AMERICAN GENERAL SERIES PORTFOLIO CO 2, 497, 1998-07-28

AMERICAN GENERAL SERIES PORTFOLIO CO 2
497, 1998-07-28

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<PAGE> 1

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 13, 1998
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 2
INSTITUTIONAL CLASS I SHARES 2929 ALLEN PARKWAY
HOUSTON TEXAS 77019
JULY 13, 1998
PROSPECTUS

The American General Series Portfolio Company 2 (the "Series Company") is a
mutual fund made up of 18 separate Funds (the "Funds"), 15 of which are
described in detail in this prospectus. 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 15 Funds
available under this prospectus:

ACTIVELY MANAGED EQUITY FUNDS:

AMERICAN GENERAL INTERNATIONAL GROWTH FUND ("INTERNATIONAL GROWTH FUND")
Long-term capital appreciation through investments in companies in
developed and emerging markets.

AMERICAN GENERAL LARGE CAP GROWTH FUND ("LARGE CAP GROWTH FUND")
Long-term growth through investments in large cap U.S. issuers.

AMERICAN GENERAL MID CAP GROWTH FUND ("MID CAP GROWTH FUND")
Growth through investments in equity securities.

AMERICAN GENERAL SMALL CAP GROWTH FUND ("SMALL CAP GROWTH FUND")
Long-term growth through investments in small company growth stocks.

AMERICAN GENERAL INTERNATIONAL VALUE FUND ("INTERNATIONAL VALUE FUND")
Growth of capital and future income through investments in non-U.S.
issuers.

AMERICAN GENERAL LARGE CAP VALUE FUND ("LARGE CAP VALUE FUND")
Total returns exceeding the Russell 1000 Value Index through investments
in equity securities.

AMERICAN GENERAL MID CAP VALUE FUND ("MID CAP VALUE FUND")
Growth through investments in medium- to large-capitalization companies.

AMERICAN GENERAL SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND")
Maximum long-term return through investments in small capitalization
companies.

SPECIALTY EQUITY FUND:

AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND ("SOCIALLY RESPONSIBLE FUND")
Growth through investments in stocks of companies meeting social criteria
of the Fund.

BALANCED FUND:

AMERICAN GENERAL BALANCED FUND ("BALANCED FUND")
Conservation of principal and long-term growth of capital and income
through investments in fixed income and equity securities.

INCOME FUND:

AMERICAN GENERAL DOMESTIC BOND FUND ("DOMESTIC BOND FUND")
High and total return consistent with conservation of capital through
investments in debt securities.

MONEY MARKET FUND:

AMERICAN GENERAL MONEY MARKET FUND ("MONEY MARKET FUND")
Income through investments in short-term money market securities.

LIFESTYLE FUNDS:

AMERICAN GENERAL GROWTH LIFESTYLE FUND ("GROWTH LIFESTYLE FUND")
Growth through investments in Series Company Funds.

AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND ("MODERATE GROWTH
LIFESTYLE FUND")
Growth and current income through investments in Series Company Funds.

AMERICAN GENERAL CONSERVATIVE GROWTH LIFESTYLE FUND ("CONSERVATIVE GROWTH
LIFESTYLE FUND")
Current income and a low to moderate level of growth through investments
in Series Company Funds.

- --------------------------------------------------------------------------------

SHARES OF THE MONEY MARKET FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE IS NO ASSURANCE THAT THIS FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.

Institutional Class I shares of these Funds are available to you only through an
employer plan purchased through VALIC Investment Services Company (the
"Distributor"), an affiliate of The Variable Annuity Life Insurance Company
("VALIC"). VALIC is a member of the American General Corporation group of
companies.

Because different employer plans 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 employer's plan for a complete list of
Funds in which you may invest. BE SURE TO READ ALL PROSPECTUSES AND EMPLOYER
PLAN MATERIALS IN FULL BEFORE YOU START PARTICIPATING AND KEEP THEM FOR FUTURE
REFERENCE.

This Prospectus offers Institutional Class I shares of the Funds only. The Funds
offer other classes of shares that offer different services to investors and
incur different expenses, which would affect performance.

VALIC has filed a Statement of Additional Information, dated July 13, 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 2 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 internal 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.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE REGULATORS HAVE
APPROVED OR DISAPPROVED THESE FUNDS. ALSO, NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE REGULATORS HAVE PASSED ON WHETHER THIS PROSPECTUS IS
ADEQUATE OR ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
DO NOT COPY

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO
THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THE STATEMENT OF
ADDITIONAL INFORMATION DOES NOT CONSTITUTE A PROSPECTUS.
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE
WELCOME....................................... 1

FEE TABLE..................................... 3

ABOUT THE FUND'S MANAGEMENT................... 5
Investment Adviser....................... 5
Investment Sub-advisers.................. 5
Portfolio Manager........................ 7
How Advisers Are Paid for Their
Services............................... 7
The Sub-advisers......................... 8
About the Board of Trustees.............. 9

ABOUT THE FUNDS............................... 10
Growth, Balanced, Income, Stability and
Lifestyle Categories................... 10
About Level of Risk...................... 10
About Portfolio Turnover................. 10
About Fund Performance................... 11

HOW TO READ A FUND FACT SHEET................. 12

SERIES COMPANY FUND FACT SHEETS
ACTIVELY MANAGED EQUITY FUNDS
International Growth Fund........... 13
Large Cap Growth Fund............... 16
Mid Cap Growth Fund................. 18
Small Cap Growth Fund............... 20
International Value Fund............ 22
Large Cap Value Fund................ 24
Mid Cap Value Fund.................. 26
Small Cap Value Fund................ 28
SPECIALTY EQUITY FUND
Socially Responsible Fund........... 30
BALANCED FUND
Balanced Fund....................... 32
INCOME FUND
Domestic Bond Fund.................. 34
MONEY MARKET FUND
Money Market Fund................... 36
LIFESTYLE FUNDS
Growth Lifestyle Fund............... 38
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Moderate Growth Lifestyle Fund...... 39
Conservative Growth Lifestyle
Fund.............................. 40
TYPES OF INVESTMENTS.......................... 41
Stocks................................... 41
Bonds.................................... 41
Asset-Backed Securities............. 41
Loan Participations................. 42
Variable Amount Demand Master Notes...... 42
Structured Securities.................... 42
Real Estate Securities................... 42
Illiquid and Restricted Securities....... 42
Depository Receipts...................... 42
Investment Funds......................... 43
Foreign Currency......................... 43
When-Issued Securities................... 43
Money Market Securities.................. 43
Investment Companies..................... 43
Derivatives.............................. 43
Options............................. 44
Call Option......................... 44
Put Option.......................... 44
Swap Agreements.......................... 44
Warrants and Rights...................... 44
Repurchase Agreements.................... 45
A Word About Risk........................ 45
Investment Practices..................... 46
Limitations......................... 46
Lending Portfolio Securities........ 46

ABOUT THE SERIES COMPANY...................... 47
Series Company Shares.................... 47
Purchase and Redemption of Shares........ 47
Transfers and Exchanges.................. 47
Net Asset Value of the Series Company
Shares................................. 48
Dividends and Capital Gains.............. 48
Diversification.......................... 48
Taxes.................................... 48
Voting Rights............................ 48
Year 2000 Risks.......................... 49
Reports.................................. 49
</TABLE>

(i)
<PAGE> 3

WELCOME
- --------------------------------------------------------------------------------

Unless otherwise specified in this prospectus, the words we, our, and VALIC mean
The Variable Annuity Life Insurance Company and any Investment Sub-adviser that
we work with. The words you and your mean the participant.

American General Series Portfolio Company 2 (the "Series Company") was organized
as a Delaware business trust on March 16, 1998.

The Series Company is an open-end management investment company and currently
consists of 18 different Funds, 15 of which are described in detail in this
prospectus. We serve as each Fund's Investment Adviser and, in this role, report
directly to the Series Company's Board of Trustees. As Investment Adviser, we
oversee the Funds' day to day operations, supervise the purchase and sale of
Fund investments and perform the cash management function. However, we make
investment decisions for, and are directly responsible for the day to day
management of, the Socially Responsible Fund, the Money Market Fund and the
Lifestyle Funds. For more information, see "About the Funds' Management" in this
prospectus.

Individuals can't invest in the shares of these Funds directly. Instead, they
participate through an employer plan that purchases shares of the Funds through
the Distributor. Most often employers establish retirement plans so they can
offer their employees a way to save for retirement. Retirement plans through
employers may be entitled to tax benefits that individual retirement plans may
not be entitled to. These tax benefits are fully explained in your employer's
plan materials.

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 employer plan,
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 or leave it in the account until you
need it. At a certain age you may be required to begin withdrawals.

All inquiries regarding this prospectus should be directed, in writing, to
[VALIC Customer Service, A3-01, 2929 Allen Parkway, Houston, Texas 77019, or by
calling 1-800-633-8960].

Open-end means shares
of the Funds can be
bought or sold by the
Series Company at any
time. Also, there is no limit on the number of
investors who may buy
shares.

1
<PAGE> 4

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2
<PAGE> 5

FEE TABLE
- --------------------------------------------------------------------------------

FUND OPERATING EXPENSES ARE BASED ON CURRENT ESTIMATES AND ARE SUBJECT TO
MODIFICATION PRIOR TO EFFECTIVENESS.

The following tables illustrate the fees and expenses that investors bear
directly or indirectly as shareholders of the Funds. Shareholder transaction
expenses are the charges that an investor pays to purchase or redeem shares of a
Fund. 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' estimated expenses for the first year of operation on an
annualized basis.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------------
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) None
Maximum Sales Load Imposed on Reinvested Dividends None
Maximum Deferred Sales Load None
Redemption Fees (as a percentage of amounts redeemed, if
applicable) None
Exchange Fee None
</TABLE>

<TABLE>
<CAPTION>
LARGE SMALL LARGE
CAP CAP CAP
INTERNATIONAL GROWTH MID CAP GROWTH INTERNATIONAL VALUE
GROWTH FUND FUND GROWTH FUND FUND VALUE FUND FUND
------------- ------ ----------- ------ ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Management Fee(a) 0.15% 0.13% 0.00% 0.31% 0.12% 0.08%
Other Expenses(a)(b) 0.93 0.60 0.74 0.72 0.92 0.60
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses(a): 1.33 0.98 0.99 1.28 1.29 0.93
==== ==== ==== ==== ==== ====
</TABLE>

SOCIALLY MONEY GROWTH
MID CAP SMALL CAP RESPONSIBLE DOMESTIC BOND MARKET LIFESTYLE
VALUE FUND VALUE FUND FUND BALANCED FUND FUND FUND FUND
---------- ---------- ----------- ------------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee(a) 0.06% 0.21% 0.00% 0.04% 0.06% 0.00% 0.10%
Other Expenses(a)(b) 0.82 0.72 0.43 0.79 0.70 0.43 0.00
---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses(a): 1.13 1.18 0.68 1.08 1.01 0.68 0.10
==== ==== ==== ==== ==== ==== ====

<CAPTION>
CONSERVATIVE
MODERATE GROWTH
GROWTH LIFESTYLE
FUND FUND
-------- ------------
<S> <C> <C>
Management Fee(a) 0.10% 0.10%
Other Expenses(a)(b) 0.00 0.00
---- ----
Total Fund Operating Expenses(a): 0.10 0.10
==== ====
</TABLE>

- ---------------

(a) After expense reimbursement. VALIC has voluntarily agreed to reimburse
certain expenses of each Fund during the first fiscal year or until Fund net
assets exceed $200 million. In the absence of the expense reimbursement,
management fees, other expenses and total fund operating expenses,
respectively, would be: International Growth Fund, 0.90%, 0.93% and 2.08%;
Large Cap Growth Fund, 0.55%, 0.60% and 1.40%; Mid Cap Growth Fund, 0.65%,
0.82% and 1.72%; Small Cap Growth Fund, 0.85%, 0.72% and 1.82%;
International Value Fund, 1.00%, 0.92% and 2.17%; Large Cap Value Fund,
0.50%, 0.60% and 1.35%; Mid Cap Value Fund, 0.75%, 0.82% and 1.82%; Small
Cap Value Fund, 0.75%, 0.72% and 1.72%; Socially Responsible Fund, 0.25%,
2.96% and 3.46%; Balanced Fund, 0.80%, 0.79% and 1.84%; Domestic Bond Fund,
0.60%, 0.70% and 1.55%; Money Market Fund, 0.25%, 2.07% and 2.57%. The
expense reimbursement does not include any Brokerage Commissions paid on
portfolio transactions or any interest expense.

(b) Other Expenses includes custody, accounting, reports to shareholders, audit,
legal, administrative, record keeping and other miscellaneous services.

3
<PAGE> 6

- --------------------------------------------------------------------------------

EXAMPLE
- --------------------------------------------------------------------------------

You would pay the following expenses on a $1,000 investment assuming each Fund's
annual return is 5%.

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
International Growth Fund 14 42
Large Cap Growth Fund 10 31
Mid Cap Growth Fund 10 32
Small Cap Growth Fund 13 41
International Value Fund 13 41
Large Cap Value Fund 9 30
Mid Cap Value Fund 12 36
Small Cap Value Fund 12 38
Socially Responsible Fund 7 22
Balanced Fund 11 34
Domestic Bond Fund 10 32
Money Market Fund 7 22
Growth Lifestyle Fund 1 3
Moderate Growth Lifestyle Fund 1 3
Conservative Growth Lifestyle Fund 1 3
</TABLE>

4
<PAGE> 7

ABOUT THE FUND'S MANAGEMENT
- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC, a stock life insurance company, has been in the investment advisory
business since 1960. VALIC has been the Investment Adviser for the Funds that
comprise the Series Company since their inception.

VALIC is a member of the American General Corporation group of companies.
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 oversees the Funds' day to day operations. Also,
VALIC supervises the purchase and sale of Fund investments and performs the cash
management function. However, we make investment decisions for, and are directly
responsible for the day to day management of, the Socially Responsible Fund the
Money Market Fund and the Lifestyle Funds. VALIC serves as Investment Adviser
through an Investment Advisory Agreement it enters into with each Fund. After
the second year, this agreement will be renewed once each year, by the Series
Company Board of Trustees.

One Investment Advisory Agreement dated [ , 1998] covers all 18
Funds.

For more information about the Advisory Agreement, see the "Investment Adviser"
section in the Statement of Additional Information.

INVESTMENT SUB-ADVISERS

For some of the Funds, VALIC works with Investment Sub-advisers, financial
service companies that specialize in certain types of investing. However, VALIC
still retains ultimate responsibility for managing the Funds. The Sub-adviser's
role is to make investment decisions for the Funds according to each Fund's
investment objectives and restrictions.

