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SIGNATURE GREGORY R. SEWARD
TITLE TREASURER
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000102426
<NAME> USLIFE INCOME FUND, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 55784650
<INVESTMENTS-AT-VALUE> 59225621
<RECEIVABLES> 1361621
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60600305
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 346514
<TOTAL-LIABILITIES> 346514
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54203461
<SHARES-COMMON-STOCK> 5643768
<SHARES-COMMON-PRIOR> 5643768
<ACCUMULATED-NII-CURRENT> 452590
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3440971
<NET-ASSETS> 60253791
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2466966
<OTHER-INCOME> 0
<EXPENSES-NET> 350797
<NET-INVESTMENT-INCOME> 2116169
<REALIZED-GAINS-CURRENT> (800721)
<APPREC-INCREASE-CURRENT> 3665648
<NET-CHANGE-FROM-OPS> 4981096
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2144632
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2836464
<ACCUMULATED-NII-PRIOR> 481053
<ACCUMULATED-GAINS-PRIOR> (2686278)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 206361
<INTEREST-EXPENSE> 8657
<GROSS-EXPENSE> 350797
<AVERAGE-NET-ASSETS> 59227241
<PER-SHARE-NAV-BEGIN> 10.17
<PER-SHARE-NII> 0.37
<PER-SHARE-GAIN-APPREC> 0.52
<PER-SHARE-DIVIDEND> 0.38
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Semi-Annual
Report
December 31, 1997
[USLIFE LOGO]
INCOME FUND INC
VA 10643 VER 12/97
<PAGE>
===============================================================================
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
<PAGE>
===============================================================================
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
<PAGE>
===============================================================================
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
<PAGE>
===============================================================================
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
<PAGE>
===============================================================================
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
<PAGE>
===============================================================================
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
<PAGE>
===============================================================================
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
<PAGE>
===============================================================================
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
<PAGE>
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
<PAGE>
BYLAWS
OF
USLIFE INCOME FUND, INC.
AMENDED AND RESTATED JULY 2, 1997
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of Baltimore,
State of Maryland.
Section 2. The Corporation shall also maintain an office at 2929 Allen
Parkway, Houston, Texas, 77019, and may also have offices at such other places
both within and without the State of Maryland as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of stockholders shall be held at the office of the
Corporation in Houston, Texas, or at any other place within the United States as
shall be designated from time to time by the Board of Directors and stated in
the notice of meeting or in a duly executed waiver of notice thereof.
Section 2. The Board of Directors shall call an annual meeting of the
stockholders of the Corporation, on such date as may be fixed by the Board of
Directors within a reasonable period of time after the close of the
Corporation's fiscal year, for the election of Directors and the transaction of
such other business as may properly come before the meeting.
Section 3. At any time in the interval between annual meetings, special
meetings of the stockholders may be called by the Chairman of the Board of
Directors, any Vice Chairman of the Board of Directors, by the President, or by
the Board of Directors.
Section 4. Special meetings of stockholders shall be called by the
Secretary upon the written request of the holders of not less than twenty-five
percent (25%) of all the shares entitled to vote at such meeting. Such request
shall state the purpose or purposes of such meeting and the
<PAGE>
matters proposed to be acted on thereat. The Secretary shall inform such
stockholders of the reasonably estimated cost of preparing and mailing such
notice of the meeting, and upon payment to the Corporation of such costs the
Secretary shall give notice stating the purpose or purposes of the meeting. No
special meeting need be called upon the request of the holders of less than a
majority of all the shares entitled to vote at such meeting to consider any
matter which is substantially the same as a matter voted upon at any special
meeting of the stockholders held during the preceding twelve months.
Section 5. Not less than ten (10) nor more than ninety (90) days before
the date of each stockholders' meeting, the Secretary shall give to each
stockholder entitled to vote at such meeting, and to each stockholder not
entitled to vote who is entitled by statute to notice, written or printed notice
stating the time and place of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, either by mail or by
presenting it to him personally or by leaving it at his residence or usual place
of business. If mailed, such notice shall be deemed to be given when deposited
in the United States mail addressed to the stockholder at his or her mailing
address as it appears on the records of the Corporation, with postage thereon
prepaid.
No notice of the time, place or purpose of any meeting of stockholders
need be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 6. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 7. At any meeting of stockholders, the presence in person or by
proxy of stockholders entitled to cast a majority of the votes thereat shall
constitute a quorum; but this section shall not affect any requirement under any
statute or under the Articles of Incorporation for the vote necessary for the
adoption of any measure. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, a majority of the stockholders
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 8. The Board of Directors may set a record date or direct that
the stock transfer books be closed for a stated period for the purpose of making
any proper determination with respect to stockholders, including which
stockholders are entitled to notice of a meeting, vote at a meeting, receive a
dividend or be allotted other right rights. The record date may not be more than
ninety (90) days before the date on which the action requiring the determination
will
2
<PAGE>
be taken. The transfer books may not be closed for a period longer than
twenty (20) days. In the case of a meeting of stockholders, the record date or
the closing of the stock transfer books shall be at least ten (10) days before
the date of the meeting.
Section 9. A majority of the votes cast at a meeting of stockholders,
duly called and at which a quorum is present, shall be sufficient to take or
authorize action upon any matter which may properly come before the meeting,
unless more than a majority of the votes cast is required by statute or by the
Articles of Incorporation.
Section 10. At all meetings of stockholders every stockholder of record
entitled to vote thereat shall be entitled to vote at such meeting either in
person or by proxy appointed by instrument in writing subscribed by such
stockholder or his duly authorized attorney. No proxy shall be valid after
eleven (11) months from its date, unless otherwise provided in the proxy. A
stockholder may authorize another person to act as proxy by transmitting or
authorizing the transmission of a telegram, cablegram, datagram or other means
of electronic transmission to the person authorized to act as proxy or to a
proxy solicitation firm or proxy support service organization, or other person
authorized by the person who will act as proxy to receive the transmission. A
copy, facsimile telecommunication or other reliable writing or transmission of a
proxy may be substituted for the original writing or transmission for any
purpose for which the original writing or transmission could be used. At all
meetings of stockholders, unless the voting is conducted by inspectors, all
questions relating to the qualification of voters and the validity of proxies
and the acceptance or rejection of votes shall be decided by the Chairman of the
meeting.
Section 11. At any meeting of stockholders at which Directors are to be
elected, the Board of Directors prior thereto may, or, if they have not so
acted, the Chairman of the meeting may, and upon the request of the holders of
ten percent (10%) of the stock entitled to vote at such meeting shall, appoint
two Inspectors of Election who shall first subscribe an oath or affirmation to
execute faithfully the duties of Inspectors at such election with strict
impartiality and according to the best of their ability, and shall after the
election make a certificate of the result of the vote taken. No candidate for
the office of Director shall be appointed such Inspector.
The Chairman of the meetings may cause a vote by ballot to be taken
upon any election or matter, and such vote shall be taken upon the request of
the holders of ten percent (10%) of the stock entitled to vote on such election
or matter.
Section 12. At all meetings of the stockholders, all proxies shall be
received and taken in charge of and all ballots shall be received and canvassed
by the Chairman of the meeting, who shall decide all questions touching the
qualification of voters, the validity of the proxies, and the acceptance or
rejection of votes, unless Inspectors of Election shall have been appointed as
provided in Section 11, in which event, such Inspectors of Election shall decide
all such questions.
3
<PAGE>
Section 13. Stockholders may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time. Participation
in a meeting by these means shall constitute presence in person at the meeting.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Except as otherwise provided by operation of law, by the
Articles of Incorporation, or by these Bylaws, the business and affairs of the
Corporation shall be managed under the direction of, and all powers of the
Corporation shall be exercised by or under the authority of, the Board of
Directors.
Section 2. By vote of a majority of the entire Board of Directors, the
number of Directors may be increased or decreased from time to time, but such
number shall not be less than three (3) nor more than twenty (20), and the
tenure of office of a Director shall not be affected by any decrease in the
number of Directors so made by the Board of Directors. Each Director shall hold
office until the annual meeting of stockholders of the Corporation next
succeeding his election and until his successor is duly elected and qualifies,
or until his earlier resignation, death or removal. Directors need not be
stockholders.
Section 3. Any vacancy occurring on the Board of Directors for any
cause other than by reason of an increase in the number of Directors may be
filled by a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum. Any vacancy occurring by reason of
an increase in the number of Directors may be filled by action of a majority of
the entire Board of Directors. A Director elected by the Board of Directors to
fill a vacancy shall be elected to hold office until the next annual meeting of
stockholders and until his successor is duly elected and qualifies, or until his
earlier resignation, death or removal. The Board may not elect any Director to
fill any vacancy as provided herein unless immediately after filling any such
vacancy at least two-thirds of the Directors then holding office shall be those
named in the Articles of Incorporation or shall have been elected to such office
at an annual or special meeting of stockholders. If at any time a majority of
the Directors in office shall consist of Directors elected by the Board of
Directors, a meeting of the stockholders shall be called forthwith, and in any
event within sixty (60) days, for the purpose of electing the entire Board of
Directors, and the terms of office of the Directors then in office shall
terminate upon the election and qualification of such Board of Directors.
Section 4. At any meeting of stockholders, duly called and at which a
quorum is present, the stockholders may, by the affirmative vote of the holders
of a majority of the votes
4
<PAGE>
entitled to be cast thereon, remove any Director or Directors from office and
may elect a successor or successors to fill any resulting vacancies for the
unexpired terms of the removed Directors.
Section 5. Regular meetings of the Board of Directors may be held at
any place in or out of the State of Maryland as the Board of Directors may from
time to time determine.
Section 6. Regular meetings of the Board of Directors may be held at
such time and place as shall from time to time be determined by the Board of
Directors.
Section 7. Special meetings of the Board may be called at any time by
the Chairman of the Board of Directors, if one be appointed, or by the executive
committee, if one be constituted, by vote at a meeting, or by the President or
by a majority of the Directors or by any Vice Chairman of the Board of
Directors. Special meetings may be held at such place or places within or
without Maryland as may be designated from time to time by the Board of
Directors; in the absence of such designation such meetings shall be held at
such places as may be designated in the call.
Section 8. Notice of the place and time of every meeting of the Board
of Directors shall be given to each Director orally or sent to him by telegraph,
facsimile or by mail, or left at his residence or usual place of business not
less than one (1) day before the date of the meeting. If mailed, such notice
shall be deemed to be given four (4) business days after deposited in the United
States mail addressed to the Director at his mailing address on the records of
the Corporation, with postage thereon prepaid.
Section 9. At any meeting of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the action of a majority of the Directors present at any meeting at
which a quorum is present shall be the action of the Board of Directors, unless
the concurrence of a greater proportion is required for such action by statute,
the Articles of Incorporation or these Bylaws. If a quorum shall not be present
at any meeting of Directors, the Directors present thereat may by a majority
vote adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 10. Members of the Board of Directors or any committee thereof
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting except any meeting to consider the
entry into or renewal of any contract or agreement whereby any person agrees to
serve as investment adviser or principal underwriter of the Corporation, or any
meeting to select an independent public accountant for the preparation of any of
the Corporation's financial statements.
5
<PAGE>
Section 11. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without a
meeting, if a written consent to such action is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
Section 12. The Board of Directors may appoint one of its members to
serve as Chairman of the Board of Directors, and may appoint one or more of its
members to serve as Vice Chairman of the Board of Directors. The Board of
Directors also may appoint from among its members an executive committee and
other committees composed of two or more Directors, and may delegate to such
committees, any of the powers of the Board of Directors except the power to
declare dividends or distributions on stock, recommend to the stockholders any
action which requires stockholder approval, amend the Bylaws, approve any merger
or share exchange which does not require stockholder approval or issue stock. In
the absence of any member of any such committee, the members thereof present at
any meeting, whether or not they constitute a quorum, may appoint a member of
the Board of Directors to act in the place of such absent member.
Section 13. Directors may receive such compensation for their services
as may be fixed from time to time by resolution of the Board, and, in addition,
may be reimbursed for reasonable expenses incurred in connection with the
discharge of their duties and responsibilities, including but not limited to
attendance at regular or special meetings of the Board or of any committee
thereof.
ARTICLE IV
NOTICES
Section 1. Notices to stockholders shall be in writing and delivered
personally or mailed to the stockholders at their mailing addresses appearing on
the books of the Corporation, or such notice may be left at the stockholder's
residence or usual place of business. Notice to stockholders by mail shall be
deemed to be given at the time the same shall be mailed.
Section 2. Whenever any notice of the time, place or purpose of any
meeting of stockholders, Directors or committee is required to be given under
the provisions of the statute or under the provisions of the Articles of
Incorporation or these Bylaws, a waiver thereof in writing, signed by the person
or persons entitled to such notice and filed with the records of the meeting,
whether before or after the holding thereof, or actual attendance at the meeting
of stockholders in person or by proxy, or at the meeting of Directors or
committee in person, shall be deemed equivalent to the giving of such notice to
such persons.
