AMERICAN GENERAL SERIES PORTFOLIO CO 3, N-1A, 1998-05-26

AMERICAN GENERAL SERIES PORTFOLIO CO 3
N-1A, 1998-05-26

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998

REGISTRATION NO.
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------------------

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. [ ]
(CHECK APPROPRIATE BOX OR BOXES)

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

AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019

(713) 526-5251
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE)

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

NORI L. GABERT, ESQ.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
P.O. BOX 3206, HOUSTON, TEXAS 77253
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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

JOHN A. DUDLEY
SULLIVAN & WORCESTER, LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036

It is proposed that this filing will become effective (check appropriate box):

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

<TABLE>
<S> <C>
___ immediately upon filing pursuant to paragraph (b) ___ on (date) pursuant to paragraph (a)(1)
___ on (date) pursuant to paragraph (b) ___ 75 days after filing pursuant to paragraph (a)(2)
___ 60 days after filing pursuant to paragraph (a)(1) ___ on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>

Title of Securities being Registered: Shares of Beneficial Interest.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date at the Commission, acting pursuant to said Section 8(a)
may determine.
================================================================================
<PAGE> 2

AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3

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

FORM N-1A
UNDER
THE SECURITIES ACT OF 1933 AND
THE INVESTMENT COMPANY ACT OF 1940

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

CROSS REFERENCE SHEET
(PURSUANT TO RULE 481(a))

PART A

<TABLE>
<CAPTION>
ITEM NO. PROSPECTUS CAPTION
-------- ------------------
<C> <S> <C>
1. Cover Page........................................ Cover Page
2. Synopsis.......................................... Inapplicable
3. Condensed Financial Information................... Inapplicable
4. General Description of Registrant................. Welcome; About the Series Company; About the
Funds; Types of Investments
5. Management of the Fund............................ About the Fund's Management
6. Capital Stock and Other Securities................ About the Series Company
7. Purchase of Securities Being Offered.............. About the Series Company
8. Redemption and Repurchase......................... About the Series Company
9. Pending Legal Proceedings......................... Inapplicable
</TABLE>

PART B

<TABLE>
<CAPTION>
ITEM NO. STATEMENT OF ADDITIONAL INFORMATION CAPTION
-------- -------------------------------------------
<C> <S> <C>
10. Cover Page........................................ Cover Page
11. Table of Contents................................. Table of Contents
12. General Information and History................... General Information and History
13. Investment Objectives and Policies................ Fundamental Investment Restrictions; Investment
Practices
14. Management of the Registrant...................... Trustees and Officers; Investment Adviser;
Investment Sub-Advisers
15. Control Persons and Principal Holders of
Securities........................................ Other Information
16. Investment Advisory and Other Services............ Investment Adviser; Investment Sub-Advisers;
Other Information
17. Brokerage Allocation.............................. Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities................ Other Information
19. Purchase, Redemption and Pricing of Securities
Being Offered..................................... Offering, Purchase and Redemption of Fund Shares
20. Tax Status........................................ Taxation
21. Underwriters...................................... Offering, Purchase and Redemption of Fund Shares
22. Calculation of Performance Data................... Calculation of Yield for Money Market Fund
23. Financial Statements.............................. Inapplicable
</TABLE>

PART C

Information required to be set forth in Part C is set forth under the
appropriate item, so numbered in Part C of the Registration Statement.
<PAGE> 3

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.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 22, 1998

AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 3
2929 ALLEN PARKWAY
HOUSTON TEXAS 77019
[___________, 1998]
PROSPECTUS

The American General Series Portfolio Company 3 (the "Series Company") is a
mutual fund made up of 18 separate Funds (the "Funds"). Each of the Funds has a
different investment objective. Each Fund is explained in more detail on its
Fact Sheet contained in this prospectus. Here is a summary of the goals of the
18 Funds:

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.

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.

R MONEY MARKET FUND:

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

LIFESTYLE FUNDS:

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

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

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

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

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

These Funds are available to you only through a variable annuity contract or
variable life insurance policy you or your employer bought from The Variable
Annuity Life Insurance Company ("VALIC") or one of its affiliates, or employee
thrift plans maintained by VALIC or American General Corporation. VALIC is a
member of the American General Corporation group of companies.

Because different contracts contain different combinations of Funds, all of the
Funds in this prospectus may not be available to you. And, there may be some
Funds that are available to you that don't appear in this prospectus. See the
separate prospectus that describes your, or your employer's annuity contract for
a complete list of Funds in which you may invest. BE SURE TO READ BOTH
PROSPECTUSES IN FULL BEFORE YOU START PARTICIPATING AND KEEP THEM FOR FUTURE
REFERENCE.

VALIC has filed a Statement of Additional Information, dated [ , 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 3 at the
address above or call 1-800-44-VALIC. The Statement of Additional Information
has been filed with the SEC and is available along with other related materials
at the SEC's internet web site (http://www.sec.gov.).

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR DEPOSITORY INSTITUTION; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
FUNDS. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.

DO NOT COPY
<PAGE> 4

TABLE OF CONTENTS

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

EXPENSE SUMMARY............................... 3

ABOUT THE FUND'S MANAGEMENT................... 4
Investment Sub-advisers.................. 4
Portfolio Manager........................ 6
How Advisers Are Paid for Their
Services............................... 6
The Sub-advisers......................... 7
About the Board of Trustees.............. 8

ABOUT THE FUNDS............................... 9
Growth, Balanced, Income and Stability
Categories............................. 9
Lifestyle Category....................... 9
About Level of Risk...................... 9
About Portfolio Turnover................. 9
About Fund Performance................... 10

THE INDEX EQUITY FUNDS........................ 11

HOW TO READ A FUND FACT SHEET................. 13

SERIES COMPANY FUND FACT SHEETS
INDEX EQUITY FUNDS
S&P 500 Index Fund.................. 14
Mid Cap Index Fund.................. 16
Small Cap Index Fund................ 18
ACTIVELY MANAGED EQUITY FUNDS
International Growth Fund........... 20
Large Cap Growth Fund............... 22
Mid Cap Growth Fund................. 24
Small Cap Growth Fund............... 26
International Value Fund............ 28
Large Cap Value Fund................ 30
Mid Cap Value Fund.................. 32
Small Cap Value Fund................ 34
SPECIALTY EQUITY FUND
Socially Responsible Fund........... 36
BALANCED FUND
Balanced Fund....................... 38
INCOME FUND
Domestic Bond Fund.................. 40
MONEY MARKET FUND
Money Market Fund................... 42
</TABLE>

LIFESTYLE FUNDS
Growth Lifestyle Fund............... 43
Moderate Growth Lifestyle Fund...... 44
Conservative Growth Lifestyle
Fund.............................. 45

TYPES OF INVESTMENTS.......................... 46
Stocks................................... 46
Bonds.................................... 46
Asset-Backed Securities............. 46
Loan Participations................. 47
Variable Amount Demand Master Notes...... 47
Structured Securities.................... 47
Real Estate Securities................... 47
Illiquid and Restricted Securities....... 47
Depository Receipts...................... 47
Investment Funds......................... 48
Foreign Currency......................... 48
When-Issued Securities................... 48
Money Market Securities.................. 48
Investment Companies..................... 48
Derivatives.............................. 48
Options............................. 49
Call Option......................... 49
Put Option.......................... 49
Swap Agreements.......................... 49
Warrants and Rights...................... 49
Repurchase Agreements.................... 50
A Word About Risk........................ 50
Investment Practices..................... 51
Limitations......................... 51
Lending Portfolio Securities........ 51

ABOUT THE SERIES COMPANY...................... 52
Series Company Shares.................... 52
Distribution and Service Plan............ 52
Net Asset Value of the Series Company
Shares................................. 53
Dividends and Capital Gains.............. 53
Diversification.......................... 53
Taxes.................................... 54
Voting Rights............................ 54
Year 2000 Risks.......................... 54
Reports.................................. 54
</TABLE>

(i)
<PAGE> 5

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

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

American General Series Portfolio Company 3 (the "Series Company") was organized
as a Delaware business trust on May 6, 1998.

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

Individuals can't invest in the shares of these Funds directly. Instead, they
participate through an annuity or variable life contracts or employer plan with
VALIC or one of its affiliates, or employee thrift plans maintained by VALIC or
American General Corporation. Most often employers set up these contracts so
they can offer their employees a way to save for retirement. Retirement plans
through employers may be entitled to tax benefits that individual retirement
plans may not be entitled to. These tax benefits are fully explained in your
contract prospectus.

After you invest in a Fund, you participate in Fund earnings or losses, in
proportion to the amount of money you invest. Depending on your contract, if you
withdraw your money before retirement, you may incur charges and additional tax
liabilities. However, to save for retirement, you generally should let your
investments and their earnings build. At retirement, you may withdraw all or a
portion of your money, leave it in the account until you need it, or start
receiving annuity payments. At a certain age you may be required to begin
withdrawals.

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

All inquiries regarding contracts issued by American General Life Insurance
Company (AGL) should be directed to AGL's Annuity Administration Department,
2727-A Allen Parkway, Houston, Texas 77019-2191 or call (800) 813-5065. AGL is a
member of the American General Corporation group of companies, as is VALIC.

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

1
<PAGE> 6
(This page intentionally left blank)

2
<PAGE> 7

EXPENSE SUMMARY
- --------------------------------------------------------------------------------

Annual fund operating expenses are the fees paid out of the assets of a Fund.
Each Fund pays a management fee to VALIC and a service fee to The Variable
Annuity Marketing Company ("VAMCO"). 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.

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

ANNUAL FUND OPERATING EXPENSES:
(as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LARGE
CAP
SMALL CAP INTERNATIONAL GROWTH
S&P 500 INDEX FUND MID CAP INDEX FUND INDEX FUND GROWTH FUND FUND
--------------------- --------------------- --------------------- --------------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fee(a) 0.07% 0.00% 0.00% 0.54% 0.34%
12b-1 Fees 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses(a) 0.26% 0.34% 0.34% 0.37% 0.27%
--- --- --- --- ----
Total Fund Operating
Expenses(a): 0.58% 0.59% 0.59% 1.16% 0.86%
=== === === === ====

<CAPTION>
SMALL LARGE
CAP CAP
MID CAP GROWTH INTERNATIONAL VALUE
GROWTH FUND FUND VALUE FUND FUND
--------------------- ------ ---------------------- -----
<S> <C> <C> <C> <C> <C> <C>
Management Fee(a) 0.18% 0.62% 0.44% 0.29%
12b-1 Fees 0.25% 0.25% 0.25% 0.25%
Other Expenses(a) 0.37% 0.29% 0.35% 0.27%
--- ---- --- ---
Total Fund Operating
Expenses(a): 0.80% 1.16% 1.04% 0.81%
=== ==== === ===
</TABLE>

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

ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

SOCIALLY
MID CAP SMALL CAP RESPONSIBLE
VALUE FUND VALUE FUND FUND BALANCED FUND
--------------------------- -------------------------- ----------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fee(a) 0.43% 0.45% 0.00% 0.00%
12b-1 Fees 0.25% 0.25% 0.25% 0.25%
Other Expenses(a) 0.37% 0.29% 0.31% 0.58%
--- --- ------ ---
Total Fund Operating
Expenses(a): 1.05% 0.99% 0.56% 0.83%
=== === ====== ===

<CAPTION>
CONSERVATIVE
MONEY GROWTH MODERATE GROWTH
DOMESTIC BOND MARKET LIFESTYLE GROWTH LIFESTYLE
FUND FUND FUND(B) FUND(B) FUND(B)
-------------------------- ------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Management Fee(a) 0.43% 0.00% 0.10% 0.10% 0.10%
12b-1 Fees 0.25% 0.25% -- -- --
Other Expenses(a) 0.16% 0.31% -- -- --
--- ---- ----- ----- -------
Total Fund Operating
Expenses(a): 0.84% 0.56% 0.10% 0.10% 0.10%
=== ==== ===== ===== =======
</TABLE>

(a) After expense reimbursement. In the absence of the expense reimbursement,
management fees, other expenses and total fund operating expenses,
respectively, would be: S&P 500 Index Fund, 0.27%, 0.26% and 0.78%; Mid Cap
Index Fund, 0.28%, 0.64% and 1.17%; Small Cap Index Fund, 0.28%, 0.81% and
1.34%; International Growth Fund, 0.90%, 0.37% and 1.52%; Large Cap Growth
Fund, 0.55%, 0.27% and 1.07%; Mid Cap Growth Fund, 0.63%, 0.37% and 1.25%;
Small Cap Growth Fund, 0.85%, 0.29% and 1.39%; International Value Fund,
0.95%, 0.35% and 1.55%; Large Cap Value Fund, 0.50%, 0.27% and 1.02%; Mid
Cap Value Fund, 0.75%, 0.37% and 1.37%; Small Cap Value Fund, 0.75%, 0.29%
and 1.29%; Socially Responsible Fund, 0.25%, 1.07% and 1.57%; Balanced
Fund, 0.80%, 0.66% and 1.71%; Domestic Bond Fund, 0.67%, 0.16% and 1.08%;
Money Market Fund, 0.25%, 1.04% and 1.54%.

(b) Shareholders in the Fund bear indirectly the expenses of the underlying
Series Company Funds in which the Fund invests.

The purpose of the expense table above is to assist investors in understanding
the various costs and expenses that a shareholder of a Fund will bear directly
or indirectly. Each Fund's annual operating expenses does not reflect expenses
imposed by separate accounts of VALIC through which an investment in each Fund
is made or their related contracts. A separate account's expenses are fully
explained in your contract prospectus.

3
<PAGE> 8

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

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. 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.

The Sub-advisers are:

BANKERS TRUST COMPANY
("BANKER'S TRUST")

Bankers Trust is the Sub-adviser for the S&P 500 Index Fund, the Mid Cap Index
Fund, and the Small Cap Index Fund and 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.

4
<PAGE> 9
- --------------------------------------------------------------------------------

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.

5
<PAGE> 10
- --------------------------------------------------------------------------------

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

PORTFOLIO MANAGER

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

HOW ADVISERS ARE PAID FOR
THEIR SERVICES

VALIC

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

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

<TABLE>
<S> <C>
S&P 500 Index Fund 0.27% on the first $500 million
0.26% on assets over $500 million
Mid Cap Index Fund 0.28% on the first $500 million
0.27% on assets over $500 million
Small Cap Index Fund 0.28% on the first $500 million
0.27% on assets over $500 million
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>

The Investment Advisory Agreement we entered into with each Fund does not limit
how much the Funds pay in monthly expenses each year. However, we voluntarily
limit the Funds' monthly expenses as follows:

If a Fund's average monthly expenses, when annualized, are more than [.96%] of
the Fund's estimated average daily net assets, we will pay the difference. As
a result the Fund's yield or total return will increase. If VALIC decides to
stop voluntarily reducing a Fund's expenses, it may do so by giving 30 days'
notice, in writing, to the Series Company.

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.

<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 0.80% on the first $50 million
0.45% on the next $50 million
0.42% 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>

6
<PAGE> 11
- --------------------------------------------------------------------------------

THE SUB-ADVISERS

According to the agreements we have with the Sub-advisers, we pay them directly
out of the fee we receive from the Funds. The Funds do not pay the Sub-advisers
directly. We pay them a percentage of what is paid to us by the Funds. We and
the Sub-advisers may agree to change the amount of money we pay them. Any such
change increasing the charge 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 replace or add
Sub-advisers and to enter into sub-advisory agreements with Sub-advisers upon
approval of the Board of Trustees but without formal shareholder approval.

Under the Investment Sub-Advisory Agreement we have with Bankers Trust, we pay
Bankers Trust monthly fees based on the average daily net asset values of the
portion of the Small Cap Value Fund portfolio it manages at an annual rate of
0.03% and the S&P 500 Index Fund at an annual rate of 0.02% of the first $2
billion and 0.01% on assets over $2 billion. We pay Bankers Trust monthly fees
based on the average daily net asset values of the Mid Cap Index Fund at an
annual rate of 0.03% of the first $300 million and 0.02% on assets over $300
million and the Small Cap Index Fund at an annual rate of 0.03% of the first
$150 million and 0.02% on assets over $150 million.

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 monthly 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 0.55% 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 fees between $1.25 million and $4 million, a
7.5% discount to fees from $4 million to $8 million, a 10% discount to fees
between $8 million and $12 million, and a 12.5% discount to fees exceeding $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.

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

7
<PAGE> 12
- --------------------------------------------------------------------------------

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

Under the Investment Sub-Advisory Agreement we have with State Street Global
Advisers, we pay State Street Global Advisers 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 eleven members: eight
are independent Trustees and three are VALIC employees.

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

8
<PAGE> 13

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

GROWTH, BALANCED, INCOME AND STABILITY 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:

S&P 500 Index Fund
Mid Cap Index Fund
Small Cap Index Fund
International Growth Fund
Large Cap Growth Fund
Mid Cap Growth Fund
Small Cap Growth Fund
International Value Fund
Large Cap Value Fund
Mid Cap Value Fund
Small Cap Value Fund
Socially Responsible Fund

Balanced Fund

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.

9
<PAGE> 14
- --------------------------------------------------------------------------------

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>
S&P 500 Index Fund 3-5%
Mid Cap Index Fund 10-15%
Small Cap Index Fund 40-50%
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. Additionally, information on separate account
performance appears in your contract prospectus.

10
<PAGE> 15

THE INDEX EQUITY FUNDS
- --------------------------------------------------------------------------------

Three of the 18 Funds in the Series Company are Index Equity Funds investing
mostly in stocks. Their investment strategy is to track the performance of a
specific index. This strategy is followed whether markets go up or down. As part
of this investment strategy, each Fund may also invest in futures contracts and
options. Because these Funds do not have a defensive investment strategy, when
the market goes down, you will bear the risk of such market decline.

Index Funds perform best over the long term. This means you should plan to keep
your money in an Index Fund for a period of years.

WHAT IS AN INDEX?

An index reflects the average performance of a particular class of securities.
Examples of indexes include large company stocks (S&P 500 Index), mid-size
company stocks (S&P Mid Cap 400 Index), the bond market, or stocks of companies
in specific industries. Indexes are not managed funds, and cannot be bought.
Investment advisers compare the results of the funds they manage to indexes that
are close to the investment style of the fund. Information about the Series
Company's use of Standard & Poor's Indexes is in the Statement of Additional
Information.

WHICH INDEXES DO THESE FUNDS TRY TO TRACK?

While there are more than a hundred different indexes, the Index Funds in this
prospectus try to track three very prominent stock indexes:

THE S&P 500 INDEX FUND TRACKS THE STANDARD & POOR'S 500 STOCK INDEX(R)*

The Standard & Poor's 500 Stock Index(R) (S&P 500) tracks the common stock
performance of large U.S. manufacturing, utilities, transportation, and
financial companies as well as companies in other industries. These companies
are usually listed on the New York Stock Exchange. It also tracks performance of
common stocks sold by foreign and smaller U.S. companies in similar industries.
The smaller U.S. companies are usually listed on the American Stock Exchange. In
total, this index tracks 500 common stocks.

An index may periodically change some of the stocks it tracks. And, different
indexes sometimes track some of the same stocks. For example, as of May 31,
1998, this Index was tracking 18 of the same stocks tracked by the Russell 2000
Index.

THE MID CAP INDEX FUND TRACKS THE STANDARD & POOR'S MID CAP 400(R) INDEX*

The Standard & Poor's Mid Cap 400(R) Index (S&P Mid Cap 400) tracks the common
stock performance of 400 medium capitalized U.S. and foreign manufacturing,
utilities, transportation, and financial companies as well as companies in other
industries. The average market capitalization of the S&P Mid Cap 400 Index was
$3.4 billion as of December 31, 1997.

Standard & Poor's created this Index in 1991 to give investors an idea of how
the stocks of medium capitalized companies generally perform.

Standard & Poor's may periodically change some of the stocks in the index. And,
different indexes sometimes include some of the same stocks. For example, as of
May 31, 1998, this Index was tracking 130 of the same stocks tracked by the
Russell 2000 Index. This Index does not track the same stocks as the S&P 500
Index.

THE SMALL CAP INDEX FUND TRACKS
THE RUSSELL 2000(R) INDEX**

The Russell 2000(R) Index is provided by The Frank Russell Company. This Index
tracks the common stock performance of 2,000 small capitalized U.S. companies in
various industries. Small capitalized means these companies have a market value
below $1 billion.

The Frank Russell Company created this Index in 1979 to give investors an idea
of how the stocks of small capitalized companies generally perform. The average
market capitalization of the Russell 2000 Index is $820 million as of December
31, 1997.

The stocks tracked by this Index are updated annually because many small
capitalized companies eventually become medium capitalized companies and some

fail.

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

* "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "S&P Mid Cap 400(R)" are
trademarks of Standard & Poor's ("S&P"). Neither the Mid Cap Index Fund nor
the Stock Index Fund is sponsored, endorsed, sold or promoted by S&P, and S&P
makes no representation regarding the advisability of investment in these
Funds.

** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. The Small Cap Index Fund is not promoted, sponsored or
endorsed by, nor in any way affiliated with Frank Russell Company. Frank
Russell Company is not responsible for and has not reviewed the Fund or any
associated literature or publications and makes no representation or
warranty, express or implied, as to their accuracy, or completeness, or
otherwise.

INDEX FUNDS have out-performed
most actively managed mutual
funds over consecutive ten year
periods. However, because they
are managed to track an index
they will rise and fall with
the market.

11
<PAGE> 16

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

HOW CLOSELY CAN INDEX FUNDS TRACK THE PERFORMANCE OF THEIR INDEX?

The factors that cause a Fund to perform differently from the Index it tries to
track are called tracking differences. There is no assurance that an Index Fund
can track its index.

The coefficient of correlation (r) is an index number which shows how closely
two variables are related. If r = 0 there is no tendency for one variable to
change with the other. A value of +1 means that one variable will vary exactly
with the other. Index funds try to keep their coefficient of correlation as
close to 1 as possible. As a practical matter, any coefficient above 0.95, when
measured against the comparison index, shows good tracking.

The index may remove one stock and substitute another requiring the sub-adviser
of the Fund to do the same. When a stock is sold and the new stock purchased,
the Fund incurs transaction costs. The index incurs no transaction costs.
Therefore, the portfolio manager cannot match exactly the performance of an
index.

Also, it may not be possible for a Fund to buy every stock in its index or in
the same proportions. Fund portfolio managers may rely on a statistical
selection technique to figure out, of the stocks tracked by their index, how
many and which ones to buy. Stocks are bought and sold when they are added to or
dropped from the Index. This keeps brokerage fees and other transaction costs
low. For more information, see the "Investment Strategy" sections on each Fund's
Fact Sheet.

12
<PAGE> 17

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 three Index Funds, 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.

13
<PAGE> 18

S&P 500 INDEX FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURN THROUGH
INVESTMENTS TRACKING THE S&P
500 INDEX
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

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

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

Bankers Trust Company

PORTFOLIO MANAGER

Frank Salerno, Managing Director-Chief Investment Officer of Quantitative and
Index Equity of the Sub-adviser, has been the Fund's portfolio manager since its
inception. Mr. Salerno has been with the Sub-adviser since 1981.

INVESTMENT OBJECTIVE

Seeks to provide investment results that, before Expenses, correspond to the
total return (i.e., the combination of capital changes and income) of common
stocks publicly traded in the United States, as represented by the S&P 500 Index
(Index).

INVESTMENT RISK

The S&P 500 Index includes the stock of many large, well-established companies.
These companies usually have the financial strength to weather difficult
financial times. However, the value of any stock can rise and fall over short
and long periods of time. This Fund, which holds nearly all of the 500 stocks in
the S&P 500 Index, avoids the risk of individual stock selection and seeks to
provide the return of the large company sector of the market. In the past that
return has been positive over many years but can be negative at certain times.
There is no assurance that a positive return will occur in the future.

Because the Fund invests in many of the stocks tracked by this Index, your
investment will experience similar changes in value and share similar risks,
such as market risk and risk associated with foreign securities. For more
information about market risk and risk associated with foreign securities, see
"A Word About Risk" in this prospectus.

INVESTMENT STRATEGY

The Fund invests in a sampling of stocks in the Index that, as a group, should
reflect its performance. The stocks of the S&P 500 Index to be included in the
Fund will be selected utilizing a statistical sampling technique known as
"optimization." This process selects stocks for the Fund so that various
industry weightings, market capitalizations and fundamental characteristics
(e.g., price-to-book, price-to-earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the S&P 500 Index. The stocks held by the
Fund are weighted to make the Fund's aggregate investment characteristics
similar to those of the Index as a whole. Since it may not be possible for this
Fund to buy every stock included on this Index or in the same proportions, we
rely on the aforementioned statistical technique to figure out, of the stocks
tracked by the Index, how many and which ones to buy.

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

<TABLE>
<CAPTION>
Percent of
Fund's Investments Fund's Assets*
- -------------------------------------------
<S> <C>
Stocks in the S&P 500 at least 80%
Index**
- -------------------------------------------
Futures and options no more than 33%
- -------------------------------------------
Short term debt up to 20%
securities and money
market instruments***
- -------------------------------------------
Illiquid securities up to 15%
- -------------------------------------------
</TABLE>

* At time of purchase.
** Under normal conditions, when the Fund's assets
exceed $10 million, the Fund will invest at least 80% of its assets in
common stocks of companies which comprise the S&P 500 Index.
*** The Fund's assets may be invested in short-term
instruments hedged with stock index futures or options with remaining
maturities of 397 days or less to meet redemptions, facilitate investment
in common stocks, or for day to day operating purposes. Short-term
instruments consist of (i) short-term obligations of the U.S. Government,
its agencies, instrumentalities, authorities or political subdivisions;
(ii) other short-term debt securities rated Aa or higher by Moody's
Investors Service, Inc. ("Moody's") or AA or higher by Standard & Poor's
Ratings Group("S&P") or, if unrated, of comparable quality in the opinion
of the Sub-adviser; (iii) commercial paper; (iv) bank obligations,
including negotiable certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. With respect to investments in
commercial paper, bank obligations or repurchase agreements, the issuer or
the issuer's parent must have outstanding debt rated Aa or higher by
Moody's or AA or higher by S&P or outstanding commercial paper or bank
obligations rated Prime-1 by Moody's or A-1 by S&P; or if no such ratings
are available, the instrument must be of comparable quality in our opinion.

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

14
<PAGE> 19

S&P 500 INDEX FUND
- --------------------------------------------------------------------------------

The S&P 500 Index Fund has not commenced operations and has no investment
performance record. However, the Fund will be managed in substantially the same
manner and by the same individuals as those employed by the Sub-adviser for the
BT Institutional Funds Equity 500 Index Fund. The chart below shows the
historical investment performance for the BT Institutional Funds Equity 500
Index Fund. The inception date for the BT Institutional Funds Equity 500 Index
Fund was , 199 .

Fees and expenses of the S&P 500 Index Fund may differ from the fees and
expenses historically incurred by the BT Institutional Funds Equity 500 Index
Fund. The performance figures have been adjusted to reflect an additional
deduction of [ %] for the S&P 500 Index Fund. This deduction represents an
estimate of the maximum fee differential between the two funds. The fee
differential from the inception date of the BT Institutional Funds Equity 500
Index Fund to the present could have been greater or lesser in any given year.
See "Performance Information" for an explanation of the information presented
below. THE PERFORMANCE INFORMATION BELOW IS BASED ON A FUND COMPARABLE TO THE
S&P 500 INDEX FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE FUND ITSELF.

[ADD PERFORMANCE INFORMATION -- BT INSTITUTIONAL FUNDS-
EQUITY 500 INDEX FUND]

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Fund returns reflect investment management fees and other Fund expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative or distribution fees or
surrender charges.

15
<PAGE> 20

MID CAP INDEX FUND
Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal GROWTH THROUGH INVESTMENTS
TRACKING THE S&P MID CAP 400
INDEX
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

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

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

Bankers Trust Company

PORTFOLIO MANAGER

INVESTMENT OBJECTIVE

Seeks to provide growth of capital through investments primarily in a
diversified portfolio of common stocks that, as a group, are expected to provide
investment results closely corresponding to the performance of the S&P Mid Cap
400 Index (Index).

INVESTMENT RISK

The S&P Mid Cap 400 Index includes the stocks of many medium sized companies.
These companies usually do not have as much financial strength as very large
companies and so may not be able to do as well in difficult times. However,
because they are medium sized, they have more potential to grow, which means the
value of their stock may increase. The S&P Mid Cap 400 Index also includes
stocks of certain medium sized foreign companies. These stocks can be more risky
than large company stocks. An index fund holding nearly all of the 400 stocks in
the S&P Mid Cap 400 Index avoids the risk of individual stock selection and
seeks to provide the return of the medium-sized company sector of the market. On
average that return has been positive over many years but can be negative at
certain times. There is no assurance that a positive return will occur in the
future.

Because this Fund invests in many of the stocks tracked by this Index, your
investment will experience similar changes in value and share similar risks such
as market risk and risk associated with foreign securities. For more information
about market risk and risk associated with foreign securities, see "A Word About
Risk" in this prospectus.

INVESTMENT STRATEGY

The Fund invests in a sampling of stocks in the Index that, as a group, should
reflect its performance. The stocks of the S&P Mid Cap 400 Index to be included
in the Fund will be selected utilizing a statistical sampling technique known as
"optimization." This process selects stocks for the Fund so that various
industry weightings, market capitalizations and fundamental characteristics
(e.g. price-to-book, price-to-earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the S&P Mid Cap 400 Index. The stocks held
by the Fund are weighted to make the Fund's aggregate investment characteristics
similar to those of the Index as a whole. Since it may not be possible for this
Fund to buy every stock included on this index or in the same proportions, we
rely on the aforementioned statistical technique to figure out, of the stocks
tracked by the index, how many and which ones to buy.

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

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- -------------------------------------------
<S> <C>
Stocks in the S&P Mid Cap at least 65%
400 Index
- -------------------------------------------
Foreign stocks (listed no more than 20%
and over-the-counter)
in the S&P Mid Cap 400
Index
- -------------------------------------------
Futures and options no more than 33%
- -------------------------------------------
Investments not in the no more than 35%
S&P Mid Cap 400 Index
Common stock and
related securities
High quality money
market securities
Illiquid and restricted
securities.
- -------------------------------------------
</TABLE>

* At time of purchase.

Additional information
about THE FUND'S INVEST-
MENTS is provided in
"Types of Investments."

16
<PAGE> 21

MID CAP INDEX FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Mid Cap Index Fund has not commenced operations and has no investment
performance record. However, the Fund will be managed in substantially the same
manner and by the same individuals as those employed by VALIC for the American
General Series Portfolio Company's Mid Cap Index Fund ("AGSPC Mid Cap Index
Fund"). The chart below shows the historical investment performance for the
AGSPC Mid Cap Index Fund. The inception date for the AGSPC Mid Cap Index Fund
was October 13, 1982.

Fees and expenses of the Mid Cap Index Fund may differ from the fees and
expenses historically incurred by the AGSPC Mid Cap Index Fund. The performance
figures have been adjusted to reflect an additional deduction of [ %] for the
Mid Cap Index Fund. This deduction represents an estimate of the maximum fee
differential between the two funds. The fee differential from the inception date
of the AGSPC Mid Cap Index Fund to the present could have been greater or lesser
in any given year. See "Performance Information" for an explanation of the
information presented below. THE PERFORMANCE INFORMATION BELOW IS BASED ON A
FUND COMPARABLE TO THE MID CAP INDEX FUND AND DOES NOT REFLECT THE PERFORMANCE
OF THE FUND ITSELF.

[ADD PERFORMANCE INFORMATION FOR AGSPC
MID CAP INDEX FUND]

17
<PAGE> 22

SMALL CAP INDEX FUND

Fact Sheet

<TABLE>
<S> <C>
- -------------------------------------------------
Investment Goal TOTAL RETURN THROUGH
INVESTMENTS TRACKING THE
RUSSELL 2000 INDEX
- -------------------------------------------------
Investment Category GROWTH
</TABLE>

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

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

Bankers Trust Company

PORTFOLIO MANAGER

INVESTMENT OBJECTIVE

Seeks to replicate as closely as possible (before deduction of Expenses) the
total return of the Russell 2000 Index (Index) by investing in one or more
companies included in the Index that are deemed representative of the
diversification of the entire Russell 2000 Index.

INVESTMENT RISK

The Russell 2000 Index includes many small U.S. companies. Some of these
companies often do not have the financial strength needed to do well in
difficult times. Also, they often sell limited numbers of products, which can
make it harder for them to compete with medium and large companies. However,
because they are small, their stock prices may fluctuate more over the
short-term, but they have more potential to grow. This means their stock value
may offer greater potential for appreciation. An index fund holding a large
sampling of the 2,000 stocks in the Russell 2000 Index avoids the risks of
individual stock selection and seeks to provide the return of the smaller-sized
company sector of the market. On average that return has been positive over the
years but has been negative at certain times. There is no assurance that a
positive return will occur in the future.

Because this Fund invests in many of the stocks tracked by this Index, your
investment will experience similar changes in value and share similar risks such
as market risk. For more information about market risk, see "A Word About Risk"
in this prospectus.

INVESTMENT STRATEGY

The Fund invests in a sampling of stocks in the Index that, as a group, should
reflect its performance. The stocks of the Russell 2000 Index to be included in
the Fund will be selected utilizing a statistical sampling technique known as
"optimization." This process selects stocks for the Fund so that various
industry weightings, market capitalizations and fundamental characteristics
(e.g. price-to-book, price-to-earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the Russell 2000 Index. The stocks held by
the Fund are weighted to make the Fund's aggregate investment characteristics
similar to those of the Index as a whole. Since it may not be possible for this
Fund to buy every stock included on this Index or in the same proportions, we
rely on the aforementioned statistical technique to figure out, of the stocks
tracked by the index, how many and which ones to buy.

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

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
- ---------------------------------------------
<S> <C>
Stocks in the Russell 2000 at least 80%
Index
- ---------------------------------------------
Illiquid securities up to 15%
- ---------------------------------------------
Futures and options up to 20%
- ---------------------------------------------
Swap agreements up to 10%
- ---------------------------------------------
Short-term securities and up to 25%
money market instruments**
- ---------------------------------------------
Warrants*** up to 5%
- ---------------------------------------------
</TABLE>

* At time of purchase.
** We may invest up to 25% of the Fund's assets in
short-term debt securities and money market instruments to meet redemption
requests or to facilitate investment in securities of 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.

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

18
<PAGE> 23

SMALL CAP INDEX FUND
Fact Sheet
- --------------------------------------------------------------------------------

The Small Cap Index Fund has not commenced operations and has no investment
performance record. However, the Fund will be managed in substantially the same
manner and by the same individuals as those employed by the Sub-advisor [and its
affiliates] for BT Advisor Funds Small Cap Index Fund. The chart below shows the
historical investment performance for BT Advisor Funds Small Cap Index Fund. The
inception date for BT Advisor Funds Small Cap Index Fund was , 199 .

Fees and expenses of the Small Cap Index Fund may differ from the fees and
expenses historically incurred by the BT Advisor Funds Small Cap Index Fund. The
performance figures have been adjusted to reflect an additional deduction of
[ %] for the Small Cap Index Fund. This deduction represents an estimate of
the maximum fee differential between the two funds. The fee differential from
the inception date of the BT Advisor Funds Small Cap Index Fund to the present
could have been greater or lesser in any given year. See "Performance
Information" for an explanation of the information presented below. THE
PERFORMANCE INFORMATION BELOW IS BASED ON A FUND COMPARABLE TO THE SMALL CAP
INDEX FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE FUND ITSELF.

[ADD PERFORMANCE INFORMATION FOR BT ADVISORS FUND-
SMALL CAP INDEX FUND]

19
<PAGE> 24

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."

20
<PAGE> 25

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

The International Growth Fund has not commenced operations and has no investment
performance record. The performance information shown below for the
International Growth Fund is based on a composite of the UAM Funds Jacobs
International Octagon Portfolio and the Templeton Small Companies Growth Fund
("Composite"). The International Growth Fund is modeled after the Composite and
will be managed in substantially the same manner and by the same individuals.
The chart below shows the historical investment performance for the Composite.
The inception date for the Composite was , 199 .

Fees and expenses of the International Growth Fund may differ from the fees and
expenses historically incurred by the Composite. The performance figures have
been adjusted to reflect an additional deduction of [ %] for the
International Growth Fund. This deduction represents an estimate of the maximum
fee differential between the International Growth Fund and the Composite. The
fee differential from the inception date of the Composite to the present could
have been greater or lesser in any given year. See "Performance Information" for
an explanation of the information presented below. 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.

[ADD COMBINED PERFORMANCE INFORMATION FOR THE COMPOSITE]

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
The Composite returns reflect investment management fees and other expenses. The
Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative or distribution fees or
surrender charges.

21
<PAGE> 26

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."

22
<PAGE> 27

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

The Large Cap Growth Fund has not commenced operations and has no investment
performance record. However, the Fund will be managed in substantially the same
manner and by the same individuals as those employed by the Sub-adviser for 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 May 1, 1997 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. The performance
information below for the Large Cap Growth Fund is a composite of the Goldman
Sachs CORE Large Cap Growth Fund and a predecessor separate account
("Composite"). 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.

Fees and expenses of the Large Cap Growth Fund may differ from the fees and
expenses historically incurred by the Composite. The performance figures have
been adjusted to reflect an additional deduction of [ %] for the Large Cap
Growth Fund. This deduction represents an estimate of the maximum fee
differential between the two funds. The fee differential from the inception date
of the Composite to the present could have been greater or lesser in any given
year. See "Performance Information" for an explanation of the information
presented below. 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.

[ADD PERFORMANCE INFORMATION FOR GOLDMAN SACHS CORE LARGE CAP GROWTH FUND]

23
<PAGE> 28

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."

24
<PAGE> 29

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

The Mid Cap Growth Fund has not commenced operations and has no investment
performance record. However, the Fund's investment objective and policies and
the Fund's strategies will be 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
historical 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 for
the Combined Accounts Composite was August 31, 1992.

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.

Fees and expenses of the Mid Cap Growth Fund may differ from the fees and
expenses historically incurred by the Sub-adviser's Combined Accounts Composite.
The performance figures have been adjusted to reflect an additional deduction of
[ %] for the Mid Cap Growth Fund. This deduction represents an estimate of
the maximum fee differential between the Mid Cap Growth Fund and the Combined
Accounts Composite. See "Performance Information" for an explanation of the
information presented below. 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.

[ADD PERFORMANCE OF COMPOSITE]

25
<PAGE> 30

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 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."

26
<PAGE> 31

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

The Small Cap Growth Fund has not commenced operations and has no investment
performance record. However, the Fund's investment objective and policies and
the Fund's strategies will be 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 for the Combined Accounts
Composite was August 31, 1994.

Fees and expenses of the Small Cap Growth Fund may differ from the fees and
expenses historically incurred by the accounts in the Combined Accounts
Composite. The performance figures below reflect the deduction of a 1.20% fee
which is the highest fee charged by the Sub-adviser for the strategy it will
employ in its management of the Small Cap Growth Fund. The fee differential from
the inception date of Combined Accounts Composite to the present could have been
greater or lesser in any given year. See "Performance Information" for an
explanation of the information presented below. 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.

[INSERT PERFORMANCE FOR COMBINED ACCOUNTS COMPOSITE]

27
<PAGE> 32

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."

28
<PAGE> 33

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

The International Value Fund has not commenced operations and has no investment
performance record. However, the Fund's investment objectives, policies and
strategies will be substantially similar to those employed by the Sub-adviser
with respect to 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 date of the Sub-Adviser Composite was
.

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.

Fees and expenses of the International Value Fund may differ from the fees and
expenses historically incurred by the accounts within the Sub-Adviser Composite.
The actual Sub-adviser Composite results have been adjusted downward by VALIC to
reflect an additional deduction of [ %] for the International Value Fund.
This deduction represents an estimate of the maximum fee differential between
the International Value Fund and the Sub-adviser Composite. The fee differential
from the inception date of the Sub-adviser Composite to the present could have
been greater or lesser in any given year. See "Performance Information" for an
explanation of the information presented below. 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.

[ADD PERFORMANCE INFORMATION FOR SUB-ADVISER COMPOSITE]

29
<PAGE> 34

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

This Fund invests primarily in the stocks of large, well-established companies
that generally possess the strength to withstand difficult financial periods.
Nevertheless, the value of any stock can rise or fall over short and long
periods of time. As described below, in order to avoid unintended exposures to
economic factors, including the direction of the economy, interest rates, energy
prices and inflation, we maintain the proportion of stocks from different
economic sectors in this Fund's portfolio at a level similar to that of the
Russell 1000 Value Index. There is no assurance that the Fund will be unaffected
by such economic factors.

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

INVESTMENT STRATEGY

The Fund will invest primarily in equity securities. 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 up to 25%
Covered put and call
options on securities
Put and call options on
securities indices
- ---------------------------------------------
Futures and options up to 5%
Initial margin deposits on
futures and premiums for
options and futures
- ---------------------------------------------
High quality short-term fixed up to 100%
income securities***
- ---------------------------------------------
</TABLE>

* At time of purchase.
** 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."

30
<PAGE> 35

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

The Large Cap Value Fund has not commenced operations and has no investment
performance record. However, the Fund will be managed in substantially the same
manner and by the same individuals as those employed by the Sub-adviser for a
discretionary account (the "Discretionary Account") managed by the Sub-adviser
with similar investment objectives. The Discretionary Account is not subject to
the investment limitations, diversification and other restrictions imposed on
registered mutual funds by the 1940 Act and the Internal Revenue Code. The chart
below shows the historical investment performance for the SSgA Large Cap Value
Fund. The inception date for the Discretionary Account was August, 1992.

Fees and expenses of the Large Cap Value Fund will be substantially greater than
the fees and expenses historically incurred by the Discretionary Account. The
performance figures have been adjusted to reflect an additional deduction of
[ %] for the Large Cap Value Fund. This deduction represents an estimate of
the maximum fee differential between the Large Cap Value Fund and the
Discretionary Account. The fee differential from the inception date of the
Discretionary Account to the present could have been greater or lesser in any
given year. See "Performance Information" for an explanation of the information
presented below. THE PERFORMANCE INFORMATION BELOW IS BASED ON A DISCRETIONARY
ACCOUNT COMPARABLE TO THE LARGE CAP VALUE FUND AND DOES NOT REFLECT THE
PERFORMANCE OF THE FUND ITSELF.

[ADD PERFORMANCE INFORMATION FOR SSGA LARGE CAP VALUE FUND]

31
<PAGE> 36

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 and 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."

32
<PAGE> 37

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

The Mid Cap Value Fund has not commenced operations and has no investment
performance record. However, the Fund will be managed in substantially the same
manner and by the same individuals as those employed by the Sub-adviser for the
Neuberger & Berman Partners Fund. The chart below shows the historical
investment performance for the Neuberger & Berman Partners Fund. The inception
date for the Neuberger & Berman Partners Fund was , 199 .

Fees and expenses of the Mid Cap Value Fund may differ from the fees and
expenses historically incurred by the Neuberger & Berman Partners Fund. The
performance figures have been adjusted to reflect an additional deduction of
[ %] for the Mid Cap Value Fund. This deduction represents an estimate of the
maximum fee differential between the two funds. The fee differential from the
inception date of the Neuberger & Berman Partners Fund to the present could have
been greater or lesser in any given year. See "Performance Information" for an
explanation of the information presented below. 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.

[ADD PERFORMANCE INFORMATION FOR
NEUBERGER & BERMAN PARTNERS FUND]

33
<PAGE> 38

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."

34
<PAGE> 39

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 up to 35%
Foreign 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.

35
<PAGE> 40

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."

36
<PAGE> 41

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

The Socially Responsible Fund has not commenced operations and has no investment
performance record. However, the Fund will be managed in substantially the same
manner and by the same individuals as those employed by VALIC for the American
General Series Portfolio Company Social Awareness Fund ("AGSPC Social Awareness
Fund"). The chart below shows the historical investment performance for the
AGSPC Social Awareness Fund. The inception date for the AGSPC Social Awareness
Fund was October 2, 1989.

Fees and expenses of the Socially Responsible Fund may differ from the fees and
expenses historically incurred by the AGSPC Social Awareness Fund. The
performance figures have been adjusted to reflect an additional deduction of
[ %] for the Socially Responsible Fund. This deduction represents an estimate
of the maximum fee differential between the two funds. The fee differential from
the inception date of the AGSPC Social Awareness Fund to the present could have
been greater or lesser in any given year. See "Performance Information" for an
explanation of the information presented below. 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.

[ADD PERFORMANCE DISCLOSURE FOR AGSPC SOCIAL AWARENESS FUND]

37
<PAGE> 42

BALANCED FUND
Fact Sheet

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

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

INVESTMENT ADVISER

VALIC

INVESTMENT SUB-ADVISER

Capital Guardian Trust Company

PORTFOLIO MANAGER

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

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."

38
<PAGE> 43

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

The Balanced Fund has not commenced operations and has no investment performance
record. However, the Fund's investment objectives, policies and strategies will
be substantially similar to those employed by the Sub-adviser with respect to
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 date of the Sub-adviser Composite was .

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.

Fees and expenses of the Balanced Fund may differ from the fees and expenses
historically incurred by the accounts within the Sub-adviser Composite. The
actual Sub-adviser Composite results have been adjusted downward by VALIC to
reflect an additional deduction of [ %] for the Balanced Fund. This deduction
represents an estimate of the maximum fee differential between the Balanced Fund
and the Sub-adviser Composite. The fee differential from the inception date of
the Sub-adviser Composite to the present could have been greater or lesser in
any given year. See "Performance Information" for an explanation of the
information presented below. THE PERFORMANCE INFORMATION BELOW IS BASED ON A
COMPOSITE COMPARABLE TO THE FUND AND DOES NOT REFLECT THE PERFORMANCE OF THE
FUND ITSELF.

[INSERT PERFORMANCE FOR SUB-ADVISER COMPOSITE]

39
<PAGE> 44

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 up to 100%
securities****
- ---------------------------------------------
</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."

40
<PAGE> 45

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

The Domestic Bond Fund has not commenced operations and has no investment
performance record. However, the Fund's investment objectives, policies and
strategies will be substantially similar to those employed by the Sub-adviser
with respect to 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 date of the Sub-adviser Composite was
.

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.

