<PAGE> 1
USLIFE INCOME
FUND, INC.
SEMI-ANNUAL
REPORT
DECEMBER 31, 1998
[AMERICAN GENERAL FINANCIAL GROUP LOGO]
The Variable Annuity Life Insurance Company (VALIC)
2929 Allen Parkway - Houston, TX 77019
VA 10643 VER 12/98
<PAGE> 2
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USLIFE INCOME FUND, INC.
2929 Allen Parkway
Houston, TX 77019
DEAR SHAREHOLDER:
USLIFE Income Fund reported net investment income of $2,176,596 or $0.39 per
share for the six months ended December 31, 1998, versus $2,116,169 or $0.37 per
share for December 31, 1997. Net assets of the fund were $59,759,175 or $10.59
per share at December 31, 1998, versus $60,253,791 or $10.68 per share on
December 31, 1997. Cash dividends totaling $0.38 per share were paid to
shareholders during the six months ending December 31, 1998.
Your fund's return of 2.08% for the six months ended December 31, 1998, assuming
reinvestment of dividends, compared favorably with its relevant environment. The
Merrill Lynch Corporate Government Index returned 5.07% while the Merrill Lynch
High Yield Bond Index returned a negative 0.81%.
The fund had 50.5% of its assets in investment grade issues and 49.5% of its
assets in below investment grade issues on December 31, 1998. The fund continues
its policy of achieving maximum yield consistent with preservation of capital.
Your board of directors declared a quarterly dividend of $0.19 per share on
January 19, 1999, payable on March 1, 1999 to shareholders of record on
February 19, 1999. We encourage those shareholders not already participating in
USLIFE Income Fund's Automatic Dividend Investment Plan, described on page 10,
to enroll in the Plan.
The outlook for the 1999 is positive for bond investors. Economic growth is
expected to slow over the course of the year, but the economy is unlikely to go
into a recession. Inflation continues to appear to be well-contained, with
forecasts of approximately 1.0% to 1.5% for the year. Interest rates, as
measured by the yield on the 30 year US Treasury bond, are likely to be between
5.0% and 5.5%.
Sincerely,
/s/ PETER V. TUTERS
Peter V. Tuters
President
1
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USLIFE INCOME FUND, INC.
STATEMENT OF NET ASSETS (UNAUDITED)
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
--------- ------------
<S> <C> <C>
CORPORATE BONDS - 97.32%
AEROSPACE/DEFENSE - 1.76%
$ 500,000 Loral Corp., 7.00% due 9/15/23............................................ $ 522,890
500,000 Raytheon Co., 7.38% due 7/15/25........................................... 526,230
----------
1,049,120
----------
BANKS - REGIONAL - 4.46%
2,500,000 Zions Institutional Capital Trust A, 8.54% due 12/15/26................... 2,665,525
----------
BROADCASTING - 4.44%
2,500,000 CSC Holdings, Inc., 7.88% due 2/15/18..................................... 2,545,075
100,000 Cumulus Media Inc., 10.38% due 7/01/08.................................... 106,000
----------
2,651,075
----------
CHEMICAL - MAJOR - 0.82%
500,000 Koppers Industry, Inc., 9.88% due 12/01/07................................ 490,000
----------
CONGLOMERATES - 3.16%
2,000,000 Loews Corp., 7.00% due 10/15/23........................................... 1,889,560
----------
CONSUMER FINANCE - 0.49%
300,000 AmeriCredit Corp., 9.25% due 2/01/04...................................... 294,000
----------
CONTAINER METAL GLASS - 0.79%
450,000 BWAY Corp., 10.25% due 4/15/07............................................ 471,375
----------
ENTERTAINMENT - 0.16%
100,000 MTS, Inc., 9.38% due 5/01/05.............................................. 97,000
----------
FINANCIAL SERVICES - 0.87%
500,000 Tembec Finance, 9.88% due 9/30/05......................................... 520,000
----------
FOODS - 0.74%
500,000 Borden Inc., 7.88% due 2/15/23............................................ 443,045
----------
FREIGHT - 0.86%
500,000 Coach USA, Inc., 9.38% due 7/01/07........................................ 512,500
----------
HEALTHCARE - 3.60%
2,150,000 Kuala Healthcare, Inc. (promissory note), 6.00% due 8/31/03............... 1,542,625
100,000 Integrated Health Svcs, 10.25% due 4/30/06................................ 99,000
500,000 Unilab Corp., 11.00% due 4/01/06.......................................... 512,500
----------
2,154,125
----------
HOME BUILDERS - 3.95%
2,250,000 Fortress Group Inc., 13.75% due 5/15/03................................... 2,362,500
----------
HOSPITAL MANAGEMENT - 1.75%
1,000,000 Tenet Healthcare Corp., 8.63% due 1/15/07................................. 1,045,000
----------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
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USLIFE INCOME FUND, INC.
