<PAGE> 1
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USLIFE INCOME FUND, INC.
2929 Allen Parkway
Houston, TX 77019
DEAR FELLOW SHAREHOLDER:
USLIFE Income Fund reported net investment income of $4,402,006 or $0.78 per
share for the fiscal year ended June 30, 1999 versus $4,234,940 or $0.75 per
share for the prior fiscal year. Net assets of the Fund were $56,841,469 or
$10.07 per share at fiscal year end, versus $60,670,225 or $10.75 per share on
June 30, 1998. Cash dividends totaling $0.76 per share were paid to shareholders
during the 1999 fiscal year.
Your Fund's market price return of 7.85% for the year ended June 30, 1999 and
Net Asset Value (NAV) return of 0.64%, assuming reinvestment of dividends,
compared favorably with its relevant benchmarks. The Merrill Lynch Corporate
Government Index returned 2.71% while the Merrill Lynch High Yield Bond Index
returned 0.94%.
The Fund had 50.6% of its assets in investment grade issues and 49.4% of its
assets in below investment grade issues on June 30, 1999. The Fund continues its
policy of achieving a high level of current income for its shareholders.
Your Board of Directors declared a quarterly dividend of $0.19 per share on July
27, 1999 payable on September 1, 1999 to shareholders of record on August 20,
1999. We encourage those shareholders not already participating in USLIFE Income
Fund's Automatic Dividend Investment Plan, described on page 14, to enroll in
the Plan.
The past year has been a difficult one for the fixed income markets. In August
1998, Russia defaulted on some of its debt, beginning a global financial crisis,
in which riskier assets, such as low-grade corporate bonds suffered the most.
Since the worst of the crisis passed in early 1999, Treasury bond yields have
steadily climbed, lowering the value of fixed income investments. The outlook of
the markets going forward is uncertain. The economy is exhibiting both above
normal growth and below normal inflation. However, the ability of the economy to
maintain this "Goldilocks" state in the future is unknown.
Sincerely,
/s/ ALICE T. KANE
- -------------------------------
Alice T. Kane
President
1
<PAGE> 2
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Report of Independent Auditors
To the Board of Directors and Shareholders of USLIFE Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of USLIFE
Income Fund, Inc., including the statement of investments, as of June 30, 1999,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the years in the two-year period then
ended, and the financial highlights for each of the years in the five-year
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of USLIFE
Income Fund, Inc. as of June 30, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
Houston, Texas
July 29, 1999
2
<PAGE> 3
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USLIFE INCOME FUND, INC.
Statement of Investments
June 30, 1999
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
--------- ------------
<S> <C> <C>
CORPORATE BONDS - 93.42%
AEROSPACE/DEFENSE - 1.64%
$ 500,000 Loral Corp., 7.00% due 9/15/23 ..................................... $ 452,725
500,000 Raytheon Co., 7.38% due 7/15/25 .................................... 481,340
-----------
934,065
-----------
APPAREL & PRODUCTS - 0.86%
500,000 Bell Sports, Inc., 11.00% due 8/15/08 .............................. 490,000
-----------
AUTO - CARS - 1.25%
750,000 Prestolite Electric, Inc., 9.63% due 2/01/08 ....................... 712,500
-----------
BANKS - REGIONAL - 4.45%
2,500,000 Zions Institutional Capital Trust A, 8.54% due 12/15/26 ............ 2,528,875
-----------
BROADCASTING - 5.39%
1,500,000 Echostar DBS Corp., 9.38% due 2/01/09 .............................. 1,530,000
1,500,000 CSC Holdings, Inc., 7.88% due 2/15/18 .............................. 1,427,790
100,000 Cumulus Media, Inc., 10.38% due 7/01/08 ............................ 106,000
-----------
3,063,790
-----------
BUILDING MATERIALS - 1.32%
1,000,000 Uniforet Inc., 11.13% due 10/15/06 ................................. 750,000
-----------
CHEMICAL - MAJOR - 0.86%
500,000 Koppers Industry, Inc., 9.88% due 12/01/07 ......................... 487,500
-----------
CHEMICAL - MISCELLANEOUS - 0.36%
200,000 Lyondell Chemical Co., 9.88% due 5/01/07 ........................... 204,500
-----------
CONSUMER FINANCE - 0.53%
300,000 AmeriCredit Corp., 9.25% due 2/01/04 ............................... 301,875
-----------
CONTAINERS - METAL/GLASS - 0.83%
450,000 BWAY Corp., 10.25% due 4/15/07 ..................................... 472,500
-----------
ENTERTAINMENT - 1.03%
100,000 MTS, Inc., 9.38% due 5/01/05 ....................................... 79,000
500,000(1) Riviera Black Hawk, Inc., 13.00% due 5/01/05 ....................... 508,750
-----------
587,750
-----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
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USLIFE INCOME FUND, INC.