In selecting Sub-advisers, the Trustees carefully evaluated: (i) the nature and
quality of the services expected to be rendered to the Fund(s) by the
Sub-adviser; (ii) the distinct investment objective and policies of the Fund(s);
(iii) the history, reputation, qualification and background of the Sub-
advisers' personnel and its financial condition; (iv) its performance track
record; and (v) other factors deemed relevant. The Trustees also reviewed the
fees to be paid to each Sub-adviser.

The Sub-advisers are:

BANKERS TRUST COMPANY
("BANKER'S TRUST")

Bankers Trust is one of two Sub-advisers for the Small Cap Value Fund. Bankers
Trust first offered investment management services in 1938 and began managing
index funds in 1977. As of March 31, 1998, Bankers Trust managed over $300
billion in assets. Bankers Trust is entirely owned by Bankers Trust New York
Corporation, a bank holding company. Bankers Trust is the seventh largest U.S.
financial services institution as of December 31, 1997.

BROWN CAPITAL MANAGEMENT, INC. ("BROWN CAPITAL MANAGEMENT")

Brown Capital Management is the Sub-adviser for the Mid Cap Growth Fund.
Established as a Maryland corporation in 1983, Brown Capital Management served
as investment adviser to approximately $3.3 billion in assets as of December 31,
1997.

CAPITAL GUARDIAN TRUST COMPANY
("CAPITAL GUARDIAN")

Capital Guardian is the Sub-adviser for the International Value Fund, the
Balanced Fund and the Domestic Bond Fund. Capital Guardian provides investment
management services to a limited number of large institutional clients such as
employee benefit funds, foundations and endowment funds. As of December 31,
1997, Capital Guardian had more than $65 billion in assets under management.

FIDUCIARY MANAGEMENT ASSOCIATES, INC. ("FMA")

FMA is one of two Sub-advisers for the Small Cap Value Fund. FMA is a
wholly-owned subsidiary of United Asset Management Corporation, and provides
investment management services to corporations, foundations, endowments, pension
and profitsharing plans, trusts, estates and other institutions as well as
individuals. As of December 31, 1997, FMA had over $1.6 billion in assets under
management.

VALIC'S ADDRESS is 2929 Allen
Parkway, Houston, Texas 77019.

BANKERS TRUST'S PRINCIPAL OFFICES
are located at 130 Liberty Street,
New York, New York 10006.

BROWN CAPITAL MANAGEMENT'S
PRINCIPAL OFFICES are located at
809 Cathedral Street, Baltimore,
Maryland 21201.

CAPITAL GUARDIAN'S PRINCIPAL
OFFICES are located at 333 South
Hope Street, Los Angeles,
California 90071.

FMA'S PRINCIPAL OFFICES are located
at 55 West Monroe Street, Suite #2550,
Chicago, Illinois 60603.

5
<PAGE> 8
- --------------------------------------------------------------------------------

GOLDMAN SACHS ASSET MANAGEMENT ("GSAM")

GSAM is the Sub-adviser for the Large Cap Growth Fund. GSAM is a separate
operating division of Goldman, Sachs & Co. ("Goldman Sachs"). GSAM provides a
wide range of fully discretionary investment advisory services quantitatively
driven and actively managed to U.S. and international equity portfolios, U.S.
and global fixed income portfolios, commodity and currency products and money
market accounts. As of December 31, 1997, GSAM and its affiliates served as
investment adviser or distributor for assets exceeding $135.3 billion.

J.P. MORGAN INVESTMENT MANAGEMENT INC. ("JP MORGAN")

JP Morgan is the Sub-adviser for the Small Cap Growth Fund. Known for its
commitment to proprietary research and its disciplined investment strategies, JP
Morgan provides asset management services to corporations, financial
institutions, governments and individuals. As of December 31, 1997, JP Morgan
and its affiliates employed over 300 analysts and portfolio managers around the
world and had more than $255 billion in assets under management.

JACOBS ASSET MANAGEMENT

Jacobs Asset Management is the Sub-adviser for the International Growth Fund.
Jacobs Asset Management is a Delaware limited partnership. United Asset
Management Corporation is a limited partner of, and owns a controlling interest
in, Jacobs Asset Management. Jacobs Asset Management provides investment
management and advisory services to corporations, unions, pensions and
profit-sharing plans, trusts and estates and other institutions and investors.
As of December 31, 1997, Jacobs Asset Management had more than $280 million in
assets under management.

NEUBERGER & BERMAN MANAGEMENT, INC. ("N&B MANAGEMENT")

N&B Management is the Sub-adviser for the Mid Cap Value Fund. N&B Management and
its predecessor firms have specialized in the management of no-load mutual funds
since 1950. The mutual funds managed by N&B Management and its affiliates had
aggregate net assets of approximately $20.7 billion as of December 31, 1997.

STATE STREET BANK & TRUST COMPANY ("STATE STREET BANK")/STATE STREET GLOBAL
ADVISORS ("STATE STREET GLOBAL ADVISORS")

State Street Global Advisors is the Sub-adviser for the Large Cap Value Fund.
State Street Global Advisors is an operating division of State Street Bank, a
wholly-owned subsidiary of State Street Corporation, which had more than $390
billion under management as of December 31, 1997.

GSAM'S PRINCIPAL OFFICES are
located at One New York Plaza,
New York, New York 10004.

JP MORGAN'S PRINCIPAL OFFICES are
located at 522 Fifth Avenue,
New York, NY 10036.

JACOBS ASSET MANAGEMENT'S
PRINCIPAL OFFICES are located at
200 East Broward
Boulevard, Suite 1920,
Fort. Lauderdale, Florida 33301.

N&B MANAGEMENT'S PRINCIPAL
OFFICES are located 605 Third
Avenue, Second Floor, New York,
New York 10158-0180.

STATE STREET GLOBAL ADVISOR'S
PRINCIPAL OFFICES are located at
2 International Place, Boston,
Massachusetts 02110.

6
<PAGE> 9
- --------------------------------------------------------------------------------

These financial service companies act as Investment Sub-advisers through an
agreement each entered into with VALIC. For more information on these agreements
and on these Sub-advisers, see the "Investment Sub-Advisers" section in the
Statement of Additional Information.

PORTFOLIO MANAGER

A manager is a person or team of persons VALIC or one of its Sub-advisers, has
assigned to be primarily responsible for the day to day management of a Fund's
investments. A Fund's investments are called its portfolio.

HOW ADVISERS ARE PAID FOR
THEIR SERVICES

VALIC

Each Fund pays VALIC a fee based on its average daily net asset value. A Fund's
net asset value is the total value of the Fund's assets minus any money it owes
for operating expenses, such as the fee paid to its Custodian to safeguard the
Fund's investments.

Here is a list of the percentages each Fund pays VALIC.

<TABLE>
<S> <C>
International Growth Fund 0.90% on the first $100 million
0.80% on assets over $100 million
Large Cap Growth Fund 0.55%
Mid Cap Growth Fund 0.65% on the first $25 million
0.55% on the next $25 million
0.45% on assets over $50 million
Small Cap Growth Fund 0.85%
International Value Fund 1.00% on the first $25 million
0.85% on the next $25 million
0.675% on the next $200 million
0.625% on assets over $250 million
Large Cap Value Fund 0.50%
Mid Cap Value Fund 0.75% on the first $100 million
0.725% on the next $150 million
0.70% on the next $250 million
0.675% on the next $250 million
0.65% on the assets over $750 million
Small Cap Value Fund 0.75% on the first $50 million
0.65% on the assets over $50 million
</TABLE>

<TABLE>
<S> <C>
Socially Responsible
Fund 0.25%
Balanced Fund 0.80% on the first $25 million
0.65% on the next $25 million
0.45% on assets over $50 million
Domestic Bond Fund 0.60% on the first $50 million
0.45% on the next $50 million
0.43% on the next $200 million
0.40% on the assets over $300 million
Money Market Fund 0.25%
Conservative Growth
Lifestyle Fund 0.10%
Moderate Growth
Lifestyle Fund 0.10%
Growth Lifestyle Fund 0.10%
</TABLE>

The Investment Advisory Agreement we entered into with each Fund does not limit
how much the Funds pay in monthly expenses each year.

As shareholders of other Series Company Funds, the Lifestyle Funds incur their
proportionate share of the underlying Series Company Funds' fees and expenses,
including the fees paid to VALIC.

From time to time VALIC, the Sub-adviser and/or the Distributor may voluntarily
undertake to reduce a Fund's expenses by reducing the fees payable to them to
the extent of, or bearing expenses in excess of, such limitations as they may
establish.

7
<PAGE> 10
- --------------------------------------------------------------------------------

THE SUB-ADVISERS

The Funds do not pay the Sub-advisers directly. According to the agreements,
VALIC pays them a fee based on the Fund's average monthly net asset values. We
and the Sub-advisers may agree to change the amount of money we pay them. Any
such change increasing the charge paid by the Fund to VALIC would have to be
approved by the Series Company Board of Trustees and the shareholders of the
Fund.

The Series Company was issued an exemptive order by the Securities and Exchange
Commission (the "SEC") on , 1998 for an exemption (the "Exemption")
from certain provisions of the Investment Company Act of 1940 ("1940 Act") which
would otherwise require VALIC to obtain formal shareholder approval prior to
engaging and entering into sub-advisory agreements with Sub-advisers. The relief
is based on the conditions set forth in the Exemption that, among other things:
(1) VALIC will select, monitor, evaluate and allocate assets to the Sub-advisers
and oversee Sub-advisers compliance with the relevant Fund's investment
objective, policies and restrictions; (2) before a Fund may rely on the
Exemption, the Exemption must be approved by the shareholders of the Funds
operating under the Exemption; (3) the Series Company will provide to
shareholders certain information about a new Sub-adviser; (4) the Series Company
will disclose in this Prospectus the existence, substance and effect of the
Exemption; and (5) the Trustees, including a majority of the "independent"
Trustees, must approve each sub-advisory agreement in the manner required under
the 1940 Act. Any changes to the Investment Advisory Agreement between the
Series Company and VALIC would still require shareholder approval. As required
by the Exemption, the shareholders of each Fund determined, at a shareholders'
meeting held on , 1998, to permit the Series Company to terminate,
replace or add Sub-advisers and to enter into sub-advisory agreements with Sub-
advisers upon approval of the Broad of Trustees but without formal shareholder
approval.

Under the Investment Sub-Advisory Agreement we have with Brown Capital
Management, we pay Brown Capital Management a monthly fee based on the average
daily net asset values of the Mid Cap Growth Fund at the annual rate of 0.40% of
the first $25 million, 0.30% of the next $25 million and 0.20% on assets over
$50 million.

Under the Investment Sub-Advisory Agreement we have with Capital Guardian, we
pay Capital Guardian a quarterly fee based on the average daily net asset values
of the International Value Fund at an annual rate of 0.75% of the first $25
million, 0.60% of the next $25 million, 0.425% of the next $200 million and
0.375% on assets over $250 million and the Domestic Bond Fund at an annual rate
of 0.35% of the first $50 million, 0.20% on the next $50 million, 0.18% on the
next $200 million and 0.15% of assets over $300 million. We pay Capital Guardian
monthly fees based on the average daily net asset values of the Balanced Fund at
an annual rate of 0.55% of the first $25 million, 0.40% of the next $25 million
and 0.20% on assets over $50 million. Capital Guardian aggregates fees with
respect to the International Value Fund, the Domestic Bond Fund and the Balanced
Fund and applies a 5% discount to all fees if total fees are between $1.25
million and $4 million, a 7.5% discount to all fees if total fees are between $4
million and $8 million, a 10% discount to all fees if total fees are between $8
million and $12 million, and a 12.5% discount to all fees if total fees exceed
$12 million.

Under the Investment Sub-Advisory Agreement we have with FMA, we pay FMA a
monthly fee based on the average daily net asset values of the portion of the
Small Cap Value Fund portfolio it manages at the annual rate of 0.50% of the
first $50 million and 0.40% on assets over $50 million.

Under the Investment Sub-Advisory Agreement we have with GSAM, we pay GSAM a
monthly fee based on the average daily net asset values of the Large Cap Growth
Fund at the annual rate of 0.30%.

Under the Investment Sub-Advisory Agreement we have with JP Morgan, we pay JP
Morgan a monthly fee based on the average daily net asset values of the Small
Cap Growth Fund at the annual rate of 0.60%.

Under the Investment Sub-Advisory Agreement we have with Jacobs Asset
Management, we pay Jacobs Asset Management a monthly fee based on the average
daily net asset values of the International Growth Fund at an annual rate of
0.65% of the first $100 million and 0.55% on assets over $100 million.

Under the Investment Sub-Advisory Agreement we have with N&B Management, we pay
N&B Management a monthly fee based on the average daily net asset values of the
Mid Cap Value Fund at the annual rate of 0.50% of the first $100 million, 0.475%
of the next $150 million, 0.45% of the next $250 million, 0.425% of the next
$250 million and 0.40% on assets over $750 million.

For more information on WHAT THE
SUB-ADVISERS ARE PAID, see the
"Investment Sub-Advisers"
section in the Statement of
Additional Information.

8
<PAGE> 11
- --------------------------------------------------------------------------------

Under the Investment Sub-Advisory Agreement we have with State Street Global
Advisors, we pay State Street Global Advisors a monthly fee based on the average
daily net asset values of the Large Cap Value Fund at the annual rate of 0.25%
but no less than $50,000 per year.

According to the agreements we have with the Sub-advisers, we will receive
investment advice for each sub-advised Fund. Under these agreements we give the
Sub-advisers the authority to buy and sell securities for these Funds. We retain
the responsibility for the overall management of these Funds. The Sub-advisers
may buy and sell securities for each Fund with broker-dealers and other
financial intermediaries that they select.

The Sub-advisers may place orders to buy and sell securities of these Funds with
a broker-dealer affiliated with the Sub-adviser as allowed by law. This could
include any affiliated futures commission merchants.

The 1940 Act permits Sub-advisers under certain conditions to place an order to
buy or sell securities with an affiliated broker. One of these conditions is
that the commission received by the affiliated broker can not be greater than
the usual and customary brokers commission if the sale was completed on a
securities exchange. The Series Company has adopted procedures, as required by
the 1940 Act, which provide that any commissions received by a Sub-adviser's
affiliated broker are reasonable and fair if compared to the commission received
by other brokers for the same type of securities transaction.

The Securities Exchange Act of 1934 prohibits members of national securities
exchanges from effecting exchange transactions for accounts that they or their
affiliates manage, except as allowed under rules adopted by the SEC. The Series
Company and the Sub-advisers have entered into 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 TRUSTEES

The Series Company Board of Trustees currently consists of twelve members: nine
are independent Trustees and three are VALIC employees.

