United
Continental
Income Fund,
Inc.
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1999
<PAGE>
MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1999
Dear Shareholder:
This report relates to the operation of United Continental Income Fund for the
fiscal year ended March 31, 1999. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
During the period, the Asia-spawned crisis in the world's currency and financial
markets ended as the world's central bankers provided liquidity in whatever
amounts necessary. In addition, governments everywhere cut interest rates
significantly. Financial markets responded to these positive developments by
staging a very powerful rally. As the fiscal year ended, the U.S. economy was
far stronger than most would have imagined just a few short months before, and
there is a growing consensus that the rest of the world's economies are showing
signs of stabilization and recovery. The primary driver has been the U.S.
consumer. Consumer spending is running up year after year at rates not seen
since the 1960s. Our consumer is clearly the locomotive that is pulling the
world's economy train along.
During the second half of 1998, we became more defensive by moving assets out of
equities and into fixed income securities and cash. We remained concerned that
corporate profits would remain under pressure and stayed focused on companies
that were more likely able to grow profits in a decelerating economy. We also
kept a high cash position on the belief that more opportunities would develop.
Toward the end of the fiscal year, we put some of our cash reserves back to work
in some areas that have been hit hard by the events outside the U.S.
The strategies and techniques we applied resulted in the Fund's performance for
the fiscal year remaining below that of the indexes 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. While our defensive posture provided the Fund some
protection when the markets corrected in late summer and early fall, it also
prevented full participation in the powerful rally during the fourth quarter of
1998.
With an economy expected to remain healthy over the near-term, financial markets
have already started to broaden out into more economically sensitive areas, such
as paper and metal stocks. While many of these stocks have lagged significantly
and could be poised for a turnaround, there are still issues outside the U.S.
that could hinder a recovery in profits. Therefore, as was the case in 1998,
the financial markets may be influenced more by macro issues than micro issues.
We remain cautiously optimistic and look for further opportunities as the year
unfolds. In doing so, we will continue to focus on potential 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, Inc.
<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 Bond Index Average
--------- --------- ---------- ----------
03/31/89 Purchase9,425 10,000 10,000 10,000
03/31/90 10,924 11,927 11,158 11,200
03/31/91 11,645 13,646 12,538 12,581
03/31/92 13,390 15,153 13,997 14,166
03/31/93 15,276 17,461 16,001 15,982
03/31/94 16,254 17,718 16,459 16,434
03/31/95 17,293 20,476 17,217 17,561
03/31/96 21,322 27,050 19,107 21,222
03/31/97 22,579 32,389 19,969 23,506
03/31/98 28,270 50,381 22,452 30,101
03/31/99 29,224 59,716 23,920 32,056
==== United Continental Income Fund, Class A Shares* -- $29,224
++++ S&P 500 Composite Stock Price Index -- $59,716
**** Salomon Brothers Treasury/Government Sponsored/Corporate Index - $23,920
- ---- Lipper Balanced Fund Universe Average -- $32,056
*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
3/31/99 -2.57% 3.58%
5 Years Ended
3/31/99 11.13% N/A
10 Years Ended
3/31/99 11.32% N/A
Life of Class Y+++ N/A 11.60%
+ 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 3/31/99.
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)
<PAGE>
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1999
(Restated to reflect the 200% stock
dividend effected June 26, 1998.)
- -------------------------------------------
DIVIDENDS PAID $0.32
=====
CAPITAL GAINS DISTRIBUTION $0.40
=====
NET ASSET VALUE ON
3/31/99 $7.97 adjusted to: $8.37 (A)
3/31/98 8.32
------
CHANGE PER SHARE $0.05
======
(A)This number includes the capital gains distribution of $0.40 paid in December
1998 added to the actual net asset value on March 31, 1999.