Statement of Investments-continued
June 30, 1999
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
--------- ------------
<S> <C> <C>
FINANCIAL SERVICES - 6.83%
$ 1,500,000 Ono Finance Plc., 13.00% due 5/01/09 ............................... $ 1,541,250
2,300,000 Zurich Capital Trust, 8.38% due 6/01/37 ............................ 2,339,514
------------
3,880,764
------------
FOODS - 1.89%
800,000 Ameriserve Food Distribution, 10.13% due 7/15/07 ................... 672,000
500,000 Borden, Inc., 7.88% due 2/15/23 .................................... 402,595
------------
1,074,595
------------
FREIGHT - 0.91%
500,000 Coach USA, Inc., 9.38% due 7/01/07 ................................. 515,000
------------
HEALTHCARE - 3.06%
2,150,000 Continental Health Affiliates, Inc., 6.00% due 8/31/03 ............. 1,464,688
250,000 Unilab Corp., 11.00% due 4/01/06 ................................... 273,750
------------
1,738,438
------------
INFORMATION PROCESSING - NETWORKING - 0.34%
200,000 Condor Systems, Inc., 11.88% due 5/01/09 ........................... 193,000
------------
INSURANCE - MULTILINE - 3.17%
2,000,000 Loews Corp., 7.00% due 10/15/23 .................................... 1,799,820
------------
LEISURE TIME - 1.76%
500,000 Hollywood Park, Inc., 9.25% due 2/15/07 ............................ 496,250
500,000(1) Speedway Motorsports, Inc., 8.50% due 8/15/07 ...................... 505,000
------------
1,001,250
------------
LODGING - 0.85%
500,000 Prime Hospitality Corp., 9.75% due 4/01/07 ......................... 485,000
------------
MACHINERY - INDUSTRIAL/SPECIALTY - 0.91%
500,000 Synthetic Industries, Inc., 9.25% due 2/15/07 ...................... 515,000
------------
MERCHANDISE - SPECIALTY - 0.25%
150,000 Finlay Fine Jewelry Corp., 8.38% due 5/01/08 ....................... 144,750
------------
MERCHANDISING - DEPARTMENT - 0.30%
200,000(1) True Temper Sports, Inc., 10.88% due 12/01/08 ...................... 168,000
------------
MERCHANDISING - FOOD - 0.86%
600,000 Disco SA, 9.88% due 5/15/08 ........................................ 487,500
------------
MERCHANDISING - MASS - 4.30%
2,500,000 K Mart Funding Corp., 9.44% due 7/01/18 ............................ 2,444,675
------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
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USLIFE INCOME FUND, INC.