The Board of Trustees may change each Fund's investment objective, investment
policies and non-fundamental investment restrictions without shareholder
approval. The Board may not change any fundamental restrictions placed on the
types of investments each Fund may buy. The fundamental restrictions appear in
the Statement of Additional Information. Changes to these restrictions may be
made with shareholder approval only.

9
<PAGE> 12

ABOUT THE FUNDS
- --------------------------------------------------------------------------------

GROWTH, BALANCED, INCOME, STABILITY AND LIFESTYLE CATEGORIES

The Funds offered in this prospectus fall into five general investment
categories: growth, balanced, income, stability and lifestyle.

GROWTH CATEGORY

The goal of a Fund in the growth category is to increase the value of your
investment over the long term by investing mostly in stocks. Stocks are a type
of investment that can increase in value over a period of years. Companies sell
stock to get the money they need to grow. These companies often keep some of
their profits to reinvest in their business. As they grow, the value of their
stock may increase. This is how the value of your investment may increase.

Series Company Growth Category includes:

International Growth Fund
Large Cap Growth Fund
Mid Cap Growth Fund
Small Cap Growth Fund
International Value Fund
Large Cap Value Fund
Mid Cap Value Fund
Small Cap Value Fund
Socially Responsible Fund

BALANCED CATEGORY

The goal of a Fund in the balanced category is to increase the value of your
investment over the long term and to provide income. Funds in the balanced
category seek to conserve the value of your initial investment and promote
long-term growth and income by investing in stocks and income producing
securities.

Series Balanced Category includes:

Balanced Fund

INCOME CATEGORY

Unlike Funds in the growth category, where the objective is to make the Fund's
investments increase in value, Funds in the income category try to keep the
value of their investments from falling, while providing an increase in the
value of your investment through the income earned on the Fund's investments. To
meet this objective, Funds in the income category buy investments that are
expected to pay interest to the Fund on a regular basis.

Series Company Income Category includes:

Domestic Bond Fund

STABILITY CATEGORY

Funds in the stability category provide liquidity, protection of capital and
current income through investments in high quality securities.

Series Company Stability Category includes:

Money Market Fund

LIFESTYLE CATEGORY

A Fund in the lifestyle category may invest in up to twelve Series Company
Funds. A Lifestyle Fund does not invest directly in portfolio securities but,
rather, invests in a combination of Series Funds in order to meet its investment
objective. In this manner, the Lifestyle Funds offer you the opportunity to
diversify your investment portfolio by investing in one Fund, rather than in a
variety of Series Company Funds.

Series Company Lifestyle Category includes:

Growth Lifestyle Fund
Moderate Growth Lifestyle Fund
Conservative Growth Lifestyle Fund

ABOUT LEVEL OF RISK

The risks involved in each Fund are described in each Fund's Fact Sheet. These
risks may include market risk, credit risk, interest rate risk and risk
associated with foreign securities. These risks are described in the "Types of
Investments" section in this prospectus. The money you invest in the Series
Company is not insured. And, we can't guarantee that any of the Funds will meet
their investment objectives. There's a chance you may lose money and end up with
less than you invested.

ABOUT PORTFOLIO TURNOVER

Portfolio turnover occurs when a Fund sells its investments and buys new ones.
In some Funds, high portfolio turnover occurs when these Funds 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.

10
<PAGE> 13
- --------------------------------------------------------------------------------

The anticipated portfolio turnover rates for each of the Funds except the Money
Market Fund are as follows:

<TABLE>
<CAPTION>
ANTICIPATED
PORTFOLIO
NAME OF FUND TURNOVER RATE
------------ -------------
<S> <C>
International Growth Fund 50%
Large Cap Growth Fund 50-75%
Mid Cap Growth Fund 30-60%
Small Cap Growth Fund 100%
International Value Fund 150%
Large Cap Value Fund 100%
Mid Cap Value Fund 100%
Small Cap Value Fund 100%
Socially Responsible Fund 120%
Balanced Fund 150%
Domestic Bond Fund 150%
Growth Lifestyle Fund 10-20%
Moderate Growth Lifestyle 10-20%
Fund
Conservative Growth Lifestyle 10-20%
Fund
</TABLE>

A portfolio turnover rate over 100% a year is higher than the rates of many
other mutual fund companies. A high rate increases a Fund's transaction costs
and expenses.

ABOUT FUND PERFORMANCE

From time to time the Series Company may advertise Fund performance information
such as Fund average total return and index total return. Information as to how
this Fund performance information is calculated appears in the Statement of
Additional Information.

11
<PAGE> 14

HOW TO READ A FUND FACT SHEET
- --------------------------------------------------------------------------------

FUND HIGHLIGHTS

Gives you a quick recap of each Fund.

FUND NAME

INVESTMENT ADVISER; INVESTMENT SUB-ADVISER

They make the investment decisions for the Fund. See "About the Fund's
Management" for more information.

PORTFOLIO MANAGER

Some Funds have a specific person or persons assigned as the portfolio manager.
This person is described here. The portfolio manager's role is explained in
"About the Fund's Management."

INVESTMENT OBJECTIVE

This is the goal of the Fund, which is set by the Series Company Board of
Trustees.

INVESTMENT RISK

Shows some of the investment risks of the Fund.

INVESTMENT STRATEGY

This section explains how the Investment Advisers go about meeting the Fund's
Investment Objective.

FUND INVESTMENTS

Shows the types of investments the Fund makes.

PERFORMANCE INFORMATION

This shows the average annual total return for a mutual fund, a managed account
or a composite of mutual funds and/or managed accounts, managed in substantially
the same manner and by the same individuals as those employed by VALIC or a
Sub-adviser to manage a Fund, for the time period indicated. Information about
how the mutual fund, managed account or composite performed last year is
discussed. The graph also shows the return for an index to which we compare the
mutual fund's, the managed account's or the composite's performance. For all the
Funds except the Small Cap Value Fund and the three Lifestyle Funds we call this
the Fund's "benchmark". The difference between the Fund and index return is
caused by Fund expenses and tracking differences.

12
<PAGE> 15

INTERNATIONAL GROWTH
FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM CAPITAL
APPRECIATION THROUGH
INVESTMENTS IN COMPANIES IN
DEVELOPED AND EMERGING
MARKETS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER
Jacobs Asset Management

PORTFOLIO MANAGER

This Fund is managed by an investment committee comprised of the following
individuals: Daniel L. Jacobs, Wai W. Chin and Robert J. Jurgens. Mr. Jacobs has
been President of the Sub-adviser since July 1, 1995. From 1984 to 1995, Mr.
Jacobs was Executive Vice President and Director of Templeton Investment
Counsel. Mr. Jacobs was portfolio manager of Templeton's Smaller Companies
Growth Fund. Ms. Chin has been Managing Director of Asian Research and Portfolio
Management of the Sub-adviser since July 1995. Prior to this, Ms. Chin was Vice
President of the Global Equity Group of Scudder, Stevens & Clark. Mr. Jurgens
has been Managing Director of European Research and Portfolio Management of the
Sub-adviser since August 1995. From 1993 to 1995, Mr. Jurgens was Vice President
and head of AIG Global Investors' International Equity Division.

INVESTMENT OBJECTIVE

Seeks to provide long-term capital appreciation by investing in equity
securities of companies in developed and emerging markets. The Fund may invest
across the capitalization spectrum, although it intends to emphasize smaller
capitalization stocks.

INVESTMENT RISK

As described in the Investment Strategy section below, this Fund invests almost
all its assets in foreign securities, which have risks that U.S. investments do
not have. For a further explanation of the risks associated with foreign
securities, see "A Word About Risk" in this prospectus.

INVESTMENT STRATEGY

The Fund will invest in equity securities in the markets of at least three
countries outside the United States. The Fund will focus its investments on
developed and emerging market countries. Emerging market country investments
will be made only where we believe the economies are developing and the markets
are becoming more sophisticated.

We will use a flexible, value-oriented approach to selecting this Fund's
investments, focusing on companies rather than on countries or markets. Our goal
is to identify stocks selling at the greatest discount to their intrinsic future
value. Value is ascertained through an analysis of price/cash flow, enterprise
value/cash flow, and price/future earnings. This Fund invests in a wide range of
stocks including smaller capitalization companies.

We follow the guidelines listed below for making the primary investments for the
Fund.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ---------------------------------------------
<S> <C>
Foreign securities** at least 85%
Common, stock, preferred
stock, convertible
preferred stock, rights and
warrants, American
Depository Receipts,
European Depository
Receipts and Global
Depository Receipts
- ---------------------------------------------
Equity securities of issuers up to 40%
in emerging countries***
- ---------------------------------------------
Equity securities of small generally 50%
capitalization
companies****
- ---------------------------------------------
Securities of open-end or up to 10%
closed-end investment
companies
- ---------------------------------------------
Forward currency exchange up to 100%
contracts
- ---------------------------------------------
Illiquid securities up to 15%
- ---------------------------------------------
Short term investments***** up to 10%
- ---------------------------------------------
</TABLE>

* At time of purchase.
** We intend to invest at least 85% of this Fund's total
assets in the equity securities of at least three countries outside the
United States.
*** An "emerging country" security is issued by a
Company that in our opinion has one or more of the following
characteristics: (i) its principal securities trading market is in an
emerging country; (ii) alone or on a consolidated basis, it derives 50% or
more of its annual revenue from either goods produced, sales made or
services performed in emerging countries, or (iii) it is organized under
the laws of, and has a principal office in, an emerging country.
**** Small capitalization companies are companies with
market capitalizations of less than $1 billion at the time of purchase.
***** For temporary defensive reasons, we may invest up
to 100% of the Fund's assets in short-term (less than twelve months to
maturity) securities or cash, including domestic and foreign money market
instruments, certificates of deposit, bankers' acceptances, time deposits,
U.S. Government obligations, U.S. Government agency securities, short-term
corporate debt securities, and commercial paper rated A-1 or A-2 by S&P or
Prime 1 or Prime 2 by Moody's or if unrated, in our opinion of comparable
quality. We may do this when we think economic, political or 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."

13
<PAGE> 16

INTERNATIONAL GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------

1. The Templeton Performance Information

The International Growth Fund commenced operations on and has no
investment performance record. The performance information shown below is for
the Templeton International Fund, a series of the Templeton Variable Products
Series Fund, which was managed by Mr. Jacobs, a principal of the Sub-adviser.
The Templeton International Fund has substantially similar, though not
necessarily identical objectives, policies and strategies as the International
Growth Fund. The chart below shows the historical investment performance for the
year-ended June 30, 1995 and the three-years ended 1995. The inception date for
the Templeton International Fund was May 1, 1992. During Mr. Jacobs ten years as
the portfolio manager of the fund, from May 1, 1992 to June 30, 1995, he was
primarily responsible for the day-to-day management of the fund, and no other
person had a significant role in scheduling the fund's performance.

Distribution and advisory fees for the International Growth Fund are higher than
the distribution and advisory fees incurred by the funds comprising the
Composite. The other fees and expenses incurred by the International Growth Fund
may be higher or lower than the other fees and expenses incurred by the funds
comprising the Composite in any given year. See "Performance and Yield
Information" in the Statement of Additional Information for a description of the
manner in which performance has been calculated. THE PERFORMANCE INFORMATION
BELOW IS BASED ON A FUND COMPARABLE TO THE INTERNATIONAL GROWTH FUND AND DOES
NOT REFLECT THE PERFORMANCE OF THE FUND ITSELF.

AVERAGE ANNUAL TOTAL RETURN -- FUND

<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
10.14% 12.33%
- -----------------------------------------------------
</TABLE>

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE MAY 1, 1992

[CHART]
PERIOD ENDED JUNE 30, 1995

14
<PAGE> 17

INTERNATIONAL GROWTH FUND
Fact Sheet -- (Continued)
- --------------------------------------------------------------------------------

2. The Separate Account Performance Information

Although the International Growth Fund has no performance record, the Fund's
investment objectives, policies and strategies will be substantially similar to
those employed by the Sub-adviser with respect to certain separately managed
accounts of the Sub-adviser. The chart below shows the historical investment
performance (with the adjustments noted below) for a composite of the
Sub-adviser's similar accounts which use the same investment strategy that the
Sub-adviser employs on behalf of the Fund. The Sub-adviser Composite represents
the total return, net of all fees and expenses, of all relevant separately
managed accounts of the Sub-adviser. The inception date of the Sub-adviser
Composite was October 1, 1995.

The separately managed accounts in the Sub-adviser Composite were not subject to
the investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and the Internal Revenue
Code. If the accounts included in the Sub-adviser Composite had been subject to
the requirements imposed on registered mutual funds, their performance might
have been lower.

Distribution and advisory fees for the International Growth Fund are higher than
the distribution and advisory fees incurred by the funds comprising the
Templeton International Fund. The other fees and expenses incurred by the
International Growth Fund may be higher or lower than the other fees and
expenses incurred by the funds comprising the Templeton International Fund in
any given year. See "Performance and Yield Information" in the Statement of
Additional Information for a description of the manner in which performance has
been calculated. THE PERFORMANCE INFORMATION BELOW IS BASED ON A COMPOSITE
COMPARABLE TO THE INTERNATIONAL GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE
OF THE FUND ITSELF.

AVERAGE ANNUAL TOTAL RETURN -- FUND

<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
19.02% 21.94%
- -----------------------------------------------------
</TABLE>

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1995

[CHART]
PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

15
<PAGE> 18

LARGE CAP GROWTH FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN LARGE CAP
U.S. ISSUERS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

Goldman Sachs Asset Management

PORTFOLIO MANAGER

This Fund is managed by the following individuals: Kent Clark; Robert L. Jones;
and Victor H. Pinter. Mr. Jones, Managing Director, joined the Sub-adviser in
1989. Mr. Clark has been Vice President of the Sub-adviser since 1992. Mr.
Pinter has been Vice President of the Sub-adviser since 1990.

INVESTMENT OBJECTIVE
Seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of large cap U.S. issuers that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a secondary consideration.

INVESTMENT RISK

This Fund invests almost entirely in stocks. Stock values can rise and fall over
both short and long periods of time. The Fund's investments are selected to
maintain a risk profile similar to the Russell 1000 Growth Index, and your
investment may experience similar changes in value and share similar risks such
as market risk, credit risk, interest rate risk and risk associated with foreign
securities. For more information about market risk, credit risk, interest rate
risk and risk associated with foreign securities, see "A Word About Risk" in
this prospectus.
INVESTMENT STRATEGY
The Fund will be managed utilizing Goldman Sachs' Quantitative Equity Strategy.
The acronym "CORE" (Computer-Optimized and Research Enhanced) reflects the three
step investment process the team uses to select securities. First, we estimate
the returns of 3000 U.S. stocks using a combination of research from the Goldman
Sachs Global Investment Research Department, other industry sources and
objective quantitative analysis. Next, the Fund's investment portfolio is
constructed by balancing expected returns against portfolio risk, trading fees
and investment objectives. The Fund is intended to be constructed with minimum
deviations from the sector, risk statistics and macroeconomic sensitivity of the
benchmark. A proprietary multi-factor model is used in seeking to ensure risks
taken are both intended and are warranted due to expected return. Lastly, the
Fund is traded regularly and rebalanced in seeking to ensure all positions are
in line with current market outlooks and benchmark weights.

