United
Continental
Income Fund,
Inc.
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1995
<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
- -----------------------------------------------------------------
MARCH 31, 1995
Dear Shareholder:
As President of your Fund, I would like to take this opportunity to share
my thoughts on a subject that I believe is very important to all of us; the need
for tax incentives that will help Americans take personal responsibility for
their futures.
Voters all across America sent two clear messages in the elections held in
November 1994. They want their taxes reduced and they want their concern for
financial security addressed without adding new bureaucracies or government
programs. One of the methods to do this is to expand the availability of tax
incentives for individuals to invest in Individual Retirement Accounts. This
could be done in several ways such as:
restoring the universal availability of fully tax-deductible Individual
Retirement Accounts,
allowing non-working spouses to make a full contribution of $2,000 to an
Individual Retirement Account instead of only $250 as currently allowed,
eliminating the taxation on the distribution of earnings from Individual
Retirement Accounts.
All of us recognize that future generations will need to supplement social
security benefits by private savings in order to provide an adequate level of
retirement income. Expanding the benefits of IRA's provides tax incentives to
encourage savings which allows all individuals the opportunity to provide
financial security for themselves and their families. Encouraging savings
through tax incentives has additional indirect benefits. Americans' personal
savings rate has fallen from 8% in the 1960's to just 2% of disposable income
today. Expanding the benefits of IRA's will help reverse this trend, will
increase the amount of U.S. capital available for investment and should make the
U.S. less dependent on capital from foreign sources.
Changes to our current IRA laws, such as the ones I mentioned above, are
being discussed in Congress. I urge you to write to your Members of Congress
and to the President to tell them that you support expanded IRA legislation that
provides incentives and opportunities for all Americans to improve their
financial well being.
Finally, I appreciate your continued confidence in our products and
services.
Respectfully,
Keith A. Tucker
President
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1995
Dear Shareholder:
This report relates to the operation of United Continental Income Fund for
the fiscal year ended March 31, 1995. The following discussion, graphs and
tables provide you with information regarding the Fund's performance during that
period.
Stock and bond market conditions during the past year were negatively
affected by rising interest rates. This rise was sparked by credit tightening
actions of the Federal Reserve Bank aimed at alleviating perceived inflationary
pressures in the economy. The financial difficulties arising in Mexico and other
Latin American countries late in 1994 had a significant negative impact on the
performance of the securities markets also. On the positive, the markets liked
Congressional inaction on major health care reform and the November election of
a new party to power in Congress.
During the past fiscal year the Fund reduced its holdings of stocks in
cyclical industries, particularly industries in which consumer demand is most
sensitive to changes in interest rates. For example, the Fund de-emphasized
companies connected with automobiles, housing and consumer durables. The Fund
increased its investments in industries that presented the best prospects for
maintaining positive earnings growth even in the event of an economic slowdown.
The Fund also increased its bond holdings toward the end of the fiscal year as
interest rates began to decline and expectations of any further action by the
Federal Reserve Bank to raise interest rates diminished.
The strategies and techniques we applied resulted in the direction of the
Fund's performance remaining fairly consistent with 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
Lehman Brothers Government/Corporate Bond Index or LBGCBI) and the universe of
funds with similar investment objectives (the Lipper Balanced Fund Universe
Average). The S&P 500 Index and the LBGCBI are presented because the Fund
invests in both stocks and bonds.
We anticipate that inflation will remain low and that the rate of growth in
the economy will stabilize at a slow, steady level. In that setting, we believe
the long-term outlook for stocks and bonds should be positive. We expect to
continue to pursue the same strategies we have employed in the recent past in
seeking to achieve 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.,
THE S&P'S 500 INDEX,
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX,
AND THE LIPPER BALANCED FUND UNIVERSE AVERAGE
Average Annual Total Return*
1 year 5 years 10 years
0.27% 8.33% 10.63%
SOME OF THESE NUMBERS MAY NOT BE RIGHT!!!!
Lehman
Brothers Lipper
United Government/ Balanced
ContintentalS&P Corporate Fund
Income 500 Bond Universe
Fund Index Index Average
------------------ ---------- ----------
03/31/85 Purchase9,425 10,000 10,000 10,000
03/31/86 13,532 13,767 12,890 13,521
03/31/87 15,510 17,374 13,933 15,778
03/31/88 13,705 15,927 14,550 15,323
03/31/89 14,973 18,817 15,277 16,821
03/31/90 17,354 22,444 17,065 18,839
03/31/91 18,501 25,678 19,198 21,162
03/31/92 21,273 28,514 21,383 23,828
03/31/93 24,269 32,856 24,441 26,883
03/31/94 25,822 33,340 25,119 27,643
03/31/95 27,473 38,531 26,272 29,539
- ---------- Lipper Balanced Fund Universe Average -- $29,539
- - - - - - Lehman Brothers Government/Corporate Bond Index - $26,272
+++++ S&P 500 Index -- $38,531
===== United Continental Income Fund** -- $27,473
Past performance is not predictive of future performance. Indexes are
unmanaged.
*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.
**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.
<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% (May purchase securities
Foreign Securities subject to repurchase
agreements. May invest
Cash Reserves in certain options or
futures.)
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.
Moving into cash reserve positions at
times thought to be near a major stock
market peak allows the Fund the
opportunity to capture profits and
attempts to cushion the impact of market
declines. The added flexibility
provided by our CASH RESERVES STRATEGY
has from time to time been an important
element in our past success and, when
deemed appropriate, may be used in the
management of the portfolio in the
future.
