,512
2,047* DSC Communications Corp........ 34,991
2,378 Frontier Corp.................. 72,380
1,100 Harris Corp.................... 53,006
17,908 Lucent Technologies, Inc....... 1,270,349
4,200* Nextel Communications, Inc.
Class A....................... 98,963
7,234 Northern Telecom Ltd........... 462,976
381 Scientific-Atlanta, Inc........ 8,406
2,404* Tellabs, Inc................... 165,200
13,868* WorldCom, Inc.................. 630,993
-----------
3,254,279
-----------
TEXTILE - PRODUCTS - 0.06%
683 Russell Corp................... 18,612
300 Springs Industries, Inc.
Class A....................... 16,838
1,700 V F Corp....................... 90,418
-----------
125,868
-----------
</TABLE>
<PAGE> 175
================================================================================
ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED
May 31 1998 61
================================================================================
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- ------------
<S> <C> <C>
TOBACCO - 0.64%
32,729 Philip Morris Cos Inc.......... $ 1,223,246
2,427 UST Inc........................ 64,619
------------
1,287,865
------------
UTILITIES - COMMUNICATION - 3.24%
22,454 AT & T Corp.................... 1,366,887
15,018 Ameritech Corp................. 637,326
10,495 Bell Atlantic Corp............. 961,604
13,427 BellSouth Corp................. 866,042
13,087 GTE Corp....................... 763,136
9,357 MCI Communications Corp........ 500,308
25,014 SBC Communications, Inc........ 972,419
5,720 Sprint Corp.................... 410,410
------------
6,478,132
------------
UTILITIES - ELECTRIC - 1.43%
1,825 Ameren Corp.................... 71,403
2,949 American Electric Power, Inc... 133,811
2,598 Baltimore Gas and Electric Co.. 79,077
1,506 Carolina Power & Light Co...... 61,746
2,692 Central & South West Corp...... 71,170
2,718 Cinergy Corp................... 87,825
3,299 Consolidated Edison Co. of
New York, Inc.................. 141,238
2,193 DTE Energy Co.................. 86,761
2,808 Dominion Resources, Inc........ 111,443
4,904 Duke Energy Corp............... 282,593
5,717 Edison International........... 168,652
3,027 Entergy Corp................... 79,648
2,370 FPL Group, Inc................. 145,607
3,126 FirstEnergy Corp............... 92,803
2,354 GPU Inc........................ 90,629
3,889 Houston Industries, Inc........ 111,323
1,200* Niagara Mohawk Power Corp...... 14,850
1,134 Northern States Power Co....... 64,496
1,677 Peco Energy Co................. 47,375
5,335 P G & E Corp................... 168,053
1,700 P P & L Resources Inc.......... 37,613
4,945 PacifiCorp..................... 114,044
3,081 Public Service Enterprise Group 101,866
10,308 Southern Co.................... 273,805
3,494 Texas Utilities Co............. 138,012
2,300 Unicom Corp.................... 79,060
------------
2,854,903
------------
UTILITIES - GAS, DISTRIBUTION - 0.02%
790 NICOR Inc...................... 30,514
------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES VALUE
- ---------- ------------
<S> <C> <C>
UTILITIES - GAS, PIPELINE - 0.31%
887 Columbia Energy Group.......... $ 74,841
1,295 Consolidated Natural Gas Co.... 73,248
3,947 Enron Corp..................... 197,843
400 ONEOK Inc...................... 15,625
1,220 Pacific Enterprises............ 46,436
725 Peoples Energy Corp............ 26,735
5,926 Williams Companies, Inc........ 192,225
------------
626,953
------------
TOTAL COMMON STOCKS
(Cost $73,829,020)............. 116,780,010
------------
PAR
VALUE
- -----------
CORPORATE BONDS - 18.40%
AUTO - CARS - 1.07%
$2,000,000 Ford Motor Co.,
7.25% due 10/01/08............ 2,141,080
------------
BANKS - OTHER - 2.50%
1,000,000 BankAmerica Corp.,
6.63% due 05/30/01............ 1,015,680
3,000,000 Malayan Banking Berhad-NY,
7.13% due 09/15/05............ 2,518,410
1,500,000 Santander Finance Issuance,
6.38% due 02/15/15............ 1,463,745
------------
4,997,835
------------
BANKS - REGIONAL - 1.12%
2,000,000 NationsBank Corp.,
7.75% due 08/15/15............ 2,232,740
------------
FINANCE COMPANIES - 4.36%
3,000,000 AT&T Capital Corp.,
6.80% due 02/01/01............ 3,060,540
1,500,000 Finova Capital Corp.,
9.13% due 02/27/02............ 1,641,675
1,000,000 Ford Motor Credit Co.,
6.25% due 11/08/00............ 1,005,960
3,000,000 International Lease Finance
Corp., 6.45% due 09/11/00...... 3,028,410
------------
8,736,585
------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- ------------
<S> <C> <C>
HOSPITAL MANAGEMENT - 0.77%
$1,650,000 Columbia/HCA Healthcare Corp.,
7.19% due 11/15/15............ $ 1,539,203
------------
INSURANCE - CASUALTY - 1.10%
2,000,000 Orion Cap Trust,
8.73% due 01/01/37............ 2,197,680
------------
MERCHANDISING - MASS - 0.51%
1,000,000 Sears Roebuck and Co.,
7.35% due 03/23/00............ 1,024,350
------------
MERCHANDISE - SPECIALTY - 2.33%
Goodrich (B.F.),
2,000,000 7.10% due 11/15/27............ 2,089,160
Tandy Corp.,
2,500,000 6.95% due 09/01/07............ 2,566,700
------------
4,655,860
------------
OIL - INTEGRATED DOMESTIC - 1.05%
2,000,000 Union Oil Co. California,
7.20% due 05/15/05............ 2,099,900
------------
SECURITIES RELATED - 1.05%
1,000,000 Bear Stearns Co. Inc.:
9.38% due 06/01/01............ 1,086,960
6.75% due 05/01/01............ 1,016,390
------------
2,103,350
------------
TELECOMMUNICATIONS - 1.81%
1,500,000 Tele-Communications Inc.,
7.25% due 08/01/05............ 1,563,540
2,000,000 360 Communications Co.,
7.13% due 03/01/03............ 2,069,580
------------
3,633,120
------------
UTILITIES - ELECTRIC - 0.73%
Texas Utilities Electric,
1,444,575 6.62% due 07/01/01............ 1,464,888
------------
TOTAL CORPORATE BONDS
(Cost $36,476,391)............. 36,826,591
------------
</TABLE>
<PAGE> 176
================================================================================
ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED
62 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- -----------
<S> <C> <C>
UNITED STATES GOVERNMENT -
LONG TERM - 14.13%
GOVERNMENT SPONSORED - 3.18%
Federal Home Loan Mortgage Corp
(pools/REMICS):
$ 166,641 7.50% due 09/01/25............ $ 171,275
364,499 7.50% due 09/01/25............ 374,635
309,452 7.50% due 09/01/25............ 318,057
468,190 7.50% due 09/01/25............ 481,211
Federal National Mortgage
Association:
2,000,000 7.00% due 05/10/01............ 2,000,620
3,000,000 6.90% due 10/09/01............ 3,010,770
-----------
6,356,568
-----------
UNITED STATES BONDS &
NOTES - 10.95%
United States Treasury Bonds:
1,500,000 8.13% due 08/15/19............ 1,898,430
2,000,000 7.25% due 05/15/16............ 2,302,500
4,000,000 7.25% due 08/15/22............ 4,684,360
United States Treasury Notes:
1,000,000 8.00% due 08/15/99............ 1,028,120
4,000,000 6.50% due 08/15/05............ 4,198,760
2,200,000 6.38% due 04/30/99............ 2,216,500
2,000,000 6.25% due 02/28/02............ 2,041,880
1,500,000 6.25% due 02/15/03............ 1,539,375
1,000,000 5.75% due 08/15/03............ 1,007,190
1,000,000 5.50% due 04/15/00............ 999,220
-----------
21,916,335
-----------
TOTAL UNITED STATES GOVERNMENT -
LONG TERM
(Cost $27,395,726)............. 28,272,903
-----------
CORPORATE SHORT TERM
COMMERCIAL PAPER - 8.38%
CONSUMER FINANCE - 4.27%
2,533,000 Beneficial Corp.,
5.52% due 06/03/98............ 2,532,180
Sears Roebuck Acceptance Corp.:
665,000 5.55% due 06/05/98............ 664,544
5,353,000 5.50% due 06/01/98............ 5,353,000
-----------
8,549,724
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- ------------
<S> <C> <C>
FINANCE COMPANIES - 1.43%
$1,032,000 Ford Motor Credit Co.,
5.50% due 06/05/98............ $ 1,031,320
1,822,000 General Motors Acceptance
Corp.,
5.50% due 06/04/98............ 1,821,099
------------
2,852,419
------------
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.19%
389,000 Cooper Industries, Inc.,
5.67% due 06/01/98............ 389,000
------------
SECURITIES RELATED - 1.24%
Merrill Lynch & Co.:
1,202,000 5.58% due 06/10/98............ 1,200,170
1,290,000 5.52% due 06/02/98............ 1,289,792
------------
2,489,962
------------
UTILITIES - COMMUNICATION - 1.25%
GTE Corp.,
2,500,000 5.61% due 06/08/98............ 2,496,969
------------
TOTAL CORPORATE SHORT TERM
COMMERCIAL PAPER
(Cost $16,778,074)............. 16,778,074
------------
UNITED STATES GOVERNMENT -
SHORT TERM - 0.18%
UNITED STATES TREASURY BILLS - 0.18%
250,000 4.94% due 06/04/98............. 249,894
100,000 4.75% due 06/04/98............. 99,959
------------
349,853
------------
TOTAL UNITED STATES GOVERNMENT -
SHORT TERM
(Cost $349,853)................ 349,853
------------
TOTAL INVESTMENTS
(Cost $154,829,064) - 99.45%... 199,007,431
Other assets and liabilities,
net - 0.55%................... 1,091,381
------------
NET ASSETS (equivalent
to $14.02 per share on
14,269,480 shares
outstanding) - 100%........... $200,098,812
============
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTACTS DEPRECIATION
-------- ------------
<S> <C> <C>
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at 5/31/98)
20(2) S&P 500 Index Futures
(June/$1,090.80).............. $ (68,925)
===========
(1) U.S.Treasury Bills with a market value of
approximately $350,000 were maintained in
a segregated account with a portion placed
as collateral for futures contracts.
(2) Per 250
=======================================================
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
14,269,480 shares outstanding........... $ 142,695
Additional paid in capital................ 143,094,934
Undistributed net realized gain on
securities.............................. 12,699,945
Undistributed net investment income....... 51,796
Unrealized appreciation (depreciation) of:
Investments........... $44,178,367
Futures .............. (68,925) 44,109,442
----------- ------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING............................. $200,098,812
============
</TABLE>
<PAGE> 177
================================================================================
ASSET ALLOCATION FUND - FINANCIAL STATEMENTS 63
================================================================================
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<S> <C>
INVESTMENT INCOME:
Dividends....................................................... $ 1,794,610
Interest........................................................ 4,912,556
------------
Total investment income....................................... 6,707,166
------------
EXPENSES:
Advisory fees................................................... 943,269
Custodian and accounting services............................... 44,310
Reports to shareholders......................................... 14,240
Audit fees and tax services..................................... 4,390
Directors' fees and expenses.................................... 3,849
Miscellaneous................................................... 12,429
------------
Total expenses................................................ 1,022,487
------------
NET INVESTMENT INCOME........................................... 5,684,679
------------
REALIZED AND UNREALIZED GAIN ON SECURITIES:
Net realized gain on:
Investments..................................... $11,723,542
Futures contracts............................... 1,548,855 13,272,397
------------ ------------
Net unrealized appreciation (depreciation) during
the year:
Investments..................................... 18,457,664
------------
Futures contracts............................... (171,525) 18,286,139
------------ ------------
Net realized and unrealized gain during the year............. 31,558,536
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................ $ 37,243,215
------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 5,684,679 $ 5,846,609
Net realized gain on securities................... 13,272,397 10,528,549
Net unrealized appreciation of securities during
the year........................................ 18,286,139 9,840,402
------------ ------------
Increase in net assets resulting from operations 37,243,215 26,215,560
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (5,673,369) (5,861,358)
Net realized gain on securities................... (10,552,054) (19,664,171)
------------ ------------
Decrease in net assets resulting from
distributions to shareholders................. (16,225,423) (25,525,529)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold.................. 6,643,565 3,274,322
Proceeds from capital stock issued for
distributions reinvested........................ 16,225,423 25,525,529
------------ ------------
22,868,988 28,799,851
Cost of capital stock repurchased................. (21,134,651) (42,167,070)
------------ ------------
Increase (decrease) in net assets resulting from
capital stock transactions.................... 1,734,337 (13,367,219)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS........... 22,752,129 (12,677,188)
NET ASSETS:
Beginning of year................................. 177,346,683 190,023,871
------------ ------------
End of year (including undistributed net
investment income of $51,796 and $ 40,486)...... $200,098,812 $177,346,683
============ ============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold...................... 488,059 264,558
Shares issued for distributions reinvested........ 1,231,303 2,146,236
Shares of capital stock repurchased .............. (1,556,774) (3,446,167)
------------ ------------
Increase (decrease) in shares outstanding....... 162,588 (1,035,373)
Shares outstanding:
Beginning of year............................... 14,106,892 15,142,265
------------ ------------
End of year..................................... 14,269,480 14,106,892
============ ============
</TABLE>
<PAGE> 178
================================================================================
CAPITAL CONSERVATION FUND - STATEMENT OF NET ASSETS
64 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- -----------
<S> <C> <C>
CORPORATE BONDS - 84.06%
AIRLINES - 6.54%
$1,500,000 Delta Air Lines, Inc.,
9.75% due 05/15/21........... $ 1,935,060
2,000,000 Southwest Airlines Co.,
8.75% due 10/15/03........... 2,226,020
-----------
4,161,080
-----------
AUTO - CARS - 2.32%
1,500,000 Hertz Corp.,
6.00% due 01/15/03........... 1,478,400
-----------
BANKS - OTHER - 5.65%
1,000,000 BankAmerica Corp.,
7.25% due 04/15/06........... 1,054,380
1,500,000 Santander Finance Issuance,
7.25% due 11/01/15........... 1,559,370
1,000,000 Toronto Dominion Bank,
6.13% due 11/01/08........... 982,350
-----------
3,596,100
-----------
BANKS - REGIONAL - 6.81%
1,500,000 Bank Boston Capital Trust I,
8.25% due 12/15/26........... 1,630,395
1,500,000 Barnett Capital Trust I,
8.06% due 12/01/26........... 1,644,330
1,000,000 SouthTrust Corp.,
7.63% due 05/01/04........... 1,063,040
-----------
4,337,765
-----------
BUILDING MATERIALS - 3.22%
2,000,000 CSR America, Inc.,
6.88% due 07/21/05........... 2,046,800
-----------
FINANCE COMPANIES - 9.15%
2,000,000 Capital One Bank,
8.13% due 03/01/00........... 2,063,200
1,000,000 C.I.T. Group Holdings, Inc.,
8.38% due 11/01/01........... 1,070,000
2,000,000 Finova Capital Corp.,
9.13% due 02/27/02........... 2,188,900
500,000 Ford Motor Credit Co.,
6.38% due 11/05/08........... 500,965
-----------
5,823,065
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- -----------
<S> <C> <C>
HEALTHCARE - 2.22%
$1,500,000 Columbia Healthcare Corp.,
7.50% due 12/15/23........... $ 1,410,315
-----------
MERCHANDISE - DRUG - 0.76%
500,000 Imcera Group Inc.,
6.00% due 10/15/03........... 485,620
-----------
MERCHANDISING -
DEPARTMENT - 3.64%
2,000,000 Associated Dry Goods
Corp. Depentures,
8.85% due 03/01/06........... 2,313,960
-----------
MERCHANDISING - MASS - 3.92%
1,000,000 Sears Roebuck and Co.,
6.25% due 01/15/04........... 998,760
1,500,000 ShopKo Stores, Inc.,
6.50% due 08/15/03........... 1,493,700
-----------
2,492,460
-----------
METALS - STEEL - 2.80%
2,000,000 Pohang Iron & Steel Limited,
7.50% due 08/01/02........... 1,782,200
-----------
PAPER/FOREST PRODUCTS - 3.87%
2,000,000 Georgia-Pacific Corp.,
9.50% due 12/01/11........... 2,464,640
-----------
PUBLISHING - NEWS - 3.49%
2,000,000 News America Holdings,
8.25% due 08/10/18........... 2,222,480
-----------
SECURITIES RELATED - 5.58%
Lehman Brothers, Inc.,
1,500,000 7.13% due 09/15/03........... 1,555,110
2,000,000 6.13% due 02/01/01........... 1,997,180
-----------
3,552,290
-----------
TELECOMMUNICATIONS - 6.59%
2,000,000 Airtouch Communications, Inc.,
7.50% due 07/15/06........... 2,132,380
2,000,000 360 Communications Co.,
7.13% due 03/01/03........... 2,069,580
-----------
4,201,960
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- -----------
<S> <C> <C>
UTILITIES - COMMUNICATION - 6.46%
$2,500,000 Century Telephone Enterprises, Inc.,
7.20% due 12/01/25..................... $ 2,641,350
1,500,000 GTE South, Inc.,
6.00% due 02/15/08..................... 1,474,095
-----------
4,115,445
-----------
UTILITIES - ELECTRIC - 4.43%
1,000,000 Georgia Power Co.,
6.13% due 09/01/99..................... 1,001,680
2,000,000 Tenaga Nasional Berhad,
7.88% due 06/15/04..................... 1,817,100
-----------
2,818,780
-----------
UTILITIES - GAS, PIPELINE - 6.61%
2,000,000 Columbia Energy Group,
7.62% due 11/28/25...................... 2,083,900
2,000,000 Enron Corp.,
7.63% due 09/10/04..................... 2,122,020
-----------
4,205,920
-----------
TOTAL CORPORATE BONDS
(Cost $52,488,290)....................... 53,509,280
-----------
UNITED STATES GOVERNMENT
LONG TERM - 12.58%
FEDERAL AGENCIES - 0.44%
Government National Mortgage
Association:
68,950 9.50% due 05/15/18..................... 74,784
2,550 9.50% due 06/15/18..................... 2,766
1,240 9.50% due 06/15/18..................... 1,345
151,748 9.50% due 07/15/18..................... 164,587
19,961 9.50% due 08/15/18..................... 21,650
11,896 9.50% due 10/15/18..................... 12,902
-----------
278,034
-----------
GOVERNMENT SPONSORED - 11.29%
Federal Home Loan Mortgage Corp.:
921,110 6.50% due 06/01/12..................... 928,304
1,000,000 5.75% due 12/15/16..................... 997,500
2,000,000 Federal National Mortgage Association,
7.23% due 03/30/06..................... 2,015,940
</TABLE>
<PAGE> 179
================================================================================
CAPITAL CONSERVATION FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 65
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- -----------
<S> <C> <C>
GOVERNMENT SPONSORED - Continued
Federal National Mortgage Association,
(Pools/REMICS):
$ 825,801 7.50% due 07/01/26.............. $ 849,022
792,792 7.00% due 05/01/11.............. 809,140
753,210 7.00% due 05/01/11.............. 768,742
803,910 7.00% due 06/01/11.............. 820,487
-----------
7,189,135
-----------
UNITED STATES NOTES - 0.85%
500,000 United States Treasury Notes,
6.88% due 05/15/06.............. 537,890
-----------
TOTAL UNITED STATES GOVERNMENT -
LONG TERM
(Cost $7,801,256)................. 8,005,059
-----------
FOREIGN GOVERNMENT BONDS - 0.82%
CANADA - 0.82%
500,000 New Brunswick Province,
7.13% due 10/01/02
(Cost $499,176).................. 518,865
-----------
CORPORATE SHORT TERM
COMMERCIAL PAPER - 0.83%
MACHINERY - INDUSTRIAL/
SPECIALTY - 0.83%
529,000 Cooper Industries, Inc.,
5.67% due 06/01/98
(Cost $529,000).................. 529,000
-----------
TOTAL INVESTMENTS
(Cost $61,317,722) - 98.29%....... 62,562,204
Other assets and liabilities,
net - 1.71%...................... 1,091,348
-----------
NET ASSETS (equivalent
to $9.68 per share on
6,577,011 shares
outstanding) - 100% ............. $63,653,552
===========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
- ---------- -----------
<S> <C> <C>
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at 5/31/98)
13 (2) U.S. Treasury Bond Futures
(September/$121.50).............. $ (102)
===========
(1) U.S. Treasury Notes with a
market value of approximately
$100,000 were maintained in a
segregated account with a
portion placed as collateral
for futures contracts.
(2) Per 1,000
- --------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
6,577,011 shares outstanding................ $ 65,770
Additional paid in capital.................... 62,825,983
Accumulated net realized loss on securities... (517,185)
Undistributed net investment income........... 34,604
Unrealized appreciation (depreciation) of:
Investments........... $ 1,244,482
Futures .............. (102)........ 1,244,380
----------- -----------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING................................. $63,653,552
===========
</TABLE>
<PAGE> 180
================================================================================
CAPITAL CONSERVATION FUND - FINANCIAL STATEMENTS
66
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest .................................................................. $ 4,595,681
-----------
EXPENSES:
Advisory fees ............................................................. 335,861
Custodian and accounting services ......................................... 15,946
Reports to shareholders ................................................... 4,902
Audit fees and tax services ............................................... 1,534
Directors' fees and expenses .............................................. 1,427
Miscellaneous ............................................................. 5,159
-----------
Total expenses .......................................................... 364,829
-----------
NET INVESTMENT INCOME ..................................................... 4,230,852
-----------
REALIZED AND UNREALIZED GAIN ON SECURITIES:
Net realized gain on:
Investments ................................................. $ 149,517
Futures contracts ........................................... 109,743 259,260
-----------
Net unrealized appreciation (depreciation) during the year:
Investments ................................................. 2,347,085
Futures contracts ........................................... (102) 2,346,983
----------- -----------
Net realized and unrealized gain on securities during the year ......... 2,606,243
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................... $ 6,837,095
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................... $ 4,230,852 $ 4,570,257
Net realized gain (loss) on securities .................................... 259,260 (127,757)
Net unrealized appreciation of securities
during the year ......................................................... 2,346,983 760,448
------------ ------------
Increase in net assets resulting from operations ....................... 6,837,095 5,202,948
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ..................................................... (4,220,237) (4,560,074)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold .......................................... 11,469,948 5,054,950
Proceeds from capital stock issued for distributions reinvested ........... 4,220,237 4,560,074
------------ ------------
15,690,185 9,615,024
Cost of capital stock repurchased ......................................... (21,400,947) (13,722,282)
------------ ------------
Decrease in net assets resulting from
capital stock transactions ............................................. (5,710,762) (4,107,258)
------------ ------------
TOTAL DECREASE IN NET ASSETS .............................................. (3,093,904) (3,464,384)
NET ASSETS:
Beginning of year ......................................................... 66,747,456 70,211,840
------------ ------------
End of year (including undistributed net investment income
of $34,604 and $23,989) ................................................. $ 63,653,552 $ 66,747,456
============ ============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold .............................................. 1,185,836 540,826
Shares issued for distributions reinvested ................................ 439,548 488,804
Shares of capital stock repurchased ....................................... (2,216,430) (1,466,062)
------------ ------------
Decrease in shares outstanding .......................................... (591,046) (436,432)
Shares outstanding:
Beginning of year ....................................................... 7,168,057 7,604,489
------------ ------------
End of year ............................................................. 6,577,011 7,168,057
============ ============
</TABLE>
<PAGE> 181
================================================================================
GOVERNMENT SECURITIES FUND - STATEMENT OF NET ASSETS
May 31, 1997 67
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ----------- -----------
<S> <C> <C>
UNITED STATES GOVERNMENT
LONG TERM - 96.90%
GOVERNMENT SPONSORED - 62.24%
$ 1,500,000 Federal Farm Credit Bank,
6.92% due 05/13/02...................... $ 1,559,535
Federal Home Loan Banks:
1,155,000 7.26% due 09/06/01 ..................... 1,205,173
1,150,000 7.10% due 11/02/02 ..................... 1,208,041
2,000,000 6.38% due 12/20/00 ..................... 2,031,880
3,000,000 5.70% due 12/19/00 ..................... 2,999,520
Federal Home Loan Mortgage Corp.:
3,000,000 7.13% due 07/21/99 ..................... 3,045,480
1,500,000 7.09% due 06/01/05 ..................... 1,528,365
1,500,000 6.90% due 03/26/03 ..................... 1,508,205
3,500,000 6.71% due 11/09/05 ..................... 3,536,085
1,500,000 6.37% due 01/23/06 ..................... 1,499,760
Federal Home Loan Mortgage Corp.
(Pools/REMICS):
104,277 7.50% due 09/01/25 ..................... 107,177
373,170 7.50% due 09/01/25 ..................... 383,548
190,881 7.50% due 09/01/25 ..................... 196,189
2,000,000 7.00% due 09/15/23 ..................... 2,047,500
2,302,775 6.50% due 06/01/12 ..................... 2,320,760
175,000 5.50% due 02/25/19 ..................... 172,265
Federal National Mortgage Association:
1,000,000 9.05% due 04/10/00 ..................... 1,057,190
2,000,000 7.27% due 08/24/05 ..................... 2,051,240
3,000,000 7.00% due 08/27/12 ..................... 3,107,820
2,300,000 6.90% due 10/09/01 ..................... 2,308,257
2,000,000 6.85% due 09/12/05 ..................... 2,021,560
2,000,000 6.62% due 06/25/07 ..................... 2,088,740
2,000,000 6.41% due 03/08/06 ..................... 2,052,500
2,500,000 6.40% due 12/10/01 ..................... 2,501,550
4,000,000 6.25% due 12/13/02 ..................... 4,006,880
3,000,000 6.06% due 05/07/03 ..................... 3,002,820
2,000,000 5.74% due 12/23/99 ..................... 2,002,180
Student Loan Marketing Association,
1,000,000 7.50% due 03/08/00 ..................... 1,030,000
Tennessee Valley Authority:
2,500,000 6.75% due 11/01/25 ..................... 2,702,150
2,000,000 6.38% due 06/15/05 ..................... 2,054,680
-----------
57,337,050
-----------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ----------- -----------
<S> <C> <C>
UNITED STATES BONDS, NOTES
& STRIPS - 34.66%
United States Treasury Bonds:
$ 1,800,000 9.00% due 11/15/18 ..................... $ 2,457,846
4,000,000 8.75% due 08/15/20 ..................... 5,394,360
3,500,000 8.50% due 02/15/20 ..................... 4,600,855
3,500,000 7.25% due 08/15/22 ..................... 4,098,815
United States Treasury Notes:
2,500,000 6.75% due 04/30/00 ..................... 2,552,725
1,000,000 6.38% due 01/15/00 ..................... 1,012,190
6,000,000 5.88% due 11/15/99 ..................... 6,025,320
3,000,000 5.75% due 08/15/03 ..................... 3,021,570
2,000,000 5.50% due 01/31/03 ..................... 1,991,880
United States Treasury Strips,
1,500,000 0.00% due 11/15/09 ..................... 768,930
-----------
31,924,491
-----------
TOTAL UNITED STATES
GOVERNMENT - LONG TERM
(Cost $86,245,519)....................... 89,261,541
-----------
CORPORATE SHORT TERM
COMMERCIAL PAPER - 1.24%
MACHINERY - INDUSTRIAL/
SPECIALTY - 1.24%
1,143,000 Cooper Industries, Inc.,
5.67% due 06/01/98...................... 1,143,000
-----------
TOTAL CORPORATE SHORT TERM
COMMERCIAL PAPER
(Cost $1,143,000)........................ 1,143,000
-----------
TOTAL INVESTMENTS
(Cost $87,388,519) - 98.14%.............. 90,404,541
Other assets and liabilities,
net 1.86%............................... 1,715,676
-----------
NET ASSETS (equivalent
to $10.09 per share on
9,129,497 shares
outstanding) - 100% .................... $92,120,217
===========
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS DEPRECIATION
--------- ------------
<S> <C> <C>
FUTURES CONTRACTS PURCHASED(1)
(Delivery month/Value at 5/31/98)
17(2) U.S. Treasury Bond Futures
(September/$121.50)..................... $ (133)
===========
(1) U.S. Treasury Bonds with a market
value of approximately $100,000
were maintained in a segregated
account with a portion placed as
collateral for futures contracts.
(2) Per 1,000.
