-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fvw8bos/wBCW+rZ87UqEfYUVW4BjFUxJ9B0kAcactTIyLcfKaQyF2FzFFhU3NV3M AMbeAVZRjIzg+qBbWyfdrw== 0000950129-98-004009.txt : 19980923 0000950129-98-004009.hdr.sgml : 19980923 ACCESSION NUMBER: 0000950129-98-004009 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 44 FILED AS OF DATE: 19980922 EFFECTIVENESS DATE: 19981001 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN GENERAL SERIES PORTFOLIO CO /TX CENTRAL INDEX KEY: 0000719423 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 720029692 STATE OF INCORPORATION: TX FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 002-83631 FILM NUMBER: 98713020 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-03738 FILM NUMBER: 98713021 BUSINESS ADDRESS: STREET 1: 2929 ALLEN PARKWAY L7-01 STREET 2: C/O VARIABLE ANNUITY LIFE INSURANCE CO CITY: HOUSTON STATE: TX ZIP: 77019 BUSINESS PHONE: 7138315016 FORMER COMPANY: FORMER CONFORMED NAME: VALIC TIMED OPPORTUNITY FUND INC DATE OF NAME CHANGE: 19920329 485BPOS 1 AMERICAN GENERAL SERIES PORTFOLIO COMPANY 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: ---- 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
------------------------ 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 __ ================================================================================ 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)) 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.
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. 4 TABLE OF CONTENTS
PAGE ---- 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
PAGE ---- 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
(i) 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 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) - --------------------------------------------------------------------------------
ASSET CAPITAL GOVERNMENT ALLOCATION CONSERVATION SECURITIES GROWTH GROWTH & INTERNATIONAL FUND FUND FUND FUND INCOME FUND EQUITIES FUND ---------- ------------ ---------- ------ ----------- ------------- 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% ===== ===== ===== ===== ===== ==== INTERNATIONAL GOVERNMENT BOND FUND ------------- Management Fee(a) 0.50% Other Expenses(a)(c) 0.05% ----- Total Fund Operating Expenses(a): 0.55% =====
- -------------------------------------------------------------------------------- ANNUAL FUND OPERATING EXPENSES: (as a percentage of net assets) - --------------------------------------------------------------------------------
SCIENCE & SOCIAL MID CAP MONEY MARKET TECHNOLOGY SMALL CAP AWARENESS STOCK INDEX FUND FUND FUND INDEX FUND FUND INDEX FUND ---------- ------------ ---------- ---------- --------- ---------- 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% ===== ===== ===== ===== ===== =====
- -------------------------------------------------------------------------------- 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 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) - --------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- -------- 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 FISCAL YEAR ENDED MAY 31, ------------------------------ 1991 1990 1989 -------- -------- -------- 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
(1) The Asset Allocation Fund was formerly known as the Timed Opportunity Fund. 3 8 FINANCIAL HIGHLIGHTS -- CONTINUED CAPITAL CONSERVATION FUND - --------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- -------- 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 FISCAL YEAR ENDED MAY 31, ------------------------------ 1991 1990 1989 -------- -------- -------- 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
GOVERNMENT SECURITIES FUND - --------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- -------- 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 FISCAL YEAR ENDED MAY 31, -------------------------- 1991 1990 1989 -------- ------ ------ 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
4 9 FINANCIAL HIGHLIGHTS -- CONTINUED GROWTH FUND - --------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31, PERIOD FROM ------------------------------------------------------------------- APRIL 29, 1994 1998 1997 1996 1995 TO MAY 31, 1994 ---------- -------- -------- -------- --------------- 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
- ------------ (1) The net asset value at the beginning of the period is as of commencement of operations on April 29, 1994. GROWTH & INCOME FUND - --------------------------------------------------------------------------------
PERIOD FROM FISCAL YEAR ENDED MAY 31, APRIL 29, 1994 ----------------------------------------------------------------- TO 1998 1997 1996 1995 MAY 31, 1994 -------- -------- -------- -------- -------------- 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
- ------------ (1) The net asset value at the beginning of the period is as of commencement of operations on April 29, 1994. 5 10 FINANCIAL HIGHLIGHTS -- CONTINUED INTERNATIONAL EQUITIES FUND - --------------------------------------------------------------------------------
PERIOD FROM OCTOBER 2, FISCAL YEAR ENDED MAY 31, 1989 ------------------------------------------------------------------------------------- TO MAY 31, 1998 1997 1996 1995 1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- -------- -------- -------- ----------- 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
- ------------ (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 - --------------------------------------------------------------------------------
PERIOD FROM OCTOBER 1, FISCAL YEAR ENDED MAY 31, 1991 TO --------------------------------------------------------------- MAY 31, 1998 1997 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- ----------- 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
- ------------ (1) The net asset value at the beginning of the period is as of commencement of operations on October 1, 1991. 6 11 FINANCIAL HIGHLIGHTS -- CONTINUED MIDCAP INDEX FUND(1) - --------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- -------- 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 FISCAL YEAR ENDED MAY 31, ------------------------------ 1991 1990 1989 -------- -------- -------- 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
- ------------ (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 - --------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- -------- 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 FISCAL YEAR ENDED MAY 31, ------------------------------ 1991 1990 1989 -------- -------- -------- 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
7 12 FINANCIAL HIGHLIGHTS -- CONTINUED SCIENCE & TECHNOLOGY FUND - --------------------------------------------------------------------------------
PERIOD FROM FISCAL YEAR ENDED MAY 31, APRIL 29, 1994 ------------------------------------------------------------------- TO 1998 1997 1996 1995 MAY 31, 1994 ---- ---- ---- ---- -------------- 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
- ------------ (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 - --------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31, PERIOD FROM --------------------------------------------------------------- MAY 1, 1992 1998 1997 1996 1995 1994 1993 TO MAY 31, 1992 -------- -------- -------- -------- -------- -------- --------------- 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
- ------------ (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 13 FINANCIAL HIGHLIGHTS -- CONTINUED SOCIAL AWARENESS FUND - --------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 1992 1991 -------- --------- -------- -------- -------- -------- -------- -------- 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 PERIOD FROM OCTOBER 2, 1989 TO MAY 31, 1990 --------------- 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
- ------------ (1) The net asset value at the beginning of the period is as of commencement of operations on October 2, 1989. 9 14 FINANCIAL HIGHLIGHTS -- CONTINUED STOCK INDEX FUND(1) - --------------------------------------------------------------------------------
FISCAL YEAR ENDED MAY 31, ------------------------------------------------------------------------------------ 1998 1997 1996 1995 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- -------- -------- 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 FISCAL YEAR ENDED MAY 31, ------------------------------ 1991 1990 1989 -------- -------- -------- 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
- ------------ (1) Bankers Trust has been the Fund's Sub-adviser since May 1, 1992. 10 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:
Effective Date of Fund Name Agreement --------- ----------------- 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
Another Investment Advisory Agreement covers these Funds:
Effective Date of Fund Name Agreement --------- ----------------- MidCap Index Fund Stock Index Fund May 1, 1992 Small Cap Index Fund Growth Fund Growth & Income Fund May 1, 1994 Science & Technology Fund
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 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.