We follow the guidelines listed below for making the primary investments for
this Fund.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------
<S> <C>
Equity Securities of U.S. and at least 90%
foreign issuers,** including
convertible securities,
American Depository Receipts
and Global Depository
Receipts
- ----------------------------------------------
Fixed income securities U.S. up to 100%
Government securities,
repurchase agreements
collateralized by U.S.
Government securities,
commercial paper rated at
least A-2 by S&P or P-2 by
Moody's, certificates of
deposit, bankers'
acceptances, repurchase
agreements, non-convertible
preferred stocks,
non-convertible corporate
bonds with a remaining
maturity of less than one
year
- ----------------------------------------------
Futures and options*** up to 5%
- ----------------------------------------------
Illiquid Securities up to 15%
- ----------------------------------------------
Warrants and stock purchase up to 5%
rights
- ----------------------------------------------
Investment companies up to 5%
- ----------------------------------------------
Unseasoned companies up to 5%
- ----------------------------------------------
</TABLE>

* At time of purchase
** This Fund may invest in the securities of a foreign
issuer only if the securities are traded in the U.S. and the issuer
complies with U.S. accounting standards.
*** The Fund may purchase or sell futures contracts only
with respect to a representative index. At no time will the aggregate
margin deposit required on all futures or options held, exceed 5% of the
Fund's total assets.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

16
<PAGE> 19

LARGE CAP GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Large Cap Growth Fund commenced operations on and has no
investment performance record. However, the Large Cap Growth Fund's investment
objectives, policies and strategies are substantially similar to the Goldman
Sachs CORE Large Cap Growth Fund and it is managed in substantially the same
manner and by the same individuals as the Goldman Sachs CORE Large Cap Growth
Fund. The chart below shows the historical investment performance for the
Goldman Sachs CORE Large Cap Growth Fund for the period from November 11, 1991
to present. Performance information prior to May 1, 1997 (commencement date for
Goldman Sachs CORE Large Cap Growth Fund) is that of a predecessor separate
account adjusted to reflect the higher fees and expenses applicable to Goldman
Sachs CORE Large Cap Growth Fund. Although the predecessor separate account was
managed by GSAM in substantially the same manner and by the same individuals as
the Goldman Sachs CORE Large Cap Growth Fund, the separate account was not
registered under the 1940 Act and was not subject to certain investment
restrictions imposed by the 1940 Act. If it had been registered under the 1940
Act, performance might have been adversely affected.

Distribution and advisory fees for the Large Cap Growth Fund are higher than the
distribution and advisory fees incurred by the Goldman Sachs CORE Large Cap
Growth Fund. The other fees and expenses incurred by the Large Cap Growth Fund
may be higher or lower than the other fees and expenses incurred by the Goldman
Sachs CORE Large Cap Growth Fund in any given year. See "Performance and Yield
Information" in the Statement of Additional Information for a description of the
manner in which performance has been calculated. THE PERFORMANCE INFORMATION
BELOW IS BASED ON A FUND COMPARABLE TO THE LARGE CAP GROWTH FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN -- FUND

<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
28.56% 24.66% 20.83%
--------------------------------------------------
</TABLE>

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE NOVEMBER 11, 1991

[CHART]
PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

17
<PAGE> 20

MID CAP GROWTH FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CAPITAL APPRECIATION THROUGH
INVESTMENTS IN EQUITY
SECURITIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

Brown Capital Management, Inc.

PORTFOLIO MANAGER

The Fund is managed by a team led by Eddie C. Brown. Mr. Brown is Founder,
President and controlling shareholder of the Sub-adviser. Mr. Brown has been
with the Sub-adviser since its inception in 1983.

INVESTMENT OBJECTIVE

Seeks capital appreciation principally through investments in equity securities,
such as common and preferred stocks and securities convertible into common
stocks. Current income is of secondary importance.
INVESTMENT RISK

This Fund invests mostly in stocks of medium sized companies that we believe are
undervalued in the marketplace. The value of any stock may rise or fall over
long or short periods of time. Although these stocks present an opportunity for
capital appreciation, they may not be broadly traded and involve market risk and
risk associated with foreign securities. For a discussion of market risk and
risk associated with foreign securities, see "A Word About Risk" in this
prospectus.

INVESTMENT STRATEGY

This Fund will invest principally in the equity securities of medium
capitalization companies. We will seek to achieve capital appreciation through
an opportunistic stock investment strategy with a growth bias. This Fund will
purchase equity securities of those companies that we feel are undervalued
relative to their growth potential in the securities markets, because the
companies are presently out of favor, not well known or possess value that is
not currently recognized by the investment community. We use a "bottom up"
approach to select specific securities, employing analysis that contains
elements of traditional dividend discount and earnings yield models, establishes
predicted relative valuation for equity and fixed income markets, and determines
the attractiveness of individual securities through evaluation of growth and
risk characteristics of the underlying company relative to the overall equity
market. Although the Fund's portfolio securities generally will be acquired for
the long term, they may be sold under some of the following circumstances when
the Sub-adviser believes that: a) the anticipated price appreciation has been
achieved or is no longer probable; b) alternative investments offer superior
total return prospects; or c) fundamentals change adversely.

We follow the guidelines listed below for making the primary investments for
this Fund.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------
<S> <C>
Equity securities at least 90%
Common stocks, convertible
preferred stocks,
participating preferred
stocks, preferred equity
redemption cumulative
stocks, preferred stocks and
convertible bonds traded and
domestic exchanges or an
over-the-counter markets
- ----------------------------------------------
Foreign securities, American up to 10%
Depository Receipts
("ADRs")**
- ----------------------------------------------
Money market instruments*** up to 10%
and fixed income securities,
U.S. Government securities,
corporate debt securities
(including those subject to
repurchase agreements),
bankers acceptances and
certificates of deposit of
domestic branches of U.S.
banks, commercial paper
(including variable amount
demand master notes) rated
in one of the two highest
rating of organizations or,
if not rated, of equivalent
quality and cash and cash
equivalents
- ----------------------------------------------
Illiquid securities up to 10%
- ----------------------------------------------
Real estate securities**** up to 10%
- ----------------------------------------------
</TABLE>

* At time of purchase
** Foreign securities held by this Fund will be held in the
form of ADRs.
*** For temporary defensive reasons, we may invest up to
100% of the Fund's assets in money market instruments and cash and cash
equivalents. We may do this when we think economic and market conditions
make it too risky to follow its general guidelines.
**** This Fund will not invest directly in real estate, but
rather, in readily marketable securities issued by or interests in
companies that invest in real estate, including real estate investment
trusts (REITs).

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

18
<PAGE> 21

MID CAP GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Mid Cap Growth Fund commenced operations on and has no
investment performance record. However, the Mid Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser with respect to certain discretionary investment management
accounts under their management ("Combined Accounts"). The chart below shows the
investment performance for a composite of these Combined Accounts ("Combined
Accounts Composite"). The Combined Accounts Composite includes all discretionary
accounts managed by the Sub-adviser invested principally in equity securities of
medium capitalization companies using the same investment strategy that the
Sub-adviser will employ on behalf of the Fund. The inception date of the
discretionary investment accounts comprising the Combined Accounts Composite
range from January 1, 1993 to October 1, 1997.

The discretionary accounts in the Combined Accounts Composite are not subject to
the investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and the Internal Revenue
Code. If the accounts included in the Combined Accounts Composite had been
subject to the requirements imposed on mutual funds, their performance might
have been lower.

Distribution and advisory fees for the Mid Cap Growth Fund are higher than the
fees and expenses historically incurred by the Combined Accounts comprising the
Combined Accounts Composite. Consequently, the performance results for the
Combined Accounts Composite would have been adversely affected if the Combined
Accounts Composite had the same expenses as the Mid Cap Growth Fund. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of the manner in which performance has been calculated. THE
PERFORMANCE INFORMATION BELOW IS BASED ON A COMPOSITE COMPARABLE TO THE MID CAP
GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN -- FUND

<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
48.26% 24.07% 22.44%
--------------------------------------------------
</TABLE>

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE JANUARY 1, 1993

[CHART]

PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

19
<PAGE> 22

SMALL CAP GROWTH FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal LONG-TERM GROWTH THROUGH
INVESTMENTS IN SMALL COMPANY
GROWTH STOCKS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

J.P. Morgan Investment Management Inc.

PORTFOLIO MANAGER

Candice Eggerss and Saira Malik are the members of the Sub-adviser's team who
will be primarily responsible for the day-to-day management of the Fund. Ms.
Eggerss, who has been with the Sub-adviser since 1996, is Vice President and
specializes in portfolio investments in small capitalization technology
companies. Prior to this, Ms. Eggerss was employed at Weiss, Peck and Greer from
April 1993 to April 1996 and at Equitable Capital Management prior to 1993. Ms.
Malik joined the Sub-adviser in 1995 after completing her graduate studies at
the University of Wisconsin.
INVESTMENT OBJECTIVE

Seeks to provide long-term growth from a portfolio of small company growth
stocks.
INVESTMENT RISK

This Fund invests primarily in U.S. small company growth stocks. These companies
may not have the financial strength to do well in difficult times. Because they
are small, the stock prices of these companies 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. The securities that the Fund invests
in involve certain risks such as market risks and risk associated with foreign
securities. For a discussion of these risks, see "A Word About Risk" in this
prospectus.

INVESTMENT STRATEGY

This Fund invests in U.S. companies whose market capitalizations are greater
than $150 million and less than $1.25 billion. On an industry by industry basis,
the Fund's weightings are similar to those of the Russell 2000 Growth Index.
Within each industry, the Fund invests in the stocks that our research and
valuation process indicate are the most undervalued. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company.

We follow the guidelines listed below for making the primary investments for the
Fund.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------
<S> <C>
Small company growth stocks at least 65%
U.S. and foreign common
stocks, convertible
securities, preferred
stocks, trust or partnership
interests, warrants, rights
and investment company
securities
- ----------------------------------------------
Foreign investments up to 5%
- ----------------------------------------------
Futures and options up to 25%
- ----------------------------------------------
Illiquid securities up to 15%
- ----------------------------------------------
Investment grade short term up to 10%
securities**
- ----------------------------------------------
Swaps up to 5%
- ----------------------------------------------
</TABLE>

* At time of purchase.
** During severe market downturns or to maintain
adequate liquidity to meet redemptions, we may invest up to 100% of the
Fund's assets in investment grade short term securities, including
repurchase agreements and, for temporary or extraordinary purposes, may
borrow from banks up to 10% of its assets.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

20
<PAGE> 23

SMALL CAP GROWTH FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Small Cap Growth Fund commenced operations on and has no
investment performance record. However, the Small Cap Growth Fund's investment
objective, policies and strategies are substantially similar to those employed
by the Sub-adviser and its affiliates with respect to certain discretionary
investment management accounts under their management ("Combined Accounts"). The
chart below shows the historical investment performance for a composite of these
Combined Accounts ("Combined Accounts Composite"). The Combined Accounts
Composite includes all non-mutual fund discretionary accounts managed by the
Sub-adviser and its affiliates invested solely in the equity securities of small
capitalization companies using the same investment strategy that the Sub-adviser
will employ on behalf of the Fund. The inception date of the discretionary
accounts comprising the Combined Accounts Composite range from September 1, 1994
to June 1, 1997.

The discretionary accounts in the Combined Accounts Composite are not subject to
the investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and the Internal Revenue
Code. If the accounts included in the Combined Accounts Composite had been
subject to the requirements imposed on registered mutual funds, their
performance might have been lower.

Distribution and advisory fees for the Small Cap Growth Fund are higher than the
fees and expenses historically incurred by the Combined Accounts comprising the
Combined Accounts Composite. Consequently, the performance results for the
Combined Accounts Composite would have been adversely affected if the Combined
Accounts Composite had the same expenses as the Small Cap Growth Fund. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of the manner in which performance has been calculated. THE
PERFORMANCE INFORMATION BELOW IS BASED ON A COMPOSITE COMPARABLE TO THE SMALL
CAP GROWTH FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE FUND ITSELF.

AVERAGE ANNUAL TOTAL RETURN -- FUND

<TABLE>
<S> <C>
- -----------------------------------------------------
1 YEAR SINCE INCEPTION
- -----------------------------------------------------
53.70% 30.54%
- -----------------------------------------------------
</TABLE>

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 1, 1994

[CHART]
PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

21
<PAGE> 24

INTERNATIONAL VALUE FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH OF CAPITAL AND FUTURE
INCOME THROUGH INVESTMENTS
IN NON-U.S. ISSUERS
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

Capital Guardian Trust Company

PORTFOLIO MANAGER

This Fund is managed using a system of multiple portfolio managers. Under this
system, the Fund is divided into segments, which are assigned to individual
managers.
INVESTMENT OBJECTIVE

Seeks to provide growth of capital and future income through investments
primarily in securities of non-U.S. issuers and securities whose principal
markets are outside of the United States.

INVESTMENT RISK

As described in the Investment Strategy section below, this Fund invests almost
all of its assets in foreign securities, which have risks that U.S. investments
do not have. For a further explanation of the risks associated with foreign
securities and market risk, see "A Word About Risk" in this prospectus.

INVESTMENT STRATEGY

The Fund invests in a portfolio consisting primarily of common stocks (or
securities convertible into common stocks) and bonds of non-U.S. issuers.

While the assets of the Fund can be invested with geographical flexibility, the
emphasis will be on securities of companies located in Europe, Canada,
Australia, and the Far East, giving due consideration to economic, social, and
political developments, currency risks and the liquidity of various national
markets.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------
<S> <C>
Foreign securities** common at least 80%
stocks, convertible stocks
and bonds
- ----------------------------------------------
Futures and options Put and up to 90%
call options on foreign
currencies and forward
currency contracts
- ----------------------------------------------
Cash, cash equivalents, up to 100%
government securities,
nonconvertible preferred
stocks, or straight debt
securities***
- ----------------------------------------------
</TABLE>

* At the time of purchase.
** We may invest up to 10% of the Fund's assets in the
securities of foreign small capitalization companies. The Fund also may
invest in securities of issuers located in emerging markets countries.
*** We may invest up to 100% of the Fund's assets in
these instruments in varying proportions, when we think economic, political
and market conditions in foreign countries make it too risky to follow our
general guidelines.

For additional
information about THE
FUND'S INVESTMENTS see
"Types of Investments."