Statement of Investments-continued
June 30, 1999
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
--------- ------------
<S> <C> <C>
METALS - MISCELLANEOUS - 0.85%
$ 500,000 Inco Limited, 9.60% due 6/15/22 .................................... $ 485,700
------------
METALS - STEEL - 1.68%
500,000 National Steel Corp., 9.88% due 3/01/09 ............................ 508,750
250,000 Renco Steel Holdings, 10.88% due 2/01/05 ........................... 222,500
200,000 USX Corp., 9.13% due 1/15/13 ....................................... 223,174
------------
954,424
------------
MISCELLANEOUS - 4.88%
900,000 Commercial Net Lease Realty, 8.13% due 6/15/04 ..................... 902,700
2,000,000 Liberty Property LP, 7.25% due 8/15/07 ............................. 1,874,700
------------
2,777,400
------------
OIL - INTEGRATED DOMESTIC - 1.28%
750,000 Tesoro Petroleum Corp., 9.00% due 7/01/08 .......................... 727,500
------------
OIL/GAS PRODUCERS - 0.90%
500,000 Vintage Petroleum, Inc., 9.75% due 6/30/09 ......................... 510,000
------------
PAPER/FOREST PRODUCTS - 8.09%
2,300,000 Boise Cascade Co., 7.99% due 9/13/13 ............................... 2,087,227
500,000 Georgia-Pacific Corp., 9.63% due 3/15/22 ........................... 535,040
2,000,000 Georgia-Pacific Corp., 8.25% due 3/01/23 ........................... 1,973,680
------------
4,595,947
------------
POLLUTION CONTROL - 1.82%
1,000,000 Safety-Kleen Services, 9.25% due 6/01/08 ........................... 1,032,500
------------
PUBLISHING - NEWS - 4.38%
2,500,000 News America Holdings, 8.15% due 10/17/36 .......................... 2,489,250
------------
RESTAURANTS - 2.09%
500,000 Apple South, Inc., 9.75% due 6/01/06 ............................... 476,250
500,000 Dominos Inc., 10.38% due 1/15/09 ................................... 505,000
100,000 Perkins Family Restaurant, 10.13% due 12/15/07 ..................... 104,250
100,000 Southern Foods, 9.88% due 9/01/07 .................................. 102,000
------------
1,187,500
------------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
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USLIFE INCOME FUND, INC.
Statement of Investments-continued
June 30, 1999
<TABLE>
<CAPTION>
PAR VALUE MARKET VALUE
--------- ------------
<S> <C> <C>
SAVINGS & LOAN - 4.83%
$ 2,700,000 Ahmanson Capital Trust, 8.36% due 12/01/26 ......................... $ 2,744,118
------------
TELECOMMUNICATIONS - 8.42%
500,000 Amphenol Corp., 9.88% due 5/15/07 .................................. 510,000
300,000 CCPR Services, Inc., 10.00% due 2/01/07 ............................ 320,625
350,000 Energis Plc., 9.75% due 6/15/09 .................................... 354,375
1,450,000 GCI, Inc., 9.75% due 8/01/07 ....................................... 1,450,000
100,000 Global Crossing Holding Limited, 9.63% due 5/15/08 ................. 108,000
1,000,000 IXC Communications, Inc., 9.00% due 4/15/08 ........................ 957,500
100,000 Intermedia Communications, Inc., 8.50% due 1/15/08 ................. 91,750
500,000 NEXTLINK Communications, Inc., 10.75% due 6/01/09 .................. 510,000
500,000 Orbcomm Global, 14.00% due 8/15/04 ................................. 485,000
------------
4,787,250
------------
UTILITIES - ELECTRIC - 10.25%
500,000 Boston Edison, 9.38% due 8/15/21 ................................... 544,930
900,000 Boston Edison, 8.25% due 9/15/22 ................................... 960,984
865,000 Commonwealth Edison, 8.38% due 9/15/22 ............................. 915,974
2,600,000 Niagara Mohawk Power Corp., 9.50% due 3/01/21 ...................... 2,754,440
600,000 Toledo Edison, 9.22% due 12/15/21 .................................. 650,850
------------
5,827,178
------------
TOTAL CORPORATE BONDS
(Cost $54,759,402) ................................................. 53,099,914
------------
UNITED STATES GOVERNMENT - LONG TERM
UNITED STATES TREASURY NOTES - 2.58%
1,500,000 United States Treasury Notes, 5.50% due 5/15/09 .................... 1,465,305
------------
TOTAL UNITED STATES GOVERNMENT - LONG TERM
(Cost $1,452,422) .................................................. 1,465,305
------------
CORPORATE SHORT TERM - 1.85%
REPURCHASE AGREEMENT
1,057,000 State Street Bank Repurchase Agreement, 4.70%,
dated 6/30/99, to be repurchased at $1,057,138 on
7/01/99 collateralized by U.S. Treasury Note, 6.625%, 3/31/02,
with a value of $1,082,881 (Cost $1,057,000) ....................... 1,057,000
------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
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USLIFE INCOME FUND, INC.