Advisory Fee Fund Name (Annual Rate) --------- ------------- 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%
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:
Total Expenses Fund Name Ratio --------- -------- 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%
* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund. 12 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 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 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:
Fiscal Year Ending ----------------------- May 31, May 31, 1997 1998 ------- ------- 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%
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 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 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 22 HOW TO READ A FUND FACT SHEET - -------------------------------------------------------------------------------- FACT SHEET DESCRIPTION 18 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: stocks (common stock, preferred 55% stock and convertible preferred stock) intermediate and long-term bonds 35% high quality money market securities 10%
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: stocks 58.36% intermediate and long-term bonds 32.53% high quality money market securities 9.11%*
- ------------ * 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 24 ASSET ALLOCATION FUND Fact Sheet - --------------------------------------------------------------------------------
Percent of Fund Investments Fund's Assets* - ----------------------------------------------------------------- Foreign securities up to 20% - ----------------------------------------------------------------- Futures and options no more than 33% - ----------------------------------------------------------------- Illiquid and restricted up to 10% securities - -----------------------------------------------------------------
*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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR 10 YEAR - ----------------------------------------------------------------- 21.94% 13.79% 11.21% - -----------------------------------------------------------------
[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 - ---------------------------------------------------------------- 1 YEAR SINCE 9/1/92** - ---------------------------------------------------------------- 21.94% 13.59% - ----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
Additional information about THE FUND'S INVESTMENTS is provided under "Types of Investments". 21 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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR 10 YEAR - ----------------------------------------------------------------- 10.76% 6.41% 7.95% - -----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
Additional information about THE FUND'S INVESTMENTS is provided under "Types of Investments". 23 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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR 10 YEAR - ----------------------------------------------------------------- 10.60% 6.04% 7.96% - -----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
Additional information about THE FUND'S INVESTMENTS is provided under "Types of Investments". 25 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 - ---------------------------------------------------------------- 1 YEAR SINCE INCEPTION* - ---------------------------------------------------------------- 27.41% 23.26% - ----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
Additional information about THE FUND'S INVESTMENTS is provided under "Types of Investments". 27 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 - ---------------------------------------------------------------- 1 YEAR SINCE INCEPTION* - ---------------------------------------------------------------- 19.87% 20.19% - ----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
Additional information about THE FUND'S INVESTMENTS is provided under "Types of Investments". 29 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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR SINCE INCEPTION* - ----------------------------------------------------------------- 9.92% 9.56% 5.04% - -----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
Additional information about THE FUND'S INVESTMENTS is provided under "Types of Investments". 31 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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR SINCE INCEPTION* - ----------------------------------------------------------------- 2.65% 5.44% 7.61% - -----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
Additional information about THE FUND'S INVESTMENTS is provided under "Types of Investments". 33 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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR SINCE 10/1/91* - ----------------------------------------------------------------- 29.62% 17.99% 17.61% - -----------------------------------------------------------------
[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 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 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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR 10 YEAR - ----------------------------------------------------------------- 5.25% 4.65% 5.45% - -----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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*** - ----------------------------------------------------
* 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 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 - ---------------------------------------------------------------- 1 YEAR SINCE INCEPTION* - ---------------------------------------------------------------- 10.85% 26.44% - ----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
Additional information about THE FUND'S INVESTMENTS is provided under "Types of Investments". 39 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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR SINCE INCEPTION* - ----------------------------------------------------------------- 21.34% 15.43% 15.31% - -----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
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 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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR SINCE INCEPTION* - ----------------------------------------------------------------- 30.34% 21.44% 16.16% - -----------------------------------------------------------------
[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 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.
Percent of Fund Investments Fund's Assets* - ---------------------------------------------------- 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.
Additional information about THE FUND'S INVESTMENTS is provided under "Types of Investments". 43 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 - ----------------------------------------------------------------- 1 YEAR 5 YEAR 10 YEAR - ----------------------------------------------------------------- 30.30% 21.75% 17.79% - -----------------------------------------------------------------
[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 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 50 - -------------------------------------------------------------------------------- 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. 46 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. 47 52 - -------------------------------------------------------------------------------- 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. 48 53 - -------------------------------------------------------------------------------- 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. 49 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: 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.
* 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. 50 55 - -------------------------------------------------------------------------------- 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). 51 56 - -------------------------------------------------------------------------------- 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 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 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. Name: ________________________________________ GA. #: ______________________________ Address: ____________________________________ Policy #: ______________________________ Social Security Number: ____________________
54 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 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
PRINTED MATTER PRINTED IN U.S.A. RECYCLED PAPER VA 9017 VER 10/97 LOGO 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 61 TABLE OF CONTENTS
PAGE ---- 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
2 62
PAGE ---- 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
3 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.
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) ------------ ---------------- -------------- --------------- 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
- --------------- *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 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
COUNTRY WEIGHT ------- ------ 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
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 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 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: 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.
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 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: 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.