6
<PAGE>
ARTICLE V
OFFICERS
Section 1. The executive officers of the Corporation shall be chosen by
the Board of Directors as soon as may be practicable after the annual meeting of
stockholders. Such officers shall include a President, one or more Vice
Presidents, a Secretary and a Treasurer. The Board of Directors may also in its
discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the executive committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by statute or these Bylaws to be
executed, acknowledged or verified by two or more officers.
Section 2. The term of office of all officers shall be one year and
until their respective successors are chosen and qualify, or until their earlier
resignation, death or removal. Any officer may be removed from office at any
time by the vote of a majority of the entire Board of Directors upon a finding
that removal is in the best interest of the Corporation.
Section 3. The officers of the Corporation shall have such powers and
duties as generally pertain to their respective offices, as well as such powers
and duties as may from time to time be conferred by the Board of Directors or
the executive committee, if any.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. Shares of the stock of the Corporation may be issued without
certificates or, if directed by the Board of Directors, be issued in the form of
a certificate or certificates which shall represent and certify the number and
kind of class of shares owned by a stockholder in the Corporation. Any such
certificate shall be in such form as the Board of Directors may from time to
time prescribe.
Section 2. Shares of the stock of the Corporation shall be transferable
on the books of the Corporation by the holder thereof in person or by his duly
authorized attorney or legal representative, upon surrender and cancellation of
certificates, if any, for the same number of
7
<PAGE>
shares, duly endorsed or accompanied by proper instruments of assignment and
transfer, with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require; in the case of shares not
represented by certificates, the same or similar requirements may be imposed
by the Board of Directors.
Section 3. The stock ledgers of the Corporation, containing the name
and mailing address of the stockholders and the numbers of shares held by them
respectively, shall be kept at the principal offices of the Corporation or, if
the Corporation employs a transfer agent, at the offices of the transfer agent
of the Corporation.
Section 4. The Board of Directors may determine the conditions upon
which a new certificate of stock of the Corporation of any class may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in their discretion, require the owner of such certificate
or his legal representative to give bond, with sufficient surety to the
Corporation and the transfer agent, if any, to indemnify it and such transfer
agent, if any, against any and all loss or claims which may arise by reason of
the issue of a new certificate in the place of the one so lost, stolen or
destroyed.
ARTICLE VII
CUSTODIANSHIP
All cash and securities owned by the Corporation shall be held by a
bank or trust company of good standing, having a capital, surplus and undivided
profits aggregating not less than two million dollars ($2,000,000), provided
such a bank or trust company can be found and ready and willing to act. Upon the
resignation or inability to serve of any such bank or trust company the
Corporation shall (i) use its best efforts to obtain a qualified successor, (ii)
require the cash and securities of the Corporation held by such bank or trust
company to be delivered directly to the successor, and (iii) in the event that
no qualified successor can be found, submit to the holders of the shares of the
capital stock of the Corporation at the time outstanding and entitled to vote,
before permitting delivery of such cash and securities to anyone other than a
qualified successor, the question whether the Corporation shall be dissolved and
liquidated or shall function without a qualified bank or trust company to hold
such cash and securities. Upon such resignation or inability to service, such
bank or trust company may deliver any assets of the Corporation held by it to a
qualified bank or trust company selected by it, such assets to be held subject
to the terms of the agreement which governed such retiring bank or trust
company, pending action by the Corporation as set forth in this Article. Nothing
herein contained, however, shall prevent the termination of any agreement
between the Corporation and any such bank or trust company by the Corporation at
the discretion of the Board of Directors, and any
8
<PAGE>
such agreement shall be terminated upon the affirmative vote of the holders of a
majority of all the shares of the capital stock of the Corporation at the time
outstanding and entitled to vote.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Articles of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting or by unanimous written
consent, pursuant to law.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or the equalizing of dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interests of the
Corporation, and the Directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. All checks, drafts, and orders for the payment of money,
notes and other evidences of indebtedness, issued in the name of the Corporation
shall be signed by such officer or officers as the Board of Directors may from
time to time designate.
Section 4. The fiscal year of the Corporation shall be twelve calendar
months ending on June 30, except as otherwise established by the Board of
Directors.
Section 5. The corporate seal shall have inscribed thereon the name of
the Corporation, the year of its organization and the words "Corporate Seal,
Maryland." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
ARTICLE IX
CODE OF ETHICS
The Corporation and its Directors and its officers shall conduct the
Corporation's business and themselves in conformity with the Corporation's Code
of Ethics. The Code of Ethics adopted by the Corporation pursuant to Section 17
of the Investment Company Act of
9
<PAGE>
1940, as amended, and Rule 17-1(b)(1) thereunder, shall be made available to all
employees and affiliates of the Corporation. The Code may only be changed by a
majority vote of the Board of Directors.
10
<PAGE>
ARTICLE X
AMENDMENTS
Section 1. The Board of Directors, by a vote of a majority of all of
its members, shall have the power, at any regular meeting or at any special
meeting, if notice thereof be included in the notice of such special meeting, to
alter, amend or repeal any Bylaws of the Corporation and to make new Bylaws,
except that the Board of Directors shall not alter or repeal any Bylaws made by
the stockholders.
Section 2. The holders of a majority of the shares of the capital stock
of the Corporation at the time outstanding and entitled to vote shall have the
power, at any annual meeting or at any special meeting, if notice thereof be
included in the notice of such special meeting, to alter, amend or repeal any
Bylaws of the Corporation or to make new Bylaws.
11
<PAGE>
INVESTMENT ADVISORY AGREEMENT
BETWEEN
USLIFE INCOME FUND, INC.
AND
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
AGREEMENT made this 24th day of September, 1997 by and between USLIFE
Income Fund, Inc., a Maryland corporation registered under the Investment
Company Act of 1940, as amended, as a closed-end management investment company
("Fund"), and The Variable Annuity Life Insurance Company, a Texas life
insurance company (the "Adviser").
1. Subject to the supervision of the Fund's Board of Directors, the
Adviser will provide the Fund with an investment program complying with the
investment objectives, policies and restrictions of the Fund and, in carrying
out such program, will be responsible for the investment and reinvestment of the
Fund's assets. The Adviser will maintain a trading desk and place all orders for
the purchase and sale of portfolio investments for the Fund's account with
brokers or dealers selected by the Adviser, or arrange for any other entity to
provide a trading desk and to place orders with brokers and dealers selected by
the Adviser, subject to the Adviser's control, direction and supervision.
The Adviser will perform and bear the cost of research, statistical
analysis and continuous supervision of the Fund's investment portfolio. At its
own expense, the Adviser will also (i) furnish to the Fund office space and all
ordinary and necessary office facilities, equipment and personnel for managing
the affairs of the Fund and (ii) bear the cost of fees, salaries or other
remuneration of directors and officers of the Fund who also serve as directors,
officers or employees of the Adviser or any of its affiliated companies;
provided, that the Fund will bear the remuneration and other expenses
attributable to the offices of the Fund's Secretary and Treasurer and personnel
operating under their direction in an amount not more than $50,000 per year.
2. It is understood that the Fund will pay all its expenses other than
those expressly stated to be payable by the Adviser hereunder, which expenses
payable by the Fund shall include, without limitation, interest charges, taxes,
fees and commissions of every kind, expenses of issue, sale, repurchase, or
reissue of shares, expenses of registering or qualifying shares for sale, proxy
solicitation fees, charges of custodians (including sums as custodian and for
keeping books and similar services to the Fund), transfer agents (including the
printing and mailing of reports and notices to shareholders), registrars,
auditing and legal services and salaries, fees or other remuneration of persons
who are not officers, directors or employees of the Adviser or any of its
affiliated companies, and other expenses not expressly assumed by the Adviser
hereunder.
3. For the services furnished by the Adviser hereunder, the Fund shall
pay the Adviser as soon as practicable after the last day of each month, an
amount equal to (i) .04167% of the net asset value of the Fund less net
investment income for such month as of the close of business on the last
business day in the month plus (ii) 2.5% of the sum of (a) the Fund's dividend
and interest income minus (b) interest on borrowed funds during such month;
provided, however, that if expenses
<PAGE>
borne by the Fund (including fees payable to the Adviser hereunder but excluding
interest, taxes, brokerage fees and, where permitted, extraordinary expenses) in
any fiscal year exceed expense limitations imposed by state securities
administrators, as the same shall be applicable from time to time, the Adviser
shall reimburse such excess to the Fund.
The Adviser shall promptly reduce its monthly fee hereunder by the
amount of any commissions, tender and exchange offer solicitation fees, other
fees, or similar payments received by the Adviser, or any affiliated person of
the Adviser, in connection with any of the Fund's portfolio transactions, less
the amount of any direct expenses incurred by the Adviser or any affiliated
person of the Adviser, in obtaining such commissions, fees, or payments.
For the purpose of computing this fee the net asset value will be
calculated in accordance with generally accepted accounting principles and,
hence, will be on an accrual basis. Dividend and interest income is defined as
the net income of the Fund calculated in accordance with generally accepted
accounting principles but will exclude (a) amortization of premiums or accrual
of discounts except for original issue discounts which will be accrued
consistent with Federal Income Tax Regulations, and (b) capital gains or losses.
Consistent with accrual accounting principles, expenses incurred but
not paid and interest and dividend income earned but not received will be
accrued in arriving at income for fee purposes.
4. With respect to the period immediately following the commencement of
this Agreement and in case of termination of this Agreement during any month,
the fee for that month payable in accordance with item (i) of paragraph 3 shall
be prorated on the basis of the number of calendar days during which it is in
effect.
5. The Adviser shall, during the term of this Agreement, be entitled to
render investment advisory services to others, including without limitation,
other investment companies with similar objectives to those of the Fund. The
Adviser may, when it deems such to be advisable, 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.
In such event, the Adviser shall allocate the shares so purchased or sold, as
well as the expense incurred in the transaction, in the manner it considers to
be most equitable and consistent with its fiduciary obligations to the Fund and
the Adviser's other customers.
Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Adviser who may also be a director, officer
or employee of the Fund to engage in any other business or to devote his time
and attention in part to the management or other aspects of any other business,
whether of a similar nature or a dissimilar nature.
6. In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the part of the
Adviser, the Adviser shall not be subject to liability to the Fund or to any
shareholder of the Fund for any act or omission in the course
2
<PAGE>
of, or connected with, rendering services hereunder or for any losses that may
be sustained in the purchase, holding or sale of any security.
7. The Adviser shall provide for the placement of orders for the
purchase and sale of portfolio securities for the Fund. In connection therewith,
the Adviser shall use its best efforts to obtain for the Fund the most favorable
overall price and execution. The Adviser shall also use its best efforts to
obtain for the Fund any tender and exchange offer solicitation fees, other fees,
and similar payments available in connection with the portfolio transactions of
the Fund. Subject to prior authorization by the Fund's Board of Directors of
appropriate policies and procedures, the Adviser may cause the Fund to pay to 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 the Adviser. The Adviser shall not be deemed to have acted
unlawfully, or to have breached any duty created by this Agreement or otherwise,
solely by reason of acting according to such authorization.
In connection with purchases or sales of securities for the investment
portfolio of the Fund, neither the Adviser nor its officers or employees will
act as a principal or agent for any party other than the Fund or receive any
commissions. The Adviser will comply with all applicable laws in acting
hereunder including, without limitation, the 1940 Act; the Investment Advisers
Act of 1940, as amended; and all rules and regulations promulgated under the
foregoing.
8. The Adviser shall maintain records adequately demonstrating
compliance with its obligations under this Agreement and shall report
periodically to the Fund's Board of Directors regarding the performance of
services under this Agreement.
9. In connection with the rendering of the services required to be
provided by the Adviser under this Agreement, the Adviser may, to the extent it
deems appropriate and subject to compliance with the requirements of applicable
laws and regulations, make use of its affiliated companies and their employees;
provided that the Adviser shall supervise and remain fully responsible for all
such services in accordance with and to the extent provided by this Agreement
and that all costs and expenses associated with the providing of services by any
such companies or employees and required by this Agreement to be borne by the
Adviser shall be borne by the Adviser or its affiliated companies.
10. This Agreement shall become effective as of the date it is approved
by a majority of the outstanding voting securities of the Fund, and unless
sooner terminated as hereinafter provided, shall remain in force for an initial
term of two years from the date of execution, and from year to year thereafter,
but only as long as such continuance is specifically approved at least annually
(i) by a vote of a majority of the outstanding voting securities of the Fund or
by the Directors of the Fund, and (ii) by a majority of the Directors of the
Fund who are not interested persons of the Adviser, cast in person at a meeting
called for the purpose of voting on such approval.
3
<PAGE>
11. This Agreement may be terminated by the Board of Directors of the
Fund, the vote of a majority of the outstanding voting securities of the Fund or
by the Adviser, on not more than 60 nor less than 30 days prior written notice,
without the payment of any penalty,. This Agreement shall terminate immediately
in the event of its assignment, unless an order is issued by the Securities and
Exchange Commission ("SEC") conditionally or unconditionally exempting such
assignment from the provisions of Section 15(a) of the 1940 Act, in which event
his Agreement shall remain in full force and effect subject to the terms and
provisions of said order. In interpreting the provisions of this paragraph 9,
the definitions contained in Section 2(a) of the 1940 Act and the applicable
rules under the 1940 Act (particularly the definitions of "interested person,"
"assignment," and "vote of a majority of the outstanding voting securities")
shall be applied.
