AMERICAN GENERAL SERIES PORTFOLIO CO /TX
497, 1998-02-02
Previous: AMERICAN GENERAL SERIES PORTFOLIO CO /TX, 497, 1998-02-02
Next: SCUDDER STATE TAX FREE TRUST, 497, 1998-02-02



<PAGE>   1
                            AMERICAN GENERAL SERIES
                               PORTFOLIO COMPANY
                               2929 ALLEN PARKWAY
                              HOUSTON, TEXAS 77019

                               MONEY MARKET FUND
PROSPECTUS                                                       OCTOBER 1, 1997
                                                    (reprinted February 2, 1998)

The American General Series Portfolio Company (the "Series Company") is a
mutual fund made up of 13 separate Funds (the "Funds"), one of which is
described in this prospectus. The investment objective of the Money Market Fund
(the "Fund") is income through investments in short-term money market
securities.

SHARES OF THE 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.

The Fund is 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.

VALIC has filed a Statement of Additional Information, dated October 1, 1997,
with the Securities and Exchange Commission. This Statement contains additional
information about the Fund and is part of this prospectus. For a free copy,
write to the American General Series Portfolio Company at the address above or
call 1-800-44-VALIC.

THE 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.




                                       1

<PAGE>   2




                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                    PAGE
                                                    ----
<S>                                                  <C>
COVER PAGE
WELCOME ......................................       3
FINANCIAL HIGHLIGHTS .........................       4
ABOUT THE FUND'S MANAGEMENT ..................       5
     INVESTMENT ADVISER ......................       5
     PORTFOLIO MANAGER .......................       5
     HOW VALIC IS PAID FOR ITS
       SERVICES ..............................       5
     ABOUT THE BOARD OF DIRECTORS ............       5
ABOUT THE FUND ...............................       6
     OVERVIEW ................................       6
     ABOUT LEVEL OF RISK .....................       6
     ABOUT PORTFOLIO TURNOVER ................       6
     ABOUT FUND PERFORMANCE ..................       6
MONEY MARKET FUND FACT SHEET .................       7
TYPES OF INVESTMENTS .........................       9
     BONDS ...................................       9
     ASSET-BACKED SECURITIES .................       9
     LOAN PARTICIPATIONS .....................      10
     ILLIQUID AND RESTRICTED SECURITIES ......      10
     ADRS ....................................      10
     WHEN-ISSUED SECURITIES ..................      10
     MONEY MARKET SECURITIES .................      10
     REPURCHASE AGREEMENTS ...................      11
     A WORD ABOUT RISK .......................      11
     INVESTMENT PRACTICES ....................      12
          LIMITATIONS ........................      12
          LENDING PORTFOLIO SECURITIES .......      12
ABOUT THE SERIES COMPANY .....................      13
     SERIES COMPANY SHARES ...................      13
     NET ASSET VALUE OF THE SERIES COMPANY
       SHARES ................................      13
     DIVIDENDS AND CAPITAL GAINS .............      14
     DIVERSIFICATION .........................      14
     TAXES ...................................      15
     VOTING RIGHTS ...........................      15
     REPORTS .................................      15
     LEGAL MATTERS ...........................      16
</TABLE>



                                       2

<PAGE>   3



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

Unless otherwise specified in this prospectus, the words we, our, and VALIC
mean The Variable Annuity Life Insurance Company. The words you and your mean
the participant.

American General Series Portfolio Company (the "Series Company") was
incorporated under the laws of Maryland on December 7, 1984.

The Series Company is an open-end management investment company and currently
consists of 13 different Funds, one of which is described in detail in this
prospectus. We serve as the Fund's Investment Adviser and, in this role, report
directly to the Series Company's Board of Directors. As Investment Adviser, we
make investment decisions for the Fund and are responsible for its day to day
management. For more information, see "About the Fund's Management" in this
prospectus.

