United
Continental
Income Fund,
Inc.
SEMIANNUAL
REPORT
----------------------------------------
For the six months ended September 30, 1999
<PAGE>
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.
<PAGE>
PRESIDENT'S LETTER
SEPTEMBER 30, 1999
Dear Shareholder:
As president of your Fund, I would like to thank you for your continued
confidence as an investor. I especially want to express our appreciation for
your confidence during our conversion to a new shareholder accounting system.
During this period some of you may have experienced delays in reaching our home
office shareholder services staff and we apologize for any inconvenience and
frustration you experienced.
Our conversion is now complete. Our new system complies with all of the date
requirements for the new millennium. It has the capacity to handle our growing
business and its modern structure will allow us to expand our services available
to you. We have also added to our telephone line capacity and have doubled the
size of our shareholder services staff. We are committed to the goal of
providing the best service possible to our shareholders.
With respect to your investment program, while it is impossible to predict the
future of the markets, there are some basic principles that we stand by that can
help investors achieve their financial goals.
. Work with your financial advisor to develop a comprehensive financial plan.
A comprehensive plan can help you pinpoint your financial objectives and
identify specific strategies for turning your financial dreams into reality.
A financial plan can also help ensure that your investment portfolio is
appropriately diversified. It can be one of the best ways to plan for your
financial future.
. Review your financial plan regularly. Financial planning is an ongoing
process that requires periodic reviews to adapt to life's changes.
. Make regular investments and adopt a long-term investment view. Over the
long term, regular contributions to your investments can smooth out the bumps
of volatility and enable investors to take advantage of the power of
compounding.
Waddell & Reed is positioned to assist you as you work toward your financial
goals. We will continue to offer quality investment products and personal
service to make the financial planning and investment process convenient and
accessible to you. Your financial advisor is ready to assist you in completing
your comprehensive financial plan to reach the financial goals that are most
important to you.
We look forward to assisting you in the future. If you have any questions about
your account, wish to review your financial plan or have other financial issues,
please contact your financial advisor or your local Waddell & Reed office.
Again, thank you for your continued confidence.
Respectfully,
Robert L. Hechler
President
<PAGE>
SHAREHOLDER SUMMARY
- --------------------------------------------------------------
United Continental Income Fund, Inc.
PORTFOLIO STRATEGY:
Normally not more than OBJECTIVE: To seek current income with a
75% Common Stocks secondary goal of long-term appreciation
of capital.
Normally at least 25%
Debt Securities or STRATEGY: Invests primarily in income-
Preferred Stock producing securities that
include common stock,
Generally less than 10% preferred stocks and debt
Foreign Securities securities.
FOUNDED: 1970
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY (March, June, September,
December)
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Six Months Ended September 30, 1999
- -------------------------------------------
DIVIDENDS PAID $0.08
=====
NET ASSET VALUE ON
9/30/99 $8.01
3/31/99 7.97
------
CHANGE PER SHARE $0.04
======
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 9-30-99 4.38% 10.75%
5-year period ended 9-30-99 10.77% 12.09%
10-year period ended 9-30-99 9.86% 10.51%
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 September 30, 1999, United Continental Income Fund, Inc. had net assets
totaling $570,182,137 invested in a diversified portfolio of:
60.37% Common Stocks
36.60% Debt Securities
2.31% Cash and Cash Equivalents
0.72% Preferred Stock
As a shareholder of United Continental Income Fund, Inc., for every $100 you had
invested on September 30, 1999, your Fund owned:
$33.61 Manufacturing Stocks
29.43 United States Government Securities
7.28 Transportation, Communication, Electric
and Sanitary Services Stocks
7.17 Corporate Debt Securities
6.62 Wholesale and Retail Trade Stocks
