United
Continental
Income Fund,
Inc.
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1998
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1998
Dear Shareholder:
This report relates to the operation of United Continental Income Fund for
the fiscal year ended March 31, 1998. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
During the last fiscal year, we experienced a dramatic economic event: the
Asian financial crisis. While the general perception was that the U.S. and
other economies would be impacted, the depth of the impact became the more
important uncertainty. The financial markets quickly discounted the obvious
Asia effect and began to refocus on a somewhat slower U.S. economy and
potentially weaker corporate profits. In fact, a dramatic slowing in the Asian
economies has occurred. However, the U.S. and Europe have been stronger than
expected, offsetting some of the weakness in Asia.
As the events in Asia unfolded, we took the opportunity to reduce our
exposure to companies and industries facing the possibility of either a
significant slowdown in their business outside the U.S. and/or the possibility
of falling commodity prices. It was feared that such factors would have a
detrimental impact on those companies' earnings. As a result, cash on hand
increased. In recent months, we have put some of our cash back to work in
equities. Factors such as strong consumer sentiment fueled by low interest
rates, low inflation and low unemployment levels have led to an environment of
stable demand for goods and services in the U.S.
The strategies and techniques we applied resulted in the Fund's performance
for the fiscal year remaining below that of the equity and mutual fund indexes
and above that of the fixed income index charted on the following page. Those
indexes reflect the performance of securities that generally represent the stock
market (the S&P 500 Index), the bond market (the Salomon Brothers
Treasury/Government Sponsored/Corporate Index) and the universe of funds with
similar investment objectives (the Lipper Balanced Fund Universe Average). A
variety of indexes is presented because the Fund invests in stocks, bonds and
other instruments. The Fund's performance relative to the S&P 500 Index was
impacted by the Fund's investments in bonds and its cash position.
Looking forward into the next fiscal year, we could see more volatility in
the financial markets. After the initial shock following the onset of the Asian
financial crisis, the markets have reacted positively as inflation fears have
diminished due to declining commodity prices. Since these commodities are the
building blocks of products for worldwide use, we expect inflation to stay well-
controlled. As a result of lower inflation expectations, the valuation of the
market has increased. While excessive valuation seems to be concentrated in a
selected number of industries, any pullback in these areas could pressure the
overall market. We will continue to monitor the overall health of the economy.
In doing so, we will make the determination of how the Fund should be structured
to seek positive long-term returns consistent with the Fund's objectives.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Cynthia P. Prince-Fox
Manager, United Continental Income Fund
<PAGE>
Comparison of Change in Value of $10,000 Investment in
United Continental Income Fund, Inc. Class A Shares,
The S&P 500 Index,
The Salomon Brothers Treasury/Government Sponsored/Corporate Index,
and The Lipper Balanced Fund Universe Average
Salomon
United Brothers
Continental Treasury/ Lipper
Income Government Balanced
Fund, S&P Sponsored/ Fund
Class 500 Corporate Universe
A Shares Index Index Average
--------- --------- ---------- ----------
03/31/88 Purchase9,425 10,000 10,000 10,000
03/31/89 10,297 11,815 10,517 10,977
03/31/90 11,934 14,092 11,734 12,295
03/31/91 12,723 16,123 13,186 13,811
03/31/92 14,629 17,903 14,721 15,551
03/31/93 16,690 20,630 16,828 17,544
03/31/94 17,758 20,933 17,310 18,040
03/31/95 18,893 24,193 18,106 19,278
03/31/96 23,295 31,959 20,094 23,296
03/31/97 24,668 38,267 21,000 25,803
03/31/98 30,885 59,524 23,612 33,043
===== United Continental Income Fund, Class A Shares* -- $30,885
+++++ S&P 500 Composite Stock Price Index -- $59,524
**** Salomon Brothers Treasury/Government Sponsored/Corporate Index - $23,612
- ---- Lipper Balanced Fund Universe Average -- $33,043
*The value of the investment in the Fund is impacted by the sales load at the
time of the investment and by the ongoing expenses of the Fund.
Annual Average Total Return +
Class A++ Class Y
-----------------------------
Year Ended
3/31/98 18.00% 25.43%
5 Years Ended
3/31/98 11.76% N/A
10 Years Ended
3/31/98 11.93% N/A
Life of Class Y+++ N/A 15.39%
+ Total return for the Class Y shares may be greater than that of the Class A
shares because the Fund's Class Y shares are not subject to a sales load or
12b-1 fees.