Individuals can't invest in the Fund directly. Instead, they participate
through an annuity contract or employer plan with VALIC or one of its
affiliates, or employee thrift plans maintained by VALIC or American General
Corporation. Most often employers set up these annuity contracts so they can
offer their employees a way to save for retirement. 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 the Fund you participate in Fund earnings or losses, in
proportion to the amount of money you invest. Depending on your contract, if
you withdraw your money before retirement, you may incur charges and additional
tax liabilities. However, to save for retirement, you generally should let your
investments and their earnings build. At retirement, you may withdraw all or a
portion of your money, leave it in the account until you need it, or start
receiving annuity payments. At a certain age you may be required to begin
withdrawals.

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

All inquiries regarding annuity contracts 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
713-831-3505. AGL is a member of the American General Corporation group of
companies, as is VALIC.




                                       3

<PAGE>   4



FINANCIAL HIGHLIGHTS

The FUND'S FISCAL YEAR ends every May 31st

Financial highlights are provided below for the Fund. The financial highlights
are for the last 10 years of the Fund. Ernst & Young LLP, Independent Auditors
for the Series Company, has audited the Series Company's financial statements
which include the information presented here. Their unqualified report appears
in those audited financial statements, which are included in the Statement of
Additional Information.

Per share data assumes that you held each share from the beginning to the end
of each fiscal year. Total return assumes that you bought additional shares
with dividends paid by the Fund.


MONEY MARKET FUND
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                  Fiscal Year Ended May 31,
                                         -------------------------------------------------------------------------------
                                             1997             1996             1995             1994             1993
                                         -----------      -----------      -----------      -----------      -----------
<S>                                      <C>              <C>              <C>              <C>              <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR         $      1.00      $      1.00      $      1.00      $      1.00      $      1.00
                                         -----------      -----------      -----------      -----------      -----------
+ INCOME
   from net investment income                   0.05             0.05             0.05             0.03             0.03
                                         -----------      -----------      -----------      -----------      -----------
- -- DISTRIBUTIONS
   from net investment income                  (0.05)           (0.05)           (0.05)           (0.03)           (0.03)
                                         -----------      -----------      -----------      -----------      -----------
= SHARE VALUE
   AT END OF YEAR                        $      1.00      $      1.00      $      1.00      $      1.00      $      1.00
                                         ===========      ===========      ===========      ===========      ===========
TOTAL RETURN                                    5.02%            5.26%            4.90%            2.83%            2.85%
                                         ===========      ===========      ===========      ===========      ===========
RATIOS/SUPPLEMENTAL DATA
 Ratio of expenses to average net
 assets                                         0.57%            0.57%            0.57%            0.58%            0.63%
 Ratio of net investment income to
 average net assets                             4.95%            5.14%            4.75%            2.78%            2.81%
 Number of shares outstanding at
 end of year (000's)                         128,125           83,618           82,256           50,534           45,323
 Total net assets at end of year
 (000's)                                 $   128,125      $    83,618      $    82,254      $    50,533      $    45,322
 Average net assets during the year
 (000's)                                 $   113,882      $    84,271      $    67,021      $    46,222      $    45,562
</TABLE>


<TABLE>
<CAPTION>
                                                                  Fiscal Year Ended May 31,                  
- ------------------------------------------------------------------------------------------------------------------------
                                             1992             1991             1990             1989             1988    
                                         -----------      -----------      -----------      -----------      ----------- 
                                                                                                                         