Statement of Investments-continued
June 30, 1999
<TABLE>
<CAPTION>
MARKET VALUE
------------
<S> <C> <C>
TOTAL CORPORATE SHORT TERM COMMERCIAL PAPER
(Cost $1,057,000) .................................................. $ 1,057,000
------------
TOTAL INVESTMENTS - 97.85%
(Cost $57,268,824) ................................................. 55,622,219
Other assets less liabilities, net - 2.15% ......................... 1,219,250
------------
NET ASSETS - 100.00% ............................................... $ 56,841,469
============
</TABLE>
(1) Securities exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be sold in transactions exempt from
registration, normally to qualified institutional buyers. At June 30,
1999, the aggregate value of these securities was $1,181,750,
representing 2.08% of the net assets.
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
7
<PAGE> 8
================================================================================
USLIFE INCOME FUND, INC.
Statement of Assets and Liabilities
June 30, 1999
<TABLE>
<S> <C>
ASSETS
Investments at market
Bonds (Cost $56,211,824) ..................................................... $ 54,565,219
Repurchase Agreement (Cost $1,057,000) ....................................... 1,057,000
Receivable for investments sold ................................................ 1,678,825
Interest receivable ............................................................ 1,321,740
Prepaid expenses ............................................................... 11,797
------------
Total assets ............................................................... 58,634,581
------------
LIABILITIES
Payable for investments purchased .............................................. 1,463,183
Directors' deferred compensation ............................................... 220,002
Payables to affiliates
Advisory fees ................................................................ 33,509
Accounting services .......................................................... 12,500
Other liabilities .............................................................. 63,918
------------
Total liabilities .......................................................... 1,793,112
------------
NET ASSETS (equivalent to $10.07 per share
on 5,643,768 shares outstanding) ............................................ $ 56,841,469
============
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 ..................................................... 53,463,303
Accumulated net realized loss on securities .................................... (1,710,777)
Undistributed net investment income ............................................ 1,091,780
Unrealized depreciation of investments ......................................... (1,646,605)
------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING .................................... $ 56,841,469
============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
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USLIFE INCOME FUND, INC.
Statement of Operations
For the Year Ended June 30, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest ................................................................ $ 5,062,804
-----------
EXPENSES:
Advisory fees ........................................................... 404,470
Transfer agent fees and expenses ........................................ 54,479
Treasury and secretarial services ....................................... 50,000
Legal and audit fees .................................................... 44,977
Directors' fees ......................................................... 31,915
Report to shareholders .................................................. 32,032
Interest on directors' deferred compensation ............................ 10,920
New York stock exchange listing fees .................................... 15,773
Insurance expenses ...................................................... 6,133
Custodian fees .......................................................... 4,813
Miscellaneous ........................................................... 5,286
-----------
Total expenses ........................................................ 660,798
-----------
NET INVESTMENT INCOME ................................................... 4,402,006
-----------
REALIZED AND UNREALIZED LOSS ON SECURITIES:
Net realized loss on securities ......................................... (656,773)
Net unrealized depreciation of securities during the year ............... (3,284,726)
-----------
Net realized and unrealized loss on securities during the year ........ (3,941,499)
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................ $ 460,507
===========
======================================================================================
</TABLE>
Statement of Changes in Net Assets
For the Years Ended June 30:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ....................................................... $ 4,402,006 $ 4,234,940
Net realized gain (loss) on securities ...................................... (656,773) 1,444,424
Net unrealized appreciation (depreciation) of securities during the year .... (3,284,726) 1,862,798
------------ ------------
Increase in net assets resulting from operations .......................... 460,507 7,542,162
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ....................................................... (4,289,263) (4,289,264)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS...................................... (3,828,756) 3,252,898
------------ ------------
NET ASSETS:
Beginning of year ........................................................... 60,670,225 57,417,327
------------ ------------
End of year (including undistributed net
investment income of $1,091,780 and $997,787) ............................. $ 56,841,469 $ 60,670,225
============ ============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
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USLIFE INCOME FUND, INC.