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 3-31-99 -2.57% 3.38%
5-year period ended 3-31-99 11.13% 12.45%
10-year period ended 3-31-99 11.32% 11.98%
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, 1999, United Continental Income Fund, Inc. had net assets totaling
$582,401,328 invested in a diversified portfolio of:
57.32% Common Stocks
39.92% Debt Securities
2.76% Cash and Cash Equivalents
As a shareholder of United Continental Income Fund, Inc., for every $100 you had
invested on March 31, 1999, your Fund owned:
$32.25 United States Government Securities
26.32 Manufacturing Stocks
12.00 Transportation, Communication, Electric
and Sanitary Services Stocks
7.67 Corporate Debt Securities
7.58 Wholesale and Retail Trade Stocks
5.96 Finance, Insurance and Real Estate Stocks
2.76 Cash and Cash Equivalents
1.99 Services Stocks
1.81 Miscellaneous Investing Institutions Stocks
1.66 Mining Stocks
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1999
Shares Value
COMMON STOCKS
Business Services - %0.98
Teradyne, Inc.* ........................ 105,000 $ 5,729,062
Chemicals and Allied Products - %5.09
Lilly (Eli) and Company ................ 100,000 8,487,500
Pfizer Inc. ............................ 103,000 14,291,250
Procter & Gamble Company (The) ......... 70,000 6,855,625
Total ................................. 29,634,375
Communication _ 6.55%
AT&T Corporation ....................... 200,000 15,962,500
Cox Communications, Inc., Class A* ..... 100,000 7,562,500
SBC Communications Inc. ................ 310,000 14,608,750
Total ................................. 38,133,750
Depository Institutions _ 1.94%
BankAmerica Corporation ................ 71,904 5,078,220
Comerica Incorporated .................. 100,000 6,243,750
Total ................................. 11,321,970
Eating and Drinking Places - 1.46%
Wendy's International, Inc. ............ 300,000 8,531,250
Electric, Gas and Sanitary Services _ 2.14%
Reliant Energy ......................... 240,000 6,255,000
Unicom Corporation ..................... 170,000 6,215,625
Total ................................. 12,470,625
Electronic and Other Electric Equipment - 3.59%
Analog Devices, Inc.* .................. 175,000 5,206,250
General Electric Company ............... 70,000 7,743,750
Texas Instruments Incorporated ......... 80,000 7,940,000
Total ................................. 20,890,000
Fabricated Metal Products - 0.06%
Wyman-Gordon Company* .................. 35,700 330,225
Food and Kindred Products - 1.05%
Ralston-Ralston Purina Group ........... 230,000 6,138,125
General Merchandise Stores - 3.07%
Penney (J.C.) Company, Inc. ............ 100,000 4,050,000
Wal-Mart Stores, Inc. .................. 150,000 13,828,125
Total ................................. 17,878,125
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Holding and Other Investment Offices - 1.81%
Berkshire Hathaway Inc., Class B* ...... 3,000 $ 7,053,000
LTC Properties, Inc. ................... 47,800 585,550
National Health Investors, Inc. ........ 133,930 2,879,495
Total ................................. 10,518,045
Industrial Machinery and Equipment - 5.24%
Applied Materials, Inc.* ............... 125,000 7,714,844
Case Corporation ....................... 233,100 5,914,912
EMC Corporation* ....................... 132,000 16,863,000
Total ................................. 30,492,756
Instruments and Related Products - 2.14%
Medtronic, Inc. ........................ 100,000 7,175,000
Raytheon Company, Class B .............. 90,000 5,276,250
Total ................................. 12,451,250
Insurance Carriers - 2.84%
Chubb Corporation (The) ................ 65,000 3,806,563
Hartford Financial Services
Group Inc. (The) ...................... 224,000 12,726,000
Total ................................. 16,532,563
Miscellaneous Retail - 2.36%
Costco Companies, Inc.* ................ 150,000 13,739,063
Motion Pictures - 1.01%
Walt Disney Company (The) .............. 190,000 5,913,750
Nondepository Institutions - 1.18%
Freddie Mac ............................ 120,000 6,855,000
Oil and Gas Extraction - 1.66%
Burlington Resources Incorporated ...... 241,600 9,648,900
Petroleum and Coal Products - 2.78%
BP Amoco p.l.c. ........................ 54,048 5,455,470
Mobil Corporation ...................... 63,000 5,544,000
Royal Dutch Petroleum Company .......... 100,000 5,200,000
Total ................................. 16,199,470
