AMERICAN GENERAL SERIES PORTFOLIO CO /TX, 497, 1998-04-06

AMERICAN GENERAL SERIES PORTFOLIO CO /TX
497, 1998-04-06

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

PROSPECTUS OCTOBER 1, 1997 (AS REPRINTED MARCH 31, 1998)

The American General Series Portfolio Company (the "Series Company") is a
mutual fund made up of 13 separate Funds (the "Funds"), four of which are
described in the prospectus. Each of the Funds has a different investment
objective. Each Fund is explained in more detail on its Fact Sheet contained in
this prospectus. Here is a summary of the goals of the four Funds:

INDEX EQUITY FUNDS:

INTERNATIONAL EQUITIES FUND
Growth through investments tracking the EAFE Index.

MIDCAP INDEX FUND
Growth through investments tracking the S&P MidCap 400 Index.

STOCK INDEX FUND
Growth through investments tracking the S&P 500 Index.

MONEY MARKET FUND:

MONEY MARKET FUND
Income through investments in short-term money market securities.

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

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

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

THE 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.

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Page
----
<S> <C>
COVER PAGE
WELCOME.................................. 1
FINANCIAL HIGHLIGHTS..................... 2
ABOUT THE FUND'S MANAGEMENT.............. 6
Investment Adviser.................. 6
Investment Sub-adviser.............. 6
Portfolio Manager................... 7
How Advisers Are Paid for Their
Services.......................... 7
About the Board of Directors........ 8
ABOUT THE FUNDS.......................... 9
Growth, Income and Stability
Categories........................ 9
About Level of Risk................. 9
About Portfolio Turnover............ 9
About Fund Performance.............. 10
ABOUT INDEX EQUITY FUNDS................. 11
HOW TO READ A FUND FACT SHEET............ 14
FUND FACT SHEETS......................... 15
International Equities Fund......... 15
MidCap Index Fund................... 18
Money Market Fund................... 21
Stock Index Fund.................... 22
TYPES OF INVESTMENTS..................... 25
Stocks.............................. 25
Bonds............................... 25
Asset-Backed Securities........ 26
Loan Participations............ 26
Illiquid and Restricted Securities.. 26
ADRs................................ 26
Foreign Currency.................... 26
When-Issued Securities.............. 27
Money Market Securities............. 27
Derivatives......................... 27
Options........................ 27
Futures Contracts.............. 28
Repurchase Agreements............... 28
A Word About Risk................... 29
Investment Practices................ 30
Limitations.................... 30
Lending Portfolio Securities... 30
ABOUT THE SERIES COMPANY................. 31
Series Company Shares............... 31
Net Asset Value of the Series Company
Shares............................ 32
Dividends and Capital Gains......... 32
Diversification..................... 33
Taxes............................... 33
Voting Rights....................... 33
Reports............................. 34
Legal Matters....................... 34
</TABLE>

(i)
<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, four of which are described in detail in this
prospectus. We serve as each Fund's Investment Adviser and, in this role,
report directly to the Series Company's Board of Directors. As Investment
Adviser, we make investment decisions for the Funds and are responsible for
their day to day management. For more information, see "About the Fund's
Management" in this prospectus.

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

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

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

All inquiries regarding annuity contracts 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.

1
<PAGE> 4

FINANCIAL HIGHLIGHTS

A Fund's fiscal year ends every May 31st.

Financial highlights are provided below for each of the Funds. The financial
highlights are for the last 10 years of the Funds or if the Fund has been in
operation a shorter period of time, since the date the Fund began operation.
Ernst & Young LLP, Independent Auditors for the Series Company, has audited the
Series Company's financial statements which include the information presented
here. Their unqualified report appears in those audited financial statements,
which are included in the Statement of Additional Information.

Per share data assumes that you held each share from the beginning to the end
of each fiscal year. Total return assumes that you bought additional shares
with dividends paid by the Fund. Total returns for periods of less than one
year are not annualized. The average commission rate paid on investment equity
securities (on a per share basis) is presented for the period beginning June 1,
1996.

