--------------------------------------------------------------------------------
USLIFE INCOME FUND, INC.
2929 Allen Parkway
Houston, TX 77019
Dear Shareholder,
A number of significant changes have taken place with the Fund since the most
recent annual report.
At its Special Meeting of Shareholders held on January 23, 2002, Alfred G.
Aldridge, Jr., Richard I. Barr, Susan L. Ciciora, Joel W. Looney and Stephen C.
Miller were elected to the Fund's Board of Directors by a majority vote of
shareholders. Following the election of the five new Directors, the Fund
accepted the resignations of Benjamin Love, Timothy Ebner and Gustavo Gonzales
as Directors of the Fund and approved a decrease in the number of Directors of
the Fund to five.
In conjunction with the Directors' resignation, the Fund also accepted the
resignations of the previous Officers of the Fund and the resignation of The
Variable Annuity Life Insurance Company ("VALIC") as investment adviser to the
Fund. Subsequently, the Board appointed Stephen C. Miller as President,
Chairman of the Board, and Chief Executive Officer, Carl D. Johns as Chief
Financial Officer, Chief Accounting Officer, Vice President and Treasurer,
Stephanie J. Kelley as Secretary, and Nicole L. Murphey as Assistant Secretary.
In response to VALIC's resignation, the Board further approved Fund
Administrative Services, LLC ("FAS") as administrator to the Fund and is
recommending that shareholders approve Boulder Investment Advisers, LLC ("BIA")
and Stewart Investment Advisers ("SIA") as investment advisers to the Fund. The
Board resolved that BIA and SIA will serve as interim investment advisers until
such time as shareholders approve an ongoing investment advisory contract. BIA
and SIA currently serve as the adviser and sub-adviser to the Boulder Total
Return Fund, Inc. ("BTF"), a closed-end registered investment company traded on
the New York Stock Exchange. FAS will provide the principal offices of the Fund
and perform certain essential internal administrative and oversight services to
the Fund. Currently, FAS serves as co-administrator to BTF.
The Board is also recommending that shareholders of the Fund approve a number
of additional changes, including: a change in the investment objective of the
Fund to "total return," the elimination of a number of the Fund's fundamental
investment restrictions, change to non-diversified status, and a change in the
Fund's name to Boulder Growth & Income Fund, Inc.
Finally, on January 23, 2002, Ernst & Young LLP resigned as the Fund's external
auditors. In response to the resignation, the Board considered and approved
KPMG LLP as the Fund's auditors for fiscal year 2002.
A special shareholders meeting to vote on the proposed changes and the new
investment advisers is being planned for April 26, 2002. In the near future,
proxies will be sent to all shareholders with details of the proposed changes.
Sincerely,
/s/ Stephen C. Miller
Stephen C. Miller, President
-
1
--------------------------------------------------------------------------------
Schedule of Investments (Unaudited)
December 31, 2001
PAR VALUE MARKET VALUE
--------- ------------
CORPORATE BONDS - 96.39%
AEROSPACE/DEFENSE - 1.34%
BE Aerospace:
$ 75,000 9.50% due 11/01/08........................... $ 65,062
90,000 8.00% due 03/01/08........................... 75,375
500,000 Loral Corp., 7.00% due 09/15/23............... 496,455
-----------
636,892
-----------
AIRLINES - 0.42%
120,000 American Airline, 7.80% due 04/01/08.......... 117,769
100,000 Atlas Air Worldwide Holdings, Inc., 9.25% due
04/15/08..................................... 82,000
-----------
199,769
-----------
APPAREL & PRODUCTS - 0.74%
350,000 Shop At Home, Inc., 11.00% due 04/01/05....... 353,500
-----------
AUTO - CARS - 0.79%
575,000 Prestolite Electric, Inc., 9.63% due
02/01/08..................................... 373,750
-----------
AUTO - ORIGINAL EQUIPMENT - 0.74%
350,000 Dunlop Standard Aero Holdings, 11.88% due
05/15/09..................................... 353,500
-----------
AUTO - REPLACEMENT PARTS - 0.41%
The Pep Boys - Manny, Moe & Jack:
60,000 6.63% due 05/15/03........................... 57,000
140,000 6.52% due 07/16/07........................... 137,200
-----------
194,200
-----------
BANKS - OTHER - 4.28%
1,500,000 (/1/) Bank of Scotland, 7.00% due 11/29/49
(Cost $1,440,921 purchased on 07/12/99)...... 1,512,212
500,000 Colonial Bank, 9.38% due 06/01/11............. 522,334
-----------
2,034,546
-----------
BANKS - REGIONAL - 3.16%
1,500,000 Zions Institutional Capital Trust A, 8.54% due
12/15/26..................................... 1,501,575
-----------
BROADCASTING - 2.97%
500,000 Charter Communications Holding, 10.75% due
10/01/09..................................... 527,500
200,000 Cumulus Media, Inc., 10.38% due 07/01/08...... 209,500
400,000 (/2/) Frontiervision Holdings LP., 11.88% due
09/15/07..................................... 420,000
150,000 (/1/) Salem Communications Holding Corp., 9.00% due
07/01/11
(Cost $150,000 purchased on 06/20/01)........ 155,063
100,000 Sinclair Broadcast Group, Inc., 9.00% due
07/15/07..................................... 100,500
-----------
1,412,563
-----------
See notes to financial statements.