Primary Metal Industries - 1.83%
Bethlehem Steel Corporation* ........... 400,000 3,300,000
British Steel plc, ADR ................. 185,000 3,734,688
USX Corporation - U.S. Steel Group ..... 155,000 3,642,500
Total ................................. 10,677,188
Printing and Publishing - 1.53%
McGraw-Hill Companies, Inc. (The) ...... 164,000 8,938,000
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1999
Shares Value
COMMON STOCKS (Continued)
Rubber and Miscellaneous Plastics Products - 1.89%
A. Schulman, Inc. ...................... 165,000 $ 2,242,969
Goodyear Tire & Rubber Company (The) ... 60,000 2,988,750
NIKE, Inc., Class B .................... 100,000 5,768,750
Total ................................. 11,000,469
Transportation by Air - 1.78%
FDX Corporation* ....................... 45,000 4,176,562
UAL Corporation* ....................... 80,000 6,220,000
Total ................................. 10,396,562
Transportation Equipment - 1.12%
General Motors Corporation ............. 75,000 6,515,625
Trucking and Warehousing - 1.53%
CNF Transportation Inc. ................ 235,000 8,885,937
Wholesale Trade - Durable Goods - 0.69%
Motorola, Inc. ......................... 55,000 4,028,750
TOTAL COMMON STOCKS - 57.32% $333,850,835
(Cost: $246,843,211)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 0.42%
American Home Products Corporation,
7.9%, 2-15-2005 ....................... $2,250 2,474,415
Communication - 1.21%
Bell Atlantic Financial Services, Inc.,
Convertible,
5.75%, 4-1-2003 (A) ................... 3,000 3,172,500
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-2003 ...................... 2,351 2,533,227
Southwestern Bell Telephone Company,
5.77%, 10-14-2003 ..................... 1,350 1,351,647
Total ................................. 7,057,374
Depository Institutions - 0.39%
Wachovia Corporation,
6.25%, 8-4-2008 ....................... 2,250 2,244,150
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 1,776,793
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Fabricated Metal Products - 0.56%
Mark IV Industries, Inc., Convertible,
4.75%, 11-1-2004, (A) ................. $4,000 $ 3,265,000
Food and Kindred Products - 0.80%
Coca-Cola Enterprises Inc.,
6.7%, 10-15-2036 ...................... 4,500 4,656,420
General Merchandise Stores - 0.40%
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,314,687
Health Services - 0.19%
ARV Assisted Living, Inc., Convertible,
6.75%, 4-1-2006 (A) ................... 3,000 1,121,250
Miscellaneous Manufacturing Industries - 0.39%
Tyco International Group S.A.,
6.375%, 6-15-2005 ..................... 2,250 2,263,635
Nondepository Institutions - 2.39%
Ford Motor Credit Company,
8.875%, 6-15-99 ....................... 3,000 3,021,420
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 7,634,120
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,051,150
Merrill Lynch Mortgage Investors, Inc.,
8.3%, 4-15-2012 ....................... 196 196,281
Total ................................. 13,902,971
Transportation by Air - 0.62%
Southwest Airlines Co.,
7.875%, 9-1-2007 ...................... 3,300 3,602,841
TOTAL CORPORATE DEBT SECURITIES - 7.67% $44,679,536
(Cost: $45,695,273)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1999
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
6.0%, 6-25-2007 ....................... $3,000 $ 3,005,610
6.51%, 5-6-2008 ....................... 6,750 6,807,983
8.25%, 6-1-2008 ....................... 357 371,007
6.19%, 7-7-2008 ....................... 4,500 4,469,760
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 64 68,703
9.0%, 8-15-2016 ....................... 265 283,309
9.0%, 10-15-2016 ...................... 557 596,461
9.0%, 11-15-2016 ...................... 146 156,206
9.0%, 1-15-2017 ....................... 61 65,199
9.0%, 3-15-2017 ....................... 199 213,162
9.0%, 4-15-2017 ....................... 126 134,224
9.0%, 7-15-2017 ....................... 114 121,990
6.5%, 8-15-2028 ....................... 9,902 9,858,616
United States Treasury:
7.125%, 2-29-2000 ..................... 6,000 6,118,140
8.875%, 5-15-2000 ..................... 17,000 17,719,780
8.0%, 5-15-2001 ....................... 23,000 24,354,930
6.375%, 8-15-2002 ..................... 12,000 12,440,640
7.5%, 2-15-2005 ....................... 33,000 36,583,470
7.25%, 5-15-2016 ...................... 8,500 9,745,760
7.25%, 8-15-2022 ...................... 20,000 23,340,600