- --------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
9,129,497 shares outstanding......................... $ 91,295
Additional paid in capital............................. 90,699,767
Accumulated net realized loss on securities............ (1,734,207)
Undistributed net investment income.................... 47,473
Unrealized appreciation (depreciation) of:
Investments..................... $ 3,016,022
Futures ........................ (133) 3,015,889
----------- -----------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING.......................................... $92,120,217
===========
</TABLE>
<PAGE> 182
================================================================================
GOVERNMENT SECURITIES FUND - FINANCIAL STATEMENTS
68
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest ....................................................................... $5,571,826
----------
EXPENSES:
Advisory fees .................................................................. 436,775
Custodian and accounting services .............................................. 20,527
Reports to shareholders ........................................................ 6,612
Audit fees and tax services .................................................... 2,067
Directors' fees and expenses ................................................... 1,804
Miscellaneous .................................................................. 6,262
----------
Total expenses ............................................................... 474,047
----------
NET INVESTMENT INCOME .......................................................... 5,097,779
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES:
Net realized gain on:
Investments ................................................... $ 245,563
Futures contracts ............................................. 112,838 358,401
----------
Net unrealized appreciation (depreciation) during the year:
Investments ................................................... 3,271,194
Futures contracts ............................................. (133 3,271,061
---------- ----------
Net realized and unrealized gain on securities during the year ............... 3,629,462
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................... $8,727,241
==========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................... $ 5,097,779 $ 5,088,757
Net realized gain on securities ........................................... 358,401 4,132
Net unrealized appreciation of securities
during the year ......................................................... 3,271,061 479,407
------------ ------------
Increase in net assets resulting from operations ....................... 8,727,241 5,572,296
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ..................................................... (5,081,964) (5,073,340)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold .......................................... 17,280,167 11,299,725
Proceeds from capital stock issued for distributions reinvested ........... 5,081,964 5,073,340
------------ ------------
22,362,131 16,373,065
Cost of capital stock repurchased ......................................... (17,713,793) (11,468,468)
------------ ------------
Increase in net assets resulting from capital stock transactions ........ 4,648,338 4,904,597
------------ ------------
TOTAL INCREASE IN NET ASSETS .............................................. 8,293,615 5,403,553
NET ASSETS:
Beginning of year ......................................................... 83,826,602 78,423,049
------------ ------------
End of year (including undistributed net investment income
of $47,473 and $31,658) ................................................. $ 92,120,217 $ 83,826,602
============ ============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold .............................................. 1,716,427 1,165,828
Shares issued for distributions reinvested ................................ 509,952 523,483
Shares of capital stock repurchased ....................................... (1,769,096) (1,180,771)
------------ ------------
Increase in shares outstanding .......................................... 457,283 508,540
Shares outstanding:
Beginning of year ....................................................... 8,672,214 8,163,674
------------ ------------
End of year ............................................................. 9,129,497 8,672,214
============ ============
</TABLE>
<PAGE> 183
================================================================================
INTERNATIONAL GOVERNMENT BOND FUND - STATEMENT OF NET ASSETS
May 31, 1998 69
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------------- ------------
<S> <C> <C> <C>
GOVERNMENT BONDS - 86.49%
AUSTRALIA - 1.16%
Commonwealth:
A$ 500,000 9.75% due 3/15/02 ............. $ 364,521
A$ 500,000 9.00% due 9/15/04 ............. 376,558
A$ 500,000 8.75% due 1/15/01 ............. 343,151
A$ 500,000 7.50% due 7/15/05 ............. 354,652
A$ 500,000 7.50% due 9/15/09 ............. 369,509
------------
1,808,391
------------
AUSTRIA - 3.01%
Republic of Austria:
DM 1,000,000 7.25% due 5/3/07 .............. 650,974
As 2,000,000 7.125% due 7/12/04 ............ 178,900
As 1,500,000 7.00% due 2/14/00 ............. 124,915
As 2,200,000 7.00% due 1/20/03 ............. 192,497
As 2,000,000 7.00% due 5/16/05 ............. 179,458
As 2,000,000 6.875% due 4/19/02 ............ 172,607
As 2,000,000 6.50% due 11/17/05 ............ 175,475
As 6,000,000 6.25% due 5/31/06 ............. 521,120
As 3,000,000 5.625% due 7/15/07 ............ 250,667
As 2,000,000 5.50% due 1/18/04 ............. 165,816
Ff. 3,000,000 5.50% due 1/18/04 ............. 522,340
Y. 100MM 4.75% due 12/20/04 ............ 880,028
Y. 50MM 4.50% due 9/28/05 ............. 440,916
As 3,000,000 4.375% due 2/28/02 ............ 238,600
------------
4,694,313
------------
BELGIUM - 3.53%
Kingdom of Belgium:
Bf 10,000,000 8.75% due 6/25/02 ............. 313,917
Bf 10,000,000 8.00% due 12/24/12 ............ 348,464
Bf 10,000,000 8.00% due 3/28/15 ............. 353,710
Bf 10,000,000 7.75% due 12/22/00 ............ 294,210
Bf 25,000,000 7.75% due 10/15/04 ............ 788,801
Bf 20,000,000 7.50% due 7/29/08 ............. 649,198
Bf 15,000,000 7.00% due 5/15/06 ............. 463,251
Bf 20,000,000 6.50% due 3/31/05 ............. 596,140
Bf 20,000,000 6.25% due 3/28/07 ............. 592,933
Bf 20,000,000 5.00% due 3/28/01 ............. 553,303
Bf 20,000,000 4.00% due 1/22/00 ............. 542,764
------------
5,496,691
------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------------- ------------
<S> <C> <C> <C>
CANADA - 4.76%
Government of Canada:
C$ 550,000 9.50% due 6/1/10............... $ 512,958
C$ 500,000 9.00% due 12/1/04 ............. 412,592
C$ 500,000 9.00% due 6/1/25 .............. 504,726
C$ 1,000,000 8.75% due 12/1/05 ............. 831,457
C$ 1,000,000 8.50% due 4/1/02 .............. 763,622
C$ 1,000,000 8.00% due 6/1/23 .............. 907,406
C$ 500,000 7.50% due 9/1/00 .............. 359,719
C$ 1,000,000 7.50% due 3/1/01 .............. 726,138
C$ 1,000,000 7.25% due 6/1/03 .............. 746,153
C$ 1,000,000 7.00% due 12/1/06 ............. 764,795
C$ 500,000 6.50% due 6/1/04 .............. 364,716
C$ 750,000 5.50% due 2/1/00 .............. 517,453
------------
7,411,735
------------
DENMARK - 2.35%
Kingdom of Denmark:
DK 5,000,000 8.00% due 11/15/01 ............ 813,487
DK 2,500,000 8.00% due 5/15/03 ............. 419,431
DK 3,000,000 8.00% due 3/15/06 ............. 524,942
DK 5,500,000 7.00% due 12/15/04 ............ 902,764
DK 1,250,000 7.00% due 11/10/24 ............ 220,564
DK 5,000,000 6.00% due 11/15/02 ............ 772,371
------------
3,653,559
------------
FINLAND - 1.98%
Republic of Finland:
FIM 2,000,000 10.00% due 9/15/01 ............ 430,336
FIM 1,000,000 9.50% due 3/15/04 ............. 228,271
FIM 3,000,000 7.25% due 4/18/06 ............. 636,603
Ff. 5,000,000 7.00% due 6/15/04 ............. 934,418
Y. 100MM 6.00% due 1/29/02 ............. 858,726
------------
3,088,354
------------
FRANCE - 4.30%
Government of France:
Ff. 4,600,000 9.50% due 1/25/01 ............. 867,027
Ff. 3,500,000 8.50% due 11/25/02 ............ 679,759
Ff. 1,500,000 8.50% due 12/26/12 ............ 336,955
Ff. 3,000,000 7.25% due 4/25/06 ............. 580,645
Ff. 7,000,000 6.75% due 10/25/03 ............ 1,290,373
Ff. 2,000,000 6.50% due 10/25/06 ............ 370,516
Ff. 8,500,000 6.00% due 10/25/25 ............ 1,525,539
Ff. 2,000,000 5.50% due 4/25/04 ............. 349,657
Ff. 4,000,000 5.50% due 4/25/07 ............. 699,315
------------
6,699,786
------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------------- ------------
<S> <C> <C> <C>
GERMANY - 11.92%
Federal Republic of Germany:
DM 2,000,000 7.50% due 9/9/04 .............. $ 1,289,505
DM 3,100,000 7.125% due 12/20/02 ........... 1,922,982
DM 2,000,000 7.00% due 1/13/00 ............. 1,172,706
DM 1,000,000 6.75% due 7/15/04 ............. 622,334
DM 3,000,000 6.50% due 3/15/00 ............. 1,752,165
DM 3,000,000 6.50% due 7/15/03 ............. 1,829,172
DM 2,000,000 6.50% due 10/14/05 ............ 1,238,840
DM 1,000,000 6.25% due 4/26/06 ............. 612,526
DM 1,000,000 6.25% due 1/4/24 .............. 624,016
DM 1,000,000 6.00% due 11/12/03 ............ 598,324
DM 1,000,000 6.00% due 1/5/06 .............. 602,606
DM 1,000,000 6.00% due 1/4/07 .............. 604,288
DM 4,000,000 6.00% due 6/20/16 ............. 2,446,518
DM 2,000,000 5.00% due 5/21/01 ............. 1,144,346
DM 3,750,000 4.50% due 8/19/02 ............. 2,108,239
------------
18,568,567
------------
IRELAND - 0.65%
Republic of Ireland:
Ilb 100,000 8.25% due 8/18/15 ............. 185,875
Ilb 100,000 8.00% due 8/18/06 ............. 168,206
Ilb 150,000 6.50% due 10/18/01 ............ 222,838
Ilb 150,000 6.25% due 4/1/99 .............. 213,488
Ilb 150,000 6.25% due 10/18/04 ............ 226,019
------------
1,016,426
------------
ITALY - 9.01%
Republic of Italy:
Lit 1,000MM 12.00% due 6/1/01 ............. 682,480
Lit 1,000MM 12.00% due 1/1/02 ............. 702,844
Lit 1,000MM 10.50% due 7/15/00 ............ 635,836
Lit 500MM 10.50% due 4/1/05 ............. 374,545
Lit 500MM 10.50% due 9/1/05 ............. 379,010
Lit 3,400MM 10.00% due 8/1/03 ............. 2,385,802
Lit 500MM 9.50% due 1/1/05 .............. 356,030
Lit 500MM 9.50% due 2/1/06 .............. 364,903
Lit 2,000MM 9.00% due 11/1/23 ............. 1,670,080
Lit 1,000MM 8.50% due 4/1/04 .............. 672,241
Lit 1,500MM 8.50% due 8/1/04 .............. 1,012,961
Lit 1,000MM 7.75% due 9/15/01 ............. 621,843
Lit 1,500MM 6.75% due 2/1/07 .............. 952,389
Lit 500MM 6.25% due 3/1/02 .............. 299,545
Lit 2,000MM 5.75% due 9/15/02 ............. 1,182,366
Lit 3,000MM 5.50% due 9/15/00 ............. 1,742,031
------------
14,034,906
------------
</TABLE>
<PAGE> 184
================================================================================
INTERNATIONAL GOVERNMENT BOND FUND - STATEMENT OF NET ASSETS CONTINUED
70 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------------- ------------
<S> <C> <C> <C>
JAPAN - 20.99%
Government of Japan:
Y. 50MM 6.70% due 6/20/00 ............. $ 407,177
Y. 250MM 6.60% due 6/20/01 ............. 2,133,367
Y. 320MM 6.40% due 3/20/00 ............. 2,557,643
Y. 105MM 6.00% due 12/20/01 ............ 899,729
Y. 365MM 5.50% due 3/20/02 ............. 3,107,073
Y. 120MM 5.00% due 12/20/02 ............ 1,026,789
Y. 100MM 5.00% due 9/21/09 ............. 972,850
Y. 100MM 5.00% due 3/20/15 ............. 1,030,616
Y. 130MM 4.80% due 6/21/99 ............. 982,158
Y. 127MM 4.50% due 6/20/03 ............. 1,077,698
Y. 75MM 4.50% due 12/20/04 ............ 655,607
Y. 150MM 4.40% due 9/22/03 ............. 1,273,955
Y. 200MM 4.20% due 9/21/15 ............. 1,900,065
Y. 150MM 4.10% due 6/21/04 ............. 1,273,522
Y. 100MM 3.90% due 6/21/04 ............. 840,494
Y. 100MM 3.80% due 9/20/16 ............. 911,402
Y. 250MM 3.50% due 3/21/16 ............. 2,189,147
Y. 100MM 3.30% due 6/20/06 ............. 829,085
Y. 200MM 3.20% due 3/20/06 ............. 1,644,018
Y. 250MM 3.00% due 9/20/05 ............. 2,021,807
Y. 150MM 2.90% due 12/20/05 ............ 1,207,994
Y. 100MM 2.70% due 3/20/07 ............. 798,383
Y. 150MM 2.00% due 12/20/07 ............ 1,134,450
Y. 250MM 1.10% due 10/22/01 ............ 1,830,475
------------
32,705,504
------------
NETHERLANDS - 4.59%
Government of the Netherlands:
NG 1,050,000 9.00% due 10/16/00 ............ 577,199
NG 1,000,000 8.75% due 9/15/01 ............. 562,641
NG 500,000 8.50% due 3/15/01 ............. 275,602
NG 500,000 8.25% due 2/15/02 ............. 280,575
NG 500,000 8.25% due 6/15/02 ............. 283,061
NG 500,000 8.25% due 2/15/07 ............. 307,427
NG 1,500,000 7.75% due 3/1/05 .............. 875,289
NG 500,000 7.50% due 4/15/10 ............. 303,573
NG 750,000 7.50% due 1/15/23 ............. 479,600
NG 2,000,000 6.50% due 4/15/03 ............. 1,079,038
NG 1,500,000 6.00% due 1/15/06 ............. 803,685
NG 2,000,000 5.75% due 1/15/04 ............. 1,051,192
NG 500,000 5.75% due 2/15/07 ............. 264,414
------------
7,143,296
------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------------- ------------
<S> <C> <C> <C>
PORTUGAL - 0.36%
Ff. 3,000,000 Republic of Portugal,
6.625% due 5/13/08.......... $ 560,964
------------
SPAIN - 4.77%
Government of Spain:
Pst 100MM 10.50% due 10/30/03 ........... 838,436
Pst 100MM 10.30% due 6/15/02 ............ 796,899
Pst 100MM 10.15% due 1/31/06 ............ 875,784
Pst 50MM 10.10% due 2/28/01 ............ 377,598
Pst 50MM 10.00% due 2/28/05 ............ 425,701
Pst 50MM 8.40% due 4/30/01 ............. 365,424
Pst 70MM 8.20% due 2/28/09 ............. 577,598
Pst 80MM 8.00% due 5/30/04 ............. 615,163
Pst 50MM 7.90% due 2/28/02 ............. 367,618
Pst 150MM 6.75% due 4/15/00 ............. 1,033,421
Ff. 2,000,000 6.50% due 6/20/01 ............. 354,129
Pst 50MM 6.00% due 1/31/08 ............. 353,233
Pst 67MM 5.25% due 1/31/03 ............. 456,150
------------
7,437,154
------------
SWEDEN - 2.43%
Kingdom of Sweden:
SK 3,000,000 10.25% due 5/5/00 ............. 422,108
SK 6,000,000 10.25% due 5/5/03 ............. 946,084
SK 3,000,000 9.00% due 4/20/09 ............. 504,664
SK 3,000,000 8.00% due 8/15/07 ............. 464,452
C$ 500,000 6.75% due 12/31/01 ............ 357,619
SK 2,000,000 6.50% due 10/25/06 ............ 280,632
SK 6,000,000 6.00% due 2/9/05 .............. 812,805
------------
3,788,364
------------
SWITZERLAND - 0.48%
Government of Switzerland:
Chf 500,000 4.50% due 7/8/02 .............. 367,027
Chf 500,000 4.50% due 4/8/06 .............. 377,995
------------
745,022
------------
UNITED KINGDOM - 8.74%
Government of United Kingdom:
L. 250,000 9.75% due 8/27/02 ............. 463,194
L. 400,000 9.00% due 10/13/08 ............ 818,692
L. 250,000 9.00% due 7/12/11 ............. 529,547
L. 400,000 9.00% due 8/6/12 .............. 856,258
L. 750,000 8.75% due 8/25/17 ............. 1,656,780
L. 500,000 8.50% due 12/7/05 ............. 948,335
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------------- ------------
<S> <C> <C> <C>
UNITED KINGDOM - Continued
L. 500,000 8.00% due 9/25/09 ............. $ 969,517
L. 500,000 8.00% due 12/7/15 ............. 1,025,407
L. 750,000 8.00% due 6/7/21 .............. 1,585,578
L. 1,000,000 7.50% due 12/7/06 ............. 1,817,048
L. 1,500,000 7.00% due 11/6/01 ............. 2,515,028
L. 250,000 6.75% due 11/26/04 ............ 429,890
------------
13,615,274
------------
UNITED STATES - 1.46%
DM 4,000,000 Federal National Mortgage Association,
5.00% due 2/16/01 .......... 2,278,268
------------
TOTAL GOVERNMENT BONDS
(Cost $139,653,971) ................. 134,746,574
------------
SUPRANATIONAL - 6.44%
Eurofima:
Ff. 5,000,000 9.875% due 8/21/00 ............ 932,852
Ff. 1,600,000 9.25% due 12/18/03 ............ 325,255
Ff. 3,000,000 5.625% due 11/25/99 ........... 512,389
European Investment Bank:
Lit 1,100MM 10.50% due 2/7/02 ............. 756,328
L. 250,000 9.00% due 5/14/02 ............. 445,840
Y. 25MM 6.625% due 3/15/00 ............ 200,601
Ff. 2,000,000 6.125% due 10/8/04 ............ 360,187
Y. 100MM 4.625% due 2/26/03 ............ 845,729
Y. 100MM 3.00% due 9/20/06 ............. 811,431
Y. 55MM Inter America Development Bank,
6.75% due 2/20/01 .......... 463,165
International Bank for
Reconstruction & Development:
Lit 150MM 10.80% due 11/13/01 ........... 103,029
Lit 200MM 9.45% due 8/11/03 ............. 138,083
L. 400,000 9.25% due 7/20/07 ............. 795,826
Y. 250MM 5.25% due 3/20/02 ............. 2,108,681
Y. 100MM 4.50% due 3/20/03 ............. 843,924
Y. 50MM 4.50% due 6/20/00 ............. 391,048
------------
TOTAL SUPRANATIONAL
(Cost $11,221,358) .................. 10,034,368
------------
</TABLE>
<PAGE> 185
================================================================================
INTERNATIONAL GOVERNMENT BOND FUND - STATEMENT OF NET ASSETS CONTINUED
May 31, 1998 71
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- -----------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS - 4.34%
FRANCE - 4.34% Credit Local de France:
Lit 2,000MM 9.00% due 6/14/01 ............. $ 1,272,048
Ff. 5,000,000 8.875% due 6/10/02 ............ 964,190
Ff. 8,000,000 6.25% due 9/27/05 ............. 1,444,927
Ff. 4,000,000 6.00% due 11/15/01 ............ 699,482
Ff. 10,000,000 Elf Aquitaine SA,
7.125% due 8/11/03............. 1,843,766
Ff. 3,000,000 Toyota Motor Credit,
6.25% due 4/11/02.............. 530,252
------------
6,754,665
------------
TOTAL CORPORATE BONDS
(Cost $7,219,766) ................... 6,754,665
------------
UNITED STATES GOVERNMENT -
SHORT TERM - 0.10%
U.S. TREASURY BILLS - 0.10%
USD 150,000 United States Treasury Bills,
4.30% due 6/25/98 ............. 149,570
------------
TOTAL UNITED STATES GOVERNMENT
SHORT TERM
(Cost $149,570) ..................... 149,570
------------
TOTAL INVESTMENTS
(Cost $158,244,665) - 97.37% ........ 151,685,177
Other assets and liabilities,
net - 2.63% ........................ 4,097,706
------------
NET ASSETS (equivalent
to $11.42 per share
on 13,645,599 shares
outstanding) - 100% ................ $155,782,883
------------
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
CONTRACTS APPRECIATION
- -----------------------------------------------------------------
<S> <C> <C>
FUTURES CONTRACTS SOLD(1)
(Delivery month/Value at 5/31/98)
15 (2) Currency futures - British Pound
(June/$163.02) ...................... $ 14,813
------------
(Delivery month/Value at 5/31/98)
70 (3) Currency futures - Japanese Yen
(June/$72.22) ....................... 199,250
------------
214,063
============
</TABLE>
(1) U.S.Treasury Bills with a market value
of approximately $150,000 were
maintained in a segregated account with
a portion placed as collateral for
futures contracts.
(2) Per 625
(3) Per 1,250
<TABLE>
<CAPTION>
MARKET
VALUE
- -----------------------------------------------------------------
<S> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
13,645,599 shares outstanding .................. $ 136,456
Additional paid in capital ....................... 160,890,463
Accumulated net realized gain on securities ...... 658,703
Undistributed net investment income .............. 462,129
Unrealized appreciation (depreciation) of:
Investments ..................... $ (6,559,488)
Futures ......................... 214,063
------------
Foreign currency translation..... (19,443) (6,364,868)
------------ ------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING .................................... $155,782,883
============
</TABLE>
<PAGE> 186
================================================================================
INTERNATIONAL GOVERNMENT BOND FUND - FINANCIAL STATEMENTS
72
================================================================================
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $158,558) ....... $ 8,845,092
-----------
EXPENSES:
Advisory fees ................................................. 846,176
Custodian and accounting services ............................. 32,947
Reports to shareholders ....................................... 11,638
Audit fees and tax services ................................... 3,835
Directors' fees and expenses .................................. 3,717
Miscellaneous ................................................. 23,639
-----------
Total expenses .............................................. 921,952
-----------
NET INVESTMENT INCOME ......................................... 7,923,140
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES
AND FOREIGN CURRENCIES:
Net realized loss on:
Investments ......................................... $(3,464,702)
Foreign currency translation ........................ (387,612) (3,852,314)
-----------
Net unrealized appreciation (depreciation) during the
year:
Securities .......................................... (74,327)
Foreign currency translation ........................ 101,888
Futures contracts ................................... 214,063 241,624
----------- -----------
Net realized and unrealized loss on securities and
foreign currencies during the year ....................... (3,610,690)
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............. $ 4,312,450
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<TABLE>
1998 1997
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income .............................. $ 7,923,140 8,522,441
Net realized loss on securities and foreign currency
transactions ..................................... (3,852,314) (145,962)
Net unrealized appreciation (depreciation) of
securities and translation of foreign currencies
during the year .................................. 241,624 (7,210,455)
------------ ------------
Increase in net assets resulting from operations. 4,312,450 1,166,024
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income .............................. (3,034,869) (8,295,746)
Net realized gain on securities .................... (136,607) (295,588)
------------ ------------
Decrease in net assets resulting from
distributions to shareholders .................. (3,171,476) (8,591,334)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold ................... 30,361,915 72,164,939
Proceeds from capital stock issued for distributions
reinvested........................................ 3,171,476 8,591,334
------------ ------------
33,533,391 80,756,273
Cost of capital stock repurchased .................. (56,600,279) (38,005,431)
------------ ------------
Increase (decrease) in net assets resulting from
capital stock transactions ...................... (23,066,888) 42,750,842
TOTAL INCREASE (DECREASE) IN NET ASSETS ............ (21,925,914) 35,325,532
NET ASSETS:
Beginning of year .................................. 177,708,797 142,383,265
------------ ------------
End of year (including undistributed net investment
income of $462,129 and $84,875) .................. $155,782,883 $177,708,797
------------ ============
CHANGE IN SHARES OUTSTANDING:
Shares of capital stock sold ....................... 2,685,573 6,113,938
Shares issued for distributions reinvested ......... 279,556 729,242
Shares of capital stock repurchased ................ (4,999,093) (3,236,292)
------------ ------------
Increase (decrease) in shares outstanding ........ (2,033,964) 3,606,888
Shares outstanding:
Beginning of year ................................ 15,679,563 12,072,675
------------ ------------
End of year ...................................... 13,645,599 15,679,563
------------ ============
</TABLE>
<PAGE> 187
================================================================================
MONEY MARKET FUND - STATEMENT OF NET ASSETS
May 31, 1998 73
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- -----------
<S> <C> <C>
CORPORATE SHORT TERM
COMMERCIAL PAPER - 89.58%
BANKS - REGIONAL - 5.18%
$5,000,000 Banc One Corp,
5.48% due 06/08/98............. $ 4,994,672
5,000,000 NationsBank Corp.,
5.48% due 10/21/98............. 4,891,922
-----------
9,886,594
-----------
BEVERAGE - SOFT DRINKS - 1.83%
3,500,000 Coca Cola Co.,
5.48% due 06/19/98............. 3,490,410
-----------
CHEMICAL - MAJOR - 5.65%
E.I. Du Pont de Nemeurs and Co.:
3,500,000 5.49% due 07/07/98.............. 3,480,785
3,000,000 5.44% due 06/25/98.............. 2,989,120
PPG Industries:
2,500,000 5.50% due 06/30/98.............. 2,488,924
1,840,000 5.51% due 06/30/98.............. 1,831,833
-----------
10,790,662
-----------
CONGLOMERATES - 2.70%
Fortune Brands:
2,500,000 5.50% due 07/08/98.............. 2,485,868
2,688,000 5.50% due 07/09/98.............. 2,672,395
-----------
5,158,263
-----------
CONSUMER FINANCE - 16.67%
Associates Corp. of North America:
1,000,000 5.75% due 11/15/98.............. 999,736
2,000,000 5.50% due 08/18/98.............. 1,976,167
1,800,000 5.49% due 06/02/98.............. 1,799,726
2,000,000 5.49% due 07/01/98.............. 1,990,850
825,000 5.48% due 06/16/98.............. 823,116
500,000 5.25% due 09/01/98.............. 499,100
Beneficial Corp:
1,500,000 5.52% due 06/22/98.............. 1,495,170
1,500,000 5.51% due 08/24/98.............. 1,480,715
2,300,000 5.51% due 08/04/98.............. 2,277,470
2,000,000 5.49% due 06/29/98.............. 1,991,460
Commercial Credit Co.:
1,800,000 5.50% due 07/21/98.............. 1,786,250
1,900,000 5.50% due 07/28/98.............. 1,883,454
1,500,000 5.49% due 08/06/98.............. 1,484,903
2,000,000 5.48% due 07/06/98.............. 1,989,344
1,200,000 5.47% due 06/18/98.............. 1,196,900
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ---------- -----------
<S> <C> <C>
CONSUMER FINANCE - Continued
Sears Roebuck Acceptance Corp.:
$2,400,000 5.54% due 06/16/98.............. $ 2,394,460
644,000 5.52% due 07/29/98.............. 638,273
553,000 5.50% due 07/30/98.............. 548,015
2,100,000 5.50% due 08/03/98.............. 2,079,788
1,400,000 5.50% due 08/05/98.............. 1,386,097
1,100,000 5.48% due 06/29/98.............. 1,095,312
-----------
31,816,306
-----------
ELECTRICAL EQUIPMENT - 1.10%
2,100,000 General Electric Co.,
5.49% due 06/09/98.............. 2,097,438
-----------
ENTERTAINMENT - 2.09%
Walt Disney Co.:
1,500,000 5.57% due 06/04/98.............. 1,499,304
2,500,000 5.44% due 06/26/98.............. 2,490,556
-----------
3,989,860
-----------
FINANCE COMPANIES - 19.65%
Ciesco LP:
3,000,000 5.50% due 06/01/98............... 3,000,000
2,500,000 5.50% due 07/02/98............... 2,488,160
2,000,000 5.45% due 06/10/98............... 1,997,275
CIT Group Holdings, Inc.:
1,707,000 5.52% due 06/11/98............... 1,704,383
2,033,000 5.50% due 06/01/98............... 2,033,000
1,500,000 5.49% due 06/25/98............... 1,494,510
3,300,000 5.46% due 06/23/98............... 3,288,989
Ford Motor Credit Co.:
2,500,000 5.50% due 08/17/98............... 2,470,590
1,404,000 5.48% due 06/12/98............... 1,401,649
General Electric Capital Corp.:
1,000,000 5.51% due 08/10/98............... 989,286
1,800,000 5.50% due 07/15/98............... 1,787,900
1,200,000 5.50% due 06/03/98............... 1,199,633
2,200,000 5.50% due 06/03/98............... 2,199,328
General Motors Acceptance Corp.:
1,000,000 6.30% due 06/11/98............... 1,000,100
2,257,000 5.52% due 06/05/98............... 2,255,616
1,000,000 5.51% due 08/13/98............... 988,827
750,000 5.50% due 06/09/98............... 749,083
1,500,000 5.49% due 06/11/98............... 1,497,713
1,000,000 5.48% due 07/08/98............... 994,368
1,000,000 5.47% due 07/13/98............... 993,618
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- ----------- -----------
<S> <C> <C>
FINANCE COMPANIES - Continued
$1,000,000 IBM Credit Co.,
5.80% due 11/04/98................ $ 999,979
2,000,000 International Lease Finance Corp.,
5.46% due 07/16/98................ 1,986,350
-----------
37,520,357
-----------
FOODS - 3.71%
Archer Daniels Midland Co.:
3,000,000 5.52% due 06/02/98................ 2,999,540
1,100,000 5.50% due 07/22/98................ 1,091,429
1,500,000 5.48% due 06/08/98................ 1,498,402
Kellogg Co.,
1,500,000 5.50% due 06/05/98................ 1,499,083
-----------
7,088,454
-----------
INFORMATION PROCESSING - 1.72%
International Business Machines
Corp.:
2,000,000 5.81% due 10/01/98................ 1,999,820
1,300,000 5.50% due 08/11/98................ 1,285,899
-----------
3,285,719
-----------
MACHINERY - INDUSTRIAL/
SPECIALTY - 7.01%
5,613,000 Cooper Industries, Inc.,
5.67% due 06/01/98................ 5,613,000
Dover Corp.:
3,000,000 5.55% due 06/03/98................ 2,999,075
1,500,000 5.53% due 06/05/98................ 1,499,078
3,270,000 5.50% due 06/10/98................ 3,265,504
-----------
13,376,657
-----------
MERCHANDISE - SPECIALTY - 2.25%
Toys "R" Us, Inc.:
1,300,000 5.50% due 07/02/98................ 1,293,843
3,000,000 5.48% due 06/15/98................ 2,993,607
-----------
4,287,450
-----------
OIL - INTEGRATED DOMESTIC - 3.14%
Atlantic Richfield Co.:
3,000,000 5.52% due 06/12/98................ 2,994,940
3,000,000 5.46% due 06/18/98................ 2,992,265
-----------
5,987,205
-----------
</TABLE>
<PAGE> 188
================================================================================
MONEY MARKET FUND - STATEMENT OF NET ASSETS CONTINUED
74 May 31, 1998
================================================================================
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- --------------------------------------------------------------
<S> <C> <C>
SECURITIES RELATED - 8.45%
Merrill Lynch & Co., Inc.:
$2,100,000 5.52% due 08/12/98................ $ 2,076,815
1,300,000 5.51% due 06/17/98................ 1,296,816
1,350,000 5.51% due 07/27/98................ 1,338,429
2,700,000 5.51% due 08/19/98................ 2,667,353
1,100,000 5.49% due 06/30/98................ 1,095,135
Morgan Stanley, Dean Witter,
Discover and Co.:
2,500,000 5.50% due 06/15/98................ 2,494,653
2,500,000 5.50% due 06/24/98................ 2,491,215
2,689,000 5.49% due 07/20/98................ 2,668,906
------------
16,129,322
------------
UTILITIES - COMMUNICATION - 8.43%
BellSouth Telecomm:
900,000 5.50% due 08/21/98................ 888,863
3,000,000 5.49% due 07/24/98................ 2,975,752
2,200,000 5.48% due 06/04/98................ 2,198,995
2,000,000 5.46% due 06/22/98................ 1,993,630
GTE Corp.:
2,000,000 5.55% due 06/22/98................ 1,993,525
2,500,000 5.55% due 07/23/98................ 2,479,958
1,500,000 5.53% due 06/09/98................ 1,498,157
2,077,000 5.53% due 06/17/98................ 2,071,895
------------
16,100,775
------------
TOTAL CORPORATE SHORT TERM
COMMERCIAL PAPER
(Cost $171,005,472)................. 171,005,472
------------
CORPORATE SHORT TERM
OBLIGATIONS - 2.62%
SECURITIES RELATED - 2.62%
Bear Stearns Co. Inc.:
2,000,000 Floating rate note due 07/06/98,
5.61188% at 05/31/98............. 2,000,000
3,000,000 Floating rate note due 07/30/98,
5.65875% at 05/31/98............. 3,000,000
------------
5,000,000
------------
TOTAL CORPORATE SHORT TERM
OBLIGATIONS
(Cost $5,000,000)................... 5,000,000
------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- --------------------------------------------------------------
<S> <C> <C>
UNITED STATES GOVERNMENT
SHORT TERM - 8.38%
Federal Farm Credit Bank:
$1,000,000 5.75% due 09/11/98................ $ 999,827
2,000,000 5.70% due 11/03/98................ 2,000,117
1,000,000 5.50% due 04/01/99................ 998,562
Federal Home Loan Bank:
2,000,000 5.72% due 10/06/98................ 2,000,271
1,000,000 5.70% due 10/23/98................ 999,771
1,000,000 5.60% due 03/10/99................ 1,000,039
1,000,000 5.56% due 03/25/99................ 999,126
1,000,000 5.50% due 03/26/99................ 999,143
Federal National Mortgage
Association:
1,000,000 5.68% due 10/23/98................ 999,507
1,000,000 5.65% due 04/09/99................ 999,769
1,000,000 5.63% due 05/05/99................ 999,176
2,000,000 5.57% due 05/07/99................ 1,996,721
1,000,000 Student Loan Marketing Association,
5.79% due 09/16/98................ 1,000,057
-------------
15,992,086
-------------
TOTAL UNITED STATES GOVERNMENT
SHORT TERM
(Cost $15,992,086).................. 15,992,086
-------------
TOTAL INVESTMENTS
(Cost $191,997,558) - 100.58%....... 191,997,558
Other assets and liabilities,
net - (0.58%)...................... (1,022,108)
-------------
NET ASSETS (equivalent
to $1.00 per share on
190,975,450 shares
outstanding) - 100% ............... $ 190,975,450
-------------
</TABLE>
<TABLE>
<CAPTION>
PAR MARKET
VALUE VALUE
- --------------------------------------------------------------
<S> <C> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $.01 par value per share,
1,000,000,000 shares authorized,
190,975,450 shares outstanding................ $ 1,909,754
Additional paid in capital...................... 189,065,696
------------
NET ASSETS APPLICABLE TO SHARES
OUTSTANDING..................................... 190,975,450
============
</TABLE>
<PAGE> 189
================================================================================
MONEY MARKET FUND - FINANCIAL STATEMENTS
75
================================================================================
<TABLE>
<S> <C>
STATEMENT OF OPERATIONS
For the fiscal year ended May 31, 1998
INVESTMENT INCOME:
Interest............................................................. $ 8,554,039
-----------
EXPENSES:
Advisory fees........................................................ 752,732
Custodian and accounting services.................................... 32,727
Reports to shareholders.............................................. 11,862
Audit fees and tax services.......................................... 4,093
Directors' fees and expenses......................................... 3,069
Miscellaneous........................................................ 9,824
-----------
Total expenses..................................................... 814,307
-----------
NET INVESTMENT INCOME................................................ 7,739,732
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS..................... $ 7,739,732
===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended May 31:
<S> <C> <C>
1996 1997
------------ -------------
OPERATIONS:
Net investment income.................................. $ 7,739,732 $ 5,637,643
------------ -------------
Increase in net assets resulting from operations..... 7,739,732 5,637,643
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................. (7,739,732) (5,637,643)
------------ -------------
CAPITAL STOCK TRANSACTIONS:
Proceeds from capital stock sold....................... 331,782,891 294,478,892
Proceeds from capital stock
issued for distributions reinvested.................. 7,739,732 5,637,643
------------ -------------
339,522,623 300,116,535
Cost of capital stock repurchased...................... (276,671,818) (255,609,535)
------------ -------------
Increase in net assets resulting from
capital stock transactions......................... 62,850,805 44,507,000
------------ -------------
TOTAL INCREASE IN NET ASSETS........................... 62,850,805 44,507,000
NET ASSETS:
Beginning of year...................................... 128,124,645 83,617,645
------------ ------------
End of year............................................ $190,975,450 $128,124,645
------------ ------------
CHANGE IN SHARES OUTSTANDING
Shares of capital stock sold........................... 331,782,891 294,478,892
Shares issued for distributions reinvested............. 7,739,732 5,637,643
Shares of capital stock repurchased ................... (276,671,818) (255,609,535)
------------ ------------
Increase in shares outstanding....................... 62,850,805 44,507,000
Shares outstanding:
Beginning of year.................................... 128,124,645 83,617,645
------------ ------------
End of year.......................................... 190,975,450 128,124,645
============ ============
</TABLE>
<PAGE> 190
================================================================================
NOTES TO FINANCIAL STATEMENTS
76
================================================================================
NOTE 1 -- ORGANIZATION
The American General Series Portfolio Company (the "Series") consists of
thirteen separate investment portfolios (the "Funds"):
Stock Index Fund
MidCap Index Fund
Small Cap Index Fund
International Equities Fund
Growth Fund
Growth & Income Fund
Science & Technology Fund
Social Awareness Fund
Asset Allocation Fund (formerly Timed Opportunity Fund)
Capital Conservation Fund
Government Securities Fund
International Government Bond Fund
Money Market Fund
The Series is registered under the Investment Company Act of 1940 (the
"1940 Act"), as amended, as an open-end management investment company. Each Fund
is diversified with the exception of International Government Bond Fund which is
non-diversified as defined by the 1940 Act.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). GAAP requires accruals which
occasionally are based upon management estimates. The following is a summary of
significant accounting policies consistently followed by each Fund in the
preparation of its financial statements.
A. INVESTMENT VALUATION
Securities listed or traded on a national exchange are valued daily at their
last reported sale price. In the absence of any exchange sales on that day and
for unlisted issues, 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, securities are valued at the last reported bid price. However, options
written for which other over-the-counter market quotations are readily available
are valued at the last reported asked price, in the absence of any National
Market System sales on that day. Futures contracts, options thereon, and options
on stock indexes are valued at the amount which would be received upon a current
disposition of such investments (i.e., their fair market value), in the absence
of any sales on that day. Short term debt securities for which market quotations
are readily available are valued at the last reported bid price. However, any
short term security with a remaining maturity of 60 days or less and all
investments of the Money Market Fund are valued by the amortized cost method
which approximates fair market value. Investments for which market quotations
are not readily available are valued at fair value as determined in good faith
by, or under authority delegated by, the Series' Board of Directors.
B. OPTIONS AND FUTURES
Call and Put Options. When a Fund writes a call or a put option, an amount
equal to the premium received is recorded as a liability. The liability is
"marked to market" daily to reflect the current market value of the option
written. When a written option expires, the Fund realizes a gain in the amount
of the premium originally received. If the Fund enters into a closing purchase
transaction, the Fund realizes a gain or loss in the amount of the original
premium less the cost of the closing transaction. If a written call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security, and the proceeds from such sale are increased by the premium
originally received. If a written put option is exercised, the amount of the
premium originally received reduces the cost of the security which the Fund
purchases upon exercise of the option.
Purchased options are recorded as investments. If a purchased option
expires, the Fund realizes a loss in the amount of the cost of the option. If
the Fund enters into a closing transaction, it realizes a gain (or loss), to the
extent that the proceeds from the sale are greater (or less) than the cost of
the option. If the Fund exercises a put option, it realizes a gain or loss from
the sale of the underlying security by adjusting the proceeds from such sale by
the amount of the premium originally paid. If the Fund exercises a call option,
the cost of the security purchased upon exercise is increased by the premium
originally paid.
FUTURES CONTRACTS. The initial margin deposit made upon entering into a
futures contract is held by the custodian, in a segregated account, in the name
of the broker (the Fund's agent in acquiring the futures position). During the
period the futures contract is open, changes in the value of the contract are
recognized as unrealized gains or losses by "marking to market" on a daily basis
to reflect the market value of the contract at the end of each day's trading.
Variation margin payments are received or made daily, as unrealized gains or
losses are incurred. When the contract is closed, the Fund realizes a gain or
loss in the amount of the cost of or proceeds from the closing transaction less
the Fund's basis in the contract.
C. REPURCHASE AGREEMENTS
The seller of a repurchase agreement collateralizes the agreement with
securities delivered to the Fund's custodian bank. The Adviser determines, on a
daily basis, that the seller maintains collateral of at least 100% of the
repurchase proceeds due to the Fund at maturity.
D. FOREIGN CURRENCY TRANSLATION
The accounting records of each Fund are maintained in U.S. dollars.
Transactions denominated in foreign currencies ("local currencies") are
translated into U.S. dollars at prevailing exchange rates on transaction date.
Net realized gains or losses on foreign currency transactions include
exchange rate gains and losses from disposition of foreign currencies, currency
gains and losses realized between trade and settlement dates of security
transactions, and currency gains and losses realized on settlement of other
assets and liabilities settled in local currencies.
In determining realized and unrealized gains or losses on foreign
securities for the period, the Funds do not isolate exchange rate fluctuations
from local security price fluctuations. Foreign currencies and other assets and
liabilities denominated in local currencies are marked-to-market daily to
reflect fluctuations in foreign exchange rates.
E. FEDERAL INCOME TAXES
Each Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code and to distribute all
of its taxable net investment income and taxable net realized capital gains, in
excess of any available capital loss carryovers. Therefore no federal income tax
provision is required.
<PAGE> 191
================================================================================
NOTES TO FINANCIAL STATEMENTS
77
================================================================================
F. INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains
and losses are determined on the basis of identified cost. Dividend income is
recorded on the ex-dividend date, except for dividend income on certain foreign
securities which is recorded when the Fund becomes aware of the dividend.
Interest income on investments is accrued daily.
G. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the record date. The Funds
declare distributions from net investment income monthly, except for the Money
Market Fund, which declares daily. Capital gains distributions are declared
annually.
Investment income and capital gains and losses are recognized in accordance
with generally accepted accounting principles ("book"). Distributions from net
investment income and realized capital gains are based on earnings as determined
in accordance with federal tax regulations ("tax") which may differ from book
basis earnings. At the end of the year, offsetting adjustments to undistributed
net investment income and undistributed net realized gains (losses) are made to
eliminate permanent book/tax differences arising in the current year.
NOTE 3 -- ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
VALIC (the "Adviser") serves as investment adviser to the Series. VALIC is
an indirect wholly-owned subsidiary of American General Corporation, Houston,
Texas. On May 1, 1992, the Adviser entered into a sub-advisory agreement with
Bankers Trust Company ("Bankers Trust"), a wholly-owned subsidiary of Bankers
Trust New York Corporation, to serve as investment sub-adviser to the Stock
Index Fund, the MidCap Index Fund, and the Small Cap Index Fund. On April 29,
1994, the Adviser entered into sub-advisory agreements with T. Rowe Price
Associates, Inc. to serve as investment sub-adviser to the Growth Fund and the
Science & Technology Fund, and with Value Line, Inc., to serve as investment
sub-adviser to the Growth & Income Fund. Sub-advisers are compensated for such
services by the Adviser.