Fees and expenses of the Domestic Bond Fund may differ from the fees and
expenses historically incurred by the accounts within the Sub-adviser Composite.
The actual Sub-adviser Composite results have been adjusted downward by VALIC to
reflect an additional deduction of [ %] for the Domestic Bond Fund. This
deduction represents an estimate of the maximum fee differential between the
Domestic Bond Fund and the Sub-adviser Composite. The fee differential from the
inception date of the Sub-adviser Composite to the present could have been
greater or lesser in any given year. See "Performance Information" for an
explanation of the information presented below. THE PERFORMANCE INFORMATION
BELOW IS BASED ON A COMPOSITE COMPARABLE TO THE FUND AND DOES NOT REFLECT THE
PERFORMANCE OF THE FUND ITSELF.

[INSERT PERFORMANCE FOR SUB-ADVISER COMPOSITE]

41
<PAGE> 46

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:

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

o Certificates of deposit and other obligations of domestic banks that have
total assets in excess of $1 billion

o Commercial paper sold by corporations and finance companies

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

o Repurchase agreements

o Money market instruments of foreign issuers payable in U.S. dollars (limited
to no more than 20% of the Fund's net assets)

o Asset-backed securities

o Loan participations

o Adjustable rate securities

o 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."

42
<PAGE> 47

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 twelve 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 2%
Index Fund
American General Small Cap 9%
Value Fund
American General Small Cap 9%
Growth Fund
American General Mid Cap 3%
Index Fund
American General Mid Cap 6%
Value Fund
American General Mid Cap 6%
Growth Fund
American General S&P 500 5%
Index Fund
American General Large Cap 10%
Growth Fund
American General Large Cap 10%
Value Fund
American General Domestic 10%
Bond Fund
</TABLE>

43
<PAGE> 48

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 twelve 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 3%
Index Fund
American General Small Cap 6%
Value Fund
American General Small Cap 6%
Growth Fund
American General Mid Cap 3%
Index Fund
American General Mid Cap 6%
Value Fund
American General Mid Cap 6%
Growth Fund
American General S&P 500 6%
Index Fund
American General Large Cap 12%
Growth Fund
American General Large Cap 12%
Value Fund
American General Domestic 25%
Bond Fund
</TABLE>

44
<PAGE> 49

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 twelve 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 5%
Value Fund
American General International 5%
Growth Fund
American General Small Cap 2%
Index Fund
American General Small Cap 4%
Value Fund
American General Small Cap 4%
Growth Fund
American General Mid Cap 2%
Index Fund
American General Mid Cap 4%
Value Fund
American General Mid Cap 4%
Growth Fund
American General S&P 500 6%
Index Fund
American General Large Cap 12%
Growth Fund
American General Large Cap 12%
Value Fund
American General Domestic 40%
Bond Fund
</TABLE>

45
<PAGE> 50

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.

46
<PAGE> 51
- --------------------------------------------------------------------------------

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 MidCap
Value Fund may invest in EDRs and/or GDRs. The Large Cap Growth Fund may invest
in GDRs but may not invest in EDRs.

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

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

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

47
<PAGE> 52
- --------------------------------------------------------------------------------

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 S&P 500 Index Fund, the Mid
Cap Index Fund, the Small Cap Index Fund, 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 S&P 500 Index Fund, the Mid Cap Index
Fund, the Small Cap Index Fund, 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 the Money Market Fund, may
purchase forward foreign currency exchange contracts to protect against a
decline in the value of the U.S. dollar, to effect cross-hedges involving two
non-U.S. currencies, or for, settlement purposes.

WHEN-ISSUED SECURITIES

When-issued securities are those investments that have been announced by the
issuer and will be on the market soon. The Funds negotiate the price with a
broker before it goes on the market. If the security ends up selling on the
market at a lower price than negotiated, the Funds may have a loss. If it sells
at a higher price, the Funds may have a profit.

All of the Funds, other than the Lifestyle Funds, the 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:

o Cash and cash equivalents

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

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

o Commercial paper sold by corporations and finance companies

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

o 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

Unlike stocks and bonds that represent actual ownership of that stock or bond,
derivatives are investments which "derive" their value from securities issued by
a company, government, or government agency. In certain cases, derivatives may
be purchased for non-speculative investment purposes or to protect ("hedge")
against a change in the price of the underlying security. There are some
investors who take higher risk

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.

48
<PAGE> 53
- --------------------------------------------------------------------------------

("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 Domestic
Bond Fund, the Balanced 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, the Domestic
Bond Fund, the Balanced Fund and the International Growth Fund may invest in one
or more of the following types of futures and options:

o Write exchange traded covered put and call options on securities and stock
indices.

o Purchase exchange traded put and call options on securities and stock
indices.

o Purchase and sell exchange traded financial futures contracts.

o Write covered call options and purchase exchange traded put and call options
on financial futures contracts.

o 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, the Small Cap Growth Fund and the Small Cap Index Fund
may enter into swap agreements.

WARRANTS AND RIGHTS

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

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

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

49
<PAGE> 54
- --------------------------------------------------------------------------------

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:

o Market Risk

o Credit (Financial) Risk

o Interest Rate Risk

o Risk Associated with Foreign Securities

o 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.

50
<PAGE> 55
- --------------------------------------------------------------------------------

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

INVESTMENT PRACTICES

Limitations

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

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

For example, the S&P 500 Fund's investment goal is growth through investments
tracking the S&P 500 Index, an index that includes stocks of domestic and
foreign companies. As a result, this Fund may invest no more than 20% of its
assets in stocks that are not part of the S&P 500 Index.

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

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

Lending Portfolio Securities

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

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

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

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

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

51
<PAGE> 56

ABOUT THE SERIES COMPANY
- --------------------------------------------------------------------------------

SERIES COMPANY SHARES

The Series Company is an open-end mutual fund and may offer shares of the Funds
for sale at any time. However, the Series Company offers shares of the Funds
only to registered and unregistered separate accounts of VALIC, and its
affiliates, or employee thrift plans maintained by VALIC or American General
Corporation.

The Series Company was organized on May 6, 1998, under the laws of the state of
Delaware as a business trust, and presently is authorized to sell 18 series.
Each of these series is authorized to issue an unlimited number of shares of
beneficial interest, par value $0.01 per share.

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

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

As a participant, you do not directly buy shares of the Funds that make up the
Series Company. Instead, you buy units in either a registered or unregistered
separate account of VALIC or of its affiliates. When you buy these units, you
specify which Funds you want the separate account to invest your money in. The
separate account, in turn, buys the shares of the Funds according to your
instructions. See your contract prospectus for more information on the separate
account associated with your contract.

When the separate accounts buy, sell, or transfer shares of the Funds, they do
not pay any charges related to these transactions.

As distributor, VAMCO sells shares of the Funds to the separate accounts. VAMCO
is a wholly owned subsidiary of VALIC and acts as a distributor under an
agreement it has with the Series Company. VAMCO does not charge the Series
Company or the separate accounts for its services. Also, VAMCO is not required
to sell a minimum number of shares to the separate accounts.

VAMCO sends orders to buy, sell or transfer shares to the Series Company's
transfer agent daily. The price of any share affected by the request is the next
net asset value calculated after order is received.

For more information on how to participate, see your contract prospectus.

DISTRIBUTION AND SERVICE PLAN

The Series Company has adopted a Distribution and Service Plan (the "Plan")
under Rule 12b-1 of the 1940 Act. The Plan authorizes the Series Company to pay
VAMCO a fee equal on an annual basis to 0.25% of each Fund's average daily net
assets. The fee is paid to VAMCO in connection with its activities and expenses
in providing services to shareholders and/or maintaining shareholder accounts
[and for advertising, marketing and distributing the Fund's shares]. In
particular, the Plan and a related Distribution and Service Agreement between
the Series Company and VAMCO contemplate the fee will be used to pay VAMCO and
other broker-dealers with whom VAMCO has entered into an agreement, for helping
to establish and maintain shareholder accounts and records, helping with
requests to buy and sell shares, receiving and answering correspondence,
monitoring dividend payments from each Fund on behalf of shareholders, and
similar servicing and account maintenance activities. See the Statement of
Additional Information for more information about the Plan.

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

THE VARIABLE ANNUITY
MARKETING COMPANY
(VAMCO) acts as the
Series Company's
distributor.

52
<PAGE> 57
- --------------------------------------------------------------------------------

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 VAMCO, the separate accounts send 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. Each Fund,
except the Money Market Fund pays dividends quarterly. The Money Market Fund
pays dividends daily.

Distributions from Capital Gains

When a Fund sells a security for more than it paid for that security, a capital
gain results. Once a year, each Fund pays distributions from capital gains, as
long as total capital gains exceed total capital losses. Distributions from
capital gains are automatically reinvested for you into additional shares of the
Fund.

DIVERSIFICATION

Each Fund's diversification policy limits the amount that the Fund may invest in
certain securities. Each Fund's diversification policy is also designed to
comply with the diversification requirements of the Internal Revenue Code (the
"Code") as well as the 1940 Act.

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

The Lifestyle Funds are "non-diversified" under the 1940 Act. 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

53
<PAGE> 58
- --------------------------------------------------------------------------------

Fund. The remaining 50% of total assets may not include more than 5% of total
assets in one issuer.

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

TAXES

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

VOTING RIGHTS

One Vote Per Share

Each outstanding share has one vote on all matters that shareholders vote on. As
a participant, you vote on these matters indirectly by voting your units. The
way you vote your units as a participant depends on your contract. See your
contract prospectus for specific details.

When a matter comes up for vote, the separate account will vote its shares in
the same proportion as the unit votes it actually receives. If VALIC determines
that it may, under the current interpretation of the 1940 Act, vote shares
directly instead of voting through its units, it may decide to vote that way.

Shareholder Meetings

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:

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

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

o 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 contract owners or participants. Also, the Series Company includes
an Annual Report with each Statement of Additional Information it sends out.

If you have any questions about the Annual or Semi-Annual Reports, call or write
to the Series Company at the phone number/address found on the cover page of
this prospectus.

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

54
<PAGE> 59
Please tear off, complete and return the form below to Suite A3-01,
Communications Unit, The Variable Annuity Life Insurance Company, 2929 Allen
Parkway, Houston, Texas 77019 to order a Statement of Additional Information for
the Company. A Statement of Additional Information may also be ordered by
calling 1-800-44-VALIC.

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

<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Please send me a free copy of the Statement of Additional Information for American General Series Portfolio Company 3.

Name: --------------------------------------------------- GA #:-------------------------------------------------

Address: ------------------------------------------------- Policy #:----------------------------------------------

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

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

- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 60

TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History.....................
Performance and Yield Information...................
Average Annual Total Return.....................
Portfolio Total Return..........................
Index Total Return..............................
Seven Day Yields................................
30 Day Current Yield............................
Performance Returns.............................
Fundamental Investment Restrictions.................
American General S&P 500 Index Fund.............
American General Mid Cap Index Fund.............
American General Small Cap Index Fund...........
American General International Growth Fund......
American General Large Cap Growth Fund..........
American General Mid Cap Growth Fund............
American General Small Cap Growth Fund..........
American General International Value Fund.......
American General Large Cap Value Fund...........
American General Mid Cap Value Fund.............
American General Small Cap Value Fund...........
American General Socially Responsible Fund......
American General Balanced Fund..................
American General Domestic Bond Fund.............
American General Money Market Fund..............
American General Growth Lifestyle Fund..........
American General Moderate Growth Lifestyle
Fund..........................................
American General Conservative Growth Lifestyle
Fund..........................................
Investment Practices................................
Repurchase Agreements...........................
Lending Portfolio Securities....................
Reverse Repurchase Agreements...................
Convertible Securities..........................
Foreign Securities..............................
Emerging Markets................................
Foreign Currency Exchange Transactions..........
Standard and Poor's Depository Receipts.........
When-Issued Securities..........................
Debt Securities.................................
Zero Coupon Bonds...............................
Real Estate Securities and Real Estate
Investment Trusts.............................
Warrants........................................
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Swap Agreements.................................
Eurodollar Obligations..........................
Asset-Backed Securities.........................
Mortgage-Backed Securities......................
Loan Participations.............................
Adjustable Rate Securities......................
Illiquid Securities.............................
Rule 144A Securities............................
Options on Securities and Securities Indices....
Writing Covered Call and Put Options and
Purchasing Call and Put Options...............
Financial Futures Contracts.....................
Options on Financial Futures Contracts..........
Certain Additional Risks of Options and
Financial Futures Contracts...................
Limitations.....................................
Short Sales and Short Sales Against the Box.....
Money Market Securities of Foreign Issuers......
Investment Adviser..................................
Investment Sub-Advisers.............................
Portfolio Transactions and Brokerage................
Offering, Purchase, and Redemption of Fund Shares...
Distribution and Service Plan.......................
Determination of Net Asset Value....................
Calculation of Yield for the Money Market Fund......
Taxation............................................
General.........................................
Taxable U.S. Shareholders -- Distributions......
Taxable U.S. Shareholders -- Sales of Shares....
Non-U.S. Shareholders...........................
State and Local.................................
Section 817(h) of the Code......................
Other Information...................................
Shareholder Reports.............................
Voting and Other Rights.........................
Custody of Assets...............................
Index Funds.....................................
Description of Corporate Bond Ratings...........
Description of Commercial Paper Ratings.........
Independent Auditors............................
Trustees and Officers...............................
Financial Statements................................
</TABLE>
<PAGE> 61

================================================================================

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

Brown Capital Management, Inc.
809 Cathedral Street
Baltimore, Maryland 21201

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

Fiduciary Management Associates, Inc.
55 West Monroe Street
Suite 2550
Chicago, Illinois 60603

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

J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Jacobs Asset Management
200 East Broward Boulevard
Suite 1920
Fort Lauderdale, Florida 33301
Neuberger & Berman Management, Inc.
605 Third Avenue
Second Floor
New York, New York 10158-0180
State Street Global Advisors
2 International Place
Boston, Massachusetts 02110
DISTRIBUTOR:
The Variable Annuity Marketing Company
2929 Allen Parkway
Houston, TX 77019
CUSTODIAN:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS:
Ernst & Young LLP
1221 McKinney Street
Houston, Texas 77010
TRANSFER AND SHAREHOLDER SERVICE AGENT:
Boston Financial Data Services
2 Heritage Drive
Quincy, Massachusetts 02071

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 Paulsen 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

</TABLE>

Printed Matter
Printed in U.S.A. recycled paper
VA10832 VER. 5/98

================================================================================
<PAGE> 62

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.

SUBJECT TO COMPLETION

PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED MAY 22, 1998
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3

AMERICAN GENERAL S&P 500 INDEX FUND
AMERICAN GENERAL MID CAP INDEX FUND
AMERICAN GENERAL SMALL CAP INDEX FUND
AMERICAN GENERAL INTERNATIONAL GROWTH FUND
AMERICAN GENERAL LARGE CAP GROWTH
AMERICAN GENERAL MID CAP GROWTH FUND
AMERICAN GENERAL SMALL CAP GROWTH FUND
AMERICAN GENERAL INTERNATIONAL VALUE FUND
AMERICAN GENERAL LARGE CAP VALUE FUND
AMERICAN GENERAL MID CAP VALUE FUND
AMERICAN GENERAL SMALL CAP VALUE FUND
AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND
AMERICAN GENERAL BALANCED FUND
AMERICAN GENERAL DOMESTIC BOND FUND
AMERICAN GENERAL MONEY MARKET FUND
AMERICAN GENERAL GROWTH LIFESTYLE FUND
AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND
AMERICAN GENERAL CONSERVATIVE GROWTH LIFESTYLE FUND

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

STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------------------------------

PART B

[ , 1998]

This Statement of Additional Information is not a prospectus and contains
information in addition to that in the Prospectus for American General Series
Portfolio Company 3 (the "Series Company"). It should be read in conjunction
with the Prospectuses. The Statement of Additional Information and the related
Prospectuses are dated [ , 1998]. For an individual interested in a
variable annuity contract issued by the Variable Annuity Life Insurance Company
("VALIC") a Prospectus may be obtained by calling 1-800-44-VALIC or writing the
Company or The Variable Annuity Marketing Company ("VAMCO") at 2929 Allen
Parkway, Houston, Texas 77019. Shares in the Series Company are available to the
public only through the purchase of certain variable annuity contracts or
variable life insurance policies issued and employee thrift plans maintained by
VALIC and its affiliates.

DO NOT COPY
<PAGE> 63

TABLE OF CONTENTS

<TABLE>
<S> <C>
General Information and History............................. 4
Performance and Yield Information........................... 4
Average Annual Total Return............................... 4
Portfolio Total Return.................................... 4
Index Total Return........................................ 5
Seven Day Yields.......................................... 5
30 Day Current Yield...................................... 5
Performance Returns....................................... 6
Fundamental Investment Restrictions......................... 7
American General S&P 500 Index Fund....................... 7
American General Mid Cap Index Fund....................... 9
American General Small Cap Index Fund..................... 10
American General International Growth Fund................ 13
American General Large Cap Growth Fund.................... 14
American General Mid Cap Growth Fund...................... 15
American General Small Cap Growth Fund.................... 16
American General International Value Fund................. 16
American General Large Cap Value Fund..................... 17
American General Mid Cap Value Fund....................... 18
American General Small Cap Value Fund..................... 19
American General Socially Responsible Fund................ 22
American General Balanced Fund............................ 23
American General Domestic Bond Fund....................... 23
American General Money Market Fund........................ 24
American General Growth Lifestyle Fund.................... 25
American General Moderate Growth Lifestyle Fund........... 26
American General Conservative Growth Lifestyle Fund....... 27
Investment Practices........................................ 28
Repurchase Agreements..................................... 28
Lending Portfolio Securities.............................. 28
Reverse Repurchase Agreements............................. 29
Convertible Securities.................................... 29
Foreign Securities........................................ 29
Emerging Markets.......................................... 30
Foreign Currency Exchange Transactions.................... 31
Standard and Poor's Depository Receipts................... 31
When-Issued Securities.................................... 31
Debt Securities........................................... 31
Zero Coupon Bonds......................................... 32
Real Estate Securities and Real Estate Investment
Trusts................................................. 32
Warrants.................................................. 32
Swap Agreements........................................... 33
Eurodollar Obligations.................................... 33
Asset-Backed Securities................................... 33
Mortgage-Backed Securities................................ 34
Loan Participations....................................... 34
Adjustable Rate Securities................................ 35
Illiquid Securities....................................... 35
Rule 144A Securities...................................... 35
Options on Securities and Securities Indices.............. 36
Writing Covered Call and Put Options and Purchasing Call
and Put Options........................................ 37
</TABLE>

2
<PAGE> 64
<TABLE>
<S> <C>
Financial Futures Contracts............................... 38
Options on Financial Futures Contracts.................... 40
Certain Additional Risks of Options and Financial Futures
Contracts.............................................. 40
Limitations............................................... 42
Short Sales and Short Sales Against the Box............... 42
Money Market Securities of Foreign Issuers................ 42
Investment Adviser.......................................... 43
Investment Sub-Advisers..................................... 44
Portfolio Transactions and Brokerage........................ 46
Offering, Purchase, and Redemption of Fund Shares........... 48
Distribution and Service Plan............................... 49
Determination of Net Asset Value............................ 49
Calculation of Yield for the Money Market Fund.............. 50
Taxation.................................................... 51
General................................................... 51
Section 817(h) of the Code................................ 54
Other Information........................................... 55
Shareholder Reports....................................... 55
Voting and Other Rights................................... 55
Custody of Assets......................................... 55
Index Funds............................................... 56
Description of Corporate Bond Ratings..................... 57
Description of Commercial Paper Ratings................... 58
Independent Auditors...................................... 58
Trustees and Officers....................................... 59
Financial Statements........................................ 62
</TABLE>

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<PAGE> 65
GENERAL INFORMATION AND HISTORY

American General Series Portfolio Company 3 (the "Series Company") was
organized as a Delaware business trust on May 6, 1998 by VALIC and is registered
under the Investment Company Act of 1940, as amended, (the "1940 Act") as an
open-end, management investment company. Pursuant to an Investment Advisory
Agreement with the Series Company and subject to the authority of the Series
Company's Board of Trustees, VALIC serves as the Series Company's investment
adviser and conducts the business and affairs of the Series Company.
Additionally, VALIC has engaged investment sub-advisers to provide investment
sub-advisory services for each Fund other than the American General Socially
Responsible Fund, the American General Money Market Fund, the American General
Conservative Growth Lifestyle Fund, the American General Moderate Growth
Lifestyle Fund and the American General Growth Lifestyle Fund, subject to
VALIC's control, direction and supervision. The Series Company consists of
eighteen separate investment portfolios (hereinafter collectively referred to as
the "Funds" or individually as a "Fund"), each of which is, in effect, a
separate mutual fund issuing its own separate class of shares of beneficial
interest.

The Series Company issues shares of interest of each Fund to registered and
unregistered separate accounts of VALIC and its affiliates to fund variable
annuity or variable life contracts (the "Contracts"). Currently the Series
Company acts as an investment vehicle for assets of VALIC's Separate Account, a
unit investment trust registered as an investment company under the 1940 Act.
Additionally, retirement plans maintained by VALIC and American General
Corporation may own shares of certain of the Funds.

The Series Company and VALIC have Codes of Ethics which establish for their
officers, directors and certain employees procedures and restrictions as to
those individual's personal investment trading activities.

PERFORMANCE AND YIELD INFORMATION

The Series Company may compute the total return of a Fund ("Average Annual
Total Return"), total return of a Fund before expenses ("Portfolio Total
Return"), and compare Portfolio Total Return to the total return of the Fund's
benchmark index ("Index Total Return"). The difference between Portfolio Total
Return and Index Total Return is referred to as "tracking difference." Tracking
difference represents the amount that the return on the investment portfolio
(which results from the Adviser's investment selection) deviates from its
benchmark's Index Total Return. If you invest in a Fund through an annuity
contract, you should be aware that fund performance does not reflect contract
charges or separate account charges which will reduce Fund values which are
available to Participants. Information about Separate Account performance is
available in the applicable contract prospectus.

AVERAGE ANNUAL TOTAL RETURN

Average Annual Total Return quotations for periods of 1, 3, 5, and 10
years, or, since inception of the Fund, are calculated according to the
following formula:

P (1+T)(n) = ERV

Where:

<TABLE>
<S> <C>
P = A hypothetical initial Purchase Payment of $1,000.
T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a hypothetical $1,000 Purchase
Payment made at the beginning of the first period.
</TABLE>

Average Annual Total Return reflects the deduction of Fund expenses and
assumes that all dividends and distributions are reinvested when paid.

PORTFOLIO TOTAL RETURN

Portfolio Total Return quotations for periods of 1, 3, 5, and 10 years, or,
since inception are calculated by adding to the Average Total Annual Return

4
<PAGE> 66

(described above) the expenses of the Fund. Expenses of the Fund are calculated
at the end of each Fund's fiscal year and are expressed as a percentage of
average net assets. Expenses as a percentage of average net assets are prorated
equally over the months in the fiscal year in which the ratio was calculated
when determining expenses for periods crossing over fiscal years.

INDEX TOTAL RETURN

Index Total Return quotations for periods 1, 3, 5, and 10 years, or, since
inception, are calculated by determining the percentage change in value of the
benchmark index over the applicable period including reinvestment of dividends
and interest as applicable. Index Total Return is calculated according to the
formula described above for Average Annual Total Return, however it does not
include an expense component; if an expense component were included the return
would be lower.

SEVEN DAY YIELDS

The American General Money Market Fund may quote a Seven Day Current Yield
and a Seven Day Effective Yield. The Seven Day Current Yield is calculated by
determining the total return for the current seven day period ("based period
return") and annualizing the base period return by dividing by seven days, then
multiplying the result by 365 days. The Seven Day Effective Yield annualizes the
base period return while compounding weekly the base period return according to
the following formula:

Seven Day Effective Yield = [(Base Period Return + 1)(365/7)-1]

30 DAY CURRENT YIELD

The Domestic Bond Fund may quote a 30 Day Current Yield which is determined
based on the current 30 day period, according to the following standardized
formula:

Yield = 2[(1 + NII )(6)-1]
S X NAV

Where:

<TABLE>
<S> <C> <C>
NII = Net investment income (interest income, plus dividend
income, plus other income, less fund expenses.
S = Average daily shares outstanding.
NAV = Net asset value per share on the last day of the period.
</TABLE>

5
<PAGE> 67

PERFORMANCE RETURNS

[TO COME]

6
<PAGE> 68

FUNDAMENTAL INVESTMENT RESTRICTIONS

The Funds have each adopted certain fundamental investment restrictions
which, unlike the other investment objective(s), policies, and investment
program of each Fund, may only be changed with the consent of a majority of the
outstanding voting securities of the particular Fund. The 1940 Act defines such
a majority as the lesser of (1) 67% or more of the voting securities present in
person or by proxy at a shareholders' meeting, if the holders of more than 50%
of the outstanding voting securities of a Fund are present or represented by
proxy, or (2) more than 50% of a Fund's outstanding voting securities.

Calculation of each Fund's total assets for compliance with any of the
following fundamental or non-fundamental investment restrictions or any other
investment restrictions set forth in the Series Company's prospectus or
Statement of Additional Information will not include cash collateral held in
connection with securities lending activities.

The fundamental and, in certain cases, non-fundamental, investment
restrictions of each Fund are listed below. The percentage limitations
referenced in some of the restrictions are to be determined at the time of
purchase.

AMERICAN GENERAL S&P 500 INDEX FUND ("S&P 500 INDEX FUND") INVESTMENT
RESTRICTIONS

The S&P 500 Index Fund may not:

(1) Borrow money or mortgage or hypothecate assets of the Fund, except that in
an amount not to exceed 1/3 of the current value of the Fund's net assets,
it may borrow money as a temporary measure for extraordinary or emergency
purposes and enter into reverse repurchase agreements or dollar roll
transactions, and except that it may pledge, mortgage or hypothecate not
more than 1/3 of such assets to secure such borrowings (it is intended that
money would be borrowed only from banks and only either to accommodate
requests for the withdrawal of beneficial interests (redemption of shares)
while effecting an orderly liquidation of portfolio securities or to
maintain liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations) or reverse
repurchase agreements, provided that collateral arrangements with respect
to options and futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute.

(2) Underwrite securities issued by other persons except insofar as the Series
Company (or the Fund) may technically be deemed an underwriter under the
Securities Act of 1933 ("1933 Act") in selling a portfolio security.

(3) Make loans to other persons except: (a) through the lending of the Fund's
portfolio securities and provided that any such loans not exceed 30% of the
Fund's total assets (taken at market value); (b) through the use of
repurchase agreements or the purchase of short-term obligations; or (c) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately.

(4) Purchase or sell real estate (including, limited partnership interests but
excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business
(except that the Fund) may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the Fund's ownership of securities).

(5) Concentrate its investments in any particular industry (excluding U.S.
government securities), but if it is deemed appropriate for the achievement
of the Fund's investment objective, up to 25% of its total assets may be
invested in any one industry.

(6) Issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.

(7) Purchase securities issued by any investment company except by purchase in
the open market where no commission or profit to a

7
<PAGE> 69

sponsor or dealer results from such purchase other than the customary
broker's commission, or except when such purchase, though not made in the
open market is part of a plan of merger or consolidation; provided,
however, that securities of any investment company will not be purchased
for the Fund if such purchase at the time thereof would cause: (a) more
than 10% of the Fund's total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers: (b) more than 5%
of the Fund's total assets (taken at the greater of cost or market value)
to be invested in any one investment company; or (c) more than 3% of the
outstanding voting securities of any such issuer to be held for the Fund
and, provided further that. except in the case of merger or consolidation,
the Fund shall not invest in any other open-end investment company unless
the Fund (1) waives the investment advisory fee with respect to assets
invested in other open-end investment Companies and (2) incurs no sales
charge in connection with the investment (as an operating policy, the Fund
will not invest in another open-end registered investment company).
Notwithstanding the foregoing, the Fund may invest all of its investable
assets (cash, securities, and receivables relating to securities) in
open-end management investment companies having substantially the same
investment objective, policies and limitations as the Fund.

Additional Restrictions. In order to comply with certain statutes and
policies, the Fund will not as a matter of operating policy:

(1) Borrow money (including through dollar roll transactions for any purpose in
excess of 10% of the Fund's total assets (taken at cost) except that the
Fund may borrow for temporary or emergency purposes up to 1/3 of its total
assets.

(2) Pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Fund total assets (taken at market value), provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered a pledge of assets
for purposes of this restriction.

(3) Purchase any security or evidence of interest therein on margin, except
that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures.

(4) Sell any security which it does not own unless by virtue of its ownership
of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind
and amount to the securities sold and provided that if such right is
conditional the sale is made upon the same conditions.

(5) Invest for the purpose of exercising control or management.

(6) Invest more than 15% of the Fund's net assets (taken at the greater of cost
or market value) in securities that are illiquid or not readily marketable
not including (a) Rule 144A securities that have been determined to be
liquid by the Board of Trustees, and (b) commercial paper that is sold
under section 4(2) of the 1933 Act which: (i) is not traded flat or in
default as to interest or principal: and (ii) is rated in one of the two
highest categories by at least two nationally recognized statistical rating
organizations and the Series Company's Board of Trustees have determined
the commercial paper to be liquid: or (iii) is rated in one of the two
highest categories by one nationally recognized statistical rating agency
and the Board of Trustees has determined that the commercial paper is
equivalent quality and is liquid.

(7) Invest more than 10% of the Fund's total assets (taken at the greater of
cost or market value) in securities that are restricted as to resale under
the 1933 Act (other than Rule 144A securities deemed liquid by the Board of
Trustees.

(8) Invest more than 5% of the Fund's total assets in securities issued by
issuers which (including predecessors) have been in operation less than
three years.

(9) With respect to 75% of the Fund's total assets, purchase securities of any
issuer if such purchase at the time thereof would cause the Fund to hold
more than 10% of any class of

8
<PAGE> 70

securities of such issuer, for which purposes all indebtedness of an issuer
shall be deemed a single class and all preferred stock of an issuer shall
be deemed a single class, except that futures or option contracts shall not
be subject to this restriction.

(10) With respect to 75% of its assets, invest more than 5% of its total assets
in the securities (excluding U.S. government securities) of any one issuer.

(11) Purchase or retain in the Fund's portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Series Company, or is an officer or partner of
VALIC or the Sub-adviser, if after the purchase of the securities of such
issuer for the Fund one or more of such persons owns beneficially more than
1/2 of 1% of the shares or securities, or both, all taken at market value,
of such issuer, and such persons owning more than 1/2 of 1% of such shares
or securities together own beneficially more than 5% of such shares or
securities, or both, all taken at market value.

(12) Invest more than 5% of the Fund's net assets in warrants (valued at the
lower of cost or market) (other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase), but not more
than 2% of the Fund's net assets may be invested in warrants not listed on
the New York Stock Exchange Inc. (the "NYSE") or the American Stock
Exchange.

(13) Make short sales of securities or maintain a short position, unless at all
times when a short position is open, it owns an equal amount of such
securities or securities convertible into or exchangeable without payment
of any further consideration, for securities of the same issue and equal in
amount to, the securities sold short and unless not more than 10% of the
Fund's net assets (taken at market value) is represented by such
securities, or securities convertible into or exchangeable for such
securities, at any one time. The Fund has no current intention to engage in
short selling.

(14) Write puts and calls on securities unless each of the following conditions
are met: (a) the security underlying the put or call is within the
investment policies of the Fund and the option is issued by the Options
Clearing Corporation, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges: (b) the
aggregate value of the obligations underlying the puts determined as of the
date the options are sold shall not exceed 50% of the Fund's net assets;
(c) the securities subject to the exercise of the call written by the Fund
must be owned by the Fund at the time the call is sold and must continue to
be owned by the Fund until the call has been exercised, has lapsed, or the
Fund has purchased a closing call, and such purchase has been confirmed,
thereby extinguishing the Fund's obligation to deliver securities pursuant
to the call it has sold: and (d) at the time a put is written, the Fund
establishes a segregated account with its custodian consisting of cash or
short-term U.S. government securities equal in value to the amount the Fund
will be obligated to pay upon exercise of the put (this account must be
maintained until the put is exercised, has expired, or the Fund has
purchased a closing put, which is a put of the same series as the one
previously written).

(15) Buy and sell puts and calls on securities, stock index futures or options
on stock index futures, or financial futures or options on financial
futures unless such options are written by other persons and: (a) the
options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all such options which are held at any time do
not exceed 20% of the Fund's total net assets; and (c) the aggregate margin
deposits required on all such futures or options thereon held at any time
do not exceed 5% of the Fund's total assets.

AMERICAN GENERAL MID CAP INDEX FUND ("MID CAP INDEX FUND") INVESTMENT
RESTRICTIONS

The Mid Cap Index Fund may not:

9
<PAGE> 71

an issuer are considered as one class, and all preferred stock of an issuer
is considered as one class. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities. As a matter of operating policy, the Series Company will
not consider repurchase agreements subject to the 5% limitation if the
collateral underlying the repurchase agreements are U.S. Government
securities.

(2) (a) Issue senior securities except in connection with investments in
options and futures contracts; or (b) borrow money except as a temporary
measure for extraordinary or emergency purposes (such as to meet redemption
requests which might otherwise require the disadvantageous sale of
portfolio securities) and then not in excess of 5% of the Fund's total
assets. The Fund may mortgage, pledge or hypothecate more than 5% of the
value of its total assets, and then only to secure borrowings made under
this restriction.

(3) Acquire more than 3% of the voting securities of any single other
investment company or invest more than 10% of (the value of) the Fund's
assets in the securities of other investment companies (5% in the case of
each such other company); provided that the Fund may invest all of its
investable assets (cash, securities, and receivables relating to
securities) in open-end management investment companies having
substantially the same investment objective, policies and limitations as
the Fund. Additionally, investment company securities will only be
purchased on the open market or from brokers or dealers receiving customary
commissions.

(4) Acquire real estate or real estate contracts, although the Fund may acquire
obligations that are secured by real estate or securities issued by
companies investing in real estate, such as real estate investment trusts.

(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.

(6) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer.

(7) Effect short sales of securities or purchase securities on margin, except
in connection with investment in options and futures contracts. Each Fund
may use short-term credits when necessary to clear transactions.

(8) Lend money, except by purchasing debt obligations in which a Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.

(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.

(10) Make loans to other persons, except that a Fund may lend its portfolio
securities to broker-dealers and other financial institutions in an amount
up to 30% of the value of the Fund's total assets.

(11) Enter into a financial futures contract (by exercise of any option or
otherwise) or acquire any options thereon, if, immediately thereafter, the
total of the initial margin deposits required with respect to all open
futures positions, at the time such positions were established, plus the
sum of the premiums paid for all unexpired options on futures contracts
would exceed 5% of the value of its total assets.

(12) Invest more than 25% of the value of its total assets in the securities of
issuers primarily engaged in any one industry.

AMERICAN GENERAL SMALL CAP INDEX FUND ("SMALL CAP INDEX FUND") INVESTMENT
RESTRICTIONS

The Small Cap Index Fund may not:

10
<PAGE> 72

action or other similar situations) or reverse repurchase agreements,
provided that collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and except
that assets may be pledged to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by the
Investment Company Institute.

(2) Underwrite securities issued by other persons except insofar as the Series
Company (or the Fund) may technically be deemed an underwriter under the
1933 Act in selling a portfolio security.

(4) Purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business
(except that the Series Company may hold and sell, for the Fund's
portfolio, real estate acquired as a result of the Fund's ownership of
securities).

(5) Concentrate its investments in any particular industry (excluding U.S.
Government securities), but if it is deemed appropriate for the achievement
of a Fund's investment objective(s), up to 25% of its total assets may be
invested in any one industry.

(7) Purchase securities issued by any investment company except by purchase in
the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a
plan of merger or consolidation; provided, however, that securities of any
investment company will not be purchased for the Fund if such purchase at
the time thereof would cause: (a) more than 10% of the Fund's total assets
(taken at the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the Fund's total assets
(taken at the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting
securities of any such issuer to be held for the Fund; provided further
that, except in the case of a merger or consolidation, the Fund shall not
purchase any securities of any open-end investment company unless the Fund
(i) waives the investment advisory fee with respect to assets invested in
other open-end investment companies and (ii) incurs no sales charge in
connection with the investment (as an operating policy, the Fund will not
invest in another open-end registered investment company). Notwithstanding
the foregoing, the Fund may invest all of its investable assets (cash,
securities, and receivables relating to securities) in open-end management
investment companies having substantially the same investment objective,
policies and limitations as the Fund.

Additional Restrictions. In order to comply with certain statutes and
policies the Fund will not as a matter of operating policy:

(1) Borrow money (including through reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Fund's total assets
(taken at cost), except that the Fund may borrow for temporary or emergency
purposes up to 1/3 of its total assets.

(2) Pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Fund's total assets (taken at market value), provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, and reverse re-

11
<PAGE> 73

purchase agreements are not considered a pledge of assets for purposes of
this restriction.

(4) Sell securities it does not own such that the dollar amount of such short
sales at any one time exceeds 25% of the net equity of the Fund, and the
value of securities of any one issuer in which the Fund is short exceeds
the lesser of 2.0% of the value of the Fund's net assets or 2.0% of the
securities of any class of any U.S. issuer and, provided that short sales
may be made only in those securities which are fully listed on a national
securities exchange or a foreign exchange (This provision does not include
the sale of securities of the Fund contemporaneously owns or has the right
to obtain securities equivalent in kind and amount to those sold, i.e.,
short sales against the box.) (The Fund has no current intention to engage
in short selling).

(5) Invest for the purpose of exercising control or management.

(6) Invest more than 10% of the Fund's total assets (taken at the greater of
cost or market value) in securities that are restricted as to resale under
the 1933 Act (other than Rule 144A securities deemed liquid by the Fund's
Board of Trustees).

(7) Invest more than 15% of the Fund's net assets (taken at the greater of cost
or market value) in securities that are illiquid or not readily marketable
not including (a) Rule 144A securities that have been determined to be
liquid by the Board of Trustees; and (b) commercial paper that is sold
under section 4(2) of the 1933 Act which: (i) is not traded flat or in
default as to interest or principal; and (ii) is rated in one of the two
highest categories by at least two nationally recognized statistical rating
organizations and the Board of Trustees have determined the commercial
paper to be liquid; or (iii) is rated in one of the two highest categories
by one nationally recognized statistical rating agency and the Board of
Trustees have determined that the commercial paper is equivalent quality
and is liquid.

(8) Invest more than 5% of the Fund's total assets in securities issued by
issuers which (including predecessors) have been in operation less than
three years.

(9) With respect to 75% of the Fund's total assets, purchase securities of any
issuer if such purchase at the time thereof would cause the Fund to hold
more than 10% of any class of securities of such issuer, for which purposes
all indebtedness of an issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a single class, except that
futures or option contracts shall not be subject to this restriction.

(10) Invest more than 5% of its total assets in the securities (excluding U.S.
government securities) of any one issuer.

(11) Invest in securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the Series
Company, or is an officer or partner of the VALIC or of the Subadviser, if
after the purchase of the securities of such issuer for the Fund one or
more of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or both, all
taken at market value.

(12) Invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase) if, as a result,
the investments (valued at the lower of cost or market) would exceed 5% of
the value of the Fund's net assets or if, as a result, more than 2% of the
Fund's net assets would be invested in warrants not listed on a recognized
United States or foreign stock exchange, to the extent permitted by
applicable state securities laws.

12
<PAGE> 74

poration, except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b) the aggregate
value of the obligations underlying the puts determined as of the date the
options are sold shall not exceed 5% of the Fund's net assets; (c) the
securities subject to the exercise of the call written by the Fund must be
owned by the Fund at the time the call is sold and must continue to be
owned by the Fund until the call has been exercised, has lapsed, or the
Fund has purchased a closing call, and such purchase has been confirmed,
thereby extinguishing the Fund's obligation to deliver securities pursuant
to the call it has sold; and (d) at the time a put is written, the Fund
establishes a segregated account with its custodian consisting of cash or
short-term U.S. government securities equal in value to the amount the Fund
will be obligated to pay upon exercise of the put (this account must be
maintained until the put is exercised, has expired, or the Fund has
purchased a closing put, which is a put of the same series as the one
previously written).

(14) Buy and sell puts and calls on securities, stock index futures or options
on stock index futures, or financial futures or options on financial
futures unless such options are written by other persons and: (a) the
options or futures are offered through the facilities of a national
securities association or are listed on a national securities or
commodities exchange, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all, such options which are held at any time do
not exceed 20% of the Fund's total net assets; and (c) the aggregate margin
deposits required on all such or options thereon held at any time do not
exceed 5% of the Fund's total assets.

AMERICAN GENERAL INTERNATIONAL GROWTH FUND ("INTERNATIONAL GROWTH FUND")
INVESTMENT RESTRICTIONS

The International Growth Fund may not:

(1) With respect to 75% of its assets, invest more than 5% of its total assets
at the time of purchase in the securities of any single issuer (other than
obligations issued or guaranteed as to principal and interest by the U.S.
Government or any of its agencies or instrumentalities).

(2) With respect to 75% of its assets, purchase more than 10% of any class of
the outstanding voting securities of any issuer.

(3) Invest more than 5% of its assets at the time of purchase in the securities
of companies that have (with predecessors) a continuous operating history
of less than 3 years.

(4) Invest more than 25% of its assets in companies within a single industry;
however, there are no limitations on investments made in instruments issued
or guaranteed by the U.S. Government and its agencies.

(5) Make loans except by purchasing debt securities in accordance with its
investment objective and policies or entering into repurchase agreements,
or by lending its portfolio securities to banks, brokers, dealers and other
financial institutions so long as the loans are made in compliance with the
1940 Act, as amended, or the Rules and Regulations or interpretations of
the SEC.

(6) (i) Borrow, except from banks and as a temporary measure for extraordinary
or emergency purposes and then, in no event, in excess of 33 1/3% of the
Fund's gross assets valued at the lower of market or cost, and (ii) a Fund
may not purchase additional securities when borrowings exceed 5% of total
assets.

(7) Pledge, mortgage or hypothecate any of its assets to an extent greater than
33 1/3% of its total assets at fair market value.

(8) Invest in physical commodities or contracts on physical commodities.

(9) Purchase or sell real estate, although it may purchase and sell securities
of companies which deal in real estate and may purchase and sell securities
which are secured by interests in real estate.

(10) Underwrite the securities of other issuers.

(11) Invest in futures and/or options on futures.

(12) Purchase on margin or sell short.

(13) Invest more than an aggregate of 15% of the net assets of the Fund,
determined at the time of investment, in securities subject to legal or
contractual restrictions on resale or securities for which there are not
readily available markets.

13
<PAGE> 75

(14) Invest for the purpose of exercising control over management of any
company.

(15) Issue senior securities, as defined in the 1940 Act, except that this
restriction shall not be deemed to prohibit the Fund from (i) making any
permitted borrowings, mortgages or pledges, or (ii) entering into
repurchase transactions.

(16) Acquire more than 3% of the voting securities of any single other
investment company or invest more than 10% of (the value of) the Fund's
assets in the securities of other investment companies (5% in the case of
each such other company); provided that the Fund may invest all of its
investable assets (cash, securities, and receivables relating to
securities) in open-end management investment companies having
substantially the same investment objective, policies and limitations as
the Fund.

The Fund's investment limitations (3), (6)(ii), (7) (11), (12), (13) and
(14) are not fundamental and the Series Company's Board of Trustees may change
them without shareholder approval.

AMERICAN GENERAL LARGE CAP GROWTH FUND
("LARGE CAP GROWTH FUND") INVESTMENT
RESTRICTIONS

The Large Cap Growth Fund may not:

(1) Make any investment inconsistent with the Fund's classification as a
diversified company under the 1940 Act.

(2) Invest 25% or more of its total assets in the securities of one or more
issuers conducting their principal business activities in the same industry
(excluding the U.S. Government or any of its agencies or
instrumentalities).

(3) Borrow money, except (a) the Fund may borrow from banks (as defined in the
Act) or through reverse repurchase agreements in amounts up to 33 1/3% of
its total assets (including the amount borrowed), (b) the Fund may, to the
extent permitted by applicable law, borrow up to an additional 5% of its
total assets for temporary purposes, (c) the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase securities on
margin to the extent permitted by applicable law and (e) the Fund may
engage transactions in mortgage dollar rolls which are accounted for as
financings.

(4) Make loans, except through (a) the purchase of debt obligations in
accordance with the Fund's investment objective and policies, (b)
repurchase agreements with banks, brokers, dealers and other financial
institutions, and (c) loans of securities as permitted by applicable laws
but not to exceed 33 1/3% of the Fund's total assets.

(5) Underwrite securities issued by others, except to the extent that the sale
of portfolio securities by the Fund may be deemed to be an underwriting.

(6) Purchase, hold or deal in real estate, although the Fund may purchase and
sell securities that are secured by real estate or interests therein,
securities of real estate investment trusts and mortgage-related securities
and may hold and sell real estate acquired by a Fund as a result of the
ownership of securities.

(7) Invest in commodities or commodity contracts, except that the Fund may
invest in currency and financial instruments and contracts that are
commodities or commodity contracts.

(8) Issue senior securities to the extent such issuance would violate
applicable law.

(9) Invest in companies for the purpose of exercising control or management.

(10) Invest more than 15% of the Fund's net assets in illiquid investments
including repurchase agreements maturing in more than seven days,
securities which are not readily marketable and restricted securities not
eligible for resale pursuant to Rule 144A under the 1933 Act.

(11) Purchase additional securities if the Fund's borrowings (excluding covered
mortgage dollar rolls) exceed 5% of its net assets.

(12) Make short sales of securities, except short sales against the box.

The Fund's investment limitations (9) through (12) are non-fundamental and may
be changed by the Board of Trustees without shareholder approval. In addition,
the Fund may invest all of its investable assets (cash, securities, and
receivables relating to securities) in open-end management investment

14
<PAGE> 76

companies having substantially the same investment objective, policies and
limitations as the Fund.

AMERICAN GENERAL MID CAP GROWTH FUND ("MID CAP GROWTH FUND") INVESTMENT
RESTRICTIONS

The Mid Cap Growth Fund may not:

(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities or of any class of securities of any one issuer (except that
securities of the U.S. Government, its agencies and instrumentalities are
not subject to these limitations).