<S>                                      <C>              <C>              <C>              <C>              <C>         
PER SHARE DATA                                                                                                           
SHARE VALUE AT BEGINNING OF YEAR ..      $      1.00      $      1.00      $      1.00      $      1.00      $      1.00 
                                         -----------      -----------      -----------      -----------      ----------- 
+ INCOME                                                                                                                 
   from net investment income                   0.05             0.07             0.08             0.08             0.05 
                                         -----------      -----------      -----------      -----------      ----------- 
- -- DISTRIBUTIONS                                                                                                         
   from net investment income                  (0.05)           (0.07)           (0.08)           (0.08)           (0.05)
                                         -----------      -----------      -----------      -----------      ----------- 
= SHARE VALUE                                                                                                            
   AT END OF YEAR                        $      1.00      $      1.00      $      1.00      $      1.00      $      1.00 
                                         ===========      ===========      ===========      ===========      =========== 
TOTAL RETURN                                    4.47%            7.11%            8.31%            8.63%            6.02%
                                         ===========      ===========      ===========      ===========      =========== 
RATIOS/SUPPLEMENTAL DATA                                                                                                 
 Ratio of expenses to average net                                                                                        
 assets                                         0.67%            0.68%            0.74%            0.46%            1.77%
 Ratio of net investment income to                                                                                       
 average net assets                             4.42%            6.86%            7.93%            8.39%            5.30%
 Number of shares outstanding at                                                                                         
 end of year (000's)                          48,355           38,572           27,628           21,445            7,336 
 Total net assets at end of year                                                                                         
 (000's)                                 $    48,353      $    38,570      $    27,628      $    21,445      $     7,341 
 Average net assets during the year                                                                                      
 (000's)                                 $    46,305      $    34,733      $    22,563      $    13,385      $     5,390 
</TABLE>




                                       4

<PAGE>   5



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

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

INVESTMENT ADVISER

VALIC, a stock life insurance company, has been in the investment advisory
business since 1960. Since May 30, 1985, VALIC has been the Investment Adviser
for the Funds that comprise the Series Company, one of which is described in
this prospectus.

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 is responsible for the Fund's day to day
operations. Also, VALIC develops Fund investment strategy and buys and sells
Fund investments. VALIC serves as Investment Adviser to the Fund through an
Investment Advisory Agreement dated September 7, 1990. This Agreement is
renewed once each year, by the Series Company Board of Directors.

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

PORTFOLIO MANAGER

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

HOW VALIC IS PAID FOR ITS SERVICES

The Fund pays VALIC a fee based on its average daily net asset value. The
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.
The Fund pays VALIC an advisory fee at an annual rate of 0.50%.

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

If the Fund's average monthly expenses, when annualized, are more than 2% of
the Fund's estimated average daily net assets, we will pay the difference. As a
result, the Fund's yield or total return will increase. If VALIC decides to
stop voluntarily reducing the Fund's expenses, it may do so by giving 30 days'
notice, in writing, to the Series Company. To date, VALIC has not had to reduce
expenses of the Fund as a result of this 2% voluntary reduction.

For the fiscal year ended May 31, 1997, the total expenses paid by the Series
Company of the Fund's average net assets were, as a percentage, 0.57%.

ABOUT THE BOARD OF DIRECTORS

The Series Company Board of Directors currently consists of nine members: five
are independent directors, three are VALIC employees, and one is an employee of
American General Corporation.

The Board of Directors may change the 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 the Fund may buy. The fundamental restrictions appear in
the Statement of Additional Information. Changes to these restrictions may be
made with shareholder approval only.



                                       5

<PAGE>   6



ABOUT THE FUND
- --------------------------------------------------------------------------------

OVERVIEW

The Fund provides liquidity, protection of capital and current income through
investments in high quality securities.


ABOUT LEVEL OF RISK

The risks involved in the Fund are described in the Fund's Fact Sheet. These
risks include market risk, credit risk, interest rate risk and risk associated
with foreign securities. These risks are described in the "Types of
Investments" section in this prospectus. The money you invest in the Series
Company is not insured. And, we can't guarantee that the Fund will meet its
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 the Fund sells its investments and buys new
ones.

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.

The Fund has low portfolio turnover.


ABOUT FUND PERFORMANCE

From time to time the Series Company may advertise the Fund's performance
information such as the Fund's average total return. Current Fund performance
and information as to how this Fund performance information is calculated
appears in the Statement of Additional Information. Additionally, information
on separate account performance appears in your contract prospectus.



