I have owned shares of American International Group Inc. for more than a decade and can?t believe all the troubles it has had in recent years. Are things looking up? ? J.T., via the Internet

The world?s largest insurer by market value has to hope the investment world lets bygones be bygones and focuses on future prospects and the firm?s reputation as an industry innovator.

The strong financial foothold it has in developing markets is unparalleled. It recently acquired Taiwanese insurer Central Insurance Co. and received a licence to operate an insurance company in Vietnam.

Diverse segments of this financially sound firm include property-casualty insurance, life insurance, asset management, retirement income, private banking, aircraft leasing, mortgages, credit cards and derivative products.

Yet its image has been tarnished by the biggest civil settlement ever made to regulators by a US financial-services company. That recent $1.64 billion agreement resolved allegations that it used deceptive accounting practices to mislead investors and regulatory agencies. Five years of financial results are being restated.

The firm has eliminated its so-called contingent commissions, which were payments made by insurers to have business steered their way. Meanwhile, a corporate governance officer and independent financial practices consultant have been hired and a $1.1 billion after-tax charge taken to boost reserves.

Shares of American International Group (AIG) are up two percent this year, following a gain of four percent last year and a fractional decline in 2004.

A growing number of analysts have become more positive on its stock in the belief that having sticky accounting issues behind it frees it up to excel again. Recent consensus rating on shares of AIG was a ?buy?, according to Thomson Financial, consisting of ten ?strong buys?, nine ?buys? and six ?holds?.

AIG has terminated its relationship with insurance agencies controlled by its ousted chief executive, Maurice (Hank) Greenberg. He has been named in a civil lawsuit by New York Attorney General Eliot Spitzer, who alleges ?deception and fraud? to boost results. Greenberg has denied wrongdoing.

Company earnings are expected to rise 51 percent in 2006, versus the eight percent gain forecast for the property and casualty insurance industry. The projected five-year annualised return is 13 percent, compared with 12 percent for its peers.

Insurance represents more than 60 percent of AIG sales, with the biggest portion of its life insurance sales in Asia. Eastern Europe also offers strong potential. Active in offering new products and making shrewd acquisitions, AIG recently through its derivatives unit bought a 4.3 percent stake in London-based hedge fund company Aspect Capital Ltd.

I?m looking into investing in Legg Mason Growth Trust. What?s your opinion of the fund? B.Y., via the Internet You don?t have to look far to determine the underlying investment philosophy of Robert Hagstrom, this fund?s portfolio manager since 1995.

Hagstrom is author of ?The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy? and ?The Warren Buffett Way?. Like Buffett, he has a concentrated portfolio, doesn?t trade much and finds stocks trading at a discount to fair value.

But Hagstrom lately has included groups undergoing rapid change, such as online companies, which is something Buffett avoids. Although this fund has solid long-term returns, its concentrated portfolio of about 25 stock names can experience very volatile periods along the way.

The $807 million Legg Mason Growth Trust (LMGTX) gained 12 percent over the past 12 months to rank below the midpoint of large-growth funds. Looking further out, its three-year annualised return of 21 percent is in the top 11 percent of its category, and its five-year annualised return of ten percent is in the top 2 percent of its peers.

?This fund won?t look good in every calendar year or rolling period because it may have fits and starts, but over time these are businesses with strong franchise values and durable competitive positions that should hold up well,? said Terence Geenty, analyst with Morningstar Inc. in Chicago. ?Although some holdings such as Google are pricey, I would expect them to hold up well.?

In his quest for value, Hagstrom bought stocks such as AIG, Pfizer, Nike, FedEx and Dell on price declines.

Nearly one-fourth of assets are in consumer services, with other significant concentrations in financial services and technology hardware. Largest stocks are Amazon.com, Google, Yahoo, AIG, Nokia, Electronic Arts, eBay, Citigroup, Expedia and Dell.

?Investors should be patient with Legg Mason Growth Trust because Hagstrom is patient with his positions,? Geenty said. ?They could use it as a core holding in large growth stocks.?

This ?no-load? (no sales charge) fund requires a $1,000 minimum initial investment. Annual expense ratio is a hefty 1.87 percent.

I have a fairly conservative investment portfolio and I?m concerned about the effects of inflation. What?s your opinion of TIPS? ? C.G., via the Internet

Treasury inflation-protected securities, or TIPS, are inflation-indexed bonds issued by the US Treasury.

Principal is indexed to the consumer price index and grows with inflation. Interest is also protected from inflation, with the investor receiving twice-a-year interest payments based on a fixed semi-annual interest rate applied to the inflation-adjusted principal.

?I consider TIPS a good investment because your real rate of return is guaranteed, and I recommend that investors put as much as one-third of their fixed-income portfolio in them,? said Harold Evensky, certified financial planner with Evensky & Katz in Coral Gables, Florida. ?The downside is there are no municipal TIPS, so they?re taxed as ordinary income and therefore work best in an investment such as a retirement account.?

Rates paid on the five-year, 10-year and 20-year TIPS vary with duration, but currently yield slightly more than 2 percent over the inflation rate, Evensky said.

For his clients, Evensky recommends investing in TIPS through a mutual fund with a portfolio of them, such as Vanguard Inflation-Protected Securities (VIPSX) or TIAA-CREF Inflation-Linked Bond (TCILX).

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