The Adviser receives from the Series a monthly fee based on each Fund's
average daily net asset value at the following annual rates: for Stock Index
Fund, MidCap Index Fund, Small Cap Index Fund and International Equities Fund
.35% on the first $500 million and .25% on the excess over $500 million; for
Social Awareness Fund, Asset Allocation Fund, Capital Conservation Fund,
Government Securities Fund, International Government Bond Fund, and Money Market
Fund, .50%; for Growth & Income Fund, .75%; for Growth Fund, .80%; for Science &
Technology Fund, .90%.
To the extent that any Fund's accrued expenses for a given month exceed, on
an annualized basis, 2% of the Fund's average daily net assets, the Adviser will
voluntarily reduce expenses of any such Fund by the amount of the excess. The
Adviser may withdraw this voluntary undertaking upon 30 days written notice to
the Series.
On October 31, 1996, the Series entered into an accounting services
agreement with VALIC which appointed VALIC as Accounting Services Agent. Under
the agreement VALIC will provide, or cause to be provided, certain accounting
and administrative services to the Series. During the year ended May 31, 1998,
the Series paid VALIC $855,162 for such services provided directly by VALIC.
VALIC provided to the Series, at cost, certain services associated with the
printing of reports to shareholders. During the fiscal year ended May 31, 1998,
the Series paid $10,971 for such services.
During the fiscal year ended May 31, 1998, security transactions were
affected between the following Funds at the then current market price with no
brokerage commissions incurred:
<TABLE>
<CAPTION>
SELLER PURCHASER COST TO PURCHASER NET GAIN TO SELLER
- -------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
MidCap Index Fund Stock Index Fund $20,433,419 $12,850,048
Stock Index Fund MidCap Index Fund 1,016,474 600,277
Small Cap Index Fund MidCap Index Fund 70,400 18,156
</TABLE>
At May 31, 1998, VALIC Separate Account A (a registered separate account of
VALIC) and VALIC owned over five percent of the outstanding shares of the
following Funds:
<TABLE>
<CAPTION>
VALIC SEPARATE
ACCOUNT A
--------------
<S> <C>
Stock Index Fund.............................................. 96.95%
MidCap Index Fund............................................. 100.00
Small Cap Index Fund.......................................... 100.00
International Equities Fund................................... 99.96
Growth Fund................................................... 97.69
Growth & Income Fund.......................................... 100.00
Science & Technology Fund..................................... 100.00
Social Awareness Fund......................................... 99.99
Asset Allocation Fund......................................... 99.95
Capital Conservation Fund..................................... 99.47
Government Securities Fund.................................... 100.00
International Government Bond Fund............................ 100.00
Money Market Fund............................................. 100.00
</TABLE>
Certain officers and directors of the Series are officers and directors of
VALIC or American General Corporation.
NOTE 4 -- INVESTMENT ACTIVITY
The information in the following table is presented on the basis of cost
for federal income tax purposes at May 31,1998.
<TABLE>
<CAPTION>
IDENTIFIED COST GROSS GROSS NET UNREALIZED
OF INVESTMENTS UNREALIZED UNREALIZED APPRECIATION
OWNED APPRECIATION DEPRECIATION (DEPRECIATION)
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stock Index Fund .................. $ 1,690,305,856 $ 1,813,294,495 $ 27,807,645 $ 1,785,486,850
MidCap Index Fund ................. 539,426,341 292,072,472 29,012,775 263,059,697
Small Cap Index Fund .............. 191,880,517 70,403,693 16,527,699 53,875,994
International Equities Fund ....... 116,325,350 60,941,263 23,709,405 37,231,858
Growth Fund ....................... 823,952,075 305,250,052 26,051,256 279,198,796
Growth & Income Fund .............. 204,371,731 73,811,981 6,885,909 66,926,072
Science & Technology Fund ......... 933,282,452 138,508,705 46,951,932 91,556,773
Social Awareness Fund ............. 286,826,157 51,590,026 4,970,871 46,619,155
Asset Allocation Fund ............. 155,071,503 45,808,444 1,941,441 43,867,003
Capital Conservation Fund ......... 61,317,620 1,963,553 719,071 1,244,482
Government Securities Fund ........ 87,388,386 3,087,643 71,621 3,016,022
International Government
Bond Fund ...................... 158,458,728 5,390,646 11,950,134 (6,559,488)
Money Market Fund ................. 191,997,558 -- -- --
</TABLE>
The following net realized capital loss carryforwards at May 31, 1998, may
be utilized to offset future capital gains.
<TABLE>
<CAPTION>
CAPITAL LOSS CARRYFORWARD EXPIRATION THROUGH
----------------------------------------------
<S> <C> <C>
Capital Conservation Fund........... $ 517,286 May 31, 2003
Government Securities Fund.......... 1,734,344 May 31, 2003
Money Market Fund................... 3,017 May 31, 2004
</TABLE>
<PAGE> 192
================================================================================
NOTES TO FINANCIAL STATEMENTS
78
================================================================================
During the period, the cost of purchases and proceeds from sales of
securities, excluding short term securities were:
<TABLE>
<CAPTION>
Cost of Proceeds from
Securities Securities Sold
Purchased or Matured
-------------- --------------
<S> <C> <C>
Stock Index Fund........................ $ 405,413,872 $ 87,617,371
MidCap Index Fund....................... 213,029,461 185,622,455
Small Cap Index Fund.................... 100,497,790 84,751,878
International Equities Fund............. 13,855,496 51,338,982
Growth Fund............................. 573,707,759 381,931,725
Growth & Income Fund.................... 206,759,036 183,186,836
Science & Technology Fund............... 1,381,981,685 1,140,937,153
Social Awareness Fund................... 399,387,329 277,756,979
Asset Allocation Fund................... 40,901,054 54,286,294
Capital Conservation Fund............... 8,777,152 14,450,296
Government Securities Fund.............. 24,632,462 20,475,563
International Government Bond Fund...... 27,372,470 43,955,348
</TABLE>
NOTE 5 -- PORTFOLIO SECURITIES LOANED
To realize additional income, a Fund may lend portfolio securities with a
value of up to 30% (33 1/3% in the case of Growth Fund and Science & Technology
Fund) of its total assets. Any such loans will be continuously secured by
collateral consisting of cash or U.S. Government securities, maintained in a
segregated account, at least equal to the market value of the securities loaned.
The risks in lending portfolio securities, as with other extensions of secured
credit, consist of possible delays in receiving additional collateral or in the
recovery of the securities or possible loss of rights in the collateral should
the borrower fail financially. Loans by a Fund will only be made to
broker-dealers deemed by the Custodian to be creditworthy and will not be made
unless, in the judgment of the Adviser, the consideration to be earned from such
loans would justify the risk. Each Fund receives income earned on the securities
loaned during the lending period and a portion of the interest or rebate earned
on the collateral received.
Portfolio securities on loan at May 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Market Value Collateral Value
------------ ----------------
<S> <C> <C>
Stock Index Fund....................... $ 11,699,781 $ 12,181,300
MidCap Index Fund...................... 14,927,604 15,530,058
Small Cap Index Fund................... 13,684,195 14,319,771
International Equities Fund............ 4,623,275 4,761,605
Growth & Income Fund................... 5,454,666 5,732,494
Science & Technology Fund.............. 26,557,536 27,784,445
Social Awareness Fund.................. 893,750 920,000
Asset Allocation Fund.................. 439,690 456,252
Capital Conservation Fund.............. 2,102,551 2,148,400
------------ ----------------
Total............................... $ 80,383,048 $ 83,834,325
------------ ----------------
</TABLE>
NOTE 6 -- INVESTMENT CONCENTRATION
A significant portion of Government Securities Fund's investments may be in
U.S. Government sponsored securities. No assurance can be given that the U.S.
Government will provide support to such U.S. Government sponsored agencies or
instrumentalities in the future since it is not required to do so by law. As a
result of the Fund's concentration in such investments, it may be subject to
risks associated with U.S. Government sponsored securities. At May 31, 1998,
Government Securities Fund had 62% of its net assets invested in such
securities.
At May 31, 1998, International Government Bond Fund had 21% of its net
assets invested in securities issued by the Government of Japan and an
additional 5% in issues of companies located in Japan and/or denominated in
Japanese Yen. Future economic and political developments in a foreign country
could adversely affect the liquidity and value of foreign securities or the
currency exchange rates from which foreign currencies are translated.
<PAGE> 193
================================================================================
FINANCIAL HIGHLIGHTS
79
================================================================================
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of dividends on the reinvestment
date. Total returns and ratios for periods of less than one year are not
annualized. The average commission rate paid on investment equity securities (on
a per share basis) is presented for the periods beginning June 1, 1996.
STOCK INDEX FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ....... $ 26.09 $ 20.69 $ 16.81 $ 14.39 $ 14.36
---------- ---------- ---------- -------------- ----------
Income from investment operations:
Net investment income .................... 0.40 0.39 0.39 0.37 0.35
Net realized and unrealized gain
on securities ........................... 7.44 5.57 4.26 2.45 0.12
---------- ---------- ---------- -------------- ----------
Total income from investment operations .. 7.84 5.96 4.65 2.82 0.47
---------- ---------- ---------- -------------- ----------
Distributions:
Distributions from net investment
income .................................. (0.40) (0.39) (0.38) (0.37) (0.35)
Distributions from net realized gain
on securities ........................... (0.15) (0.17) (0.39) (0.03) (0.09)
---------- ---------- ---------- -------------- ----------
Total distributions ...................... (0.55) (0.56) (0.77) (0.40) (0.44)
---------- ---------- ---------- -------------- ----------
Net asset value at end of period ............. $ 33.38 $ 26.09 $ 20.69 $ 16.81 $ 14.39
---------- ---------- ---------- -------------- ----------
TOTAL RETURN ................................. 30.30% 29.24% 28.17% 19.98% 3.29%
========== ========== ========== ============== ==========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets .... 0.31% 0.34% 0.35% 0.38% 0.39%
Ratio of net investment income to
average net assets ........................ 1.33% 1.76% 2.05% 2.44% 2.44%
Portfolio turnover rate .................... 3% 3% 3% 14% 3%
Number of shares outstanding at end
of period (000's) ......................... 104,334 93,687 85,117 75,451 75,494
Net assets at end of period (000's) ........ $3,482,655 $2,444,200 $1,760,786 $ 1,267,992 $1,086,459
Average net assets during the
period (000's) ............................ $2,968,059 $2,019,826 $1,498,398 $ 1,140,085 $1,030,581
Average commission rate paid ............... $ 0.0238 $ 0.0281 n/a n/a n/a
</TABLE>
MIDCAP INDEX FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ....... $ 20.83 $ 19.09 $ 15.68 $ 14.54 $ 14.38
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .................... 0.23 0.24 0.24 0.26 0.23
Net realized and unrealized gain
on securities ........................... 5.80 2.95 4.06 1.59 0.28
-------- -------- -------- -------- --------
Total income from investment operations .. 6.03 3.19 4.30 1.85 0.51
-------- -------- -------- -------- --------
Distributions:
Distributions from net investment
income .................................. (0.23) (0.24) (0.24) (0.26) (0.23)
Distributions from net realized gain
on securities ........................... (1.36) (1.21) (0.65) (0.45) (0.12)
-------- -------- -------- -------- --------
Total distributions ...................... (1.59) (1.45) (0.89) (0.71) (0.35)
-------- -------- -------- -------- --------
Net asset value at end of period ............. $ 25.27 $ 20.83 $ 19.09 $ 15.68 $ 14.54
-------- -------- -------- -------- --------
TOTAL RETURN ................................. 29.62% 17.48% 28.10% 13.26% 3.52%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets .... 0.36% 0.40% 0.41% 0.44% 0.46%
Ratio of net investment income to
average net assets ........................ 0.95% 1.24% 1.36% 1.73% 1.62%
Portfolio turnover rate .................... 26% 19% 21% 23% 17%
Number of shares outstanding at end
of period (000's) ......................... 31,830 29,137 28,322 25,988 24,001
Net assets at end of period (000's) ........ $804,318 $607,061 $540,688 $407,557 $349,041
Average net assets during the
period (000's) ............................ $722,652 $554,397 $477,372 $376,486 $285,247
Average commission rate paid ............... $ 0.0278 $ 0.0277 n/a n/a n/a
</TABLE>
<PAGE> 194
================================================================================
FINANCIAL HIGHLIGHTS CONTINUED
80
================================================================================
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of dividends on the reinvestment
date. Total returns and ratios for periods of less than one year are not
annualized. The average commission rate paid on investment equity securities (on
a per share basis) is presented for the periods beginning June 1, 1996.
SMALL CAP INDEX FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ........ $ 16.18 $ 16.25 $ 12.49 $ 11.52 $ 11.28
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ...................... 0.19 0.19 0.20 0.17 0.13
Net realized and unrealized gain
on securities ............................ 3.17 0.93 4.04 0.97 0.58
-------- -------- -------- -------- --------
Total income from investment
operations ............................... 3.36 1.12 4.24 1.14 0.71
-------- -------- -------- -------- --------
Distributions:
Distributions from net investment income ... (0.19) (0.19) (0.20) (0.17) (0.13)
Distributions from net realized gain
on securities ............................ (1.41) (1.00) (0.28) -- (0.34)
-------- -------- -------- -------- --------
Total distributions ......................... (1.60) (1.19) (0.48) (0.17) (0.47)
-------- -------- -------- -------- --------
Net asset value at end of period .............. $ 17.94 $ 16.18 $ 16.25 $ 12.49 $ 11.52
======== ======== ======== ======== ========
TOTAL RETURN .................................. 21.34% 7.51% 34.50% 9.98% 6.18%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets ....... 0.39% 0.41% 0.41% 0.44% 0.47%
Ratio of net investment income to
average net assets .......................... 1.05% 1.34% 1.36% 1.44% 1.10%
Portfolio turnover rate ....................... 36% 42% 31% 34% 16%
Number of shares outstanding at
end of period (000's) ....................... 13,777 11,893 11,129 10,136 9,381
Net assets at end of period (000's) .......... $247,183 $192,459 $180,785 $126,567 $108,050
Average net assets during the period (000's) .. $227,757 $178,368 $150,448 $120,298 $ 70,690
Average commission rate paid .................. $ 0.0162 $ 0.0297 n/a n/a n/a
</TABLE>
INTERNATIONAL EQUITIES FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period .................. $ 11.44 $ 11.15 $ 10.42 $ 10.14 $ 8.99
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ................................ 0.23 0.20 0.17 0.15 0.11
Net realized and unrealized gain
on securities and foreign currencies ............... 0.85 0.63 0.97 0.34 1.17
-------- -------- -------- -------- --------
Total income from investment
operations ........................................ 1.08 0.83 1.14 0.49 1.28
-------- -------- -------- -------- --------
Distributions:
Distributions from net investment income ............. (0.24) (0.19) (0.17) (0.15) (0.11)
Distributions from net realized gain
on securities ...................................... (0.33) (0.35) (0.24) (0.06) (0.02)
-------- -------- -------- -------- --------
Total distributions .................................. (0.57) (0.54) (0.41) (0.21) (0.13)
-------- -------- -------- -------- --------
Net asset value at end of period ........................ $ 11.95 $ 11.44 $ 11.15 $ 10.42 $ 10.14
======== ======== ======== ======== ========
TOTAL RETURN ............................................ 9.92% 7.74% 11.14% 4.92% 14.31%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets ................. 0.40% 0.42% 0.42% 0.45% 0.47%
Ratio of net investment income to
average net assets .................................... 1.92% 1.75% 1.65% 1.47% 1.43%
Portfolio turnover rate ................................. 9% 12% 20% 14% 7%
Number of shares outstanding at
end of period (000's) ................................. 13,009 15,857 18,497 20,074 17,273
Net assets at end of period (000's)...................... $155,469 $181,437 $206,259 $209,091 $175,183
Average net assets during the period (000's) ............ $165,984 $191,117 $204,792 $199,235 $117,264
Average commission rate paid ............................ $ 0.0332 $ 0.0236 n/a n/a n/a
</TABLE>
<PAGE> 195
================================================================================
FINANCIAL HIGHLIGHTS CONTINUED
81
================================================================================
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of dividends on the reinvestment
date. Total returns and ratios for periods of less than one year are not
annualized. The average commission rate paid on investment equity securities (on
a per share basis) is presented for the periods beginning June 1, 1996.
GROWTH FUND
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL YEAR ENDED MAY 31, APRIL 29, 1994
----------------------------------------------------- TO
1998 1997 1996 1995 MAY 31, 1994
----------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ........... $ 17.62 $ 16.49 $ 11.43 $ 9.87 $ 10.00(1)
----------- -------- --------- --------- -------
Income (loss) from investment operations:
Net investment (loss) income ................. (0.02) 0.02 0.11 0.04 0.01
Net realized and unrealized gain (loss)
on securities ............................... 4.82 1.45 5.27 1.56 (0.13)
----------- -------- --------- --------- -------
Total income (loss) from investment
operations .................................. 4.80 1.47 5.38 1.60 (0.12)
----------- -------- --------- --------- -------
Distributions:
Distributions from net investment income ..... (0.01) (0.01) (0.09) (0.04) (0.01)
Distributions from net realized gain (loss)
on securities ............................... (0.33) (0.33) (0.23) -- --
----------- --------- --------- --------- -------
Total distributions .......................... (0.34) (0.34) (0.32) (0.04) (0.01)
----------- --------- --------- --------- -------
Net asset value at end of period ................. $ 22.08 $ 17.62 $ 16.49 $ 11.43 $ 9.87
=========== ========= ========= ========= =======
TOTAL RETURN ..................................... 27.41% 9.00% 47.46% 16.25% (1.19)%
=========== ========= ========= ========= =======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets ........ 0.84% 0.86% 0.83% 0.91% 0.08%
Ratio of net investment (loss) income to
average net assets ............................ (0.11%) 0.09% 0.89% 0.41% 0.11%
Portfolio turnover rate ........................ 43% 40% 36% 61% 0%
Number of shares outstanding at end
of period (000's) ............................. 49,832 42,422 25,826 8,800 1,001
Net assets at end of period (000's) ............ $1,100,137 $747,654 $425,787 $100,614 $ 9,885
Average net assets during the period (000's) ... $ 946,335 $588,056 $238,228 $ 42,232 $ 9,944
Average commission rate paid ................... $ 0.0474 $ 0.0499 n/a n/a n/a
</TABLE>
(1) The net asset value at the beginning of the period is as of commencement of
operations on April 29, 1994.
GROWTH & INCOME FUND
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL YEAR ENDED MAY 31, APRIL 29, 1994
----------------------------------------------------- TO
1998 1997 1996 1995 MAY 31, 1994
--------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ........... $ 16.86 $ 14.78 $ 11.09 $ 9.87 $10.00(1)
--------- --------- -------- -------- ------
Income (loss) from investment operations:
Net investment income ........................ 0.08 0.10 0.08 0.09 0.02
Net realized and unrealized gain (loss)
on securities ............................... 3.26 2.38 3.77 1.22 (0.13)
--------- --------- -------- -------- ------
Total income (loss) from investment
operations .................................. 3.34 2.48 3.85 1.31 (0.11)
--------- --------- -------- -------- ------
Distributions:
Distributions from net investment income ..... (0.08) (0.10) (0.07) (0.09) (0.02)
Distributions from net realized gain (loss)
on securities ............................... (0.21) (0.29) (0.09) -- --
--------- --------- --------- -------- ------
Total distributions .......................... (0.29) (0.39) (0.16) (0.09) (0.02)
--------- --------- --------- -------- ------
Net asset value at end of period ................. $ 19.91 $ 16.87 $ 14.78 $ 11.09 $ 9.87
========= ========= ========= ======== ======
TOTAL RETURN ..................................... 19.87% 17.08% 34.85% 13.35% (1.11)%
========= ========= ========= ======== ======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets ........ 0.80% 0.81% 0.79% 0.86% 0.07%
Ratio of net investment income to
average net assets ............................ 0.43% 0.70% 0.63% 0.93% 0.22%
Portfolio turnover rate ........................ 78% 45% 64% 97% 11%
Number of shares outstanding at end
of period (000's) ............................. 13,619 12,422 7,685 3,867 1,002
Net assets at end of period (000's) ............ $271,159 $209,545 $113,546 $42,867 $9,890
Average net assets during the period (000's) ... $252,647 $161,226 $ 75,158 $21,910 $9,946
Average commission rate paid ................... $ 0.0500 $ 0.0500 n/a n/a n/a
</TABLE>
(1) The net asset value at the beginning of the period is as of commencement of
operations on April 29, 1994.
<PAGE> 196
================================================================================
FINANCIAL HIGHLIGHTS CONTINUED
82
================================================================================
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of dividends on the reinvestment
date. Total returns and ratios for periods of less than one year are not
annualized. The average commission rate paid on investment equity securities (on
a per share basis) is presented for the periods beginning June 1, 1996.
SCIENCE & TECHNOLOGY FUND
<TABLE>
<CAPTION>
PERIOD FROM
FISCAL YEAR ENDED MAY 31, APRIL 29, 1994
----------------------------------------------------- TO
1998 1997 1996 1995 MAY 31, 1994
----------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period .......... $ 19.88 $ 20.48 $ 14.43 $ 9.83 $ 10.00(1)
----------- --------- --------- --------- --------
Income (loss) from investment operations:
Net investment (loss) income ................ (0.09) -- -- 0.03 --
Net realized and unrealized gain (loss)
on securities and foreign currencies ....... 2.28 0.33 8.08 4.72 (0.17)
----------- --------- --------- --------- --------
Total income (loss) from investment
operations ................................. 2.19 0.33 8.08 4.75 (0.17)
----------- --------- --------- --------- --------
Distributions:
Distributions from net investment income .... -- -- -- (0.02) --
Distributions from net realized gain
on securities .............................. -- (0.93) (2.03) (0.13) --
----------- --------- --------- --------- --------
Total distributions .......................... -- (0.93) (2.03) (0.15) --
----------- --------- --------- --------- --------
Net asset value at end of period ................ $ 22.07 $ 19.88 $ 20.48 $ 14.43 $ 9.83
=========== ========= ========= ========= ========
TOTAL RETURN .................................... 10.85% 1.81% 58.28% 48.61% (1.66)%
=========== ========= ========= ========= ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets ....... 0.95% 0.96% 0.94% 1.00% 0.08%
Ratio of net (loss) investment income to
average net assets ........................... (0.46)% (0.29)% (0.07)% 0.36% 0.04%
Portfolio turnover rate ....................... 128% 122% 116% 121% 0%
Number of shares outstanding at end
of period (000's) ............................ 46,355 40,484 27,696 11,550 1,001
Net assets at end of period (000's) ........... $ 1,023,141 $ 804,982 $ 567,187 $ 166,683 $ 9,834
Average net assets during the period (000's) .. $ 949,947 $ 664,608 $ 363,087 $ 64,974 $ 9,918
Average commission rate paid .................. $ 0.0455 $ 0.0393 n/a n/a n/a
</TABLE>
(1) The net asset value at the beginning of the period is as of commencement of
operations on April 29, 1994.
SOCIAL AWARENESS FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ....... $ 17.90 $ 15.49 $ 13.02 $ 11.98 $ 12.12
--------- --------- -------- -------- --------
Income from investment operations:
Net investment income .................... 0.23 0.24 0.26 0.27 0.26
Net realized and unrealized gain (loss)
on securities ........................... 5.07 4.19 3.37 1.75 (0.02)
--------- --------- -------- -------- --------
Total income from investment operations .. 5.30 4.43 3.63 2.02 0.24
--------- --------- -------- -------- --------
Distributions:
Distributions from net investment
income .................................. (0.23) (0.24) (0.25) (0.27) (0.26)
Distributions from net realized gain
on securities ........................... (0.81) (1.78) (0.91) (0.71) (0.12)
--------- --------- -------- -------- --------
Total distributions ...................... (1.04) (2.02) (1.16) (0.98) (0.38)
--------- --------- -------- -------- --------
Net asset value at end of period ............. $ 22.16 $ 17.90 $ 15.49 $ 13.02 $ 11.98
========= ========= ======== ======== ========
TOTAL RETURN ................................. 30.34% 30.48% 28.85% 18.19% 1.97%
========= ========= ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets .... 0.54% 0.56% 0.56% 0.58% 0.60%
Ratio of net investment income to
average net assets ........................ 1.17% 1.53% 1.80% 2.22% 2.19%
Portfolio turnover rate .................... 120% 109% 117% 148% 83%
Number of shares outstanding at end
of period (000's) ......................... 15,080 8,677 5,220 4,143 3,817
Total net assets at end of period (000's) .. $ 334,167 $ 155,349 $ 80,887 $ 53,927 $ 45,729
Average net assets during the
period (000's) ............................ $ 240,782 $ 106,139 $ 66,888 $ 47,942 $ 41,002
Average commission rate paid ............... $ 0.0431 $ 0.0400 n/a n/a n/a
</TABLE>
<PAGE> 197
================================================================================
FINANCIAL HIGHLIGHTS CONTINUED
83
================================================================================
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of dividends on the reinvestment
date. Total returns and ratios for periods of less than one year are not
annualized. The average commission rate paid on investment equity securities (on
a per share basis) is presented for the periods beginning June 1, 1996.
ASSET ALLOCATION FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ....... $ 12.57 $ 12.55 $ 11.24 $ 10.84 $ 11.18
--------- --------- ------------- ------------- -------------
Income from investment operations:
Net investment income .................... 0.41 0.77 0.44 0.44 0.37
Net realized and unrealized gain (loss)
on securities ........................... 2.24 1.44 1.53 0.82 (0.15)
--------- --------- ------------- ------------- -------------
Total income from investment operations .. 2.65 2.21 1.97 1.26 0.22
--------- --------- ------------- ------------- -------------
Distributions:
Distributions from net investment
income .................................. (0.41) (0.78) (0.44) (0.44) (0.37)
Distributions from net realized gain
on securities ........................... (0.79) (1.41) (0.22) (0.42) (0.19)
--------- --------- ------------- ------------- -------------
Total distributions ...................... (1.20) (2.19) (0.66) (0.86) (0.56)
--------- --------- ------------- ------------- -------------
Net asset value at end of period ............. $ 14.02 $ 12.57 $ 12.55 $ 11.24 $ 10.84
========= ========= ============= ============= =============
TOTAL RETURN ................................. 21.94% 15.89% 17.90% 12.43% 1.86%
========= ========= ============= ============= =============
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets .... 0.54% 0.57% 0.57% 0.58% 0.59%
Ratio of net investment income to
average net assets ........................ 3.02% 3.26% 3.62% 4.03% 3.24%
Portfolio turnover rate .................... 24% 103% 119% 133% 76%
Number of shares outstanding at end
of period (000's) ......................... 14,269 14,107 15,142 16,319 17,956
Total net assets at end of period (000's) .. $ 200,099 $ 177,347 $ 190,024 $ 183,393 $ 194,576
Average net assets during the
period (000's) ............................ $ 188,184 $ 179,615 $ 187,576 $ 186,487 $ 185,036
Average commission rate paid ............... $ 0.0205 $ 0.0401 n/a n/a n/a
</TABLE>
CAPITAL CONSERVATION FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ....... $ 9.31 $ 9.23 $ 9.52 $ 9.13 $ 9.87
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income .................... 0.61 0.62 0.62 0.63 0.61
Net realized and unrealized gain (loss)
on securities ........................... 0.37 0.08 (0.29) 0.39 (0.69)
-------- -------- -------- -------- --------
Total income (loss) from investment
operations .............................. 0.98 0.70 0.33 1.02 (0.08)
-------- -------- -------- -------- --------
Distributions:
Distributions from net investment
income .................................. (0.61) (0.62) (0.62) (0.63) (0.61)
Distributions from net realized gain
on securities ........................... -- -- -- -- (0.05)
-------- -------- -------- -------- --------
Total distributions ...................... (0.61) (0.62) (0.62) (0.63) (0.66)
-------- -------- -------- -------- --------
Net asset value at end of period ............. $ 9.68 $ 9.31 $ 9.23 $ 9.52 $ 9.13
======== ======== ======== ======== ========
TOTAL RETURN ................................. 10.76% 7.75% 3.41% 11.80% (1.13)%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets .... 0.54% 0.57% 0.57% 0.58% 0.59%
Ratio of net investment income to
average net assets ........................ 6.32% 6.59% 6.47% 6.88% 6.24%
Portfolio turnover rate .................... 14% 45% 80% 100% 55%
Number of shares outstanding at end
of period (000's) ......................... 6,577 7,168 7,604 6,935 6,712
Total net assets at end of period (000's) .. $ 63,654 $ 66,747 $ 70,212 $ 66,031 $ 61,305
Average net assets during the
period (000's) ............................ $ 66,996 $ 69,352 $ 70,271 $ 61,568 $ 59,210
</TABLE>
<PAGE> 198
================================================================================
FINANCIAL HIGHLIGHTS CONTINUED
84
================================================================================
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of dividends on the reinvestment
date. Total returns and ratios for periods of less than one year are not
annualized. The average commission rate paid on investment equity securities (on
a per share basis) is presented for the periods beginning June 1, 1996.
GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ....... $ 9.67 $ 9.61 $ 9.89 $ 9.55 $ 10.30
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income .................... 0.58 0.59 0.61 0.60 0.55
Net realized and unrealized gain (loss)
on securities ........................... 0.42 0.06 (0.28 0.35 (0.59)
-------- -------- -------- -------- --------
Total income (loss) from investment
operations .............................. 1.00 0.65 0.33 0.95 (0.04)
-------- -------- -------- -------- --------
Distributions:
Distributions from net investment
income .................................. (0.58) (0.59) (0.61) (0.61) (0.55)
Distributions from net realized gain
on securities ........................... -- -- -- -- (0.16)
-------- -------- -------- -------- --------
Total distributions ...................... (0.58) (0.59) (0.61) (0.61) (0.71)
-------- -------- -------- -------- --------
Net asset value at end of period ............. $ 10.09 $ 9.67 $ 9.61 $ 9.89 $ 9.55
======== ======== ======== ======== ========
TOTAL RETURN ................................. 10.60% 6.94% 3.32% 10.43% (0.66)%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets .... 0.54% 0.56% 0.56% 0.58% 0.59%
Ratio of net investment income to
average net assets ........................ 5.82% 6.11% 6.21% 6.36% 5.44%
Portfolio turnover rate .................... 24% 38% 36% 229% 85%
Number of shares outstanding at end
of period (000's) ......................... 9,129 8,672 8,164 5,478 4,544
Total net assets at end of period (000's) .. $ 92,120 $ 83,827 $ 78,423 $ 54,174 $ 43,401
Average net assets during the
period (000's) ............................ $ 87,574 $ 83,293 $ 68,017 $ 45,200 $ 41,596
</TABLE>
INTERNATIONAL GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ....... $ 11.33 $ 11.79 $ 12.72 $ 10.97 $ 11.16
--------- --------- --------- -------- --------
Income (loss) from investment operations:
Net investment income .................... 0.56 0.63 0.65 0.65 0.62
Net realized and unrealized gain (loss)
on securities and foreign currencies .... (0.26) (0.49) (0.89) 1.80 (0.20)
--------- ---------- --------- -------- --------
Total income (loss) from investment
operations .............................. 0.30 0.14 (0.24) 2.45 0.42
--------- ---------- --------- -------- --------
Distributions:
Distributions from net investment
income .................................. (0.20) (0.58) (0.68) (0.70) (0.60)
Distributions from net realized gain
on securities ........................... (0.01) (0.02) (0.01) -- (0.01)
--------- ---------- --------- -------- --------
Total distributions .................... (0.21) (0.60) (0.69) (0.70) (0.61)
--------- ---------- --------- -------- --------
Net asset value at end of period ............. $ 11.42 $ 11.33 $ 11.79 $ 12.72 $ 10.97
========= ========== ========= ======== ========
TOTAL RETURN ................................. 2.65% 1.13% (1.91)% 23.23% 3.87%
========= ========== ========= ======== ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets .... 0.55% 0.56% 0.56% 0.59% 0.48%
Ratio of net investment income to
average net assets ........................ 4.70% 5.13% 5.45% 5.83% 5.87%
Portfolio turnover rate .................... 17% 4% 11% 6% 3%
Number of shares outstanding at end
of period (000's) ......................... 13,646 15,680 12,073 6,111 3,741
Total net assets at end of period (000's) .. $ 155,783 $ 177,709 $ 142,383 $ 77,734 $ 41,028
Average net assets during the
period (000's) ............................ $ 168,439 $ 166,147 $ 114,693 $ 51,451 $ 33,561
</TABLE>
<PAGE> 199
================================================================================
FINANCIAL HIGHLIGHTS CONTINUED
85
================================================================================
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of dividends on the reinvestment
date.
MONEY MARKET FUND
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- --------- --------- --------
Income from investment operations:
Net investment income ..................... 0.05 0.05 0.05 0.05 0.03
---------- ---------- --------- --------- --------
Distributions:
Distributions from net investment income .. (0.05) (0.05) (0.05) (0.05) (0.03)
---------- ---------- --------- --------- --------
Net asset value at end of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========= ========= ========
TOTAL RETURN .................................. 5.25% 5.02% 5.26% 4.90% 2.83%
========== ========== ========= ========= ========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets ..... 0.54% 0.57% 0.57% 0.57% 0.58%
Ratio of net investment income to
average net assets ......................... 5.14% 4.95% 5.14% 4.75% 2.78%
Number of shares outstanding at end of
period (000's) ............................. 190,975 128,125 83,618 82,256 50,534
Total net assets at end of period (000's) ... $ 190,975 $ 128,125 $ 83,618 $ 82,254 $ 50,533
Average net assets during the
period (000's) ............................. $ 150,625 $ 113,882 $ 84,271 $ 67,021 $ 46,222
</TABLE>
===============================================================================
REPORT OF INDEPENDENT AUDITORS
===============================================================================
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
We have audited the accompanying statements of net assets of Stock Index Fund,
MidCap Index Fund, Small Cap Index Fund, International Equities Fund, Growth
Fund, Growth & Income Fund, Science & Technology Fund, Social Awareness Fund,
Asset Allocation Fund (formerly the Timed Opportunity Fund), Capital
Conservation Fund, Government Securities Fund, International Government Bond
Fund, and Money Market Fund (such "Funds" comprising the American General Series
Portfolio Company) as of May 31, 1998. We have also audited for each of the
Funds the related statement of operations for the year ended May 31, 1998, the
statement of changes in net assets for each of the two years in the period ended
May 31, 1998, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits 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 statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1998, by correspondence with the custodian and brokers. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds comprising the American General Series Portfolio Company
at May 31, 1998, the results of their operations and the changes in their net
assets for the periods identified above, and the financial highlights for each
of the periods indicated therein, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Houston, Texas
July 2, 1998
<PAGE> 200
American General Series Portfolio Company
BOARD OF DIRECTORS
Norman Hackerman
John W. Lancaster
Ben H. Love
Joe C. Osborne
F. Robert Paulsen
Peter V. Tuters
R. Miller Upton
Thomas L. West, Jr.
DISTRIBUTOR
The Variable Annuity Marketing
Company (VAMCO)
2929 Allen Parkway
Houston, Texas 77019
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INVESTMENT ADVISER
The Variable Annuity Life
Insurance Company (VALIC)
2929 Allen Parkway
Houston, Texas 77019
INVESTMENT SUB-ADVISERS
Bankers Trust Company
1 Bankers Trust Plaza
New York, New York 10006
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Value Line, Inc.