                                       6

<PAGE>   7



MONEY MARKET FUND
Fact Sheet
- --------------------------------------------------------------------------------
Investment Goal INCOME THROUGH INVESTMENT IN SHORT- TERM MONEY MARKET SECURITIES
- --------------------------------------------------------------------------------

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

INVESTMENT ADVISER
VALIC

PORTFOLIO MANAGER: Teresa Moro has been this Fund's Portfolio Manager and Vice
President and Investment Officer for the Series Company since 1991. From 1986
to 1991, Ms. Moro was an Assistant Vice President and Money Market Trader for
the Fund.

INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments
in short-term money market instruments.

INVESTMENT RISK
The short-term money market securities that this Fund invests in are high
quality investments, posing low credit and interest rate risk. The current
yield of the Fund will generally go up or down with changes in the level of
interest rates. The Fund uses the amortized cost method to value its portfolio
securities and tries to keep its net asset value at $1.00 per share. There can
be no assurance that the net asset value will be $1.00 per share at all times.

Because the risk to the money you invest is low, the potential for profit is
also low. The Fund may experience risks including interest rate risk, market
risk, credit risk and risk associated with foreign securities. For a discussion
of these risks, see "A Word About Risk" in this prospectus.

INVESTMENT STRATEGY
The Fund invests in short-term money market securities to provide you with
liquidity, protection of your investment and current income. We use 95% of the
Fund's assets to buy short-term securities that are rated within the highest
rating category for short term debt obligations by at least two nationally
recognized rating services or unrated securities of comparable investment
quality. These eligible securities must mature in 13 months or less and the
Fund must have a dollar-weighted average portfolio maturity of 90 days or less.
These practices are designed to minimize any fluctuation in the value of the
Fund's portfolio.

The investments this Fund may buy include:

         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)



                                       7

<PAGE>   8



         o   Asset-backed securities

         o   Loan participations

         o   Adjustable rate securities

         o   Illiquid and restricted securities (except for Rule 144A
             Securities)*

- ----------
 *limited to 10% of the Fund's net assets



                                       8

<PAGE>   9



TYPES OF INVESTMENTS
- --------------------------------------------------------------------------------

BONDS -- also called debt securities

Bonds are sold by governments on the local, state, and federal levels, and by
companies. There are many different kinds of bonds. For example, each bond
issue has specific terms. U.S. Government bonds are guaranteed to pay interest
and principal by the federal government. Revenue bonds are usually only paid
from the revenue of the issuer. An example of that would be an airport revenue
bond. Debentures are a very common type of corporate bond (a bond sold by a
company). Payment of interest and return of principal is subject to the
company's ability to pay. Convertible bonds are corporate bonds that can be
exchanged for stock. The types of bonds the Fund may invest in are as follows:
U.S. Government bonds and investment grade corporate bonds. For a description
of investment grade bonds see "A Word about Risk -- Market Risk" in this
prospectus.

Investing in a bond is like making a loan for a fixed period of time at a fixed
interest rate. During the fixed period, the bond pays interest on a regular
basis. At the end of the fixed period, the bond matures and the investor
usually gets back the principal amount of the bond. Fixed periods to maturity
are categorized as short term (generally less than 12 months), intermediate
(one to 10 years), and long term (10 years or more). Commercial paper is a
specific type of corporate or short term note. In fact, it's very short term,
being paid in less than 270 days. Most commercial paper matures in 50 days or
less.

Bonds rated Ba or B by Moody's Investors Services, Inc. (generally known as
lower-medium and lower-quality bonds) are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and principal in accordance with the terms of the obligation. While such bonds
will likely have some quality and protective characteristics, these are
outweighed by uncertainties or risk exposures to adverse conditions.
Lower-medium and lower-quality bonds may be more susceptible to real or
perceived adverse economic and individual corporate developments than would
investment grade bonds.

For example, a projected economic downturn or the possibility of an increase in
interest 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.

For more information about bonds and ratings of bonds, see the Statement of
Additional Information.


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.

The 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.

For more information about asset-backed securities see the Statement of
Additional Information.



                                       9

<PAGE>   10




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


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.


The Fund may invest in loan participations. For more information about loan
participations see 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. 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.