-
2
--------------------------------------------------------------------------------
Schedule of Investments (Unaudited) - continued
December 31, 2001
PAR VALUE MARKET VALUE
--------- ------------
CHEMICAL - 0.68%
$ 225,000 Koppers Industry, Inc., 9.88% due 12/01/07.... $ 220,500
25,000 Polymer Group, Inc., 9.00% due 07/01/07....... 7,250
150,000 Royster-Clark, Inc., 10.25% due 04/01/09...... 96,000
-----------
323,750
-----------
CONSUMER FINANCE - 0.30%
150,000 AmeriCredit Corp., 9.25% due 02/01/04......... 144,000
-----------
CONTAINERS - 0.51%
340,000 Packaged Ice, Inc., 9.75% due 02/01/05........ 244,800
-----------
DRUGS - 1.68%
715,000 (/2/) ICN Pharmaceuticals, Inc., 9.75% due
11/15/08..................................... 800,800
-----------
ELECTRICAL EQUIPMENT - 0.79%
AMKOR Technologies, Inc.:
75,000 9.25% due 05/01/06........................... 71,625
100,000 9.25% due 02/15/08........................... 94,500
200,000 (/1/) Avista Corp., 9.75% due 06/01/08
(Cost $198,642 purchased on 03/29/01)........ 208,617
-----------
374,742
-----------
ELECTRIC PRODUCTS - 2.01%
1,000,000 ITT Industrial, Inc., 7.40% due 11/15/25...... 956,320
-----------
ELECTRONIC INSTRUMENTS - 1.97%
1,000,000 Arrow Electronics, Inc., 7.00% due 01/15/07... 937,990
-----------
ENTERTAINMENT - 3.29%
40,000 Argosy Gaming Co., 9.00% due 09/01/11......... 41,900
350,000 (/1/) Aztar Corp., 9.00% due 08/15/11
(Cost $350,000 purchased on 07/18/01)........ 364,000
350,000 (/1/) Callahan Nordrhein-Westfalen, 14.00% due
07/15/10
(Cost $319,620 purchased on 07/25/01-
11/14/01).................................... 231,000
200,000 Cinemark USA, Inc., 9.63% due 08/01/08........ 192,000
50,000 Hollywood Casino Shreveport, 13.00% due
08/01/06..................................... 47,250
100,000 MTS, Inc., 9.38% due 05/01/05................. 26,000
Pegasus Communications Corp.:
90,000 9.75% due 12/01/06........................... 80,550
175,000 9.63% due 10/15/05........................... 157,500
425,000 Riviera Black Hawk, Inc., 13.00% due
05/01/05..................................... 425,000
-----------
1,565,200
-----------
See notes to financial statements.
-
3
--------------------------------------------------------------------------------
Schedule of Investments (Unaudited) - continued
December 31, 2001
PAR VALUE MARKET VALUE
--------- ------------
FINANCE COMPANIES - 0.32%
$ 150,000 (/1/) Nexstar Finance, 12.00% due 04/01/08
(Cost $149,188 purchased on 04/23/01)........ $ 150,000
-----------
FINANCIAL SERVICES - 6.77%
150,000 (/1/) Dana Credit Corp., 7.25% due 12/16/02
(Cost $147,700 purchased on 07/31/2001)...... 147,000
1,500,000 Doral Financial Corp., 8.50% due 07/08/04..... 1,581,909
200,000 LaBranche & Co., Inc., 12.00% due 03/02/07.... 228,000
250,000 Ono Finance Plc., 13.00% due 05/01/09......... 189,688
1,000,000 Royal & Sun Alliance Insurance, 8.95% due
10/15/29..................................... 1,072,770
-----------
3,219,367
-----------
FUNERAL SERVICES - 0.40%
175,000 (/1/) Stewart Enterprises, Inc., 10.75% due 07/01/08
(Cost $177,223 purchased on 07/12/99 &
06/19/01).................................... 189,438
-----------
HEALTHCARE - 1.85%
200,000 HealthSouth Corp., 10.75% due 10/01/08........ 219,750
160,000 Iasis Healthcare Corp., 13.00% due 10/15/09... 172,800
500,000 Universal Hospital Services, 10.25% due
03/01/08..................................... 487,500
-----------
880,050
-----------
HOSPITAL MANAGEMENT - 0.55%
250,000 Manor Care, Inc., 7.50% due 06/15/06.......... 261,732
-----------
HOSPITAL SUPPLIES - 0.32%
150,000 Physician Sales & Service, 8.50% due
10/01/07..................................... 150,000
-----------
INFORMATION PROCESSING - DATA SERVICES - 1.45%
500,000 Citizens Communications, Inc., 8.50% due
05/15/06..................................... 534,675
Comdisco, Inc.:
50,000 (/3/) 6.38% due 11/30/01........................... 38,000
150,000 (/3/) 6.13% due 08/01/01........................... 114,000
10,000 (/3/) PSInet, Inc., 11.00% due 08/01/09............. 775
-----------
687,450
-----------
INFORMATION PROCESSING - NETWORKING - 0.55%
400,000 (/3/) Condor Systems, Inc., 11.88% due 05/01/09..... 40,000
200,000 (/1/) Mediacom Broadband LLC., 11.00% due 07/15/06
(Cost $200,000 purchased on 06/22/01)........ 219,500
-----------
259,500
-----------
See notes to financial statements.