220 East 42nd Street
New York, New York 10017-5891
Independent Auditors
Ernst & Young LLP
1221 McKinney
Houston, Texas 77010
SHAREHOLDER SERVICE AGENT
The Variable Annuity Life
Insurance Company (VALIC)
2929 Allen Parkway
Houston, Texas 77019
OFFICERS
Thomas L. West, Jr.,
Chairman and President
Craig R. Rodby,
Executive Vice President
Michael G. Atnip,
Executive Vice President
Norman Jaskol,
Vice President and
Senior Investment Officer
Brent C. Nelson,
Vice President
Maruti D. More,
Vice President and Investment Officer
Teresa S. Moro,
Vice President and Investment Officer
John W. Mossbarger,
Vice President and Investment Officer
Leon A. Olver,
Vice President and Investment Officer
William Trimbur, Jr.,
Vice President and Investment Officer
Cynthia A. Toles,
General Counsel and Secretary
Gregory R. Seward,
Treasurer
Kathryn A. Pearce,
Controller
Nori L. Gabert,
Assistant Secretary
Jaime M. Sepulveda,
Assistant Treasurer
Earl E. Allen, Jr.,
Assistant Treasurer
Donna L. Hathaway,
Assistant Controller
Cynthia A. Gibbons,
Assistant Vice President
This report is for the information of the shareholders and variable
contract owners participating in the American General Series Portfolio Company.
It is authorized for distribution to other persons only when preceded or
accompanied by an effective prospectus which contains information on how to
purchase shares and other pertinent information.
If you would like further information about this material or products
issued by VALIC or American General Life Insurance Company, please contact your
account representative.
"Standard & Poor's(R)", "Standard & Poor's MidCap 400 Index" and "S&P
500(R)" are trademarks of Standard & Poor's Corporation. The Stock Index Fund
and MidCap Index Fund are not sponsored, endorsed, sold or promoted by S&P and
S&P makes no representation regarding the advisability of investing in the
funds. The Russell 2000(R) Index is a trademark/service mark of the Frank
Russell Company. Russell(TM) is a trademark of the Frank Russell Company.
(C)1998 The Variable Annuity Life Insurance Company, Houston Texas VALIC is a
registered service mark of The Variable Annuity Life Insurance Company.
<PAGE> 201
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements Included in the Prospectus:
Financial Highlights for each of the fiscal periods through May 31, 1998
for each Fund (audited).
Audited Financial Statements for each Fund, incorporated by reference into
the Statement of Additional Information:
Statements of Net Assets as of May 31, 1998
Statements of Operations for the fiscal year ended May 31, 1998
Statements of Changes in Net Assets for each of the two fiscal years in
the period ended May 31, 1998
Notes to Financial Statements
Financial Highlights
Report of Independent Auditors
(b) Exhibits
<TABLE>
<C> <S> <C> <C>
1. (A) Articles of Incorporation
(B) Articles Supplementary to the Articles of Incorporation, effective
April 10, 1990
(C) Articles Supplementary to the Articles of Incorporation, effective
September 28, 1990
(D) Amendment One to the Articles of Incorporation, effective October 1,
1991
(E) Amendment Two to the Articles of Incorporation, effective May 1, 1992
(F) Articles Supplementary to the Articles of Incorporation, effective May
1, 1992
(G) Articles Supplementary to the Articles of Incorporation, effective
January 20, 1994
(H) Articles Supplementary to the Articles of Incorporation, effective
February 4, 1994
(I) Articles Supplementary to the Articles of Incorporation, effective
February 4, 1994
(J) Articles Supplementary to the Articles of Incorporation, effective May
1, 1995
(K) Articles of Amendment to the Articles of Incorporation, effective
October 1, 1997.(7)
2. By-Laws of Registrant, as amended and restated October 29, 1991
3. Not applicable
4. Not applicable
5. (A) Amended and Restated Investment Advisory Agreement between Registrant
and The Variable Annuity Life Insurance Company (with revised fee schedule
effective October 1, 1992)
(B) Investment Advisory Agreement (Form ii) between Registrant and VALIC
(with revised fee Schedule A effective May 2, 1994
(C)(1) Investment Sub-Advisory Agreement between VALIC and Bankers Trust
Company
(2) Amendment No. 1 to Investment Sub-Advisory Agreement between VALIC and
Bankers Trust Company, effective February 2, 1998.
</TABLE>
C-1
<PAGE> 202
<TABLE>
<C> <S> <C> <C>
(D)(1) Investment Sub-Advisory Agreement between VALIC and T. Rowe Price
Associates, Inc.
(2) Amendment No. 1 to Investment Sub-Advisory Agreement between VALIC and
T. Rowe Price Associates, Inc. effective February 2, 1998
(E) Investment Sub-Advisory Agreement between VALIC and Value Line, Inc.
6. Amended and Restated Distribution Agreement between Registrant and The
Variable Annuity Marketing Company, effective June 1, 1996.(7)
</TABLE>
<TABLE>
<C> <S> <C> <C>
7. Not Applicable
8. (A)(1) Custodian Contract between Registrant and State Street Bank and
Trust Company
(2) Custodian Fee Schedule between Registrant and State Street Bank and
Trust Company.(7)
(3) Amendment to Custodian Contract between Registrant and State Street
Bank and Trust Company.(7)
(4) Custodian Fee Schedule between Registrant and State Street Bank and
Trust Company.(7)
(B) Securities Lending Authorization Agreement as Amended between
Registrant and State Street Bank and Trust Company
(C)(1) Canada Sub-Custodial Agreement between State Street Bank and Trust
Company and Canada Trust Company(2)
(2) Sub-Custodial Agreements between State Street Bank and Trust Company
and:(1)
(i) Den Danske Bank -- Copenhagen
(ii) Sumitomo Trust and Banking Co., Ltd. -- Tokyo
(iii) State Street Bank and Trust Company -- London
(3) Additional Sub-Custodial Agreements between State Street Bank and
Trust Company and(3)
(i) Westpac Banking Corporation -- Sydney
(ii) GiroCredit Bank Aktiengesellschaft der Sparkassen -- Vienna
(iii) Generale Bank -- Brussels
(iv) Canada Trustco Mortgage Company -- Toronto
(v) Merita Bank Limited
(vi) Banque Paribas -- Paris
(vii) Standard Chartered Bank -- Hong Kong
(viii) Bank of Ireland -- Dublin
(ix) Standard Chartered Bank Malaysia Berhad
(x) MeesPierson N.V. -- Amsterdam
(xi) ANZ Banking Group (New Zealand) Limited -- Wellington
(xii) Christiania Bank of Kreditkasse -- Oslo
(xiii) The Development Bank of Singapore Ltd. -- Singapore
(xiv) Banco Santander, S.A. -- Madrid
(xv) Skandinaviska Enskilda Banken -- Stockholm
(xvi) Union Bank of Switzerland -- Zurich
(4) Additional Sub-Custodial Agreement between State Street Bank and
Trust Company and Citibank, N.A., Mexico -- Mexico City(4)
(5) Additional Sub-Custodial Agreements between State Street Bank and
Trust Company and(6)
(i) Dresdner Bank AG -- Frankfurt
</TABLE>
C-2
<PAGE> 203
<TABLE>
<C> <S> <C> <C>
(ii) Banque Paribas -- Milan
(iii) The Fuji Bank, Limited -- Tokyo
(iv) The Daiwa Bank, Limited -- Tokyo
(6) Additional Sub-Custodial Agreement between State Street Bank and Trust Company and Banco Comercial
Portugues -- Lisbon
9. (A) Transfer Agency and Service Agreement between Registrant and The Variable Annuity Life Insurance Company
(B) Accounting Services Agreement between Registrant and The Variable Annuity Life Insurance Company, effective
October 31, 1996(7).
10. Opinion and consent of Counsel
11. Consent of Independent Auditors
12. Not Applicable
13. (A) Subscription Agreement between the Registrant and The Variable Annuity Life Insurance Company regarding the
initial capitalization of Growth Fund
(B) Subscription Agreement between the Registrant and The Variable Annuity Life Insurance Company regarding the
initial capitalization of Growth & Income Fund
(C) Subscription Agreement between the Registrant and The Variable Annuity Life Insurance Company regarding the
initial capitalization of Science & Technology Fund.
14. Not Applicable.
</TABLE>
15. Not Applicable
16. Calculation of Performance Information(7).
17. Financial Data Schedule (Exhibit 27 for purposes of electronic filing).
18. Not Applicable
19. Specimen Price Make-Up Sheet dated May 31, 1998.
20. (A) Copies of manually signed powers of attorney for American General
Series Portfolio Company Directors Norman Hackerman, John Wm.
Lancaster, R. Miller Upton, F. Robert Paulsen, Ben H. Love and
Peter V. Tuters.
(B) Copies of manually signed powers of attorney for American General
Series Portfolio Company Directors Joe C. Osborne and Thomas L.
West, Jr.
- ---------------
1. Incorporated herein by reference to the Company's Form N-14 registration
statement filed with the Securities and Exchange Commission on January 27,
1992 (File No. 33-45217).
2. Incorporated herein by reference to Post-Effective Amendment Number 15 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on August 2, 1990 (file No. 2-83631/811-3738).
3. Incorporated herein by reference to Post-Effective Amendment Number 19 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on July 30, 1993 (File No. 2-83631/811-3738).
4. Incorporated herein by reference to Post-Effective Amendment Number 23 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on August 2, 1994 (File No. 2-83631/811-3738).
5. Incorporated herein by reference to Post-Effective Amendment Number 7 to the
Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on September 25, 1986 (File No. 2-83631/811-3738).
C-3
<PAGE> 204
6. Incorporated herein by reference to Post-Effective Amendment Number 24 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on September 17, 1996 (File No. 2-83631/811-3738).
7. Incorporated herein by reference to Post-Effective Amendment Number 25 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on July 31, 1997 (File No. 2-83631/3738).
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 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. 811-3240/33-75292); American General Life Insurance Company ("AGL")
Separate Account A and Separate Account D, unit investment trusts registered as
investment companies under the 1940 Act, affiliates of VALIC; AGL Separate
Account B, a unit investment trust that is exempt from registering as an
investment company under the 1940 Act; and two employee thrift plans maintained
by VALIC and/or American General Corporation. Therefore, various companies
affiliated with VALIC may be deemed to be under common control with the
Registrant. These companies, together with their states of incorporation, and
the identity of the owners of their common stock, are set forth in Exhibit 21 of
the Form 10-K of American General Corporation filed for the year ended December
31, 1997 (File No. 1-7981), which is incorporated herein by this reference.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of May 31, 1998, the number of record holders of each class of
Registrant's securities was as follows:
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Stock Index Fund ten
(common stock, $0.01 par value)
MidCap Index Fund two
(common stock, $0.01 par value)
Small Cap Index Fund one
(common stock, $0.01 par value)
International Equities Fund two
(common stock, $0.01 par value)
Growth Fund four
(common stock, $0.01 par value)
</TABLE>
C-4
<PAGE> 205
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Growth & Income Fund one
(common stock, $0.01 par value)
Science & Technology Fund one
(common stock, $0.01 par value)
Social Awareness Fund two
(common stock, $0.01 par value)
Asset Allocation Fund two
(common stock, $0.01 par value)
Capital Conservation Fund three
(common stock, $0.01 par value)
Government Securities Fund two
(common stock, $0.01 par value)
International Government Bond Fund one
(common stock, $0.01 par value)
Money Market Fund four
(common stock, $0.01 par value)
</TABLE>
ITEM 27. INDEMNIFICATION
Incorporated herein by reference to Post-Effective Amendment Number 20 to
the Company's Form N-1A Registration Statement filed with the Securities and
Exchange Commission on February 20, 1994 (File No. 2-83631/811-3738).
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.
Set out below is a list of each director and officer of VALIC indicating
each other business, profession, vocation, or employment of a substantial nature
in which each such person has been, at any time during the past two fiscal
years, engaged for his or her own account or in the capacity of director,
officer, partner, or trustee. Unless otherwise specified, the principal business
address of VALIC is 2929 Allen Parkway, Houston, Texas 77019. See also the
information set out under the caption "Directors and Officers" in Part B of this
Registration Statement, which is incorporated herein by reference to the extent
applicable. Companies, other than VALIC, identified in the list below are The
Variable Annuity Marketing Company ("VAMCO"), American General Annuity Insurance
Company ("AGAIC") and American General Corporation ("AG Corporation").
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Robert M. Devlin.................. VALIC, AGAIC Director
AG Director, Chairman and Chief Executive
Corporation Officer
Jon P. Newton..................... VALIC, AGAIC Director and Senior Chairman of the Board
AG Director and Vice Chairman of the Board
Corporation
Thomas L. West, Jr................ VALIC, AGAIC Director, Chairman and Chief Executive
Officer
VAMCO Director and Chairman of the Board
James S. D'Agostino, Jr........... VALIC, AGAIC Director and Vice Chairman of the Board
AG Director and President
Corporation
John A. Graf...................... VALIC, AGAIC Director and President
VAMCO Director
Craig R. Rodby.................... VALIC, AGAIC Director, Vice Chairman and Chief Financial
Officer
</TABLE>
C-5
<PAGE> 206
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Bruce R. Abrams................... VALIC, AGAIC Director and Executive Vice
President -- Marketing
John E. Arant..................... VALIC, AGAIC Executive Vice President -- Sales
VAMCO Director and President
Michael G. Atnip.................. VALIC, AGAIC Director and Executive Vice President --
Administration and Information Systems
Joe C. Osborne.................... VALIC, AGAIC Director and Executive Vice
President -- Marketing
VAMCO Executive Vice President
Dwight L. Cramer II............... VALIC, AGAIC Senior Vice President -- Specialty Markets
Patrick E. Grady.................. VALIC, AGAIC Director, Senior Vice President and Treasurer
Stephen G. Kellison............... VALIC, AGAIC Senior Vice President and Chief Actuary
Brent C. Nelson................... VALIC, AGAIC Director, Senior Vice President and
Controller
Charles D. Robinson............... VALIC, AGAIC Senior Vice President -- Institutional
Marketing
VAMCO Executive Vice President
Donald L. Sharps.................. VALIC, AGAIC Senior Vice President -- Systems
Cynthia A. Toles.................. VALIC, AGAIC Senior Vice President, General Counsel and
Secretary
VAMCO Director and Secretary
Dan W. Arnold..................... VALIC, AGAIC Vice President -- Customer Care Center
James D. Bonsall.................. VALIC, AGAIC Vice President -- Financial Reporting
Harry N. Bragg.................... VALIC, AGAIC Vice President -- Strategic Systems
Gregory S. Broer.................. VALIC, AGAIC Vice President -- Actuarial
Richard A. Combs.................. VALIC, AGAIC Vice President -- Actuarial
J. David Crank.................... VALIC, AGAIC Vice President -- Group Services
Neil J. Davidson.................. VALIC, AGAIC Vice President -- Actuarial
David H. denBoer.................. VALIC, AGAIC Vice President -- Compliance
Stephen R. Duff................... VALIC, AGAIC Vice President -- Financial Institution
Acquisitions
Daniel Fritz...................... VALIC, AGAIC Vice President -- Actuarial
Sharla A. Jackson................. VALIC, AGAIC Vice President -- Operations and Customer
Service
Jeff S. Johnson................... VALIC, AGAIC Vice President -- Marketing Communications
Kent W. Lamb...................... VALIC, AGAIC Vice President -- Financial Reporting
Richard Lindsay................... VALIC, AGAIC Vice President -- Personal Retirement
Services
James J. Michel................... VALIC, AGAIC Vice President -- Insurance Accounting and
Assistant Secretary
Stephen J. Poston................. VALIC, AGAIC Vice President -- National Sales Manager
Steven D. Rubinstein.............. VALIC, AGAIC Vice President -- Financial Planning and
Reporting
Phillip W. Schraub................ VALIC, AGAIC Vice President -- Houston Administration
Richard W. Scott.................. VALIC, AGAIC Director, Vice President and Chief Investment
Officer
AG Executive Vice President and Chief Investment
Corporation Officer
Gary N. See....................... VALIC, AGAIC Vice President -- Actuarial
Gregory R. Seward................. VALIC, AGAIC Vice President -- Variable Product Accounting
Conway R. Shaw.................... VALIC, AGAIC Vice President -- Group Marketing
</TABLE>
C-6
<PAGE> 207
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Norman A. Skinrood, Jr. .......... VALIC, AGAIC Vice President -- Group Plan Administration
Paula F. Snyder................... VALIC, AGAIC Vice President -- Marketing Services
Robert E. Steele.................. VALIC, AGAIC Vice President -- Structured Settlements
Kenneth R. Story.................. VALIC, AGAIC Vice President -- Amarillo Systems
Terry L. Swenson.................. VALIC, AGAIC Vice President -- Variable Products
Peter V. Tuters................... VALIC, AGAIC Vice President and Investment Officer
AG Corporation Senior Vice President -- Investments
William C. Vetterling............. VALIC, AGAIC Vice President -- Marketing Administration
Garry B. Watts.................... VALIC, AGAIC Vice President -- Independent Agents/Brokers
William A. Wilson................. VALIC, AGAIC Vice President -- Government Affairs
Jane E. Bates..................... VALIC Chief Compliance Officer
VAMCO Treasurer and Chief Compliance Officer
Roger E. Hahn..................... VALIC, AGAIC Investment Officer
C. Scott Inglis................... VALIC, AGAIC Investment Officer
Julia S. Tucker................... VALIC, AGAIC Investment Officer
AG Corporation Senior Vice President -- Investments
Rembert R. Owen, Jr............... VALIC, AGAIC Real Estate Investment Officer and Assistant
Secretary
D. Lynne Walters.................. VALIC, AGAIC, Tax Officer
VAMCO
AG Corporation Vice President -- Taxes
W. Joan Farmer.................... VALIC, AGAIC Assistant Secretary
Cheryl G. Hemley.................. VALIC, AGAIC Assistant Secretary
Susan A. Jacobs................... VALIC, AGAIC Assistant Secretary
Christine W. McGinnis............. VALIC, AGAIC Assistant Secretary
Patricia W. Neighbors............. VALIC, AGAIC Assistant Secretary
Daniel R. Cricks.................. VALIC, AGAIC Assistant Tax Officer
James L. Gleaves.................. VALIC, AGAIC Assistant Treasurer
AG Corporation Vice President and Treasurer
Kristy L. McWilliams.............. VALIC, AGAIC Assistant Treasurer
William H. Murray................. VALIC, AGAIC Assistant Treasurer
Tara S. Rock...................... VALIC, AGAIC Assistant Treasurer
Carolyn Roller.................... VALIC, AGAIC Assistant Treasurer
Barbara G. Trygstad............... VALIC, AGAIC Assistant Treasurer
Marylyn S. Zlotnick............... VALIC, AGAIC Assistant Controller
Leslie K. Bates................... VALIC, AGAIC Administrative Officer
Mary C. Birmingham................ VALIC, AGAIC Administrative Officer
Donald L. Davis................... VALIC, AGAIC Administrative Officer
Robert A. Demchak................. VALIC, AGAIC Administrative Officer
Ruby K. Donelson.................. VALIC, AGAIC Administrative Officer
David E. Green.................... VALIC, AGAIC Administrative Officer
Ted D. Hennis..................... VALIC, AGAIC Administrative Officer
William L. Hinkle................. VALIC, AGAIC Administrative Officer
</TABLE>
C-7
<PAGE> 208
<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Joan M. Keller.................... VALIC, AGAIC Administrative Officer
William R. Keller, Jr............. VALIC, AGAIC Administrative Officer
Fred M. Lowery.................... VALIC, AGAIC Administrative Officer
James F. McCulloch................ VALIC, AGAIC Administrative Officer
Robert M. Mason................... VALIC, AGAIC Administrative Officer
Michael E. Mead................... VALIC, AGAIC Administrative Officer
Connie E. Pritchett............... VALIC, AGAIC Administrative Officer
Elliott L. Shifman................ VALIC, AGAIC Administrative Officer
Nancy K. Shumbera................. VALIC, AGAIC Administrative Officer
Kathryn T. Smith.................. VALIC, AGAIC Administrative Officer
John M. Stanton................... VALIC, AGAIC Administrative Officer
James P. Steele................... VALIC, AGAIC Administrative Officer
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) 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 Directors
(*)
John A. Graf......................... Director --
(*)
John E. Arant........................ Director and President --
(*)
Joe C. Osborne....................... Executive Vice President Director
(*)
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
</TABLE>
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<PAGE> 209
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
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
James J. Costello.................... Vice President --
1767 Sentry Pkwy West 19
Suite 300
Blue Bell, PA 19422
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
</TABLE>
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<PAGE> 210
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
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
Bruce Malsbary....................... Vice President --
110 University Park Dr.
Suite 110
Winter Park, FL 32792
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
1006 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 Manteo, 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 --
550 Congressional Blvd.
Suite 280
Carmel, IN 46032
</TABLE>
C-10
<PAGE> 211
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
Donald R. Van Putten................. Vice President --
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
Joe H. Connell....................... Vice President --
10851 N. Black Canyon Hwy.
Suite 700
Phoenix, AZ 85029
Donna M. Zucchi...................... Vice President --
90 Woodbridge Center Dr.
Suite 200
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:
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:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street, 36th Floor
New York, New York 10006
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Value Line, Inc.
220 East 42nd Street, 6th Floor
New York, New York 10017-5981
C-11
<PAGE> 212
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-12
<PAGE> 213
America's Retirement Plan Specialists(SM)
[VALIC LOGO](R)
PRINTED MATTER
PRINTED IN U.S.A. VA9017-1 REV 10/97
The Variable Annuity Life Insurance Company, Houston, Texas
<PAGE> 214
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, American General Series
Portfolio Company certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City
of Houston, and State of Texas, on the 22nd day of September, 1998.
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY
By: /s/ THOMAS L. WEST, JR.
--------------------------------
Thomas L. West, Jr.
Chairman of the Board of
Directors
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ THOMAS L. WEST, JR. Chairman of the Board of September 22, 1998
- ---------------------------- Directors
Thomas L. West, Jr.
/s/ GREGORY R. SEWARD Treasurer September 22, 1998
- ----------------------------
Gregory R. Seward
/s/ JOE C. OSBORNE Director September 22, 1998
- ----------------------------
Joe C. Osborne
* Director September 22, 1998
- ----------------------------
Norman Hackerman
* Director September 22, 1998
- ----------------------------
John Wm. Lancaster
* Director September 22, 1998
- ----------------------------
Ben H. Love
* Director September 22, 1998
- ----------------------------
F. Robert Paulsen
<PAGE> 215
Signature Title Date
- --------- ----- ----
/s/ PETER V. TUTERS Director September 22, 1998
- ----------------------------
Peter V. Tuters
* Director September 22, 1998
- ----------------------------
R. Miller Upton
By: /s/ DAVID M. LEAHY September 22, 1998
------------------------
David M. Leahy
Attorney-in-Fact
<PAGE> 216
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.(A) -- Articles of Incorporation
(B) -- Articles Supplementary to the Articles of Incorporation,
effective April 10, 1990
(C) -- Articles Supplementary to the Articles of Incorporation,
effective September 28, 1990
(D) -- Amendment One to the Articles of Incorporation, effective
October 1, 1991
(E) -- Amendment Two to the Articles of Incorporation, effective
May 1, 1992
(F) -- Articles Supplementary to the Articles of Incorporation,
effective May 1, 1992
(G) -- Articles Supplementary to the Articles of Incorporation,
effective January 20, 1994
(H) -- Articles Supplementary to the Articles of Incorporation,
effective February 4, 1994
(I) -- Articles Supplementary to the Articles of Incorporation,
effective February 4, 1994
(J) -- Articles Supplementary to the Articles of Incorporation,
effective May 1, 1995
2. -- By-Laws of Registrant, as amended and restated October
29, 1991
5.(A) -- Amended and Restated Investment Advisory Agreement
between Registrant and The Variable Annuity Life
Insurance Company (with revised fee schedule effective
October 1, 1992)
(B) -- Investment Advisory Agreement (Form ii) between
Registrant and VALIC (with revised fee Schedule A
effective May 2, 1994
(C)(1) -- Investment Sub-Advisory Agreement between VALIC and
Bankers Trust Company
(2) -- Amendment No. 1 to Investment Sub-Advisory Agreement
between VALIC and Bankers Trust Company, effective
February 2, 1998.
(D)(1) -- Investment Sub-Advisory Agreement between VALIC and T.
Rowe Price Associates, Inc.
(2) -- Amendment No. 1 to Investment Sub-Advisory Agreement
between VALIC and T. Rowe Price Associates, Inc.,
effective February 2, 1998.
(E) -- Investment Sub-Advisory Agreement between VALIC and Value
Line, Inc.
8.(A)(1) -- Custodian Contract between Registrant and State Street
Bank and Trust Company
(B) -- Securities Lending Authorization Agreement as Amended
between Registrant and State Street Bank and Trust
Company
(C)(6) -- Sub-Custodial Agreement between State Street Bank and
Trust Company and Banco Commercial Portugues-Lisbon
9.(A) -- Transfer Agency and Service Agreement between Registrant
and The Variable Annuity Life Insurance Company
10. -- Opinion and consent of Counsel
11. -- Consent of Independent Auditors
13.(A) -- Subscription Agreement between the Registrant and The
Variable Annuity Life Insurance Company regarding the
initial capitalization of Growth Fund
(B) -- Subscription Agreement between the Registrant and The
Variable Annuity Life Insurance Company regarding the
initial capitalization of Growth & Income Fund
(C) -- Subscription Agreement between the Registrant and The
Variable Annuity Life Insurance Company regarding the
initial capitalization of Science & Technology Fund.
17. -- Financial Data Schedule (Exhibit 27 for purposes of
electronic filing).
19. -- Specimen Price Make-Up Sheet dated May 31, 1998.
</TABLE>
<PAGE> 217
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
20.(A) -- Copies of manually signed powers of attorney for American
General Series Portfolio Company Directors Norman
Hackerman, John Wm. Lancaster, R. Miller Upton, F. Robert
Paulsen, Ben H. Love and Peter V. Tuters.
(B) -- Copies of manually signed powers of attorney for American
General Series Portfolio Company Directors Joe C. Osborne
and Thomas L. West, Jr.
</TABLE>
- ---------------
* Page numbers inserted in manually signed copy only.
<PAGE> 1
EXHIBIT 1.(A)
ARTICLES OF INCORPORATION
OF
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
A Corporation of the State of Maryland
THIS IS TO CERTIFY THAT:
I.
The undersigned, David S. Goldstein, whose mailing address is 2929 Allen
Parkway, Houston, Texas 77019, being at least 21 years of age, does hereby form
a corporation under the General Laws of the State of Maryland.
II.
NAME
The name of the corporation is AMERICAN GENERAL SERIES PORTFOLIO COMPANY
(hereinafter called the "Corporation").
The Corporation acknowledges that it is adopting its corporate name through
permission of American General Corporation (hereinafter referred to as "American
General") and agrees that if American General or a successor to its business
(whether such succession be by merger, consolidation, purchase of assets or
otherwise) or a subsidiary thereof should, at any time and for any cause, cease
to be the investment adviser to the Corporation, the Corporation shall at the
written request of American General and/or any such successor eliminate the name
"American General" from the Corporation's corporate name and from the
designations of its shares and will not thereafter use the name "American
General" in any form or combination whatsoever in the conduct of the
Corporation's business. The Corporation further acknowledges that American
General and its subsidiaries reserve the right to grant the non-exclusive right
to use the name "American General" to any other corporation, including other
investment companies, whether now in existence or hereafter created. The
foregoing agreements on the part of the Corporation are hereby made binding upon
it, its directors, officers, shareholders, creditors and all other persons
claiming under or through it.
<PAGE> 2
III.
PURPOSES AND POWERS
The purpose or purposes for which the Corporation is formed and the
business or objects to be transacted, carried on, and promoted by it are as
follows:
(1) To operate as, and carry on the business of, an investment company.
(2) To hold, invest and reinvest its assets, and in connection therewith,
to hold part or all of its assets in cash, and to purchase, subscribe for
or otherwise acquire, hold for investment or otherwise, sell, assign,
negotiate, transfer, exchange, pledge, lend or otherwise dispose of or
realize upon, securities (which term "securities" shall for the purposes of
these Articles of Incorporation, without limitation of the generality
hereof, be deemed to include any stocks, shares, bonds, debentures, notes,
certificates of deposit, mortgages, obligations, evidence of indebtedness,
and any certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets, or, in general, any interest or instrument commonly known as a
security, whether domestic or foreign) and other assets and investments
created, issued, or guaranteed by any persons, firms, associations,
corporations, syndicates, combinations, organizations, governments or
political subdivisions, agencies or instrumentalities thereof including
futures contracts on or in financial instruments or stock indices; and to
exercise, as owner or holder of any securities, all rights, powers, and
privileges in respect thereof; and to do any and all acts and things for
the preservation, protection, improvement, and/or enhancement in value of
any and all of its assets.
(3) To borrow money and pledge assets in connection with any of the objects
and purposes of the Corporation, and to issue notes or other obligations
evidencing such borrowings.
(4) To issue and sell shares of its own capital stock in such amounts and
on such terms and conditions, for such purposes and for such amount or kind
of consideration (including, without limitation, securities) now or
hereafter permitted by the laws of the State of Maryland and by these
Articles of Incorporation, as its Board of Directors may determine.
(5) To redeem, repurchase, or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the
shareholders of the Corporation) shares of its capital stock, in any manner
and to the extent now or hereafter permitted by the laws of the State of
Maryland and by these Articles of Incorporation.
6) To conduct its business at one or more offices in any part of the world,
without restriction or limit as to the extent.
(7) To carry out all or any of the foregoing objects and purposes as
principal or agent, and alone or with associates or, to the extent now or
hereafter permitted by the laws of the State of Maryland, as a member of,
2 of 12
<PAGE> 3
or as the owner or holder of any security of, or interest in, any firm,
association, corporation, trust or syndicate; and in connection therewith
to make or enter into such deeds or contracts with any persons, firms,
associations, corporations, syndicates, governments or political
subdivisions or agencies or instrumentalities thereof and to do such acts
and things and to exercise such powers, as a natural person could lawfully
make, enter into, do or exercise.
(8) To do any and all such further acts or things and to exercise any and
all such further powers or rights as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment,
carrying out, or attainment of all or any of the foregoing purposes or
objects.
(9) To engage in any and all acts and do every other act not inconsistent
with law which is appropriate to promote and attain the purposes set forth
in this charter.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent and construed as powers
as well as objects and purposes, and the enumeration of specific purposes,
objects and powers shall not be construed to limit or restrict in any manner the
meaning of general terms or the general powers of the Corporation now or
hereafter conferred by the laws of the State of Maryland, nor shall the
expression of one thing be deemed to exclude another, though it be of like
nature, not expressed; provided, however, that the Corporation shall not have
power to carry on within the State of Maryland any business whatsoever, the
carrying on of which would preclude it from being classified as an ordinary
business corporation under the laws of that State.
IV.
PRINCIPAL OFFICE AND PLACE OF BUSINESS
The post office address of the principal office of the Corporation in the
State of Maryland is c/o the Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202. The name of the registered agent of the Corporation
in the State of Maryland is The Corporation Trust Incorporated, a Corporation of
the State of Maryland, and the post office address of the resident agent is 32
South Street, Baltimore, Maryland 21202.
V.
CAPITAL STOCK
(l) The total number of shares of stock which the Corporation has authority to
issue is one billion (1,000,000,000) shares of capital stock of the par value of
$0.01 each, and of the aggregate par value of ten million dollars ($10,000,000).
Three hundred million (300,000,000) of such shares shall be issued in the
following classes of common stock comprising 100 million shares each and bearing
the following designations, provided, however, that the Board of Directors may
increase or decrease any such number of shares: Money Market Portfolio, Capital
Conservation Portfolio, Government Securities Portfolio. The
3 of 12
<PAGE> 4
Board of Directors shall have the authority to classify or reclassify and issue
authorized stock in such other classes as it may determine, each comprising such
number of shares and having such designations, powers, preferences and rights
and such qualifications, limitations and restrictions thereof, as may be fixed
or determined from time to time by resolution or resolutions providing for the
issuance of such stock. The Board of Directors may increase or decrease the
number of shares of any class provided that it may not decrease the number of
shares of any class below the number of shares thereof then outstanding.
(2) Except as the Board of Directors may provide when classifying or
reclassifying any unissued shares of stock, each class of stock of the
Corporation shall have the following powers, preferences or other special
rights, and shall have the following qualifications, restrictions, and
limitations:
(a) Except as otherwise provided herein, all consideration received by the
Corporation for the issue or sale of shares of stock of a particular class,
together will all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation of such assets,
and any funds or payments derived from any reinvestment of such proceeds,
shall constitute assets of that class, in contrast to other classes
(subject only to the rights of creditors) and are herein referred to as
assets "belonging to" that class. Any assets, income, earnings, profits,
and proceeds thereof, funds or payments which are not readily identifiable
as belonging to any particular class, shall be allocated by or under the
supervision of the Board of Directors to and among any one or more of the
classes established and designated from time to time, in such manner and on
such basis as the Board of Directors, in its sole discretion, deems fair
and equitable.
(b) The Board of Directors may from time to time declare and pay dividends
or distributions, in stock, or in cash, on any or all classes of stock,
giving due consideration to the interests of each class and to the interest
of the Corporation as a whole. The Corporation shall pay dividends or
distributions on shares of any class of stock only out of surplus or other
lawfully available assets determined by the Board of Directors as belonging
to that class. Because the Corporation may qualify as a "regulated
investment company" under the Internal Revenue Code of 1954, as amended, or
any successor or statute comparable thereto, and regulations promulgated
thereunder, and because the computation of net income and gains for Federal
income tax purposes may vary from the computation thereof on the books of
the Corporation, the Board of Directors shall have the power to distribute
in any fiscal years as dividends, (including dividends designated in whole
or in part as capital gains distributions) amounts sufficient in their
opinion to enable the Corporation to qualify as a regulated investment
company. In furtherance, and not in limitation of the foregoing, in the
event that a class of shares has a net capital loss for a fiscal year, and
to the extent that a net capital loss for a fiscal year offsets net capital
gains from one or more of the other classes, any amount the Board of
Directors deems available for distribution to the class or classes with the
net capital gain may be reduced by the amount offset. The Board of
Directors shall determine allocation of the assets and liabilities
belonging to the Corporation to a given class or classes. Such
4 of 12
<PAGE> 5
decisions by the Board of the Directors shall be final and conclusive.
Generally, the assets belonging to any class of stock shall correspond to
the liabilities related that class and with any allocated portion of the
overall liabilities of the Corporation.
(c) In the event of the Corporation's liquidation, the shareholders of each
established and designated class shall be entitled to receive, as a class,
the excess of the assets belonging to that class over the liabilities
belonging to that class. The assets so distributable to the shareholders of
any particular class shall be distributed among such shareholders in
proportion to the number of shares of that class held by them and recorded
on the books of the corporation. Any assets not readily identifiable as
belonging to any particular class shall be allocated by, or under the
supervision of, the Board of Directors to and among any one or more
established and designated classes. Such allocations by the Board of
Directors shall be conclusive and binding for all purposes.
(3) Any fractional share shall carry proportionally all the rights of a whole
share, excepting any right to receive a certificate evidencing such fractional
share, but including the right to vote and the right to receive dividends.
(4) All persons who shall acquire stock in the Corporation shall acquire the
same subject to the provisions of these Articles of Incorporation and the
Corporation's By-Laws.
(5) All shares of the capital stock of the Corporation now or hereafter
authorized shall be "subject to redemption" and "redeemable," in the sense used
in the General Laws of the State of Maryland authorizing the formation of
corporations, at the redemption price for any such shares, determined in the
manner set out in these Articles of Incorporation. In the absence of any
specification as to the purposes for which shares of the capital stock of the
Corporation are redeemed or repurchased by it, all shares so redeemed or
repurchased shall be deemed to be "purchased for retirement" in the sense
contemplated by the laws of the State of Maryland. The number of authorized
shares of the capital stock of the Corporation shall not be reduced by the
number of any shares redeemed or repurchased by it.