The Fund may buy illiquid and restricted securities, but is restricted as to
how much money it may invest in them. See "Limitations" below. For more
information about illiquid and restricted securities see the Statement of
Additional Information.


ADRS

ADRs are certificates issued by a United States bank or trust company and
represent the right to receive securities of a foreign issuer deposited in a
domestic bank or foreign branch of a United States bank. We consider ADRs
foreign securities.

WHEN-ISSUED SECURITIES

When-issued securities are those investments that have been announced by the
issuer and will be on the market soon. The Fund negotiates 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 Fund may have a loss. If it sells
at a higher price, the Fund may have a profit.

The Fund may buy when-issued securities in accordance with its investment
strategy. For more information about when-issued securities, see the Statement
of Additional Information.

MONEY MARKET SECURITIES

The Fund invests 95% of its assets in high quality money market securities
payable in U.S. dollars. A listing of the types of money market securities in
which the Fund may invest in is in the Fund's Fact Sheet. A money market
security is high quality when it is rated in one of the two highest credit
categories by Moody's or Standard & Poor's or another nationally recognized
rating service or if unrated, deemed high quality by VALIC.

These high quality money market securities include:

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



                                       10

<PAGE>   11



         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

REPURCHASE AGREEMENTS

A repurchase agreement requires the seller of the security to buy it back at a
set price at a certain time. If the Fund enters into a repurchase agreement, it
is really making a short term loan (usually for one day to one week). The Fund
may enter into repurchase agreements, but it is authorized to do so only with
well-established securities dealers or banks that are members of the Federal
Reserve System.

The risk in a repurchase agreement is the failure of the seller to be able to
buy the security back. If the value of the security declines, the Fund may have
to sell at a loss.

A repurchase agreement of more than 7 days duration is illiquid. A discussion
of repurchase agreements, illiquid securities and Fund limitations is contained
in the Statement of Additional Information.

A WORD ABOUT RISK

There are four basic types of investment risk you may be subject to:
         o   Market Risk
         o   Credit (Financial) Risk
         o   Interest Rate Risk
         o   Risk Associated with Foreign Securities

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

Market Risk

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

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 Fund's Investment Adviser decide which U.S. corporate and foreign
bonds to buy, they rely on Moody's and Standard & Poor's (two nationally
recognized bond rating services), and on VALIC's own research. This research
lowers the risk of buying a bond of a company that may not pay the interest and
principal on the bond.

The Fund 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.

The Fund may buy bonds issued by the U.S. Government.  The U.S. Government
guarantees it will always pay principal and interest.



                                       11

<PAGE>   12



Interest Rate Risk

Interest rate risk refers to the risk that fluctuations in interest rates may
affect the value of interest paying securities in the Fund. If the 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, the Fund bought an intermediate
government bond last year that was paying interest at a fixed rate of 6%. Now,
intermediate government bonds are paying interest at a rate of 7%. If the Fund
wants to sell the bond paying 6%, it will have to sell it at a discount (and
realize a loss) to attract buyers because they can buy new bonds paying 7%
interest.

Risk Associated with Foreign Securities

The Fund may, subject to limits stated in its Fact Sheet, invest in foreign
securities including ADRs. A foreign security is a security issued by an entity
domiciled or incorporated outside of the U.S.

There are three principal risks of owning foreign securities:

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

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

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

INVESTMENT PRACTICES

Limitations

The 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 Fund may not invest in futures and
options.

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

Lending Portfolio Securities

The Fund may lend up to 30% of its total assets 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 Fund will only make loans to broker-dealers and other financial
institutions that VALIC considers to be creditworthy. For more information
about lending portfolio securities, foreign securities, and investment
limitations, see the Statement of Additional Information.



                                       12

<PAGE>   13



ABOUT THE SERIES COMPANY

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

SERIES COMPANY SHARES

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

As a participant, you do not directly buy shares of the Fund. 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 that you want the
separate account to invest in the Fund. The separate account, in turn, buys the
shares of the Fund according to your instructions. See your contract prospectus
for more information on the separate account associated with your contract.