6.25%, 8-15-2023 ...................... 30,000 31,350,000
TOTAL UNITED STATES GOVERNMENT SECURITIES - 32.25% $187,805,550
(Cost: $186,430,031)
TOTAL SHORT-TERM SECURITIES - 1.72% $9,986,251
(Cost: $9,986,251)
TOTAL INVESTMENT SECURITIES - 98.96% $576,322,172
(Cost: $488,954,766)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.04% 6,079,156
NET ASSETS - 100.00% $582,401,328
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 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 March 31, 1999, the value of these
securities amounted to $7,558,750 or 1.30% 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
MARCH 31, 1999
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $576,322
Cash ............................................ 4
Receivables:
Dividends and interest .......................... 4,057
Investment securities sold ...................... 3,528
Fund shares sold ................................ 463
Prepaid insurance premium ........................ 20
--------
Total assets .................................. 584,394
--------
Liabilities
Payable to Fund shareholders ..................... 1,746
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 116
Accrued service fee (Note 2) ..................... 100
Accrued distribution fee (Note 2) ................ 9
Accrued management fee (Note 2) .................. 9
Accrued accounting services fee (Note 2) ......... 6
Other ............................................ 7
--------
Total liabilities ............................. 1,993
--------
Total net assets ............................. $582,401
========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 73,053
Additional paid-in capital ...................... 403,896
Accumulated undistributed income:
Accumulated undistributed net investment income . 653
Accumulated undistributed net realized gain
on investment transactions .................... 17,432
Net unrealized appreciation in value of
investments ................................... 87,367
--------
Net assets applicable to outstanding
units of capital ............................. $582,401
========
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $7.97
Class Y .......................................... $7.97
Capital shares outstanding
Class A .......................................... 72,917
Class Y .......................................... 136
Capital shares authorized .......................... 200,000
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1999
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization........................ $15,936
Dividends ....................................... 5,772
--------
Total income .................................. 21,708
--------
Expenses (Note 2):
Investment management fee ....................... 3,200
Service fee - Class A ........................... 1,395
Transfer agency and dividend
disbursing - Class A .......................... 876
Accounting services fee ......................... 70
Distribution fee - Class A ...................... 68
Custodian fees .................................. 32
Audit fees ...................................... 16
Shareholder servicing - Class Y ................. 13
Legal fees ...................................... 9
Other ........................................... 126
--------
Total expenses ................................ 5,805
--------
Net investment income ........................ 15,903
--------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on securities .................. 36,376
Realized net loss on foreign
currency transactions ........................... (28)
--------
Realized net gain on investments ................ 36,348
Unrealized depreciation in value of investments
during the period ............................... (32,734)
--------
Net gain on investments ....................... 3,614
--------
Net increase in net assets resulting from
operations ................................. $19,517
========
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the fiscal year ended
March 31,
------------------------
1999 1998
Increase (Decrease) in Net Assets ------------ ------------
Operations:
Net investment income ............... $15,903 $ 16,284
Realized net gain on investments .... 36,348 49,742
Unrealized appreciation (depreciation) (32,734) 60,305
-------- --------
Net increase in net assets
resulting from operations ........ 19,517 126,331