22
<PAGE> 25

INTERNATIONAL VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------

The International Value Fund commenced operations on and has no
investment performance record. However, the International Value Fund's
investment objectives, policies and strategies are substantially similar to
those employed by the Sub-adviser with respect to certain discretionary
investment accounts managed by the Sub-adviser. The chart below shows the
historical investment performance (with the adjustments noted below) for a
composite of the Sub-adviser's similar accounts which use the same investment
strategy that the Sub-adviser will employ on behalf of the Fund ("Sub-adviser
Composite"). The Sub-adviser Composite represents the total return, gross of
management fees, of all relevant accounts managed on a discretionary basis by
the institutional investment management division of the Sub-adviser. The
inception dates of the discretionary accounts comprising the Sub-Adviser
Composite range from December 31, 1978 to March 31, 1998.

The discretionary accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and the Internal Revenue
Code. If the accounts included in the Sub-Adviser Composite had been subject to
the requirements imposed on registered mutual funds, their performance might
have been lower.

Distribution and advisory fees for the International Value Fund are higher than
the fees and expenses historically incurred by the accounts comprising the
Sub-adviser Composite. Consequently, the performance results for the Sub-adviser
Composite would have been adversely affected if the Sub-adviser Composite had
the same expenses as the International Value Fund. See "Performance and Yield
Information" in the Statement of Additional Information for a description of the
manner in which performance has been calculated. THE PERFORMANCE INFORMATION
BELOW IS BASED ON A COMPOSITE COMPARABLE TO THE INTERNATIONAL VALUE FUND AND
DOES NOT REFLECT THE PERFORMANCE OF THE FUND ITSELF.

AVERAGE ANNUAL TOTAL RETURN -- FUND

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988

[CHART]

PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

23
<PAGE> 26

LARGE CAP VALUE FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURNS EXCEEDING THE
RUSSELL 1000 VALUE INDEX
THROUGH INVESTMENTS IN
EQUITY SECURITIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

State Street Bank & Trust Company/
State Street Global Advisors

PORTFOLIO MANAGER

This Fund is managed using a system of multiple portfolio managers.
INVESTMENT OBJECTIVE
Seeks to provide total returns that exceed over time the Russell 1000 Value
Index (Index) through investment in equity securities.

INVESTMENT RISK

Because the Fund maintains sector weights at a similar level to that of the
Index, your investment may experience similar changes in value and share similar
risks such as market risk and risk associated with foreign securities. For more
information about market risk and risk associated with foreign securities, see
"A Word About Risk" in this prospectus.

INVESTMENT STRATEGY

The Fund will invest primarily in equity securities. Equity securities will be
selected by the Fund and ranked according to two separate and uncorrelated
measures: value and the momentum of Wall Street sentiment. The value measure
compares a company's assets, projected earnings growth and cash flow growth with
its stock price within the context of its historical valuation. The measure of
Wall Street sentiment examines changes in Wall Street analysts' earnings
estimates and ranks stocks by the strength and consistency of those changes.
These two measures will be combined to create a single composite score of each
stock's attractiveness. These scores are used to determine their relative
attractiveness. Sector weights are maintained at a similar level to that of the
Russell 1000 Value Index to avoid unintended exposure to factors such as the
direction of the economy, interest rates, energy prices and inflation.

We follow the guidelines listed below for making the primary investments for the
Fund.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
<S> <C>
- ----------------------------------------------
Equity securities at least 65%
- ----------------------------------------------
Foreign debt securities** up to 5%
- ----------------------------------------------
American Depository Receipts up to 5%
- ----------------------------------------------
Corporate bonds up to 5%
- ----------------------------------------------
Debentures up to 5%
- ----------------------------------------------
Notes up to 5%
- ----------------------------------------------
Warrants up to 5%
- ----------------------------------------------
Illiquid and restricted up to 15%
securities
- ----------------------------------------------
Securities Lending up to 33 1/3%
- ----------------------------------------------
When-issued securities up to 25%
- ----------------------------------------------
Put and call options
Covered put and call options
on securities
Put and call options on up to 25%
securities indices
- ----------------------------------------------
Futures and options Initial up to 5%
margin deposits on futures
and premiums for options and
futures
- ----------------------------------------------
High quality short-term fixed up to 100%
income securities***
- ----------------------------------------------
</TABLE>

* At time of purchase.
** The Fund may invest up to 5% of its total assets in the
obligations of foreign issuers that are denominated in U.S. dollars.
*** For temporary defensive purposes, to invest
uncommitted cash balances or to meet shareholder redemptions, we may invest
up to 100% of the Fund's assets in high quality short-term fixed income
securities such as U.S. Government securities, repurchase agreements
collateralized by these obligations, variable amount master demand notes,
commercial paper, bank certificates of deposit, bankers' acceptances and
time deposits.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

24
<PAGE> 27

LARGE CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Large Cap Value Fund commenced operations on and has no
investment performance record. However, the Large Cap Value Fund will be managed
in substantially the same manner and by the same individuals as those employed
by the Sub-adviser for Discretionary Accounts (the "Discretionary Accounts")
managed by the Sub-adviser with similar investment objectives, policies and
strategies. The Discretionary Accounts are not subject to the same investment
limitations, diversification and restriction imposed on registered mutual funds
by the 1940 Act and the Internal Revenue Code.

The chart below shows the investment performance for the Discretionary Accounts.
The inception date for the Discretionary Accounts range from August 1, 1992
through August 1, 1997.
The Discretionary Accounts are not subject to the investment limitations,
diversification requirements and the other restrictions imposed on registered
mutual funds by the 1940 Act and the Internal Revenue Code. If the Discretionary
Accounts had been subject to the requirements imposed on registered mutual
funds, their performance might have been lower. Consequently, the performance
results for the Discretionary Accounts would have been adversely affected if the
Discretionary Accounts had the same expenses as the Large Cap Value Fund. See
"Performance and Yield Information" in the Statement of Additional Information
for a description of the manner in which performance has been calculated. THE
PERFORMANCE INFORMATION BELOW IS BASED ON DISCRETIONARY ACCOUNTS COMPARABLE TO
THE LARGE CAP VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE FUND
ITSELF.

AVERAGE ANNUAL TOTAL RETURN -- FUND

<TABLE>
<S> <C> <C> <C> <C>
--------------------------------------------------
1 YEAR 5 YEAR SINCE INCEPTION
--------------------------------------------------
58.18% 23.53% 23.43%
--------------------------------------------------
</TABLE>

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 1, 1992

[CHART]

PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

25
<PAGE> 28

MID CAP VALUE FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN MEDIUM- TO LARGE
CAPITALIZATION COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC
INVESTMENT SUB-ADVISER

Neuberger&Berman Management, Inc.

PORTFOLIO MANAGER
Michael M. Kassen and Robert I. Gendelman serve as co-managers of the Fund. Mr.
Kassen and Mr. Gendelman are Vice Presidents of the Sub-adviser and principals
of Neuberger& Berman, LLC. Messrs. Kassen and Gendelman have been associated
with the Sub-adviser since 1990 and 1994, respectively.

INVESTMENT OBJECTIVE

Seeks capital growth, through investment in common stocks of medium- to
large-capitalization established companies using a value-oriented investment
approach.

INVESTMENT RISK

As described in the Investment Strategy section below, this Fund invests almost
all its assets in stocks of companies that are undervalued in the marketplace.
The value of any stock may rise or fall over long or short periods of time.
Although these stocks present an opportunity for capital appreciation, they may
not be broadly traded and involve market risk and risk associated with foreign
securities. For a discussion of these risks, see "A Word About Risk" in this
prospectus.

INVESTMENT STRATEGY

This Fund invests principally in common stocks of medium- to
large-capitalization established companies, using a value-oriented investment
approach intended to increase capital with reasonable risk. We choose securities
we believe are undervalued based on strong fundamentals, including a low
price-to-earnings ratio, consistent cash flow, and the company's track record
through all parts of the market cycle. When selecting securities for this Fund,
we also consider other factors as including ownership by a company's management
of the company's stock and the dominance a company in its particular field.

We follow the guidelines listed below for making the investments for this Fund.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------
<S> <C>
Equity securities at least 65%
Common stock, preferred
stock, convertible
securities
- ----------------------------------------------
Covered call options up to 35%
- ----------------------------------------------
Foreign currency transactions up to 5%
- ----------------------------------------------
Options on foreign currencies up to 5%
- ----------------------------------------------
Foreign securities up to 10%
- ----------------------------------------------
Illiquid and restricted up to 15%
securities**
- ----------------------------------------------
Corporate debt securities up to 15%
rated below investment grade
comparable unrated
securities***
- ----------------------------------------------
Investment grade debt less than 5%
securities Corporate bonds
and debentures, U.S.
Government securities, money
market instruments, zero
coupon securities
- ----------------------------------------------
Cash and cash equivalents**** up to 100%
- ----------------------------------------------
</TABLE>

* At time of purchase
** We may invest up to 15% of the Funds' assets in
illiquid securities. Restricted securities are explained under "Types of
Investments."
*** This Fund may invest up to 15% of its assets in below
investment grade debt securities only when we believe that the anticipated
return to the Fund warrants exposure to the additional risk involved in
these instruments.
**** For temporary defensive reasons, we may invest up to
100% of the Fund's assets in cash and cash equivalents, U.S. Government
securities, commercial paper and certain other money market instruments,
including repurchase agreements collateralized by the foregoing. We may do
this when we think economic and market conditions make it too risky to
follow its general investment guidelines.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

26
<PAGE> 29

MID CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Mid Cap Value Fund commenced operations on and has no
investment performance record. However, the Mid Cap Value Fund's investment
objectives, policies and strategies are substantially similar to those of the
Neuberger & Berman Partners Fund and it is managed in substantially the same
manner and by the same individuals as the Neuberger & Berman Partners Fund. The
chart below shows the investment performance for the Neuberger & Berman Partners
Fund for the period April 1, 1988 through March 31, 1998. The date the
Sub-Adviser assumed management of the Neuberger & Berman Partners Fund was
January 20, 1975.

Distribution and advisory fees for the Mid Cap Value Fund are higher than the
distribution and advisory fees incurred by the Neuberger & Berman Partners Fund.
The other fees and expenses incurred by the Mid Cap Value Fund may be higher or
lower than the other fees and expenses incurred by the Neuberger & Berman
Partners Fund in any given year. See "Performance and Yield Information" in the
Statement of Additional Information for a description of the manner in which
performance has been calculated. THE PERFORMANCE INFORMATION BELOW IS BASED ON A
FUND COMPARABLE TO THE MID CAP VALUE FUND AND DOES NOT REFLECT THE PERFORMANCE
OF THE FUND ITSELF.

AVERAGE ANNUAL TOTAL RETURN -- FUND

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988

[CHART]
PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

27
<PAGE> 30

SMALL CAP VALUE FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal MAXIMUM LONG-TERM RETURN
THROUGH INVESTMENTS IN
SECURITIES OF SMALL
CAPITALIZATION COMPANIES
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISERS

Fiduciary Management Associates, Inc.
Bankers Trust Company

PORTFOLIO MANAGER

Patricia A. Falkowski, President and Chief Investment Officer of FMA has been
Portfolio Manager for the actively-managed portion of the Fund's portfolio since
the Fund's inception. Ms. Falkowski has been with FMA since 1991.

Frank Salerno, Managing Director-Chief Investment Officer of Quantitative and
Equity Index of Bankers Trust, has been the portfolio manager for the
passively-managed portion of this Fund's portfolio since the Fund's inception.
Mr. Salerno has been with Bankers Trust since 1981.

INVESTMENT OBJECTIVE

Seeks maximum long-term return, consistent with reasonable risk to principal, by
investing primarily in common stocks of smaller companies in terms of revenues
and/or market capitalization.

INVESTMENT RISK

As described below, this Fund invests in smaller capitalization companies. Some
of these companies do not have the financial strength to do well in difficult
times.

A portion of this Fund's portfolio is invested in a statistically-selected
sampling of the 2000 stocks in the Russell 2000 Index. This part of the Fund's
investment portfolio avoids the risks of individual stock selection and seeks to
achieve and exceed the return of the smaller-sized company sector of the market.
On the average, that return has been positive, but has been negative at certain
times. There is no assurance that a positive return will occur in the future.

Because this Fund invests in smaller capitalization stocks, your investment may
exhibit greater market value volatility than investments in common stocks of
larger companies. Your investment also will experience similar changes in value
and share similar risks as stocks included in the Russell 2000 Index, such as
market risk and risk associated with investment in foreign securities. For more
information about these risks, see "A Word About Risk" in this prospectus.

INVESTMENT STRATEGIES

This Fund invests primarily in common stocks of small capitalization companies.
One portion of the Fund's investment portfolio will be actively managed and the
other portion will be passively managed. In analyzing and selecting investments
for the actively-managed portion of the Fund's investment portfolio, we look for
market themes and changes that signal opportunity. We seek companies with lower
price-to-earnings ratios, strong cash flow, good credit lines and clean or
improving balance sheets. At any given time, this portion of the Fund's
investment portfolio will be invested in a diversified group of small
capitalization stocks in several industries. The Fund will invest primarily in
U.S. companies with seasoned management or a track record as part of a larger
company.

The passively-managed portion of the Fund's investment portfolio is comprised of
a sampling of stocks in the Russell 2000 Index that, as a group, should reflect
its performance. The stocks of the Russell 2000 Value 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 Value 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.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

28
<PAGE> 31

SMALL CAP VALUE FUND
Fact Sheet
- --------------------------------------------------------------------------------

We follow the guidelines listed below for making the primary investments for the
Fund.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------
<S> <C>
Small company stocks** at least 65%
- ----------------------------------------------
Short-term investments Foreign up to 35%
and domestic money market
instruments, certificates of
deposit bankers'
acceptances, time deposits,
U.S. Government obligations,
U.S. Government agency
securities, short-term
corporate debt securities,
commercial paper rated A-1
or A-2 by S&P or Prime-1 or
Prime-2 by Moody's or, if
unrated, of comparable
quality, repurchase
agreements
- ----------------------------------------------
Illiquid securities up to 15%
- ----------------------------------------------
Futures and options up to 20%
- ----------------------------------------------
Swap agreements up to 10%
- ----------------------------------------------
Warrants*** up to 5%
- ----------------------------------------------
Time deposits**** up to 10%
- ----------------------------------------------
Foreign securities up to 10%
- ----------------------------------------------
Investment companies up to 10%
- ----------------------------------------------
</TABLE>

* At time of purchase.
** This Fund will invest at least 65% of its assets in the
stocks of companies whose stock market capitalizations range from $50
million to $1 billion, including stocks in the Russell 2000 Index.
*** The Fund's investment in warrants will not exceed 2%
of its assets with respect to warrants not listed on the New York or
American Stock Exchanges.
**** This Fund will invest only in time deposits maturing
in two to seven calendar days. The Fund will not purchase time deposits
maturing in more than seven days.