When the separate account buys, sells, or transfers shares of the Fund, it does
not pay any charges related to these transactions.

The Variable Annuity Marketing Company (VAMCO) acts as the Series Company's
distributor.

As distributor, VAMCO sells shares of the Fund to the separate account. 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 account for its services. Also, VAMCO is not required
to sell a minimum number of shares to the separate account.

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 the order is received.

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

NET ASSET VALUE OF THE SERIES COMPANY SHARES

How Net Asset Value is Calculated

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

Step 1:

Total value of the
Fund's assets* (including
money owed to the fund but
not yet                                               The Fund's
collected)                                        =   Total
- -- The Fund's liabilities                             Net Asset Value
   (including money owed
   by the Fund but not
   yet paid)
Step 2: The Fund's total net asset
value (from Step 1)
+The total number of the                          =   NET ASSET VALUE
 Fund's shares that are                               PER SHARE
 outstanding.


                                      13
<PAGE>   14

* The Series Company uses the fair market value of the Fund's investments to
calculate the Fund's total value. However, it uses the amortized cost method to
determine the values of all the Fund's investments. The amortized cost method
approximates fair market value.

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

When Net Asset Value is Calculated

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

In addition, the Series Company will not calculate net asset values on the
following days even when the New York Stock Exchange is open:

         o   the Friday after Thanksgiving; or

         o   when Christmas falls on a Thursday, the Friday after Christmas; and

         o   when Christmas falls on a Tuesday, the Monday before Christmas.

The separate account can buy, sell, and transfer shares in the Fund only on
days that the Series Company calculates the net asset value of the Fund's
shares. Through VAMCO, the separate accounts send orders to the Series Company
to buy, sell, or transfer shares based on requests they receive from
participants.

DIVIDENDS AND CAPITAL GAINS

Dividends from Net Investment Income

Net investment income generally includes stock dividends received and bond
interest earned less expenses paid by the Fund. The Fund pays dividends from
net investment income daily. Dividends from net investment income are
automatically reinvested for you into additional shares of the Fund.

Distributions from Capital Gains

When the Fund sells a security for more than it paid for that security, a
capital gain results. Once a year, the 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

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

The Fund may invest up to 5% of its 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, the Fund may not own
more than 10% of the voting securities of a company.

The 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).



                                       14

<PAGE>   15



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

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

VOTING RIGHTS

One Vote Per Share

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

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

Shareholder Meetings

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

         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 Directors
                  if the shareholders have elected less than a majority of the
                  Directors.

Shareholders may call a meeting to remove a Director from the Board if at least
10% of the outstanding shares vote to have this meeting. Then, at the meeting,
at least 2/3 of all the outstanding shares of the Fund must vote in favor of
removing the Director.

Shareholder Communications

The Series Company will assist in shareholder communications.

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.


                                      15
<PAGE>   16

LEGAL MATTERS

Cynthia A. Toles, Senior Associate General Counsel and Secretary of VALIC,
reviews the legal matters regarding the investments offered in this prospectus
and the federal laws and regulations related to their issue and sale.

