<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
2929 Allen Parkway
Houston, TX 77019
Dear Fellow Shareholder:
The USLIFE Income Fund is an income-oriented fund looking for current income.
As a fixed income mutual fund investor you have several advantages over those
who purchase individual income producing bonds. Probably the greatest
advantage is diversification, the spreading of assets across many types of
securities to reduce risk. The Fund manager can buy a variety of bonds to
reduce potential price declines if a particular issue does not perform well.
The manager can also adjust a bond fund's average maturity to try to capture
price appreciation and maintain income when rates are expected to fall or to
protect principal when rates are expected to rise. The manager also draws on
intensive credit research and other information when selecting securities for
purchase or deciding the timing of transactions. The assisting credit
analysts try to determine the risk of a default or downgrade, which helps the
fund manager make sound investments and avoid potential pitfalls. These
analysts also continuously monitor the credit quality of the fund's holdings.
While no single type of investment can achieve all your investment goals,
each one can make an important contribution to your long-term plan. Bonds
remain a good choice for steady, high income. However, we must always be
aware that overall economic conditions do effect the overall performance of
any investment vehicle. The continued rally in worldwide economic activity
bolstered stock prices but depresses bond prices. Interest rates, which move
in the opposite direction from bond prices, rose significantly.
Immediately before the beginning of the Fund's new fiscal year on July 1, the
Federal Reserve Board, attempting to cool the economy and abate price
pressures, began raising short-term interest rates. The bond market had
anticipated the increase back in February of 1999 and by the December 31 the
30-year U.S. Treasury bonds reached 6.48%. The 10-year Treasury note, the
benchmark for mortgage rates, rose to 6.44% while the 3-month Treasury bill
moved to 5.33% by the end of December. Price declines were greatest for
long-term bonds and least for short-term bonds.
The USLIFE Income Fund reported net investment income of $1,690,213 or $0.30
per share for the six months ended December 31, 1999, versus $2,176,596 or
$0.39 per share for the six months ended December 31, 1998. The decrease in
net investment income for the period is attributable to increased expenses
primarily in connection with a proxy contest at the Fund's 1999 Annual
Meeting of Shareholders, and related matters. The voting results at the
Annual Meeting can be found on page 16 under the heading Supplementary
Information.
Net assets of the Fund were $53,104,548 or $9.41 per share at December 31,
1999, versus $59,759,175 or $10.59 per share on December 31,1998. Cash
dividends totaling $0.38 per share were paid to shareholders during the six
months ending December 31, 1999. The Fund's market price return of negative
14.18% for the year ended December 31,1999, and Net Asset Value (NAV) return
of negative 2.91%, assuming reinvestment of dividends, compared unfavorably
with its relevant benchmarks. The Merrill Lynch Corporate Government Index
returned 0.20% while the Merrill Lynch High Yield Bond Index returned
negative 0.18%.
1
<PAGE>
================================================================================
The Fund had 54.0% of its assets in investment grade issues and 46.0% of its
assets in below investment grade issues on December 31,1999. The Fund
continues its policy of attempting to achieve a high level of current income
for its shareholders.
The Board of Directors declared a quarterly dividend of $0.19 per share on
January 18, 2000, payable on March 1, 2000, to shareholders of record on
February 18, 2000. We encourage those shareholders not already participating
in USLIFE Income Fund's Automatic Dividend Investment Plan, described on page
15, to consider enrolling in the Plan.
Thank you for your continued confidence and support.