8 68 PERFORMANCE RETURNS MAY 31, 1998
10 YEAR INCEPTION OR SINCE DATE 1 YEAR 3 YEAR 5 YEAR INCEPTION (A) --------- ------ ------ ------ ------------- 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%
- ------------ * 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 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 10 70 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. 11 71 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. 12 72 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 13 73 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 14 74 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 15 75 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 16 76 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 17 77 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- 18 78 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 19 79 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 20 80 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 21 81 ("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. 22 82 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 23 83 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- 24 84 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. 25 85 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- 26 86 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 27 87 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 28 88 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- 29 89 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. 30 90 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 31 91 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. 32 92 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. 33 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 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. 35 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 36 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 37 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 38 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- 39 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 40 100 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. 41 101 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, 42 102 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. 43 103 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 44 104 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 45 105 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 46 106 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. 47 107 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 48 108 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. 49 109 DIRECTORS AND OFFICERS
POSITION(S) HELD PRINCIPAL OCCUPATION(S) NAME AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS ---------------- --------------- ------------------- 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)
- ------------ * 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. 50 110
POSITION(S) HELD PRINCIPAL OCCUPATION(S) NAME AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS ---------------- --------------- ------------------- 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
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.
POSITION(S) HELD PRINCIPAL OCCUPATION(S) NAME WITH REGISTRANT DURING PAST 5 YEARS ---- --------------- ------------------- 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.
51 111
POSITION(S) HELD PRINCIPAL OCCUPATION(S) NAME WITH REGISTRANT DURING PAST 5 YEARS ---- --------------- ------------------- 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.
52 112 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
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 ------------------------ -------------- -------------- ---------- ----------------- 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
- --------------- ** "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
SERVICE UNDER 5 10 OR MORE AT RETIREMENT YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS YEARS - ------------- ------- ------- ------- ------- ------- ---------- COMPENSATION AT RETIREMENT $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
(3) Includes all investment companies managed by VALIC. 53 113 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. 54 114 ================================================================================ 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 ............. 85 115 =============================================================================== 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. 116 ================================================================================ AGSPC PRESIDENT'S LETTER CONTINUED 2 ================================================================================ FUND RETURNS AND TRACKING DIFFERENCES For the period ended May 31, 1998
(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) - ------------------------------------------------------------------------------------------------- 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
(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
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 - ------------------------------------------------------------------------------------------------- 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
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. 117 ================================================================================ AGSPC PRESIDENT'S LETTER CONTINUED 3 ================================================================================ FUNDS AVAILABLE UNDER VARIABLE ANNUITY CONTRACTS
VALIC SEPARATE ACCOUNT A CONTRACT FORM -------------------------------------------------------------- PORTFOLIO PORTFOLIO PORTFOLIO INDEPEN- GROUP DIRECTOR DIRECTOR DIRECTOR DENCE UNIT FUND 2 1 T PLUS IMPACT PURCHASE - ----------------------------------- --------- --------- --------- ------- ------ -------- 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
AMERICAN GENERAL LIFE INSURANCE COMPANY --------------------------------------------------------------------- SEPARATE ACCOUNT A -------------------- SEPARATE SEPARATE NON ACCOUNT ACCOUNT SELECT PLATINUM FUND QUALIFIED QUALIFIED B D PRESERVE INVESTOR - ------------------------------------ --------- --------- -------- -------- -------- -------- 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
118 ================================================================================ STOCK INDEX FUND - STATEMENT OF NET ASSETS 4 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 ------------
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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
119 ================================================================================ STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 5 ================================================================================
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 -----------
120 ================================================================================ STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 6 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE ----------- ------------ 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 -----------
NUMBER MARKET OF SHARES VALUE ----------- ------------ 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 -----------
121 ================================================================================ STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 7 ================================================================================
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 -----------
122 ================================================================================ STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 8 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE ----------- ------------ 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 ------------
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 -----------
123 ================================================================================ STOCK INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 9 ================================================================================
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE ----------- ----------- 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 -------------
PAR VALUE ----------- 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 -----------
MARKET VALUE ----------- 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
UNREALIZED CONTRACTS DEPRECIATION - ------------- ------------- FUTURES CONTRACTS PURCHASED(1) (Delivery month/Value at 5/31/98) 71(2) S&P 500 Index Futures (June/$1,090.80)........... $ (390,837) -------------
(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 - -------------------------------------------------------------------------------- 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 ==============
124 ================================================================================ STOCK INDEX FUND - FINANCIAL STATEMENTS 10 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ============
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 --------------- --------------- 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 =============== ===============
125 ================================================================================ MIDCAP INDEX FUND - STATEMENT OF NET ASSETS May 31, 1998 11 ================================================================================
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
126 ================================================================================ MIDCAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 12 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE --------- ----------- 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
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
127 ================================================================================ MIDCAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 13 ================================================================================
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE --------- ----------- 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
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
128 ================================================================================ MIDCAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 14 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE --------- ----------- 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
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
129 ================================================================================ MIDCAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 15 ================================================================================
NUMBER MARKET OF SHARES VALUE --------- ----------- 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
NUMBER MARKET OF SHARES VALUE --------- ----------- 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 -----------
MARKET VALUE ------------ 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 ============
130 =============================================================================== MIDCAP INDEX FUND - FINANCIAL STATEMENTS 16 =============================================================================== STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ============
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 ------------ ------------ 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 ============ ============
131 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS May 31, 1998 17 ===============================================================================
NUMBER MARKET OF SHARES VALUE ---------- ---------- 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 ----------
NUMBER MARKET OF SHARES VALUE ---------- ---------- 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 ----------
NUMBER MARKET OF SHARES VALUE ---------- ---------- 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 ----------
132 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS 18 May 31, 1998 ===============================================================================
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
133 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 19 ===============================================================================
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 ----------
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 ----------