INTERNATIONAL EQUITIES FUND
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 2,
Fiscal Year Ended May 31, 1989
------------------------- TO MAY 31,
1997 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF
PERIOD $ 11.15 $ 10.42 $ 10.14 $ 8.99 $ 8.03 $ 8.58 $ 9.17 $ 10.00(1)
--------- -------- -------- -------- -------- -------- ------- -------
+ INCOME (LOSS)
from net investment income 0.20 0.17 0.15 0.11 0.18 0.15 0.23 0.10
from net realized & unrealized
gain (loss) on securities 0.63 0.97 0.34 1.17 0.93 (0.55) (0.59) (0.83)
--------- -------- -------- -------- -------- -------- ------- -------
total income (loss) from
investment operations 0.83 1.14 0.49 1.28 1.11 (0.40) (0.36) (0.73)
--------- -------- -------- -------- -------- -------- ------- -------
- - DISTRIBUTIONS
from net investment income (0.19) (0.17) (0.15) (0.11) (0.15) (0.15) (0.23) (0.10)
from net realized gain on
securities (0.35) (0.24) (0.06) (0.02)
--------- -------- -------- --------
total distributions (0.54) (0.41) (0.21) (0.13) (0.15) (0.15) (0.23) (0.10)
--------- -------- -------- -------- -------- -------- ------- ------
= SHARE VALUE
AT END OF PERIOD $ 11.44 $ 11.15 $ 10.42 $ 10.14 $ 8.99 $ 8.03 $ 8.58 $ 9.17
========= ======== ======== ======== ======== ======== ======= ======
TOTAL RETURN 7.74% 11.14% 4.92% 14.31% 14.18% (4.69)% (3.71)% (7.42)%
========= ======== ======== ======== ======== ======== ======= ======

RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net
assets 0.42% 0.42% 0.45% 0.47% 0.53% 0.65% 0.37% 0.19%
Ratio of net investment income to
average net assets 1.75% 1.65% 1.47% 1.43% 2.33% 1.84% 2.67% 1.10%
Portfolio turnover rate 12% 20% 14% 7% 9% 5% 3% 0%
Number of shares outstanding at
end of year (000's) 15,857 18,497 20,074 17,273 7,429 4,256 2,451 1,310
Net assets at end of year (000's) $ 181,437 $206,259 $209,091 $175,183 $ 66,809 $ 34,182 $ 21,036 $12,005
Average net assets during the year
(000's) $ 191,117 $204,792 $199,235 $117,264 $ 45,509 $ 26,542 $ 15,693 $ 7,853
Average commission rate paid $ 0.0236 N/A N/A N/A N/A N/A N/A N/A
</TABLE>

- ----------

(1) The net asset value at the beginning of the period is as of commencement of
operations on October 2, 1989.

2
<PAGE> 5

FINANCIAL HIGHLIGHTS - CONTINUED

MIDCAP INDEX FUND(1)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Fiscal Year Ended May 31,
-------------------------
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $ 19.09 $ 15.68 $ 14.54 $ 14.38 $ 12.86 $ 12.51 $12.92
-------- ------- -------- -------- -------- -------- ------
+ INCOME (LOSS)
from net investment income 0.24 0.24 0.26 0.23 0.24 0.23 0.28
from net realized &
unrealized gain (loss)
on securities 2.95 4.06 1.59 0.28 1.93 0.39 (0.30)
-------- ------- -------- -------- -------- -------- ------
total income (loss) from
investment operations 3.19 4.30 1.85 0.51 2.17 0.62 (0.02)
-------- ------- -------- -------- -------- -------- ------
- - DISTRIBUTIONS
from net investment income (0.24) (0.24) (0.26) (0.23) (0.24) (0.23) (0.28)
from net realized gain on
securities (1.21) (0.65) (0.45) (0.12) (0.41) (0.04) (0.11)
-------- -------- -------- -------- -------- -------- ------
total distributions (1.45) (0.89) (0.71) (0.35) (0.65) (0.27) (0.39)
-------- -------- -------- -------- -------- -------- ------
= SHARE VALUE
AT END OF YEAR $20.83 $19.09 $ 15.68 $ 14.54 $ 14.38 $ 12.86 $12.51
======== ======== ======== ======== ======== ======== ======
TOTAL RETURN $ 17.48% $ 28.10% $ 13.26% 3.52% 17.21% 5.01% 0.20%
======== ======== ======== ======== ======= ======== ======
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average
net assets 0.40% 0.41% 0.44% 0.46% 0.47% 0.54% 0.67%
Ratio of net investment
income to average
net assets 1.24% 1.36% 1.73% 1.62% 1.79% 1.82% 2.41%
Portfolio turnover rate 19% 21% 23% 17% 5% 112% 101%
Number of shares outstanding at
end of year (000's) 29,137 28,322 25,988 24,001 14,673 8,862 6,168
Net assets at end of year (000's) $607,061 $540,688 $407,557 $349,041 $210,931 $113,992 $77,146
Average net assets
during the year (000's) $554,397 $477,372 $376,486 $285,247 $154,979 $ 88,456 $69,696
Average commission rate paid $ 0.0277 N/A N/A N/A N/A N/A N/A