Sincerely,
/s/ Alice T. Kane
Alice T. Kane
President
2
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Schedule of Investments (Unaudited)
December 31,1999
PAR VALUE MARKET VALUE
- --------- ------------
CORPORATE BONDS - 96.00%
AEROSPACE/DEFENSE - 1.64%
$ 500,000 Loral Corp.,
7.00% due 9/15/23 ........................ $ 421,945
500,000 Raytheon Co.,
7.38% due 7/15/25 ........................ 446,720
------------
868,665
------------
AIRLINES - 2.46%
1,482,915 U.S. Airways Inc.,
6.85% due 1/30/18 ........................ 1,306,537
------------
APPAREL & PRODUCTS - 0.93%
500,000 Bell Sports, Inc.,
11.00% due 8/15/08 ....................... 495,000
------------
AUTO - CARS - 1.10%
750,000 Prestolite Electric, Inc.,
9.63% due 2/01/08 ........................ 585,000
------------
AUTO - ORIGINAL EQUIPMENT - 0.48%
250,000 JL French Auto Casting,
11.50% due 06/01/09 ...................... 255,000
------------
BANKS - REGIONAL - 4.42%
2,500,000 Zions Institutional Capital Trust A,
8.54% due 12/15/26 ....................... 2,348,475
------------
BROADCASTING - 3.12%
1,500,000 Echostar DBS Corp.,
9.38% due 02/01/09 ....................... 1,503,750
100,000 Cumulus Media, Inc.,
10.38% due 07/01/08 ...................... 104,000
50,000 Spanish Broadcasting System, Inc.,
9.63% due 11/01/09 ....................... 50,250
------------
1,658,000
------------
See accompanying notes to financial statements.
3
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Schedule of Investments (Unaudited) continued
December 31,1999
PAR VALUE MARKET VALUE
- --------- ------------
BUILDING MATERIALS - 1.17%
$ 1,000,000 Uniforet Inc.,
11.13% due 10/15/06 ...................... $ 620,000
------------
CHEMICAL - MAJOR - 0.90%
525,000 Koppers Industry, Inc.,
9.88% due 12/01/07 ....................... 477,750
------------
CHEMICAL - MISCELLANEOUS - 1.25%
Lyondell Chemical Co.:
150,000 9.88% due 05/01/07 ....................... 153,000
500,000 9.63% due 05/01/07 ....................... 511,250
------------
664,250
------------
CONGLOMERATES - 3.23%
2,000,000 Loews Corp.,
7.00% due 10/15/23 ....................... 1,714,520
------------
CONSUMER FINANCE - 0.56%
300,000 AmeriCredit Corp.,
9.25% due 02/01/04 ....................... 299,625
------------
CONTAINERS - METAL/GLASS - 0.85%
450,000 BWAY Corp.,
10.25% due 04/15/07 ...................... 448,875
------------
DRUGS - 1.17%
650,000 ICN Pharmaceuticals, Inc.,
8.75% due 11/15/08 ....................... 620,750
------------
ELECTRIC PRODUCTS - MISCELLANEOUS - 3.39%
2,000,000 ITT Industrial, Inc.,
7.40% due 11/15/25 ....................... 1,800,740
------------
See accompanying notes to financial statements.
4
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Schedule of Investments (Unaudited) continued
December 31,1999
PAR VALUE MARKET VALUE
- --------- ------------
ENTERTAINMENT - 2.48%
$ 100,000 Carmike Cinemas, Inc.,
9.38% due 02/01/09 ....................... $ 87,500
250,000 (1) Hollywood Casino Shreveport,
13.00% due 08/01/06 ...................... 267,500
100,000 MTS, Inc.,
9.38% due 05/01/05 ....................... 55,000
500,000 Regal Cinemas, Inc.,
9.50% due 06/01/08........................ 380,000
500,000 Riviera Black Hawk, Inc.,
13.00% due 05/01/05 ....................... 525,000
------------
1,315,000
------------
FINANCIAL SERVICES - 10.09%
1,500,000 (1) Bank of Scotland,
7.00% due 11/29/49......................... 1,385,250
1,500,000 Doral Financial Corp.,
8.50% due 07/08/04......................... 1,478,405
1,500,000 Ono Finance Plc.,
13.00% due 05/01/09........................ 1,530,000
1,000,000 Paine Webber Group, Inc.,
7.94% due 01/27/17 ........................ 964,520
------------
5,358,175
------------
FOODS - 1.23%
800,000 Ameriserve Food Distribution,
10.13% due 07/15/07........................ 272,000
500,000 Borden, Inc.,
7.88% due 02/15/23 ........................ 382,010
------------
654,010
------------
HEALTHCARE - 0.53%
2,150,000 * Kuala Health Affiliates, Inc.,
6.00% due 08/31/03 ........................ 215,000
100,000 Universal Hospital Services,
10.25% due 03/01/08 ....................... 68,000
------------
283,000
------------
See accompanying notes to financial statements.