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
134 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 20 May 31, 1998 ===============================================================================
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
135 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 21 ===============================================================================
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 ----------
136 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 22 May 31, 1998 ===============================================================================
NUMBER MARKET OF SHARES VALUE --------- ---------- 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 ----------
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
137 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 23 ===============================================================================
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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 ----------
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
138 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 24 May 31, 1998 ===============================================================================
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
139 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 25 ===============================================================================
NUMBER MARKET OF SHARES VALUE --------- ---------- 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 ----------
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- -------- 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 ----------
140 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 26 MAY 31, 1998 ===============================================================================
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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 ----------
141 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 27 ===============================================================================
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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 ----------
142 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 28 May 31, 1998 ===============================================================================
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
143 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 29 ===============================================================================
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
NUMBER MARKET OF SHARES VALUE --------- ---------- 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 ----------
144 =============================================================================== SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED 30 May 31, 1998 ===============================================================================
NUMBER MARKET OF SHARES VALUE --------- ---------- 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 ----------
NUMBER MARKET OF SHARES VALUE --------- ---------- 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 ----------
NUMBER MARKET OF SHARES VALUE --------- ---------- 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
PAR VALUE - ---------- 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 ==========
145 =============================================================================== May 31, 1998 31 SMALL CAP INDEX FUND - STATEMENT OF NET ASSETS CONTINUED ===============================================================================
PAR MARKET VALUE VALUE - ---------- ----------- 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
UNREALIZED CONTRACTS DEPRECIATION - --------- ------------- FUTURES CONTRACTS PURCHASED(1) (Delivery month/Value at 5/31/98) 26 (2) Russell 2000 Index Futures (June/$456.45)................ $ (311,225) =============
(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
MARKET VALUE ------------ 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 ============
146 ================================================================================ SMALL CAP INDEX FUND - FINANCIAL STATEMENTS 32 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ============
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 ------------- ------------- 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 ============= =============
147 ================================================================================ INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS May 31, 1998 33 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 -----------
148 ================================================================================ INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS CONTINUED 34 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 ----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 ----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 ----------
149 ================================================================================ INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 35 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 -----------
150 ================================================================================ INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS CONTINUED 36 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 ----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 ----------
NUMBER MARKET OF SHARES VALUE - ----------- ------------ 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 ------------
151 ================================================================================ INTERNATIONAL EQUITIES FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 37 ================================================================================
PAR MARKET VALUE VALUE - ----------- ------------ 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 ============
* Non-income producing
UNREALIZED CONTRACTS DEPRECIATION - ----------- ------------ FUTURES CONTRACTS PURCHASED(1) (Delivery month/Value at 5/31/98) 30 (2) Nikkei 225 Futures (June/$113.22)................ $ (121,309) ===========
(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
MARKET VALUE ------------ 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 =============
152 ================================================================================ INTERNATIONAL EQUITIES FUND - FINANCIAL STATEMENTS 38 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ===========
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 -------------- -------------- 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 ============== ==============
153 ================================================================================ GROWTH FUND - STATEMENT OF NET ASSETS May 31, 1998 39 ================================================================================
NUMBER MARKET OF SHARES VALUE --------- ------------ 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
NUMBER MARKET OF SHARES VALUE --------- ------------ 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 ------------
NUMBER MARKET OF SHARES VALUE --------- ------------ 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 ------------
154 ================================================================================ GROWTH FUND - STATEMENT OF NET ASSETS 40 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE --------- -------------- 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 --------------
PAR MARKET VALUE VALUE ----- -------------- 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 ==============
*Non-income producing
MARKET VALUE -------------- 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 ==============
155 ================================================================================ GROWTH FUND - FINANCIAL STATEMENTS 41 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ============
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 ---- ---- 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 ============== ============
156 ================================================================================ GROWTH & INCOME FUND - STATEMENT OF NET ASSETS 42 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE --------- ------------ 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 ------------
NUMBER MARKET OF SHARES VALUE --------- ------------ 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
NUMBER MARKET OF SHARES VALUE --------- ------------ 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 ------------
157 ================================================================================ GROWTH & INCOME FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 43 ================================================================================
NUMBER MARKET OF SHARES VALUE --------- ------------ 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 ------------
NUMBER MARKET OF SHARES VALUE --------- ------------ 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 ------------
PAR VALUE ----- 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 ------------
PAR MARKET VALUE VALUE ----- ------------ 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 ------------
158 ================================================================================ GROWTH & INCOME FUND - STATEMENT OF NET ASSETS CONTINUED 44 May 31, 1998 ================================================================================
PAR MARKET VALUE VALUE - --------- ------------ 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 ============
* Non-income producing
MARKET VALUE ------------ 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 ============
159 ================================================================================ GROWTH & INCOME FUND - FINANCIAL STATEMENTS 45 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ===========
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 ------------- ------------- 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 ============= =============
160 ================================================================================ SCIENCE & TECHNOLOGY FUND - STATEMENT OF NET ASSETS 46 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 -----------
161 ================================================================================ SCIENCE & TECHNOLOGY FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 47 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 -------------
PAR MARKET VALUE VALUE - ----------- ----------- 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 ==============
* Non-income producing
FACE MARKET UNREALIZED VALUE VALUE DEPRECIATION ----------- ----------- ------------ Forward currency contracts sold: Deutsche Mark 6/2/98........... $ 1,629,371 $ 1,627,315 ($ 2,056) ----------- ----------- -----------
MARKET VALUE ----------- 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 ==============
162 ================================================================================ SCIENCE & TECHNOLOGY FUND - FINANCIAL STATEMENTS 48 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ===========
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 --------------- ------------ 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 =============== ============
163 ================================================================================ SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS May 31, 1998 49 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- COMMON STOCKS - 97.52% ADVERTISING - 0.18% 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- BANKS - OTHER - 3.22% 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
NUMBER MARKET OF SHARES VALUE - ----------- ----------- BROADCASTING - Continued 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 -----------
164 ================================================================================ SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS 50 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- CONTAINERS - METAL/GLASS - 0.43% 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- ENTERTAINMENT - 1.94% 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- FUNERAL SERVICES - 0.18% 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 -----------
165 ================================================================================ SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 51 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- HOUSEHOLD PRODUCTS - 3.45% 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- INSURANCE - CASUALTY - 0.56% 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- MACHINERY - CONSTRUCTION & CONTRACTS - 0.31% 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 -----------