Fiscal Year Ended May 31,
-------------------------------------------
1990 1989 1988
------- -------- ---------
<S> <C> <C> <C>
PER SHARE DATA
SHARE VALUE AT BEGINNING OF YEAR $12.25 $ 10.86 $ 13.87
------ -------- --------
+ INCOME (LOSS)
from net investment income 0.28 0.30 0.17
from net realized &
unrealized gain (loss)
on securities 0.71 1.51 (1.41)
------ -------- --------
total income (loss) from
investment operations 0.99 1.81 (1.24)
------ -------- --------
- - DISTRIBUTIONS
from net investment income (0.32) (0.27) (0.18)
from net realized gain on
securities (0.15) (1.59)
-------- --------
total distributions (0.32) (0.42) (1.77)
------ -------- --------
= SHARE VALUE
AT END OF YEAR $12.92 $ 12.25 $ 10.86
====== ======== ========
TOTAL RETURN 8.22% 17.06 (7.30)%
====== ======== =========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average
net assets 0.68% 0.74% 0.79%
Ratio of net investment
income to average
net assets 2.29% 2.72% 1.51%
Portfolio turnover rate 131% 67% 108%
Number of shares outstanding at
end of year (000's) 5,712 5,354 4,827
Net assets at end of year (000's) $73,815 $ 65,586 $ 52,435
Average net assets
during the year (000's) $67,421 $ 57,398 $ 49,877
Average commission rate paid N/A N/A N/A

</TABLE>

(1) Effective October 1, 1991 the Fund's name was changed from the Capital
Accumulation Fund to the MidCap Index Fund. Additionally, on October 1,
1991 the investment objectives and investment program for the Fund were
changed. Bankers Trust has been the Fund's Sub-adviser since May 1, 1992.

<PAGE> 6

FINANCIAL HIGHLIGHTS - CONTINUED

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

<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>

<PAGE> 7

FINANCIAL HIGHLIGHTS - CONTINUED

STOCK INDEX FUND(1)
- --------------------------------------------------------------------------------

<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 $ 20.69 $ 16.81 $ 14.39 $ 14.36 $ 13.34
---------- ----------- ---------- ---------- ----------
+ INCOME (LOSS)
from net investment income 0.39 0.39 0.37 0.35 0.34
from net realized & unrealized
gain (loss) on securities 5.57 4.26 2.45 0.12 1.20
---------- ----------- ---------- ---------- ----------
total income (loss) from
investment operations 5.96 4.65 2.82 0.47 1.54
---------- ----------- ---------- ---------- ----------
- - DISTRIBUTIONS
from net investment income (0.39) (0.38) (0.37) (0.35) (0.34)
from net realized gain on
securities (0.17) (0.39) (0.03) (0.09) (0.18)
---------- ----------- ---------- ---------- ----------
total distributions (0.56) (0.77) (0.40) (0.44) (0.52)
---------- ----------- ---------- ---------- ----------
= SHARE VALUE
AT END OF YEAR $ 26.09 $ 20.69 $ 16.81 $ 14.39 $ 14.36
========== =========== ========== ========== ==========
TOTAL RETURN 29.24% 28.17% 19.98% 3.29% 11.74%
========== =========== ========== ========== ==========

RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average
net assets 0.34% 0.35% 0.38% 0.39% 0.43%
Ratio of net investment income to
average net assets 1.76% 2.05% 2.44% 2.44% 2.52%
Portfolio turnover rate 3% 3% 14% 3% 1%
Number of shares outstanding at
end of year (000's) 93,687 85,117 75,451 75,494 66,224
Net assets at end of year (000's) $ 2,444,200 $ 1,760,786 $1,267,992 $1,086,459 $ 951,200
Average net assets during the
year (000's) $ 2,019,826 $ 1,498,398 $1,140,085 $1,030,581 $ 836,510
Average commission rate paid $ 0.0281 N/A N/A N/A N/A

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 $ 12.60 $ 11.86 $ 10.69 $ 8.90 $ 9.88
---------- ----------- ---------- ---------- ----------
+ INCOME (LOSS)
from net investment income 0.32 0.31 0.33 0.27 0.19
from net realized & unrealized
gain (loss) on securities 0.74 0.81 1.32 1.86 (0.92)
---------- ----------- ---------- ---------- ----------
total income (loss) from
investment operations 1.06 1.12 1.65 2.13 (0.73)
---------- ----------- ---------- ---------- ----------
- - DISTRIBUTIONS
from net investment income (0.32) (0.31) (0.35) (0.25) (0.21)
from net realized gain on
securities (0.07) (0.13) (0.09)
---------- ----------- ---------- ---------- ----------
total distributions (0.32) (0.38) (0.48) (0.34) (0.25)
---------- ----------- ---------- ---------- ----------
= SHARE VALUE
AT END OF YEAR $ 13.34 $ 12.60 $ 11.86 $ 10.69 $ 8.90
========== =========== ========== ========== ==========
TOTAL RETURN 8.57% 9.98% 15.78% 24.40% (7.48)%
========== =========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average
net assets 0.50% 0.67% 0.61% 0.78% 1.29%
Ratio of net investment income to
average net assets 3.12% 2.82% 3.05% 3.05% 2.23%
Portfolio turnover rate 45% 6% 8% 14% 16%
Number of shares outstanding at
end of year (000's) 55,598 6,662 3,456 1,924 1,174
Net assets at end of year (000's) $ 741,667 $ 83,970 $ 40,969 $ 20,572 $ 10,443
Average net assets during the
year (000's) $ 167,262 $ 55,147 $ 29,824 $ 14,060 $ 7,933
Average commission rate paid N/A N/A N/A N/A N/A

</TABLE>

- ----------

(1) Bankers Trust has been the Fund's Sub-adviser since May 1, 1992.