12. This Agreement shall be interpreted in accordance with applicable
federal securities laws and provisions, including definitions therein and such
exemptions as may be granted to the Adviser or the Fund by the SEC or such
interpretative positions as may be taken by the SEC or its staff. To the extent
that the applicable law of the State of Texas, or any of the provisions herein
shall conflict with applicable provisions of the federal securities laws, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as of the
date first above written.
USLIFE Income Fund, Inc.
Attest: /s/ Cynthia Toles By: /s/ Norman Jaskol
------------------- ---------------------------------
President
The Variable Annuity Life Insurance Company.
Attest: /s/ Cynthia Toles By: /s/ Thomas R. West, Jr.
------------------- ----------------------------------
President
4
<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
<TABLE>
<S> <C>
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14-12
</TABLE>
USLIFE Income Fund, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction
applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
---------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
---------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
---------------------------------------------------------------
(3) Filing Party:
---------------------------------------------------------------
(4) Date Filed:
---------------------------------------------------------------
<PAGE>
USLIFE INCOME FUND, INC.
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 24, 1997
TO THE SHAREHOLDERS:
An annual meeting of the shareholders of USLIFE Income Fund, Inc. ("Fund")
will be held at the principal executive offices of The Variable Annuity Life
Insurance Company ("VALIC"), 2929 Allen Parkway, Houston, Texas 77019, on
September 24, 1997 at 11:00 a.m., Central time for the following purposes:
1. To approve an interim investment advisory agreement between the Fund and
USLIFE Advisers, Inc.;
2. To approve a new investment advisory agreement between the Fund and The
Variable Annuity Life Insurance Company;
3. To elect six (6) directors to hold office until their successors are
elected and qualified;
4. To ratify the selection of KPMG Peat Marwick LLP as independent auditor
of the Fund for the fiscal year ending June 30, 1998;
5. To amend the fundamental investment restriction prohibiting the Fund
from investing in foreign securities to permit the Fund to invest up to
20% of its net assets in foreign securities; and
6. To transact such other business as may properly come before the meeting
or any adjournments thereof.
You will be entitled to notice of, and to vote at, the meeting and any
adjournments thereof, if you owned shares of the Fund at the close of business
on August 6, 1997. IF YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN
PERSON. IF YOU DO NOT EXPECT TO ATTEND THE MEETING PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
By Order of the Board of Directors
/s/ NORMAN JASKOL
Norman Jaskol
President
August 15, 1997
2929 Allen Parkway
Houston, Texas 77019
<PAGE>
USLIFE INCOME FUND, INC.
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
----------------------------------------------------------------
PROXY STATEMENT
----------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors ("Board") of USLIFE Income
Fund, Inc. ("Fund") for use at the Annual Meeting ("Meeting") of the Fund's
shareholders on September 24, 1997. This meeting is being held to, among other
things, reflect and effectuate changes caused by the merger of USLIFE
Corporation ("USLIFE"), parent of the Fund's investment adviser, into and with a
wholly-owned subsidiary of American General Corporation ("American General"),
effective June 17, 1997. The Meeting will be held at the principal executive
offices of The Variable Annuity Life Insurance Company ("VALIC"), an indirect
wholly-owned subsidiary of American General, at 2929 Allen Parkway, Houston,
Texas 77019, at 11:00 a.m. Central time, for the purposes set forth in the
Notice of Meeting.
The Fund's shareholders of record as of the close of business on August 6,
1997 ("Record Date"), are entitled to notice of and to vote at the Meeting and
any adjournment thereof. Each full share outstanding is entitled to one vote,
and each fractional share outstanding is entitled to the corresponding
proportion of one vote, with respect to each matter voted upon by the
shareholders of the Fund. As of the Record Date, the Fund had 5,643,768 shares
issued and outstanding. To the knowledge of the Fund's management, no officer,
director or nominee of the Fund beneficially owned, individually or as a group,
more than 1% of the outstanding shares of the Fund, and no person owned
beneficially 5% or more of the outstanding shares of the Fund as of that date.
All costs associated with the Meeting, including the solicitation of
proxies, will be borne by USLIFE Advisers, Inc., the Fund's investment adviser
("Adviser"). The solicitation of proxies will be made primarily by mail but also
may be made by telephone and/or personal contact by directors and officers of
the Fund and by regular employees of USLIFE or its affiliates. The Fund may also
retain the services of Georgeson & Co. Inc., whose fees and expenses, which are
anticipated to approximate $19,500, will be borne by VALIC.
The individuals named as proxies on the enclosed proxy card will vote in
accordance with your directions as indicated thereon if your proxy is received
properly executed by you or by your duly appointed agent or attorney-in-fact. If
you properly execute your proxy card and give no voting instructions, your
shares will be voted in favor of the proposals described in this Proxy
Statement. You may revoke your proxy at any time
<PAGE>
prior to its exercise at the Meeting by written notice to the Fund, by execution
of a subsequent proxy or by voting in person at the Meeting.
A quorum of a majority of the Fund's issued and outstanding voting shares
as of the close of business on the Record Date represented in person or by
proxy, must be present for the transaction of business at the Meeting. In the
absence of a quorum or in the event that a quorum is present at the meeting but
sufficient votes to approve the proposals are not received, the persons named as
proxies may propose one or more adjournments of the Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative vote
of those shares represented at the Meeting in person or by proxy. If a quorum is
present, the persons named as proxies will vote those proxies which they are
entitled to vote FOR the proposal in favor of such an adjournment, and will vote
those proxies required to be voted AGAINST any such proposal against such
adjournment.
If a shareholder participates in the Fund's Automatic Dividend Investment
Plan ("Plan") and holds shares in his or her name in addition to the shares held
in custody for the shareholder pursuant to the Plan, the proxy to vote shares
registered in the shareholder's name will serve as instructions for voting
shares held in custody for the shareholder pursuant to the Plan. If a
shareholder does not send a proxy to vote the shares registered in his or her
name, the shares held for the shareholder's account in the Plan will not be
voted.
Broker non-votes are shares held in street name for which the broker
indicates that instructions have not been received from the beneficial owners or
other persons entitled to vote and the broker does not have discretionary voting
authority. Abstentions and broker non-votes will be counted as shares present
for purposes of determining whether a quorum is present but will not be voted
for or against any adjournment or proposal. Abstentions and broker non-votes
also will not be counted as votes cast for purposes of determining whether
sufficient votes have been received to approve a proposal. Accordingly,
abstentions and broker non-votes effectively will be a vote against adjournment
or against any proposal where the required vote is a percentage of the shares
present.
The Notice and Proxy Statement are being mailed to shareholders on or about
August 15, 1997.
-2-
<PAGE>
BACKGROUND
USLIFE Advisers, Inc. ("Adviser"), has 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, the parent company of the Adviser, USLIFE Corporation ("USLIFE"), merged
with and into a wholly-owned subsidiary of American General Corporation
("American General") and the Adviser became an indirect, wholly-owned subsidiary
of American General. For purposes of the Investment Company Act of 1940, as
amended ("1940 Act"), this merger ("Merger") caused a change of control of the
Adviser that constituted an assignment and thereby effected an automatic
termination of the Advisory Agreement on June 17, 1997.
To provide for continuity in connection with the provision of investment
advisory services to the Fund, the Board of Directors of the Fund ("Board") has
approved, subject to shareholder approval, an interim investment advisory
agreement between the Fund and the Adviser ("Interim Advisory Agreement")
pursuant to which the Adviser will provide investment advisory services to the
Fund from the date of the Merger, June 17, 1997, until the date of the Meeting,
September 24, 1997. As the result of the Merger, it is the intention of American
General to consolidate the investment advisory functions performed by the
Adviser with those of The Variable Annuity Life Insurance Company ("VALIC"), an
indirect wholly-owned subsidiary of American General, and to terminate the
Adviser's existence. The Board has therefore also approved, and has recommended
that the shareholders of the Fund approve, a new investment advisory agreement
("New Advisory Agreement") with VALIC, which provides that VALIC shall provide
investment advisory services 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, as described further below.
Accordingly, Proposal 1 requests shareholder ratification and approval of the
Interim Advisory Agreement and Proposal 2 requests shareholder ratification and
approval of the New Advisory Agreement.
PROPOSAL 1
TO APPROVE THE INTERIM INVESTMENT ADVISORY AGREEMENT
BETWEEN THE FUND AND USLIFE ADVISERS, INC.
THE ADVISORY AGREEMENT
Under the Advisory Agreement, the Adviser has provided an investment
program for the Fund and has been responsible for the investment and
reinvestment of the Fund's assets, including the placement of orders for the
purchase and sale of portfolio securities. With respect to the placement of
purchase and sale orders for portfolio securities, the Advisory Agreement
provided for the Adviser to obtain the best price and execution of each
transaction. Under the Advisory Agreement, the Adviser has, at its own expense,
performed research, statistical analysis and continuous supervision of the
Fund's investment portfolio and has furnished office space, equipment and
personnel for
-3-
<PAGE>
managing the day-to-day operations of the Fund. In accordance with the Advisory
Agreement, the Adviser has borne the cost of the fees, salaries and other
remuneration of directors and officers of the Fund who also serve as directors,
officers or employees of the Adviser. However, the Fund has paid the
compensation and expenses attributable to the Fund's Secretary and Treasurer and
personnel operating under their direction, regardless of their affiliation with
the Adviser, in an amount of up to $50,000 per year.
As compensation for the Adviser's services under the Advisory Agreement,
the Fund paid the Adviser, each month, an amount equal to: (i) .04167% of the
net asset value of the Fund less net investment income for such month as of the
close of business on the last business day of the month; plus (ii) 2.5% of the
sum of (a) the Fund's dividend and interest income; minus (b) interest on
borrowed funds during such month. In the event that fees payable to the Adviser
under the Agreement, excluding interest, taxes, brokerage fees and extraordinary
expenses, in any fiscal year exceeded expense limitations imposed by a state
securities administrator, the Adviser agreed to reimburse the Fund any such
extra amount. For purposes of computing the advisory fee, the net asset value
was calculated on an accrual basis in accordance with generally accepted
accounting principles ("GAAP"). Dividend and interest income was defined as the
net income of the Fund calculated in accordance with GAAP, but excluded: (i)
amortization of premiums or accrual of discounts except for original issue
discounts which were to be accrued consistent with federal income tax
regulations; and (ii) capital gains or losses. Advisory fees were payable as
soon as practicable after the last day of each month. For the Fund's fiscal year
ended June 30, 1997, the Fund paid the Adviser advisory fees in the amount of
$385,982.
The Advisory Agreement provided that the Adviser would not be liable to the
Fund, or any Fund shareholder, for any act or failure to act in connection with
the rendering of services under the Advisory Agreement or for any losses that
may be sustained in the purchase, holding or sale of any security in the absence
of wilful misfeasance, bad faith, gross negligence, or reckless disregard of
obligations or duties by the Adviser. By its terms, the Advisory Agreement
terminated automatically unless its continuance was approved annually (i) by the
vote of a majority of the directors who are not parties to the Agreement or
interested persons within the meaning of the 1940 Act, of any such party
("Independent Directors") or by (ii) the vote of the holders of a majority of
the outstanding voting securities of the Fund. The Advisory Agreement also was
terminable without penalty, by either party upon 60 days' written notice.
Termination had to be authorized by the Board or by the vote of a majority of
the outstanding voting securities of the Fund. The Advisory Agreement terminated
automatically on June 17, 1997, by operation of law upon its assignment.
The Advisory Agreement was initially approved by the Fund's shareholders on
August 4, 1976. The Board, consisting only of Independent Directors, most
recently approved the continuance of the Advisory Agreement on May 8, 1996.
-4-
<PAGE>
SEC EXEMPTIVE ORDER
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 approval) requested the Securities and Exchange
Commission ("SEC") to grant exemptive relief from this requirement for prior
shareholder approval, to allow the Fund to enter into the Interim Advisory
Agreement with the Adviser, 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
Fund filed its application for exemptive relief on May 12, 1997, the SEC
published notice of the requested relief on May 16, 1997, and the SEC granted
the requested relief by order on June 11, 1997.
THE INTERIM ADVISORY AGREEMENT
On May 14, 1997, the Board, including a majority of the Independent
Directors, approved the Interim Advisory Agreement subject to shareholder
approval. The terms and conditions of the Interim Advisory Agreement are
identical to the terms and conditions of the Advisory Agreement, except as to
the effective and termination dates and with the addition of escrow provisions
described below. Under the Interim Advisory Agreement, the Adviser is entitled
to receive advisory fees that are identical to the fees the Adviser received
under the Advisory Agreement. The duties that the Adviser is required to perform
under the Interim Advisory Agreement are identical to those performed by the
Adviser under the Advisory Agreement. Accordingly, the Fund is currently
receiving the same advisory services at the same fee levels under the Interim
Advisory Agreement as it received under the Advisory Agreement.