(2) Invest 25% or more of the value of its total assets in any one industry or
group of industries (except that securities of the U.S. Government, its
agencies and instrumentalities are not subject to these limitations).

(3) Invest in the securities of any issuer if any of the officers or trustees
of the Series Company, VALIC or the Sub-adviser own beneficially more than
1/2 of 1% of the outstanding securities of such issuer or together own more
than 5% of the outstanding securities of such issuer.

(4) Invest for the purpose of exercising control or management of another
issuer.

(5) Invest in interests in real estate, real estate mortgage loans, real estate
limited partnerships, oil, gas or other mineral exploration or development
programs or leases, except that the Fund may invest in the readily
marketable securities of companies which own or deal in such things.

(6) Underwrite securities issued by others except to the extent the Fund may be
deemed to be an underwriter under the federal securities laws, in
connection with the disposition of portfolio securities.

(7) Purchase securities on margin (but the Fund may obtain such short-term
credits as may be necessary for the clearance of transactions.

(8) Make short sales of securities or maintain a short position, except short
sale "against the box"; (A short sale is made by selling a security the
Fund does not own. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no additional
cost securities identical to those sold short.)

(9) Participate on a joint or joint and several basis in any trading account in
securities.

(10) Make loans of money or securities, except that the Fund may invest in
repurchase agreements.

(11) Invest in securities of issuers which have a record of less than three
years' continuous operation (including predecessors and, in the case of
bonds, guarantors), if more than 5% of its total assets would be invested
in such securities.

(12) Invest in more than 10% of the value of its net assets in repurchase
agreements having a maturity of longer than seven days or other not readily
marketable securities; included in this category are any assets for which
an active and substantial market does not exist at the time of purchase or
subsequent valuation.

(13) Issue senior securities, borrow money, or pledge its assets.

(14) Purchase foreign securities, except the Fund may purchase foreign
securities sold as American Depository Receipts without limit.

(15) Write, purchase, or sell puts, calls, warrants or combinations thereof, or
purchase or sell commodities, commodities contracts, futures contracts, or
related options.

(16) Invest in restricted securities.

(17) Invest in other registered investment companies, provided that the Fund may
invest all of its investable assets (cash, securities, and receivables
relating to securities) in open-end management investment companies having
substantially the same investment objective, policies and limitations as
the Fund.

While the Fund has reserved the right to make short sales "against the box"
(limitation number 8, above), the Sub-adviser has no present intention of
engaging in such transactions at this time or during the coming year.

15
<PAGE> 77

AMERICAN GENERAL SMALL CAP GROWTH FUND
("SMALL CAP GROWTH FUND") INVESTMENT
RESTRICTIONS

The Small Cap Growth Fund may not:

(1) Make any investment inconsistent with the Fund's classification as a
diversified investment company under the 1940 Act.

(2) Concentrate its investments in the securities of issuers primarily engaged
in any particular industry except as permitted by the SEC.

(3) Issue senior securities, except as permitted under the 1940 Act or any
rule, order or interpretation thereunder.

(4) Borrow money, except to the extent permitted by applicable law.

(5) Underwrite securities of other issuers, except to the extent that the Fund,
in disposing of portfolio securities may be deemed an underwriter within
the meaning of the 1933 Act.

(6) Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in (a) securities directly or
indirectly secured by real estate, or (b) securities issued by issuers that
invest in real estate.

(7) Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; provided that this policy
shall not prohibit the Fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed by
physical commodities.

(8) Make loans to other persons, except in accordance with the Fund's
investment objectives and policies and to the extent permitted by
applicable law.

(9) Purchase securities on margin, make short sales of securities, or maintain
a short position, except in the course of the Fund's hedging activities,
provided that this restriction shall not be deemed to be applicable to the
purchase or sale of when-issued securities or delayed delivery securities.

(10) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market
value of the Fund's net assets would be in investments that are illiquid.

Investment restrictions (9) and (10) are non-fundamental policies of the
Fund and may be changed by the Board of Trustees without shareholder approval.
In addition, the Fund may invest all or part of its investable assets (cash,
securities and receivables relating to securities) in open-end management
investment companies having substantially the same investment objective,
policies and limitations as the Fund's.

AMERICAN GENERAL INTERNATIONAL VALUE FUND
("INTERNATIONAL VALUE FUND") RESTRICTIONS

The International Value Fund may not:

(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or purchase more than 10% of the outstanding voting
securities, or any other class of securities, of any one issuer. For
purposes of this restriction, all outstanding debt securities of an issuer
are considered as one class, and all preferred stock of an issuer is
considered as one class. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities. As a matter of operating policy, the Series Company will
not consider repurchase agreements subject to the 5% limitation if the
collateral underlying the repurchase agreements are U.S. Government
securities.

16
<PAGE> 78

Investment company securities will only be purchased on the open market or
from brokers or dealers receiving customary commissions.

(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.

(6) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer.

(8) Lend money, except by purchasing debt obligations in which a Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.

(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.

AMERICAN GENERAL LARGE CAP VALUE FUND ("LARGE CAP VALUE FUND") INVESTMENT
RESTRICTIONS

The Large Cap Value Fund may not:

(1) Invest 25% or more of the value of its total assets in securities of
companies primarily engaged in any one industry (other than the U.S.
Government, its agencies and instrumentalities). Concentration may occur as
a result of changes in the market value of portfolio securities, but may
not result from investment.

(2) Borrow money (including reverse repurchase agreements), except as a
temporary measure for extraordinary or emergency purposes or to facilitate
redemptions (not for leveraging or investment), provided that borrowings do
not exceed an amount equal to 33 1/3% of the current value of the Fund's
assets taken at market value, less liabilities other than borrowings. If at
any time the Fund's borrowings exceed this limitation due to a decline in
net assets, such borrowings will within three days be reduced to the extent
necessary to comply with this limitation. The Fund will not purchase
investments once borrowed funds (including reverse repurchase agreements)
exceed 5% of its total assets.

(3) Pledge, mortgage or hypothecate its assets. However, the Fund may pledge
securities having a market value at the time of the pledge not exceeding
33 1/3% of the value of the Fund's total assets to secure borrowings
permitted by paragraph (2) above.

(4) With respect to 75% of its total assets, invest in securities of any one
issuer (other than securities issued by the U.S. Government, its agencies,
and instrumentalities), if immediately after and as a result of such
investment the current market value of the Fund's holdings in the
securities of such issuer exceeds 5% of the value of the Fund's assets.

(5) Make loans to any person or firm; provided, however, that the making of a
loan shall not include (i) the acquisition for investment of bonds,
debentures, notes or other evidences of indebtedness of any corporation or
government which are publicly distributed or of a type customarily
purchased by institutional investors, or (ii) the entry into repurchase
agreements or reverse repurchase agreements. The Fund may lend its
portfolio securities to broker-dealers or other institutional investors if
the aggregate value of all securities loaned does not exceed 33 1/3% of the
value of the Fund's total assets.

(6) Purchase or sell commodities or commodity futures contracts except that the
Fund may enter into futures contracts and options thereon to the extent
provided in its Prospectus.

(7) Purchase or sell real estate or real estate mortgage loans; provided,
however, that the Fund may invest in securities secured by real estate or
interests therein or issued by compa-

17
<PAGE> 79

nies which invest in real estate or interests therein.

(8) Engage in the business of underwriting securities issued by others, except
that the Fund will not be deemed to be an underwriter or to be underwriting
on account of the purchase of securities subject to legal or contractual
restriction on disposition.

(9) Issue senior securities, except as permitted by its investment objective,
policies and restrictions, and except as permitted by the 1940 Act.

(10) Purchase or sell puts, calls or invest in straddles, spreads or any
combination thereof, if as a result of such purchase the value of the
Fund's aggregate investment in such securities would exceed 5% of the
Fund's total assets.

(11) Make short sales of securities or purchase any securities on margin, except
for such short-term credits as are necessary for the clearance of
transactions. The Fund may make initial margin deposits and variation
margin payments in connection with transactions in futures contracts and
related options.

(12) Purchase from or sell portfolio securities to its officers or directors or
other interested persons (as defined in the 1940 Act) of the Fund,
including their investment advisors and affiliates, except as permitted by
the 1940 Act and exemptive rules or orders thereunder.

(13) Invest in securities issued by other investment companies except in
connection with a merger, consolidation, acquisition of assets, or other
reorganization approved by the Fund's shareholders and to the extent
permitted by the 1940 Act; provided that the Fund may invest all of its
investable assets (cash, securities, and receivables relating to
securities) in open-end management investment companies having
substantially the same investment objective, policies and limitations as
the Fund.

(14) Invest more than 10% of its net assets in the aggregate in illiquid
securities or securities that are not readily marketable, including
repurchase agreements and time deposits of more than seven days duration.

(15) Make investments for the purpose of gaining control of an issuer's
management.

The Fund's investment limitations (12) through (5) are nonfundamental and
may be changed by the Board of Trustees without shareholder approval.

AMERICAN GENERAL MID CAP VALUE FUND ("MID CAP VALUE FUND") INVESTMENT
RESTRICTIONS

The Mid Cap Value Fund may not:

(1) Borrow money, except that the Fund may borrow money from banks for
temporary or emergency purposes and not for leveraging or investment and
(ii) enter into reverse repurchase agreements for any purpose; provided
that (i) and (ii) in combination do not exceed 33 1/3% of the value of its
total assets (including the amount borrowed) less liabilities (other than
borrowings). If at any time borrowings exceed 33 1/3% of the value of the
Fund's total assets, the Fund will reduce its borrowings within three days
(excluding Sundays and holidays) to the extent necessary to comply with the
33 1/3% limitation.

(2) Purchase physical commodities or contracts thereon, unless acquired as a
result of the ownership of securities or instruments, but this restriction
shall not prohibit the Fund from purchasing futures contracts or options
(including options on futures contracts, but excluding options or futures
contracts on physical commodities) or from investing in securities of any
kind. For purposes of the limitations on commodities, the Fund does not
consider foreign currencies or forward contracts to be physical
commodities.

(3) With respect to 75% of the value of its total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities) if, as a
result, (i) more than 5% of the value of the Fund's total assets would be
invested in the securities of that issuer or (ii) the Fund would hold more
than 10% of the outstanding voting securities of that issuer.

(4) Purchase any security if, as a result, 25% or more of its total assets
(taken at current value) would be invested in the securities of issuers
having their principal business activities in the same industry. This
limitation does not apply to securities issued or guaranteed by

18
<PAGE> 80

the U.S. Government or its agencies or instrumentalities.

(5) Lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets (taken at current value) would be lent to other
parties, except, in accordance with its investment objective, policies, and
limitations, (i) through the purchase of a portion of an issue of debt
securities or (ii) by engaging in repurchase agreements.

(6) Purchase real estate unless acquired as a result of the ownership of
securities or instruments, but this restriction shall not prohibit the Fund
from purchasing securities issued by entities or investment vehicles that
own or deal in real estate or interests therein or instruments secured by
real estate or interests therein.

(7) Issue senior securities, except as permitted under the 1940 Act.

(8) Underwrite securities of other issuers, except to the extent that the Fund,
in disposing of portfolio securities, may be deemed to be an underwriter
within the meaning of the 1933 Act.

(9) Purchase securities if outstanding borrowings, including any reverse
repurchase agreements, exceed 5% of its total assets.

(10) Except for the purchase of debt securities and engaging in repurchase
agreements, make any loans other than securities loans.

(11) Purchase securities on margin from brokers or other lenders, except that
the Fund may obtain such short-term credits as are necessary for the
clearance of securities transactions. Margin payments in connection with
transactions in futures contracts and options on futures contracts shall
not constitute the purchase of securities on margin and shall not be deemed
to violate the foregoing limitation.

(12) Invest more than 10% of the value of its total assets in securities of
foreign issuers, provided that the limitation shall not apply to foreign
securities denominated in U.S. dollars, including American Depositary
Receipts ("ADRs").

(13) Purchase any security if, as a result, more than 15% of its net assets
would be invested in illiquid securities. Illiquid securities include
securities that cannot be sold within seven days in the ordinary course of
business for approximately the amount at which the Fund has valued the
securities, such as repurchase agreements maturing in more than seven days.

The Fund's investment limitations (9) through (13) are non-fundamental and
may be changed by the Board of Trustees without shareholder approval. In
addition, the Fund may invest all of its investable assets (cash, securities,
and receivables relating to securities) in open-end management investment
companies having substantially the same investment objective, policies and
limitations as the Fund.

AMERICAN GENERAL SMALL CAP VALUE FUND ("SMALL CAP VALUE FUND") INVESTMENT
RESTRICTIONS

The Small Cap Value Fund may not:

(1) Borrow money or mortgage or hypothecate assets of the Fund, except that in
an amount not to exceed 1/3 of the current value of the Fund's assets, it
may borrow money as a temporary measure for extraordinary or emergency
purposes and enter into reverse repurchase agreements or dollar roll
transactions, and except that it may pledge, mortgage or hypothecate not
more than 1/3 of such assets to secure such borrowings (it is intended that
money would be borrowed only from banks and only either to accommodate
requests for the withdrawal of beneficial interests (redemption of shares)
while effecting an orderly liquidation of portfolio securities or to
maintain liquidity in the event of an unanticipated failure to complete a
portfolio security transaction or other similar situations) or reverse
repurchase agreements, provided that collateral arrangements with respect
to options and futures, including deposits of initial deposit and variation
margin, are not considered a pledge of assets for purposes of this
restriction and except that assets may be pledged to secure letters of
credit solely for the purpose of participating in a captive insurance
company sponsored by the Investment Company Institute.

(2) Underwrite securities issued by other persons except insofar as the Series
Company (or the Fund) may technically be deemed an underwriter under the
1933 Act in selling a portfolio security.

19
<PAGE> 81

(4) Purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein), interests
in oil, gas or mineral leases, commodities or commodity contracts (except
futures and option contracts) in the ordinary course of business (except
that the Series Company may hold and sell, for the Fund's portfolio, real
estate acquired as a result of the Fund's ownership of securities and the
securities of companies that deal in real estate).

(7) Purchase securities issued by any investment company except by purchase in
the open market where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission, or except
when such purchase, though not made in the open market, is part of a plan of
merger or consolidation; provided, however, that securities of any
investment company will not be purchased for the Fund if such purchase at
the time thereof would cause: (a) more than 10% of the Fund's total assets
(taken at the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the Fund's total assets
(taken at the greater of cost or market value) to be invested in any one
investment company; or (c) more than 3% of the outstanding voting securities
of any such issuer to be held for the Fund; provided further that, except in
the case of a merger or consolidation, the Fund shall not purchase any
securities of any open-end investment company unless the Fund (i) waives the
investment advisory fee with respect to assets invested in other open-end
investment companies and (ii) incurs no sales charge in connection with the
investment (as an operating policy, the Fund will not invest in another
open-end registered investment company). Notwithstanding the foregoing, the
Fund may invest all of its investable assets (cash, securities, and
receivables relating to securities) in open-end management investment
companies having substantially the same investment objective, policies and
limitations as the Fund.

Additional Restrictions. In order to comply with certain statutes and
policies the Fund will not as a matter of operating policy:

any U.S. issuer and, provided that short sales may be made only in those
securities which are fully listed on a national securities exchange or a
foreign exchange (This provision does not include the sale of securities of
the Fund contemporaneously owns or has the right to obtain securities
equivalent in kind and amount to those sold, i.e., short sales against the
box.) (The Fund has no current intention to engage in short selling).

(5) Invest for the purpose of exercising control or management.

(8) Invest more than 5% of the Fund's total assets in securities issued by
issuers which (including predecessors) have been in operation less than
three years.

(10) With respect to 75% of its assets, purchase securities of any issuer
(except obligations of the United States Government and its
instrumentalities) if as the result more than 5% of the Fund's total
assets, at the time of purchase, would be invested in the securities of
such issuer.

(11) Invest in securities issued by an issuer any of whose officers, directors,
trustees or security holders is an officer or Trustee of the Series
Company, or is an officer or partner of the VALIC or of the Sub-adviser, if
after the purchase of the securities of such issuer for the Fund one or
more of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or both, all
taken at market value.

(13) Write puts and calls on securities unless each of the following conditions
are met: (a) the security underlying the put or call is within the
Investment Practices of the Fund and the option is issued by the Options
Clearing Corporation, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b) the
aggregate value of the obligations underlying the puts determined as of the
date the options are sold shall not exceed 5% of the Fund's net assets; (c)
the securities subject to the exercise of the call written by the Fund must
be owned by the Fund at the time the call is sold and must continue to be
owned by the Fund until the call has been exercised, has lapsed, or the
Fund has purchased a closing call, and such purchase has been confirmed,
thereby extinguishing the Fund's obligation to deliver securities pursu-

21
<PAGE> 83

ant to the call it has sold; and (d) at the time a put is written, the Fund
establishes a segregated account with its custodian consisting of cash or
short-term U.S. government securities equal in value to the amount the Fund
will be obligated to pay upon exercise of the put (this account must be
maintained until the put is exercised, has expired, or the Fund has
purchased a closing put, which is a put of the same series as the one
previously written).

AMERICAN GENERAL SOCIALLY RESPONSIBLE FUND
("SOCIALLY RESPONSIBLE FUND") INVESTMENT
RESTRICTIONS

The Socially Responsible Fund may not:

(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.

(6) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer.

(8) Lend money, except by purchasing debt obligations in which a Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.

(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.

(10) Make loans to other persons, except that a Fund may lend its portfolio
securities to bro-
22
<PAGE> 84

ker-dealers and other financial institutions in an amount up to 30% of the
value of the Fund's total assets.

(11) Enter into financial futures contracts (by exercise of any option or
otherwise) or acquire any options thereon, if, immediately thereafter, the
total of the initial margin deposits required with respect to all open
futures positions at the time such positions were established plus the sum
of the premiums paid for all unexpired options on futures contracts would
exceed 5% of the value of its total assets.

(12) Invest more than 25% of the value of its total assets in the securities of
issuers primarily engaged in any one industry.

AMERICAN GENERAL BALANCED FUND ("BALANCED FUND") INVESTMENT RESTRICTIONS

The Balanced Fund may not:

(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.

(6) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer.

(8) Lend money, except by purchasing debt obligations in which a Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.

(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.

AMERICAN GENERAL DOMESTIC BOND FUND
("DOMESTIC BOND FUND") INVESTMENT
RESTRICTIONS

The Domestic Bond Fund may not:

(1) Invest more than 5% of the value of its total assets in the securities of
any one issuer or

23
<PAGE> 85

purchase more than 10% of the outstanding voting securities, or any other
class of securities, of any one issuer. For purposes of this restriction,
all outstanding debt securities of an issuer are considered as one class,
and all preferred stock of an issuer is considered as one class. This
restriction does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities. As a matter of operating
policy, the Series Company will not consider repurchase agreements subject
to the 5% limitation if the collateral underlying the repurchase agreements
are U.S. Government securities.

(4) Acquire real estate, real estate contracts or real estate securities.

(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.

(6) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer.

(8) Lend money, except by purchasing debt obligations in which a Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.

(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.

AMERICAN GENERAL MONEY MARKET FUND ("MONEY MARKET FUND") INVESTMENT RESTRICTIONS

The Money Market Fund may not:

24
<PAGE> 86

(5) Underwrite securities of other issuers except where the sale of restricted
portfolio securities constitutes an underwriting under the federal
securities laws.

(6) Acquire securities for the purpose of influencing the management of, or
exercising control over, the issuer.

(8) Lend money, except by purchasing debt obligations in which a Fund may
invest consistent with its investment objective(s) and policies or by
purchasing securities subject to repurchase agreements.

(9) Purchase or sell commodities (except in connection with investments in
options and futures contracts) or invest in oil, gas or mineral exploration
programs.

(11) Purchase any security which matures more than 13 months from the date of
purchase.

(12) Purchase or sell commodity contracts.

(13) Invest in warrants, or write, purchase or sell puts, calls, straddles,
spreads or combinations thereof.

(14) Invest more than 25% of the value of its total assets in the securities of
issuers primarily engaged in any one industry, except investments in
obligations issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities.

AMERICAN GENERAL GROWTH LIFESTYLE FUND
("GROWTH LIFESTYLE FUND") INVESTMENT
RESTRICTIONS

The Growth Lifestyle Fund may not:

(1) Issue senior securities.

(2) Purchase any securities on margin, make short sales of securities or
purchase or sell puts and calls, or combinations thereof.

(3) Borrow money, except from banks for temporary or emergency purposes and
then only in an amount not in excess of 5% of the lower of the market value
or costs of its assets, in which case it may pledge, mortgage or
hypothecate any of its assets as security for such borrowing, but not to an
extent greater than 5% of the market value of its assets.

(4) Underwrite the securities of other issuers or invest more than 15% of its
assets in securities subject to legal or contractual restrictions on resale
or for which there are no readily available market quotations, or
repurchase agreements having maturities of more than seven days.

(5) Purchase real estate or real estate mortgage loans, although the underlying
mutual funds in which the Fund will invest may purchase marketable
securities of companies which deal in real estate, real estate mortgage
loans or interests therein.

(6) Purchase or sell commodities or commodity contracts, other than futures
contracts and options as described in the Prospectus.

(7) Invest directly in oil, gas, or other mineral exploration or development
programs; provided, however, that the underlying funds in which the Fund
will invest may purchase the securities of companies engaged in such
activities.

(8) Invest more than 5% of its assets, at the time of investment, in the
securities of any issuers

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<PAGE> 87

which have records of less than three years' continuous operation,
including the operation of any predecessor (other than obligations issued
or guaranteed as to interest and principal by the U.S. Government or its
agencies or instrumentalities).

(9) Purchase or retain any security other than shares of the underlying Series
Company Funds if (i) one or more officers or Trustees of the Series Company
individually own or would own, directly or beneficially, more than 1/2 of 1
percent of the securities of such issuer and (ii) in the aggregate such
persons own or would own more than 5% of such securities.

(10) Make loans except by purchasing bonds, debentures or similar obligations
(including repurchase agreements, subject to the limitation described in
(4) above) which are either publicly distributed or customarily purchased
by institutional investors.

(11) Invest in companies for the purpose of exercising control of management.

(12) Invest more than 25% of its assets in any one industry, other than Funds
that are part of the Series Company.

AMERICAN GENERAL MODERATE GROWTH LIFESTYLE FUND ("MODERATE GROWTH LIFESTYLE
FUND") INVESTMENT RESTRICTIONS

The Moderate Growth Lifestyle Fund may not:

(1) Issue senior securities.

(2) Purchase any securities on margin, make short sales of securities or
purchase or sell puts and calls, or combinations thereof.

(6) Purchase or sell commodities or commodity contracts, other than futures
contracts and options transactions as described in the Prospectus.

(8) Invest more than 5% of its assets, at the time of investment, in the
securities of any issuers which have records of less than three years'
continuous operation, including the operation of any predecessor (other
than obligations issued or guaranteed as to interest and principal by the
U.S. Government or its agencies or instrumentalities).

(11) Invest in companies for the purpose of exercising control of management.

(12) Invest more than 25% of its assets in any one industry, other than Funds
that are part of the Series Company.

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<PAGE> 88

AMERICAN GENERAL CONSERVATIVE GROWTH LIFESTYLE FUND ("CONSERVATIVE GROWTH
LIFESTYLE FUND") INVESTMENT RESTRICTIONS

The Conservative Growth Lifestyle Fund may not:

(1) Issue senior securities.

(2) Purchase any securities on margin, make short sales of securities or
purchase or sell puts and calls, or combinations thereof.

(6) Purchase or sell commodities or commodity contracts other than futures
contracts and options transactions as described in the Prospectus.

(7) Invest directly in oil, gas, or other mineral exploration or development
programs; provided, however, that the underlying funds in which the Fund's
will invest may purchase the securities of companies engaged in such
activities.

(9) Purchase or retain any security other than shares of the underlying Series
Company Funds if (i) one or more officers or Trustees of the Series Company
individually own or would own, directly or beneficially, more than 1/2 of 1
percent of the securities of such issuer and (ii) in the aggregate, such
persons own or would own more than 5% of such securities.

(11) Invest in companies for the purpose of exercising control of management.

(12) Invest more than 25% of its assets in any one industry, other than Funds
that are part of the Series Company.

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<PAGE> 89
INVESTMENT PRACTICES

REPURCHASE AGREEMENTS

Each Fund may hold commercial paper, certificates of deposits, and
government obligations (including government guaranteed obligations) subject to
repurchase agreements with certain well established domestic banks and certain
broker-dealers, including primary government securities dealers, approved as
creditworthy by the Board of Trustees. The underlying security must be a
high-quality domestic money market security (except for the International Growth
Fund and the International Value Fund, which may utilize foreign money market
securities) and the seller must be a well established securities dealer or bank
that is a member of the Federal Reserve System. For the Money Market Fund, the
underlying security must be a U.S. Government security or a security rated in
the highest rating category by the Requisite NRSROs (Nationally Recognized
Statistical Rating Organization) and must be determined to present minimal
credit risk. Repurchase agreements are generally for short periods, often less
than a week. Repurchase agreements typically obligate a seller, at the time it
sells securities to a Fund, to repurchase the securities at a specific future
time and price. The price for which the Fund resells the securities is
calculated to exceed the price the Fund initially paid for the same securities,
thereby determining the yield during the Fund's holding period. This results in
a fixed market rate of interest, agreed upon by that Fund and the seller, which
is accrued as ordinary income. Most repurchase agreements mature within seven
days although some may have a longer duration. The underlying securities
constitute collateral for these repurchase agreements, which are considered
loans under the 1940 Act.

The Funds do not intend to sell the underlying securities subject to a
repurchase agreement (except to the seller upon maturity of the agreement).
During the term of the repurchase agreement, the Funds (i) retain the securities
subject to the repurchase agreement as collateral securing the seller's
obligation to repurchase the securities, (ii) monitor on a daily basis the
market value of the securities subject to the repurchase agreement, and (iii)
require the seller to deposit with the Series Company's custodian collateral
equal to any amount by which the market value of the securities subject to the
repurchase agreement falls below the resale amount provided under the repurchase
agreement. In the event that a seller defaults on its obligation to repurchase
the securities, the Funds must hold the securities until they mature or may sell
them on the open market, either of which may result in a loss to a Fund if, and
to the extent that, the values of the securities decline. Additionally, the
Funds may incur disposition expenses when selling the securities. Bankruptcy
proceedings by the seller may also limit or delay realization and liquidation of
the collateral by a Fund and may result in a loss to that Fund. The Board of
Trustees of the Series Company will evaluate the creditworthiness of all banks
and broker-dealers with which the Series Company proposes to enter into
repurchase agreements. The Funds will not invest in repurchase agreements that
do not mature within seven days if any such investment, together with any
illiquid assets held by a Fund, exceeds 10% of the value of that Fund's total
assets (15% in the case of the S&P 500 Index Fund, the Small Cap Index Fund, the
International Growth Fund, the Large Cap Growth Fund, the Small Cap Growth Fund,
the Large Cap Value Fund, the Mid Cap Value Fund and the Small Cap Value Fund).

LENDING PORTFOLIO SECURITIES

For purposes of realizing additional income, each Fund, except the
Lifestyle Funds, may make secured loans of its portfolio securities. Securities
loans are made to broker-dealers and other financial institutions approved by
State Street Bank and Trust Company (the "Custodian"), custodian to the Funds
and pursuant to agreements requiring that the loans be continuously secured by
collateral at least equal at all times to the loaned securities marked to market
on a daily basis. VALIC will monitor the activities of the Custodian as
authorized by the Board of Trustees. The collateral received will consist of
cash, U.S. government securities, letters of credit or such other collateral as
permitted by interpretations or rules of the Securities and Exchange Commission
("SEC"). While the securities are on loan, the Funds will continue to receive
the equivalent of the interest or dividends paid by the issuer on the
securities, as well as interest on the investment of the collateral or a fee
from the borrower.

Any loan of portfolio securities by any Fund will be callable at any time
by the lending Fund upon notice of five business days. When voting or consent
rights which accompany loaned securities

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<PAGE> 90

pass to the borrower, the lending Fund will call the loan, in whole or in part
as appropriate, to permit the exercise of such rights if the matters involved
would have a material effect on that Fund's investment in the securities being
loaned. If the borrower fails to maintain the requisite amount of collateral,
the loan will automatically terminate, and the lending Fund will be permitted to
use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost over collateral. As with any extensions of
credit, there are risks of delay in receiving additional collateral or in the
recovery of the securities or, in some cases, even loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will be made only when State Street, as
monitored by VALIC, considers the borrowing broker-dealers or financial
institutions to be creditworthy and of good standing and the interest earned
from such loans to justify the attendant risks. On termination of the loan, the
borrower will be required to return the securities to the lending Fund. Any gain
or loss in the market price during the loan would inure to the lending Fund. The
lending Fund may pay reasonable finders', administrative, and custodial fees in
connection with a loan of its securities.

REVERSE REPURCHASE AGREEMENTS

Certain of the Funds may enter into reverse repurchase agreements. In a
reverse repurchase agreement, a Fund sells a security and agrees to repurchase
the same security at a mutually agreed upon date and price. For purposes of the
1940 Act a reverse repurchase agreement is also considered as the borrowing of
money by the Fund and, therefore, a form of leverage. The Funds will invest the
proceeds of borrowings under reverse repurchase agreements. In addition, a Fund
will enter into a reverse repurchase agreement only when the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. A Fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. Each Fund will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements.

CONVERTIBLE SECURITIES

Certain Funds may invest in convertible securities of foreign or domestic
issues. A convertible security is a security (a bond or preferred stock) which
may be converted at a stated price within a specified period of time into a
certain quantity of the common stock of the same or a different issuer.
Convertible securities are senior to common stocks in a corporation's capital
structure but are usually subordinated to similar nonconvertible securities.
Convertible securities provide, through their conversion feature, an opportunity
to participate in capital appreciation resulting from a market price advance in
a convertible security's underlying common stock. The price of a convertible
security is influenced by the market value of the underlying common stock and
tends to increase as the market value of the underlying stock rises, whereas it
tends to decrease as the market value of the underlying stock declines.

FOREIGN SECURITIES

A foreign security is a security issued by an entity domiciled or
incorporated outside of the United States.

Included within the definition of foreign securities are American
Depository Receipts (ADRs), European Depositary Receipts (EDRs) and Global
Depository Receipts (GDRs).

ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank and traded on a United
States exchange or in an over-the-counter market. Generally, ADRs are in
registered form. Investment in ADRs has certain advantages over direct
investment in the underlying foreign securities since: (i) ADRs are U.S.
dollar-denominated investments that are easily transferable and for which market
quotations are readily available, and (ii) issuers whose securities are
represented by ADRs are generally subject to auditing, accounting and financial
reporting standards similar to those applied to domestic issuers. EDRs and GDRs
are receipts evidencing an arrangement with a non-U.S. bank similar to that for
ADRs and are designed for use in the non-U.S. securities markets. EDRs and GDRs
are not necessarily quoted in the same currency as the underlying security. In
addition, the Funds may invest in other types of depositary securities such as

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<PAGE> 91

international depository receipts, global depository shares, European depository
shares and international depository shares.

A Fund may also, in accordance with its specific investment objective(s)
and investment program, policies and restrictions purchase U.S. dollar-
denominated money market securities of foreign issuers. Such money market
securities may be registered domestically and traded on domestic exchanges or in
the over-the-counter market (e.g., Yankee securities) or may be (1) registered
abroad and traded exclusively in foreign markets or (2) registered domestically
and issued in foreign markets (e.g., Eurodollar securities).

In addition, all the Funds, except the Lifestyle Funds, the Large Cap
Growth Fund, the Large Cap Value Fund, the S&P 500 Index Fund, the Mid Cap Fund,
the Small Cap Index Fund and the Money Market Fund, may invest in non-U.S.
dollar-denominated foreign securities, in accordance with their specific
investment objective(s), investment programs, policies, and restrictions.
Investing in foreign securities may involve advantages and disadvantages not
present in domestic investments. There may be less publicly available
information about securities not registered domestically, or their issuers, than
is available about domestic issuers or their domestically registered securities.
Stock markets outside the U.S. may not be as developed as domestic markets, and
there may also be less government supervision of foreign exchanges and brokers.
Foreign securities may be less liquid or more volatile than U.S. securities.
Trade settlements may be slower and could possibly be subject to failure. In
addition, brokerage commissions and custodial costs with respect to foreign
securities may be higher than those for domestic investments. Accounting,
auditing, financial reporting and disclosure standards for foreign issuers may
be different than those applicable to domestic issuers. Non-U.S.
dollar-denominated foreign securities may be affected favorably or unfavorably
by changes in currency exchange rates and exchange control regulations
(including currency blockage) and a Fund may incur costs in connection with
conversions between various currencies. Foreign securities may also involve
risks due to changes in the political or economic conditions of such foreign
countries, the possibility of expropriation of assets or nationalization, and
possible difficulty in obtaining and enforcing judgments against foreign
entities.

EMERGING MARKETS

Investments in companies domiciled in emerging market countries may be
subject to additional risks. Specifically, volatile social, political and
economic conditions may expose investments in emerging or developing markets to
economic structures that are generally less diverse and mature. Emerging market
countries may have less stable political systems than those of more developed
countries. As a result, it is possible that recent favorable economic
developments in certain emerging market countries may be suddenly slowed or
reversed by unanticipated political or social events in such countries.
Moreover, the economies of individual emerging market countries may differ
favorably or unfavorably from the US economy in such respects as the rate of
growth in gross domestic product, the rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.

Another risk is that the small current size of the markets for such
securities and the currently low or nonexistent volume of trading can result in
a lack of liquidity and in greater price volatility. Until recently, there has
been an absence of a capital market structure or market-oriented economy in
certain emerging market countries. If a Fund's securities will generally be
denominated in foreign currencies, the value of such securities to the Fund will
be affected by changes in currency exchange rates and in exchange control
regulations. A change in the value of a foreign currency against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of a Fund's
securities. In addition, some emerging market countries may have fixed or
managed currencies which are not free-floating against the U.S. dollar. Further,
certain emerging market currencies may not be internationally traded. Certain of
these currencies have experienced a steady devaluation relative to the U.S.
dollar. Many emerging markets countries have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.

A further risk is that the existence of national policies may restrict a
Fund's investment opportunities and may include restrictions on investment in
issuers or industries deemed sensitive to national interests. Also, some
emerging markets countries

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<PAGE> 92

may not have developed structures governing private or foreign investment and
may not allow for judicial redress for injury to private property.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

Foreign currency transactions used by the Funds may be either: (i) on the
spot (i.e., cash) basis at the spot rate prevailing in the foreign exchange
market, or (ii) conducted through the use of forward foreign currency exchange
contracts. A forward foreign currency exchange contract involves an obligation
to purchase or sell a specific currency at a future date. In general, forward
foreign currency exchange contracts are not guaranteed by a third party and,
accordingly, each party to a forward foreign currency exchange contract is
dependent upon the creditworthiness and good faith of the other party.

A Fund will enter into forward foreign currency exchange contracts only
under two circumstances. First, a Fund may enter into a forward foreign currency
exchange contract to purchase an amount of foreign currency to protect itself
against a possible loss that might occur between trade and settlement dates for
a particular security, resulting from a decline in the U.S. dollar against the
foreign currency in which such security is denominated. This practice may limit
the potential gains that might result from a positive change in such currency
relationships. Second, when VALIC or a Sub-adviser believes that the currency of
a particular foreign country may suffer or enjoy a substantial movement against
the U.S. dollar, a Fund may enter into a forward foreign currency exchange
contract to purchase or sell an amount of foreign currency approximating the
value of some or all of that Fund's portfolio securities denominated in such
foreign currency. The forecasting of short-term currency market movements is
extremely difficult and it is uncertain whether such short-term hedging
strategies will be successful.

STANDARD AND POOR'S DEPOSITORY RECEIPTS

The Large Cap Growth Fund may, consistent with its objectives, purchase
Standard & Poor's Depository Receipts ("SPDR's"). SPDRs are American Stock
Exchange-traded securities that represent ownership in the SPDR Trust, a trust
which has been established to accumulate and hold a portfolio of common stocks
that is intended to track the price performance and dividend yield of the S&P
500. This trust is sponsored by a subsidiary of the American Stock Exchange.
SPDRs may be used for several reasons, including but not limited to:
facilitating the handling of cash flows or trading, or reducing transaction
costs. The use of SPDRs would introduce additional risk to the Large Cap Growth
Fund as the price movement of the instrument does not perfectly correlate with
the price action of the underlying index.

WHEN-ISSUED SECURITIES

Each of the Funds except the Lifestyle Funds, the Money Market Fund and the
Mid Cap Value Fund may purchase securities on a when-issued or delayed delivery
basis. When such transactions are negotiated, the price of such securities is
fixed at the time of commitment, but delivery and payment for the securities may
take place a month or more after the date of the commitment to purchase. The
securities so purchased are subject to market fluctuation, and no interest
accrues to the purchaser during this period. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. VALIC does not believe that a Fund's net asset value or income
will be adversely affected by the purchase of securities on a when-issued basis.

DEBT SECURITIES

Debt securities are considered high-quality if they are rated at least A by
Moody's or its equivalent by any other NRSRO or, if unrated, are determined to
be of equivalent investment quality. High-quality debt securities are considered
to have a very strong capacity to pay principal and interest. Debt securities
are considered investment grade if they are rated, for example, at least Baa by
Moody's or its equivalent by any other NRSRO or, if not rated, are determined to
be of equivalent investment quality. Investment grade debt securities are
regarded as having an adequate capacity to pay principal and interest.
Lower-medium and lower-quality securities rated, for example, Ba and B by
Moody's or its equivalent by any other NRSRO are regarded on balance as high
risk and predominantly speculative with respect to the issuer's continuing
ability to meet principal and interest payments. See the Section regarding
"Description of Corporate Bond Ratings" for a description of each rating
category in this Statement of Additional Information for a more complete
description of lower-medium and lower-quality debt securities and their risks.

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<PAGE> 93

The maturity of debt securities may be considered long (ten plus years),
intermediate (one to ten years), or short-term (thirteen months or less). In
general, the principal values of longer-term securities fluctuate more widely in
response to changes in interest rates than those of shorter-term securities,
providing greater opportunity for capital gain or risk of capital loss. A
decline in interest rates usually produces an increase in the value of debt
securities, while an increase in interest rates generally reduces their value.

ZERO COUPON BONDS

The Large Cap Value Fund, Mid Cap Value Fund, Balanced Fund and Domestic
Bond Fund may invest in zero coupon securities, which are debt obligations that
do not entitle the holder to any periodic payment of interest prior to maturity
or that specify a future date when the securities begin to pay current interest.
Zero coupon securities are issued and traded at a discount from their face
amount or par value. This discount varies depending on prevailing interest
rates, the time remaining until cash payments begin, the liquidity of the
security, and the perceived credit quality of the issuer.

The discount on zero coupon securities ("original issue discount") must be
taken into income ratably by a Fund prior to the receipt of any actual payments.
Because the Fund must distribute substantially all of its net income to its
shareholders each year for income and excise tax purposes, the Fund may have to
dispose of portfolio securities under disadvantageous circumstances to generate
cash, or may be required to borrow, to satisfy its corresponding Fund's
distribution requirements.

The market prices of zero coupon securities generally are more volatile
than the prices of securities that pay interest periodically. Zero coupon
securities are likely to respond to changes in interest rates to a greater
degree than other types of debt securities having a similar maturity and credit
quality.

REAL ESTATE SECURITIES AND REAL ESTATE INVESTMENT TRUSTS ("REITS")

Each Fund other than the Lifestyle Funds and the Domestic Bond Fund may
invest in real estate securities. Real estate securities are equity securities
consisting of (i) common stocks, (ii) rights or warrants to purchase common
stocks, (iii) securities convertible into common stocks and (iv) preferred
stocks issued by real estate companies. A real estate company is one that
derives at least 50% of its revenues from the ownership, construction,
financing, management or sale of commercial, industrial, or residential real
estate or that has at least 50% of its assets invested in real estate.

Certain Funds also may invest in REITs. REITs are pooled investment
vehicles which invest primarily in income producing real estate or real estate
related loans or interest. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs. Equity REITs
invest the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive income
from the collection of interest payments. Like regulated investment companies
such as the Funds, REITs are not taxed on income distributed to shareholders
provided they comply with certain requirements under the Code. A Fund will
indirectly bear its proportionate share of any expenses paid by REITs in which
it invests in addition to the expenses paid by a Fund.

Investing in REITs involves certain unique risks. Equity REITs may be
affected by changes in the value of the underlying property owned by such REITs,
while mortgage REITs may be affected by the quality of any credit extended.
REITs are dependent upon management skills, are not diversified (except to the
extent the Code requires), and are subject to the risks of financing projects.
REITs are subject to heavy cash flow dependency, default by borrowers,
self-liquidation, and the possibilities of failing to qualify for the exemption
from tax for distributed income under the Code and failing to maintain their
exemptions from the 1940 Act. REITs (especially mortgage REITs) are also subject
to interest rate risks.

WARRANTS

Warrants are securities that give the Funds the right to purchase equity
securities from the issuer at a specific price (the "strike price") for a
limited period of time. Warrants do not entitle a holder to dividends or voting
rights with respect to the underlying securities and do not represent any rights
in the assets of the issuing company. In addition, the value of warrants does
not, necessarily, in all cases
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<PAGE> 94
change to the same extent as the value of the underlying securities to which
they relate. Warrants cease to have value if they are not exercised prior to the
expiration date. These factors can make warrants more speculative than other
types of investments.

SWAP AGREEMENTS

Certain of the Funds may enter into swap agreements. Swap agreements are
contracts between parties in which one party agrees to make payments to the
other party based on the change in the market value of a specified index or
asset. In return, the other party agrees to make payments to the first party
based on the return of a different specified index or asset. Swap agreements
entail the risk that a party will default on its payment obligations thereunder.
Swap agreements also bear the risk that a Fund will not be able to meet its
obligation to the counterparty. The risk may be mitigated if a Fund invests in
the specific assets for which it is obligated to pay a return.

EURODOLLAR OBLIGATIONS

Certain Funds, in accordance with their investment objective(s), policies,
and investment program, may invest in Eurodollar obligations, including
Eurodollar bonds and Eurodollar certificates of deposit. A Eurodollar obligation
is a security denominated in U.S. dollars and originated principally in Europe,
giving rise to the term Eurodollar.

Such securities are not registered with the SEC and generally may only be
sold to U.S. investors after the initial offering and cooling-off periods. The
market for Eurodollar securities is dominated by foreign-based investors and the
primary trading market for these securities is London.

Eurodollar obligations, including Eurodollar bonds and Eurodollar
certificates of deposit, are principally obligations of foreign branches of U.S.
banks. These instruments represent the loan of funds actually on deposit in the
U.S. The Series Company believes that the U.S. bank would be liable in the event
that its foreign branch failed to pay on its U.S. dollar denominated
obligations. Nevertheless, the assets supporting the liability could be
expropriated or otherwise restricted if located outside the U.S. Exchange
controls, taxes, or political and economic developments also could affect
liquidity or repayment. Due to possibly conflicting laws or regulations, the
foreign branch of the U.S. bank could maintain and prevail that the liability is
solely its own, thus exposing a Fund to a possible loss. Such U.S. dollar
denominated obligations of foreign branches of Federal Deposit Insurance
Corporation ("FDIC") member U.S. banks are not covered by the usual $100,000 of
FDIC insurance if they are payable only at an office of such a bank located
outside the U.S., Puerto Rico, Guam, American Samoa, and the Virgin Islands.

Moreover, there may be less publicly available information about foreign
issuers whose securities are not registered with the SEC and such foreign
issuers may not be subject to the accounting, auditing, and financial reporting
standards applicable to issuers registered domestically. In addition, foreign
issuers, stock exchanges, and brokers generally are subject to less government
regulation. There are, however, no risks of currency fluctuation since the
obligations are U.S. dollar denominated.

ASSET-BACKED SECURITIES

Certain Funds may invest in asset-backed securities (unrelated to first
mortgage loans) that represent fractional interests in pools of retail
installment loans, both secured (such as certificates for automobile
receivables) and unsecured, and leases, or revolving credit receivables both
secured and unsecured (such as credit card receivable securities). These assets
are generally held by a trust and payments of principal and interest, or
interest only are passed through monthly or quarterly to certificate holders and
may be guaranteed up to certain amounts by letters of credit issued by a
financial institution affiliated or unaffiliated with the trustee or originator
of the trust.

Underlying automobile sales contracts, leases or credit card receivables
are subject to prepayment, which may reduce the overall return to certificate
holders. Nevertheless, principal repayment rates tend not to vary much with
interest rates and the short-term nature of the underlying loans, leases, or
receivables tends to dampen the impact of any change in the prepayment level.
Certificate holders may also experience delays in payment on the certificates if
the full amounts due on underlying loans, leases or receivables are not realized
by the trust because of unanticipated legal or administrative costs of enforcing
the contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other

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factors. If consistent with its investment objective(s) and policies, a Fund may
invest in other asset-backed securities that may be developed in the future.

MORTGAGE-BACKED SECURITIES

Certain of the Funds may invest in Government National Mortgage Association
("GNMA") Certificates. GNMA Certificates are securities representing part
ownership of a pool of mortgage loans. These loans, issued by lenders such as
mortgage bankers, commercial banks, and savings and loan associations, are
either insured by the Federal Housing Administration or guaranteed by the
Veterans Administration. Each pool of mortgage loans is assembled and, after
being approved by GNMA, is offered to investors through securities dealers in
the form of certificates representing participations in the pool. Once approved
by GNMA, the timely payment of interest and principal of each mortgage is
guaranteed by GNMA and backed by the full faith and credit of the U.S.
Government. GNMA Certificates differ from bonds in that principal is paid
monthly by the borrower over the term of the loan rather than returned in a lump
sum at maturity. GNMA Certificates are called "pass-through" certificates
because both principal and interest payments (including prepayments) are passed
through to the holder of the certificate.

The average life of GNMA Certificates varies with the maturities of the
underlying mortgage instruments. Upon receipt, principal payments may be used by
the Funds to purchase additional GNMA Certificates or other U.S. Government
Securities. In addition, prepayments of the mortgages included in the underlying
mortgage pool will usually result in the return of the greatest part of
principal invested well before the maturity of the mortgages in the pool. The
volume of such prepayments of principal in a given pool of mortgages will
influence the actual yield of the GNMA Certificate, and principal returned to
the Funds may be reinvested in instruments whose yield may be higher or lower
than that which might have been obtained had such prepayments not occurred. In
quoting yields of GNMA Certificates, the standard practice is to assume that the
certificates will have a 12 year life. As previously noted, however, the actual
life of an individual pool may differ widely and actual yield may differ
significantly from estimated yields based on the 12 year life assumption.