(6) At all meetings of shareholders of the Corporation, each shareholder shall
be entitled to one vote for each share of stock standing in his or her name on
the books of the Corporation, on the date fixed in accordance with the By-Laws
for determination of shareholders entitled to vote at such meeting. On any
matter submitted to a vote of the shareholders, all shares of the Corporation
then outstanding and entitled to vote shall be voted in the aggregate and not by
class except (1) when otherwise required by law; and (2) if the Board of
Directors, in its sole discretion, determines that any matter concerns only one
or more particular classes, it may direct that only holders of that class or
those classes may vote on the matter. The presence in person or by proxy of the
holders of a majority of the shares of capital stock of the Corporation entitled
to vote thereat shall constitute a quorum at any meeting of the shareholders. If
at any meeting of the shareholders there shall be less than a quorum present,
the shareholders present at such meeting may, without further notice, adjourn
the same from time to time until a quorum shall attend.
5 of 12
<PAGE> 6
(7) Notwithstanding any provision of the laws of the State of Maryland requiring
any action to be taken or authorized by the affirmative vote of the holders of a
majority or other designated proportion of the shares, or to be otherwise taken
or authorized by a vote of the shareholders, such action shall be effective and
valid if taken or authorized by the affirmative vote of the holders of a
majority of the total number of shares outstanding and entitled to vote thereon
pursuant to the provisions of these Articles of Incorporation and the By-Laws of
the Corporation.
(8) No holders of stock of the Corporation shall, as such holder, have any right
to purchase or subscribe for any shares of the capital stock of the Corporation
of any class or any other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these Articles of
Incorporation, or out of any shares of the capital stock of the corporation
acquired by it after the issue thereof, or otherwise) other than such right, if
any, as the Board of Directors in its discretion may determine.
(9) The shareholders of the Corporation shall not be liable for, and their
private property shall not be subject to, claim, levy or other encumbrance on
account of debts or liabilities of the Corporation, to any extent whatsoever.
(10) The Corporation shall be entitled to treat the person in whose name any
share of the capital stock of the Corporation is registered as the owner thereof
for purposes of dividends and other distributions in the course of business or
in the course of recapitalization, consolidation, merger, reorganization,
liquidation, sale of the property and assets of the Corporation, or otherwise,
and for the purpose of votes, approvals and consents by shareholders, and for
the purpose of notices to shareholders, and for all other purposes whatever; and
the Corporation shall not be bound to recognize any equitable or other claim to
or interest In such share, on the part of any other person, whether or not the
Corporation shall have notice thereof, save as expressly required by statute.
VI.
PROVISIONS FOR DEFINING,
LIMITING, AND REGULATING CERTAIN
POWERS OF THE CORPORATION AND OF
THE DIRECTORS AND SHAREHOLDERS
(1) The number of directors of the Corporation shall be five (5) and the names
of those who shall act as such until the first annual meeting or until their
successors are duly chosen and qualify are as follows:
Dr. Norman Hackerman
Dr. R. Miller Upton
Dr. John Wm. Lancaster
Joe D. Heusi
William C. Phelps
however, the By-Laws of the Corporation may fix the number of directors at a
number greater than that named in these Articles of Incorporation and may
authorize the Board of Directors, by the vote of a majority of the entire Board
of Directors, to increase or decrease the number of directors fixed by these
Articles of Incorporation or by the By-Laws within limits specified in
6 of 12
<PAGE> 7
the By-Laws and to fill the vacancies created by any such increase in the number
of directors provided that in no case shall the authorized number of directors
be less than three. The directors of the Corporation need not be shareholders of
the Corporation.
(2) Any director, or any officer elected or appointed by the Board of Directors
or by any committee of the Board or by the shareholders or otherwise, may be
removed at any time, with or without cause, by the Board of Directors or by any
committee or superior officers upon which or whom such power of removal may be
conferred, in such lawful manner as may be provided in the By-Laws of the
Corporation or as may otherwise be provided by Maryland law.
(3) Both shareholders and directors of the Corporation shall have power to hold
their meetings and to have one or more offices within or without the State of
Maryland and to keep the books of the Corporation outside of the State of
Maryland at such places as may from time to time be designated by the Board of
Directors.
(4) The Board of Directors of the Corporation shall have the power to issue and
sell, or to cause the issuance and sale, of shares of the Corporation's capital
stock in such amounts and on such terms and conditions, for such purposes and
for such amount or kind of consideration (including, without limitation,
securities) now or hereafter permitted by the laws of the State of Maryland and
by these Articles of Incorporation, as the Board of Directors may determine.
(5) In addition to the powers and authority hereinbefore, hereinafter, or by
statute expressly conferred upon them, the Board of Directors may exercise all
such powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the express provisions of the laws of the
State of Maryland, of these Articles of Incorporation, and of the By-Laws of the
Corporation.
(6) Except as may be provided elsewhere in these articles or in the By-Laws of
the Corporation, by vote of a majority of the entire Board of Directors, any of
the By-Laws may be altered, amended or repealed, and new By-Laws may be made,
except that the Board of Directors shall not alter, amend or repeal any By-Laws
made by the stockholders.
(7) Any director or officer, individually, or any firm of which any director or
officer may be a member, or any corporation, trust, or association of which any
director or officer may be an officer or director or in which any director or
officer may be directly or indirectly interested as the holder of any amount of
its capital stock or otherwise, may be a party to, or may be financially or
otherwise interested in, any contract or transaction of the Corporation, and in
the absence of fraud no contract or other transaction shall be thereby affected
or invalidated; provided, that the fact of any such interests or relationships
shall be disclosed or shall have been known to the Board of Directors or a
majority thereof; and any such director or officer of the Corporation may be
counted in determining the existence of a quorum at the meeting of the Board of
Directors of the Corporation which shall authorize any such contract or
transaction, and may vote thereat to authorize any such contract or transaction,
with like force and effect as if such other interests or relationships did not
exist. In furtherance and not in limitation of the
7 of 12
<PAGE> 8
foregoing, the Board of Directors of the Corporation is expressly authorized to
contract for management services of any nature, with respect to the conduct of
the business of the Corporation with any entity, person or company, incorporated
or unincorporated, on such terms as the Board of Directors may deem desirable.
Any such contract may provide for the rendition of management services of any
nature with respect to the conduct of the business of the Corporation, and for
the management or direction of the business and activities of the Corporation to
such extent as the Board of Directors may determine, whether or not the
procedure involves delegation of functions usually or customarily performed by
the Board of Directors or officers of the Corporation. The Board of Directors is
further expressly authorized to contract with any person or company on such
terms as the Board of Directors may deem desirable for the distribution of
shares of the Corporation and to contract for other services, including, without
limitation, services as transfer agent for the Corporation's shares, with any
entity, person or company, incorporated or unincorporated, on such terms as the
Board of Directors may deem desirable. Any entity, person or company which
enters into one or more of such contracts may also perform similar or identical
services for other investment companies and other persons and companies without
restriction by reason of the relationship with the Corporation.
VII.
REDEMPTION AND REPURCHASE
(1) The Corporation shall on the request of any registered owner of its shares
redeem such shares, at the price, in the manner and on the terms and conditions
set forth below:
(a) The certificates for the shares to be repurchased must be tendered to
the Corporation or its designated agent for repurchase during business
hours on a day which the New York Stock Exchange (or its successor) is open
for a normal business day, at an office or offices designated by the
Corporation for receipt of such tenders. Redemption of such shares by the
Corporation is subject to such reasonable requirements, such as
endorsement, as may be imposed by the Corporation or the Corporation's
transfer agent. Shares tendered when such Exchange is not open will be
considered to have been tendered on the next succeeding day on which such
Exchange is open for a normal business day.
(b) The redemption price of the shares shall be a sum equal to 100% of
their net asset value as first determined subsequent to such a tender; this
determination of net asset value to be made in the manner hereinafter set
forth, which determination shall be made at least once on each day on which
the New York Stock Exchange (or its successor) is open for a normal
business day at such specific time as determined by the Board of Directors.
(c) The net asset value of the corporation's shares, for the purpose of
computing the price at which the shares shall be redeemed by the
Corporation, shall be determined in the following manner:
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<PAGE> 9
(i) Portfolio securities and other assets shall be valued at fair
market value, as determined in good faith by or at the direction of
the Board of Directors, who may also, in good faith and at their
discretion, authorize the Corporation to determine the value of debt
instruments with a remaining maturity of 60 days or less using the
amortized cost method of valuation.
(ii) There shall be deducted from the total assets of each class of
stock so determined, the liabilities of that class of stock, including
proper accruals of interest or taxes and other expense items, and
reserves for contingent or undetermined liabilities.
(iii) The net asset value of each class of stock so obtained shall
then be divided by the total number of shares of that class
outstanding (excluding treasury shares) and the result, rounded to the
nearer cent, shall be the net asset value per share of that class of
capital stock.
(iv) Notwithstanding the foregoing, the Board of Directors may
determine that the net asset value per share of any class or classes
of stock should remain constant. In this event the Board of Directors
may authorize the Corporation to declare, pay and credit as dividends
daily the net income (which may include or give effect to realized and
unrealized gains and losses, as determined in accordance with the
Corporation's accounting and portfolio valuation policies) of the
Corporation allocated to that class. If this amount is negative for
any day, the Corporation may, without payment of financial
compensation (but in consideration of the interest of the Corporation
and its shareholders in maintaining a constant net asset value per
share of the class) redeem pro rata from all the shareholders of
record of the class or classes at the time of such redemption, such
number of outstanding shares of the class or fractions thereof, as
necessary to permit the net asset value per share of the class to
remain constant.
(d) In addition to the foregoing, the Board of Directors is empowered, in
its absolute discretion, to establish other times for determining the
redemption price other bases or times or both, for determining the net
asset value of each share of capital stock of the Corporation in accordance
with the Investment Company Act of 1940 as amended, as administered by the
SEC and to authorize the voluntary purchase by the Corporation, either
directly or through an agent, of shares of capital stock of the Corporation
upon such terms and conditions and for such consideration as the Board of
Directors shall deem advisable in accordance with the Investment Company
Act of 1940, as amended, as administered by the SEC and its staff.
(e) The redemption price (100% of net asset value) shall be paid in cash or
by check on current funds or in assets other than cash, and shall be paid
on or before the seventh day following the day on which the shares are
properly tendered for redemption.
(f) Redemption is conditional upon the Corporation having funds legally
available therefor.
9 of 12
<PAGE> 10
(g) The Corporation reserves the right to involuntarily redeem shares in
accounts containing less than fifty (50) shares.
(2) The obligations set forth in this Article VII may be suspended for any
period during which the New York Stock Exchange (or its successor) shall be
closed other than for customary weekend and holiday closings or during which
trading on such Exchange is restricted; for any period during which an emergency
exists as a result of which the disposal by the Corporation of securities owned
by it is not reasonably practicable, or it is not reasonably practicable for the
Corporation fairly to determine the value of its net assets; or for such other
periods as the Securities and Exchange Commission, or any successor governmental
authority, may by order permit for the protection of security holders of the
Corporation.
(3) The right of the holder of shares of capital stock repurchased by the
Corporation, as provided in this Article VII to receive dividends thereon and
all other rights of such holder with respect to such shares shall forthwith
cease and terminate from and after the time as of which the redemption or
repurchase price of such shares has been determined (except the right of such
holder to receive (a) the redemption or repurchase price of such shares from
the Corporation or its designated agent, and (b) any unpaid dividend or
distribution to which such holder had previously become entitled as the record
holder of such shares on the record date for such dividend or distribution).
VIII.
DETERMINATION BINDING
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors; (i) as to the amount of the assets,
obligations, or liabilities of the Corporation; (ii) as to the amount of the net
income of the Corporation from dividends and interest for any period or amounts
at any time legally available for the payment of dividends; (iii) as to the
amount of any reserves or charges set up and the propriety thereof; (iv) as to
the time of, or purpose for, creating any reserves or charges and as to the use,
alteration, or cancellation of any reserves or charges (whether or not any
obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged or shall be then or thereafter
required to be paid or discharged); (v) as to the price or closing bid or asked
price of any security owned or held by the Corporation; (vi) as to the market
value of any security or fair value of any other asset owned by the Corporation;
(vii) as to the number of shares of the Corporation outstanding or deemed to be
outstanding; (viii) as to the impracticability or impossibility of liquidating
securities in orderly fashion; (ix) as to any other matters relating to the
issue, sale, repurchase, and/or other acquisition or disposition of securities
or shares of the capital stock of the Corporation; and (x) any reasonable
determination made in good faith by the Board of Directors as to whether any
transaction constitutes a purchase of any securities on "margin," a sale of any
securities "short," or an underwriting of the sale of, or a participation in any
underwriting or selling group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be binding upon the
Corporation; and all holders of shares of its capital stock of the Corporation
are issued and sold on the condition and understanding, evidenced by acceptance
of certificates for such shares, that any and all such determinations shall be
binding as aforesaid.
10 of 12
<PAGE> 11
No provisions of these Articles of Incorporation shall be effective to
(a) require a waiver of compliance with any provision of the Securities Act of
1933, as amended, or the Investment Company Act of 1940, as amended, or of any
valid rule, regulation or order of the Securities and Exchange Commission
thereunder, or (b) protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he 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 office.
IX.
INDEMNIFICATION
(a) The Corporation shall indemnify or advance any expenses to
Directors and officers to the extent permitted or required by Section 2-418 of
the Maryland General Corporation Law, provided, however, that the Corporation
shall only be required to indemnify or advance expenses to any person pursuant
to Section 2-418(J)(3) of the Maryland General Corporation Law to the extent
specifically approved by resolution adopted by the Board of Directors.
(b) The indemnification provided hereunder shall continue as to a
person who has ceased to be a Director or officer, and shall inure to the
benefit of the heirs, executors and administrators of such a person.
(c) Nothing contained in this Article shall be construed to protect any
Director or officer of the Corporation against any liability to the Corporation
or its security holders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of duties
involved in the conduct of his office ("Disabling Conduct"). The means for
determining whether indemnification shall be made shall be (i) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified ("Indemnitee") was not liable by reason of
Disabling Conduct, or (ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Indemnitee was not
liable by reason of Disabling Conduct, by (a) the vote of a majority of a quorum
of Directors who are neither "interested persons" of the Corporation nor parties
to the proceeding ("Disinterested Non-Party Directors"), or (b) an independent
legal counsel in a written opinion.
(d) Nothing contained in this Article shall be construed to permit the
advancement of legal expenses for the defense of a proceeding brought by the
Corporation or its security holders against a Director or officer of the
Corporation unless an undertaking is furnished by or on behalf of the Indemnitee
to repay the advance unless it is ultimately determined that he is entitled to
indemnification, and the Indemnitee complies with at least one of the following
conditions: (i) the Indemnitee shall provide a security for his undertaking,
(ii) the Corporation shall be insured against losses arising by reason of any
lawful advances, or (iii) a majority of a quorum of the Disinterested Non-Party
Directors, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the Indemnitee
ultimately will be found entitled to indemnification.
11 of 12
<PAGE> 12
X.
PERPETUAL EXISTENCE
The Corporation shall have perpetual existence.
XI.
AMENDMENT
From time to time any of the provisions of these Articles of
Incorporation may be amended, altered, or repealed (including any amendment
which changes the terms of any of the outstanding stock by classification,
reclassification or otherwise), upon the vote of the holders of a majority of
the shares of capital stock of the Corporation at the time entitled to vote; and
other provisions which might under the statutes of the State of Maryland at the
time in force be lawfully contained in Articles of Incorporation, may be added
or inserted upon the vote of the holders of a majority of the shares of capital
stock of the Corporation at the time entitled to vote; and all rights at any
time conferred upon the shareholders of the Corporation by these Articles of
Incorporation are granted subject to the provisions of this Article XI.
The term "these Articles of Incorporation" as used herein and in the
By-Laws of the Corporation shall be deemed to mean these Articles of
Incorporation as from time to time amended and restated.
12 of 12
<PAGE> 1
EXHIBIT 1.(B)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
ARTICLES SUPPLEMENTARY
American General Series Portfolio Company, a Maryland corporation, having
its principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article V of the Charter of the Corporation, the Board of
Directors has duly divided and classified 100,000,000 shares of the unissued
Common Stock of the Corporation into each of the following classes or series on
the dates indicated in the parentheses following the names of the respective
classes or series: Capital Accumulation Portfolio (May 28, 1985), Timed
Opportunity Portfolio (May 28, 1985), Quality Growth Portfolio (December 11,
1986), Stock Index Portfolio (February 7, 1987), International Equities
Portfolio (July 18, 1989), and Social Awareness Portfolio (July 18, 1989), all
of which shares have the powers, preferences, other special rights,
qualifications, restrictions, and limitations set forth in Article 5, Section
(2) of the Charter. The Board of Directors also has provided for the issuance of
each such series.
SECOND: (a) Prior to the foregoing classifications, the Corporation was
authorized to issue 1,000,000,000 shares of common stock, 300,000,000 million of
which were authorized to be issued in the following classes of common stock
comprising 100,000,000 shares each: Money Market Portfolio; Capital
Conservation Portfolio, and Government Securities Portfolio.
(b) After giving effect to the classifications, the Corporation is
authorized to issue 1,000,000,000 shares of common stock, 900,000,000 million
of which were authorized to be issued in the following classes of common stock
comprising 100,000,000 shares each: Money market Portfolio; Capital
Conservation Portfolio; Government Securities Portfolio; Capital Accumulation
Portfolio; Timed Opportunity Portfolio; Quality Growth Portfolio; Stock Index
Portfolio; International Equities Portfolio; and Social Awareness Portfolio.
<PAGE> 2
IN WITNESS WHEREOF, American General Series Portfolio Company has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on April 6, 1990.
WITNESS: AMERICAN GENERAL SERIES
PORTFOLIO COMPANY
/s/ CYNTHIA A. TOLES By /s/ STEPHEN D. BICKEL
- -------------------------- -----------------------------
Cynthia A. Toles, Secretary Stephen D. Bickel, President
THE UNDERSIGNED, President of American General Series Portfolio Company,
who executed on behalf of the Corporation Articles Supplementary of which this
Certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles Supplementary to be the corporate act of
said Corporation and hereby certifies that the matters and facts set forth
herein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/ STEPHEN D. BICKEL
-----------------------------
Stephen D. Bickel, President
<PAGE> 1
EXHIBIT 1.(C)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
Articles Supplementary
Increasing Authorized Stock
As Authorized By Section 2-105(c) Of
The Maryland General Corporation Law
------------------------------------
American General Series Portfolio Company, a Maryland corporation, having
its principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: In accordance with Section 2-105(c) of the Maryland General
Corporation Law, the Board of Directors has increased the authorized capital
stock of the Corporation to 2,000,000,000 shares of common stock (par value
$.01 per share).
SECOND: The Corporation is registered as an open-end investment company
under the Investment Company act of 1940.
THIRD: (a) As of immediately before the increase the total number of
shares of stock of all classes which the Corporation has authority to issue is
1,000,000,000 shares of Common Stock par value $.01 per share).
(b) As increased the total number of shares of stock of all classes which
the Corporation has authority to issue is 2,000,000,000 shares of Common Stock
(par value $.01 per share).
(c) The aggregate par value of all shares having a par value is
$10,000,000 before the increase and $20,000,000 as increased.
IN WITNESS WHEREOF, American General Series Portfolio Company has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on September 21, 1990.
WITNESS: AMERICAN GENERAL SERIES
PORTFOLIO COMPANY
/s/ CYNTHIA A. TOLES By /s/ STEPHEN D. BICKEL
- ------------------------------ -----------------------------
Cynthia A. Toles, Secretary Stephen D. Bickel, President
<PAGE> 2
THE UNDERSIGNED, President of American General Series Portfolio Company,
who executed on behalf of the Corporation Articles Supplementary of which this
Certificate is made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles Supplementary to be the corporate act
of said Corporation and hereby certifies that the matters and facts set forth
herein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/ STEPHEN D. BICKEL
-----------------------------
Stephen D. Bickel, President
<PAGE> 1
EXHIBIT 1.(D)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
Amendment One
To The
Articles of Incorporation
Of
American General Series Portfolio Company
American General Series Portfolio Company, a Maryland corporation, having
its principal office in Baltimore City, Maryland (hereafter called the
"Corporation"), hereby amends, effective October 1, 1991, its Articles of
Incorporation, as supplemented by Articles Supplementary dated April 6, 1990 and
September 21, 1990 ("Articles of Incorporation"), to redesignate and reclassify
the one hundred million (100,000,000) issued and unissued shares of the
Corporation which were divided and classified as the class of common stock
bearing the designation Capital Accumulation Portfolio into a class of common
stock bearing the designation MidCap Index Portfolio and to classify one
hundred million (100,000,000) unissued and undesignated shares of the
Corporation into a class of common stock bearing the designation International
Government Bond Portfolio. All of such shares have the powers, preferences,
other special rights, qualifications, restrictions and limitations set forth
in Article V Section (2) of the Articles of Incorporation.
ARTICLE V, Section (1) of the Corporation's Articles of Incorporation are
amended to read as follows:
(1) The total number of shares of stock which the Corporation
has authority to issue is two billion (2,000,000,000) shares
of capital stock of the par value of $0.01 each, and of the
aggregate par value of twenty million dollars ($20,000,000).
One billion (1,000,000,000) of such shares shall be issued
in the following classes of common stock comprising 100
million shares each and bearing the following designations,
provided, however, that the Board of Directors may increase
or decrease any such number of shares:
MidCap Index Portfolio 100,000,000
Timed Opportunity Portfolio 100,000,000
Money Market Portfolio 100,000,000
Capital Conservation Portfolio 100,000,000
Government Securities Portfolio 100,000,000
Quality Growth Portfolio 100,000,000
Stock Index Portfolio 100,000,000
International Equities Portfolio 100,000,000
Social Awareness Portfolio 100,000,000
International Government
Bond Portfolio 100,000,000
<PAGE> 2
The Board of Directors shall have the authority to classify
or reclassify and issue authorized stock in such other
classes as it may determine, each comprising such number of
shares and having such designations, powers, preferences and
rights and such qualifications, limitations and restrictions
thereof, as may be fixed or determined from time to time by
resolution or resolutions providing for the issuance of such
stock. The Board of Directors may increase or decrease the
number of shares of any class provided that it may not
decrease the number of shares of any class below the number
of shares thereof then outstanding.
IN WITNESS WHEREOF, American General Series Portfolio Company has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on the 30th day of September, 1991 to be effective
on the 1st day of October, 1991.
AMERICAN GENERAL SERIES
WITNESS: PORTFOLIO COMPANY
/s/ CYNTHIA A. TOLES By /s/ STEPHEN D. BICKEL
- ----------------------------- -----------------------------
Cynthia A. Toles, Secretary Stephen D. Bickel, President
<PAGE> 1
EXHIBIT 1.(E)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
Amendment Two
To The
Articles of Incorporation
of
American General Series Portfolio Company
American General Series Portfolio Company, a Maryland corporation, having
its principal office in the State of Maryland in Baltimore City, Maryland
(hereafter called the "Corporation"), hereby amends, effective May 1, 1992, its
Articles of Incorporation, as supplemented by Articles Supplementary dated April
6, 1990 and September 21, 1990, and amended by Amendment One to the Articles of
Incorporation dated September 30, 1991 ("Articles of Incorporation"), to
redesignate and reclassify the one hundred million (100,000,000) issued and
unissued shares of the Corporation which were divided and classified as the
class of common stock bearing designation Quality Growth Portfolio into the
class of common stock bearing the designation Stock Index Portfolio. All of such
shares have the powers, preferences, other special rights, qualifications,
restrictions and limitations set forth in Article V, Section (2) of the Articles
of Incorporation.
ARTICLE V, Section (1) of the Corporation's Articles of Incorporation are
amended to read as follows:
(1) The total number of shares of stock which the Corporation has
authority to issue is two billion (2,000,000,000) shares of capital stock
of the par value of $0.01 each, and of the aggregate par value of twenty
million dollars ($20,000,000). One billion (1,000,000,000) of such shares
shall be issued in the following classes of common stock bearing the
following designations, provided, however, that the Board of Directors may
increase or decrease any such number of shares:
MidCap Index Portfolio 100,000,000
Timed Opportunity Portfolio 100,000,000
Money Market Portfolio 100,000,000
Capital Conservation Portfolio 100,000,000
Government Securities Portfolio 100,000,000
Stock Index Portfolio 200,000,000
International Equities Portfolio 100,000,000
Social Awareness Portfolio 100,000,000
International Government
Bond Portfolio 100,000,000
The Board of Directors shall have the authority to classify or reclassify
and issue authorized stock in such other classes as it may determine, each
compromising such number of shares and having such designations, powers,
preferences and rights and such qualifications, limitations and
restrictions thereof, as may be fixed or determined from time to time by
resolution or resolutions providing for the issuance of such stock. The
Board of Directors may increase or decrease the number of shares of any
class provided
<PAGE> 2
that it may not decrease the number of shares of any class below the
number of shares thereof then outstanding.
The foregoing amendment was advised by the Board of Directors of the
Corporation and approved by the affirmative vote of the holders of a
majority of the total number of shares outstanding and entitled to vote on the
proposed amendment.
IN WITNESS WHEREOF, American General Series Portfolio Company has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on the 28th day of April, 1992 to be effective on
the 1st day of May, 1992.
AMERICAN GENERAL SERIES
WITNESS: PORTFOLIO COMPANY
/s/ CYNTHIA A. TOLES /s/ STEPHEN D. BICKEL
- --------------------------- ----------------------------
Cynthia A. Toles, Secretary Stephen D. Bickel, President
<PAGE> 3
THE UNDERSIGNED, President of American General Series Portfolio Company,
who executed on behalf of the Corporation Amendment Two to the Articles of
Incorporation of which this Certificate is made a part, hereby acknowledges in
the name and on behalf of said Corporation the foregoing Amendment Two to the
Articles of Incorporation to be the corporate act of said Corporation and
hereby certifies that the matters and facts set forth herein with respect to
the authorization and approval thereof are true in all material respects under
the penalties of perjury.
/s/ STEPHEN D. BICKEL
-------------------------------
Stephen D. Bickel, President
<PAGE> 1
EXHIBIT 1.(F)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
ARTICLES SUPPLEMENTARY
American General Series Portfolio Company, a Maryland corporation,
having its principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article V of the Charter of the Corporation, the Board of
Directors has duly divided and classified 100,000,000 shares of the unissued
Common Stock of the Corporation into the class or series designated Small Cap
Index Portfolio, all of which shares have the powers, preferences, other special
rights, qualifications, restrictions, and limitations set forth In Article V,
Section (2) of the Charter. The Board of Directors also has provided for the
issuance of such series.
SECOND: (a) Prior to the foregoing classification, the Corporation was
authorized to issue 2,000,000,000 shares of common stock, 1,000,000,000 of which
were authorized to be issued in the following classes of Common Stock comprising
one hundred million (100,000,000) shares each: MidCap Index Portfolio, Timed
Opportunity Portfolio, Money Market Portfolio, Capital Conservation Portfolio,
Government Securities Portfolio, International Equities Portfolio, Social
Awareness Portfolio and International Government Bond Portfolio; and two hundred
million (200,000,000) of which were authorized to be issued in a class of Common
Stock designated Stock Index Portfolio.
(b) After giving effect to the classification, the Corporation is
authorized to issue 2,000,000,000 shares of common stock, 1,100,000,000 billion
of which are authorized to be issued in the following classes of Common Stock
comprising one hundred million (100,000,000) shares each: MidCap Index
Portfolio, Timed Opportunity Portfolio, Money Market Portfolio, Capital
Conservation Portfolio, Government Securities Portfolio, International Equities
Portfolio, Social Awareness Portfolio, International Government Bond Portfolio
and Small Cap Index Portfolio; and two hundred million (200,000,000) of which
were authorized to be issued in a class of Common Stock designated Stock Index
Portfolio.
IN WITNESS WHEREOF, American General Series Portfolio Company has
caused these presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary on April 28, 1992.
WITNESS: AMERICAN GENERAL SERIES PORTFOLIO
COMPANY
/s/ CYNTHIA A. TOLES By /s/ STEPHEN D. BICKEL
- --------------------------- ---------------------------------------
Cynthia A. Toles, Secretary Stephen D. Bickel, President
<PAGE> 2
THE UNDERSIGNED, President of American General Series Portfolio
Company, who executed on behalf of the Corporation, Articles Supplementary of
which this Certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.
/s/ STEPHEN D. BICKEL
----------------------------------------
Stephen D. Bickel, President
<PAGE> 1
EXHIBIT 1.(G)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
ARTICLES SUPPLEMENTARY
American General Series Portfolio Company, a Maryland corporation,
having its principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article V of the Charter of the Corporation, the Board of
Directors has duly divided and classified 100,000,000 shares of the unissued
Common Stock of the Corporation into the class or series designated Science &
Technology Portfolio, all of which shares have the powers, preferences, other
special rights, qualifications, restrictions, and limitations set forth in
Article V, Section (2) of the Charter. The Board of Directors also has provided
for the Issuance of such series.
SECOND: (a) Prior to the foregoing classification, the Corporation was
authorized to Issue 2,000,000,000 shares of common stock, 1,100,000,000 of which
were authorized to be Issued in the following classes of Common Stock comprising
one hundred million (100,000,000) shares each; MidCap Index Portfolio, Timed
Opportunity Portfolio, Money Market Portfolio, Capital Conservation Portfolio,
Government Securities Portfolio, international Equities Portfolio, Social
Awareness Portfolio, International Government Bond Portfolio and Small Cap Index
Portfolio; and two hundred million (200,000,000) of which were authorized to be
issued In a class of Common Stock designated Stock Index Portfolio.
(b) After giving effect to the classification, the Corporation is
authorized to issue 2,000,000,000 shares of common stock, 1,200,000,000 billion
of which are authorized to be issued in the following classes of Common Stock
comprising one hundred million (100,000,000) shares each: MidCap Index
Portfolio, Timed Opportunity Portfolio, Money Market Portfolio, Capital
Conservation Portfolio, Government Securities Portfolio, International Equities
Portfolio, Social Awareness Portfolio, International Government Bond
Portfolio, Small Cap Index Portfolio and Science & Technology Portfolio; and
two hundred million (200,000,000) of which were authorized to be issued in a
class of Common Stock designated Stock Index Portfolio.
IN WITNESS WHEREOF, American General Series Portfolio Company has
caused these presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary on January 7, 1994.
WITNESS: AMERICAN GENERAL SERIES PORTFOLIO
COMPANY
/s/ CYNTHIA A. TOLES By /s/ STEPHEN D. BICKEL
- --------------------------- ---------------------------------------
Cynthia A. Toles, Secretary Stephen D. Bickel, President
<PAGE> 2
THE UNDERSIGNED, President of American General Series Portfolio
Company, who executed on behalf of the Corporation Articles Supplementary of
which this Certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.
/s/ STEPHEN D. BICKEL
----------------------------------------
Stephen D. Bickel, President
<PAGE> 1
EXHIBIT 1.(H)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
ARTICLES SUPPLEMENTARY
American General Series Portfolio Company, a Maryland corporation,
having its principal office in Baltimore City, Maryland (hereinafter called the
"Corporation", hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article V of the Charter of the Corporation, the Board of
Directors has duly divided and classified 100,000,000 shares of the unissued
Common Stock of the Corporation into the class or series designated Growth
Portfolio, all of which shares have the powers, preferences, other special
rights, qualifications, restrictions, and limitations set forth in Article V,
Section (2) of the Charter. The Board of Directors also has provided for the
issuance of such series.
SECOND: (a) Prior to the foregoing classification, the Corporation was
authorized to issue 2,000,000,000 shares of common stock, 1,300,000,000 of which
were authorized to be issued in the following classes of Common Stock comprising
one hundred million (100,000,000) shares each: MidCap Index Portfolio, Timed
Opportunity Portfolio, Money Market Portfolio, Capital Conservation Portfolio,
Government Securities Portfolio, International Equities Portfolio, Social
Awareness Portfolio, International Government Bond Portfolio, Small Cap Index
Portfolio, Science & Technology Portfolio and Growth & Income Portfolio; and two
hundred million (200,000,000) of which were authorized to be issued in a class
of Common Stock designated Stock Index Portfolio.
(b) After giving effect to the classification, the Corporation is
authorized to issue 2,000,000,000 shares of common stock, 1,400,000,000 billion
of which are authorized to be issued in the following classes of Common Stock
comprising one hundred million (100,000,000) shares each: MidCap Index
Portfolio, Timed Opportunity Portfolio, Money Market Portfolio, Capital
Conservation Portfolio, Government Securities Portfolio, International Equities
Portfolio, Social Awareness Portfolio, International Government Bond Portfolio,
Small Cap Index Portfolio, Science & Technology Portfolio, Growth & Income
Portfolio and Growth Portfolio; and two hundred million (200,000,000) of which
were authorized to be issued in a class of Common Stock designated Stock Index
Portfolio.
IN WITNESS WHEREOF, American General Series Portfolio Company has
caused these presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary on January 27, 1994.
WITNESS: AMERICAN GENERAL SERIES PORTFOLIO
COMPANY
/s/ CYNTHIA A. TOLES By /s/ STEPHEN D. BICKEL
- --------------------------- ---------------------------------------
Cynthia A. Toles, Secretary Stephen D. Bickel, President
<PAGE> 2
THE UNDERSIGNED, President of American General Series Portfolio
Company, who executed on behalf of the Corporation Articles Supplementary of
which this Certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.
/s/ STEPHEN D. BICKEL
----------------------------------------
Stephen D. Bickel, President
<PAGE> 1
EXHIBIT 1.(I)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
ARTICLES SUPPLEMENTARY
American General Series Portfolio Company, Maryland corporation having
its principal office in Baltimore City, Maryland (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article V of the Charter of the Corporation, the Board of
Directors has duly divided and classified 100,000,000 shares of the unissued
Common Stock of the Corporation into the class or series designated Growth &
Income Portfolio, all of which shares have the powers, preferences, other
special rights, qualifications, restrictions, and limitations set forth in
Article V, Section (2) of the Charter. The Board of Directors also has provided
for the issuance of such series.
SECOND: (a) Prior to the foregoing classification, the Corporation was
authorized to issue 2,000,000,000 shares of common stock, 1,200,000,000 of which
were authorized to be issued in the following classes of Common Stock comprising
one hundred million (100,000,000) shares each: MidCap Index Portfolio, Timed
Opportunity Portfolio, Money Market Portfolio, Capital Conservation Portfolio,
Government Securities Portfolio, International Equities Portfolio, Social
Awareness Portfolio, International Government Bond Portfolio, Small Cap Index
Portfolio and Science & Technology Portfolio; and two hundred million
(200,000,000) of which were authorized to be issued in a class of Common Stock
designated Stock Index Portfolio.
(b) After giving effect to the classification, the Corporation is
authorized to issue 2,000,000,000 shares of common stock, 1,300,000,000 billion
of which are authorized to be issued in the following classes of Common Stock
comprising one hundred million (100,000,000) shares each: MidCap Index
Portfolio, Timed Opportunity Portfolio, Money Market Portfolio, Capital
Conservation Portfolio, Government Securities Portfolio, International Equities
Portfolio, Social Awareness Portfolio, International Government Bond Portfolio,
Small Cap Index Portfolio, Science & Technology Portfolio and Growth & Income
Portfolio; and two hundred million (200,000,000) of which were authorized to be
issued in a class of Common Stock designated Stock Index Portfolio.
IN WITNESS WHEREOF, American General Series Portfolio Company has
caused these presents to be signed in its name and on its behalf by its
President and witnessed by its Secretary on January 27, 1994.
WITNESS: AMERICAN GENERAL SERIES PORTFOLIO
COMPANY
/s/ CYNTHIA A. TOLES By /s/ STEPHEN D. BICKEL
- --------------------------- ---------------------------------------
Cynthia A. Toles, Secretary Stephen D. Bickel, President
<PAGE> 2
THE UNDERSIGNED, President of American General Series Portfolio
Company, who executed on behalf of the Corporation Articles Supplementary of
which this Certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that the matters and
facts set forth herein with respect to the authorization and approval thereof
are true in all material respects under the penalties of perjury.