166 ================================================================================ SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS CONTINUED 52 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- MERCHANDISING - DEPARTMENT - 0.40% 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- NATURAL GAS-DIVERSIFIED - 0.27% 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ----------- PAPER/FOREST PRODUCTS - 1.21% 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 -----------
167 ================================================================================ SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 53 ================================================================================
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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
NUMBER MARKET OF SHARES VALUE - ----------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ----------- ------------- WATER SERVICES - 0.02% 2,552 American Water Works Co., Inc.. $ 74,965 ------------- TOTAL COMMON STOCKS (Cost $277,608,938)............ 325,861,302 -------------
PAR VALUE - ----------- 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 ============
168 ================================================================================ SOCIAL AWARENESS FUND - STATEMENT OF NET ASSETS CONTINUED 54 May 31, 1998 ================================================================================
UNREALIZED CONTRACTS DEPRECIATION - --------- ------------ FUTURES CONTRACTS PURCHASED(1) (Delivery month/Value at 5/31/98) 27(2) S&P 500 Index Futures (June/$1,090.80).............. $ (137,250) ===========
(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
MARKET VALUE ------------ 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 ============
169 ================================================================================ SOCIAL AWARENESS FUND - FINANCIAL STATEMENTS 55 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ===========
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 ------------ ------------ 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 ============ ============
170 ================================================================================ ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS 56 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE - --------- ---------- 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 ----------
NUMBER MARKET OF SHARES VALUE - --------- ---------- 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 ----------
NUMBER MARKET OF SHARES VALUE - --------- ---------- 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 -----------
171 ================================================================================ ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 57 ================================================================================
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
172 ================================================================================ ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED 58 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
173 ================================================================================ ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED May 31 1998 59 ================================================================================
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
174 ================================================================================ ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED 60 May 31, 1998 ================================================================================
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
NUMBER MARKET OF SHARES VALUE - ---------- ----------- 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 -----------
175 ================================================================================ ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED May 31 1998 61 ================================================================================
NUMBER MARKET OF SHARES VALUE - ---------- ------------ 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 ------------
NUMBER MARKET OF SHARES VALUE - ---------- ------------ 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 ------------
PAR MARKET VALUE VALUE - ---------- ------------ 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 ------------
176 ================================================================================ ASSET ALLOCATION FUND - STATEMENT OF NET ASSETS CONTINUED 62 May 31, 1998 ================================================================================
PAR MARKET VALUE VALUE - ---------- ----------- 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 -----------
PAR MARKET VALUE VALUE - ---------- ------------ 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 ============
UNREALIZED CONTACTS DEPRECIATION -------- ------------ 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 ============
177 ================================================================================ ASSET ALLOCATION FUND - FINANCIAL STATEMENTS 63 ================================================================================
STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ------------
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31: 1998 1997 ------------ ------------ 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 ============ ============
178 ================================================================================ CAPITAL CONSERVATION FUND - STATEMENT OF NET ASSETS 64 May 31, 1998 ================================================================================
PAR MARKET VALUE VALUE - ---------- ----------- 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 -----------
PAR MARKET VALUE VALUE - ---------- ----------- 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 -----------
PAR MARKET VALUE VALUE - ---------- ----------- 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
179 ================================================================================ CAPITAL CONSERVATION FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 65 ================================================================================
PAR MARKET VALUE VALUE - ---------- ----------- 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 ===========
UNREALIZED CONTRACTS DEPRECIATION - ---------- ----------- 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 ===========
180 ================================================================================ CAPITAL CONSERVATION FUND - FINANCIAL STATEMENTS 66 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ===========
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 ------------ ------------ 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 ============ ============
181 ================================================================================ GOVERNMENT SECURITIES FUND - STATEMENT OF NET ASSETS May 31, 1997 67 ================================================================================
PAR MARKET VALUE VALUE - ----------- ----------- 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 -----------
PAR MARKET VALUE VALUE - ----------- ----------- 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 ===========
UNREALIZED CONTRACTS DEPRECIATION --------- ------------ 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 ===========
182 ================================================================================ GOVERNMENT SECURITIES FUND - FINANCIAL STATEMENTS 68 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ==========
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31:
1998 1997 ------------ ------------ 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 ============ ============
183 ================================================================================ INTERNATIONAL GOVERNMENT BOND FUND - STATEMENT OF NET ASSETS May 31, 1998 69 ================================================================================
PAR MARKET VALUE VALUE - ---------------- ------------ 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 ------------
PAR MARKET VALUE VALUE - ---------------- ------------ 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 ------------
PAR MARKET VALUE VALUE - ---------------- ------------ 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 ------------
184 ================================================================================ INTERNATIONAL GOVERNMENT BOND FUND - STATEMENT OF NET ASSETS CONTINUED 70 May 31, 1998 ================================================================================
PAR MARKET VALUE VALUE - ---------------- ------------ 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 ------------
PAR MARKET VALUE VALUE - ---------------- ------------ 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
PAR MARKET VALUE VALUE - ---------------- ------------ 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 ------------
185 ================================================================================ INTERNATIONAL GOVERNMENT BOND FUND - STATEMENT OF NET ASSETS CONTINUED May 31, 1998 71 ================================================================================
PAR MARKET VALUE VALUE - ----------------------------------------------------------------- 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 ------------
UNREALIZED CONTRACTS APPRECIATION - ----------------------------------------------------------------- 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 ============
(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
MARKET VALUE - ----------------------------------------------------------------- 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 ============
186 ================================================================================ INTERNATIONAL GOVERNMENT BOND FUND - FINANCIAL STATEMENTS 72 ================================================================================ STATEMENT OF OPERATIONS For the fiscal year ended May 31, 1998 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 ===========
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31: 1998 1997 ------------ ------------ 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 ------------ ============
187 ================================================================================ MONEY MARKET FUND - STATEMENT OF NET ASSETS May 31, 1998 73 ================================================================================
PAR MARKET VALUE VALUE - ---------- ----------- 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
PAR MARKET VALUE VALUE - ---------- ----------- 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
PAR MARKET VALUE VALUE - ----------- ----------- 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 -----------
188 ================================================================================ MONEY MARKET FUND - STATEMENT OF NET ASSETS CONTINUED 74 May 31, 1998 ================================================================================
PAR MARKET VALUE VALUE - -------------------------------------------------------------- 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 ------------
PAR MARKET VALUE VALUE - -------------------------------------------------------------- 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 -------------
PAR MARKET VALUE VALUE - -------------------------------------------------------------- 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 ============
189 ================================================================================ MONEY MARKET FUND - FINANCIAL STATEMENTS 75 ================================================================================ 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 ===========
STATEMENT OF CHANGES IN NET ASSETS For the fiscal year ended May 31: 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 ============ ============
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. 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:
SELLER PURCHASER COST TO PURCHASER NET GAIN TO SELLER - -------------------- ----------------- ----------------- ------------------ 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
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:
VALIC SEPARATE ACCOUNT A -------------- 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
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.