6.15 Finance, Insurance and Real Estate Stocks
4.10 Services Stocks
2.61 Mining Stocks
2.31 Cash and Cash Equivalents
0.72 Preferred Stock
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1999
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 0.63%
Walt Disney Company (The) .............. 140,000 $ 3,622,500
Business Services - 3.47%
BMC Software, Inc.* .................... 138,000 9,871,313
Microsoft Corporation* ................. 52,000 4,710,875
Young & Rubicam Inc. ................... 117,800 5,183,200
Total ................................. 19,765,388
Chemicals and Allied Products _ 8.77%
A. Schulman, Inc. ...................... 159,800 2,746,563
Air Products and Chemicals, Inc. ....... 222,600 6,469,312
IMC Global Inc. ........................ 215,000 3,130,938
Lilly (Eli) and Company ................ 77,000 4,928,000
Merck & Co., Inc. ...................... 110,000 7,129,375
Pfizer Inc. ............................ 193,000 6,935,937
Pharmacia & Upjohn, Inc. ............... 150,000 7,443,750
Procter & Gamble Company (The) ......... 70,000 6,562,500
Warner-Lambert Company ................. 70,000 4,646,250
Total ................................. 49,992,625
Communication _ 2.36%
Cox Communications, Inc., Class A* ..... 200,000 8,350,000
SBC Communications Inc. ................ 100,000 5,106,250
Total ................................. 13,456,250
Depository Institutions _ 1.07%
Comerica Incorporated .................. 100,000 5,062,500
U. S. Bancorp. ......................... 35,000 1,056,562
Total ................................. 6,119,062
Eating and Drinking Places - 0.92%
Wendy's International, Inc. ............ 200,000 5,275,000
Electric, Gas and Sanitary Services _ 1.10%
Unicom Corporation ..................... 170,000 6,279,375
Electronic and Other Electric Equipment _ 8.23%
Analog Devices, Inc.* .................. 155,000 7,943,750
Eaton Corporation ...................... 74,100 6,395,756
General Electric Company ............... 70,000 8,299,375
Koninklijke Philips Electronics N.V.,
NY Shares ............................. 60,000 6,060,000
Motorola, Inc. ......................... 95,000 8,360,000
Texas Instruments Incorporated ......... 120,000 9,870,000
Total ................................. 46,928,881
Fabricated Metal Products - 1.32%
Parker Hannifin Corporation ............ 167,400 7,501,613
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1999
Shares Value
COMMON STOCKS (Continued)
Food and Kindred Products - 0.66%
PepsiCo, Inc. .......................... 125,000 $ 3,781,250
Furniture and Home Furnishings Stores - 0.97%
Best Buy Co., Inc.* .................... 88,900 5,517,356
General Merchandise Stores _ 3.79%
BJ's Wholesale Club, Inc.* ............. 170,000 5,025,625
Costco Wholesale Corporation* .......... 87,000 6,261,281
Dayton Hudson Corporation .............. 65,000 3,904,063
Wal-Mart Stores, Inc. .................. 135,000 6,420,938
Total ................................. 21,611,907
Industrial Machinery and Equipment _ 5.59%
Apple Computer, Inc.* .................. 102,000 6,454,687
Applied Materials, Inc.* ............... 79,000 6,134,844
Case Corporation ....................... 143,100 7,128,169
EMC Corporation* ....................... 114,000 8,143,875
New Holland NV ......................... 250,000 4,000,000
Total ................................. 31,861,575
Instruments and Related Products _ 2.12%
Boston Scientific Corporation* ......... 226,600 5,594,187
Raytheon Company, Class B .............. 131,000 6,500,875
Total ................................. 12,095,062
Insurance Agents, Brokers and Service - 1.10%
Hartford Financial Services
Group Inc. (The) ...................... 154,000 6,294,750
Insurance Carriers _ 1.57%
Berkshire Hathaway Inc., Class B* ...... 2,000 3,712,000
Chubb Corporation (The) ................ 105,000 5,230,313
Total ................................. 8,942,313
Nondepository Institutions - 2.41%
Bank of America Corporation ............ 134,904 7,512,466
Freddie Mac ............................ 120,000 6,240,000
Total ................................. 13,752,466
Oil and Gas Extraction _ 2.61%
Burlington Resources Incorporated ...... 218,600 8,033,550
Schlumberger Limited ................... 110,000 6,854,375
Total ................................. 14,887,925
Paper and Allied Products - 2.11%
Consolidated Papers, Inc. .............. 240,000 6,450,000
International Paper Company ............ 116,000 5,575,250
Total ................................. 12,025,250