Financial Highlights
Per share data is for a share of capital stock outstanding throughout the
period. Total return includes reinvestment of dividends.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------
PER SHARE DATA 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period .................... $ 10.75 $ 10.17 $ 9.62 $ 10.07 $ 9.39
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income ................................... .78 .75 .73 .76 .76
Net realized and unrealized gain (loss) on securities ... (.70) .59 .62 (.41) .72
-------- -------- -------- -------- --------
Total income from investment operations ................. 0.08 1.34 1.35 .35 1.48
Distributions:
Distributions from net investment income ................ (.76) (.76) (.80) (.80) (.80)
-------- -------- -------- -------- --------
Net asset value, end of period .......................... $ 10.07 $ 10.75 $ 10.17 $ 9.62 $ 10.07
======== ======== ======== ======== ========
Market value, end of period ............................. $ 9.63 $ 9.63 $ 9.13 $ 9.00 $ 9.25
======== ======== ======== ======== ========
Total investment return*:
Based on market value ................................... 7.85% 14.01% 10.48% 5.56% 7.72%
Based on net asset value ................................ 0.64% 13.57% 15.19% 3.64% 17.08%
Ratios and supplemental data:
Ratio of expenses to average net assets ................. 1.12% 1.12% 1.19% 1.17% 1.22%
Ratio of net investment income to average net assets .... 7.46% 7.11% 7.43% 7.49% 7.99%
Portfolio turnover rate ................................. 58% 73% 26% 30% 30%
Number of shares outstanding at end of period (000's) ... 5,644 5,644 5,644 5,644 5,644
Net assets, end of period (000's) ....................... $ 56,841 $ 60,670 $ 57,417 $ 54,279 $ 56,834
Average net assets, during the period (000's) ........... $ 58,998 $ 59,597 $ 55,764 $ 56,914 $ 53,474
</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.
10
<PAGE> 11
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USLIFE INCOME FUND, INC.
Notes to Financial Statements
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 Fund's investment objective is to provide a high level of current
income through a diversified portfolio composed predominantly of marketable
fixed income securities.
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. Repurchase Agreements
The seller of a repurchase agreement collateralizes the agreement with
securities delivered to the Fund's custodian bank. The Variable Annuity
Life Insurance Company ("VALIC" or the "Adviser") determines, on a daily
basis, that the seller maintains collateral of at least 100% of the
repurchase proceeds due to the Fund at maturity.
C. 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 June 30, 1999, the Fund had a net
capital loss carry forward of approximately $1.1 million expiring through
June 30, 2002.
D. 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 accreted, except for original issue
discounts which are being accreted for tax purposes.
E. 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.
11
<PAGE> 12
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USLIFE INCOME FUND, INC.
Notes to Financial Statements
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 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 year ended June 30, 1999, the Fund paid VALIC $404,470 for
providing advisory services.
In accordance with the investment advisory agreement, the Fund reimburses the
Adviser for services performed on behalf of the Fund by the Secretary and the
Treasurer and personnel operating under their direction. During the year ended
June 30, 1999, the Fund paid VALIC $50,000 for providing these services.
At June 30, 1999, the Fund had a deferred compensation liability to a former
Director of the Fund which totaled $220,002 including accrued interest payable
by the Fund. Certain officers and directors of the Fund are officers and
directors of VALIC or affiliates of VALIC.