5
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Schedule of Investments (Unaudited) continued
December 31,1999
PAR VALUE MARKET VALUE
- --------- ------------
HOME BUILDERS - 0.18%
$ 100,000 Beazer Homes USA, Inc.,
9.00% due 03/01/04 ....................... $ 95,750
------------
INFORMATION PROCESSING - NETWORKING - 0.28%
200,000 (1) Condor Systems, Inc.,
11.88% due 05/01/09 ...................... 150,250
------------
INSURANCE - MULTILINE - 4.25%
2,300,000 Zurich Capital Trust,
8.38% due 06/01/37 ....................... 2,255,978
------------
LEISURE TIME - 1.85%
500,000 Hollywood Park, Inc.,
9.25% due 02/15/07 ....................... 495,625
500,000 Speedway Motorsports, Inc.,
8.50% due 08/15/07 ....................... 485,000
------------
980,625
------------
LODGING - 0.93%
500,000 Prime Hospitality Corp.,
9.75% due 04/01/07 ....................... 495,000
------------
MACHINERY - CONSTRUCTION & CONTRACTS - 0.14%
250,000 Grove Worldwide LLC.,
9.25% due 05/01/08 ....................... 72,500
------------
MERCHANDISE - SPECIALTY - 0.26%
150,000 Finlay Fine Jewelry Corp.,
8.38% due 05/01/08 ....................... 138,750
------------
MERCHANDISING - DEPARTMENT - 0.36%
200,000 True Temper Sports, Inc.,
10.88% due 12/01/08 ...................... 191,000
------------
MERCHANDISING - FOOD - 0.99%
600,000 Disco SA,
9.88% due 05/15/08 ....................... 523,500
------------
See accompanying notes to financial statements.
6
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Schedule of Investments (Unaudited) continued
December 31,1999
PAR VALUE MARKET VALUE
- --------- ------------
MERCHANDISING - MASS - 4.43%
$ 2,500,000 K Mart Funding Corp.,
9.44% due 07/01/18 ....................... $ 2,352,650
------------
METALS - MISCELLANEOUS - 0.91%
500,000 Inco Limited,
9.60% due 06/15/22 ....................... 484,435
------------
METALS - STEEL - 0.75%
192,000 National Steel Corp.,
9.88% due 03/01/09........................ 197,760
250,000 Renco Steel Holdings,
10.88% due 02/01/05 ...................... 202,500
------------
400,260
------------
OIL - INTEGRATED DOMESTIC - 1.76%
750,000 Tesoro Petroleum Corp.,
9.00% due 07/01/08 ....................... 716,250
200,000 USX-Marathon Group,
9.13% due 01/15/13 ....................... 217,280
------------
933,530
------------
OIL - SERVICES - 0.56%
300,000 Pride Petroleum Services,
9.38% due 05/01/07 ....................... 299,250
------------
OIL/GAS PRODUCERS - 2.23%
Chesapeake Energy Corp.:
200,000 9.63% due 05/01/05 ....................... 188,500
100,000 9.13% due 04/15/06 ....................... 91,250
500,000 Frontier Oil Corp.,
11.75% due 11/05/09 ...................... 492,500
200,000 Pogo Producing Co.,
10.38% due 02/15/09 ...................... 208,000
200,000 Swift Energy Co.,
10.25% due 08/01/09 ...................... 201,500
------------
1,181,750
------------
See accompanying notes to financial statements.