Certain Funds may also invest in collateralized mortgage obligations
("CMOs") issued by governmental or nongovernmental entities, such as banks and
other mortgage lenders. Non-governmental securities may offer a higher yield but
may be subject to greater price fluctuation and risk than governmental
securities.

CMOs are obligations fully collateralized directly or indirectly by a pool
of mortgages on which payments of principal and interest are passed through to
the holders of the CMOs on the same schedule as they are received, although not
necessarily on a pro rata basis. In reliance on an SEC interpretation, the
Funds' investments in certain qualifying CMOs are not subject to legal
limitations on acquiring interests in other investment companies. In order to be
able to rely on the SEC's interpretation, the CMOs must be unmanaged,
fixed-asset issuers that (i) invest primarily in mortgage-backed securities,
(ii) do not issue redeemable securities, (iii) operate under general exemptive
orders exempting them from all provisions of the Investment Company Act, and
(iv) are not registered or regulated under the Investment Company Act as
investment companies. To the extent that a Fund selects CMOs that do not meet
the above requirements, the Fund may not invest more than 10% of its assets in
all such entities and may not acquire more than 3% of the voting securities of
any single such entity.

LOAN PARTICIPATIONS

Loan Participations are debt obligations of corporations and are usually
purchased from major money center banks, selected regional banks, and major
foreign banks with branches in the U.S. which are regulated by the Federal
Reserve System or appropriate state regulatory authorities. VALIC and the
Sub-advisers believe that the credit standards imposed by such banks are
comparable to the standards such banks use in connection with loans originated
by them and in which they intend to maintain a full interest. The financial
institutions offering loan participations do not guarantee principal or interest
on the loan participations which they offer. VALIC and the Sub-advisers will not
purchase such securities for the Funds unless they believe that the collateral
underlying the corporate loans is adequate and the corporation will be able, in
a timely fashion, to pay scheduled interest and principal amounts.

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ADJUSTABLE RATE SECURITIES

Certain of the Funds may invest in adjustable rate money market securities.
Adjustable rate securities (i.e., variable rate and floating rate instruments)
are securities that have interest rates that are adjusted periodically,
according to a set formula. The maturity of some adjustable rate securities may
be shortened under certain special conditions described more fully below.

Variable rate instruments are obligations (usually certificates of deposit)
that provide for the adjustment of their interest rates on predetermined dates
or whenever a specific interest rate changes. A variable rate instrument whose
principal amount is scheduled to be paid in 13 months or less is considered to
have a maturity equal to the period remaining until the next readjustment of the
interest rate. Many variable rate instruments are subject to demand features
which entitle the purchaser to resell such securities to the issuer or another
designated party, either (1) at any time upon notice of usually 30 days or less,
or (2) at specified intervals, not exceeding 13 months, and upon 30 days notice.
A variable rate instrument subject to a demand feature is considered to have a
maturity equal to the longer of the period remaining until the next readjustment
of the interest rate or the period remaining until the principal amount can be
recovered through demand.

Floating rate instruments (generally corporate notes, bank notes, or
Eurodollar certificates of deposit) have interest rate reset provisions similar
to those for variable rate instruments and may be subject to demand features
like those for variable rate instruments. The maturity of a floating rate
instrument is considered to be the period remaining until the principal amount
can be recovered through demand.

ILLIQUID SECURITIES

The Funds will not invest more than 10% (15% in the case of S&P 500 Index
Fund, the Small Cap Index Fund, the International Growth Fund, the Small Cap
Growth Fund, the Large Cap Growth Fund, the Large Cap Value Fund, the Mid Cap
Value Fund and the Small Cap Value Fund), of the value of their assets in
securities or other investments that are illiquid or not readily marketable
(including repurchase agreements with maturities exceeding seven days).
Securities received as a result of a corporate reorganization or similar
transaction affecting readily-marketable securities already held in the
portfolio of a Fund will not be considered securities or other investments that
are not readily marketable. However, the Funds will attempt, in an orderly
fashion, to dispose of any securities received under these circumstances, to the
extent that such securities are considered not readily marketable, and together
with other illiquid securities, exceed 10% (or 15%) of the value of a Fund's net
assets.

RULE 144A SECURITIES

Each Fund, other than the Lifestyle Funds, may purchase securities which,
while privately placed, are eligible for purchase and sale pursuant to Rule 144A
under the 1933 Act. This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Series Company, under the
supervision of the Board of Trustees, will consider whether securities purchased
under Rule 144A are illiquid and thus subject to the Funds' restriction on
investing more than 10% (15% in the case of the S&P 500 Index Fund, the Small
Cap Index Fund, the International Growth Fund, the Small Cap Growth Fund, the
Large Cap Growth Fund, the Large Cap Value Fund, the Mid Cap Value Fund and the
Small Cap Value Fund) of its assets in illiquid securities. Determination of
whether a Rule 144A security is liquid or not is a question of fact. In making
this determination the Series Company will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition the Series Company could consider (i) frequency of trades
and quotes, (ii) number of dealers and potential purchasers, (iii) dealer
undertakings to make a market, and (iv) nature of the security and market place
trades (for example, the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities will also be monitored by the Series Company and, if, as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Funds' holding of illiquid securities will be reviewed to determine
what, if any, action is required to assume that the Funds do not invest more
than 10% (or 15%) of their assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the Funds'
investments in illiquid securities if qualified

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institutional buyers are unwilling to purchase such securities.

OPTIONS ON SECURITIES AND SECURITIES INDICES

Each Fund, other than the Large Cap Growth Fund, the Mid Cap Growth Fund,
the International Value Fund, the Balanced Fund, the Domestic Bond Fund, the
International Growth Fund, and the Money Market Fund, may write covered call and
put options on securities and securities indices. The Mid Cap Value Fund may
write covered call options and purchase call options in related closing
transactions only. A call option is a contract that gives to the holder the
right to buy a specified amount of the underlying security or currency at a
fixed or determinable price (called the exercise or "strike" price) upon
exercise of the option. A put option is a contract that gives the holder the
right to sell a specified amount of the underlying security or currency at a
fixed or determinable price upon exercise of the option.

To "cover" a call option written, a Fund may, for example, identify and
have available for sale the specific portfolio security, group of securities, or
foreign currency to which the option relates. To cover a put option written, a
Fund may, for example, establish a segregated asset account with its custodian
containing cash or liquid assets that, when added to amounts deposited with its
broker or futures commission merchant ("FCM") as margin, equals the market value
of the instruments underlying the put option written.

Certain Funds may write options on securities and securities indices. If a
Fund writes an option which expires unexercised or is closed out by the Fund at
a profit, it will retain the premium received for the option, which will
increase its gross income. If the price of the underlying security or currency
moves adversely to the Fund's position, the option may be exercised and the
Fund, as the writer of the option, will be required to sell or purchase the
underlying security or currency at a disadvantageous price, which may only be
partially offset by the amount of premium received.

Options on stock indices are similar to options on stock, except that all
settlements are made in cash rather than by delivery of stock, and gains or
losses depend on price movements in the stock market generally (or in a
particular industry or segment of the market represented by the index) rather
than price movements of individual stocks. When a Fund writes an option on a
securities index, and the underlying index moves adversely to the Fund's
position, the option may be exercised. Upon such exercise, the Fund, as the
writer of the option, will be required to pay in cash an amount equal to the
difference between the exercise settlement value of the underlying index and the
exercise price of the option, multiplied by a specified index "multiplier."

Call or put options on a stock index may be written at an exercise or
"strike" price which is either below or above the current value of the index. If
the exercise price at the time of writing the option is below the current value
of the index for a call option or above the current value of the index for a put
option the option is considered to be "in the money." In such a case, the Fund
will cover such options written by segregating with its custodian or pledging to
its commodity broker as collateral cash, U.S. Government or other high-grade,
short-term debt obligations equal in value to the amount by which the option
written is in the money, times the multiplier, times the number of contracts.

Stock indices for which options are currently traded include the S&P 500
Index, Value Line Index, National OTC Index, Major Market Index, Computer
Technology Index, Oil Index, NYSE Options Index, Technology Index, Gold/Silver
Index, Institutional Index and NYSE Beta Index. The Funds may also use options
on such other indices as may now or in the future be available.

Each Fund, except the Large Cap Growth Fund, the Mid Cap Growth Fund, the
International Growth Fund, the International Value Fund, the Mid Cap Value Fund,
the Balanced Fund, the Domestic Bond Fund and the Money Market Fund, may also
purchase put or call options on securities and securities indices in order to
(i) hedge against anticipated changes in interest rates or stock prices that may
adversely affect the prices of securities that the Fund intends to purchase at a
later date, (ii) hedge its investments against an anticipated decline in value,
or (iii) attempt to reduce the risk of missing a market or industry segment
advance. Certain Funds also may purchase put options on foreign currencies that
correlate with the Fund's portfolio securities in order to minimize or hedge
against anticipated declines in the exchange rate of the currencies in which the
Fund's securities are denominated and may purchase call options on foreign
currencies that correlate with its portfolio securities to take advantage of
anticipated increases

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<PAGE> 98
in exchange rates. In the event that the anticipated changes in interest rates,
stock prices, or exchange rates occur, the Fund may be able to offset the
resulting adverse effect on the Fund, in whole or in part, through the options
purchased.

The premium paid for a put or call option plus any transaction costs will
reduce the benefit, if any, realized by the Fund upon exercise or liquidation of
the option, and, unless the price of the underlying security, securities index,
or currency changes sufficiently, the option may expire without value to the
Fund. To close option positions purchased by the Funds, the Funds may sell put
or call options identical to options previously purchased, which could result in
a net gain or loss depending on whether the amount received on the sale is more
or less than the premium and other transaction costs paid on the put or call
option purchased.

Options used by the Funds may be traded on the national securities
exchanges or in the over-the-counter market. Only the Large Cap Value Fund and
the Small Cap Growth Fund may use over-the-counter options. Options traded in
the over-the-counter market may not be as actively traded as those on an
exchange. Accordingly, it may be more difficult to value such options. In
addition, it may be more difficult to enter into closing transactions with
respect to options traded over-the-counter. In this regard, the Funds may enter
into contracts with the primary dealers with whom they write over-the-counter
options. The contracts will provide that each Fund has the absolute right to
repurchase an option it writes at any time at a repurchase price which
represents the fair market value of such option, as determined in good faith
through negotiations between the parties, but which in no event will exceed a
price determined pursuant to a formula contained in the contract. Although the
specific details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a multiple of the
premium received by each Fund for writing the option, plus the amount, if any,
of the option's intrinsic value (i.e., the amount the option is "in-the-money").
The formula will also include a factor to account for the difference between the
price of the security and the strike price of the option if the option is
written "out-of-the-money." Although the specific details of the formula may
vary with different primary dealers, each contract will provide a formula to
determine the maximum price at which each Fund can repurchase the option at any
time. The Funds have established standards of creditworthiness for these primary
dealers.

WRITING COVERED CALL AND PUT OPTIONS AND PURCHASING CALL AND PUT OPTIONS

All of the Funds, except the Mid Cap Growth Fund, the International Growth
Fund, the International Value Fund, the Large Cap Growth Fund, the Balanced
Fund, the Domestic Bond Fund and the Money Market Fund, may write
exchange-traded covered call and put options on or relating to specific
securities in order to earn additional income or, in the case of a call written,
to minimize or hedge against anticipated declines in the value of the Fund's
securities. The Mid Cap Value Fund may write exchange-traded covered call
options, but not put options in this connection. To "cover" an option means, for
example, to identify and make available for sale the specific portfolio security
or foreign currency to which the option relates. Through the writing of a
covered call option a Fund receives premium income but obligates itself to sell
to the purchaser of such an option the particular security or foreign currency
underlying the option at a specified price at any time prior to the expiration
of the option period, regardless of the market value of the security or the
exchange rate for the foreign currency during this period. Through the writing
of a covered put option a Fund receives premium income but obligates itself to
purchase a particular security or foreign currency underlying the option at a
specified price at any time prior to the expiration of the option period,
regardless of market value or exchange rate during the option period.

Certain Funds, in accordance with their investment objective(s) and
investment programs, may also write exchange-traded covered call and put options
on stock indices and may purchase call and put options on stock indices that
correlate with the Fund's portfolio securities. These Funds may engage in such
transactions for the same purposes as they may engage in such transactions with
respect to individual portfolio securities or foreign currencies, that is, to
generate additional income or as a hedging technique to minimize anticipated
declines in the value of the Fund's portfolio securities or the exchange rate of
the securities in which the Fund invested. In economic effect, a stock index
call or put option is similar to an option on a particular security, except that
the value of the option depends on the weighted value of the group of securities
comprising the index, rather than a particular secur-

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ity, and settlements are made in cash rather than by delivery of a particular
security.

Each Fund, other than the Large Cap Growth Fund, the Mid Cap Growth Fund,
the International Growth Fund, the International Value Fund, the Balanced Fund,
the Domestic Bond Fund and the Money Market Fund, may also purchase exchange-
traded call and put options with respect to securities and stock indices that
correlate with that Fund's particular portfolio securities. In this connection,
the Mid Cap Value Fund may purchase exchange traded call options only.

A Fund may purchase put options for defensive purposes in order to protect
against an anticipated decline in the value of its portfolio securities or
currencies. As the holder of a put option with respect to individual securities
or currencies, the Fund has the right to sell the securities or currencies
underlying the options and to receive a cash payment at the exercise price at
any time during the option period. As the holder of a put option on an index, a
Fund has the right to receive, upon exercise of the option, a cash payment equal
to a multiple of any excess of the strike price specified by the option over the
value of the index.

A Fund may purchase call options on individual securities, currencies or
stock indices in order to take advantage of anticipated increases in the price
of those securities or currencies by purchasing the right to acquire the
securities or currencies underlying the option or, with respect to options on
indices, to receive income equal to the value of such index over the strike
price. As the holder of a call option with respect to individual securities or
currencies, a Fund obtains the right to purchase the underlying securities or
currencies at the exercise price at any time during the option period. As the
holder of a call option on a stock index, a Fund obtains the right to receive,
upon exercise of the option, a cash payment equal to the multiple of any excess
of the value of the index on the exercise date over the strike price specified
in the option.

Unlisted options may be used by the Large Cap Value Fund and the Small Cap
Growth Fund. Such options are not traded on an exchange and may not be as
actively traded as listed securities, making the valuation of these securities
more difficult. In addition, an unlisted option entails a risk not found in
connection with listed options -- that the party on the other side of the option
transaction will default. This may make it impossible to close out an unlisted
option position in some cases, and profits may be lost thereby. Such unlisted,
over-the-counter options, unless otherwise indicated, will be considered
illiquid securities. The Funds will engage in such transactions only with firms
of sufficient credit to minimize these risks. In instances in which a Fund has
entered into agreements with primary dealers with respect to the unlisted,
over-the-counter options it has written, and such agreements would enable the
Fund to have an absolute right to repurchase, at a pre-established formula
price, the over-the-counter options written by it, the Fund will treat as
illiquid only the amount equal to the formula price described above less the
amount by which the option is "in-the-money."

Although these investment practices will be used to generate additional
income and to attempt to reduce the effect of any adverse price movement in the
securities or currencies subject to the option, they do involve certain risks
that are different in some respects from investment risks associated with
similar funds which do not engage in such activities. These risks include the
following: writing covered call options -- the inability to effect closing
transactions at favorable prices and the inability to participate in the
appreciation of the underlying securities or currencies above the exercise
price; writing covered put options -- the inability to effect closing
transactions at favorable prices and the obligation to purchase the specified
securities or currencies or to make a cash settlement on the stock index at
prices which may not reflect current market values or exchange rates; and
purchasing put and call options -- possible loss of the entire premium paid. In
addition, the effectiveness of hedging through the purchase or sale (writing) of
stock index options will depend upon the extent to which price movements in the
portion of a Fund's portfolio being hedged correlate with price movements in the
selected stock index. Perfect correlation may not be possible because the
securities held or to be acquired by a Fund may not exactly match the
composition of the stock index on which options are purchased or written. If the
forecasts of VALIC regarding movements in securities prices, currencies or
interest rates are incorrect, a Fund's investment results may have been better
without the hedge.

FINANCIAL FUTURES CONTRACTS

Each Fund, except the Mid Cap Growth Fund, the International Growth Fund,
the International Value Fund, the Mid Cap Value Fund, the Bal-

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anced Fund, the Domestic Bond Fund and the Money Market Fund, in accordance with
its investment objective(s), investment program, policies, and restrictions may
purchase and sell exchange-traded financial futures contracts as a hedge to
protect against anticipated changes in prevailing interest rates, overall stock
prices or currency rates, or to efficiently and in a less costly manner
implement either increases or decreases in exposure to the equity or bond
markets. The Funds may also write covered call options and purchase put and call
options on financial futures contracts for the same purposes or to earn
additional income and the Small Cap Growth Fund, the Large Cap Value Fund and
the Large Cap Growth Fund may also write covered put options on stock index
futures contracts. The Large Cap Value Fund may utilize currency futures
contracts and both listed and unlisted financial futures contracts and options
thereon.

Financial futures contracts consist of interest rate futures contracts,
stock index futures contracts, and currency futures contracts. An interest rate
futures contract is a contract to buy or sell specified debt securities at a
future time for a fixed price. A stock index futures contract is similar in
economic effect, except that rather than being based on specific securities, it
is based on a specified index of stocks and not the stocks themselves. A
currency futures contract is a contract to buy or sell a specific foreign
currency at a future time for a fixed price.

An interest rate futures contract binds the seller to deliver to the
purchaser on a specified future date a specified quantity of one of several
listed financial instruments, against payment of a settlement price specified in
the contract. A public market currently exists for futures contracts on GNMA
Certificates, long-term U.S. Treasury Bonds, three-month U.S. Treasury Bills,
short-term U.S. Treasury Notes, and bank certificates of deposit.

Stock index futures contracts bind purchaser and seller to deliver, at a
future date specified in the contract, a cash amount equal to a multiple of the
difference between the value of a specified stock index on that date and the
settlement price specified by the contract. That is, the seller of the futures
contract must pay and the purchaser would receive a multiple of any excess of
the value of the index over the settlement price, and conversely, the purchaser
must pay and the seller would receive a multiple of any excess of the settlement
price over the value of the index. A public market currently exists for stock
index futures contracts based on the S&P 500 Index, the New York Stock Exchange
Composite Index, the Value Line Stock Index, and the Major Market Index. It is
expected that financial instruments related to broad-based indices, in addition
to those for which futures contracts are currently traded, will in the future be
the subject of publicly-traded futures contracts, and the Funds may use any of
these, which are appropriate, in its hedging strategies.

A financial futures contract is an agreement to buy or sell a security (or
deliver a final cash settlement price, in the case of a contract relating to an
index or otherwise not calling for physical delivery of a specified security)
for a set price in the future. Exchange-traded futures contracts are designated
by boards of trade which have been designated "contracts markets" by the
Commodity Futures Trading Commission ("CFTC").

Positions taken in the futures markets are not normally held until delivery
or cash settlement is required, but instead are liquidated through offsetting
transactions which may result in a gain or a loss. While futures positions taken
by a Fund will usually be liquidated in this manner, the Fund may instead make
or take delivery of underlying securities whenever it appears economically
advantageous to the Fund to do so. A clearing organization associated with the
relevant exchange assumes responsibility for closing out transactions and
guarantees that, as between the clearing members of an exchange, the sale and
purchase obligations will be performed with regard to all positions that remain
open at the termination of the contract.

Unlisted financial futures contracts, which may be purchased or sold only
by the Large Cap Value Fund, like unlisted options, are not traded on an
exchange and, generally, are not as actively traded as listed futures contracts
or listed securities. Such financial futures contracts generally do not have the
following elements: standardized contract terms, margin requirements relating to
price movements, clearing organizations that guarantee counter-party
performance, open and competitive trading in centralized markets, and public
price dissemination. These elements in listed instruments serve to facilitate
their trading and accurate valuation. As a result, the accurate valuation of
unlisted financial futures contracts may be difficult. In addition, it may be
difficult or even impossible, in some cases,

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<PAGE> 101

to close out an unlisted financial futures contract, which may, in turn, result
in significant losses to the Fund. Such unlisted financial futures contracts
will be considered by the Fund to be illiquid securities and together with other
illiquid securities will be limited to no more than 10% (or 15%) of the value of
such Fund's total assets. In making such determination, the value of unlisted
financial futures contracts will be based upon the "face amount" of such
contracts.

When financial futures contracts are entered into by a Fund, either as the
purchaser or the seller of such contracts, the Fund is required to deposit with
its custodian in a segregated account in the name of the FCM an initial margin
of cash or U.S. Treasury bills equaling as much as 5% to 10% or more of the
contract settlement price. The nature of initial margin requirements in futures
transactions differs from traditional margin payments made in securities
transactions in that initial margins for financial futures contracts do not
involve the borrowing of funds by the customer to finance the transaction.
Instead, a customer's initial margin on a financial futures contract represents
a good faith deposit securing the customer's contractual obligations under the
financial futures contract. The initial margin deposit is returned, assuming
these obligations have been met, when the financial futures contract is
terminated. In addition, subsequent payments to and from the FCM, called
"variation margin," are made on a daily basis as the price of the underlying
security, stock index, or currency fluctuates, reflecting the change in value in
the long (purchase) or short (sale) positions in the financial futures contract,
a process known as "marking to market."

A Fund, as an internal operating policy, may not hold financial futures
contracts in an amount greater than 33% of the Fund's net assets. A Fund may not
adhere to this internal operating policy in circumstances where the Fund is
required to invest a large cash infusion. In this circumstance the Fund's total
invested position, including the security value of the financial futures
contracts may not exceed 100% of the Fund's net assets.

Financial futures contracts generally are not entered into to acquire the
underlying asset and generally are not held to term. Prior to the contract
settlement date, the Funds will normally close all futures positions by entering
into an offsetting transaction which operates to cancel the position held, and
which usually results in a profit or loss.

OPTIONS ON FINANCIAL FUTURES CONTRACTS

For bona fide hedging purposes, each Fund, except the Mid Cap Growth Fund,
the International Growth Fund, the International Value Fund, the Balanced Fund,
the Domestic Bond Fund and the Money Market Fund, may also purchase call and put
options on financial futures contracts and write call options on financial
futures contracts of the type which the particular Fund is authorized to enter
into. Except for options on currency futures contracts used by the International
Equities Fund and the International Government Bond Fund, options on financial
future contracts used by the Funds are traded on exchanges that are licensed and
regulated by the CFTC. A call option on a financial futures contract gives the
purchaser the right in return for the premium paid, to purchase a financial
futures contract (assume a "long" position) at a specified exercise price at any
time before the option expires. A put option gives the purchaser the right, in
return for the premium paid, to sell a financial futures contract (assume a
"short" position), for a specified exercise price, at any time before the option
expires.

Unlike entering into financial futures contracts, purchasing options on
financial futures contracts allows a Fund to decline to exercise the option,
thereby avoiding any loss beyond foregoing the purchase price (or "premium")
paid for the options. Therefore, the purchase of options on financial futures
contracts may be a preferable hedging strategy when a Fund desires maximum
flexibility. Whether, in order to achieve a particular objective, a Fund enters
into a financial futures contract, on the one hand, or an option contract, on
the other, will depend on all the circumstances, including the relative costs,
liquidity, availability and capital requirements of such financial futures and
options contracts. Also, the Funds will consider the relative risks involved,
which may be quite different. These factors, among others, will be considered in
light of market conditions and the particular objective to be achieved.

CERTAIN ADDITIONAL RISKS OF OPTIONS AND FINANCIAL FUTURES CONTRACTS

In addition to the risks described in the Series Company's Prospectus, the
use of options and financial futures contracts may entail the following

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risks. First, although such instruments when used by the Funds are intended to
correlate with the Funds' portfolio securities or currencies, in many cases the
options or financial futures contracts used may be based on securities,
currencies, or stock indices the components of which are not identical to the
portfolio securities owned or intended to be acquired by the Funds. Second, due
to supply and demand imbalances and other market factors, the price movements of
financial futures contracts, options thereon, currency options, and stock index
options may not necessarily correspond exactly to the price movements of the
securities, currencies, or stock indices on which such instruments are based.
Accordingly, there is a risk that a Fund's transactions in those instruments
will not in fact offset the impact on the Fund of adverse market developments in
the manner or to the extent contemplated or that such transactions will result
in losses to the Fund which are not offset by gains with respect to
corresponding portfolio securities owned or to be purchased by that Fund.

To some extent, these risks can be minimized by careful management of
hedging activities. For example, where price movements in a financial futures or
option contract are expected to be less volatile than price movements in the
related portfolio securities owned or intended to be acquired by a Fund, it may,
in order to compensate for this difference, use an amount of financial futures
or option contracts which is greater than the amount of such portfolio
securities. Similarly, where the price movement of a financial futures or option
contract is anticipated to be more volatile, a Fund may use an amount of such
contracts which is smaller than the amount of portfolio securities to which such
contracts relate.

The risk that the hedging technique used will not actually or entirely
offset an adverse change in a Fund's portfolio securities is particularly
relevant to financial futures contracts and options written on stock indices and
currencies. A Fund, in entering into a futures purchase contract, potentially
could lose any or all of the contract's settlement price. In entering into a
futures sale contract, a Fund could potentially lose a sum equal to the excess
of the contract's value (marked to market daily) over the contract's settlement
price. In writing options on stock indices or currencies a Fund could
potentially lose a sum equal to the excess of the value of the index or currency
(marked to market daily) over the exercise price. In addition, because financial
futures contracts require delivery at a future date of either a specified
security or currency, or an amount of cash equal to a multiple of the difference
between the value of a specified stock index on that date and the settlement
price, an algebraic relationship exists between any price movement in the
underlying security or currency or index and the potential cost of settlement to
a Fund. A small increase or decrease in the value of the underlying security or
currency or stock index can, therefore, result in a much greater increase or
decrease in the cost to the Fund.

Stock index call options written also pose another risk as hedging tools.
Because exercises of stock index options are settled in cash, there is an
inherent timing risk that the value of a Fund's portfolio securities "covering"
a stock index call option written by it may decline during the time between
exercise of the option by the option holder and notice to the Fund of such
exercise (usually one day or more) thereby requiring the Fund to use additional
assets to settle the transaction. This risk is not present in the case of
covered call options on individual securities, which are settled by delivery of
the actual securities.

There are also special risks in using currency options including the
following: (i) settlement of such options must occur in the country issuing the
currency in conformity with foreign regulations for such delivery, including the
possible imposition of additional costs and taxes, (ii) no systematic reporting
of "last sale" information for foreign currencies, and (iii) the need to use
"odd lot" transactions for underlying currencies at prices less favorable than
those for "round lot" transactions.

Although the Funds intend to establish positions in these instruments only
when there appears to be an active market, there is no assurance that a liquid
market for such instruments will exist when a Fund seeks to "close out" (i.e.
terminate) a particular financial futures contract or option position. This is
particularly relevant for over-the-counter options and financial futures
contracts, as previously noted. Trading in such instruments could be
interrupted, for example, because of a lack of either buyers or sellers. In
addition, the futures and options exchanges may suspend trading after the price
of such instruments has risen or fallen more than the maximum amount specified
by the exchange. Exercise of options could also be restricted or delayed because
of regulatory restrictions or other factors. A Fund
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<PAGE> 103

may be able, by adjusting investment strategy in the cash or other contract
markets, to offset to some extent any adverse effects of being unable to
liquidate a hedge position. Nevertheless, in some cases, a Fund may experience
losses as a result of such inability. Therefore it may have to liquidate other
more advantageous investments to meet its cash needs.

In addition, FCMs or brokers in certain circumstances will have access to a
Fund's assets posted as margin in connection with these transactions as
permitted under the 1940 Act. See "Other Information Custody of Assets" in this
Statement of Additional Information. The Funds will use only FCMs or brokers in
whose reliability and financial soundness they have full confidence and have
adopted certain other procedures and limitations to reduce the risk of loss with
respect to any assets which brokers hold or to which they may have access.
Nevertheless, in the event of a broker's insolvency or bankruptcy, it is
possible that a Fund could experience a delay or incur costs in recovering such
assets or might recover less than the full amount due. Also the value of such
assets could decline by the time a Fund could effect such recovery.

The success of a Fund in using hedging techniques depends, among other
things, on VALIC's ability to predict the direction and volatility of price
movements in both the futures and options markets as well as the securities
markets and on VALIC's ability to select the proper type, time, and duration of
hedges. There can be no assurance that these techniques will produce their
intended results. In any event, VALIC will use financial future contracts,
options thereon, currency options and stock index options only when it believes
the overall effect is to reduce, rather than increase, the risks to which a Fund
is exposed. Hedging transactions also, of course, may be more, rather than less,
favorable to a Fund than originally anticipated.

LIMITATIONS

No Fund will enter into any financial futures contract or purchase any
option thereon if, immediately thereafter, the total amount of its assets
required to be on deposit as initial margin to secure its obligations under
financial futures contracts, plus the amount of premiums paid by it for
outstanding options to purchase futures contracts, exceeds 5% of the market
value of its total assets; provided however, that in the case of an option that
is in-the-money at the time of purchase, the in-the-money amount may be excluded
in calculating the 5% limitation. This is a fundamental policy of the Mid Cap
Index Fund and the Socially Responsible Fund.

In addition, each Fund has an operating policy which provides that it will
not enter into financial futures contracts or write put or call options with
respect to financial futures contracts unless such transactions are either
"covered" or subject to segregation requirements considered appropriate by the
SEC staff. Further, each Fund has an operating policy which provides that it
will not enter into custodial arrangements with respect to initial or variation
margin deposits or marked-to-market amounts unless the custody of such initial
and variation margin deposits and marked-to-market amounts are in compliance
with current SEC staff interpretive positions or no-action letters or rules
adopted by the SEC.

SHORT SALES AND SHORT SALES AGAINST THE BOX

Certain Funds may engage in short sale transactions in securities listed on
one or more national securities exchanges or on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"). Short selling
involves the sale of borrowed securities. At the time a short sale is effected,
a Fund incurs an obligation to replace the security borrowed at whatever its
price may be at the time that the Fund purchases it for delivery to the lender.
When a short sale transaction is closed out by delivery of the securities, any
gain or loss on the transaction is taxable as a short term capital gain or loss.
Until the security is replaced, the Fund is required to pay to the lender
amounts equal to any dividends or interest which accrue during the period of the
loan. All short sales will be fully collateralized. A Fund may also engage in
short sales against the box, which involves selling a security the Fund holds in
its portfolio for delivery at a specified date in the future. A Fund will not
engage in short sales or short sales against the box if immediately following
such transaction the aggregate market value of all securities sold short and
sold short against the box would exceed 10% of the Fund's net assets (taken at
market value).

MONEY MARKET SECURITIES OF FOREIGN ISSUERS

Foreign money market instruments utilized by the Funds will be limited to:
(i) obligations of, or

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guaranteed by, a foreign government, its agencies or instrumentalities; (ii)
certificates of deposit, bankers' acceptances, short-term notes, negotiable time
deposits and other obligations of the ten largest banks in each foreign country,
measured in terms of net assets; and (iii) other short-term unsecured corporate
obligations (usually 1 to 270 day commercial paper) of foreign companies. For
temporary purposes or in light of adverse foreign political or economic
conditions, the Funds may invest in short-term high quality foreign money market
securities without limitation.

INVESTMENT ADVISER

VALIC is a stock life insurance company organized on May 1, 1969 under the
Texas Insurance Code as a successor to The Variable Annuity Life Insurance
Company of America, a District of Columbia insurance company organized in 1955.
VALIC's sole business consists of offering fixed and variable (and combinations
thereof) retirement annuity contracts. VALIC is an indirect wholly-owned
subsidiary of American General Corporation, Houston, Texas. Members of the
American General Corporation group of companies operate in each of the 50
states, the District of Columbia, and Canada and collectively engage in
substantially all forms of financial services, with activities heavily weighted
toward insurance. American General Corporation was incorporated as a Texas
business corporation on February 26, 1980 as the successor to American General
Life Insurance Company (organized in 1926) as the result of a corporate
reorganization completed on July 1, 1980.

VALIC serves as the investment adviser to each of the Funds pursuant to an
Investment Advisory Agreement with each fund dated [ , 1998], that
was approved by the Board of Trustees on [ , 1998]. Under the
Investment Advisory Agreement, each Fund pays VALIC an annual fee, payable
monthly, based on its average daily net asset value.

Pursuant to the Investment Advisory Agreement, the Series Company retains
VALIC to manage the investment of the assets of each Fund, maintain a trading
desk, and place orders for the purchase and sale of portfolio securities. As
investment adviser, VALIC obtains and evaluates as appropriate economic,
statistical, and financial information in order to formulate and implement
investment programs in furtherance of each Fund's investment objective(s) and
investment program. Pursuant to the Investment Advisory Agreements, VALIC
provides other services including furnishing the services of the President and
such other executives and clerical personnel as the Series Company requires to
conduct its day-to-day operations, to prepare the various reports and statements
required by law, and to conduct any other recurring or nonrecurring activity
which the Series Company may need to continue operations. The Investment
Advisory Agreement provides that the Series Company pay all expenses not
specifically assumed by VALIC under the Agreement. Examples of the expenses paid
by the Series Company include transfer agency fees, custodial fees, the fees of
outside legal and auditing firms, the costs of reports to shareholders, expenses
of servicing shareholder accounts (e.g., daily calculation of the net asset
value).

The Investment Advisory Agreement requires that VALIC's advisory fee be
reduced by any commissions, tender and exchange offer solicitation fees and
other fees, or similar payments (less any direct expenses incurred) received by
VALIC or its affiliates in connection with the purchase and sale of portfolio
investments of the Funds. In this regard, the Investment Advisory Agreements
require VALIC to use its best efforts to recapture tender and exchange
solicitation offer fees for each Fund's benefits, and to advise the Series
Company's Board of Trustees of any other fees, or similar payments that it (or
any of its affiliates) may receive in connection with each Fund's portfolio
transactions or of other arrangements that may benefit any of the Funds or the
Series Company.

Pursuant to an Accounting Services Agreement dated [ , 1998 ]
("Agreement"), VALIC provides accounting services to the Series Company. The
Agreement provides that the Series Company will pay to VALIC an annual fee
payable monthly based on average daily net assets for providing the accounting
services.

The Investment Advisory Agreement may be continued with respect to any Fund
if specifically approved at least annually by (a)(i) the Series Company's Board
of Trustees or (ii) a majority of that Fund's outstanding voting securities (as
defined by the 1940 Act), and (b) the affirmative vote of a

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majority of the trustees who are not parties to the agreement or "interested
persons" of any such party (as defined by the 1940 Act) by votes cast in person
at a meeting called for this purpose. The Investment Advisory Agreement also
provides that it shall terminate automatically if assigned. The Investment
Advisory Agreement may be terminated as to any Fund at any time by the Series
Company's Board of Trustees, by vote of a majority of the Fund's outstanding
voting securities, or by VALIC, on not more than 60 days' written notice, nor
less than 30 days' written notice, or upon such shorter notice as may be
mutually agreed upon, without the payment of any penalty. Additionally the
Investment Advisory Agreement provides that VALIC shall not be liable to the
Series Company, or any shareholder in the Series Company, for any act or
omission in rendering services under the Agreement, or for any losses sustained
in the purchase, holding, or sale of any portfolio security, so long as there
has been no willful misfeasance, bad faith, negligence, or reckless disregard of
obligations or duties on the part of VALIC.

INVESTMENT SUB-ADVISERS

Pursuant to Investment Sub-advisory Agreements dated [ , 1998]
with each Sub-adviser, VALIC has engaged Bankers Trust Company ("Bankers Trust")
to provide investment Sub-advisory services for the Small Cap Index Fund, the
Mid Cap Index Fund, the S&P 500 Index Fund and a portion of the Small Cap Value
Fund. In addition, Capital Guardian Trust Company ("Capital Guardian") provides
Sub-advisory services for the International Value Fund, the Domestic Bond Fund
and the Balanced Fund, Jacobs Asset Management provides Sub-advisory services
for the International Growth Fund, State Street Bank and Trust Company/State
Street Global Advisors ("State Street Global Advisors") provides Sub-advisory
services for the Large Cap Value Fund, Goldman Sachs Asset Management ("GSAM")
provides Subadvisory services for the Large Cap Growth Fund and Neuberger &
Berman Management Inc. ("N&B Management") provides Sub-advisory services for the
Mid Cap Value Fund pursuant to separate Sub-advisory Agreements. Brown Capital
Management, Inc. ("Brown Capital Management") provides Sub-advisory services for
the Mid Cap Growth Fund, Fiduciary Management Associates, Inc. ("FMA") provides
Sub-advisory services for a portion of the Small Cap Value Fund and J.P. Morgan
Investment Management, Inc. ("JP Morgan") provides Sub-advisory services for the
Small Cap Growth Fund pursuant to separate Sub-advisory Agreements, as well.
Bankers Trust, Capital Guardian, Jacobs Asset Management, State Street Global
Advisors, GSAM, N&B Management, Brown Capital Management, FMA and JP Morgan
(collectively, the "Sub-advisers") will be subject to the control, supervision
and direction of VALIC, which will retain responsibility for the overall
management of the Funds to which these companies provide Sub-advisory services
(collectively, the "Sub-advised Funds").

The Series Company was issued an exemptive order by 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 its Prospectus the existence, substance and
effect of the Exemption; and (5) the Trustees, including a majority of the "non-
interested" Trustees, must approve each sub-advisory agreement in the manner
required under the 1940 Act. Any changes to the Investment Advisory Agreement
between the Series Company and VALIC would still require shareholder approval.
As required by the Exemption, the shareholders of each Fund determined, at a
shareholders' meeting held on , 1998, to permit the Series Company to
replace or add Sub-advisers and to enter into sub-advisory agreements with
Sub-advisers upon approval of the Board of Trustees but without formal
shareholder approval.

Pursuant to the Investment Sub-advisory Agreements and subject to VALIC's
control, super-

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<PAGE> 106

vision and direction, the Sub-advisers will manage the investment and
reinvestment of the assets of the Sub-advised Funds, including the evaluation of
pertinent economic, statistical, financial and other data, and the determination
of industries and companies to be represented in the Sub-advised Funds. Further,
the Sub-advisers will maintain a trading desk and place orders for the purchase
and sale of portfolio investments for the Sub-advised Funds, accounts with
brokers and dealers selected by the Sub-advisers, or arrange for any other
entity to provide a trading desk and to place orders with brokers and dealers
selected by the Sub-advisers and VALIC.

The Investment Sub-advisory Agreements provide that the Sub-advisers will
bear the expense of discharging their responsibilities.

VALIC shall, from the compensation VALIC receives from the Series Company
for acting as investment adviser, pay to Bankers Trust, for the services
rendered and expenses paid by Bankers Trust, a monthly fee computed at the
annual rate of 0.03% of the average daily net asset values of the portion of the
Small Cap Value Fund portfolio that it manages, 0.02% of the first $2 billion
and 0.01% average daily net asset values on the excess over $2 billion of the
S&P 500 Index Fund, 0.03% of the first $300 million and 0.02% of average daily
net asset values on the excess over $300 of the Mid Cap Index Fund and 0.03% of
the first $150 million and 0.02% of average daily net asset values on the excess
over $150 million of the Small Cap Index Fund.

VALIC shall, from the compensation VALIC receives from the Series Company
for acting as investment adviser, pay to Brown Capital Management, for the
services rendered to the Mid Cap Growth Fund and expenses paid by Brown Capital
Management, a monthly fee computed at the annual rate of 0.40% of the first $25
million, 0.30% of the next $25 million and 0.20% of average daily net asset
values on the excess over $50 million.

VALIC shall, from the compensation VALIC receives from the Series Company
for acting as investment adviser, pay to Capital Guardian, for the services
rendered and expenses paid by Capital Guardian, a monthly fee computed at the
annual rate of 0.75% of the first $25 million, 0.60% of the next $25 million,
0.425% of the next $200 million and 0.375% of average daily net assets values on
the excess over $250 million of the International Value Fund, 0.55% of the first
$50 million, 0.20% of the next $50 million, 0.18% of the next $200 million and
0.15% of average daily net asset values on the excess over $300 million of the
Domestic Bond Fund and 0.55% of the first $25 million, 0.40% of the next $25
million and 0.20% of average daily net asset values on the excess over $50
million of the Balanced Fund. Capital Guardian aggregates fees with respect to
the International Value Fund, the Domestic Bond Fund and the Balanced Fund and
applies a 5% discount to fees between $1.25 million and $4 million, a 7.5%
discount to fees between $4 million and $8 million, a 10% discount to fees
between $8 million and $12 million and a 12.5% discount to fees exceeding $12
million.

VALIC shall, from the compensation VALIC receives from the Series Company
for acting as investment adviser, pay to FMA, for the services rendered to the
portion of the Small Cap Value Fund that it manages and expenses paid by FMA, a
monthly fee computed at the annual rate of 0.50% of the first $50 million and
0.40% of average daily net asset values on the excess over $50 million.

VALIC shall, from the compensation VALIC receives from the Series Company
for acting as investment adviser, pay to GSAM, for the services rendered to the
Large Cap Growth Fund and expenses paid by GSAM, a monthly fee computed at the
annual rate of 0.30% of average daily net asset values of the Large Cap Growth
Fund.

VALIC shall, from the compensation VALIC receives from the Series Company
for acting as investment adviser, pay to JP Morgan, for the services rendered to
the Small Cap Growth Fund and expenses paid by JP Morgan, a monthly fee computed
at the annual rate of 0.60% of average daily net asset values of the Small Cap
Growth Fund.

VALIC shall, from the compensation VALIC receives from the Series Company
for acting as investment adviser, pay to Jacobs Asset Management, for the
services rendered to the International Growth Fund and expenses paid by Jacobs
Asset Management, a monthly fee computed at the annual rate of 0.65% of the
first $100 million and 0.55% of average daily net asset values on the excess
over $100 million.

VALIC shall, from the compensation VALIC receives from the Series Company
for acting as investment adviser, pay to N&B Management, for the services
rendered to the Mid Cap Value Fund and expenses paid by N&B Management, a
monthly
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fee computed at the annual rate of 0.50% of the first $100 million, 0.475% of
the next $150 million, 0.45% of the next $250 million, 0.425% of the next $250
million and 0.40% of average daily net asset values on the excess over $750
million.

VALIC shall, from the compensation VALIC receives from the Series Company
for acting as investment adviser, pay to State Street Global Advisors, for the
services rendered to the Large Cap Value Fund and expenses paid by State Street,
a monthly fee computed at the annual rate of 0.25% of average daily net asset
values of the Large Cap Value Fund, but in no event less than $50,000 per year.

The Investment Sub-advisory Agreements require that each Sub-adviser
promptly reduce its monthly fee by the amount of any commission, tender and
exchange offer solicitation fees, other fees or similar payments received by the
Sub-adviser, or any affiliated person of the Sub-adviser, in connection with
Sub-advised Fund portfolio transactions. Such "commissions" or "other fees"
exclude those charged by brokers or dealers affiliated with a Sub-adviser, as
referred to below. Such "tender and exchange offer solicitation fees" exclude
those received by a Sub-adviser acting in the capacity of manager for any such
offer. In this regard, the Sub-advisory Agreements require the Sub-advisers to
use their best efforts to obtain tender and exchange solicitation offer fees for
each Fund's benefit, and to advise VALIC of any other fees or similar payments
that they (or any of their affiliates) may receive in connection with any Fund's
portfolio transactions or of other arrangements that may benefit any of the
Funds.

The Investment Sub-advisory Agreements may be continued with respect to any
of the Funds if approved at least annually by the vote of the Series Company's
Board of Trustees who are not parties to the Investment Sub-advisory Agreements
or interested persons of any such parties, cast in person at a meeting called
for the purpose of voting on such approval and by a vote of a majority of the
Series Company's Board of Trustees or a majority of the relevant Fund's
outstanding voting securities.

Subject to the Exemption, the Investment Sub-advisory Agreements may be
terminated at any time by VALIC, the relevant Sub-adviser, the Series Company's
Board of Trustees, or by vote of a majority of the outstanding voting securities
of the relevant Sub-advised Fund, on not more than 60 days' nor less than 30
days' written notice to the other entities, or upon such shorter notice as may
be mutually agreed upon. Such termination shall be without the payment of any
penalty.

The Investment Sub-advisory Agreements provide that the Sub-advisers shall
not be liable to VALIC, the Series Company or to any shareholder of the Series
Company for any act or omission in rendering services under the Investment
Sub-advisory Agreements or for any losses sustained in the purchase, holding or
sale of any portfolio security, so long as there has been no willful
misfeasance, bad faith, negligence or reckless disregard of obligations or
duties on the part of the Sub-advisers.

PORTFOLIO TRANSACTIONS AND BROKERAGE

As investment adviser to the Series Company, VALIC has responsibility for
placing (and deciding when to place) orders for the purchase and sale of
investments for the portfolio of each Fund, selecting brokers or dealers to
handle these transactions, and negotiating commissions on these transactions.
VALIC utilizes the assistance of Sub-advisers in selecting brokers or dealers to
handle transactions for the Sub-advised Funds. The Sub-advisers may employ
affiliated brokers for portfolio transactions under circumstances described in
the Prospectus under the heading "Investment Management."

Virtually all of the over-the-counter transactions by the actively managed
portion of the Small Cap Value Fund, the Mid Cap Growth Fund, are principal
transactions with issuers and dealers at net prices which entail no brokerage
commissions. The Mid Cap Index Fund, the Large Cap Growth Fund, the S&P 500
Index Fund, the Small Cap Index Fund, the International Value Fund, the Balanced
Fund, the Domestic Bond Fund, the Mid Cap Value Fund, and the Socially
Responsible Fund, each purchase and sell most of their portfolio securities on a
national securities exchange on an agency basis. The International Growth Fund,
the Mid Cap Growth Fund, the Small Cap Value Fund, and the Large Cap Value Fund
engage in over-the-counter transactions with principals and transactions with
national securities exchanges on an agency basis. The Series Company normally
enters into principal

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transactions directly with the issuer or the market-maker.