++ Performance data quoted represents past performance and is based on
deduction of a 5.75% sales load on the initial purchase in each of the
three periods. Investment return and principal value will fluctuate and an
investor's shares, when redeemed, may be worth more or less than their
original cost.
+++ 1/4/96 (the date on which Fund Class Y shares were first acquired by
shareholders) through 3/31/98.
Past performance is not predictive of future performance. Indexes are
unmanaged.
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
United Continental Income Fund, Inc.
PORTFOLIO STRATEGY:
Normally not more than OBJECTIVE: Current income with a
75% Common Stocks secondary objective of
long-term capital
appreciation.
Normally at least 25%
Debt Securities or STRATEGY: Invests in debt
Preferred Stock securities, preferred
stock and common stock.
Generally less than 10%
Foreign Securities
Cash Reserves The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Continental
Income Fund from time to time. For more
information about the Fund's cash
reserves flexibility, please consult the
Prospectus.
FOUNDED: 1970
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY (March, June, September,
December)
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1998
- ----------------------------------------
DIVIDENDS PAID $0.73
=====
CAPITAL GAINS DISTRIBUTION $2.47
=====
NET ASSET VALUE ON
3/31/98 $24.97 adjusted to:$27.44(A)
3/31/97 22.72
------
CHANGE PER SHARE $ 4.72
======
(A)This number includes the capital gains distribution of $2.47 paid in December
1997 added to the actual net asset value on March 31, 1998.
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load* Sales Load**
- ------ ----------- ------------
1-year period ended 3-31-98 18.00% 25.20%
5-year period ended 3-31-98 11.76% 13.10%
10-year period ended 3-31-98 11.93% 12.60%
Performance data quoted represents past performance and is based on deduction of
5.75% sales load on the initial purchase in each of the three periods.
Performance data quoted in this column represents past performance without
taking into account the sales load deducted on an initial purchase.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On March 31, 1998, United Continental Income Fund, Inc. had net assets totaling
$610,320,353 invested in a diversified portfolio of:
67.90% Common Stocks
29.13% Debt Securities
2.97% Cash and Cash Equivalents
As a shareholder of United Continental Income Fund, Inc., for every $100 you had
invested on March 31, 1998, your Fund owned:
$34.18 Manufacturing Stocks
20.05 United States Government Securities
9.75 Transportation, Communication, Electric
and Sanitary Services Stocks
9.08 Corporate Debt Securities
7.04 Finance, Insurance and Real Estate Stocks
5.28 Wholesale and Retail Trade Stocks
3.73 Miscellaneous Investing Institutions Stocks
3.34 Services Stocks
3.32 Mining Stocks
2.97 Cash and Cash Equivalents
1.26 Agriculture, Forestry and Fisheries Stocks
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1998
Shares Value
COMMON STOCKS
Agricultural Production -- Crops - 0.56%
Dole Food Company, Inc. ................ 70,000 $ 3,386,250
Apparel and Accessory Stores - 1.07%
Kohl's Corporation* .................... 80,000 6,540,000
Apparel and Other Textile Products - 1.31%
Liz Claiborne, Inc. .................... 160,000 7,980,000
Chemicals and Allied Products - 7.62%
Dow Chemical Company (The) ............. 40,000 3,885,000
du Pont (E.I.) de Nemours and Company .. 114,000 7,752,000
International Flavors & Fragrances Inc. 120,000 5,655,000
Lilly (Eli) and Company ................ 85,000 5,068,125
Monsanto Company ....................... 125,000 6,500,000
Pfizer Inc. ............................ 118,000 11,763,066
Procter & Gamble Company (The) ......... 70,000 5,906,250
Total ................................. 46,529,441
Communication - 5.92%
AT&T Corporation ....................... 90,000 5,906,250
Cox Communications, Inc.* .............. 100,000 4,200,000
SBC Communications Inc. ................ 350,000 15,268,750
Telebras S.A., ADR ..................... 52,000 6,750,224
U S WEST Media Group* .................. 115,000 3,996,250
Total ................................. 36,121,474
Depository Institutions - 2.21%
BankAmerica Corporation ................ 163,542 13,512,658
Electric, Gas and Sanitary Services - 2.69%
Baltimore Gas and Electric Company ..... 110,000 3,595,570
Houston Industries Incorporated ........ 240,000 6,900,000
Unicom Corporation ..................... 170,000 5,950,000
Total ................................. 16,445,570
Electronic and Other Electric Equipment - 3.47%
Emerson Electric Co. ................... 180,000 11,733,660
Intel Corporation ...................... 40,000 3,121,240
U. S. Industries, Inc. ................. 210,000 6,313,020
Total ................................. 21,167,920
Food and Kindred Products - 3.28%
General Mills, Inc. .................... 80,000 6,080,000