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1999
Shares Value
COMMON STOCKS (Continued)
Petroleum and Coal Products _ 1.97%
BP Amoco p.l.c., ADR ................... 44,048 $ 4,881,069
Mobil Corporation ...................... 63,000 6,347,250
Total ................................. 11,228,319
Primary Metal Industries _ 0.84%
British Steel plc, ADR ................. 185,000 4,763,750
Rubber and Miscellaneous Plastics Products _ 1.10%
NIKE, Inc., Class B .................... 110,000 6,256,250
Stone, Clay and Glass Products - 0.90%
Corning Incorporated ................... 75,000 5,142,188
Transportation by Air - 1.49%
UAL Corporation* ....................... 130,000 8,490,625
Trucking and Warehousing - 1.22%
CNF Transportation Inc. ................ 187,000 6,965,750
Water Transportation - 1.11%
Carnival Corporation, Class A .......... 145,000 6,307,500
Wholesale Trade - Durable Goods - 0.22%
WESCO International, Inc.* ............. 89,500 1,264,187
Wholesale Trade - Nondurable Goods - 0.72%
Cardinal Health, Inc. .................. 75,000 4,087,500
TOTAL COMMON STOCKS _ 60.37% $344,216,617
(Cost: $293,257,524)
PREFERRED STOCK - 0.72%
Communication
Cox Communications, Inc.,
7.0%, Convertible ..................... 71,000 4,100,250
(Cost: $3,550,000)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 0.41%
American Home Products Corporation,
7.9%, 2-15-2005 ....................... $2,250 2,336,850
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Communication _ 1.15%
Bell Atlantic Financial Services, Inc.,
Convertible,
5.75%, 4-1-2003 (A) ................... $ 3,000 $ 3,000,000
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-2003 ...................... 2,123 2,230,876
Southwestern Bell Telephone Company,
5.77%, 10-14-2003 ..................... 1,350 1,310,580
Total ................................. 6,541,456
Depository Institutions - 0.37%
Wachovia Corporation,
6.25%, 8-4-2008 ....................... 2,250 2,123,438
Electric, Gas and Sanitary Services - 0.30%
California Infrastructure and Economic Development
Bank, Special Purpose Trust SCE-1,
6.38%, 9-25-2008 ...................... 1,750 1,713,355
Electronic and Other Electric Equipment - 0.39%
STMicroelectronics N.V., Convertible,
0.0%, 9-22-2009 ....................... 2,800 2,236,500
Food and Kindred Products - 0.79%
Coca-Cola Enterprises Inc.,
6.7%, 10-15-2036 ...................... 4,500 4,492,665
General Merchandise Stores _ 0.40%
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,277,405
Miscellaneous Manufacturing Industries - 0.38%
Tyco International Group S.A.,
6.375%, 6-15-2005 ..................... 2,250 2,174,107
Nondepository Institutions _ 1.77%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 7,096,310
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,002,730
Total ................................. 10,099,040
Rubber and Miscellaneous Plastics Products - 0.61%
Mark IV Industries, Inc., Convertible,
4.75%, 11-1-2004 (A) .................. 4,000 3,450,000
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Transportation by Air - 0.60%
Southwest Airlines Co.,
7.875%, 9-1-2007 ...................... 3,300 3,404,280
TOTAL CORPORATE DEBT SECURITIES _ 7.17% $ 40,849,096
(Cost: $41,432,287)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation,
6.625%, 9-15-2009 ..................... 5,000 4,975,000
Federal National Mortgage Association:
6.0%, 6-25-2007 ....................... 3,000 2,972,790
6.51%, 5-6-2008 ....................... 6,750 6,509,497
8.25%, 6-1-2008 ....................... 330 336,341
6.19%, 7-7-2008 ....................... 4,500 4,242,645
6.625%, 9-15-2009 ..................... 4,000 3,988,760
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 48 50,862
9.0%, 8-15-2016 ....................... 203 213,799
9.0%, 10-15-2016 ...................... 401 423,155
9.0%, 11-15-2016 ...................... 108 113,871
9.0%, 1-15-2017 ....................... 58 60,924
9.0%, 3-15-2017 ....................... 181 191,249
9.0%, 4-15-2017 ....................... 106 111,821
9.0%, 7-15-2017 ....................... 79 82,839
6.5%, 8-15-2028 ....................... 9,579 9,156,723
United States Treasury:
7.125%, 2-29-2000 ..................... 6,000 6,045,960
8.875%, 5-15-2000 ..................... 17,000 17,371,790
8.0%, 5-15-2001 ....................... 20,000 20,721,800
6.375%, 8-15-2002 ..................... 12,000 12,200,640
7.5%, 2-15-2005 ....................... 33,000 35,268,750