/s/ STEPHEN D. BICKEL
----------------------------------------
Stephen D. Bickel, President
<PAGE> 1
EXHIBIT 1.(J)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
Articles Supplementary Increasing Stock
as Authorized by Section 2-105(c)
of
The Maryland General Corporation Law
American General Series Portfolio Company, a Maryland corporation, having
its principal office in Baltimore City, Maryland (hereafter called
"Corporation"), hereby amends, effective May 1, 1995, its Articles of
Incorporation, as amended by Amendment One dated October 1, 1991. Amendment
Two dated May 1, 1992 and as supplemented by Articles Supplementary dated April
10, 1990, September 28, 1990, May 1, 1992, January 20, 1994 and February 4,
1994 ("Articles of Incorporation"), to increase the authorized capital stock of
the Corporation. The Corporation is a registered open-end company under the
Investment Company Act of 1940. The total number of shares of capital stock
that the Corporation has authority to issue has been increased by the Board of
Directors in accordance with section 2-105(c) of the Maryland General
Corporation Law.
ARTICLE V. Section (1) of the Corporation's Articles of Incorporation
currently reads as follows:
(1) The total number of shares of stock which the Corporation has
authority to issue is two billion (2,000,000,000) shares of
capital stock of the par value of $0.01 each and of the
aggregate par value of twenty million dollars ($20,000,000).
These shares shall be issued in the following classes of
common stock bearing the following designations, provided,
however, that the Board of Directors may increase or decrease
any such number of shares:
Stock Index Portfolio 200,000,000
Small Cap Index Portfolio 100,000,000
MidCap Index Portfolio 100,000,000
Timed Opportunity Portfolio 100,000,000
Money Market Portfolio 100,000,000
Capital Conservation Portfolio 100,000,000
Government Securities Portfolio 100,000,000
International Equities Portfolio 100,000,000
Social Awareness Portfolio 100,000,000
International Government Bond
Portfolio 100,000,000
Growth Portfolio 100,000,000
Growth & Income Portfolio 100,000,000
Science & Technology Portfolio 100,000,000
<PAGE> 2
The Board of Directors shall have the authority to classify
or reclassify and issue authorized stock in such other
classes as it may determine, each comprising such number of
shares and having such designations, powers, preferences and
rights and such qualifications, limitations and restrictions
thereof, as may be fixed or determined from time to time by
resolution or resolutions providing for the issuance of such
stock. The Board of Directors may increase or decrease the
number of shares of any class provided that it may not
decrease the number of shares of any class below the number
of shares thereof then outstanding.
ARTICLE V, Section (1) of the Corporation's Articles of Incorporation is
amended to read as follows:
(1) The total number of shares of stock which the Corporation has
authority to issue is thirteen billion (13,000,000,000)
shares of capital stock of the par value of $0.01 each, and
of the aggregate par value of one hundred thirty million
dollars ($130,000,000). These shares shall be issued in the
following classes of common stock comprising one billion
shares each and bearing the following designations,
provided, however, that the Board of Directors may increase
or decrease any such number of shares:
Stock Index Portfolio 1,000,000,000
Small Cap Index Portfolio 1,000,000,000
MidCap Index Portfolio 1,000,000,000
Timed Opportunity Portfolio 1,000,000,000
Money Market Portfolio 1,000,000,000
Capital Conservation Portfolio 1,000,000,000
Government Securities Portfolio 1,000,000,000
International Equities Portfolio 1,000,000,000
Social Awareness Portfolio 1,000,000,000
International Government Bond
Portfolio 1,000,000,000
Growth Portfolio 1,000,000,000
Growth & Income Portfolio 1,000,000,000
Science & Technology Portfolio 1,000,000,000
The Board of Directors shall have the authority to classify
or reclassify and issue authorized stock in such other
classes as it may determine, each comprising such number of
shares and having such designations, powers, preferences and rights
and such qualifications, limitations and restrictions thereof, as may
be fixed or determined
<PAGE> 3
from time to time by resolution or resolutions providing for the
issuance of such stock. The Board of Directors may increase or
decrease the number of shares of any class provided that it may not
decrease the number of shares of any class below the number of
shares thereof then outstanding.
IN WITNESS WHEREOF, American General Series Portfolio Company has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on the 28th day of April, 1995 to be effective on
the 1st day of May, 1995.
AMERICAN GENERAL SERIES PORTFOLIO
WITNESS: COMPANY
/s/ DAVID H. DEN BOER BY: /s/ STEPHEN D. BICKEL
- ------------------------------- -------------------------------
David H. den Boer, Stephen D. Bickel, President
Assistant Secretary
<PAGE> 4
THE UNDERSIGNED. President of American General Series Portfolio Company,
who executed on behalf of the Corporation Articles Supplementary to the
Articles of Incorporation of which this Certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the foregoing
Articles Supplementary to the Articles of Incorporation to be the corporate act
of said Corporation and hereby certifies that the matter and facts set forth
herein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
/s/ STEPHEN D. BICKEL
------------------------------------
Stephen D. Bickel, President
<PAGE> 1
EXHIBIT 2.
**********
BYLAWS
OF
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
AMENDED AND RESTATED OCTOBER 29, 1991
**********
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of Baltimore,
State of Maryland.
Section 2. The Corporation shall also maintain an office at 2929 Allen
Parkway, Houston, Texas, 77019, and may also have offices at such other places
both within and without the State of Maryland as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of stockholders shall be held at the office of the
Corporation in Houston, Texas, or at any other place within the United States as
shall be designated from time to time by the Board of Directors and stated in
the notice of meeting or in a duly executed waiver of notice thereof.
Section 2. The Board of Directors shall call an Annual Meeting of the
stockholders of the Corporation, on such date as may be fixed by the Board of
Directors, in any year in which the Investment Company Act of 1940 requires that
the stockholders of the Company (1) elect Directors, (2) approve an investment
advisory agreement, (3) ratify the selection of independent public accountants,
or (4) approve a distribution agreement. The Directors shall also call an Annual
Meeting of the stockholders in any year when such meeting shall be required to
comply with any other Federal or State law, or regulations thereunder.
Section 3. At any time in the interval between annual meetings, special
meetings of the stockholders may be called by the Chairman of the Board of
Directors, any Vice Chairman of the Board of Directors, by the President, or by
the Board of Directors.
Section 4. Special meetings of stockholders shall be called by the
Secretary upon the written request of the holders of not less than twenty-five
percent (25%) of all the shares entitled to vote at such meeting. Such request
shall state the purpose or purposes of such meeting and the matters proposed to
be acted on thereat. The Secretary shall inform such stockholders of the
reasonably estimated cost of preparing and mailing such notice of the meeting,
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<PAGE> 2
and upon payment to the Corporation of such costs the Secretary shall give
notice stating the purpose or purposes of the meeting. No special meeting need
be called upon the request of the holders of less than a majority of all the
shares entitled to vote at such meeting to consider any matter which is
substantially the same as a matter voted upon at any special meeting of the
stockholders held during the preceding twelve months.
Section 5. Not less than ten (10) nor more than ninety (90) days before
the date of each stockholders' meeting, the Secretary shall give to each
stockholder entitled to vote at such meeting, and to each stockholder not
entitled to vote who is entitled by statute to notice, written or printed notice
stating the time and place of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, either by mail or by
presenting it to him personally or by leaving it at his residence or usual place
of business. If mailed, such notice shall be deemed to be given when deposited
in the United States mail addressed to the stockholder at his or her mailing
address as it appears on the records of the Corporation, with postage thereon
prepaid.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 6. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 7. At any meeting of stockholders, the presence in person or by
proxy of stockholders entitled to cast a majority of the votes thereat shall
constitute a quorum; but this section shall not affect any requirement under any
statute or under the Articles of Incorporation for the vote necessary for the
adoption of any measure. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, a majority of the stockholders
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 8. The Board of Directors may set a record date or direct that
the stock transfer books be closed for a stated period for the purpose of making
any proper determination with respect to stockholders, including which
stockholders are entitled to notice of a meeting, vote at a meeting, receive a
dividend or be allotted other rights. The record date may not be more than
ninety (90) days before the date on which the action requiring the determination
will be taken. The transfer books may not be closed for a period longer than
twenty (20) days. In the case of a meeting of stockholders, the record date or
the closing of the stock transfer books shall be at least ten (10) days before
the date of the meeting.
2
<PAGE> 3
Section 9. A majority of the votes cast at a meeting of stockholders,
duly called and at which a quorum is present, shall be sufficient to take or
authorize action upon any matter which may properly come before the meeting,
unless more than a majority of the votes cast is required by statute or by the
Articles of Incorporation.
Section 10. At all meetings of stockholders every stockholder of record
entitled to vote thereat shall be entitled to vote at such meeting either in
person or by proxy appointed by instrument in writing subscribed by such
stockholder or his duly authorized attorney. No proxy shall be valid after
eleven (11) months from its date, unless otherwise provided in the proxy. At all
meetings of stockholders, unless the voting is conducted by inspectors, all
questions relating to the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by the Chairman of the
meeting.
Section 11. At any meeting of stockholders at which Directors are to be
elected, the Board of Directors prior thereto may, or, if they have not so
acted, the Chairman of the meeting may, and upon the request of the holders of
ten percent (10%) of the stock entitled to vote at such meeting shall, appoint
two Inspectors of Election who shall first subscribe an oath or affirmation to
execute faithfully the duties of Inspectors at such election with strict
impartiality and according to the best of their ability, and shall after the
election make a certificate of the result of the vote taken. No candidate for
the office of Director shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of ten percent (10%) of the stock entitled to vote on such election or matter.
Section 12. At all meetings of the stockholders, all proxies shall be
received and taken in charge of and all ballots shall be received and canvassed
by the Chairman of the meeting, who shall decide all questions touching the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless Inspectors of Election shall have been appointed as
provided in Section 11, in which event, such Inspectors of Election shall decide
all such questions.
ARTICLE III
BOARD OF DIRECTORS
Section 1. The Board of Directors of the Corporation shall consist of
five (5) Directors, which number may be increased or decreased as provided in
Section 2 of this Article. Each Director shall hold office until the Annual
Meeting of stockholders of the Corporation next succeeding his election and
until his successor is duly elected and qualifies. Directors need not be
stockholders.
Section 2. By vote of a majority of the entire Board of Directors, the
number of Directors fixed by the Articles of Incorporation or by these Bylaws
may be increased or decreased from time to time, but such number shall not be
less than three (3) nor more than twenty (20), and the tenure of office of a
Director
3
<PAGE> 4
shall not be affected by any decrease in the number of Directors so made by the
Board of Directors. Until the first Annual meeting of stockholders and until
successors are duly elected and qualify, the Board of Directors shall consist of
the persons named in the Articles of Incorporation. At the first Annual Meeting
of stockholders and at each Annual Meeting thereafter, the stockholders shall
elect directors to hold office until the next Annual Meeting and until their
successors are duly elected and qualify.
Section 3. Any vacancy occurring on the Board of Directors for any
cause other than by reason of an increase in the number of Directors may be
filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum. Any vacancy occurring by reason of
an increase in the number of Directors may be filled by action of a majority of
the entire Board of Directors. A Director elected by the Board of Directors to
fill a vacancy shall be elected to hold office until the next Annual Meeting of
stockholders and until his successor is duly elected and qualifies. The Board
may not elect any Director to fill any vacancy as provided herein unless
immediately after filling any such vacancy at least two-thirds of the Directors
then holding office shall be those named in the Articles of Incorporation or
shall have been elected to such office at an Annual or Special meeting of
stockholders. If at any time after the first Annual Meeting of stockholders of
the Corporation, a majority of the Directors in office shall consist of
Directors elected by the Board of Directors, a meeting of the stockholders shall
be called forthwith, and in any event within sixty (60) days, for the purpose of
electing the entire Board of Directors, and the terms of office of the Directors
then in office shall terminate upon the election and qualification of such Board
of Directors.
Section 4. The business and affairs of the Corporation shall be managed
by its Board of Directors, which may exercise all of the powers of the
Corporation, except such as are by statute or by the Articles of Incorporation
or by these Bylaws conferred upon or reserved to the stockholders.
Section 5. At any meeting of stockholders, duly called and at which a
quorum is present, the stockholders may, by the affirmative vote of the holders
of a majority of the votes entitled to be cast thereon, remove any Director or
Directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of the removed Directors.
Section 6. Regular meetings of the Board of Directors may be held at
any place in or out of the State of Maryland as the Board of Directors may from
time to time determine.
Section 7. Regular meetings of the Board of Directors may be held at
such time and place as shall from time to time be determined by the Board of
Directors.
Section 8. Special meetings of the Board of Directors may be called at
any time by the Chairman of the Board of Directors, if one be appointed, or by
the executive committee, if one be constituted, by vote at a meeting, or by the
President or by a majority of the Directors or by any Vice Chairman of the Board
of Directors. Special meetings may be held at such place or places within or
4
<PAGE> 5
without Maryland as may be designated from time to time by the Board of
Directors; in the absence of such designation such meetings shall be held at
such places as may be designated in the call.
Section 9. Notice of the place and time of every meeting of the Board
of Directors shall be given to each Director orally or sent to him by telegraph
or by mail, or left at his residence or usual place of business not less than
one (1) day before the date of the meeting. If mailed, such notice shall be
deemed to be given four (4) business days after deposited in the United States
mail addressed to the Director at his mailing address as it appears on the
records of the Corporation, with postage thereon prepaid.
Section 10. At all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the action of a majority of the Directors present at any meeting at
which a quorum is present shall be the action of the Board of Directors, unless
the concurrence of a greater proportion is required for such action by statute,
the Articles of Incorporation or these Bylaws. If a quorum shall not be present
at any meeting of Directors, the Directors present thereat may by a majority
vote adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. Members of the Board of Directors or any committee thereof
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting except any meeting to consider the
entry into or renewal of any contract or agreement whereby any person agrees to
serve as investment adviser or principal underwriter of the Corporation, or any
meeting to select an independent public accountant for the preparation of any of
the Corporation's financial statements.
Section 12. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting, if a written consent to such action is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
Section 13. The Board of Directors may appoint one of its members to
serve as Chairman of the Board of Directors, and may appoint one or more of its
members to serve as Vice Chairman of the Board of Directors. The Board of
Directors also may appoint from among its members an executive committee and
other committees composed of two or more Directors, and may delegate to such
committees, any of the powers of the Board of Directors except the power to
declare dividends or distributions on stock, recommend to the stockholders any
action which requires stockholder approval, amend the Bylaws, approve any merger
or share exchange which does not require stockholder approval or issue stock. In
the absence of any member of any such committee, the members thereof present at
any meeting, whether or not they constitute a quorum, may appoint a member of
the Board of Directors to act in the place of such absent member.
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<PAGE> 6
Section 14. Directors may receive such compensation for their services
as may be fixed from time to time by resolution of the Board, and, in addition,
may be reimbursed for reasonable expenses incurred in connection with the
discharge of their duties and responsibilities, including but not limited to
attendance at regular or special meetings of the Board or of any committees
thereof.
ARTICLE IV
NOTICES
Section 1. Notices to stockholders shall be in writing and delivered
personally or mailed to the stockholders at their mailing addresses appearing on
the books of the Corporation, or such notice may be left at the stockholder's
residence or usual place of business. Notice to stockholders by mail shall be
deemed to be given at the time when the same shall be mailed.
Section 2. Whenever any notice of the time, place or purpose of any
meeting of stockholders, Directors or committee is required to be given under
the provisions of the statute or under the provisions of the Articles of
Incorporation or these Bylaws, a waiver thereof in writing, signed by the person
or persons entitled to such notice and filed with the records of the meeting,
whether before or after the holding thereof, or actual attendance at the meeting
of stockholders in person or by proxy, or at the meeting of Directors or
committee in person, shall be deemed equivalent to the giving of such notice to
such persons.
ARTICLE V
OFFICERS
Section 1. The executive officers of the Corporation shall be chosen by
the Board of Directors as soon as may be practicable after the annual meeting of
stockholders. Such officers shall include a President, one or more Vice
Presidents, a Secretary and a Treasurer. The Board of Directors may also in its
discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the executive committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by statute or these Bylaws to be
executed, acknowledged or verified by two or more officers.
Section 2. The term of office of all officers shall be one year and
until their respective successors are chosen and qualify, subject, however, to
any provision for removal contained in the Articles of Incorporation. Any
officer may be removed from office at any time by the vote of a majority of the
entire Board of Directors upon a finding that removal is in the best interest of
the Corporation.
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Section 3. The officers of the Corporation shall have such powers and
duties as generally pertain to their respective offices, as well as such powers
and duties as may from time to time be conferred by the Board of Directors or
the executive committee, if any.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Shares of stock of the Corporation may be issued without
certificates or, if directed by the Board of Directors, be issued in the form of
a certificate or certificates which shall represent and certify the number and
kind of class of shares owned by a stockholder in the Corporation. Any such
certificate shall be in such form as the Board of Directors may from time to
time prescribe.
Section 2. Shares of stock of the Corporation shall be transferable on
the books of the Corporation by the holder thereof in person or by his duly
authorized attorney or legal representative, upon surrender and cancellation of
certificates, if any, for the same number of shares, duly endorsed or
accompanied by proper instruments of assignment and transfer, with such proof of
the authenticity of the signature as the Corporation or its agents may
reasonably require; in the case of shares not represented by certificates, the
same or similar requirements may be imposed by the Board of Directors.
Section 3. The stock ledgers of the Corporation, containing the name
and mailing address of the stockholders and the number of shares held by them
respectively, shall be kept at the principal offices of the Corporation or, if
the Corporation employs a transfer agent, at the offices of the transfer agent
of the Corporation.
Section 4. The Board of Directors may determine the conditions upon
which a new certificate of stock of the Corporation of any class may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in their discretion, require the owner of such certificate
or his legal representative to give bond, with sufficient surety to the
Corporation and the transfer agent, if any, to indemnify it and such transfer
agent, if any, against any and all loss or claims which may arise by reason of
the issue of a new certificate in the place of the one so lost, stolen or
destroyed.
ARTICLE VII
CUSTODIANSHIP
All cash and securities owned by the Corporation shall be held by a bank or
trust company of good standing, having a capital, surplus and undivided profits
aggregating not less than two million dollars ($2,000,000), provided such a bank
or trust company can be found ready and willing to act. Upon the resignation or
inability to serve of any such bank or trust company the Corporation shall (i)
use its best efforts to obtain a qualified successor, (ii) require the cash and
securities of the Corporation held by such bank or trust company to be delivered
directly to the successor, and (iii) in the event that
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<PAGE> 8
no qualified successor can be found, submit to the holders of the shares of the
capital stock of the Corporation at the time outstanding and entitled to vote,
before permitting delivery of such cash and securities to anyone other than a
qualified successor, the question whether the Corporation shall be dissolved and
liquidated or shall function without a qualified bank or trust company to hold
such cash and securities. Upon such resignation or inability to serve, such bank
or trust company may deliver any assets of the Corporation held by it to a
qualified bank or trust company selected by it, such assets to be held subject
to the terms of the agreement which governed such retiring bank or trust
company, pending action by the Corporation as set forth in this Article. Nothing
herein contained, however, shall prevent the termination of any agreement
between the Corporation and any such bank or trust company by the Corporation at
the discretion of the Board of Directors, and any such agreement shall be
terminated upon the affirmative vote of the holders of a majority of all the
shares of the capital stock of the Corporation at the time outstanding and
entitled to vote.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Articles of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting or by unanimous written
consent, pursuant to law.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or the equalizing of dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interests of the
Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. All checks, drafts, and orders for the payment of money,
notes and other evidences of indebtedness, issued in the name of the Corporation
shall be signed by such officer or officers as the Board of Directors may from
time to time designate.
Section 4. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
Section 5. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Maryland." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
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ARTICLE IX
CODE OF ETHICS
The Corporation and its Directors and its officers shall conduct the
Corporation's business and themselves in conformity with the Corporation's Code
of Ethics. The Code of Ethics adopted by the Corporation pursuant to Section 17,
of the Investment Company Act of 1940, as amended, and Rule 17-1(b)(1)
thereunder, shall be made available to all employees and affiliates of the
Corporation. The Code, as adopted hereby, may only be changed by a majority vote
of the Board of Directors.
ARTICLE X
AMENDMENTS
Section 1. The Board of Directors, by vote of a majority of all of its
members, shall have the power, at any regular meeting or at any special meeting,
if notice thereof be included in the notice of such special meeting, to alter,
amend or repeal any Bylaws of the Corporation and to make new Bylaws, except
that the Board of Directors shall not alter or repeal any Bylaws made by the
stockholders.
Section 2. The holders of a majority of the shares of the capital stock
of the Corporation at the time outstanding and entitled to vote shall have the
power, at any Annual Meeting or at any special meeting, if notice thereof be
included in the notice of such special meeting, to alter, amend or repeal any
Bylaws of the Corporation or to make new Bylaws.
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<PAGE> 1
EXHIBIT 5.(A)
AMENDED AND RESTATED
INVESTMENT ADVISORY AGREEMENT
This amended and restated AGREEMENT made this 30th day of September, 1987
by and between the VARIABLE ANNUITY LIFE INSURANCE COMPANY, hereinafter
referred to as the "ADVISER", and AMERICAN GENERAL SERIES PORTFOLIO COMPANY,
hereinafter referred to as the "FUND", amends and restates the Investment
Advisory Agreement made on May 30, 1985 by and between the ADVISER and 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 general
corporation laws of Maryland as a series type of investment company
issuing separate classes (or series) of stock and is registered as a
diversified, open-end, management investment company under the Investment
Company Act of 1940. That Act prohibits any person from acting as an
investment adviser of a registered investment company except pursuant to a
written contract.
1
<PAGE> 2
(c) The FUND currently consists of seven Portfolios: Capital Accumulation
Portfolio, Timed Opportunity Portfolio, Money Market Portfolio, Capital
Conservation Portfolio, Government Securities Portfolio, Quality Growth
Portfolio and Stock Index Portfolio. In accordance with the FUND's Articles
of Incorporation and Bylaws new portfolios may be added to the FUND upon
approval of the FUND's Board of Directors without approval of the FUND's
shareholders. This Agreement will apply to such new portfolios by amendment
to the attached Schedule A.
(d) The FUND currently sells its shares only to The Variable Annuity Life
Insurance Company Separate Account A ("Account A"), a separate account
established by the ADVISER (under section 7 of Article 3.72 of the Texas
Insurance Code) to fund certain variable annuity contracts issued by the
ADVISER and Account A. Account A is registered as a unit investment trust
under the Investment Company Act of 1940 and the variable annuity contracts
issued in connection with it give rise to security interests, registered
under the Securities Act of 1933, in Account A.
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 Directors and in conformity with applicable laws, the FUND's
Articles of Incorporation, Bylaws, registration statements,
2
<PAGE> 3
prospectus and stated investment objectives, policies and restrictions, shall:
(a) manage the investment and reinvestment of the assets in each of the
FUND's Portfolios 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 of the FUND's
Portfolios, 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 the 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 the FUND including,
for example, the preparation of registration statements, prospectuses,
reports, proxy solicitation materials and amendments thereto, and the
furnishing of legal services (except those services provided by outside
counsel to the FUND selected by the Board of Directors).
(d) furnish to the FUND office space, facilities, equipment and personnel
adequate to provide the services described above and pay the compensation
of each FUND director and FUND officer who is an
3
<PAGE> 4
interested person of the ADVISER.
In performing the services described in paragraph (b) above, the ADVISER
shall use its best efforts to obtain for the FUND the most favorable overall
price and execution. The ADVISER shall also use its best efforts to obtain for
the FUND any tender and exchange offer solicitation fees, other fees, and
similar payments available in connection with the portfolio transactions of the
FUND's Portfolios. Subject to prior authorization by the FUND's Board of
Directors of appropriate policies and procedures, the ADVISER may cause the
FUND 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 Directors 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
4
<PAGE> 5
are payable by the ADVISER. Expenses payable by the FUND include, but are not
limited to, (i) interest and taxes; (ii) broker's commissions and other expenses
of purchasing and selling portfolio investments; (iii) compensation of
directors 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 Directors; (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 of issuing 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 Directors; (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, directors and employees with respect
thereto. The FUND shall allocate the foregoing expenses among its Portfolios
and to the extent that any of the foregoing expenses are allocated between the
FUND and any other party, such allocations shall be made pursuant to methods
approved by the Board of
5
<PAGE> 6
Directors.
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
or fees based on each Portfolio's average monthly net asset value computed for
each Portfolio as provided in the fee schedule attached hereto a 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 Articles and Bylaws
of the FUND. Any change in Schedule A pertaining to any existing or new
Portfolio shall not be deemed to affect the interest of any other Portfolio and
shall not require the approval of shareholder of any other Portfolio of the
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 Articles of Incorporation, for each business day
during a given calendar month. The FUND shall pay this fee for each calendar
month as soon as practicable after the end of that month.
The ADVISER shall promptly reduce its monthly fee by the amount of any
commissions, tender and exchange offer solicitation fees, other fees, or
similar payments received by the ADVISER, or any affiliated person of ADVISER,
in connection with the 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.
6
<PAGE> 7
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 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 FUND.
Except as otherwise required by the Investment Company Act of 1940, any of
the shareholders, directors, officers and employees of the FUND may be a
shareholder, directors, officer or employee of, or be otherwise interested in,
the ADVISER, and in any person controlled by or under common control with the
ADVISER, and the ADVISER, and any person 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.
7
<PAGE> 8
4. Duration of Agreement
This Agreement shall become effective as to each of the current seven
Portfolios on the date hereof and as to any new Portfolio on the date of the
Amendment to Schedule A adding such Portfolio in accordance with this
Agreement. It shall continue in force thereafter, but, with respect to any
Portfolio, only so long as such continuance is approved at least annually by
the vote of a majority of the FUND's directors 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 Directors or a majority of that Portfolio's
outstanding voting securities.
This Agreement shall automatically terminate in the event of its
assignment. The Agreement may be terminated as to any Portfolio at any time by
the FUND's Board of Directors, by vote of a majority of that Portfolio'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
8
<PAGE> 9
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.
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
By:/s/ JOE D. HEUSI
------------------------------
Joe D. Heusi
President
Attest:
/s/ CYNTHIA T. SHURDEN
- ------------------------
Cynthia T. Shurden
Secretary
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
By: /s/JOE C. OSBORNE
-------------------------------
Joe C. Osborne, Executive Vice
President - Marketing
Attest:
/s/ CYNTHIA SHURDEN
- ------------------------
Cynthia T. Shurden
Assistant Secretary
9
<PAGE> 10
SCHEDULE A
to Amended and Restated
Investment Advisory Agreement
Dated September 30, 1987
(Effective October 1, 1992)
Monthly Fee computed at the following annual rate
Timed Opportunity Portfolio
Money Market Portfolio
Capital Conservation Portfolio
Government Securities Portfolio
International Equities Portfolio
Social Awareness Portfolio
International Government
Bond Portfolio
of average monthly net asset value
E-10
<PAGE> 1
EXHIBIT 5.(B)
INVESTMENT ADVISORY AGREEMENT
(Form II)
This AGREEMENT made this 1st day of May, 1992, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as the "ADVISER," and
AMERICAN GENERAL SERIES PORTFOLIO COMPANY, 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 general
corporation laws of Maryland as a series type investment company issuing
separate classes (or series) of stock and is registered as an open-end,
management investment company under the Investment Company Act of 1940.
That 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 ten portfolios ("Funds"): MidCap
Index Portfolio, Timed Opportunity Portfolio, Money Market Portfolio,
Capital Conservation Portfolio, Government Securities Portfolio, Stock
Index Portfolio, International Equities Portfolio, Social Awareness
Portfolio, International Government Bond Portfolio and Small Cap Index
Portfolio. In accordance with the FUND's Articles of Incorporation and
Bylaws, new Funds may be added to the FUND upon approval of the FUND's
Board of Directors without approval of the FUND's shareholders. This
Agreement will apply only to the Stock Index Portfolio and the MidCap
Index Portfolio and any other Fund as may be added or deleted by amendment
to the Attached Schedule A ("Covered Funds").
(d) The FUND currently sells its shares to separate accounts
established by the ADVISER and its affiliates to fund certain variable
annuity contracts and to employee thrift plans maintained by the ADVISER
and/or its affiliates.
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 Directors and in conformity with applicable laws, the FUND's
Articles of Incorporation, 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.
1
<PAGE> 2
(c) conduct and manage the day to day operations of each Covered Fund
including, for example, the preparation of registration statements,
prospectuses, reports, proxy solicitation materials and amendments thereto,
and the furnishing of legal services (except those services provided by
outside counsel to the FUND selected by the Board of Directors).
(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 directors 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. The ADVISER shall also use its best efforts to
obtain for the Covered Funds any tender and exchange offer solicitation fees,
other fees, and similar payments available in connection with the portfolio
transactions of the Covered Funds. Subject to prior authorization by the FUND's
Board of Directors 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 Directors 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) broker's commissions and other expenses of purchasing and selling
portfolio investments; (iii) compensation of directors 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
Directors; (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 of issuing 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
Directors; (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,
directors 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 Directors.
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
2
<PAGE> 3
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 Articles 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 Articles of Incorporation, for each business day during a
given calendar month. The FUND shall pay this fee for each calendar month as
soon as practicable after the end of that month.
"The ADVISER shall promptly reduce its monthly fee by the amount of any
commissions, tender and exchange offer solicitation fees, other fees, or similar
payments received by the ADVISER, or any affiliated person of the ADVISER, in
connection with any Covered Fund's portfolio transactions, less the amount of
any direct expenses incurred by the ADVISER, or any affiliated person of the
ADVISER, in obtaining such commissions, fees, or payments.
If the ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
3. SCOPE OF ADVISER'S DUTIES
The ADVISER, and any person controlling, controlled by or under common
control with the ADVISER, shall remain free to provide similar investment
advisory services to other persons or engage in any other business or activity
which does not impair the services which the ADVISER renders to the Covered
Funds.
Except as otherwise required by the Investment Company Act of 1940, any of
the shareholders, directors, 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.
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 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 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-
3
<PAGE> 4
adviser and the FUND, by the sub-adviser on notice to the ADVISER and the FUND,
and by the FUND's Board of Directors 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 Stock Index Portfolio and
MidCap Index Portfolio 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. It shall continue in force thereafter, but with respect to any
Covered Fund, only so long as such continuance is approved at least annually by
the vote of a majority of the FUND's directors 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 Directors 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 Directors, 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 law, the latter shall control.
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
By: /s/ STEPHEN D. BICKEL
---------------------------------
Name: Stephen D. Bickel
Title: Chairman and President
ATTEST:
/s/ CYNTHIA TOLES
- ------------------------------------
Secretary
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY
By: /s/ JOE C. OSBORNE
---------------------------------
Name: Joe C. Osborne
Title: Vice President - Marketing
ATTEST:
/s/ CYNTHIA TOLES
- ------------------------------------
Secretary
5
<PAGE> 6
SCHEDULE A
to Investment Advisory Agreement (Form II)
(Effective May 2,1994)
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
* MidCap Index Fund.................
* Stock Index Fund..................
* Small Cap Index Fund..............
* Science & Technology Fund.........
Growth and Income Fund............
* Growth Fund.......................
* The fee paid by VALIC to Bankers Trust or T. Rowe Price was amended
effective February 2, 1998.
<PAGE> 1
EXHIBIT 5.(C)(1)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 1st day of May, 1992, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and BANKERS
TRUST COMPANY, hereinafter referred to as "SUB-ADVISER."
VALIC and 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.
(b) VALIC is engaged as the investment adviser of the Stock Index
Portfolio and the MidCap Index Portfolio pursuant to an Investment Advisory
Agreement (Form II) dated May 1, 1992 between VALIC and American General
Series Portfolio Company ("FUND"), an investment company organized under
the general corporation laws of Maryland as a series type of investment
company issuing separate classes (or series) of stock and is registered as
a diversified, open-end, management investment company under the Investment
Company Act of 1940. That 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 ten Portfolios ("Funds"): MidCap
Index Portfolio, Timed Opportunity Portfolio, Money Market Portfolio,
Capital Conservation Portfolio, Government Securities Portfolio, Stock
Index Portfolio, International Equities Portfolio, Social Awareness
Portfolio, International Government Bond Portfolio and Small Cap Index
Portfolio. In accordance with the FUND's Articles of Incorporation and
Bylaws, new Funds may be added to the FUND upon approval of the FUND's
Board of Directors without approval of the FUND's shareholders. This
Agreement will apply only to the Stock Index Portfolio and the MidCap Index
Portfolio, and any other Funds as may be added or deleted by amendment to
the attached Schedule A ("Covered Funds").
(d) SUB-ADVISER is a bank engaged in the business of rendering
investment advisory services and is not an "investment adviser" pursuant to
Section 202(a)(11) of the Investment Advisers Act of 1940.
(e) VALIC desires to enter into an Investment Sub-Advisory Agreement
with respect to the Covered Funds with SUB-ADVISER.
VALIC and SUB-ADVISER AGREE AS FOLLOWS:
1. Services Rendered and Expenses Paid by SUB-ADVISER
SUB-ADVISER, subject to the control, direction, and supervision of VALIC
and the FUND's Board of Directors and in conformity with the Investment Company
Act of 1940, 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 FUND's Articles of
Incorporation, Bylaws, registration statements, prospectus and stated investment
objectives, policies and restrictions and any applicable procedures adopted by
the FUND's Board of Directors shall:
1
<PAGE> 2
(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) to the extent determined by VALIC, maintain a trading desk and
place orders for the purchase and sale of portfolio investments for each
Covered Fund's account with brokers or dealers selected by SUB-ADVISER, or
arrange for any other entity to provide a trading desk and to place orders
with brokers and dealers selected by SUB-ADVISER, subject to SUB-ADVISER's
control, direction, and supervision, which brokers or dealers may include
brokers or dealers affiliated with SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, SUB-ADVISER
shall use its best efforts to obtain for the Covered Funds the most favorable
overall price and execution. SUB-ADVISER shall also use its best efforts to
obtain for the Covered Funds any tender and exchange offer solicitation fees,
other fees, and similar payments available in connection with the portfolio
transactions of the Covered Funds. Subject to prior authorization by the FUND's
Board of Directors of appropriate policies and procedures, 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 SUB-ADVISER, 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.
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 Directors regarding the performance of services under this
Agreement. SUB-ADVISER will make available to VALIC and the FUND promptly upon
their request all its 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 Investment Company Act of 1940 and the Investment Advisers
Act of 1940, as well as other applicable laws. SUB-ADVISER will furnish the
FUND's Board of Directors such periodic and special reports as VALIC and the
FUND's Board of Directors may reasonably request. 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. 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 Directors 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 regulatory
authorities.
Should VALIC at any time make any definite determination as to investment
policy and notify SUB-ADVISER of such determination, 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.
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. 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.
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
SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
2
<PAGE> 3
Except as otherwise agreed, or as otherwise provided herein, 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 other than those
which Section 2 of this Agreement expressly states are payable to SUB-ADVISER.
2. COMPENSATION OF SUB-ADVISER
The payment of advisory fees related to the services of SUB-ADVISER under
this Agreement shall be the sole concern of VALIC and SUB-ADVISER and shall not
be the responsibility of the FUND.
VALIC shall pay to SUB-ADVISER, as compensation for the services rendered
and expenses paid by 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 Articles 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 Articles of Incorporation, 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.
SUB-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 SUB-ADVISER, or any affiliated person of SUB-ADVISER, in
connection with any Covered Fund's portfolio transactions, less the amount of
any direct expenses incurred by SUB-ADVISER, or any affiliated person of
SUB-ADVISER, in obtaining such commissions, fees, or payments. Such
"commissions" or "other fees" shall exclude those charged by brokers or dealers
affiliated with SUB-ADVISER as referred to in paragraph 1.(b) above. Such
"tender and exchange offer solicitation fees" shall exclude those received by
SUB-ADVISER acting in the capacity of manager for any such offer.
If SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
3. SCOPE OF SUB-ADVISER'S ACTIVITIES
SUB-ADVISER, and any person controlled by or under common control with
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 SUB-ADVISER renders to the Covered Funds.
Except as otherwise required by the Investment Company Act of 1940, any of
the shareholders, directors, officers and employees of VALIC may be a
shareholder, director, officer or employee of, or be otherwise interested in,
SUB-ADVISER, and in any person controlling, controlled by or under common
control with SUB-ADVISER; and SUB-ADVISER, and any person controlling,
controlled by or under common control with SUB-ADVISER, may have an interest in
VALIC.
SUB-ADVISER shall not be liable to VALIC, 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
SUB-ADVISER.
3
<PAGE> 4
4. DURATION OF AGREEMENT
This Agreement shall become effective as to the Stock Index Portfolio and
the MidCap Index Portfolio 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. It shall continue in force thereafter, but with respect to any
Covered Fund, only so long as such continuance is approved at least annually by
the vote of a majority of the FUND's directors 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 Directors or a majority of that Fund's outstanding voting
securities.
This Agreement shall automatically terminate in the event of its assignment
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, on not more than 60 days' nor
less than 30 days' written notice, or upon such shorter notice as may be
mutually agreed upon, by VALIC on notice to SUB-ADVISER and the FUND, by the
FUND's Board of Directors or by vote of a majority of that Covered Fund's
outstanding voting securities on notice to SUB-ADVISER and VALIC, or by
SUB-ADVISER on notice to VALIC and the FUND. Such termination shall be without
the payment of any penalty.
5. OTHER MATTERS
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 SUB-ADVISER so as to require a new
written contract pursuant to the Investment Company Act of 1940. The
compensation of any such persons will be paid by SUB-ADVISER, and no obligation
will be incurred by, or on behalf of, VALIC or the FUND with respect to them.
SUB-ADVISER agrees that all books and records which it maintains for the
FUND are the FUND's property. SUB-ADVISER also agrees upon request of VALIC for
the FUND, to promptly surrender the books and records in accordance with the
Investment Company Act of 1940 and rules thereunder. SUB-ADVISER further agrees
to preserve for the periods prescribed by Rule 31a-2 under the Investment
Company Act of 1940 the records required to be maintained by Rule 3la-1 under
the Investment Company Act of 1940.
VALIC has herewith furnished SUB-ADVISER copies of the FUND's Prospectus,
Statement of Additional Information, Articles of Incorporation 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.
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. 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 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 SUB-ADVISER, and not
to use such material if SUB-ADVISER reasonably objects in writing within five
(5) 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 SUB-ADVISER copies of any of the above-mentioned materials that refer
in any
4
<PAGE> 5
way to SUB-ADVISER. VALIC shall furnish or otherwise make available to
SUB-ADVISER such other information relating to the business affairs of VALIC and
the FUND as SUB-ADVISER at any time, or from time to time, may reasonably
request in order to discharge obligations hereunder.
6. 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 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.
5
<PAGE> 6
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: /s/ STEPHEN D. BICKEL
----------------------------
Name: Stephen D. Bickel
Title: Chairman and President
ATTEST:
/s/ CYNTHIA TOLES
- ----------------------------
Secretary
BANKERS TRUST COMPANY
By: /s/ FRANK R. SALERNO
----------------------------
Name: Frank R. Salerno
Title: Senior Vice President
ATTEST:
/s/ [ILLEGIBLE]
- ----------------------------
Secretary Assistant Treasurer
6
<PAGE> 7
SCHEDULE A
(Effective May 1, 1992)
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
MidCap Index Fund ............
Stock Index Fund .............
Small Cap Index Fund .........
<PAGE> 1
EXHIBIT 5.(C)(2)
AMENDMENT NO. 1 TO INVESTMENT SUB-ADVISORY AGREEMENT
THIS AMENDMENT NO. 1 TO INVESTMENT SUB-ADVISORY AGREEMENT (the
"Amendment") is effective as of February 2, 1998, by and among THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY ("VALIC") and BANKERS TRUST COMPANY (the
"Sub-Adviser").
RECITALS
WHEREAS, VALIC and the Sub-Adviser are parties to that certain
Investment Sub-Advisory Agreement dated May 1, 1992 (the "Agreement") with
respect to the Covered Funds with The Sub-Adviser; and
WHEREAS, the parties wish to amend the fee schedule attached to the
Agreement as Schedule A to reflect a change in the amount VALIC pays the
Sub-Adviser, as compensation for the services rendered and expenses paid by the
Sub-Adviser.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, VALIC and the Sub-Adviser agree as follows:
1. Change in Applicable Fee. Schedule A to the Agreement is hereby
deleted in its entirety and replaced with Schedule A attached hereto.
2. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be an original and all of which together
shall constitute one instrument.
3. Full Force and Effect. Except as expressly supplemented, amended
or consented to hereby, all of the representations, warranties, terms,
covenants and conditions of the Agreement shall remain unamended and shall
continue to be in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date first above written.
THE VARIABLE ANNUITY LIFE BANKERS TRUST COMPANY
INSURANCE COMPANY
By: /s/ NORMAN JASKOL By: /s/ FRANK R. SALERNO
---------------------------- ----------------------------
Name: Norman Jaskol Name: Frank R. Salerno
-------------------------- --------------------------
Title: Vice President and Title: Managing Director
Managing Director - Investments ------------------------------
--------------------------------
<PAGE> 2
SCHEDULE A
(Effective February 2, 1998)
(Bankers Trust Company)
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
MidCap Index Fund.................
Stock Index Fund..................
Small Cap Index Fund..............
<PAGE> 1
EXHIBIT 5.(D)(1)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 24th day of February, 1994, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and T. ROWE
PRICE ASSOCIATES, INC., hereinafter referred to as "SUB-ADVISER."
VALIC and 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.
(b) VALIC is engaged as the investment adviser of the Science &
Technology and Growth Portfolio(s) pursuant to an Investment Advisory
Agreement (Form II) dated May 1, 1992 between VALIC and American General
Series Portfolio Company ("FUND"), an investment company organized under
the general corporation laws of Maryland as a series type of investment
company issuing separate classes (or series) of stock and is registered as
a diversified, open-end, management investment company under the Investment
Company Act of 1940. That 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 thirteen portfolios ("Funds"):
MidCap Index Portfolio, Timed Opportunity Portfolio, Money Market
Portfolio, Capital Conservation Portfolio, Government Securities Portfolio,
Stock Index Portfolio, International Equities Portfolio, Social Awareness
Portfolio, International Government Bond Portfolio, Small Cap Index
Portfolio, and Science & Technology Portfolio, Growth & Income Portfolio
and Growth Portfolio. In accordance with the FUND's Articles of
Incorporation and Bylaws, new Funds may be added to the FUND upon approval
of the FUND's Board of Directors without approval of the FUND's
shareholders. This Agreement will apply only to the portfolio(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 respect to the Covered Funds with SUB-ADVISER.
VALIC and SUB-ADVISER AGREE AS FOLLOWS:
1. SERVICES RENDERED AND EXPENSES PAID BY SUB-ADVISER
SUB-ADVISER, subject to the control, direction, and supervision of VALIC
and the FUND's Board of Directors and in conformity with the Investment Company
Act of 1940, 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 FUND's Articles of
Incorporation. Bylaws, registration statements, prospectus and stated investment
objectives, policies and restrictions and any applicable procedures adopted by
the FUND's Board of Directors 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.
1
<PAGE> 2
(b) maintain a trading desk and place orders for the purchase and sale
of portfolio investments for each Covered Fund's account with brokers or
dealers selected by SUB-ADVISER, or arrange for any other entity to provide
a trading desk and to place orders with brokers and dealers selected by
SUB-ADVISER, subject to SUB-ADVISER's control, direction, and supervision,
which brokers or dealers may include brokers or dealers affiliated with
SUB-ADVISER, subject to applicable law.
In performing the services described in paragraph (b) above, SUB-ADVISER
shall use its best efforts to obtain for the Covered Funds the most favorable
overall price and execution. SUB-ADVISER shall also use its best efforts to
obtain for the Covered Funds any tender and exchange offer solicitation fees,
other fees, and similar payments available in connection with the portfolio
transactions of the Covered Funds. Subject to approval by the FUND's Board of
Directors of appropriate policies and procedures, 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 SUB-ADVISER. 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.
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 Directors regarding the performance of services under this
Agreement. SUB-ADVISER will make available to VALIC and the FUND promptly upon
their request all its 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 Investment Company Act of 1940 and the Investment Advisers
Act of 1940, as well as other applicable laws. SUB-ADVISER will furnish the
FUND's Board of Directors such periodic and special reports as VALIC and the
FUND's Board of Directors may reasonably request. 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. 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 Directors 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 regulatory
authorities.
Should VALIC at any time make any definite determination as to investment
policy and notify SUB-ADVISER of such determination. 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.
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. 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.
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
SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
2
<PAGE> 3
Except as otherwise agreed, or as otherwise provided herein, 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 other than those
which Section 2 of this Agreement expressly states are payable to SUB-ADVISER.
2. COMPENSATION OF SUB-ADVISER
The payment of advisory fees related to the services of SUB-ADVISER under
this Agreement shall be the sole concern of VALIC and SUB-ADVISER and shall not
be the responsibility of the FUND.
VALIC shall pay to SUB-ADVISER, as compensation for the services rendered
and expenses paid by 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 Articles 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 Articles of Incorporation, 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.
SUB-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 SUB-ADVISER, or any affiliated person of SUB-ADVISER, in
connection with any Covered Fund's portfolio transactions, less the amount of
any direct expenses incurred by SUB-ADVISER, or any affiliated person of
SUB-ADVISER, in obtaining such commissions, fees, or payments. Such
"commissions" or "other fees" shall exclude those charged by brokers or dealers
affiliated with SUB-ADVISER as referred to in paragraph 1.(b) above. Such
"tender and exchange offer solicitation fees" shall exclude those received by
SUB-ADVISER acting in the capacity of manager for any such offer.
If SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
3. SCOPE OF SUB-ADVISER'S ACTIVITIES
SUB-ADVISER, and any person controlled by or under common control with
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 SUB-ADVISER renders to the Covered Funds.
Except as otherwise required by the Investment Company Act of 1940, any of
the shareholders, directors, officers and employees of VALIC may be a
shareholder, director, officer or employee of, or be otherwise interested in
SUB-ADVISER, and in any person controlling, controlled by or under common
control with SUB-ADVISER; and SUB-ADVISER, and any person controlling,
controlled by or under common control with SUB-ADVISER, may have an interest in
VALIC.
SUB-ADVISER shall not be liable to VALIC, the FUND, or to any shareholder
in the FUND, and VALIC shall indemnity SUB-ADVISER, 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 SUB-ADVISER.
3
<PAGE> 4
4. DURATION OF AGREEMENT
This Agreement shall become effective as to the portfolios 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(s) in accordance with this Agreement.
It shall continue in force thereafter, but with respect to any Covered Fund,
only so long as such continuance is approved at least annually by the vote of a
majority of the FUND's directors 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 Directors or a majority of that Fund's outstanding voting
securities.
This Agreement shall automatically terminate in the event of its assignment
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, on not more than 60 days' nor
less than 30 days' written notice, or upon such shorter notice as may be
mutually agreed upon, by VALIC on notice to SUB-ADVISER and the FUND, by the
FUND's Board of Directors or by vote of a majority of that Covered Fund's
outstanding voting securities on notice to SUB-ADVISER and VALIC, or by
SUB-ADVISER on notice to VALIC and the FUND. Such termination shall be without
the payment of any penalty.
5. OTHER MATTERS
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 SUB-ADVISER so as to require a new
written contract pursuant to the Investment Company Act of 1940. The
compensation of any such persons will be paid by SUB-ADVISER, and no obligation
will be incurred by, or on behalf of, VALIC or the FUND with respect to them.
SUB-ADVISER agrees that all books and records which it maintains for the
FUND are the FUND's property. SUB-ADVISER also agrees upon request of VALIC for
the FUND, to promptly surrender the books and records in accordance with the
Investment Company Act of 1940 and rules thereunder. SUB-ADVISER further agrees
to preserve for the periods prescribed by Rule 31a-2 under the Investment
Company Act of 1940 the records required to be maintained by Rule 3la-1 under
the Investment Company Act of 1940.
VALIC has herewith furnished SUB-ADVISER copies of the FUND's Prospectus,
Statement of Additional Information, Articles of Incorporation 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.
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. 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 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 SUB-ADVISER, and not
to use such material if 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,
4
<PAGE> 5
VALIC will continue to furnish to 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 SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge
obligations hereunder.
VALIC agrees to indemnify 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.
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 Internal Revenue
Code of 1986, as amended, and the regulations thereunder, (other than a failure
which is subsequently timely corrected by 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.
6. 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
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.
5
<PAGE> 6
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: /s/ STEPHEN D. BICKEL
---------------------------------
Name: Stephen D. Bickel
Title: President and CEO
ATTEST:
/s/ CYNTHIA TOLES
- -----------------------------------
Secretary
T. ROWE PRICE ASSOCIATES, INC.
By: /s/ NANCY MORRIS
---------------------------------
Name: Nancy Morris
Title: Vice President
ATTEST:
/s/ BARBRA A. VAN HAN
- -----------------------------------
Assistant Secretary
6
<PAGE> 7
SCHEDULE A
(Effective May 1, 1994)
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
Growth Portfolio . . . . . . . . . .
Science & Technology Portfolio . . .
7
<PAGE> 1
EXHIBIT 5.(D)(2)
AMENDMENT NO. 1 TO INVESTMENT SUB-ADVISORY AGREEMENT
THIS AMENDMENT NO. 1 TO INVESTMENT SUB-ADVISORY AGREEMENT (the
"Amendment") is effective as of February 2, 1998, by and among THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY ("VALIC") and T. ROWE PRICE ASSOCIATES, INC.
(the "Sub-Adviser").
RECITALS
WHEREAS, VALIC and the Sub-Adviser are parties to that certain
Investment Sub-Advisory Agreement dated February 24, 1994 (the "Agreement")
with respect to the Covered Funds with The Sub-Adviser; and
WHEREAS, the parties wish to amend the fee schedule attached to the
Agreement as Schedule A to reflect a change in the amount VALIC pays the
Sub-Adviser, as compensation for the services rendered and expenses paid by the
Sub-Adviser.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, VALIC and the Sub-Adviser agree as follows:
1. Change in Applicable Fee. Schedule A to the Agreement is hereby
deleted in its entirety and replaced with Schedule A attached hereto.
2. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be an original and all of which together
shall constitute one instrument.
3. Full Force and Effect. Except as expressly supplemented, amended
or consented to hereby, all of the representations, warranties, terms,
covenants and conditions of the Agreement shall remain unamended and shall
continue to be in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date first above written.
THE VARIABLE ANNUITY LIFE T. ROWE PRICE ASSOCIATES, INC.
INSURANCE COMPANY
By: /s/ NORMAN JASKOL By: /s/ NANCY M. MORRIS
---------------------------- ----------------------------
Name: Norman Jaskol Name: Nancy M. Morris
-------------------------- --------------------------
Title: Vice President and Title: Vice President
Managing Director - Investments ------------------------------
--------------------------------
<PAGE> 2
SCHEDULE A
(Effective February 2, 1998)
(T. Rowe Price)
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
Growth Portfolio ....................
Science & Technology Portfolio.......
<PAGE> 1
EXHIBIT 5.(E)
INVESTMENT SUB-ADVISORY AGREEMENT
This AGREEMENT made this 4th day of March, 1994, by and between THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY, hereinafter referred to as "VALIC," and Value
Line, Inc. hereinafter referred to as "SUB-ADVISER."
VALIC and 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.
(b) VALIC is engaged as the investment adviser of the Growth &
Income Portfolio(s) pursuant to an Investment Advisory Agreement (Form
II) dated May 1, 1992 between VALIC and American General Series
Portfolio Company ("FUND") an investment company organized under the
general corporation laws of Maryland as a series type of investment
company issuing separate classes (or series) of stock and is registered
as a diversified, open-end, management investment company under the
Investment Company act of 1940. That 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 thirteen portfolios
("Funds"): MidCap Index Portfolio, Timed Opportunity Portfolio, Money
Market Portfolio, Capital Conservation Portfolio, Government Securities
Portfolio, Stock Index Portfolio, International Equities Portfolio,
Social Awareness Portfolio, International Government Bond Portfolio,
Small Cap Index Portfolio, Science & Technology Portfolio, Growth &
Income Portfolio and Growth Portfolio. In accordance with the FUND's
Articles of Incorporation and Bylaws, new Funds may be added to the
FUND upon approval of the FUND's Board of Directors without approval of
the FUND's shareholders. This Agreement will apply only to the
portfolio(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 respect to the Covered Funds with SUB-ADVISER.
VALIC and SUB-ADVISER AGREE AS FOLLOWS:
1. Services Rendered and Expenses Paid by SUB-ADVISER
SUB-ADVISER, subject to the control, direction, and supervision of
VALIC and the FUND's Board of Directors and in conformity with the Investment
Company Act of 1940, 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 FUND's Articles of
Incorporation, Bylaws, registration statements, prospectus and stated investment
objectives, policies and restrictions and any applicable procedures adopted by
the FUND's Board of Directors 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.
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<PAGE> 2
(b) maintain a trading desk and place orders for the purchase
and sale of portfolio investments for each Covered Fund's account with
brokers or dealers selected by SUB-ADVISER, or arrange for any other
entity to provide a trading desk and to place orders with brokers and
dealers selected by SUB-ADVISER, subject to SUB-ADVISER's control,
direction, and supervision, which brokers or dealers may include
brokers or dealers affiliated with SUB-ADVISER, subject to applicable
law; provided, however, that VALIC in its discretion may determine to
maintain a trading desk and place orders for the purchase and sale of
certain portfolio investments with brokers and dealers selected by
VALIC.
In performing the services described in paragraph (b) above,
SUB-ADVISER shall use its best efforts to obtain for the Covered Funds the most
favorable overall price and execution. SUB-ADVISER shall also use its best
efforts to obtain for the Covered Funds any tender and exchange offer
solicitation fees, other fees, and similar payments available in connection with
the portfolio transactions of the Covered Funds. Subject to prior authorization
by the FUND's Board of Directors of appropriate policies and procedures, 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
SUB-ADVISER. 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.
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 Directors regarding the performance of services under this
Agreement. SUB-ADVISER will make available to VALIC and the FUND promptly upon
their request all its 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 Investment Company Act of 1940 and the Investment Advisers
Act of 1940, as well as other applicable laws. SUB-ADVISER will furnish the
FUND's Board of Directors such periodic and special reports as VALIC and the
FUND's Board of Directors may reasonably request. 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. 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 Directors 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 regulatory
authorities.
Should VALIC at any time make any definite determination as to
investment policy and notify SUB-ADVISER of such determination, 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.
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. 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.
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 SUB-ADVISER's duties and responsibilities as set forth in this Agreement.
2
<PAGE> 3
Except as otherwise agreed, or as otherwise provided herein,
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 other
than those which Section 2 of this Agreement expressly states are payable to
SUB-ADVISER.
2. COMPENSATION OF SUB-ADVISER
The payment of advisory fees related to the services of SUB-ADVISER
under this Agreement shall be the sole concern of VALIC and SUB-ADVISER and
shall not be the responsibility of the FUND.
VALIC shall pay to SUB-ADVISER, as compensation for the services
rendered and expenses paid by 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 Articles 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 Articles of Incorporation, 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. Such fee shall be accrued daily and
paid as soon as practicable after the last day of each calendar month but not
later than 30 days thereafter. A late payment penalty of 1 1/2% shall be applied
for every month or fraction thereof that payment is delayed beyond 30 days.
SUB-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 SUB-ADVISER, or any affiliated person of SUB-ADVISER, in
connection with any Covered Fund's portfolio transactions, less the amount of
any direct expenses incurred by SUB-ADVISER, or any affiliated person of
SUB-ADVISER, in obtaining such commissions, fees, or payments. Such
"commissions" or "other fees" shall exclude those charged by brokers or dealers
affiliated with SUB-ADVISER as referred to in paragraph 1.(b) above. Such
"tender and exchange offer solicitation fees" shall exclude those received by
SUB-ADVISER acting in the capacity of manager for any such offer.
If SUB-ADVISER serves for less than a whole month, the foregoing
compensation shall be prorated.
3. SCOPE OF SUB-ADVISER'S ACTIVITIES
SUB-ADVISER, and any person controlled by or under common control with
SUB-ADVISER, shall remain free to provide similar investment advisory services
to other persons or engage in other businesses or activities.
Except as otherwise required by the Investment Company Act of 1940, any
of the shareholders, directors, officers and employees of VALIC may be a
shareholder, director, officer or employee of, or be otherwise interested in,
SUB-ADVISER, and in any person controlling, controlled by or under common
control with SUB-ADVISER; and SUB-ADVISER, and any person controlling,
controlled by or under common control with SUB-ADVISER, may have an interest in
VALIC.
SUB-ADVISER shall not be liable to VALIC, 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
SUB-ADVISER.
3
<PAGE> 4
4. DURATION OF AGREEMENT
This Agreement shall become effective as to the portfolios 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(s) in accordance with this Agreement.
It shall continue in force thereafter, but with respect to any Covered Fund,
only so long as such continuance is approved at least annually by the vote of a
majority of the FUND's directors 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 Directors or a majority of that Fund's outstanding voting
securities.
This Agreement shall automatically terminate in the event of its
assignment 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, on not more than
60 days' nor less than 30 days' written notice, or upon such shorter notice as
may be mutually agreed upon, by VALIC on notice to SUB-ADVISER and the FUND, by
the FUND's Board of Directors or by vote of a majority of that Covered Fund's
outstanding voting securities on notice to SUB-ADVISER and VALIC, or by
SUB-ADVISER on notice to VALIC and the FUND. Such termination shall be without
the payment of any penalty.
5. OTHER MATTERS
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 SUB-ADVISER so as to require a new
written contract pursuant to the Investment Company Act of 1940. The
compensation of any such persons will be paid SUB-ADVISER, and no obligation
will be incurred by, or on behalf of, VALIC or the FUND with respect to them.
SUB-ADVISER agrees that all books and records which it maintains for
the FUND are the FUND's property. SUB-ADVISER also agrees upon request of VALIC
for the FUND, to promptly surrender the books and records in accordance with the
Investment Company Act of 1940 and rules thereunder. SUB-ADVISER further agrees
to preserve for the periods prescribed by Rule 31a-2 under the Investment
Company Act of 1940 the records required to be maintained by Rule 3la-1 under
the Investment Company Act of 1940.
VALIC has herewith furnished SUB-ADVISER copies of the FUND's
Prospectus, Statement of Additional Information, Articles of Incorporation 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.
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. 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 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 SUB-ADVISER,
and not to use such material if SUB-ADVISER reasonably objects in writing within
five (5) business days (or such other time as may be mutually agreed) after
receipt thereof. In the event of termination of this agreement,
4
<PAGE> 5
VALIC will continue to furnish to 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 SUB-ADVISER such other information
relating to the business affairs of VALIC and the FUND as SUB-ADVISER at any
time, or from time to time, may reasonably request in order to discharge its
obligations hereunder.
6. 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
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.
7. NOTICE
All notices or other communications given under this Agreement shall be
made by guaranteed overnight delivery, telecopy or certified mail; notice is
effective when received. Notice shall be given to the parties at the following
addresses:
VALIC: The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, TX 77019
Attn: Secretary
Sub-Adviser: Value Line, Inc.
220 E 42nd Street, 6th Floor
New York, NY 10017
Attn: Asset Management
with a copy to the Chairman
5
<PAGE> 6
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: /s/ STEPHEN D. BICKEL
-------------------------------------------
Name: Stephen D. Bickel
Title: President & CEO
ATTEST:
/s/ CYNTHIA TOLES
- -------------------------------------------
Secretary
VALUE LINE, INC.
By: /s/ JEAN S. SULDNER
-------------------------------------------
Name: Jean S. Suldner
Title:
ATTEST:
/s/ HOWARD C. BRECHE
- -------------------------------------------
Secretary
6
<PAGE> 7
SCHEDULE A
(Effective May 1, 1994)
Annual Fee computed at the following annual rate, based on average monthly net
asset value and payable monthly:
Growth & Income Portfolio. . .
7
<PAGE> 1
EXHIBIT 8.(A)(1)
CUSTODIAN CONTRACT
BETWEEN
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
AND
STATE STREET BANK AND TRUST COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Employment of Custodian and Property to be Held By
It........................................................2
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States....3
2.1 Holding Securities.................................3
2.2 Delivery of Securities.............................3
2.3 Registration of Securities.........................9
2.4 Bank Accounts......................................9
2.5 Availability of Federal Funds.....................10
2.6 Collection of Income..............................11
2.7 Payment of Fund Monies............................11
2.8 Liability for Payment in Advance of
Receipt of Securities Purchased...................15
2.9 Appointment of Agents.............................15
2.10 Deposit of Fund Assets in Securities System.......15
2.10A Fund Assets Held in the Custodian's Direct
Paper System......................................18
2.11 Segregated Account................................20
2.12 Ownership Certificates for Tax Purposes...........22
2.13 Proxies...........................................22
2.14 Communications Relating to Portfolio
Securities........................................22
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...............23
3.1 Appointment of Foreign Sub-Custodians.............23
3.2 Assets to be Held.................................24
3.3 Foreign Securities Depositories...................24
3.4 Segregation of Securities.........................24
3.5 Agreements with Foreign Banking Institutions......25
3.6 Access of Independent Accountants of the Fund.....26
3.7 Reports by Custodian..............................26
3.8 Transactions in Foreign Custody Account...........26
3.9 Liability of Foreign Sub-Custodians...............27
3.10 Liability of Custodian............................28
3.11 Reimbursement for Advances........................29
3.12 Monitoring Responsibilities.......................29
3.13 Branches of U.S. Banks............................30
4. Payments for Sales or Repurchase or Redemptions
of Shares of the Fund....................................31
5. Proper Instructions......................................32
6. Actions Permitted Without Express Authority..............33
7. Evidence of Authority....................................33
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net
Income...................................................34
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
9. Records..................................................34
10. Opinion of Fund's Independent Accountants................35
11. Reports to Fund by Independent Public Accountants........35
12. Compensation of Custodian................................36
13. Responsibility of Custodian..............................36
14. Effective Period, Termination and Amendment..............38
15. Successor Custodian......................................40
16. Interpretive and Additional Provisions...................41
17. Additional Funds.........................................42
18. Massachusetts Law to Apply...............................42
19. Prior Contracts..........................................42
</TABLE>
<PAGE> 4
CUSTODIAN CONTRACT
This Contract between American General Series Portfolio Company, a
corporation organized and existing under the laws of Maryland, 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; and
WHEREAS, the Fund initially offers shares in nine series, the Capital
Accumulation Fund, Timed Opportunity Fund, Money Market Fund, Capital
Conservation Fund, Government Securities Fund, Quality Growth Fund, Stock Index
Fund, International Equities Fund, Social Awareness Fund (such series together
with all other series subsequently established by the Fund and made subject to
this Contract in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFOR, in consideration of the mutual convenants and agreements
hereinafter contained, the parties hereto agree as follows:
<PAGE> 5
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 Articles
of Incorporation. 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.
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 Directors 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.
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<PAGE> 6
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,
collectively referred to herein as "Securities System" and (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 pursuant to Section
2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of
-3-
<PAGE> 7
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 Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name
of the Portfolio or into the name of any nominee or nominees of
the Custodian or into the name or nominee name of any agent
appointed pursuant to Section 2.9 or into the name or nominee
name
-4-
<PAGE> 8
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
-5-
<PAGE> 9
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;
-6-
<PAGE> 10
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
-7-
<PAGE> 11
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; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary,
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.
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<PAGE> 12
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 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
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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 Directors 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.
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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 thereof 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 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
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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 affected through a Securities
System, in accordance with the conditions set forth in Section
2.10 hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.10A; (d) in the case of repurchase agreements entered
into between the Fund on behalf of the Portfolio and the
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<PAGE> 16
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 (e) 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
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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;
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;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Directors or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an
Assistant Secretary, 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 purpose, and naming the
person or persons to whom such payment is to be made.
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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.
2.10 Deposit of Fund Assets in 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
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certain federal agencies, collectively referred to herein as "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 Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a 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 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
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<PAGE> 20
for the account of the Portfolio upon (i) receipt of advice from
the 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
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 Portfolio
copies of daily transaction sheets reflecting each day's
transactions in the 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 Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System;
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5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case may
be, required by Article 14 hereof;
6) 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 Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any 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 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 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 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 Systems of the Custodian subject to
the following provisions:
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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;
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<PAGE> 23
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
Securities System for the account of the Portfolio;
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.
2.11 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
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<PAGE> 24
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased or
sold by the Portfolio, (iii) for 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, in addition to Proper
Instructions from the Fund on behalf of the applicable Portfolio, a
certified copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes
of such segregated account and declaring such purposes to be proper
corporate purposes.
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2.12 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.
2.13 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.
2.14 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
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<PAGE> 26
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
Portfolio 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, together with a certified resolution of the
Fund's Board of Directors, the custodian and the Fund may agree to amend
Schedule A hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-custodian.
Upon receipt of Proper Instructions, the Fund may instruct the Custodian to
cease the employment of any one, or more such sub-custodians for
maintaining custody of the Funds assets.
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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.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where-possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books as
belonging to each applicable Portfolio of the Fund, the foreign securities
of such Portfolios held by each foreign sub-custodian. Each agreement
pursuant to which the Custodian employs a foreign banking institution shall
require that such institution establish a custody account for the Custodian
on behalf of the Fund for each applicable Portfolio of the Fund and
physically segregate in each account, securities and other assets of the
Portfolios, and in the event that such institution
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<PAGE> 28
deposits the securities of one or more of the Portfolios in a foreign
securities depository, that it shall identify on its books as belonging to
the Custodian, as agent for each applicable Portfolio, the securities so
deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set forth in
Exhibit 1 hereto and 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.
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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.
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(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 each Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
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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 of claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
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. Notwithstanding 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,
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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
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in connection with the initial approval of this Contract. In addition,
the Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the assets
of the Fund or in the case of any foreign sub-custodian not the subject
of an exemptive order from the Securities and Exchange Commission is
notified by such foreign sub-custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below
$200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
3.13 Branches of U.S. Banks
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Portfolios assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be governed
by paragraph 1 of this Contract.
(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
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London branch, which account shall be subject to the direction of the
Custodian, State Street London Ltd. or both.
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 Articles of Incorporation and any applicable votes of the
Board of Directors 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.
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to the holder of Shares, when presented to the Custodian in accordance with such
procedures and controls as are mutually agreed upon from time to time between
the Fund and the Custodian.
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Directors
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. Upon receipt of a certificate of the Secretary or
an Assistant Secretary as to the authorization by the Board of Directors of the
Fund accompanied by a detailed description of procedures approved by the Board
of Directors, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. 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 2.11.
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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 Directors 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
Directors 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 Directors pursuant to the Articles of Incorporation as
described in such vote, and
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such vote may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors 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 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,
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<PAGE> 38
with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder. All such records shall be the property of the Fund and shall at
all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a
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<PAGE> 39
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. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
the Fund on behalf of each applicable Portfolio and the Custodian.
13. 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
-36-
<PAGE> 40
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.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.10)
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 Article 3 hereof, the Custodian shall not be liable for any
loss, damage, cost, expense, liability or claim resulting from, or caused by,
the direction of or authorization by the Fund to maintain custody or any
securities or cash of the Fund in a foreign country including, but not limited
to, losses resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism.
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
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<PAGE> 41
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 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 wilful 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.
14. 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 Custodian shall not with
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<PAGE> 42
respect to a Portfolio act under Section 2.10 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Directors of the Fund has approved the initial use of a particular
Securities System by such Portfolio and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Directors has
reviewed the use by such Portfolio of such Securities System, as required in
each case by Rule 17f-4 under the Investment Company Act of 1940, as amended
and that the Custodian shall not with respect to a Portfolio act under Section
2.10A hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Directors has approved
the initial use of the Direct Paper System by such Portfolio and the receipt of
an annual certificate of the Secretary or an Assistant Secretary that the Board
of Directors has reviewed the use by such Portfolio of the Direct Paper System;
provided further, 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 Articles of Incorporation, 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 Directors (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.
-39-
<PAGE> 43
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.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Directors 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.
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 Directors 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 Directors 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
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<PAGE> 44
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.
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 Directors 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.
16. 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
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<PAGE> 45
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 Articles of Incorporation
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.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to Capital Accumulation Fund, Timed Opportunity Fund, Money Market
Fund, Capital Conservation Fund, Government Securities Fund, Quality Growth
Fund, Stock Index Fund, International Equities Fund, Social Awareness Fund 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.
18. 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.
19. 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.
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<PAGE> 46
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 24th day of May, 1990.
ATTEST AMERICAN GENERAL SERIES PORTFOLIO
COMPANY
/s/ CYNTHIA A. TOLES By /s/
- --------------------- ---------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
/s/ [ILLEGIBLE] By /s/
- --------------------- ---------------------------------
Assistant Secretary Vice President
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<PAGE> 1
[STATE STREET LOGO]
Exhibit 8.(B)
SECURITIES LENDING AUTHORIZATION AGREEMENT
Agreement dated the 24th day of May, 1990 between American General Series
Portfolio Company ("Client") and State Street Bank and Trust Company, a
Massachusetts trust company ("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 or custodian.
Certain capitalized terms used in this Agreement are defined in Section 12.
The Client and State Street, as the parties hereto, hereby agree as
follows:
1. Appointment of State Street. The Client hereby authorizes State
Street 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. State Street may take action as agent of the Client
on an undisclosed or a disclosed basis.
2. Securities to be Loaned. State Street acts or will act as custodian
of certain securities owned by the Client. All of the Client's securities held
by State Street as custodian shall be subject to this securities lending
program, except those securities which the Client or the Investment Manager
specifically identifies in notices to State Street as not being Available
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.
3. Borrowers. The Available Securities may be loaned to any Borrower
selected by State Street in its sole discretion.
The Client will promptly notify State Street if at any time
(a) any potential Borrower which is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "1934 Act"), a broker-dealer
exempted from registration under Section 15(a)(1) of the 1934 Act as a
dealer of exempted Government Securities, or a bank (or any of such
potential Borrower's affiliates, as defined in PTE 81-6) has discretionary
authority or control with respect to the investment of any Available
Securities.
4. Securities Lending Agreements. The Client authorizes State Street
to enter into one or more Securities Lending Agreements with such Borrowers as
may be selected by State Street pursuant to Section 3. Each Securities Lending
Agreement
<PAGE> 2
[STATE STREET LOGO]
shall have such terms and conditions as State Street may negotiate with the
Borrower.
5. Loans of Available Securities. State Street shall have authority to
make Loans or 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 also acknowledges that, under the applicable Securities Lending
Agreements, Borrowers will not be required to return Loan 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 Lending 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 best
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 Lending Agreement.
6. Distributions on the Voting Rights with Respect to Loaned Securities. The
Client represents and warrants that it is beneficial owner of all Available
Securities 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 distribution is
received by the Borrower; provided that the Client (or Investment Manager) may,
by giving State Street ten (10) Business Days' notice prior to the date of such
non-cash distribution, direct State Street to request that the Borrower
<PAGE> 3
[STATE STREET LOGO]
deliver such non-cash distribution to State Street, pursuant to the applicable
Securities Lending 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.
7. Collateral. The Client authorizes State Street 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 Lending Agreements. Concurrently with
the delivery of the Loaned Securities to the Borrower under any Loan, State
Street shall receive from the Borrower Collateral consisting of cash and/or
securities issued or guaranteed by the United States government or its agencies.
In addition, irrevocable bank letters of credit issued by a person other than
the Borrower or an affiliate of the Borrower (within the meaning of PTE 81-6)
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. Such Collateral shall have a Market Value of
not less than one hundred percent (100%) of the Market Value of the Loaned
Securities. Thereafter, State Street shall take such action as is appropriate
with respect to the Collateral under the applicable Securities Lending
Agreement.
