<PAGE> 1
Semi-Annual
Report
December 31, 1997
[USLIFE LOGO]
INCOME FUND INC
VA 10643 VER 12/97
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USLIFE INCOME FUND INC
2929 Allen Parkway
Houston, TX 77019
DEAR SHAREHOLDER:
USLIFE Income Fund reported net investment income of $2,116,169 or 37 cents
per share for the six months ended December 31, 1997, versus $2,072,594 or 37
cents per share for December 31, 1996. Net assets of the fund were
$60,253,791 or $10.68 per share at December 31, 1997, versus $56,567,332 or
$10.02 per share at December 31, 1996. Cash dividends totaling 38 cents per
share were paid to shareholders during the six months ending December 31,
1997.
Your fund's return of 8.89% for the six months ended December 31, 1997,
assuming reinvestment of dividends, compared favorably with its relevant
environment. The Merrill Lynch Corporate Government Index returned 6.80%
while the Merrill Lynch High Yield Bond Index returned 6.59%.
At December 31, 1997 the fund had 39.9% of its assets in below investment
grade issues and 60.1% in investment grade issues. Several issues were
upgraded from below investment grade to investment grade
during the period, resulting in market value gains and a higher quality
portfolio.
The current environment of low interest rates, low inflation and declining
economic growth is favorable for bonds. The turmoil in Asia is continuing to
prompt a "flight-to-quality", with many investors selling Asian securities
and buying U.S. Treasuries, bidding up the price and lowering interest rates.
High yield bonds have been one of the best-performing fixed income sectors
over the past year and are expected to continue to perform well. High grade
corporate bonds will benefit from slower growth and lower interest rates.
Sincerely,
/s/ Norman Jaskol
Norman Jaskol
President
1
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USLIFE INCOME FUND INC
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1997
PAR VALUE MARKET VALUE
- --------- ------------
CORPORATE BONDS - 97.63%
AEROSPACE/DEFENSE - 5.13%
$ 500,000 Loral Corp., 7.00% due 9/15/23 .................... $ 505,540
500,000 Raytheon Co., 7.38% due 7/15/25 .................... 505,830
2,000,000 Rohr, Inc., 9.25% due 3/1/17 ....................... 2,080,000
------------
3,091,370
APPAREL & PRODUCTS - 4.91%
2,950,000 Phillips Van Heusen Corp., 7.75% due 11/15/23 ...... 2,959,410
------------
BROADCASTING - 4.58%
2,600,000 Turner Broadcasting, 8.40% due 2/1/24 .............. 2,759,952
------------
CONGLOMERATES - 3.23%
2,000,000 Loews Corp., 7.00% due 10/15/23 .................... 1,947,160
------------
DRUGS - 3.45%
2,000,000 Duane Reade Corp., 12.00% due 9/15/02 .............. 2,080,000
------------
ENTERTAINMENT - 3.85%
2,500,000 Paramount Communications Inc., 7.50% due 7/15/23 ... 2,319,925
------------
FOODS - 4.17%
2,500,000 Borden Inc., 7.88% due 2/15/23 ..................... 2,515,450
------------
HEALTHCARE - 2.68%
2,150,000 Continental Health Affiliates, Inc., 6.00% Notes
due 8/31/03 ...................................... 1,612,500
------------
HOME BUILDERS - 4.19%
2,250,000 Fortress Group Inc., 13.75% due 5/15/03 ............ 2,525,625
------------
INSURANCE - MULTILINE - 4.16%
2,300,000 Zurich Capital Trust, 8.38% due 6/1/37 ............. 2,506,356
------------
MERCHANDISE - SPECIALTY - 4.45%
2,700,000 Limited, Inc., 7.50% due 3/15/23 ................... 2,682,612
------------
MERCHANDISING - MASS - 9.42%