5
<PAGE> 8

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, four of which are 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 each Fund's day to day
operations. Also, VALIC develops Fund investment strategy and buys and sells
Fund investments. VALIC serves as Investment Adviser through an Investment
Advisory Agreement it enters into with each Fund. These agreements are renewed
once each year, by the Series Company Board of Directors.

One Investment Advisory Agreement covers these Funds:

<TABLE>
<CAPTION>
EFFECTIVE DATE OF
FUND NAME AGREEMENT
--------- -----------------

<S> <C>
Money Market Fund September 7, 1990
International Equities Fund October 1, 1991
</TABLE>

Another Investment Advisory Agreement covers these Funds:

<TABLE>
<CAPTION>
EFFECTIVE DATE OF
FUND NAME AGREEMENT
--------- -----------------
<S> <C>
MidCap Index Fund May 1, 1992
Stock Index Fund
</TABLE>

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

INVESTMENT SUB-ADVISER

For some of the Funds, VALIC works with an Investment Sub-adviser, a financial
service company that specializes 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.

Bankers Trust Company ("Bankers Trust") has been the Sub-adviser for the MidCap
Index Fund and the Stock Index Fund since May 1, 1992. Bankers Trust first
offered investment management services in 1938 and began managing index funds
in 1977. As of March 31, 1997, Bankers Trust managed $233 billion in assets.
Bankers Trust is entirely owned by the Bankers Trust New York Corporation, a
bank holding company. Bankers Trust is the seventh largest U.S. financial
services institution as of December 31, 1996. Bankers Trust's principal offices
are located at 130 Liberty Street, New York, NY 10006.

Bankers Trust acts as Investment Sub-adviser through an agreement entered into
with VALIC. For more information on this agreement and on the Sub-adviser, see
the "Investment Sub-Advisers" section in the Statement of Additional
Information.

6
<PAGE> 9

PORTFOLIO MANAGER

A portfolio manager is a person or team of persons VALIC, or its Sub-adviser,
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>
<CAPTION>
ADVISORY FEE
FUND NAME (ANNUAL RATE)
--------- -------------
<S> <C>
International Equities Fund 0.35% on the first $500 million

MidCap Index Fund 0.25% on assets over $500 million

Stock Index Fund

Money Market Fund 0.50%
</TABLE>

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

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

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

<TABLE>
<CAPTION>
TOTAL
EXPENSES
FUND NAME RATIO
--------- --------
<S> <C>
International Equities Fund 0.42%
MidCap Index Fund 0.40%
Stock Index Fund 0.34%
Money Market Fund 0.57%
</TABLE>

7
<PAGE> 10

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

The Sub-adviser

According to the agreement we have with the Sub-adviser, we pay them directly
out of the fee we receive from the Funds. The Funds do not pay the Sub-adviser
directly. We pay them a percentage of what is paid to us by the Funds. We and
the Sub-adviser may agree to change the amount of money we pay them when their
agreement is renewed each year. Any such change increasing the charge would
have to be approved by the Series Company Board of Directors and by the
shareholders of the Fund.

Under the Investment Sub-Advisory Agreement we have with Bankers Trust, we pay
to Bankers Trust a monthly fee based on the respective average daily net asset
values of the MidCap Index Fund and the Stock Index Fund at the annual rate of
0.05% on the first $500 million and 0.03% on assets over $500 million. For more
information on what the Sub-adviser is paid, see the "Investment Sub-Advisers"
section in the Statement of Additional Information.

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

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

The Securities Exchange Act of 1934 prohibits members of national securities
exchanges from effecting exchange transactions for accounts that they or their
affiliates manage, except as allowed under rules adopted by the Securities and
Exchange Commission ("SEC"). The Series Company and the Sub-adviser 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 the Sub-adviser or the 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-adviser may enter into simultaneous purchase and sale
transactions for the Funds or affiliates of the Funds.

ABOUT THE BOARD OF DIRECTORS

The Series Company Board of Directors currently consists of 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 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> 11

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

GROWTH, INCOME AND STABILITY
CATEGORIES

The Funds offered in this prospectus fall into two general investment
categories: growth and stability.