When the Series Company purchases or sells securities or financial futures
contracts on an exchange, it pays a commission to any FCM or broker executing
the transaction. When the Series Company purchases securities from the issuer,
an underwriter usually receives a commission or "concession" paid by the issuer.
When the Series Company purchases securities from a market-maker, it pays no
commission, but the price includes a "spread" or "mark-up" (between the bid and
asked price) earned by the market-making dealer on the transaction.

In purchasing and selling each Fund's portfolio securities, it is the
policy of VALIC and the Sub-advisers (collectively, the "Advisers") to seek the
best execution at the most favorable price through responsible broker-dealers
and, in the case of agency transactions, at competitive commission rates. When
selecting brokers or dealers, and in negotiating prices and commissions, the
Advisers consider such factors as: the broker or dealer's reliability; the
quality of the broker or dealer's execution services on a continuing basis; the
rate of the commission; the size and difficulty of the order and the timeliness
of execution; the reliability, integrity, financial condition, general
execution, and operational capabilities of that firm and competing
broker-dealers. In over-the-counter transactions, the Advisers place orders
directly with the principal market-maker unless they believe the Series Company
can obtain a better price (or receive better execution of orders) from a broker
on an agency basis. In transactions executed on securities or commodities
exchanges, the Advisers seek the best overall price and execution at the most
favorable commission rate (except when higher brokerage commissions are paid to
obtain brokerage and research services, as explained below). When the Advisers
believe that more than one firm meets these criteria the Advisers may prefer
brokers who provide the Advisers or the Series Company with brokerage and
research services, described below.

The Advisers may cause a Fund to pay a broker-dealer a commission (for
executing a securities transaction) that is greater than the commission another
broker-dealer would have received for executing the same transaction, if the
Advisers determine in good faith that the greater commission paid to the first
broker-dealer is reasonable in relation to the value of brokerage and research
services provided to the Advisers viewed in terms of either that particular
transaction or the overall responsibilities of the Advisers.

The Advisers receive a wide range of research services from broker-dealers,
including: information on securities markets, the economy and individual
companies; statistical information; accounting and tax law interpretations;
technical market action; pricing and appraisal services; and credit analyses.
Research services are received by the Advisers primarily in the form of written
reports, telephone contacts, personal meetings with securities analysts,
corporate and industry spokespersons, and access to various computer-generated
data.

The Advisers have no agreements or understandings with broker-dealers by
which specific amounts of transactions or commissions are directed to specific
broker-dealers.

The Advisers evaluate whether such research services provide lawful and
appropriate assistance to them in the performance of their investment
decision-making responsibilities, for the Series Company. The Advisers will not
cause the Series Company to pay higher commissions without first determining, in
good faith, that the cost is reasonable considering the brokerage and research
services provided, with respect to either the particular transaction or the
Advisers' overall responsibilities with respect to accounts for which they
exercise investment discretion. The Advisers receive research services at no
cost and cannot assign any specific monetary value to them; nevertheless, the
Advisers believe these supplemental investment research services are essential
to the Advisers' ability to provide high quality portfolio management to the
Funds. Research services furnished by broker-dealers through whom a Fund effects
securities transactions may be used by the Advisers in servicing all of the
Funds, and the Advisers may not use all such services in managing the Funds.

The amount of brokerage commissions paid, the quality of execution, the
nature and quality of research services provided, and the amount of commissions
paid to firms providing research services are reviewed quarterly by the Series
Company's Board of Trustees.

Occasions may arise when one or more of the Funds or other accounts that
may be considered affiliated persons of the Funds under the 1940 Act

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desire to purchase or sell the same portfolio security at approximately the same
time. On those occasions when such simultaneous purchase and sale transactions
are made such transaction will be allocated in an equitable manner according to
written procedures approved by the Series Company's Board of Trustees.
Specifically, such written procedures provide that in allocating purchase and
sale transactions made on a combined basis the parties will seek to achieve the
same net unit price of securities for each Fund or other account and to allocate
as nearly as practicable, such transactions on a pro-rata basis substantially in
proportion to the amounts ordered to be purchased and sold by each Fund or other
account. In some cases, this procedure could have an adverse effect on the price
or quantity of securities available to the Funds. However, the Funds may,
alternatively, benefit from lower broker's commissions and/or correspondingly
lower costs for brokerage and research services by engaging in such combined
transactions. In the Advisers' opinion, the results of this procedure will, on
the whole, be in the best interest of each Fund.

OFFERING, PURCHASE, AND REDEMPTION OF FUND SHARES

Pursuant to a distribution agreement, The Variable Annuity Marketing
Company ("VAMCO") acts without remuneration as the Series Company's agent in the
distribution of Fund Shares to registered and unregistered separate accounts of
VALIC and its affiliate's. VAMCO's address is the same as that of VALIC.

The distribution agreement between VAMCO and the Series Company provides
that it shall continue in force from year to year, provided that such
continuance is approved at least annually (a)(i) by the Board of Trustees of the
Series Company, or (ii) by vote of a majority of the Series Company's
outstanding voting securities (as defined in the 1940 Act) and (b) by the
affirmative vote of a majority of the Series Company's Trustees who are not
'interested persons' (as defined in the 1940 Act) of the Series Company by votes
cast in person at a meeting called for such purpose. The distribution agreement
may be terminated at any time, without penalty, by a vote of the Board of
Trustees of the Series Company or by a vote of a majority of the outstanding
voting securities of the Series Company, or by VAMCO, on sixty days' written
notice to the other party. The distribution agreement also automatically
terminates in the event of an assignment.

Pursuant to the distribution agreement VAMCO pays promotional and
advertising expenses and the cost of printing prospectuses used to offer and
sell shares of the Series Company (after typesetting and printing the copies
required for regulatory filings by the Series Company). Promotional and
advertising expenses include any expense related to distribution of shares of
the Funds or attributable to any activity primarily intended to result in the
sale of shares, including, for example, the preparation, printing, and
distribution of advertising and sales literature (including reports to
shareholders used as sales literature). VALIC reimburses VAMCO for these
expenses. Thus all such expenses incurred by VAMCO are passed directly on to
VALIC, its parent. The Series Company pays all expenses related to the
registration of Fund shares under federal and state laws, including registration
and filing fees, the cost of preparing the prospectus for such purpose, and
related expenses of outside legal and auditing firms.

As explained in the prospectus for the Contracts, payments of surrender
values, as well as lump sum payments available under the annuity options of the
Contracts, may be suspended or postponed at any time when redemption of shares
is suspended. Normally, the Series Company redeems Fund shares within seven days
of receipt of request therefor, but may postpone redemptions beyond seven days
when: (1) the New York Stock Exchange is closed for other than weekends and
customary holidays, or trading on the New York Stock Exchange becomes
restricted; (2) an emergency exists making disposal or valuation of a Fund's
assets not reasonably practicable; or (3) the SEC has so permitted by order for
the protection of the Series Company's shareholders.

The Series Company normally redeems Fund shares for cash. Although the
Series Company, with respect to each Fund, may make full or partial payment by
assigning to investors, Series Company portfolio securities at their value used
in determining the redemption price (i.e. by redemption-in-kind), the Series
Company, pursuant to Rule 18f-1 under the 1940 Act, has filed a notification of
election on Form 18f-1. Pursuant to this election, the Series Company has
committed

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itself to pay investors, in cash, all redemptions made during any 90 day
period, up to the lesser of $250,000 or 1% of the Series Company's net asset
value. The securities to be paid in-kind to an investor will be selected in such
manner as the Board of Trustees deems fair and equitable. In such cases,
investors would incur brokerage expenses should they wish to liquidate these
portfolio securities.

All shares are offered for sale and redeemed at net asset value. Net asset
value per share is determined by dividing the net assets of a Fund by the number
of that Fund's outstanding shares at such time.

DISTRIBUTION AND SERVICE PLAN

The Series Company has adopted a Distribution and Service Plan (the "Plan")
for each of the Funds. The Plan provides that a Fund may spend a portion of the
Fund's average daily net assets in connection with the provision of ongoing
services to shareholders [and for advertising, marketing and distributing the
Fund's shares.] The Plan is being implemented through an agreement with VAMCO,
the distributor of the Funds' shares.

Under the Plan, VAMCO must submit quarterly reports to the Board of
Trustees of the Series Company, setting forth separately by Fund all amounts
paid under the Plan and the purposes for which such expenditures were made,
together with such other information as from time to time is reasonably
requested by the Trustees. The Plan provides that it will continue in full force
and effect from year to year so long as such continuance is specifically
approved by a vote of the Trustees, and also by a vote of the independent
Trustees, cast in person at a meeting called for the purpose of voting on the
Plan. The Plan may not be amended to increase materially the amount to be spent
for the services described therein without approval by a vote of a majority of
the outstanding voting shares, and all material amendments to the Plan must be
approved by the Trustees and also by the independent Trustees. The Plan may be
terminated at any time by a vote of a majority of the independent Trustees or by
a vote of a majority of the outstanding voting shares of such class.

DETERMINATION OF NET ASSET VALUE

Equity investments (including common stocks, preferred stocks, convertible
securities, and warrants) and call options written on all portfolio investments
listed or traded on a national exchange are valued at their last sale price on
that exchange prior to the time when assets are valued. In the absence of any
exchange sales on that day and for unlisted equity securities, such securities
and call options written on portfolio securities are valued at the last sale
price on the NASDAQ (National Association of Securities Dealers Automated
Quotations) National Market System. In the absence of any National Market System
sales on that day, equity securities are valued at the last reported bid price
and call options written on all portfolio securities for which other
over-the-counter market quotations are readily available are valued at the last
reported asked price.

U.S. Treasury securities and other obligations issued or guaranteed by the
U.S. government, its agencies or instrumentalities, are valued at representative
quoted prices. Such quotations generally are obtained from government securities
pricing services; however, in circumstances where it is deemed appropriate to do
so, quotations may be obtained from dealers in government securities.

Publicly-traded corporate bonds are valued at prices obtained from State
Street Bank and Trust Series Company.

Short-term debt securities for which market quotations are readily
available are valued at the last reported bid price, except for those with a
remaining maturity of 60 days or less which are valued by the amortized cost
method (unless, due to special circumstances, the use of such a method with
respect to any security would result in a valuation which does not approximate
fair market value).

Convertible bonds are valued at prices obtained from one or more of the
major dealers in such bonds. Where there is a discrepancy between dealers or
when no quotes are readily available, values may be adjusted based on a
combination of yields and premium spreads to the underlying common stock.
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Portfolio securities that are primarily traded on foreign securities
exchanges are generally valued at the last sale price on the exchange where such
security is primarily traded. All foreign securities traded on the
over-the-counter market are valued at the last sale quote, if market quotations
are available, or the last closing bid price, if there is no active trading in a
particular security for a given day. Where market quotations are not readily
available for such foreign over-the-counter securities, then such securities
will be valued in good faith by a method that the Series Company's Board of
Trustees, or its delegates, believes accurately reflects fair value. Quotations
of foreign securities in foreign currencies are converted, at current exchange
rates, to their U.S. dollar equivalents in order to determine their current
value. In addition, because of the need to value foreign securities (other than
ADRs) as of the close of trading on various exchanges and over-the-counter
markets throughout the world, the calculation of the net asset value of Funds
investing in such foreign securities may not take place contemporaneously with
the valuation of such foreign securities in those Funds' portfolios.

Options purchased by the Funds (including options on financial futures
contracts, stock indices, foreign currencies, and securities) listed on national
securities exchanges are valued on the exchange where such security is primarily
traded.

Over-the-counter options purchased or sold by the Funds are valued based
upon prices provided by market-makers in such securities or dealers in such
currencies.

Exchange-traded financial futures contracts (including interest rate
futures contracts, stock index futures contracts, and currency futures
contracts) are valued at the settlement price for such contracts established
each day by the board of trade or exchange on which such contracts are traded.
Unlisted financial futures contracts are valued based upon prices provided by
market-makers in such financial futures contracts.

All of the assets of the Money Market Fund are valued on the basis of
amortized cost. Under the amortized cost method of valuation, securities are
valued at a price on a given date, and thereafter a constant accretion of any
discount or amortization of any premium to maturity is assumed, regardless of
the impact of fluctuating interest rates on the market value of the security.
While this method provides certainty in valuation it may result in periods in
which value as determined by amortized cost is higher or lower than the price a
Fund would receive if it sold the security. During such periods, the yield to
investors may differ somewhat from that obtained by a similar fund or portfolio
which uses available market quotations to value all of its portfolio securities.
The Series Company's Board of Trustees has established procedures reasonably
designed, taking into account current market conditions and Money Market Fund's
investment objective, to stabilize the net asset value per share for purposes of
sales and redemptions at $1.00. These procedures include review by the Board, at
such intervals as it deems appropriate, to determine the extent, if any, to
which the net asset value per share calculated by using available market
quotations deviates from $1.00 per share. In the event such deviation should
exceed one half of one percent, the Board will promptly consider initiating
corrective action. If the Board believes that the extent of any deviation from a
$1.00 amortized cost price per share may result in material dilution or other
unfair results to new or existing shareholders, it will take such steps as it
considers appropriate to eliminate or reduce these consequences to the extent
reasonably practicable. Such steps may include: selling portfolio securities
prior to maturity; shortening the average maturity of the portfolio; withholding
or reducing dividends; or utilizing a net asset value per share determined from
available market quotations. Even if these steps were taken, the Money Market
Fund's net asset value might still decline.

CALCULATION OF YIELD FOR THE MONEY MARKET FUND

The yield of the Money Market Fund is its net income expressed as a
percentage of assets on an annualized basis for a seven day period. Rule 482
under the 1933 Act requires that a yield quotation set forth in an advertisement
for a money market fund be computed by a standardized method based on an
historical seven calendar day period. The current yield is computed by
determining the net change (exclusive of realized gains and losses from the sale
of securities and unrealized appreciation and depreciation) in the value of a
hypothetical pre-existing account having a balance of one share at

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the beginning of the period, and then dividing the net change in account value
by the value of the account at the beginning of the base period to obtain the
base period return. The base period return is then multiplied by (365/7) to
annualize the yield figure. The determination of net change in account value
reflects the value of additional shares purchased with dividends from the
original share, dividends declared on both the original share and such
additional shares, and any fees that are charged to all shareholder accounts, in
proportion to the length of the base period and the Money Market Fund's average
account size. The Money Market Fund may also calculate its compound effective
yield by compounding the unannualized base period return (calculated as
described above) by adding one to the base period return, raising the sum to a
power equal to 365 divided by 7, and subtracting one.

The yield quoted by the Money Market Fund at any time represents the amount
being earned on a current basis for the indicated period and is a function of
the types of instruments in the Money Market Fund's portfolio, their quality and
length of maturity, and the Money Market Fund's operating expenses. The length
of maturity for the portfolio is the average dollar weighted maturity of the
portfolio. In other words, the portfolio has an average maturity for all of its
issues, stated in numbers of days and weighted according to the relative value
of each investment.

The yield fluctuates daily as the income earned on the investments of the
Money Market Fund fluctuates. Accordingly, neither the Series Company nor VALIC
can assure the yield quoted on any given occasion will remain constant for any
period of time. For example, the Money Market Fund's yield will change if it
experiences a net inflow of new assets which it then invests in securities whose
yield is higher or lower than that being currently earned on investments.
Investments in the Money Market Fund are not insured and investors comparing
results of the Money Market Fund with investment results and yields from other
sources such as banks or savings and loan associations should understand this
distinction. In addition, other money market funds as well as banks and savings
and loan associations may calculate their yields on a different basis and the
yield quoted by the Money Market Fund from time-to-time could vary upwards or
downwards if another method of calculation or base period were used.

TAXATION

The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Fund of the Series Company. This summary does
not address special tax rules applicable to certain classes of investors, such
as tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his own tax adviser with respect to
the specific federal, state, local and foreign tax consequences of investing in
each Fund. The summary is based on the laws in effect on the date of this
Statement of Additional Information, which are subject to change.

GENERAL

Each Fund is a separate taxable entity. Each Fund has elected to be treated
and intends to qualify for each taxable year as a regulated investment company
under Subchapter M of the Code.

Qualification as a regulated investment company under the Code requires,
among other things, that (a) a Fund derives at least 90% of its gross income for
its taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of stocks or securities or
foreign currencies, or other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or currencies (the "90% gross income test");
and (b) such Fund diversify its holdings so that, at the close of each quarter
of its taxable year, (i) at least 50% of the market value of such Fund's total
(gross) assets is comprised of cash, cash items, U.S. Government securities,
securities of other regulated investment companies and other securities limited
in respect of any one issuer to an amount not greater in value than 5% of the
value of such Fund's total assets and to not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total (gross) assets is invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies) or two or

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more issuers controlled by the Fund and engaged in the same, similar or related
trades or businesses. For purposes of the 90% gross income test, income that a
Fund earns from equity interests in certain entities that are not treated as
corporations (e.g., partnerships or trusts) for U.S. tax purposes will generally
have the same character for such Fund as in the hands of such an entity;
consequently, a Fund may be required to limit its equity investments in such
entities that earn fee income, rental income, or other nonqualifying income. In
addition, future Treasury regulations could provide that qualifying income under
the 90% gross income test will not include gains from foreign currency
transactions that are not directly related to a Fund's principal business of
investing in stock or securities or options and futures with respect to stock or
securities. Using foreign currency positions or entering into foreign currency
options, futures and forward or swap contracts for purposes other than hedging
currency risk with respect to securities in a Fund's portfolio or anticipated to
be acquired may not qualify as "directly-related" under these tests.

If a Fund complies with such provisions, then in any taxable year in which
such Fund distributes, in compliance with the Code's timing and other
requirements, at least 90% of its "investment company taxable income" (which
includes dividends, taxable interest, taxable accrued original issue discount
and market discount income, income from securities lending, any net short-term
capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains and any other taxable income other than "net capital
gain," as defined below, and is reduced by deductible expenses), and at least
90% of the excess of its gross tax-exempt interest income (if any) over certain
disallowed deductions, such Fund (but not its shareholders) will be relieved of
federal income tax on any income of the Fund, including long-term capital gains,
distributed to shareholders. However, if a Fund retains any investment company
taxable income or "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), it will be subject to a tax at regular
corporate rates on the amount retained. If the Fund retains any net capital
gain, the Fund may designate the retained amount as undistributed capital gains
in a notice to its shareholders who, if subject to U.S. federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by the Fund against their U.S. federal income tax
liabilities, if any, and to claim refunds to the extent the credit exceeds such
liabilities. For U.S. federal income tax purposes, the tax basis of shares owned
by a shareholder of the Fund will be increased by an amount equal under current
law to 65% of the amount of undistributed net capital gain included in the
shareholder's gross income. Each Fund intends to distribute for each taxable
year to its shareholders all or substantially all of its investment company
taxable income, net capital gain and any net tax-exempt interest. Exchange
control or other foreign laws, regulations or practices may restrict
repatriation of investment income, capital or the proceeds of securities sales
by foreign investors and may therefore make it more difficult for certain Funds
to satisfy the distribution requirements described above, as well as the excise
tax distribution requirements described below. However, each Fund generally
expects to be able to obtain sufficient cash to satisfy such requirements from
new investors, the sale of securities or other sources. If for any taxable year
a Fund does not qualify as a regulated investment company, it will be taxable on
all of its investment company taxable income and net capital gain at corporate
rates, and its distributions to shareholders will be taxable as ordinary
dividends to the extent of its current and accumulated earnings and profits.

In order to avoid a 4% federal excise tax, each Fund must distribute (or be
deemed to have distributed) by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year), and all taxable ordinary
income and the excess of capital gains over capital losses for the previous year
that were not distributed for such year and on which the Fund paid no federal
income tax. For federal income tax purposes, dividends declared by a Fund in
October, November or December to shareholders of record on a specified date in
such a month and paid during January of the following year are taxable to such
shareholders as if received on December 31 of the year declared. The Funds
anticipate that they will generally make timely distributions of income and
capital gains in compliance with these requirements so that they will generally
not be required to pay the excise tax. For federal

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income tax purposes, each Fund is permitted to carry forward a net capital loss
in any year to offset its own capital gains, if any, during the eight years
following the year of the loss.

Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gains and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income or gains without a
concurrent receipt of cash. Any gain or loss recognized on actual or deemed
sales of these futures contracts, forward contracts, or options will (except for
certain foreign currency options, forward contracts, and futures contracts) be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. As a result of certain hedging transactions entered into by a Fund, the
Fund may be required to defer the recognition of losses on futures contracts,
forward contracts, and options or underlying securities or foreign currencies to
the extent of any unrecognized gains on related positions held by such Fund and
the characterization of gains or losses as long-term or short-term may be
changed. The tax provisions described above applicable to options, futures and
forward contracts may affect the amount, timing and character of a Fund's
distributions to shareholders. Application of certain requirements for
qualification as a regulated investment company and/or these tax rules to
certain investment practices, such as dollar rolls, or certain derivatives such
as interest rate swaps, floors, caps and collars and currency, mortgage or index
swaps may be unclear in some respects, and a Fund may therefore be required to
limit its participation in such transactions. Certain tax elections may be
available to a Fund to mitigate some of the unfavorable consequences described
in this paragraph.

Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by a Fund. Under these rules,
foreign exchange gain or loss realized with respect to foreign currencies and
certain futures and options thereon, foreign currency-denominated debt
instruments, foreign currency forward contracts, and foreign
currency-denominated payables and receivables will generally be treated as
ordinary income or loss, although in some cases elections may be available that
would alter this treatment. If a net foreign exchange loss treated as ordinary
loss under Section 988 of the Code were to exceed a Fund's investment company
taxable income (computed without regard to such loss) for a taxable year, the
resulting loss would not be deductible by the Fund or its shareholders in future
years. Net loss, if any, from certain foreign currency transactions or
instruments would exceed net investment income otherwise calculated for
accounting purposes with the result being either no dividends being paid or a
portion of a Fund's dividends being treated as a return of capital for tax
purposes, nontaxable to the extent of a shareholder's tax basis in his shares
and, once such basis is exhausted, generally giving rise to capital gains.

A Fund's investment in zero coupon securities, deferred interest
securities, certain structured securities or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark-to-market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, the Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.

Certain Funds may be subject to foreign taxes on income (possibly
including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases. If, as may occur for certain Funds, more than 50% of a
Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund would be
required to (i) include in ordinary gross income (in addition to taxable
dividends actually received) their pro rata shares of foreign income taxes paid
by the Fund that are treated as income taxes under U.S. tax regulations (which
excludes, for example, stamp taxes, securities transaction taxes, and similar
taxes) even though not actually

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received by such shareholders, and (ii) treat such respective pro rata portions
as foreign income taxes paid by them.

If a Fund makes this election, its respective shareholders may then deduct
such pro rata portions of qualified foreign taxes in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by a Fund,
although such shareholders will be required to include their shares of such
taxes in gross income if the election is made.

If a shareholder chooses to take credit for the foreign taxes deemed paid
by such shareholder as a result of any such election by a Fund, the amount of
the credit that may be claimed in any year may not exceed the same proportion of
the U.S. tax against which such credit is taken which the shareholder's taxable
income from foreign sources (but not in excess of the shareholder's entire
taxable income) bears to his entire taxable income. For this purpose,
distributions from long-term and short-term capital gains or foreign currency
gains by a Fund will generally not be treated as income from foreign sources.
This foreign tax credit limitation may also be applied separately to certain
specific categories of foreign-source income and the related foreign taxes. As a
result of these rules, which have different effects depending upon each
shareholder's particular tax situation, certain shareholders of a Fund which has
made this election may not be able to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by such Fund even if the
election is made by such a Fund.

Shareholders who are not liable for U.S. federal income taxes, including
tax-exempt shareholders, will ordinarily not benefit from this election. Each
year, if any, that a Fund files the election described above, its shareholders
will be notified of the amount of (i) each Shareholder's pro rata share of
qualified foreign taxes paid by a Fund and (ii) the portion of Fund dividends
which represents income from each foreign country. The other Funds will not be
entitled to elect to pass foreign taxes and associated credits or deductions
through to their shareholders because they will not satisfy the 50% requirement
described above. If a Fund cannot or does not make this election, it may deduct
such taxes in computing the amount it is required to distribute.

If a Fund acquires stock (including, under proposed regulations, an option
to acquired stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, rents, royalties or capital gain) or hold
at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the Fund could be subject to federal
income tax and additional interest charges on "excess distributions" received
from such companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders any
credit or deduction for such a tax. In some cases, elections may be available
that would ameliorate these adverse tax consequences, but such elections would
require the Fund to include certain amounts as income or gain (subject to the
distribution requirements described above) without a concurrent receipt of cash.
Each Fund may limit and/or manage its holdings in passive foreign investment
companies to minimize its tax liability or maximize its return from these
investments.

Investments in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount, or market
discount; when and to what extent deductions may be taken for bad debts or
worthless securities; how payments received on obligations in default should be
allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.

SECTION 817(h) OF THE CODE

Each of the Funds intends to comply with Section 817(h) of Code and the
regulations issued thereunder. Section 817(h) of the Code and Treasury
Department regulations thereunder impose certain diversification requirements on
variable annuity contracts based upon segregated asset ac-

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counts. These requirements are in addition to the diversification requirements
of Subchapter M and the 1940 Act and may affect the securities in which a Fund
may invest. Failure to meet the requirements of Section 817(h) could result in
immediate taxation of the Contract owner to the extent of appreciation on
investment under the Contract.

The Section 817(h) diversification requirements do not apply to pension
plan contracts. "Pension plan contracts" for these purposes generally means
authority contracts issued with respect to plans qualified under Section 401(a)
or 403(a) of the Code, Section 403(b) annuities, Individual Retirement Accounts,
Individual Retirement Annuities and annuities issued with respect to Section 457
plans.

The Secretary of the Treasury may, in the future, issue additional
regulations that will prescribe the circumstances in which a Contract Owner's
control of the investments of the separate accounts investing in the Series
Company may cause the Contract Owner, rather than VALIC, to be treated as the
owner of the assets of that separate account.

In order to comply with the requirements of Section 817(h) and the
regulations thereunder, the Series Company may find it necessary to take action
to ensure that a Series Contract funded by the Series Company continues to
qualify as such under federal tax laws. The Series Company, for example, may be
required to alter the investment objectives of a Fund or Funds, or substitute
the shares of one fund for those of another. No such change of investment
objectives or substitution of securities will take place without notice to the
shareholders of the affected Fund, and the approval of a majority of such
shareholders (as defined in the 1940 Act) and without prior approval of the
Securities and Exchange Commission, to the extent legally required.

It is not feasible to comment on all of the federal income tax consequences
concerning the Funds. Each owner of a Contract funded by the Series Company
should consult a qualified tax adviser for more complete information. The reader
should refer to the appropriate prospectus related to his or her Contracts for a
more complete description of the taxation of the separate account and of the
owner of the particular Contract.

OTHER INFORMATION

SHAREHOLDER REPORTS

Annual Reports containing audited financial statements of the Series
Company and Semiannual Reports containing unaudited financial statements, as
well as proxy materials, are sent to Contract Owners, annuitants, or
beneficiaries as appropriate.

VOTING AND OTHER RIGHTS

The Series Company was organized under the laws of the state of Delaware as
a business trust, and presently is authorized to sell 18 series. Each of these
series is authorized to issue an unlimited number of shares of beneficial
interest, par value $0.01 per share, divided into classes. VALIC, as the initial
sole shareholder of each of the Funds as of the commencement date of the Series
Company, controls each Fund. VALIC does not anticipate that its initial control
of each Fund will adversely effect the rights of future shareholders.

CUSTODY OF ASSETS

Pursuant to a Custodian Contract with the Series Company, State Street Bank
and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, holds the
cash and portfolio securities of the Series Company as custodian.

The Custodian is responsible for holding all securities and cash of each
Fund, receiving and paying for securities purchased, delivering against payment
securities sold, receiving and collecting income from investments, making all
payments covering expenses of the Series Company, and performing other
administrative duties, all as directed by persons authorized by the Series
Company. The Custodian does not exercise any supervisory function in such
matters as the purchase and sale of portfolio securities, payment of dividends,
or payment of expenses of the Funds or the Series Company. Portfolio securities
of the Funds purchased domestically are maintained in the custody of the
Custodian and may be entered into the book entry systems of securities
depositories approved by the Board of Trustees. Pursuant to the Custodian
Contract, portfolio securities purchased outside the United States will be
maintained in the custody of various foreign branches of the Custodian and such
other custodians, including foreign banks and for-

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eign securities depositories, as are approved by the Board of Trustees, in
accordance with regulations under the 1940 Act.

The Custodian holds securities of the Funds on which call options have been
written and certain assets of the Funds constituting margin deposits with
respect to financial futures contracts at the disposal of the FCMs through which
such transactions are effected. The Funds may also be required to post margin
deposits with respect to covered call and put options written on stock indices
and for this purpose certain assets of those Funds may be held by the custodian
pursuant to similar arrangements with the brokers involved.

This arrangement regarding margin deposits essentially consists of the
Custodian creating a separate segregated account into which it transfers (upon
the Series Company's instructions) assets from a Fund's general (regular)
custodial account. The custody agreement for such arrangement provides that FCMs
or brokers will have access to the funds in the segregated accounts when and if
the FCMs or brokers represent that the Series Company has defaulted on its
obligation to the FCMs or brokers and that the FCMs or brokers have met all the
conditions precedent to their right to receive such funds under the agreement
between the Series Company and the FCMs or brokers. The Series Company has an
agreement with each FCM or broker which provides (1) that the assets of any Fund
held by the FCM or broker will be in the possession of State Street Bank until
released or sold or otherwise disposed of in accordance with or under the terms
of such agreement, (2) that such assets would not otherwise be pledged or
encumbered by the FCM or broker, (3) that when requested by the Series Company
the FCM or broker will cause State Street Bank to release to its general
custodial account any assets to which a Fund is entitled under the terms of such
agreement, and (4) that the assets in the segregated account shall otherwise be
used only to satisfy the Series Company's obligations to the FCM or broker under
the terms of such agreement.

If on any day a Fund experiences net realized or unrealized gains with
respect to financial futures contracts or covered options on stock indices held
through a given FCM or broker, it is entitled immediately to receive from the
FCM or broker, and usually will receive by the next business day, the net amount
of such gains. Thereupon, such assets will be deposited in its general or
segregated account with the Custodian, as appropriate.

INDEX FUNDS

The Small Cap Index Fund is not promoted, sponsored or endorsed by, nor in
any way affiliated with Frank Russell Company. Frank Russell Company is not
responsible for and has not reviewed the Fund nor any associated literature or
publications and Frank Russell Company makes no representation or warranty,
express or implied, as to their accuracy, or completeness, or otherwise.

Frank Russell Company reserves the right, at any time and without notice,
to alter, amend, terminate or in any way change its Index(es). Frank Russell
Company has no obligation to take the needs of any particular fund or its
participants or any product or person into consideration in determining,
comprising or calculating the Index(es).

Frank Russell Company's publication of the Index(es) in no way suggests or
implies an opinion by Frank Russell Company as to the attractiveness or
appropriateness of investment in any or all securities upon which the Index(es)
is (are) based. FRANK RUSSELL COMPANY MAKES NO REPRESENTATION, WARRANTY, OR
GUARANTEE AS TO THE ACCURACY, COMPLETENESS, RELIABILITY, OR OTHERWISE OF THE
INDEX(ES) OR ANY DATA INCLUDED IN THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO
REPRESENTATION OR WARRANTY REGARDING THE USE, OR THE RESULTS OF USE, OF THE
INDEX(ES) OR ANY DATA INCLUDED THEREIN, OR ANY SECURITY (OR COMBINATION THEREOF)
COMPRISING THE INDEX(ES). FRANK RUSSELL COMPANY MAKES NO OTHER EXPRESS OR
IMPLIED WARRANTY, AND EXPRESSLY DISCLAIMS ANY WARRANTY, OF ANY KIND, INCLUDING
WITHOUT MEANS OR LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE INDEX(ES) OR ANY DATA OR ANY SECURITY (OR
COMBINATION THEREOF) INCLUDED THEREIN.

The S&P Fund and the Mid Cap Index Fund are not sponsored, endorsed, sold
or promoted by Standard & Poor's Corporation ("S&P"). S&P makes no
representation or warranty, express or

56
<PAGE> 118

implied, to the Series Company or its participants regarding the advisability of
investing in securities generally or in the Stock Index Fund or Mid Cap Index
Fund particularly or the ability of the S&P Index or the S&P Mid Cap 400 Index
Fund to track general stock market performance. S&P has no obligation to take
the need of the Series Company or the Series Company's participants into
consideration in determining, composing or calculating the S&P 500 Index or S&P
Mid Cap 400 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the Stock Index Fund or Mid Cap Index
Fund or the timing of the issuance or sale of such Funds or in the determination
or calculation of the equation by which such Funds are to be converted into
cash. S&P has no obligation or liability in connection with the administration,
marketing or trading of the Funds.

S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR S&P MID CAP 400 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE
NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE SERIES COMPANY
FROM THE USE OF THE S&P 500 INDEX OR S&P MID CAP 400 INDEX OR ANY DATA INCLUDED
THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR S&P MID CAP 400 INDEX OR ANY DATA INCLUDED
THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY
LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES
(INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.

DESCRIPTION OF CORPORATE BOND RATINGS

Moody's Investors Service, Inc.'s corporate bond ratings are as follows:

Aaa -- Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected by
a large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of such
issues.

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.

Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba -- Bonds which are rated Ba are judged to have speculative elements and
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safe-guarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

57
<PAGE> 119

Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

Standard & Poor's Corporation classifications are as follows:

AAA -- This is the highest rating assigned by Standard & Poor's to a
financial obligation and indicates an extremely strong capacity to meet its
financial commitment.

A -- An obligation rated "A" differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial commitment on
the obligation is strong.

A -- An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.

BBB -- Obligations rated "BBB" exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.

BB-B-CCC-CC -- Obligations rated "BB", "B", "CCC" and "CC" are regarded as
having significant speculative characteristics. "BB" indicates the least degree
of speculation and "CC" a higher degree of speculation. While such obligations
will likely have some quality and protective characteristics, they may be
outweighed by large uncertainties or major exposures to adverse conditions.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

A and Prime Commercial Paper Ratings.

Commercial paper rated A by S&P has the following characteristics:
Liquidity ratios are adequate to meet cash requirements. Long-term senior debt
is rated "A" or better, although, in some cases "BBB" credits may be allowed.
The issuer has access to at least two additional channels of borrowing. Basic
earnings and cash flow have an upward trend with allowance made for unusual
circumstances. Typically, the issuer's industry is well established and the
issuer has a strong position within the industry. The reliability and quality of
management are unquestioned. The rating is described by S&P as the investment
grade category, the highest rating classification. Relative strength or weakness
of the above factors determine whether the issuer's commercial paper is rated
A-1, A-2 or A-3.

Among the factors considered by Moody's in assigning commercial paper
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative differences in
strengths and weaknesses in respect of these criteria establish a rating in one
of three classifications. The rating Prime-1 is the highest commercial paper
rating assigned by Moody's. Its other two ratings, Prime-2 and Prime-3 are
designated Higher Quality and High Quality, respectively.

INDEPENDENT AUDITORS

Ernst & Young LLP, One Houston Center, 1221 McKinney, Suite 2400, Houston,
Texas 77010, serve as independent auditors of the Series Company.

58
<PAGE> 120

TRUSTEES AND OFFICERS

[TO BE REVISED]

<TABLE>
<CAPTION>
NAME POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
----------- ---------------- -----------------------
<S> <C> <C>
Thomas L. West, Jr.*.............. Trustee and Chairman and Chief Executive Officer and
2929 Allen Parkway Chairman since 1998 Director, VALIC; Director, The Variable
Houston, Texas 77019 Annuity Marketing Company ("VAMCO").
Formerly, Senior Vice President -- Annuity
Business Unit, Aetna Life Insurance &
Annuity Co. (1987-1994).
John A. Graf*..................... Trustee and [To Complete]
2929 Allen Parkway President since
Houston, Texas 77019 1998
Craig R. Rodby*................... Trustee and Vice [To Complete]
2929 Allen Parkway Chairman since 1998
Houston, Texas 77019
Dr. Norman Hackerman.............. Trustee since 1998 Chairman -- Scientific Advisory Board for
5555 San Felipe The Robert A. Welch Foundation
Suite 1900 (1983-Present); Director, Electro-source,
Houston, Texas 77056-2727 Inc.; Director, Radian Corporation;
Director, Scientific Measurement Systems,
Inc.; President Emeritus, Rice University,
Houston, Texas. Formerly, President, Rice
University, Houston, Texas (1970-
1985).(1)(2)(4)(5)
Dr. John W. Lancaster............. Trustee since 1998 Retired. Pastor Emeritus and Director of
5300 Main Planned Giving, First Presbyterian Church,
Houston, Texas 77004 Houston, Texas. Formerly, Pastor, First
Presbyterian Church, Houston, Texas.(4)(5)
Dr. F. Robert Paulsen............. Trustee since 1998 Dean Emeritus and Professor Emeritus,
2801 N. Indian Ruins College of Higher Education, University of
Tucson, Arizona 85715 Arizona, Tucson, Arizona.(1)(2)(4)(5)
Dr. R. Miller Upton............... Trustee since 1998 Consultant. Formerly, Director, Home Life
914 Tarrant Dr. Insurance Company of New York (1965-1988)
Fontana, Wisconsin 53125 and Director, Household International, Inc.
(1965-1989).(1)(3)(4)(5)
Ben H. Love....................... Trustee since 1998 Retired. Formerly, Chief Executive, Boy
4407 Eaton Circle Scouts of America. (1985-1993).(4)(5)
Colleyville, Texas 76034
</TABLE>

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

* Interested persons of the Series Company as defined in the 1940 Act
specifically because of their capacity as officers, trustees or consultants
of the Series Company, VALIC or American General Corporation.

(1) Retired Managing General Partner of Van Kampen American Capital Exchange
Fund.

(2) Retired Trustee of Van Kampen American Capital Bond Fund, Inc., Van Kampen
American Capital Income Trust, Van Kampen American Capital Convertible
Securities Fund, Inc. and the Common Sense Trust.

(3) Retired Trustee of Van Kampen American Capital Income Trust and Common Sense
Trust and retired Trustee of Van Kampen American Capital Bond Fund and Van
Kampen American Capital Convertible Securities Fund.

(4) Director or Trustee of American General Series Portfolio Company, a
registered open-end investment company, and USLIFE Income Fund, Inc., a
registered closed-end investment company.

(5) Trustees who are not interested persons of the Series Company receive an
annual retainer of $18,000. In addition, such directors are paid a per
meeting fee of $1,500 plus expenses incurred.

59
<PAGE> 121

Listed below are the Series Company's officers and their principal
occupations. All are affiliates of VALIC and are located at 2929 Allen Parkway,
Houston, Texas 77019. Each officer serves until his or her successor is elected
and shall qualify.

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH REGISTRANT DURING PAST 5 YEARS
---- ---------------- -----------------------
<S> <C> <C>
Michael G. Atnip.................. Executive Vice [To Come]
President since
1998
Joe. C. Osborne................... Executive Vice [To Come]
President since
1998
Norman Jaskol..................... Vice President and Vice President and Managing Director --
Chief Investment Investments, VALIC. Formerly, Senior Vice
Officer since 1998 President -- Portfolio Manager, Lomas
Capital Management Company (1987-1988);
Deputy Executive Director -- Investments,
Colorado Public Employees Retirement
Association (1978-1987)
Teresa S. Moro.................... Vice President and Trader -- VALIC. Formerly, Money Market
Investment Officer Trader, VALIC (1986-1990); AIM Management
since 1998 Group Inc. (1983-1986).
John W. Mossbarger................ Vice President and Portfolio Manager, VALIC. Formerly, Managing
Investment Officer Director -- Common Stocks, American General
since 1998 Corporation (1989-1992); Senior Vice
President -- Equity Investments, American
General Corporation (1988-1989); Vice
President and Trust Officer, Texas Commerce
Bank N.A. (1982-1988).
William Trimbur, Jr............... Vice President and Portfolio Manager, VALIC. Formerly, Second
Investment Officer Vice President, VALIC (1985-1990);
since 1998 Controller, VALIC (1985-1986); Assistant
Controller, VALIC (1982-1985) and Assistant
Treasurer, VALIC (1982-1986).
Brent C. Nelson................... Vice President Senior Vice President and Controller,
since 1998 Director, VALIC. Formerly, Vice President
and Controller, VALIC (1990-1994);
Controller, VALIC (1987-1990); Second Vice
President and Controller, VALIC (1986-1987);
Second Vice President -- Fund Operations,
VALIC (1985-1986); Assistant Vice
President -- Controller, Lomas Financial
Security Insurance Co. (1982-1985).
Cynthia A. Toles.................. Vice President and Senior Associate General Counsel and
Secretary since Secretary, VALIC; Secretary and Assistant
1998 Treasurer, VAMCO. Formerly, Vice President,
Associate General Counsel & Associate
Secretary (1988-1989); Second Vice
President, Associate General Counsel and
Assistant Secretary, VALIC (1986-1988);
Assistant Vice President, Assistant General
Counsel and Assistant Secretary, VALIC
(1983-1986).
</TABLE>

60
<PAGE> 122

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH REGISTRANT DURING PAST 5 YEARS
---- ---------------- -----------------------
<S> <C> <C>
Nori L. Gabert.................... Vice President and Associate General Counsel, VALIC. Formerly,
Assistant Secretary Of Counsel, Winstead Sechrest & Minick P.C.
since 1998 (1997); Vice President and Associate General
Counsel of Van Kampen American Capital, Inc.
(1981-1996).
Gregory R. Seward................. Treasurer since Director of Fund Operations and Assistant
1998 Controller, VALIC. Formerly, Controller,
Avanti Health Systems, Inc. (1988-1991);
Reports Manager, American Capital Asset
Management, Inc. (1986-1988); Senior
Auditor, Price Waterhouse (1982-1986).
Kathryn A. Pearce................. Controller since Associate Director of Fund Operations,
1998 VALIC. Formerly, Supervisor -- Mutual Fund
Accounting, Van Kampen American Capital,
Inc. (1977-1996).
Earl E. Allen, Jr................. Assistant Treasurer [TO COME]
since 1998
</TABLE>

The officers conduct and supervise the daily business operations of the
Series Company, while the trustees, in addition to their functions set forth
under "Investment Adviser," review such actions and decide on general policy.

The Series Company has an Audit Committee. The Series Company's Audit
Committee consists of Messrs. Lancaster, Hackerman, Paulsen, Upton, and Love.
The Audit Committee recommends to the Board the selection of independent
auditors for the Series Company and reviews with such independent auditors the
scope and results of the annual audit, reviews the performance of the accounts,
and considers any comments of the independent auditors regarding the Series
Company's financial statements or books of account. The Series Company does not
have a standing nominating or compensation committee.

The five trustees of the Series Company who are not affiliated with VALIC
are each paid annual trustees' fees and are reimbursed for certain out-of-pocket
expenses by the Series Company.

The trustees and officers of the Series Company and members of their
families, as a group, beneficially owned less than 1% of the shares of
beneficial interest of each Fund outstanding as of the commencement of
operations.

61
<PAGE> 123

FINANCIAL STATEMENTS

The Funds have no operating history. Accordingly, no financial statements
are included herein.

62
<PAGE> 124

AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements Included in the Statement of Additional Information:

Financial Statements [To be filed by amendment]

Notes to Financial Statements [To be filed by amendment]

Report of Independent Auditors [To be filed by amendment]

(b) Exhibits

1. (a) Agreement and Declaration of Trust
(b) Certificate of Designation For:
(1) American General S&P 500 Index Fund
(2) American General Mid Cap Index Fund
(3) American General Small Cap Index Fund
(4) American General International Growth Fund
(5) American General Large Cap Growth
(6) American General Mid Cap Growth Fund
(7) American General Small Cap Growth Fund
(8) American General International Value Fund
(9) American General Large Cap Value Fund
(10) American General Mid Cap Value Fund
(11) American General Small Cap Value Fund
(12) American General Socially Responsible Fund
(13) American General Balanced Fund
(14) American General Domestic Bond Fund
(15) American General Money Market Fund
(16) American General Growth Lifestyle Fund
(17) American General Moderate Growth Lifestyle Fund
(18) American General Conservative Growth Lifestyle Fund

2. Bylaws

3. Not Applicable

4. Form of Specimen Certificate of Shares of Beneficial Interest [To be filed
by amendment]

5. (a) Form of Investment Advisory Agreement between the Registrant and VALIC
(b) Form of Investment Sub-Advisory Agreements between VALIC and each
Sub-Adviser on behalf of the following Funds:
(1) American General S&P 500 Index Fund
(2) American General Mid Cap Index Fund
(3) American General Small Cap Index Fund
(4) American General International Growth Fund
(5) American General Large Cap Growth
(6) American General Mid Cap Growth Fund
</TABLE>

C-1
<PAGE> 125
<TABLE>
<C> <S> <C> <C>
(7) American General Small Cap Growth Fund
(8) American General International Value Fund
(9) American General Large Cap Value Fund
(10) American General Mid Cap Value Fund
(11) American General Small Cap Value Fund
(12) American General Balanced Fund
(13) American General Domestic Bond Fund
(1) -- (13) To be filed by amendment

6. Form of Distribution Agreement between the Registrant and the Variable
Annuity Marketing Company [To be filed by amendment]

7. Not Applicable

8. (a) Custodian Agreement between Registrant and State Street Bank and Trust
Company [To be filed by amendment]
(b) Custodian Fee Schedule between Registrant and State Street Bank and
Trust Company [To be filed by amendment]
(c) Securities Lending Authorization Agreement between Registrant and State
Street Bank and Trust Company [To be filed by amendment]

9. (a) Transfer Agency and Services Agreement between Registrant and The
Variable Annuity Life Insurance Company [To be filed by amendment]
(b) Data Access Services Agreement between Registrant and State Street Bank
and Trust Company [To be filed by amendment]
(c) Accounting Services Agreement between Registrant and The Variable
Annuity Life Insurance Company [To be filed by amendment]

10. Opinion and Consent of Counsel [To be filed by amendment]

11. Consent of Independent Auditors [To be filed by amendment]

12. Not Applicable

13. Subscription Agreement [To be filed by amendment]

14. Not Applicable

15. Distribution and Service Plan [To be filed by amendment]

16. Calculation of Performance Information [To be filed by amendment]

17. Not Applicable

18. Not Applicable

19. Powers of Attorney
</TABLE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

No person is controlled by or under common control with the Registrant. All
of the outstanding common stock of the Registrant is, or will be, owned by The
Variable Annuity Life Insurance Company ("VALIC"), a Texas life insurance
corporation, VALIC Separate Account A, a separate account of VALIC which is
registered as a unit investment trust under the Investment Company Act of 1940
(File No. 811-3240).