29
<PAGE> 32

SOCIALLY RESPONSIBLE
FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN STOCKS OF COMPANIES
MEETING SOCIAL CRITERIA OF
THE FUND
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

PORTFOLIO MANAGER

John W. Mossbarger has been this Fund's portfolio manager and Vice President and
Investment Officer of the Series Company since its inception. Since 1992, Mr.
Mossbarger has served as Vice President and Investment Officer of American
General Series Portfolio Company, a registered, open-end investment company.

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 S&P 500 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 S&P
500 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.

To find out which companies meet the Fund's social criteria, we rely on industry
classifications, research services such as the Investor Responsibility Research
Center (IRRC), and special magazines and papers that publish this type of
information.

Since our definition of social criteria is not "fundamental," the Series
Company's Board of Trustees may change it without shareholder approval. When
deciding to make changes to the criteria, the Board will consider, among other
things, new or revised state laws that govern or affect the investments of
public funds. At least once a year, we survey state laws on this issue to look
for any new developments. If our survey shows that at least 20 states have
adopted laws that restrict public funds from being invested in a clearly
definable category of investments, this category is automatically added to our
social criteria list.

INVESTMENT STRATEGY

We follow the guidelines listed below for making the primary investments for the
Fund.

<TABLE>
<CAPTION>
Percent of
Fund's Investments Fund's Assets*
- --------------------------------------------
<S> <C>
Common stocks of companies at least 80%
meeting Fund's social
criteria
- --------------------------------------------
Other types of securities of up to 20%
companies meeting social
criteria including
Foreign securities
Preferred stock
Convertible securities
High quality money
market securities and
warrants
- --------------------------------------------
Futures and options up to 33%
- --------------------------------------------
Illiquid and restricted up to 10%
securities
- --------------------------------------------
</TABLE>

* At time of purchase.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

30
<PAGE> 33

SOCIALLY RESPONSIBLE FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Socially Responsible Fund commenced operations and has no
investment performance record. However, the Socially Responsible Fund's
investment objectives, policies and strategies are substantially similar to
those of the American General Series Portfolio Company Social Awareness Fund
("AGSPC Social Awareness Fund") and it is managed in substantially the same
manner and by the same individuals as AGSPC Social Awareness Fund. The chart
below shows the historical investment performance for the AGSPC Social Awareness
Fund for the period of October 2, 1989 through March 31, 1998. The inception
date for the AGSPC Social Awareness Fund was October 2, 1989.

Distribution and advisory fees for the Socially Responsible Fund are higher than
the distribution and advisory fees incurred by the AGSPC Social Awareness Fund.
The other fees and expenses incurred by the Socially Responsible Fund may be
higher or lower than the other fees and expenses incurred by the AGSPC Social
Awareness Fund in any given year. See "Performance and Yield Information" in the
Statement of Additional Information for a description of the manner in which
performance has been calculated. THE PERFORMANCE INFORMATION BELOW IS BASED ON A
FUND COMPARABLE TO THE SOCIALLY RESPONSIBLE FUND AND DOES NOT REFLECT THE
PERFORMANCE OF THE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN -- FUND

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989

[CHART]
PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

31
<PAGE> 34

BALANCED FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CONSERVATION OF PRINCIPAL
AND LONG-TERM GROWTH OF
CAPITAL AND INCOME THROUGH
INVESTMENTS IN FIXED INCOME
AND EQUITY SECURITIES
- -------------------------------------------------
Investment Category BALANCED
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC
INVESTMENT SUB-ADVISER

Capital Guardian Trust Company

PORTFOLIO MANAGERS

This Fund is managed using a system of multiple portfolio managers. Under this
system, the Fund is divided into segments, which are assigned to individual
managers.

INVESTMENT OBJECTIVE

Seeks balanced accomplishment of
(i) conservation of principal and (ii) long-term growth of capital and income
through investment in fixed income and equity securities.

INVESTMENT RISK

This Fund invests principally in debt securities and stocks. Stock values can
rise and fall over long and short periods of time and involve market risks. Like
equity securities, debt securities involve certain risks, including interest
rate risk, credit risk, market risk and risk associated with foreign securities.
This may cause the debt securities that the Fund owns to be worth less than the
Fund paid. For a discussion of these risk, see "A Word About Risk" in this
prospectus.

INVESTMENT STRATEGY

The Fund invests in a combination of debt securities and stock in order to
maintain the value of your principal investment and provide you with capital
growth and income over the long-term. We select securities for the Fund's
portfolio by identifying the stock and debt that represent fundamental values at
reasonable prices. We implement this philosophy using a system of portfolio
managers, under which a different portfolio manager makes investment decisions
for the debt and equity portions of the Fund.

We follow the guidelines listed below for making the primary investments for the
Fund.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- -------------------------------------------
<S> <C>
Fixed income securities not less than 20%
Securities rated "A" not more than 80%
or
better by Moody's or
S&P or of comparable
investment quality;
U.S. Government
securities,
mortgage-related
securities of
governmental issuers,
GNMA certificates of
private issuers,
collateralized
mortgage obligations,
mortgage-backed bonds,
cash or cash
equivalents, including
commercial bank
obligations and
commercial paper**
- -------------------------------------------
Equity securities*** not less than 20%
- -------------------------------------------
High yield debt not more than 20%
securities
- -------------------------------------------
</TABLE>

* At time of purchase.
** These investments will constitute at least 75% of the
fixed-income securities held by the Fund.
*** Equity securities held by the Fund will be listed on
national securities exchanges or in the national over-the-counter market
(NASDAQ) and may include American Depository Receipts. We may invest up to
10% of the Fund's assets in the securities of U.S. small-capitalization
companies.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

32
<PAGE> 35

BALANCED FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Balanced Fund commenced operations on and has no investment
performance record. However, the Balanced Fund's investment objectives, policies
and strategies will be substantially similar to those employed by the
Sub-adviser with respect to certain discretionary investment accounts managed by
the Sub-adviser. The chart below shows the historical investment performance
(with the adjustments noted below) for a composite of the Sub-adviser's similar
accounts which use the same investment strategy that the Sub-adviser will employ
on behalf of the Fund ("Sub-adviser Composite"). The Sub-adviser Composite
represents the total return, gross of management fees, of all relevant accounts
managed on a discretionary basis by the institutional investment management
division of the Sub-adviser. The inception dates of the accounts comprising
Sub-adviser Composite range from December 31, 1974 to September 30, 1997.

The discretionary accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and the Internal Revenue
Code. If the accounts included in the Sub-adviser Composite had been subject to
the requirements imposed on mutual funds, their performance might have been
lower.

Distribution and advisory fees for the Balanced Fund are higher than the fees
and expenses historically incurred by the accounts comprising the Sub-adviser
Composite. Consequently, the performance results for the Sub-adviser Composite
would have been adversely affected if the Sub-adviser Composite had the same
expenses as the Balanced Fund. See "Performance and Yield Information" in the
Statement of Additional Information for a description of the manner in which
performance has been calculated. THE PERFORMANCE INFORMATION BELOW IS BASED ON A
COMPOSITE COMPARABLE TO THE BALANCED FUND AND DOES NOT REFLECT THE PERFORMANCE
OF THE FUND ITSELF.
AVERAGE ANNUAL TOTAL RETURN -- FUND

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988

[CHART]

PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

33
<PAGE> 36

DOMESTIC BOND FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal HIGH TOTAL RETURN CONSISTENT
WITH CONSERVATION OF CAPITAL
THROUGH INVESTMENTS IN DEBT
SECURITIES
- -------------------------------------------------
Investment Category INCOME
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

Capital Guardian Trust Company

PORTFOLIO MANAGER

James S. Baker and James R. Mulally serve as the Fund's portfolio managers. Mr.
Baker, Vice President and fixed-income portfolio manager of an affiliate of the
Sub-adviser, has focused on the application of quantitative valuations to
investment grade bonds and portfolios for the Sub-adviser since 1987. Mr.
Mulally, Senior Vice President, Director and Chairman of the Sub-adviser's Fixed
Income Subcommittee, joined the Sub-adviser in 1980.

INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with conservation of capital
through investment in debt instruments and other income producing securities.

INVESTMENT RISK

The securities the Fund invests in involve certain risks, such as interest rate
risk, credit risk, market risk and risk associated with foreign securities. This
may cause the debt instruments that the Fund owns to be worth less than what the
Fund paid. For a discussion of these risks see "A Word About Risk" in this
prospectus.

INVESTMENT STRATEGY

The Fund invests in high quality bonds to provide you with the highest possible
total return from current income and capital gains while preserving your
investment. To increase the Fund's earning potential, we may use a small part of
the Fund's assets to make some higher risk investments.

We follow the guidelines listed below for making the primary investments for the
Fund.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ----------------------------------------------
<S> <C>
Investment grade intermediate at least 75%
and long-term corporate
bonds rated at least A by
Moody's or S&P** or of
comparable quality,
Eurodollar fixed income
securities***, securities
issued or guaranteed by the
U.S. Government****, or the
Canadian Government,
interest bearing short-term
investments, such as
commercial paper, bankers'
acceptances, bank
certificates of deposit and
other cash equivalents and
cash
- ----------------------------------------------
Other debt obligations up to 25%
corporate bonds rated less
than A by Moody's or S&P,
mortgage-related securities,
high yield bonds
- ----------------------------------------------
U.S. Government securities**** up to 100%
- ----------------------------------------------
</TABLE>

* 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.
*** The Fund currently intends to limit these investments
to no more than 20% of its total assets.
**** U.S. Government securities are securities issued or
guaranteed by the U.S. Government which are supported by (i) the full faith
and credit of the U.S. Government, (ii) the right of the issuer to borrow
from the U.S. Treasury, (iii) the credit of the issuing government agency
or (iv) the discretionary authority of the U.S. Government or GNMA to
purchase certain obligations of the agency.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

34
<PAGE> 37

DOMESTIC BOND FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Domestic Bond Fund commenced operations on and has no
investment performance record. However, the Domestic Bond Fund's investment
objectives, policies and strategies will be substantially similar to those
employed by the Sub-adviser with respect to certain discretionary investment
accounts managed by the Sub-adviser. The chart below shows the historical
investment performance (with the adjustments noted below) for a composite of the
Sub-adviser's similar accounts which use the same investment strategy that the
Sub-adviser will employ on behalf of the Fund ("Sub-adviser Composite"). The
Sub-adviser Composite represents the total return, gross of management fees, of
all relevant accounts managed on a discretionary basis by the institutional
investment management division of the Sub-adviser. The inception dates of the
account comprising Sub-adviser Composite range from December 31, 1972 to March
1, 1998.

The discretionary accounts in the Sub-adviser Composite are not subject to the
investment limitations, diversification requirements and other restrictions
imposed on registered mutual funds by the 1940 Act and the Internal Revenue
Code. If the accounts included in the Sub-adviser Composite had been subject to
the requirements imposed on mutual funds, their performance might have been
lower.

Distribution and advisory fees for the Domestic Bond Fund are higher than the
fees and expenses historically incurred by the accounts comprising the
Sub-adviser Composite. Consequently, the performance results for the Sub-adviser
Composite would have been adversely affected if the Sub-adviser Composite had
the same expenses as the Domestic Bond Fund. See "Performance and Yield
Information" in the Statement of Additional Information for a description of the
manner in which performance has been calculated. THE PERFORMANCE INFORMATION
BELOW IS BASED ON A COMPOSITE COMPARABLE TO THE DOMESTIC BOND FUND AND DOES NOT
REFLECT THE PERFORMANCE OF THE FUND ITSELF.

AVERAGE ANNUAL TOTAL RETURN -- FUND

VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988

[CHART]

PERIOD ENDED MARCH 31, 1998

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
Historical returns reflect investment management fees and other operating
expenses, if any.

35
<PAGE> 38

MONEY MARKET FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal INCOME THROUGH INVESTMENT IN
SHORT-TERM MONEY MARKET
SECURITIES
- -------------------------------------------------
Investment Category STABILITY
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

PORTFOLIO MANAGER

Teresa Moro has been this Fund's portfolio manager and Vice President and
Investment Officer of the Series Company since its inception. Since 1991, Ms.
Moro has served as Vice President and Investment Officer of American General
Series Portfolio Company, a registered investment company.

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 (including Rule 144A Securities)*
- ---------------

*Limited to 10% of the Fund's net assets.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "Types of
Investments."

36
<PAGE> 39

MONEY MARKET FUND

Fact Sheet
- --------------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURN -- FUND

VALUE AT MONTHLY INTERVALS OF $10,000
STIPULATED PAYMENT MADE APRIL 1, 1988

[CHART]
PERIOD ENDED MARCH 31, 1998

37
<PAGE> 40

GROWTH LIFESTYLE FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
IN SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

PORTFOLIO MANAGER

The Fund is managed by a team led by William Trimbur, Jr. Mr. Trimbur has been
this Fund's portfolio manager and Vice President and Investment Officer of the
Series Company since its inception. Since 1987, Mr. Trimbur has served as Vice
President and Investment Officer of American General Series Portfolio Company, a
registered investment company.

INVESTMENT OBJECTIVE

Seeks growth through investments in Series Company Funds. This Fund is suitable
for investors seeking the potential for capital growth that a fund investing
predominately in common stocks may offer.

INVESTMENT RISK

The Fund allocates its assets among nine of the Series Company Funds. The
allocation among the different Series Company Funds is designed to achieve the
Fund's investment objective and reduce risk.

The Fund's performance is directly related to the performance of the Series
Company Funds in which it invests. Changes in the net asset values of the
underlying Series Company Funds affect this Fund's net asset value. Also, the
Fund's ability to meet its investment objective depends upon the ability of the
underlying Series Company Funds to meet their investment objective.

Investment in the Series Company Funds involves manager risk. The securities
that Series Company Funds invest in involve market risk, credit risk, interest
rate risk and risk associated with foreign investments. For a discussion of
these risks, see "A Word About Risk" in this prospectus.

INVESTMENT STRATEGY

This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. We intend to allocate the Fund's
assets among the Series Company Funds as follows:

<TABLE>
<S> <C>
American General International 15%
Value Fund
American General International 15%
Growth Fund
American General Small Cap 10%
Value Fund
American General Small Cap 10%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 13%
Growth Fund
American General Large Cap 12%
Value Fund
American General Domestic 10%
Bond Fund
</TABLE>

38
<PAGE> 41

MODERATE GROWTH
LIFESTYLE FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH AND CURRENT INCOME
THROUGH INVESTMENTS IN
SERIES COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

PORTFOLIO MANAGER

INVESTMENT OBJECTIVE

Seeks growth and current income through investments in Series Company Funds.
This Fund is suitable for investors who wish to invest in stocks, but who are
not willing to assume the substantial market risks of the Lifestyle Growth Fund.