STATEMENT OF NET ASSETS (UNAUDITED) CONTINUED
December 31, 1998
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
--------- ------------
<S> <C> <C>
INSURANCE - MULTILINE - 4.30%
$ 2,300,000 Zurich Capital Trust, 8.38% due 6/01/37................................... $ 2,570,917
------------
MACHINE - CONTRACT - 3.67%
2,250,000 Rental Service Corp., 9.00% due 5/15/08................................... 2,193,750
------------
MACHINERY - INDUSTRIAL/SPECIALTY - 0.86%
500,000 Synthetic Industries, Inc., 9.25% due 2/15/07............................. 515,000
------------
MEDICAL TECHNOLOGY - 0.45%
300,000 Pharmerica Inc., 8.38% due 4/01/08........................................ 269,250
------------
MERCHANDISING - DEPARTMENT - 0.17%
100,000 True Temper Sports Inc., 10.88% due 2/01/08............................... 99,500
------------
MERCHANDISING - MASS - 4.46%
2,500,000 K Mart Funding Corp., 9.44% due 7/01/18.................................. 2,667,825
------------
MERCHANDISE - SPECIALTY - 0.74%
500,000 Finlay Fine Jewelry Corp., 8.38% due 5/01/08.............................. 440,000
------------
METALS - MISCELLANEOUS - 3.45%
1,850,000 Inco Limited, 9.60% due 6/15/22........................................... 2,064,415
------------
OIL - INTEGRATED DOMESTIC - 1.62%
750,000 Tesoro Petroleum Corp., 9.00% due 7/01/08................................. 731,250
200,000 USX-Marathon Group, 9.13% due 1/15/13..................................... 238,982
------------
970,232
------------
OIL - SERVICE - PRODUCTS - 0.75%
500,000 Parker Drilling Co., 9.75% due 11/15/06................................... 450,000
------------
PAPER/FOREST PRODUCTS - 8.31%
2,300,000 Boise Cascade Co., 7.99% due 9/13/13...................................... 2,317,756
500,000 Georgia-Pacific Corp., 9.63% due 3/15/22.................................. 563,490
2,000,000 Georgia-Pacific Corp., 8.25% due 3/01/23.................................. 2,086,820
------------
4,968,066
------------
POLLUTION CONTROL - 2.57%
1,500,000 LES, Inc., 9.25% due 6/01/28.............................................. 1,537,500
------------
PUBLISHING - NEWS - 4.70%
2,500,000 News America Holdings, 8.15% due 10/17/36................................. 2,810,600
------------
RESTAURANTS - 1.98%
500,000 Apple South Inc., 9.75% due 6/01/06....................................... 475,000
500,000 Dominos Inc., 10.38% due 1/15/09.......................................... 500,000
100,000 Perkins Family Restaurant, 10.13% due 12/15/07............................ 106,000
100,000 Southern Foods, 9.88% due 9/01/07......................................... 104,500
------------
1,185,500
------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
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USLIFE INCOME FUND, INC.