C-2
<PAGE> 126

ITEM 26. NUMBER OF HOLDERS OF SECURITIES.

As of August 31, 1998:

<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
American General S&P 500 Index
Shares of beneficial interest, $0.01 par value
American General Mid Cap Index Fund
Shares of beneficial interest, $0.01 par value
American General Small Cap Index Fund
Shares of beneficial interest, $0.01 par value
American General International Growth Fund
Shares of beneficial interest, $0.01 par value
American General Large Cap Growth
Shares of beneficial interest, $0.01 par value
American General Mid Cap Growth Fund
Shares of beneficial interest, $0.01 par value
American General Small Cap Growth Fund
Shares of beneficial interest, $0.01 par value
American General International Value Fund
Shares of beneficial interest, $0.01 par value
American General Large Cap Value Fund
Shares of beneficial interest, $0.01 par value
American General Mid Cap Value Fund
Shares of beneficial interest, $0.01 par value
American General Small Cap Value Fund
Shares of beneficial interest, $0.01 par value
American General Socially Responsible Fund
Shares of beneficial interest, $0.01 par value
American General Balanced Fund
Shares of beneficial interest, $0.01 par value
American General Domestic Bond Fund
Shares of beneficial interest, $0.01 par value
American General Money Market Fund
Shares of beneficial interest, $0.01 par value
American General Growth Lifestyle Fund
Shares of beneficial interest, $0.01 par value
American General Moderate Growth Lifestyle Fund
Shares of beneficial interest, $0.01 par value
American General Conservative Growth Lifestyle Fund
Shares of beneficial interest, $0.01 par value
</TABLE>

ITEM 27. INDEMNIFICATION

Reference is made to Article 8, Section 8.4 of the Registrant's Agreement
and Declaration of Trust.

Article 8; Section 8.4 of the Agreement and Declaration of Trust provides
that each officer and trustee of the Registrant shall be indemnified by the
Registrant against all liabilities incurred in connection with the defense of
disposition of any action, suit or other proceeding, whether civil or criminal,
in which the officer or trustee may be or may have been involved by reason of
being or having been an officer or trustee, except that such indemnity shall not
protect any such person against a liability to the Registrant or any shareholder
thereof to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office. Absent a court determination that
an officer or trustee seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her

C-3
<PAGE> 127

office, the decision by the Registrant to indemnify such person must be based
upon the reasonable determination of independent counsel or non-party
independent trustees, after review of the facts, that such officer or trustee is
not guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.

The Registrant has purchased insurance on behalf of its officers and
trustees protecting such persons from liability arising from their activities as
officers or trustees of the Registrant. The insurance does not protect or
purport to protect such persons from liability to the Registrant or to its
shareholders to which such officer or trustee would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of their office.

Conditional advancing of indemnification monies may be made if the trustee
or officer undertakes to repay the advance unless it is ultimately determined
that he or she is entitled to the indemnification and only if the following
conditions are met: (1) the trustee or officer provides a security for the
undertaking; (2) the Registrant is insured against losses arising from lawful
advances; or (3) a majority of a quorum of the Registrant's disinterested,
non-party trustees, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that a recipient of
the advance ultimately will be found entitled to indemnification.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by the trustee, officer, or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
shares being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND SUB-ADVISERS

During the last two fiscal years, VALIC has not engaged in any business of
a substantial nature other than that described below. VALIC is a stock life
insurance company organized under the Texas Insurance Code. VALIC's principal
business consists of issuing fixed and variable retirement annuity contracts.
VALIC serves, and has served, during the past two fiscal years, as investment
adviser to the Registrant. VALIC also is the depositor of VALIC Separate Account
A, registered unit investment trust.

Bankers Trust Company ("BTC") serves as the investment sub-adviser for the
American General S&P 500 Index Fund, the American General Mid Cap Index Fund,
the American General Small Cap Index Fund and the American General Small Cap
Value Fund. BTC is a state bank that specializes in global merchant banking.
Capital Guardian Trust Company ("Capital Guardian") serves as the investment
sub-adviser for the American General International Value Fund, the American
General Balanced Fund and the American General 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. Jacobs Asset Management ("Jacobs") serves as investment sub-adviser to
the American General International Growth Fund. Jacobs provides investment
management and advisory services to corporations, unions, pensions and profit
sharing plans, trusts and estates and other institutions and investors. State
Street Bank and Trust Company/State Street Global Advisors ("State Street
Global") serves as the investment sub-adviser for the American General Large Cap
Value Fund. State Street Global is an operating division of State Street
Corporation, managing over $390 billion in assets as of December 31, 1997.
Goldman Sachs Asset Management ("GSAM") serves as the investment sub-adviser for
the American General Large Cap Growth Fund. GSAM provides a wide range of
investment advisory services to U.S. and international equity portfolios, U.S.
and global fixed income portfolios, commodity and currency products and money
market accounts.

C-4
<PAGE> 128

Neuberger&Berman Management, Inc. ("N&B Management") serves as the investment
sub-adviser for the American General Mid Cap Value Fund. N&B Management and its
predecessor firms have specialized in the management of no-load mutual funds
since 1950. Brown Capital Management, Inc. ("Brown Capital") serves as the
investment sub-adviser for the American General Mid Cap Growth Fund. Brown
Capital has been rendering investment counsel, utilizing investment strategies
substantially similar to mutual funds it manages, to individuals, banks and
thrift institutions, pension and profit sharing plans, trusts, estates,
charitable organizations and corporations since its formation. Fiduciary
Management Associates, Inc. ("FMA") serves as investment sub-advisor for the
American General Small Cap Value Fund. FMA provides investment management
services to multiple entities and individuals. J.P. Morgan Investment
Management, Inc. ("JP Morgan") serves as investment sub-adviser for the American
General Small Cap Growth Fund. JP Morgan provides asset management services to
corporations, financial institutions, governments and individuals.

Set out below is a list of each director and officer of VALIC and each
sub-adviser, indicating each other business, profession, vocation, or employment
of a substantial nature in which each such person has been, at any time during
the past two fiscal years, engaged for his or her own account or in the capacity
of director, officer, partner, or trustee. Unless otherwise specified, the
principal business address of each organization listed in the table below is:
(a) in the case of directors and officers of VALIC, 2929 Allen Parkway, Houston,
Texas 77019; (b) in the case of directors and officers of BTC, 130 Liberty
Street, New York, New York 10006; (c) in the case of directors and officers of
Brown Capital, 809 Cathedral Street, Baltimore, Maryland 21201; (d) in the case
of directors and officers of Capital Guardian, 11100 Santa Monica Blvd., Los
Angeles, California 90025; (e) in the case of directors and officers of FMA, 211
Congress St., Boston, Massachusetts 02110; (f) in the case of directors and
officers of GSAM, Messr.'s Corzine, Hurst, Paulson and Thain, 85 Broad Street,
New York, New York 10004; Messr. Zuckerberg, One New York Plaza, New York, New
York 10004; and Messr.'s Thain and Thornton, Peterborough Court, 133 Fleet
Street, London EC4A 2BB, England; (g) in the case of directors and officers of
Jacobs, 211 Congress St., Boston, Massachusetts 02110; (h) in the case of
directors and officers of JP Morgan, Messr.'s Anderson, Garrity, Schappert and
Sloane, 522 Fifth Avenue, New York, New York 10036; Messr. Van Hassel, Akasaka
Park Building 2-20, Akasaka 5-chome, Minato-Ku, Toyoko, Japan; Messr. Van Riel,
28 King Street, London, England SW1Y6XA; Messr. Schmidlin, 9 West 57th Street,
New York, New York 10019; and Messr. Patterson, 60 Wall Street, New York, New
York 10260; (i) in the case of directors and officers of N&B Management, 605
Third Avenue, New York, New York 10158; and (j) in the case of directors and
officers of State Street Global, 225 Franklin Street, Boston, Massachusetts
02110. See also the information set out under the caption "Trustees and
Officers" in Part B of this Registration Statement, which is incorporated herein
by reference to the extent applicable.

C-5
<PAGE> 129

VALIC

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Thomas L. West, Jr................... VALIC Chairman of the Board of
Directors and Chief Executive
Officer
VAMCO Chairman of the Board of
Directors
AGSPC Chairman of the Board of
Trustees
Robert M. Devlin..................... VALIC Senior Chairman of the Board
American General Corporation Chairman of the Board and Chief
Executive Officer
James S. D'Agostino, Jr.............. VALIC Vice Chairman of the Board
American General Corporation President
Jon P. Newton........................ VALIC Vice Chairman of the Board
Craig R. Rodby....................... VALIC Vice Chairman of the Board of
Directors and Chief Financial
Officer
AGSPC 3 Vice Chairman of the Board of
Trustees
John A. Graf ........................ VALIC Director and President
AGSPC 3 Trustee and President
VALIC Director, Vice President and
Chief Investment Officer
American General Corporation Senior Vice President and Chief
Investment Officer
Joe C. Osborne....................... VALIC Director and Executive Vice
President -- Marketing
VAMCO Director and President
AGSPC 3 Executive Vice President
Brent C. Nelson...................... VALIC Director, Senior Vice President
and Controller
AGSPC Vice President
Norman Jaskol........................ VALIC Vice President and Managing
Director -- Investments
AGSPC Vice President and Chief
Investment Officer
VALIC Vice President -- Sales
Operations
VAMCO Senior Vice President
Cynthia A. Toles..................... VALIC Vice President and Secretary
VAMCO Director, Secretary and
Assistant Treasurer
AGSPC General Counsel and Secretary
AGSPC 3 Vice President and Secretary
Jane E. Bates........................ VALIC Chief Compliance Officer
VAMCO Treasurer
Julia S. Tucker...................... VALIC Investment Officer
American General Corporation Vice President -- Investment
Research
Henry D. Adkins...................... VALIC Real Estate Investment Officer
American General Realty Vice President
Investment Corporation
</TABLE>

C-6
<PAGE> 130

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Lawrence Kupstas..................... VALIC Real Estate Investment Officer
and Assistant Secretary
American General Realty Vice President
Investment Corporation
Rembert R. Owen, Jr. ................ VALIC Real Estate Investment Officer
and Assistant Secretary
American General Realty Vice President
Investment Corporation
Jocelyn M. Sears..................... VALIC Real Estate Investment Officer
and Assistant Secretary
American General Realty
Investment Corporation
D. Lynne Walters..................... VALIC Tax Officer
VAMCO Tax Officer
American General Corporation Vice President -- Taxes
Kimberly C. Sellers.................. VALIC Assistant Tax Officer
American General Realty Assistant Tax Officer
Investment Corporation
James L. Gleaves..................... VALIC Assistant Treasurer
American General Corporation Vice President and Treasurer
Gregory R. Seward.................... VALIC Assistant Controller
AGSPC Treasurer
AGSPC 3 Treasurer
Kathryn A. Pearce.................... AGSPC Controller
AGSPC 3 Controller
Earl E. Allen, Jr.................... AGSPC Assistant Treasurer
AGSPC 3 Assistant Treasurer
John R. Madsen....................... VALIC Assistant Secretary
Otto B. Gerlach, III................. VALIC Assistant Secretary
American General Corporation Assistant Secretary and
Director -- Shareholder
Services
Patricia W. Neighbors................ VALIC Assistant Secretary
American General Corporation Assistant Secretary
</TABLE>

C-7
<PAGE> 131

BANKERS TRUST

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Lee A. Ault III...................... Bankers Trust Corporation Director
Bankers Trust Company Director
Equifax, Inc., Sunrise Director
Medical Inc., Viking Office
Products, Inc. and Pacific
Crest Outward Bound School
Neil R. Austrian..................... Bankers Trust Corporation Director
Bankers Trust Company Director
National Football League President and Chief Operating
Officer
Rafac Technology and Director
Viking Office Products, Inc.
Swarthmore College Trustee
George B. Beitzel.................... Bankers Trust Corporation Director
Bankers Trust Company Director
Computer Task Group, Phillips Director
Petroleum Company, Rohm and
Haas Company and TIG
Holdings
Amherst College Chairman Emeritus
Colonial Williamsburg Chairman
Foundation
Phillip A. Griffiths................. Bankers Trust Corporation Director
Bankers Trust Company Director
North Carolina School of Trustee
Science and Mathematics
Woodward Academy Trustee
William R. Howell.................... Bankers Trust Corporation Director
Bankers Trust Company Director
J.C. Penney Company, Inc. Chairman Emeritus
Exxon Corporation, Director
Halliburton Company,
Warner-Lambert Company,
Williams, Inc., Central &
South West Corp., and
National Retail Federation
Vernon E. Jordan, Jr. ............... Bankers Trust Corporation Director
Bankers Trust Company Director
Akin, Gump, Strauss Hauer & Senior Partner
Feld, LLP
American Express Company, Director
Dow Jones, Inc., J.C. Penney
Company, Inc., Revlon Group
Incorporated, Ryder System,
Inc., Sara Lee Corporation,
Union Carbide Corporation,
Xerox Corporation and
Chancellor Media
Corporation
Brookings Institution, The Trustee
Ford Foundation and Howard
University
</TABLE>

C-8
<PAGE> 132

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Hamish Maxwell....................... Bankers Trust Corporation Director
Bankers Trust Company Director
Sola International Inc. Director
WPP Group plc Chairman
N. J. Nicholas Jr. .................. Bankers Trust Corporation Director
Bankers Trust Company Director
Xerox Corporation and Director
Boston Scientific Corporation
Donald L. Staheli.................... Bankers Trust Corporation Director
Bankers Trust Company Director
Continental Grain Company Retired Chairman of the Board
and Chief Executive Officer
Director
ContiFinancial Corporation Director
National Committee on United Director
States -- China Relations
America's Promise Director
Prudential Insurance Company Director
of America
The Points of Light Chairman
Foundation
Fresenius Medical Care, A.G. Director
Russell E. Palmer.................... Bankers Trust Corporation Director
Bankers Trust Company Director
The Palmer Group Chairman and Chief Executive
Officer
Allied-Signal Inc., Federal Director
Home Loan Mortgage
Corporation, GTE
Corporation, The May
Department Stores Company,
and Safeguard Scientifics,
Inc.
University of Pennsylvania Trustee
Frank N. Newman...................... Bankers Trust Corporation Chairman of the Board, Chief
Executive Officer and
President
Bankers Trust Company Chairman of the Board, Chief
Executive Officer and
President
Carnegie Hall Trustee
Cornell University Medical Member, Board of Overseers
College
Cornell University Graduate Member, Board of Overseers
School of Medical Sciences
Dow Jones, Inc. Director
Patricia Carry Stewart............... Bankers Trust Corporation Director
Bankers Trust Company Director
Community Foundation for Palm Director
Beach and Martin Counties
CVS Corporation Director
Cornell University Trustee Emerita
</TABLE>

C-9
<PAGE> 133

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
George J. Vojta...................... Bankers Trust Corporation Vice Chairman of the Board
Bankers Trust Company Vice Chairman of the Board
Alicorp, S.A., Northwest Director
Airlines and Private Export
Funding Corp.
St. Luke's-Roosevelt Hospital Vice Chairman of the Board of
Center Trustees
New York City Partnership Partner
Wharton Financial Services Chairman
Center
Paul A. Volcker...................... Bankers Trust Corporation Director
Bankers Trust Company Director
American Stock Exchange, Director
Nestle S.A., Prudential
Insurance Company of
America, and UAL
Corporation
American Council on Germany, Director
Council on Foreign
Relations and The Japan
Society
The American Assembly Trustee
</TABLE>

BROWN CAPITAL MANAGEMENT, INC.

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Eddie C. Brown....................... Brown Capital Management Chairman of the Board,
President, and Treasurer
Keith A. Lee......................... Brown Capital Management Director and Vice President
Tonya Y. Ingersol.................... Brown Capital Management Director
Donna L. Courtney.................... Brown Capital Management Secretary
Carmen S. Brown...................... Brown Capital Management Assistant Treasurer
</TABLE>

C-10
<PAGE> 134

CAPITAL GUARDIAN TRUST COMPANY

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
David I. Fisher...................... Capital Guardian Trust Chairman and Director
Company
The Capital Group Companies, Chairman and Director
Inc.
Capital International, Inc. Vice Chairman and Director
Capital International K.K. Vice Chairman and Director
Capital International Limited Vice Chairman and Director
Emerging Markets Growth Fund, Vice Chairman and Director
Inc.
Capital Group International, President and Director
Inc.
Capital International Limited President and Director
(Bermuda)
Capital International S.A. Presidente du Conseil
Capital Group Research, Inc. Director
Capital Research Director
International
EuroPacific Growth Fund Director
New Perspective Fund Director
Robert G. Kirby...................... Capital Guardian Trust Chairman Emeritus
Company
The Capital Group Partners Senior Partner
L.P.
Robert Ronus......................... Capital Guardian Trust President and Director
Company
Capital Guardian Research Chairman and Director
Company
Capital Research Chairman and Director
International
The Capital Group Companies, Director
Inc.
Capital Group International, Director
Inc.
Capital International Fund Director
S.A.
Capital International S.A. Directeur
Capital International Limited Senior Vice President
John H. Seiter....................... Capital Guardian Trust Executive Vice President of
Company Client Relations & Marketing
and Director
Capital Group International, Senior Vice President
Inc.
The Capital Group Companies, Vice President
Inc.
Eugene P. Stein...................... Capital Guardian Trust Executive Vice President and
Company Director
Capital Guardian Research Director
Company
Michael D. Beckman................... Capital Guardian Trust Senior Vice President,
Company Treasurer and Director
Capital Guardian Trust Director
Company of Nevada
Capital Guardian Research Treasurer
Company
</TABLE>

C-11
<PAGE> 135

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Roberta A. Conroy.................... Capital Guardian Trust Senior Vice President, Director
Company and Counsel
Capital International, Inc. Senior Vice President and
Secretary
Emerging Markets Growth Fund, Senior Vice President and
Inc. Secretary
The Capital Group Companies, Assistant General Counsel
Inc.
Capital Management Services, Secretary
Inc.
William H. Hurt...................... Capital Guardian Trust Senior Vice President and
Company Director
Capital Guardian Trust Chairman
Company of Nevada
Capital Strategy Research, Chairman
Inc.
Nancy J. Kyle........................ Capital Guardian Trust Senior Vice President and
Company Director
Emerging Markets Growth Fund, Vice President
Inc.
John R. McIlwraith................... Capital Guardian Trust Senior Vice President and
Company Director
Capital International Limited Senior Vice President and
Director
James R. Mulally..................... Capital Guardian Trust Senior Vice President and
Company Director
Capital International Limited Senior Vice President
Capital Guardian Research Director
Company
Capital Research Company Vice President
Theodore R. Samuels.................. Capital Guardian Trust Senior Vice President and
Company Director
Capital Guardian Research Director
Company
Andrew F. Barth...................... Capital Guardian Trust Director
Company
Capital Guardian Research Executive Vice President and
Company Research Manager
Larry P. Clemmensen.................. Capital Guardian Trust Director
Company
American Funds Distributors, Director
Inc.
American Funds Service Chairman of the Board
Company
The Capital Group Companies, Director and President
Inc.
Capital Research and Senior Vice President and
Management Company Director
Capital Management Services, President and Director
Inc.
Capital Strategy Research, Treasurer
Inc.
Capital Income Builder, Inc. Senior Vice President
Capital World Growth & Income Senior Vice President
Fund, Inc.
</TABLE>

C-12
<PAGE> 136

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Karin L. Larson...................... Capital Guardian Trust Director
Company
The Capital Group Companies, Director
Inc.
Capital Guardian Research President, Director and
Company Director of Research
Capital Group Research, Inc. Chairperson, President and
Director
Capital Research President, Director and
International Director of International
Research
D. James Martin...................... Capital Guardian Trust Director
Company
Capital Guardian Research Senior Vice President and
Company Director
Jason M. Pilalas..................... Capital Guardian Trust Director
Company
Capital Guardian Research Senior Vice President and
Company Director
Shaw B. Wagener...................... Capital Guardian Trust Director
Company
Capital International Asia Director
Pacific Management Company
S.A.
Capital International Director
Management Company
Capital International Director
Emerging Countries Fund
Capital International Latin Director
American Fund
Capital International, Inc. President and Director
Capital Group International, Senior Vice President
Inc.
Emerging Markets Growth Fund, Senior Vice President
Inc.
Stephen E. Embs...................... Capital Guardian Trust Senior Vice President
Company
Fidelity Accounting and Vice President and Manager
Custody Services
John B. Emerson...................... Capital Guardian Trust Senior Vice President
Company
The White House Deputy Assistant to the
President, White House
Coordinator, Deputy Director
of Presidential Personnel
Michael E. Ericksen.................. Capital Guardian Trust Senior Vice President
Company
Capital International Limited Senior Vice President
Richard N. Havas..................... Capital Guardian Trust Senior Vice President
Company
Capital International Limited Senior Vice President
Capital Research Senior Vice President
International
Frederick M. Hughes, Jr. ............ Capital Guardian Trust Senior Vice President
Company
</TABLE>

C-13
<PAGE> 137

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Shelby Notkin........................ Capital Guardian Trust Senior Vice President
Company
Capital Guardian Trust Director
Company of Nevada
Mary M. O'Hern....................... Capital Guardian Trust Senior Vice President
Company
Capital International Limited Senior Vice President
Capital International, Inc. Vice President
Jeffrey C. Paster.................... Capital Guardian Trust Senior Vice President
Company
Robert V. Pennington................. Capital Guardian Trust Senior Vice President
Company
Capital Guardian Trust President
Company of Nevada
Robert L. Spare...................... Capital Guardian Trust Senior Vice President
Company
Philip A. Swan....................... Capital Guardian Trust Senior Vice President
Company
</TABLE>

FIDUCIARY MANAGEMENT ASSOCIATES, INC.

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Robert F. Carr, III.................. Fiduciary Management Chairman of the Board, Director
Associates, Inc. and Secretary
Philip E. Arnold..................... Fiduciary Management Chairman of the Executive
Associates, Inc. Committee and Director
Patricia A. Falkowski................ Fiduciary Management President and Chief Investment
Associates, Inc. Officer
Dennis H. Smith...................... Fiduciary Management Executive Vice President,
Associates, Inc. Marketing
Robert W. Thornburgh, Jr. ........... Fiduciary Management Executive Vice President and
Associates, Inc. Treasurer
Terry B. French...................... Fiduciary Management Senior Vice President and
Associates, Inc. Portfolio Manager
Lloyd J. Spicer...................... Fiduciary Management Senior Vice President and
Associates, Inc. Portfolio Manager
Robert F. Carr, IV................... Fiduciary Management Vice President, Marketing
Associates, Inc.
Kenneth A. Dudek..................... Fiduciary Management Vice President, Trading
Associates, Inc.
Chandler H. Everett.................. Fiduciary Management Vice President and Portfolio
Associates, Inc. Manager
Greeta E. Hootman.................... Fiduciary Management Vice President, Administration
Associates, Inc.
Kathryn A. Maag...................... Fiduciary Management Vice President and Portfolio
Associates, Inc. Manager
</TABLE>

C-14
<PAGE> 138

GOLDMAN, SACHS & CO.

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Jon S. Corzine....................... Goldman Sachs & Co. Chief Executive Officer
Henry M. Paulson, Jr. ............... Goldman Sachs & Co. Chief Operating Officer
John A. Thain........................ Goldman Sachs & Co. Chief Financial Officer
Robert J. Hurst...................... Goldman Sachs & Co. Managing Director
John L. Thornton..................... Goldman Sachs & Co. Managing Director
Roy J. Zuckerberg.................... Goldman Sachs & Co. Managing Director
</TABLE>

JACOBS ASSET MANAGEMENT, L.P.

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Daniel L. Jacobs..................... Jacobs Asset Management, L.P. Class B Limited Partner
Jacobs Asset Management, Inc. Director, President and
Treasurer
Wai W. Chin.......................... Jacobs Asset Management, L.P. Class B Limited Partner
Jacobs Asset Management, Inc. Managing Director
Robert J. Jurgens.................... Jacobs Asset Management, L.P. Class B Limited Partner
Jacobs Asset Management, Inc. Managing Director
Todd K. Borton....................... Jacobs Asset Management, L.P. Class B Limited Partner
Jacobs Asset Management, Inc. Director of Marketing
</TABLE>

J.P. MORGAN INVESTMENT MANAGEMENT INC.

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Keith M. Schappert................... J.P. Morgan Investment President, Chairman, Director
Management Inc. and Managing Director
Morgan Guaranty Trust Company Managing Director
of New York
Jeff M. Garrity...................... J.P. Morgan Investment Director and Managing Director
Management Inc.
Morgan Guaranty Trust Company Managing Director
of New York
Isabel H. Sloane..................... J.P. Morgan Investment Director and Managing Director
Management Inc.
Morgan Guaranty Trust Company Managing Director
of New York
Kenneth W. Anderson.................. J.P. Morgan Investment Director and Managing Director
Management Inc.
Morgan Guaranty Trust Company Managing Director
of New York
Gilbert Van Hassel................... J.P. Morgan Investment Director and Managing Director
Management Inc.
Morgan Guaranty Trust Company Managing Director
of New York
Hendrik Van Riel..................... J.P. Morgan Investment Director and Managing Director
Management Inc.
Morgan Guaranty Trust Company Managing Director
of New York
</TABLE>

C-15
<PAGE> 139

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
John W. Schmidlin.................... J.P. Morgan Investment Director
Management Inc.
Morgan Guaranty Trust Company Managing Director
of New York
Michael E. Patterson................. J.P. Morgan Investment Director
Management Inc.
Morgan Guaranty Trust Company Vice Chairman and Director
of New York
J.P. Morgan & Co. Vice Chairman and Director
Incorporated
</TABLE>

NEUBERGER&BERMAN MANAGEMENT, INC.

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Stanley Egener....................... Neuberger&Berman Management President and Director
Neuberger&Berman, LLC Principal
Neuberger&Berman Advisors Chairman of the Board and
Management Trust Trustee
Advisers Managers Trust Chairman of the Board and
Trustee
Neuberger&Berman Income Funds Chairman of the Board and
Trustee
Neuberger&Berman Income Trust Chairman of the Board and
Trustee
Neuberger&Berman Equity Funds Chairman of the Board and
Trustee
Neuberger&Berman Equity Trust Chairman of the Board and
Trustee
Income Managers Trust Chairman of the Board and
Trustee
Equity Managers Trust Chairman of the Board and
Trustee
Global Managers Trust Chairman of the Board and
Trustee
Neuberger&Berman Equity Chairman of the Board and
Assets Trustee
Theodore P. Giuliano................. Neuberger&Berman Management Vice President and Director
Neuberger&Berman, LLC Principal
Neuberger&Berman Income Funds President and Trustee
Neuberger&Berman Income Trust President and Trustee
Income Managers Trust President and Trustee
</TABLE>

C-16
<PAGE> 140

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Lawrence Zicklin..................... Neuberger&Berman Management Director
Neuberger&Berman, LLC Principal
Neuberger&Berman Advisers President and Trustee
Management Trust
Advisers Managers Trust President and Trustee
Neuberger&Berman Equity Funds President and Trustee
Neuberger&Berman Equity Trust President and Trustee
Equity Managers Trust President and Trustee
Global Managers Trust President
Neuberger&Berman Equity President and Trustee
Assets
Daniel J. Sullivan................... Neuberger&Berman Management Senior Vice President
Neuberger&Berman Advisers Vice President
Management Trust
Advisers Managers Trust Vice President
Neuberger&Berman Income Funds Vice President
Neuberger&Berman Income Trust Vice President
Neuberger&Berman Equity Funds Vice President
Neuberger&Berman Equity Trust Vice President
Income Managers Trust Vice President
Equity Managers Trust Vice President
Global Managers Trust Vice President
Neuberger&Berman Equity Vice President
Assets
Michael J. Weiner.................... Neuberger&Berman Management Senior Vice President
Neuberger&Berman Advisers Vice President
Management Trust
Advisers Managers Trust Vice President
Neuberger&Berman Income Funds Vice President
Neuberger&Berman Income Trust Vice President
Neuberger&Berman Equity Funds Vice President
Neuberger&Berman Equity Trust Vice President
Income Managers Trust Vice President
Equity Managers Trust Vice President
Global Managers Trust Vice President
Neuberger&Berman Equity Vice President
Assets
</TABLE>

C-17
<PAGE> 141

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Claudia A. Brandon................... Neuberger&Berman Management Vice President
Neuberger&Berman Advisers Secretary
Management Trust
Advisers Managers Trust Secretary
Neuberger&Berman Income Funds Secretary
Neuberger&Berman Income Trust Secretary
Neuberger&Berman Equity Funds Secretary
Neuberger&Berman Equity Trust Secretary
Income Managers Trust Secretary
Equity Managers Trust Secretary
Global Managers Trust Secretary
Neuberger&Berman Equity Secretary
Assets
Brooke A. Cobb....................... Neuberger&Berman Management Vice President
Bainco International Chief Investment Officer
Investors
Putnam Investment Management, Senior Vice President and
Inc. Senior Portfolio Manager
Robert W. D'Alelio................... Neuberger&Berman Management Vice President
Putnam Investments Senior Portfolio Manager
Stacy Cooper-Shugrue................. Neuberger&Berman Management Assistant Vice President
Neuberger&Berman Advisers Assistant Secretary
Management Trust
Advisers Managers Trust Assistant Secretary
Neuberger&Berman Income Funds Assistant Secretary
Neuberger&Berman Income Trust Assistant Secretary
Neuberger&Berman Equity Funds Assistant Secretary
Neuberger&Berman Equity Trust Assistant Secretary
Income Managers Trust Assistant Secretary
Equity Managers Trust Assistant Secretary
Global Managers Trust Assistant Secretary
Neuberger&Berman Equity Assistant Secretary
Assets
</TABLE>

C-18
<PAGE> 142

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Barbara DiGiorgio.................... Neuberger&Berman Management Assistant Vice President
Neuberger&Berman Advisers Assistant Treasurer
Management Trust
Advisers Managers Trust Assistant Treasurer
Neuberger&Berman Income Funds Assistant Treasurer
Neuberger&Berman Income Trust Assistant Treasurer
Neuberger&Berman Equity Funds Assistant Treasurer
Neuberger&Berman Equity Trust Assistant Treasurer
Income Managers Trust Assistant Treasurer
Equity Managers Trust Assistant Treasurer
Global Managers Trust Assistant Treasurer
Neuberger&Berman Equity Assistant Treasurer
Assets
Richard Russell...................... Neuberger&Berman Management Vice President
Neuberger&Berman Advisers Treasurer
Management Trust
Advisers Managers Trust Treasurer
Neuberger&Berman Income Funds Treasurer
Neuberger&Berman Income Trust Treasurer
Neuberger&Berman Equity Funds Treasurer
Neuberger&Berman Equity Trust Treasurer
Income Managers Trust Treasurer
Equity Managers Trust Treasurer
Global Managers Trust Treasurer
Neuberger&Berman Equity Treasurer
Assets
Jennifer K. Silver................... Neuberger&Berman Management Vice President
Neuberger&Berman, LLC Principal
Putnam Investment Management, Portfolio Manager and Director
Inc.
Ingrid Saukaitis..................... Neuberger&Berman Management Assistant Vice President
Council on Economic Project Director
Priorities
</TABLE>

C-19
<PAGE> 143

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Celeste Wischerth.................... Neuberger&Berman Management Assistant Vice President
Neuberger&Berman Advisers Assistant Treasurer
Management Trust
Advisers Managers Trust Assistant Treasurer
Neuberger&Berman Income Funds Assistant Treasurer
Neuberger&Berman Income Trust Assistant Treasurer
Neuberger&Berman Equity Funds Assistant Treasurer
Neuberger&Berman Equity Trust Assistant Treasurer
Income Managers Trust Assistant Treasurer
Equity Managers Trust Assistant Treasurer
Global Managers Trust Assistant Treasurer
Neuberger&Berman Equity Assistant Treasurer
Assets
C. Carl Randolph..................... Neuberger&Berman Management Principal
Neuberger&Berman Advisers Assistant Secretary
Management Trust
Advisers Managers Trust Assistant Secretary
Neuberger&Berman Income Funds Assistant Secretary
Neuberger&Berman Income Trust Assistant Secretary
Neuberger&Berman Equity Funds Assistant Secretary
Neuberger&Berman Equity Trust Assistant Secretary
Income Managers Trust Assistant Secretary
Equity Managers Trust Assistant Secretary
Global Mangers Trust Assistant Secretary
Neuberger&Berman Equity Assistant Secretary
Assets
</TABLE>

STATE STREET BANK AND TRUST COMPANY

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Marshall N. Carter................... State Street Bank and Trust Chairman and CEO
Company
Tenley E. Albright, M.D.............. State Street Bank and Trust Director
Company
Western Resources, Inc. Chairman
Joseph A. Baute...................... State Street Bank and Trust Director
Company
Markem Corporation Former Chairman and CEO
I. MacAlister Booth.................. State Street Bank and Trust Director
Company
Polaroid Corporation Retired Chairman, President and
CEO
</TABLE>

C-20
<PAGE> 144

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
James I. Cash, Jr. .................. State Street Bank and Trust Director
Company
Harvard Business School The James E. Robison Professor
of Business Administration
Truman S. Casner..................... State Street Bank and Trust Director
Company
Ropes & Gray Partner
Nader F. Darehshori.................. State Street Bank and Trust Director
Company
Houghton Mifflin Company Chairman, President and CEO
Arthur L. Goldstein.................. State Street Bank and Trust Director
Company
Ionics, Inc. Chairman and CEO
David P. Gruber...................... State Street Bank and Trust Director
Company
Wyman-Gordon Company President and CEO
Charles F. Kaye...................... State Street Bank and Trust Director
Company
Transportation Investments, President
Inc.
John M. Kucharski.................... State Street Bank and Trust Director
Company
EG&G, Inc. Chairman and CEO
Charles R. LaMantia.................. State Street Bank and Trust Director
Company
Arthur D. Little, Inc. President and CEO
David B. Perini...................... State Street Bank and Trust Director
Company
Perini Corporation Chairman and President
Dennis J. Picard..................... State Street Bank and Trust Director
Company
Raytheon Company Chairman and CEO
Alfred Poe........................... State Street Bank and Trust Director
Company
Meal Enhancement Group, Former President
Campbell Soup Company
Bernard W. Reznicek.................. State Street Bank and Trust Director
Company
Premier Group President
Boston Edison Company Retired Chairman and CEO
Diana Chapman Walsh.................. State Street Bank and Trust Director
Company
Wellesley College President
Robert E. Weissman................... State Street Bank and Trust Director
Company
Cognizant Corporation Chairman and CEO
David A. Spina....................... State Street Corporation President and Chief Operating
Officer
</TABLE>

C-21
<PAGE> 145

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) The Variable Annuity Marketing Company ("VAMCO") acts as exclusive
distributor and principal underwriter of the Registrant and as principal
underwriter for VALIC Separate Account A.

(b) The following information is furnished with respect to each officer and
director of VAMCO.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
Thomas L. West Jr. .................. Chairman of the Board of Chairman of the Board of
Directors Trustees
(*)
Joe C. Osborne....................... Director and President Executive Vice President
(*)
Cynthia A. Toles..................... Director, Secretary and Vice President and Secretary
Assistant Treasurer
(*)
Jane E. Bates........................ Treasurer --
(*)
D. Lynne Walters..................... Tax Officer --
(*)
Todd M. Adams........................ Vice President --
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
F. William Scott..................... Vice President --
Two Summit Park Dr.
Suite 410
Independence, OH 44131
Edward K. Boero...................... Vice President --
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
Steven P. Boero...................... Vice President --
1900 O'Farrell Street
Suite 390
San Mateo, CA 94403-1311
Joe H. Connell....................... Vice President --
10851 N. Black Canyon Hwy.
Suite 700
Phoenix, AZ 85029
James J. Costello.................... Vice President --
1767 Sentry Pkwy West 19
Suite 300
Blue Bell, PA 19422
Paige T. Davis....................... Vice President --
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
</TABLE>

C-22
<PAGE> 146

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
Fred Roberts......................... Vice President --
100 Ashford Center North
Suite 100
Atlanta, GA 30338
Robert G. Fillmore................... Vice President --
90 Woodbridge Center Dr.
Suite 300
Woodbridge, NJ 07095
James M. Garrison.................... Vice President --
Two International Plaza
Suite 601
Nashville, TN 37217
James K. Graham...................... Vice President --
1301 West Long Lake Road
Suite 340
Troy, MI 48098
James T. Griffin..................... Vice President --
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
Richard R. Gumpert................... Vice President --
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
Ernest Jordan III.................... Vice President --
4266 Interstate 55N
Suite 108
Jackson, MS 39211
Thomas N. Lange...................... Vice President --
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
Alden D. Lewis....................... Vice President --
1800 S.W. First Avenue
Suite 505
Portland, OR 97201
David R. Lyle........................ Vice President --
University Tower
3100 Tower Blvd.
Suite 1601, Box 50
Durham, NC 27707
Sharon J. Novickas................... Vice President --
230 West Monroe
Suite 1900
Chicago, IL 60606
</TABLE>

C-23
<PAGE> 147

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH VAMCO WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
Robert A. Obester.................... Vice President --
800 Gessner
Suite 1280
Houston, TX 77024
Evan Cole............................ Vice President --
410 Amherst Street
Suite 250
Nashua, NH 03063
William G. Tubbs..................... Vice President --
11711 N. Meridian St.
Suite 300
Carmel, IN 46032
Donald R. Van Putten................. Vice President --
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
</TABLE>

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

(*) 2929 Allen Parkway, Houston, Texas 77019

ITEM 30. LOCATION OF BOOKS AND RECORDS.

The books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated thereunder will be
in the physical possession of either:

THE DEPOSITOR:

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

THE PRINCIPAL UNDERWRITER:

The Variable Annuity Marketing Company
2929 Allen Parkway
Houston, Texas 77019

THE CUSTODIAN:

The State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

C-24
<PAGE> 148

INVESTMENT SUB-ADVISERS:

Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street, 36th Floor
New York, New York 10006

Brown Capital Management
809 Cathedral Street
Baltimore, Maryland 21201

Capital Guardian Trust Company
11100 Santa Monica Boulevard
Los Angeles, California 90025

Fiduciary Management Associates, Inc.
211 Congress Street
Boston, Massachusetts 02110

Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004

Jacobs Asset Management, Inc.
211 Congress Street
Boston, Massachusetts 02110

JP Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036

Neuberger&Berman Management Inc.
605 Third Avenue
New York, New York 10158

State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

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

ITEM 31. MANAGEMENT SERVICES.

There is no management-related service contract not discussed in Parts A or
B of this Form N-1A

ITEM 32. UNDERTAKINGS.

Not Applicable.

C-25
<PAGE> 149
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, American General Series
Portfolio Company 3 has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of Houston,
State of Texas, on the 21st day of May, 1998.

AMERICAN GENERAL SERIES
PORTFOLIO COMPANY 3

By: /s/ THOMAS L. WEST, JR.
------------------------
Thomas L. West, Jr.
Chairman of the Board of
Trustees

<PAGE> 150
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.

Signature Title Date
- --------- ----- ----
<S> <C> <C>

/s/ THOMAS L. WEST JR.
- ----------------------- Chairman of the Board of May 21 , 1998
Thomas L. West, Jr. Trustees --------------

**
- ----------------------- Vice Chairman of the Board , 1998
Craig R. Rodby of Trustees --------------

**
- ----------------------- Trustee and President , 1998
John A. Graf --------------

/s/ GREGORY R. SEWARD
- ----------------------- Treasurer May 21 , 1998
Gregory R. Seward --------------

*
- ----------------------- Trustee , 1998
Norman Hackerman --------------

*
- ----------------------- Trustee , 1998
John W. Lancaster --------------

*
- ----------------------- Trustee , 1998
Ben H. Love --------------

*
- ----------------------- Trustee , 1998
F. Robert Paulsen --------------

</TABLE>

<PAGE> 151

Signature Title Date
- --------- ----- ----
<S> <C> <C>

*
- ---------------------------- Trustee , 1998
R. Miller Upton --------------

/s/ DAVID M. LEAHY
*By: ---------------------- May 21 , 1998
David M. Leahy --------------
Attorney-in-Fact

/s/ NORI L. GABERT
**By: ---------------------- May 21 , 1998
Nori L. Gabert ---------------
Attorney-in-Fact
</TABLE>

<PAGE> 152

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <C> <S>
1.(a) -- Agreement and Declaration of Trust of American General
Series Portfolio Company 3 between The Variable Annuity Life
Insurance Company and Initial Trustee of American General
Series Portfolio Company 3, dated May 6, 1998.
1.(b) -- American General Series Portfolio Company 3 Certificate of
Designation of American General S&P 500 Index Fund, American
General Mid Cap Index Fund, American General Small Cap Index
Fund, American General Small Cap Value Fund, American
General Mid Cap Growth Fund, American General International
Value Fund, American General Domestic Bond Fund, American
General Balanced Fund, American General Large Cap Growth
Fund, American General Small Cap Growth Fund, American
General Mid Cap Value Fund, American General Large Cap Value
Fund, American General International Growth Fund, American
General Money Market Fund, American General Socially
Responsible Fund, American General Growth Lifestyle Fund,
American General Moderate Growth Lifestyle Fund and American
General Conservative Growth Lifestyle Fund.
2. -- Bylaws of American General Series Portfolio Company 3, dated
May 6, 1998.
5.(a) -- Form of Investment Advisory Agreement between The Variable
Annuity Life Insurance Company and American General Series
Portfolio Company 3.
19. -- Powers of Attorney for Trustees of American General Series
Portfolio Company 3.
</TABLE>

<PAGE> 1

EXHIBIT 1(a)

AGREEMENT AND DECLARATION OF TRUST
OF
AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3

May 6, 1998

<PAGE> 2

AGREEMENT AND DECLARATION OF TRUST

Index
<TABLE>

<S> <C>
RECITALS ..............................................................................1

ARTICLE I THE TRUST............................................................................2

SECTION 1.1 Name.................................................................................2

SECTION 1.2. Location.............................................................................2

SECTION 1.3. Nature of Trust .....................................................................2

SECTION 1.4. Definitions .........................................................................2

SECTION 1.5. Real Property to be Converted into Personal Property ................................5

ARTICLE 2 PURPOSE OF THE TRUST.................................................................5

ARTICLE 3 POWERS OF THE TRUSTEES ..............................................................5

SECTION 3.1. Powers in General ...................................................................5
(a) Investments .........................................................................6
(b) Disposition of Assets................................................................6
(c) Ownership Powers ....................................................................6
(d) Form of Holding......................................................................6
(e) Reorganization, etc..................................................................7
(f) Voting Trusts, etc...................................................................7
(g) Contracts, etc.......................................................................7
(h) Guarantees, etc......................................................................7
(i) Partnerships, etc....................................................................7
(j) Insurance............................................................................7
(k) Pensions, etc........................................................................7
(l) Power of Collection and Litigation ..................................................7
(m) Issuance and Repurchase of Shares ...................................................8
(n) Offices..............................................................................8
(o) Expenses.............................................................................8
(p) Agents, etc..........................................................................8
(q) Accounts ............................................................................8
(r) Valuation ...........................................................................8
(s) Indemnification .....................................................................8
(t) General .............................................................................8

SECTION 3.2. Borrowings; Financings; Issuance of Securities ......................................9
</TABLE>

<PAGE> 3

<TABLE>

<S> <C>
SECTION 3.3. Deposits.............................................................................9

SECTION 3.4. Allocations .........................................................................9

SECTION 3.5. Further Powers; Limitations..........................................................9

ARTICLE 4 TRUSTEES AND OFFICERS ...............................................................10

SECTION 4.1. Number, Designation, Election, Term, etc.............................................10
(a) Initial Trustee......................................................................10
(b) Number...............................................................................10
(c) Election and Term ...................................................................10
(d) Resignation and Retirement ..........................................................10
(e) Removal .............................................................................10
(f) Vacancies............................................................................10
(g) Acceptance of Trust .................................................................11
(h) Effect of Death, Resignation, etc....................................................11
(i) Conveyance ..........................................................................11
(j) No Accounting .......................................................................11

SECTION 4.2. Trustees' Meetings; Participation by Telephone, etc..................................11

SECTION 4.3. Committees; Delegation ..............................................................11

SECTION 4.4. Officers ............................................................................12

SECTION 4.5. Compensation of Trustees and Officers................................................12

SECTION 4.6. Ownership of Shares and Securities of the Trust .....................................12

SECTION 4.7. Right of Trustees and Officers to Own Property or to Engage in Business;
Authority of Trustees to Permit Others to Do Likewise ...............................12

SECTION 4.8. Reliance on Experts .................................................................12

SECTION 4.9. Surety Bonds ........................................................................13

SECTION 4.10. Apparent Authority of Trustees and Officers..........................................13

SECTION 4.11. Other Relationships Not Prohibited ..................................................13

SECTION 4.12. Payment of Trust Expenses............................................................13

SECTION 4.13. Ownership of the Trust Property......................................................14
</TABLE>

<PAGE> 4

<TABLE>

<S> <C>
SECTION 4.14. By-Laws..............................................................................14

ARTICLE 5 DELEGATION OF MANAGERIAL RESPONSIBILITIES............................................14

SECTION 5.1. Appointment; Action by Less than All Trustees........................................14

SECTION 5.2. Certain Contracts....................................................................14
(a) Advisory ............................................................................14
(b) Administration ......................................................................15
(c) Underwriting ........................................................................15
(d) Custodian............................................................................15
(e) Transfer and Dividend Disbursing Agent ..............................................15
(f) Shareholder Servicing ...............................................................15
(g) Accounting ..........................................................................15

Section 5.3. Distribution Arrangements ...........................................................16

Section 5.4. Service Arrangements.................................................................16

ARTICLE 6 SERIES AND SHARES ...................................................................16

SECTION 6.1. Description of Series and Shares.....................................................16
(a) General .............................................................................16
(b) Establishment, etc. of Series; Authorization of Shares...............................16
(c) Character of Separate Series and Shares Thereof .....................................16
(d) Consideration for Shares ............................................................17
(e) Assets Belonging to Series ..........................................................17
(f) Liabilities of Series ...............................................................17
(g) Dividends ...........................................................................17
(h) Liquidation..........................................................................18
(i) Voting...............................................................................18
(j) Redemption by Shareholder............................................................18
(k) Redemption at the Option of the Trust................................................18
(l) Net Asset Value......................................................................19
(m) Transfer ............................................................................19
(n) Equality.............................................................................19
(o) Rights of Fractional Shares .........................................................19
(p) Conversion Rights....................................................................19

SECTION 6.2. Ownership of Shares .................................................................20

SECTION 6.3. Investments in the Trust.............................................................20

SECTION 6.4. No Pre-emptive Rights................................................................20
</TABLE>

iii

<PAGE> 5

<TABLE>

<S> <C>
SECTION 6.5. Status of Shares ....................................................................20

ARTICLE 7 SHAREHOLDERS' VOTING POWERS AND MEETINGS.............................................20

SECTION 7.1. Voting Powers........................................................................20

SECTION 7.2. Number of Votes and Manner of Voting; Proxies........................................21

SECTION 7.3. Meetings.............................................................................21

SECTION 7.4. Record Dates ........................................................................21

SECTION 7.5. Quorum and Required Vote ............................................................22

SECTION 7.6. Action by Written Consent ...........................................................22

SECTION 7.7. Inspection of Records................................................................22

SECTION 7.8. Additional Provisions................................................................22

ARTICLE 8 LIMITATION OF LIABILITY; INDEMNIFICATION.............................................22

SECTION 8.1. Trustees, Shareholders, etc. Not Personally Liable; Notice ..........................22

SECTION 8.2. Trustees' Good Faith Action; Expert Advice; No Bond or Surety........................23

SECTION 8.3. Indemnification of Shareholders .....................................................23

SECTION 8.4. Indemnification of Trustees, Officers, etc. .........................................23

SECTION 8.5. Compromise Payment ..................................................................24

SECTION 8.6. Indemnification Not Exclusive, etc...................................................24

SECTION 8.7. Liability of Third Persons Dealing with Trustees.....................................24

ARTICLE 9 DURATION; REORGANIZATION; INCORPORATION;
AMENDMENTS....................................................................24

SECTION 9.1. Duration of Trust ...................................................................24

SECTION 9.2. Termination of Trust ................................................................24

SECTION 9.3. Reorganization.......................................................................25

SECTION 9.4. Incorporation........................................................................25
</TABLE>

<PAGE> 6

<TABLE>

<S> <C>
SECTION 9.5. Amendments; etc......................................................................25

SECTION 9.6. Filing of Copies of Declaration and Amendments.......................................26

ARTICLE 10 MISCELLANEOUS .......................................................................26

SECTION 10.1. Notices .............................................................................26

SECTION 10.2. Governing Law .......................................................................26

SECTION 10.3. Counterparts.........................................................................26

SECTION 10.4. Reliance by Third Parties............................................................26

SECTION 10.5. References; Headings ................................................................26

SECTION 10.6. Provisions in Conflict With Law or Regulation........................................26

SECTION 10.7. Use of the Name "American General" ..................................................27

Signature ..............................................................................27

Acknowledgments ..............................................................................28
</TABLE>

<PAGE> 7

AGREEMENT AND DECLARATION OF TRUST

AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3

This AGREEMENT AND DECLARATION OF TRUST, made at this 6th day of May,
1998, by and between The Variable Annuity Life Insurance Company, a corporation
resident in Houston, Texas (the "Settlor"), and the Trustee whose signature is
set forth below (the "Initial Trustee"),

W I T N E S S E T H T H A T:

WHEREAS, the Settlor proposes to deliver to the Initial Trustee the sum
of one hundred dollars ($100.00) lawful money of the United States of America in
trust hereunder and to authorize the Initial Trustee and all other individuals
acting as Trustees hereunder to employ such funds, and any other funds coming
into their hands or the hands of their successor or successors as such Trustees,
to carry on the business of an investment company and as such of buying,
selling, investing or otherwise dealing in and with stocks, bonds, debentures,
warrants and other securities and interests therein, financial futures
contracts, or options with respect to securities or financial futures contracts,
and such other and further investment media and other property as the Trustees
may deem advisable, which are not prohibited by law or the terms of this
Declaration; and

WHEREAS, the Initial Trustee is willing to accept such sum, together
with any and all additions thereto and the income or increments thereof, upon
the terms, conditions and trusts hereinafter set forth; and

WHEREAS, the beneficial interest in the assets held by the Trustees
shall be divided into transferable Shares, all in accordance with the provisions
hereinafter set forth; and

WHEREAS, it is desired that the trust established hereby be managed and
operated as a trust with transferable shares under the laws of Delaware with
respect to Delaware business trusts in accordance with the provisions
hereinafter set forth:

NOW, THEREFORE, the Initial Trustee, for him/her self and his/her
successors as Trustees, hereby declares and agrees with the Settlor, for him/her
self and for all Persons who shall hereafter become holders of Shares that the
Trustees will hold the sum delivered to them upon the execution hereof, and all
other and further cash, securities and other property of every type and
description which they may in any way acquire in their capacity as such
Trustees, together with the income therefrom and the proceeds thereof, IN TRUST
NEVERTHELESS, to manage and dispose of the same for the benefit of the holders
from time to time of the Shares being issued and to be issued hereunder and in
the manner and subject to the provisions hereof, to wit:

<PAGE> 8

ARTICLE I

THE TRUST

SECTION 1.1 Name. The name of the Trust shall be

"AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3"

and so far as may be practicable, the Trustees shall conduct the Trust's
activities, execute all documents and sue or be sued under that name, which name
(and the word "Trust" wherever used in this Agreement and Declaration of Trust,
except where the context otherwise requires) shall refer to the Trustees in
their capacity as Trustees, and not individually or personally, and shall not
refer to the officers, agents or employees of the Trust or of such Trustees, or
to the holders of the Shares of the Trust or any Series. If the Trustees
determine that the use of such name is not practicable, legal or convenient at
any time or in any jurisdiction, or if the Trust is required to discontinue the
use of such name pursuant to Section 10.7 hereof, then subject to that Section,
the Trustees may use such other designation, or they may adopt such other name
for the Trust as they deem proper, and the Trust may hold property and conduct
its activities under such designation or name.