In no event will fees be paid to the Adviser under the Interim Advisory
Agreement unless that Agreement is approved by shareholders at the Meeting. The
escrow provisions of the Interim Advisory Agreement provide for the Fund to pay
advisory fees to an escrow agent, pending shareholder approval of the Interim
Advisory Agreement. If approved by shareholders, the advisory fees held in the
escrow account (including interest earned on such paid-in fees) will be paid to
the Adviser. In the absence of such shareholder approval, amounts in the escrow
account will be paid to the Fund. The Fund has entered into an escrow
arrangement with The Chase Manhattan Bank, as escrow agent, to implement the
escrow provisions of the Interim Advisory Agreement.
A copy of the Interim Advisory Agreement is attached to this Proxy
Statement as Exhibit A.
USLIFE ADVISERS, INC.
USLIFE Advisers, Inc., the Fund's investment adviser, is a New York
corporation organized in 1972. As of June 17, 1997, its principal business
address is 2929 Allen Parkway, Houston, Texas 77019. The Adviser is a
wholly-owned subsidiary of USLIFE, a New York corporation located at 125 Maiden
Lane, New York, NY 10038. As a result
-5-
<PAGE>
of the Merger, USLIFE became a wholly-owned subsidiary of American General,
located at 2929 Allen Parkway, Houston, Texas 77019. American General was
incorporated as a business corporation in Texas in 1980 and is the successor to
American General Insurance Company, an insurance company organized in Texas in
1926. American General is one of the nation's largest diversified financial
services organizations. American General's operating subsidiaries are leading
providers of retirement services, consumer loans and life insurance.
The directors and principal executive officers of the Adviser, since June
17, 1997, are listed below. Norman Jaskol, the Chairman of the Board, President,
and Chief Executive Officer of the Adviser, also serves as President of the
Fund. The business address of each director and the principal executive officer
of the Adviser is 2929 Allen Parkway, Houston, Texas 77019. The prior directors
and principal executive officers of the Adviser resigned, effective June 17,
1997, in connection with the Merger.
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS
OF USLIFE ADVISERS, INC.
<TABLE>
<CAPTION>
NAME AND POSITION(S) HELD PRINCIPAL OCCUPATION(S)
ADDRESS WITH ADVISER DURING PAST 5 YEARS
- - --------------- ------------------------- -----------------------------------------------
<S> <C> <C>
Craig R. Rodby Director, since 6/17/97 VALIC, Vice Chairman of the Board of Directors,
since April 1997; ReliaStar Financial Corp.,
Senior Vice President -- Financial Management,
1994-97; Northern Life Insurance Company (a
division of ReliaStar), President and CEO,
1990-94.
Norman Jaskol Chairman of the Board of USLIFE Income Fund, Inc., President, since June
Directors, President and 1997; VALIC, Vice President and Managing
Chief Executive Officer, Director -- Investments, since 1988; American
since 6/17/97 General Series Portfolio Company (investment
company), Vice President and Senior Investment
Officer, since 1988.
Peter V. Tuters Director, since 6/17/97 VALIC, Vice President, Chief Investment Officer
and Director, since 1993; American General,
Senior Vice President, since 1992 and Chief
Investment Officer, since 1993; American
General Series Portfolio Company (investment
company), Director, since 1993.
</TABLE>
The Adviser does not serve as investment adviser or investment sub-adviser
to any investment companies with similar investment objectives to the Fund.
-6-
<PAGE>
1940 ACT REQUIREMENTS
In connection with the Merger and the resulting change in the ownership of
the Adviser, affiliates of the Adviser may be deemed to have received a benefit.
Section 15(f) of the 1940 Act provides that when a change in control of an
investment adviser occurs that results in an assignment of the adviser's
investment advisory agreement with an investment company, the investment adviser
or any of its affiliated persons may receive any amount or benefit in connection
therewith as long as two conditions are satisfied. First, there can be no
"unfair burden" imposed on the investment company as a result of the transaction
relating to the change of control, or any express or implied terms, conditions
or understandings applicable to the transaction. The term "unfair burden," as
defined in the 1940 Act includes any arrangement during the two-year period
after the change in control whereby an investment adviser, (or predecessor or
successor adviser), or any interested person of any such adviser, receives or is
entitled to receive any compensation directly or indirectly, from the investment
company or its shareholders (other than fees for bona fide investment advisory
or other services) or from any person in connection with the purchase or sale of
securities or other property to, from, or on behalf of the investment company
(other than fees for bona fide principal underwriting services). No such
compensation arrangements with the Fund have occurred or are contemplated in
connection with the Merger.
The second condition is that during the three-year period immediately
following consummation of the transaction, at least 75% of the investment
company's board of directors must not be "interested persons" of the adviser or
predecessor adviser within the meaning of the 1940 Act. As a result of this
requirement, all "interested persons" of the Adviser who previously sat on the
Fund's Board resigned on June 18, 1997, and the remaining five members all are
independent of the Adviser and any of its affiliates. In addition, five of the
six members of the Board (or 83%) proposed for election in Proposal 3, below,
are not "interested persons" as defined in the 1940 Act. The sixth, Craig R.
Rodby, also serves as Vice Chairman of VALIC and, therefore, is an "interested
person" of VALIC.
BOARD CONSIDERATION OF THE INTERIM ADVISORY AGREEMENT
At a meeting held on May 14, 1997, the directors, including a majority of
the Independent Directors, approved the Interim Advisory Agreement and
recommended that the Interim Advisory Agreement be submitted to Fund
shareholders for approval. The directors approved the Interim Advisory Agreement
because they believed that continuing the Fund's arrangement with the Adviser
during the interim period would permit the Fund to operate prior to shareholder
approval. The factors that the Board considered most important were continuity
in both the level of management services provided and the level of the advisory
fees charged, including the fact that the advisory fees would be held in escrow
pending shareholder approval.
On July 2, 1997, additionally, the Board, consisting only of Independent
Directors, determined that there would be no diminution in the scope or quality
of the services provided by the Adviser under the Interim Advisory Agreement in
connection with the change in advisory personnel resulting from the change in
the ownership of the Adviser.
-7-
<PAGE>
Among other things, the Board considered the experience of the new officers and
directors of Adviser and recognized that the portfolio manager for the Fund
would be retained as consultant under the Interim Advisory Agreement, until
September 24, 1997.
REQUIRED VOTE
Approval of the Interim Advisory Agreement requires the affirmative vote of
the holders of the lesser of: (i) 67% of the shares of the Fund present at the
Meeting, if the holders of more than 50% of the outstanding shares are present
or represented by proxy at the Meeting; or (ii) more than 50% of the outstanding
shares of the Fund entitled to vote at the Meeting. If the Interim Advisory
Agreement is not approved, the advisory fees paid thereunder during the interim
period will revert to the Fund, and the Board will take such actions as it deems
appropriate.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S SHAREHOLDERS VOTE "FOR"
THE INTERIM ADVISORY AGREEMENT
PROPOSAL 2
TO APPROVE THE NEW INVESTMENT ADVISORY AGREEMENT
BETWEEN THE FUND AND THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY
THE NEW ADVISORY AGREEMENT
As the result of the Merger, it is American General's intention to
consolidate the investment advisory functions of the Adviser with those of
VALIC, and to terminate the Adviser's existence. It is therefore necessary to
enter into the New Advisory Agreement with VALIC to provide for the continuation
of investment advisory services to the Fund. The terms and conditions of the New
Advisory Agreement are substantially similar to the terms and conditions of the
Advisory Agreement. Under the New Advisory Agreement, VALIC would provide the
same investment advisory services provided by the Adviser under the Advisory
Agreement with the same advisory fee structure.
The New Advisory Agreement also contains certain additional provisions not
contained in the 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 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 available 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
-8-
<PAGE>
best execution and lower brokerage commissions, provided that VALIC allocates
the shares and expenses in an equitable manner.
The New Advisory Agreement differs from the Advisory Agreement in certain
other respects as well. Subject to prior authorization by the Fund's Board of
Directors 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 would authorize 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.
If the New Advisory Agreement is approved by shareholders, it will become
effective immediately for an initial two-year period. Thereafter, the New
Advisory Agreement will continue in effect for successive periods of up to one
year, provided that such continuance is specifically approved at least annually
by the Board, including a majority of the Independent Directors, or by a vote of
a majority of the outstanding shares of the Fund. If the New Advisory Agreement
is not approved by shareholders at the Meeting, the Board intends to continue
the interim relationship with the Adviser until it is able to evaluate and
obtain necessary approval of alternative advisory arrangements.
A copy of the New Advisory Agreement is attached to this Proxy Statement as
Exhibit B.
EVALUATION BY THE BOARD OF DIRECTORS
At a meeting held on July 2, 1997, the Board, consisting only of
Independent Directors, approved the New Advisory Agreement and recommended that
it be submitted to the shareholders for their approval, to become effective on
September 24, 1997.
In evaluating the New Advisory Agreement and deciding to approve it and
submit it to shareholders, the Board has determined that continuity and
efficiency of advisory services after the Merger can best be assured by
approving the New Advisory Agreement on behalf of the Fund. The Board believes
that the New Advisory Agreement will enable the Fund to obtain high-quality
services at costs which it deems appropriate and reasonable and that approval of
the New Advisory Agreement is in the best interests of the Fund and its
shareholders.
In connection with the review of the New Advisory Agreement, the Board
requested and reviewed, with the assistance of its own legal counsel, materials
furnished by VALIC. These materials included financial statements as well as
other written information regarding VALIC and its personnel, operations and
financial condition.
-9-
<PAGE>
In approving the New Advisory Agreement, the Board focused primarily on the
nature, quality and scope of the services provided to date to the Fund by the
Adviser, which will continue to be provided by VALIC after the Meeting under the
New Advisory Agreement with no change in fees, and the fact that the New
Advisory Agreement, including the terms relating to the services to be performed
thereunder by VALIC and the expenses and fees payable by the Fund, are
substantially identical to the Advisory Agreement. In connection with these
primary considerations, comparisons were made between the New Advisory Agreement
and similar arrangements by other investment companies, particularly with regard
to levels of fees, and the benefits to VALIC of its relationship with the Fund
as the result of the Merger. In addition, the Board considered VALIC's
investment advisory experience in managing the American General Series Portfolio
Company ("AGSPC") mutual funds, the positive performance of the AGSPC mutual
funds with investment objectives similar to those of the Fund under VALIC's
management, and the qualifications of VALIC advisory personnel, as well as the
commitment of VALIC to maintain and enhance the services provided to the Fund by
it.
In addition to the foregoing primary considerations, the Board considered
the fact that the Adviser will no longer be in existence and compared VALIC's
overall experience and reputation. In connection with these considerations, the
Board considered the possible alternatives to approval of the New Advisory
Agreement.
Based upon its review of the above factors, the Board concluded that the
New Advisory Agreement is in the best interests of the Fund and its
shareholders.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
VALIC is a stock life insurance company that was organized on May 1, 1969
under the Texas Insurance Code, as the successor to The Variable Annuity Life
Insurance Company of America, a District of Columbia insurance company organized
in 1955. VALIC has been in the investment advisory business since 1960 and has
rendered investment advisory services to the AGSPC mutual funds since 1985.
VALIC is primarily engaged, however, in offering fixed and variable retirement
annuity contracts (and combinations thereof).
VALIC is wholly-owned by American General Life Insurance Company, which is
itself a wholly-owned subsidiary of AGC Life Insurance Company, a wholly-owned
subsidiary of American General. VALIC, American General, AGC Life Insurance
Company and American General Life Insurance Company are located at 2929 Allen
Parkway, Houston, Texas 77019.
Listed below are VALIC's directors and principal executive officers and
their principal occupations. VALIC's directors and its principal executive
officers are currently neither officers, directors nor shareholders of the Fund,
although Craig R. Rodby is standing for election to the Board of the Fund in
Proposal 3, below. The business address of each director and principal executive
officer of VALIC is 2929 Allen Parkway, Houston, Texas 77019.
-10-
<PAGE>
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS OF
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH VALIC DURING PAST 5 YEARS
- - ------------------------ ------------------------- -------------------------------------------
<S> <C> <C>
Robert M. Devlin Senior Chairman of the American General, Chairman of the Board of
Board of Directors Directors, since April 1997, CEO, since
October 1996, President, since October
1995, Vice Chairman of the Board, 1993-95;
American General Life Insurance Company,
President and CEO, 1986-93.
John P. Newton Vice Chairman of the American General, Vice Chairman of the
Board of Directors Board of Directors, since 1995, Senior Vice
President, 1993-95, General Counsel,
1993-April 1997; Clark, Thomas, Winters &
Newton (attorneys), Partner, 1985-93.
Stephen D. Bickel Chairman of the Board American General Series Portfolio Company
of Directors and Chief (investment company), President and
Executive Officer Chairman of the Board of Directors, since
1988; The Variable Annuity Marketing
Company, Chairman of the Board of
Directors, since 1988; VALIC, Chairman of
the Board, since 1994, President, Chief
Executive Officer and Director, 1988-94.