STATEMENT OF NET ASSETS (UNAUDITED) CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
--------- ------------
<S> <C> <C>
SAVINGS & LOAN - 5.07%
$ 2,700,000 Ahmanson Capital Trust, 8.36% due 12/01/26................................ $ 3,023,973
------------
TELECOMMUNICATIONS - 7.85%
500,000 Amphenol Corp., 9.88% due 5/15/07......................................... 510,000
1,450,000 GCI, Inc., 9.75% due 8/01/07.............................................. 1,435,500
100,000 Global Crossing Holdings, Ltd., 9.63% due 5/15/08......................... 105,000
100,000 Intermedia Communications, Inc., 8.50% due 1/15/08........................ 95,000
1,000,000 IXC Communications, Inc., 9.00% due 4/15/06............................... 1,007,500
1,500,000 NTL Inc., 10.00% due 2/15/07.............................................. 1,530,000
------------
4,683,000
------------
TOBACCO - 4.47%
2,600,000 RJR Nabisco, Inc., 9.25% due 8/15/13...................................... 2,673,216
------------
UTILITIES - ELECTRIC - 14.05%
500,000 Boston Edison, 9.38% due 8/15/21.......................................... 558,505
900,000 Boston Edison, 8.25% due 9/15/22.......................................... 995,211
865,000 Commonwealth Edison, 8.38% due 9/15/22.................................... 943,983
2,600,000 Niagara Mohawk Power Corp., 9.50% due 3/01/21............................. 2,767,986
2,600,000 Toledo Edison, 9.22% due 12/15/21......................................... 3,120,416
------------
8,386,101
------------
TOTAL CORPORATE BONDS
(Cost $57,305,763)........................................................ 58,153,670
------------
CORPORATE SHORT TERM COMMERICAL PAPER - 1.17%
UTILITIES - GAS
700,000 Michigan Consolidated Gas, 5.40% due 1/04/99.............................. 699,685
------------
TOTAL CORPORATE SHORT TERM COMMERICAL PAPER
(Cost $699,685)........................................................... 699,685
------------
TOTAL INVESTMENTS (Cost $58,005,448) - 98.48%............................. 58,853,355
------------
Other assets less liabilities - 1.52%..................................... 905,820
------------
NET ASSETS - 100% ........................................................ $ 59,759,175
=============
===============================================================================================================
<S> <C>
NET ASSETS REPRESENTED BY:
Capital stock, $1.00 par value, 10,000,000 shares authorized,
5,643,768 shares outstanding .............................................................. $ 5,643,768
Additional paid in capital ................................................................. 53,463,304
Accumulated net realized loss on securities (Note 1)........................................ (1,225,554)
Undistributed net investment income ........................................................ 1,029,750
Unrealized appreciation of investments...................................................... 847,907
------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING................................................. $ 59,759,175
=============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 6
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USLIFE INCOME FUND, INC.
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest..................................................................................... $ 2,514,274
------------
EXPENSES:
Advisory fee................................................................................. 203,167
Transfer agent fees and expenses............................................................. 28,834
Treasury and secretarial services............................................................ 25,136
Legal and audit fees......................................................................... 23,767
Directors' fees.............................................................................. 19,693
Printing, stationery and supplies............................................................ 10,613
New York stock exchange listing fees......................................................... 7,754
Interest on directors' deferred compensation................................................. 7,025
Insurance expense............................................................................ 6,133
Custodian fee................................................................................ 3,375
Miscellaneous................................................................................ 2,181
------------
Total expenses............................................................................ 337,678
------------
NET INVESTMENT INCOME........................................................................ 2,176,596
------------
REALIZED AND UNREALIZED LOSS ON SECURITIES:
Net realized loss on securities.............................................................. (152,800)
Net unrealized depreciation on securities during the period.................................. (790,214)
------------
Net realized and unrealized loss on securities during the period.......................... (943,014)
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............................................. $ 1,233,582
------------
</TABLE>
================================================================================
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED) For the For the
six months ended fiscal year ended
December 31, 1998 June 30,1998
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................................................ $ 2,176,596 $ 4,234,940
Net realized gain (loss) on securities ....................................... (152,800) 1,444,424
Net unrealized appreciation (depreciation) of securities during the period ... (790,214) 1,862,798
------------ ------------
Increase in net assets resulting from operations........................... 1,233,582 7,542,162
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income......................................................... (2,144,632) (4,289,264)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS....................................... (911,050) 3,252,898