6.5%, 8-15-2005 ....................... 4,000 4,095,640
7.25%, 5-15-2016 ...................... 8,500 9,183,995
6.25%, 8-15-2023 ...................... 30,000 29,498,400
TOTAL UNITED STATES GOVERNMENT SECURITIES _ 29.43% $167,817,251
(Cost: $170,604,906)
TOTAL SHORT-TERM SECURITIES _ 1.84% $ 10,502,595
(Cost: $10,502,595)
TOTAL INVESTMENT SECURITIES _ 99.53% $567,485,809
(Cost: $519,347,312)
CASH AND OTHER ASSETS, NET OF LIABILITIES _ 0.47% 2,696,328
NET ASSETS - 100.00% $570,182,137
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1999
Notes To Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Security was purchased pursuant to Rule 144A under the Securities Act of
1933 and may be resold in transactions exempt from registration, normally
to qualified institutional buyers. At September 30, 1999, the value of
these securities amounted to $6,450,000 or 1.13% of net assets.
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
SEPTEMBER 30, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $567,486
Cash ............................................ 2
Receivables:
Dividends and interest .......................... 3,613
Fund shares sold ................................ 502
Prepaid insurance premium ........................ 22
--------
Total assets .................................. 571,625
--------
Liabilities
Payable to Fund shareholders ..................... 1,197
Accrued service fee (Note 2) ..................... 100
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 98
Accrued management fee (Note 2) .................. 11
Accrued accounting services fee (Note 2) ......... 6
Accrued distribution fee (Note 2) ................ 3
Other ............................................ 28
--------
Total liabilities ............................. 1,443
--------
Total net assets ............................. $570,182
========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 71,220
Additional paid-in capital ...................... 390,590
Accumulated undistributed income:
Accumulated undistributed net investment income . 1,242
Accumulated undistributed net realized gain
on investment transactions .................... 58,992
Net unrealized appreciation in value of
investments ................................... 48,138
--------
Net assets applicable to outstanding
units of capital ............................. $570,182
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $8.01
Class Y .......................................... $8.01
Capital shares outstanding
Class A .......................................... 71,091
Class Y .......................................... 129
Capital shares authorized .......................... 200,000
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1999
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization........................ $ 7,131
Dividends ....................................... 2,461
--------
Total income .................................. 9,592
--------
Expenses (Note 2):
Investment management fee ....................... 1,838
Service fee - Class A ........................... 686
Transfer agency and dividend
disbursing - Class A .......................... 524
Distribution fee - Class A ...................... 55
Accounting services fee ......................... 35
Custodian fees .................................. 20
Audit fees ...................................... 11
Legal fees ...................................... 7
Shareholder servicing - Class Y ................. 1
Other ........................................... 103
--------
Total expenses ................................ 3,280
--------
Net investment income ........................ 6,312
--------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on securities .................. 41,560
Unrealized depreciation in value of investments
during the period ............................... (39,229)
--------
Net gain on investments ....................... 2,331
--------
Net increase in net assets resulting from
operations ................................. $ 8,643
========
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the six For the fiscal
months ended year ended
September 30, March 31,
1999 1999
Decrease in Net Assets ------------ ------------
Operations:
Net investment income ............... $ 6,312 $ 15,903
Realized net gain on investments .... 41,560 36,348
Unrealized depreciation ............. (39,229) (32,734)
-------- --------
Net increase in net assets
resulting from operations ........ 8,643 19,517