7
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Schedule of Investments (Unaudited) continued
December 31,1999
PAR VALUE MARKET VALUE
- --------- ------------
PAPER/FOREST PRODUCTS - 8.49%
$ 2,300,000 Boise Cascade Co.,
7.99% due 09/13/13 ....................... $ 2,095,323
Georgia-Pacific Corp.:
500,000 9.63% due 03/15/22 ....................... 515,975
2,000,000 8.25% due 03/01/23 ....................... 1,898,460
------------
4,509,758
------------
POLLUTION CONTROL - 1.82%
1,000,000 Safety-Kleen Services,
9.25% due 06/01/08 ....................... 967,500
------------
PUBLISHING - NEWS - 4.50%
2,500,000 News America Holdings,
8.15% due 10/17/36 ....................... 2,389,500
------------
PUBLISHING/PRINTING - 0.84%
200,000 TV Guide, Inc.,
8.13% due 03/01/09 ....................... 199,500
250,000 Transwestern Publishing Co.
9.63% due 11/15/07 ....................... 248,125
------------
447,625
------------
RESTAURANTS - 1.24%
500,000 Apple South, Inc.,
9.75% due 06/01/06 ....................... 455,000
100,000 Perkins Family Restaurant,
10.13% due 12/15/07 ...................... 101,000
100,000 Southern Foods,
9.88% due 09/01/07 ....................... 100,750
------------
656,750
------------
SAVINGS & LOAN - 4.83%
2,700,000 Ahmanson Capital Trust,
8.36% due 12/01/26 ....................... 2,566,511
------------
See accompanying notes to financial statements.
8
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Schedule of Investments (Unaudited) continued
December 31,1999
PAR VALUE MARKET VALUE
- --------- ------------
TELECOMMUNICATIONS - 6.16%
$ 500,000 Amphenol Corp.,
9.88% due 05/15/07 ....................... $ 520,000
500,000 Call-Net Enterprises, Inc.,
8.00% due 08/15/08 ....................... 380,000
265,000 Energis, Plc.,
9.75% due 06/15/09 ....................... 274,275
1,125,000 GCI, Inc.,
9.75% due 08/01/07 ....................... 1,032,188
100,000 Global Crossing Holding Limited,
9.63% due 05/15/08 ....................... 99,750
100,000 Intermedia Communications, Inc.,
8.50% due 01/15/08 ....................... 91,000
500,000 NEXTLINK Communications, Inc.,
10.75% due 06/01/09 ...................... 513,750
500,000 Orbcomm Global,
14.00% due 08/15/04 ...................... 360,000
------------
3,270,963
------------
UTILITIES - ELECTRIC - 4.41%
900,000 Boston Edison,
8.25% due 09/15/22 ....................... 868,842
865,000 Commonwealth Edison,
8.38% due 09/15/22 ....................... 893,779
600,000 Toledo Edison,
9.22% due 12/15/21 ....................... 575,244
------------
2,337,865
------------
UTILITIES - GAS, PIPELINE - 2.83%
1,500,000 ONEOK, Inc.,
7.75% due 08/15/06 ....................... 1,504,560
------------
TOTAL CORPORATE BONDS
(Cost $56,500,335) ......................... 50,979,632
------------
See accompanying notes to financial statements.
9
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Schedule of Investments (Unaudited) continued
December 31,1999
PAR VALUE MARKET VALUE
- --------- ------------
WARRANTS - 0.35%
FINANCIAL SERVICES - 0.35%
$ 1,500 (1) Ono Finance Plc. ........................... $ 186,000
------------
TOTAL WARRANTS
(Cost $0) .................................. 186,000
------------
CORPORATE SHORT TERM -
REPURCHASE AGREEMENT - 2.30%
BANKS - OTHER - 2.30%
1,223,000 State Street Bank Repurchase Agreement,
2.60% dated 12/31/99, to be repurchased
at $1,223,265 on 01/03/00 collaterized
by U.S.Treasury note, 5.63%, 05/15/01,
with a value of $1,250,000
( Cost $1,223,000) ......................... 1,223,000
------------
TOTAL CORPORATE SHORT TERM -
REPURCHASE AGREEMENT
( Cost $1,223,000) ......................... 1,223,000
------------
TOTAL INVESTMENTS - 98.65%
(Cost $57,723,335) ........................ $ 52,388,632
============
* Non-income producing - issuer is in default of interest
payments.