2,500,000 K Mart Funding, 9.44% due 7/01/18 .................. 2,668,825
2,500,000 ShopKo Stores, Inc., 9.25% due 3/15/22 ............. 3,005,450
------------
5,674,275
------------
2
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USLIFE INCOME FUND INC
STATEMENT OF NET ASSETS (UNAUDITED) CONTINUED
DECEMBER 31, 1997
PAR VALUE MARKET VALUE
- --------- ------------
METALS - MISCELLANEOUS - 3.51%
$1,850,000 Inco Limited, 9.60% due 6/15/22 .................... $ 2,117,640
------------
OIL - INTEGRATED DOMESTIC - 0.40%
200,000 USX-Marathon Group, 9.13% due 1/15/13 .............. 240,662
------------
PAPER/FOREST PRODUCTS - 8.57%
2,300,000 Boise Cascade Co., 7.99% due 9/13/13 ............... 2,508,380
500,000 Georgia-Pacific Corp., 9.63% due 3/15/22 ........... 567,045
2,000,000 Georgia-Pacific Corp., 8.25% due 3/1/23 ............ 2,089,900
------------
5,165,325
------------
SAVINGS & LOAN - 4.88%
2,700,000 Ahmanson Capital Trust, 8.36% due 12/1/26 .......... 2,938,086
------------
TELECOMMUNICATIONS - 6.49%
1,100,000 Comcast Cellular, 9.50% due 5/1/07 ................. 1,138,500
2,500,000 Tele-Communications Inc., 9.25% due 1/15/23 ........ 2,769,675
------------
3,908,175
------------
TOBACCO - 4.84%
2,600,000 RJR Nabisco, Inc., 9.25% due 8/15/13 ............... 2,917,330
------------
UTILITIES - ELECTRIC - 14.72%
500,000 Boston Edison, 9.38% due 8/15/21 ................... 555,555
900,000 Boston Edison, 8.25% due 9/15/22 ................... 953,775
865,000 Commonwealth Edison, 8.38% due 9/15/22 ............. 946,673
2,600,000 Niagara Mohawk Power Corp., 9.50% due 3/1/21 ....... 2,772,848
573,000 Southern California Edison Co., 8.38% due 12/1/17 .. 586,133
180,000 Southern California Edison Co. (MBIA Insured),
8.38% due 12/1/17 ............................... 184,126
2,600,000 Toledo Edison, 9.22% due 12/15/21 .................. 2,868,294
------------
8,867,404
------------
TOTAL CORPORATE BONDS
(Cost $55,388,286)............................ 58,829,257
------------
3
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USLIFE INCOME FUND INC
STATEMENT OF NET ASSETS (UNAUDITED) CONTINUED
DECEMBER 31, 1997
PAR VALUE MARKET VALUE
- --------- ------------
CORPORATE SHORT TERM COMMERCIAL PAPER - 0.66%
FINANCE COMPANIES - 0.66%
$ 195,000 General Electric Capital Corp., 5.68% due 2/27/98 .. $ 193,239
205,000 General Motors Acceptance Corp., 5.76% due 2/27/98 . 203,125
------------
396,364
------------
TOTAL CORPORATE SHORT TERM COMMERCIAL PAPER
(Cost $396,364)................................. 396,364
------------
TOTAL INVESTMENTS
(Cost $55,784,650) - 98.29%......................... 59,225,621
------------
Other assets and liabilities, net - 1.71%........... 1,028,170
------------
NET ASSETS (equivalent to $10.68 per share on
5,643,768 shares outstanding) - 100%............ $ 60,253,791
------------
- -------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY:
Capital stock, $1.00 par value per share, 10,000,000 shares
authorized, 5,643,768 shares outstanding...................... $ 5,643,768
Additional paid in capital ..................................... 54,203,461
Accumulated net realized loss on securities..................... (3,486,999)
Undistributed net investment income............................. 452,590
Unrealized appreciation of investments ......................... 3,440,971
------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING..................... $ 60,253,791
============
See accompanying notes to financial statements.