IDENTIFIED COST GROSS GROSS NET UNREALIZED OF INVESTMENTS UNREALIZED UNREALIZED APPRECIATION OWNED APPRECIATION DEPRECIATION (DEPRECIATION) ------------------------------------------------------------------------ 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 -- -- --
The following net realized capital loss carryforwards at May 31, 1998, may be utilized to offset future capital gains.
CAPITAL LOSS CARRYFORWARD EXPIRATION THROUGH ---------------------------------------------- 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
192 ================================================================================ NOTES TO FINANCIAL STATEMENTS 78 ================================================================================ During the period, the cost of purchases and proceeds from sales of securities, excluding short term securities were:
Cost of Proceeds from Securities Securities Sold Purchased or Matured -------------- -------------- 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
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:
Market Value Collateral Value ------------ ---------------- 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 ------------ ----------------
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. 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
FISCAL YEAR ENDED MAY 31, ---------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- ---------- -------------- ---------- 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
MIDCAP INDEX FUND
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- 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
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
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- 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
INTERNATIONAL EQUITIES FUND
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- 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
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
PERIOD FROM FISCAL YEAR ENDED MAY 31, APRIL 29, 1994 ----------------------------------------------------- TO 1998 1997 1996 1995 MAY 31, 1994 ----------- -------- --------- --------- ------------ 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
(1) The net asset value at the beginning of the period is as of commencement of operations on April 29, 1994. GROWTH & INCOME FUND
PERIOD FROM FISCAL YEAR ENDED MAY 31, APRIL 29, 1994 ----------------------------------------------------- TO 1998 1997 1996 1995 MAY 31, 1994 --------- --------- -------- -------- ---------- 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
(1) The net asset value at the beginning of the period is as of commencement of operations on April 29, 1994. 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
PERIOD FROM FISCAL YEAR ENDED MAY 31, APRIL 29, 1994 ----------------------------------------------------- TO 1998 1997 1996 1995 MAY 31, 1994 ----------- --------- --------- --------- -------------- 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
(1) The net asset value at the beginning of the period is as of commencement of operations on April 29, 1994. SOCIAL AWARENESS FUND
FISCAL YEAR ENDED MAY 31, ---------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- -------- -------- -------- 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
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
FISCAL YEAR ENDED MAY 31, --------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- ------------- ------------- ------------- 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
CAPITAL CONSERVATION FUND
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- --------- 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
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
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- 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
INTERNATIONAL GOVERNMENT BOND FUND
FISCAL YEAR ENDED MAY 31, ---------------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- -------- -------- 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
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
FISCAL YEAR ENDED MAY 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---------- ---------- --------- --------- -------- 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
=============================================================================== 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 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. 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 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.
C-1 202 (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)
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
C-2 203 (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.
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-3 204 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:
(2) (1) NUMBER OF TITLE OF CLASS RECORD HOLDERS -------------- -------------- 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)
C-4 205
(2) (1) NUMBER OF TITLE OF CLASS RECORD HOLDERS -------------- -------------- 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)
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").
NAME COMPANY TITLE ---- ------- ----- 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
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NAME COMPANY TITLE ---- ------- ----- 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
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NAME COMPANY TITLE ---- ------- ----- 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
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NAME COMPANY TITLE ---- ------- ----- 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
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.
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT ------------------ --------------------- --------------------- 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
C-8 209
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT ------------------ --------------------- --------------------- 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
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NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT ------------------ --------------------- --------------------- 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
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NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT ------------------ --------------------- --------------------- 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
- --------------- (*) 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-11 212 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-12 213 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 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 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 216 EXHIBIT INDEX
EXHIBIT NUMBER ------- 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.
217
EXHIBIT NUMBER ------- 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.