------------ ------------
NET ASSETS:
Beginning of period........................................................... 60,670,225 57,417,327
------------ ------------
End of period (including undistributed net investment income
of $1,029,750 December 31, 1998 and $997,787 June 30, 1998) ................. $ 59,759,175 $ 60,670,225
============ ============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
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USLIFE INCOME FUND, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of distributions. Total returns and
ratios for periods of less than one year are not annualized.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JUNE 30,
SIX MONTHS ENDED ---------------------------------------------
PER SHARE DATA DECEMBER 31, 1998 1998 1997 1996 1995 1994
----------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value at beginning of period.............. $ 10.75 $ 10.17 $ 9.62 $ 10.07 $ 9.39 $ 10.28
------- ------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income............................ .39 .75 .73 .76 .76 .75
Net realized and unrealized gain (loss)
on securities ................................ (.17) .59 .62 (.41) .72 (.77)
------- ------- ------- ------- ------- -------
Total income (loss) from investment operations... .22 1.34 1.35 .35 1.48 (.02)
------- ------- ------- ------- ------- -------
Distributions:
Distributions from net investment income......... (.38) (.76) (.80) (.80) (.80) (.87)
------- ------- ------- ------- ------- -------
Net asset value, end of period................... $ 10.59 $ 10.75 $ 10.17 $ 9.62 $ 10.07 $ 9.39
======= ======= ======= ======= ======= =======
Market value, end of period...................... $ 10.00 $ 9.63 $ 9.13 $ 9.00 $ 9.25 $ 9.38
======= ======= ======= ======= ======= =======
Total investment return*:
Based on market value............................ 7.84% 14.01% 10.48% 5.56% 7.72% (5.10%)
Based on net asset value......................... 2.08% 13.57% 15.19% 3.64% 17.08% (0.60%)
RATIOS AND SUPPLEMENTAL DATA:
Ratio of expenses to average net assets.......... 0.57% 1.12% 1.19% 1.17% 1.22% 1.16%
Ratio of net investment income to average
net assets .................................. 3.66% 7.11% 7.43% 7.49% 7.99% 7.38%
Portfolio turnover rate.......................... 23.52% 73.24% 25.77% 29.55% 29.93% 46.72%
Number of shares outstanding at end of
period (000's) .............................. 5,644 5,644 5,644 5,644 5,644 5,638
Net assets, end of period (000's)................ $59,759 $60,670 $57,417 $54,279 $56,834 $52,940
Average net assets, during the period (000's).... $59,507 $59,597 $55,764 $56,914 $53,474 $57,031
</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> 8
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USLIFE INCOME FUND, INC.
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, short term securities 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, 1998, the Fund had a net capital
loss carry forward of approximately $1.1 million expiring on June 30, 2002.
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"). 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. During the six months
ended December 31, 1998, the Fund paid VALIC $203,167 for providing advisory
services.
7
<PAGE> 9
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USLIFE INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
CONTINUED
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, 1998, the Fund paid VALIC $25,136 for
providing these services.
At December 31, 1998, the Fund had a deferred compensation liability to a former
Director of the Fund which totaled $242,861 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, 1998, the identified cost of investments for federal income tax
purposes was $58,005,448 resulting in gross unrealized appreciation of
$1,960,520, gross depreciation of $1,112,613, and net unrealized appreciation of
$847,907.
During the six months ended December 31, 1998, purchases and sales of
investments, other than short-term investments, aggregated $13,979,015 and
$13,567,186, 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
redemptions. 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, 1998,
there were no outstanding borrowings under the line of credit.
NOTE 5 - SUBSEQUENT EVENT
On January 19, 1999, the Board of Directors declared a quarterly dividend of
$0.19 per share. The dividend will be payable on March 1, 1999 to shareholders
of record on February 19, 1999.
NOTE 6 - YEAR 2000
VALIC serves as investment adviser to the Fund. VALIC initiated its Year 2000
readiness plan in 1995. Since that time, VALIC management along with a team of
skilled information technology and business professionals have been dedicated to
achieving the objectives of the plan. This plan calls for the renovation,
upgrade and/or replacement of our mission critical computer systems, whether
developed internally or otherwise. It includes the five steps that we believe
are essential to Year 2000 readiness: inventory and discovery; analysis;
construction; testing; and implementation. As of December 31, 1998, we have
substantially completed all steps with respect to our critical systems.
VALIC's plan also includes an evaluation of the status of our key third party
relationships and their efforts in addressing Year 2000 issues. Throughout 1999
we will continue to work with critical third party dependencies and to develop
contingency plans for any identified risks or shortcomings. If significant third
parties fail to achieve Year 2000 readiness on a timely basis, then the Year
2000 issue could have a material adverse impact on the operations of VALIC and
the Fund. However, the third party contingency plans we develop are meant to
identify those risks and provide alternative actions should a third party not
achieve readiness. While we believe no one can predict with certainty outcomes
as to all the issues that may arise, VALIC is confident that its comprehensive
plan and resource commitment will allow it to meet its Year 2000 objectives.