(1) Securities exempt form 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 December 31, 1999, the
aggregate value of theses securities was $1,989,000
representing 3.75% of the net assets.
10
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Statement of Assets and Liabilities (Unaudited)
December 31,1999
ASSETS
Investments at market
Bonds (Cost $56,500,335)................................... $ 51,165,632
Repurchase Agreement (Cost $1,223,000)..................... 1,223,000
Interest receivable............................................ 1,266,577
Other assets................................................... 2,469
------------
Total assets............................................. 53,657,678
------------
LIABILITIES
Directors' deferred compensation............................... 225,392
Payables to affiliates
Advisory fees.............................................. 27,475
Accounting services........................................ 12,705
Other liabilities.............................................. 287,558
------------
Total liabilities........................................ 553,130
------------
NET ASSETS (equivalent to $9.41 per share
on 5,643,768 shares outstanding)........................... $ 53,104,548
============
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.................... (1,305,178)
Undistributed net investment income............................ 637,358
Unrealized depreciation of investments......................... (5,334,703)
------------
NET ASSETS APPLICABLE TO SHARES OUTSTANDING.................... $ 53,104,548
============
See accompanying notes to financial statements.
11
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Statement of Operations
For the six months ended December 31, 1999
INVESTMENT INCOME:
Interest....................................................... $ 2,500,104
------------
EXPENSES:
Advisory fees.................................................. 177,640
Legal and audit fees........................................... 27,804
Transfer agent fees and expenses............................... 27,440
Treasury and secretarial services.............................. 25,000
Directors' fees................................................ 20,924
Report to shareholders......................................... 19,356
New York Stock Exchange listing fees........................... 8,455
Interest on directors' deferred compensation................... 5,389
Custodian fees................................................. 2,429
Proxy expenses ................................................ 492,858
Miscellaneous.................................................. 2,596
------------
Total expenses............................................. 809,891
------------
NET INVESTMENT INCOME.......................................... 1,690,213
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON SECURITIES:
Net realized gain on securities................................ 405,599
Net unrealized depreciation of securities during the period.... (3,688,098)
------------
Net realized and unrealized loss on securities
during the period......................................... (3,282,499)
------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............... $ (1,592,286)
============
================================================================================
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the Fiscal
Months Ended Year Ended
December 31, 1999 June 30, 1999
----------------- --------------
<S> <C> <C>
OPERATIONS:
Net investment income.......................................... $ 1,690,213 $ 4,402,006
Net realized gain (loss) on securities......................... 405,599 (656,773)
Net unrealized depreciation of securities during the period.... (3,688,098) (3,284,726)
------------ ------------
Increase (decrease) in net assets resulting from operations.... (1,592,286) 460,507
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................................... (2,144,635) (4,289,263)
------------ ------------
TOTAL DECREASE IN NET ASSETS................................... (3,736,921) (3,828,756)
------------ ------------
NET ASSETS:
Beginning of year.............................................. 56,841,469 60,670,225
------------ ------------
End of period (including undistributed net investment income
of $637,358 December 31, 1999 and $1,091,780 June 30, 1999)... $ 53,104,548 $ 56,841,469
============ ============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
================================================================================
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 DECEMBER 31, 1999 1999 1998 1997 1996 1995
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period.................... $ 10.07 $ 10.75 $ 10.17 $ 9.62 $ 10.07 $ 9.39