8. Compensation for the Client and State Street. To the extent that a
Loan is secured by cash Collateral, such Collateral shall be invested by State
Street, in its sole discretion, in short-term investment funds maintained by
State Street, money market mutual funds, and such other similar investments as
State Street may from time to time select. The income generated by such
investment 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 with the agreement negotiated between the Borrower and State Street;
(b) a portion of such income shall be paid to State Street as compensation for
its services in connection with this securities lending program, in accordance
with the fee schedule from time to time provided to the Client; and (c) the
remainder of such income 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
<PAGE> 4
[STATE STREET LOGO]
accordance with the fee schedule from time to time provided to the Client; and
(b) the remainder of such loan premium shall be credited to the Client's
account.
9. 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 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.
10. Standard of Care. So long as and to the extent that State Street
acts within reasonable care, State Street shall be kept indemnified by and
shall be without liability to the Fund for its performance of its duties under
this Agreement. The Fund shall indemnify State Street for any expenses,
assessments, claims or liabilities which it may incur in connection with this
Agreement, except as may arise from its own negligent action, negligent failure
to act or willful misconduct.
11. 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, deliver, and
performance by it of this Agreement will at all times comply with all
applicable laws and regulations.
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.
12. Definitions. For the purposes hereof:
(a) "Available Securities" means the securities of the Client that
are available for Loans pursuant to Section 2.
(b) "Borrower" means any of the entities to which Available
Securities may be loaned under a Securities Lending Agreement, as
described in Section 3.
(c) "Collateral" means collateral delivered by a Borrower to secure
its obligations under a Securities Lending Agreement.
(d) "Investment Manager", when used in any provision, means the
person or entity who has discretionary authority
<PAGE> 5
[STATE STREET LOGO]
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" (as defined in the
1934 Act) which is delivered as a Loan under a Securities Lending
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.
(h) "PTE 81-6" means ERISA Prohibited Transaction Exemption 81-6, 46
Fed. Reg. 7527 (January 23, 1981), amended 52 Fed. Reg. 18754 (May 19,
1987).
(i) "Securities Lending Agreement" means the agreement between a
Borrower and State Street (on behalf of the Client) that governs Loans,
as described in Section 4.
13. Continuing Agreement; Termination; Remedies. 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.
14. 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:
<PAGE> 6
[STATE STREET LOGO]
If to Client:
[Insert Address.]
If to State Street:
State Street Bank and Trust Company
Master Trust Services
P.O. Box 1992
Boston, Massachusetts 02105-1992
Attention: Securities Lending Department
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, or 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.
15. Miscellaneous. This Agreement supersedes any other agreement between
the parties concerning loans of securities by State Street on behalf of the
Client. This Agreement shall not be assigned by either party 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 applicable
federal law and, to the extent not preempted by such federal law, the laws of
the Commonwealth of Massachusetts.
16. Modification. This Agreement shall not be modified, except by an
instrument in writing signed by the party against whom enforcement is sought.
By: /s/ MARK W. SHARTLE
------------------------------------
Mark W. Shartle
Title: Senior Vice President - Finance
---------------------------------
STATE STREET BANK AND
TRUST COMPANY
By: [ILLEGIBLE]
------------------------------------
<PAGE> 1
EXHIBIT 8(c)(6)
SUBCUSTODIAN AGREEMENT
AGREEMENT made this April 1st, 1993; between State Street Bank and Trust
Company, a Massachusetts Trust Company (hereinafter referred to as the
"Custodian"), having its principal place of business at 225 Franklin Street,
Boston, MA, and Banco Comercial Portugues (hereinafter referred to as the
"Subcustodian"), a bank organized under the laws of Portugal and having its
registered office at Avenida Jose Malhoa, Lote 1686, 10 No., 1000 Lisbon,
Portugal.
WHEREAS, Custodian has been appointed to act as Trustee, Custodian or
Subcustodian of securities and monies on behalf of certain of its customers
including, without limitation, collective investment undertakings, investment
companies subject to the U.S. Investment Company Act of 1940, as amended, and
employee benefit plans subject to the U.S. Employee Retirement Income Security
Act of 1974, as amended;
WHEREAS, Custodian wishes to establish Accounts (the "Accounts") with the
Subcustodian to hold and maintain certain property for which Custodian is
responsible as custodian; and
WHEREAS, Subcustodian agrees to establish the Accounts and to hold and
maintain all Property in the Accounts in accordance with the terms and
conditions herein set forth.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Custodian and the Subcustodian agree as follows:
I. The Account
A. Establishment of the Account
Custodian hereby requests that Subcustodian establish for each client of
the Custodian an Account which shall be composed of:
1. A Custody Account for any and all Securities (as hereinafter
defined) from time to time received by Subcustodian therefor, and
2. A Deposit Account for any and all Cash (as hereinafter defined)
from time to time received by Subcustodian therefor.
B. Use of the Account
The Account shall be used exclusively to hold, acquire, transfer or
otherwise care for, on behalf of Custodian as custodian and the customers of
Custodian and not for Custodian's own interest, Securities, and such Cash or
cash equivalents as are transferred to Subcustodian or as are received in
payment of any transfer of, or as payment on, or interest on, or dividend from,
any such Securities (herein collectively called "Cash").
C. Transfer of Property in the Account
Beneficial ownership of the Securities and Cash in the Account shall be
freely transferable without payment of money or value other than for safe
custody and administration.
1
<PAGE> 2
D. Ownership and Segregation of Property in Account
The ownership of the property in the Account, whether Securities, Cash or
both, and whether any such property is held by Subcustodian in an Eligible
Depository, shall be clearly recorded on Subcustodian's books as belonging to
Custodian on behalf of Custodian's customers, and not for Custodian's own
interest and, to the extent that Securities are physically held in the Account,
such Securities shall also be physically segregated from the general assets of
Subcustodian, the assets of Custodian in its individual capacity and the assets
of Subcustodian's other customers. In addition, Subcustodian shall maintain
such other records as may be necessary to identify the property hereunder as
belonging to each Account.
E. Registration of Securities in the Account
Securities which are eligible for deposit in a depository as provided for
in Paragraph III may be maintained with the depository in an account for
Subcustodian's customers. Securities which are not held in a depository and
that are ordinarily held in registered form will be registered in the name of
the Custodian, Subcustodian or in the name of Subcustodian's nominee, unless
alternate Instructions are furnished by Custodian.
II. Services to be Provided by the Subcustodian
The Services Subcustodian will provide to the Custodian and the manner
in which such services will be performed will be as set forth below in this
Agreement.
A. Services Performed Pursuant to Instructions
All transactions involving the Securities and Cash in the Account shall be
executed solely in accordance with Custodian's Instructions as that term is
defined in Paragraph VI hereof, except those described in Paragraph B below.
B. Services to be Performed without Instructions
Subcustodian will, unless it receives Instructions from Custodian to the
contrary:
1. Collect Cash
Promptly collect and receive all dividends, income, principal, proceeds
from transfer and other payments with respect to property held in the
Account, and present for payment all Securities held in the Account which are
called, redeemed or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation, and credit Cash
receipts therefrom to the Deposit Account.
2. Exchange Securities
Promptly exchange Securities where the exchange is purely ministerial
including, without limitation, the exchange of temporary Securities for those
in definitive form and the exchange of warrants, or other documents of
entitlement to Securities, for the Securities themselves.
3. Sale of Rights and Fractional Interests
Whenever notification of a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend or stock split is received for
the Account and such rights entitlement or fractional interest bears an
expiration date. Subcustodian will promptly endeavor to obtain Custodian's
Instructions, but should these not be received in time for Subcustodian to take
timely action, Subcustodian is authorized to sell such rights entitlement or
fractional interest and to credit the Account.
2
<PAGE> 3
4. Execute Certificates
Execute in Custodian's name for the Account, whenever Subcustodian deems
it appropriate, such ownership and other certificates as may be required to
obtain the payment of income from the Securities held in the Account.
5. Pay Taxes and Receive Refunds
To pay or cause to be paid from the Account any and all taxes and levies in
the nature of taxes imposed on the property in the Account by any governmental
authority, and upon request, take all steps necessary to obtain all tax
exemptions, privileges or other benefits, including reclaiming and recovering
any withholding tax, relating to the Account and to execute any declarations,
affidavits, or certificates of ownership which may be necessary in connection
therewith.
6. Prevent Losses
Take such steps as may be reasonably necessary to secure, or otherwise
prevent the loss of, entitlements attached to or otherwise relating to property
held in the Account.
C. Additional Services
1. Transmission of Notices of Corporate Action
By such means as will permit Custodian to take timely action with respect
thereto, Subcustodian will promptly notify Custodian upon receiving notices or
reports, or otherwise becoming aware, of corporate actions affecting Securities
held in the Account (including, but not limited to, calls for redemption,
mergers, consolidations, reorganizations, recapitalizations, tender offers,
rights offerings, exchanges, subscriptions and other offerings) and dividend,
interest and other income payments relating to such Securities.
2. Communications Regarding the Exercise of Entitlements
Upon request by Custodian, Subcustodian will promptly deliver, or cause
any Eligible Depository authorized and acting hereunder to deliver, to
Custodian all notices, proxies, proxy soliciting materials and other
communications that call for voting or the exercise of rights or other specific
action (including material relative to legal proceedings intended to be
transmitted to security holders) relating to Securities held in the Account to
the extent received by Subcustodian or said Eligible Depository, such proxies
or any voting instruments to be executed by the registered holder of the
Securities, but without indicating the manner in which such Securities are to be
voted.
3. Monitor Financial Service
In furtherance of its obligations under this Agreement, Subcustodian
will monitor a leading financial information service with respect to
announcements and other information respecting property held in the Account,
including announcements and other information with respect to corporate actions
and dividend, interest and other income payments.
III. Use of Securities Depository
Subcustodian may, with the prior written approval of custodian, maintain
all or any part of the Securities in the Account with a securities depository or
clearing agency which is incorporated or organized under the laws of a country
other than the United States of America and is supervised or regulated by a
government agency or regulatory authority in the foreign jurisdiction having
authority over such depositories or agencies, and which operates (a) the central
system for handling of designated securities or equivalent book entries in
Portugal or (b) a transnational system for the central handling of securities or
equivalent book entries (herein called "Eligible Depository"), provided however,
that, while so maintained, such Securities shall be subject only to the
directions of Subcustodian, and that Subcustodian duties, obligations and
responsibilities with regard to such Securities shall be the same as if such
Securities were held by Subcustodian on its premises.
3
<PAGE> 4
IV. Claims Against Property in the Account
The property in the account shall not be subject to any right, charge,
security interest, lien or claim of any kind (collectively "Charges") in favor
of Subcustodian or any Eligible Depository or any creditor of Subcustodian or of
any Eligible Depository except a claim for payment by Subcustodian for such
property's safe custody or administration in accordance with the terms of this
Agreement. Subcustodian will immediately notify Custodian of any attempt by any
party to assert any Charge against the property held in the Account and shall
take all lawful actions to protect such property from such Charges until
Custodian has had reasonable time to respond to such notice.
V. Subcustodian's Warranty
Subcustodian Represents and Warrants That:
A. It is a branch of a "qualified U.S. bank" or it is an "eligible
foreign custodian" as those terms are defined in Rule 17f-5 of the Investment
Company Act of 1940, a copy of which is attached hereto as Attachment A (the
"Rule"), and Subcustodian shall immediately notify Custodian, in writing or by
other authorized means, in the event that there appears to be a substantial
likelihood that Subcustodian will cease to qualify under the Rule as currently
in effect or as hereafter amended, or
B. It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission which order permits Custodian to employ
Subcustodian notwithstanding the fact that Subcustodian fails to qualify under
the terms of the Rule, and Subcustodian shall immediately notify Custodian, in
writing or by other authorized means, if for any reason it is no longer covered
by such exemptive order.
Under receipt of any such notification required under (A) or (B) of
this section, Custodian may terminate this Agreement immediately without prior
notice to Subcustodian.
VI. Definitions
A. Instructions
The term "Instructions" means
1. instructions in writing signed by authorized individuals designated as
such by Custodian;
2. SWIFT, telex or tested telex instructions of Custodian;
3. other forms of instructions in computer readable form as shall
customarily be used for the transmission of like information, and
4. such other forms of communication as from time to time may be agreed
upon by Custodian and Subcustodian, which Subcustodian believes in
good faith to have been given by Custodian or which are transmitted
with proper testing or authentication pursuant to terms and conditions
which Custodian may specify.
Unless otherwise expressly provided, all Instructions shall continue in
full force and effect until canceled or superseded. Subcustodian shall act in
accordance with Instructions and shall not be liable for any act or omission in
respect of any Instruction except in the case of willful default, negligence,
fraud, bad faith, willful misconduct, or reckless disregard of duties on the
part of Subcustodian. Subcustodian in executing all Instructions will take
relevant action in accordance with accepted industry practice and local
settlement practices.
4
<PAGE> 5
B. Account
The term "Account" means collectively the Custody Account, and the Deposit
Account.
C. Securities
The term "Securities" includes, without limitation, stocks, shares, bonds,
debentures, debt securities (convertible or non-convertible), notes or other
obligations or securities and any certificates, receipts, futures contracts,
foreign exchange contracts, options, warrants, scrip or other instruments
representing rights to receive, purchase or subscribe for the same, or
evidencing or representing any other rights or interests therein, or in any
property or assets.
VII Miscellaneous Provisions
A. Statements Regarding the Account
Subcustodian will supply Custodian with such statements regarding the
Account as Custodian may request, including the identity and location of any
Eligible Depository authorized and acting hereunder. In addition, Subcustodian
will supply Custodian with an advice or notification of any transfers of
Securities to or from the Account indicating, as to Securities acquired for the
Account, if applicable, the Eligible Depository having physical possession of
such securities.
B. Examination of Books and Records
Subcustodian agrees that its books and records relating to the Account and
Sub-custodian's actions under this agreement shall be open to the physical,
on-premises inspection and audit at reasonable time by officers of, auditors
employed by, or other representatives of Custodian including (to the extent
permitted under the laws of Portugal) the independent public accountants for
any customer of Custodian whose property is being held hereunder and such books
and records shall be retained for such period as shall be agreed upon by
Custodian and Subcustodian.
As Custodian may reasonably request from time to time, Subcustodian will
furnish its auditor's reports on its system of internal controls, and
Subcustodian will use its best efforts to obtain and furnish similar reports of
any Eligible Depository authorized and acting hereunder.
C. Standard of Care
In holding, maintaining, servicing and disposing of Property under this
Agreement, and in fulfilling any other obligations hereunder, Subcustodian
shall exercise the same standard of care that it exercises over its own assets,
provided that Subcustodian shall exercise at least the degree of care and
maintain adequate insurance as expected of a prudent professional Subcustodian
for hire and shall assume the burden of proving that it has exercised such care
in its maintenance of Property held by Subcustodian in its Accounts. The
maintenance of the Property in an Eligible Depository shall not affect
Subcustodian's standard of care, and Subcustodian will remain as fully
responsible for any loss or damage to such securities as if it had itself
retained physical possession of them. Subcustodian shall indemnify and hold
harmless Custodian and each of Custodian's customers from and against any loss,
damage, cost, expense, liability or claim (including reasonable attorney's
fees) arising out of or in connection with the improper or negligent
performance or the nonperformance of the duties of Subcustodian.
Subcustodian shall be responsible for complying with all provisions of the
laws of Portugal, or any other law, applicable to Subcustodian in connection
with its duties hereunder, including (but not limited to) the payment of all
transfer taxes or other taxes and compliance with any currency restrictions and
securities laws in connection with its duties as Subcustodian.
5
<PAGE> 6
D. Loss of Cash or Securities
Subcustodian agrees that, in the event of any loss of Securities or Cash
in the Account, Subcustodian will use its best efforts to ascertain the
circumstances relating to such loss and will promptly report the same to
Custodian and shall use every legal means available to it to effect the
quickest possible recovery.
E. Compensation of Subcustodian
Custodian agrees to pay to Subcustodian from time to time such compensation
for its services and such out-of-pocket or incidental expenses of Subcustodian
pursuant to this Agreement as may be mutually agreed upon in writing from time
to time.
F. Operating Requirements
The Subcustodian agrees to follow such Operating Requirements as the
Custodian may establish from time to time. A copy of the current Custodian
Operating Requirements is attached as Attachment B to this Agreement.
G. Termination
This Agreement may be terminated by Subcustodian or Custodian on 60 days'
written notice to the other party, sent by registered mail, provided that any
such notice, whether given by Subcustodian or Custodian, shall be followed
within 60 days by Instructions specifying the names of the persons to whom
Subcustodian shall deliver the Securities in the Account and to whom the Cash
in the Account shall be paid. If within 60 days following the giving of such
notice of termination, Subcustodian does not receive such Instructions,
Subcustodian shall continue to hold such Securities and Cash subject to this
Agreement until such Instructions are given. The obligations of the parties
under this Agreement shall survive the termination of this Agreement.
H. Notices
Unless otherwise specified in this Agreement, all notices and
communications with respect to matters contemplated by this Agreement shall be
in writing, and delivered by mail, postage prepaid, telex, SWIFT, or other
mutually agreed telecommunication methods to the following addresses (or to
such other address as either party hereto may from time to time designate by
notice duly given in accordance with this paragraph):
To Subcustodian: Banco Comercial Portugues
Av. Jose Malhoa 1686
1000 Lisbon, Portugual
Attn: Manager, International Custody Division
To Custodian: State Street Bank and Trust Company
Securities Operations/
Network Administration
P.O. Box 1631
Boston, Massachusetts 02105
6
<PAGE> 7
I. Confidentiality
Subcustodian and Custodian shall each use its best efforts to maintain the
confidentiality of the property in the Account and the beneficial owners
thereof, subject, however, to the provisions of any laws requiring disclosure.
In addition, Subcustodian shall safeguard any test keys, identification codes
or other security devices which Custodian shall make available to it. The
Subcustodian further agrees it will not disclose the existence of this
Agreement or any current business relationship unless compelled by applicable
law or regulation or unless it has secured the Custodian's written consent.
J. Assignment
This Agreement shall not be assignable by either party but shall bind any
successor in interest of Custodian and Subcustodian respectively.
K. Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of Portugal. To the extent inconsistent with this Agreement or Custodian's
Operating Requirements as attached hereto, Subcustodian's rules and conditions
regarding accounts generally or custody accounts specifically shall not apply.
CUSTODIAN: STATE STREET BANK AND
TRUST COMPANY
By: /s/
--------------------------
Date: 10/13/94
-----------------------
AGREED TO BY SUBCUSTODIAN: BANCO COMERCIAL PORTUGUES
By: /s/
--------------------------
Date: 94/11/04
-----------------------
By: /s/
--------------------------
Date: 94/11/07
-----------------------
<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
<PAGE> 2
TRANSFER AGENCY AND SERVICE AGREEMENT
Amended and Restated
as of October 15, 1997
AGREEMENT made as of the 15th day of October, 1997, by and between American
General Series Portfolio Company, a Maryland corporation, 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 Agent.
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,
2
<PAGE> 3
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 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 Maryland.
4.02 It is empowered under applicable laws and regulations any by its charter
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
4
<PAGE> 5
shall be protected and indemnified in acting upon any paper or document
reasonably believed 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 co-registrar.
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 Directors of the
Fund authorizing the appointment of the Transfer Agent and the
execution and delivery of this Agreement.
(b) A certified copy of the charter 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 affect 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: /s/ THOMAS L. WEST, JR.
-------------------------------
Thomas L. West, Jr.
ATTEST:
/s/ CYNTHIA A. TOLES
- -----------------------------------
Cynthia A. Toles
AMERICAN GENERAL SERIES PORTFOLIO
COMPANY
By: /s/ NORMAN JASKOL
-------------------------------
Norman Jaskol
ATTEST:
/s/ CYNTHIA A. TOLES
- -----------------------------------
Cynthia A. Toles
7
<PAGE> 8
AMENDMENT B
EFFECTIVE JULY 1, 1995
to the
SECURITIES LENDING AUTHORIZATION AGREEMENT
between
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
and
STATE STREET BANK AND TRUST COMPANY
WHEREAS, AMERICAN GENERAL SERIES PORTFOLIO COMPANY (the "Client") and State
Street Bank and Trust Company ("State Street") entered into a Securities Lending
Authorization Agreement as of the 24th day of May, 1990, as amended September
30, 1993 (collectively, the "Agreement");
WHEREAS, Section 16 of the Agreement allows for amendment of the Agreement
at any time by mutual written agreement of the Client and State Street; and
WHEREAS, the Client and State Street now desire to amend the Agreement.
NOW, THEREFORE, for value received and in order to induce the parties to
enter into the transactions contemplated hereby, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties mutually agree to amend the Agreement in the following respects.
1. The Fee Schedule referenced in Section 8 of the Agreement and set forth in
Attachment 2 thereto shall be amended and restated in its entirety as set forth
on Schedule 8 hereto.
2. Section 2 of the Agreement is hereby amended by deleting the text thereof
in its entirety and replacing it with the following:
"2. Securities to be Loaned. State Street acts or will act as custodian of
certain securities owned by the Client. All of the Client's securities
held by State Street as custodian shall be subject to this securities
lending program, except those securities which the Client or the
Investment Manager specifically identifies in notices to State Street
as not being Available Securities. Further, State Street shall not
loan or maintain securities on loan if the total market value of such
securities would exceed the percentage restriction for each Fund as
stated in Schedule 2."
<PAGE> 9
3. The following Section, entitled "Indemnification," shall be inserted in its
entirety between Sections 11 and 12 of the Agreement. The new Section shall be
numbered Section 12, and the previous Sections 12 through 16 shall be renumbered
Sections 13 through 17, respectively;
"12. Indemnifications
(a) If at the time of a default by a Borrower with respect to a Loan
(within the meaning of the applicable Securities Lending 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 Client against the failure of the
Borrower as follows. State Street shall purchase a number of
securities of the same issuer, class and denomination as the Loaned
Securities (hereinafter, "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 Client's obligations pursuant to
Section 7 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 and to the extent that 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 the close of trading
on the business day next preceding the earlier of (i) the date such
securities should have been returned under the applicable Securities
Lending Agreement and (ii) the date that State Street, as agent for
the Client, either applies the proceeds of any Collateral with respect
to such Loan to the purchase of any Replacement Securities or elects
to treat any Loaned Securities as having been purchased by the
Borrower, pursuant to the applicable Securities Lending Agreement.
(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
<PAGE> 10
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 (d) above, and then to credit to
the Client's account all other amounts owed by the Borrower to Client
with respect to such Loan under the applicable Securities Lending
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 shall not apply to losses
attributable to war, riot, revolution, acts of government or other
similar causes beyond the reasonable control or apprehension of State
Street."
<PAGE> 11
4. Certain capitalized terms in this Amendment and not otherwise defined
herein are defined in Section 13 of the Agreement.
5. The Agreement shall remain the same in all other respects.
IN WITNESS WHEREOF, the parties hereto agree to the execution of the above
amendment by affixing their signature below.
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
By: /s/ Gregory R. Seward
--------------------------------------
Title: Treasurer and Controller
-----------------------------------
Signature: /s/ GREGORY R. SEWARD
-------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ralph F. Vitale
--------------------------------------
Title: Senior Vice President
-----------------------------------
Signature: /s/ RALPH F. VITALE
-------------------------------
<PAGE> 12
SCHEDULE 2
This Schedule is attached and made part of the Securities Lending Authorization
Agreement dated the 24th day of May, 1990 between American General Series
Portfolio Company ("Client") and State Street Bank and Trust Company ("State
Street").
1. Each of the below listed Funds may make secured loans of its portfolio
securities amounting to no more than of the value of each Fund's total
assets.
Stock Index Fund
MidCap Index Fund
Small Cap index Fund
International Equities Fund
Capital Conversation Fund
Government Securities Fund
Social Awareness Fund
International Government Bond Fund
Growth & Income Fund
Timed Opportunity Fund
2. Each of the below listed Funds may make secured loans of its portfolio
securities amounting to no more than of the value of each Funds's total
assets.
Growth Fund
Science & Technology Fund
<PAGE> 13
SCHEDULE 8
This schedule is attached to and made part of the Securities Lending
Authorization Agreement, dated the 24th day of May, 1990, as amended September
30, 1993 between AMERICAN GENERAL SERIES PORTFOLIO COMPANY ("Client") and STATE
STREET BANK AND TRUST COMPANY ("State Street").
SCHEDULE OF FEES
1. Subject to Paragraph 2 below, all proceeds collected by the State Street
on investment of Cash Collateral or any fee income shall be allocated as
follows
- Seventy-five percent ( ) payable to the Client, and
- Twenty-five 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 the State Street or to the
Borrower under the terms of the attached Securities Lending Authorization
Agreement.
3. Investment Management Fees
The Securities Lending Quality Trust:
On an annualized basis, the base management fee for investing cash
Collateral in the Securities Lending Quality Trust is 7.25 basis points netted
out of yield. In addition, the trustee of the Trust may employ State Street as
custodian for the Trust upon such compensation as may be agreed upon by the
trustee and State Street.
The Seven Seas Series Funds:
On an annualized basis, the base management fee, netted out of yield, for
investing cash collateral in:
The Seven Seas Series Money Market Fund is bp
The Seven Seas Series Government Money Market Fund is bp
The Seven Seas Series Yield Plus Fund is bp
The Seven Seas Series Prime Fund is bp
<PAGE> 1
EXHIBIT 10.
[VALIC LETTERHEAD]
September 18, 1998
Members of the Board of Directors
American General Series Portfolio Company
2929 Allen Parkway
Houston, Texas 77019
Directors:
I have examined the form of Registration Statement to be filed by you with the
Securities and Exchange Commission on Form N-1A in connection with the
registration under the Securities Act of 1933, as amended, of an indefinite
number of shares of your common stock in thirteen different classes, all of
$0.01 par value (the "Shares"). I am familiar with the proceedings taken and
proposed to be taken by you in connection with the authorization, issuance and
sale of the Shares.
Based upon my examination and upon my knowledge of your corporate activities,
it is my opinion that the Shares will, when issued and sold in the manner
described in the Registration Statement at a price in excess of par value, be
legally and validly issued, fully paid, and nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent I do not thereby admit that I come within
the category of persons whose consent is required under section 7 of the
Securities Act of 1933 or the Rules and Regulations of the Securities and
Exchange Commission thereunder.
Respectfully submitted,
/s/ CYNTHIA A. TOLES
Cynthia A. Toles
<PAGE> 1
EXHIBIT 11.
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Financial
Highlights", "Independent Auditors", and "Financial Statements" and to the use
of our report dated July 2, 1998, in Post-Effective Amendment No. 26 to the
Registration Statement (Form N-1A No.2-83631) and related Prospectus of Stock
Index Fund, MidCap Index Fund, Small Cap Index Fund, International Equities
Fund, Growth Fund, Growth & Income Fund, Science & Technology Fund, Social
Awareness Fund, Asset Allocation Fund (formerly Timed Opportunity Fund),
Capital Conservation Fund, Government Securities Fund, International Government
Bond Fund, and Money Market Fund of American General Series Portfolio Company.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
September 22, 1998
<PAGE> 1
EXHIBIT 13.(A)
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
(hereinafter the "Fund"), a corporation organized and existing under and by
virtue of the laws of the State of Maryland.
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 $10,000,000, 1,000,000 shares of Common Stock, $.01 Par
Value, of the Fund's series (hereinafter the "Stock") designated the Growth
Portfolio.
2. VALIC acknowledges that the Stock has 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 Stock.
VALIC also understands that any resale of the Stock, 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 Stock for an
indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Stock 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 Stock or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Stock or any
part thereof unless registration statements with respect to such Stock 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 25th day of January, 1994.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company
By: /s/ STEPHEN D. BRICKEL By: /s/ STEPHEN D. BRICKEL
------------------------ ----------------------------
Title: President and CEO Title: Chairman and President
--------------------- -------------------------
<PAGE> 1
EXHIBIT 13.(B)
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
(hereinafter the "Fund"), a corporation organized and existing under and by
virtue of the laws of the State of Maryland.
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 $10,000,000, 1,000,000 shares of Common Stock, $.01 Par
Value, of the Fund's series (hereinafter the "Stock") designated the Growth &
Income Portfolio.
2. VALIC acknowledges that the Stock has 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 Stock.
VALIC also understands that any resale of the Stock, 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 Stock for an
indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Stock 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 Stock or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Stock or any
part thereof unless registration statements with respect to such Stock 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 11th day of January, 1994.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company
By: /s/ STEPHEN D. BRICKEL By: /s/ STEPHEN D. BRICKEL
------------------------ ----------------------------
Title: President and CEO Title: Chairman and President
--------------------- -------------------------
<PAGE> 1
EXHIBIT 13.(C)
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
(hereinafter the "Fund"), a corporation organized and existing under and by
virtue of the laws of the State of Maryland.
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 $10,000,000, 1,000,000 shares of Common Stock, $.01 Par
Value, of the Fund's series (hereinafter the "Stock") designated the Science &
Technology Portfolio.
2. VALIC acknowledges that the Stock has 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 Stock.
VALIC also understands that any resale of the Stock, 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 Stock for an
indefinite period of time.
3. VALIC represents and warrants that it is acquiring the Stock 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 Stock or any part
thereof; and
4. VALIC agrees that it will not sell or dispose of the Stock or any
part thereof unless registration statements with respect to such Stock 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 17th day of December, 1993.
The Variable Annuity American General Series
Life Insurance Company Portfolio Company
By: /s/ STEPHEN D. BRICKEL By: /s/ STEPHEN D. BRICKEL
------------------------ ---------------------------
Title: President and CEO Title: Chairman and President
--------------------- ------------------------
<PAGE> 1
EXHIBIT 19.
SPECIMEN PRICE MAKE-UP SHEET
MAY 31, 1998
<TABLE>
<CAPTION>
Value Of Total
Registrant's Offering
Total Shares Price
Net Assets Outstanding Per Share
-------------- ------------ ---------
<S> <C> <C> <C>
STOCK INDEX FUND $3,482,654,823 104,333,547 $ 33.38
MIDCAP INDEX FUND 804,317,629 31,829,893 25.27
SMALL CAP INDEX FUND 247,182,558 13,776,917 17.94
INTERNATIONAL EQUITIES FUND 155,469,167 13,009,276 11.95
GROWTH FUND 1,100,137,063 49,832,259 22.08
GROWTH & INCOME FUND 271,158,998 13,618,559 19.91
SCIENCE & TECHNOLOGY FUND 1,023,140,938 46,355,160 22.07
SOCIAL AWARENESS FUND 334,167,350 15,080,463 22.16
ASSET ALLOCATION FUND 200,098,812 14,269,480 14.02
CAPITAL CONSERVATION FUND 63,653,552 6,577,011 9.68
GOVERNMENT SECURITIES FUND 92,120,217 9,129,497 10.09
INTERNATIONAL GOVERNMENT BOND FUND 155,782,883 13,645,599 11.42
MONEY MARKET FUND 190,975,450 190,975,450 1.00
</TABLE>
<PAGE> 1
EXHIBIT 20.(A)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Director of American
General Series Portfolio Company, 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 (Registration Nos. 2-83631/811-3738) 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 United States 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 25th
day of January, 1994.
/s/ NORMAN HACKERMAN
- --------------------------
Norman Hackerman, Director
<PAGE> 2
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Director of American
General Series Portfolio Company, 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 (Registration Nos. 2-83631/811-3738) 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 United States 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 25th
day of January, 1994.
/s/ JOHN WILLIAM LANCASTER
- --------------------------------
John William Lancaster, Director
<PAGE> 3
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Director of American
General Series Portfolio Company, 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 (Registration Nos. 2-83631/811-3738) 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 United States 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 25th
day of January, 1994.
/s/ R. MILLER UPTON
- -------------------------
R. Miller Upton, Director
<PAGE> 4
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Director of American
General Series Portfolio Company, 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 (Registration Nos. 2-83631/811-3738) 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 United States 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 25th
day of January, 1994.
/s/ F. ROBERT PAULSEN
- ---------------------------
F. Robert Paulsen, Director
<PAGE> 5
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Director of American
General Series Portfolio Company, 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 (Registration Nos. 2-83631/811-3738) 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 United States 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 25th
day of January, 1994.
/s/ BEN LOVE
- ------------------
Ben Love, Director
<PAGE> 1
EXHIBIT 20.(B)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of American
General Series Portfolio Company, does hereby constitute and appoint Michael J.
Poulos, William A. Wilson and Cynthia A. Toles, or either 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 (Registration No. 2-83631/811-3738)
and any and all amendments (including post-effective amendments) thereto, with
full power and authority to execute said Registration Statement 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. 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
24th day of March, 1993.
/s/ JOE C. OSBORNE 03/23/93
- ------------------------ ----------------
Joe C. Osborne, Director Date
/s/ EVELYN M. BLAND
[SEAL]
<PAGE> 2
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned Director of American
General Series Portfolio Company, does hereby constitute and appoint James S.
D'Agostino, Jr., Cynthia A. Toles and Nori L. Gabert, 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 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 19th
day of May, 1998.
/s/ THOMAS L. WEST, JR.
- -----------------------------
Thomas L. West, Jr., Director
<PAGE> 3
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director of American
General Series Portfolio Company, does hereby constitute and appoint Michael J.
Poulos, William A. Wilson and Cynthia A. Toles, or either 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 (Registration No. 2-83631/811-3738)
and any and all amendments (including post-effective amendments) thereto, with
full power and authority to execute said Registration Statement 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. 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 24th
day of March, 1993.
/s/ PETER V. TUTERS March 24 1993
- ------------------------- --------------
Peter V. Tuters, Director Date
/s/ EVELYN M. BLAND
[SEAL]
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MIDCAP INDEX FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 537665282
<INVESTMENTS-AT-VALUE> 802526763
<RECEIVABLES> 9940988
<ASSETS-OTHER> 23450
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 812491201
<PAYABLE-FOR-SECURITIES> 7836517
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 337055
<TOTAL-LIABILITIES> 8173572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 471718766
<SHARES-COMMON-STOCK> 31829893
<SHARES-COMMON-PRIOR> 29252883
<ACCUMULATED-NII-CURRENT> 42347
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 67735760
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 264820756
<NET-ASSETS> 804317629
<DIVIDEND-INCOME> 8911421
<INTEREST-INCOME> 609816
<OTHER-INCOME> 0
<EXPENSES-NET> 2620013
<NET-INVESTMENT-INCOME> 6901224
<REALIZED-GAINS-CURRENT> 68478713
<APPREC-INCREASE-CURRENT> 104095928
<NET-CHANGE-FROM-OPS> 179475865
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6915741
<DISTRIBUTIONS-OF-GAINS> 39892715
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2234398
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
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<NAME> ASSET ALLOCATION FUND
<S> <C>
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<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 191997558
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<NUMBER-OF-SHARES-SOLD> 331782891
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> CAPITAL CONSERVATION FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 61317722
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<ACCUMULATED-NET-GAINS> (517185)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
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<ACCUMULATED-NET-GAINS> (1734207)
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<ACCUMULATED-GAINS-PRIOR> (2092608)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> STOCK INDEX FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 1689503075
<INVESTMENTS-AT-VALUE> 3476183543
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> INTERNATIONAL EQUITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 115888344
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<PER-SHARE-NAV-END> 11.95
<EXPENSE-RATIO> 0.40
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> SOCIAL AWARENESS FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 285330198
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<PER-SHARE-NAV-END> 22.16
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> INTERNATIONAL GOVERNMENT BOND FUND
<S> <C>
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<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 158244665
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<ACCUM-APPREC-OR-DEPREC> (6364868)
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<NET-CHANGE-IN-ASSETS> (2033964)
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<PER-SHARE-NII> 0.56
<PER-SHARE-GAIN-APPREC> (0.26)
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<PER-SHARE-NAV-END> 11.42
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> SMALL CAP INDEX
<S> <C>
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