GROWTH CATEGORY

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

Series Company Growth Category includes:

International Equities Fund

MidCap Index Fund

Stock Index Fund

STABILITY CATEGORY

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

Series Company Stability Category includes:

Money Market Fund

ABOUT LEVEL OF RISK

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

ABOUT PORTFOLIO TURNOVER

Portfolio turnover occurs when a Fund sells its investments and buys new ones.
In some Funds, high portfolio turnover occurs when these Funds sell and buy
investments as part of their investment strategy. In other Funds, like the
Index Funds discussed below, portfolio turnover is lower because the make up of
the index stays fairly constant.

High portfolio turnover may cause a fund's expenses to increase. For example, a
fund may have to pay brokerage fees and other related expenses.

9
<PAGE> 12

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

For each of the last two fiscal years the portfolio turnover rates for each of
the Funds except the Money Market Fund were as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING
-----------------------
MAY 31, MAY 31,
1996 1997
----- -------
<S> <C> <C>
International Equities Fund 20% 12%
MidCap Index Fund 21% 19%
Stock Index Fund 3% 3%
</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.

Until June 1, 1998, excessive short-term trading could result in excessive
"short-short income" under the Internal Revenue Code ("Code") which could
affect a Fund's status as a regulated investment company (RIC) under the Code.
Failure of a Fund to qualify as a RIC could cause the separate accounts
investing in the Fund to be nondiversified under Section 817[h] of the Code.
The "short-short income" test was recently repealed by the Taxpayer Relief Act
of 1997, effective for a Fund beginning on June 1, 1998. See "Dividends and
Capital Gains," "Diversification" and "Taxes" in this prospectus for a fuller
discussion of certain of these tax provisions.

ABOUT FUND PERFORMANCE

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

10
<PAGE> 13

ABOUT INDEX EQUITY FUNDS
- --------------------------------------------------------------------------------

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

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

WHAT IS AN INDEX?

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

WHICH INDEXES DO THESE FUNDS TRY
TO TRACK?

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

The Stock Index Fund tracks the
Standard & Poor's 500 Stock Index(R)*

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

This index may periodically change some of the stocks it tracks. And, different
indexes sometimes track some of the same stocks. For example, as of May 31,
1997, this Index was tracking 24 of the same stocks tracked by the Russell 2000
Index.

- ----------

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

11
<PAGE> 14

The MidCap Index Fund tracks the
Standard & Poor's MidCap 400(R) Index*

The Standard & Poor's MidCap 400(R) Index (S&P MidCap 400) tracks the common
stock performance of 400 medium capitalized U.S. and foreign companies that are
in the manufacturing, utilities, transportation, and financial industries.
Medium capitalized means the market value of these companies' stock is around
$600 million.

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, 1997, this Index was tracking 139 of the same stocks tracked by the
Russell 2000 Index. This Index does not track the same stocks as the S&P 500
Index.

- ----------

12
<PAGE> 15

The International Equities Fund tracks
The Morgan Stanley Capital International,
Europe, Australia and the Far East
(EAFE) Index.

The EAFE Index tracks the performance of about 1,000 common stocks of companies
in 20 foreign countries. This index provides a measure of the performance of
companies in the more developed countries in Europe, Australia and the Far
East.

Morgan Stanley publishes the EAFE Index daily and, at times, may change some of
the stocks in the index.

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

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

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

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

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

13
<PAGE> 16

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
Directors.

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 the Fund for the time period
indicated. Information about how the Fund performed last year is discussed. The
graph also shows the return for an index to which we compare the Fund's
performance. For all the Funds except the three Index Funds, we call this the
Fund's "benchmark." The difference between the Fund and index return is caused
by Fund expenses and tracking differences.

14
<PAGE> 17

INTERNATIONAL EQUITIES FUND
Fact Sheet
- --------------------------------------------------------------------------------

INVESTMENT GOAL: Growth Through Investments Tracking the EAFE Index
- --------------------------------------------------------------------------------

INVESTMENT CATEGORY: Growth
- -------------------------------------------------------------------------------

Additional information about the Fund's investments is provided under "Types of
Investments".

INVESTMENT ADVISER
VALIC

PORTFOLIO MANAGER
While this Fund attempts to track the performance of the EAFE Index, it is
actively managed. William Trimbur, Jr. has been this Fund's Portfolio Manager
since the Fund was started in 1989. He has been Vice President and Investment
Officer for the Series Company since 1987.

INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investments primarily in a
diversified portfolio of equity and equity related securities of foreign
issuers that, as a group, are expected to provide investment results closely
corresponding to the performance of the EAFE Index.

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

INVESTMENT STRATEGY
The Fund invests in a sampling of about 100 foreign stocks of companies that
are either in the EAFE Index or are similar to stocks in the EAFE Index. These
stocks, as a group, should reflect EAFE's performance. Since it may not be
possible for this Fund to buy every stock included in this index or in the same
proportions, we buy as many stocks as are needed to closely track the
performance of the EAFE Index.