SECTION 1.2. Location. The Trust shall maintain a registered office in
the State of Delaware and may have such other offices or places of business as
the Trustees may from time to time determine to be necessary or expedient.

SECTION 1.3. Nature of Trust. The Trust shall be a trust with
transferable shares under the laws of The State of Delaware, of the type defined
in Title 12, Chapter 38, Section 3801 of the Delaware Code as a business trust.
The Trust is not intended to be, shall not be deemed to be, and shall not be
treated as, a general partnership, limited partnership, joint venture,
corporation or joint stock company. The Shareholders shall be beneficiaries and
their relationship to the Trustees shall be solely in that capacity in
accordance with the rights conferred upon them hereunder.

SECTION 1.4. Definitions. As used in this Agreement and Declaration of
Trust, the following terms shall have the meanings set forth below unless the
context thereof otherwise requires:

"Accounting Agent" shall have the meaning designated in Section 5.2(g)
hereof.

"Administrator" shall have the meaning designated in Section 5.2(b)
hereof.

"Affiliated Person" shall have the meaning assigned to it in the 1940
Act.

"By-Laws" shall mean the By-Laws of the Trust, as amended from time to
time.

"Certificate of Designation" shall have the meaning designated in
Section 6.1 hereof.

"Certificate of Termination" shall have the meaning designated in
Section 6.1 hereof.

"Class" or "Classes" shall mean, with respect to the Trust (or any
Series thereof), any unissued Shares of the Trust (or such Series) in
respect of which the Trustees shall from time to time fix and determine
any special provisions relating to sales charges, any rights of
redemption and the price, terms and manner of redemption, special and
relative rights as to dividends and other distributions and on
liquidation, sinking or purchase fund provisions, conversion rights,
and conditions under which the Shareholders of such Class shall have
separate voting rights or no voting rights.

"Commission" shall have the same meaning as in the 1940 Act.

<PAGE> 9

"Contracting Party" shall have the meaning designated in the preamble
to Section 5.2 hereof.

"Conversion Date" shall mean with respect to Shares of any Class that
are convertible automatically into Shares of any other Class of the
Trust (or Series thereof) the date fixed by the Trustees for such
conversion.

"Covered Person" shall have the meaning designated in Section 8.4
hereof.

"Custodian" shall have the meaning designated in Section 5.2(d) hereof.

"Declaration" and "Declaration of Trust" shall mean this Agreement and
Declaration of Trust and all amendments or modifications thereof as
from time to time in effect. This Agreement and Declaration of Trust is
the "governing instrument" of the Trust within the meaning of the laws
of the State of Delaware with respect to Delaware Business Trusts.
References in this Agreement and Declaration of Trust to "hereof",
"herein" and "hereunder" shall be deemed to refer to the Declaration of
Trust generally, and shall not be limited to the particular text,
Article or Section in which such words appear.

"Disabling Conduct" shall have the meaning designated in Section 8.4
hereof.

"Distributor" shall have the meaning designated in Section 5.2(c)
hereof.

"Dividend Disbursing Agent" shall have the meaning designated in
Section 5.2(e) hereof.

"General Items" shall have the meaning defined in Section 6.2(a)
hereof.

"Initial Trustee" shall have the meaning defined in the preamble
hereto.

"Investment Adviser" shall have the meaning defined in Section 5.2(a)
hereof.

"Majority of the Trustees" shall mean a majority of the Trustees in
office at the time in question. At any time at which there shall be
only one (1) Trustee in office, such term shall mean such Trustee.

"Majority Shareholder Vote," as used with respect to (a) the election
of any Trustee at a meeting of Shareholders, shall mean the vote for
the election of such Trustee of a plurality of all outstanding Shares
of the Trust, without regard to Series, represented in person or by
proxy and entitled to vote thereon, provided that a quorum (as
determined in accordance with the By-Laws) is present, (b) any other
action required or permitted to be taken by Shareholders, shall mean
the vote for such action of the holders of that majority of all
outstanding Shares (or, where a separate vote of Shares of any
particular Series is to be taken, the affirmative vote of that majority
of the outstanding Shares of that Series) of the Trust which consists
of: (i) a majority of all Shares (or of Shares of the particular
Series) represented in person or by proxy and entitled to vote on such
action at the meeting of Shareholders at which such action is to be
taken, provided that a quorum (as determined in accordance with the
By-Laws) is present; or (ii) if such action is to be taken by written
consent of Shareholders, a majority of all Shares (or of Shares of the
particular Series) issued and outstanding and entitled to vote on such
action; provided that (iii) as used with respect to any action
requiring the affirmative vote of "a majority of the outstanding voting
securities," as the quoted phrase is defined in the 1940 Act, of the
Trust or of any Series, "Majority Shareholder Vote" means the vote for
such action at a meeting of Shareholders of the smallest majority of
all outstanding Shares of the Trust (or of Shares of the particular
Series) entitled to vote on such action which satisfies such 1940 Act
voting requirement.

<PAGE> 10

"1940 Act" shall mean the provisions of the Investment Company Act of
1940 and the rules and regulations thereunder, both as amended from
time to time, and any order or orders thereunder which may from time to
time be applicable to the Trust.

"Person" shall mean and include individuals, as well as corporations,
limited partnerships, general partnerships, joint stock companies,
joint ventures, associations, banks, trust companies, land trusts,
business trusts or other organizations established under the laws of
any jurisdiction, whether or not considered to be legal entities, and
governments and agencies and political subdivisions thereof.

"Principal Underwriter" shall have the meaning designated in Section
5.2(c) hereof.

"Prospectus," as used with respect to the Trust (or the Shares of a
particular Series), shall mean the prospectus relating to the Trust (or
such Series) which constitutes part of the currently effective
Registration Statement of the Trust under the Securities Act of 1933,
as such prospectus may be amended or supplemented from time to time.

"Securities" shall have the same meaning ascribed to that term in the
Securities Act of 1993.

"Series" shall mean one or more of the series of Shares authorized by
the Trustees to represent the beneficial interest in one or more
separate components of the assets of the Trust which are now or
hereafter established and designated under or in accordance with the
provisions of Article 6 hereof.

"Settlor" shall have the meaning defined in the preamble hereto.

"Shareholder" shall mean as of any particular time any Person shown of
record at such time on the books of the Trust as a holder of
outstanding Shares of any Series, and shall include a pledgee into
whose name any such Shares are transferred in pledge.

"Shareholder Servicing Agent" shall have the meaning designated in
Section 5.2(f) hereof.

"Shares" shall mean the transferable units into which the beneficial
interest in the Trust and each Series of the Trust (as the context may
require) shall be divided from time to time, and includes fractions of
Shares as well as whole Shares. All references herein to "Shares" which
are not accompanied by a reference to any particular Series or Class
shall be deemed to apply to outstanding Shares without regard to Series
or Class.

"Single Class Voting," as used with respect to any matter to be acted
upon at a meeting or by written consent of Shareholders, shall mean a
style of voting in which each holder of one or more Shares shall be
entitled to one vote on the matter in question for each Share standing
in his/her name on the records of the Trust, irrespective of Series or
Class of a Series, and all outstanding Shares of all Series vote as a
single class.

"Statement of Additional Information," as used with respect to the
Trust (or any Series), shall mean the statement of additional
information relating to the Trust (or such Series) which constitutes
part of the currently effective Registration Statement of the Trust
under the Securities Act of 1933, as such statement of additional
information may be amended or supplemented from time to time.

"Transfer Agent" shall have the meaning defined in Section 5.2(e)
hereof.

"Trust" shall mean the trust named in Section 1.1 hereof.

<PAGE> 11

"Trust Property" shall mean, as of any particular time, any and all
property which shall have been transferred, conveyed or paid to the
Trust or the Trustees, and all interest, dividends, income, earnings,
profits and gains therefrom, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation thereof, and
any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, and which at such time is owned or held
by, or for the account of, the Trust or the Trustees, without regard to
the Series to which such property is allocated.

"Trustees" shall mean, collectively, the Initial Trustee, so long as
he/she shall continue in office, and all other individuals who at the
time in question have been duly elected or appointed as Trustees of the
Trust in accordance with the provisions hereof and who have qualified
and are then in office. At any time at which there shall be only one
(I) Trustee in office, such term shall mean such single Trustee.

SECTION 1.5. Real Property to be Converted into Personal Property.
Notwithstanding any other provision hereof, any real property at any time
forming part of the Trust Property shall be held in trust for sale and
conversion into personal property at such time or times and in such manner and
upon such terms as the Trustees shall approve, but the Trustees shall have power
until the termination of this Trust to postpone such conversion as long as they
in their uncontrolled discretion shall think fit, and for the purpose of
determining the nature of the interest of the Shareholders therein, all such
real property shall at all times be considered as personal property.

ARTICLE 2

PURPOSE OF THE TRUST

The purpose of the Trust shall be to (a) manage, conduct, operate and carry
on the business of an investment company; (b) subscribe for, invest in, reinvest
in, purchase or otherwise acquire, hold, pledge, sell, assign, transfer,
exchange, distribute or otherwise deal in or dispose of any and all sorts of
property, tangible or intangible, including but not limited to Securities of any
type whatsoever, whether equity or nonequity, of any issuer, evidences of
indebtedness of any person and any other rights, interest, instruments or
property of any sort to exercise any and all rights, powers and privileges of
ownership or interest in respect of any and all such investment of every kind
and description, including without limitation, the right to consent and
otherwise act with respect thereto, with power to designate one or more Persons
to exercise any of said rights, powers and privileges in respect of any of said
investments. The Trustees shall not be limited by any law limiting the
investments which may be made by fiduciaries.

ARTICLE 3

POWERS OF THE TRUSTEES

SECTION 3.1. Powers in General. The Trustees shall have, without other or
further authorization, full, entire, exclusive and absolute power, control and
authority over, and management of, the business of the Trust and over the Trust
Property, to the same extent as if the Trustees were the sole owners of the
business and property of the Trust in their own right, and with such powers of
delegation as may be permitted by this Declaration, subject only to such
limitations as may be expressly imposed by this Declaration of Trust or by
applicable law. The enumeration of any specific power or authority herein shall
not be construed as limiting the aforesaid power or authority or any specific
power or authority. Without limiting the foregoing; they may select, and from
time to time change, the fiscal year of the Trust; they may adopt and use a seal
for the Trust, provided that unless otherwise required by the Trustees, it shall
not be necessary to place the seal upon, and its absence shall not impair the
validity of, any document, instrument or other paper executed and delivered by
or on behalf of the Trust; they may from time to time in accordance with the
provisions

<PAGE> 12

of Section 6.1 hereof establish one or more Series to which they may allocate
such of the Trust Property, subject to such liabilities, as they shall deem
appropriate, each such Series to be operated by the Trustees as a separate and
distinct investment medium and with separately defined investment objectives and
policies and distinct investment purposes, all as established by the Trustees,
or from time to time changed by them; they may as they consider appropriate
elect and remove officers and appoint and terminate agents and consultants and
hire and terminate employees, any one or more of the foregoing of whom may be a
Trustee; they may appoint from their own number, and terminate, any one or more
committees consisting of one or more Trustees, including without implied
limitation an Executive Committee, which may, when the Trustees are not in
session and subject to the 1940 Act, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; in accordance with
Section 5.2 they may employ one or more Investment Advisers, Administrators and
Custodians and may authorize any such service provider to employ one or more
other or service providers and to deposit all or any part of such assets in a
system or systems for the central handling of Securities, retain Transfer,
Dividend Disbursing, Accounting or Shareholder Servicing Agents or any of the
foregoing, provide for the distribution of Shares by the Trust through one or
more Distributors, Principal Underwriters or otherwise, set record dates or
times for the determination of Shareholders entitled to participate in, benefit
from or act with respect to various matters; and in general they may delegate to
any officer of the Trust, to any Committee of the Trustees and to any employee,
Investment Adviser, Administrator, Distributor, Custodian, Transfer Agent,
Dividend Disbursing Agent, or any other agent or consultant of the Trust, such
authority, powers, functions and duties as they consider desirable or
appropriate for the conduct of the business and affairs of the Trust, including
without implied limitation the power and authority to act in the name of the
Trust and of the Trustees, to sign documents and to act as attorney-in-fact for
the Trustees. Without limiting the foregoing and to the extent not inconsistent
with the 1940 Act or other applicable law, the Trustees shall have power and
authority:

(a) Investments. To subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of any and all sorts of property, tangible or
intangible, including but not limited to Securities of any type whatsoever,
whether equity or nonequity, of any issuer, evidences of indebtedness of any
person and any other rights, interest, instruments or property of any sort, to
exercise any and all rights, powers and privileges of ownership or interest in
respect of any and all such investments of every kind and description, including
without limitation the right to consent and otherwise act with respect thereto,
with power to designate one or more Persons to exercise any of said rights,
powers and privileges in respect of any of said investments, in every case
without being limited by any law limiting the investments which may be made by
fiduciaries;

(b) Disposition of Assets. Upon such terms and conditions as they deem
best, to lend, sell, exchange, mortgage, pledge, hypothecate, grant security
interests in, encumber, negotiate, convey, transfer or otherwise dispose of, and
to trade in, any and all of the Trust Property, free and clear of all trusts,
for cash or on terms, with or without advertisement, and on such terms as to
payment, security or otherwise, all as they shall deem necessary or expedient;

(c) Ownership Powers. To vote or give assent, or exercise any and all other
rights, powers and privileges of ownership with respect to, and to perform any
and all duties and obligations as owners of, any Securities or other property
forming part of the Trust Property, the same as any individual might do; to
exercise powers and rights of subscription or otherwise which in any manner
arise out of ownership of Securities, and to receive powers of attorney from,
and to execute and deliver proxies or powers of attorney to, such Person or
Persons as the Trustees shall deem proper, receiving from or granting to such
Person or Persons such power and discretion with relation to Securities or other
property of the Trust, all as the Trustees shall deem proper;

(d) Form of Holding. To hold any Security or other property in a form not
indicating any trust, whether in bearer, unregistered or other negotiable form,
or in the name of the Trustees or of the Trust, or of the Series to which such
Securities or property belong, or in the name of a Custodian, subcustodian or
other nominee or nominees, or otherwise,

<PAGE> 13

upon such terms, in such manner or with such powers, as the Trustees may
determine, and with or without indicating any trust or the interest of the
Trustees therein;

(e) Reorganizations etc. To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or issuer, any
Security of which is or was held in the Trust or any Series; to consent to any
contract, lease, mortgage, purchase or sale of property by such corporation or
issuer, and to pay calls or subscriptions with respect to any Security forming
part of the Trust Property;

(f) Voting Trusts, etc. To join with other holders of any Securities in
acting through a committee, depository, voting trustee or otherwise, and in that
connection to deposit any Security with, or transfer any Security to, any such
committee, depository or trustee, and to delegate to them such power and
authority with relation to any Security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree to pay, and to pay,
such portion of the expenses and compensation of such committee, depository or
trustee as the Trustees shall deem proper;

(g) Contracts. etc. To enter into, make and perform all such obligations,
contracts, agreements and undertakings of every kind and description, with any
Person or Persons, as the Trustees shall in their discretion deem expedient in
the conduct of the business of the Trust, for such terms as they shall see fit,
whether or not extending beyond the term of office of the Trustees, or beyond
the possible expiration of the Trust; to amend, extend, release or cancel any
such obligations, contracts, agreements or understandings; and to execute,
acknowledge, deliver and record all written instruments which they may deem
necessary or expedient in the exercise of their powers;

(h) Guarantees. etc. To endorse or guarantee the payment of any notes or
other obligations of any Person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge the
Trust Property or any part thereof to secure any of or all such obligations;

(i) Partnerships, etc. To enter into joint ventures, general or limited
partnerships and any other combinations or association;

(j) Insurance. To purchase and pay for entirely out of Trust Property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the assets
of the Trust and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders, Trustees,
officers, employees, agents, consultants, Investment Advisers, managers,
Administrators, Distributors, Principal Underwriters, or other independent
contractors, or any thereof (or any Person connected therewith), of the Trust,
individually, against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such Person in
any such capacity, whether or not the Trust would have the power to indemnify
such Person against such liability;

(k) Pensions, etc. To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit sharing, share bonus, share purchase, savings, thrift, deferred
compensation and other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity contracts as
a means of providing such retirement and other benefits, for any or all of the
Trustees, officers, employees and agents of the Trust;

(l) Power of Collection and Litigation. To collect, sue for and receive all
sums of money coming due to the Trust, to employ counsel, and to commence,
engage in, prosecute, intervene in, join, defend, compound, compromise, adjust
or abandon, in the name of the Trust, any and all actions, suits, proceedings,
disputes, claims, controversies, demands

<PAGE> 14

or other litigation or legal proceedings relating to the Trust, the business of
the Trust, the Trust Property, or the Trustees, officers, employees, agents and
other independent contractors of the Trust, in their capacity as such, at law or
in equity, or before any other bodies or tribunals, and to compromise, arbitrate
or otherwise adjust any dispute to which the Trust may be a party, whether or
not any suit is commenced or any claim shall have been made or asserted. Except
to the extent required for a Delaware Business Trust, the Shareholders shall
have no power to vote as to whether or not a court action, legal proceeding or
claim should or should not be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders.

(m) Issuance and Repurchase of Shares. To authorize, issue, sell,
repurchase, redeem, retire, cancel, acquire, hold, resell, reissue, dispose of,
transfer, and otherwise deal in Shares of any Series, and, subject to Article 6
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares of any Series, any of the assets belonging to the Series
to which such Shares relate, whether constituting capital or surplus or
otherwise, to the full extent now or hereafter permitted by applicable law;
provided that any Shares belonging to the Trust shall not be voted, directly or
indirectly;

(n) Offices. To have one or more offices, and to carry on all or any of the
operations and business of the Trust, in any of the States, Districts or
Territories of the United States, and in any and all foreign countries, subject
to the laws of such State, District, Territory or country;

(o) Expenses. To incur and pay any and all such expenses and charges as
they may deem advisable (including without limitation appropriate fees to
themselves as Trustees), and to pay all such sums of money for which they may be
held liable by way of damages, penalty, fine or otherwise;

(p) Agents, etc. To retain and employ any and all such servants, agents,
employees, attorneys, brokers, Investment Advisers, accountants, architects,
engineers, builders, escrow agents, depositories, consultants, ancillary
trustees, custodians, agents for collection, insurers, banks and officers, as
they think best for the business of the Trust or any Series, to supervise and
direct the acts of any of the same, and to fix and pay their compensation and
define their duties;

(q) Accounts. To determine, and from time to time change, the method or
form in which the accounts of the Trust or any Series shall be kept;

(r) Valuation. Subject to the requirements of the 1940 Act, to determine
from time to time the value of all or any part of the Trust Property and of any
services, Securities, property or other consideration to be furnished to or
acquired by the Trust, and from time to time to revalue all or any part of the
Trust Property in accordance with such appraisals or other information as is, in
the Trustees' sole judgment, necessary and satisfactory;

(s) Indemnification. In addition to the mandatory indemnification provided
for in Article 8 hereof and to the extent permitted by law, to indemnify or
enter into agreements with respect to indemnification with any Person with whom
this Trust has dealings, including, without limitation, any independent
contractor, to such extent as the Trustees shall determine; and

(t) General. Subject to the fundamental policies in effect from time to
time with respect to the Trust, to do all such other acts and things and to
conduct, operate, carry on and engage in such other lawful businesses or
business activities as they shall in their sole and absolute discretion consider
to be incidental to the business of the Trust or any Series as an investment
company, and to exercise all powers which they shall in their discretion
consider necessary, useful or appropriate to carry on the business of the Trust
or any Series, to promote any of the purposes for which the Trust is formed,
whether or not such things are specifically mentioned herein, in order to
protect or promote the interests of the Trust or any Series, or otherwise to
carry out the provisions of this Declaration.

<PAGE> 15

SECTION 3.2. Borrowings; Financings: Issuance of Securities. The Trustees
have power, subject to the fundamental policies in effect from time to time with
respect to the Trust, to borrow or in any other manner raise such sum or sums of
money, and to incur such other indebtedness for goods or services, or for or in
connection with the purchase or other acquisition of property, as they shall
deem advisable for the purposes of the Trust, in any manner and on any terms,
and to evidence the same by negotiable or nonnegotiable Securities which may
mature at any time or times, even beyond the possible date of termination of the
Trust; to issue Securities of any type for such cash, property, services or
other considerations, and at such time or times and upon such terms, as they may
deem advisable; and to reacquire any such Securities. Any such Securities of the
Trust may, at the discretion of the Trustees, be made convertible into Shares of
any Series, or may evidence the right to purchase, subscribe for or otherwise
acquire Shares of any Series, at such times and on such terms as the Trustees
may prescribe.

SECTION 3.3. Deposits. Subject to the requirements of the 1940 Act, the
Trustees shall have power to deposit any moneys or Securities included in the
Trust Property with any one or more banks, trust companies or other banking
institutions, whether or not such deposits will draw interest. Such deposits are
to be subject to withdrawal in such manner as the Trustees may determine, and
the Trustees shall have no responsibility for any loss which may occur by reason
of the failure of the bank, trust company or other banking institution with
which any such moneys or Securities have been deposited, except as provided in
Section 8.2 hereof.

SECTION 3.4. Allocations. The Trustees shall have power to determine
whether moneys or other assets received by the Trust shall be charged or
credited to income or capital, or allocated between income and capital,
including the power to amortize or fail to amortize any part or all of any
premium or discount, to treat any part or all of the profit resulting from the
maturity or sale of any asset, whether purchased at a premium or at a discount,
as income or capital, or to apportion the same between income and capital, to
apportion the sale price of any asset between income and capital, and to
determine in what manner any expenses or disbursements are to be borne as
between income and capital, whether or not in the absence of the power and
authority conferred by this Section 3.4 such assets would be regarded as income
or as capital or such expense or disbursement would be charged to income or to
capital; to treat any dividend or other distribution on any investment as income
or capital, or to apportion the same between income and capital; to provide or
fail to provide reserves, including reserves for depreciation, amortization or
obsolescence in respect of any Trust Property in such amounts and by such
methods as they shall determine; to allocate less than all of the consideration
paid for Shares of any Series to surplus with respect to the Series to which
such Shares relate and to allocate the balance thereof to paid-in capital of
that Series, and to reallocate such amounts from time to time; all as the
Trustees may reasonably deem proper.

SECTION 3.5. Further Powers: Limitations. The Trustees shall have power to
do all such other matters and things, and to execute all such instruments, as
they deem necessary, proper or desirable in order to carry out, promote or
advance the interests of the Trust, although such matters or things are not
herein specifically mentioned. Any determination as to what is in the interests
of the Trust made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration of Trust, the presumption shall be
in favor of a grant of power to the Trustees. The Trustees shall not be required
to obtain any court order to deal with the Trust Property. The Trustees may
limit their right to exercise any of their powers through express restrictive
provisions in the instruments evidencing or providing the terms for any
Securities of the Trust or in other contractual instruments adopted on behalf of
the Trust.

<PAGE> 16

ARTICLE 4

TRUSTEES AND OFFICERS

SECTION 4.1. Number. Designation, Election. Term, etc.

(a) Initial Trustee. Upon his/her execution of this Agreement and
Declaration of Trust dated March 18, 1998 or a counterpart hereof or some other
writing in which he/she accepted such Trusteeship and agreed to the provisions
hereof, the individual whose signature is affixed thereto as Initial Trustee
became the Initial Trustee thereof.

(b) Number. The Trustees serving as such, whether named above or hereafter
becoming Trustees, may increase (to not more than eight (8)) or decrease the
number of Trustees to a number other than the number theretofore determined by a
written instrument signed by a Majority of the Trustees (or by an officer of the
Trust pursuant to the vote of a Majority of the Trustees). No decrease in the
number of Trustees shall have the effect of removing any Trustee from office
prior to the expiration of his or her term, but the number of Trustees may be
decreased in conjunction with the removal of a Trustee pursuant to Section (e)
of this Section 4.1.

(c) Election and Term. The Trustees shall be elected by the Shareholders of
the Trust at the first meeting of Shareholders immediately prior to the initial
issuance of shares of the Trust in a public offering and the term of office of
any Trustees in office before such election shall terminate at the time of such
election. Subject to Section 16(a) of the 1940 Act and to the preceding sentence
of this subsection (c) and to any requirements specified in the By-Laws, the
Trustees shall have the power to set and alter the terms of office of the
Trustees, and at any time to lengthen or shorten their own terms or make their
terms of unlimited duration, to elect their own successors and, pursuant to
subsection (f) of this Section 4.1, to appoint Trustees to fill vacancies;
provided that Trustees shall be elected by a Majority Shareholder Vote at any
such time or times as the Trustees shall determine that such action is required
under Section 16(a) of the 1940 Act or, if not so required, that such action is
advisable; and further provided that, after the initial election of Trustees by
the Shareholders, the term of office of any incumbent Trustee shall continue
until the termination of this Trust or his/her earlier death, resignation,
retirement, bankruptcy, adjudicated incompetency or other incapacity or removal,
or if not so terminated, until the election of such Trustee's successor in
office has become effective in accordance with this subsection (c).

(d) Resignation and Retirement. Any Trustee may resign his/her trust or
retire as a Trustee, by a written instrument signed by him/her and delivered to
the other Trustees or to any officer of the Trust, and such resignation or
retirement shall take effect upon such delivery or upon such later date as is
specified in such instrument.

(e) Removal. Any Trustee may be removed: (i) by vote of shareholders
holding a majority of the Shares of the Trust then outstanding, cast in person
or by proxy at any meeting called for the purpose; or (ii) by a written
declaration signed by Shareholders holding not less than a majority of the
Shares of the Trust then outstanding.

(f) Vacancies. Any vacancy or anticipated vacancy resulting from any
reason, including an increase in the number of Trustees, may (but need not
unless required by the 1940 Act) be filled by a Majority (or a supermajority if
required by the By-Laws) of the Trustees, subject to the provisions of Section
16(a) of the 1940 Act, through the appointment in writing of such other
individual as such remaining Trustees in their discretion shall determine;
provided that if there shall be no Trustees in office, such vacancy or vacancies
shall be filled by Majority Shareholders Vote. Any such appointment or election
shall be effective upon such individual's written acceptance of his/her
appointment as a Trustee and his/her agreement to be bound by the provisions of
this Declaration of Trust, except that any such appointment in anticipation of a
vacancy to occur by reason of retirement, resignation or increase in the number
of Trustees to be effective at a later

<PAGE> 17

date shall become effective only at or after the effective date of said
retirement, resignation or increase in the number of Trustees.

(g) Acceptance of Trusts. Whenever any conditions to the appointment or
election of any individual as a Trustee hereunder who was not, immediately prior
to such appointment or election, acting as a Trustee shall have been satisfied,
such individual shall become a Trustee and the Trust estate shall vest in the
new Trustee, together with the continuing Trustees, without any further act or
conveyance. Such new Trustee shall accept such appointment or election in
writing and agree in such writing to be bound by the provisions hereof, but the
execution of such writing shall not be requisite to the effectiveness of the
appointment or election of a new Trustee.

(h) Effect of Death. Resignation, etc. No vacancy, whether resulting from
the death, resignation, retirement, bankruptcy, adjudicated incompetency,
incapacity, or removal of any Trustee, an increase in the number of Trustees or
otherwise, shall operate to annul or terminate the Trust hereunder or to revoke
or terminate any existing agency or contract created or entered into pursuant to
the terms of this Declaration of Trust. Until such vacancy is filled as provided
in this Section 4.1, the Trustees in office (if any), regardless of their
number, shall have all the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by this Declaration. Upon incapacity or
death of any Trustee, his/her legal representative shall execute and deliver on
his/her behalf such documents as the remaining Trustees shall require in order
to effect the purpose of this Paragraph.

(i) Conveyance. In the event of the resignation or removal of a Trustee or
his/her otherwise ceasing to be a Trustee, such former Trustee or his/her legal
representative shall, upon request of the continuing Trustees, execute and
deliver such documents as may be required for the purpose of consummating or
evidencing the conveyance to the Trust or the remaining Trustees of any Trust
Property held in such former Trustee's name, but the execution and delivery of
such documents shall not be requisite to the vesting of title to the Trust
Property in the remaining Trustees, as provided in subsection (g) of this
Section 4.1 and in Section 4.13 hereof.

(j) No Accounting. Except to the extent required by the 1940 Act or under
circumstances which would justify his/her removal for cause, no Person ceasing
to be a Trustee (nor the estate of any such Person) shall be required to make an
accounting to the Shareholders or remaining Trustees upon such cessation.

SECTION 4.2. Trustees' Meetings: Participation by Telephone. etc. Annual
and special meetings may be held from time to time, in each case, upon the call
of such officers as may be thereunto authorized by the By-Laws or vote of the
Trustees, or by any three (3) Trustees, or pursuant to a vote of the Trustees
adopted at a duly constituted meeting of the Trustees, and upon such notice as
shall be provided in the By-Laws. Any such meeting may be held within or without
the state of Delaware. The Trustees may act with or without a meeting, and a
written consent to any matter, signed by all of the Trustees, shall be
equivalent to action duly taken at a meeting of the Trustees, duly called and
held. Except as otherwise provided by the 1940 Act or other applicable law, or
by this Declaration of Trust or the By-Laws, any action to be taken by the
Trustees may be taken by a majority of the Trustees present at a meeting of
Trustees (a quorum, consisting of at least a Majority of the Trustees, being
present), within or without Delaware. If authorized by the By-Laws, all or any
one or more Trustees may participate in a meeting of the Trustees or any
Committee thereof by means of conference telephone or similar means of
communication by means of which all Persons participating in the meeting can
hear each other, and participation in a meeting pursuant to such means of
communication shall constitute presence in person at such meeting. The minutes
of any meeting thus held shall be prepared in the same manner as a meeting at
which all participants were present in person.

SECTION 4.3. Committees; Delegation. The Trustees shall have power,
consistent with their ultimate responsibility to supervise the affairs of the
Trust, to delegate from time to time to one or more other Committees, or to any
single

<PAGE> 18

Trustee, the doing of such things and the execution of such deeds or other
instruments, either in the name of the Trust or the names of the Trustees or as
their attorney or attorneys in fact, or otherwise as the Trustees may from time
to time deem expedient, and any agreement, deed, mortgage, lease or other
instrument or writing executed by the Trustee or Trustees or other Person to
whom such delegation was made shall be valid and binding upon the Trustees and
upon the Trust.

SECTION 4.4. Officers. The Trustees shall annually elect such officers or
agents, who shall have such powers, duties and responsibilities as the Trustees
may deem to be advisable, and as they shall specify by resolution or in the
By-Laws. Except as may be provided in the By-Laws, any officer elected by the
Trustees may be removed at any time with or without cause. Any two (2) or more
offices may be held by the same individual.

SECTION 4.5. Compensation of Trustees and Officers. The Trustees shall fix
the compensation of all officers and Trustees. Without limiting the generality
of any of the provisions hereof, the Trustees shall be entitled to receive
reasonable compensation for their general services as such, and to fix the
amount of such compensation, and to pay themselves or any one or more of
themselves such compensation for special services, including legal, accounting,
or other professional services, as they in good faith may deem reasonable. No
Trustee or officer resigning (except where a right to receive compensation for a
definite future period shall be expressly provided in a written agreement with
the Trust, duly approved by the Trustees) and no Trustee or officer removed
shall have any right to any compensation as such Trustee or officer for any
period following his/her resignation or removal, or any right to damages on
account of his/her removal, whether his/her compensation be by the month, or the
year or otherwise.

SECTION 4.6. Ownership of Shares and Securities of the Trust. Any Trustee,
and any officer, employee or agent of the Trust, and any organization in which
any such Person is interested, may acquire, own, hold and dispose of Shares of
any Series and other Securities of the Trust for his/her or its individual
account, and may exercise all rights of a holder of such Shares or Securities to
the same extent and in the same manner as if such Person were not such a
Trustee, officer, employee or agent of the Trust; subject, in the case of
Trustees and officers, to the same limitations as directors or officers (as the
case may be) of a Delaware business corporation; and the Trust may issue and
sell or cause to be issued and sold and may purchase any such Shares or other
Securities from any such Person or any such organization, subject only to the
general limitations, restrictions or other provisions applicable to the sale or
purchase of Shares of such Series or other Securities of the Trust generally.

SECTION 4.7. Right of Trustees and Officers to Own Property or to Engage in
Business; Authority of Trustees to Permit Others to Do Likewise. The Trustees,
in their capacity as Trustees, and (unless otherwise specifically directed by
vote of the Trustees) the officers of the Trust in their capacity as such, shall
not be required to devote their entire time to the business and affairs of the
Trust. Except as otherwise specifically provided by vote of the Trustees, or by
agreement in any particular case, any Trustee or officer of the Trust may
acquire, own, hold and dispose of, for his/her own individual account, any
property, and acquire, own, hold, carry on and dispose of, for his/her own
individual account, any business entity or business activity, whether similar or
dissimilar to any property or business entity or business activity invested in
or carried on by the Trust, and without first offering the same as an investment
opportunity to the Trust, and may exercise all rights in respect thereof as if
he/she were not a Trustee or officer of the Trust. The Trustees shall also have
power, generally or in specific cases, to permit employees or agents of the
Trust to have the same rights (or lesser rights) to acquire, hold, own and
dispose of property and businesses, to carry on businesses, and to accept
investment opportunities without offering them to the Trust, as the Trustees
have by virtue of this Section 4.7.

SECTION 4.8. Reliance on Experts. The Trustees and officers may consult
with counsel, engineers, brokers, appraisers, auctioneers, accountants,
investment bankers, securities analysts or other Persons (any of which may be a
firm in which one or more of the Trustees or officers is or are members or
otherwise interested) whose profession gives authority to a statement made by
them on the subject in question, and who are reasonably deemed by the Trustees
or

<PAGE> 19

officers in question to be competent, and the advice or opinion of such Persons
shall be full and complete personal protection to all of the Trustees and
officers in respect of any action taken or suffered by them in good faith and in
reliance on or in accordance with such advice or opinion. In discharging their
duties, Trustees and officers, when acting in good faith, may rely upon
financial statements of the Trust represented to them to be correct by any
officer of the Trust having charge of its books of account, or stated in a
written report by an independent certified public accountant fairly to present
the financial position of the Trust. The Trustees and officers may rely, and
shall be personally protected in acting, upon any instrument or other document
believed by them to be genuine.

SECTION 4.9. Surety Bonds. No Trustee, officer, employee or agent of the
Trust shall, as such, be obligated to give any bond or surety or other security
for the performance of any of his/her duties, unless required by applicable law
or regulation, or unless the Trustees shall otherwise determine in any
particular case.

SECTION 4.10. Apparent Authority of Trustees and Officers. No purchaser,
lender, transfer agent or other Person dealing with the Trustees or any officer
of the Trust shall be bound to make any inquiry concerning the validity of any
transaction purporting to be made by the Trustees or by such officer, or to make
inquiry concerning or be liable for the application of money or property paid,
loaned or delivered to or on the order of the Trustees or of such officer.

SECTION 4.11. Other Relationships Not Prohibited. The fact that:

(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager, adviser,
principal underwriter or distributor or agent of or for any Contracting Party
(as defined in Section 5.2 hereof), or of or for any parent or affiliate of any
Contracting Party, or that the Contracting Party or any parent or affiliate
thereof is a Shareholder or has an interest in the Trust or any Series, or that

(ii) any Contracting Party may have a contract providing for the rendering
of any similar services to one or more other corporations, trusts, associations,
partnerships, limited partnerships or other organizations, or have other
business or interests, shall not affect the validity of any contract for the
performance and assumption of services, duties and responsibilities to, for or
of the Trust and/or the Trustees or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing the same or create any
liability or accountability to the Trust or to the holders of Shares of any
Series; provided that, in the case of any relationship or interest referred to
in the preceding clause (i) on the part of any Trustee or officer of the Trust,
either (x) the material facts as to such relationship or interest have been
disclosed to or are known by the Trustees not having any such relationship or
interest and the contract involved is approved in good faith by a majority of
such Trustees not having any such relationship or interest (even though such
unrelated or disinterested Trustees are less than a quorum of all of the
Trustees), (y) the material facts as to such relationship or interest and as to
the contract have been disclosed to or are known by the Shareholders entitled to
vote thereon and the contract involved is specifically approved in good faith by
vote of the Shareholders, or (z) the specific contract involved is fair to the
Trust as of the time it is authorized, approved or ratified by the Trustees or
by the Shareholders.

SECTION 4.12. Payment of Trust Expenses. The Trustees are authorized to pay
or to cause to be paid out of the principal or income of the Trust, or partly
out of principal and partly out of income, and according to any allocation to a
particular Series and Class made by them pursuant to Section 6.1(f) hereof, all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with the business and affairs of the Trust or in connection with the management
thereof, including, but not limited to, the Trustees' compensation and such
expenses and charges for the services of the Trust's officers, employees,
Investment Adviser, Administrator, Distributor, Principal Underwriter, auditor,
counsel, Custodian, Transfer Agent, Dividend Disbursing Agent, Accounting Agent,
Shareholder Servicing Agent, and such other agents, consultants, and independent
contractors and such other expenses and charges as the Trustees may deem
necessary or proper to incur.

<PAGE> 20

SECTION 4.13. Ownership of the Trust Property. Legal title to all the Trust
Property shall be vested in the Trustees as joint tenants, except that the
Trustees shall have power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees, or in the name of the Trust,
or of any particular Series, or in the name of any other Person as nominee, on
such terms as the Trustees may determine; provided that the interest of the
Trust and of the respective Series therein is appropriately protected. The
right, title and interest of the Trustees in the Trust Property shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office of a Trustee as provided in Section 4.1(c),
(d) or (e) hereof, such Trustee shall automatically cease to have any right,
title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. Such vesting and cessation of title shall be effective
whether or not conveyancing documents have been executed and delivered pursuant
to Section 4.1(i) hereof.

SECTION 4.14. By-Laws. The Trustees may adopt and from time to time amend
or repeal By-Laws for the conduct of the business of the Trust.

ARTICLE 5

DELEGATION OF MANAGERIAL RESPONSIBILITIES

SECTION 5.1. Appointment; Action by Less than All Trustees. The Trustees
shall be responsible for the general operating policy of the Trust and for the
general supervision of the business of the Trust conducted by officers, agents,
employees or advisers of the Trust or by independent contractors, but the
Trustees shall not be required personally to conduct all the business of the
Trust and, consistent with their ultimate responsibility as stated herein, the
Trustees may appoint, employ or contract with one or more officers, employees
and agents to conduct, manage and/or supervise the operations of the Trust, and
may grant or delegate such authority to such officers, employees and/or agents
as the Trustees may, in their sole discretion, deem to be necessary or
desirable, without regard to whether such authority is normally granted or
delegated by trustees. With respect to those matters of the operation and
business of the Trust which they shall elect to conduct themselves, except as
otherwise provided by this Declaration or the By-Laws, if any, the Trustees may
authorize any single Trustee or defined group of Trustees, or any committee
consisting of a number of Trustees less than the whole number of Trustees then
in office without specification of the particular Trustees required to be
included therein, to act for and to bind the Trust, to the same extent as the
whole number of Trustees could do, either with respect to one or more particular
matters or classes of matters, or generally.