- --------------- * Page numbers inserted in manually signed copy only. EX-99.B1.A 2 ARTICLES OF INCORPORATION 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. 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 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 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 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 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 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 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: 8 of 12 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 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 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 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 EX-99.B1.B 3 ARTICLES SUPPLEMENTARY DATED 4/10/90 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. 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 EX-99.B1.C 4 ARTICLES SUPPLEMENTARY DATED 9/28/90 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 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 EX-99.B1.D 5 AMEND. #1 TO ARTICLES OF INCORPORATION 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 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 EX-99.B1.E 6 AMEND. #2 TO ARTICLES OF INCORPORATION 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 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 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 EX-99.B1.F 7 ARTICLES SUPPLEMENTARY DATED 5/01/92 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 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 EX-99.B1.G 8 ARTICLES SUPPLEMENTARY DATED 1/20/94 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 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 EX-99.B1.H 9 ARTICLES SUPPLEMENTARY DATED 2/04/94 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 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 EX-99.B1.I 10 ARTICLES SUPPLEMENTARY DATED 2/04/94 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 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 EX-99.B1.J 11 ARTICLES SUPPLEMENTARY DATED 5/01/95 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 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 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 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 EX-99.B2 12 BY-LAWS AS AMENDED 10/29/91 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, 1 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 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 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 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. 5 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. 6 7 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 7 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. 8 9 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. 9 EX-99.B5.A 13 AMENDED INVESTMENT ADVISORY AGREEMENT 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 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 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 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 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 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 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 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 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 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 EX-99.B5.B 14 INVESTMENT ADVISORY AGREEMENT (FORM II) 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 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 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 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 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 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. EX-99.B5.C1 15 INVESTMENT SUB-ADVISORY AGREEMENT - BANKERS TRUST 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 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 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 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 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 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 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 ......... EX-99.B5.C2 16 AMEND. #1 TO INVESTMENT SUB-ADVISORY AGMT.-BANKERS 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 ------------------------------ -------------------------------- 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.............. EX-99.B5.D1 17 INVESTMENT SUB-ADVISORY AGREEMENT - T. ROWE PRICE 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 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 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 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 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 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 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 EX-99.B5.D2 18 AMEND. #1 TO INVESTMENT SUB-ADVISORY AGMT.-T. ROWE 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 ------------------------------ -------------------------------- 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....... EX-99.B5.E 19 INVESTMENT SUB-ADVISORY AGREEMENT - VALUE LINE 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. 1 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 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 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 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 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 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 EX-99.B8.A1 20 CUSTODIAN CONTRACT - STATE STREET BANK 1 EXHIBIT 8.(A)(1) CUSTODIAN CONTRACT BETWEEN AMERICAN GENERAL SERIES PORTFOLIO COMPANY AND STATE STREET BANK AND TRUST COMPANY 2 TABLE OF CONTENTS
Page ---- 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
3 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
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: 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. -2- 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- 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- 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- 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- 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- 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. -8- 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 -9- 13 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. -10- 14 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 -11- 15 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 -12- 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 -13- 17 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. -14- 18 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 -15- 19 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 -16- 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; -17- 21 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: -18- 22 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; -19- 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 -20- 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. -21- 25 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 -22- 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. -23- 27 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 -24- 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. -25- 29 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. -26- 30 (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 -27- 31 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, -28- 32 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 -29- 33 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 -30- 34 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. -31- 35 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. -32- 36 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 -33- 37 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, -34- 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 -35- 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- 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 -37- 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 -38- 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- 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 -40- 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 -41- 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. -42- 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 -43- EX-99.B8.B 21 SECURITIES LENDING AUTHORIZATION AGREEMENT 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 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 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 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 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: 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] ------------------------------------ EX-99.B8.C6 22 SUB-CUSTODIAL AGREEMENT - BANCO COMMERCIAL 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 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 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 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 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 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 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 ----------------------- EX-99.B9.A 23 TRANSFER AGENCY AND SERVICE AGREEMENT 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 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 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 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 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 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 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 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." 