15
<PAGE> 18

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

<TABLE>
<CAPTION>
FUND INVESTMENTS PERCENT OF FUND'S ASSETS*
- ---------------- -------------------------
<S> <C>
Stocks in the EAFE Index at least 65%**

Other investments not in no more than 35%

EAFE Index

Foreign equity and

related securities

including common

stocks, convertible

and warrants

Futures and options no more than 33%

Covered put and call

options on foreign

currencies

Listed and unlisted put

and call options on

currency futures

Listed and unlisted

foreign currency

contracts

High quality foreign and up to 100%

domestic money market

securities**

Illiquid and restricted no more than 10%

securities

*At time of purchase.

**It is possible we may invest up to 100% of the

Fund's assets in short term, high quality, foreign

and domestic money market securities when we think

economic, political and market conditions in

foreign countries make it too risky to follow our

general guidelines.
</TABLE>

16
<PAGE> 19

INTERNATIONAL EQUITIES FUND
Fact Sheet

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

For the fiscal year ended May 31, 1997, the Fund had a return of 8.16% before
subtracting expenses of 0.42%. This return represented a positive tracking
difference of 0.62% compared to the EAFE Index. The outperformance was a result
of good representation in certain sectors of the European markets and avoidance
of some issues in Asia which performed poorly.

COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE INTERNATIONAL EQUITIES FUND AND
THE EAFE INDEX

AVERAGE ANNUAL TOTAL RETURN -- FUND

TABLE & GRAPH HERE

FISCAL YEAR ENDED MAY 31

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

17
<PAGE> 20

MIDCAP INDEX FUND
Fact Sheet
- --------------------------------------------------------------------------------

INVESTMENT GOAL: Growth Through Investments Tracking the S&P 400 MidCap Index
- --------------------------------------------------------------------------------

INVESTMENT CATEGORY: Growth
- --------------------------------------------------------------------------------

Additional information about the Fund's investments is provided under "Types of
Investments".

INVESTMENT ADVISER
VALIC

INVESTMENT SUB-ADVISER
Bankers Trust

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

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

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

INVESTMENT STRATEGY
The Fund invests in most of the stocks in the S&P MidCap 400 Index that, as a
group, should reflect its performance. Since it may not be possible for this
Fund to buy every stock included in this index or in the same proportions, we
buy as many stocks as are needed to closely track the performance of the S&P
MidCap 400 Index.

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

FUND INVESTMENTS PERCENT OF FUND'S ASSETS*
---------------- -------------------------
<S> <C>
Stocks in the S&P MidCap at least 65%

400 Index

Foreign stocks (listed and no more than 20%

over-the-counter) in the

S&P MidCap 400 Index

Futures and options no more than 33%

Investments not in the S&P no more than 35%

MidCap 400 Index

Common stock and

related securities

High quality money

market securities

Illiquid and restricted

securities

*At time of purchase.

</TABLE>

18
<PAGE> 21

MIDCAP INDEX FUND
Fact Sheet

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

For the fiscal year ended May 31, 1997, the Fund had a return of 17.88%, before
subtracting expenses of 0.40%. This represented a negative tracking difference
of 0.33% compared to the S&P MidCap 400 Index. The close tracking was the
result of low cost trading techniques, and the use of futures to maintain a
fully invested position.

COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE MIDCAP INDEX FUND AND
THE S&P MIDCAP 400 INDEX

AVERAGE ANNUAL TOTAL RETURN -- FUND

TABLE & GRAPH HERE

FISCAL YEAR ENDED MAY 31

19
<PAGE> 22
COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE MIDCAP INDEX FUND AND
THE S&P MIDCAP 400 INDEX

AVERAGE ANNUAL TOTAL RETURN -- FUND

TABLE & GRAPH HERE

FISCAL YEAR ENDED MAY 31

* Effective October 1, 1991, the Fund's name was changed from the Capital
Accumulation Fund to the MidCap Index Fund. Additionally, the investment
objectives and investment program for the Fund were changed.

<PAGE> 23

MONEY MARKET FUND
Fact Sheet
- --------------------------------------------------------------------------------
INVESTMENT GOAL: Income Through Investment in Short-Term Money Market
Securities
- --------------------------------------------------------------------------------
INVESTMENT CATEGORY: Stability
- --------------------------------------------------------------------------------

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)

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

<PAGE> 24

STOCK INDEX FUND
Fact Sheet
- --------------------------------------------------------------------------------
INVESTMENT GOAL: Growth Through Investments Tracking the S&P 500 Index
- --------------------------------------------------------------------------------
INVESTMENT CATEGORY: Growth
- --------------------------------------------------------------------------------

Additional information about the Fund's investments is provided under "Types of
Investments".

INVESTMENT ADVISER
VALIC

INVESTMENT SUB-ADVISER
Bankers Trust

INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the S&P 500 Index.