Through December, 1998, VALIC has incurred and expensed $26.7 million (pretax)
related to Year 2000 readiness, including $20.2 million incurred during 1998.
VALIC currently anticipates that it will incur future costs of $2.1 million for
additional internal staff, third party vendors, and other expenses to maintain
readiness and complete third party contingency plans.
8
<PAGE> 10
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USLIFE INCOME FUND, INC.
SUPPLEMENTARY INFORMATION (UNAUDITED)
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 ChaseMellon
Shareholder Services, L.L.C. 450 West 33rd Street, New York, NY 10001 or call
1-800-526-0801.
ANNUAL MEETING OF SHAREHOLDERS
PROXY VOTING RESULTS
The Annual Meeting of Shareholders of the Fund was held on November 20, 1998.
The results of the proposals voted on by shareholders of the Fund were as
follows:
Approve amendments to the Fund's Articles of Incorporation and Bylaws to require
a vote of at least 75% of the Fund's shareholders to approve:
(a) any proposal to convert the Fund from a closed-end investment company to an
open-end investment company; (b) any shareholder proposal as to specific
investment decisions made or to be made regarding the Fund's assets, and (c)
any business combination.
For........................... 2,916,075
Against....................... 366,048
Abstain....................... 115,687
Broker Non-Vote............... 1,360,381
Total Outstanding............. 4,758,191
Approve amendments to the Fund's Articles of Incorporation and Bylaws to provide
for the establishment of three classes of Directors with each class having a
term of office no greater than three years and with the term of office for each
class expiring in successive calendar years.
For........................... 2,944,234
Against....................... 330,671
Abstain....................... 122,903
Broker Non-Vote............... 1,360,383
Total Outstanding............. 4,758,191
Election of twelve Directors to hold office until their successors are elected
and qualified.
<TABLE>
<CAPTION>
Total
Nominee For Withheld Outstanding
<S> <C> <C> <C>
Thomas L. West 4,496,719 261,472 4,758,191
Dr. Judith L. Craven 4,483,908 274,283 4,758,191
Dr. Timothy J. Ebner 4,490,748 267,443 4,758,191
Hon. Gustavo E. Gonzales, Jr. 4,491,856 266,335 4,758,191
John A. Graf 4,493,877 264,314 4,758,191
Dr. Norman Hackerman 4,477,673 280,518 4,758,191
Dr. John Wm. Lancaster 4,478,755 279,436 4,758,191
Ben H. Love 4,492,935 265,256 4,758,191
Dr. John E. Maupin, Jr. 4,490,448 267,743 4,758,191
Dr. F. Robert Paulsen 4,479,963 278,228 4,758,191
Dr. R. Miller Upton 4,479,773 278,418 4,758,191
Craig R. Rodby 4,499,451 258,740 4,758,191
</TABLE>
Ratify the selection of KPMG Peat Marwick LLP as independent auditor of the Fund
for the fiscal year ending June 30, 1999.
<TABLE>
<CAPTION>
For Against Abstain Total Outstanding
<S> <C> <C> <C>
4,463,073 197,606 97,512 4,758,191
</TABLE>
9
<PAGE> 11
BOARD OF DIRECTORS
Judith L. Craven
Timothy J. Ebner
Gustavo E. Gonzales, Jr.
John A. Graf
Norman Hackerman
John W. Lancaster
Ben H. Love
John E. Maupin, Jr.
F. Robert Paulsen
Craig R. Rodby
R. Miller Upton
Thomas L. West, Jr.
OFFICERS
Craig R. Rodby, Chairman
Peter V. Tuters, President
Leon A. Olver, Vice President
Cynthia A. Toles, Vice President and Secretary
Gregory R. Seward, Treasurer
Nori L. Gabert, Vice President and Assistant Secretary
Cynthia A. Gibbons, Assistant Vice President
Kathryn A. Pearce, Assistant Treasurer
Jaime M. Sepulveda, Assistant Treasurer
Heriberto Valdez, Assistant Treasurer
INVESTMENT ADVISER
The Variable Annuity Life Insurance Company (VALIC)
2929 Allen Parkway
Houston, TX 77019
SHAREHOLDER SERVICE AGENT
ChaseMellon Shareholders Services, L.L.C.
450 West 33rd Street
New York, NY 10001
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
700 Louisiana, Suite 3100
Houston, TX 77002