4
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STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
INVESTMENT INCOME:
Interest......................................................... $ 2,466,966
------------
EXPENSES:
Advisory fee..................................................... 206,361
Transfer agent fees and expenses................................. 22,042
Custodian fee.................................................... 5,621
Treasury and secretarial services................................ 25,000
Directors' fees.................................................. 20,300
Interest on directors' deferred compensation..................... 8,657
Printing, stationery and supplies................................ 9,645
New York stock exchange listing fees............................. 9,955
Legal and audit fees............................................. 20,401
Insurance expense................................................ 11,895
Miscellaneous.................................................... 10,920
------------
Total expenses................................................ 350,797
------------
NET INVESTMENT INCOME............................................ 2,116,169
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES:
Net realized loss on securities.................................. (800,721)
Net unrealized appreciation on securities during the period...... 3,665,648
------------
Net realized and unrealized gain on securities
during the period........................................ 2,864,927
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................. $ 4,981,096
------------
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
For the For the
six months ended fiscal year ended
December 31, 1997 June 30,1997
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income............................................ $ 2,116,169 $ 4,141,554
Net realized gain (loss) on securities........................... (800,721) 253,242
Net unrealized appreciation of securities during the period...... 3,665,648 3,250,543
----------------- -----------------
Increase in net assets resulting from operations............. 4,981,096 7,645,339
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................ (2,144,632) (4,515,014)
----------------- -----------------
TOTAL INCREASE IN NET ASSETS..................................... 2,836,464 3,130,325
----------------- -----------------
NET ASSETS:
Beginning of period.............................................. 57,417,327 54,287,002
----------------- -----------------
End of period (including undistributed net investment income
of $452,590 and $481,053).................................... $ 60,253,791 $ 57,417,327
----------------- -----------------
</TABLE>
See accompanying notes to financial statements.
5
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FINANCIAL HIGHLIGHTS (UNAUDITED)
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of dividends. Total returns and
ratios for periods of less than one year are not annualized.
<TABLE>
<CAPTION>
For the
six months
ended Fiscal year ended June 30,
December 31, -----------------------------------------------------------
1997 1997 1996 1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net asset value at beginning of period........... $10.17 $9.62 $10.07 $9.39 $10.28 $9.67
--------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income........................ .37 .73 .76 .76 .75 .91
Net realized and unrealized gain (loss)
on securities........................... .52 .62 (.41) .72 (.77) .60
--------------------------------------------------------------------------
Total income (loss) from investment operations .89 1.35 .35 1.48 (.02) 1.51
--------------------------------------------------------------------------
Distributions:
Distributions from net investment income..... (.38) (.80) (.80) (.80) (.87) (.90)
--------------------------------------------------------------------------
Net asset value, end of period............... $10.68 $10.17 $9.62 $10.07 $9.39 $10.28
==========================================================================
Market value, end of period.................. $9.63 $9.13 $9.00 $9.25 9.38 $10.75
==========================================================================
Total investment return*:
Based on market value........................ 9.77% 10.48% 5.56% 7.72% (5.10%) 20.69%
Based on net asset value..................... 8.89% 15.19% 3.64% 17.08% (0.60%) 16.36%
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (millions)......... $60 $57 $54 $57 $53 $56
Ratio of expenses to average net assets...... 0.59% 1.19% 1.17% 1.22% 1.16% 1.23%
Ratio of net investment income to average
net assets................................ 3.57% 7.43% 7.49% 7.99% 7.38% 9.13%
Portfolio turnover rate...................... 19.26% 25.77% 29.55% 29.93% 46.72% 45.01%
</TABLE>
* Total returns reflect the change in net asset value or market value
during each period, assuming that dividends and capital gains
distributions, if any, were reinvested in accordance with the Automatic
Dividend Investment Plan available to shareholders. Total return based on
net asset value may not be representative of a shareholder's actual total
return due to the difference between the net asset value and the current
market value of a share as traded on the exchange.
6
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Notes to Financial Statements (Unaudited)
Note 1 - SIGNIFICANT ACCOUNTING POLICIES
USLIFE Income Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a closed end diversified management
investment company.
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). GAAP requires accruals
which occasionally are based upon management estimates. The following is a
summary of significant accounting policies consistently followed by the Fund
in the preparation of its financial statements.
A. INVESTMENT VALUATION
Listed securities are valued at the last reported sale price on the
principal exchange on which the security is traded. In the absence of any
sales that day, securities are valued at the last reported bid price, or
based on a matrix system which utilizes information (such as credit
ratings, yields and maturities) from independent sources. Short term debt
securities for which market quotations are readily available are valued
at the last reported bid price. However, any short term security with a
remaining maturity of 60 days or less are valued by the amortized cost
method which approximates fair market value. Investments for which market
quotations are not readily available are valued at fair value as determined
in good faith by, or under authority delegated by, the Fund's Board
of Directors.
B. FEDERAL INCOME TAXES
The Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code and to distribute all of its
taxable net investment income and taxable net realized capital gains, in
excess of any available capital loss carryovers. Therefore no federal
income tax provision is required. At December 31, 1997, the Fund had a
net capital loss carry forward of approximately $2.6 million, expiring
$1.5 million in 1998 and $1.1 million in 2000.