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

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

INVESTMENT STRATEGY
The Fund invests in most of the stocks in the S&P 500 Index that, as a group,
should reflect its performance. Since it may not be possible for this Fund to
buy every stock included in this Index or in the same proportions, we buy as
many stocks as are needed to closely track the performance of the S&P 500
Index.

22
<PAGE> 25

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 500 at least 65%

Index

Foreign stocks (listed and no more than 20%

over-the-counter) in the S&P

500 Index

Futures and options no more than 33%

Investments not in the S&P no more than 35%

500 Index

Common stock and

related securities

High quality money

market securities

Illiquid and restricted

securities
----------
*At time of purchase.
</TABLE>

23
<PAGE> 26

STOCK INDEX FUND
Fact Sheet
- -------------------------------------------------------------------------------

For the fiscal year ended May 31, 1997, the Fund had a return of 29.58%, before
subtracting expenses of 0.34%. This return represented a positive tracking
difference of 0.15% compared to the S&P 500 Index(c). A combination of careful
purchasing of securities, low cost trading techniques, and the use of futures
to maintain a fully invested position resulted in the close tracking of the
Index.

COMPARISON OF A CHANGE IN THE VALUE OF A $10,000
INVESTMENT IN THE STOCK INDEX FUND AND THE S&P 500 INDEX

AVERAGE ANNUAL TOTAL RETURN -- FUND

TABLE & GRAPH HERE

FISCAL YEAR ENDED MAY 31

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.

The Fund returns reflect investment management fees and other Fund expenses.
The Fund returns do not reflect charges included in the annuity contract for
mortality and expense guarantees, administrative fees or surrender charges.

24
<PAGE> 27

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

STOCKS -- also called equity securities
If you own a share of stock, you own a part of the company that issued it.
Companies sell stock to get the money they need to grow.

There are three types of stocks:

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

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

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

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

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

Investing in a bond is like making a loan for a fixed period of time at a fixed
interest rate. During the fixed period, the bond pays interest on a regular
basis. At the end of the fixed period, the bond matures and the investor
usually gets back the principal amount of the bond. Fixed periods to maturity
are categorized as short term (generally less than 12 months), intermediate
(one to 10 years), and long term (10 years or more).

Commercial paper is a specific type of corporate or short term note. In fact,
it's very short term, being paid in less than 270 days. Most commercial paper
matures in 50 days or less.

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

25
<PAGE> 28

trading market for lower-medium and lower-quality bonds may be less liquid
than the market for investment grade bonds. This potential lack of liquidity
may make it more difficult to accurately value certain of these lower-grade
portfolio securities.

Asset-Backed Securities
Asset-backed securities are bonds or notes that are normally supported by a
specific property. If the issuer fails to pay the interest or return the
principal when the bond matures, then the issuer must give the property to the
bondholders or noteholders.

All of the Funds in this prospectus may invest in asset-backed securities.
Examples of assets supporting asset-backed securities include credit card
receivables, retail installment loans, home equity loans, auto loans, and
manufactured housing loans. For more information about asset-backed securities
see the Statement of Additional Information.

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.
For more information about loan participations see the Statement of Additional
Information.

All the Funds in this prospectus may invest in loan participations.

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.

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

FOREIGN CURRENCY

All of the Funds, except the Money Market Fund, may buy and sell foreign
currencies the same way they buy and sell other investments. Funds buy foreign
currencies when they believe the value of the currency will increase. If it
does increase, they sell the currency for a profit. If it decreases they will
experience a loss. Funds may also buy foreign currencies to pay for foreign
securities bought for the Fund.

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<PAGE> 29

The Funds, except the Money Market Fund, may purchase forward foreign currency
exchange contracts to protect against a decline in the value of the U.S.
dollar. For more information about foreign currency exchange transactions, see
the Statement of Additional Information.

WHEN-ISSUED SECURITIES

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

All of the Funds may buy when-issued securities in accordance with their
investment strategy. For more information about when-issued securities, see the
Statement of Additional Information.

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 Standard & Poor's or another
nationally recognized rating service or if unrated, deemed high quality by
VALIC. For more information about money market securities of foreign issuers
the Funds may purchase, see the Statement of Additional Information.

These high quality money market securities 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 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

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. Derivatives are bought to
protect ("hedge") against a change in the price of the underlying security.
There are some investors who take higher risk ("speculate") and buy derivatives
to profit from a change in price of the underlying security. We buy derivatives
to hedge the investment portfolios and to earn additional income in order to
help achieve the Funds' objectives. We do not buy derivatives to speculate.

The Funds, except the Money Market Fund, may buy two types of derivatives:
futures and options.