Thomas L. West, Jr. Director and President American General Series Portfolio Company
(investment company), Director, since 1994;
VALIC, President, since 1994; Aetna Life &
Casualty Company, Senior Vice President --
Annuity Operations, 1991-94.
Craig R. Rodby Vice Chairman of the VALIC, Vice Chairman of the Board of
Board of Directors Directors, since April 1997; ReliaStar
Financial Corp., Senior Vice President --
Financial Management, 1994-97; Northern
Life Insurance Company (a division of
ReliaStar), President and CEO, 1990-94.
Joe C. Osborne Director and Senior Vice American General Series Portfolio Company
President -- Marketing (investment company), Director, since 1992;
The Variable Annuity Marketing Company,
President and Director, since 1983; VALIC,
Senior Vice President -- Marketing, since
1983.
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME WITH VALIC DURING PAST 5 YEARS
- - ------------------------ ------------------------- -------------------------------------------
<S> <C> <C>
Peter V. Tuters Director, Vice President VALIC, Vice President, Chief Investment
and Chief Investment Officer and Director, since 1993; American
Officer General, Senior Vice President, since 1992,
and Chief Investment Officer, since 1993;
American General Series Portfolio Company
(investment company), Director, since 1993.
Sam E. Magee Director and Senior Vice VALIC, Senior Vice President -- Operations,
President -- Operations since 1983; Prudential Insurance Company,
Manager, 1968-83.
Brent C. Nelson Director, Senior Vice VALIC, Director, since 1995, Senior Vice
President and Controller President since 1994, Vice President
1987-94, and Controller, since 1987.
James S. D'Agostino Jr. Vice Chairman of the American General, President, since April
Board of Directors 1997, Director, since 1996; American
General Life and Accident Insurance
Company, Chairman and CEO, since 1995,
President & CEO, 1993-95; American General,
Executive Vice President, 1993, Senior Vice
President, 1991-93.
Donald L. Sharps Director and Senior Vice VALIC, Director, since April 1997, Senior
President -- Systems Vice President -- Systems, since 1996;
Curtin Matheson Scientific, Inc., Vice
President -- Systems Support 1984-96.
</TABLE>
VALIC currently acts as investment adviser to the following mutual funds
that have similar investment objectives to the Fund:
<TABLE>
<CAPTION>
ANNUAL RATE OF NET ASSETS AS OF
FUND COMPENSATION MAY 31, 1997
- - ----------------------------- -------------- ----------------
<S> <C> <C>
American General
Series Portfolio Company
Capital Conservation Fund 0.50% $ 66,747,000
American General Series
Portfolio Company Government
Securities Fund 0.50% 83,827,000
American General
Series Portfolio Company
International Government
Bond Fund 0.50% 177,709,000
</TABLE>
VALIC's agreement with each of the AGSPC funds, the Capital Conservation
Fund, the Government Securities Fund, and the International Government Bond
Fund, provides for VALIC's advisory fee to be reduced by any commission, tender
and
-12-
<PAGE>
exchange offer, solicitation fees and other fees, or similar payments (less any
direct expenses incurred) received by VALIC or its affiliates in connection with
the purchase or sale of portfolio investments of the fund.
As discussed above, under Section 15(f) of the 1940 Act, no more than 25%
of the Fund's Board may be "interested persons" of VALIC during the three-year
period following the Merger. As described in Proposal 3, below, the proposed
Chairman of the Board of the Fund, Craig R. Rodby, also serves as Vice Chairman
of VALIC and, therefore, is an "interested person" of VALIC.
REQUIRED VOTE
Approval of the New Advisory Agreement requires the affirmative vote of the
holders of the lesser of: (i) 67% of the shares of the Fund present at the
Meeting, if the holders of more than 50% of the outstanding shares are present
or represented by proxy at the Meeting; or (ii) more than 50% of the outstanding
shares of the Fund entitled to vote at the Meeting. If the New Advisory
Agreement is not approved by shareholders at the Meeting, the Board will take
such action as it deems appropriate.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
FUND'S SHAREHOLDERS VOTE "FOR" THE NEW ADVISORY AGREEMENT
PROPOSAL 3
ELECTION OF DIRECTORS
The Fund currently has five Directors, all of whom have indicated that they
will resign effective September 24, 1997 and will not stand for reelection. Six
other individuals have been approved by the Board of Directors to stand for
election to the Board of Directors to hold office until their successors are
elected and qualified. None of these nominees currently serves as a Director of
the Fund; however, each, except Craig R. Rodby, has served as Director of the
AGSPC.
It is the intention of the persons named in the accompanying Proxy to vote
for the election of the persons named below. Each nominee has indicated a
willingness to serve if elected. If any nominee should not be available for
election due to unforseen circumstances, it is the intention of the persons
named in the accompanying Proxy to vote for such other persons as the Directors
may recommend.
-13-
<PAGE>
DIRECTOR/NOMINEE INFORMATION
<TABLE>
<CAPTION>
NAME, AGE, BUSINESS EXPERIENCE COMMON STOCK
DURING PAST FIVE YEARS AND OTHER DIRECTOR BENEFICIALLY HELD
RELEVANT INFORMATION SINCE AS OF JULY 15, 1997(1)
- - --------------------------------------------------------- -------- ----------------------
<S> <C> <C>
Dr. Norman Hackerman, Age: 85 N/A None
AGSPC, Director, since 1984; Van Kampen American Capital
Exchange Fund, former Managing General Partner, 1979-96;
certain Van Kampen American Capital Funds, Trustee,
1993-96; The Robert A. Welch Foundation, Scientific
Advisory Board, Chairman, since 1983; Electrosource,
Inc., Director, since 1993; Scientific Measurement
Systems, Inc., Director, since 1988; Radian Corporation,
Director, 1969-96; Electric Power Research Institute,
Strategic Research and Development Advisory Board,
Member, since 1993; National Research Council, Committee
on Undergraduate Science Education, Member, since 1993;
Rice University, Houston, TX, President, 1970-85;
University of Texas at Austin, Vice Chancellor of
Academic Affairs, 1962-67, and President, 1967-70.
Dr. John W. Lancaster, Age: 74 N/A None
AGSPC, Director, since 1984; First Presbyterian Church,
Houston, TX, Pastor, 1961-90; Austin Presbyterian
Theological Seminary, Board, Member, 1959-72; Chairman of
the Board, 1962-65, 1966-72; Outreach Foundation of the
Presbyterian Church (USA), Chairman of the Board,
1979-86.
Dr. F. Robert Paulsen, Age: 75 N/A None
AGSPC, Director, since 1985; Van Kampen American Capital
Exchange Fund, Managing General Partner, 1978-97; certain
Van Kampen American Capital Funds, Trustee, 1975-97;
College of Higher Education, University of Arizona,
Tucson, AZ, Dean Emeritus and Professor.
Dr. R. Miller Upton, Age: 80 N/A None
AGSPC, Director, since 1984; Van Kampen American Capital
Exchange Fund, Managing General Partner, 1991-96; certain
Van Kampen American Capital Funds, Trustee, 1975-96;
Household International, Inc., Director, 1965-89; Home
Life Insurance Company of New York, Director, 1965-88;
Beloit College, Wisconsin, President, 1954-75.
Ben H. Love, Age: 66 N/A None
AGSPC, Director, since 1991; Utica National Life
Insurance Companies, Director, 1983-87; Boy Scouts of
America, Irving, TX, Chief Executive, 1985-93.
</TABLE>
- - ---------------
(1) Percentage of share ownership is not indicated because no nominee owned more
than one percent of the Fund's outstanding shares.
-14-
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE, BUSINESS EXPERIENCE COMMON STOCK
DURING PAST FIVE YEARS AND OTHER DIRECTOR BENEFICIALLY HELD
RELEVANT INFORMATION SINCE AS OF JULY 15, 1997(1)
- - --------------------------------------------------------- -------- ----------------------
<S> <C> <C>
Craig R. Rodby,* Age: 48 N/A None
VALIC, Vice Chairman of the Board, since April 1997;
ReliaStar Financial Corp., Senior Vice
President-Financial Management, 1994-1997; Northern Life
Insurance Company (a division of ReliaStar), President
and CEO, 1990-94.
</TABLE>
- - ------------------
(1) Percentage of share ownership is not indicated because no nominee owned more
than one percent of the Fund's outstanding shares.
(*) Considered an "interested person" of the Fund, as defined in Section
2(a)(19) of the 1940 Act by reason of his association with VALIC.
BOARD OF DIRECTORS' COMMITTEES
The Board has appointed an Audit Committee, but has not appointed a
Nominating Committee or a Compensation Committee. To date, the functions of a
Nominating Committee have been performed by the entire Board. There is no
Compensation Committee.
The Audit Committee selects, and recommends for approval by the Board and
the shareholders, the audit firm to be retained as independent auditor by the
Fund. The Audit Committee consults with the Fund's independent auditor regarding
the plan and scope of the audit, the adequacy of the Fund's internal accounting
procedures and controls and all matters relevant to the audit services provided
to the Fund. The Audit Committee also reviews the fees charged by the auditor
and the results of the audit.
The Audit Committee is currently comprised of the Fund's five Independent
Directors. The Board will elect the Members of the Audit Committee following the
election of new Directors on September 24, 1997.
BOARD COMPENSATION
Members of the Board of Directors receive an annual retainer of $4,500 and
$470 for each Board meeting attended. Audit Committee members receive an
additional $470 for each Audit Committee meeting attended. Directors who are
officers of the Fund are not compensated for their service on the Board.
During the fiscal year ended June 30, 1997, the Board met seven (7) times
at regularly scheduled meetings. The Audit Committee meets only on call. During
the year ended June 30, 1997, the Audit Committee met two (2) times. There are
no incumbent members of the Board who, during the last fiscal year of the Fund,
attended fewer than 75% of the aggregate meetings of the Board of Directors or
its committees.
During the fiscal year ended June 30, 1997, the Fund paid $50,000 to the
Adviser in reimbursement of compensation and other expenses attributable to the
offices of the Fund's Secretary and Treasurer as provided under the Advisory
Agreement. The aggregate compensation earned by all officers and directors of
the Fund as a group in the
-15-
<PAGE>
fiscal year ended June 30, 1997, exclusive of fees paid for the services of
Secretary and Treasurer, was $43,650.
On June 18, 1997, the members of the Board of Directors who were also
employees of USLIFE resigned as officers and directors of the Fund, leaving a
Board consisting of five (5) Independent Directors.
Under a Deferred Compensation Plan adopted by the Board in 1979, Directors
who receive fees for their services may elect to defer all or part of the
payment of their compensation until the termination of their service as
Directors. Deferred amounts currently accrue at an interest equivalent
calculated at the quarterly rate of 1.4375%. This rate is reviewed annually and
subject to change by the Board of Directors. Participating Directors may elect
to receive distributions of deferred fees and accrued interest in one payment or
in equal annual installments (not to exceed ten) after ceasing to be a Director
of the Fund.
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL COMPENSATION
AGGREGATE BENEFITS ACCRUED FROM FUND AND
NAME OF PERSON, COMPENSATION AS PART OF FUND FUND COMPLEX PAID
POSITION (1) FROM FUND EXPENSES TO DIRECTORS
- - --------------------------- ------------ ---------------- ------------------
<S> <C> <C> <C>
Dr. Kalman J. Cohen, $8,730(2) $-0- $8,730(2)
Director
Richard L. Ellis, Director 8,730 -0- 8,730
John M. Kingsley, Jr., 8,730 -0- 8,730
Director
William M.R. Mapel, 8,730 -0- 8,730
Director
Ralph F. Peters, Director 8,730 -0- 8,730
</TABLE>
- - ---------------
(1) None of the current directors is standing for re-election.
(2) Dr. Cohen has accumulated a total of $247,508.11 under the Fund's Deferred
Compensation Plan.
-16-
<PAGE>
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
<TABLE>
<CAPTION>
POSITION(S) WITH BUSINESS EXPERIENCE
NAME AND AGE FUND AND TERM DURING PAST 5 YEARS
- - ------------------- ------------------------- -----------------------------------------------
<S> <C> <C>
Craig R. Rodby Proposed Chairman of the VALIC, Vice Chairman of the Board of Directors,
Age: 48 Board of Directors since April 1997; ReliaStar Financial Corp.,
Senior Vice President-Financial Management,
1994-97; Northern Life Insurance Company, a
division of ReliaStar, President and CEO,
1990-94.
Norman Jaskol President USLIFE Income Fund, Inc., President, since June
President, Age: 63 since 6/18/97 1997; VALIC, Vice President and Managing
Director-Investments, since 1988; American
General Series Portfolio Company (investment
company), Vice President and Senior Investment
Officer, since 1988.
Leon Olver Vice President and VALIC, Portfolio Manager, since 1995; First
Age: 46 Investment Officer Heights Bank, Vice President/Treasurer,
since 6/18/97 1994-95; First Heights Bank, Vice President,
Assistant Treasurer, 1991-94; Pulte Financial
Companies, Assistant Vice President, 1984-91.