C. INVESTMENT TRANSACTIONS AND RELATED
INVESTMENT INCOME
Investment transactions are accounted for on the trade date. Realized gains
and losses are determined on the basis of identified cost. Dividend income,
if any, is recorded on the ex-dividend date. Coupon interest income on
investments is accrued daily. Market premiums on securities are not being
amortized and discounts are not being accrued, except for original issue
discounts which are being accrued for tax purposes.
D. DISTRIBUTION TO SHAREHOLDERS
Distributions to shareholders are recorded on the record date. The
Fund declares dividends from net investment income quarterly. Capital
gains distributions in excess of any existing capital loss carry
forwards, are declared annually.
Investment income and capital gains and losses are recognized in
accordance with generally accepted accounting principles ("book").
Distributions from net investment income and realized capital gains are
based on earnings as determined in accordance with federal tax
regulations ("tax") which may differ from book basis earnings. At the end
of the year, offsetting adjustments to undistributed net investment
income and undistributed net realized gains (losses) are made to
eliminate permanent book/tax differences arising in the current year.
NOTE 2 - ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
On September 24, 1997, the shareholders of the Fund approved an investment
advisory agreement with The Variable Annuity Life Insurance Company ("VALIC"
or the "Adviser"). Prior to this date USLIFE Advisers, Inc. served as
investment adviser. VALIC is an indirect wholly-owned subsidiary of American
General Corporation, Houston, Texas. The Adviser receives a monthly fee equal
to the sum of: a) 0.04167% of the Fund's adjusted net assets (month end net
assets, less net investment income for the month) and
b) 2-1/2% of the Fund's net investment income, minus interest on borrowed funds
during the month.
7
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
CONTINUED
During the six months ended December 31, 1997, the Fund paid USLIFE Advisers,
Inc. and VALIC $93,953 and $112,408, respectively, for providing advisory
services.
In accordance with the investment advisory agreement, the Fund reimburses the
Adviser $50,000 per year for services performed on behalf of the Fund by the
Secretary and the Treasurer and personnel operating under their direction.
During the six months ended December 31, 1997, the Fund paid
USLIFE Advisers, Inc. and VALIC $11,667 and $13,333, respectively, for
providing these services.
At December 31, 1997, the Fund had a deferred compensation liability to a
former Director of the Fund which totaled $267,531 including accrued interest
payable by the Fund.
Certain officers and directors of the Fund are officers and directors of
VALIC.
NOTE 3 - INVESTMENT ACTIVITY
At December 31, 1997, the identified cost of investments for federal income
tax purposes was $56,748,746 resulting in gross unrealized appreciation of
$3,016,250, gross depreciation of $539,375, and net unrealized appreciation of
$2,476,875.
During the six months ended December 31, 1997, purchases and sales of
investments, other than short-term investments, aggregated $11,090,284 and
$11,243,202, respectively.
NOTE 4 - BANK LINE OF CREDIT
The Fund participates in a $250,000 unsecured line of credit to be utilized
primarily for temporary or emergency purposes, including the financing of rede
mptions. Interest is charged to the Fund at rates which are tied to the
federal funds rate in effect at the time of borrowings. At December 31, 1997,
there were no outstanding borrowings under the line of credit.
NOTE 5 - SUBSEQUENT EVENT
On January 27, 1998, the Board of Directors declared a quarterly dividend of
$0.19 per share. The dividend will be payable on March 3, 1998 to
shareholders of record on February 20,1998.
SUPPLEMENTARY INFORMATION (UNAUDITED)
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders was held on September 24, 1997. The
results of all matters voted on by shareholders were as follows.
1. RATIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS
A proposal to approve and ratify the appointment of KPMG Peat Marwick LLP
as independent auditor for the fiscal year ending June 30, 1998 was
approved with 3,636,453 votes for, 43,707 votes against and 94,187 votes
abstaining.