--------------------------------------------------------------
Income (loss) from investment operations:
Net investment income................................. 0.30 0.78 0.75 0.73 0.76 0.76
Net realized and unrealized gain (loss)
on securities....................................... (0.58) (0.70) 0.59 0.62 (0.41) 0.72
--------------------------------------------------------------
Total income (loss) from investment operations........ (0.28) 0.08 1.34 1.35 0.35 1.48
--------------------------------------------------------------
Distributions:
Distributions from net investment income.............. (0.38) (0.76) (0.76) (0.80) (0.80) (0.80)
--------------------------------------------------------------
Net asset value, end of period........................ $ 9.41 $ 10.07 $ 10.75 $ 10.17 $ 9.62 $ 10.07
==============================================================
Market value, end of period........................... $ 7.94 $ 9.63 $ 9.63 $ 9.13 $ 9.00 $ 9.25
==============================================================
Total investment return*:
Based on market value................................. (14.18%) 7.85% 14.01% 10.48% 5.56% 7.72%
Based on net asset value.............................. (2.91%) 0.64% 13.57% 15.19% 3.64% 17.08%
RATIOS AND SUPPLEMENTAL DATA:
Ratio of expenses to average net assets............... 1.47% 1.12% 1.12% 1.19% 1.17% 1.22%
Ratio of net investment income to average net assets.. 3.08% 7.46% 7.11% 7.43% 7.49% 7.99%
Portfolio turnover rate............................... 33% 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 5,644
Net assets, end of period (000's)..................... $ 53,105 $ 56,841 $ 60,670 $ 57,417 $ 54,279 $ 56,834
Average net assets, during the period (000's)......... $ 54,924 $ 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.
13
<PAGE>
================================================================================
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 December 31,1999, 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.
14
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Notes to Financial Statements
continued
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. VALlC 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, 1999, the Fund paid VALIC
$177,640 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 six months
ended December 31,1999, the Fund paid VALIC $25,000 for providing these
services.
At December 31,1999, the Fund had a deferred compensation liability to a former
Director of the Fund which totaled $225,392 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 December 31, 1999, the identified cost of investments for Federal income tax
purposes was $57,723,335 resulting in gross unrealized appreciation of $415,342,
gross unrealized depreciation of $5,750,045, and net unrealized depreciation of
$5,334,703.
During the six months ended December 31,1999, purchases and sales of
investments, other than short-term investments, aggregated $17,513,073 and
$17,584,642, respectively.
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 Mellon Shareholder Services, L.L.C. 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.
15
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Supplementary Information
continued
ANNUAL MEETING OF SHAREHOLDERS
PROXY VOTING RESULTS
The Annual Meeting of Shareholders of the Fund was held on December 3, 1999.
Shareholders of the Fund voted on the election of four directors to the Board,
the ratification of the selection of KPMG LLP as independent auditor of the Fund
and a proposal submitted by a shareholder (and opposed by the Board of
Directors) requesting that the Fund invest in equity securities as well as fixed
income securities. The results of the proposals voted on by shareholders of the
Fund were as follows:
Election of four Directors to the Board.
Nominees of the Total
Fund's Board Shares
of Directors For Withheld Voted
- --------------- ------- -------- ---------
Kent E. Barrett 3,636,091 106,530 3,742,621
Judge Gustavo E. Gonzales, Jr. 3,634,246 108,375 3,742,621
Alice T. Kane 3,636,341 106,280 3,742,621
Dr. F. Robert Paulsen 3,634,163 108,458 3,742,621
Nominees of the Total
Ernest Horejsi Shares
Trust No. 1B For Withheld Voted
- --------------- ------- -------- ---------
Stewart R. Horejsi 520,582 18,818 539,400
John S. Horejsi 520,582 18,818 539,400
Richard I. Barr 520,782 19,018 539,800
James G. Duff 520,782 19,018 539,800
The four nominees elected to the Board were Kent E. Barrett, Judge Gustavo E.
Gonzales, Jr., Alice T. Kane and Dr. F. Robert Paulsen. The nominees of Ernest
Horejsi Trust No. 1B were not elected to the Board. Those directors whose
current term of office did not expire in 1999 are: Dr. Judith L. Craven, Dr.
Timothy J. Ebner, Dr. Norman Hackerman, Dr. John Wm. Lancaster, Ben H. Love and
Dr. John E. Maupin, Jr.
Ratify the selection of KPMG LLP as independent auditor of the Fund for the
fiscal year ending June 30, 2000.
Total
Shares
For Against Abstain Voted
--------- ------- ------- ---------
4,141,978 43,752 96,690 4,282,420
Proposal submitted by Ernest Horejsi Trust No. 1B requesting that the Board of
Directors take proper actions that result in the Fund investing in equity
securities as well as fixed income securities.
Total
Shares
For Against Abstain Voted
--------- ------- ------- ---------
528,483 3,750,519 2,661 4,281,663
OTHER INFORMATION
On January 18, 2000, the Board of Directors declared a quarterly dividend of
$0.19 per share. The dividend will be payable on March 1, 2000 to shareholders
of record on February 18, 2000.
In addition, on January 18, 2000, by resolution of the Fund's Board of Directors
in accordance with the provisions of Subtitle 8 of Title 3 of the Maryland
General Corporation Law ("Subtitle 8"), the Fund elected to be subject to
Sections 3-804 and 3-805 of the Maryland General Corporation Law. Subtitle 8 was
enacted by the State of Maryland effective June 1, 1999. Sections 3-804 and 3-
805 provide, among other things, that (i) any permitted removal of directors
from office requires the affirmative vote of the holders of two-thirds of all
outstanding shares, (ii) only the board of directors may set the size of the
board and vacancies on the board of directors may be filled only by the
remaining directors and (iii) special meetings of stockholders may be called by
the holders of a majority of all outstanding shares.
16
<PAGE>
================================================================================
USLIFE INCOME FUND, INC.
Supplementary Information
continued
Also, on January 18, 2000, the Fund's Board of Directors adopted certain
amendments to the Fund's Amended and Restated Bylaws. These amendments, among
other things, (i) consistent with Section 3-804(a) of the Maryland General
Corporation Law, increase the vote required to remove directors from office for
cause, from the holders of a majority to the holders of two-thirds of all
outstanding shares, (ii) consistent with Section 16(a) of the Investment Company
Act, as amended, require that, if at any time less than a majority of the Board
is comprised of directors elected by stockholders, a special meeting of
stockholders be called to fill existing vacancies on the Board (and not for the
purpose of electing the entire Board), (iii) consistent with Section 3-805 of
the Maryland General Corporation Law, increase the percentage of outstanding
shares required to cause the Fund to call a special meeting of stockholders from
the holders of 25% to the holders of a majority of all outstanding shares, (iv)
require 90 to 120 days advance notice of stockholder nominations for directors
and presentation of new business by stockholders and (v) consistent with Section
2-109(b) of the Maryland General Corporation Law, increase the percentage of
outstanding shares required for the stockholders to amend the Fund's Amended and
Restated Bylaws from the holders of a majority to the holders of two-thirds of
all outstanding shares.
17
<PAGE>
================================================================================
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
OFFICERS
Alice T Kane, President
Kent E. Barrett, Executive Vice President
Peter V. Tuters - Senior Investment Officer
Pauletta R. Cohn, Vice President
Leon A. Olver, Vice President
Gregory R. Seward, Treasurer
Cynthia A. Toles, Vice President and Secretary
Nori L. Gabert, Vice President and Assistant Secretary
Cynthia A. Gibbons, Assistant Vice President
Gregory R. Kingston, Assistant Treasurer
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
18
<PAGE>
================================================================================
USLIFE INCOME
FUND, INC.
SEMI-ANNUAL
REPORT
AMERICAN
|GENERAL
|FINANCIAL GROUP DECEMBER 31, 1999
The Variable Annuity Life Insurance Company (VALIC)
2929 Allen Parkway * Houston, TX 77019
VA 10643 VER 12/99