Linda Miller Treasurer USLIFE Advisers, Inc., Treasurer, since 1993;
Age: 44 since 11/10/93 USLIFE Income Fund, Inc., Treasurer, since
1994; USLIFE Equity Sales Corporation, Senior
Vice President, Secretary and Treasurer, since
1994, Vice President, 1990-94, Secretary and
Treasurer, since 1990.
Cynthia Toles Secretary VALIC, Senior Associate General Counsel and
Age: 46 since 7/28/97 Secretary, since 1981; American General Series
Portfolio Company, Counsel and Secretary, since
1981.
</TABLE>
REQUIRED VOTE
The election of Directors requires the affirmative vote of a majority of
the shareholders present at the Meeting in person or by proxy and entitled to
vote, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
FUND'S SHAREHOLDERS VOTE "FOR" ALL NOMINEES TO THE BOARD
PROPOSAL 4
RATIFICATION OF INDEPENDENT AUDITORS
The Board, including a majority of the Independent Directors, has selected
KPMG Peat Marwick LLP to continue to serve as independent auditors of the Fund
for the fiscal year ending June 30, 1998, subject to ratification by the Fund's
shareholders.
-17-
<PAGE>
KPMG Peat Marwick LLP has served as the Fund's independent auditor since 1972
and has no direct financial interest or material indirect financial interest in
the Fund. Representatives of KPMG Peat Marwick LLP will be present at the annual
shareholders' meeting and will have the opportunity, at their discretion, to
make a statement and to respond to appropriate shareholder questions.
KPMG Peat Marwick LLP's audit services for the fiscal year ended June 30,
1997 included: auditing the Fund's annual financial statements; reviewing the
Fund's federal and state income tax returns; reviewing the Fund's federal excise
tax return; consulting with the Fund's Audit Committee; engaging in routine
consultations on financial accounting and reporting matters.
The Audit Committee authorized all services performed by KPMG Peat Marwick
LLP on behalf of the Fund. In addition, the Audit Committee reviews the scope of
services to be provided by KPMG Peat Marwick LLP annually and considers the
effect, if any, that performance of any non-audit services might have on audit
independence.
REQUIRED VOTE
The ratification of the selection of independent auditors requires the
affirmative vote of a majority of the shareholders present at the Meeting in
person or by proxy and entitled to vote, provided a quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
FUND'S SHAREHOLDERS VOTE "FOR" KPMG PEAT MARWICK LLP
PROPOSAL 5
TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS
TO PERMIT THE FUND TO INVEST UP TO 20% OF
ITS ASSETS IN FOREIGN SECURITIES
The Fund's fundamental investment restrictions currently provide that the
Fund may not "invest in foreign securities, except that the Fund may invest not
more than 25% of the value of its total assets in securities of, or guaranteed
by, the Government of Canada or of a Province of Canada or any instrumentality
or political subdivision thereof." This fundamental investment restriction may
be changed only upon the approval of the Fund's shareholders.
The Fund's Board has concluded that it would be in the best interests of
the Fund and its shareholders to give the Fund the ability to invest assets of
the Fund in foreign securities to a limited extent. Thus, the Board recommends
amending the existing fundamental investment restriction to provide that the
Fund may not "invest more than 20% of its net assets in foreign securities."
Adoption of this proposal would enable the Fund to be in a position to take
advantage of investment opportunities that are currently unavailable to it.
Foreign securities may involve additional risks. These include currency
fluctuations, risks relating to political or economic conditions in the foreign
country, and the
-18-
<PAGE>
potentially less stringent investor protection and disclosure standards of
foreign markets. In addition to the political and economic factors that can
affect foreign securities, a governmental issuer may be unwilling to repay
principal and interest when due, and may require that the conditions for payment
be renegotiated. These factors could make foreign investments more volatile.
REQUIRED VOTE
Amendment of this investment restriction requires the affirmative vote of
the holders of the lesser of: (i) 67% of the shares of the Fund present at the
Meeting, if the holders of more than 50% of the outstanding shares are present
or represented by proxy at the Meeting; or (ii) more than 50% of the outstanding
shares of the Fund entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
FUND'S SHAREHOLDERS VOTE "FOR" AMENDING THE FUND'S
FUNDAMENTAL RESTRICTION TO PERMIT INVESTMENTS
IN FOREIGN SECURITIES
INFORMATION ABOUT THE FUND
USLIFE Income Fund, Inc. is a closed-end, diversified management investment
company organized as a Maryland corporation on October 17, 1972. The Fund's
shares are listed for trading on the New York Stock Exchange, Inc.
The Fund seeks to provide a high level of current income to shareholders
through investment in a diversified portfolio composed primarily of fixed income
securities which management considers to be suitable. In meeting its objective,
the Fund invests at least 50% of its total assets in straight debt securities
which are rated at the time of purchase within the four highest grades by
Moody's Investors Service, Inc. or Standard & Poor's Ratings Service, a division
of the McGraw-Hill Companies, Inc., or which are considered by the Fund's
management to be of comparable quality. The balance of the Fund's assets are
invested in other fixed income securities, including straight and convertible
debt securities, preferred stock and other securities with equity features. Of
the Fund's total assets, not more than 30% may be invested in privately placed
securities which are not readily marketable. The Fund may also borrow money to
obtain investment leverage. The relative size of the Fund's investments in any
grade or type of securities will vary from time to time depending upon a number
of factors, including yields, market supplies and economic outlook.
CUSTODIAN, TRANSFER AGENT
The Chase Manhattan Bank ("CMB") serves as custodian for the Fund's
portfolio, and ChaseMellon Shareholder Services ("CSS") acts as transfer agent,
dividend paying agent and registrar for the Fund's shares. The principal
business address of CMB is Four New York Plaza, 4th Floor, New York, New York
10004, and the principal business
-19-
<PAGE>
address of CSS is 450 West 33rd Street, New York, NY 10001. The Fund currently
does not employ a principal underwriter or administrator.
GENERAL INFORMATION
OTHER MATTERS
The Fund's management does not know of any matters to be presented to the
Meeting other than the matters set forth in this statement. If other business
should properly come before the Meeting, the proxyholders will vote thereon in
accordance with their best judgment.
SHAREHOLDER PROPOSALS
The Meeting is an Annual Meeting of shareholders. The Fund is required to
hold an annual meeting of its shareholders. When such a meeting is called, any
shareholder who wishes to submit a proposal for consideration at the meeting
should submit the proposal promptly to the Fund.
ANNUAL REPORT
A copy of the most recent Annual Report for the Fund is enclosed with this
Proxy Statement. Requests for additional copies of the Annual Report should be
made by writing to: USLIFE Income Fund, Inc. The Variable Annuity Life Insurance
Company, L7-13, 2929 Allen Parkway, Houston, TX 77019.
IN ORDER THAT THE PRESENCE OF A QUORUM AT THE MEETING MAY BE ASSURED,
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
/s/ NORMAN JASKOL
Norman Jaskol
President
August 15, 1997
-20-
<PAGE>
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
BETWEEN
USLIFE INCOME FUND, INC.
AND
USLIFE ADVISERS, INC.
AGREEMENT made this 14th day of May, 1997 by and between USLIFE Income
Fund, Inc., a Maryland corporation (hereinafter sometimes called the "Fund"),
and USLIFE Advisers, Inc., a New York corporation (hereinafter sometimes called
the "Adviser").
1. The Adviser will provide the Fund with an investment program complying
with the investment objectives, policies and restrictions of the Fund and, in
carrying out such program, will be responsible for the investment and
reinvestment of the Fund's assets. The Adviser will perform and bear the cost of
research, statistical analysis and continuous supervision of the Fund's
investment portfolio. At its own expense the Adviser will also (i) furnish to
the Fund office space and all ordinary and necessary office facilities,
equipment and personnel for managing the affairs of the Fund and (ii) bear the
cost of fees, salaries or other remuneration of directors and officers of the
Fund who also serve as directors, officers or employees of the Adviser or any of
its affiliated companies; provided, that the Fund will bear the remuneration and
other expenses attributable to the offices of the Fund's Secretary and Treasurer
and personnel operating under their direction in an amount not more than $50,000
per year.
2. It is understood that the Fund will pay all its expenses other than
those expressly stated to be payable by the Adviser hereunder, which expenses
payable by the Fund shall include, without limitation, interest charges, taxes,
fees and commissions of every kind, expenses of issue, sale, repurchase, or
reissue of shares, expenses of registering or qualifying shares for sale,
charges of custodians (including sums as custodian and for keeping books and
similar services to the Fund), transfer agents (including the printing and
mailing of reports and notices to shareholders), registrars, auditing and legal
services and salaries, fees or other remuneration of persons who are not
officers, directors or employees of the Adviser or any of its affiliated
companies, and other expenses not expressly assumed by the Adviser hereunder.
3. For the services furnished by the Adviser hereunder, the Fund shall pay
the Adviser as soon as practicable after the last day of each month, an amount
equal to (i) .04167% of the net asset value of the Fund less net investment
income for such month as of the close of business on the last business day in
the month plus (ii) 2.5% of the sum of (a) the Fund's dividend and interest
income minus (b) interest on borrowed funds during such month; provided,
however, that if expenses borne by the Fund (including fees payable to the
Adviser hereunder but excluding interest, taxes, brokerage fees and, where
permitted, extraordinary expenses) in any fiscal year exceed expense limitations
imposed by state securities administrators, as the same shall be applicable from
time to time, the Adviser shall reimburse such excess to the Fund.
<PAGE>
For the purpose of computing this fee the net asset value will be
calculated in accordance with generally accepting accounting principles and,
hence, will be on an accrual basis. Dividend and interest income is defined as
the net income of the Fund calculated in accordance with generally accepted
accounting principles but will exclude (a) amortization of premiums or accrual
of discounts except for original issue discounts which will be accrued
consistent with Federal Income Tax Regulations, and (b) capital gains or losses.
Consistent with accrual accounting principles, expenses incurred but not
paid and interest and dividend income earned but not received will be accrued in
arriving at income for fee purposes.
4. With respect to the period immediately following the commencement of
this Agreement and in case of termination of this Agreement during any month,
the fee for that month payable in accordance with item (i) of paragraph 3 shall
be prorated on the basis of the number of calendar days during which it is in
effect.
5. The services of the Adviser to the Fund are not to be deemed to be
exclusive, the Adviser being free to render similar services to others and
engage in any other activities. In the absence of willful misfeasance, bad
faith, gross negligence, or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Fund or to any shareholder of the Fund for any act or omission
in the course of, or connected with, rendering services hereunder or for any
losses that may be sustained in the purchase, holding or sale of any security.
Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Adviser who may also be a director, officer
or employee of the Fund to engage in any other business or to devote his time
and attention in part to the management or other aspects of any other business,
whether of a similar nature or a dissimilar nature.
6. The Adviser shall provide for the placement of orders for the purchase
and sale of portfolio securities for the Fund. With respect to such
transactions, whether through a broker as agent or with a dealer as principal,
the Adviser's primary objective is to obtain the best price and execution of
each transaction. Subject to this primary objective, the Adviser may place a
portion of the portfolio transactions with brokerage firms which furnish
research, statistical and other services to the Fund or to the Adviser, using
the amount of information and services furnished as a factor in the allocation.
7. Either party hereto may, at any time on sixty (60) days' prior written
notice to the other, terminate this Agreement, without the payment of any
penalty, by action of its Board of Directors or by vote of a majority of its
outstanding voting securities. This Agreement shall terminate automatically in
the event of its assignment by either party.
This Agreement shall become effective on the effective date of the proposed
merger between USLIFE Corporation and a wholly-owned subsidiary of American
General Corporation. This Agreement shall cotinue until the next meeting of the
shareholders of the Fund and is subject to the approval by the shareholders of
the Fund at said meeting. If approved by the shareholders, it shall continue in
force for two years from the date of
-2-
<PAGE>
such approval and indefinitely thereafter, but only so long as the continuance
is approved in the manner required by the Investment Company Act of 1940 (the
"Act").
The fees payable to the Adviser under this Agreement shall be paid into an
escrow account pursuant to the escrow agreement among the Fund, the Adviser and
an escrow agent (the "Escrow Agreement") substantially in the form attached
hereto as Exhibit A. If the shareholders of the Fund approve this Agreement at
the next meeting of the shareholders, the fees paid by the Fund into the escrow
account shall be paid to the Adviser pursuant to the terms of the Escrow
Agreement. If the shareholders of the Fund do not approve this Agreement at the
next meeting of the shareholders, this Agreement shall terminate and the fees
paid by the Fund into the escrow account shall be paid to the Fund pursuant to
the terms of the Escrow Agreement.
The terms "vote of a majority of its outstanding voting securities" and
"assignment", when used herein, shall have the respective meanings specified in
the Act.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed in their behalf by their respective officers thereunto duly authorized,
and their respective seals to be hereunto affixed, all as of the date first
above written.