2. ELECTION OF DIRECTORS
Shareholders elected six directors, as follows:
Nominee For Withheld
---------------------------------------------
Norman Hackerman 3,629,107 145,240
John Lancaster 3,628,307 146,040
Ben H. Love 3,641,661 132,686
F. Robert Paulsen 3,629,657 144,690
Craig R. Rodby 3,644,161 130,186
R. Miller Upton 3,634,383 139,964
3. APPROVAL OF THE INTERIM ADVISORY AGREEMENT
USLIFE Advisers, Inc. "the Former Adviser" served as the Fund's investment
adviser from August 4, 1976 through June 17, 1997 pursuant to an investment
advisory agreement ("Advisory Agreement") dated August 4, 1976. On June
17, 1997, USLIFE Corporation ("USLIFE"), the parent company of the Former
Adviser, merged with and into a wholly-owned subsidiary of American
General Corporation ("American General") and the Former Adviser became an
indirect, wholly-owned subsidiary of American General. For purposes of
the Investment Company Act of 1940 ("1940 Act"), this merger ("Merger")
caused a change of control of the Former Adviser that constituted an
assignment and thereby effected an automatic termination of the Advisory
Agreement on June 17, 1997.
8
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SUPPLEMENTARY INFORMATION (UNAUDITED)
CONTINUED
The 1940 Act requires that the shareholders of an investment company
approve an investment advisory agreement prior to its effectiveness. Upon
announcement of the Merger agreement between USLIFE and American General,
the Fund's management (with Board of Directors approval) requested the
Securities and Exchange Commission ("SEC") to grant exemptive relief from
this requirement for shareholder approval, to allow the Fund to enter
into an interim investment advisory agreement between the Fund and the
Former Adviser ("Interim Advisory Agreement"), subject to subsequent
shareholder ratification and approval. This relief was necessary because
of (i) the uncertainty regarding the closing date of the Merger; (ii) the
time required to solicit proxies of Fund shareholders; and (iii) the
desire for continuity in management of the Fund. The SEC granted the
requested relief by order on June 11, 1997.
Pursuant to the exemptive order and to provide for continuity in
connection with the provision of investment advisory services to the
Fund, the Board of Directors of the Fund ("Board") approved the Interim
Advisory Agreement, subject to shareholder approval. Under the Interim
Advisory Agreement, the Former Adviser provided investment advisory
services to the Fund from the date of the Merger, June 17, 1997 until the
date of the annual meeting of shareholders ("Meeting"), September 24,
1997, when shareholders voted on the Interim Advisory Agreement. The
terms and conditions of the Interim Advisory Agreement were identical
to the terms and conditions of the Advisory Agreement, except as to
effective and termination dates and with the addition of certain
provisions concerning the escrow of advisory fees during the Interim
Advisory Agreement period.
On July 2, 1997, the Board, consisting only of Directors who were not
interested persons of the Fund or the Former Adviser within the meaning
of the 1940 Act ("Independent Directors"), determined that there would be
no diminution in the scope or quality of the services provided by the
Former Adviser under the Interim Advisory Agreement in connection with
the change in advisory personnel resulting from the change in the
ownership of the Former Adviser. Among other things, the Board considered
the experience of the new officers and directors of the Former Adviser and
recognized that the principal investment manager for the Fund would be
retained as consultant under the Interim Advisory Agreement, until
September 24, 1997.
On September 24, 1997 the shareholders approved the Interim Advisory
Agreement with 3,534, 227 votes for, 85,718 votes against, and 154,402
votes abstaining.
4. APPROVAL OF THE NEW ADVISORY AGREEMENT
The Board also approved, subject to shareholder approval, a new
investment advisory agreement ("New Advisory Agreement") with The
Variable Annuity Life Insurance Company ("VALIC"), an indirect,
wholly-owned subsidiary of American General. The New Advisory Agreement
provides for VALIC to provide investment advice to the Fund for a
two-year period commencing upon shareholder approval of the New Advisory
Agreement, and thereafter so long as its continuance is specifically
approved at least annually by the Board or by majority vote of the Fund's
shareholders. Under the New Advisory Agreement, VALIC would provide the
same investment advisory services provided by the Former Adviser under
the Advisory Agreement with the same advisory fee structure.
The New Advisory Agreement contains certain additional provisions not
contained in the Advisory Agreement or the Interim Advisory Agreement.