Note 3 - Investment Activity
At June 30, 1999, the identified cost of investments for federal income tax
purposes was $57,268,824 resulting in gross unrealized appreciation of $700,745,
gross unrealized depreciation of $2,347,350, and net unrealized depreciation of
$1,646,605.
During the year ended June 30, 1999, purchases and sales of investments, other
than short-term investments, aggregated $33,164,003 and $33,342,140,
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. Interest is charged to the Fund
at rates which are tied to the federal funds rate in effect at the time of
borrowings. At June 30, 1999, there were no outstanding borrowings under the
line of credit.
Note 5 - Subsequent Events
On July 27, 1999, the Board of Directors declared a quarterly dividend of $0.19
per share. The dividend will be payable on September 1, 1999 to shareholders of
record on August 20, 1999.
Effective July 27, 1999, Ms. Kane and Mr. Barrett were elected President and
Director and Executive Vice President and Director of the Fund, respectively.
Craig R. Rodby and John A. Graf have resigned as Directors and Officers of
the Fund.
12
<PAGE> 13
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USLIFE INCOME FUND, INC.
Notes to Financial Statements
Note 6 - Quarterly Results of Operations (Unaudited)
For the fiscal years ended June 30, 1999 and 1998 (000's omitted except for per
share data):
<TABLE>
<CAPTION>
1999 1998
THREE MONTHS ENDED THREE MONTHS ENDED
------------------------------------------- ------------------------------------------
SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH JUNE
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income $ 1,240 $ 1,275 $ 1,268 $ 1,280 $ 1,218 $ 1,249 $ 1,222 $ 1,212
Net investment income 1,069 1,108 1,110 1,115 1,043 1,073 1,054 1,065
Net realized and
unrealized gain (loss)
on securities (1,091) 148 (1,034) (1,965) 1,729 1,136 (502) 944
Per share of Common Stock:
Net investment income .19 .20 .19 .20 .18 .19 .19 .19
Net realized and unrealized
gain (loss) on investments (.20) .03 (.19) (.34) .31 .20 (.09) .17
Net asset value at end
of quarter $ 10.56 $ 10.59 $ 10.41 $ 10.07 $ 10.51 $ 10.68 $ 10.58 $ 10.75
</TABLE>
Note 7 - Year 2000 (Unaudited)
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 June 30, 1999, 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 of 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 June 1999, VALIC has incurred and expensed $28.5 million
(pretax) related to Year 2000 readiness, including $1.8 million incurred during
1999. VALIC currently anticipates that it will incur future costs of $1.9
million for additional internal staff, third party vendors, and other expenses
to maintain readiness and complete third party contingency plans.
13
<PAGE> 14
================================================================================
USLIFE INCOME FUND, INC.
Supplementary Information
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., 85 Challenger Road, Overpeck Center, Ridgefield
Park, NJ 07660 or call 1-800-526-0801.
14
<PAGE> 15
================================================================================
BOARD OF DIRECTORS
Kent E. Barrett
Judith L. Craven
Timothy J. Ebner
Gustavo E. Gonzales, Jr.
Norman Hackerman
Alice T. Kane
John W. Lancaster
Ben H. Love
John E. Maupin, Jr.
F. Robert Paulsen
R. Miller Upton
Thomas L. West, Jr., Chairman
OFFICERS
Alice T. Kane, President
Kent E. Barrett, Executive Vice President
Leon A. Olver, Vice President
Pauletta P. Cohn, 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.
85 Challenger Road
Overpeck Center
Ridgefield Park, NJ 07660
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
INDEPENDENT AUDITORS
KPMG LLP
700 Louisiana, Suite 3100
Houston, TX 77002
<PAGE> 16
USLIFE INCOME
FUND, INC.
ANNUAL REPORT
June 30, 1999
[AMERICAN GENERAL FINANCIAL GROUP LOGO]
The Variable Annuity Life Insurance Company (VALIC)
2929 Allen Parkway * Houston, TX 77019