-------- --------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ........................... (5,710) (15,474)
Class Y ........................... (13) (268)
Realized gains on securities transactions:
Class A ........................... --- (28,169)
Class Y ........................... --- (562)
-------- --------
(5,723) (44,473)
-------- --------
Capital share transactions:
Proceeds from sale of shares:
Class A (2,428,503 and 5,841,111
shares, respectively) ............ 19,852 47,279
Class Y (19,911 and 298,026
shares, respectively) ............ 163 2,444
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (673,008 and 5,312,018
shares, respectively) ............ 5,448 41,926
Class Y (1,544 and 105,222
shares, respectively) ............ 13 829
Payments for shares redeemed:
Class A (4,926,654 and 10,252,942
shares, respectively)............. (40,382) (82,940)
Class Y (28,428 and 1,563,122
shares, respectively) ............ (233) (12,501)
-------- --------
Net decrease in net
assets resulting from capital
share transactions .............. (15,139) (2,963)
-------- --------
Total decrease ................. (12,219) (27,919)
Net Assets
Beginning of period .................. 582,401 610,320
-------- --------
End of period, including undistributed
net investment income of $1,242 and
$653, respectively................... $570,182 $582,401
======== ========
*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
six months For the fiscal year ended March 31,
ended -----------------------------------
9/30/99 1999 1998 1997 1996 1995
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $7.97 $8.32 $7.57 $8.00 $6.95 $6.89
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.09 0.33 0.24 0.24 0.24 0.23
Net realized and
unrealized gain
on investments .. 0.03 0.04 1.58 0.22 1.35 0.20
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.12 0.37 1.82 0.46 1.59 0.43
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.08) (0.32) (0.24) (0.24) (0.23) (0.23)
From capital gains (0.00) (0.40) (0.83) (0.65) (0.31) (0.14)
----- ----- ----- ----- ----- -----
Total
distributions .... (0.08) (0.72) (1.07) (0.89) (0.54) (0.37)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $8.01 $7.97 $8.32 $7.57 $8.00 $6.95
===== ===== ===== ===== ===== =====
Total return** ..... 1.50% 3.38% 25.20% 5.88% 23.29% 6.39%
Net assets, end of
period (in
millions) ........ $569 $581 $599 $508 $502 $433
Ratio of expenses to
average net assets 1.11%***0.99% 0.91% 0.93% 0.89% 0.89%
Ratio of net investment
income to average net
assets ........... 2.13%***2.69% 2.88% 3.01% 3.06% 3.37%
Portfolio turnover
rate ............. 40.17% 50.68% 55.46% 40.29% 41.34% 41.30%
*Per-share and share amounts have been adjusted retroactively to reflect
the 200% stock dividend effected June 26, 1998.
**Total return calculated without taking into account the sales load
deducted on an initial purchase.
***Annualized.
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
For the For the fiscal period
six year ended from
months March 31, 1/4/96**
ended ------------------- through
9/30/99 1999 1998 1997 3/31/96
------- ----- ------ ------ -------
Net asset value,
beginning of period $7.97 $8.33 $7.57 $8.00 $7.78
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.09 0.07 0.26 0.26 0.03
Net realized and
unrealized gain
on investments .. 0.04 0.32 1.58 0.21 0.25
----- ----- ----- ----- -----
Total from investment
operations ....... 0.13 0.39 1.84 0.47 0.28
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.09) (0.35) (0.26) (0.26) (0.06)
From capital gains (0.00) (0.40) (0.82) (0.64) (0.00)
----- ----- ----- ----- -----
Total distributions (0.09) (0.75) (1.08) (0.90) (0.06)
----- ----- ----- ----- -----
Net asset value,
end of period .... $8.01 $7.97 $8.33 $7.57 $8.00
===== ===== ===== ===== =====
Total return ....... 1.65% 3.58% 25.43% 6.07% 3.53%
Net assets, end of
period (in
millions) ........ $1 $1 $11 $6 $6
Ratio of expenses
to average net
assets ........... 0.82%***0.81% 0.75% 0.75% 0.80%***
Ratio of net
investment income
to average net
assets ........... 2.41%***3.32% 3.01% 3.20% 3.35%***
Portfolio
turnover rate .... 40.17% 50.68% 55.46% 40.29% 41.34%***
*Per-share and share amounts have been adjusted retroactively to
reflect the 200% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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 business day following 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 carryovers.