-
4
--------------------------------------------------------------------------------
Schedule of Investments (Unaudited) - continued
December 31, 2001
PAR VALUE MARKET VALUE
--------- ------------
INSURANCE - LIFE - 0.09%
$ 100,000 Conseco, Inc., 10.75% due 06/15/08............ $ 44,400
-----------
INSURANCE - MULTILINE - 2.69%
1,300,000 (/1/) Zurich Capital Trust, 8.38% due 06/01/37
(Cost $1,477,400 purchased on 11/20/97)...... 1,278,770
-----------
LEISURE TIME - 1.00%
250,000 Hollywood Park, Inc., 9.25% due 02/15/07...... 216,250
250,000 Speedway Motorsports, 8.50% due 08/15/07...... 257,500
-----------
473,750
-----------
LODGING - 1.41%
Crown Castle International Corp:
250,000 10.75% due 08/01/11.......................... 244,375
40,000 9.38% due 08/01/11........................... 36,800
150,000 HMH Properties, 7.88% due 08/01/08............ 138,750
250,000 Prime Hospitality Corp., 9.75% due 04/01/07... 251,875
-----------
671,800
-----------
MACHINERY - CONSTRUCTION & CONTRACTS - 1.01%
150,000 Calpine Corp., 8.75% due 07/15/07............. 135,750
650,000 Grove Worldwide LLC., 9.25% due 05/01/08...... 13,000
200,000 Lennar Corp., 9.95% due 05/01/10.............. 220,500
130,000 National Equipment Services, Inc., 10.00% due
11/30/04..................................... 110,500
-----------
479,750
-----------
MACHINERY - INDUSTRIAL/SPECIALTY - 0.06%
60,000 Park-Ohio Industries, Inc., 9.25% due
12/01/07..................................... 29,400
-----------
MEDICAL TECHNOLOGY - 0.27%
125,000 Pharmerica, Inc., 8.38% due 04/01/08.......... 129,375
-----------
MERCHANDISE - DRUG - 1.19%
150,000 Express Scripts, Inc., 9.63% due 06/15/09..... 165,375
Rite Aid Corp.:
200,000 (/1/) 11.25% due 07/01/08 (Cost $200,000 purchased
on 06/20/01)................................. 196,000
290,000 6.88% due 08/15/13........................... 203,000
-----------
564,375
-----------
MERCHANDISE - SPECIALTY - 1.96%
1,000,000 American Greetings Corp., 6.10% due 08/01/28.. 806,060
125,000 BIG 5 Corp., 10.88% due 11/15/07.............. 122,500
-----------
928,560
-----------
See notes to financial statements.
-
5
--------------------------------------------------------------------------------
Schedule of Investments (Unaudited) - continued
December 31, 2001
PAR VALUE MARKET VALUE
--------- ------------
MERCHANDISING - DEPARTMENT - 0.25%
$ 120,000 True Temper Sports, Inc., 10.88% due
12/01/08..................................... $ 121,200
-----------
MERCHANDISING - FOOD - 0.64%
150,000 Fleming Companies, Inc., 10.13% due 04/01/08.. 151,500
150,000 (/1/) Smithfield Foods, Inc., 8.00% due 10/15/09
(Cost $150,000 purchased on 10/17/01)........ 154,500
-----------
306,000
-----------
MERCHANDISING - MASS - 3.56%
2,500,000 K Mart Funding, 9.44% due 07/01/18............ 1,693,975
-----------
METALS - STEEL - 3.96%
200,000 AK Steel Corp., 7.88% due 02/15/09............ 197,000
500,000 Inco Limited., 9.60% due 06/15/22............. 522,670
100,000 National Steel Corp., 9.88% due 03/01/09...... 35,000
1,000,000 Phelps Dodge Corp., 8.75% due 06/01/11........ 979,537
150,000 Russel Metals, Inc., 10.00% due 06/01/09...... 149,250
-----------
1,883,457
-----------
MISCELLANEOUS - 0.21%
100,000 Pierce Leahy, 8.13% due 05/15/08.............. 101,000
-----------
NATURAL GAS - DIVERSIFIED - 0.56%
250,000 Leviathan Gas Pipeline Partner, 10.38% due
06/01/09..................................... 265,000
-----------
OIL - INTEGRATED DOMESTIC - 1.30%
Tesoro Petroleum Corp.:
150,000 (/1/) 9.63% due 11/01/08 (Cost $150,000 purchased
on 11/01/01)................................. 154,661
225,000 9.00% due 07/01/08........................... 226,687
200,000 USX-Marathon Group, 9.13% due 01/15/13........ 234,832
-----------
616,180
-----------
See notes to financial statements.
-
6
--------------------------------------------------------------------------------
Schedule of Investments (Unaudited) - continued
December 31, 2001
PAR VALUE MARKET VALUE
--------- ------------
OIL - SERVICES - 0.75%
$ 40,000 Grey Wolf, Inc., 8.88% due 07/01/07........... $ 39,000
100,000 (/1/) Hanover Equipment Trust, 8.50% due 09/01/08
(Cost $100,000 purchased on 08/16/01)........ 104,000
300,000 Unova, Inc., 6.88% due 03/15/05............... 162,000
50,000 (/1/) WestPort Resourses Corp., 8.25% due 11/01/11
(Cost $50,000 purchased on 10/31/01)......... 50,500
-----------
355,500
-----------
OIL/GAS PRODUCERS - 1.38%
195,000 Frontier Oil Corp., 11.75% due 11/15/09....... 206,700
250,000 KCS Energy, Inc., 8.88% due 01/15/06.......... 197,500
25,000 R & B Falcon Corp., 9.50% due 12/15/08........ 28,615
220,000 Swift Energy Co., 10.25% due 08/01/09......... 222,200
-----------
655,015
-----------
PAPER/FOREST PRODUCTS - 7.41%
225,000 Bear Island LLC, 10.00% due 12/01/07.......... 213,750
2,300,000 Boise Cascade Co., 7.99% due 09/13/13......... 2,127,937
335,000 Buckeye Technologies, Inc., 8.50% due
12/15/05..................................... 323,275
500,000 Georgia-Pacific Corp., 9.63% due 03/15/22..... 506,560
400,000 Specialty Paperboard, 9.38% due 10/15/06...... 352,000
-----------
3,523,522
-----------
POLLUTION CONTROL - 0.59%
270,000 Allied Waste North America, Inc., 10.00% due
08/01/09..................................... 276,750
1,000,000 (/3/) Safety-Kleen Services, 9.25% due 06/01/08..... 4,740
-----------
281,490
-----------
PUBLISHING - NEWS - 2.14%
1,000,000 News America Holdings, Inc., 8.15% due
10/17/36..................................... 1,018,050
-----------
RAILROAD - 1.96%
1,000,000 Stagecoach Holdings, 8.63% due 11/15/09....... 931,190
-----------
RESTAURANTS - 0.55%
55,000 Perkins Family Restaurants, 10.13% due
12/15/07..................................... 51,769
200,000 Tricon Global Restaurants, Inc., 8.88% due
04/15/11..................................... 212,000
-----------
263,769
-----------
See notes to financial statements.
-
7
--------------------------------------------------------------------------------
Schedule of Investments (Unaudited) - continued
December 31, 2001
PAR VALUE MARKET VALUE
--------- ------------
SAVINGS & LOAN - 3.01%
$1,200,000 (/1/) Ahmanson Capital Trust, 8.36% due 12/01/26
(Cost $1,246,174 purchased on 07/10/97)...... $1,198,392
250,000 Western Financial Savings, 8.88% due
08/01/07..................................... 230,720
----------
1,429,112
----------
TELECOMMUNICATIONS - 9.30%
150,000 (/3/) 360Networks, Inc., 13.00% due 05/01/08........ 188
200,000 American Cellular Corp., 9.50% due 10/15/09... 194,000
75,000 American Tower Corp., 9.38% due 02/01/09...... 59,438
300,000 Amphenol Corp., 9.88% due 05/15/07............ 319,500
100,000 (/1/) AT&T Wireless Services, 7.88% due 03/01/11
(Cost $99,760 purchased on 03/01/01)......... 106,590
200,000 (/2/) Benedek Communications, 13.25% due 05/15/06... 142,000
260,000 (/1/) Ekabel Hessen, 14.50% due 09/01/10
(Cost $206,239 & $53,769 purchased on
09/14/00 & 12/19/00)......................... 122,200
325,000 GCI, Inc., 9.75% due 08/01/07................. 316,875
500,000 Koninklijke KPN NV - ADR, 8.00% due 10/01/10.. 506,725
75,000 Lodgenet Entertainment Corp., 10.25% due
12/15/06..................................... 75,000
1,125,000 Marconi Corp., Plc, 7.75% due 09/15/10........ 587,844
150,000 Nextel Communications, Inc., 9.38% due
11/15/09..................................... 116,250
170,000 Northland Cable Television, 10.25% due
11/15/07..................................... 130,900
250,000 (/1/) Triton PCS, Inc., 8.75% due 11/15/11
(Cost $250,000 purchased on 11/07/01)........ 250,000
100,000 Telewest Communications, Plc., 11.00% due
10/01/07..................................... 103,500
350,000 (/1/) United Pan Europe, 11.25% due 02/01/10
(Cost $336,361 purchased on 01/14/00)........ 56,000
190,000 Versatel Telecom International, 13.25% due
05/15/08..................................... 66,500
250,000 (/1/) WCG Note Trust, 8.25% due 03/15/04
(Cost $250,000 purchased on 03/22/01)........ 244,553
1,000,000 WorldCom, Inc., 7.50% due 05/15/11............ 1,024,080
----------
4,422,143
----------
UTILITIES - ELECTRIC - 9.99%
AES Corp.:
50,000 8.75% due 12/15/02........................... 49,250
150,000 8.75% due 06/15/08........................... 132,000
625,000 AES Drax Energy, Ltd., 11.50% due 08/30/10.... 418,750
900,000 Boston Edison., 8.25% due 09/15/22............ 924,615
200,000 Calpine Canada, 8.50% due 05/01/08............ 182,925
865,000 Commonwealth Edison, 8.38% due 09/15/22....... 899,617
500,000 (/1/) Edison Mission Energy, 10.00% due 08/15/08
(Cost $500,000 purchased on 08/07/01)........ 519,675
1,000,000 (/1/) PSEG Energy Holdings, 8.50% due 06/15/11
(Cost $998,230 purchased on 06/27/01)........ 981,650
600,000 Toledo Edison MTNA, 9.22% due 12/15/21........ 647,538
----------
4,756,020
----------
See notes to financial statements.
-
8
--------------------------------------------------------------------------------
Schedule of Investments (Unaudited) - continued
December 31, 2001
PAR VALUE,
WARRANTS,
OR SHARES MARKET VALUE
---------- ------------
UTILITIES - 0.86%
Amerigas Partner:
$ 100,000 (/1/) 10.00% due 04/15/06 (Cost $99,509
purchased on 03/28/01).................. $ 105,500
50,000 (/1/) 8.88% due 05/20/11 (Cost $50,000
purchased on 08/16/01).................. 52,000
100,000 ESI Tractebel Acq Corp., 7.99% due
12/30/11................................ 100,700
200,000 (/1/) Northern Natural Gas Company, 6.75% due
09/15/08
(Cost $173,075 purchased on 12/04/01)... 154,092
-----------
412,292
-----------
TOTAL CORPORATE BONDS
(Cost $49,442,703)...................... 45,840,529
-----------
PROMISSORY NOTE - 0.04%
HEALTHCARE
1,720,000 (/3/) Kuala Healthcare, Inc., 6.00% due
08/31/03 (Cost $1,668,400).............. 17,200
-----------
WARRANTS - 0.02%
1,500 (/1/)(/4/) Ono Finance Plc., expiring 05/31/09 (Cost
$0 purchased on 11/04/99)............... 7,500
-----------
PREFERRED STOCK - 1.06%
BROADCASTING
3,500 Adelphia Communications.................. 353,500
1,500 Sinclair Capital......................... 151,500
-----------
(Cost $487,125).......................... 505,000
-----------
SHORT TERM INVESTMENTS - 0.43%
REPURCHASE AGREEMENT
206,000 State Street Bank, 1.65% dated 12/31/01,
to be repurchased at $206,019 on
01/02/02, collateralized by
Federal Home Loan Mortgage Association
Note, 2.21%, 11/26/02, with a market
value of $214,270 (Cost $206,000)....... 206,000
-----------
TOTAL INVESTMENTS - 97.94% (Cost
$51,804,228)............................ 46,576,229
-----------
Other assets less liabilities - 2.06%.... 978,289
-----------
NET ASSETS - 100.00%..................... $47,554,518
-----------
---------------
(/1/) Securities exempt from registration under
Rule 144A of the Securities Act of 1933.
These securities may be sold in
transaction exempt from registration,
normally to qualified institutional
buyers. At the December 31, 2001. The
aggregate value of these securities was
$8,913,413 representing 18.74% of net
asset.
(/2/) Security is a "step-up" bond where the
coupon rate increase or steps up at a
predetermined date. Rate shown reflects
the increased rate.
(/3/) Non-income producing--issuer filed for
protection under Federal Bankruptcy Code
or is in default of interest payments.
(/4/) Non-income producing security
See notes to financial statements.
-
9
--------------------------------------------------------------------------------
Statement of Assets and Liabilities (Unaudited)
December 31, 2001
ASSETS
Investments at market (See Note 1):
(Cost $51,598,228).............................................. $46,370,229
Repurchase agreement (Cost $206,000)............................ 206,000
Cash.............................................................. 749
Dividend and interest receivable.................................. 1,199,766
Other assets...................................................... 95,508
-----------
TOTAL ASSETS................................................... 47,872,252
-----------
LIABILITIES
Directors' deferred compensation.................................. 189,618
Legal & audit fees................................................ 31,469
Transfer agent fees............................................... 9,100
Report to shareholders............................................ 29,000
Payable to affiliates:
Advisory fees................................................... 27,311
Accounting services............................................. 12,500
Other liabilities................................................. 18,736
-----------
TOTAL LIABILITIES.............................................. 317,734
-----------
NET ASSETS (equivalent to $8.40 per share on 5,663,892 shares out-
standing)........................................................ $47,554,518
-----------
NET ASSETS REPRESENTED BY:
Common stock, $1.00 par value
(10,000,000 shares authorized; 5,663,892 shares outstanding)..... $ 5,663,892
Additional paid in capital........................................ 52,577,714
Accumulated net realized loss on investments...................... (6,163,158)
Undistributed net investment income............................... 704,069
Unrealized depreciation on investments............................ (5,227,999)
-----------
NET ASSETS........................................................ $47,554,518
-----------
See notes to financial statements.
--
10
--------------------------------------------------------------------------------
Statement of Operations (Unaudited)
For the Six Months Ended December 31, 2001
INVESTMENT INCOME:
Interest........................................................... $ 2,590,811
Dividends.......................................................... 31,469
-----------
2,622,280
-----------
EXPENSES:
Advisory fees...................................................... 172,491
Legal & audit fees................................................. 83,057
Transfer agent fees and expenses................................... 20,693
Treasury and secretarial services.................................. 25,000
Directors' fees.................................................... 31,706
Report to shareholders............................................. 8,344
New York Stock Exchange listing fees............................... 10,314
Interest on Directors' deferred compensation....................... 5,336
Custodian fees..................................................... 1,369
Proxy expenses..................................................... 116,481
Miscellaneous...................................................... 5,974
-----------
Total expenses................................................... 480,765
-----------
NET INVESTMENT INCOME.............................................. 2,141,515
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments................................... (1,571,778)
Net unrealized depreciation on investments......................... (79,476)
-----------
Net realized and unrealized loss on investments.................. (1,651,254)
-----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS................... $ 490,261
-----------
--------------------------------------------------------------------------------
Statement of Changes in Net Assets (Unaudited)
Six Months Ended Year Ended
December 31, June 30,
2001 2001
---------------- -----------
OPERATIONS:
Net investment income............................ $ 2,141,515 $ 3,994,351
Net realized loss on investments................. (1,571,778) (2,913,272)
Net unrealized appreciation (depreciation) on in-
vestments....................................... (79,476) 1,152,798
----------- -----------
Increase in net assets resulting from opera-
tions......................................... 490,261 2,233,877
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................... (1,925,723) (4,010,505)
----------- -----------
Capital Stock Transactions:
Proceeds from capital stock issued for distri-
butions reinvested............................ -- 175,683
----------- -----------
TOTAL DECREASE IN NET ASSETS..................... (1,435,462) (1,600,945)
----------- -----------
NET ASSETS:
Beginning of period.............................. 48,989,980 50,590,925
----------- -----------
End of period (including undistributed net in-
vestment income of
$704,069 and $488,277, respectively)............ $47,554,518 $48,989,980
----------- -----------
See notes to financial statements.
--
11
--------------------------------------------------------------------------------
Financial Highlights (Unaudited)
Per share data is for a share of common stock outstanding throughout the
period. Total return includes reinvestment of dividends.
Six Months Ended
December 31, Year Ended June 30,
---------------- ---------------------------------------------
Per Share Data 2001 2001 2000 1999 1998 1997
------------------------------------------------------------------
Net asset value at
beginning of period... $ 8.65 $ 8.96 $ 10.07 $ 10.75 $ 10.17 $ 9.62
------------------------------------------------------------------
Income (loss) from in-
vestment operations:
Net investment
income............... 0.38 0.70 0.67 0.78 0.75 0.73
Net realized and
unrealized gain
(loss) on
securities........... (0.29) (0.31) (1.02) (0.70) 0.59 0.62
------------------------------------------------------------------
Total income (loss)
from investment
operations.......... 0.09 0.39 (0.35) 0.08 1.34 1.35
------------------------------------------------------------------
Distributions from net
investment income..... (0.34) (0.70) (0.76) (0.76) (0.76) (0.80)
------------------------------------------------------------------
Net asset value, end of
period................ $ 8.40 $ 8.65 $ 8.96 $ 10.07 $ 10.75 $ 10.17
------------------------------------------------------------------
Market value, end of
period................ $ 7.74 $ 8.50 $ 8.25 $ 9.63 $ 9.63 $ 9.13
------------------------------------------------------------------
Total return*:
Based on market value.. (5.33%) 11.77% (6.81%) 7.85% 14.01% 10.48%
Based on net asset
value................. 1.00% 4.41% (3.70%) 0.64% 13.57% 15.19%
Ratios and supplemental
data:
Ratio of expenses to
average net assets.... 1.97%(/1/)** 1.82%** 2.51%** 1.12% 1.12% 1.19%
Ratio of net investment
income to average net
assets................ 8.80%(/1/) 8.03% 7.08% 7.46% 7.11% 7.43%
Portfolio turnover
rate.................. 8% 83% 53% 58% 73% 26%
Number of shares
outstanding at end of
period (000's)........ 5,664 5,664 5,644 5,644 5,644 5,644
Net assets, end of
period (000's)........ $47,555 $48,990 $50,591 $56,841 $60,670 $57,417
* Total returns reflect the change in net asset value or market value at the
end of 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 returns 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 New York Stock Exchange.
** For the six months ended December 31, 2001 and the years ended June 30,
2001 and 2000, the ratio of expenses to average net assets excluding the
costs attributable to a proxy contest and related matters was 1.50%(/1/),
1.26% and 1.55%, respectively.
(/1/) Annualized
--
12
--------------------------------------------------------------------------------
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 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 accounting
principles generally accepted in the United States ("GAAP"). GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those 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. Securities may also be
priced by an independent pricing service. 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 Fund may acquire securities subject to repurchase agreements. Under a
typical repurchase agreement, the Fund would acquire a debt security for a
relatively short period (usually for one day and not more than one week)
subject to an obligation of the seller to repurchase and of the Fund to
resell the debt security at an agreed-upon higher price, thereby
establishing a fixed investment return during the Fund's holding period.
Under each repurchase agreement, the Fund receives, as collateral,
securities whose market value is at least equal to the repurchase price.
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, 2001, the Fund had a net
capital loss carry forward of approximately $2.0 million expiring through
June 30, 2009.
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. Prior to July 1, 2001, the Fund did not
accrete discounts or amortize premiums for financial reporting purposes.
Based on securities held in the Fund on July 1, 2001, the cumulative effect
of this accounting change had no impact on total net assets of the Fund, but
resulted in an adjustment of $202,496 to the cost of investment securities.
The Statement of Changes in Net Assets and Financial Highlights for prior
periods presented have not been restated to reflect this change in
presentation. The effect of the change for the period ended December 31,
2001, is an increase in net investment income of
--
13
--------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited) - continued
$128,836 and an offsetting increase to unrealized appreciation
(depreciation) of $113,062 and net realized gain (loss) on investments of
$15,774.
E. Distribution to Shareholders
Distributions to shareholders are recorded on the ex-dividend date.
Dividends from net investment income, if any, are declared and paid
quarterly. Distributions from net realized capital gains, if any, are
normally declared and paid annually.
Investment income and capital gains and losses are recognized in accordance
with GAAP. Distributions from net investment income and realized capital
gains are based on earnings as determined in accordance with Federal tax
regulations which may differ from book basis earnings. These differences are
primarily due to differing treatments for capital loss carryforwards,
deferral of wash sales, interest on defaulted bonds, interest on directors
deferred compensation and post-October capital losses.
At the end of the year, offsetting adjustments to undistributed net
investment income, additional paid in capital and accumulated 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").
VALIC is an indirect wholly-owned subsidiary of American International Group,
Inc. Certain officers and directors of the Fund are officers and directors of
VALIC or affiliates of VALIC. VALIC 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) 2.50% of the Fund's net investment
income, minus interest on borrowed funds during the month. For the period ended
December 31, 2001, the Fund paid VALIC $172,491 for providing advisory
services.
In accordance with the investment advisory agreement, the Fund reimburses VALIC
for services performed on behalf of the Fund by the Secretary and the Treasurer
and personnel operating under their direction. For the period ended December
31, 2001, the Fund paid VALIC $25,000 for providing these services.
At December 31, 2001, the Fund had a deferred compensation liability to a
former Director of the Fund which totaled $189,618, including accrued interest
payable by the Fund.
Note 3 - Investment Activity
At December 31, 2001, the identified cost of investments for Federal income tax
purposes was $51,859,798 resulting in gross unrealized appreciation of
$1,526,214, gross unrealized depreciation of $6,809,783, and net unrealized
depreciation of $5,283,569.
For the period ended December 31, 2001, purchases and sales of investments,
other than short-term investments, aggregated $4,143,870 and $4,021,271,
respectively.
--
14
--------------------------------------------------------------------------------
Notes to Financial Statements (Unaudited) - continued
Note 4 - Quarterly Results of Operations
For the six months ended December 31, 2001 and the year ended June 30, 2001
(000's omitted except for per share data):
2001 2000 2001
Three Months -------------- -------------
Ended Three Months Ended
--------------- -----------------------------
Sept. Dec. Sept. Dec. Mar. Jun.
------- ------ ------ ------- ------ ------
Investment income.............. $ 1,419 $1,203 $1,265 $ 1,339 $1,146 $1,151
Net investment income.......... 1,232 910 1,027 1,059 928 980
Net realized and unrealized
gain (loss) on securities..... (1,282) (369) 312 (3,147) 1,689 (614)
Per share of common stock:
Net investment income........ 0.22 0.16 0.18 0.19 0.16 0.17
Net realized and unrealized
gain (loss) on securities... (0.23) (0.06) 0.06 (0.56) 0.30 (0.11)
Net asset value at end of quar-
ter........................... $ 8.47 $ 8.40 $ 9.02 $ 8.47 $ 8.75 $ 8.65
--
15
--------------------------------------------------------------------------------
USLIFE INCOME FUND, INC.
Supplementary Information
Annual Meeting of Shareholders
The Annual Meeting of Shareholders of the Fund was held on October 30, 2001.
Shareholders of the Fund voted on the election of three directors to hold
office until their successors are elected and a proposal to approve a new
investment advisory agreement between The Variable Annuity Life Insurance
Company ("VALIC") and the Fund. The results of the proposals voted on by
shareholders of the Fund were as follows:
Election of three directors to the Board.
In Favor Withheld
--------- ---------
Dr. Judith L. Craven........................................ 3,189,228 1,908,815
Dr. Norman Hackerman........................................ 3,177,391 1,920,652
Ben H. Love................................................. 3,189,360 1,908,683
Proposal to approve a new investment advisory agreement between VALIC and the
Fund.
Broker
For Against Abstain Non-Votes
--------- --------- ------- ---------
1,095,085 2,522,617 106,135 1,374,026
Special Meeting of Shareholders
A Special Meeting of Shareholders of the Fund was held on January 23, 2002. At
this meeting, Alfred G. Aldridge, Jr., Richard I. Barr, Susan L. Ciciora, Joel
W. Looney and Stephen C. Miller were elected to the Fund's Board of Directors.
Following the election of the five new Directors, the Fund accepted the
resignations of Benjamin Love, Timothy Ebner and Gustavo Gonzales as Directors
of the Fund and approved a decrease in the number of Directors of the Fund to
five.
The Fund also accepted the resignations of the previous Officers of the Fund,
VALIC as investment adviser to the Fund and Ernst & Young, LLP, as external
auditors to the Fund. Subsequently, the Board appointed Stephen C. Miller as
President, Chairman of the Board, and Chief Executive Officer, Carl D. Johns as
Chief Financial Officer, Chief Accounting Officer, Vice President and
Treasurer, Stephanie J. Kelley as Secretary, and Nicole L. Murphey as Assistant
Secretary.
In response to VALIC's resignation, the Board further approved Fund
Administrative Services, LLC ("FAS") as administrator to the Fund and Boulder
Investment Advisers, LLC ("BIA") and Stewart Investment Advisers ("SIA") as
investment advisers to the Fund. BIA and SIA will serve as interim investment
advisers until such time as shareholders consider an ongoing investment
advisory contract. FAS will provide the principal offices of the Fund and
perform certain internal administrative and oversight services to the Fund.
--
16
--------------------------------------------------------------------------------
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 Mellon Investor Services, L.L.C., the Shareholder Servicing Agent
for the Fund. 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:
Mellon Investor Services, L.L.C.
85 Challenger Road, Overpeck Center
Ridgefield Park, NJ 07660
or call 1-800-526-0801.
--
17
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[This Page Intentionally Left Blank]
--------------------------------------------------------------------------------
BOARD OF DIRECTORS (As of 12/31/2001*)
Timothy J. Ebner
Gustavo E. Gonzales, Jr.
Ben H. Love
OFFICERS (As of 12/31/2001*)
Steven Guterman, Vice President and Senior Investment Officer
Nori L. Gabert, Vice President and Secretary
Gregory R. Kingston, Treasurer
Todd L. Spillane, Chief Compliance Officer
Katherine Stoner, Assistant Secretary
Kathryn A. Pearce, Assistant Treasurer
Donald H. Guire, Assistant Treasurer
INVESTMENT ADVISOR (As of 12/31/2001*)
The Variable Annuity Life Insurance Company (VALIC)
2929 Allen Parkway
Houston, TX 77019
SHAREHOLDER SERVICE AGENT
Mellon Investor Services, L.L.C.
85 Challenger Road
Overpeck Center
Ridgefield Park, NJ 07660
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
INDEPENDENT AUDITORS As of (12/31/2001*)
Ernst & Young LLP
1221 McKinney Street
Houston, TX 77010
* See Supplemental Information
[American General Logo]
The Variable Annuity Life Insurance Company (VALIC)
2929 Allen Parkway . Houston, TX 77019
VA 10643 VER 12/31/2001
USLIFE Income
Fund, Inc.
Semi-Annual
Report
December 31, 2001