INVESTMENT RISK

The Fund allocates its assets among nine of the Series Company Funds. The
allocation among the different Series Company Funds is designed to achieve the
Fund's investment objective and reduce risk.

INVESTMENT STRATEGY

<TABLE>
<S> <C>
American General International 8%
Value Fund
American General International 7%
Growth Fund
American General Small Cap 8%
Value Fund
American General Small Cap 7%
Growth Fund
American General Mid Cap 8%
Value Fund
American General Mid Cap 7%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 25%
Bond Fund
</TABLE>

39
<PAGE> 42

CONSERVATIVE GROWTH
LIFESTYLE FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal CURRENT INCOME AND LOW TO
MODERATE GROWTH THROUGH
INVESTMENTS IN SERIES
COMPANY FUNDS
- -------------------------------------------------
Investment Category LIFESTYLE
</TABLE>

- --------------------------------------------------------------------------------

INVESTMENT ADVISER

VALIC

PORTFOLIO MANAGER

INVESTMENT OBJECTIVE

Seeks current income and low to moderate growth of capital through investments
in Series Company Funds.

INVESTMENT RISK

The fund allocates its assets among nine of the Series Company Funds. The
allocation among the different Series Company Funds is designed to achieve the
Fund's investment objective and reduce risk.

INVESTMENT STRATEGY

This Fund is managed so that it can serve as a complete investment program for
you or as a core part of your larger portfolio. The Fund seeks current income
and low to moderate growth by investing in the Large Cap Growth Fund, the Mid
Cap Growth Fund, the International Value Fund, the Domestic Bond Fund and the
Small Cap Growth Fund.

We intend to allocate the Fund's assets among the Series Company Funds as
follows:

<TABLE>
<S> <C>
American General International 5%
Value Fund
American General International 5%
Growth Fund
American General Small Cap 5%
Value Fund
American General Small Cap 5%
Growth Fund
American General Mid Cap 5%
Value Fund
American General Mid Cap 5%
Growth Fund
American General Large Cap 15%
Growth Fund
American General Large Cap 15%
Value Fund
American General Domestic 40%
Bond Fund
</TABLE>

40
<PAGE> 43

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.

Generally, there are three types of stocks:

Common stock -- Each share of common stock represents a part of the ownership of
the company. The holder of common stock participates in the growth of the
company through increasing stock price and receipt of dividends. If the company
runs into difficulty, the stock price can decline and dividends may not be paid.

Preferred stock -- Each share of preferred stock allows the holder to get a set
dividend before the common stock shareholders receive any dividends on their
shares.

Convertible preferred stock -- A stock with a set dividend which the holder may
exchange for a certain amount of common stock.

All of the Funds except the Lifestyle Funds, the Money Market Fund and the
Domestic Bond Fund, may invest in common, preferred, and convertible preferred
stock in accordance with their investment strategies.

Stocks are not the only type of equity securities. More information about other
types of equity securities in which certain Funds may invest is contained in the
Statement of Additional Information.

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 that most Funds may invest in include, but are not limited
to: U.S. Government bonds and investment grade corporate bonds (the Mid Cap
Value Fund, the Balanced Fund and the Domestic Bond 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 and S&P (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 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, except the
Lifestyle Funds and the Mid Cap Value Fund, may invest in asset-backed
securities. Examples of assets supporting asset-backed securities include credit
card receivables, retail installment loans, home equity loans, auto loans, and
manufactured housing loans.

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.

41
<PAGE> 44
- --------------------------------------------------------------------------------

Loan Participations

A loan participation is an investment in a loan made to a U.S. company that is
secured by the company's assets. The assets must be, at all times, worth enough
money to cover the balance due on the loan. Major national and regional banks
make loans to companies and then sell the loans to investors. These banks don't
guarantee the companies will pay the principal and interest due on the loans.

All the Funds in this prospectus, other than the Lifestyle Funds and the Mid Cap
Value Fund, may invest in loan participations.

VARIABLE AMOUNT DEMAND MASTER NOTES

The Large Cap Value Fund, the Mid Cap Value Fund, the Balanced Fund and the
Domestic Bond Fund may invest in variable amount demand master notes. Variable
amount master demand notes are unsecured obligations that are redeemable upon
demand and are typically unrated. These instruments are issued pursuant to
written agreements between their issuers and holders. The agreements permit the
holders to increase (subject to an agreed maximum) and the holders and issuers
to decrease the principal amount of the notes, and specify that the rate of
interest payable on the principal fluctuates according to an agreed formula.

STRUCTURED SECURITIES

The value of the principal of and/or interest on such securities is determined
by reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, result in the loss of a Fund's investment.

The Balanced Fund and the Domestic Bond Fund may invest in structured
securities.

REAL ESTATE SECURITIES

All of the Funds in this prospectus, except the Lifestyle Funds and the Domestic
Bond Fund, may invest in real estate securities. Real estate securities are
securities issued by companies that invest in real estate or interests therein.
Certain Funds also may invest in real estate investment trusts ("REITs"). REITs
are generally publicly traded on the national stock exchanges and in the
over-the-counter market and have varying degrees of liquidity. More information
about REITs and real estate securities generally is contained in the Statement
of Additional Information.

ILLIQUID AND RESTRICTED SECURITIES

An illiquid security is one that may not be frequently traded. If it must be
sold quickly, it may have to be sold at a loss. For example, if a fund owns a
stock that is not sold very often and the fund needs to sell this stock quickly,
it may have to offer the investment at a low price for someone to buy it.

A restricted security is one that has not been registered with the SEC and
therefore can't be sold in the public market. Restricted securities do include
securities eligible for resale under Rule 144A of the Securities Act of 1933.
Some Rule 144A securities may be liquid as determined by VALIC or a Sub-adviser.
For more information about Rule 144A securities see the Statement of Additional
Information. These investments can be very risky because the Fund's ability to
sell a restricted stock is very limited.

All the Funds, except the Lifestyle Funds, may buy illiquid and restricted
securities, but are restricted as to how much money they may invest in them. See
"Limitations" below.

DEPOSITORY RECEIPTS

All of the Funds in this prospectus, except the Lifestyle Funds, may invest in
ADRs. ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank.

EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank. We
consider ADRs, EDRs and GDRs to be foreign securities. The International Growth
Fund, the Small Cap Growth Fund, the International Value Fund and the Mid Cap
Value Fund may invest in EDRs and/or GDRs. The Large Cap Growth Fund may invest
in GDRs but may not invest in EDRs.

For more information
about LOAN PARTICIPATIONS
see the Statement
of Additional Information.

For more information
about ILLIQUID AND RESTRICTED
SECURITIES see the
Statement of Additional Information.

For more information
about REAL ESTATE
SECURITIES, see the Statement
of Additional Information.

42
<PAGE> 45

- --------------------------------------------------------------------------------

INVESTMENT FUNDS

Some countries have laws and regulations that currently preclude direct foreign
investment in the securities of their companies. However, indirect foreign
investment in the securities of companies listed and traded on the stock
exchanges in these countries is permitted through investment funds which have
been specifically authorized. The International Growth Fund, the Large Cap
Growth Fund, the Small Cap Growth Fund, the International Value Fund and the Mid
Cap Value Fund may invest in investment funds.

FOREIGN CURRENCY

All of the Funds, except the Lifestyle Funds, the Large Cap Value Fund, the
Small Cap Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the
Small Cap Growth Fund, the Balanced Fund, the Domestic Bond Fund and the Money
Market Fund, may buy and sell foreign currencies the same way they buy and sell
other investments. Funds buy foreign currencies when they believe the value of
the currency will increase. If it does increase, they sell the currency for a
profit. If it decreases they will experience a loss. Generally, the
International Growth Fund and the International Value Fund may also buy and sell
foreign currencies to settle transactions for foreign securities bought or sold
in the Fund.

The Funds, except the Lifestyle Funds, the Large Cap Value Fund, the Small Cap
Value Fund, the Large Cap Growth Fund, the Mid Cap Growth Fund, the Small Cap
Growth Fund, the Balanced Fund, the Domestic Bond Fund and the Money Market
Fund, may purchase forward foreign currency exchange contracts to protect
against a decline in the value of the U.S. dollar, to effect cross-hedges
involving two non-U.S. currencies, or for, settlement purposes.

WHEN-ISSUED SECURITIES

All of the Funds, other than the Lifestyle Funds, the Small Cap Growth Fund, the
Money Market Fund and the Mid Cap Value Fund, may buy when-issued securities in
accordance with their investment strategy.

MONEY MARKET SECURITIES

All of the Funds may invest part of their assets in high quality money market
securities payable in U.S. dollars. A listing of the types of money market
securities in which the Money Market Fund may invest in is in that Fund's Fact
Sheet. A money market security is high quality when it is rated in one of the
two highest credit categories by Moody's or S&P or another nationally recognized
rating service or if unrated, deemed high quality by VALIC or a Sub-adviser.

These high quality money market securities may include:

- Cash and cash equivalents

- Securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities

- Certificates of deposit and other obligations of domestic banks having total
assets in excess of $1 billion

- Commercial paper sold by corporations and finance companies

- Corporate debt obligations with remaining maturities of 13 months or less

- Repurchase agreements, money market securities of foreign issuers if payable
in U.S. dollars, asset-backed securities, loan participations, and
adjustable rate securities

INVESTMENT COMPANIES

Certain of the Funds may invest in the securities of other open-end or
closed-end investment companies. Under the 1940 Act, a Fund may invest no more
than 5% of its total assets in the securities of any one investment company nor
may it acquire more than 3% of the voting securities of any other investment
company. A Fund will indirectly bear its proportionate share of any management
fees paid by an investment company in which it invests.

The International Growth Fund, the Large Cap Growth Fund, the Large Cap Value
Fund, the Mid Cap Value Fund, the Small Cap Growth Fund, and the Small Cap Value
Fund each may invest in investment company securities in accordance with its
investment objectives.

DERIVATIVES

For more information on put
and call options AND FINANCIAL
FUTURES CONTRACTS AND OPTIONS, see
the Statement of Additional
Information.

For more information
about WHEN-ISSUED SECURITIES,
see the Statement
of Additional Information.

For more information about
MONEY MARKET SECURITIES OF
FOREIGN ISSUERS the Funds
may purchase, see the
Statement of Additional
Information.

For more information
about FOREIGN CURRENCY
EXCHANGE TRANSACTIONS, see
the Statement of
Additional Information.

43
<PAGE> 46

- --------------------------------------------------------------------------------

("speculate") and buy derivatives to profit from a change in price of the
underlying security. We may purchase derivatives to hedge the investment
portfolios and to earn additional income in order to help achieve the Funds'
objectives. Generally, we do not buy derivatives to speculate.

The Funds, other than the Lifestyle Funds, the Money Market Fund, the Mid Cap
Growth Fund and the International Growth Fund may buy and sell derivatives, such
as futures and/or options.

Options

An option is the right to buy or sell any type of investment for a preset price
over a specific period of time.

Call Option

For example, you can buy an option from Mr. Smith that gives you the right to
buy 10 shares of stock X at $25.00 per share anytime between now and six weeks
from now. You believe stock X will be selling for more than $25.00 per share
between now and then. Mr. Smith believes it won't be. If you exercise this
option before it expires, Mr. Smith must sell you 10 shares of stock X at $25.00
per share.

On the other hand, you can sell an option to Mr. Smith that gives him the right
to buy 10 shares of stock X at $25.00 per share anytime between now and six
weeks from now. You believe stock X will be selling for less than $25.00 per
share between now and then. Mr. Smith believes it won't be. If he exercises this
option before 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.

Put Option

Or, you can buy an option from Mr. Smith that gives you the right to sell him 10
shares of X stock at $25.00 per share anytime between now and six weeks from
now. In this example, you believe stock X will be selling for less than $25.00
per share between now and then. Mr. Smith thinks it will be selling for more.

Or, you can sell an option to Mr. Smith that gives him the right to sell to you
10 shares of X stock at $25.00 per share anytime between now and six weeks from
now. In this example, he believes stock X will be selling for less than $25.00
per share between now and then.

The Funds use stock and bond futures to invest cash and cash equivalents. When
certain levels are reached the Fund will sell the futures and buy stocks or
bonds.

All of the Funds except the Lifestyle Funds, the Money Market Fund, Mid Cap
Growth Fund and the International Growth Fund may invest in one or more of the
following 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 International Value Fund, the Large Cap Value Fund and the Small Cap Growth
Fund may write and purchase put and call options on securities and stock indices
that are not traded on an exchange.

SWAP AGREEMENTS

Swap agreements are contracts between parties in which one party agrees to make
payments to the other party based on the change in market value of a specified
index or asset. In return, the other party agrees to make payments to the first
party based on the return of a different specified index or asset. Additional
information about swap agreements is contained in the Statement of Additional
Information.

The Small Cap Value Fund and the Small Cap Growth Fund may enter into swap
agreements.

WARRANTS AND RIGHTS

Warrants and rights are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. Changes in the value
of a warrant do not necessarily correspond to changes in the value of its
underlying securities.

The International Growth Fund, the Large Cap Value Fund, the Large Cap Growth
Fund, the Small Cap Value Fund, the International Value Fund, the Balanced Fund,
the Domestic Bond Fund and the Small Cap Growth Fund are authorized to use
warrants or rights.

For more information about
SWAP AGREEMENTS, see the
Statement of Additional Information.

44
<PAGE> 47
- --------------------------------------------------------------------------------

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 five basic types of investment risk you may be subject to:

- Market Risk

- Credit (Financial) Risk

- Interest Rate Risk

- Risk Associated with Foreign Securities

- Manager Risk (Lifestyle Funds only)

Generally stocks are considered to be subject to market risk, while debt
securities, such as U.S. government bonds and money market securities are
subject to interest rate risk. Other debt securities, such as corporate bonds,
involve both interest rate and credit (financial) risk. Lastly, risks associated
with foreign securities can involve political, currency and limited information
risks. Each of these types of investment risks is discussed below.

Market Risk

Market risk refers to the loss of capital resulting from changes in the prices
of investments. For example, market risk occurs when expectations of lower
corporate profits in general cause the broad market of stocks to fall in price.
When this happens, even though a company is experiencing growth in profits, the
price of its stock could fall.

Credit (Financial) Risk

Credit risk refers to the risk that the issuer of a bond may default or be
unable to pay interest or principal due on a bond.

To help the Funds' Investment Adviser or Sub-advisers decide which U.S.
corporate and foreign bonds to buy, they rely on Moody's and S&P (two nationally
recognized bond rating services), and on VALIC's and/or a Sub-adviser's own
research. This research lowers the risk of buying a bond of a company that may
not pay the interest and principal on the bond.