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 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." 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 ------------------------------- 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 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 EX-99.B10 24 OPINION AND CONSENT OF COUNSEL 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 EX-99.B11 25 CONSENT OF INDEPENDENT AUDITORS 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 EX-99.B13.A 26 SUBSCRIPTION AGREEMENT - GROWTH FUND 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 --------------------- ------------------------- EX-99.B13.B 27 SUBSCRIPTION AGREEMENT - GROWTH & INCOME FUND 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 --------------------- ------------------------- EX-99.B13.C 28 SUBSCRIPTION AGREEMENT - SCIENCE & TECHNOLOGY FUND 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 --------------------- ------------------------ EX-99.B19 29 SPECIMEN PRICE MAKE-UP SHEET 1 EXHIBIT 19. SPECIMEN PRICE MAKE-UP SHEET MAY 31, 1998
Value Of Total Registrant's Offering Total Shares Price Net Assets Outstanding Per Share -------------- ------------ --------- 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
EX-99.B20.A 30 COPIES OF MANUALLY SIGNED POWERS OF ATTORNEY 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 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 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 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 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 EX-99.B20.B 31 COPIES OF MANUALLY SIGNED POWERS OF ATTORNEY 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] 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 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] EX-27.1 32 FINANCIAL DATA SCHEDULE
6 1 MIDCAP INDEX FUND 12-MOS MAY-31-1998 MAY-31-1998 537665282 802526763 9940988 23450 0 812491201 7836517 0 337055 8173572 0 471718766 31829893 29252883 42347 0 67735760 0 264820756 804317629 8911421 609816 0 2620013 6901224 68478713 104095928 179475865 0 6915741 39892715 0 2234398 1539188 1997359 2692569 56864 39149762 0 0 2313256 0 2620013 722652038 20.83 0.23 5.80 0.23 1.36 0 25.27 0.36 0 0
EX-27.2 33 FINANCIAL DATA SCHEDULE
6 2 ASSET ALLOCATION FUND 12-MOS MAY-31-1998 MAY-31-1998 154829064 199007431 1189608 18311 0 200215350 0 0 116538 116538 0 143237629 14269480 13419860 51796 0 12699945 0 44109442 200098812 1794610 4912556 0 1022487 5684679 13272397 18286139 37243215 0 5673369 10552054 0 488059 1556774 1231303 162588 40486 9979602 0 0 943269 0 1022487 188184420 12.57 0.41 2.24 0.41 0.79 0 14.02 0.54 0 0
EX-27.3 34 FINANCIAL DATA SCHEDULE
6 3 MONEY MARKET FUND 12-MOS MAY-31-1998 MAY-31-1998 191997558 191997558 220285 7908 0 192225751 1145860 0 104441 1250301 0 190975450 190975450 149245641 0 0 0 0 0 190975450 0 8554039 0 814307 7739732 0 0 7739732 0 3507205 0 0 331782891 276671818 7739732 62850805 0 0 0 0 752732 0 814307 150624722 1.00 0.05 0 0.05 0 0 1.00 0.54 0 0
EX-27.4 35 FINANCIAL DATA SCHEDULE
6 4 CAPITAL CONSERVATION FUND 12-MOS MAY-31-1998 MAY-31-1998 61317722 62562204 1166717 5637 0 63734558 43108 0 37898 81006 0 62891753 6577011 7042218 34604 0 (517185) 0 1244380 63653552 0 4595681 0 364829 4230852 259260 2346983 6837095 0 4220237 0 0 1185836 2216430 439548 (591046) 23989 (776445) 0 0 335861 0 364829 66996271 9.31 0.61 0.37 0.61 0 0 9.68 0.54 0 0
EX-27.5 36 FINANCIAL DATA SCHEDULE
6 5 GOVERNMENT SECURITIES FUND 12-MOS MAY-31-1998 MAY-31-1998 87388519 90404541 1764425 3809 0 92172775 0 0 52558 52558 0 90791062 9129497 8614145 47473 0 (1734207) 0 3015889 92120217 0 5571826 0 474047 5097779 358401 3271061 8727241 0 5081964 0 0 1716427 1769096 509952 457283 31658 (2092608) 0 0 436775 0 474047 87574157 9.67 0.58 0.42 0.58 0 0 10.09 0.54 0 0
EX-27.6 37 FINANCIAL DATA SCHEDULE
6 7 STOCK INDEX FUND 12-MOS MAY-31-1998 MAY-31-1998 1689503075 3476183543 7424511 297175 0 3483905229 3001 0 1247405 1250406 0 1680771555 104333547 93687435 377911 0 15215726 0 1786289631 3482654823 47362348 1373987 0 9168473 39567862 16742928 713815081 770125871 0 39570522 14847655 0 12118343 3279150 1806919 10646112 380571 13320453 0 0 7946046 0 9168473 2968058594 26.09 0.40 7.44 0.40 0.15 0 33.38 0.31 0 0
EX-27.7 38 FINANCIAL DATA SCHEDULE
6 8 INTERNATIONAL EQUITIES FUND 12-MOS MAY-31-1998 MAY-31-1998 115888344 153557208 1104489 2262536 0 156924233 1280386 0 174680 1455066 0 106887668 13009276 14169142 468817 0 10593190 0 37519492 155469167 3358662 489661 0 668152 3180171 10927955 1477313 15585439 0 3388878 4595687 0 5111681 8688179 728332 (2848166) 448887 4489559 0 0 582798 0 668152 165983684 11.44 0.23 0.85 0.24 0.33 0 11.95 0.40 0 0
EX-27.8 39 FINANCIAL DATA SCHEDULE
6 9 SOCIAL AWARENESS FUND 12-MOS MAY-31-1998 MAY-31-1998 285330198 333582562 761685 7017 0 334351264 0 0 183914 183914 0 250365719 15080463 8677411 175507 0 35511010 0 48115114 334167350 3754102 371484 0 1304731 2820855 36311508 21289379 60421742 0 2737376 9562689 0 5891588 106789 618253 6403052 92028 8762191 0 0 1204327 0 1304731 240782359 17.90 0.23 5.07 0.23 0.81 0 22.16 0.54 0 0
EX-27.9 40 FINANCIAL DATA SCHEDULE
6 10 INTERNATIONAL GOVERNMENT BOND FUND 12-MOS MAY-31-1998 MAY-31-1998 158244665 151685177 3618059 1016976 0 156320212 399106 0 138223 537329 0 161026919 13645599 15679563 462129 0 658703 0 (6364868) 155782883 0 8845092 0 921952 7923140 (3852314) 241624 4312450 0 3034869 136607 0 2685573 4999093 279556 (2033964) 84875 136607 0 0 846176 0 921952 168439181 11.33 0.56 (0.26) 0.20 0.01 0 11.42 0.55 0 0
EX-27.10 41 FINANCIAL DATA SCHEDULE
6 11 SMALL CAP INDEX 12-MOS MAY-31-1998 MAY-31-1998 192140818 246067735 1306484 (74809) 0 247299410 2805 0 114047 116852 0 174838161 13776917 11893324 31899 0 18696806 0 53615692 247182558 2784313 493266 0 896809 2380770 19072915 19625858 41079543 0 2367516 17477319 0 2173506 1447855 1157942 1883593 18645 17101210 0 0 798980 0 896809 227756575 16.18 0.19 3.17 0.19 1.41 0 17.94 0.39 0 0
EX-27.11 42 FINANCIAL DATA SCHEDULE
6 0000719423 AMERICAN GENERAL SERIES PORTFOLIO COMPANY 12 GROWTH FUND 12-MOS MAY-31-1998 MAY-31-1998 822980553 1103150871 742705 15556 0 1103909132 2861233 0 910836 3772069 0 769426802 49832259 42421874 (1115782) 0 51655725 0 280170318 1100137063 2806130 4126518 0 7984680 (1052032) 52174007 165960273 217082248 0 303215 15121487 0 7600994 959921 769312 7410385 303215 14539455 0 0 7593303 0 7984680 946335272 17.62 (0.02) 4.82 0.01 0.33 0 22.08 0.84 0 0
EX-27.12 43 FINANCIAL DATA SCHEDULE
6 13 GROWTH & INCOME FUND 12-MOS MAY-31-1998 MAY-31-1998 204057463 271297803 281445 4143 0 271583391 207911 0 216482 424393 0 183784091 13618559 12422162 173409 0 19961158 0 67240340 271158998 1491393 1616330 0 2011554 1096169 20112463 21794919 43003551 0 1084032 2863622 0 1662136 675165 209426 1196397 161272 2712317 0 0 1907885 0 2011554 252646899 16.86 0.08 3.26 0.08 0.21 0 19.91 0.80 0 0
EX-27.13 44 FINANCIAL DATA SCHEDULE
6 14 SCIENCE & TECHNOLOGY FUND 12-MOS MAY-31-1998 MAY-31-1998 914237151 1024837169 18818603 14757 0 1043670529 17933437 0 2596154 20529591 0 817972277 46355160 40484129 0 0 94571161 0 110597500 1023140938 786120 3796710 0 8982594 (4399764) 111229008 (16698726) 90130518 0 0 0 0 10004608 4133577 0 5871031 (1935355) (12258083) 0 0 8602906 0 8982594 949947271 19.88 (0.09) 2.28 0 0 0 22.07 0.95 0 0
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