USLIFE Income Fund, Inc.
Attest: By:
- ----------------------------------------- -------------------------------------
President
USLIFE Advisers, Inc.
Attest: By:
- ----------------------------------------- -------------------------------------
President
-3-
<PAGE>
Exhibit A to the
Interim Advisory Agreement
ESCROW AGREEMENT
AGREEMENT dated July 23, 1997, by and among USLIFE Income Fund, Inc., a
Maryland corporation (the "Fund"), USLIFE Advisers, Inc., a New York corporation
(the "Adviser"), and The Chase Manhattan Bank, a New York State chartered bank
corporation (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Fund and the Adviser have entered into an Investment Advisory
Agreement dated [May 14, effective] June 18, 1997 (the "Advisory Agreement");
and
WHEREAS, the Advisory Agreement provides in relevant part that fees due and
payable to the Adviser thereunder for services performed during the period
commencing on the effective date of the merger between USLIFE Corporation and a
wholly-owned subsidiary of American General Corporation and ending on the date
of the next succeeding meeting of shareholders of the Fund (the "Interim
Period") shall be paid into an escrow account to be disbursed by the Escrow
Agent as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. Payment of Fees to Escrow Agent. All fees due and payable to the
Adviser for services performed for the Fund during the Interim Period shall be
paid by the Fund to the Escrow Agent who shall deposit the fees in a special
account and hold said fees pursuant to the terms hereof, such fees being
hereinafter referred to as the "Deposited Fees." The Escrow Agent shall invest
and reinvest the Deposited Fees in such interest bearing certificates of deposit
and such interest bearing obligations of the United States Treasury, as the
Escrow Agent deems feasible. The Escrow Agent may sell any such instrument at
such time as it shall deem appropriate in order to make any payment hereunder
and shall not be liable for any loss incurred as a result of such sale. All
interest earned on the Deposited Fees shall be retained by the Escrow Agent and
be considered part of the Deposited Fees and shall be allocated and paid as
provided herein and reported by the recipient to the Internal Revenue Service as
having been so allocated and paid.
2. Payment by Escrow Agent to the Adviser. If the shareholders of the
Fund approve the Advisory Agreement, the Adviser shall provide to the Escrow
Agent a certificate, substantially in the Form of Schedule 1 hereto, from an
officer of the Fund, who is not an interested person of the Adviser, stating
that the Deposited Fees are to be delivered to the Adviser and that the Advisory
Agreement has been approved by the shareholders of the Fund. Within 15 days of
the receipt of the certificate, the Escrow Agent shall pay to the Adviser the
amount of the Deposited Fees unless prior thereto it receives a notice from the
Fund disputing the Adviser's right to all or part of the Deposited Fees. If the
Fund gives such a notice to the Escrow Agent, the Adviser and
<PAGE>
the Fund shall meet and attempt to resolve the matter, and if they are unable to
reach an agreement within 30 days of such notice by the Fund, then either the
Fund or the Adviser may submit the dispute to arbitration pursuant to paragraph
8 hereof.
3. Payment by Escrow Agent to the Fund. If the shareholders of the Fund
do not approve the Advisory Agreement, the Adviser shall provide to the Escrow
Agent a certificate, substantially in the form of Schedule 2 hereto, from an
officer of the Fund, who is not an interested person of the Adviser, stating
that the Deposited Fees are to be delivered to the Fund, that the Interim Period
has ended, and that the Advisory Agreement has not received the requisite
shareholder vote. Within 15 days after receipt of the certificate, the Escrow
Agent shall pay to the Fund the amount of the Deposited Fees unless prior
thereto it receives a notice from the Adviser disputing the Fund's right to all
or part of the Deposited Fees. If the Adviser gives such notice to the Escrow
Agent, the Adviser and the Fund shall meet and attempt to resolve the matter,
and if they are unable to reach an agreement within 30 days of such notice by
the Adviser, then either the Fund or the Adviser may submit the dispute to
arbitration pursuant to paragraph 8 hereof.
4. Responsibilities of the Escrow Agent. The acceptance by the Escrow
Agent of its duties under this Agreement is subject to the following terms and
conditions, which the parties to this Agreement hereby agree shall govern and
control with respect to its rights, duties, liabilities and immunities:
(a) The Escrow Agent shall act hereunder as depositary only, and its
duties are purely ministerial in nature. The Escrow Agent shall not be
liable for any action taken or omitted by it in good faith unless a court
of competent jurisdiction determines that the Escrow Agent's willful
misconduct or gross negligence was the primary cause of any loss to the
Fund or the Adviser. In the administration of the escrow account hereunder,
the Escrow Agent may execute any of its powers and perform its duties
hereunder directly or through agents or attorneys and may consult with
counsel, accountants and other skilled persons to be selected and retained
by it. The Escrow Agent shall not be liable for anything done, suffered or
omitted in good faith by it in accordance with the advice or opinion of any
such counsel, accountants or other skilled persons.
(b) The Escrow Agent may resign and be discharged from its duties or
obligations hereunder, but only after a successor agent has been chosen and
approved by the Fund and the Adviser, by giving notice in writing of such
resignation specifying a date when such resignation shall take effect. The
Escrow Agent shall have the right to withhold an amount equal to the amount
due and owing to the Escrow Agent, plus any costs and expenses the Escrow
Agent shall reasonably believe may be incurred by the Escrow Agent in
connection with the termination of this Agreement.
(c) The Escrow Agent shall be protected in acting or refraining from
acting upon any written notice, request, waiver, consent, receipt or other
paper or document furnished to it by the Adviser or the Fund, which it in
good faith believes to be genuine.
-2-
<PAGE>
(d) The Escrow Agent is under no duty to inquire or investigate the
validity, accuracy or content of such document. The Escrow Agent has no
duty to solicit any payments due hereunder.
(e) In the event funds transfer instructions are given (other than in
writing at the time of execution of this Agreement), whether in writing, by
telecopier or otherwise, the Escrow Agent is authorized to seek
confirmation of such instructions by telephone call-back to the person or
persons designated on Schedule 3 hereto, and the Escrow Agent may rely upon
the confirmations of anyone purporting to be the person or persons so
designated. The persons and telephone numbers for call-backs may be changed
only in a writing actually received and acknowledged by the Escrow Agent.
The parties to this Agreement acknowledge that such security procedure is
commercially reasonable.
(f) In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions, claims or demands
from any party hereto which, in its opinion, conflict with any of the
provisions of this Agreement, it shall be entitled to refrain from taking
any action and its sole obligation shall be to keep safely all property
held in escrow until it shall be directed otherwise in writing by all of
the other parties hereto or by a final order or judgment of a court of
competent jurisdiction.
(g) It is understood that the Escrow Agent and the beneficiary's bank
in any funds transfer may rely solely upon any account numbers or similar
identifying number provided by either of the other parties hereto to
identify (i) the beneficiary, (ii) the beneficiary's bank, or (iii) an
intermediary bank. The Escrow Agent may apply any of the Deposited Fees for
any payment order it executes using any such identifying number, even where
its use may result in a person other than the beneficiary being paid, or
the transfer of funds to a bank other than the beneficiary's bank or an
intermediary bank designated.
(h) The Escrow Agent shall have no duties except those contemplated
hereby, and it shall not be bound by any modification, amendment or
termination of this Agreement, unless it shall have given its written
consent thereto.
(i) The Escrow Agent shall not be obligated to take any action which in
its reasonable judgment would require it to incur any expense or liability
unless it has been furnished with reasonable indemnity in form and
substance customary for transactions of this type.
5. Fees and Expenses of Escrow Agent. The Escrow Agent shall be paid a
fee for its services rendered under this Agreement in the amount of $5,000.00,
payable upon the execution hereof, and all out-of-pocket expenses and costs
incurred by the Escrow Agent in the performance of its duties hereunder. The
amount of such fees and expenses shall be paid by the Adviser; provided, that
the charges and out-of-pocket expenses and costs of the Escrow Agent shall not
be charged against the Deposited Fees, nor shall the Escrow Agent have any lien
against the Deposited Fees or any other rights with respect to the Deposited
Fees not set forth in this Agreement.
-3-
<PAGE>
6. Amendment and Termination. This Agreement may be modified, amended or
terminated only by an instrument in writing signed by all of the parties.
7. Notices. Any notices or other communications required or permitted
hereunder shall be in writing and shall be sufficiently given if sent by
registered or certified mail, postage prepaid, or by facsimile, addressed as
follows:
To the Fund:
USLIFE Income Fund, Inc.
125 Maiden Lane
New York, New York 10038
Tax Identification Number: 132729672
Attn: Norman Jaskol
President
To the Adviser:
USLIFE Advisers, Inc.
125 Maiden Lane
New York, New York 10038
Tax Identification Number. 132729674
Attn: Norman Jaskol
Chairman, President and Chief Executive Officer
To the Escrow Agent:
The Chase Manhattan Bank
Corporate Trust Group
450 W. 33rd St.
New York, New York 10001
Attn: Escrow Administrator
15th Floor
or such other person or persons and/or at such other address or addresses as
shall be furnished in writing by any party hereto to the other. Any such notice
or communication required or permitted herein shall be deemed to have been given
on the date received by such party.
8. Arbitration.
(a) Any controversy or claim arising out of, in connection with, or
relating to this Agreement, or the breach thereof, or in connection with
any claim against the Deposited Fees, shall be submitted to arbitration
before three arbitrators in accordance with the rules then promulgated by
the American Arbitration Association; and such arbitration shall be
conducted in accordance with such rules.
(b) Each arbitration pursuant hereto shall be conducted in the City of
New York.
(c) The amount payable for the services of such arbitrator or
arbitrators, and all of the costs relating thereto (excluding fees or
expenses of counsel to any party)
-4-
<PAGE>
shall be paid by any one or more of the parties to the arbitration in such
proportions as the arbitrator or arbitrators may determine in the
arbitration award.
(d) Judgment upon the award rendered by the arbitrator or arbitrators
may be entered in any court having jurisdiction thereof.
9. Indemnification. The Fund and the Adviser hereby agree to jointly and
severally indemnify the Escrow Agent for, and to hold it harmless against, any
loss, liability or expense arising out of or in connection with this Agreement
and carrying out its duties hereunder, including the costs and expenses of
defending itself against any claim of liability, except in those cases where the
Escrow Agent has been guilty of gross negligence or willful misconduct. Anything
in this Agreement to the contrary notwithstanding, in no event shall the Escrow
Agent be liable for special, indirect or consequential loss or damage of any
kind whatsoever (including but not limited to lost profits), even if the Escrow
Agent has been advised of the likelihood of such loss or damage and regardless
of the form of action.
10. Entire Agreement. This Escrow Agreement constitutes the entire
agreement between the parties with reference to the subject matter thereof and
supersedes all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof.
11. Binding Effect and Benefits. This Escrow Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors, assigns heirs and legal representatives. Nothing in this Agreement
expressed or implied is intended to confer on any person other than the parties
hereto or their respective successors, assigns, heirs and legal representatives,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
12. Waivers. The waiver by any party hereto of a breach of any of the
provisions of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its
principles of conflicts of laws and any action brought hereunder shall be
brought in the courts of the State of New York, located in the County of New
York. Each party hereto irrevocably waives any objection on the grounds of
venue, forum nonconveniens or any similar grounds and irrevocably consent to
service of process by mail or in any other manner permitted by applicable law
and consents to the jurisdiction of said courts.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
USLIFE Income Fund, Inc.
By:
-----------------------------------
Norman Jaskol
President
USLIFE Advisors, Inc.
By:
-----------------------------------
Norman Jaskol
Chairman, President and
Chief Executive Officer
The Chase Manhattan Bank,
as Escrow Agent
By:
------------------------------------
-6-
<PAGE>
SCHEDULE 1
USLIFE INCOME FUND, INC.
On this day of September, 1997, I [NAME], hereby certify that I
am the duly appointed and elected [OFFICER] of USLIFE Income Fund, Inc. ("Fund")
and further certify as follows:
1. I am not an interested person of USLIFE Advisers, Inc. ("Adviser").
2. The Investment Advisory Agreement between the Fund and the Adviser dated
May 14, 1997 ("Agreement") has been approved by the shareholders of the
Fund by the requisite shareholder vote.
3. All fees earned by the Adviser under the Agreement, together with any
interest earned, that have been paid by the Fund to an escrow account
administered by The Chase Manhattan Bank as escrow agent ("Escrow
Agent"), shall be paid by the Escrow Agent to the Adviser as of the date
first above written.
4. The Board of Directors of the Fund has been duly notified that this
Certificate, has been executed and delivered to the Escrow Agent.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed by its duly authorized officer on this day of September,
1997.
USLIFE INCOME FUND, INC.
By:
-----------------------------------
Name:
Title:
-7-
<PAGE>
SCHEDULE 2
USLIFE INCOME FUND, INC.