-------- --------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ........................... (15,474) (16,306)
Class Y ........................... (268) (256)
Realized gains on securities transactions:
Class A ........................... (28,169) (53,686)
Class Y ........................... (562) (827)
-------- --------
(44,473) (71,075)
-------- --------
Capital share transactions:
Proceeds from sale of shares:
Class A (5,841,111 and 1,395,794
shares, respectively) ............ 47,279 34,176
Class Y (298,026 and 148,864
shares, respectively) ............ 2,444 3,659
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (5,312,018 and 2,894,602
shares, respectively) ............ 41,926 67,675
Class Y (105,222 and 46,351
shares, respectively) ............ 829 1,084
Payments for shares redeemed:
Class A (10,252,942 and 2,618,993
shares, respectively)............. (82,940) (64,317)
Class Y (1,563,122 and 39,543
shares, respectively) ............ (12,501) (967)
-------- --------
Net increase (decrease) in net
assets resulting from capital
share transactions .............. (2,963) 41,310
-------- --------
Total increase (decrease) ...... (27,919) 96,566
Net Assets
Beginning of period .................. 610,320 513,754
-------- --------
End of period, including undistributed
net investment income of $653 and
$520, respectively................... $582,401 $610,320
======== ========
*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,
-----------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $8.32 $7.57 $8.00 $6.95 $6.89
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.33 0.24 0.24 0.24 0.23
Net realized and
unrealized gain
on investments .. 0.04 1.58 0.22 1.35 0.20
----- ----- ----- ----- -----
Total from investment
operations ....... 0.37 1.82 0.46 1.59 0.43
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.32) (0.24) (0.24) (0.23) (0.23)
From capital gains (0.40) (0.83) (0.65) (0.31) (0.14)
----- ----- ----- ----- -----
Total
distributions .... (0.72) (1.07) (0.89) (0.54) (0.37)
----- ----- ----- ----- -----
Net asset value,
end of period .... $7.97 $8.32 $7.57 $8.00 $6.95
===== ===== ===== ===== =====
Total return** ..... 3.38% 25.20% 5.88% 23.29% 6.39%
Net assets, end of
period (in
millions) ........ $581 $599 $508 $502 $433
Ratio of expenses to
average net assets 0.99% 0.91% 0.93% 0.89% 0.89%
Ratio of net investment
income to average net
assets ........... 2.69% 2.88% 3.01% 3.06% 3.37%
Portfolio turnover
rate ............. 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.
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 fiscal period
year ended from
March 31, 1/4/96**
------------------- through
1999 1998 1997 3/31/96
------- ------ ------ -------
Net asset value,
beginning of period $8.33 $7.57 $8.00 $7.78
----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.07 0.26 0.26 0.03
Net realized and
unrealized gain
on investments .. 0.32 1.58 0.21 0.25
----- ----- ----- -----
Total from investment
operations ....... 0.39 1.84 0.47 0.28
----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.35) (0.26) (0.26) (0.06)
From capital gains (0.40) (0.82) (0.64) (0.00)
----- ----- ----- -----
Total distributions (0.75) (1.08) (0.90) (0.06)
----- ----- ----- -----
Net asset value,
end of period .... $7.97 $8.33 $7.57 $8.00
===== ===== ===== =====
Total return ....... 3.58% 25.43% 6.07% 3.53%
Net assets, end of
period (in
millions) ........ $1 $11 $6 $6
Ratio of expenses
to average net
assets ........... 0.81% 0.75% 0.75% 0.80%***
Ratio of net
investment income
to average net
assets ........... 3.32% 3.01% 3.20% 3.35%***
Portfolio
turnover rate .... 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
MARCH 31, 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. At March 31, 1999, $28,218 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 $21.5 billion of
combined net assets at March 31, 1999) 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
$1,384,658, out of which W&R paid sales commissions of $800,701 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 $21,767, 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 $201,132,920 while proceeds from
maturities and sales aggregated $298,757,994. Purchases of short-term
securities and U.S Government securities aggregated $753,438,873 and
$79,221,856, respectively. Proceeds from maturities and sales of short-term
securities and U.S. Government securities aggregated $761,232,226 and
$10,463,360, respectively.