Certain of the Funds in this prospectus may buy bonds that are rated as
investment grade. There are four different levels of investment grade, from AAA
to BBB; see Description of Corporate Bond Ratings 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.

Manager Risk

The Lifestyle Funds, which do not hold securities directly, are subject to
manager risk, which is the possibility that the portfolio managers of the
underlying Funds may fail to execute the underlying Funds' investment strategies
effectively. As a result, the Lifestyle Funds may fail to meet their stated
objectives.

Risk Associated with Foreign Securities

Certain Funds may, subject to limits stated in the Fund's Fact Sheet, invest in
foreign securities including ADRs and securities of companies domiciled in
emerging market countries. A foreign security is a security issued by an entity
domiciled or incorporated outside of the U.S.

Among the principal risks of owning foreign securities:

Political risk -- the chance of a change in government and the assets of the
company being taken away.

Currency risk -- a change in the value of the foreign currency compared to the
dollar. If the foreign currency declines in value, your investment valued in
U.S. dollars will decline even if the value of the foreign stock or bond is
unchanged.

For more information about
REPURCHASE AGREEMENTS, see the
Statement of Additional
Information.

For more information about
FOREIGN SECURITIES AND EMERGING
MARKETS, see the Statement
of Additional Information.

45
<PAGE> 48
- --------------------------------------------------------------------------------

Limited information -- foreign companies generally are not regulated to the
degree U.S. companies are and may not report all of the information we are used
to getting. To minimize taxes they may not report some income or they may report
higher expenses.

INVESTMENT PRACTICES

Limitations

Each Fund has limitations on the percentage of its assets that it may allocate
to certain investments.

These limits are determined by the Fund's investment objectives and risk level.

Some Funds are restricted from buying certain types of investments altogether.
For example, the Money Market Fund may not invest in futures and options.

Each Fund's limitations are shown in the Investment Strategy section of its Fact
Sheet.

Lending Portfolio Securities

Each Fund, except the Lifestyle Funds, may lend its investment securities to
broker-dealers and other financial institutions to earn more money for the Fund.
Assets are placed in a special account by the borrower to cover the market value
of the securities on loan. The assets serving as collateral for the loan are
valued daily.

A risk of lending portfolio investments is that there may be a delay in the Fund
getting its investments back when a loaned security is sold.

The Funds will only make loans to broker-dealers and other financial
institutions approved by its Custodians, as monitored by VALIC and authorized by
the Board of Trustees.

For more information about
LENDING PORTFOLIO SECURITIES, see
the Statement of Additional Information.

For more information about
INVESTMENT LIMITATIONS, see the
Statement of Additional
Information.

46
<PAGE> 49

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 Institutional Class I
Shares of the Funds only to employee retirement plans offered through the
Distributor.

The Series Company was organized on March 16, 1998, under the laws of the state
of Delaware as a business trust, and presently is authorized to sell 18 series.
Each of these series is authorized to issue an unlimited number of shares of
beneficial interest, par value $0.01 per share, divided into class. Each Fund
currently offers five classes of shares, designated Class A shares, Class B
shares, Class C shares, Institutional Class I shares and Institutional Class II
shares. Other classes may be established from time to time in accordance with
provisions of the Series Company's Declaration of Trust.

Each class of shares represents an interest in the same assets of a Fund and
generally are identical in all respects except that each class bears certain
distribution expenses and has exclusive voting rights with respect to its
distribution fee, if any. Except as described herein, there are no conversion,
preemptive or other subscription rights. In the event of liquidation, each of
the shares of a Fund is entitled to its portion of all of the Fund's net assets
after all debts and expenses of the Fund have been paid. Since Class B and Class
C shares pay higher distribution fees and transfer agent costs, the liquidation
proceeds to Class B and Class C shareholders are likely to be lower than to
other shareholders.

The Series Company does not contemplate holding regular meetings of shareholders
to elect Trustees or otherwise. However, the holders of 10% or more of the
outstanding shares may by written request require a meeting to consider the
removal of Trustees by a vote of two-thirds of the shares then outstanding cast
in person or by proxy at such meeting. The Series Company will assist such
holders in communicating with other shareholders of the Series Company to the
extent required by the 1940 Act. More detailed information concerning the Series
Company is set forth in the Statement of Additional Information.

The Series Company's Declaration of Trust provides that no Trustee, officer or
shareholder of the Series Company shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or liability of the Series Company but the assets of the Fund only
shall be liable.

PURCHASE AND REDEMPTION OF SHARES

Institutional Class I shares of each Fund are available to you through your
employer bought from the Distributor or the Series Company through National
Financial Data Services, Inc., the Funds' transfer agent ("Transfer Agent").

As a participant in an employer retirement plan, you do not purchase
Institutional Class I shares of the Funds directly. Rather, Institutional Class
I shares of a Fund are purchased for you when you elect to allocate your
retirement contributions to a Fund that is available as an investment option in
your retirement or savings plan. You may be permitted to elect different
investment options, alter the amounts contributed to your plan, or change how
contributions are allocated among your investment options in accordance with
your plan's specific provisions. See your plan administrator or employee
benefits office for more details.

As distributor, the Distributor sells Institutional Class I shares of the Funds
to employer retirement plans. The Distributor sends orders to buy, sell or
transfer shares to the Series Company's transfer agent daily. The Series Company
may suspend the sale of any of the Fund's Institutional Class I shares to
employer retirement plans.

The price to purchase one share of a Fund is the Fund's net asset value per
share (NAV). Shares are sold at the public offering price based on the net asset
value next determined after the Transfer Agent receives an order. In most cases,
in order to receive that day's public offering price, the Transfer Agent must
receive an order, either directly or from the Distributor, before the close of
regular trading on the New York Stock Exchange.

The Distributor is a wholly-owned subsidiary of VALIC and acts as distributor of
the Funds' shares under an agreement with the Series Company. The Distributor
does not charge the Series Company or employer retirement plans for its
services. Also, the Distributor is not required to sell a minimum number of
shares to employer retirement plans.

For more information on how to participate in the Funds through an employee
retirement plan, please refer to your plan materials or contact your employee
benefits office.

TRANSFERS AND EXCHANGES

VALIC INVESTMENT
SERVICES COMPANY
acts as the
Series Company's
distributor.

47
<PAGE> 50
- --------------------------------------------------------------------------------

be subject to unique restrictions. Exchanges will be accepted by the Series
Company only as permitted by your plan. Your plan administrator can explain how
frequently exchanges are allowed. The Series Company reserves the right to
refuse any exchange purchase request.

NET ASSET VALUE OF THE SERIES COMPANY SHARES

How Net Asset Value is Calculated

Here is how the Series Company calculates the net asset value of each Fund's
shares:

<TABLE>
<S> <C> <C> <C>
Step 1:
Total value of the Fund's
assets* (including money The Fund's
owed to the fund but not yet Total Net Asset
collected) = Value
- - The Fund's liabilities
(including money owed by the
Fund but not yet paid)

Step 2:
The Fund's total net asset
value (from Step 1)
/ The total number of the
Fund's shares that are NET ASSET VALUE
outstanding. = PER SHARE
</TABLE>

- ---------------

* The Series Company uses the fair market value of Fund's
investments to calculate the Fund's total value. However, it uses the
amortized cost method to determine the values of all the Money Market Fund's
investments and of any other Fund's short-term securities maturing within 60
days. The amortized cost method approximates fair market value.

If a Fund's portfolio includes investments that are not sold often or are not
sold on any exchanges, the Series Company's Board of Trustees or its delegate
will, in good faith, estimate fair market value of these investments.

When Net Asset Value is Calculated

The Series Company calculates the net asset value of each Fund's shares at
approximately 4pm EST each day the New York Stock Exchange is open. (The New
York Stock Exchange is open Monday through Friday but is closed on certain
federal and other holidays.)

Through the Distributor, an employer plan sends orders to the Series Company to
buy, sell, or transfer shares based on requests received 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, the International Growth Fund, the Large Cap
Value Fund and the Small Cap Value Fund pay dividends quarterly 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 1940 Act.

All of the Funds, except the Lifestyle Funds, may, with respect to 75% of their
total assets, invest up to 5% of their total assets in a single issuer. An
issuer, or "company" does not include the U.S. Government or agencies of the
U.S. Government according to the Code and the 1940 Act. For diversification
purposes, repurchase agreements are considered to be issued by the U.S.
Government if backed by U.S. Government securities. Also, these Funds may not
own more than 10% of the voting securities of a company.

The Lifestyle Funds are "non-diversified" under the 1940 Act. This means that
each Fund can invest more of its assets in fewer issuers and for this reason may
be riskier than the other Funds. These Funds may invest up to 25% of their 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 a Fund. The
remaining 50% of total assets may not include more than 5% of total assets in
one issuer.

Also, the Money Market Fund may not invest more than 5% of its total assets in
any company rated as "second tier" by a national rating service (as described in
Types of Investments).

TAXES

By paying out all earnings as described in the Dividends and Capital Gains
section above and by complying with the diversification requirements under the
Code, each Fund expects to qualify as a Registered Investment Company (RIC)
under Subchapter M of the Code. By qualifying as a RIC the Fund will not have to
pay federal income taxes.

VOTING RIGHTS

One Vote Per Share

Each outstanding share has one vote on all matters that shareholders vote on. As
a participant under an employer plan, you vote on these matters indirectly by
voting your shares. The way you vote your shares as a participant depends on
your employer plan.

See the Statement of Additional
Information and your contract
prospectus for further tax
discussions. You should also
consult your tax advisor before
investing.

48
<PAGE> 51

- --------------------------------------------------------------------------------

When a matter comes up for vote, the employer plan will vote its shares in the
same proportion as the share 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 shares, it may decide to vote that way.

Controlling Shareholder

VALIC, as the initial sole shareholder of the Funds as of the commencement date
of the Series Company, controls each Fund. VALIC does not anticipate that its
initial control of each Fund will adversely effect the rights of future
shareholders.

Shareholder Meetings

Delaware law does not require the Series Company to hold regular, annual
shareholder meetings. But, the Series Company must hold shareholder meetings on
the following matters:

- to approve certain agreements as required by the 1940 Act;

- to change fundamental investment objectives in the Diversification section
and to change fundamental investment restrictions, above;

- to fill vacancies on the Series Company's Board of Trustees if the
shareholders have elected less than a majority of the Trustees.

Shareholder Communications

The Series Company will assist in shareholder communications.

YEAR 2000 RISKS

Like insurance companies, financial and business organizations around the world,
the Series Company Funds could be adversely affected if the computer systems
used by the Series Company, other service providers and entities with computer
systems that are linked to the Series Company's records do not properly process
and calculate date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Issue." The Series Company is taking
steps that it believes are reasonably designed to address the Year 2000 Issue
with respect to the computer systems that it uses and to obtain satisfactory
assurances that comparable steps are being taken by each of the Series Company's
major service providers. The Series Company expects to be substantially complete
with its computer systems projects to address the Year 2000 Issue by the end of
1998. However, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Series Company Funds.

REPORTS

The Series Company sends Annual Reports containing audited financial statements,
Semi-Annual Reports containing unaudited financial statements, and proxy
materials to participants or other investors. 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.

49
<PAGE> 52

Please tear off, complete and return the form below to Suite A3-01,
Communications Unit, The Variable Annuity Life Insurance Company, 2929 Allen
Parkway, Houston, Texas 77019 to order a Statement of Additional Information for
the Company. A Statement of Additional Information may also be ordered by
calling 1-800-44-VALIC.

................................................................................

<TABLE>
<S> <C>
==========================================================================================================
Please send me a free copy of the Statement of Additional Information for American General Series
Portfolio Company 2.
Name: -------------------------------------------------------------------------------------------------

Address: ----------------------------------------------------------------------------------------------

Social Security Number: -------------------------------------------------------------------------------

==========================================================================================================
</TABLE>
<PAGE> 53

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

INVESTMENT ADVISER:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019

INVESTMENT SUB-ADVISERS:
Bankers Trust Company
130 Liberty St.
New York, New York 10006

Capital Guardian Trust Company
333 South Hope Street
Los Angeles, California 90071

Jacobs Asset Management
200 East Broward Boulevard
Suite 1920
Fort Lauderdale, Florida 33301

State Street Global Advisors
2 International Place
Boston, Massachusetts 02110

Goldman Sachs Asset Management
One New York Plaza
New York, New York 10004

Neuberger&Berman Management, Inc.
605 Third Avenue
Second Floor
New York, New York 10158-0180

Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201
Fiduciary Management Associates, Inc.
55 West Monroe Street
Suite 2550
Chicago, Illinois 60603
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
DISTRIBUTOR:
VALIC Investment Services Company
2929 Allen Parkway
Houston, TX 77019
CUSTODIAN:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS:
Ernst & Young LLP
1221 McKinney
Houston, Texas 77010
TRANSFER AND SHAREHOLDER SERVICE AGENT:
National Financial Data Services, Inc.
1004 Baltimore
Kansas City, Missouri 64105-1807

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
TRUSTEES OFFICERS
-------- --------
<S> <C> <C>
Thomas L. West, Jr. Thomas L. West, Jr. Chairman
Craig R. Rodby John A. Graf President
John A. Graf Craig R. Rodby Vice Chairman
Norman Hackerman Michael G. Atnip Executive Vice President
John William Lancaster Joe C. Osborne Executive Vice President
F. Robert Paulson Norman Jaskol Vice President and Chief Investment Officer
R. Miller Upton Teresa S. Moro Vice President and Investment Officer
Ben H. Love John W. Mossbarger 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
Gregory R. Seward Treasurer
Kathryn A. Pearce Controller
Earl E. Allen, Jr. Assistant Treasurer

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Printed Matter
Printed in U.S.A. [--recycled paper LOGO--]
VA 10856-I VER 7/98
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<PAGE> 54

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 13, 1998
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 2
CLASS A SHARES 2929 ALLEN PARKWAY

CLASS B SHARES HOUSTON, TEXAS 77019

CLASS C SHARES July 13, 1998
PROSPECTUS

The American General Series Portfolio Company 2 (the "Series Company") is a
mutual fund made up of 18 separate Funds (the "Funds"). Each of the Funds has a
different investment objective. Each Fund is explained in more detail on its
Fact Sheet contained in this prospectus. Here is a summary of the goals of the
18 Funds:

INDEX EQUITY FUNDS:

AMERICAN GENERAL S&P 500 INDEX FUND ("S&P 500 INDEX FUND")
Total return through investments tracking the S&P 500 Index.

AMERICAN GENERAL MID CAP INDEX FUND ("MID CAP INDEX FUND")
Growth through investments tracking the S&P Mid Cap Index.

AMERICAN GENERAL SMALL CAP INDEX FUND ("SMALL CAP INDEX FUND")
Total return through investments tracking the Russell 2000 Index.