Heinz (H. J.) Company .................. 130,000 7,588,750
Ralston Purina Co. ..................... 60,000 6,363,720
Total ................................. 20,032,470
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Forestry - 0.70%
Weyerhaeuser Company ................... 76,000 $ 4,294,000
General Merchandise Stores - 2.90%
Penney (J.C.) Company, Inc. ............ 120,000 9,082,440
Wal-Mart Stores, Inc. .................. 170,000 8,638,040
Total ................................. 17,720,480
Health Services - 2.29%
Columbia/HCA Healthcare Corporation .... 220,000 7,095,000
Tenet Healthcare Corporation* .......... 190,000 6,899,280
Total ................................. 13,994,280
Holding and Other Investment Offices - 3.73%
Berkshire Hathaway Inc., Class B* ...... 3,000 6,750,000
LTC Properties, Inc. ................... 370,000 7,145,440
National Health Investors, Inc. ........ 133,930 5,340,459
VEBA AG (A) ............................ 50,000 3,547,096
Total ................................. 22,782,995
Industrial Machinery and Equipment - 1.40%
Deere & Company ........................ 60,000 3,716,220
Parker Hannifin Corporation ............ 94,000 4,817,500
Total ................................. 8,533,720
Instruments and Related Products - 0.60%
St. Jude Medical, Inc.* ................ 110,000 3,678,070
Insurance Carriers - 3.90%
Chubb Corporation (The) ................ 65,000 5,094,375
Hartford Financial Services
Group Inc. (The) ...................... 112,000 12,152,000
MGIC Investment Corporation ............ 100,000 6,568,700
Total ................................. 23,815,075
Miscellaneous Manufacturing Industries - 0.94%
Mattel, Inc. ........................... 145,000 5,745,625
Miscellaneous Retail - 1.31%
Costco Companies, Inc.* ................ 150,000 8,020,200
Motion Pictures - 1.05%
Walt Disney Company (The) .............. 60,000 6,405,000
Nondepository Institutions - 0.93%
Freddie Mac ............................ 120,000 5,692,440
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1998
Shares Value
COMMON STOCKS (Continued)
Oil and Gas Extraction - 3.32%
Anadarko Petroleum Corporation ......... 125,000 $ 8,625,000
Noble Affiliates, Inc. ................. 85,000 3,538,125
Santa Fe International Corp. ........... 34,000 1,289,858
Schlumberger Limited ................... 90,000 6,817,500
Total ................................. 20,270,483
Paper and Allied Products - 0.98%
Union Camp Corporation ................. 100,000 5,975,000
Petroleum and Coal Products - 3.93%
British Petroleum Company
p.l.c. (The), ADR ..................... 65,000 5,594,030
Mobil Corporation ...................... 75,000 5,746,875
Royal Dutch Petroleum Company .......... 160,000 9,089,920
Tosco Corporation ...................... 100,000 3,525,000
Total ................................. 23,955,825
Primary Metal Industries - 0.74%
British Steel plc, ADR ................. 185,000 4,486,250
Printing and Publishing - 4.67%
Gannett Co., Inc. ...................... 110,000 7,906,250
McGraw-Hill Companies, Inc. (The) ...... 100,000 7,606,200
Meredith Corporation ................... 150,000 6,318,750
New York Times Company (The), Class A .. 95,000 6,650,000
Total ................................. 28,481,200
Rubber and Miscellaneous Plastics Products - 1.96%
A. Schulman, Inc. ...................... 165,000 4,155,855
Goodyear Tire & Rubber Company (The) ... 95,000 7,196,250
Vans, Inc.* ............................ 57,500 612,720
Total ................................. 11,964,825
Stone, Clay and Glass Products - 1.05%
Minnesota Mining and Manufacturing Company 70,000 6,378,750
Transportation Equipment - 2.23%
Chrysler Corporation ................... 115,000 4,794,005
Sundstrand Corporation ................. 45,000 2,722,500
TRW Inc. ............................... 110,000 6,063,750
Total ................................. 13,580,255
Transportation Services - 1.14%
Dial Corporation (The) ................. 290,000 6,941,730
TOTAL COMMON STOCKS - 67.90% $414,431,986
(Cost: $316,194,147)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Communication - 1.01%
Bell Atlantic Financial Services, Inc.,
Convertible,
5.75%, 4-1-2003 (B).................... $3,000 $ 3,161,250
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-2003 ...................... 2,772 2,990,263
Total ................................. 6,151,513
Electric, Gas and Sanitary Services - 0.29%
California Infrastructure and Economic Development
Bank, Special Purpose Trust SCE-1,
6.38%, 9-25-2008 ...................... 1,750 1,780,083
Fabricated Metal Products - 1.47%
Cooper Industries, Inc.,
6.0%, 1-1-99 (Exchangeable) ........... 3,416 5,154,875
Mark IV Industries, Inc., Convertible,
4.75%, 11-1-2004, (B).................. 4,000 3,820,000
Total ................................. 8,974,875
General Merchandise Stores - 0.38%
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,338,582
Health Services - 0.47%
ARV Assisted Living, Inc., Convertible,
6.75%, 4-1-2006 (B) ................... 3,000 2,835,000
Nondepository Institutions - 2.56%
Ford Motor Credit Company,
8.875%, 6-15-99 ....................... 3,000 3,097,170
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 7,556,640
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,102,900
Merrill Lynch Mortgage Investors, Inc.,
8.3%, 4-15-2012 ....................... 1,852 1,865,168
Total ................................. 15,621,878
Personal Services - 0.52%
Equity Corporation International,
Convertible ,
4.5%, 12-31-2004 (B)................... 3,000 3,198,750
Petroleum and Coal Products - 0.61%
BP America Inc.,
10.0%, 7-1-2018 ....................... 3,500 3,692,535
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Security and Commodity Brokers - 1.34%
Salomon Inc.,
7.625%, 5-15-99 (Exchangeable) ........ $4,793 $ 8,190,000
Wholesale Trade - Nondurable Goods - 0.43%
Enron Corp.,
6.25%, 12-13-98 (Exchangeable) ........ 2,588 2,632,875
TOTAL CORPORATE DEBT SECURITIES - 9.08% $ 55,416,091
(Cost: $37,630,696)
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
7.5%, 4-25-2002 ....................... $ 2,530 $ 2,564,354
6.0%, 6-25-2007 ....................... 3,000 2,983,110
8.25%, 6-1-2008 ....................... 389 402,112
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 82 87,755
9.0%, 8-15-2016 ....................... 271 291,802
9.0%, 10-15-2016 ...................... 756 814,298
9.0%, 11-15-2016 ...................... 271 291,769
9.0%, 1-15-2017 ....................... 81 86,983
9.0%, 3-15-2017 ....................... 285 307,224
9.0%, 4-15-2017 ....................... 271 291,706
9.0%, 7-15-2017 ....................... 178 191,329
United States Treasury:
5.5%, 2-28-99 ......................... 7,000 6,996,710
7.125%, 2-29-2000 ..................... 6,000 6,164,040
8.875%, 5-15-2000 ..................... 17,000 18,094,290
8.0%, 5-15-2001 ....................... 23,000 24,520,070
6.375%, 8-15-2002 ..................... 12,000 12,324,360
7.5%, 2-15-2005 ....................... 33,000 36,284,490
7.25%, 5-15-2016 ...................... 8,500 9,674,020
TOTAL UNITED STATES GOVERNMENT SECURITIES - 20.05% $122,370,422
(Cost: $118,291,937)
TOTAL SHORT-TERM SECURITIES - 2.63% $ 16,055,923
(Cost: $16,055,923)
TOTAL INVESTMENT SECURITIES - 99.66% $608,274,422
(Cost: $488,172,703)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.34% 2,045,931
NET ASSETS - 100.00% $610,320,353
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1998
Notes To Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) As of March 31, 1998, the following restricted securities were owned:
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------- ---- -------
ARV Assisted Living,
Inc., Convertible,
6.75%, 4-1-2006
3/28/96 $3,000$3,000,000 $2,835,000
Bell Atlantic Financial Services, Inc.,
Convertible,
5.75%, 4-1-2003
2/12/98 3,000 3,000,000 3,161,250
Equity Corporation International,
Convertible,
4.5%, 12-31-2004
2/19/98 3,000 3,000,000 3,198,750
Mark IV Industries, Inc.,
Convertible,
4.75%, 11-1-2004
10/23/97 4,000 4,000,000 3,820,000
---------- ----------
$13,000,000$13,015,000
========== ==========
The total market value of restricted securities represents 2.13% of the
total net assets at March 31, 1998.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $608,274,422
Receivables:
Dividends and interest .......................... 3,366,331
Fund shares sold ................................ 472,001
Prepaid insurance premium ........................ 21,091
------------
Total assets .................................. 612,133,845
------------
Liabilities
Payable to Fund shareholders ..................... 1,583,458
Accrued service fee (Note 2) ..................... 128,203
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 73,917
Accrued management fee (Note 2) .................. 9,075
Accrued accounting services fee (Note 2) ......... 5,833
Due to custodian ................................. 70
Other ............................................ 12,936
------------
Total liabilities ............................. 1,813,492
------------
Total net assets ............................. $610,320,353
============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 24,437,398
Additional paid-in capital ...................... 455,474,196
Accumulated undistributed income:
Accumulated undistributed net investment income . 520,372
Accumulated undistributed net realized gain
on investment transactions .................... 9,787,356
Net unrealized appreciation in value of
investments ................................... 120,101,031
------------
Net assets applicable to outstanding
units of capital ............................. $610,320,353
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $24.97
Class Y .......................................... $24.98
Capital shares outstanding
Class A .......................................... 24,005,459
Class Y .......................................... 431,939
Capital shares authorized .......................... 100,000,000
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1998
Investment Income
Income (Note 1B):
Interest and amortization........................ $14,454,914
Dividends ....................................... 6,943,370
-----------
Total income .................................. 21,398,284
-----------
Expenses (Note 2):
Investment management fee ....................... 3,092,587
Service fee - Class A ........................... 874,176
Transfer agency and dividend
disbursing - Class A .......................... 862,092
Accounting services fee ......................... 68,333
Custodian fees .................................. 34,846
Audit fees ...................................... 17,482
Shareholder servicing - Class Y ................. 12,795
Legal fees ...................................... 9,540
Other ........................................... 142,050
-----------
Total expenses ................................ 5,113,901
-----------
Net investment income ........................ 16,284,383
-----------
Realized and Unrealized Gain on
Investments (Notes 1 and 3)
Realized net gain on securities .................. 49,672,688
Realized net gain on foreign
currency transactions ........................... 69,216
-----------
Realized net gain on investments ................ 49,741,904
Unrealized appreciation in value of investments
during the period ............................... 60,305,326
-----------
Net gain on investments ....................... 110,047,230
-----------
Net increase in net assets resulting from
operations ................................. $126,331,613
===========
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
March 31,
------------------------
1998 1997
Increase in Net Assets ------------ ------------
Operations:
Net investment income ...............$ 16,284,383 $ 15,471,282
Realized net gain on investments .... 49,741,904 32,460,692
Unrealized appreciation (depreciation) 60,305,326 (18,522,005)
------------ ------------
Net increase in net assets
resulting from operations ........ 126,331,613 29,409,969
------------ ------------
Distributions to shareholders from (Note 1E):*
Net investment income
Class A ........................... (16,306,438) (15,354,424)
Class Y ........................... (256,280) (196,761)
Realized gains on securities transactions
Class A ........................... (53,685,804) (39,714,405)
Class Y ........................... (827,394) (482,163)
------------ ------------
(71,075,916) (55,747,753)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A (1,395,794 and 1,328,053
shares, respectively) ............ 34,176,184 31,639,891
Class Y (148,864 and 65,939
shares, respectively) ............ 3,659,051 1,571,523
Proceeds from reinvestment of dividends
and/or capital gains distribution
Class A (2,894,602 and 2,330,266
shares, respectively) ............ 67,675,263 53,263,591
Class Y (46,351 and 29,687
shares, respectively) ............ 1,083,674 678,923
Payments for shares redeemed
Class A (2,618,993 and 2,249,136
shares, respectively)............. (64,316,949) (53,683,778)
Class Y (39,543 and 47,142
shares, respectively) ............ (966,933) (1,131,539)
------------ ------------
Net increase in net
assets resulting from capital
share transactions................ 41,310,290 32,338,611
------------ ------------
Total increase ................... 96,565,987 6,000,827
Net Assets
Beginning of period .................. 513,754,366 507,753,539
------------ ------------
End of period, including undistributed
net investment income of $520,372 and
$729,491, respectively...............$610,320,353 $513,754,366
============ ============
*See "Financial Highlights" on pages 15-16.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended March 31,
-----------------------------------
1998 1997 1996 1995 1994
------- ------ ------ ------ ------
Net asset value,
beginning of
period ........... $22.72 $24.00 $20.84 $20.67 $20.45
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.72 0.72 0.71 0.70 0.70
Net realized and
unrealized gain
on investments .. 4.73 0.66 4.05 0.58 0.61
------ ------ ------ ------ ------
Total from investment
operations ....... 5.45 1.38 4.76 1.28 1.31
------ ------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.73) (0.73) (0.68) (0.70) (0.70)
From capital gains (2.47) (1.93) (0.92) (0.41) (0.39)
------ ------ ------ ------ ------
Total
distributions .... (3.20) (2.66) (1.60) (1.11) (1.09)
------ ------ ------ ------ ------
Net asset value,
end of period .... $24.97 $22.72 $24.00 $20.84 $20.67
====== ====== ====== ====== ======
Total return* ...... 25.20% 5.88% 23.29% 6.39% 6.40%
Net assets, end of
period (000
omitted) ......... $599,531$507,477$502,285$432,997$412,843
Ratio of expenses to
average net assets 0.91% 0.93% 0.89% 0.89% 0.81%
Ratio of net investment
income to average net
assets ........... 2.88% 3.01% 3.06% 3.37% 3.29%
Portfolio turnover
rate ............. 55.46% 40.29% 41.34% 41.30% 41.01%
Average commission
rate paid ......... $0.0607$0.0603
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal For the
year ended period
March 31, from 1/4/96*
--------------- through
1998 1997 3/31/96
---------------- --------
Net asset value,
beginning of period $22.72 $24.01 $23.35
------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.77 0.78 0.07
Net realized and
unrealized gain
on investments... 4.73 0.63 0.76
------ ------ ------
Total from investment
operations ........ 5.50 1.41 0.83
------ ------ ------
Less distributions:
From net investment
income........... (0.77) (0.77) (0.17)
From capital gains (2.47) (1.93) (0.00)
------ ------ ------
Total distributions. (3.24) (2.70) (0.17)
------ ------ ------
Net asset value,
end of period ..... $24.98 $22.72 $24.01
====== ====== ======
Total return ....... 25.43% 6.07% 3.53%
Net assets, end of
period (000
omitted) .........$10,789 $6,277 $5,469
Ratio of expenses
to average net
assets ............ 0.75% 0.75% 0.80%
Ratio of net
investment income
to average net
assets ............ 3.01% 3.20% 3.35%
Portfolio
turnover rate ..... 55.46% 40.29% 41.34%**
Average commission
rate paid ......... $0.0607 $0.0603
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
NOTE 1 -- Significant Accounting Policies
United Continental Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Its investment objective is to provide current income to the extent
that, in the opinion of the Fund's investment manager, market and economic
conditions permit. As a secondary goal, this Fund seeks long-term appreciation
of capital. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using the Nasdaq Stock Market, which provides information on bid and
asked prices quoted by major dealers in such stocks. Restricted securities
and securities for which market quotations are not readily available are
valued at fair value as determined in good faith under procedures
established by and under the general supervision of the Fund's Board of
Directors. Short-term debt securities are valued at amortized cost, which
approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
3 -- Investment Security Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translations arise from changes in currency exchange rates. The
Fund combines fluctuations from currency exchange rates and fluctuations in
market value when computing net realized and unrealized gain or loss from
investments.
D. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code. In addition, the Fund intends to pay distributions as
required to avoid imposition of excise tax. Accordingly, provision has not
been made for Federal income taxes. See Note 4 -- Federal Income Tax
Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. Net investment income
dividends and capital gains distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are due to differing treatments for items
such as deferral of wash sales and post-October losses, foreign currency
transactions, net operating losses and expiring capital loss carryforwards.
At March 31, 1998, $69,216 was reclassified between accumulated
undistributed net investment income and accumulated undistributed net
realized gain on investment transactions.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the annual rate of .15% of net assets and (ii)
a "Group" fee computed each day on the combined net asset values of all of the
funds in the United Group of mutual funds (approximately $19.8 billion of
combined net assets at March 31, 1998) at annual rates of .51% of the first $750
million of combined net assets, .49% on that amount between $750 million and
$1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between $2.25
billion and $3 billion, .43% between $3 billion and $3.75 billion, .40% between
$3.75 billion and $7.5 billion, .38% between $7.5 billion and $12 billion, and
.36% of that amount over $12 billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month,
plus $0.30 for each account on which a dividend or distribution of cash or
shares had a record date in that month. With respect to Class Y shares, the
Fund pays WARSCO a monthly fee at an annual rate of .15% of the average daily
net assets of the class for the preceding month. The Fund also reimburses W&R
and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$1,172,629, out of which W&R paid sales commissions of $676,595 and all expenses
in connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's Class A average annual net assets. The fee is to be
paid to reimburse W&R for amounts it expends in connection with the distribution
of the Class A shares and/or provision of personal services to Fund shareholders
and/or maintenance of shareholder accounts.
The Fund paid Directors' fees of $20,070, which are included in other
expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and Waddell & Reed Financial, Inc., a holding company, and a direct subsidiary
of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Security Transactions
Purchases of investment securities, other than U.S. Government obligations
and short-term securities, aggregated $295,566,363 while proceeds from
maturities and sales aggregated $277,086,858. Purchases of short-term
securities aggregated $598,278,295. Proceeds from maturities and sales of
short-term securities and U.S. Government securities aggregated $620,688,135 and
$11,013,592, respectively. No U.S. Government securities were purchased.
For Federal income tax purposes, cost of investments owned at March 31,
1998 was $488,172,703, resulting in net unrealized appreciation of $120,101,719,
of which $124,298,404 related to appreciated securities and $4,196,685 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $49,642,762 during the year ended March 31, 1998, of which a portion was paid
to shareholders during the period ended March 31, 1998. Remaining capital gain
net income will be distributed to the Fund's shareholders.
NOTE 5 -- Multiclass Operations
On August 29, 1995, the Fund was authorized to offer investors two classes
of shares, Class A and Class Y, each of which has equal rights as to assets and
voting privileges. Class Y shares are not subject to a sales charge on
purchases; they are not subject to a Rule 12b-1 Distribution and Service Plan
and have a separate transfer agency and dividend disbursement services fee
structure. A comprehensive discussion of the terms under which shares of either
class are offered is contained in the prospectus and the Statement of Additional
Information for the Fund.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Continental Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United Continental Income Fund, Inc. (the
"Fund") as of March 31, 1998, and the related statements of operations for the
year then ended and 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. The financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on the financial statements and the 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 the 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 at March
31, 1998 by correspondence with the custodian and broker. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United Continental
Income Fund, Inc. as of March 31, 1998, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 8, 1998
<PAGE>
INCOME TAX INFORMATION
The amounts of the dividends and long-term capital gains below, multiplied by
the number of shares owned by you on the record dates, will give you the total
amounts to be reported in your Federal income tax return for the years in which
they were received or reinvested.
PER-SHARE AMOUNTS REPORTABLE AS:
--------------------------------------------------------------------
For Individuals For Corporations
--------------------------------------------------------------
- -
Record OrdinaryLong-Term Capital Gain Non- Long-Term
Date Total Income 28% Rate 20% RateQualifyingQualifyingCapital Gain
- ----------- ------------- -------- ---------------------------------------
Class A
06-13-97 $0.170 $0.1700 $0.0000 $0.0000 $0.0640 $0.1060 $0.0000
09-12-97 0.170 0.1700 0.0000 0.0000 0.0631 0.1069 0.0000
12-12-97 2.696 0.7951 1.0265 0.8744 0.0854 0.7097 1.9009
03-13-98 0.160 0.1600 0.0000 0.0000 0.0651 0.0949 0.0000
------ ------- ------- ------- ------- ------- -------
Total $3.196 $1.2651 $1.0265 $0.8744 $0.2776 $1.0175 $1.9009
====== ======= ======= ======= ======= ======= =======
Class Y
06-13-97 $0.177 $0.1770 $0.0000 $0.0000 $0.0666 $0.1104 $0.0000
09-12-97 0.180 0.1800 0.0000 0.0000 0.0668 0.1132 0.0000
12-12-97 2.707 0.8061 1.0265 0.8744 0.0895 0.7166 1.9009
03-13-98 0.169 0.1690 0.0000 0.0000 0.0688 0.1002 0.0000
------ ------- ------- ------- ------- ------- -------
Total $3.233 $1.3321 $1.0265 $0.8744 $0.2917 $1.0404 $1.9009
====== ======= ======= ======= ======= ======= =======
CORPORATION DEDUCTIONS -- Under Federal tax law, the amounts reportable as
Qualifying Dividends are eligible for the dividends received deduction in the
year received as provided by Section 243 of the Internal Revenue Code.
The tax status of dividends paid will be reported to you on Form 1099-DIV after
the close of the applicable calendar year.
Shareholders are advised to consult with their tax adviser concerning the tax
treatment of dividends and distributions from the Fund.
<PAGE>
Shareholder Meeting Results
A special meeting of shareholders of United Continental Income Fund, Inc. was
held on July 24, 1997. The matters voted upon by the shareholders and the
resulting votes for each matter are presented below.
Item 1.To elect the Board of Directors;
Broker
For WithheldNon-Votes*
Henry L. Bellmon 11,546,533 179,417 0
Dodds I. Buchanan 11,564,397 161,553 0
James M. Concannon 11,566,678 159,272 0
John A. Dillingham 11,560,144 165,806 0
Linda Graves 11,560,786 165,164 0
John F. Hayes 11,548,167 177,783 0
Glendon E. Johnson 11,550,078 175,872 0
William T. Morgan 11,563,322 162,628 0
Ronald K. Richey 11,558,556 167,394 0
William L. Rogers 11,558,522 167,428 0
Frank J. Ross, Jr. 11,564,213 161,737 0
Eleanor B. Schwartz 11,560,239 165,711 0
Keith A. Tucker 11,563,889 162,061 0
Frederick Vogel III 11,565,432 160,518 0
Paul S. Wise 11,549,049 176,901 0
Item 2.To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year;
Broker
For Against AbstainNon-Votes*
11,186,048 60,871 479,031 0
Item 3.To approve or disapprove changes to the following fundamental investment
policies and restrictions:
3.1 Elimination of Fundamental Restrictions Regarding Restricted
Securities
Broker
For Against AbstainNon-Votes*
10,461,041 481,394 772,801 10,714
3.2 Modification and/or Elimination of Fundamental Restrictions
Regarding Options, Commodities, Forward Contracts and/or Futures
Contracts
Broker
For Against AbstainNon-Votes*
10,433,100 509,556 772,580 10,714
3.3 Elimination of Fundamental Restrictions Regarding Mortgaging or
Pledging Securities
Broker
For Against AbstainNon-Votes*
10,439,531 503,125 772,580 10,714
3.4 Modification of Fundamental Restriction Regarding Margin Purchases
of Securities
Broker
For Against AbstainNon-Votes*
10,438,592 504,064 772,580 10,714
3.5 Modification of Fundamental Restriction Regarding Short Sales of
Securities
Broker
For Against AbstainNon-Votes*
10,447,802 494,854 772,580 10,714
3.6 Elimination of Fundamental Restriction Regarding Investment in
Warrants and Rights
Broker
For Against AbstainNon-Votes*
10,453,385 489,842 772,009 10,714
3.7 Elimination of Fundamental Restrictions Regarding Arbitrage
Transactions
Broker
For Against AbstainNon-Votes*
10,447,460 495,767 772,009 10,714
3.8 Elimination of Fundamental Restriction Regarding Investments in
Issuers Whose Securities are Owned by Certain Persons
Broker
For Against AbstainNon-Votes*
10,448,740 494,487 772,009 10,714
3.9 Modification of Fundamental Policy Regarding Loans
Broker
For Against AbstainNon-Votes*
10,459,886 483,341 772,009 10,714
Item 4.To amend the terms of the service plan adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940.
Broker
For Against AbstainNon-Votes*
10,124,416 365,743 967,806 4,929
*Broker non-votes are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on
a particular matter.
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Sharon K. Pappas, Vice President and Secretary
Cynthia P. Prince-Fox, Vice President
Carl E. Sturgeon, Vice President
This report is submitted for the general information of the shareholders of
United Continental Income Fund, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United Continental Income Fund, Inc. current prospectus.
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional IRA unless you make a written
election not to have taxes withheld. The election may be made by submitting
forms provided by Waddell & Reed, Inc. which can be obtained from your Waddell &
Reed representative or by submitting Internal Revenue Service Form W-4P. Once
made, an election can be revoked by providing written notice to Waddell & Reed,
Inc. If you elect not to have tax withheld you may be required to make payments
of estimated tax. Penalties may be imposed by the IRS if withholding and
estimated tax payments are not adequate.
<PAGE>
The United Group of Mutual Funds
United Cash Management, Inc.
United Government Securities Fund, Inc.
United Bond Fund
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Continental Income Fund, Inc.
United Retirement Shares, Inc.
United Asset Strategy Fund, Inc.
United Income Fund
United Accumulative Fund
United Vanguard Fund, Inc.
United New Concepts Fund, Inc.
United Science and Technology Fund
United International Growth Fund, Inc.
United Gold & Government Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
NUR1004A(3-98)
printed on recycled paper