On this day of September, 1997, I, (NAME), hereby certify that
I am duly appointed and elected [OFFICER] of USLIFE Income Fund, Inc. ("Fund")
and further certify as follows:
1. I am not an interested person of USLIFE Advisers, Inc. ("Adviser").
2. The Investment Advisory Agreement between the Fund and the Adviser dated
May 14, 1997 ("Agreement") has not been approved by the shareholders of
the Fund by the requisite shareholder vote.
3. All fees earned by the Adviser under the Agreement, together with any
interest earned, that have been paid by the Fund to an escrow account
administered by The Chase Manhattan Bank as escrow agent ("Escrow
Agent"), shall be paid by the Escrow Agent to the Fund to the Adviser as
of the date first above written.
4. The Board of Directors of the Fund has been duly notified that this
Certificate has been executed and delivered to the Escrow Agent.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed by its duly authorized officer on this day of September,
1997.
USLIFE INCOME FUND, INC.
By:
-----------------------------------
Name:
Title:
-8-
<PAGE>
SCHEDULE 3
TELEPHONE NUMBER(S) FOR CALL-BACKS AND
PERSON(S) DESIGNATED TO CONFIRM FUNDS TRANSFER INSTRUCTIONS
If to Fund:
<TABLE>
<CAPTION>
NAME TELEPHONE NUMBER
----------------------- -----------------
<S> <C>
Erica Goldenberg (212) 709-6230
Linda Miller (212) 709-6000
</TABLE>
If to Adviser:
<TABLE>
<CAPTION>
NAME TELEPHONE NUMBER
----------------------- -----------------
<S> <C>
Norman Jaskol (713) 831-5322
Cynthia A. Toles (713) 831-5065
</TABLE>
Telephone call-backs shall be made to each of the Fund and the Adviser if joint
instructions are required pursuant to the Agreement.
-9-
<PAGE>
EXHIBIT B
INVESTMENT ADVISORY AGREEMENT
BETWEEN
USLIFE INCOME FUND, INC.
AND
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
AGREEMENT made this 24th day of September, 1997 by and between USLIFE
Income Fund, Inc., a Maryland corporation registered under the Investment
Company Act of 1940, as amended, as a closed-end management investment company
("Fund"), and USLIFE Advisers, Inc., a Texas life insurance company (the
"Adviser").
1. Subject to the supervision of the Fund's Board of Directors, the Adviser
will provide the Fund with an investment program complying with the investment
objectives, policies and restrictions of the Fund and, in carrying out such
program, will be responsible for the investment and reinvestment of the Fund's
assets. The Adviser will maintain a trading desk and place all orders for the
purchase and sale of portfolio investments for the Fund's account with brokers
or dealers selected by the Adviser, or arrange for any other entity to provide a
trading desk and to place orders with brokers and dealers selected by the
Adviser, subject to the Adviser's control, direction and supervision.
The Adviser will perform and bear the cost of research, statistical
analysis and continuous supervision of the Fund's investment portfolio. At its
own expense, the Adviser will also (i) furnish to the Fund office space and all
ordinary and necessary office facilities, equipment and personnel for managing
the affairs of the Fund and (ii) bear the cost of fees, salaries or other
remuneration of directors and officers of the Fund who also serve as directors,
officers or employees of the Adviser or any of its affiliated companies;
provided, that the Fund will bear the remuneration and other expenses
attributable to the offices of the Fund's Secretary and Treasurer and personnel
operating under their direction in an amount not more than $50,000 per year.
2. It is understood that the Fund will pay all its expenses other than
those expressly stated to be payable by the Adviser hereunder, which expenses
payable by the Fund shall include, without limitation, interest charges, taxes,
fees and commissions of every kind, expenses of issue, sale, repurchase, or
reissue of shares, expenses of registering or qualifying shares for sale, proxy
solicitation fees, charges of custodians (including sums as custodian and for
keeping books and similar services to the Fund), transfer agents (including the
printing and mailing of reports and notices to shareholders), registrars,
auditing and legal services and salaries, fees or other remuneration of persons
who are not officers, directors or employees of the Adviser or any of its
affiliated companies, and other expenses not expressly assumed by the Adviser
hereunder.
3. For the services furnished by the Adviser hereunder, the Fund shall pay
the Adviser as soon as practicable after the last day of each month, an amount
equal to (i) .04167% of the net asset value of the Fund less net investment
income for such month as of the close of business on the last business day in
the month plus (ii) 2.5% of
<PAGE>
the sum of (a) the Fund's dividend and interest income minus (b) interest on
borrowed funds during such month; provided, however, that if expenses borne by
the Fund (including fees payable to the Adviser hereunder but excluding
interest, taxes, brokerage fees and, where permitted, extraordinary expenses) in
any fiscal year exceed expense limitations imposed by state securities
administrators, as the same shall be applicable from time to time, the Adviser
shall reimburse such excess to the Fund.
The Adviser shall promptly reduce its monthly fee hereunder by the amount
of any commissions, tender and exchange offer solicitation fees, other fees, or
similar payments received by the Adviser, or any affiliated person of the
Adviser, in connection with any of the Fund's portfolio transactions, less the
amount of any direct expenses incurred by the Adviser or any affiliated person
of the Adviser, in obtaining such commissions, fees, or payments.
For the purpose of computing this fee the net asset value will be
calculated in accordance with generally accepting accounting principles and,
hence, will be on an accrual basis. Dividend and interest income is defined as
the net income of the Fund calculated in accordance with generally accepted
accounting principles but will exclude (a) amortization of premiums or accrual
of discounts except for original issue discounts which will be accrued
consistent with Federal Income Tax Regulations, and (b) capital gains or losses.
Consistent with accrual accounting principles, expenses incurred but not
paid and interest and dividend income earned but not received will be accrued in
arriving at income for fee purposes.
4. With respect to the period immediately following the commencement of
this Agreement and in case of termination of this Agreement during any month,
the fee for that month payable in accordance with item (i) of paragraph 3 shall
be prorated on the basis of the number of calendar days during which it is in
effect.
5. The Adviser shall, during the term of this Agreement, be entitled to
render investment advisory services to others, including without limitation,
other investment companies with similar objectives to those of the Fund. The
Adviser may, when it deems such to be advisable, 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.
In such event, the Adviser shall allocate the shares so purchased or sold, as
well as the expense incurred in the transaction, in the manner it considers to
be most equitable and consistent with its fiduciary obligations to the Fund and
the Adviser's other customers.
Nothing in this Agreement shall limit or restrict the right of any
director, officer or employee of the Adviser who may also be a director, officer
or employee of the Fund to engage in any other business or to devote his time
and attention in part to the management or other aspects of any other business,
whether of a similar nature or a dissimilar nature.
6. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part of the
Adviser, the Adviser shall
-2-
<PAGE>
not be subject to liability to the Fund or to any shareholder of the Fund for
any act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding or
sale of any security.
7. The Adviser shall provide for the placement of orders for the purchase
and sale of portfolio securities for the Fund. In connection therewith, the
Adviser shall use its best efforts to obtain for the Fund the most favorable
overall price and execution. The Adviser shall also use its best efforts to
obtain for the Fund any tender and exchange offer solicitation fees, other fees,
and similar payments available in connection with the portfolio transactions of
the Fund. Subject to prior authorization by the Fund's Board of Directors of
appropriate policies and procedures, the Adviser may cause the Fund to pay to 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 the Adviser. The Adviser shall not be deemed to have acted
unlawfully, or to have breached any duty created by this Agreement or otherwise,
solely by reason of acting according to such authorization.
In connection with purchases or sales of securities for the investment
portfolio of the Fund, neither the Adviser nor its officers or employees will
act as a principal or agent for any party other than the Fund or receive any
commissions. The Adviser will comply with all applicable laws in acting
hereunder including, without limitation, the 1940 Act; the Investment Advisers
Act of 1940, as amended; and all rules and regulations promulgated under the
foregoing.
8. The Adviser shall maintain records adequately demonstrating compliance
with its obligations under this Agreement and shall report periodically to the
Fund's Board of Directors regarding the performance of services under this
Agreement.
9. In connection with the rendering of the services required to be provided
by the Adviser under this Agreement, the Adviser may, to the extent it deems
appropriate and subject to compliance with the requirements of applicable laws
and regulations, make use of its affiliated companies and their employees;
provided that the Adviser shall supervise and remain fully responsible for all
such services in accordance with and to the extent provided by this Agreement
and that all costs and expenses associated with the providing of services by any
such companies or employees and required by this Agreement to be borne by the
Adviser shall be borne by the Adviser or its affiliated companies.
10. This Agreement shall become effective as of the date it is approved by
a majority of the outstanding voting securities of the Fund, and unless sooner
terminated as hereinafter provided, shall remain in force for an initial term of
two years from the date of execution, and from year to year thereafter, but only
as long as such continuance is specifically approved at least annually (i) by a
vote of a majority of the outstanding voting securities of the Fund or by the
Directors of the Fund, and (ii) by a majority of the Directors of the Fund who
are not interested persons of the Adviser, cast in person at a meeting called
for the purpose of voting on such approval.
-3-
<PAGE>
11. This Agreement may be terminated by the Board of Directors of the Fund,
the vote of a majority of the outstanding voting securities of the Fund or by
the Adviser, on not more than 60 nor less than 30 days prior written notice,
without the payment of any penalty. This Agreement shall terminate immediately
in the event of its assignment, unless an order is issued by the Securities and
Exchange Commission ("SEC") conditionally or unconditionally exempting such
assignment from the provisions of Section 15(a) of the 1940 Act, in which event
this Agreement shall remain in full force and effect subject to the terms and
provisions of said order. In interpreting the provisions of this paragraph 11,
the definitions contained in Section 2(a) of the 1940 Act and the applicable
rules under the 1940 Act (particularly the definitions of "interested person,"
"assignment," and "vote of a majority of the outstanding voting securities")
shall be applied.
12. This Agreement shall be interpreted in accordance with applicable
federal securities laws and provisions, including definitions therein and such
exemptions as may be granted to the Adviser or the Fund by the SEC or such
interpretative positions as may be taken by the SEC or its staff. To the extent
that the applicable law of the State of Texas, or any of the provisions herein
shall conflict with applicable provisions of the federal securities laws, the
latter shall control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed in their behalf by their respective officers thereunto duly authorized,
and their respective seals to be hereunto affixed, all as of the date first
above written.
USLIFE Income Fund, Inc.
Attest: By:
- ----------------------------------------- --------------------------------------
President
The Variable Annuity Life Insurance
Company
Attest: By:
- ----------------------------------------- --------------------------------------
President
-4-
<PAGE>
USLIFE INCOME FUND, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Norman Jaskol, Leon Olver and Cynthia
Toles as proxies, each with the powers to act alone and to appoint his or her
substitute, and hereby authorizes them to represent and vote, as designated
herein, all the shares of Common Stock of USLIFE Income Fund, Inc. which the
undersigned is entitled to vote as of August 6, 1997, the record date, at the
Annual Meeting of Shareholders to be held September 24, 1997, or any
adjournment thereof.
THIS PROXY IS CONTINUED ON THE REVERSE.
PLEASE SIGN ON THE REVERSE AND RETURN PROMPTLY
USLIFE INCOME FUND, INC.
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, SEPTEMBER 24, 1997
11:00 A.M.
2929 ALLEN PARKWAY
HOUSTON, TEXAS 77019
<PAGE>
<TABLE>
<S> <C>
This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. If Please mark
no direction is made, this Proxy will be voted FOR the approval of the Interim Advisory Agreement, FOR the approval your vote as
of the New Advisory Agreement, FOR the nominees named in Item 3, FOR the selection of the auditors named in item indicated in
4 and FOR the Proposal in Item 5. All items are proposed by the USLIFE Income Fund, Inc. ("Fund"). this example
X
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE FUND'S SHAREHOLDERS VOTE "FOR" EACH
OF THE FOLLOWING PROPOSALS:
Item 1 - Proposal to approve the Interim Investment Advisory Agreement between
the Fund and USLIFE Advisers, Inc.
For Against Abstain
[ ] [ ] [ ]
Item 2 - Proposal to approve the NewIinvestment Advisory Agreement between the
Fund and The Variable Annuity Life Insurance Company.
For Against Abstain
[ ] [ ] [ ]
<TABLE>
<S> <C>
Item 3 - Election of the following nominees as Director: Dr. Norman Hackerman, Dr. John W. Lancaster,
Dr. Robert Paulsen, Dr. R. Miller Upton, Ben H. Love
and Craig R. Rodby
</TABLE>
<TABLE>
<S> <C> <C>
For Against YOU MAY WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE
BY LINING THROUGH OR OTHERWISE STRIKING OUT THE
NAME OF ANY NOMINEE.
[ ] [ ]
</TABLE>
Item 4 - Proposal to ratify the appointment of KPMG Peat Marwick LLP as
independent auditors of the Fund
For Against Abstain
[ ] [ ] [ ]
Item 5 - 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.
For Against Abstain
[ ] [ ] [ ]
<PAGE>
Item 6 - In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
Please sign as name appears herein. Joint owners
should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such.
Dated: , 1997
------------------------------------
------------------------------------------------
Signature
------------------------------------------------
Signature
Please sign, date and mail your
proxy card promptly!