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. As of
June 30, 1999, the fee is payable by the Fund at the annual rates of: 0.70% of
net assets up to $1 billion, 0.65% of net assets over $1 billion and up to $2
billion, 0.60% of net assets over $2 billion and up to $3 billion, and 0.55% of
net assets over $3 billion. Prior to June 30, 1999, the fee consisted 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 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 the 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
$550,638, out of which W&R paid sales commissions of $319,015 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 $10,852, which are included in other
expenses.
W&R is a subsidiary of 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 $215,949,457 while proceeds from
maturities and sales aggregated $212,702,947. Purchases of short-term
securities and U.S Government securities aggregated $379,072,281 and
$13,044,055, respectively. Proceeds from maturities and sales of short-term
securities and U.S. Government securities aggregated $378,753,032 and
$27,528,885, respectively.
For Federal income tax purposes, cost of investments owned at September 30,
1999 was $519,347,312, resulting in net unrealized appreciation of $48,138,497,
of which $69,176,408 related to appreciated securities and $21,037,911 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $36,374,960 during the year ended March 31, 1999, of which a portion was paid
to shareholders during the period ended March 31, 1999. Remaining capital gain
net income will be distributed to the Fund's shareholders.
NOTE 5 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A, Class B,
Class C and Class Y, each of which have equal rights as to assets and voting
privileges. Only Class A and Class Y shares were issued during the six months
ended September 30, 1999. Class Y shares are not subject to a sales charge on
purchases, are not subject to a Rule 12b-1 Distribution and Service Plan and are
subject to 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 their
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 September 30, 1999, and the related statement of operations for
the six-month period then ended, the statements of changes in net assets for the
six-month period then ended and the fiscal year ended March 31, 1999, and the
financial highlights for the six-month period ended September 30, 1999, and for
each of the five fiscal years in the period ended March 31, 1999. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
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 as of
September 30, 1999, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of United
Continental Income Fund, Inc. as of September 30, 1999, the results of its
operations for the six-month period then ended, the changes in its net assets
for the six-month period then ended and the fiscal year ended March 31, 1999,
and the financial highlights for the six-month period ended September 30, 1999,
and for each of the five fiscal years in the period ended March 31, 1999 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
November 5, 1999
<PAGE>
Shareholder Meeting Results
A special meeting of United Continental Income Fund, Inc. was held on June 22,
1999. 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 Withhold Non-Votes*
J. Concannon 38,257,556 1,234,712 0
J. Dillingham 38,269,041 1,223,227 0
D. Gardner 38,186,387 1,305,881 0
L. Graves 38,240,090 1,252,178 0
J. Harroz Jr. 38,170,439 1,321,829 0
J. Hayes 38,141,112 1,351,156 0
R. Hechler 38,204,647 1,287,621 0
H. Herrmann 38,217,133 1,275,135 0
G. Johnson 38,084,484 1,407,784 0
W. Morgan 38,194,512 1,297,756 0
R. Reimer 38,150,063 1,342,205 0
F. Ross 38,263,402 1,228,866 0
E. Schwartz 38,196,439 1,295,829 0
K. Tucker 38,247,930 1,244,338 0
F. Vogel 38,256,560 1,235,708 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 Abstain Non-Votes*
37,793,521 155,169 1,543,578 0
Item 3. To approve or disapprove the amendment to the Fund's investment
management agreement with Waddell & Reed Investment Management Company:
Broker
For Against Abstain Non-Votes*
35,617,261 2,062,861 1,768,483 43,663
Item 4. To approve or disapprove amendment of the Fund's policy regarding
securities lending:
Broker
For Against Abstain Non-Votes*
35,665,491 1,241,739 2,541,375 43,663
Item 5. To approve or disapprove the Fund's Articles of Incorporation to
change the par value of Fund shares to $0.001:
Broker
For Against Abstain Non-Votes*
35,354,917 1,146,708 2,990,643 0
*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
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, Menlo Park, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Helge K. Lee, Vice President and Secretary
Cynthia P. Prince-Fox, Vice President
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.
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
NUR1004SA(9-99)
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