TABLE OF CONTENTS
OF STATEMENT OF ADDITIONAL INFORMATION


<TABLE>
<CAPTION>
                                                        PAGE
                                                        ----
<S>                                                      <C>
General Information and History.....................     2
PERFORMANCE AND YIELD INFORMATION...................     5
FUNDAMENTAL INVESTMENT RESTRICTIONS.................     8
    FUNDAMENTAL INVESTMENT RESTRICTIONS
      APPLICABLE TO THE FUNDS.......................     8
    MMF INVESTMENT RESTRICTIONS.....................     9
INVESTMENT PRACTICES................................    11
    REPURCHASE AGREEMENTS...........................    11
    LENDING PORTFOLIO SECURITIES....................    11
    FOREIGN SECURITIES..............................    12
    FOREIGN CURRENCY EXCHANGE TRANSACTIONS..........    13
    WHEN ISSUED SECURITIES..........................    13
    DEBT SECURITIES.................................    13
    WARRANTS........................................    13
    EURODOLLAR OBLIGATIONS..........................    14
    ASSET-BACKED SECURITIES.........................    14
    MORTGAGE-BACKED SECURITIES......................    15
    LOAN PARTICIPATIONS.............................    15
    ADJUSTABLE RATE SECURITIES......................    16
    ILLIQUID SECURITIES.............................    16
    RULE 144A SECURITIES............................    16
    OPTIONS ON SECURITIES AND SECURITIES INDICES....    17
    WRITING COVERED CALL AND PUT OPTIONS AND
      PURCHASING CALL AND PUT OPTIONS...............    18
    FINANCIAL FUTURES CONTRACTS.....................    20
    OPTIONS ON FINANCIAL FUTURES CONTRACTS..........    22
    CERTAIN ADDITIONAL RISKS OF OPTIONS AND
      FINANCIAL FUTURES CONTRACTS...................    22
    LIMITATIONS.....................................    23
    MONEY MARKET SECURITIES OF FOREIGN ISSUERS......    24
INVESTMENT ADVISER..................................    25
PORTFOLIO TRANSACTIONS AND BROKERAGE................    29
OFFERING, PURCHASE, AND REDEMPTION OF FUND SHARES...    32
DETERMINATION OF NET ASSET VALUE....................    33
CALCULATION OF YIELD FOR THE MONEY MARKET FUND......    34
ACCOUNTING AND TAX TREATMENT........................    35
    CALLS AND PUTS..................................    35
    FINANCIAL FUTURES CONTRACTS.....................    35
    SUBCHAPTER M OF THE INTERNAL REVENUE CODE
      OF 1986.......................................    35
    SECTION 817(H) OF THE CODE......................    36
OTHER INFORMATION...................................    37
    SHAREHOLDER REPORTS.............................    37
    VOTING AND OTHER RIGHTS.........................    37
    CUSTODY OF ASSETS...............................    37
    DESCRIPTION OF CORPORATE BOND RATINGS...........    39
    DESCRIPTION OF COMMERCIAL PAPER RATINGS.........    40
    INDEPENDENT AUDITORS............................    40
DIRECTORS AND OFFICERS..............................    41
FINANCIAL STATEMENTS................................    44
</TABLE>



                                       16

<PAGE>   17


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

DISTRIBUTOR:
The Variable Annuity Marketing Company
2929 Allen Parkway
Houston, Texas 77019

CUSTODIAN:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110

INDEPENDENT AUDITORS:
Ernst & Young LLP
1221 McKinney
Houston, Texas 77010

TRANSFER AND SHAREHOLDER SERVICE AGENT:
The Variable Annuity Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019

                             DIRECTORS AND OFFICERS

<TABLE>
<S>                      <C>                      <C>
DIRECTORS                OFFICERS
THOMAS L. WEST, JR.      THOMAS L. WEST, JR.      EXECUTIVE VICE PRESIDENT
JOE C. OSBORNE           NORMAN JASKOL            VICE PRESIDENT AND SENIOR
PETER V. TUTERS                                   INVESTMENT OFFICER
NORMAN HACKERMAN         TERESA S. MORO           VICE PRESIDENT AND
JOHN WILLIAM LANCASTER                            INVESTMENT OFFICER
F. ROBERT PAULSEN        JOHN W. MOSSBARGER       VICE PRESIDENT AND
R. MILLER UPTON                                   INVESTMENT OFFICER
BEN H. LOVE              LEON A. OLVER            VICE PRESIDENT AND
                                                  INVESTMENT OFFICER
                         WILLIAM TRIMBUR, JR.     VICE PRESIDENT AND
                                                  INVESTMENT OFFICER
                         BRENT C. NELSON          VICE PRESIDENT
                         CYNTHIA A. TOLES         GENERAL COUNSEL AND SECRETARY
                         GREGORY R. SEWARD        TREASURER
                         KATHRYN A. PEARCE        CONTROLLER
                         DAVID H. DEN BOER        ASSISTANT SECRETARY
</TABLE>




                                       17


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission