NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES CO I, 485BPOS, 2000-09-29

NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES CO I
485BPOS, 2000-09-29

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON: September 29, 2000

REGISTRATION NO. 2-83631/811-3738
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 31 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 32 [X]

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

NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES CO. I

(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(713) 831-1230
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

THE CORPORATION TRUST COMPANY
300 E. LOMBARD ST.
BALTIMORE, MARYLAND 21202
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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

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

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

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

<TABLE>
<S> <C>
_X__ immediately upon filing pursuant to paragraph (b)
____ on October 1, 2000 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(1)
____ on (date) pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Title of Securities Being Registered: Shares of Common Stock

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

================================================================================
<PAGE> 2

NORTH AMERICAN FUNDS VARIABLE
PRODUCT SERIES I
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
OCTOBER 1, 2000
PROSPECTUS

North American Funds Variable Product Series I (the "Series Company," known as
American General Series Portfolio Company prior to October 1, 2000) is a mutual
fund made up of 19 separate Funds (the "Funds"). Each of the Funds has a
different investment objective. Each Fund is explained in more detail on its
Fact Sheet contained in this Prospectus. As of October 1, 2000, the name of each
Fund has changed, and six new Funds have been added. Here is a list of the old
and new names for the Funds and the six new Funds:

NAME PRIOR TO OCTOBER 1, 2000

AGSPC Asset Allocation Fund

AGSPC Capital Conservation Fund

AGSPC Government Securities Fund

AGSPC Growth Fund

AGSPC Growth & Income Fund

AGSPC International Equities Fund

AGSPC International Government Bond Fund

AGSPC MidCap Index Fund

AGSPC Money Market Fund

AGSPC Science & Technology Fund

AGSPC Small Cap Index Fund

AGSPC Social Awareness Fund

AGSPC Stock Index Fund

NAME AS OF OCTOBER 1, 2000

North American -- AG Asset Allocation Fund

North American -- AG Capital Conservation Fund

North American -- AG Government Securities Fund

North American Core Equity Fund

North American -- AG Growth & Income Fund

North American -- AG International Equities Fund

North American -- AG International Government Bond Fund

North American -- AG MidCap Index Fund

North American -- AG 1 Money Market Fund

North American -- T. Rowe Price Science & Technology Fund

North American -- AG Small Cap Index Fund

North American -- AG Social Awareness Fund

North American -- AG Stock Index Fund

NEW FUNDS AS OF OCTOBER 1, 2000:

North American -- American Century Income & Growth Fund

North American -- American Century International Growth Fund

North American -- Founders Large Cap Growth Fund

North American -- AG Nasdaq-100(R) Index Fund

North American -- Putnam Opportunities Fund

North American -- Founders/T. Rowe Price Small Cap Fund

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR HAS IT DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE
WELCOME TO AMERICAN GENERAL.................... 1
ABOUT THE FUNDS................................ 1
Growth, Income and Stability Categories... 1
FUND FACT SHEETS............................... 3
North American -- AG Asset Allocation
Fund.................................... 3
North American -- AG Capital Conservation
Fund.................................... 5
North American Core Equity Fund........... 7
North American -- AG Government Securities
Fund.................................... 9
North American -- AG Growth & Income
Fund.................................... 11
North American -- American Century Income
& Growth Fund........................... 13
North American -- AG International
Equities Fund........................... 14
North American -- AG International
Government Bond Fund.................... 16
North American -- American Century
International Growth Fund............... 18
North American -- Founders Large Cap
Growth Fund............................. 20
North American -- AG MidCap Index Fund.... 21
North American -- AG 1 Money Market
Fund.................................... 23
North American -- AG Nasdaq-100(R) Index
Fund.................................... 25
North American -- Putnam Opportunities
Fund.................................... 27
North American -- T. Rowe Price Science &
Technology Fund......................... 28
North American -- Founders/T. Rowe Price
Small Cap Fund.......................... 30
North American -- AG Small Cap Index
Fund.................................... 32
North American -- AG Social Awareness
Fund.................................... 34
North American -- AG Stock Index Fund..... 36
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MORE ABOUT PORTFOLIO INVESTMENTS............... 38
Equity Securities......................... 38
Fixed Income Securities................... 38
Asset-Backed Securities................... 39
Loan Participations....................... 39
Mortgage-Related Securities............... 39
Variable Rate Demand Notes................ 40
Foreign Securities........................ 40
ADRs...................................... 40
Foreign Currency.......................... 40
Illiquid Securities....................... 40
Futures and Options....................... 40
When-Issued Securities.................... 41
Money Market Securities................... 41
Repurchase Agreements..................... 41
Reverse Repurchase Agreements, Dollar
Rolls and Borrowings.................... 41
Lending Portfolio Securities.............. 41
Diversification........................... 41
A Word About Risk......................... 42
About Portfolio Turnover.................. 43
ABOUT THE SERIES COMPANY'S MANAGEMENT.......... 44
Investment Adviser........................ 44
Investment Sub-advisers................... 44
How American General Advisers is Paid For
Its Services............................ 49
ABOUT INDEX EQUITY FUNDS....................... 51
ABOUT THE SERIES COMPANY....................... 53
Series Company Shares..................... 53
Net Asset Value of the Series Company
Shares.................................. 53
Dividends and Capital Gains............... 54
Tax Consequences.......................... 54
FINANCIAL HIGHLIGHTS........................... 55
</TABLE>

(i)
<PAGE> 4

WELCOME TO AMERICAN GENERAL
--------------------------------------------------------------------------------

American General Corporation, with assets of approximately $121 billion and
shareholders' equity of $7.9 billion as of June 30, 2000, is the parent company
of one of the nation's largest diversified financial services organizations.
American General's operating divisions deliver a wide range of retirement
services, life insurance, and consumer finance products and services to diverse
markets through focused distribution channels. American General, headquartered
in Houston, was incorporated as a general business corporation in Texas in 1980
and is the successor to American General Insurance Company, an insurance company
incorporated in Texas in 1926.

The address of American General Corporation and its subsidiaries, including The
Variable Annuity Life Insurance Company ("VALIC") and American General
Investment Management, L.P. ("AGIM"), is 2929 Allen Parkway, Houston, Texas
77019. American General Advisers, the investment adviser, is a division of
VALIC.

Unless otherwise specified in this prospectus, the words we and our mean
American General Advisers. The words you and your mean the participant.

Individuals can't invest in these Funds directly. Instead, they participate
through an annuity contract, variable life policy, or employer plan
(collectively, the "Contracts" and each a Contract) with VALIC or one of its
affiliates, or employee thrift plans maintained by VALIC or American General
Corporation. Most often employers set up annuity contracts 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 more
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 or variable life policies 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 1-800-813-5065. AGL is a member of the American General
Corporation group of companies, as is VALIC.

The Contracts may be sold by banks. An investment in a Fund through a Contract
is not a deposit of a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

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

GROWTH, INCOME AND STABILITY
CATEGORIES

The Funds offered in this prospectus fall into three general investment
categories: growth, income 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.

1
<PAGE> 5

Series Company Growth Category includes:

North American -- AG Asset Allocation Fund ("Asset Allocation")
North American Core Equity Fund ("Core Equity")
North American -- AG Growth & Income Fund ("Growth & Income")
North American -- American Century International Growth Fund ("International
Growth")
North American -- AG International Equities Fund ("International Equities")
North American -- Founders Large Cap Growth Fund ("Large Cap Growth")
North American -- AG MidCap Index Fund ("MidCap Index")
North American -- AG Nasdaq-100(R) Index Fund ("Nasdaq-100(R) Index")
North American -- Putnam Opportunities Fund ("Opportunities")
North American -- T. Rowe Price Science & Technology Fund ("Science &
Technology")
North American -- Founders/T. Rowe Price Small Cap Fund ("Small Cap")
North American -- AG Small Cap Index Fund ("Small Cap Index")
North American -- AG Social Awareness Fund ("Social Awareness")
North American -- AG Stock Index Fund ("Stock Index")

Income Category

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

Series Company Income Category includes:

North American -- AG Capital Conservation Fund ("Capital Conservation")
North American -- AG Government Securities Fund ("Government Securities")
North American -- American Century Income & Growth Fund ("Income & Growth")
North American -- AG International Government Bond Fund ("International
Government")

Stability Category

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

Series Company Stability Category includes:

North American -- AG 1 Money Market Fund ("Money Market")

Investment Objectives

The investment objective for each of the Funds in this prospectus is
non-fundamental and may be changed by the Series Company's Board of Directors
without investor approval.

2
<PAGE> 6

NORTH AMERICAN -- AG
ASSET ALLOCATION
FUND
Fact Sheet
-------------------------------------------------
Investment Goal MAXIMUM RETURN
THROUGH INVESTMENT
IN A MIX OF STOCKS,
BONDS AND MONEY
MARKET SECURITIES
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT OBJECTIVE
Seeks maximum aggregate rate of return over the long-term through controlled
investment risk by adjusting its investment mix among stocks, long-term debt
securities and short-term money market securities.

INVESTMENT STRATEGY
The Fund is an asset allocation fund that attempts to maximize returns with a
mix of stocks, bonds and money market securities. We buy and sell securities for
the Fund by changing its investment mix among stocks, intermediate and long-term
bonds and money market securities. As a result, the Fund's investments may
change often. Also, the Fund can invest 100% in just one of these market
sectors.

Unlike an index fund, which tries to increase the money you invest by matching a
specific index's performance, the Fund tries to perform better than a blend of
three market sectors measured by:

- the S&P 500 Index;

- the Merrill Lynch Corporate and Government Master Index; and

- the Certificate of Deposit Primary Offering by New York City Banks, 30-day
Rate

To help us decide how to allocate the Fund's assets, we rely on an asset
allocation model. The model analyzes many factors that affect the performance of
securities that comprise certain indexes.

Based on the model, we intend to allocate the Fund's assets around the following
benchmarks:

<TABLE>
<S> <C>
stocks (common stock, preferred stock and
convertible preferred stock) 55%
intermediate and long-term bonds 35%
high quality money market securities 10%
</TABLE>

The Fund has established separate sub-objectives for investments in each of the
three market sectors. Within the stock sector, the Fund seeks appreciation of
capital by selecting investments that it expects will participate in the growth
of the nation's economy. Within the bond sector, the Fund will generally seek
high current income consistent with reasonable investment risk. Within the money
market sector, the Fund seeks the highest level of current income consistent
with liquidity, stability, and preservation of capital.

As of May 31, 2000, the Fund's assets were invested as follows:

<TABLE>
<S> <C>
stocks 54.81%
intermediate and long-term bonds 30.41%
high quality money market securities 14.78%*
</TABLE>

------------
* After taking the contract value of futures positions into consideration. See
"Types of Investments".

INVESTMENT RISK
The Fund allocates its assets using an asset allocation model. The model tries
to get the best return from three types of securities. A part of that program
also tries to reduce risk. As with all funds, if you sell your shares when their
value is less than the price you paid, you will lose money. Because of the
following principal risks the value of your investment may fluctuate:

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Credit Risk: the risk that an issuer of a fixed income security owned by the
Fund may be unable to make interest or principal payments.

Interest Rate Risk: the risk that fluctuations in interest rates may affect the
value of the Fund's interest-paying fixed income securities.

Prepayment Risk: the risk that issuers of fixed income securities will make
prepayments earlier than anticipated during periods of falling interest rates
requiring the Fund to invest in new securities with lower interest rates. This
will reduce the stream of cash payments that flow through the Fund.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Model Risk: the risk that the asset allocation model fails to produce the
optimal allocation.

For additional information
about THE FUND'S
INVESTMENTS see "More
about Portfolio Investments"
in the prospectus.

3
<PAGE> 7

ASSET ALLOCATION
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the Standard & Poor's 500 Stock Index (S&P 500 Index). How the
Fund performed in the past is not necessarily an indication of how the Fund will
perform in the future. The Fund's annual report contains a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.

This chart illustrates the Fund's annual returns for the last ten calendar
years. Charges imposed by the Contracts that invest in the Fund are not included
in the calculations of return in this bar chart, and if those charges were
included, the returns would have been less than those shown below.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was 0.69%

The highest quarterly return for the Fund from January 1, 1990 to December 31,
1999, was 11.29% (for the quarter ended June 30, 1997,) and the lowest quarterly
return was (10.00%) (for the quarter ended September 30, 1990).

This table compares the Fund's average annual returns to the returns of the S&P
500 Index and a Model Benchmark, which is a blended index of the S&P 500 Index,
the Merrill Lynch Corporate and Government Master Index and the Certificate of
Deposit Primary Offering to New York City Banks, 30 Day Rate, for the one-,
five-and ten-calendar year periods. The percentages of each index included in
the Model Benchmark may differ from the percentages their respective asset
classes represent in the Fund's investment portfolio.

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

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 11.76% 17.59% 11.05%
S&P 500 21.05% 28.56% 18.21%
Model Benchmark 10.98% 18.66% 13.26%
Lehman Bros Agg. (0.83%) 7.73% 7.69%
</TABLE>

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

Effective October 1, 2000, the Fund has made a change in the calculation of the
Model Benchmark. The Model Benchmark is a blended index as explained above;
however, a portion of the model is based on the Merrill Lynch Corporate and
Government Master Index. This is an all-treasury benchmark, but the Fund may
invest in all types of government securities (not just Treasuries). Effective
October 1, 2000, the Fund will modify the blended index, and will replace the
Merrill Lynch Corporate and Government Master Index portion with the Lehman
Brothers Aggregate Bond Index. The Lehman Brothers Aggregate Bond Index is a
broad market measure for fixed-income securities. It is composed of the Lehman
Brothers Government/Corporate Index, the Lehman Brothers Mortgage-Backed
Securities Index and the Lehman Brothers Asset-Backed Securities Index. This
will make the Model Benchmark more reflective of the group of allowable Fund
investments.

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 or variable life policy for mortality
and expense guarantees, administrative
fees or surrender charges.

4
<PAGE> 8

NORTH AMERICAN -- AG
CAPITAL CONSERVATION
FUND
Fact Sheet
-------------------------------------------------
Investment Goal INCOME AND POSSIBLE
GROWTH THROUGH
INVESTMENTS IN
HIGH QUALITY DEBT
SECURITIES
-------------------------------------------------
Investment Category INCOME

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT OBJECTIVE
Seeks the highest possible total return consistent with preservation of capital
through current income and capital gains on investments in intermediate and
long-term debt instruments and other income producing securities.

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

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

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets(1)
----------------------------------------------------
<S> <C>
Investment grade at least 75%
intermediate and
long-term corporate
bonds rated at
least Baa by Moody's
Investors Service or
another rating
organization(2),
securities issued or
guaranteed by the U.S.
Government(3), mortgage
backed securities,
asset-backed securities,
collateralized mortgage
obligations and high
quality money market
securities
----------------------------------------------------
Foreign securities, up to 20%
mostly
foreign bonds that are
of the same quality as
other
bonds purchased by
this Fund
----------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
(1) At time of purchase.
(2) For more information concerning ratings see
"Description of Corporate Bond Ratings" and
"Description of Commercial Paper Ratings" in the
Statement of Additional Information.
(3) U.S. Government securities are securities issued
or guaranteed by the U.S. Government which are
supported by (i) the full faith and credit of
the U.S. Government, (ii) the right of the
issuer to borrow from the U.S. Treasury, (iii)
the credit of the issuing government agency or
(iv) the discretionary authority of the U.S.
Government or GNMA to purchase certain
obligations of the agency. For more information
see "Government Securities Fund" in the
Statement of Additional Information.
</TABLE>

INVESTMENT RISK
As with all funds, if you sell your shares when their value is less than the
price you paid, you will lose money. Because of the following principal risks
the value of your investment may fluctuate:

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Credit Risk: the risk that an issuer of a fixed income security owned by the
Fund may be unable to make interest or principal payments.

Interest Rate Risk: the risk that fluctuations in interest rates may affect the
value of the Fund's interest-paying fixed income securities.

Foreign Securities Risks:

Political Risk: the risk that a change in a foreign government will occur and
that the assets of a company in which the Fund has invested will be affected.

Sovereign Risk: the risk that a foreign government will interfere with
currency trading or transferring money out of the country.

Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets.

Limited Information Risk: the risk that foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S.
companies and that less public information about their operations may exist
and they may offer less protection to investors.

Developing Country Risk: the risks associated with investment in foreign
securities are heightened in connection with investments in the securities of
issuers in developing countries, as these markets are generally more volatile
than the markets of developed countries.

Settlement and Clearance Risk: the risks associated with the clearance and
settlement procedures in non-U.S. markets, which may be unable to keep pace
with the volume of securities transactions and may cause delays.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about Portfolio
Investments".

5
<PAGE> 9

CAPITAL CONSERVATION
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------
The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the Merrill Lynch Corporate Master Bond Index. How the Fund
performed in the past is not necessarily an indication of how the Fund will
perform in the future. The Fund's annual report contains a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was 2.38%

The highest quarterly return for the Fund from January 1, 1990 to December 31,
1999, was 6.91% (for the quarter ended June 30, 1995) and the lowest quarterly
return was (4.55)% (for the quarter ended March 31, 1994).

This table compares the Fund's average annual returns to the returns of the
Merrill Lynch Corporate Master Bond Index for the one-, five-and ten-calendar
year periods.

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

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund (0.42%) 7.37% 6.65%
Merrill Lynch
Corporate Master
Bond Index (1.89%) 8.16% 8.34%
Lehman Bros Agg. (0.83%) 7.73% 7.69%
--------------------------------------------------
</TABLE>

Effective October 1, 2000, the Fund has selected the Lehman Brothers Aggregate
Bond Index as its benchmark for index comparison purposes, rather than the
Merrill Lynch Corporate Master Bond Index. The Lehman Brothers Aggregate Bond
Index better matches the securities in which the Fund may invest, and will
better align the goals of the Fund with its benchmark index, by focusing on the
investment grade bond diversification.

The Lehman Brothers Aggregate Bond Index is a broad market measure for
fixed-income securities. It is composed of the Lehman Brothers
Government/Corporate Index, the Lehman Brothers Mortgage-Backed Securities Index
and the Lehman Brothers Asset-Backed Securities Index. The index includes fixed
rate debt issues rated investment grade or higher by Moody's Investors Service,
Standard & Poor's Corporation or Fitch Investors Service, in that order. All
issues have at least one year to maturity with intermediate indices including
bonds with maturities up to ten years and long-term indices composed of bonds
with maturities longer than ten years. All returns are market value weighted
inclusive of accrued interest.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

6
<PAGE> 10

NORTH AMERICAN CORE
EQUITY FUND
Fact Sheet
-------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS IN
EQUITY SECURITIES
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISER
Wellington Management Company, LLP

INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
equity securities.

INVESTMENT STRATEGY
The Fund invests primarily in large-cap quality companies with long-term growth
potential. Important characteristics of such companies include: a strong
management team, a leadership position within an industry, a globally
competitive focus, a strong balance sheet and a high return on equity.

The investment strategy is a conservative, long-term approach which is a blend
of top down sector analysis and bottom up security selection.

- Top Down Sector Analysis. The Sub-adviser analyzes the macroeconomic and
investment environment, including an evaluation of economic conditions, US
fiscal and monetary policy, demographic trends and investor sentiment. Through
top down analysis, the Sub-adviser anticipates trends and changes in markets
in the economy as a whole and identifies industries and sectors that are
expected to outperform.

- Bottom Up Security Selection. Bottom up security selection consists of the use
of fundamental analysis to identify specific securities for purchase or sale.
Fundamental analysis of a company involves the assessment of such factors as
its management, business environment, balance sheet, income statement,
anticipated earnings, revenues, dividends and other related measures of value.

For temporary defensive purposes the Fund may invest up to 100% of its assets in
high quality money market securities. Whenever the Fund assumes such a defensive
position the Fund may not achieve its investment objective.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
----------------------------------------------------
<S> <C>
Common stocks and at least 75%
related securities,
including preferred
stock and convertible
stock
----------------------------------------------------
High quality money up to 100%
market securities
----------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* At time of purchase.
</TABLE>

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More About
Portfolio Investments".

7
<PAGE> 11

CORE EQUITY
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P 500 Index. Prior to September 1, 1999, the Fund was
sub-advised by T. Rowe Price Associates, Inc. Wellington Management assumed
sub-advisory duties September 1, 1999. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

This chart illustrates the Fund's annual returns for each full calendar year
since inception of the Fund. Charges imposed by the Contracts that invest in the
Fund are not included in the calculations of return in this bar chart, and if
those charges were included, the returns would have been less than those shown
below.

[BAR CHART]

------------
* For the year-to-date through June 30, 2000, the Fund's return was 2.30%

The highest quarterly return for the Fund from April 29, 1994 to December 31,
1999, was 27.67% (for the quarter ended December 31, 1998) and the lowest
quarterly return was (20.82%) (for the quarter ended September 30, 1998).

This table compares the Fund's average annual returns to the returns of the S&P
500 Index for the one-calendar year period and since inception of the Fund.

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

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION**
------ ------- -----------------
<S> <C> <C> <C>
The Fund 7.39% 22.06% 19.40%
S&P 500 Index 21.05% 28.56% 25.68%
</TABLE>

-------------------------------------------------
** 4/29/94.

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

The table below describes the fees and expenses you may pay if you remain
invested in the Fund. The Fund's annual operating expenses do not reflect
expenses imposed by separate accounts of VALIC through which an investment in
the Fund is made or their related Contracts. A separate account's expenses are
fully explained in your Contract prospectus.

ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
-------------------------------------------------

<TABLE>
<S> <C>
Management Fees 0.80%
Other Expenses 0.05%
-----
Total Annual Fund Operating Expenses 0.85%
=====
-----------------------------------------------
</TABLE>

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

<TABLE>
<CAPTION>
-------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$87 $271 $472 $1,053
-------------------------------------
</TABLE>

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

This EXPENSE SUMMARY
information is included for
the benefit of certain
participants in employee
thrift plans maintained by
VALIC or American General
Corporation. Contract holders
can find substantially similar
information for the other
Funds in the prospectus
for their Contract.

8
<PAGE> 12

NORTH AMERICAN -- AG
GOVERNMENT SECURITIES
FUND
Fact Sheet
-------------------------------------------------
Investment Goal INCOME AND POSSIBLE
GROWTH THROUGH
INVESTMENTS IN
INTERMEDIATE & LONG-
TERM GOVERNMENT
DEBT SECURITIES
-------------------------------------------------
Investment Category INCOME

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT OBJECTIVE
Seeks high current income and protection of capital through investments in
intermediate and long-term U.S. Government debt securities.

INVESTMENT STRATEGY
The Fund primarily invests in intermediate and long term U.S. Government and
government sponsored investments. The Fund may also use up to 20% of its assets
to make high quality foreign investments payable in U.S. dollars.

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

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets(1)
----------------------------------------------------
<S> <C>
Debt securities issued or at least 80%
guaranteed by the U.S.
Government(2), asset-
backed securities, high
quality domestic money
market securities
----------------------------------------------------
Mortgage-backed up to 25%
securities
----------------------------------------------------
(1) At time of purchase.
(2) U.S. Government securities are securities issued
or guaranteed by the U.S. Government and which
are supported by (i) the full faith and credit
of the U.S. Government, (ii) the right of the
issuer to borrow from the U.S. Treasury, (iii)
the credit of the issuing government agency, or
(iv) the discretionary authority of the U.S.
Government or GNMA to purchase certain
obligations of the agency. For more information
see "Government Securities Fund" in the
Statement of Additional Information.
</TABLE>

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Interest Rate Risk: the risk that fluctuations in interest rates may affect the
value of the Fund's interest-paying fixed income securities.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

9
<PAGE> 13

GOVERNMENT SECURITIES
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the Lehman Brothers U.S. Treasury Composite Index. How the Fund
performed in the past is not necessarily an indication of how the Fund will
perform in the future. The Fund's annual report contains a discussion of the
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was 4.49%

The highest quarterly return for the Fund from January 1, 1990 to December 31,
1999, was 6.47% (for the quarter ended September 30, 1991) and the lowest
quarterly return was (3.75%) (for the quarter ended March 31, 1994).

This table compares the Fund's average annual returns to the returns of the
Lehman Brothers U.S. Treasury Composite Index for the one-, five-and
ten-calendar year periods.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund (2.78%) 6.67% 6.66%
Lehman Brothers U.S.
Treasury Composite
Index (2.57%) 7.39% 7.45%
Lehman Government
Bond (2.23%) 7.44% 7.48%
--------------------------------------------------
</TABLE>

Effective October 1, 2000, the Fund has selected the Lehman Brothers Government
Bond Index as its benchmark for index comparison purposes, rather than the
Lehman Brothers U.S. Treasury Composite Index. The Lehman Brothers Government
Bond Index better matches the securities in which the Fund may invest, and will
better align the goals of the Fund with its benchmark index, by focusing on the
investment grade bond diversification.

The Lehman Brothers Government Bond Index is a broad market measure for
fixed-income government securities. It is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation, and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

10
<PAGE> 14

NORTH AMERICAN -- AG
GROWTH & INCOME
FUND
Fact Sheet
-------------------------------------------------
Investment Goal GROWTH AND INCOME
THROUGH INVESTMENTS
IN STOCKS OR
SECURITIES CONVERTIBLE
INTO STOCKS
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and, secondarily, current income
through investment in common stocks and equity-related securities.

INVESTMENT STRATEGY
The Fund invests in stocks that provide long-term growth potential. As a
secondary goal, the Fund invests in securities that will provide current income.
We use a top-down, highly disciplined investment process. A universe of
potential investment candidates is developed and then tested through various
filters to determine the appropriate mix for achieving the desired returns while
limiting variation relative to the market. The portfolio will usually consist of
a diversified selection of large capitalization stocks with a tendency toward
lower price/earnings multiples.

We follow the guidelines listed below for making the primary investments for the
Fund. For temporary defensive purposes the Fund may invest up to 100% of its
assets in high quality money market securities. Whenever the Fund assumes such a
defensive position the Fund may not achieve its investment objective.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
----------------------------------------------------
<S> <C>
Common stocks and equity generally 90-95%
related securities,
bonds, preferred stock,
convertible stock and
warrants
----------------------------------------------------
High quality money up to 100%
market securities
----------------------------------------------------
* At time of purchase.
</TABLE>

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More About
Portfolio Investments".

11
<PAGE> 15

GROWTH & INCOME
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P 500 Index. Prior to February 22, 1999, the Fund was
sub-advised by Value Line, Inc. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]
------------
* For the year-to-date through June 30, 2000, the Fund's return was (2.68%).

The highest quarterly return for the Fund from April 29, 1994 to December 31,
1999, was 23.67% (for the quarter ended December 31, 1998) and the lowest
quarterly return was (15.68%) (for the quarter ended September 30, 1998).

This table compares the Fund's average annual returns to the returns of the S&P
500 Index for the one-calendar year period and since inception of the Fund.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEAR SINCE INCEPTION**
------ ------ -----------------
<S> <C> <C> <C>
The Fund 22.83% 23.16% 20.16%
S&P 500 Index 21.05% 28.56% 25.68%
</TABLE>

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

** 4/29/94.

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 or variable
annuity policy for mortality and expense guarantees, administrative fees or
surrender charges.

12
<PAGE> 16

NORTH AMERICAN --
AMERICAN CENTURY
INCOME & GROWTH FUND
Fact Sheet
-------------------------------------------------
Investment Goal DIVIDEND GROWTH,
CURRENT INCOME AND
CAPITAL APPRECIATION
-------------------------------------------------
Investment Category INCOME

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISER
American Century Investment Management, Inc.

INVESTMENT OBJECTIVE
The North American -- American Century Income & Growth Fund (the "Fund") seeks
dividend growth, current income and capital appreciation by investing in common
stocks. Current income is a secondary consideration.

INVESTMENT STRATEGY
American Century Investment Management, Inc., the Fund's sub-adviser (manager),
utilizes quantitative management techniques in a two-step process that draws
heavily on computer technology. In the first step, the Fund manager ranks
stocks, primarily the 1,500 largest publicly traded companies in the United
States (measured by the value of their stock) from most attractive to least
attractive. This is determined by using a computer model that combines measures
of a stock's value, as well as measures of its growth potential. To measure
value, the manager uses ratios of stock price to book value and stock price to
cash flow, among others. To measure growth, the manager uses, among others, the
rate of growth of a company's earnings and changes in the earnings estimates for
a company.

In the second step, the manager uses a technique called portfolio optimization.
In portfolio optimization, the manager uses a computer model to build a
portfolio of stocks, from the ranking described earlier, that the manager
believes will provide the optimal balance between risk and expected return. The
goal is to create a fund that provides better returns than the S&P 500, without
taking on significant additional risk. If the stocks that make up the S&P 500 do
not have a high dividend yield, then the Fund may not have a high dividend
yield.

The manager does not attempt to time the market. Instead, the manager intends to
keep the Fund fully invested in stocks regardless of the movement of stock
prices generally. When the manager believes it is prudent, the Fund may invest
in securities other than stocks, such as convertible securities, foreign
securities, short-term instruments and non-leveraged stock index futures
contracts and other securities. Stock index futures contracts, a type of
derivative security, can help the Fund's cash assets remain liquid while
performing more like stocks. The Fund has a policy to help manage the risk of
these types of investments.

Temporary Defensive Investment Strategy: From time to time, the Fund may take
temporary defensive positions that are inconsistent with its principal
investment strategies, in attempting to respond to adverse market, economic,
political, or other conditions. If the Fund takes such a temporary defensive
position, it may not achieve its investment objective.

Index Risk: the Fund is managed to an Index, the S&P 500. Therefore, the Fund's
performance will be closely tied to the Index. If the Index goes down, it is
likely that the Fund's performance will also go down.

Market Risk: The value of the Fund shares will go up and down based on the
performance of the companies whose securities it owns. The value of the
individual securities the Fund owns will go up and down depending on the
company's performance, general market and economic conditions, and investor
confidence.

Price Volatility: The value of the Fund's shares may fluctuate significantly in
the short term.

PERFORMANCE INFORMATION
Performance information is not shown since this is a brand-new fund.

13
<PAGE> 17

NORTH AMERICAN -- AG
INTERNATIONAL EQUITIES
FUND
Fact Sheet
-------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS TRACKING
THE EAFE INDEX
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

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 Morgan Stanley Capital International,
Europe, Australasia and the Far East (EAFE) Index (EAFE Index).

INVESTMENT STRATEGY
The Fund invests in a sampling of about 300 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. The EAFE Index generally
includes stock of large capitalization companies. 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.

We follow the guidelines listed below for making the primary investments for the
Fund. For temporary defensive purposes, we may invest up to 100% of the Fund's
assets in high quality foreign and domestic money market securities. We may do
this when we think economic, political or market conditions in foreign countries
make it too risky to follow our general guidelines. Whenever the Fund assumes
such a defensive position the Fund may not achieve its investment objective.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
----------------------------------------------------
<S> <C>
Stocks in the EAFE Index at least 65%
----------------------------------------------------
Other investments not in
EAFE Index
Foreign equity and no more than 35%
related securities
including common
stocks, convertible
stocks, preferred
stocks and warrants
----------------------------------------------------
Futures and options
Covered put and call no more than 33%
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
----------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* At time of purchase.
</TABLE>

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Foreign Securities Risks:

Political Risk: the risk that a change in a foreign government will occur and
that the assets of a company in which the Fund has invested will be affected.

Currency Risk: the risk that a foreign currency will decline in value. The
Fund generally will trade, for hedging purposes, in currencies other than the
U.S. dollar. An increase in the value of the U.S. dollar relative to a
foreign currency will adversely affect the value of the Fund.

Sovereign Risk: the risk that a foreign government will interfere with
currency trading or transferring money out of the country.

Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

14
<PAGE> 18

INTERNATIONAL EQUITIES
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the EAFE Index. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was (6.47%).

The highest quarterly return for the Fund from January 1, 1990 to December 31,
1999, was 21.36% (for the quarter ended December 31, 1998) and the lowest
quarterly return was (18.20%) (for the quarter ended March 31, 1990).

This table compares the Fund's average annual returns to the returns of the EAFE
Index.

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

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 29.19% 13.16% 7.18%
EAFE Index 26.96% 12.83% 7.01%
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

15
<PAGE> 19

NORTH AMERICAN -- AG
INTERNATIONAL
GOVERNMENT BOND
FUND
Fact Sheet
-------------------------------------------------
Investment Goal INCOME THROUGH
INVESTMENTS IN
INVESTMENT-GRADE FOREIGN GOVERNMENT
DEBT SECURITIES
-------------------------------------------------
Investment Category INCOME

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in investment grade debt
securities issued or guaranteed by foreign governments.

INVESTMENT STRATEGY
The Fund aims to give you foreign investment opportunities primarily in
investment grade government and government sponsored debt securities. Since the
Fund expects to concentrate in certain foreign government securities, it is
classified as a "non-diversified" investment company. Also, the Fund attempts to
have all of its investments payable in foreign currencies. The Fund may also
convert its cash to foreign currency. To help us choose which countries to
invest in we rely, in part, on the Salomon Brothers Non-U.S. Dollar World
Government Bond Index (Salomon Index).

The Salomon Index is a widely used, international government bond index. It
tracks the performance of government bonds sold in Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the
Netherlands, Portugal, Spain, Sweden, Switzerland and the United Kingdom. In
addition, the Fund may invest in securities in other countries, provided such
securities are payable in the currencies of the countries in the Salomon Index.
We do not try to copy this index's performance. Rather, we use it as a guide.

We follow the guidelines listed below for making the primary investments for the
Fund. For temporary defensive reasons, we may invest up to 100% of the Fund's
assets in short term, high quality US money market securities, and US Government
debt securities. We may do this when we think economic, political or market
conditions in foreign countries make it too risky to follow our general
guidelines. Whenever the Fund assumes such a defensive position the Fund may not
achieve its investment objective.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
----------------------------------------------------
<S> <C>
High quality debt at least 65%
securities
issued or guaranteed by
foreign governments
----------------------------------------------------
</TABLE>

<TABLE>
----------------------------------------------------
<CAPTION>
Percent of
Fund Investments Fund's Assets*
<S> <C>
Other investment grade
debt securities,
including
Foreign corporate no more than 35%
debt
and foreign money
market securities
sold in the
countries
listed above
High quality
domestic
money market
securities and debt
obligations issued
or
guaranteed by the
U.S. Government
Foreign currency
exchange
transactions
----------------------------------------------------
Futures and options
Covered put and no more than 33%
call options on
foreign currencies
Listed put and
call options on
currencies
Listed and unlisted
foreign currency
futures contracts
----------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* At time of purchase.
</TABLE>

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Credit Risk: the risk that an issuer of a fixed income security owned by the
Fund may be unable to make interest or principal payments.

Interest Rate Risk: the risk that fluctuations in interest rates may affect the
value of the Fund's interest-paying fixed income securities.

Non-diversified Fund Risk: the risk that a Fund that is "non-diversified" under
the 1940 Act will invest more of its assets in fewer issuers and, therefore, is
more likely to be adversely affected by a downturn in any one issuer or
security.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

16
<PAGE> 20

INTERNATIONAL
GOVERNMENT
--------------------------------------------------------------------------------

Foreign Securities Risks:

Political Risk: the risk that a change in a foreign government will occur and
that the assets of a company in which the Fund has invested will be affected.

Sovereign Risk: the risk that a foreign government will interfere with
currency trading or transferring money out of the country.

Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the Salomon Index. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

This chart illustrates the Fund's annual returns for each full calendar year
since inception. Charges imposed by the Contracts that invest in the Fund are
not included in the calculations of return in this bar chart, and if those
charges were included, the returns would have been less than those shown below.

[Bar chart]
------------
* For the year-to-date through June 30, 2000, the Fund's return was (3.18%).

The highest quarterly return for the Fund from October 1, 1991 to December 31,
1999, was 13.39% (for the quarter ended March 31, 1995) and the lowest quarterly
return was (6.97%) (for the quarter ended December 31, 1992).

This table compares the Fund's average annual returns to the returns of the
Salomon Brothers Non-U.S. Dollar World Government Bond Index for the one- and
five-calendar year periods and since inception of the Fund.
-------------------------------------------------

<TABLE>
<CAPTION>
SINCE
1 YEAR 5 YEARS INCEPTION**
------ ------- -----------
<S> <C> <C> <C>
The Fund (5.95%) 5.39% 7.01%
Salomon Index (5.17%) 5.72% 7.73%
</TABLE>

-------------------------------------------------
** 10/01/91.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

17
<PAGE> 21

NORTH AMERICAN --
AMERICAN CENTURY
INTERNATIONAL GROWTH
FUND
Fact Sheet
-------------------------------------------------
Investment Goal CAPITAL GROWTH
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISER
American Century Investment Management, Inc.

INVESTMENT OBJECTIVE
The North American -- American Century International Growth Fund (the "Fund")
seeks capital growth through investments primarily in equity securities of
issuers in developed foreign countries.

INVESTMENT STRATEGIES
American Century Investment Management, Inc., the Fund's sub-adviser (manager)
uses a growth strategy it developed to invest in stocks of companies they
believe will increase in value over time. This strategy looks for companies with
earnings and revenue growth. Ideally, the fund managers look for companies whose
earnings and revenues are not only growing, but growing at a successively
faster, or accelerating, pace. This strategy is based on the premise that, over
the long term, the stocks of companies with earnings and revenue growth have a
greater-than-average chance to increase in value.

The managers use a bottom-up approach to select stocks to buy for the Fund. That
means they first look for strong, growing companies to invest in, rather than
simply buying any company in a growing industry or sector. The managers track
financial information for thousands of companies to identify trends in the
companies' earnings and revenues. This information is used to help the Fund
managers select or decide to continue to hold the stocks of companies they
believe will be able to sustain their growth, and to sell stocks of companies
whose growth begins to slow down.

In addition to locating strong companies with earnings and revenue growth, the
Fund managers believe that it is important to diversify the Fund's holdings
across different countries and geographical regions in an effort to manage the
risks of an international portfolio. For this reason, the Fund managers also
consider the prospects for relative economic growth among countries or regions,
economic and political conditions, expected inflation rates, currency exchange
fluctuations and tax considerations when making investments.

The Fund managers do not attempt to time the market. Instead, under normal
market conditions, they intend to keep the Fund essentially fully invested in
stocks regardless of the movement of stock prices generally. The Fund can
purchase other types of securities, when the managers believe it is prudent. The
Fund may invest a portion of its assets in convertible securities, short-term
securities, non-leveraged stock index futures contracts, notes, bonds and other
debt securities of companies, and obligations of foreign governments and their
agencies, or other similar securities. Stock index futures contracts, a type of
derivative security, can help the Fund's cash assets remain liquid, while
performing more like stocks. The Fund has a policy governing stock index futures
and similar derivative securities to help manage the risk of these types of
investments. For example, the managers cannot leverage the Fund's assets by
investing in a derivative security.

In determining whether a company is foreign, the Fund managers will consider
various factors, including where the company is headquartered, where the
company's principal operations are located, where the company's revenues are
derived, where the principal trading market is located and the country in which
the company was legally organized. The weighting given to each of these factors
will vary depending on the circumstances in a given case. The Fund considers
developed countries to include Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, the
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States.

Market Risk: The value of a fund's shares will go up and down based upon the
performance of the

18
<PAGE> 22

INTERNATIONAL GROWTH
--------------------------------------------------------------------------------

companies whose securities it owns and other factors generally affecting the
securities market.

Price Volatility: The value of the Fund's shares may fluctuate significantly in
the short term.

Foreign Risk: The Fund invests primarily in foreign securities, which are
generally riskier than U.S. stocks. As a result, the Fund is subject to foreign
risk, meaning that political events (civil unrest, national elections,
imposition of exchange controls), social and economic events (labor strikes,
rising inflation) and natural disasters occurring in a country where the Fund
invests could cause the Fund's investments in that country to experience gains
or losses.

Currency Risk: Because the Fund's foreign investments are generally held in
foreign currencies, the Fund could experience gains or losses based solely on
changes in the exchange rate between foreign currencies and the U.S. dollar.

PERFORMANCE INFORMATION
Performance information is not shown since this is a brand-new fund.

19
<PAGE> 23

NORTH AMERICAN --
FOUNDERS LARGE CAP
GROWTH FUND
Fact Sheet
-------------------------------------------------
Investment Goal LONG-TERM GROWTH
OF CAPITAL
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISER
Founders Asset Management LLC

INVESTMENT OBJECTIVE
The North American -- Founders Large Cap Growth Fund (the "Fund") seeks
long-term growth of capital.

INVESTMENT STRATEGY
The Fund pursues long-term growth by normally investing at least 65% of its
total assets in common stocks of well-established, high-quality growth
companies. These companies tend to have strong performance records, solid market
positions, reasonable financial strength, and continuous operating records of
three years or more. The Fund may also invest up to 30% of its total assets in
foreign securities, with no more than 25% invested in any one foreign country.

Stock Market Risk: The value of the stocks and other securities owned by the
Fund will fluctuate depending on the performance of the companies that issued
them, general market and economic conditions, and investor confidence. In
addition, whether or not our assessment of a company's potential to increase
earnings faster than the rest of the market is correct, the securities in the
portfolio may not increase in value, and could even decrease in value.

Investment Style Risk: Market performance tends to be cyclical, and during
various cycles, certain investment styles may fall in and out of favor. If the
market is not favoring the Fund's growth style of investing, the Fund's gains
may not be as big as, or its losses may be bigger than, other equity funds using
different investment styles.

Sector Risk: Securities of companies within specific sectors of the economy can
perform differently than the overall market. This may be due to changes in such
things as the regulatory or competitive environment or to changes in investor
perceptions regarding a sector. Because the Fund may allocate relatively more
assets to certain industry sectors than others, the Fund's performance may be
more susceptible to any developments which affect those sectors emphasized by
the Fund.

PERFORMANCE INFORMATION
Performance information is not shown since this is a brand-new fund.

20
<PAGE> 24

NORTH AMERICAN -- AG
MIDCAP INDEX
FUND
Fact Sheet
-------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS TRACKING
THE S&P 400 MIDCAP
INDEX
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

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 Standard &
Poor's MidCap 400 Index (S&P MidCap 400 Index).

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

Because the companies whose stocks are owned by the Fund are medium sized, they
have more potential to grow, which means the value of their stock may increase.
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.

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 MidCap at least 65%
400 Index
----------------------------------------------------
Futures and options no more than 33%
----------------------------------------------------
Investments not in the
S&P
MidCap 400 Index
Common stock and no more than 35%
related securities
High quality money
market securities
Illiquid securities
----------------------------------------------------
* At time of purchase.
</TABLE>

Medium Capitalization Company Risk: the risk that medium sized companies, which
usually do not have as much financial strength as very large companies, may not
be able to do as well in difficult times.

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

Additional information
about INDEX FUNDS
is provided under "About
Index Equity Funds".

21
<PAGE> 25

MIDCAP INDEX
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P MidCap 400 Index. Prior to October 1, 1999, the Fund was
sub-advised by Bankers Trust Company. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

This chart illustrates the Fund's annual returns for each full calendar year
since the inception of the Fund. Charges imposed by the Contracts that invest in
the Fund are not included in the calculations of return in this bar chart, and
if those charges were included, the returns would have been less than those
shown below.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was 8.72%.

The highest quarterly return for the Fund from October 1, 1991 to December 31,
1999, was 28.22% (for the quarter ended December 31, 1998) and the lowest
quarterly return was (14.54%) (for the quarter ended September 30, 1998).

This table compares the Fund's average annual returns to the returns of the S&P
400 Midcap 400 Index for the one- and five-calendar year periods and since
inception of the Fund.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION**
------ ------- -----------------
<S> <C> <C> <C>
The Fund 14.92% 22.81% 17.31%
S&P Midcap Index 14.72% 23.05% 17.92%
</TABLE>

-------------------------------------------------
** 10/01/91.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

22
<PAGE> 26

NORTH AMERICAN -- AG 1
MONEY MARKET FUND
Fact Sheet
-------------------------------------------------
Investment Goal INCOME THROUGH
INVESTMENTS IN SHORT-
TERM MONEY MARKET
SECURITIES
-------------------------------------------------
Investment Category STABILITY

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

INVESTMENT ADVISER
American General Advisers

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

INVESTMENT STRATEGY
The Fund invests in short-term money market securities to provide you with
liquidity, protection of your investment and current income. Such securities
must mature, after giving effect to any demand features, in 13 months or less
and the Fund must have a dollar-weighted average portfolio maturity of 90 days
or less. These practices are designed to minimize any fluctuation in the value
of the Fund's portfolio.

The investments this Fund may buy include:

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

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

- Commercial paper sold by corporations and finance companies

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

- Repurchase agreements

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

- Asset-backed securities

- Loan participations

- Adjustable rate securities

- Variable rate demand notes

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

INVESTMENT RISK
Because of the following principal risks the value of your investment may
fluctuate and you could lose money:

- The rate of income varies daily depending on short-term interest rates

- A significant change in interest rates or a default on a security held by the
Fund could cause the value of your investment to decline

- An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency

- Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

23
<PAGE> 27

MONEY MARKET
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of 30-day Certificate of Deposit Primary Offering Rate by New York
City Banks (30-day CD Rate). How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]
------------
* For the year-to-date through June 30, 2000, the Fund's return was 2.81%.

The highest quarterly return for the Fund from January 1, 1990 to December 31,
1999, was 1.93% (for the quarter ended June 30, 1990) and the lowest quarterly
return was 0.66% (for the quarter ended March 31, 1993).

This table compares the Fund's average annual returns to the returns of the
30-day CD Rate for the one-, five- and ten-calendar year periods.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 4.75% 5.13% 4.87%
30-Day CD 4.46% 4.68% 4.61%
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

24
<PAGE> 28

NORTH AMERICAN --
AG NASDAQ-100(R)
INDEX FUND
Fact Sheet
-------------------------------------------------
Investment Goal LONG-TERM GROWTH
OF CAPITAL
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISER
American General Investment Management L.P.

INVESTMENT OBJECTIVE
The North American -- AG Nasdaq-100(R) Index Fund (the "Fund") seeks long-term
capital growth through investments in the stocks that are included in the
Nasdaq-100(R) Index.

INVESTMENT STRATEGY
The Fund plans to invest in stocks that are included in the Nasdaq-100(R) Index
(the "Index"). The Index was established in January 1985. It represents the
largest and most active non-financial domestic and international securities
listed on the Nasdaq Stock Market, based on market value (capitalization). This
includes major industry groups, such as computer hardware and software,
telecommunications, retail and wholesale trade and biotechnology.

The Fund investments are made by its sub-adviser, American General Investment
Management, L.P. ("AGIM"). AGIM invests its assets in companies that are listed
in the Index, except for a small portion in cash, to be available for
redemptions. Since it may not be possible for this Fund to buy every stock
included in the Index, or in the same proportions, the Fund invests in a
sampling of common stocks in the Index. The stocks to be included in the Fund
will be selected utilizing a statistical sampling technique known as
"optimization." This process selects stocks for the Fund so that various
industry weightings, market capitalizations and fundamental characteristics
(e.g. price-to-book, price-to-earnings, debt-to-asset ratios and dividend
yields) closely approximate those of the Index. The common stocks held by the
Fund are weighted to make the Fund's aggregate investment characteristics
similar to those of the Index as a whole.

The Fund may also invest in some futures contracts in order to help the Fund's
liquidity. If the market value of the futures contracts is close to the Fund's
cash balance, then that helps to minimize the tracking errors, while helping to
maintain liquidity.

The Fund is a non-diversified fund. This means that it may invest more than 5%
of its assets in the stock of a single company. However, this increases the risk
of the Fund, since the economic and/or stock performance of that one company
impacts a greater percentage of the Fund's investments. The Fund will, however,
comply with diversification requirements imposed by the Internal Revenue Code of
1986 in order to pass on the maximum tax benefits associated with the income
earned to each investor.

The Fund may concentrate its investments (invest more than 25% of its assets) in
the technology sector, in the proportion consistent with the industry weightings
in the Index.

Generally, an index fund tries to mirror the target index and its performance.
The performance of the fund will not match the index exactly, though, because
the index fund incurs operating expenses and other investment overhead as part
of its normal operations. The index is an unmanaged group of securities, so it
does not have these expenses. An investor cannot invest directly in an index.
These differences between an index fund and its index are called tracking
differences. An index fund seeks a tracking difference of 0.05% or less. The
tracking difference may also be shown as a correlation factor. A correlation
factor of 0.95, after expenses, is considered to be good.

The tracking differences are reviewed periodically by AGIM. If an index fund
does not accurately track an index, AGIM will rebalance the Fund's portfolio by
selecting securities which will provide a more representative sampling of the
securities in the index as a whole or the sector diversification within the
index, as appropriate.

Non-diversification Risk: The Fund is considered non-diversified because it may
invest more than 5% in the securities of any one company as it attempts to
mirror the securities and weightings of the Nasdaq-100 Index. Therefore, gains
or losses on a single stock may have a greater impact on the Fund.

Risks of Concentration: The Fund's investments are concentrated in the
technology sector, as is

25
<PAGE> 29

NASDAQ-100(R)
INDEX
--------------------------------------------------------------------------------

the Nasdaq-100 Index. The technology sector changes rapidly and can be very
volatile from day-to-day or month-to-month. This means that the value of the
Fund is subject to greater volatility than a fund that does not concentrate in a
particular sector. This may be due to changes in such things as the regulatory
or competitive environment or to changes in investor perceptions regarding a
sector. Because the Index may invest relatively more assets in certain industry
sectors than others (such as technology), the Fund's performance may be more
susceptible to any developments which affect those sectors emphasized by the
Index.

Stock Market Risk (Volatility): The value of the stocks and other securities
owned by the Fund will fluctuate depending on the performance of the companies
that issued them, general market and economic conditions, and investor
confidence. The Index changes every day, depending on movement in the stock
market. Stock markets often have times when the prices rise and fall
significantly every day or every few days. There is no guarantee that the value
of your investment will increase.

Index Risk: The Nasdaq-100(R) Index is a modified capitalization weighted index,
which means that it purchases stocks in proportion to their total market
capitalizations (overall market value), with some modifications. The
modifications are to provide enhanced diversification, but could also mean that
securities offered by larger companies may be purchased in larger proportions.
Thus, poor performance of the largest companies could result in negative
performance for both the Index and the Fund.

More about the Nasdaq-100(R) Index: To be eligible for the Index, a domestic
security must have a minimum average daily trading volume of at least 100,000
shares, and must have been listed for one to two years. If the security is a
foreign security, then the company must have a world market value of $10 billion
or more, a U.S. market value of at least $4 billion, and average trading volume
of at least 200,000 shares per day. Nasdaq reviews and adjusts the Index on a
quarterly basis to ensure that certain pre-established weight distribution and
diversification guidelines are met. This will also help to limit the domination
of the Index by a few very large common stocks.

PERFORMANCE INFORMATION
Performance information is not shown since this is a brand-new fund.

26
<PAGE> 30

NORTH AMERICAN --
PUTNAM OPPORTUNITIES
FUND
Fact Sheet
-------------------------------------------------
Investment Goal CAPITAL APPRECIATION
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISER
Putnam Investment Management, Inc.

INVESTMENT OBJECTIVE
The North American -- Putnam Opportunities Fund (the "Fund") seeks capital
appreciation through investments in common stocks.

INVESTMENT STRATEGY
Putnam Investment Management, Inc. is the sub-adviser (manager) for this Fund.
The Fund invests mainly in common stocks of large U.S. companies, with a focus
on growth stocks (those the manager believes whose earnings will grow faster
than the economy, with a resultant price increase). The Fund invests in a
relatively small number of companies that the manager believes will benefit from
long-term trends in the economy, business conditions, consumer behavior or
public perceptions of the economic environment.

The manager considers, among other things, a company's financial strength,
competitive position in its industry, projected future earnings, cash flows and
dividends when deciding whether to buy or sell investments. The Fund may also
invest in securities of foreign issuers.

Stock Market Risk: The risk that the stock price of one or more of the companies
in the Fund's portfolio will fall, or will fail to rise. Many factors can
adversely affect a stock's performance, including both general financial market
conditions and factors related to a specific company or industry.

Financial Market Risk: The risk that movements in financial markets will
adversely affect the price of the Fund's investments, regardless of how well the
companies in which we invest perform. The market as a whole may not favor the
types of investments we make.

Investing in Fewer Issuers: The risk of loss from investing in fewer issuers
than a fund that invests more broadly. This vulnerability to factors affecting a
single investment can result in greater fund losses and volatility.

Foreign Investments: Foreign investments involve special risks. For example,
their values may decline in response to changes in currency exchange rates,
unfavorable political and legal developments, unreliable or untimely
information, and economic and financial instability. In addition, the liquidity
of these investments may be more limited than for U.S. investments, which means
we may at times be unable to sell them at desirable prices. Foreign settlement
procedures may also involve additional risks. These risks are generally greater
in the case of developing (also known as emerging) markets with less developed
legal and financial systems. Certain of these risks may also apply to U.S.
investments that are denominated in foreign currencies or that are traded in
foreign markets, or to securities of U.S. companies that have significant
foreign operations.

PERFORMANCE INFORMATION
Performance information is not shown since this is a brand-new fund.

27
<PAGE> 31

NORTH AMERICAN --
T. ROWE PRICE
SCIENCE &
TECHNOLOGY FUND
Fact Sheet
-------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS IN
STOCKS OF COMPANIES
WHICH ARE EXPECTED
TO BENEFIT FROM
DEVELOPMENT OF
SCIENCE AND TECHNOLOGY
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISER
T. Rowe Price Associates, Inc.

INVESTMENT OBJECTIVE
Seeks long-term capital appreciation through investment primarily in the common
stocks of companies that are expected to benefit from the development,
advancement and use of science and technology.

INVESTMENT STRATEGY
The Fund invests in companies that are expected to benefit from scientific
breakthroughs and advancements in technology. We believe that stocks of
companies that develop products using new technology or benefit from this
technology may greatly increase in value. Some of the industries likely to be
included in the portfolio are:

- electronics, including hardware, software, and components;

- communications;

- e-commerce;

- information services;

- media;

- life sciences and health care;

- environmental services;

- chemicals and synthetic materials; and

- defense and aerospace.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
----------------------------------------------------
<S> <C>
Common stocks of science at least 65%
and technology companies
----------------------------------------------------
Other equity-related up to 25%
securities of science
and
technology companies
including convertible
debt
securities, convertible
preferred stock
----------------------------------------------------
</TABLE>

<TABLE>
----------------------------------------------------
<CAPTION>
Percent of
Fund Investments Fund's Assets*
<S> <C>
High quality money up to 100%
market
securities
----------------------------------------------------
American Depositary up to 30%
Receipts and foreign
securities
----------------------------------------------------
</TABLE>

* At time of purchase.

Stock selection reflects a growth approach and is based on intensive research
that assesses a company's fundamental prospects for above-average earnings.
Holdings can range from small companies developing new technologies to blue chip
firms with established track records of developing and marketing technology.

The Fund may sell securities for a variety of reasons, such as to secure gains,
limit losses, or re-deploy assets into more promising opportunities.

Tech Company Risk: Companies in the rapidly changing fields of science and
technology often face unusually high price volatility, both in terms of gains
and losses. The potential for wide variation in performance is based on the
special risks common to these stocks. For example, products or services that at
first appear promising may not prove commercially successful
or may become obsolete quickly. Earnings
disappointments can result in sharp price declines. A portfolio focused
primarily on these stocks is, therefore, likely to be much more volatile than
one with broader diversification that includes investments in more economic
sectors.

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Unseasoned Company Risk: The level of risk will rise to the extent that the Fund
has significant exposure to smaller or unseasoned companies (those with less
than a three-year operating history), which may not have established products or
more experienced management.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

28
<PAGE> 32

SCIENCE &
TECHNOLOGY
--------------------------------------------------------------------------------

Foreign Securities Risks:

Currency Risk: The risk that fluctuations in foreign exchange rates will
decrease the value of a fund's investment.

Limited Information Risk: The risk that foreign companies may not be subject
to accounting standards or governmental supervision comparable to U.S.
companies and that less public information about their operations may exist.

Liquidity Risk: Foreign markets may be less liquid and more volatile than U.S.
markets and offer less protection to investors.

Political Risk: The risk that a change in a foreign government will occur and
that the assets of a company in which the Fund has invested will be affected.

Settlement and Clearance Risk: The risks associated with the clearance and
settlement procedures in non-U.S. markets, which may be unable to keep pace
with the volume of securities transactions and may cause delays.

Sovereign Risk: The risk that a foreign government will interfere with
currency trading or transferring money out of the country.

PERFORMANCE INFORMATION
--------------------------------------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P 500 Index. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

------------ [Bar chart]
* For the year-to-date through June 30, 2000, the Fund's return was (3.12%).

The highest quarterly return for the Fund from April 29, 1994 to December 31,
1999, was 48.04% (for the quarter ended December 31, 1998) and the lowest
quarterly return was (17.28%) (for the quarter ended September 30, 1998).

This table compares the Fund's average annual returns to the returns of the S&P
500 Index.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION**
------- ------- -----------------
<S> <C> <C> <C>
The Fund 100.95% 40.07% 40.13%
S&P 500 Index 21.05% 28.56% 25.68%
</TABLE>

-------------------------------------------------
** 4/29/94.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

29
<PAGE> 33

NORTH AMERICAN --
FOUNDERS/T. ROWE PRICE
SMALL CAP FUND
Fact Sheet
-------------------------------------------------
Investment Goal LONG-TERM GROWTH
OF CAPITAL
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISERS
Founders Asset Management LLC
T. Rowe Price Associates, Inc.

INVESTMENT OBJECTIVE
The North American -- Founders/T. Rowe Price Small Cap Fund (the "Fund") seeks
to provide long-term capital growth by investing primarily in the stocks of
small companies.

INVESTMENT STRATEGY
The Fund will normally invest at least 65% of its total assets in stocks of
small companies. Small companies are not usually listed on a national securities
exchange, but trade on the over-the-counter market. A company is considered a
"small" company if its total market value (capitalization) falls within a range
of companies in the Russell 2000 Index. As of June 30, 2000, that generally
includes companies with a market value of $2.2 billion or less, though the range
can fluctuate depending on the changes in the value of the entire stock market.
The Fund may purchase stocks that have a market capitalization above the range
if the companies appear to have better prospects for capital appreciation.

Stock selection may reflect either a growth or a value investment approach. For
example, if a company's price/earnings ratio is attractive relative to the
underlying earnings growth rate, it would be classified as a growth stock. A
value stock would be one where the stock price appears undervalued in relation
to earnings, projected cash flow, or asset value per share.

The portfolio investments are expected to be widely diversified by industry and
company. The Fund may also purchase up to 30% in foreign securities, although it
will normally invest in common stocks of U.S.-based companies. The Fund may sell
securities for a variety of reasons, such as to secure gains, limit losses, or
re-deploy assets into more promising opportunities.

While most assets will be invested in U.S. common stocks, other securities may
be purchased in keeping with Fund objectives.

Stock Market Risk: The value of the stocks and other securities owned by the
Fund will fluctuate depending on the performance of the companies that issued
them, general market and economic conditions, and investor confidence. In
addition, whether or not our assessment of a company's potential for growth and
appreciation is correct, the securities in the portfolio may not increase in
value, and could even decrease in value.

Small Company Risk: Investing in small companies involves greater risk than is
customarily associated with larger companies, because the small companies offer
greater opportunity for capital appreciation. Stocks of small companies are
subject to more abrupt or erratic price movements than larger company stocks.
Small companies often are in the early stages of development and have limited
product lines, markets, or financial resources. Their managements may lack depth
and experience. Such companies seldom pay significant dividends that could
cushion returns in a falling market. In addition, these companies may be more
affected by intense competition from larger companies, and the trading markets
for their securities may be less liquid and more volatile than securities of
larger companies. This means that the Fund could have greater difficulty selling
a security of a small-cap issuer at an acceptable price, especially in periods
of market volatility. Also, it may take a substantial period of time before the
Fund realizes a gain on an investment in a small-cap company, if it realizes any
gain at all.

Foreign Securities Risk: Foreign investments involve special risks. For example,
their values

30
<PAGE> 34

SMALL CAP
--------------------------------------------------------------------------------

may decline in response to changes in currency exchange rates, unfavorable
political and legal developments, unreliable or untimely information, and
economic and financial instability. In addition, the liquidity of these
investments may be more limited than for U.S. investments, which means we may at
times be unable to sell them at desirable prices. Foreign settlement procedures
may also involve additional risks. These risks are generally greater in the case
of developing (also known as emerging) markets with less developed legal and
financial systems. Certain of these risks may also apply to U.S. investments
that are denominated in foreign currencies or that are traded in foreign
markets, or to securities of U.S. companies that have significant foreign
operations.

Investment Style Risk: In general, stocks with growth characteristics can have
relatively wide price swings as a result of their potentially high valuations.
Stocks with value characteristics carry the risk that investors will not
recognize their intrinsic value for a long time or that they are actually
appropriately priced at a low level. Because this Fund holds stocks with both
growth and value characteristics, its share price may be negatively affected by
either set of risks.

PERFORMANCE INFORMATION
Performance information is not shown since this is a brand-new fund.

31
<PAGE> 35

NORTH AMERICAN -- AG
SMALL CAP INDEX
FUND
Fact Sheet
-------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS TRACKING
THE RUSSELL 2000
INDEX
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT OBJECTIVE
Seeks to provide growth of capital through investment 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 Russell 2000 Index.

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

An index fund holding a large sampling of the 2,000 stocks in the Russell 2000
Index avoids the risks of individual stock selection and seeks to provide the
return of the smaller-sized company sector of the market. On average that return
has been positive over the years but has been negative at certain times. There
is no assurance that a positive return will occur in the future. Because the
companies whose stocks the Fund owns are small, their stock prices may fluctuate
more over the short-term, but they have more potential to grow. This means their
stock value may offer greater potential for appreciation.

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

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
----------------------------------------------------
<S> <C>
Stocks in the Russell at least 65%
2000
Index
----------------------------------------------------
Futures and options no more than 33%
----------------------------------------------------
Investments not in the
Russell 2000 Index
Common stock and no more than 35%
related securities
High quality money
market securities
Illiquid securities
----------------------------------------------------
* At time of purchase.
</TABLE>

INVESTMENT RISK

As with all funds, if you sell your shares when their value is less than the
price you paid, you will lose money. Because of the following principal risks
the value of your investment may fluctuate:

Smaller Capitalization Company Risk: the risk that smaller companies may be
subject to more abrupt or erratic market movements than securities of larger,
more established companies or markets, generally.

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial
circumstances.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

Additional information
about INDEX FUNDS
is provided under "About
Index Equity Funds".

32
<PAGE> 36

SMALL CAP INDEX
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the Russell 2000 Index. Prior to October 1, 1999, the Fund was
sub-advised by Bankers Trust Company. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was 2.34%.

The highest quarterly return for the Fund from May 1, 1992 to December 31, 1999,
was 18.58% (for the quarter ended December 31, 1999) and the lowest quarterly
return was (19.75%)% (for the quarter ended September 30, 1998).

This table compares the Fund's average annual returns to the returns of the
Russell 2000 Index for the one- and five-calendar year periods and since
inception of the Fund.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION**
-------- ------- -----------------
<S> <C> <C> <C>
The Fund 21.29% 16.75% 13.82%
Russell 2000 Index 21.26% 16.69% 14.80%
</TABLE>

-------------------------------------------------
** 5/01/92.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

33
<PAGE> 37

NORTH AMERICAN -- AG
SOCIAL AWARENESS
FUND
Fact Sheet
-------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS IN
STOCKS OF COMPANIES
MEETING SOCIAL
CRITERIA OF THE FUND
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.

The Fund does not invest in companies that are significantly engaged in:

- the production of nuclear energy;

- the manufacture of military weapons or delivery systems;

- the manufacture of alcoholic beverages or tobacco products;

- the operation of gambling casinos; or

- business practices or the production of products that significantly pollute
the environment.

INVESTMENT STRATEGY
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>
Common stocks of U.S. at least 80%
companies meeting the
Fund's social criteria
----------------------------------------------------
Other types of up to 20%
securities of
companies meeting social
criteria including
Foreign securities
Preferred stock
Convertible securities
High quality money
market
securities and warrants
----------------------------------------------------
</TABLE>

<TABLE>
<S> <C>
* At time of purchase.
</TABLE>

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

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

INVESTMENT RISK
Most of the companies this Fund invests in are included in the S&P 500 Index.
This Fund's degree of market risk is slightly greater than the Stock Index
Fund's degree of risk. This is because its investments are more limited by its
investment objective. Market Risk is the risk that the value of the securities
purchased by the fund will decline as a result of economic, political or market
conditions or an issuer's financial circumstances. Like all managed funds, there
is a risk that the Fund's management strategy may not achieve the desired
results and the Fund's performance may lag behind that of similar funds. As with
all funds, if you sell your shares when their value is less than the price you
paid, you will lose money.

If a company stops meeting the Fund's social criteria after the Fund invested in
it, the Fund will sell these investments even if this means the Fund loses
money. Also, if the Fund changes its social criteria and the companies the Fund
has already invested in no longer qualify, the Fund will sell these investments
even if this means the Fund loses money. Social criteria screening will limit
the availability of investment opportunities for the Fund more than for funds
having no such criteria.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

34
<PAGE> 38

SOCIAL AWARENESS
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------
The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P 500 Index. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was (1.31%).

The highest quarterly return for the Fund from January 1, 1990 to December 31,
1999, was 21.20% (for the quarter ended December 31, 1998) and the lowest
quarterly return was (15.92%) (for the quarter ended September 30, 1990).

This table compares the Fund's average annual returns to the returns of the S&P
500 Index.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 18.64% 28.35% 17.05%
S&P 500 Index 21.05% 28.56% 18.21%
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

35
<PAGE> 39

NORTH AMERICAN -- AG
STOCK INDEX FUND
Fact Sheet
-------------------------------------------------
Investment Goal GROWTH THROUGH
INVESTMENTS TRACKING
THE S&P 500 INDEX
-------------------------------------------------
Investment Category GROWTH

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

INVESTMENT ADVISER
American General Advisers

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

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. 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.

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
----------------------------------------------------
Futures and options no more than 33%
----------------------------------------------------
Investments not in the
S&P
500 Index
Common stock and no more than 35%
related securities
High quality money
market securities
----------------------------------------------------
* At time of purchase.
</TABLE>

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

Additional information
about INDEX FUNDS
is provided under "About
Index Equity Funds".

36
<PAGE> 40

STOCK INDEX
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P 500 Index. Prior to October 1, 1999, the Fund was
sub-advised by Bankers Trust Company. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was (0.57%).

The highest quarterly return for the Fund from January 1, 1990 to December 31,
1999, was 21.21% (for the quarter ended December 31, 1998) and the lowest
quarterly return was (14.40%) (for the quarter ended September 30, 1990).

This table compares the Fund's average annual returns to the returns of the S&P
500 Index for the one-, five- and ten-calendar year periods.

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

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 20.57% 28.28% 17.66%
S&P 500 Index 21.05% 28.56% 18.21%
</TABLE>

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

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

ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
-------------------------------------------------

<TABLE>
<S> <C>
Management Fees 0.26%
Other Expenses 0.05%
-----
Total Annual Fund Operating Expenses 0.31%
=====
</TABLE>

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

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$32 $100 $175 $395
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

37
<PAGE> 41

MORE ABOUT PORTFOLIO INVESTMENTS
--------------------------------------------------------------------------------

EQUITY SECURITIES
Equity securities represent an ownership position in a company. The prices of
equity securities fluctuate based on changes in the financial condition of the
issuing company and on market and economic conditions. If you own an equity
security, you own a part of the company that issued it. Companies sell equity
securities to get the money they need to grow.

Stocks are one type of equity security. Generally, there are three types of
stocks:

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

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

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

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

Stocks are not the only type of equity security. Other equity securities include
but are not limited to convertible securities, depositary receipts, warrants,
rights and partially paid shares, investment company securities, real estate
securities, convertible bonds and American Depositary Receipts, European
Depositary Receipts and Global Depositary Receipts ("ADRs", "EDRs" and "GDRs").
More information about these equity securities is included elsewhere in this
Prospectus or contained in the Statement of Additional Information.

FIXED INCOME SECURITIES
Fixed income securities include a broad array of short, medium and long-term
obligations, including notes and bonds. Fixed income securities may have fixed,
variable, or floating rates of interest, including rates of interest that vary
inversely at a multiple of a designated or floating rate, or that vary according
to changes in relative values of currencies. Fixed income securities generally
involve an obligation of the issuer to pay interest on either a current basis or
at the maturity of the security and to repay the principal amount of the
security at maturity.

All of the Funds may invest in fixed income securities.

Bonds are one type of fixed income security and 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 (Capital Conservation 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 that are rated Baa by Moody's or BBB by S&P have speculative
characteristics. Bonds that are unrated or rated below Baa3 by Moody's or BBB-
by S&P (commonly referred to as high yield, high risk or "junk bonds") are
regarded, on balance, as predominantly speculative. Changes in economic
conditions or other circumstances are more likely to weaken the issuer's
capacity to pay interest and principal in accordance with the terms of the
obligation than is the case with higher rated bonds. While such bonds may have
some quality and protective characteristics, these are outweighed by
uncertainties or risk exposures to adverse conditions. Lower rated 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 rates could cause a decline in high-yield, high-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

ISSUED means the
Company (ISSUER) sold it
originally to the public.

For more information about
BONDS AND RATINGS OF
BONDS, see the Statement
of Additional Information.

38
<PAGE> 42

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

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.

Bonds are not the only type of fixed income security. Other fixed income
securities include but are not limited to U.S. and foreign corporate fixed
income securities, including convertible securities (bonds, debentures, notes
and other similar instruments) and corporate commercial paper, mortgage-related
and other asset-backed securities; inflation-indexed bonds issued by both
governments and corporations; structured notes, including hybrid or "indexed"
securities, preferred or preference stock, catastrophe bonds, and loan
participations; bank certificates of deposit, fixed time deposits and bankers'
acceptances; repurchase agreements and reverse repurchase agreements; fixed
income securities issued by states or local governments and their agencies,
authorities and other instrumentalities; obligations of foreign governments or
their subdivisions, agencies and instrumentalities; and obligations of
international agencies or supranational entities. Fixed income securities may be
acquired with warrants attached. For more information about specific income
securities 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.

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.

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

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

MORTGAGE-RELATED SECURITIES

Mortgage-related securities include, but are not limited to, mortgage
pass-through securities, collateralized mortgage obligations and commercial
mortgage-backed securities. All Funds may invest in mortgage-related securities.

Mortgage Pass-Through Securities are securities representing interests in
"pools" of mortgage loans secured by residential or commercial real property.
Payments of interest and principal on these securities are generally made
monthly, in effect "passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities). Mortgage-related securities are
subject to interest rate risk and prepayment risk.

Payment of principal and interest on some mortgage pass-through securities may
be guaranteed by the full faith and credit of the U.S. Government (i.e.,
securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities
of the U.S. Government (i.e., securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, private mortgage insurance companies and other
secondary market issuers) may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit, which may be issued by governmental entities, private
insurers or the mortgage poolers.

Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. CMOs may be collateralized by whole mortgage loans or by portfolios
of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are
structured into multiple classes, with each class bearing a different stated
maturity. CMOs that are issued or guaranteed by the U.S. Government or by any of
its agencies or instrumentalities will be considered U.S. Government securities
by the Funds, while other CMOs, even if collateralized by U.S. Government
securities, will have the same status as other privately issued securities for
purposes of applying a Fund's diversification tests.

Commercial Mortgage-Backed Securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage-related or asset-backed securities.

For more information about
ASSET-BACKED SECURITIES
see the Statement of
Additional Information.

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

For more information about
MORTGAGE-RELATED SECURITIES,
see the Statement of
Additional Information.

39
<PAGE> 43

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

Mortgage-Related Securities include mortgage pass-through securities described
above and securities that directly or indirectly represent a participation in,
or are secured by and payable from, mortgage loans on real property, such as
mortgage dollar rolls, CMO residuals or stripped mortgage-backed securities.
These securities may be structured in classes with rights to receive varying
proportions of principal and interest.

VARIABLE RATE DEMAND NOTES

All Funds may invest in variable rate demand notes ("VRDNs"). VRDNs are either
taxable or tax-exempt obligations containing a floating or variable interest
rate adjustment formula, together with an unconditional right to demand payment
of the unpaid principal balance plus accrued interest upon a short notice
period, generally not to exceed seven days. Money Market also may invest in
participation VRDNs, which provide the Fund with an undivided interest in
underlying VRDNs held by major investment banking institutions. Any purchase of
VRDNs will meet applicable diversification and concentration requirements, and
with respect to Money Market, the conditions established by the SEC under which
such securities may be considered to have remaining maturities of 397 days or
less.

FOREIGN SECURITIES

All of the Funds may invest in securities of foreign issuers. Such foreign
securities may be denominated in foreign currencies, except with respect to the
Government Securities and the Money Market which may only invest in U.S.
dollar-denominated securities of foreign issuers. Securities of foreign issuers
include obligations of foreign branches of U.S. banks and of foreign banks,
common and preferred stocks, fixed income securities issued by foreign
governments, corporations and supranational organizations, and GDRs and EDRs.

There is generally less publicly available information about foreign companies,
and they are generally not subject to uniform accounting, auditing and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies.

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. ADRs in which a Fund
may invest may be sponsored or unsponsored. There may be less information
available about foreign issuers of unsponsored ADRs.

FOREIGN CURRENCY

All of the Funds, except Government Securities and Money Market, 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.

The Funds, except Money Market and Government Securities, may purchase forward
foreign currency exchange contracts to protect against a decline in the value of
the U.S. dollar.

ILLIQUID SECURITIES

An illiquid security is one that may not be frequently traded or cannot be
disposed of promptly within seven days and in the usual course of business
without taking a materially reduced price. Illiquid securities include, but are
not limited to, time deposits and repurchase agreements not maturing within
seven days and restricted securities.

A restricted security is one that has not been registered with the SEC and,
therefore, cannot be sold in the public market. Securities eligible for sale
under Rule 144A and commercial paper offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended, are not deemed by American General Advisers
or the Fund's sub-adviser to be illiquid solely by reason of being restricted.
Instead, American General Advisers or the sub-adviser will determine whether
such securities are liquid based on trading markets and pursuant to guidelines
adopted by the Series Company's Board of Directors. If American General Advisers
or the sub-adviser concludes that a security is not liquid, that investment will
be included within the Fund's limitation on illiquid securities.

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

FUTURES AND OPTIONS

Unlike stocks and bonds that represent actual ownership of that stock or bond,
derivatives are investments which "derive" their value from securities issued by
a company, government, or government agency. In certain cases, derivatives may
be purchased for non-speculative investment purposes or to protect ("hedge")
against a change in the price of the underlying security. There are some
investors who take higher risk ("speculate") and buy derivatives to profit from
a change in price of the underlying security. We may purchase derivatives to
hedge the investment portfolios and to earn additional income in order to help
achieve the Funds' objectives. Generally, we do not buy derivatives to
speculate.

Futures contracts and options may not always be successful hedges; their prices
can be highly

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

For more information about
FOREIGN SECURITIES, see the
Statement of Additional
information.

For more information on
FUTURES AND OPTIONS,
see the Statement of
Additional information.

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

40
<PAGE> 44

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

volatile; using them could lower fund total return; and the potential loss from
the use of futures can exceed a fund's initial investment in such contracts.

The Funds, except Money Market, may also buy futures and options.

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.

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 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 American General Advisers.

These high quality money market securities include:

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

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

- Commercial paper sold by corporations and finance companies.

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

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

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.

REVERSE REPURCHASE AGREEMENTS, DOLLAR ROLLS AND BORROWINGS

A reverse repurchase agreement involves the sale of a security by a Fund and its
agreement to repurchase the instrument at a specified time and price. Under a
reverse repurchase agreement, the Fund continues to receive any principal and
interest payments on the underlying security during the term of the agreement.
The Core Equity Fund and the Science & Technology may enter into Reverse
Repurchase Agreements.

Asset Allocation, Capital Conservation, and Government Securities also may enter
into dollar rolls. In a dollar roll transaction, a Fund sells mortgage-backed or
other securities for delivery in the current month and simultaneously contracts
to purchase substantially similar securities on a specified future date. The
time period from the date of sale to the date of purchase under a dollar roll is
known as the roll period. A Fund foregoes principal and interest paid during the
roll period on the securities sold in a dollar roll. However, a Fund receives an
amount equal to the difference between the current sales price and the lower
price for the future purchase as well as by any interest earned on the proceeds
of the securities sold.

If a Fund's positions in reverse repurchase agreements, dollar rolls or similar
transactions are not covered by liquid assets, such transactions would be
subject to the Funds' limitations on borrowings. Apart from such transactions, a
Fund will not borrow money, except as provided in its investment restrictions.
See "Investment Restrictions" in the Statement of Additional Information for a
complete listing of each Fund's investment restrictions.

LENDING PORTFOLIO SECURITIES

Each Fund except Core Equity and Science & Technology may lend up to 30% of its
total assets to broker-dealers and other financial institutions to earn more
money for the Fund. Core Equity and Science & Technology may lend up to 33 1/3%
of their total assets.

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

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

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

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

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

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

For more information about
REVERSE REPURCHASE AGREEMENTS,
DOLLAR ROLLS AND BORROWINGS, see
the Statement of Additional
Information.

41
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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 except International Government, Core Equity, Nasdaq-100(R)
Index and Science & Technology 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.

Core Equity and Science & Technology may invest more than 5% of their total
assets in one company or more than 10% of their total assets in the voting
securities of one company as long as the total of these investments does not
exceed 25% of total assets.

International Government is "non-diversified" under the 1940 Act. This means it
can invest more of its assets in fewer issuers and for this reason may be
riskier than the other Funds. This Fund may invest up to 25% of its total assets
in a single issuer as long as those investments representing over 5% of total
assets in one issuer do not exceed 50% of total assets of the Fund. The
remaining 50% of total assets may not include more than 5% of total assets in
one issuer.

Nasdaq-100(R) Index is also a non-diversified Fund, and is able to invest more
than 25% in the technology industry as explained in its Fact Sheet.

A WORD ABOUT RISK

As described in the fact sheet for each Fund, participation in a Fund involves
risk -- even the risk that you will receive a minimal return on your investment
or the value of your investment will decline. It is important for you to
consider carefully the following risks when you allocate purchase payments to
the Funds.

Market Risk

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

Credit Risk

Credit risk refers to the risk that an issuer of a fixed income security may be
unable to pay principal or interest payments due on the securities. To help
American General Advisers and the Funds' sub-advisers decide which corporate and
foreign fixed income securities to buy, they rely on Moody's and S&P (two
nationally recognized bond rating services), and on their own research, to lower
the risk of a company that may not pay the interest or principal on the fixed
income security.

The credit risk of a Fund depends on the quality of its investments. Fixed
income securities that are rated as investment grade have ratings ranging from
AAA to BBB. These fixed income securities are considered to have adequate
ability to make interest and principal payments.

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. Fixed income
securities such as U.S. Government bonds are subject to interest rate risk. 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 an interest rate of 6%, it will have
to sell it at a discount (and realize a loss) to attract buyers because they can
buy new bonds paying an interest rate of 7%.

Prepayment Risk

Many types of fixed income securities, including mortgage backed and asset
backed securities, are subject to prepayment risk. Prepayment risk is the risk
that issuers of fixed income securities will make prepayments earlier than
anticipated during periods of falling interest rates requiring a Fund to invest
in new securities with lower interest rates. This will reduce the stream of cash
payments that flow through to the Fund. Securities subject to prepayment risk
also pose a potential for loss when interest rates rise. Rising interest rates
may cause prepayments to occur at a slower rate than expected thereby
lengthening the maturity of the security and making it more sensitive to
interest rate changes.

Risks Associated with Foreign Securities

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

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

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<PAGE> 46

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

U.S. Among the principal risks of owning foreign securities are:

Political Risk -- the risk that a change in a foreign government will occur
and that the assets of a company in which the Fund has invested will be
affected. In some countries there is the risk that the government may take over
the assets or operations of a company and or that the government may impose
taxes or limits on the removal of a Fund's assets from that country.

Currency Risk -- the risk that a foreign currency will decline in value. As
long as a Fund holds a security denominated in a foreign currency, its value
will be affected by the value of that currency relative to the U.S. dollar. An
increase in the value of the U.S. dollar relative to a foreign currency will
adversely affect the value of the Fund.

Sovereign Risk -- the risk that a foreign government will interfere with
currency trading or transferring money out of the country.

Liquidity Risk -- foreign markets may be less liquid and more volatile than
U.S. markets and offer less protection to investors. Certain markets may require
payment for securities before delivery and delays may be encountered in settling
securities transactions. In some foreign markets, there may not be protection
against failure by other parties to complete transactions.

Limited Information Risk -- the risk that less government supervision of
foreign markets may occur. Foreign issuers may not be subject to the uniform
accounting, auditing and financial reporting standards and practices that apply
to U.S. issuers. In addition, less public information about operations may
exist.

Developing Country Risk -- the risks associated with investment in foreign
securities are heightened in connection with investments in the securities of
issuers in developing countries. Developing countries are generally defined as
countries in the initial stages of their industrialization cycles with low per
capita income. Although the markets of developing countries offer higher rates
of return, they also pose additional risks to investors, including immature
economic structures, national policies restricting investments by foreigners and
different legal systems.

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.

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.

The Financial Highlights tables show the portfolio turnover rate for each of the
Funds, other than Money Market, during prior fiscal years.

43
<PAGE> 47

ABOUT THE SERIES COMPANY'S MANAGEMENT
--------------------------------------------------------------------------------

INVESTMENT ADVISER
American General Advisers is a division of VALIC, a stock life insurance
company, which has been in the investment advisory business since 1960 and is
the investment adviser for all the Funds. American General Advisers is a
registered investment adviser with the SEC and had over $48.8 billion in assets
under management as of June 30, 2000. Several of the principal officers,
directors and portfolio managers of American General Advisers hold similar
positions with AGIM.

As Investment Adviser, American General Advisers oversees the day to day
operations of each Fund, supervises the purchase and sale of Fund investments,
and performs the cash management function. American General Advisers employs
Investment Sub-Advisers who make investment decisions for the Funds, including
Core Equity, Income & Growth, International Growth, Large Cap Growth,
Nasdaq-100(R) Index, Opportunities, Science & Technology, and Small Cap.

The investment advisory agreement between American General Advisers and the
Series Company provides for the Series Company to pay all expenses not
specifically assumed by the Adviser. Examples of the expenses paid by the Series
Company include transfer agency fees, custodial fees, the fees of outside legal
and auditing firms, the costs of reports to shareholders and expenses of
servicing shareholder accounts. These expenses are allocated to each Fund in a
manner approved by the Board of Directors.

Investment decisions for Growth & Income, Social Awareness, Capital
Conservation, Asset Allocation, and Government Securities are made by a team of
portfolio managers, assistant portfolio managers and analysts organized for that
purpose. The team meets regularly to review portfolio holdings and discuss
purchase and sale activity.

William Trimbur, Jr. has been International Equities' Portfolio Manager since
1992 and International Government's Portfolio Manager since the Fund was started
in 1991. He has been Vice President and Investment Officer for the Series
Company since 1987.

Teresa Moro has been Money Market's Portfolio Manager and Vice President and
Investment Officer for the Series Company since 1991.

American General Advisers serves as investment adviser through an Investment
Advisory Agreement it enters into with each Fund. These agreements are renewed
each year, by the Series Company Board of Directors.

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

The Series Company relies upon an exemptive order from the Securities and
Exchange Commission which permits VALIC, subject to certain conditions, to
select new sub-advisers or replace existing sub-advisers without first obtaining
shareholder approval for the change. The Board of Directors, including a
majority of the independent Directors, must approve each new sub-advisory
agreement. This allows VALIC to act more quickly to change sub-advisers when it
determines that a change is beneficial by avoiding the delay of calling and
holding shareholder meetings to approve each change. In accordance with the
exemptive order, the Series Company will provide investors with information
about each new sub-adviser and its sub-advisory agreement within 90 days of
hiring the new sub-adviser. VALIC is responsible for selecting, monitoring,
evaluating and allocating assets to the sub-advisers and oversees the sub-
advisers' compliance with the relevant Fund's investment objective, policies and
restrictions.

INVESTMENT SUB-ADVISERS

For some of the Funds, American General Advisers works with Investment
sub-advisers, financial service companies that specialize in certain types of
investing. However, American General Advisers 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.

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

44
<PAGE> 48

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

THE SUB-ADVISERS ARE:

North American -- T. Rowe Price Science & Technology Fund
North American -- Founders/T. Rowe Price Small Cap Fund

T. ROWE PRICE ASSOCIATES, INC. ("T. ROWE PRICE")

Since May 1, 1994, T. Rowe Price has been the Sub-adviser for the Science &
Technology Fund.

The firm, which was founded by Thomas Rowe Price, Jr. in 1937, is one of the
pioneers of the growth stock theory of investing. T. Rowe Price, one of the
nation's leading no-load fund managers, and its affiliates manage over $179
billion of assets as of June 30, 2000. Its approach to managing money is based
on proprietary research and a strict investment discipline developed over six
decades.

The Science & Technology Fund is managed by an Investment Advisory Committee
chaired by Charles A. Morris. He has been chairman of this committee since it
was started in 1994. Mr. Morris joined T. Rowe Price in 1987 as an investment
analyst. He has been managing investments since 1991.

T. Rowe Price is responsible for sub-advising approximately 50% of the North
American -- Founders/T. Rowe Price Small Cap Fund. This portion is managed by an
investment advisory committee, chaired by Gregory A. McCrickard, CFA. He has
been the chairman of the investment advisory committee for the T. Rowe Price
Small Cap Stock Fund since 1992. Mr. McCrickard joined T. Rowe Price in 1986 and
has been managing investments since 1991. He has a B.A. from the University of
Virginia and an M.B.A. from Dartmouth College.

North American Core Equity Fund

WELLINGTON MANAGEMENT COMPANY, LLP ("WELLINGTON MANAGEMENT")

Since September 1, 1999, Wellington Management has been the Sub-Adviser for Core
Equity. Wellington Management is an independent partnership owned entirely by 59
partners. As of June 30, 2000, Wellington Management managed $254 billion of
client assets in a broad range of investment styles for institutional investors,
mutual fund sponsors and high net-worth individuals. The firm and its affiliates
have offices in Boston, Atlanta, Radnor, San Francisco, London, Singapore,
Sydney and Tokyo.

Core Equity is managed by Wellington Management's Core Equity Team of portfolio
managers who are supported by a significant number of global industry analysts
along with specialized fundamental, quantitative and technical analysts, macro
economic analysts and traders. Maya K. Bittar, CFA and Vice President of
Wellington Management, is one of the portfolio managers and has the
responsibility for implementing this Fund's investment portfolio. Prior to
joining Wellington Management in 1998, Ms. Bittar was a senior Portfolio Manager
of Firstar Investment Research and Management Company (1993-1998).

North American -- AG Nasdaq-100(R) Index Fund

American General Investment Management, L.P. ("AGIM") is the sub-adviser for the
North American -- AG Nasdaq-100(R) Index Fund. AGIM was formed in 1998 as a
successor to the investment management division of American General Corporation,
and is an indirect wholly-owned subsidiary of American General Corporation. AGIM
also provides investment management and advisory services to pension and profit
sharing plans, financial institutions and other investors.

Investment decisions for the Fund are made by a team, chaired by Magali E.
Azema-Barac. The team meets regularly to review portfolio holdings and discuss
purchase and sale activity. Ms. Azema-Barac joined American General in
September, 1999. From 1995 to 1999, she worked on the equity desk of USWest
Investment Management Company in Englewood, Colorado, where she incepted and
managed an enhanced equity portfolio.

North American -- American Century Income & Growth Fund
North American -- American Century International Growth Fund

AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. ("American Century") is the
sub-adviser for the North American-American Century Income & Growth Fund and the
North American-American Century International Growth Fund. American Century has
been managing mutual funds since 1958, and is headquartered at 4500 Main Street,
Kansas City, Missouri 64111. It has over $100 billion in assets under
management.

The daily management of the Fund is directed by a team of portfolio managers.
Team members meet regularly to review portfolio holdings and discuss purchase
and sale activity. Team members buy and sell securities for the Fund as they see
fit, guided by the Fund's investment objective and strategy.

T. ROWE PRICE'S
PRINCIPAL OFFICES
are located at
100 East Pratt Street,
Baltimore, Maryland
21202.

WELLINGTON MANAGEMENT'S
PRINCIPAL OFFICES
are located at
75 State Street,
Boston, Massachusetts
02109.

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

PRIOR PERFORMANCE OF THE AMERICAN CENTURY INCOME & GROWTH FUND (as excerpted
from the American Century Income & Growth Fund prospectus)

Because the North American -- American Century Income & Growth Fund is a new
offering, it has no investment performance record. The Fund's investment
objective, policies, and strategies are substantially similar to those employed
by American Century for the American Century Income & Growth Fund.

The historical performance information shown below is for a similar mutual fund,
the Investor Class of the retail American Century Income & Growth Fund (since
its inception in December of 1990), and not that of the new North
American -- American Century Income & Growth Fund. The North
American -- American Century Income & Growth Fund is sold in an annuity product
only to registered and unregistered separate accounts of VALIC and its
affiliates, while the retail American Century Income & Growth Fund is sold to
the general public. The returns shown reflect investment management fees and
other expenses of the retail American Century Income & Growth Fund, and do not
reflect any charges included in the annuity contract or variable life insurance
policy for mortality and expenses guarantees, administrative fees or surrender
charges.

Investments made by the new North American -- American Century Income & Growth
Fund may not be the same as those made by the retail American Century Income &
Growth Fund. Notwithstanding the similarity in the name, objective, investment
strategies, techniques and characteristics, the American Century Income & Growth
Fund and the North American -- American Century Income & Growth Fund are
separate mutual funds that will have different investment performance. This is
due to factors such as the cash flow in and out, different fees and expenses,
and diversity in portfolio size and positions. Even with the differences,
however, the investment management of the new Fund would not have been
materially different. Past performance shown below is no guarantee of similar
future performance for the new North American -- American Century Income &
Growth Fund.
[CHART]

FUND INCEPTION DECEMBER 17, 1990

<TABLE>
<S> <C> <C>
Best quarter Quarter ended
December 31, 1998 22.18%
Worst quarter Quarter ended
September 30, 1998 -11.29%
</TABLE>

The table below compares the performance of the American Century Income & Growth
Fund to that of the S&P 500 Index. The S&P 500 Index consists of 500 stocks
chosen for market size, liquidity, and industry group representation. It is a
market-value weighted index (stock price times number of shares outstanding),
with each stock's weight in the Index proportionate to its market value. No
sales charges have been applied to the S&P 500 Index, and an investor cannot
invest directly in it. As noted above, past performance is no guarantee of
similar future performance for the North American -- American Century Income &
Growth Fund.

AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99

<TABLE>
<CAPTION>
ONE YEAR 5 YEARS 10 YEARS
-------- ------- --------
<S> <C> <C> <C>
Income & Growth Fund
Investor Class 17.96% 28.02% 21.43%
S&P 500 Index 21.04% 28.56% 18.21%
</TABLE>

PRIOR PERFORMANCE OF THE AMERICAN CENTURY INTERNATIONAL GROWTH FUND (as
excerpted from the American Century International Growth Fund prospectus)

Because the North American -- American Century International Growth Fund is a
new offering, it has no investment performance record. The Fund's investment
objective, policies, and strategies are substantially similar to those employed
by American Century for the American Century International Growth Fund.

The historical performance information shown below is for a similar mutual fund,
the Investor Class of the retail American Century International Growth Fund, and
not that of the new North American -- American Century International Growth
Fund. The North American -- American Century International Growth Fund is sold
in an annuity product only to registered and unregistered separate accounts of
VALIC and its affiliates, while the American

46
<PAGE> 50
--------------------------------------------------------------------------------

Century International Growth Fund is sold to the general public. The returns
shown reflect investment management fees and other expenses of the retail
American Century International Growth Fund, and do not reflect any charges
included in the annuity contract or variable life insurance policy for mortality
and expenses guarantees, administrative fees or surrender charges.

Investments made by the new North American -- American Century International
Growth Fund may not be the same as those made by the retail American Century
International Growth Fund. Notwithstanding the similarity in the name,
objective, investment strategies, techniques and characteristics, the American
Century International Growth Fund and the North American -- American Century
International Growth Fund are separate mutual funds that will have different
investment performance. This is due to factors such as the cash flow in and out,
different fees and expenses, and diversity in portfolio size and positions. Even
with the differences, however, the investment management of the new Fund would
not have been materially different. Past performance shown below is no guarantee
of similar future performance for the new North American -- American Century
International Growth Fund.
[CHART]

FUND INCEPTION MAY 9, 1991

<TABLE>
<S> <C> <C>
Best quarter Quarter ended
December 31, 1999 48.19%
Worst quarter Quarter ended
September 30, 1998 -17.94%
</TABLE>

The table below compares the performance of the American Century International
Growth Fund to that of the Morgan Stanley Capital International Europe,
Australia and the Far East ("MSCI EAFE") Index. The MSCI EAFE Index includes
about 1,000 stocks from Europe, Australia and the Far East and is commonly used
as a measure of international stock performance. No sales charges have been
applied to the MSCI EAFE Index, and an investor cannot invest directly in it. As
noted above, past performance is no guarantee of similar future performance for
the North American -- American Century International Growth Fund.

AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99

<TABLE>
<CAPTION>
LIFE OF FUND
ONE YEAR 5 YEARS (SINCE 5/9/91)
-------- ------- --------------
<S> <C> <C> <C>
American Century
International
Growth Fund
Investor Class 64.44% 24.56% 19.62%
MSCI EAFE Index 26.96% 12.83% 10.47%
</TABLE>

North American -- Founders Large Cap Growth Fund
North American -- Founders/T. Rowe Price Small Cap Fund

FOUNDERS ASSET MANAGEMENT LLC ("Founders") is the sub-adviser for the North
American -- Founders Large Cap Growth Fund, and for 50% of the North
American -- Founders/T. Rowe Price Small Cap Fund. Founders and its predecessor
companies have operated as investment advisors since 1938, and serve a number of
investment companies and private accounts. The Founders offices are located at
2930 East Third Avenue, Denver, Colorado, 80206. Founders is the growth
specialist affiliate of The Dreyfus Corporation. As of December 31, 1999,
Founders had more than $6.6 billion in its mutual fund portfolios.

Founders uses a lead manager and team system for day-to-day management for its
portion of the North American -- Founders/T. Rowe Price Small Cap Fund. The team
is composed of members of the investment department, including a lead portfolio
manager, portfolio traders, and research analysts. Daily decisions on security
selection for the Founders portion of the Fund are made by Robert T. Ammann,
Vice President of Investments. Mr. Ammann is a Chartered Financial Analyst who
has been lead portfolio manager of the Dreyfus Founders Discovery Fund since
1997. He also served a portfolio manager of Founders Frontier Fund from February
1999 until its merger with the Discovery Fund in August 1999. Mr. Ammann joined
Founders in 1993 as a research analyst, and became a senior research analyst in
1996. Mr. Ammann graduated from Colorado State University with a B.B.A.,
concentration in finance.

Founders uses a lead manager and team system for day-to-day management of the
North American -- Founders Large Cap Growth Fund. The team is composed of
members of the investment department, including lead portfolio managers,
portfolio traders, and research analysts. Daily decisions on security selection
for the Fund are made by Thomas M. Arrington, Vice President of Investments, and
Scott A.

47
<PAGE> 51
--------------------------------------------------------------------------------

Chapman, Vice President of Investments and Director of Research. They use a
"bottom-up approach" to make Fund purchases. This means that they analyze the
fundamentals of individual companies, such as financial ratios, rather than
focusing on broader market themes. Messrs. Arrington and Chapman are Chartered
Financial Analysts, and have co-managed the Dreyfus Founders Growth Fund since
December 1998.

In July 1999 Mr. Arrington was named as a co-manager of the Dreyfus Founders
Worldwide Growth Fund. Mr. Arrington has also served as a portfolio manager for
The Dreyfus Corporation since March 1999. In addition, he manages or co-manages
several institutional growth and growth and income accounts. Prior to joining
Founders, Mr. Arrington was a vice president and director of income equity
strategy for HighMark Capital Management, Inc., a subsidiary of Union BanCal
Corp. His educational background includes an MBA in business information systems
from San Francisco State University, and a BA in economics from the University
of California at Los Angeles.

Scott A. Chapman joined Founders in December 1998 as co-portfolio manager of
Dreyfus Founders Growth Fund. He has also served as a portfolio manager for The
Dreyfus Corporation since February 1999. In July 1999, Mr. Chapman began
co-managing the domestic portion of Dreyfus Founders Worldwide Growth Fund with
Mr. Arrington. In December 1999, Mr. Chapman began managing Dreyfus Founders
Focus Fund. Mr. Chapman was previously a vice president and director of growth
strategy for San Francisco-based HighMark Capital Management, Inc., a subsidiary
of Union BanCal Corp. Mr. Chapman joined HighMark in 1991 and managed the
HighMark Growth Fund. Mr. Chapman has an MBA in finance from Golden Gate
University and a BS in accounting from Santa Clara University.

PRIOR PERFORMANCE OF DREYFUS FOUNDERS GROWTH FUND (as excerpted from the Dreyfus
Founders Growth Fund prospectus)

Because the North American -- Founders Large Cap Growth Fund is a new offering,
it has no investment performance record. The Fund's investment objective,
policies, and strategies are substantially similar to those employed by Founders
for the Dreyfus Founders Growth Fund.

The historical performance information shown below is for a similar mutual fund,
Class F of the retail Dreyfus Founders Growth Fund, and not that of the new
Fund, North American -- Founders Large Cap Growth Fund. The North
American -- Founders Large Cap Growth Fund is sold as an annuity only to
registered and unregistered separate accounts of VALIC and its affiliates, while
the Dreyfus Founders Growth Fund is sold to the general public. The returns
shown reflect investment management fees and other expenses of the retail fund,
Dreyfus Founders Growth Fund, and do not reflect any charges included in the
annuity contract or variable life insurance policy for mortality and expenses
guarantees, administrative fees or surrender charges.

Investments made by the new Fund, North American -- Founders Large Cap Growth
Fund, may not be the same as those made by the Dreyfus Founders Growth Fund.
Notwithstanding the similarity in the name, objective, investment strategies,
techniques and characteristics, the Dreyfus Founders Growth Fund and the North
American -- Founders Large Cap Growth Fund are separate mutual funds that will
have different investment performance. This is due to factors such as the cash
flow in and out, different fees and expenses, and diversity in portfolio size
and positions. Even with the differences, however, the investment management of
the new Fund would not have been materially different. Past performance shown
below is no guarantee of similar future performance for the North
American -- Founders Large Cap Growth Fund.
[CHART]

<TABLE>
<S> <C> <C>
Best quarter Quarter ended
December 31, 1999 31.77%
Worst quarter Quarter ended
September 30, 1990 -14.83%
</TABLE>

The table below compares the performance of the Dreyfus Founders Growth Fund to
that of the S&P 500 Index. The S&P 500 Index consists of 500 stocks chosen for
market size, liquidity, and industry group representation. It is a market-value
weighted index (stock price times number of shares outstanding), with each
stock's weight in the Index proportionate to its market value. No sales charges
have been applied to the S&P 500 Index, and an investor cannot invest directly
in it. As noted above, past performance is no guarantee of similar future
performance for the North American -- Founders Large Cap Growth Fund.

48
<PAGE> 52
--------------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99

<TABLE>
<CAPTION>
ONE YEAR 5 YEARS 10 YEARS
-------- ------- --------
<S> <C> <C> <C>
Growth Fund -- Class
F 39.06% 30.16% 20.07%
S&P 500 Index 21.04% 28.56% 18.21%
</TABLE>

North American -- Putnam Opportunities Fund

PUTNAM INVESTMENT MANAGEMENT, INC. ("Putnam") is the sub-adviser for the North
American -- Putnam Opportunities Fund. Putnam has managed mutual funds since
1937, and is located at One Post Office Square, Boston, Massachusetts, 02109. As
of May 31, 2000, Putnam has over $381 billion in assets under management.

Day-to-day decisions and management of the Fund's portfolio are made by C. Beth
Cotner, Managing Director, Jeffrey R Lindsey and David J. Santos, both Senior
Vice Presidents. Ms. Cotner has been Managing Director of the Putnam Growth
Opportunities Fund since 1998, and has been employed by Putnam since 1995. Mr.
Lindsey has been employed by Putnam since 1994, and has worked with the Putnam
Growth Opportunities Fund since 1996. Mr. Santos joined Putnam in 1986, and
became part of the Putnam Growth Opportunities team in 1999.

PRIOR PERFORMANCE OF THE PUTNAM GROWTH OPPORTUNITIES FUND (as excerpted from the
Putnam Growth Opportunities Fund prospectus)

Because the North American -- Putnam Opportunities Fund is a new offering, it
has no investment performance record. The Fund's investment objective, policies,
and strategies are substantially similar to those employed by Putnam for the
Putnam Growth Opportunities Fund.

The historical performance information shown below is for a similar mutual fund,
Class A of the retail Putnam Growth Opportunities Fund, and not that of the new
North American -- Putnam Opportunities Fund. The North American -- Putnam
Opportunities Fund is sold in an annuity product only to registered and
unregistered separate accounts of VALIC and its affiliates, while the retail
Putnam Growth Opportunities Fund is sold to the general public. The returns
shown reflect investment management fees and other expenses of the retail Putnam
Growth Opportunities Fund, and do not reflect any charges included in the
annuity contract or variable life insurance policy for mortality and expenses
guarantees, administrative fees or surrender charges.

Investments made by the new North American -- Putnam Opportunities Fund may not
be the same as those made by the retail Putnam Growth Opportunities Fund.
Notwithstanding the similarity in the name, objective, investment strategies,
techniques and characteristics, the North American-Putnam Opportunities Fund and
the Putnam Growth Opportunities Fund are separate mutual funds that will have
different investment performance. This is due to factors such as the cash flow
in and out, different fees and expenses, and diversity in portfolio size and
positions. Even with the differences, however, the investment management of the
new Fund would not have been materially different. Past performance shown below
is no guarantee of similar future performance for the new North
American -- Putnam Opportunities Fund.
[CHART]

FUND INCEPTION OCTOBER 2, 1995

<TABLE>
<S> <C> <C>
Best quarter Quarter ended
December 31, 1998 30.68%
Worst quarter Quarter ended
September 30, 1998 -10.50%
</TABLE>

The table below compares the performance of the Putnam Growth Opportunities Fund
to that of the S&P 500 Index and the Russell 1000 Growth Index. The S&P 500
Index consists of 500 stocks chosen for market size, liquidity, and industry
group representation. It is a market-value weighted index (stock price times
number of shares outstanding), with each stock's weight in the Index
proportionate to its market value. The Russell 1000 Growth Index is an unmanaged
index composed of the 1,000 largest companies in the Russell 3000 Index,
representing approximately 89% of the Russell 3000 total market capitalization.
The Russell 3000 Index is composed of the 3,000 largest U.S. companies ranked by
total market capitalization, representing approximately 98% of the U.S.
investable equity market. No sales charges have been applied to either index,
and an investor cannot invest directly in them. As noted above, past performance
is no guarantee of similar future performance for the North American -- Putnam
Opportunities Fund.

49
<PAGE> 53
--------------------------------------------------------------------------------

AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99

<TABLE>
<CAPTION>
LIFE OF FUND
ONE YEAR (10/2/95)
-------- ------------
<S> <C> <C>
Putnam Growth
Opportunities Fund
Class A 51.37% 38.23%
S&P 500 Index 21.04% 28.56%
Russell 1000 Growth
Index 33.16% 30.51%
</TABLE>

HOW AMERICAN GENERAL ADVISERS IS PAID FOR ITS SERVICES

Each Fund pays American General Advisers 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:

<TABLE>
<CAPTION>
Advisory Fee Paid
(as a % of average
Fund Name daily net assets)
--------- ------------------------
<S> <C>
Asset Allocation Fund 0.50%
Capital Conservation Fund 0.50%
Government Securities Fund 0.50%
Core Equity Fund 0.80%
Growth & Income Fund 0.75%
Income & Growth 0.77%
International Equities Fund (1)
International Government Bond Fund 0.50%
International Growth 1.00%
Large Cap Growth 1.00%
MidCap Index Fund (1)
Money Market Fund 0.50%
Nasdaq-100(R) Index 0.40%
Opportunities 0.95%
Science & Technology Fund 0.90%
Small Cap 0.90%
Small Cap Index Fund (1)
Social Awareness Fund 0.50%
Stock Index Fund (1)
</TABLE>

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

(1) 0.35% on the first $500 million; 0.25% on assets over $500 million.

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 American General
Advisers 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, American
General Advisers has not had to reduce expenses of any Fund as a result of this
2% voluntary reduction.

50
<PAGE> 54

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

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

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

WHAT IS AN INDEX?
An index reflects the average performance of a particular class of securities.
Examples of indexes include large company stocks (S&P 500 Index), mid-size
company stocks (S&P 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 prominent stock indexes:

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

The Standard & Poor's 500 Stock Index(R) 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.

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

The Standard & Poor's MidCap 400(R) Index tracks the common stock performance of
400 medium capitalized U.S. and foreign companies that are in the manufacturing,
utilities, transportation, and financial industries. The average market
capitalization of the S&P MidCap 400 Index was $2.4 billion as of August 31,
2000.

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. This Index does not
track the same stocks as the S&P 500 Index.

Small Cap Index tracks
The Russell 2000(R) Index**

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

The Frank Russell Company created this Index in 1979 to give investors an idea
of how the stocks of small capitalized companies generally perform. The average
market capitalization of the Russell 2000 Index was $580 million as of June 30,
2000.

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

------------
* "Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "S&P 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.

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

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

51
<PAGE> 55

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

International Equities tracks
The Morgan Stanley Capital International,
Europe, Australasia 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.

NASDAQ-100 INDEX(R)

The Product(s) is not sponsored, endorsed, sold or promoted by the Nasdaq Stock
Market Inc. (including its affiliates) (Nasdaq, with its affiliates, are
referred to as the Corporations). The Corporations have not passed on the
legality or suitability of, or the accuracy or adequacy of descriptions and
disclosures relating to, the Product(s). The Corporations make no representation
or warranty, express or implied to the owners of the Product(s) or any member of
the public regarding the advisability of investing in securities generally or in
the Product(s) particularly, or the ability of the Nasdaq-100 Index(R) to track
general stock market performance. The Corporations' only relationship to North
American-AG Nasdaq-100(R) Index Fund (Licensee) is the licensing of the
Nasdaq-100(R), Nasdaq-100 Index(R), and Nasdaq(R) trademarks or service marks,
and certain trade names of the Corporations and the use of the Nasdaq-100
Index(R) which is determined, composed and calculated by Nasdaq without regard
to Licensee or the Product(s). Nasdaq has no obligation to take the needs of the
Licensee or the owners of the Product(s) into consideration in determining,
composing or calculating the Nasdaq-100 Index(R). The Corporations are not
responsible for and have not participated in the determination of the timing of,
prices at, or quantities of the Product(s) to be issued or in the determination
or calculation of the equation by which the Product(s) is to be converted into
cash. The Corporations have no liability in connection with the administration,
marketing or trading of the Products.

THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION
OF THE NASDAQ-100 INDEX(R) OR ANY DATA INCLUDED HEREIN. THE CORPORATIONS MAKE NO
WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS
OF THE PRODUCT(S), OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE NASDAQ-100
INDEX(R) OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE NASDAQ-100 INDEX(R)
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL,
INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.

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 American General
Advisers 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.

52
<PAGE> 56

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

SERIES COMPANY SHARES

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

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 value of such separate
account transactions is based on the next calculation of net asset value after
its order is placed with the Fund. For more information on how to participate,
see your contract prospectus.

None of the Funds currently foresees any disadvantages to participants arising
out of the fact that it may offer its shares to separate accounts of various
insurance companies to serve as the investment medium for their variable annuity
and variable life insurance contracts. Nevertheless, the Board of Directors
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response to such conflicts. If such a conflict were to occur, one or
more insurance companies' separate accounts might be required to withdraw their
investments in one or more Funds and shares of another Fund may be substituted.
This might force a Fund to sell portfolio securities at disadvantageous prices.
In addition, the Board of Directors may refuse to sell shares of any Fund to any
separate account or may suspend or terminate the offering of shares of any Fund
if such action is required by law or regulatory authority or is in the best
interests of the shareholders of the Fund.

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:

<TABLE>
<S> <C> <C>
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) NET ASSET VALUE
/ The total number of the = PER SHARE
Fund's shares that are
outstanding.
</TABLE>

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

If a Fund's portfolio includes investments that are not sold often or are not
sold on any exchanges, the Series Company's Board of 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 4pm EST each day the New York Stock Exchange is open. (The New
York Stock Exchange is open Monday through Friday but is closed on certain
federal and other holidays.) The Series Company is closed on the day after
Thanksgiving even though the Exchange is open.

Some foreign exchanges trade on weekends or other days when the Funds do not
price their shares. For Funds with substantial investments in those markets the
net asset value of the Fund's shares may change on days when the separate
account may not be able to purchase or redeem Fund shares.

53
<PAGE> 57
--------------------------------------------------------------------------------

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.

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.

TAX CONSEQUENCES

As the owner of a Contract or a participant under your employer's Contract, you
will not be directly affected by the federal income tax consequences of
distributions, sales or redemptions of Fund shares. You should consult the
prospectus for your Contract for further information concerning the federal
income tax consequences to you of investing in the Funds.

REDEMPTIONS

Although the Series Company normally redeems Fund shares for cash, the Series
Company has the right to pay separate account assets other than cash for
redemption amounts exceeding, in any 90-day period, $250,000 or 1% of the net
asset value of the affected Fund, whichever is less.

54
<PAGE> 58

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP, Independent Auditors for the
Series Company, whose report is included in the Statement of Additional
Information, which is available upon request.

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. No financial highlights are shown for the brand-new funds.

ASSET ALLOCATION FUND(1)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $14.43 $14.02 $12.57 $12.55 $11.24
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.44 0.40 0.41 0.77 0.44
Net realized & unrealized gain 0.51 1.26 2.24 1.44 1.53
-------- -------- -------- -------- --------
Total from investment operations 0.95 1.66 2.65 2.21 1.97
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.44) (0.40) (0.41) (0.78) (0.44)
Net realized gains (0.26) (0.85) (0.79) (1.41) (0.22)
-------- -------- -------- -------- --------
Total distributions to shareholders (0.70) (1.25) (1.20) (2.19) (0.66)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $14.68 $14.43 $14.02 $12.57 $12.55
======== ======== ======== ======== ========
TOTAL RETURN 6.65% 12.23% 21.94% 15.89% 17.90%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.55% 0.57% 0.54% 0.57% 0.57%
Net investment income to average net assets 2.98% 2.81% 3.02% 3.26% 3.62%
Portfolio turnover rate 162% 160% 24% 103% 119%
Net assets at end of year (000's) $236,804 $248,473 $200,099 $177,347 $190,024
</TABLE>

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

(1) The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.

55
<PAGE> 59
FINANCIAL HIGHLIGHTS -- CONTINUED

CAPITAL CONSERVATION FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $9.39 $9.68 $9.31 $9.23 $9.52
------- ------- ------- ------- -------
INVESTMENT OPERATIONS
Net investment income 0.62 0.60 0.61 0.62 0.62
Net realized & unrealized gain (loss) (0.61) (0.29) 0.37 0.08 (0.29)
------- ------- ------- ------- -------
Total from investment operations 0.01 0.31 0.98 0.70 0.33
------- ------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.62) (0.60) (0.61) (0.62) (0.62)
Net realized gains -- -- -- -- --
------- ------- ------- ------- -------
Total distributions to shareholders (0.62) (0.60) (0.61) (0.62) (0.62)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $8.78 $9.39 $9.68 $9.31 $9.23
======= ======= ======= ======= =======
TOTAL RETURN 0.13% 3.25% 10.76% 7.75% 3.41%
======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.55% 0.60% 0.54% 0.57% 0.57%
Net investment income to average net assets 6.73% 6.24% 6.32% 6.59% 6.47%
Portfolio turnover rate 144% 41% 14% 45% 80%
Net assets at end of year (000's) $50,525 $63,131 $63,654 $66,747 $70,212
</TABLE>

GOVERNMENT SECURITIES FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $9.90 $10.09 $9.67 $9.61 $9.89
-------- -------- ------- ------- -------
INVESTMENT OPERATIONS
Net investment income 0.55 0.55 0.58 0.59 0.61
Net realized & unrealized gain (loss) (0.39) (0.19) 0.42 0.06 (0.28)
-------- -------- ------- ------- -------
Total from investment operations 0.16 0.36 1.00 0.65 0.33
-------- -------- ------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.55) (0.55) (0.58) (0.59) (0.61)
Net realized gains -- -- -- -- --
-------- -------- ------- ------- -------
Total distributions to shareholders (0.55) (0.55) (0.58) (0.59) (0.61)
-------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $9.51 $9.90 $10.09 $9.67 $9.61
======== ======== ======= ======= =======
TOTAL RETURN 1.74% 3.58% 10.60% 6.94% 3.32%
======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.55% 0.59% 0.54% 0.56% 0.56%
Net investment income to average net assets 5.68% 5.46% 5.82% 6.11% 6.21%
Portfolio turnover rate 132% 39% 24% 38% 36%
Net assets at end of year (000's) $100,648 $107,425 $92,120 $83,827 $78,423
</TABLE>

56
<PAGE> 60
FINANCIAL HIGHLIGHTS -- CONTINUED

CORE EQUITY FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $24.12 $22.08 $17.62 $16.49 $11.43
---------- ---------- ---------- -------- --------
INVESTMENT OPERATIONS
Net investment income (loss) -- (0.08) (0.02) 0.02 0.11
Net realized & unrealized gain 0.20 3.13 4.82 1.45 5.27
---------- ---------- ---------- -------- --------
Total from investment operations 0.20 3.05 4.80 1.47 5.38
---------- ---------- ---------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (0.01) (0.01) (0.09)
Net realized gains (1.01) (1.01) (0.33) (0.33) (0.23)
---------- ---------- ---------- -------- --------
Total distributions to shareholders (1.01) (1.01) (0.34) (0.34) (0.32)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD $23.31 $24.12 $22.08 $17.62 $16.49
========== ========== ========== ======== ========
TOTAL RETURN 0.96% 14.20% 27.41% 9.00% 47.46%
========== ========== ========== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.85% 0.86% 0.84% 0.86% 0.83%
Net investment income to average net assets 0.02% (0.36%) (0.11%) 0.09% 0.89%
Portfolio turnover rate 134% 42% 43% 40% 36%
Net assets at end of year (000's) $1,135,083 $1,271,034 $1,100,137 $747,654 $425,787
</TABLE>

GROWTH & INCOME FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $21.53 $19.91 $16.87 $14.78 $11.09
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.15 0.06 0.08 0.10 0.08
Net realized & unrealized gain 1.96 3.17 3.25 2.38 3.77
-------- -------- -------- -------- --------
Total from investment operations 2.11 3.23 3.33 2.48 3.85
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.14) (0.08) (0.08) (0.10) (0.07)
Net realized gains (2.46) (1.53) (0.21) (0.29) (0.09)
-------- -------- -------- -------- --------
Total distributions to shareholders (2.60) (1.61) (0.29) (0.39) (0.16)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $21.04 $21.53 $19.91 $16.87 $14.78
======== ======== ======== ======== ========
TOTAL RETURN 9.67% 16.92% 19.87% 17.08% 34.85%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.80% 0.82% 0.80% 0.81% 0.79%
Net investment income to average net assets 0.70% 0.29% 0.43% 0.70% 0.63%
Portfolio turnover rate 89% 102% 78% 45% 64%
Net assets at end of year (000's) $329,588 $296,885 $271,159 $209,545 $113,546
</TABLE>

57
<PAGE> 61
FINANCIAL HIGHLIGHTS -- CONTINUED

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $11.32 $11.95 $11.44 $11.15 $10.42
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.15 0.22 0.23 0.20 0.17
Net realized & unrealized gain (loss) 1.90 0.30 0.85 0.63 0.97
-------- -------- -------- -------- --------
Total from investment operations 2.05 0.52 1.08 0.83 1.14
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.14) (0.25) (0.24) (0.19) (0.17)
Net realized gains (0.68) (0.90) (0.33) (0.35) (0.24)
-------- -------- -------- -------- --------
Total distributions to shareholders (0.82) (1.15) (0.57) (0.54) (0.41)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $12.55 $11.32 $11.95 $11.44 $11.15
======== ======== ======== ======== ========
TOTAL RETURN 18.01% 4.43% 9.92% 7.74% 11.14%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.41% 0.43% 0.40% 0.42% 0.42%
Net investment income to average net assets 1.20% 1.89% 1.92% 1.75% 1.65%
Portfolio turnover rate 25% 8% 9% 12% 20%
Net assets at end of year (000's) $162,840 $142,108 $155,469 $181,437 $206,259
</TABLE>

INTERNATIONAL GOVERNMENT BOND FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $11.62 $11.42 $11.33 $11.79 $12.72
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.48 0.51 0.56 0.63 0.65
Net realized & unrealized gain (loss) (0.98) 0.24 (0.26) (0.49) (0.89)
-------- -------- -------- -------- --------
Total from investment operations (0.50) 0.75 0.30 0.14 (0.24)
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.23) (0.48) (0.20) (0.58) (0.68)
Net realized gains (0.01) (0.07) (0.01) (0.02) (0.01)
-------- -------- -------- -------- --------
Total distributions to shareholders (0.24) (0.55) (0.21) (0.60) (0.69)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $10.88 $11.62 $11.42 $11.33 $11.79
======== ======== ======== ======== ========
TOTAL RETURN (4.43)% 6.40% 2.65% 1.13% (1.91)%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.52% 0.57% 0.55% 0.56% 0.56%
Net investment income to average net assets 4.07% 4.27% 4.70% 5.13% 5.45%
Portfolio turnover rate 15% 22% 17% 4% 11%
Net assets at end of year (000's) $130,978 $158,509 $155,783 $177,709 $142,383
</TABLE>

58
<PAGE> 62
FINANCIAL HIGHLIGHTS -- CONTINUED

MIDCAP INDEX FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $25.64 $ 25.27 $20.83 $19.09 $15.68
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.22 0.23 0.23 0.24 0.24
Net realized & unrealized gain (loss) 4.49 2.54 5.80 2.95 4.06
-------- -------- -------- -------- --------
Total from investment operations 4.71 2.77 6.03 3.19 4.30
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.22) (0.23) (0.23) (0.24) (0.24)
Net realized gains (6.40) (2.17) (1.36) (1.21) (0.65)
-------- -------- -------- -------- --------
Total distributions to shareholders (6.62) (2.40) (1.59) (1.45) (0.89)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $23.73 $ 25.64 $25.27 $20.83 $19.09
======== ======== ======== ======== ========
TOTAL RETURN 21.36% 11.91% 29.62% 17.48% 28.10%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.36% 0.38% 0.36% 0.40% 0.41%
Net investment income to average net assets 0.90% 0.92% 0.95% 1.24% 1.36%
Portfolio turnover rate 41% 41% 26% 19% 21%
Net assets at end of year (000's) $922,679 $817,573 $804,318 $607,061 $540,688
</TABLE>

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

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
---------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------
INVESTMENT OPERATIONS
Net investment income 0.05 0.05 0.05 0.05 0.05
-------- -------- -------- -------- -------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.05) (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- -------- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== =======
TOTAL RETURN 5.21% 4.84% 5.25% 5.02% 5.26%
======== ======== ======== ======== =======
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.56% 0.57% 0.54% 0.57% 0.57%
Net investment income to average net assets 5.13% 4.66% 5.14% 4.95% 5.14%
Net assets at end of year (000's) $484,934 $347,394 $190,975 $128,125 $83,618
</TABLE>

59
<PAGE> 63
FINANCIAL HIGHLIGHTS -- CONTINUED

SCIENCE & TECHNOLOGY FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $29.95 $22.07 $19.88 $20.48 $14.43
---------- ---------- ---------- -------- --------
INVESTMENT OPERATIONS
Net investment income (loss) (0.11) (0.10) (0.09) -- --
Net realized & unrealized gain 16.37 10.36 2.28 0.33 8.08
---------- ---------- ---------- -------- --------
Total from investment operations 16.26 10.26 2.19 0.33 8.08
---------- ---------- ---------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- -- -- --
Net realized gains (5.07) (2.38) -- (0.93) (2.03)
---------- ---------- ---------- -------- --------
Total distributions to shareholders (5.07) (2.38) -- (0.93) (2.03)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD $41.14 $29.95 $22.07 $19.88 $20.48
========== ========== ========== ======== ========
TOTAL RETURN $52.65 48.34% 10.85% 1.81% 58.28%
========== ========== ========== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.96% 0.96% 0.95% 0.96% 0.94%
Net investment income to average net assets (0.40%) (0.46%) (0.46%) (0.29%) (0.07%)
Portfolio turnover rate 130% 149% 128% 122% 116%
Net assets at end of year (000's) $3,314,052 $1,683,585 $1,023,141 $804,982 $567,187
</TABLE>

SMALL CAP INDEX FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $15.84 $17.94 $16.18 $16.25 $12.49
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.18 0.19 0.19 0.19 0.20
Net realized & unrealized gain (loss) 1.43 (0.74) 3.17 0.93 4.04
-------- -------- -------- -------- --------
Total from investment operations 1.61 (0.55) 3.36 1.12 4.24
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.18) (0.19) (0.19) (0.19) (0.20)
Net realized gains (1.61) (1.36) (1.41) (1.00) (0.28)
-------- -------- -------- -------- --------
Total distributions to shareholders (1.79) (1.55) (1.60) (1.19) (0.48)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $15.66 $15.84 $17.94 $16.18 $16.25
======== ======== ======== ======== ========
TOTAL RETURN 10.22% (2.45%) 21.34% 7.51% 34.50%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.40% 0.41% 0.39% 0.41% 0.41%
Net investment income to average net assets 1.12% 1.20% 1.05% 1.34% 1.36%
Portfolio turnover rate 35% 36% 36% 42% 31%
Net assets at end of year (000's) $228,602 $220,002 $247,183 $192,459 $180,785
</TABLE>

60
<PAGE> 64
FINANCIAL HIGHLIGHTS -- CONTINUED

SOCIAL AWARENESS FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $24.11 $22.16 $17.90 $15.49 $13.02
---------- ---------- ---------- ---------- ----------
INVESTMENT OPERATIONS
Net investment income 0.20 0.21 0.23 0.24 0.26
Net realized & unrealized gain (loss) 1.61 4.08 5.07 4.19 3.37
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.81 4.29 5.30 4.43 3.63
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.18) (0.22) (0.23) (0.24) (0.25)
Net realized gains (0.97) $ (2.12) (0.81) (1.78) (0.91)
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders (1.15) (2.34) (1.04) (2.02) (1.16)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $24.77 $24.11 $22.16 $17.90 $15.49
========== ========== ========== ========== ==========
TOTAL RETURN 7.49% 20.05% 30.34% 30.48% 28.85%
========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Expenses to average net assets 0.55% 0.57% 0.54% 0.56% 0.56%
Net investment income to average net assets 0.79% 0.93% 1.17% 1.53% 1.80%
Portfolio turnover rate 40% 49% 120% 109% 117%
Net assets at end of year (000's) $ 582,403 $ 521,965 $ 334,167 $ 155,349 $ 80,887
</TABLE>

STOCK INDEX FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $39.73 $33.38 $26.09 $20.69 $16.81
---------- ---------- ---------- ---------- ----------
INVESTMENT OPERATIONS
Net investment income 0.41 0.40 0.40 0.39 0.39
Net realized & unrealized gain (loss) 3.59 6.51 7.44 5.57 4.26
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.00 6.91 7.84 5.96 4.65
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.39) (0.41) (0.40) (0.39) (0.38)
Net realized gains (0.36) (0.15) (0.15) (0.17) (0.39)
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders (0.75) (0.56) (0.55) (0.56) (0.77)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $42.98 $39.73 $33.38 $26.09 $20.69
========== ========== ========== ========== ==========
TOTAL RETURN 10.10% 20.85% 30.30% 29.24% 28.17%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.31% 0.32% 0.31% 0.34% 0.35%
Net investment income to average net assets 0.97% 1.13% 1.33% 1.76% 2.05%
Portfolio turnover rate 6% 2% 3% 3% 3%
Net assets at end of year (000's) $5,373,192 $4,637,628 $3,482,655 $2,444,200 $1,760,786
</TABLE>

61
<PAGE> 65

INTERESTED IN LEARNING MORE?
--------------------------------------------------------------------------------

The Statement of Additional Information incorporated by reference into this
prospectus contains additional information about the Series Company's
operations.

Further information about the Funds' investments is available in the Series
Company's annual and semi-annual reports to shareholders. The Series Company's
annual report discusses market conditions and investment strategies that
significantly affected the Series Company's performance results during its last
fiscal year.

American General Advisers can provide you with a free copy of these materials or
other information about the Series Company. You may reach American General
Advisers by calling 1-800-44-VALIC or by writing to 2929 Allen Parkway, Houston,
Texas 77019.

The Securities and Exchange Commission also maintains copies of these documents:

To view information online: Access the SEC's web site at http://www.sec.gov.

To review a paper filing or to request that documents be mailed to you,
contact:

SEC Public Reference Room
Washington, D.C. 20549-6009
1-800-SEC-0330

A duplicating fee will be assessed for all copies provided.

Investment Company Act filing number 811-8912. VA 9017 VER 10/00
<PAGE> 66

NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES I
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019

NORTH AMERICAN-AG1 MONEY MARKET FUND

OCTOBER 1, 2000
PROSPECTUS

North American Funds Variable Product Series I, known as American General Series
Portfolio Company prior to October 1, 2000 (the "Series Company") is a mutual
fund made up of 19 separate Funds, one of which is described in this prospectus.
The Money Market Fund name has changed also, to North American-AG1 Money Market
Fund. The investment objective, strategy, and policies remain the same. The
investment goal of the Money Market Fund (the "Fund") is income through
investments in short-term money market securities. The Fund is explained in more
detail on its Fact Sheet contained in this prospectus.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE
WELCOME TO AMERICAN GENERAL.................... 1
MONEY MARKET FUND FACT SHEET................... 2
MORE ABOUT PORTFOLIO INVESTMENTS............... 4
Fixed Income Securities................... 4
Asset-Backed Securities................... 4
Loan Participations....................... 4
Variable Rate Demand Notes................ 4
Foreign Securities........................ 4
ADRs...................................... 4
Illiquid Securities....................... 5
When-Issued Securities.................... 5
Money Market Securities................... 5
Repurchase Agreements..................... 5
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Lending Portfolio Securities.............. 5
Diversification........................... 5
A Word About Risk......................... 5
ABOUT THE SERIES COMPANY'S MANAGEMENT.......... 8
Investment Adviser........................ 8
How American General Advisers is Paid for
its Services............................ 8
ABOUT THE SERIES COMPANY....................... 9
Series Company Shares..................... 9
Net Asset Value of the Series Company
Shares.................................. 9
Dividends and Capital Gains............... 9
Tax Consequences.......................... 9
FINANCIAL HIGHLIGHTS........................... 10
</TABLE>

(i)
<PAGE> 68

WELCOME TO AMERICAN GENERAL
--------------------------------------------------------------------------------

Unless otherwise specified in this prospectus, the words we and our mean
American General Advisers. The words you and your mean the participant.

Individuals can't invest in the Fund directly. Instead, they participate through
an annuity contract, variable life policy, or employer plan (collectively, the
"Contracts" and each a Contract) with VALIC or one of its affiliates, or
employee thrift plans maintained by VALIC or American General Corporation. Most
often employers set up annuity contracts 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 more fully explained in
your contract prospectus.

The Contracts may be sold by banks. An investment in the Fund through a Contract
is not a deposit of a bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

1
<PAGE> 69

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments. This investment objective is
non-fundamental and may be changed by the Board of Directors without investor
approval.

The investments this Fund may buy include:

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

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

- Commercial paper sold by corporations and finance companies

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

- Repurchase agreements

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

- Asset-backed securities

- Loan participations

- Adjustable rate securities

- Variable rate demand notes

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

INVESTMENT RISK
Because of the following principal risks the value of your investment may
fluctuate and you could lose money:

- The rate of income varies daily depending on short-term interest rates

- A significant change in interest rates or a default on a security held by the
Fund could cause the value of your investment to decline

- An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency

- Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

2
<PAGE> 70

MONEY MARKET
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of 30-day Certificate of Deposit Primary Offering Rate by New York
City Banks (30-day CD Rate). How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]
------------
* For the year-to-date through June 30, 2000, the Fund's return was 2.81%.

This table compares the Fund's average annual returns to the returns of the
30-day CD Rate for the one-, five- and ten-calendar year periods.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 4.75% 5.13% 4.87%
30-Day CD 4.46% 4.68% 4.61%
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

3
<PAGE> 71

MORE ABOUT PORTFOLIO INVESTMENTS
--------------------------------------------------------------------------------

FIXED INCOME SECURITIES

Fixed income securities include a broad array of short, medium and long-term
obligations, including notes and bonds. Fixed income securities may have fixed,
variable, or floating rates of interest, including rates of interest that vary
inversely at a multiple of a designated or floating rate, or that vary according
to changes in relative values of currencies. Fixed income securities generally
involve an obligation of the issuer to pay interest on either a current basis or
at the maturity of the security and to repay the principal amount of the
security at maturity.

Bonds are one type of fixed income security and 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.

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.

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.

The Fund may invest in loan participations.

VARIABLE RATE DEMAND NOTES

Variable rate demand notes ("VRDNs") are either taxable or tax-exempt
obligations containing a floating or variable interest rate adjustment formula,
together with an unconditional right to demand payment of the unpaid principal
balance plus accrued interest upon a short notice period, generally not to
exceed seven days. The Fund also may invest in participation VRDNs, which
provide the Fund with an undivided interest in underlying VRDNs held by major
investment banking institutions. Any purchase of VRDNs will meet applicable
diversification and concentration requirements, and with respect to the Fund,
the conditions established by the SEC under which such securities may be
considered to have remaining maturities of 397 days or less.

FOREIGN SECURITIES

The Fund may invest in securities of foreign issuers. The Fund may only invest
in U.S. dollar-denominated securities of foreign issuers. Securities of foreign
issuers include obligations of foreign branches of U.S. banks and of foreign
banks, common and preferred stocks, fixed income securities issued by foreign
governments, corporations and supranational organizations, and GDRs and EDRs.

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. ADRs in which a Fund
may invest may be sponsored or unsponsored. There may be less information
available about foreign issuers of unsponsored ADRs.

For more information about
BONDS AND RATINGS OF
BONDS, see the Statement
of Additional Information.

For more information about
ASSET-BACKED SECURITIES
see the Statement of
Additional Information.

For more information about
FOREIGN SECURITIES, see the
Statement of Additional
information.

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

4
<PAGE> 72

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

ILLIQUID SECURITIES

A restricted security is one that has not been registered with the SEC and,
therefore, cannot be sold in the public market. Securities eligible for sale
under Rule 144A and commercial paper offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended, are not deemed by American General Advisers
to be illiquid solely by reason of being restricted. Instead, American General
Advisers will determine whether such securities are liquid based on trading
markets and pursuant to guidelines adopted by the Series Company's Board of
Directors. If American General Advisers concludes that a security is not liquid,
that investment will be included within the Fund's limitation on illiquid
securities. The Fund may invest up to 10% of its net assets in illiquid
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.

MONEY MARKET SECURITIES

The Fund invests in high quality money market securities payable in U.S.
dollars. 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
American General Advisers.

These high quality money market securities include:

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

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

- Commercial paper sold by corporations and finance companies.

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

REPURCHASE AGREEMENTS

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 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.

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
approved by its Custodian, as monitored by VALIC and authorized by the Board of
Directors.

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.

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

For more information about
ILLIQUID SECURITIES, see the
Statement of Additional
information.

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

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

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

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

5
<PAGE> 73

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

A WORD ABOUT RISK

As described in the fact sheet for the Fund, participation in the Fund involves
risk -- even the risk that you will receive a minimal return on your investment
or the value of your investment will decline. It is important for you to
consider carefully the following risks when you allocate purchase payments to
the Fund.

Market Risk

Credit Risk

Credit risk refers to the risk that an issuer of a fixed income security may be
unable to pay principal or interest payments due on the securities. To help
VALIC decide which corporate and foreign fixed income securities to buy, they
rely on Moody's and S&P (two nationally recognized bond rating services), and on
their own research, to lower the risk of a company that may not pay the interest
or principal on the fixed income security.

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. Fixed income
securities such as U.S. Government bonds are subject to interest rate risk. 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 an interest rate of 6%, it will have
to sell it at a discount (and realize a loss) to attract buyers because they can
buy new bonds paying an interest rate of 7%.

Prepayment Risk

Many types of fixed income securities, including asset backed securities, are
subject to prepayment risk. Prepayment risk is the risk that issuers of fixed
income securities will make prepayments earlier than anticipated during periods
of falling interest rates requiring the Fund to invest in new securities with
lower interest rates. This will reduce the stream of cash payments that flow
through to the Fund. Securities subject to prepayment risk also pose a potential
for loss when interest rates rise. Rising interest rates may cause prepayments
to occur at a slower rate than expected thereby lengthening the maturity of the
security and making it more sensitive to interest rate changes.

Risks Associated with Foreign Securities

A foreign security is a security issued by an entity domiciled or incorporated
outside of the U.S. Among the principal risks of owning foreign securities are:

Currency Risk -- the risk that a foreign currency will decline in value. As
long as the Fund holds a security denominated in a foreign currency, its value
will be affected by the value of that currency relative to the U.S. dollar. An
increase in the value of the U.S. dollar relative to a foreign currency will
adversely affect the value of the Fund.

Sovereign Risk -- the risk that a foreign government will interfere with
currency trading or transferring money out of the country.

6
<PAGE> 74

ABOUT THE SERIES COMPANY'S MANAGEMENT
--------------------------------------------------------------------------------

INVESTMENT ADVISER
VALIC is a division of VALIC, a stock life insurance company, which has been in
the investment advisory business since 1960 and is the investment adviser for
all the Funds. American General Advisers is a registered investment adviser with
the SEC and had over $48.8 billion in assets under management as of June 30,
2000.

As Investment Adviser, American General Advisers is responsible for the Fund's
day to day operations. Also, American General Advisers supervises the purchase
and sale of Fund investments and performs the cash management function.

Teresa Moro has been the Fund's Portfolio Manager and Vice President and
Investment Officer for the Series Company since 1991.

American General Advisers serves as investment adviser through an Investment
Advisory Agreement it enters into with the Fund. 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.

HOW AMERICAN GENERAL ADVISERS IS PAID FOR ITS SERVICES
The Fund pays American General Advisers 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 American General
Advisers an advisory fee at an annual rate of 0.50%.

The Investment Advisory Agreement we entered into with the Fund do 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 American General
Advisers 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.

AMERICAN GENERAL ADVISER'S ADDRESS is
2929 Allen Parkway,
Houston, Texas 77019.

7
<PAGE> 75

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 accounts buy, sell, or transfer shares of the Fund, they do
not pay any charges related to these transactions. The value of such separate
account transactions is based on the next calculation of net asset value after
its order is placed with the Fund. For more information on how to participate,
see your contract prospectus.

The Fund does not currently foresee any disadvantages to participants arising
out of the fact that it may offer its shares to separate accounts of various
insurance companies to serve as the investment medium for their variable annuity
and variable life insurance contracts. Nevertheless, the Board of Directors
intends to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any, should
be taken in response to such conflicts. If such a conflict were to occur, one or
more insurance companies' separate accounts might be required to withdraw their
investments in the Fund and shares of another Fund may be substituted. This
might force the Fund to sell portfolio securities at disadvantageous prices. In
addition, the Board of Directors may refuse to sell shares of the Fund to any
separate account or may suspend or terminate the offering of shares of the Fund
if such action is required by law or regulatory authority or is in the best
interests of the shareholders of the Fund.

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:

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

* The Series Company uses the fair market value of Fund's investments to
calculate the Fund's total value. However, it uses the amortized cost method
to determine the values of all the 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 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. (The New
York Stock Exchange is open Monday through Friday but is closed on certain
federal and other holidays.) The Series Company is closed on the day after
Thanksgiving even though the Exchange is open.

DIVIDENDS AND CAPITAL GAINS

Dividends from Net Investment Income

Net investment income generally includes bond interest earned less expenses paid
by the Fund. The 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 Fund pays dividends daily.

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.

TAX CONSEQUENCES

REDEMPTIONS

8
<PAGE> 76

FINANCIAL HIGHLIGHTS

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

9
<PAGE> 77

INTERESTED IN LEARNING MORE?
--------------------------------------------------------------------------------

The Statement of Additional Information incorporated by reference into this
prospectus contains additional information about the Series Company's
operations.

Further information about the Fund's investments is available in the Series
Company's annual and semi-annual reports to shareholders. The Series Company's
annual report discusses market conditions and investment strategies that
significantly affected the Series Company's performance results during its last
fiscal year.

The Securities and Exchange Commission also maintains copies of these documents:

To view information online: Access the SEC's web site at http://www.sec.gov.

To review a paper filing or to request that documents be mailed to you,
contact:

SEC Public Reference Room
Washington, D.C. 20549-6009
1-800-SEC-0330

A duplicating fee will be assessed for all copies provided.

The Trust's Investment Company Act filing number is 811-8912. VA 9017-MMF VER
10/00
<PAGE> 78

NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES I

2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
OCTOBER 1, 2000
PROSPECTUS

North American Funds Variable Product Series I, American General Series
Portfolio Company prior to October 1, 2000 (the "Series Company") is a mutual
fund made up of 19 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.

As of October 1, 2000, the name of each Fund has changed. The investment
objectives, policies, and strategies have not changed, just the Fund names. Here
is a list of the old and new names for the Funds:

<TABLE>
<CAPTION>
NAME PRIOR TO OCTOBER 1, 2000 NAME AS OF OCTOBER 1, 2000
---------------------------------------------------------- ----------------------------------------------------------
<S> <C>
International Equities Fund North American-AG International Equities Fund
MidCap Index Fund North American-AG MidCap Index Fund
Money Market Fund North American-AG 1 Money Market Fund
Stock Index Fund North American-AG Stock Index Fund
</TABLE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE
WELCOME TO AMERICAN GENERAL.................... 1
ABOUT THE FUNDS................................ 1
Growth and Stability Categories........... 1
FUND FACT SHEETS............................... 2
North American-AG International Equities
Fund ("International Equities")......... 2
North American-AG MidCap Index Fund
("MidCap Index")........................ 4
North American-AG 1 Money Market Fund
("Money Market")........................ 6
North American-AG Stock Index Fund ("Stock
Index")................................. 8
MORE ABOUT PORTFOLIO INVESTMENTS............... 10
Equity Securities......................... 10
Fixed Income Securities................... 10
Asset-Backed Securities................... 10
Loan Participations....................... 10
Mortgage-Related Securities............... 11
Variable Rate Demand Notes................ 11
Foreign Securities........................ 11
ADRs...................................... 11
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Foreign Currency.......................... 11
Illiquid Securities....................... 11
Futures and Options....................... 11
When-Issued Securities.................... 11
Money Market Securities................... 12
Repurchase Agreements..................... 12
Lending Portfolio Securities.............. 12
Diversification........................... 12
A Word About Risk......................... 12
About Portfolio Turnover.................. 14
ABOUT THE SERIES COMPANY'S MANAGEMENT.......... 15
Investment Adviser........................ 15
How American General Advisers is Paid For
Its Services............................ 15
ABOUT INDEX EQUITY FUNDS....................... 16
ABOUT THE SERIES COMPANY....................... 18
Series Company Shares..................... 18
Net Asset Value of the Series Company
Shares.................................. 18
Dividends and Capital Gains............... 18
Tax Consequences.......................... 19
Redemptions...............................
FINANCIAL HIGHLIGHTS........................... 20
</TABLE>

(i)
<PAGE> 80

WELCOME TO AMERICAN GENERAL
--------------------------------------------------------------------------------

Unless otherwise specified in this prospectus, the words we and our mean
American General Advisers. The words you and your mean the participant.

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

GROWTH AND STABILITY CATEGORIES

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

Growth Category

Series Company Growth Category includes:

International Equities

MidCap Index

Stock Index

Stability Category

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

Series Company Stability Category includes:

Money Market

1
<PAGE> 81

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

INVESTMENT ADVISER
American General Advisers

<TABLE>
<S> <C>
* At time of purchase.
</TABLE>

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Foreign Securities Risks:

Political Risk: the risk that a change in a foreign government will occur and
that the assets of a company in which the Fund has invested will be affected.

Sovereign Risk: the risk that a foreign government will interfere with
currency trading or transferring money out of the country.

Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

2
<PAGE> 82

INTERNATIONAL EQUITIES
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the EAFE Index. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was (6.47%).

This table compares the Fund's average annual returns to the returns of the EAFE
Index.

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

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 29.19% 13.16% 7.18%
EAFE Index 26.96% 12.83% 7.01%
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

3
<PAGE> 83

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

INVESTMENT ADVISER
American General Advisers

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

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

Additional information
about INDEX FUNDS
is provided under "About
Index Equity Funds".

4
<PAGE> 84

MIDCAP INDEX
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P MidCap 400 Index. Prior to October 1, 1999, the Fund was
sub-advised by Bankers Trust Company. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was 8.72%.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION**
------ ------- -----------------
<S> <C> <C> <C>
The Fund 14.92% 22.81% 17.31%
S&P Midcap Index 14.72% 23.05% 17.92%
</TABLE>

-------------------------------------------------
** 10/01/91.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

5
<PAGE> 85

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

INVESTMENT ADVISER
American General Advisers

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

The investments this Fund may buy include:

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

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

- Commercial paper sold by corporations and finance companies

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

- Repurchase agreements

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

- Asset-backed securities

- Loan participations

- Adjustable rate securities

- Variable rate demand notes

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

INVESTMENT RISK
Because of the following principal risks the value of your investment may
fluctuate and you could lose money:

- The rate of income varies daily depending on short-term interest rates

- A significant change in interest rates or a default on a security held by the
Fund could cause the value of your investment to decline

- An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency

- Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

6
<PAGE> 86

MONEY MARKET
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of 30-day Certificate of Deposit Primary Offering Rate by New York
City Banks (30-day CD Rate). How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]
------------
* For the year-to-date through June 30, 2000, the Fund's return was 2.81%.

This table compares the Fund's average annual returns to the returns of the
30-day CD Rate for the one-, five- and ten-calendar year periods.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 4.75% 5.13% 4.87%
30-Day CD 4.46% 4.68% 4.61%
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

7
<PAGE> 87

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

INVESTMENT ADVISER
American General Advisers

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

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

Additional information
about INDEX FUNDS
is provided under "About
Index Equity Funds".

8
<PAGE> 88

STOCK INDEX
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P 500 Index. Prior to October 1, 1999, the Fund was
sub-advised by Bankers Trust Company. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was (0.57%).

This table compares the Fund's average annual returns to the returns of the S&P
500 Index for the one-, five- and ten-calendar year periods.

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

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 20.57% 28.28% 17.66%
S&P 500 Index 21.05% 28.56% 18.21%
</TABLE>

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

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

ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
-------------------------------------------------

<TABLE>
<S> <C>
Management Fees 0.26%
Other Expenses 0.05%
-----
Total Annual Fund Operating Expenses 0.31%
=====
</TABLE>

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

This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

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

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$32 $100 $175 $395
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

9
<PAGE> 89

MORE ABOUT PORTFOLIO INVESTMENTS
--------------------------------------------------------------------------------

Stocks are one type of equity security. Generally, there are three types of
stocks:

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 Money Market in this prospectus may invest in common,
preferred, and convertible preferred stock in accordance with their investment
strategies.

All of the Funds may invest in fixed income securities.

Bonds are one type of fixed income security and 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. For a description of investment grade bonds see "A Word about
Risk -- Market Risk" in this prospectus.

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.

ISSUED means the
Company (ISSUER) sold it
originally to the public.

For more information about
BONDS AND RATINGS OF
BONDS, see the Statement
of Additional Information.

10
<PAGE> 90

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

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.

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

MORTGAGE-RELATED SECURITIES

For more information about
ASSET-BACKED SECURITIES
see the Statement of
Additional Information.

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

For more information about
MORTGAGE-RELATED SECURITIES,
see the Statement of
Additional Information.

11
<PAGE> 91

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

VARIABLE RATE DEMAND NOTES

FOREIGN SECURITIES

All of the Funds may invest in securities of foreign issuers. Such foreign
securities may be denominated in foreign currencies, except with respect to
Money Market which may only invest in U.S. dollar-denominated securities of
foreign issuers. Securities of foreign issuers include obligations of foreign
branches of U.S. banks and of foreign banks, common and preferred stocks, fixed
income securities issued by foreign governments, corporations and supranational
organizations, and GDRs and EDRs.

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. ADRs in which a Fund
may invest may be sponsored or unsponsored. There may be less information
available about foreign issuers of unsponsored ADRs.

FOREIGN CURRENCY

All of the Funds, except Money Market, 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.

The Funds, except Money Market, may purchase forward foreign currency exchange
contracts to protect against a decline in the value of the U.S. dollar.

ILLIQUID SECURITIES

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

FUTURES AND OPTIONS

Futures contracts and options may not always be successful hedges; their prices
can be highly

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

For more information about
FOREIGN SECURITIES, see the
Statement of Additional
information.

For more information on
FUTURES AND OPTIONS,
see the Statement of
Additional information.

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

12
<PAGE> 92

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

volatile; using them could lower fund total return; and the potential loss from
the use of futures can exceed a fund's initial investment in such contracts.

The Funds, except Money Market, may also buy futures and options.

WHEN-ISSUED SECURITIES

All of the Funds may buy when-issued securities in accordance with their
investment strategy.

MONEY MARKET SECURITIES

These high quality money market securities include:

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

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

- Commercial paper sold by corporations and finance companies.

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

REPURCHASE AGREEMENTS

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.

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.

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

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

DIVERSIFICATION

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.

A WORD ABOUT RISK

Market Risk

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

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

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

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

13
<PAGE> 93

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

Credit Risk

Interest Rate Risk

Prepayment Risk

Risks Associated with Foreign Securities

A foreign security is a security issued by an entity domiciled or incorporated
outside of the U.S. Among the principal risks of owning foreign securities are:

Sovereign Risk -- the risk that a foreign government will interfere with
currency trading or transferring money out of the country.

ABOUT PORTFOLIO TURNOVER

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

14
<PAGE> 94

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

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.

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.

The Financial Highlights tables show the portfolio turnover rate for each of the
Funds, other than Money Market, during prior fiscal years.

ABOUT THE SERIES COMPANY'S MANAGEMENT
--------------------------------------------------------------------------------

As Investment Adviser, American General Advisers oversees the day to day
operations of each Fund, supervises the purchase and sale of Fund investments,
and performs the cash management function.

William Trimbur, Jr. has been International Equities' Portfolio Manager since
1992. He has been Vice President and Investment Officer for the Series Company
since 1987.

Teresa Moro has been Money Market's Portfolio Manager and Vice President and
Investment Officer for the Series Company since 1991.

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

HOW AMERICAN GENERAL ADVISERS IS PAID FOR ITS SERVICES

Here is a list of the percentages each Fund pays:

<TABLE>
<CAPTION>
Advisory Fee Paid
(as a % of average
Fund Name daily net assets)
--------- ------------------------
<S> <C>
International Equities Fund 0.35% on the first $500
MidCap Index Fund million;
Stock Index Fund 0.25% on assets over
$500 million.
Money Market Fund 0.50%
</TABLE>

15
<PAGE> 95

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

Three of the Funds 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 prominent stock indexes:

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

This index may periodically change some of the stocks it tracks. And, different
indexes sometimes track some of the same stocks.

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

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

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

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.

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

16
<PAGE> 96

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

17
<PAGE> 97

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

SERIES COMPANY SHARES

As a participant, you do not directly buy shares of the Funds. 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.

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:

When Net Asset Value is Calculated

DIVIDENDS AND CAPITAL GAINS

Dividends from Net Investment Income

18
<PAGE> 98

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

Distributions from Capital Gains

TAX CONSEQUENCES

REDEMPTIONS

19
<PAGE> 99

FINANCIAL HIGHLIGHTS

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

20
<PAGE> 100
FINANCIAL HIGHLIGHTS -- CONTINUED

MIDCAP INDEX FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $25.64 $ 25.27 $20.83 $19.09 $15.68
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.22 0.23 0.23 0.24 0.24
Net realized & unrealized gain (loss) 4.49 2.54 5.80 2.95 4.06
-------- -------- -------- -------- --------
Total from investment operations 4.71 2.77 6.03 3.19 4.30
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.22) (0.23) (0.23) (0.24) (0.24)
Net realized gains (6.40) (2.17) (1.36) (1.21) (0.65)
-------- -------- -------- -------- --------
Total distributions to shareholders (6.62) (2.40) (1.59) (1.45) (0.89)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $23.73 $ 25.64 $25.27 $20.83 $19.09
======== ======== ======== ======== ========
TOTAL RETURN 21.36% 11.91% 29.62% 17.48% 28.10%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.36% 0.38% 0.36% 0.40% 0.41%
Net investment income to average net assets 0.90% 0.92% 0.95% 1.24% 1.36%
Portfolio turnover rate 41% 41% 26% 19% 21%
Net assets at end of year (000's) $922,679 $817,573 $804,318 $607,061 $540,688
</TABLE>

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

21
<PAGE> 101
FINANCIAL HIGHLIGHTS -- CONTINUED

STOCK INDEX FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $39.73 $33.38 $26.09 $20.69 $16.81
---------- ---------- ---------- ---------- ----------
INVESTMENT OPERATIONS
Net investment income 0.41 0.40 0.40 0.39 0.39
Net realized & unrealized gain (loss) 3.59 6.51 7.44 5.57 4.26
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.00 6.91 7.84 5.96 4.65
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.39) (0.41) (0.40) (0.39) (0.38)
Net realized gains (0.36) (0.15) (0.15) (0.17) (0.39)
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders (0.75) (0.56) (0.55) (0.56) (0.77)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $42.98 $39.73 $33.38 $26.09 $20.69
========== ========== ========== ========== ==========
TOTAL RETURN 10.10% 20.85% 30.30% 29.24% 28.17%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.31% 0.32% 0.31% 0.34% 0.35%
Net investment income to average net assets 0.97% 1.13% 1.33% 1.76% 2.05%
Portfolio turnover rate 6% 2% 3% 3% 3%
Net assets at end of year (000's) $5,373,192 $4,637,628 $3,482,655 $2,444,200 $1,760,786
</TABLE>

22
<PAGE> 102

INTERESTED IN LEARNING MORE?
--------------------------------------------------------------------------------

The Statement of Additional Information incorporated by reference into this
prospectus contains additional information about the Series Company's
operations.

The Securities and Exchange Commission also maintains copies of these documents:

To view information online: Access the SEC's web site at http://www.sec.gov.

To review a paper filing or to request that documents be mailed to you,
contact:

SEC Public Reference Room
Washington, D.C. 20549-6009
1-800-SEC-0330

A duplicating fee will be assessed for all copies provided.

The Trust's Investment Company Act filing number is 811-8912. 10/00
<PAGE> 103

NORTH AMERICAN FUNDS VARIABLE
PRODUCT SERIES I
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
OCTOBER 1, 2000
PROSPECTUS

North American Funds Variable Product Series I (the "Series Company") is a
mutual fund made up of 19 separate Funds (the "Funds"), seven of which are
described in this prospectus. Each of the Funds has a different investment
objective. Each Fund is explained in more detail on its Fact Sheet contained in
this prospectus. Here is a summary of the goals of the seven Funds:

NORTH AMERICAN -- AG INTERNATIONAL EQUITIES FUND ("INTERNATIONAL EQUITIES")
Growth through investments tracking the EAFE Index.

NORTH AMERICAN -- AG MIDCAP INDEX FUND ("MIDCAP INDEX")
Growth through investments tracking the S&P MidCap 400 Index.

NORTH AMERICAN -- AG 1 MONEY MARKET FUND ("MONEY MARKET")
Income through investments in short-term money market securities.

NORTH AMERICAN -- AG NASDAQ-100(R) INDEX FUND ("NASDAQ-100(R) INDEX")
Growth through investments tracking the Nasdaq-100 Index(R).

NORTH AMERICAN -- T. ROWE PRICE SCIENCE & TECHNOLOGY FUND ("SCIENCE &
TECHNOLOGY")
Growth through investments in stocks of companies which are expected to benefit
from development of science and technology.

NORTH AMERICAN -- AG SMALL CAP INDEX FUND ("SMALL CAP INDEX")
Growth through investments tracking the Russell 2000(R) Index.

NORTH AMERICAN -- AG STOCK INDEX FUND ("STOCK INDEX")
Growth through investments tracking the S&P 500 Index.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COVER PAGE
WELCOME TO AMERICAN GENERAL.................... 1
ABOUT THE FUNDS................................ 1
Growth and Stability Categories........... 1
FUND FACT SHEETS............................... 2
International Equities.................... 2
MidCap Index.............................. 4
Money Market.............................. 6
Nasdaq-100(R) Index....................... 8
Science & Technology...................... 11
Small Cap Index........................... 13
Stock Index............................... 15
MORE ABOUT PORTFOLIO INVESTMENTS............... 17
Equity Securities......................... 17
Fixed Income Securities................... 17
Asset-Backed Securities................... 18
Loan Participations....................... 18
Mortgage-Related Securities............... 18
Variable Rate Demand Notes................ 19
Foreign Securities........................ 19
ADRs...................................... 19
Foreign Currency.......................... 19
Illiquid Securities....................... 19
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Futures and Options....................... 19
When-Issued Securities.................... 20
Money Market Securities................... 20
Repurchase Agreements..................... 20
Reverse Repurchase Agreements and
Borrowings.............................. 20
Lending Portfolio Securities.............. 20
Diversification........................... 21
A Word About Risk......................... 21
About Portfolio Turnover.................. 22
ABOUT THE SERIES COMPANY'S MANAGEMENT.......... 23
Investment Adviser and Sub-Advisers....... 23
How American General Advisers is Paid For
Its Services............................ 24
ABOUT INDEX EQUITY FUNDS....................... 25
ABOUT THE SERIES COMPANY....................... 27
Series Company Shares..................... 27
Net Asset Value of the Series Company
Shares.................................. 27
Dividends and Capital Gains............... 28
Tax Consequences.......................... 28
Redemptions............................... 28
FINANCIAL HIGHLIGHTS........................... 29
</TABLE>

(i)
<PAGE> 105

WELCOME TO AMERICAN GENERAL
--------------------------------------------------------------------------------

Unless otherwise specified in this prospectus, the words we and our mean
American General Advisers. The words you and your mean the participant.

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

GROWTHAND STABILITY CATEGORIES

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

Growth Category

International Equities
MidCap Index
Nasdaq-100(R) Index
Science & Technology
Small Cap Index
Stock Index

Stability Category

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

Series Company Stability Category includes:

Money Market

Investment Objectives

The investment objective for each of the Funds in this prospectus is
non-fundamental and may be changed by the Series Company's Board of Directors
without investor approval.

1
<PAGE> 106

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

INVESTMENT ADVISER
American General Advisers

<TABLE>
<S> <C>
* At time of purchase.
</TABLE>

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Foreign Securities Risks:

Political Risk: the risk that a change in a foreign government will occur and
that the assets of a company in which the Fund has invested will be affected.

Sovereign Risk: the risk that a foreign government will interfere with
currency trading or transferring money out of the country.

Liquidity Risk: foreign markets may be less liquid and more volatile than
U.S. markets.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

2
<PAGE> 107

INTERNATIONAL EQUITIES
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the EAFE Index. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was (6.47%).

This table compares the Fund's average annual returns to the returns of the EAFE
Index.

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

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 29.19% 13.16% 7.18%
EAFE Index 26.96% 12.83% 7.01%
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

3
<PAGE> 108

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

INVESTMENT ADVISER
American General Advisers

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

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

Additional information
about INDEX FUNDS
is provided under "About
Index Equity Funds".

4
<PAGE> 109

MIDCAP INDEX
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P MidCap 400 Index. Prior to October 1, 1999, the Fund was
sub-advised by Bankers Trust Company. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was 8.72%.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION**
------ ------- -----------------
<S> <C> <C> <C>
The Fund 14.92% 22.81% 17.31%
S&P Midcap Index 14.72% 23.05% 17.92%
</TABLE>

-------------------------------------------------
** 10/01/91.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

5
<PAGE> 110

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

INVESTMENT ADVISER
American General Advisers

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

The investments this Fund may buy include:

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

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

- Commercial paper sold by corporations and finance companies

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

- Repurchase agreements

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

- Asset-backed securities

- Loan participations

- Adjustable rate securities

- Variable rate demand notes

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

INVESTMENT RISK
Because of the following principal risks the value of your investment may
fluctuate and you could lose money:

- The rate of income varies daily depending on short-term interest rates

- A significant change in interest rates or a default on a security held by the
Fund could cause the value of your investment to decline

- An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency

- Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

6
<PAGE> 111

MONEY MARKET
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of 30-day Certificate of Deposit Primary Offering Rate by New York
City Banks (30-day CD Rate). How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]
------------
* For the year-to-date through June 30, 2000, the Fund's return was 2.81%.

This table compares the Fund's average annual returns to the returns of the
30-day CD Rate for the one-, five- and ten-calendar year periods.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 4.75% 5.13% 4.87%
30-Day CD 4.46% 4.68% 4.61%
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

7
<PAGE> 112

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISER
American General Investment Management L.P.

INVESTMENT OBJECTIVE
The North American -- AG Nasdaq-100(R) Index Fund (the "Fund") seeks long-term
capital growth through investments in the stocks that are included in the
Nasdaq-100(R) Index.

The Fund may concentrate its investments (invest more than 25% of its assets) in
the technology sector, in the proportion consistent with the industry weightings
in the Index.

Risks of Concentration: The Fund's investments are concentrated in the
technology sector, as is

8
<PAGE> 113

NASDAQ-100(R)
INDEX
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
Performance information is not shown since this is a brand-new fund.

9
<PAGE> 114

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

INVESTMENT ADVISER
American General Advisers

INVESTMENT SUB-ADVISER
T. Rowe Price Associates, Inc.

- electronics, including hardware, software, and components;

- communications;

- e-commerce;

- information services;

- media;

- life sciences and health care;

- environmental services;

- chemicals and synthetic materials; and

- defense and aerospace.

<TABLE>
<CAPTION>
Percent of
Fund Investments Fund's Assets*
----------------------------------------------------
<S> <C>
Common stocks of science at least 65%
and technology companies
----------------------------------------------------
Other equity-related up to 25%
securities of science
and technology companies
including convertible
debt securities,
convertible preferred
stock
----------------------------------------------------
</TABLE>

* At time of purchase.

The Fund may sell securities for a variety of reasons, such as to secure gains,
limit losses, or re-deploy assets into more promising opportunities.

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Manager Risk: like all managed funds, there is a risk that the Fund's management
strategy may not achieve the desired results and the Fund's performance may lag
behind that of similar funds.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

10
<PAGE> 115

SCIENCE &
TECHNOLOGY
--------------------------------------------------------------------------------

Foreign Securities Risks:

Currency Risk: The risk that fluctuations in foreign exchange rates will
decrease the value of a fund's investment.

Liquidity Risk: Foreign markets may be less liquid and more volatile than U.S.
markets and offer less protection to investors.

Political Risk: The risk that a change in a foreign government will occur and
that the assets of a company in which the Fund has invested will be affected.

Sovereign Risk: The risk that a foreign government will interfere with
currency trading or transferring money out of the country.

PERFORMANCE INFORMATION
--------------------------------------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P 500 Index. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]
------------
* For the year-to-date through June 30, 2000, the Fund's return was (3.12%).

This table compares the Fund's average annual returns to the returns of the S&P
500 Index.
-------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION**
------- ------- -----------------
<S> <C> <C> <C>
The Fund 100.95% 40.07% 40.13%
S&P 500 Index 21.05% 28.56% 25.68%
</TABLE>

-------------------------------------------------
** 4/29/94.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

11
<PAGE> 116

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

INVESTMENT ADVISER
American General Advisers

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

INVESTMENT RISK

As with all funds, if you sell your shares when their value is less than the
price you paid, you will lose money. Because of the following principal risks
the value of your investment may fluctuate:

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial
circumstances.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

Additional information
about INDEX FUNDS
is provided under "About
Index Equity Funds".

12
<PAGE> 117

SMALL CAP INDEX
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the Russell 2000 Index. Prior to October 1, 1999, the Fund was
sub-advised by Bankers Trust Company. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was 2.34%.

<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION**
-------- ------- -----------------
<S> <C> <C> <C>
The Fund 21.29% 16.75% 13.82%
Russell 2000 Index 21.26% 16.69% 14.80%
</TABLE>

-------------------------------------------------
** 5/01/92.

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

13
<PAGE> 118

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

INVESTMENT ADVISER
American General Advisers

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

Market Risk: the risk that the value of the securities purchased by the Fund
will decline as a result of economic, political or market conditions or an
issuer's financial circumstances.

Additional information
about THE FUND'S
INVESTMENTS is provided
under "More about
Portfolio Investments".

Additional information
about INDEX FUNDS
is provided under "About
Index Equity Funds".

14
<PAGE> 119

STOCK INDEX
--------------------------------------------------------------------------------

PERFORMANCE INFORMATION
-------------------------------------------------

The performance information presented herein is intended to help you evaluate
the potential risks and rewards of an investment in the Fund by showing changes
in the Fund's performance and comparing the Fund's performance with the
performance of the S&P 500 Index. Prior to October 1, 1999, the Fund was
sub-advised by Bankers Trust Company. How the Fund performed in the past is not
necessarily an indication of how the Fund will perform in the future. The Fund's
annual report contains a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.

[Bar chart]

------------
* For the year-to-date through June 30, 2000, the Fund's return was (0.57%).

This table compares the Fund's average annual returns to the returns of the S&P
500 Index for the one-, five- and ten-calendar year periods.

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

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund 20.57% 28.28% 17.66%
S&P 500 Index 21.05% 28.56% 18.21%
</TABLE>

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

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 or variable
life policy for mortality and expense guarantees, administrative fees or
surrender charges.

15
<PAGE> 120

MORE ABOUT PORTFOLIO INVESTMENTS
--------------------------------------------------------------------------------

Stocks are one type of equity security. Generally, there are three types of
stocks:

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 Money Market in this prospectus may invest in common,
preferred, and convertible preferred stock in accordance with their investment
strategies.

All of the Funds may invest in fixed income securities.

Bonds are one type of fixed income security and 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. For a description of investment grade bonds see "A Word about
Risk -- Market Risk" in this prospectus.

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.

ISSUED means the
Company (ISSUER) sold it
originally to the public.

For more information about
BONDS AND RATINGS OF
BONDS, see the Statement
of Additional Information.

16
<PAGE> 121

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

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.

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

MORTGAGE-RELATED SECURITIES

For more information about
ASSET-BACKED SECURITIES
see the Statement of
Additional Information.

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

For more information about
MORTGAGE-RELATED SECURITIES,
see the Statement of
Additional Information.

17
<PAGE> 122

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

VARIABLE RATE DEMAND NOTES

FOREIGN SECURITIES

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. ADRs in which a Fund
may invest may be sponsored or unsponsored. There may be less information
available about foreign issuers of unsponsored ADRs.

FOREIGN CURRENCY

The Funds, except Money Market, may purchase forward foreign currency exchange
contracts to protect against a decline in the value of the U.S. dollar.

ILLIQUID SECURITIES

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

FUTURES AND OPTIONS

Futures contracts and options may not always be successful hedges; their prices
can be highly

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

For more information about
FOREIGN SECURITIES, see the
Statement of Additional
information.

For more information on
FUTURES AND OPTIONS,
see the Statement of
Additional information.

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

18
<PAGE> 123

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

volatile; using them could lower fund total return; and the potential loss from
the use of futures can exceed a fund's initial investment in such contracts.

The Funds, except Money Market, may also buy futures and options.

WHEN-ISSUED SECURITIES

All of the Funds may buy when-issued securities in accordance with their
investment strategy.

MONEY MARKET SECURITIES

These high quality money market securities include:

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

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

- Commercial paper sold by corporations and finance companies.

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

REPURCHASE AGREEMENTS

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.

REVERSE REPURCHASE AGREEMENTS AND BORROWINGS

A reverse repurchase agreement involves the sale of a security by a Fund and its
agreement to repurchase the instrument at a specified time and price. Under a
reverse repurchase agreement, the Fund continues to receive any principal and
interest payments on the underlying security during the term of the agreement.
Science & Technology may enter into Reverse Repurchase Agreements.

If a Fund's positions in reverse repurchase agreements or similar transactions
are not covered by liquid assets, such transactions would be subject to the
Funds' limitations on borrowings. Apart from such transactions, a Fund will not
borrow money, except as provided in its investment restrictions. See "Investment
Restrictions" in the Statement of Additional Information for a complete listing
of each Fund's investment restrictions.

LENDING PORTFOLIO SECURITIES

Each Fund except Science & Technology may lend up to 30% of its total assets to
broker-dealers and other financial institutions to earn more money for the Fund.
Science & Technology may lend up to 33 1/3% of its total assets.

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

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

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

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

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

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

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

19
<PAGE> 124

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

DIVERSIFICATION

All of the Funds except Nasdaq-100(R) Index and Science & Technology 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.

Science & Technology may invest more than 5% of its total assets in one company
or more than 10% of their total assets in the voting securities of one company
as long as the total of these investments does not exceed 25% of total assets.

Nasdaq-100(R) Index is a non-diversified Fund, and is able to invest more than
25% in the technology industry as explained in its Fact Sheet.

A WORD ABOUT RISK

Market Risk

Credit Risk

Interest Rate Risk

Prepayment Risk

Risks Associated with Foreign Securities

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

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

20
<PAGE> 125

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

U.S. Among the principal risks of owning foreign securities are:

Sovereign Risk -- the risk that a foreign government will interfere with
currency trading or transferring money out of the country.

ABOUT PORTFOLIO TURNOVER

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.

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.

The Financial Highlights tables show the portfolio turnover rate for each of the
Funds, other than Money Market, during prior fiscal years.

21
<PAGE> 126

ABOUT THE SERIES COMPANY'S MANAGEMENT
--------------------------------------------------------------------------------

William Trimbur, Jr. has been International Equities' Portfolio Manager since
1992. He has been Vice President and Investment Officer for the Series Company
since 1987.

Teresa Moro has been Money Market's Portfolio Manager and Vice President and
Investment Officer for the Series Company since 1991.

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

INVESTMENT SUB-ADVISERS

22
<PAGE> 127

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

THE SUB-ADVISERS ARE:

North American -- T. Rowe Price Science & Technology Fund

T. ROWE PRICE ASSOCIATES, INC. ("T. ROWE PRICE")

Since May 1, 1994, T. Rowe Price has been the Sub-adviser for the Science &
Technology Fund.

North American -- AG Nasdaq-100(R) Index Fund

AMERICAN GENERAL INVESTMENT MANAGEMENT, L.P. ("AGIM") is the sub-adviser for the
North American -- AG Nasdaq-100(R) Index Fund. AGIM was formed in 1998 as a
successor to the investment management division of American General Corporation,
and is an indirect wholly-owned subsidiary of American General Corporation. AGIM
also provides investment management and advisory services to pension and profit
sharing plans, financial institutions and other investors.

HOW AMERICAN GENERAL ADVISERS IS PAID FOR ITS SERVICES

Here is a list of the percentages each Fund pays:

<TABLE>
<CAPTION>
Advisory Fee Paid
(as a % of average
Fund Name daily net assets)
--------- ----------------------------------
<S> <C>
International Equities Fund 0.35% on the first $500 million;
0.25% on assets over $500 million
MidCap Index Fund 0.35% on the first $500 million;
0.25% on assets over $500 million
Money Market Fund 0.50%
Nasdaq-100(R) Index 0.40%
Science & Technology Fund 0.90%
Small Cap Index Fund 0.35% on the first $500 million;
0.25% on assets over $500 million
Stock Index Fund 0.35% on the first $500 million;
0.25% on assets over $500 million
</TABLE>

T. ROWE PRICE'S
PRINCIPAL OFFICES
are located at
100 East Pratt Street,
Baltimore, Maryland
21202.

23
<PAGE> 128

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

Three of the 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.

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 prominent stock indexes:

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

This index may periodically change some of the stocks it tracks. And, different
indexes sometimes track some of the same stocks.

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

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

Small Cap Index tracks
The Russell 2000(R) Index**

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

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

24
<PAGE> 129

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

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

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

NASDAQ-100 INDEX(R)

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.

25
<PAGE> 130

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

SERIES COMPANY SHARES

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:

When Net Asset Value is Calculated

26
<PAGE> 131
--------------------------------------------------------------------------------

DIVIDENDS AND CAPITAL GAINS

Dividends from Net Investment Income

Distributions from Capital Gains

TAX CONSEQUENCES

REDEMPTIONS

27
<PAGE> 132

FINANCIAL HIGHLIGHTS

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

28
<PAGE> 133
FINANCIAL HIGHLIGHTS -- CONTINUED

MIDCAP INDEX FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $25.64 $ 25.27 $20.83 $19.09 $15.68
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.22 0.23 0.23 0.24 0.24
Net realized & unrealized gain (loss) 4.49 2.54 5.80 2.95 4.06
-------- -------- -------- -------- --------
Total from investment operations 4.71 2.77 6.03 3.19 4.30
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.22) (0.23) (0.23) (0.24) (0.24)
Net realized gains (6.40) (2.17) (1.36) (1.21) (0.65)
-------- -------- -------- -------- --------
Total distributions to shareholders (6.62) (2.40) (1.59) (1.45) (0.89)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $23.73 $ 25.64 $25.27 $20.83 $19.09
======== ======== ======== ======== ========
TOTAL RETURN 21.36% 11.91% 29.62% 17.48% 28.10%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.36% 0.38% 0.36% 0.40% 0.41%
Net investment income to average net assets 0.90% 0.92% 0.95% 1.24% 1.36%
Portfolio turnover rate 41% 41% 26% 19% 21%
Net assets at end of year (000's) $922,679 $817,573 $804,318 $607,061 $540,688
</TABLE>

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

29
<PAGE> 134
FINANCIAL HIGHLIGHTS -- CONTINUED

SCIENCE & TECHNOLOGY FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $29.95 $22.07 $19.88 $20.48 $14.43
---------- ---------- ---------- -------- --------
INVESTMENT OPERATIONS
Net investment income (loss) (0.11) (0.10) (0.09) -- --
Net realized & unrealized gain 16.37 10.36 2.28 0.33 8.08
---------- ---------- ---------- -------- --------
Total from investment operations 16.26 10.26 2.19 0.33 8.08
---------- ---------- ---------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- -- -- --
Net realized gains (5.07) (2.38) -- (0.93) (2.03)
---------- ---------- ---------- -------- --------
Total distributions to shareholders (5.07) (2.38) -- (0.93) (2.03)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF PERIOD $41.14 $29.95 $22.07 $19.88 $20.48
========== ========== ========== ======== ========
TOTAL RETURN $52.65 48.34% 10.85% 1.81% 58.28%
========== ========== ========== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.96% 0.96% 0.95% 0.96% 0.94%
Net investment income to average net assets (0.40%) (0.46%) (0.46%) (0.29%) (0.07%)
Portfolio turnover rate 130% 149% 128% 122% 116%
Net assets at end of year (000's) $3,314,052 $1,683,585 $1,023,141 $804,982 $567,187
</TABLE>

SMALL CAP INDEX FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $15.84 $17.94 $16.18 $16.25 $12.49
-------- -------- -------- -------- --------
INVESTMENT OPERATIONS
Net investment income 0.18 0.19 0.19 0.19 0.20
Net realized & unrealized gain (loss) 1.43 (0.74) 3.17 0.93 4.04
-------- -------- -------- -------- --------
Total from investment operations 1.61 (0.55) 3.36 1.12 4.24
-------- -------- -------- -------- --------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.18) (0.19) (0.19) (0.19) (0.20)
Net realized gains (1.61) (1.36) (1.41) (1.00) (0.28)
-------- -------- -------- -------- --------
Total distributions to shareholders (1.79) (1.55) (1.60) (1.19) (0.48)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $15.66 $15.84 $17.94 $16.18 $16.25
======== ======== ======== ======== ========
TOTAL RETURN 10.22% (2.45%) 21.34% 7.51% 34.50%
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.40% 0.41% 0.39% 0.41% 0.41%
Net investment income to average net assets 1.12% 1.20% 1.05% 1.34% 1.36%
Portfolio turnover rate 35% 36% 36% 42% 31%
Net assets at end of year (000's) $228,602 $220,002 $247,183 $192,459 $180,785
</TABLE>

30
<PAGE> 135
FINANCIAL HIGHLIGHTS -- CONTINUED

STOCK INDEX FUND
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
NET ASSET VALUE, BEGINNING OF PERIOD $39.73 $33.38 $26.09 $20.69 $16.81
---------- ---------- ---------- ---------- ----------
INVESTMENT OPERATIONS
Net investment income 0.41 0.40 0.40 0.39 0.39
Net realized & unrealized gain (loss) 3.59 6.51 7.44 5.57 4.26
---------- ---------- ---------- ---------- ----------
Total from investment operations 4.00 6.91 7.84 5.96 4.65
---------- ---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (0.39) (0.41) (0.40) (0.39) (0.38)
Net realized gains (0.36) (0.15) (0.15) (0.17) (0.39)
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders (0.75) (0.56) (0.55) (0.56) (0.77)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $42.98 $39.73 $33.38 $26.09 $20.69
========== ========== ========== ========== ==========
TOTAL RETURN 10.10% 20.85% 30.30% 29.24% 28.17%
========== ========== ========== ========== ==========
RATIOS AND SUPPLEMENTAL DATA
Expenses to average net assets 0.31% 0.32% 0.31% 0.34% 0.35%
Net investment income to average net assets 0.97% 1.13% 1.33% 1.76% 2.05%
Portfolio turnover rate 6% 2% 3% 3% 3%
Net assets at end of year (000's) $5,373,192 $4,637,628 $3,482,655 $2,444,200 $1,760,786
</TABLE>

31
<PAGE> 136

INTERESTED IN LEARNING MORE?
--------------------------------------------------------------------------------

The Statement of Additional Information incorporated by reference into this
prospectus contains additional information about the Series Company's
operations.

The Securities and Exchange Commission also maintains copies of these documents:

To view information online: Access the SEC's web site at http://www.sec.gov.

To review a paper filing or to request that documents be mailed to you,
contact:

SEC Public Reference Room
Washington, D.C. 20549-6009
1-800-SEC-0330

A duplicating fee will be assessed for all copies provided.

Investment Company Act filing number 811-8912. VA 9017 VER 10/00
<PAGE> 137

NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES I

NORTH AMERICAN -- AG ASSET ALLOCATION FUND
NORTH AMERICAN -- AG CAPITAL CONSERVATION FUND
NORTH AMERICAN -- AG GOVERNMENT SECURITIES FUND
NORTH AMERICAN -- AG GROWTH & INCOME FUND
NORTH AMERICAN -- AG INTERNATIONAL EQUITIES FUND
NORTH AMERICAN -- AG INTERNATIONAL GOVERNMENT BOND FUND
NORTH AMERICAN -- AG MIDCAP INDEX FUND
NORTH AMERICAN -- AG 1 MONEY MARKET FUND
NORTH AMERICAN -- AG NASDAQ-100(R) INDEX FUND
NORTH AMERICAN -- AG SMALL CAP INDEX FUND
NORTH AMERICAN -- AG SOCIAL AWARENESS FUND
NORTH AMERICAN -- AG STOCK INDEX FUND
NORTH AMERICAN CORE EQUITY FUND
NORTH AMERICAN -- AMERICAN CENTURY INCOME & GROWTH FUND
NORTH AMERICAN -- AMERICAN CENTURY INTERNATIONAL GROWTH FUND
NORTH AMERICAN -- FOUNDERS LARGE CAP GROWTH FUND
NORTH AMERICAN -- FOUNDERS/T. ROWE PRICE SMALL CAP FUND
NORTH AMERICAN -- PUTNAM OPPORTUNITIES FUND
NORTH AMERICAN -- T. ROWE PRICE SCIENCE & TECHNOLOGY FUND

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

FORM N-1A PART B

OCTOBER 1, 2000

This Statement of Additional Information is not a prospectus and contains
information in addition to that in the Prospectus for North American Variable
Product Series I (the "Series Company"). It should be read in conjunction with
the Prospectus. The Statement of Additional Information and the related
Prospectus are both dated October 1, 2000. For an individual interested in a
variable annuity contract issued by The Variable Annuity Life Insurance Company
("VALIC"), a Prospectus may be obtained by calling 1-800-44-VALIC or writing the
Series Company or American General Distributors, Inc. (the "Distributor") at
2929 Allen Parkway, Houston, Texas 77019. All inquiries regarding variable
annuity contracts or variable life policies issued by American General Life
Insurance Company ("AGL") should be directed in writing to AGL's Annuity
Administration Department, 2727-A Allen Parkway, Houston, Texas 77019-2191 or by
calling 1-800-813-5065. Shares in the Series Company are available to the public
only through the purchase of certain variable annuity contracts or variable life
policies issued and employee thrift plans maintained by VALIC and its
affiliates.

VA 9017-1 VER 10/00
<PAGE> 138

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History............................. 5
Additional Information Regarding Certain Funds.............. 6
Asset Allocation Fund..................................... 6
Capital Conservation Fund................................. 6
Government Securities Fund................................ 6
Performance and Yield Information........................... 7
Calculation of Yield for the Money Market Fund.............. 8
Investment Restrictions..................................... 10
Fundamental Investment Restrictions....................... 10
Asset Allocation Fund, Capital Conservation Fund,
Government Securities Fund, Stock Index Fund,
International Equities Fund, MidCap Index Fund and
Small Cap Index Fund Investment Restrictions........... 11
Money Market Fund Investment Restrictions................. 11
Growth & Income Fund Investment Restrictions.............. 11
Core Equity Fund and Science & Technology Fund Investment
Restrictions........................................... 11
Social Awareness Fund Investment Restrictions............. 12
International Government Bond Fund Investment
Restrictions........................................... 13
Large Cap Growth Fund Investment Restrictions.............
Income & Growth Fund, Opportunities Fund, Small Cap Fund,
Nasdaq-100(R) Index Fund, and International Growth
Fund...................................................
Non-Fundamental Investment Restrictions................... 14
Investment Practices........................................ 17
Adjustable Rate Securities................................ 17
Asset-Backed Securities................................... 17
Bank Obligations.......................................... 17
Convertible Securities.................................... 18
Emerging Markets.......................................... 18
Euro Conversion........................................... 19
Eurodollar Obligations.................................... 19
Fixed Income Securities................................... 20
American Depositary Receipts ("ADRs")..................... 20
Foreign Securities........................................ 20
Foreign Currency Exchange Transactions.................... 21
Illiquid Securities....................................... 22
Lending Portfolio Securities.............................. 22
Loan Participations....................................... 22
Lower Rated Debt Securities............................... 22
Mortgage-Related Securities............................... 23
Options and Futures Contracts............................. 27
Real Estate Securities and Real Estate Investment Trusts
("REITs").............................................. 34
Repurchase Agreements..................................... 34
Reverse Repurchase Agreements............................. 35
Rule 144A Securities...................................... 35
Standard and Poor's Depositary Receipts................... 35
Swap Agreements........................................... 36
Warrants.................................................. 37
When Issued Securities.................................... 37
Investment Adviser.......................................... 38
Code of Ethics............................................ 40
</TABLE>

2
<PAGE> 139

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Sub-Advisers..................................... 41
Service Agreements.......................................... 43
Portfolio Transactions and Brokerage........................ 43
Offering, Purchase, and Redemption of Fund Shares........... 45
Determination of Net Asset Value............................ 46
Accounting and Tax Treatment................................ 48
Calls and Puts............................................ 48
Financial Futures Contracts............................... 48
Subchapter M of the Internal Revenue Code of 1986......... 48
Section 817(h) of the Code................................ 49
Other Information........................................... 50
Shareholder Reports....................................... 50
Voting and Other Rights................................... 50
Custody of Assets......................................... 51
Index Funds............................................... 51
Description of Corporate Bond Ratings..................... 52
Description of Commercial Paper Ratings................... 53
Independent Auditors...................................... 54
Management of the Series Company............................ 55
Compensation of Non-affiliated Directors.................... 59
</TABLE>

3
<PAGE> 140

Effective October 1, 2000, American General Series Portfolio Company changed its
name to North American Funds Variable Product Series I. As of October 1, 2000,
the name of each Fund has changed, and six new Funds have been added. The table
below lists each Fund's former name and new name, and the six new funds.

<TABLE>
<CAPTION>
FORMER NAME NEW NAME
----------- --------
<S> <C>
AMERICAN GENERAL SERIES PORTFOLIO COMPANY.... NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES
I
AGSPC Asset Allocation Fund.................. North American -- AG Asset Allocation Fund
(the "Asset Allocation Fund")
AGSPC Capital Conservation Fund.............. North American -- AG Capital Conservation
Fund
(the "Capital Conservation Fund")
AGSPC Government Securities Fund............. North American -- AG Government Securities
Fund
(the "Government Securities Fund")
AGSPC Growth Fund............................ North American Core Equity Fund
(the "Core Equity Fund")
AGSPC Growth & Income Fund................... North American -- AG Growth & Income Fund
(the "Growth & Income Fund")
AGSPC International Equities Fund............ North American -- AG International Equities
Fund (the "International Equities Fund")
AGSPC International Government Bond Fund..... North American -- AG International Government
Bond Fund
(the "International Government Bond Fund")
AGSPC MidCap Index Fund...................... North American -- AG MidCap Index Fund
(the "MidCap Index Fund")
AGSPC Money Market Fund...................... North American -- AG 1 Money Market Fund
(the "Money Market Fund")
AGSPC Science & Technology Fund.............. North American -- T. Rowe Price Science &
Technology Fund
(the "Science & Technology Fund")
AGSPC Small Cap Index Fund................... North American -- AG Small Cap Index Fund
(the "Small Cap Index Fund")
AGSPC Social Awareness Fund.................. North American -- AG Social Awareness Fund
(the "Social Awareness Fund")
AGSPC Stock Index Fund....................... North American -- AG Stock Index Fund
(the "Stock Index Fund")
NEW FUNDS AS OF OCTOBER 1, 2000:
North American -- American Century Income &
Growth Fund
(the "Income & Growth Fund")
North American -- American Century
International Growth Fund
(the "International Growth Fund")
North American -- Founders Large Cap Growth
Fund
(the "Large Cap Growth Fund")
North American -- AG Nasdaq-100(R) Index Fund
(the "Nasdaq-100(R) Index Fund")
North American -- Putnam Opportunities Fund
(the "Opportunities Fund")
North American -- Founders/T. Rowe Price
Small Cap Fund
(the "Small Cap Fund")
</TABLE>

4
<PAGE> 141

GENERAL INFORMATION AND HISTORY

North American Funds Variable Product Series Company I was incorporated in
Maryland on December 7, 1984, by VALIC and is registered under the Investment
Company Act of 1940, as amended, (the "1940 Act") as an open-end, management
investment company. Pursuant to Investment Advisory Agreements with the Series
Company and subject to the authority of the Series Company's Board of Directors,
American General Advisers serves as the Series Company's investment adviser and
conducts the business and affairs of the Series Company. Additionally, American
General Advisers has engaged an investment sub-adviser to provide investment
sub-advisory services for the Core Equity Fund, the Science & Technology Fund,
the Income & Growth Fund, the International Growth Fund, the Large Cap Growth
Fund, the Nasdaq-100(R) Index Fund, the Opportunities Fund and the Small Cap
Fund, subject to VALIC's control, direction and supervision. The Series Company
consists of separate investment portfolios (hereinafter collectively referred to
as the "Funds" or individually as a "Fund"), each of which is, in effect, a
separate mutual fund issuing its own separate class of common stock. Each of the
Funds, except the International Government Bond Fund and the Nasdaq-100(R) Index
Fund, is "diversified" as the term is used in the 1940 Act. The Series Company
issues shares of common stock of each Fund to registered and unregistered
separate accounts of VALIC and its affiliates to fund variable annuity contracts
(the "Contracts"). Currently, the Series Company acts as an investment vehicle
for assets of separate accounts sponsored by VALIC and its affiliates.
Additionally, retirement plans maintained by VALIC and American General
Corporation may own shares of certain of the Funds.

The MidCap Index Fund and the Asset Allocation Fund are the successors to
Capital Accumulation Fund, Inc. and Timed Opportunity Fund, Inc., respectively,
which were separately registered open-end diversified management investment
companies under the 1940 Act, pursuant to a reorganization entered into on
September 25, 1985. The MidCap Index Fund effected a change in its name and
investment objective, investment program and one of its restrictions as of
October 1, 1991. The Asset Allocation Fund effected a change in its name from
the Timed Opportunity Fund, effective as of October 1, 1997. In addition, the
Quality Growth Fund was combined into the Stock Index Fund, by means of a
reclassification of its shares, effective May 1, 1992.

ADDITIONAL INFORMATION REGARDING CERTAIN FUNDS

The following disclosures supplement disclosures set forth in the
Prospectus and do not, standing alone, present a complete explanation of the
matters disclosed. Please refer also to the Prospectus for a complete
presentation of these matters.

ASSET ALLOCATION FUND

In addition to its overall investment objective, the Fund has established
separate sub-objectives for investments in each of the three market sectors. The
following is a statement of the sub-objectives of each sector, which are
designed to maximize the unique investment return characteristics inherent in
that market sector:

1. Within the stock sector, the Fund seeks appreciation of capital by
selecting investments that it expects will participate in the growth of
the nation's economy.

2. Within the bond sector, the Fund will generally seek high current income
consistent with reasonable investment risk. The Fund will pursue the
above objective by investing only in (a) investment grade corporate debt
obligations rated at least Baa by Moody's Investor Services, Inc.
("Moody's") or by any other NRSRO or unrated debt obligations which
VALIC believes are of comparable investment quality, and (b) obligations
of, or debts guaranteed by, the U.S. Government, its agencies, or
instrumentalities. See "Government Securities Fund" for an explanation
of U.S. Government obligations and "Debt Securities" in this Statement
of Additional Information and the Appendix for an explanation of
corporate debt ratings.

3. Within the money market sector, the Fund seeks the highest level of
current income consistent with liquidity, stability, and preservation of
capital.

5
<PAGE> 142

CAPITAL CONSERVATION FUND

The Fund may acquire common stocks by conversion of income-bearing
securities or by exercising warrants attached to income-bearing securities. The
Fund may hold up to 10% of its assets, valued at the time of acquisition, in
common stocks.

GOVERNMENT SECURITIES FUND

The Government Securities Fund may invest in intermediate and long-term
debt instruments issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. U.S. Government securities in which the Fund may invest
include: (1) U.S. Treasury bills, notes, and bonds; (2) obligations issued or
guaranteed by U.S. Government agencies and instrumentalities which are supported
by any of the following: (a) the full faith and credit of the U.S. Government
(e.g., Government National Mortgage Association ("GNMA") Certificates); (b) the
right of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Treasury (e.g., debt of each of the Federal Home Loan banks); (c)
the discretionary authority of the U.S. Government or GNMA to purchase certain
financial obligations of the agency or instrumentality (e.g., Federal National
Mortgage Association); or (d) the credit of the issuing agency or
instrumentality (e.g., Federal Land Banks, Farmers Home Administration or
Student Loan Marketing Association); and (3) collateralized mortgage obligations
("CMOs") that are issued by governmental or non-governmental entities and
collateralized by U.S. Treasury obligations or by U.S. Government agency or
instrumentality securities. No assurance can be given that the U.S. Government
will provide support to such U.S. Government sponsored agencies or
instrumentalities in the future, since it is not required to do so by law.

PERFORMANCE AND YIELD INFORMATION

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

AVERAGE ANNUAL TOTAL RETURN

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

P (1+T)n = ERV

Where:

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

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

PORTFOLIO TOTAL RETURN

Portfolio Total Return quotations for periods of 1, 5, and 10 years, or,
since inception are calculated by adding to the Average Total Annual Return
(described above) the expenses of the Fund. Expenses of the Fund are calculated
at the end of each Fund's fiscal year and are expressed as a percentage

6
<PAGE> 143

of average net assets. Expenses as a percentage of average net assets are
prorated equally over the months in the fiscal year in which the ratio was
calculated when determining expenses for periods crossing over fiscal years.

INDEX TOTAL RETURN

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

SEVEN DAY YIELDS

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

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

30 DAY CURRENT YIELD

The Capital Conservation Fund, Government Securities Fund, and the
International Government Bond Fund may quote a 30 Day Current Yield which is
determined based on the current 30 day period, according to the following
standardized formula:

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

Where:

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

DISTRIBUTION RATE CALCULATION

The Funds may advertise a non-standardized distribution rate. The
distribution rate may be calculated as frequently as daily, based on the latest
normal dividend paid. The latest normal dividend is annualized by multiplying
the dividend by a factor based on the dividend frequency (12 for monthly or 4
for quarterly). The result is then divided by the higher of the current net
asset value or the maximum offering price. For example, a bond fund may pay a
monthly dividend of 0.04536. This is multiplied by 12 since it is a monthly
dividend. The result, 0.54432, is divided by the offering price of $9.89. That
equals a distribution rate of 5.50%.

The distribution rate measures the level of the ordinary income, including
short-term capital gains, that is actually paid out to investors. This is
different from fund yield, which is a measure of the income earned by a fund's
investments, but which may not be directly paid out to investors. Total return
measures the income earned, as does the yield, but also measures the effect of
any realized or unrealized appreciation or depreciation of the fund's
investments.

CALCULATION OF YIELD FOR THE MONEY MARKET FUND

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

7
<PAGE> 144

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

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

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

PERFORMANCE RETURNS

No performance information is provided in the following chart for the
Income & Growth Fund, the International Growth Fund, the Large Cap Growth Fund,
the Nasdaq-100(R) Index Fund, the Opportunities Fund and the Small Cap Fund
because they are new to the Series Company.

8
<PAGE> 145

PERFORMANCE RETURNS
MAY 31, 2000

<TABLE>
<CAPTION>
10 YEAR
INCEPTION OR SINCE
DATE 1 YEAR 5 YEAR INCEPTION (A)
--------- ------ ------ -------------
<S> <C> <C> <C> <C>
ASSET ALLOCATION FUND:* 09/06/83
Average Annual Total Return 6.65% 14.80% 10.69%
Portfolio Total Return 7.26% 15.45% 11.44%
Benchmark (B) 7.15% 15.57% 12.90%
Lehman Brothers Aggregate Index 2.11% 5.96% 7.77%
CAPITAL CONSERVATION FUND: 01/16/86
Average Annual Total Return 0.13% 4.99% 6.74%
Portfolio Total Return 0.73% 5.60% 7.44%
Merrill Lynch Corporate Master Index (0.38)% 5.63% 8.21%
Lehman Brothers Aggregate Index 2.11% 5.96% 7.77%
GOVERNMENT SECURITIES FUND: 01/16/86
Average Annual Total Return 1.74% 5.19% 6.94%
Portfolio Total Return 2.34% 5.78% 7.64%
Lehman Brothers U.S. Treasury Index 3.32% 6.00% 7.76%
Lehman Brothers Government Index 2.95% 5.99% 7.75%
CORE EQUITY FUND: 04/29/94
Average Annual Total Return 0.96% 18.75% 17.80%
Portfolio Total Return 1.83% 19.76% 18.82%
S & P 500 10.48% 23.77% 23.13%
GROWTH & INCOME FUND: 04/29/94
Average Annual Total Return 9.67% 19.40% 17.86%
Portfolio Total Return 10.56% 20.37% 18.82%
S & P 500 10.48% 23.77% 23.13%
INTERNATIONAL EQUITIES FUND: 10/02/89
Average Annual Total Return 18.01% 10.16% 7.38%
Portfolio Total Return 18.51% 10.62% 7.86%
Morgan Stanley Capital International EAFE 17.14% 10.08% 7.45%
INTERNATIONAL GOVERNMENT BOND FUND: 10/01/91
Average Annual Total Return (4.43)% 0.70% 6.00%
Portfolio Total Return (3.88)% 1.27% 6.46%
Salomon Brothers Non-U.S. Government Bond Index (2.74)% 1.11% 6.78%
MIDCAP INDEX FUND: 10/01/91
Average Annual Total Return 21.36% 21.51% 17.36%
Portfolio Total Return 21.82% 21.99% 17.86%
S & P MidCap 400 21.46% 21.80% 17.97%
MONEY MARKET FUND: 01/16/86
Average Annual Total Return 5.21% 5.12% 4.77%
Portfolio Total Return 5.81% 5.71% 5.41%
30-Day Certificate of Deposit Primary Offering Rate 4.64% 4.65% 4.47%
by New York City Banks
SCIENCE & TECHNOLOGY FUND: 04/29/94
Average Annual Total Return 52.65% 32.24% 33.88%
Portfolio Total Return 54.08% 33.49% 35.15%
S & P 500 10.48% 23.77% 23.13%
SMALL CAP INDEX FUND: 05/01/92
Average Annual Total Return 10.22% 13.53% 12.32%
Portfolio Total Return 10.67% 14.00% 12.80%
Russell 2000 9.91% 13.52% 13.25%
SOCIAL AWARENESS FUND: 10/02/89
Average Annual Total Return 7.49% 23.11% 15.89%
Portfolio Total Return 8.11% 23.79% 16.48%
S & P 500 10.48% 23.77% 17.44%
STOCK INDEX FUND: 04/20/87
Average Annual Total Return 10.10% 23.49% 16.86%
Portfolio Total Return 10.45% 23.91% 17.36%
S & P 500 10.48% 23.77% 17.44%
</TABLE>

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

* The Asset Allocation Fund was formerly known as the Timed Opportunity Fund.

(A) Amounts shown are returns for ten years or since inception if the fund has
been in existence for less than ten years.

(B) Benchmark consists of 55% S&P 500 Index, 35% Merrill Lynch Corporate &
Government Master Index, and 10% of NY 30 Day Primary CD Rate.

9
<PAGE> 146

INVESTMENT RESTRICTIONS

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

In addition, certain of the Funds have non-fundamental investment
restrictions which have been approved by the Series Company's Board of
Directors. Non-fundamental investment restrictions are operating policies which
may be changed by the Board of Directors without shareholder approval.

The fundamental and, if applicable, non-fundamental, investment
restrictions of each Fund are listed below. The percentage limitations
referenced in some of the restrictions are to be determined at the time of
purchase. However, percentage limitations for illiquid securities and borrowings
apply at all times. Calculation of each Fund's total assets for compliance with
any of the investment restrictions will not include cash collateral held in
connection with securities lending activities.

In applying the limitations on investments in any one industry
(concentration), the Funds may use industry classifications based, where
applicable, on industry classification guides such as Baseline, Bridge
Information Systems, Reuters, or S & P Stock Guide, information obtained from
Bloomberg L.P. and Moody's International, or Barra, and/ or the prospectus of
the issuing company. Further, regarding the securities of one or more issuers
conducting their principal business activities in the same industry: (a) there
is no limitation with respect to obligations issued or guaranteed by the U.S.
government, any state, territory or possession of the United States, the
District of Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions and repurchase agreements secured by such instruments,
(b) wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents, (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry, and (d) personal credit
and business credit businesses will be considered separate industries.

FUNDAMENTAL INVESTMENT RESTRICTIONS

Asset Allocation Fund
Capital Conservation Fund
Government Securities Fund
Growth & Income Fund
International Equities Fund
International Government Bond Fund (fun-
damental restrictions 2 through 10 only)
MidCap Index Fund
Money Market Fund
Small Cap Index Fund
Social Awareness Fund
Stock Index Fund

The Funds may not:

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

2. (a) Issue senior securities except in connection with investments
in options and futures contracts; or (b) borrow money except as a temporary
measure for extraordinary or emergency purposes (such as to meet redemption
requests which might otherwise require the disadvantageous sale of
portfolio securities) and then not in excess of 5% of the Fund's total
assets. No Fund may mortgage, pledge or hypothecate more than 5% of the
value of its total assets, and then only to secure borrowings made under
this restriction.

10
<PAGE> 147

3. Acquire more than 3% of the voting securities of any single other
investment company or invest more than 10% of (the value of) the Fund's
assets in the securities of other investment companies (5% in the case of
each such other company). Additionally, investment company securities will
only be purchased on the open market or from brokers or dealers receiving
customary commissions.

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

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

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

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

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

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

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

MONEY MARKET FUND INVESTMENT RESTRICTIONS

Money Market Fund may not:

1. Purchase any security which matures more than 13 months from the
date of purchase.

2. Purchase or sell commodity contracts.

3. Invest in warrants, or write, purchase or sell puts, calls,
straddles, spreads or combinations thereof.

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

ASSET ALLOCATION FUND, CAPITAL CONSERVATION FUND, GOVERNMENT SECURITIES FUND,
STOCK INDEX FUND, INTERNATIONAL EQUITIES FUND, MIDCAP INDEX FUND, AND SMALL CAP
INDEX FUND INVESTMENT RESTRICTIONS

Asset Allocation Fund, Capital Conservation Fund, Government Securities
Fund, Stock Index Fund, International Equities Fund, MidCap Index Fund, and
Small Cap Index Fund may not:

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

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

GROWTH & INCOME FUND INVESTMENT RESTRICTIONS

Growth & Income Fund may not:

1. Invest 25% or more of its assets in securities of issuers in any
one industry.

CORE EQUITY FUND AND SCIENCE & TECHNOLOGY FUND INVESTMENT RESTRICTIONS

Core Equity Fund and Science & Technology Fund may not:

1. Borrow money except that the Funds may (i) borrow for
non-leveraging, temporary or emergency purposes and (ii engage in reverse
repurchase agreements and make other investments or engage in other
transactions, which may involve a borrowing, in a manner consistent with
the Funds' investment objective and program, provided that the combination
of

11
<PAGE> 148

(i) and (ii) shall not exceed 33 1/3% of the value of the Funds' total
assets (including the amount borrowed) less liabilities (other than
borrowings) or such other percentage permitted by law. Any borrowings which
come to exceed this amount will be reduced in accordance with applicable
law. The Funds may borrow from banks, or other persons to the extent
permitted by applicable law.

2. Purchase the securities of any issuer if, as a result, more than
25% of the value of the Funds' total assets would be invested in the
securities of issuers having their principal business activities in the
same industry.

3. Make loans, although the Funds may (i) lend portfolio securities;
provided that no such loan may be made if, as a result, the aggregate of
such loans would exceed 33 1/3% of the value of the Funds' total assets;
(ii) purchase money market securities and enter into repurchase agreements;
and (iii) acquire publicly-distributed or privately-placed debt securities
and purchase debt.

4. Purchase a security if, as a result, with respect to 75% of the
Funds' total assets, more than 5% of the value of its total assets would be
invested in the securities of a single issuer or more than 10% of the
outstanding voting securities of any issuer would be held by the Funds,
except securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities.

5. Purchase or sell physical commodities; except that it may enter
into futures contracts and options thereon.

6. Purchase or sell real estate, including limited partnership
interests therein, unless acquired as a result of ownership of securities
or other instruments (but this shall not prevent the Funds from investing
in securities or other instruments backed by real estate or securities of
companies engaged in the real estate business).

7. Issue senior securities except in compliance with the Investment
Company Act of 1940.

8. Underwrite securities issued by other persons, except to the extent
that the Funds may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in connection with the purchase and sale of its
portfolio securities in the ordinary course of pursuing its investment
program.

With respect to investment restriction (5), the Funds do not consider
forward foreign currency contracts or hybrid investments to be commodities.
For purposes of investment restriction (2), U.S., state or local
governments, or related agencies or instrumentalities, are not considered
an industry.

SOCIAL AWARENESS FUND INVESTMENT RESTRICTIONS

Social Awareness Fund may not:

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

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

INTERNATIONAL GOVERNMENT BOND FUND INVESTMENT RESTRICTIONS

International Government Bond Fund may not:

1. With respect to 50% of its total assets, invest more than 5% of its
total assets in securities of any one issuer or purchase more than 10% of
the outstanding voting securities of any one issuer. With respect to the
remaining 50% of its total assets, invest more than 25% of its total assets
in the securities of any one issuer. This restriction does not apply to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.

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

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

FUNDAMENTAL INVESTMENT RESTRICTIONS

Large Cap Growth Fund
Income & Growth Fund
International Growth Fund
Nasdaq-100(R) Index Fund (fundamental
restrictions 4 through 9 only)
Opportunities Fund
Small Cap Fund

Each Fund may not:

1. Concentrate its investments in securities of issuers in a
particular industry (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities).

2. With respect to 75% of its total assets, or as allowed by federal
law, invest in securities of any issuer if, immediately after such
investment, more than 5% of the total assets of the Fund (taken at current
value) would be invested in the securities of such issuer or; provided that
this limitation does not apply to obligations issued or guaranteed as to
interest or principal by the U.S. government or its political subdivisions.

3. With respect to 75% of its total assets, or as allowed by federal
law, acquire more than 10% of the voting securities of any issuer.

4. Borrow money, except to the extent permitted under the 1940 Act,
which currently limits borrowing to no more than 33 1/3% of the value of a
Fund's total assets. (Also see the non-fundamental operating policy on
Borrowing below.)

5. Act as an underwriter of securities issued by others, except to the
extent a Fund may be deemed an underwriter under the Securities Act of
1933, as amended, in connection with the disposition of its portfolio
securities.

6. Issue any security which may be senior to a Fund's shares, except
as permitted under the 1940 Act and except to the extent that the
activities permitted by a Fund's other investment restrictions may be
deemed to give rise to a senior security.

7. Lend any security or make any other loan if, as a result, more than
33 1/3% of a Fund's total assets would be lent to other parties, except,
(i) through the purchase of debt securities in accordance with its
investment objective, policies and limitations; or (ii) by engaging in
repurchase agreements with respect to portfolio securities.

8. Invest in physical commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments,
except that a Fund may purchase and sell foreign currency, options, forward
contracts, futures contracts (including those relating to indices) options
on futures contracts or indices, and other financial instruments, and may
invest in securities of issuers which are backed by physical commodities or
which invest in physical commodities or such instruments.

9. Invest in real estate, real estate mortgage loans or other illiquid
interests in real estate, including limited partnership interests therein,
although it may purchase securities of issuers which deal in real estate,
securities which are secured by interests in real estate, and securities
which represent interests in real estate, and it may acquire and dispose of
real estate or interests in real estate acquired through the exercise of
its rights as a holder of debt obligations secured by real estate or
interests therein. A Fund may also invest in readily marketable interests
in real estate investment trusts.

NON-FUNDAMENTAL INVESTMENT RESTRICTIONS -- APPLICABLE AS SHOWN

All Funds:

Invest more than (see Limit List) of the Fund's net assets, taken at
the greater of cost or market value, in securities that are illiquid or not
readily marketable including time deposits and repurchase agreements not
maturing within seven days or restricted securities, but excluding (a) Rule
144A securities that have been determined to be liquid by VALIC or the
Sub-Adviser, in accordance with guidelines adopted by the Series Company's
Board of Directors, and (b) commercial paper that is sold under Section
4(2) of the 1933 Act which: (i) is not traded flat or in default as to
interest

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or principal; (ii) is rated in one of the two highest categories by at
least two nationally recognized statistical rating organizations and has
been determined to be liquid by VALIC or the Sub-Adviser, in accordance
with guidelines adopted by the Series Company's Board of Directors; or
(iii) is rated in one of the two highest categories by one nationally
recognized statistical rating agency and VALIC or the Sub-Adviser, in
accordance with guidelines adopted by the Series Company's Board of
Directors, has determined that the commercial paper is of equivalent
quality and is liquid.

Limit List:
10% LIMIT
Asset Allocation Fund
Capital Conservation Fund
Government Securities Fund
International Equities Fund
International Government Bond Fund
MidCap Index Fund
Money Market Fund
Small Cap Index Fund
Social Awareness Fund
Stock Index Fund

15% LIMIT
Core Equity Fund
Growth & Income Fund
Income & Growth Fund
International Growth Fund
Large Cap Growth Fund
Nasdaq-100(R) Index Fund
Opportunities Fund
Small Cap Fund
Science & Technology Fund

Core Equity Fund
Science & Technology Fund

1. Each Fund may not invest in oil, gas or mineral exploration
programs if, as a result, more than 5% of the value of the Fund's total
assets would be invested in such programs.

2. Acquire more than 3% of the voting securities of any single other
investment company or invest more than 10% of the value of the Fund's
assets in the securities of other investment companies (5% in the case of
each such other company). Additionally, investment company securities will
only be purchased on the open market or from brokers or dealers receiving
customary commissions.

3. Acquire securities for the purpose of influencing the management
of, or exercising control over, the issuer.

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

Large Cap Growth Fund, Income & Growth Fund, International Growth Fund,
Nasdaq-100(R) Index Fund, Opportunities Fund, and Small Cap Fund:

Borrowing may be from banks for temporary or emergency purposes only
(not for leveraging or investment). For purposes of the fundamental
investment restriction above, investments in options, forward contracts,
futures contracts (including those relating to indices), options on futures
contracts or indices, and other financial instruments or transactions for
which assets are required to be segregated including, without limitation,
reverse repurchase agreements, shall not constitute borrowing.

Nasdaq-100(R) Index Fund

1. The Fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities
sold short, and provided that transactions in futures contracts and options
are not deemed to constitute selling securities short.

2. The Fund may not purchase securities on margin, except that the
Fund may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.

3. The Fund may enter into futures contracts and write and buy put and
call options relating to futures contracts. The Fund may not, however,
enter into leveraged futures transactions if it would be possible for it to
lose more money than it invested.

Income & Growth
International Growth

1. Each Fund may not purchase additional investment securities at any
time during

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which outstanding borrowings exceed 5% of the total assets of the Fund.

2. Each Fund may not sell securities short, unless it owns or has the
right to obtain securities equivalent in kind and amount to the securities
sold short, and provided that transactions in futures contracts and options
are not deemed to constitute selling securities short.

3. Each Fund may not purchase securities on margin, except that the
Fund may obtain such short-term credits as are necessary for the clearance
of transactions, and provided that margin payments in connection with
futures contracts and options on futures contracts shall not constitute
purchasing securities on margin.

4. Each Fund may enter into futures contracts and write and buy put
and call options relating to futures contracts. A Fund may not, however,
enter into leveraged futures transactions if it would be possible for the
Fund to lose more money than it invested.

5. Each Fund may invest a portion of its assets (5% limit for
International Growth; 10% limit for Income & Growth) in the securities of
issuers with limited operating histories. An issuer is considered to have a
limited operating history if that issuer has a record of less than three
years of continuous operation. Periods of capital formation, incubation,
consolidations, and research and development may be considered in
determining whether a particular issuer has a record of three years of
continuous operation.

6. Income & Growth Fund may purchase up to 35% of lower-rated
(non-investment grade) fixed-income securities. International Growth Fund
may purchase only investment grade fixed income securities, except that
convertible securities may be lower-rated.

Large Cap Growth Fund
Small Cap Fund

Each Fund may NOT:

1. Purchase securities on margin, except to obtain such short-term
credits as may be necessary for the clearance of transactions, and except
that a Fund may make margin deposits in connection with transactions in
forward contracts, futures contracts (including those relating to indices),
options on futures contracts or indices, and other financial instruments,
and to the extent necessary to effect transactions in foreign
jurisdictions.

2. Pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings and to the extent related to the
purchase of securities on a when-issued or forward commitment basis and the
deposit of assets in escrow in connection with writing covered put and call
options and collateral and initial or variation margin arrangements with
respect to options, forward contracts, futures contracts (including those
relating to indices) and options on futures contracts or indices. Such
mortgaging, pledging or hypothecating may not exceed 33 1/3% of the Fund's
total assets at the time of borrowing or investment.

3. Enter into repurchase agreements providing for settlement in more
than seven days or purchase securities which are not readily marketable if,
in the aggregate, more than 15% of the value of its net assets would be so
invested.

4. Sell securities short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short;
provided, however, that this restriction shall not prevent a Fund from
entering into short positions in foreign currency, futures contracts,
options, forward contracts, and other financial instruments.

Small Cap Fund only

As noted in the prospectus, T. Rowe Price Associates, Inc. ("T. Rowe
Price") and Founders Asset Management LLC each manage approximately 50% of
the assets of the Small Cap Fund. T. Rowe Price offers a diversified and
cost-effective investment vehicle for the cash reserves of client accounts.
Therefore, T. Rowe Price may choose to invest any available cash reserves
in a money market fund established for the exclusive use of the T. Rowe
Price family of mutual funds and other T. Rowe Price clients. Currently,
two such money market funds are in operation -- Reserve Investment Fund
("RIF") and Government Reserve Investment Fund ("GRF"), each a series of
the Reserve Investment

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Funds, Inc. Additional series may be created in the future. These funds
were created and operate under an Exemptive Order issued by the SEC
(Investment Company Act Release No. IC-22770, July 29, 1997).

As a non-fundamental operating policy, the Small Cap Fund may invest
up to 25% of its total assets in the RIF. RIF and GRF must comply with the
requirements of Rule 2a-7 under the 1940 Act governing money market funds.
RIF invests at least 95% of its total assets in prime money market
instruments receiving the highest credit rating. The GRF invests primarily
in a portfolio of U.S. government backed securities, primarily U.S.
Treasuries and repurchase agreements thereon. The funds do not pay an
advisory fee to the Investment Manager at T. Rowe Price, but will incur
other expenses. However, RIF and GRF are expected by T. Rowe Price to
operate at very low expense ratios. The Fund will only invest in RIF or GRF
to the extent it is consistent with its objective and program. RIF and GRF
are neither insured nor guaranteed by the U.S. government, and there is no
assurance they will maintain a stable net asset value of $1.00 per share.

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INVESTMENT PRACTICES

ADJUSTABLE RATE SECURITIES

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

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

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

ASSET-BACKED SECURITIES

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

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

BANK OBLIGATIONS

Each Fund may invest in bank obligations. Bank obligations in which the
Funds may invest include certificates of deposit, bankers' acceptances, and
fixed time deposits. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits. A Fund will not invest in fixed time deposits which (1) are
not subject to prepayment or (2) provide for withdrawal penalties upon
prepayment (other than

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overnight deposits) if, in the aggregate, more than 10% of its net assets (15%
in the case of Core Equity Fund, Growth & Income Fund, Science & Technology Fund
and Small Cap Fund) would be invested in such deposits, repurchase agreements
maturing in more than seven days and other illiquid assets.

The Funds limit investments in United States bank obligations to
obligations of United States banks (including foreign branches) which have more
than $1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the Federal Deposit Insurance Corporation. A Fund
also may invest in certificates of deposit of savings and loan associations
(federally or state chartered and federally insured) having total assets in
excess of $1 billion.

The Funds limit investments in foreign bank obligations to United States
dollar- or foreign currency-denominated obligations of foreign banks (including
United States branches of foreign banks) which at the time of investment (i)
have more than $10 billion, or the equivalent in other currencies, in total
assets; (ii) in terms of assets are among the 75 largest foreign banks in the
world; (iii) have branches or agencies (limited purpose offices which do not
offer all banking services) in the United States; and (iv) in the opinion of
VALIC or a Sub-adviser, are of an investment quality comparable to obligations
of United States banks in which the Funds may invest. The Government Securities
Fund may invest in the same types of bank obligations as the other Funds, but
they must be U.S. dollar-denominated. Subject to a Fund's limitation on
concentration in the securities of issuers in a particular industry, there is no
limitation on the amount of a Fund's assets which may be invested in obligations
of foreign banks which meet the conditions set forth herein.

Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of United States banks, including the
possibility that their liquidity could be impaired because of future political
and economic developments, that their obligations may be less marketable than
comparable obligations of United States banks, that a foreign jurisdiction might
impose withholding taxes on interest income payable on those obligations, that
foreign deposits may be seized or nationalized, that foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal and interest on those obligations and that the
selection of those obligations may be more difficult because there may be less
publicly available information concerning foreign banks or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign banks may differ from those applicable to United States
banks. Foreign banks are not generally subject to examination by any U.S.
Government agency or instrumentality.

CONVERTIBLE SECURITIES

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

A Fund may be required to permit the issuer of a convertible security to
redeem the security, convert it into the underlying common stock, or sell it to
a third party. Thus, a Fund may not be able to control whether the issuer of a
convertible security chooses to convert that security. If the issuer chooses to
do so, this action could have an adverse effect on a Fund's ability to achieve
its investment objectives.

EMERGING MARKETS

Investments in companies domiciled in emerging market countries may be
subject to additional risks. Specifically, volatile social, political and
economic conditions may expose investments in emerg-

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

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

A further risk is that the existence of national policies may restrict a
Fund's investment opportunities and may include restrictions on investment in
issuers or industries deemed sensitive to national interests. Also, some
emerging market countries may not have developed structures governing private or
foreign investment and may not allow for judicial redress for injury to private
property.

EURO CONVERSION

Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The
Netherlands, Portugal, and Spain are members of the European Economic and
Monetary Union (the "EMU"). The EMU has established a common European currency
for participating countries which is known as the "euro." Each participating
country supplemented its existing currency with the euro on January 1, 1999, and
will replace its existing currency with the euro on July 1, 2002. Any other
European country which is a member of the EMU may elect to participate in the
EMU and may supplement its existing currency with the euro.

The ongoing introduction of the euro presents unique risks and
uncertainties, including whether the payment and operational systems of banks
and other financial institutions will function properly; how outstanding
financial contracts will be treated; the establishment of exchange rates for
existing currencies and the euro; and the creation of suitable clearing and
settlement systems for the euro. These and other factors could cause market
disruptions and could adversely affect the value of securities held by certain
of the Funds.

EURODOLLAR OBLIGATIONS

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

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

Eurodollar obligations, including Eurodollar bonds and Eurodollar
certificates of deposit, are principally obligations of foreign branches of U.S.
banks. These instruments represent the loan of funds actually on deposit in the
U.S. The Series Company believes that the U.S. bank would be liable in the event
that its foreign branch failed to pay on its U.S. dollar denominated
obligations.

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Nevertheless, the assets supporting the liability could be expropriated or
otherwise restricted if located outside the U.S. Exchange controls, taxes, or
political and economic developments also could affect liquidity or repayment.
Due to possibly conflicting laws or regulations, the foreign branch of the U.S.
bank could maintain and prevail that the liability is solely its own, thus
exposing a Fund to a possible loss. Such U.S. dollar denominated obligations of
foreign branches of Federal Deposit Insurance Corporation ("FDIC") member U.S.
banks are not covered by the usual $100,000 of FDIC insurance if they are
payable only at an office of such a bank located outside the U.S., Puerto Rico,
Guam, American Samoa, and the Virgin Islands.

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

All Funds except the International Government Bond Fund also may purchase
and sell Eurodollar futures contracts, which enable purchasers to obtain a fixed
rate for the lending of funds and sellers to obtain a fixed rate for borrowings.
A Fund might use Eurodollar futures contracts and options thereon to hedge
against changes in a foreign prime lending interest rate to which many interest
swaps and fixed income securities are linked.

FIXED INCOME SECURITIES

Debt securities are considered high-quality if they are rated at least Aa
by Moody's or its equivalent by any other NRSRO or, if unrated, are determined
to be of equivalent investment quality. High-quality debt securities are
considered to have a very strong capacity to pay principal and interest. Debt
securities are considered investment grade if they are rated, for example, at
least Baa3 by Moody's or BBB- by S&P or their equivalent by any other NRSRO or,
if not rated, are determined to be of equivalent investment quality. Investment
grade debt securities are regarded as having an adequate capacity to pay
principal and interest. Lower-medium and lower-quality securities rated, for
example, Ba and B by Moody's or its equivalent by any other NRSRO are regarded
on balance as high risk and predominantly speculative with respect to the
issuer's continuing ability to meet principal and interest payments. The Adviser
or Sub-Advisers will not necessarily dispose of an investment grade security
that has been downgraded to below investment grade. See the section regarding
"Description of Corporate Bond Ratings" for a description of each rating
category in this Statement of Additional Information for a more complete
description of lower- medium and lower-quality debt securities and their risks.

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

AMERICAN DEPOSITARY RECEIPTS ("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 and traded on a United
States exchange or in an over-the-counter market. Generally, ADRs are in
registered form. Investment in ADRs has certain advantages over direct
investment in the underlying foreign securities since: (i) ADRs are U.S.
dollar-denominated investments that are easily transferable and for which market
quotations are readily available, and (ii) issuers whose securities are
represented by ADRs are generally subject to auditing, accounting and financial
reporting standards similar to those applied to domestic issuers.

FOREIGN SECURITIES

All Funds may invest in foreign securities. The Capital Conservation Fund
focuses on foreign bonds that are of the same quality as other bonds purchased
by the Fund. The Government Securities Fund focuses on high-quality foreign
government securities and high-quality money market securities payable in U.S.
dollars. The MidCap Index Fund, Small Cap Index Fund and Stock Index Fund focus

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on the foreign securities included in their respective indices.

A foreign security includes corporate debt securities of foreign issuers
(including preferred or preference stock), certain foreign bank obligations (see
"Bank Obligations") and U.S. dollar or foreign currency-denominated obligations
of foreign governments or their subdivisions, agencies and instrumentalities,
international agencies and supranational entities. A foreign security is a
security issued by an entity domiciled or incorporated outside of the United
States.

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

Money Market Securities of Foreign Issuers

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

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

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

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

A Fund will enter into forward foreign currency exchange contracts only
under two circumstances. First, a Fund may enter into a forward foreign currency
exchange contract to purchase an amount of foreign currency to protect itself
against a possible loss that might occur between trade and settlement dates for
a particular security, resulting from a decline in the U.S. dollar against the
foreign currency in which such security is denominated. This practice may limit
the potential gains that might result from a positive change in such currency
relationships. Second, when VALIC or a Sub-Adviser believes that the currency of
a particular foreign country may suffer or enjoy a substantial

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movement against the U.S. dollar, a Fund may enter into a forward foreign
currency exchange contract to purchase or sell an amount of foreign currency
approximating the value of some or all of that Fund's portfolio securities
denominated in such foreign currency. The forecasting of short-term currency
market movements is extremely difficult and it is uncertain whether such
short-term hedging strategies will be successful.

ILLIQUID SECURITIES

Pursuant to their investment restrictions, the Funds will not invest their
assets in securities or other investments that are illiquid or not readily
marketable (including repurchase agreements with maturities exceeding seven
days). Securities received as a result of a corporate reorganization or similar
transaction affecting readily-marketable securities already held in the
portfolio of a Fund will not be considered securities or other investments that
are not readily marketable. However, the Funds will attempt, in an orderly
fashion, to dispose of any securities received under these circumstances, to the
extent that such securities are considered not readily marketable, and together
with other illiquid securities, exceed the percentage of the value of a Fund's
net assets as shown in the non-fundamental investment restrictions.

LENDING PORTFOLIO SECURITIES

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

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

LOAN PARTICIPATIONS

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

LOWER RATED DEBT SECURITIES

Issuers of lower rated or non-rated securities ("high yield" securities,
commonly known as "junk bonds") may be highly leveraged and may not have

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available to them more traditional methods of financing. Therefore, the risks
associated with acquiring the securities of such issuers generally are greater
than is the case with higher rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of high yield
securities may be more likely to experience financial stress, especially if such
issuers are highly leveraged. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be adversely affected by
specific issuer developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing. The
risk of loss due to default by the issuer is significantly greater for the
holders of lower rated securities because such securities may be unsecured and
may be subordinated to other creditors of the issuer.

Lower rated securities frequently have call or redemption features which
would permit an issuer to repurchase the security from a Fund. If a call were
exercised by the issuer during a period of declining interest rates, a Fund
likely would have to replace such called security with a lower yielding
security, thus decreasing the net investment income to a Fund and dividends to
shareholders.

A Fund may have difficulty disposing of certain lower rated securities
because there may be a thin trading market for such securities. The secondary
trading market for high yield securities is generally not as liquid as the
secondary market for higher rated securities. Reduced secondary market liquidity
may have an adverse impact on market price and a Fund's ability to dispose of
particular issues when necessary to meet a Fund's liquidity needs or in response
to a specific economic event such as a deterioration in the creditworthiness of
the issuer.

Adverse publicity and investor perceptions, which may not be based on
fundamental analysis, also may decrease the value and liquidity of lower rated
securities, particularly in a thinly traded market. Factors adversely affecting
the market value of lower rated securities are likely to adversely affect a
Fund's net asset value. In addition, a Fund may incur additional expenses to the
extent it is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.

Finally, there are risks involved in applying credit ratings as a method
for evaluating lower rated fixed income securities. For example, credit ratings
evaluate the safety of principal and interest payments, not the market risks
involved in lower rated fixed income securities. Since credit rating agencies
may fail to change the credit ratings in a timely manner to reflect subsequent
events, VALIC or a Sub-Adviser will monitor the issuers of lower rated fixed
income securities in a Fund to determine if the issuers will have sufficient
cash flow and profits to meet required principal and interest payments, and to
assure the debt securities' liquidity within the parameters of the Fund's
investment policies. The VALIC and the Sub-Advisers will not necessarily dispose
of a portfolio security when its ratings have been changed.

MORTGAGE-RELATED SECURITIES

Mortgage-related securities are interests in pools of residential or
commercial mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled as securities for sale to investors by various governmental,
government-related and private organizations. See "Mortgage Pass-Through
Securities." The Asset Allocation Fund, Capital Conservation Fund and Government
Securities Fund may also invest in fixed income securities which are secured
with collateral consisting of mortgage-related securities (see "Collateralized
Mortgage Obligations"), and in other types of mortgage-related securities.

Mortgage Pass-Through Securities

Interests in pools of mortgage-related securities differ from other forms
of fixed income securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential or commercial mortgage loans, net of any fees paid to the issuer or
guarantor of such securities. Additional payments are caused by repayments of
principal resulting from the sale of the underlying property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some mortgage-related
securities (such as securities issued by GNMA) are described as "modified
pass-through."

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These securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, at the scheduled
payment dates regardless of whether or not the mortgagor actually makes the
payment.

The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.

The principal governmental guarantor of mortgage-related securities are
GNMA, Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). GNMA is a wholly owned United States Government
corporation within the Department of Housing and Urban Development. GNMA is
authorized to guarantee, with the full faith and credit of the United States
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks and mortgage bankers) and backed by pools of mortgages insured by the
Federal Housing Administration (the "FHA"), or guaranteed by the Department of
Veterans Affairs (the "VA").

Government-related guarantors (i.e., not backed by the full faith and
credit of the United States Government) include FNMA and FHLMC. FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) residential mortgages from a list of approved seller/servicers which
include state and federally chartered savings and loan associations, mutual
savings banks, commercial banks and credit unions and mortgage bankers.
Pass-through securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full faith and credit
of the United States Government. FHLMC was created by Congress in 1970 for the
purpose of increasing the availability of mortgage credit for residential
housing. It is a government-sponsored corporation formerly owned by the twelve
Federal Home Loan Banks and now owned entirely by private stockholders. FHLMC
issues Participation Certificates ("PCs") which represent interests in
conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but PCs are not
backed by the full faith and credit of the United States Government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets the Series Company's investment quality standards. There can be
no assurance that the private insurers or guarantors can meet their obligations
under the insurance policies or guarantee arrangements. Certain Funds may buy
mortgage-related securities without insurance or guarantees if, through an
examination of the loan experience and practices of the originator/servicers and
poolers, VALIC or a Sub-Adviser determines that the securities meet the Series
Company's quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable.

Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not subject to the Funds'
industry concentration restrictions, set forth below under "Investment
Restrictions," by virtue of the exclusion from that test available to all U.S.
Government securities. In the case of privately issued mortgage-related
securities, the Funds take

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the position that mortgage-related securities do not represent interests in any
particular "industry" or group of industries. The assets underlying such
securities may be represented by a portfolio of first lien residential mortgages
(including both whole mortgage loans and mortgage participation interests) or
portfolios of mortgage pass-through securities issued or guaranteed by GNMA,
FNMA or FHLMC. Mortgage loans underlying a mortgage-related security may in turn
be insured or guaranteed by the FHA or the VA. In the case of private issue
mortgage-related securities whose underlying assets are neither U.S. Government
securities nor U.S. Government-insured mortgages, to the extent that real
properties securing such assets may be located in the same geographical region,
the security may be subject to a greater risk of default than other comparable
securities in the event of adverse economic, political or business developments
that may affect such region and, ultimately, the ability of residential
homeowners to make payments of principal and interest on the underlying
mortgages.

Collateralized Mortgage Obligations (CMOs)

A CMO is a hybrid between a mortgage-backed bond and a mortgage
pass-through security. Similar to a bond, interest and prepaid principal is
paid, in most cases, monthly. CMOs may be collateralized by whole mortgage
loans, but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA, and their income
streams.

CMOs are structured in multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.

Commercial Mortgage-Backed Securities

Commercial mortgage-backed securities include securities that reflect an
interest in, and are secured by, mortgage loans on commercial real property.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage- or asset-backed securities.

Other Mortgage-Related Securities

Other mortgage-related securities include securities other than those
described above that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property, including mortgage
dollar rolls, CMO residuals or stripped mortgage-backed securities ("SMBS").
Other mortgage-related securities may be equity or fixed income securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.

CMO Residuals

CMO residuals are mortgage securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.

The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of

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administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities -- Stripped Mortgage-Backed Securities." In
addition, if a series of a CMO includes a class that bears interest at an
adjustable rate, the yield to maturity on the related CMO residual will also be
extremely sensitive to changes in the level of the index upon which interest
rate adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances a Fund may fail to recoup
fully its initial investment in a CMO residual.

CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers.
Transactions in CMO residuals are generally completed only after careful review
of the characteristics of the securities in question. In addition, CMO residuals
may, or pursuant to an exemption therefrom, may not have been registered under
the Securities Act of 1933, as amended (the "1933 Act"). CMO residuals, whether
or not registered under the 1933 Act, may be subject to certain restrictions on
transferability, and may be deemed "illiquid" and subject to a Fund's
limitations on investment in illiquid securities.

Stripped Mortgage-Backed Securities

SMBS are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks and special purpose entities
of the foregoing.

SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on a Fund's yield to maturity from these securities. If the underlying
mortgage assets experience greater than anticipated prepayments of principal, a
Fund may fail to recoup some or all of its initial investment in these
securities even if the security is in one of the highest rating categories.

Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to a Fund's limitations on investment in illiquid securities.

Mortgage Dollar Rolls

The Asset Allocation Fund, Capital Conservation Fund and Government
Securities Fund may invest in mortgage dollar rolls. In a "dollar roll"
transaction, a Fund sells a mortgage-related security, such as a security issued
by the Government National Mortgage Association, to a dealer and simultaneously
agrees to repurchase a similar security (but not the same security) in the
future at a pre-determined price. A "dollar roll" can be viewed as a
collateralized borrowing in which a Fund pledges a mortgage-related security to
a dealer to obtain cash. The dealer with which a Fund enters into a dollar roll
transaction is not obligated to return the same securities as those originally
sold by the Fund, but only securities which are "substantially identical." To be
considered "substantially identical," the securities returned to a Fund
generally must: (1) be collateralized by the same types of underlying mortgages;
(2) be issued by the same agency and be part of the same program; (3) have a
similar original stated maturity; (4) have identical net coupon rates; (5) have
similar market yields (and therefore price); (6) satisfy "good delivery"
requirements, meaning that the aggregate principal amounts of the securities
delivered and received must be within 1.0% of the initial amount delivered.

A Fund's obligations under a dollar roll agreement may be covered by
segregated liquid assets equal in value to the securities subject to repurchase
by the Fund. To the extent that positions in dollar

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roll agreements are not covered by segregated liquid assets at least equal to
the amount of any forward purchase commitment, such transactions would be
subject to the Funds' limitations on borrowings. Dollar roll transactions for
terms exceeding three months may be deemed "illiquid" and subject to a Fund's
overall limitations on investments in illiquid securities.

OPTIONS AND FUTURE CONTRACTS

Options on Securities and Securities Indices

Each Fund, other than the Money Market Fund, may write covered call and put
options on securities and securities indices. As a matter of operating policy,
the Growth & Income Fund will only write covered call options on securities. The
International Equities Fund and the International Government Bond Fund may also
write covered call and put options on foreign currencies that correlate with the
Fund's portfolio of foreign securities. A call option is a contract that gives
to the holder the right to buy a specified amount of the underlying security or
currency at a fixed or determinable price (called the exercise or "strike"
price) upon exercise of the option. A put option is a contract that gives the
holder the right to sell a specified amount of the underlying security or
currency at a fixed or determinable price upon exercise of the option.

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

Each of these Funds may write options on securities and securities indices
and the International Equities Fund and the International Government Bond Fund
may write options on currencies for the purpose of increasing the Funds' return
on such securities or its entire portfolio of securities or to protect the value
of the entire portfolio. Such investment strategies will not be used for
speculation. If a Fund writes an option which expires unexercised or is closed
out by the Fund at a profit, it will retain the premium received for the option,
which will increase its gross income. If the price of the underlying security or
currency moves adversely to the Fund's position, the option may be exercised and
the Fund, as the writer of the option, will be required to sell or purchase the
underlying security or currency at a disadvantageous price, which may only be
partially offset by the amount of premium received.

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

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

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

Each Fund, except the Money Market Fund, may also purchase put or call
options on securities and securities indices in order to (i) hedge against
anticipated changes in interest rates or stock prices that may adversely affect
the prices of securities that the Fund intends to purchase at a later date, (ii)
hedge its investments against an anticipated

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decline in value, or (iii) attempt to reduce the risk of missing a market or
industry segment advance. As a matter of operating policy, the Growth & Income
Fund will only purchase call options on securities to close out open positions
for covered call options it has written. The International Equities Fund and the
International Government Bond Fund also may purchase put options on foreign
currencies that correlate with the Fund's portfolio securities in order to
minimize or hedge against anticipated declines in the exchange rate of the
currencies in which the Fund's securities are denominated and may purchase call
options on foreign currencies that correlate with its portfolio securities to
take advantage of anticipated increases in exchange rates. In the event that the
anticipated changes in interest rates, stock prices, or exchange rates occur,
the Fund may be able to offset the resulting adverse effect on the Fund, in
whole or in part, through the options purchased.

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

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

Writing Covered Call and Put Options and
Purchasing Call and Put Options

All of the Funds, except the Money Market Fund, may write exchange-traded
covered call and put options on or relating to specific securities in order to
earn additional income or, in the case of a call written, to minimize or hedge
against anticipated declines in the value of the Fund's securities. As a matter
of operating policy, the Core Equity Fund, the Science & Technology Fund and the
Small Cap Fund will not write a covered option if, as a result, the aggregate
market value of all portfolio securities or currencies covering put or call
options exceeds 25% of the market value of that Fund's net assets. The Growth &
Income Fund as a matter of operating policy will only write covered call options
on securities. The International Equities Fund and the International Government
Bond Fund may also write covered call and put options on foreign currencies that
correlate with its portfolio securities in order to earn additional income or in
the case of call options written to minimize or hedge against anticipated
declines in the exchange rate of the currencies in which the Fund's securities
are denominated. To "cover" an option means, for example, to identify and make
available for sale the specific portfolio security or foreign currency to which
the option relates. Through the writing of a covered call option a Fund receives
premium income but obligates itself to sell to the purchaser of such an option
the particular security or foreign currency underlying the option at a specified
price

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at any time prior to the expiration of the option period, regardless of the
market value of the security or the exchange rate for the foreign currency
during this period. Through the writing of a covered put option a Fund receives
premium income but obligates itself to purchase a particular security or foreign
currency underlying the option at a specified price at any time prior to the
expiration of the option period, regardless of market value or exchange rate
during the option period.

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

Each Fund, other than the Money Market Fund, may also purchase
exchange-traded call and put options with respect to securities and stock
indices that correlate with that Fund's particular portfolio securities. As a
matter of operating policy, the Growth & Income Fund will only purchase call
options on securities to close out open positions for covered call options
written by it. The International Equities Fund and the International Government
Bond Fund may also purchase call and put options on foreign currencies that
correlate with the currencies in which the Fund's securities are denominated.

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

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

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

Although these investment practices will be used to generate additional
income and to attempt to reduce the effect of any adverse price movement

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

Financial Futures Contracts

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

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

An interest rate futures contract binds the seller to deliver to the
purchaser on a specified future date a specified quantity of one of several
listed financial instruments, against payment of a settlement price specified in
the contract. A public market currently exists for futures contracts covering a
number of indexes as well as financial instruments and foreign currencies,
including: U.S. Treasury bonds; U.S. Treasury notes; GNMA Certificates;
three-month U.S. Treasury bills; 90-day commercial paper; bank certificates of
deposit; Eurodollar certificates of deposit; the Australian dollar; the Canadian
dollar; the British pound; the German mark; the Japanese yen; the French franc;
the Swiss franc; the Mexican peso; and certain multinational currencies, such as
the Euro. It is expected that other futures contracts will be developed and
traded in the future.

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

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

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

Unlisted financial futures contracts, which may be purchased or sold only
by the International Equities Fund and the International Government Bond Fund,
like unlisted options, are not traded on an exchange and, generally, are not as
actively traded as listed futures contracts or listed securities. Such financial
futures contracts generally do not have the following elements: standardized
contract terms, margin requirements relating to price movements, clearing
organizations that guarantee counter-party performance, open and competitive
trading in centralized markets, and public price dissemination. These elements
in listed instruments serve to facilitate their trading and accurate valuation.
As a result, the accurate valuation of unlisted financial futures contracts may
be difficult. In addition, it may be difficult or even impossible, in some
cases, to close out an unlisted financial futures contract, which may, in turn,
result in significant losses to the Fund. Such unlisted financial futures
contracts will be considered by the Fund to be illiquid securities and together
with other illiquid securities will be limited to no more than 10% (15% in the
case of the Core Equity Fund, the Growth & Income Fund, the Science & Technology
Fund and the Small Cap Fund) of the value of such Fund's total assets. In making
such determination, the value of unlisted financial futures contracts will be
based upon the "face amount" of such contracts. The International Equities Fund
and the International Government Bond Fund will engage in such transactions only
with securities firms having sufficient credit or other resources to minimize
certain of these risks.

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

A Fund, as an internal operating policy may not hold financial futures
contracts in an amount greater than 33% of the Fund's net assets. A Fund may not
adhere to this internal operating policy in circumstances where the Fund is
required to invest a large cash infusion.

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

Options on Financial Futures Contracts

For bona fide hedging purposes, each Fund, except the Money Market Fund,
may also purchase call and put options on financial futures contracts

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

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

Certain Additional Risks of Options and Financial Futures Contracts

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

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

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

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much greater increase or decrease in the cost to the Fund.

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

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

Although the Funds intend to establish positions in these instruments only
when there appears to be an active market, there is no assurance that a liquid
market for such instruments will exist when a Fund seeks to "close out" (i.e.
terminate) a particular financial futures contract or option position. This is
particularly relevant for over-the-counter options and financial futures
contracts, as previously noted. Trading in such instruments could be
interrupted, for example, because of a lack of either buyers or sellers. In
addition, the futures and options exchanges may suspend trading after the price
of such instruments has risen or fallen more than the maximum amount specified
by the exchange. Exercise of options could also be restricted or delayed because
of regulatory restrictions or other factors. A Fund may be able, by adjusting
investment strategy in the cash or other contract markets, to offset to some
extent any adverse effects of being unable to liquidate a hedge position.
Nevertheless, in some cases, a Fund may experience losses as a result of such
inability. Therefore, it may have to liquidate other more advantageous
investments to meet its cash needs.

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

The success of a Fund in using hedging techniques depends, among other
things, on VALIC's ability to predict the direction and volatility of price
movements in both the futures and options markets as well as the securities
markets and on VALIC's ability to select the proper type, time, and duration of
hedges. There can be no assurance that these techniques will produce their
intended results. VALIC and the Sub-Advisers will not speculate. However,
purchasing futures to efficiently invest cash may be considered more risky than
to invest the cash in equities over time. Hedging transactions also, of course,
may be more, rather than less, favorable to a Fund than originally anticipated.

Limitations

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

In addition, each Fund has an operating policy which provides that it will
not enter into financial futures contracts or write put or call options with
respect to financial futures contracts unless such

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

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

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

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

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

REPURCHASE AGREEMENTS

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

The Funds do not intend to sell the underlying securities subject to a
repurchase agreement (except to the seller upon maturity of the agreement).
During the term of the repurchase agreement, the Funds (i) retain the securities
subject to the repur-

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

REVERSE REPURCHASE AGREEMENTS

The Core Equity Fund and Science and Technology Fund may enter into reverse
repurchase agreements. A reverse repurchase agreement involves the sale of a
portfolio-eligible security by the Fund, coupled with its agreement to
repurchase the instrument at a specified time and price. Under a reverse
repurchase agreement, the Fund continues to receive any principal and interest
payments on the underlying security during the term of the agreement. The Fund
typically will segregate assets determined to be liquid by VALIC or a Sub-
Adviser, equal (on a daily mark-to-market basis) to its obligations under
reverse repurchase agreements. However, reverse repurchase agreements involve
the risk that the market value of securities retained by the Fund may decline
below the repurchase price of the securities sold by the Fund which it is
obligated to repurchase. To the extent that positions in reverse repurchase
agreements are not covered through the segregation of liquid assets at least
equal to the amount of any forward purchase commitment, such transactions would
be subject to the Fund's limitations on borrowings.

RULE 144A SECURITIES

Each Fund may purchase securities which, while privately placed, are
eligible for purchase and sale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). This Rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities even though such
securities are not registered under the 1933 Act. The Series Company, under the
supervision of the Board of Directors, will consider whether securities
purchased under Rule 144A are illiquid and thus subject to the Funds'
non-fundamental investment restriction concerning illiquidity. Determination of
whether a Rule 144A security is liquid or not is a question of fact. In making
this determination the Series Company will consider the trading markets for the
specific security taking into account the unregistered nature of a Rule 144A
security. In addition the Series Company could consider (i) frequency of trades
and quotes, (ii) number of dealers and potential purchasers, (iii) dealer
undertakings to make a market, and (iv) nature of the security and market place
trades (for example, the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities will also be monitored by the Series Company and, if, as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Funds' holding of illiquid securities will be reviewed to determine
what, if any, action is required to assume that the Funds do not exceed their
illiquidity limitations. Investing in Rule 144A securities could have the effect
of increasing the amount of the Funds' investments in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities. Each
Fund may invest in Rule 144A securities (in accordance with each Fund's
investment restrictions as listed in the prospectus) that have been determined
to be liquid by Board approved guidelines.

STANDARD AND POOR'S DEPOSITARY RECEIPTS

Each of the Asset Allocation Fund, International Equities Fund, Core Equity
Fund, Growth & Income Fund, MidCap Index Fund, Science & Technology Fund, Small
Cap Fund, Small Cap Index Fund, Social Awareness Fund and Stock

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

SWAP AGREEMENTS

The Asset Allocation Fund, Capital Conservation Fund, Government Securities
Fund and International Government Bond Fund may enter into interest rate, index
and currency exchange rate swap agreements. These transactions are entered into
in an attempt to obtain a particular return when it is considered desirable to
do so, possibly at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded that desired return. Swap agreements are
two party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments, which may be adjusted for an interest factor. The gross returns to
be exchanged or "swapped" between the parties are generally calculated with
respect to a "notional amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a particular
foreign currency, or in a "basket" of securities representing a particular
index. Forms of swap agreements include interest rate caps, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or "cap"; interest rate
floors, under which, in return for a premium, one party agrees to make payments
to the other to the extent that interest rates fall below a specified rate, or
"floor"; and interest rate collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against interest
rate movements exceeding minimum or maximum levels.

Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis." Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Fund) and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
segregation of assets determined to be liquid by American General Advisers or a
Sub-adviser to avoid any potential leveraging of a Fund's portfolio. Obligations
under swap agreements so covered will not be construed to be "senior securities"
for purposes of the Fund's investment restriction concerning senior securities.
A Fund will not enter into a swap agreement with any single party if the net
amount owed or to be received under existing contracts with that party would
exceed 5% of the Fund's assets.

Whether a Fund's use of swap agreements will be successful in furthering
its investment objective of total return will depend on American General
Advisers or a Sub-adviser's ability to predict correctly whether certain types
of investments are likely to produce greater returns than other investments.
Because they are two party contracts and because they may have terms of greater
than seven days, swap agreements may be considered to be illiquid. Moreover, a
Fund bears the risk of loss of the amount expected to be received under a swap
agreement in the event of the default or bankruptcy of a swap agreement
counterparty. The Funds will enter into swap agreements only with counterparties
that meet certain standards of creditworthiness (generally, such counterparties
would have to be eligible counterparties under the terms of the Fund's
repurchase agreement guidelines). Certain restrictions imposed on the Funds by
the Internal Revenue Code may limit the Funds' ability to use swap agreements.
The swaps market is a relatively new market and is largely unregulated. It is
possible that developments in the swaps market, including potential government
regulation, could adversely affect a Fund's ability to terminate existing swap
agreements or to realize amounts to be received under such agreements.

36
<PAGE> 173

Certain swap agreements are exempt from most provisions of the Commodity
Exchange Act ("CEA") and, therefore, are not regulated as futures or commodity
option transactions under the CEA, pursuant to regulations approved by the CFTC
effective February 22, 1993. To qualify for this exemption, a swap agreement
must be entered into by "eligible participants," which include the following,
provided the participants' total assets exceed established levels: a bank or
trust company, savings association or credit union, insurance company,
investment company subject to regulation under the 1940 Act, commodity pool,
corporation, partnership, proprietorship, organization, trust or other entity,
employee benefit plan, governmental entity, broker-dealer, futures commission
merchant, natural person, or regulated foreign person. To be eligible, natural
persons and most other entities must have total assets exceeding $10 million;
commodity pools and employee benefit plans must have assets exceeding $5
million. In addition, an eligible swap transaction must meet three conditions.
First, the swap agreement may not be part of a fungible class of agreements that
are standardized as to their material economic terms. Second, the
creditworthiness of parties with actual or potential obligations under the swap
agreement must be a material consideration in entering into or determining the
terms of the swap agreement, including pricing, cost or credit enhancement
terms. Third, swap agreements may not be entered into and traded on or through a
multilateral transaction execution facility.

This exemption is not exclusive, and participants may continue to rely on
existing exclusions for swaps, such as the Policy Statement issued in July 1989
which recognized a safe harbor for swap transactions from regulation as futures
or commodity option transactions under the CEA or its regulations. The Policy
Statement applies to swap transactions settled in cash that (1) have
individually tailored terms, (2) lack exchange-style offset and the use of a
clearing organization or margin system, (3) are undertaken in conjunction with a
line of business, and (4) are not marketed to the public. When a Fund in
invested in this manner, it may not be able to achieve its investment objective.

WARRANTS

All Funds except the International Government Bond Fund may invest in or
acquire warrants to purchase equity or fixed income securities. Bonds with
warrants attached to purchase equity securities have many characteristics of
convertible bonds and their prices may, to some degree, reflect the performance
of the underlying stock. Bonds also may be issued with warrants attached to
purchase additional fixed income securities at the same coupon rate. A decline
in interest rates would permit a Fund to buy additional bonds at the favorable
rate or to sell the warrants at a profit. If interest rates rise, the warrants
would generally expire with no value. Warrants do not entitle a holder to
dividends or voting rights with respect to the underlying securities and do not
represent any rights in the assets of the issuing company. In addition, the
value of warrants does not, necessarily, in all cases change to the same extent
as the value of the underlying securities to which they relate. Warrants cease
to have value if they are not exercised prior to the expiration date. These
factors can make warrants more speculative than other types of investments.

WHEN-ISSUED SECURITIES

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

37
<PAGE> 174

INVESTMENT ADVISER

American General Advisers, a division of VALIC, serves as investment
adviser to all the Funds, pursuant to an investment advisory agreement
originally dated September 30, 1987. The agreement has been amended each time a
new fund has been added.

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

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

The advisory fee is calculated as a percentage of average daily net asset
value based on the annual rates shown in the following table. Investment
advisory fees paid by the Series Company for the fiscal years ended May 31,
2000, May 31, 1999 and May 31, 1998 are also shown in the table.

38
<PAGE> 175

<TABLE>
<CAPTION>
INVESTMENT ADVISORY FEES PAID FOR FISCAL YEAR
ENDED MAY 31,
ADVISORY FEE -----------------------------------------------
FUND NAME PERCENTAGE 2000 1999 1998
--------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Asset Allocation Fund...................... 0.50% $ 1,254,274 $ 1,106,792 $ 943,269
Capital Conservation Fund.................. 0.50% 287,542 327,092 335,861
Core Equity Fund........................... 0.80% 9,575,104 9,178,668 7,593,303
Government Securities Fund................. 0.50% 509,656 537,883 436,775
Growth & Income Fund....................... 0.75% 2,428,870 2,053,954 1,907,885
Income & Growth Fund(1).................... 0.77% -- -- --
International Equities Fund(2)............. 0.35% 570,981 509,578 582,798
International Government Bond Fund......... 0.50% 703,610 810,795 846,176
International Growth Fund(1)............... 1.00% -- -- --
Large Cap Growth Fund(1)................... 1.00% -- -- --
MidCap Index Fund(2)....................... 0.35% 2,636,451 2,426,931 2,313,256
Money Market Fund.......................... 0.50% 2,266,773 1,301,265 752,732
Nasdaq-100(R) Index Fund(1)................ 0.40% -- -- --
Opportunities Fund(1)...................... 0.95% -- -- --
Small Cap Fund(1).......................... 0.90% -- -- --
Science & Technology Fund.................. 0.90% 25,760,947 11,204,880 8,602,906
Small Cap Index Fund(2).................... 0.35% 805,325 752,025 798,980
Social Awareness Fund...................... 0.50% 2,883,456 2,076,498 1,204,327
Stock Index Fund(2)........................ 0.35% 13,283,779 10,367,253 7,946,046
</TABLE>

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

(1) No fee payment history for 2000, 1999 and 1998 is shown because the funds
were not in existence during those fiscal years.

(2) The advisory fee of 0.35% applies to the first $500 million in assets. On
assets over $500 million the advisory fee is 0.25%.

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

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

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<PAGE> 176

CODE OF ETHICS

The Series Company and American General Advisers have adopted an Investment
Company Code of Ethics in compliance with the 1940 Act and the Investment
Advisers Act of 1940, as amended, (the "Advisers Act"). This Code of Ethics is
designed to detect and prevent violations of the Advisers Act and the 1940 Act
through established procedures and restrictions concerning certain employee
personal investment trading activities.

INVESTMENT SUB-ADVISERS

Subject to the control, supervision and direction of American General
Advisers, sub-advisory services are provided as follows:

<TABLE>
<CAPTION>
FUND NAME: SUB-ADVISER NAME:
---------- -----------------
<S> <C>
Income & Growth Fund.......... American Century Investment Management, Inc. ("American
Century")
Core Equity Fund.............. Founders Asset Management LLC ("Founders")
International Growth Fund..... American Century Investment Management, Inc.
Large Cap Growth Fund......... Founders Asset Management LLC
Nasdaq-100(R) Index Fund...... American General Investment Management, L.P. ("AGIM")
Opportunities Fund............ Putnam Investment Management, Inc. ("Putnam")
Science & Technology Fund..... T. Rowe Price Associates, Inc. ("T. Rowe Price")
Small Cap Fund................ Founders and T. Rowe Price (50% each)
</TABLE>

Pursuant to the Investment Sub-Advisory Agreements American General
Advisers has with each of the Sub-Advisers and subject to American General
Adviser's control, supervision and direction, the Sub-Advisers will manage the
investment and reinvestment of the assets of the Sub-Advised Funds, including
the evaluation of pertinent economic, statistical, financial and other data, and
the determination of industries and companies to be represented in the
Sub-Advised Funds. Further, the Sub-Advisers will maintain a trading desk and
place orders for the purchase and sale of portfolio investments for the
Sub-Advised Funds, establish accounts with brokers and dealers selected by the
Sub-Advisers, or arrange for any other entity to provide a trading desk and to
place orders with brokers and dealers selected by the Sub-Advisers and American
General Advisers.

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

American General Advisers shall, from the compensation American General
Advisers receives from the Series Company for acting as investment adviser, pay
the following fees to the investment sub-advisers for the services rendered and
expenses paid by the sub-advisers:

<TABLE>
<CAPTION>
NAME OF FUND SUB-ADVISER ANNUAL FEES
------------ ----------- -----------
<S> <C> <C>
Income & Growth Fund................ American Century 0.45% on the first $150 million
0.40% on the next $150 million
0.35% on excess over $300 million
Core Equity Fund.................... Wellington Management 0.325% on first $50 million
0.250% on next $450 million
0.200% on next $1 billion
0.180% on assets over $1.5
billion
International Growth Fund........... American Century 0.65% on first $250 million
0.55% on next $250 million
0.50% on assets over $500 million
</TABLE>

40
<PAGE> 177

<TABLE>
<CAPTION>
NAME OF FUND SUB-ADVISER ANNUAL FEES
------------ ----------- -----------
<S> <C> <C>
Large Cap Growth Fund............... Founders 0.50% on first $50 million
0.45% on next $150 million
0.425% on next $300 million
0.40% on next $350 million
0.35% on assets over $850 million
Nasdaq-100(R) Index Fund............ AGIM 0.15% on all assets
Opportunities Fund.................. Putnam 0.55% on first $150 million
0.50% on next $150 million
0.40% on excess over $300 million
Science & Technology Fund........... T. Rowe Price 0.60% on first $500 million
0.55% on assets over $500 million
Small Cap Fund...................... Founders/T. Rowe Price Founders:
0.50% on first $350 million
0.40% over $350 million
T. Rowe Price:
0.60% on first $500 million
0.55% on assets over $500 million
</TABLE>

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

The Investment Sub-Advisory Agreements will automatically terminate in the
event of assignment or in the event of termination of the Investment Advisory
Agreement between American General Advisers and the Series Company as it relates
to the relevant Sub-Advised Fund. The Investment Sub-Advisory Agreements may be
terminated at any time by American General Advisers, the relevant Sub-Adviser,
the Series Company's Board of Directors, or by vote of a majority of the
outstanding voting securities of the relevant Sub-Advised Fund, generally, on
not more than 60 days' nor less than 30 days' written notice. Such termination
shall be without the payment of any penalty.

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

SERVICE AGREEMENTS

The Series Company has service agreements with VALIC to provide certain
accounting and administrative services to the Funds and to provide transfer
agent services. Transfer agent services also include shareholder servicing and
dividend disbursements.

Pursuant to the Accounting Services Agreement, the Series Company will pay
to VALIC an annual fee of 0.03% based on average daily net assets. The Transfer
Agent Agreement states that all transfer agent services will be provided to the
Series Company at cost.

41
<PAGE> 178

For the fiscal years ended May 31, 2000, 1999 and 1998, respectively, the
Funds paid VALIC the following accounting and administrative services fees:

<TABLE>
<CAPTION>
FUND NAME 2000 1999 1998
--------- ---------- -------- --------
<S> <C> <C> <C>
Asset Allocation Fund....................................... $ 75,256 $ 39,549 $ 27,807
Capital Conservation Fund................................... 17,253 11,178 10,157
Core Equity Fund............................................ 359,066 202,205 133,750
Government Securities Fund.................................. 30,579 18,827 12,999
Growth & Income Fund........................................ 97,155 49,387 36,302
International Equities Fund................................. 50,347 25,429 23,704
International Government Bond Fund.......................... 43,870 28,713 24,118
MidCap Index Fund........................................... 256,374 135,722 103,094
Money Market Fund........................................... 150,983 47,447 21,400
Science & Technology Fund................................... 858,698 225,428 136,335
Small Cap Index Fund........................................ 69,028 38,011 31,879
Social Awareness Fund....................................... 173,007 75,764 32,236
Stock Index Fund............................................ 1,534,054 713,451 423,206
</TABLE>

PORTFOLIO TRANSACTIONS AND BROKERAGE

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

Virtually all of the over-the-counter transactions by the Asset Allocation
Fund, the Money Market Fund, the Capital Conservation Fund, the Government
Securities Fund, the International Government Bond Fund and the Growth & Income
Fund are principal transactions with issuers and dealers at net prices which
entail no brokerage commissions. The MidCap Index Fund, the Stock Index Fund,
the International Equities Fund, the Small Cap Index Fund, and the Social
Awareness Fund, each purchase and sell most of their portfolio securities on a
national securities exchange on an agency basis. The Core Equity Fund and the
Science & Technology Fund engage in over-the-counter transactions with
principals and transactions with national securities exchanges on an agency
basis. The Series Company normally enters into principal transactions directly
with the issuer or the market-maker.

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

In purchasing and selling each Fund's portfolio securities, it is the
policy of American General Advisers and the Sub-Advisers (collectively, the
"Advisers") to seek the best execution at the most favorable price through
responsible broker-dealers and, in the case of agency transactions, at
competitive commission rates. When selecting brokers or dealers, and in
negotiating prices and commissions, the Advisers consider such factors as: the
broker or dealer's reliability; the quality of the broker or dealer's execution
services on a continuing basis; the rate of the commission; the size and
difficulty of the order and the timeliness of execution; the reliability,
integrity, financial condition, general execution, and operational capabilities
of that firm and competing broker-dealers. In over-the-counter transactions, the
Advisers place orders directly with the principal market-maker unless they
believe the Series Company can obtain a better price (or receive better
execution of orders) from a broker on an agency

42
<PAGE> 179

basis. In transactions executed on securities or commodities exchanges, the
Advisers seek the best overall price and execution at the most favorable
commission rate (except when higher brokerage commissions are paid to obtain
brokerage and research services, as explained below). When the Advisers believe
that more than one firm meets these criteria the Advisers may prefer brokers who
provide the Advisers or the Series Company with brokerage and research services,
described below.

The Advisers may cause a Fund to pay a broker-dealer a commission (for
executing a securities transaction) that is greater than the commission another
broker-dealer would have received for executing the same transaction, if the
Advisers determine in good faith that the greater commission paid to the first
broker-dealer is reasonable in relation to the value of brokerage and research
services provided to the Advisers viewed in terms of either that particular
transaction or the overall responsibilities of the Advisers. The Advisers
receive a wide range of research services from broker-dealers, including:
information on securities markets, the economy and individual companies;
statistical information; accounting and tax law interpretations; technical
market action; pricing and appraisal services; and credit analyses. Research
services are received by the Advisers primarily in the form of written reports,
telephone contacts, personal meetings with securities analysts, corporate and
industry spokespersons, and access to various computer-generated data. The
Advisers have no agreements or understandings with broker-dealers by which
specific amounts of transactions or commissions are directed to specific
broker-dealers.

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

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

The following table lists brokerage commissions paid by each Fund on
portfolio transactions for the fiscal years ended May 31, 2000, 1999 and 1998.
Unless otherwise noted, the Funds paid no brokerage commissions to brokers for
research services provided to the Advisers or to VALIC.

43
<PAGE> 180

<TABLE>
<CAPTION>
NAME OF FUND: 2000 1999 1998
------------- ---------- ---------- ----------
<S> <C> <C> <C>
Asset Allocation Fund.................................... $ 23,687 $ 26,092 $ 39,049
Capital Conservation Fund................................ none none none
Core Equity Fund(1)...................................... 2,716,829 1,251,907 889,312
Government Securities Fund............................... none none none
Growth & Income Fund..................................... 256,743 347,994 276,322
International Equities Fund.............................. 151,396 68,659 130,204
International Government Bond Fund....................... none none none
MidCap Index Fund........................................ 216,686 201,597 125,995
Money Market Fund........................................ none none none
Science & Technology Fund(2)............................. 2,340,193 1,460,178 1,031,246
Small Cap Index Fund..................................... 40,751 42,873 64,613
Social Awareness Fund.................................... 224,333 297,390 518,012
Stock Index Fund......................................... 223,557 123,942 131,621
</TABLE>

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

(1) For the Fiscal year ended May 31, 2000, the Core Equity Fund paid $380,741
in brokerage commissions on transactions totaling $905,260,326, to brokers
selected on the basis of the quality of the execution together with research
services provided to the Advisers.

(2) For the Fiscal year ended May 31, 2000, the Science & Technology Fund paid
$217,033 in brokerage commissions on transactions totaling $281,126,929, to
brokers selected on the basis of the quality of the execution together with
research services provided to the Advisers.

VALIC, T. Rowe Price, and Wellington Management have no affiliated
broker-dealers through which they execute trades.

Occasions may arise when one or more of the Funds or other accounts that
may be considered affiliated persons of the Funds under the 1940 Act desire to
purchase or sell the same portfolio security at approximately the same time. On
those occasions when such simultaneous purchase and sale transactions are made
such transaction will be allocated in an equitable manner according to written
procedures approved by the Series Company's Board of Directors. Specifically,
such written procedures provide that in allocating purchase and sale
transactions made on a combined basis the parties will seek to achieve the same
net unit price of securities for each Fund or other account and to allocate as
nearly as practicable, such transactions on a pro-rata basis substantially in
proportion to the amounts ordered to be purchased and sold by each Fund or other
account. In some cases, this procedure could have an adverse effect on the price
or quantity of securities available to the Funds. However, the Funds may,
alternatively, benefit from lower broker's commissions and/or correspondingly
lower costs for brokerage and research services by engaging in such combined
transactions. In the Advisers' opinion, the results of this procedure will, on
the whole, be in the best interest of each Fund.

OFFERING, PURCHASE, AND REDEMPTION OF FUND SHARES

Pursuant to a distribution agreement, the Distributor acts without
remuneration as the Series Company's agent in the distribution of Fund shares on
a "best efforts" basis to the separate accounts. The Distributor address is the
same as that of VALIC. The Distributor is an affiliate of VALIC and has the same
address.

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

44
<PAGE> 181

Series Company, or by the Distributor, on sixty days' written notice to the
other party. The distribution agreement also provides that it shall
automatically terminate in the event of its assignment.

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

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

The Series Company normally redeems Fund shares for cash. Although the
Series Company, with respect to each Fund, may make full or partial payment by
assigning to the separate accounts investing in the Series Company portfolio
securities at their value used in determining the redemption price (i.e. by
redemption-in-kind), the Series Company, pursuant to Rule 18f-1 under the 1940
Act, has filed a notification of election on Form 18f-1. Pursuant to this
election, the Series Company has committed itself to pay the separate accounts,
in cash, all redemptions made during any 90 day period, up to the lesser of
$250,000 or 1% of the Series Company's net asset value. The securities to be
paid in-kind to the separate accounts will be selected in such manner as the
Board of Directors deems fair and equitable. In such cases, the separate
accounts would incur brokerage expenses should they wish to liquidate these
portfolio securities.

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

DETERMINATION OF NET ASSET VALUE

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

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

Publicly-traded corporate bonds are valued at prices obtained from Merrill
Lynch Pierce Fenner & Smith Inc. or Interactive Data Corporation.

45
<PAGE> 182

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

Convertible bonds are valued at prices obtained from one or more of the
major dealers in such bonds. Where there is a discrepancy between dealers or
when no quotes are readily available, values may be adjusted based on a
combination of yields and premium spreads to the underlying common stock.

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

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

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

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

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

46
<PAGE> 183

ACCOUNTING AND TAX TREATMENT

CALLS AND PUTS

When a Fund writes a call or put option, an amount equal to the premium
received by it is included in that Fund's Statement of Assets and Liabilities as
an asset and as an equivalent liability. The amount of the liability is
subsequently "marked to market" to reflect the current market value of the
option written. The current market value of a written option is the last sale
price on the principal Exchange on which such option is traded. If a call option
which a Fund has written either expires on its stipulated expiration date, or if
a Fund enters into a closing purchase transaction, it realizes a gain (or loss
if the cost of the closing transaction exceeds the premium received when the
option was sold) without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is extinguished. If a call
option which a Fund has written is exercised, the Fund realizes a capital gain
or loss from the sale of the underlying security and proceeds from such sale are
increased by the premium originally received.

The premium paid by a Fund for the purchase of a put option is included in
the asset section of its Statement of Assets and Liabilities as an investment
and subsequently adjusted daily to the current market value of the option. For
example, if the current market value of the option exceeds the premium paid, the
excess would be unrealized appreciation and, conversely, if the premium exceeds
the current market value, such excess would be unrealized depreciation. The
current market value of a purchased option is the last sale price on the
principal Exchange on which such option is traded. If a put option which a Fund
has purchased expires unexercised it realizes a capital loss equal to the cost
of the option. If a Fund exercises a put option, it realizes a capital gain or
loss from the sale of the underlying security and the proceeds from such sale
will be decreased by the premium originally paid.

FINANCIAL FUTURES CONTRACTS

Accounting for financial futures contracts will be in accordance with
generally accepted accounting principles. Initial margin deposits made upon
entering into financial futures contracts will be recognized as assets due from
the FCM (the Fund's agent in acquiring the futures position). During the period
the financial futures contract is open, changes in the value of the contract
will be recognized as unrealized gains or losses by "marking-to-market" on a
daily basis to reflect the market value of the contract at the end of each day's
trading. Variation (or maintenance) margin payments will be made or received,
depending upon whether gains or losses are incurred. Financial futures contracts
held by a Fund at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes (that is, treated as having been sold at
market value).

SUBCHAPTER M OF THE INTERNAL REVENUE CODE OF 1986

Each Fund of the Series Company intends to qualify annually as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). A Fund must meet several requirements to obtain and
maintain its status as a regulated investment company. Among these requirements
are that: (i) at least 90% of a Fund's gross income be derived from dividends,
interest, payments with respect to securities loans and gains from the sale or
disposition of securities; and (ii) at the close of each quarter of a Fund's
taxable year (a) at least 50% of the value of the Fund's assets consist of cash,
government securities, securities of other regulated investment companies and
other securities (such other securities of any one issuer being not greater than
5% of the value of a Fund and the Fund holding not more than 10% of the
outstanding voting securities of any such issuer) and (b) not more than 25% of
the value of a Fund's assets be invested in the securities of any one issuer
(other than United States government securities or securities of other regulated
investment companies). Each Fund of the Series Company is treated as a separate
entity for federal income tax purposes.

The Internal Revenue Service ("Service") has ruled publicly that an
exchange-traded call option is a security for purposes of the 50% of assets test
and that its issuer is the issuer of the underlying security, not the writer of
the option, for purposes of the diversification requirements. It has ruled
privately (at the request of a taxpayer other than the Series Company) that
income from closing financial futures contracts is considered gain from a
disposition of securities for purposes of the 90% of gross income test. However,
since taxpayers other than the taxpayer requesting a particular private ruling
are not entitled to rely on such ruling, the Se-

47
<PAGE> 184

ries Company intends to keep its Funds' activity in futures contracts and
options at a low enough volume such that gains from closing futures contracts
will not exceed 10% of a Fund's gross income until the Service rules publicly on
the issues or the Series Company is otherwise satisfied that those gains are
qualifying income.

If a Fund fails to qualify as a regulated investment company or fails to
satisfy the 90% distribution requirement in any taxable year, the Fund would be
taxed as an ordinary corporation on its taxable income. To qualify again as a
regulated investment company in a subsequent year, the Fund may be required to
pay an interest charge of 50% of its earnings and profits attributable to
non-regulated investment company years and would be required to distribute such
earnings and profits to shareholders (less any interest charge). In addition, if
the Fund failed to qualify as a regulated investment company for its first
taxable year or, if immediately after qualifying as a regulated investment
company for any taxable year, it failed to qualify for a period greater than one
taxable year, the Fund would be required to recognize any net built-in gains
(the excess of aggregate gains, including items of income, over aggregate losses
that would have been realized if it had been liquidated in order to qualify as a
regulated investment company in a subsequent year.

SECTION 817(h) OF THE CODE

Each of the Funds intends to comply with Section 817(h) of the Code and the
regulations issued thereunder. Section 817(h) of the Code and Treasury
Department regulations thereunder impose certain diversification requirements on
variable annuity contracts based upon segregated asset accounts. These
requirements are in addition to the diversification requirements of Subchapter M
and the 1940 Act and may affect the securities in which a Fund may invest.
Failure to meet the requirements of Section 817(h) could result in immediate
taxation of the Contract Owner to the extent of appreciation on investment under
the Contract.

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

The Secretary of the Treasury may, in the future, issue additional
regulations that will prescribe the circumstances in which a Contract Owner's
control of the investments of the separate accounts investing in the Series
Company may cause the Contract Owner to be taxable with respect to assets
allocated to the separate account, before distributions are actually received
under the Contract.

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

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

48
<PAGE> 185

OTHER INFORMATION

SHAREHOLDER REPORTS

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

The Annual Report is incorporated by reference into this Statement of
Additional Information.

VOTING AND OTHER RIGHTS

The Series Company has an authorized capitalization of 19 billion shares of
common stock, $0.01 par value per share, 19 billion of which are authorized to
be issued in nineteen classes comprising 1 billion shares each. Each of the
nineteen classes of stock corresponds to one of the Funds and represents an
ownership interest in that Fund. See "Voting and Other Rights" in the Prospectus
for a full discussion of the manner in which shares of the Fund are voted.

Each outstanding share has one vote on all matters that shareholders vote
on. Participants vote on these matters indirectly by voting their units. The way
participants vote their units depends on their contract. See the 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.

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: (a) to approve certain agreements as required by the 1940
Act; (b) to change fundamental investment objectives in the Diversification
section and to change fundamental investment restrictions, above; (c) 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 67% of all the outstanding shares of all the Funds must vote
in favor of removing the Director.

The Series Company will assist in shareholder communications.

VALIC's ownership of more than 25% of the outstanding shares may result in
VALIC's being deemed a controlling entity of each of those Funds as that term is
defined in the 1940 Act. Such control will dilute the effect of the votes of
other shareholders and contract owners.

At May 31, 2000, VALIC, American General Annuity Insurance Company ("AGA"),
and American General Life Insurance Company ("AGL"), through their insurance
company separate accounts owned over five percent of the outstanding shares of
the following Funds:

<TABLE>
<CAPTION>
VALIC AGA AGL
------ ----- ----
<S> <C> <C> <C>
Stock Index Fund............................................ 95.44% * *
MidCap Index Fund........................................... 97.38% * *
Small Cap Index Fund........................................ 100.00% * *
International Equities Fund................................. 95.15% * *
Core Equity Fund............................................ 97.64% * *
Growth & Income Fund........................................ 91.91% 8.09% *
Science & Technology Fund................................... 100.00% * *
Social Awareness Fund....................................... 99.99% * *
Asset Allocation Fund....................................... 99.95% * *
Capital Conservation Fund................................... 100.00% * *
Government Securities Fund.................................. 81.28% 18.71% *
International Government Bond Fund.......................... 100.00% * *
Money Market Fund........................................... 89.42% * 9.47%
</TABLE>

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

* Less than 5% ownership.

49
<PAGE> 186

As of May 31, 2000, the other shareholders of the Funds included separate
accounts sponsored by VALIC and its affiliates, American General Corporation
Thrift Plan and VALIC Agents' and Managers' Thrift Plan. None of these other
shareholders owned of record more than 5% of any Fund's outstanding shares.