For Federal income tax purposes, cost of investments owned at March 31,
1999 was $488,954,766, resulting in net unrealized appreciation of $87,367,406,
of which $102,568,730 related to appreciated securities and $15,201,324 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
On August 29, 1995, the Fund was authorized to offer 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.
NOTE 6 -- Stock Dividend
The Fund's Board of Directors approved on February 11, 1998 a stock
dividend of 200% effected on June 26, 1998. Authorized shares of the Fund were
accordingly increased by 100,000,000 shares.
<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, 1999, and the related statement of
operations for the fiscal year then ended, the statements of changes in
net assets for each of the two fiscal years in the period then ended, and
the financial highlights for each of the five fiscal years in the period
then ended. 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 March 31, 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 March 31, 1999,
the results of its operations for the fiscal year then ended, the changes
in its net assets for each of the two fiscal years in the period then
ended, and the financial highlights for each of the five fiscal years in
the period then ended, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Kansas City, Missouri
May 7, 1999
<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 Ordinary Long-Term Non- Long-Term
Date Total IncomeCapital GainQualifyingQualifyingCapital Gain
- ----------- ----- -------- ---------------------------------------
Class A
06-12-98 $0.1600 $0.1600 $0.0000 $0.0462 $0.1138 $0.0000
09-11-98 0.0540 0.0540 0.0000 0.0148 0.0392 0.0000
12-16-98 0.4660 0.0650 0.4010 0.0179 0.0471 0.4010
03-10-99 0.0450 0.0450 0.0000 0.0118 0.0332 0.0000
------- ------- ------- ------- ------- -------
Total $0.7250 $0.3240 $0.4010 $0.0907 $0.2333 $0.4010
======= ======= ======= ======= ======= =======
Class Y
06-12-98 $0.1700 $0.1700 $0.0000 $0.0491 $0.1209 $0.0000
09-11-98 0.0580 0.0580 0.0000 0.0159 0.0421 0.0000
12-16-98 0.4750 0.0740 0.4010 0.0203 0.0537 0.4010
03-10-99 0.0490 0.0490 0.0000 0.0128 0.0362 0.0000
------- ------- ------- ------- ------- -------
Total $0.7520 $0.3510 $0.4010 $0.0981 $0.2529 $0.4010
======= ======= ======= ======= ======= =======
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>
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
Lower sales charges are available by combining the net asset value (_NAV_) of
existing Class A shares of the Fund with additional purchases of Class A shares
of any fund in the United Group, except that only the Class A shares of United
Cash Management, Inc. that were acquired by exchange of another United Group
fund's Class A shares on which a sales charge was paid, plus the shares paid as
dividends on those acquired shares, may be combined.
Any person who was a holder of an uncompleted Plan on May 30, 1996, with a face
amount of less than $12,000, may purchase Class A shares of the Fund at NAV, up
to the amount representing the unpaid balance of the Plan, if the purchase order
is so designated.
For shareholders who have chosen the Income-Earned option or the Cash option for
their distribution method: if the dividend distribution (for Income-Earned) or
the total distribution (for Cash) is less than ten dollars, the distribution
will be automatically paid in additional shares of the same class of the Fund.
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(3-99)
printed on recycled paper