SECTION 5.2. Certain Contracts. Subject to compliance with the provisions
of the 1940 Act, but notwithstanding any limitations of present and future law
or custom in regard to delegation of powers by trustees generally, the Trustees
may, at any time and from time to time in their discretion and without limiting
the generality of their powers and authority otherwise set forth herein, enter
into one or more contracts with any one or more corporations, trusts,
associations, partnerships, limited partnerships or other types of
organizations, or individuals ("Contracting Party"), to provide for the
performance and assumption of some or all of the following services, duties and
responsibilities to, for or on behalf of the Trust and/or any Series, and/or the
Trustees, and to provide for the performance and assumption of such other
services, duties and responsibilities in addition to those set forth below, as
the Trustees may deem appropriate:

(a) Advisory. An investment advisory or management agreement whereby the
agent shall undertake to furnish the Trust (or any Series thereof) such
management, investment advisory or supervisory, statistical and research
facilities and services, and such other facilities and services, if any, as
the Trustees shall from time to time consider desirable, all upon such
terms and conditions as the Trustees may in their discretion determine to
be not inconsistent with this Declaration, the applicable provisions of the
1940 Act or any applicable provisions of the By-Laws (any such agent being
herein referred to as an "Investment Adviser"). To the extent required by
the 1940 Act, regulations or

<PAGE> 21

exemptions thereunder, any such advisory or management agreement and any
amendment thereto shall be subject to approval by a Majority Shareholder
Vote at a meeting of the Shareholders of the Trust (or applicable Series).
Notwithstanding any provisions of this Declaration, the Trustees may
authorize the Investment Adviser (subject to such general or specific
instructions as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of securities of the Trust on behalf
of the Trustees or may authorize any officer or employee of the Trust or
any Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of the Investment Adviser (and all without further action
by the Trustees). Any such purchases, sales, loans and exchanges shall be
deemed to have been authorized by all of the Trustees. The Trustees may, in
their sole discretion, call a meeting of Shareholders in order to submit to
a vote of Shareholders of the Trust (or applicable Series) at such meeting
the approval of continuance of any such investment advisory or management
agreement.

(b) Administration. An agreement whereby the agent, subject to the general
supervision of the Trustees and in conformity with any policies of the
Trustees with respect to the operations of the Trust and each Series
thereof, will supervise all or any part of the operations of the Trust (or
any Series thereof), and will provide all or any part of the administrative
and clerical personnel, office space and office equipment and services
appropriate for the efficient administration and operations of the Trust
(or any Series thereof) (any such agent being herein referred to as an
"Administrator").

(c) Underwriting. An agreement providing for the sale of Shares of the
Trust (or any Series thereof) to net the Trust not less than the net asset
value per Share (as described in Section 6.1(l) hereof) and pursuant to
which the Trust may appoint the other party to such agreement as its
principal underwriter or sales agent for the distribution of such Shares.
The agreement shall contain such terms and conditions as the Trustees may
in their discretion determine to be not inconsistent with this Declaration,
the applicable provisions of the 1940 Act and any applicable provisions of
the By-Laws (any such agent being herein referred to as a "Distributor" or
a "Principal Underwriter," as the case may be).

(d) Custodian. The appointment of an agent meeting the requirements for a
custodian for the assets of Investment Companies contained in the 1940 Act
as custodian of the Securities and cash of the Trust (or any Series
thereof) and of the accounting records in connection therewith (any such
agent being herein referred to as a "Custodian").

(e) Transfer and Dividend Disbursing Agent. An agreement with an agent to
maintain records of the ownership of outstanding Shares, the issuance and
redemption and the transfer thereof (any such agent being herein referred
to as a "Transfer Agent"), and to disburse any dividends declared by the
Trustees and in accordance with the policies of the Trustees and/or the
instructions of any particular Shareholder to reinvest any such dividends
(any such agent being herein referred to as a "Dividend Disbursing Agent").

(f) Shareholder Servicing. An agreement with an agent to provide service
with respect to the relationship of the Trust and its Shareholders, records
with respect to Shareholders and their Shares, and similar matters (any
such agent being herein referred to as a "Shareholder Servicing Agent").

(g) Accounting. An agreement with an agent to handle all or any part of the
accounting responsibilities, whether with respect to the Trust's
properties, Shareholders or otherwise (any such agent being herein referred
to as an "Accounting Agent").

In addition, the Trustees may from time to time cause the Trust (or any Series
thereof) to enter into agreements with respect to such other services and upon
such other terms and conditions as they may deem necessary, appropriate or
desirable. The same Person may be the Contracting Party for some or all of the
services, duties and responsibilities to,

<PAGE> 22

for and of the Trust and/or the Trustees, and the contracts with respect thereto
may contain such terms interpretive of or in addition to the delineation of the
services, duties and responsibilities provided for, including provisions that
are not inconsistent with the 1940 Act relating to the standard of duty of and
the rights to indemnification of the Contracting Party and others, as the
Trustees may determine. Nothing herein shall preclude, prevent or limit the
Trust or a Contracting Party from entering into subcontractual arrangements
relative to any of the matters referred to in subsections (a) through (g) of
this Section 5.2.

Section 5.3. Distribution Arrangements. Subject to compliance with the 1940
Act, the Trustees may adopt and amend or repeal from time to time and implement
one or more plans of distribution pursuant to Rule 12b-1 of the 1940 Act which
plan(s) will provide for the payment of specified marketing, distribution and
shareholder relations expenses of the Trust and any or all Series and their
agents and the agents of such agents.

Section 5.4. Service Arrangements. Subject to compliance with the 1940 Act,
the Trustees may adopt and amend or repeal from time to time and implement one
or more service plans which plans will provide for the payment of ongoing
services to holders of the shares of such Trust (or any Series thereof) and in
connection with the maintenance of such shareholders' accounts.

ARTICLE 6

SERIES AND SHARES

SECTION 6.1. Description of Series and Shares.

(a) General. The beneficial interest in the Trust shall be divided into
Shares (either full or fractional) with $.01 par value per Share, of which an
unlimited number may be issued. The Trustees shall have the authority from time
to time to establish and designate one or more separate, distinct and
independent Series of Shares (each of which Series shall represent interests
only in the asset attributed by the Trustees to such Series), and to authorize
separate Classes of Shares of the Trust (or any such Series), as they deem
necessary or desirable. All Shares shall be of one class, provided that the
Trustees shall have the power to classify or reclassify any unissued Shares of
any Series into any number of additional Classes of such Series.

(b) Establishment. etc. of Series and Classes; Authorization of Shares. The
establishment and designation of any Series and the authorization of the Shares
thereof shall be effective upon the execution by a Majority of the Trustees (or
by an officer of the Trust pursuant to the vote of a Majority of the Trustees)
of an instrument setting forth such establishment and designation and the
relative rights and preferences of the Shares of such Series or Class and the
manner in which the same may be amended (a "Certificate of Designation"), and
may provide that the number of Shares of such Series or Class which may be
issued is unlimited, or may limit the number issuable. At any time that there
are no Shares outstanding of any particular Series or Class previously
established and designated, the Trustees may by an instrument executed by a
Majority of the Trustees (or by an officer of the Trust pursuant to the vote of
a Majority of the Trustees) terminate such Series or Class and the establishment
and designation thereof and the authorization of its Shares (a "Certificate of
Termination"). Each Certificate of Designation, Certificate of Termination and
any instrument amending a Certificate of Designation shall have the status of an
amendment to this Declaration of Trust.

(c) Character of Separate Series and Shares Thereof. Each Series
established hereunder shall represent beneficial interests in a separate
component of the assets of the Trust. Holders of Shares of a Series shall be
considered Shareholders of such Series, but such Shareholders shall also be
considered Shareholders of the Trust for purposes of receiving reports and
notices and, except as otherwise provided herein or in the Certificate of
Designation of a particular Series, or as required by the 1940 Act or other
applicable law, the right to vote, all without distinction by Series. The
Trustees shall have exclusive power without the requirement of Shareholder
approval to establish and designate such separate and distinct Series, and to
fix and determine the relative rights and preferences as between the shares of
the respective Series, and as between the Classes of the Trust (or any Series
thereof), as to rights of redemption and the price, terms and manner of
redemption, special and relative rights as to dividends and other distributions
and on

<PAGE> 23

liquidation, sinking or purchase fund provisions, conversion rights, and
conditions under which the Shareholders of the several Series or the several
Classes of any Series of Shares shall have separate voting rights or no voting
rights. Except as otherwise provided as to a particular Series herein, or in the
Certificate of Designation therefor, the Trustees shall have all the rights and
powers, and be subject to all the duties and obligations, with respect to each
such Series and the assets and affairs thereof as they have under this
Declaration with respect to the Trust and the Trust Property in general.
Separate and distinct records shall be maintained for each Series of Shares and
the assets and liabilities attributable thereto.

(d) Consideration for Shares. The Trustees may issue Shares of the Trust
(or any Series thereof) for such consideration (which may include property
subject to, or acquired in connection with the assumption of, liabilities) and
on such terms as they may determine (or for no consideration if pursuant to a
Share dividend or split-up), all without action or approval of the Shareholders.
All Shares when so issued on the terms determined by the Trustees shall be fully
paid and nonassessable (but may be subject to mandatory contribution back to the
Trust (or applicable Series) as provided in Section 6.1(l) hereof. The Trustees
may classify or reclassify any unissued Shares, or any Shares of the Trust (or
any Series thereof) previously issued and reacquired by the Trust, into Shares
of the Trust or one or more other Series that may be established and designated
from time to time.

(e) Assets Belonging to Series. Any portion of the Trust Property allocated
to a particular Series, and all consideration received by the Trust for the
issue or sale of Shares of such Series, together with all assets in which such
consideration is invested or reinvested, all interest, dividends, income,
earnings, profits and gains therefrom, and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in whatever
form the same may be, shall be held by the Trustees in trust for the benefit of
the holders of Shares of that Series and shall irrevocably belong to that Series
for all purposes, and shall be so recorded upon the books of account of the
Trust, and the Shareholders of such Series shall not have, and shall be
conclusively deemed to have waived, any claims to the assets of any Series of
which they are not Shareholders. Such consideration, assets, interest,
dividends, income, earnings, profits, gains and proceeds, together with any
General Items allocated to that Series as provided in the following sentence,
are herein referred to collectively as assets "belonging to" that Series. In the
event that there are any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series (collectively, "General Items"), the Trustees shall
allocate such General Items to and among any one or more of the Series
established and designated from time to time in such manner and on such basis as
they, in their sole discretion, deem fair and equitable; and any General Items
so allocated to a particular Series shall belong to and be part of the assets
belonging to that Series. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all Series for all purposes.

(f) Liabilities of Series. The assets belonging to each particular Series
shall be charged with the liabilities in respect of that Series and all
expenses, costs, charges and reserves attributable to that Series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as pertaining to any particular Series shall be
allocated and charged by the Trustees to and among any one or more of the Series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. The indebtedness,
expenses, costs, charges and reserves allocated and so charged to a particular
Series are herein referred to as "liabilities of" that Series. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Shareholders of all Series for all purposes. Any
creditor of any Series may look only to the assets belonging to that Series to
satisfy such creditor's debt.

(g) Dividends. Dividends and distributions on Shares of a particular Series
may be paid with such frequency as the Trustees may determine, which may be
daily or otherwise pursuant to a standing resolution or resolutions adopted only
once or with such frequency as the Trustees may determine, to the Shareholders
of that Series, from such of the income, accrued or realized, and capital gains,
realized or unrealized, and out of the assets belonging to that Series, as the
Trustees may determine, after providing for actual and accrued liabilities of
that Series. All dividends and distributions on Shares of a particular Series
shall be distributed pro rata to the Shareholders of that Series in proportion
to the number of such Shares held by such holders at the date and time of record
established for the payment of such dividends or distributions, except that the
dividends and distributions of investment income and capital gains with respect
to each Class of Shares of a particular Series shall be in such amount as may be
declared from time to time by the Trustees, and

<PAGE> 24

such dividends and distributions may vary as between such Classes to reflect
differing allocations of the expenses of the Series between the Shareholders of
such several Classes and any resultant differences between the net asset value
of such several Classes to such extent and for such purposes as the Trustees may
deem appropriate and further except that, in connection with any dividend or
distribution program or procedure, the Trustees may determine that no dividend
or distribution shall be payable on Shares as to which the Shareholder's
purchase order and/or payment have not been received by the time or times
established by the Trustees under such program or procedure, or that dividends
or distributions shall be payable on Shares which have been tendered by the
holder thereof for redemption or repurchase, but the redemption or repurchase
proceeds of which have not yet been paid to such Shareholder. Such dividends and
distributions may be made in cash, property or Shares of any Class of that
Series or a combination thereof as determined by the Trustees, or pursuant to
any program that the Trustees may have in effect at the time for the election by
each Shareholder of the mode of the making of such dividend or distribution to
that Shareholder. Any such dividend or distribution paid in Shares will be paid
at the net asset value thereof as determined in accordance with subsection (l)
of this Section 6.1.

(h) Liquidation. In the event of the liquidation or dissolution of the
Trust (or any particular Series), the Shareholders of the Trust (or that Series)
shall be entitled to receive, when and as declared by the Trustees, the excess
of the assets belonging to the Trust (or that Series) over the liabilities of
such Series. The assets so distributable to the Shareholders of the Trust (or
that Series) shall be distributed among such Shareholders in proportion to the
number of Shares of the Trust (or that Series) held by them and recorded on the
books of the Trust. The liquidation of the Trust (or any particular Series) may
be authorized by vote of a Majority of the Trustees, subject to the affirmative
vote of "a majority of the outstanding voting securities" of that Series, as the
quoted phrase is defined in the 1940 Act, determined in accordance with clause
(iii) of the definition of "Majority Shareholder Vote" in Section 1.4 hereof.

(i) Voting. The Shareholders shall have the voting rights set forth in or
determined under Article 7 hereof.

(j) Redemption by Shareholder. Each holder of Shares of the Trust (or a
particular Series thereof) shall have the right at such times as may be
permitted by the Trust, but no less frequently than required by the 1940 Act, to
require the Trust (or such Series) to redeem all or any part of his Shares of
the Trust (or such Series) at a redemption price equal to the net asset value
per Share of the Trust (or Series) next determined in accordance with subsection
(l) of this Section 6.1 after the Shares are properly tendered for redemption;
provided, that the Trustees may from time to time, in their discretion,
determine and impose a fee for such redemption and that the proceeds of the
redemption of Shares (including a fractional Share) of any Class of the Trust
(or any Series thereof) shall be reduced by the amount of any applicable
contingent deferred sales charge or other sales charge, if any, payable on such
redemption to the distributor of Shares of such Class pursuant to the terms of
the initial issuance of the Shares of such Class (to the extent consistent with
the 1940 Act or regulations or exemptions thereunder) and the Trust shall
promptly pay to such distributor the amount of such deferred sales charge.
Payment of the redemption price shall be in cash; provided, however, that if the
Trustees determine, which determination shall be conclusive, that conditions
exist which make payment wholly in cash unwise or undesirable, the Trust may
make payment wholly or partly in Securities or other assets belonging to such
Series at the value of such Securities or assets used in such determination of
net asset value. Notwithstanding the foregoing, the Trust may postpone payment
of the redemption price and may suspend the right of the holders of Shares of
the Trust (or any Series thereof) to require the Trust to redeem Shares of the
Trust (or such Series) during any period or at any time when and to the extent
permissible under the 1940 Act.

(k) Redemption at the Option of the Trust. The Trustees shall have the
power to redeem Shares of the Trust (or any Series thereof) at a redemption
price determined in accordance with Section 6.1(j), if at any time (i) the total
investment in such account does not have a value of at least such minimum amount
as may be specified in the Prospectus for the Trust (or such Series) from time
to time (ii) the number of Shares held in such account is equal to or in excess
of a specified percentage of Shares of the Trust or any Series as set forth from
time to time in the applicable Prospectus. In the event the Trustees determine
to exercise their power to redeem Shares provided in this Section 6.1(k), the
Shareholder shall be notified that the value of his/her account is less than the
applicable minimum amount and shall be allowed 30 days to make an appropriate
investment before redemption is processed.

<PAGE> 25

(l) Net Asset Value. The net asset value per Share of the Trust (or any
Series or Class) at any time shall be the quotient obtained by dividing the
value of the net assets of the Trust (or such Series or Class) at such time
(being the current value of the assets belonging to the Trust (or such Series or
Class), less its then existing liabilities) by the total number of Shares of the
Trust (or such Series) then outstanding, all determined in accordance with the
methods and procedures, including without limitation those with respect to
rounding, established by the Trustees from time to time in accordance with the
requirements of the 1940 Act. The net asset value of the several Classes of the
Trust (or a particular Series) shall be separately computed, and may vary from
one another. The Trustees shall establish procedures for the allocation of
investment income or capital gains and expenses and liabilities of a particular
Series between the several Classes of the Trust (or such Series). The Trustees
may determine to maintain the net asset value per Share of the Trust or any
Series or Class at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declaration of income attributable to the Trust or such Series or
Class as dividends payable in additional Shares of the Trust or such Series or
Class at the designated constant dollar amount and for the handling of any
losses attributable to the Trust or such Series or Class. Such procedures may
provide that in the event of any loss each Shareholder shall be deemed to have
contributed to the shares of beneficial interest account of the Trust or such
Series or Class his pro rata portion of the total number of Shares required to
be canceled in order to permit the net asset value per Share of the Trust or
such Series or Class to be maintained, after reflecting such loss, at the
designated constant dollar amount. Each Shareholder of the Trust shall be deemed
to have expressly agreed, by his/her investment in the Trust (or any Series
thereof) with respect to which the Trustees shall have adopted any such
procedure, to make the contribution referred to in the preceding sentence in the
event of any such loss.

(m) Transfer. All Shares of the Trust and each Series shall be
transferable, but transfers of Shares of the Trust or a particular Series will
be recorded on the Share transfer records of the Trust applicable to the Trust
or such Series only at such times as Shareholders shall have the right to
require the Trust to redeem Shares of the Trust or such Series and at such other
times as may be permitted by the Trustees.

(n) Equality. All Shares of each particular Series shall represent an equal
proportionate interest in the assets belonging to that Series (subject to the
liabilities of that Series), and each Share of any particular Series shall be
equal to each other Share thereof; but the provisions of this sentence shall not
restrict any distinctions between the several Classes of a Series permissible
under this Section 6.1 or under Section 7. 1 hereof nor any distinctions
permissible under subsection (g) of this Section 6.1 that may exist with respect
to dividends and distributions on Shares of the same Series. The Trustees may
from time to time divide or combine the Shares of any class of particular Series
into a greater or lesser number of Shares of that class of a Series without
thereby changing the proportionate beneficial interest in the assets belonging
to that Series or in any way affecting the rights of the holders of Shares of
any other Series.

(o) Rights of Fractional Shares. Any fractional Share of the Trust (or any
Series thereof) shall carry proportionately all the rights and obligations of a
whole Share of the Trust (or such Series), including rights and obligations with
respect to voting, receipt of dividends and distributions, redemption of Shares,
and liquidation of the Trust or of the Series to which they pertain.

(p) Conversion Rights. (i) Subject to compliance with the requirements of
the 1940 Act, the Trustees shall have the authority to provide that holders of
Shares of any Series shall have the right to convert said Shares into Shares of
one or more other Series, that holders of any Class of the Trust or a Series of
Shares shall have the right to convert said Shares of such Class into Shares of
one or more other Classes of the Trust or such Series, and that Shares of any
Class of the Trust or a Series shall be automatically converted into Shares of
another Class of the Trust or such Series, in each case in accordance with such
requirements and procedures as the Trustees may establish.

(ii) The number of Shares of into which a convertible Share shall convert
shall equal the number (including for this purpose fractions of a Share)
obtained by dividing the net asset value per Share for purposes of sales and
redemptions of the converting Share on the Conversion Date by the net asset
value per Share for purposes of sales and redemptions of the Class of Shares
into which it is converting on the Conversion Date.

(iii) On the Conversion Date, the Share converting into another share will
cease to accrue dividends and will no longer be deemed outstanding and the
rights of the holders thereof (except the right to receive the number of target

<PAGE> 26

Shares into which the converting Shares have been converted and declared but
unpaid dividends to the Conversion Date) will cease. Certificates representing
Shares resulting from the conversion need not be issued until certificates
representing Shares converted, if issued, have been received by the Trust or its
agent duly endorsed for transfer.

(iv) The Trust will appropriately reflect the conversion of Shares of one
Class of the Trust (or a Series thereof) into Shares of another Class of the
Trust (or such Series) on the first periodic statements of account sent to
Shareholders of record affected which provide account information with respect
to a reporting period which includes the date such conversion occurred.

SECTION 6.2. Ownership of Shares. The ownership of Shares shall be recorded
on the books of the Trust or of a Transfer Agent or similar agent for the Trust,
which books shall be maintained separately for the Shares of each Series that
has been authorized. Certificates evidencing the ownership of Shares need not be
issued except as the Trustees may otherwise determine from time to time, and the
Trustees shall have power to call outstanding Share certificates and to replace
them with book entries. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the use of facsimile
signatures, the transfer of Shares and similar matters. The record books of the
Trust as kept by the Trust or any Transfer Agent or similar agent, as the case
may be, shall be conclusive as to who are the Shareholders and as to the number
of Shares of the Trust and, if designated, each Series thereof held from time to
time by each such Shareholder.

The holders of Shares of the Trust and, if designated, each Series thereof
shall upon demand disclose to the Trustees in writing such information with
respect to their direct and indirect ownership of Shares of the Trust or, if
designated, such Series as the Trustees deem necessary to comply with the
provisions of the Internal Revenue Code, or to comply with the requirements of
any other authority.

SECTION 6.3. Investments in the Trust. The Trustees may accept investments
in any Series of the Trust from such Persons and on such terms and for such
consideration, not inconsistent with the provisions of the 1940 Act, as they
from time to time authorize. The Trustees may authorize any Distributor,
Principal Underwriter, Custodian, Transfer Agent or other Person to accept
orders for the purchase of Shares that conform to such authorized terms and to
reject any purchase orders for Shares, whether or not conforming to such
authorized terms.

SECTION 6.4. No Preemptive Rights. No Shareholder, by virtue of holding
Shares of the Trust or, if designated, any Series thereof, shall have any
preemptive or other right to subscribe to any additional Shares of the Trust or
such Series, or to any shares of any other Series, or any other Securities
issued by the Trust.

SECTION 6.5. Status of Shares. Every Shareholder, by virtue of having
become a Shareholder, shall be held to have expressly assented and agreed to the
terms hereof and to have become a party hereto. Shares shall be deemed to be
personal property, giving only the rights provided herein. Ownership of Shares
shall not entitle the Shareholder to any title in or to the whole or any part of
the Trust Property or right to call for a partition or division of the same or
for an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. The death of a Shareholder during the continuance of the Trust shall
not operate to terminate the Trust or any Series, nor entitle the representative
of any deceased Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the rights of said
decedent under this Declaration of Trust.

ARTICLE 7

SHAREHOLDERS' VOTING POWERS AND MEETINGS

SECTION 7.1. Voting Powers. The Shareholders shall have power to vote only
(i) for the election or removal of Trustees as provided in Sections 4.1(c) and
(e) hereof, (ii) with respect to the approval or termination in accordance with
the 1940 Act of any contract with a Contracting Party as provided in Section 5.2
hereof as to which Shareholder approval

<PAGE> 27

is required by the 1940 Act, (iii) with respect to any termination or
reorganization of the Trust or any Series to the extent and as provided in
Sections 9.2, 9.3 and 9.4 hereof, (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Section 9.5 hereof, (v) to
the same extent as the stockholders of a Delaware business corporation as to
whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or any Series, or the Shareholders of any of them (provided. however, that a
Shareholder of a particular Series shall not in any event be entitled to
maintain a derivative or class action on behalf of any other Series or the
Shareholders thereof), and (vi) with respect to such additional matters relating
to the Trust as may be required by the 1940 Act, this Declaration of Trust, the
By-Laws or any registration of the Trust with the Commission (or any successor
agency) or any State, or as the Trustees may consider necessary or desirable. If
and to the extent that the Trustees shall determine that such action is required
by law or by this Declaration, they shall cause each matter required or
permitted to be voted upon at a meeting or by written consent of Shareholders to
be submitted to a separate vote of the outstanding Shares of each Series
entitled to vote thereon; provided, that (i) when expressly required by the 1940
Act or by other law, actions of Shareholders shall be taken by Single Class
Voting of all outstanding Shares whose holders are entitled to vote thereon; and
(ii) when the Trustees determine that any matter to be submitted to a vote of
Shareholders affects only the rights or interests of Shareholders of one or more
but not all Series or of one or more but not all Classes of the Trust or a
single Series (including without limitation any distribution plan pursuant to
Rule 12b-1 of the 1940 Act applicable to such Class), then only the Shareholders
of the Series or Classes so affected shall be entitled to vote thereon. Any
matter required to be submitted to shareholders and affecting one or more Series
shall require separate approval by the required vote of Shareholders of the
Trust or each affected Series; provided, however, that to the extent required by
the 1940 Act, there shall be no separate Series votes on the election or removal
of Trustees, the selection of auditors for the Trust and its Series or approval
of any agreement or contract entered into by the Trust or any Series.
Shareholders of a particular Series shall not be entitled to vote on any matter
that affects only one or more other Series.

SECTION 7.2. Number of Votes and Manner of Voting: Proxies. On each matter
submitted to a vote of the Shareholders, each holder of Shares of the Trust or,
if applicable, any Series shall be entitled to a number of votes equal to the
number of Shares of the Trust or such Series standing in his name on the books
of the Trust. There shall be no cumulative voting in the election or removal of
Trustees. Shares may be voted in person or by proxy. A proxy with respect to
Shares held in the name of two (2) or more Persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the Trust receives a
specific written notice to the contrary from any one of them. A proxy purporting
to be executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required by law, this
Declaration of Trust or the By-Laws to be taken by Shareholders.

SECTION 7.3. Meetings. Meetings of Shareholders may be called by the
Trustees from time to time for the purpose of taking action upon any matter
requiring the vote or authority of the Shareholders as herein provided, or upon
any other matter deemed by the Trustees to be necessary or desirable. Written
notice of any meeting of Shareholders shall be given or caused to be given by
the Trustees by mailing such notice at least seven (7) days before such meeting,
postage prepaid, stating the time, place and purpose of the meeting, to each
Shareholder at the Shareholder's address as it appears on the records of the
Trust. The Trustees shall promptly call and give notice of a meeting of
Shareholders for the purpose of voting upon removal of any Trustee of the Trust
when requested to do so in writing by Shareholders holding not less than ten
percent (10%) of the Shares then outstanding. If the Trustees shall fail to call
or give notice of any meeting of Shareholders for a period of thirty (30) days
after written application by Shareholders holding at least ten percent (10%) of
the Shares then outstanding requesting that a meeting be called for any other
purpose requiring action by the Shareholders as provided herein or in the
By-Laws, then Shareholders holding at least ten percent (10%) of the Shares then
outstanding may call and give notice of such meeting, and thereupon the meeting
shall be held in the manner provided for herein in case of call thereof by the
Trustees. Any meetings may be held within or without The State of Delaware.
Shareholders may only act with respect to matters set forth in the notice to
Shareholders.

SECTION 7.4. Record Dates. For the purpose of determining the Shareholders
who are entitled to vote or act at any meeting or any adjournment thereof, or
who are entitled to participate in any dividend or distribution, or for the
purpose of any other action, the Trustees may from time to time close the
transfer books for such period, not exceeding thirty (30)

<PAGE> 28

days (except at or in connection with the termination of the Trust), as the
Trustees may determine; or without closing the transfer books the Trustees may
fix a date and time not more than ninety (90) days prior to the date of any
meeting of Shareholders or other action as the date and time of record for the
determination of Shareholders entitled to vote at such meeting or any
adjournment thereof or to be treated as Shareholders of record for purposes of
such other action, and any Shareholder who was a Shareholder at the date and
time so fixed shall be entitled to vote at such meeting or any adjournment
thereof or to be treated as a Shareholder of record for purposes of such other
action, even though he has since that date and time disposed of his Shares, and
no Shareholder becoming such after that date and time shall be so entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Shareholder of record for purposes of such other action.

SECTION 7.5. Quorum and Required Vote. A majority of the Shares entitled to
vote shall be a quorum for the transaction of business at a Shareholders'
meeting, but any lesser number shall be sufficient for adjournments. Any
adjourned session or sessions may be held within a reasonable time after the
date set for the original meeting without the necessity of further notice. A
Majority Shareholder Vote at a meeting of which a quorum is present shall decide
any question, except when a different vote is required or permitted by any
provision of the 1940 Act or other applicable law or by this Declaration of
Trust or the By-Laws, or when the Trustees shall in their discretion require a
larger vote or the vote of a majority or larger fraction of the Shares of one or
more particular Series.

SECTION 7.6. Action By Written Consent. Subject to the provisions of the
1940 Act and other applicable law, any action taken by Shareholders may be taken
without a meeting if a majority of Shareholders entitled to vote on the matter
(or such larger proportion thereof or of the Shares of any particular Series as
shall be required by the 1940 Act or by any express provision of this
Declaration of Trust or the By-Laws or as shall be permitted by the Trustees)
consent to the action in writing and if the writings in which such consent is
given are filed with the records of the meetings of Shareholders, to the same
extent and for the same period as proxies given in connection with a
Shareholders' meeting. Such consent shall be treated for all purposes as a vote
taken at a meeting of Shareholders.

SECTION 7.7. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted stockholders of
a Delaware business corporation under the Delaware business corporation law.

SECTION 7.8. Additional Provisions. The By-Laws may include further
provisions for Shareholders' votes and meetings and related matters not
inconsistent with the provisions hereof.

ARTICLE 8

LIMITATION OF LIABILITY: INDEMNIFICATION

SECTION 8.1. Trustees. Shareholders. etc. Not Personally Liable; Notice.
The Trustees, officers, employees and agents of the Trust, in incurring any
debts, liabilities or obligations, or in limiting or omitting any other actions
for or in connection with the Trust, are or shall be deemed to be acting as
Trustees, officers, employees or agents of the Trust and not in their own
capacities. No Shareholder shall be subject to any personal liability whatsoever
in tort, contract or otherwise to any other Person or Persons in connection with
the assets or the affairs of the Trust or of any Series, and subject to Section
8.4 hereof, no Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever in tort, contract, or otherwise, to any
other Person or Persons in connection with the assets or affairs of the Trust or
of any Series, save only that arising from his own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office or the discharge of his functions. The Trust (or if the
matter relates only to a particular Series, that Series) shall be solely liable
for any and all debts, claims, demands, judgments, decrees, liabilities or
obligations of any and every kind, against or with respect to the Trust or such
Series in tort, contract or otherwise in connection with the assets or the
affairs of the Trust or such Series, and all Persons dealing with the Trust or
any Series shall be deemed to have agreed that resort shall be had solely to the
Trust Property of the Trust or the Series Assets of such Series, as the case may
be, for the payment or performance thereof.

<PAGE> 29

The Trustees shall use their best efforts to ensure that every note, bond,
contract, instrument, certificate or undertaking made or issued by the Trustees
or by any officers or officer shall give notice that a Certificate of Trust in
respect of the Trust is on file with the Secretary of the state of Delaware and
shall recite to the effect that the same was executed or made by or on behalf of
the Trust or by them as Trustees or Trustee or as officers or officer, and not
individually, and that the obligations of such instrument are not binding upon
any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, or the particular Series in question, as the
case may be, but the omission thereof shall not operate to bind any Trustees or
Trustee or officers or officer or Shareholders or Shareholder individually, or
to subject the Series Assets of any Series to the obligations of any other
Series.

SECTION 8.2. Trustees' Good Faith Action; Expert Advice: No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. Subject to Section 8.4 hereof, a Trustee shall
be liable for his/her own willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the office of
Trustee, and for nothing else, and shall not be liable for errors of judgment or
mistakes of fact or law. Subject to the foregoing, (i) the Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, consultant, Investment Adviser, Administrator, Distributor or
Principal Underwriter, Custodian or Transfer Agent, Dividend Disbursing Agent,
Shareholder Servicing Agent or Accounting Agent of the Trust, nor shall any
Trustee be responsible for the act or omission of any other Trustee; (ii) the
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust and their duties as Trustees, and
shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice; and (iii) in discharging their
duties, the Trustees, when acting in good faith, shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant, and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of a Contracting Party appointed by the Trustees pursuant
to Section 5.2 hereof. The Trustees as such shall not be required to give any
bond or surety or any other security for the performance of their duties.

SECTION 8.3. Indemnification of Shareholders. If any Shareholder (or former
Shareholder) of the Trust shall be charged or held to be personally liable for
any obligation or liability of the Trust solely by reason of being or having
been a Shareholder and not because of such Shareholder's acts or omissions or
for some other reason, the Trust (upon proper and timely request by the
Shareholder) may assume the defense against such charge and satisfy any judgment
thereon or may reimburse the Shareholders for expenses, and the Shareholder or
former Shareholder (or the heirs, executors, administrators or other legal
representatives thereof, or in the case of a corporation or other entity, its
corporate or other general successor) shall be entitled (but solely out of the
assets of the Series of which such Shareholder or former Shareholder is or was
the holder of Shares) to be held harmless from and indemnified against all loss
and expense arising from such liability.

SECTION 8.4. Indemnification of Trustees, Officers, etc. Subject to the
limitations, if applicable, hereinafter set forth in this Section 8.4, the Trust
shall indemnify (from the assets of one or more Series to which the conduct in
question relates) each of its Trustees, officers, employees and agents
(including Persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise (hereinafter, together with such Person's
heirs, executors, administrators or personal representative, referred to as a
"Covered Person")) against all liabilities, including but not limited to amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered Person may be or may
have been involved as a party or otherwise or with which such Covered Person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that such Covered
Person's action was in or not opposed to the best interests of the Trust; (ii)
had acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(iii) for a criminal proceeding, had reasonable cause to believe that his
conduct was unlawful (the conduct described in (i), (ii) and (iii) being
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or other body before

<PAGE> 30

whom the proceeding was brought that the Covered Person to be indemnified was
not liable by reason of Disabling Conduct, (ii) dismissal of a court action or
an administrative proceeding against a Covered Person for insufficiency of
evidence of Disabling Conduct, or (iii) a reasonable determination, based upon a
review of the facts, that the indemnitee was not liable by reason of Disabling
Conduct by (a) a vote of a majority of a quorum of Trustees who are neither
"interested persons" of the Trust as defined in Section 2(a)(19) of the 1940 Act
nor parties to the proceeding (the "Disinterested Trustees"), or (b) an
independent legal counsel in a written opinion. Expenses, including accountants'
and counsel fees so incurred by any such Covered Person (but excluding amounts
paid in satisfaction of judgments, in compromise or as fines or penalties), may
be paid from time to time by one or more Series to which the conduct in question
related in advance of the final disposition of any such action, suit or
proceeding; provided that the Covered Person shall have undertaken to repay the
amounts so paid to such Series if it is ultimately determined that
indemnification of such expenses is not authorized under this Article 8 and (i)
the Covered Person shall have provided security for such undertaking, (ii) the
Trust shall be insured against losses arising by reason of any lawful advances,
or (iii) a majority of a quorum of the Disinterested Trustees, or an independent
legal counsel in a written opinion, shall have determined, based on a review of
readily available facts (as opposed to a full trial type inquiry), that there is
reason to believe that the Covered Person ultimately will be found entitled to
indemnification.

SECTION 8.5. Compromise Payment. As to any matter disposed of by a
compromise payment by any such Covered Person referred to in Section 8.4 hereof,
pursuant to a consent decree or otherwise, no such indemnification either for
said payment or for any other expenses shall be provided unless such
indemnification shall be approved (i) by a majority of a quorum of the
Disinterested Trustees or (ii) by an independent legal counsel in a written
opinion. Approval by the Trustees pursuant to clause (i) or by independent legal
counsel pursuant to clause (ii) shall not prevent the recovery from any Covered
Person of any amount paid to such Covered Person in accordance with either of
such clauses as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith
in the reasonable belief that such Covered Person's action was in or not opposed
to the best interests of the Trust or to have been liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of the Covered Person's
office.

SECTION 8.6. Indemnification Not Exclusive, etc. The right of
indemnification provided by this Article 8 shall not be exclusive of or affect
any other rights to which any such Covered Person or shareholder may be
entitled. As used in this Article 8, a "disinterested" Person is one against
whom none of the actions, suits or other proceedings in question, and no other
action, suit or other proceeding on the same or similar grounds is then or has
been pending or threatened. Nothing contained in this Article 8 shall affect any
rights to indemnification to which personnel of the Trust, other than Trustees
and officers, and other Persons may be entitled by contract or otherwise under
law, nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such Person.

SECTION 8.7. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.

ARTICLE 9

DURATION: REORGANIZATION: INCORPORATION; AMENDMENTS

SECTION 9.1. Duration of Trust. Unless terminated as provided herein, the
Trust shall have perpetual existence.

SECTION 9.2. Termination of Trust. The Trust may be terminated at any time
by a Majority of the Trustees, subject to the favorable vote of the holders of
not less than a majority of the Shares outstanding and entitled to vote of each
Series of the Trust, or by an instrument or instruments in writing without a
meeting, consented to by the holders of not less than a majority of such Shares,
or by such greater or different vote of Shareholders of any Series as may be
established by the Certificate of Designation by which such Series was
authorized. Upon termination, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or accrued or anticipated
as may be

<PAGE> 31

determined by the Trustees, the Trust shall in accordance with such procedures
as the Trustees consider appropriate reduce the remaining assets to
distributable form in cash, Securities or other property, or any combination
thereof, and distribute the proceeds to the Shareholders, in conformity with the
provisions of Section 6.1(h) hereof. After termination of the Trust or any
Series and distribution to the Shareholders as herein provided, a majority of
the Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination. Upon
termination of the Trust, the Trustees shall thereupon be discharged from all
further liabilities and duties hereunder, and the rights and interests of all
Shareholders shall thereupon cease. Upon termination of any Series, the Trustees
shall thereupon be discharged from all further liabilities and duties with
respect to such Series, and the rights and interests of all Shareholders of such
Series shall thereupon cease.

SECTION 9.3. Reorganization. The Trustees may sell, convey and transfer all
or substantially all of the assets of the Trust, or the assets belonging to any
one or more Series, to another trust, partnership, association, corporation or
other entity organized under the laws of any state of the United States, or may
transfer such assets to another Series of the Trust, in exchange for cash,
Shares or other Securities (including, in the case of a transfer to another
Series of the Trust, Shares of such other Series), or to the extent permitted by
law then in effect may merge or consolidate the Trust or any Series with any
other Trust or any corporation, partnership, or association organized under the
laws of any state of the United States, all upon such terms and conditions and
for such consideration when and as authorized by vote or written consent of a
Majority of the Trustees and approved by the affirmative vote of the holders of
not less than a majority of the Shares outstanding and entitled to vote of each
Series whose assets are affected by such transaction, or by an instrument or
instruments in writing without a meeting, consented to by the holders of not
less than a majority of such Shares, and/or by such other vote of any Series as
may be established by the Certificate of Designation with respect to such
Series. Following such transfer, the Trustees shall distribute the cash, Shares
or other Securities or other consideration received in such transaction (giving
due effect to the assets belonging to and indebtedness of, and any other
differences among, the various Series of which the assets have so been
transferred) among the Shareholders of the Series of which the assets have been
so transferred; and if all of the assets of the Trust have been so transferred,
the Trust shall be terminated. Nothing in this Section 9.3 shall be construed as
requiring approval of Shareholders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or other
organizations, and to sell, convey or transfer less than substantially all of
the Trust Property or the assets belonging to any Series to such organizations
or entities.

SECTION 9.4. Incorporation. Upon approval by Majority Shareholder Vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust, partnership,
association or other organization to take over all of the Trust Property or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, association or organization, in exchange for the shares or
securities thereof, or otherwise, and to lend money to, subscribe for the shares
of securities of, and enter into any contracts with any such corporation, trust,
partnership, association or organization in which the Trust holds or is about to
acquire shares or any other interests. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporation,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to such organizations or
entities.

SECTION 9.5. Amendments; etc. All rights granted to the Shareholders under
this Declaration of Trust are granted subject to the reservation of the right to
amend this Declaration of Trust as herein provided, except that no amendment
shall repeal the limitations on personal liability of any Shareholder or Trustee
or the prohibition of assessment upon the Shareholders (otherwise than as
permitted under Section 6.1(l)) without the express consent of each Shareholder
or Trustee involved. Subject to the foregoing, the provisions of this
Declaration of Trust (whether or not related to the rights of Shareholders) may
be amended at any time, so long as such amendment does not adversely affect the
rights of any Shareholder with respect to which such amendment is or purports to
be applicable and so long as such amendment is not in contravention of
applicable law, including the 1940 Act, by an instrument in writing signed by a
Majority of the Trustees (or by an officer of the Trust pursuant to the vote of
a Majority of the Trustees). Any amendment to this Declaration of Trust that
adversely affects the rights of all Shareholders may be adopted at any time by
an instrument

<PAGE> 32

in writing signed by a Majority of the Trustees (or by an officer of the Trust
pursuant to a vote of a Majority of the Trustees) when authorized to do so by
the vote in accordance with Section 7.1 hereof of Shareholders holding a
majority of all the Shares outstanding and entitled to vote, without regard to
Series, or if said amendment adversely affects the rights of the Shareholders of
less than all of the Series, by the vote of the holders of a majority of all the
Shares entitled to vote of each Series so affected. Notwithstanding any other
provisions set forth in this Declaration of Trust, a provision in this
Declaration of Trust requiring shareholder approval of any action may be amended
only with like shareholder approval.

SECTION 9.6. Filing of Copies of Declaration and Amendments. The original
or a copy of this Declaration and of each amendment hereto (including each
Certificate of Designation and Certificate of Termination) shall be kept at the
office of the Trust where it may be inspected by any Shareholder. A restated
Declaration, integrating into a single instrument all of the provisions of this
Declaration which are then in effect and operative, may be executed from time to
time by a Majority of the Trustees and shall, upon execution, be conclusive
evidence of all amendments contained therein and may thereafter be referred to
in lieu of the original Declaration and the various amendments thereto. A
Certificate of Trust shall be filed in the office of the Secretary of State of
the State of Delaware.

ARTICLE 10

MISCELLANEOUS

SECTION 10.1. Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the applicable register of the
Trust.

SECTION 10.2. Governing Law. This Declaration of Trust is, with reference
to the laws thereof, and the rights of all parties and the construction and
effect of every provision hereof shall be, subject to and construed according to
the laws of said The State of Delaware.

SECTION 10.3. Counterparts. This Declaration of Trust and any amendment
thereto may be simultaneously executed in several counterparts, each of which so
executed shall be deemed to be an original, and such counterparts, together,
shall constitute but one and the same instrument, which shall be sufficiently
evidenced by any such original counterpart.

SECTION 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust is a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Shareholders, (b) the
due authorization of the execution of any instrument or writing, (c) the form of
any vote passed at a meeting of Trustees or Shareholders, (d) the fact that the
number of Trustees or Shareholders present at any meeting or executing any
written instrument satisfies the requirements of this Declaration of Trust, (e)
the form of any By-Law adopted, or the identity of any officers elected, by the
Trustees, (f) the existence or nonexistence of any fact or facts which in any
manner relate to the affairs of the Trust, or (g) the name of the Trust or the
establishment of a Series shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees, or any of them, and
the successors of such Person.

SECTION 10.5. References; Headings. The masculine gender shall include the
feminine and neuter genders. Headings are placed herein for convenience of
reference only and shall not be taken as a part of this Declaration or control
or affect the meaning, construction or effect hereof.

SECTION 10.6. Provisions in Conflict With Law or Regulation. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code of 1986 or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.

<PAGE> 33

(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.

SECTION 10.7. Use of the Name "American General". The Trust acknowledges
that it is adopting its name through permission of American General Corporation
(hereinafter referred to as "American General") and agrees that if American
General or a successor to its business (whether such succession be by merger,
consolidation, purchase of assets or otherwise) or a subsidiary thereof should,
at any time and for any cause, cease to be the investment adviser to the Trust,
the Trust shall at the written request of American General and/or any such
successor eliminate the name "American General" from the Trust's corporate name
and from the designations of its shares and will not thereafter use the name
"American General" in any form or combination whatsoever in the conduct of the
Trust's business. The Trust further acknowledges that American General and its
subsidiaries reserve the right to grant the non-exclusive right to use the name
"American General" to any other corporation, including other investment
companies, whether now in existence or hereafter created. The foregoing
agreements on the part of the Trust are hereby made binding upon it, its
trustees, officers, shareholders, creditors and all other persons claiming under
or through it.

IN WITNESS WHEREOF, the undersigned, being the initial Trustee, has set her
hand and seal, for herself and her assigns, unto this Declaration of Trust of
the Trust, as of the day and year first above written.

/s/ NORI L. GABERT
- -----------------------------------
Initial Trustee

<PAGE> 34

A C K N O W L E D G M E N T

STATE OF TEXAS )
) ss
COUNTY OF HARRIS )

May 6, 1998
(Date)

Then personally appeared the above named individual and acknowledged
the foregoing instrument to be her free act and deed.

Before me,

/s/ CLARA S. WILBANKS
-------------------------------
(Notary Public)

My commission expires: 6/27/99
-------------

<PAGE> 1
EXHIBIT 1(b)

AMERICAN GENERAL SERIES PORTFOLIO COMPANY 3
Certificate of Designation
of
American General S&P 500 Index Fund

The undersigned, being the Assistant Secretary of American General Series
Portfolio Company 3, a Delaware business trust (the "Trust"), pursuant to the
authority conferred upon the Trustees of the Trust by Section 6.1 of the
Trust's Agreement and Declaration of Trust ("Declaration"), and by the
affirmative vote of a Majority of the Trustees does hereby establish and
designate as a Series of the Trust the American General S&P 500 Index Fund
(the "Fund") with the following rights, preferences and characteristics:

1. Shares. The beneficial interest in the Fund shall be divided into Shares
having a nominal or par value of $0.01 per Share, of which an unlimited number
may be issued, which Shares shall represent interests only in the Fund. The
Trustees shall have the authority from time to time to authorize separate
Series of Shares for the Trust as they deem necessary or desirable.

2. Other Rights Governed by Declaration. All other rights, preferences,
qualifications, limitations and restrictions with respect to Shares of any
Series of the Trust or with respect to any Class of Shares set forth in the
Declaration shall apply to Shares of the Fund unless otherwise specified in
this Certificate of Designation, in which case this Certificate of Designation
shall be govern.

3. Amendments etc. Subject to the provisions and limitations of Section 9.5
of the Declaration and applicable law, this Certificate of Designation may be
amended by an instrument signed in writing by a Majority of the Trustees (or by
an Officer of the Trust pursuant to the vote of a Majority of the Trustees) or
when authorized to do so by the vote in accordance with the Declaration of the
holders of a majority of all the Shares of the Fund outstanding and entitled to
vote or, if such amendment affects the Shares of one or more but not all of the
Classes of the Fund, the holders of a majority of all the Shares of the
affected Classes outstanding and entitled to vote.