CUSTODY OF ASSETS

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

State Street is responsible for holding all securities and cash of each
Fund, receiving and paying for securities purchased, delivering against payment
securities sold, receiving and collecting income from investments, making all
payments covering expenses of the Series Company, and performing other
administrative duties, all as directed by persons authorized by the Series
Company. State Street does not exercise any supervisory function in such matters
as the purchase and sale of portfolio securities, payment of dividends, or
payment of expenses of the Funds or the Series Company. Portfolio securities of
the Funds purchased domestically are maintained in the custody of State Street
and may be entered into the book entry systems of securities depositories
approved by the Board of Directors. Pursuant to the Custodian Contract,
portfolio securities purchased outside the United States will be maintained in
the custody of various foreign branches of State Street and such other
custodians, including foreign banks and foreign securities depositories, as are
approved by the Board of Directors, in accordance with regulations under the
1940 Act.

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

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

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

INDEX FUNDS

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

50
<PAGE> 187

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

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

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

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

DESCRIPTION OF CORPORATE BOND RATINGS

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

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

Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater ampli-

51
<PAGE> 188

tude or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.

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

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

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

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

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

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

Standard & Poor's Corporation classifications are as follows:

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

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

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

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

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

DESCRIPTION OF COMMERCIAL PAPER RATINGS

A and Prime Commercial Paper Ratings.

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

Among the factors considered by Moody's in assigning commercial paper
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt;

52
<PAGE> 189

(6) trend of earnings over a period of ten years; (7) financial strength of a
parent company and the relationships which exist with the issuer; and (8)
recognition by the management of obligations which may be present or may arise
as a result of public interest questions and preparations to meet such
obligations. Relative differences in strengths and weaknesses in respect of
these criteria establish a rating in one of three classifications. The rating
Prime-1 is the highest commercial paper rating assigned by Moody's. Its other
two ratings, Prime-2 and Prime-3 are designated Higher Quality and High Quality,
respectively.

INDEPENDENT AUDITORS

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

MANAGEMENT OF THE SERIES COMPANY
The Board of Directors manages the business activities of the Series
Company in accordance with Maryland law. The Board elects officers who are
responsible for the day-to-day operations of the Series Company and who execute
policies formulated by the Board. The names and ages of the Directors and
officers of the Series Company, their addresses, present positions and principal
occupations during the past five years are set forth below. Each person is a
Director or Trustee of North American Funds Variable Product Series I ("NAFVPS
I") and North American Funds Variable Product Series II ("NAFVPS II"), each an
open-end investment company for which VALIC serves as the investment adviser.

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
---------------- --------------- -------------------
<S> <C> <C>
Alice T. Kane..................... President and Director since Executive Vice President, American
390 Park Avenue 1999 General Investment Management, L.P.
New York, New York (1998-Present). Formerly Executive Vice
Date of Birth: 01/16/48 President, New York Life Insurance
Company (1994-1998). President of other
investment companies advised by VALIC.
Kent E. Barrett................... Executive Vice President and Executive Vice President and Chief
2929 Allen Parkway Director since 1999 Financial Officer, VALIC and AGAIC
Houston, Texas 77019 (1999-Present), Executive Vice President
Date of Birth: 09/20/56 and Chief Financial Officer, American
General Life & Accident Insurance
Company ("AGLA") (1998-1999), Senior
Vice President -- Finance and Trea-
surer, AGLA (1997-1998), Senior Vice
President-Controller and Treasurer, AGLA
(1994-1997).
Dr. Judith L. Craven.............. Director since 1998 Retired Administrator. Formerly,
3212 Ewing Street President, United Way of Texas Gulf
Houston, Texas 77004 Coast (1992-1998). Director, Houston
Date of Birth: 10/06/45 Branch, Federal Reserve Bank of Dallas
(1992-Present), Compaq Computer
Corporation (1998-Present), Luby's Inc.
(1998-Present), A.H. Belo Corporation
(journalism, TV and radio),
(1993-Present), and Sysco Corporation,
(marketing and distribution of food),
(1996-Present). Formerly, Director,
Sisters of Charity of Incarnate Word
(1996-1999).(3)
Dr. Timothy J. Ebner.............. Director since 1998 Professor and Head, Department of
17994 NW Union Blvd. Neuroscience and Visscher Chair of
Elk River, Minnesota 55330 Physiology (1998- Present), Professor,
Date of Birth: 07/15/49 Departments of Neurosurgery and
Physiology, Director, Graduate Program
in Neuroscience, University of Minnesota
(1991-1999). Formerly, Consultant to
EMPI Inc., (manufacturing of medical
products) (1994-1995) and Medtronic Inc.
(manufacturer of medical products)
(1997-1998).(3)
</TABLE>

53
<PAGE> 190

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANT DURING PAST 5 YEARS
---------------- --------------- -------------------
<S> <C> <C>
Judge Gustavo E. Gonzales, Jr..... Director since 1998 Municipal Court Judge, Dallas, Texas
3731 Gilbert Ave. A (1995- Present); Director, Downtown
Dallas, Texas 75219 Dallas YMCA Board (1996-Present);
Date of Birth: 07/27/40 Director, Dallas Easter Seals Society
(1997-Present). Formerly, private
attorney (litigation) (1980-1995).(3)
Dr. Norman Hackerman.............. Director since 1984 Chairman -- Scientific Advisory Board
2001 Pecos Street for The Robert A. Welch Foundation
Austin, Texas 78703 (1983-Present), Director, Electrosource,
Date of Birth: 03/02/12 Inc., (develops, manufactures and
markets energy storage products),
President Emeritus, Rice University,
Houston, Texas. Formerly, President,
Rice University, Houston, Texas
(1970-1985), Professor Emeritus,
University of Texas, Austin, Texas
(1970-1985).(1)(2)(3)
Dr. John Wm. Lancaster............ Director since 1984 Pastor Emeritus and Director of Planned
4624 Braeburn Giving, First Presbyterian Church,
Bellaire, Texas 77401 Houston, Texas (1996-Present). Formerly,
Date of Birth: 12/15/23 Pastor, First Presbyterian Church,
Houston, Texas (1961-1990).(3)
Ben H. Love....................... Director since 1991 Retired. Formerly, Director,
4407 Eaton Circle Mid-American (waste products)
Colleyville, Texas 76034 (1993-1997) and Chief Executive, Boy
Date of Birth: 09/26/30 Scouts of America. (1985-1993).(3)
Dr. John E. Maupin, Jr............ Director since 1998 President, Meharry Medical College,
Meharry Medical College Nashville, Tennessee (1994-Present),
1005 D.B. Todd Blvd. Nashville Advisory Board Member, First
Nashville, Tennessee 37208 American National Bank (1996-Present),
Date of Birth: 10/28/46 Director, Monarch Dental Corporation
(1997-Present), LifePoint Hospitals,
Inc. (1998-Present). Formerly, Executive
Vice President, Morehouse School of
Medicine, Atlanta, Georgia
(1989-1994).(3)
Dr. F. Robert Paulsen............. Director since 1985 Dean and Professor Emeritus, University
2801 N. Indian Ruins of Arizona, Tucson, Arizona. Formerly,
Tucson, Arizona 85715 Dean and Professor, University of
Date of Birth: 07/05/22 Connecticut, Storrs, Connecticut and
Carnegie Fellow, University of Michigan,
Ann Arbor, Michigan.(1)(2)(3)
</TABLE>

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

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

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

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

(3) Prior to January 1, 2000, Directors who are not interested persons of the
Series Company received an annual retainer of $18,000. In addition, such
Directors are paid per board meeting, committee meeting, telephone meeting
and committee chair, a fee of $1,500, $250, $250 and $250, respectively,
plus expenses incurred, if any. As of January 1, 2000, the annual retainer
increased to $20,000 and the fee paid per board meeting decreased to $1,000.

54
<PAGE> 191

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

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH REGISTRANT DURING PAST 5 YEARS
---- --------------- -------------------
<S> <C> <C>
Alice T. Kane..................... President and Director since Executive Vice President, American
390 Park Avenue 1999 General Investment Management, L.P.
New York, New York (1998- Present). Formerly Executive
Date of Birth: 01/16/48 Vice President, New York Life
Insurance Company (1994-1998).
President of other investment
companies advised by VALIC.
Kent E. Barrett................... Executive Vice President and Executive Vice President and Chief
Date of Birth: 09/20/56 Director since 1999 Financial Officer, VALIC and AGAIC
(1999-Present), Executive Vice
President and Chief Financial
Officer, American General Life &
Accident Insurance Company ("AGLA")
(1998-1999), Senior Vice
President -- Finance and Treasurer,
AGLA (1997-1998), Senior Vice
President-Controller and Treasurer,
AGLA (1994-1997).
Chris Bauman...................... Assistant Controller since 2000 Associate Director -- Variable
Date of Birth: 02/06/64 Product Accounting AGA/AGIM
(2000-Present). Manager, Variable
Accounting and Reporting, AGAIC
(1998-2000). Accountant, AGAIC
1996-2000).
Charles H. Clines................. Vice President and Tax Officer Vice President and Tax Officer,
Date of Birth: 11/24/61 since 2000 Corporate Tax Department, American
General Corporation (2000-Present).
Formerly, Partner -- Financial
Services Tax Practice, KPMG, LLP
(1985-1999).
Nori L. Gabert.................... Vice President since 1998 and Associate General Counsel, VALIC
Date of Birth: 08/15/53 Secretary since 2000 (1997 to Present). Assistant
Secretary (1997-2000). Formerly, Of
Counsel, Winstead Sechrest & Minick
P.C. (1997); Vice President and
Associate General Counsel of Van
Kampen American Capital, Inc. (1981-
1996).
Donald H. Guire................... Assistant Controller since 2000 Director -- Fund Accounting, AGIM
Date of Birth: 06/05/64 (2000-Present). Formerly Assistant
Vice President-Manager Fund
Accounting, American Capital
(1987-2000).
Gregory R. Kingston............... Assistant Treasurer since 1999 Vice President, Fund Accounting, AGIM
Date of Birth: 01/18/66 (1999-Present). Formerly, Assistant
Treasurer.
Teresa S. Moro.................... Vice President and Investment Trader -- VALIC. Formerly, Money Mar-
Date of Birth: 08/14/60 Officer since 1991 ket Trader, VALIC (1986-1990).
Leon A. Olver..................... Vice President and Investment Portfolio Manager, VALIC (1995 to
Date of Birth: 06/27/51 Officer since 1995 Present). Formerly Vice President and
Treasurer, First Heights Bank
(1994-1995); Vice President and
Assistant Treasurer, First Heights
Bank (1991-1994).
Kathryn A. Pearce................. Assistant Controller since 2000 Director, Fund Accounting, VALIC
Date of Birth: 02/05/47 (1999 to present). Associate Director
of Fund Accounting, VALIC (1996 to
1999). Controller (1996-1999).
Formerly, Supervisor -- Mutual Fund
Accounting, Van Kampen American
Capital, Inc. (1977-1996).
</TABLE>

55
<PAGE> 192

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH REGISTRANT DURING PAST 5 YEARS
---- --------------- -------------------
<S> <C> <C>
Pauletta P. Cohn.................. Vice President since 1999 Deputy General Counsel Product
Date of Birth: 06/06/48 Development, American General
Enterprise Services, Inc. (2000 to
Present), Associate General Counsel,
American General Life Companies
(1998-Present), Senior Attorney,
American General (1993-1998).
Jaime M. Sepulveda................ Assistant Treasurer since 1998 Director -- Variable Product
Date of Birth: 01/09/52 Accounting and Financial Reporting,
VALIC (1998 to Present). Formerly,
Accounting Manager, Metro Networks,
Inc. (1997-1998); Controller and
Investment Officer, Port of Houston
Authority (1994-1997).
Gregory R. Seward................. Treasurer since 1991 Vice President -- Variable Product
Date of Birth: 06/27/56 Accounting (1998 to Present) and
Assistant Controller (1991 to 1998),
VALIC and AGAIC (1998 to Present).
Todd L. Spillane.................. Chief Compliance Officer since Chief Compliance Officer, AGIM (1999-
Date of Birth: 12/20/58 2000 Present). Formerly, Director of
Compliance, Nicholas Applegate
Capital Management (1994-1999).
William Trimbur, Jr............... Vice President and Investment Portfolio Manager, VALIC. Formerly,
Date of Birth: 06/15/51 Officer since 1987 Second Vice President, VALIC
(1985-1990); Controller, VALIC
(1985-1986); Assistant Controller,
VALIC (1982-1985) and Assistant
Treasurer, VALIC (1982-1986).
</TABLE>

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

The Series Company has an Audit Committee. The Series Company's Audit
Committee consists of Messrs. Lancaster, Hackerman, Paulsen, Maupin and Love.
The Audit Committee recommends to the Board the selection of independent
auditors for the Series Company and reviews with such independent auditors the
scope and results of the annual audit, reviews the performance of the accounts,
and considers any comments of the independent auditors regarding the Series
Company's financial statements or books of account. The Series Company has a
Nominating Committee. The Series Company's Nominating Committee consists of
Messrs. Love, Gonzales and Hackerman, and Ms. Craven. The Nominating Committee
recommends to the Board nominees for independent trustee membership, reviews
governance procedures and Board composition, and periodically reviews trustee
compensation. The Series Company does not have a standing compensation
committee.

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

The directors and officers of the Series Company and members of their
families as a group, beneficially owned less than 1% of the common stock of each
Fund outstanding as of May 31, 2000.

56
<PAGE> 193

COMPENSATION OF NON-AFFILIATED DIRECTORS

The following table sets forth information regarding compensation and
benefits earned by the Directors who are not affiliated with VALIC for the
fiscal year ending May 31, 2000.

COMPENSATION TABLE
FISCAL YEAR ENDING MAY 31, 2000

<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
BENEFITS ESTIMATED COMPENSATION
AGGREGATE ACCRUED AS ANNUAL FROM
COMPENSATION PART OF BENEFITS FUND
FROM SERIES COMPANY UPON COMPLEX(3)
NAME OF PERSON, POSITION SERIES COMPANY EXPENSES(1) RETIREMENT PAID TO DIRECTORS
------------------------ -------------- -------------- ---------- -----------------
<S> <C> <C> <C> <C>
Dr. Judith Craven..................... $25,606 $ 0 (2) $49,900
Dr. Timothy Ebner..................... $25,308 $ 0 (2) $49,150
Judge Gustavo Gonzales................ $25,606 $ 0 (2) $49,900
Dr. Norman Hackerman.................. $25,793 $22,764 (2) $50,150
Dr. John Wm. Lancaster................ $25,533 $22,931 (2) $49,650
Ben H. Love........................... $26,090 $18,291 (2) $50,650
Dr. John Maupin Jr. .................. $25,149 $ 0 (2) $48,900
Dr. F. Robert Paulsen................. $25,495 $22,832 (2) $49,400
Dr. R. Miller Upton................... $15,346 $27,250 (2) $26,495
</TABLE>

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

(1) The total present value of accumulated benefits as of May 31, 2000, under
expense assumptions to be used for the fiscal year ending May 31, 2001 for
Messrs. Hackerman, Lancaster, Love, and Paulsen is $703,799.

(2) All current directors would earn ten or more years of service as of their
normal retirement date. Complete years of service earned as of May 31, 2000,
are as follows: Messrs. Hackerman, Lancaster, and Paulsen -- 10 or greater;
Mr. Love -- approximately 9 years; Messrs. Ebner, Gonzales, Maupin and Ms.
Craven -- approximately 2 years.

(3) Includes all investment companies managed by VALIC.

PENSION TABLE -- ESTIMATED BENEFITS AT NORMAL RETIREMENT

<TABLE>
<CAPTION>
SERVICE 5 YEARS 10 OR MORE
AT RETIREMENT AND UNDER 6 YEARS 7 YEARS 8 YEARS 9 YEARS YEARS
------------- --------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
COMPENSATION
AT RETIREMENT
$20,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000
$30,000 $15,000 $18,000 $21,000 $24,000 $27,000 $30,000
$40,000 $20,000 $24,000 $28,000 $32,000 $36,000 $40,000
$50,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000
$60,000 $30,000 $36,000 $42,000 $48,000 $54,000 $60,000
</TABLE>

57
<PAGE> 194

NORTH AMERICAN FUNDS VARIABLE PRODUCT SERIES I
(Formerly American General Series Portfolio Company)

PART C. OTHER INFORMATION

ITEM 23. EXHIBITS

<TABLE>
<S> <C> <C>
a. (1) Articles of Incorporation(8)
(2) Articles Supplementary to the Articles of Incorporation, effective
April 10, 1990(8)
(3) Articles Supplementary to the Articles of Incorporation, effective
September 28, 1990(8)
(4) Amendment One to the Articles of Incorporation, effective October 1,
1991(8)
(5) Amendment Two to the Articles of Incorporation, effective May 1, 1992(8)
(6) Articles Supplementary to the Articles of Incorporation, effective May
1, 1992(8)
(7) Articles Supplementary to the Articles of Incorporation, effective
January 20, 1994(8)
(8) Articles Supplementary to the Articles of Incorporation, effective
February 4, 1994(8)
(9) Articles Supplementary to the Articles of Incorporation, effective
February 4, 1994(8)
(10) Articles Supplementary to the Articles of Incorporation, effective May
1, 1995(8)
(11) Articles of Amendment to the Articles of Incorporation, effective
October 1, 1997(7)
(12) Articles Supplementary to the Articles of Incorporation, effective
October 1, 2000.
(13) Articles of Amendment to the Articles of Incorporation, effective
October 1, 2000.

b. By-Laws as amended and restated October 29, 1991(8)

c. Not Applicable

d. (1) Amended and Restated Investment Advisory Agreement between
Registrant and The Variable Annuity Life Insurance Company (with
revised fee schedule effective October 1, 1992)(8)
(2) Investment Advisory Agreement (Form II) between Registrant and
VALIC (with revised fee Schedule A effective September 1, 1999 and
Form of revised fee Schedule A to be effective October 1,
1999)(10)
</TABLE>

C-1
<PAGE> 195

(3)(a) Investment Sub-Advisory Agreement between VALIC and
T. Rowe Price Associates, Inc.(8)

(b) Amendment No. 1 to Investment Sub-Advisory Agreement between
VALIC and T. Rowe Price Associates, Inc. effective February 2, 1998(8)
(4) Investment Sub-Advisory Agreement between VALIC and Bankers Trust
Company effective June 4, 1999(9)
(5) Investment Sub-Advisory Agreement between VALIC and Wellington
Management Company, LLP(10)
(6) Revised Fee Schedule A to Investment Advisory Agreement (Form II)
(7) Form of Investment Sub-Advisory Agreement between VALIC and American
Century Investment Management, Inc. effective October 1, 2000.
(8) Form of Investment Sub-Advisory Agreement between VALIC and Founders
Asset Management LLC effective October 1, 2000.
(9) Form of Investment Sub-Advisory Agreement between VALIC and Putnam
Investment Management, Inc. effective October 1, 2000.
e. Distribution Agreement between Registrant and A.G. Distributors, Inc.
effective May 1, 1999(9)
</TABLE>

<TABLE>
<S> <C> <C>
f. Not Applicable

g. (1)(a) Custodian Contract between Registrant and State Street Bank and
Trust Company(8)

(b) Custodian Fee Schedule between Registrant and State Street Bank and
Trust Company(7)

(d) Custodian Fee Schedule between Registrant and State Street Bank and
Trust Company(7)

(2) Securities Lending Authorization Agreement as Amended between
Registrant and State Street Bank and Trust Company(8)

(3)(a) Canada Sub-Custodial Agreement between State Street Bank and Trust
Company and Canada Trust Company(2)

(b) Sub-Custodial Agreements between State Street Bank and Trust Company
and:(1)
(i) Den Danske Bank -- Copenhagen
(ii) Sumitomo Trust and Banking Co., Ltd. -- Tokyo
(iii) State Street Bank and Trust Company -- London

(c) Additional Sub-Custodial Agreements between State Street Bank and
Trust Company and(3)
(i) Westpac Banking Corporation -- Sydney
(ii) GiroCredit Bank Aktiengesellschaft der Sparkassen -- Vienna
(iii) Generale Bank -- Brussels
(iv) Canada Trustco Mortgage Company -- Toronto
(v) Merita Bank Limited
(vi) Banque Paribas -- Paris
(vii) Standard Chartered Bank -- Hong Kong
(viii) Bank of Ireland -- Dublin
(ix) Standard Chartered Bank Malaysia Berhad
(x) MeesPierson N.V. -- Amsterdam

(xi) ANZ Banking Group (New Zealand) Limited -- Wellington
(xii) Christiania Bank of Kreditkasse -- Oslo
(xiii) The Development Bank of Singapore Ltd. -- Singapore

(xiv) Banco Santander, S.A. -- Madrid

(xv) Skandinaviska Enskilda Banken -- Stockholm

(xvi) Union Bank of Switzerland -- Zurich

(d) Additional Sub-Custodial Agreement between State Street Bank and
Trust Company and Citibank, N.A., Mexico -- Mexico City(4)

(e) Additional Sub-Custodial Agreements between State Street Bank and
Trust Company and(6)
(i) Dresdner Bank AG -- Frankfurt
</TABLE>
C-2
<PAGE> 196
<TABLE>
<S> <C>
(ii) Banque Paribas -- Milan

(iii) The Fuji Bank, Limited -- Tokyo

(iv) The Daiwa Bank, Limited -- Tokyo

(f) Additional Sub-Custodial Agreement between State Street Bank and Trust
Company and Banco Commercial Portugues -- Lisbon(8)

h. (1) Transfer Agency and Service Agreement between Registrant and The
Variable Annuity Life Insurance Company(8)

(2) Accounting Services Agreement between Registrant and The Variable
Annuity Life Insurance Company effective October 31, 1996 (with revised
fee Schedule A effective March 1, 1999)(9)

i. Not Applicable

j. Consent of Auditors, filed herewith.

k. Not Applicable

l. (1) Subscription Agreement between the Registrant and The Variable Annuity
Life Insurance Company regarding the initial capitalization of Growth
Fund(8)
(2) Subscription Agreement between the Registrant and The Variable Annuity
Life Insurance Company regarding the initial capitalization of Growth &
Income Fund(8)
(3) Subscription Agreement between the Registrant and The Variable Annuity
Life Insurance Company regarding the initial capitalization of Science &
Technology Fund(8)

m. Not Applicable
</TABLE>

n. Not Applicable

o. Code of Ethics(11)

p. (1) Copies of manually signed powers of attorney for American General
Series Portfolio Company Directors Norman Hackerman, John Wm.
Lancaster, F. Robert Paulsen and Ben H. Love(8)

(2) Copies of manually signed powers of attorney for American General
Series Portfolio Company Directors Kent E. Barrett and Alice T.
Kane(9)
---------------

1. Incorporated herein by reference to the Company's Form N-14 registration
statement filed with the Securities and Exchange Commission on January 27,
1992 (File No. 33-45217).

2. Incorporated herein by reference to Post-Effective Amendment Number 15 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on August 2, 1990 (file No. 2-83631/811-3738).

3. Incorporated herein by reference to Post-Effective Amendment Number 19 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on July 30, 1993 (File No. 2-83631/811-3738).

4. Incorporated herein by reference to Post-Effective Amendment Number 23 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on August 2, 1994 (File No. 2-83631/811-3738).

5. Incorporated herein by reference to Post-Effective Amendment Number 7 to the
Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on September 25, 1986 (File No. 2-83631/811-3738).

C-3
<PAGE> 197

6. Incorporated herein by reference to Post-Effective Amendment Number 24 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on September 17, 1996 (File No. 2-83631/811-3738).

7. Incorporated herein by reference to Post-Effective Amendment Number 25 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on July 31, 1997 (File No. 2-83631/811-3738).

8. Incorporated herein by reference to Post-Effective Amendment Number 26 to
the Company's Form N-1A registration statement filed with the Securities
and Exchange Commission on September 22, 1998 (File No. 2-83631/811-3738).

9. Incorporated herein by reference to Post-Effective Amendment Number 27 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on August 2, 1999 (File No. 2-83631/811-3738).

10. Incorporated herein by reference to Post-Effective Amendment Number 28 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on September 30, 1999 (File No. 2-83631/811-3738).

11. Incorporated herein by reference to Post-Effective Amendment Number 29 to
the Company's Form N-1A registration statement filed with the Securities and
Exchange Commission on July 21, 2000 (File No. 2-83631/811-3738).

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

No person is controlled by or under common control with the Registrant. All
of the outstanding common stock of the Registrant is, or will be, owned by The
Variable Annuity Insurance Company ("VALIC"), a Texas life insurance
corporation, VALIC Separate Account A, a separate account of VALIC which is
registered as a unit investment trust under the Investment Company Act of 1940
(File No. 811-3240/33-75292); American General Life Insurance Company ("AGL")
Separate Account A and Separate Account D, unit investment trusts registered as
investment companies under the 1940 Act, affiliates of VALIC; AGL Separate
Account B, a unit investment trust that is exempt from registering as an
investment company under the 1940 Act; and two employee thrift plans maintained
by VALIC and/or American General Corporation. Therefore, various companies
affiliated with VALIC may be deemed to be under common control with the
Registrant. These companies, together with their states of incorporation, and
the identity of the owners of their common stock, are set forth in Exhibit 21 of
the Form 10-K of American General Corporation filed for the year ended December
31, 1999 (File No. 1-7981), which is incorporated herein by this reference.

C-4
<PAGE> 198

ITEM 25. INDEMNIFICATION

Incorporated herein by reference to Post-Effective Amendment Number 20 to
the Company's Form N-1A Registration Statement filed with the Securities and
Exchange Commission on February 20, 1994 (File No. 2-83631/811-3738).

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER

See "About the Series Company Management" in Part A and "Investment
Adviser" and "Investment Sub-Advisers" in the Statement of Additional
Information regarding the businesses of VALIC and the Sub-advisers.

Set out below is a list of each director and officer of VALIC indicating
each other business, profession, vocation, or employment of a substantial nature
in which each such person has been, at any time during the past two fiscal
years, engaged for his or her own account or in the capacity of director,
officer, partner, or trustee. Unless otherwise specified, the principal business
address of VALIC is 2929 Allen Parkway, Houston, Texas 77019. See also the
information set out under the caption "Directors and Officers" in Part B of this
Registration Statement, which is incorporated herein by reference to the extent
applicable. Companies, other than VALIC, identified in the list below are
American General Distributors, Inc. ("AG Distributors"), American General
Annuity Insurance Company ("AGAIC") and American General Corporation ("AG
Corporation").

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Robert M. Devlin.................. AG Corporation Director, Chairman and Chief Executive Officer
John A. Graf...................... VALIC, AGAIC Chairman, Director, President and Chief Executive Officer
Carl J. Santillo.................. VALIC, AGAIC Director and Executive Vice President -- Operations
Bruce R. Abrams................... VALIC, AGAIC Director and Executive Vice President -- AGAIC Sales
Kent E. Barrett................... VALIC, AGAIC Director, Executive Vice President and
Chief Financial Officer
Robert P. Condon.................. VALIC, AGAIC Director and Executive Vice President -- VALIC Sales & Institutional
Marketing
Kathleen Adamson.................. VALIC, AGAIC Senior Vice President -- Customer Service
Michael J. Akers.................. VALIC, AGAIC Senior Vice President and Chief Actuary
Dick Bailey....................... VALIC, AGAIC Senior Vice President -- Planning & Expense Management
Michael A. Betts.................. VALIC, AGAIC Senior Vice President -- Systems
Rebecca G. Campbell............... VALIC, AGAIC Director and Senior Vice President -- Human Resources
Mary Cavanaugh.................... VALIC, AGAIC Senior Vice President -- General Counsel and Secretary
</TABLE>

C-5
<PAGE> 199

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Kenneth E. Coffey................. VALIC, AGAIC Senior Vice President -- National Marketing Director
Stephen G. Kellison............... VALIC, AGAIC Senior Vice President -- Product Management
Richard J. Lindsay................ VALIC, AGAIC Senior Vice President -- Marketing
Terry Eleftheriou................ VALIC, AGAIC Senior Vice President -- Finance
Robert E. Steele.................. VALIC, AGAIC Senior Vice President -- Specialty Products
Jane E. Bates..................... VALIC AGAIC Vice President -- Chief Compliance Officer
James D. Bonsall.................. VALIC, AGAIC Vice President -- Financial Reporting
Rosemary Beauvais................. VALIC, AGAIC Vice President -- Corporate Technology Services
Gregory S. Broer.................. VALIC, AGAIC Vice President -- Actuarial
Richard A. Combs.................. VALIC, AGAIC Vice President -- Actuarial
Neil J. Davidson.................. VALIC, AGAIC Vice President -- Actuarial
David H. denBoer.................. VALIC, AGAIC Vice President -- Compliance
Terry B. Festervand............... VALIC, AGAIC Vice President and Treasurer
Daniel Fritz...................... VALIC, AGAIC Vice President -- Actuarial
Michael D. Gifford................ VALIC, AGAIC Vice President -- Case Development
Joseph P. Girgenti................ VALIC, AGAIC Vice President -- Sales Support
Sharla A. Jackson................. VALIC, AGAIC Vice President -- Customer Service - Amarillo
Albert J. Guiterrez............... VALIC, AGAIC Vice President and Investment Officer
Calvin King....................... VALIC, AGAIC Vice President -- North Houston Customer Care Center
Traci P. Langford................. VALIC, AGAIC Vice President -- Account Management
Thomas G. Norwood................. VALIC, AGAIC Vice President -- Broker/Dealer Operations
Rembert R. Owen, Jr............... VALIC, AGAIC Vice President and Assistant Secretary
Steven D. Rubinstein.............. VALIC, AGAIC Vice President -- Financial Planning and Reporting
Richard W. Scott.................. VALIC, AGAIC Vice President and Chief Investment Officer
AG Corporation Executive Vice President and Chief Investment Officer
Gary N. See....................... VALIC, AGAIC Vice President -- Group Actuarial
Gregory R. Seward................. VALIC, AGAIC Vice President -- Variable Product Accounting
David Snyder...................... VALIC, AGAIC Vice President -- Electronic Commerce
Paula F. Snyder................... VALIC, AGAIC Vice President -- AGRS Marketing Communications
James P. Steele................... VALIC, AGAIC Vice President -- Specialty Products
Kenneth R. Story.................. VALIC, AGAIC Vice President -- Information Technology
Brian R. Toldan................... VALIC, AGAIC Vice President and General Auditor
Larry Robinson.................... VALIC, AGAIC Vice President -- Product Development
Nancy K. Shumbera................. VALIC, AGAIC Vice President -- Applications Development
Brenda Simmons.................... VALIC, AGAIC Vice President -- Premium Processing
</TABLE>

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<PAGE> 200

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
William A. Wilson................. VALIC, AGAIC Vice President -- Government Affairs
Roger E. Hahn..................... VALIC, AGAIC Investment Officer
C. Scott Inglis................... VALIC, AGAIC Investment Officer
Craig R. Mitchell................. VALIC, AGAIC Investment Officer
Julia S. Tucker................... VALIC, AGAIC Investment Officer
AG Senior Vice President -- Investments
Corporation
W. Lary Mask...................... VALIC, AGAIC Real Estate Investment Officer
and Assistant Secretary
D. Lynne Walters.................. VALIC, AGAIC, Tax Officer
AG Distributors
AG Vice President -- Taxes
Corporation
Pauletta P. Cohn.................. VALIC, AGAIC Assistant Secretary
Otto B. Gerlach, III.............. VALIC, AGAIC Assistant Secretary
Cheryl G. Hemley.................. VALIC, AGAIC Assistant Secretary
Susan Miller...................... VALIC, AGAIC Assistant Secretary
Christine W. McGinnis............. VALIC, AGAIC Assistant Secretary
Connie E. Pritchett............... VALIC, AGAIC Assistant Secretary
Daniel R. Cricks.................. VALIC, AGAIC Assistant Tax Officer
Eric Alexander.................... VALIC, AGAIC Assistant Treasurer
Paul Hoepfl....................... VALIC, AGAIC Assistant Treasurer
Kristy L. McWilliams.............. VALIC, AGAIC Assistant Treasurer
William H.Murray.................. VALIC, AGAIC Assistant Treasurer
Tara S. Rock...................... VALIC, AGAIC Assistant Treasurer
Carolyn Roller.................... VALIC, AGAIC Assistant Treasurer
Marylyn S. Zlotnick............... VALIC, AGAIC Assistant Controller
Leslie K. Bates................... VALIC, AGAIC Administrative Officer
Mary C. Birmingham................ VALIC, AGAIC Administrative Officer
Donald L. Davis................... VALIC, AGAIC Administrative Officer
Robert A. Demchak................. VALIC, AGAIC Administrative Officer
Ted D. Hennis..................... VALIC, AGAIC Administrative Officer
William L. Hinkle................. VALIC, AGAIC Administrative Officer
Joan M. Keller.................... VALIC, AGAIC Administrative Officer
William R. Keller, Jr............. VALIC, AGAIC Administrative Officer
Fred M. Lowery.................... VALIC, AGAIC Administrative Officer
James F. McCulloch................ VALIC, AGAIC Administrative Officer
Michael E. Mead................... VALIC, AGAIC Administrative Officer
</TABLE>

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<PAGE> 201

<TABLE>
<CAPTION>
NAME COMPANY TITLE
---- ------- -----
<S> <C> <C>
Kathryn T. Smith.................. VALIC, AGAIC Administrative Officer
John M. Stanton................... VALIC, AGAIC Administrative Officer
</TABLE>

ITEM 27. PRINCIPAL UNDERWRITERS

(a) American General Distributors, Inc. (the "Distributor") acts as

exclusive distributor and principal underwriter of the Registrant and as
principal underwriter for VALIC Separate Account A, North American Funds
Variable Product Series I and North American Funds Variable Product Series II.
The principal business address for all the officers and directors shown below is
2929 Allen Parkway, Houston, TX 77019.

(b) The following information is furnished with respect to each officer and
director of the Distributor.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DISTRIBUTOR WITH THE REGISTRANT
------------------ --------------------- ---------------------
<S> <C> <C>
Robert P. Condon..................... Director, Chairman of the --
Board, Chief Executive
Officer and President
Thomas G. Norwood.................... Director, Chief Financial --
Officer and Treasurer
Mary Cavanaugh....................... Director and Secretary --
D. Lynne Walters..................... Tax Officer --
V. Keith Roberts..................... Vice President -- Operations --
Cheryl G. Hemley..................... Assistant Secretary --
Daniel R. Cricks..................... Assistant Tax Officer --
James D. Bonsall..................... Assistant Treasurer --
Steven D. Rubinstein................. Assistant Treasurer --
Marylyn S. Zlotnick.................. Assistant Treasurer --
</TABLE>

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<PAGE> 202

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

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

The books or other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules promulgated thereunder will be
in the physical possession of either:

THE DEPOSITOR:

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

THE PRINCIPAL UNDERWRITER:

American General Distributors, Inc.
2929 Allen Parkway
Houston, Texas 77019

THE CUSTODIAN:

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

INVESTMENT SUB-ADVISERS:

American Century Investment Management, Inc.
4500 Main Street
Kansas City, Missouri 64111

American General Investment Management, L.P.
2929 Allen Parkway
Houston, Texas 77019

Capital Guardian Trust Company
11100 Santa Monica Boulevard
Los Angeles, California 90025

Fiduciary Management Associates, Inc.
211 Congress Street
Boston, Massachusetts 02110

Founders Asset Management LLC
2930 East Third Avenue
Denver, Colorado 80206

Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004

JP Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036

Neuberger Berman Management Inc.
605 Third Avenue
New York, New York 10158

Putnam Investment Management, Inc.
One Post Office Square
Boston, Massachusetts 02109

State Street Bank and Trust Company
2 International Place
Boston, Massachusetts 02110

T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202

Thompson, Seigel & Walmsley, Inc.
5000 Monument Avenue
Richmond, Virginia 23230

Wellington Management Company, LLP
75 State Street
Boston, Massachusetts 02109

ITEM 29. MANAGEMENT SERVICES

There is no management-related service contract not discussed in Parts A or
B of this Form N-1A.

ITEM 30. UNDERTAKINGS

Not Applicable

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<PAGE> 203

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, American General Series
Portfolio Company, certifies that it meets all of the requirements for
effectiveness of this registration statement under Rule 485(b) under the
Securities Act of 1933 and has duly caused this registration statement to be
signed on its behalf by the undersigned, duly authorized, in the City of
Houston, and State of Texas, on the 29th day of September, 2000.

AMERICAN GENERAL SERIES
PORTFOLIO COMPANY

By: /s/ ALICE T. KANE
--------------------------------
Alice T. Kane
Chairman of the Board of
Directors

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ ALICE T. KANE Chairman of the Board of September 29, 2000
---------------------------- Directors
Alice T. Kane

/s/ GREGORY R. SEWARD Treasurer September 29, 2000
----------------------------
Gregory R. Seward

* Director September 29, 2000
----------------------------
Kent E. Barrett

* Director September 29, 2000
----------------------------
Judith Craven

* Director September 29, 2000
----------------------------
Timothy J. Ebner

* Director September 29, 2000
----------------------------
Gustavo E. Gonzales, Jr.

* Director September 29, 2000
----------------------------
Norman Hackerman

* Director September 29, 2000
----------------------------
John Wm. Lancaster

* Director September 29, 2000
----------------------------
Ben H. Love

* Director September 29, 2000
----------------------------
John E. Maupin, Jr.

* Director September 29, 2000
----------------------------
F. Robert Paulsen

By: /s/ DAVID M. LEAHY
-------------------------
David M. Leahy
Attorney-in-Fact
</TABLE>

<PAGE> 204
EXHIBIT INDEX

a. (12) Articles Supplementary to the Articles of Incorporation, effective
October 1, 2000.
(13) Articles of Amendment to the Articles of Incorporation, effective
October 1, 2000.

d. (2) Investment Advisory Agreement (Form II) between Registrant and
VALIC (with revised fee Schedule A effective September 1, 1999 and
Form of revised fee Schedule A to be effective October 1, 1999)
(6) Revised Fee Schedule A to Investment Advisory Agreement (Form II)
(7) Form of Investment Sub-Advisory Agreement between VALIC and American
Century Investment Management, Inc. effective October 1, 2000.
(8) Form of Investment Sub-Advisory Agreement between VALIC and Founders
Asset Management LLC effective October 1, 2000.
(9) Form of Investment Sub-Advisory Agreement between VALIC and Putnam
Investment Management, Inc. effective October 1, 2000.