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

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

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<PAGE> 30

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

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

Futures Contracts
A futures contract is an agreement between a buyer and a seller to buy or sell
an investment on a future date at a price the buyer and seller set today. The
buyer thinks the price will go up between now and then, and the seller thinks
the price will go down or they may just want to receive today's price because
they do not know which way prices are going to go.

All of the Funds, except the Money Market Fund, may enter into certain types of
futures contracts. The Funds use futures contracts as a tool to earn more
money, and to protect against rising or falling prices in the stock and bond
markets.

The Funds use stock and bond futures to invest cash and cash equivalents. When
certain levels are reached the Fund will sell the futures and buy stocks or
bonds. For more information on put and call options and financial futures
contracts and options, see the Statement of Additional information.

All of the Funds, except the Money Market Fund can invest in these 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 Equities Fund may write and purchase put and call options on
securities and stock indices that are not traded on an exchange.

REPURCHASE AGREEMENTS

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

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

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<PAGE> 31

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 Funds' Investment Adviser or the Sub-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.

All of the Funds in this prospectus may buy bonds that are rated as investment
grade. There are four different levels of investment grade, from AAA to BBB;
see Description of Corporate Bond Ratings in the Statement of Additional
Information. All bonds with these ratings are considered to have adequate
ability to pay interest and principal.

All of the Funds in this prospectus may buy bonds issued by the U.S.
Government. The U.S. Government guarantees it will always pay principal and
interest.

Interest Rate Risk

Interest rate risk refers to the risk that fluctuations in interest rates may
affect the value of interest paying securities in a Fund. If a fund sells a
bond before it matures, it may lose money, even if the bond is guaranteed by
the U.S. Government. Say, for example, a fund bought an intermediate
government bond last year that was paying interest at a fixed rate of 6%. Now,
intermediate government bonds are paying interest at a rate of 7%. If the
fund wants to sell the bond paying 6%, it will have to sell it at a discount
(and realize a loss) to attract buyers because they can buy new bonds paying
7% interest.

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<PAGE> 32

Risk Associated with Foreign Securities

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

There are three principal risks of owning foreign securities:

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

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

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

INVESTMENT PRACTICES

Limitations

Each Fund has limitations on the percentage of its assets that it may allocate
to certain investments. These limits are determined by the Fund's investment
objectives and risk level.

For example, the Stock Index Fund's investment goal is growth through
investments tracking the S&P 500 Index, an index that includes stocks of
domestic and foreign companies. As a result, this Fund may invest no more than
35% of its assets in stocks that are not part of the S&P 500 Index.

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

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

Lending Portfolio Securities

Each Fund 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 Funds 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.

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

SERIES COMPANY SHARES

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

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

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

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

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<PAGE> 34

NET ASSET VALUE OF THE SERIES
COMPANY SHARES

How Net Asset Value is Calculated
Here is how the Series Company calculates the net asset value of each Fund's
shares:

Step 1:

Total value of the

Fund's assets* (including money owed to the Fund but not yet collected)

The Fund's

= Total

Net Asset 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)

(Divide) The total number of the = NET ASSET VALUE

Fund's shares that are PER SHARE

outstanding.

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

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

When Net Asset Value is Calculated

The Series Company calculates the net asset value of each Fund's shares at
approximately 4 pm 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 accounts can buy, sell, and transfer shares in the Funds only on
days that the Series Company calculates the net asset value of each Fund's
shares. Through VAMCO, the separate accounts send orders to the Series Company
to buy, sell, or transfer shares based on requests they receive from
participants.

DIVIDENDS AND CAPITAL GAINS

Dividends from Net Investment Income

Net investment income generally includes stock dividends received and bond
interest earned less expenses paid by the Fund. Each Fund pays dividends from
net investment income occasionally. Dividends from net investment income are
automatically reinvested for you into additional shares of the Fund. The Money
Market Fund pays dividends daily and all other Funds pay dividends once a
month.

<PAGE> 35

Distributions from Capital Gains

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

DIVERSIFICATION

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

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

The 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).

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

TAXES

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

VOTING RIGHTS

One Vote Per Share

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

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

Shareholder Meetings

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

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

o 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.

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<PAGE> 36

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

Shareholder Communications

The Series Company will assist in shareholder communications.

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.

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.

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TABLE OF CONTENTS
OF STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History..................... 2
Additional Information Regarding Certain Funds...... 3
International Equities Fund..................... 3
Performance and Yield Information................... 5
Fundamental Investment Restrictions................. 8
Fundamental Investment Restrictions
Applicable to All Funds............................. 8
MMF Investment Restrictions..................... 9
SIF, IEF and MIF 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
Investment Sub-Advisers............................. 27
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
Index Funds..................................... 38
Description of Corporate Bond Ratings........... 39
Description of Commercial Paper Ratings......... 40
Independent Auditors............................ 40
Directors and Officers.............................. 41
Financial Statements................................ 44

</TABLE>

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<PAGE> 38

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

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

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