Under the terms of the New Advisory Agreement, VALIC will maintain a
trading desk to place all orders for the purchase and sale of the Fund's
portfolio investments with brokers or dealers selected by VALIC. Under
the New
9
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SUPPLEMENTARY INFORMATION (UNAUDITED)
CONTINUED
Advisory Agreement, VALIC also is required to use its best
efforts to obtain any tender and exchange offer solicitation fees, other
fees and similar payments in connection with the portfolio transactions
of the Fund. VALIC is also required to remit promptly to the Fund any
commissions, tender and exchange offer solicitation fees, other fees or
similar payments received by VALIC, or any affiliated person of VALIC in
connection with any of the Fund's portfolio transactions, less the amount
of any direct expenses incurred by VALIC or any affiliated person of VALIC
in obtaining such commissions, fees or payments. In addition, under the
New Advisory Agreement, VALIC may, when appropriate, aggregate orders for
its other customers together with any securities of the same type to be
sold or purchased for the Fund in order to obtain best execution and lower
brokerage commissions, provided that VALIC allocates the share and
expenses in an equitable manner.
The New Advisory Agreement differs from the Advisory Agreement and
the Interim Advisory Agreement in certain other respects as well.
Subject to prior authorization by the Fund's Board of appropriate
policies and procedures, the New Advisory Agreement permits VALIC
to pay a broker a commission for effecting a portfolio transaction in
excess of the commission another broker would have charged for effecting
The same transaction, if the first broker provided brokerage and/or research
services, including statistical data, to VALIC. In connection with
purchases and sales of portfolio securities, the New Advisory Agreement
prohibits VALIC, its officers and its employees from acting as principal
or agent for any party other than the Fund or receiving any commissions. In
addition, the New Advisory Agreement authorizes VALIC to make use of its
affiliated companies and their employees in connection with the rendering
of investment advisory services to the Fund. The New Advisory Agreement
also contains certain nonmaterial conforming changes.
On September 24, 1997 the shareholders approved the New Advisory
Agreement with 3,448,285 votes for, 108,870 votes against, and 177,192
votes abstaining.
5. AMENDMENT OF FUNDAMENTAL INVESTMENT
RESTRICTIONS
A proposal to amend the Fund's fundamental investment restrictions to permit
the Fund to invest up to 20% of its total assets in foreign securities was
approved with 3,125,277 votes for, 329,213 votes against, and 157,596 votes
abstaining with 162,261 votes representing broker non-votes.
AUTOMATIC DIVIDEND INVESTMENT PLAN
Shareholders may elect to enroll in the Fund's Automatic Dividend Investment
Plan ("Plan"). All distributions of the Fund's net investment income and net
realized short-term and long-term capital gains, if any, will automatically
be received or invested in shares of the Fund's common stock at their net
asset value or market price plus the cost of brokerage commissions, whichever
is lower. Shares will be held by Chase Manhattan Bank, the Plan agent, in an
account for each participant in non-certificated form. Participation in the
Plan will not relieve participants of any capital gains or income tax payable
on dividends or distributions reinvested under the Plan. Participation in the
Plan can be terminated at any time up to the next dividend record date by
writing to Chase Manhattan Bank. Upon termination, stock certificates for
full shares will be issued to the participant or, at the participant's
direction, sold at the current market price. Any fractional shares at the
time of termination will be converted to cash at the current market price. A
check for the proceeds, less brokerage commissions and any other costs of
sale, will be sent to the participant. For additional information on the
Plan, please write Chase Manhattan Bank, c/o Shareholder Investment Services,
P. O. Box 750, Pittsburgh, PA 15230-0750 or call 1-800-279-1248.
10
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BOARD OF DIRECTORS
Norman Hackerman
John W. Lancaster
Ben H. Love
F. Robert Paulsen
Craig R. Rodby
R. Miller Upton
OFFICERS
Craig R. Rodby, Chairman
Norman Jaskol, President
Leon A. Olver, Vice President
Cynthia A. Toles, Secretary
Gregory R. Seward, Treasurer
Nori L. Gabert, Assistant Secretary
Kathryn A. Pearce, Assistant Treasurer
INVESTMENT ADVISOR
The Variable Annuity Life Insurance Company (VALIC)
2929 Allen Parkway
Houston, TX 77019
SHAREHOLDER SERVICE AGENT
ChaseMellon Shareholders Services, LLP
450 West 33rd Street
New York, NY 10001
CUSTODIAN
Chase Manhatten Bank
Four New York Plaza, 4th Floor
New York, NY 10004
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
757 Third Avenue, Room 1046
New York, NY 10017
11