FOUNDED: 1970
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY (March, June, September,
December)
<PAGE>
PERFORMANCE SUMMARY
PER SHARE DATA
For the Fiscal Year Ended March 31, 1995
- ----------------------------------------
DIVIDENDS PAID $ 0.70
======
CAPITAL GAINS DISTRIBUTION $ 0.41
======
NET ASSET VALUE ON
3/31/95 $20.84 adjusted to:$21.25 (A)
3/31/94 20.67
------
CHANGE PER SHARE $ 0.58
======
(A)This number includes the capital gains distribution of $0.41 paid in December
1994 added to the actual net asset value on March 31, 1995.
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 3-31-95 0.27% 6.39%
5-year period ended 3-31-95 8.33% 9.62%
10-year period ended 3-31-95 10.63% 11.29%
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, 1995, United Continental Income Fund, Inc. had net assets totaling
$432,997,261 invested in a diversified portfolio of:
60.22% Common Stocks
26.76% Debt Securities
7.76% Preferred Stocks
5.26% Cash and Cash Equivalents
As a shareholder of United Continental Income Fund, Inc., for every $100 you had
invested on March 31, 1995, your Fund owned:
$19.44 United States Government Securities
18.53 Basic Industries Stocks
17.04 Consumer Stocks
13.07 Technological Stocks
7.76 Preferred Stocks
7.32 Corporate Debt Securities
7.06 Financial Stocks
5.26 Cash and Cash Equivalents
4.10 Energy and Energy-Related Stocks
0.42 Public Utilities Stocks
<PAGE>
- -----------------------------------------------------------------
These STOCK CATEGORIES are provided as a reference only. Not all categories or
subcategories will be represented in a portfolio at all times. Refer to the
following pages for a more detailed portfolio listing.
BASIC INDUSTRIES
Airlines
Automotive
Building
Chemicals Major
Electrical Equipment
Engineering and Construction
Machinery
Manufacturers
Metals and Mining
Multi-Industry
Paper
Precious Metals
Railroad Equipment
Railroads
Shipping
Steel
Tire and Rubber
Trucking
CONSUMER
Beverages
Consumer Electronics and Appliances
Food and Related
Hospital Management
Household Products
Leisure Time
Packaging and Containers
Publishing and Advertising
Retailing
Services, Consumer and Business
Textiles and Apparel
Tobacco
ENERGY AND ENERGY-RELATED
Canadian Oil
Coal
Domestic Oil
International Oil
Oil Services
Propane
FINANCIAL
Banks and Savings and Loans
Financial
Insurance
PUBLIC UTILITIES
Electric
Gas
Pipelines
TECHNOLOGICAL
Aerospace
Biotechnology and Medical Services
Chemicals Specialty and Miscellaneous Technology
Computers and Office Equipment
Drugs and Hospital Supply
Electronics
Telecommunications
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1995
Shares Value
COMMON STOCKS
Automotive - 1.75%
Eaton Corporation ...................... 140,000 $ 7,595,000
Banks and Savings and Loans - 1.46%
Norwest Corporation .................... 250,000 6,343,750
Biotechnology and Medical Services - 1.49%
St. Jude Medical, Inc. ................. 150,000 6,450,000
Building - 2.60%
Temple-Inland Inc. ..................... 120,000 5,385,000
York International Corporation ......... 150,000 5,887,500
Total ................................. 11,272,500
Chemicals Major - 2.07%
du Pont (E.I.) de Nemours and Company .. 75,000 4,537,500
Rohm & Haas Company .................... 75,000 4,425,000
Total ................................. 8,962,500
Chemicals Specialty and Miscellaneous Technology - 1.80%
IMC Global, Inc. ....................... 100,000 4,887,500
Minnesota Mining and
Manufacturing Company ................. 50,000 2,906,250
Total ................................. 7,793,750
Domestic Oil - 2.73%
Amoco Corporation ...................... 100,000 6,362,500
Apache Corporation ..................... 200,000 5,450,000
Total ................................. 11,812,500
Drugs and Hospital Supply - 2.40%
American Home Products Corporation ..... 90,000 6,412,500
Astra AB, Class A (A) .................. 150,000 3,986,100
Total ................................. 10,398,600
Electrical Equipment - 2.00%
Emerson Electric Co. ................... 130,000 8,645,000
Electronics - 1.50%
AMP Incorporated ....................... 180,000 6,480,000
Engineering and Construction - 0.59%
Foster Wheeler Corporation ............. 75,000 2,540,625
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1995
Shares Value
COMMON STOCKS (Continued)
Financial - 2.45%
Federal National Mortgage Association .. 50,000 $ 4,068,750
Household International, Inc. .......... 150,000 6,525,000
Total ................................. 10,593,750
Food and Related - 2.69%
ConAgra, Inc. .......................... 170,000 5,631,250
Sara Lee Corporation ................... 230,000 6,008,750
Total ................................. 11,640,000
Hospital Management - 3.83%
Assisted Living Concepts, Inc.* ........ 100,000 850,000
LTC Properties, Inc. ................... 370,000 4,902,500
National Medical Enterprises, Inc. ..... 400,000 6,350,000
United HealthCare Corporation .......... 96,000 4,488,000
Total ................................. 16,590,500
Insurance - 3.15%
SAFECO Corporation ..................... 75,000 4,096,875
St. Paul Companies, Inc. (The) ......... 100,000 5,000,000
UNUM Corporation ....................... 100,000 4,525,000
Total ................................. 13,621,875
Leisure Time - 2.66%
Walt Disney Company (The) .............. 110,000 5,871,250
Time Warner Incorporated ............... 150,000 5,662,500
Total ................................. 11,533,750
Machinery - 2.63%
Deere & Company ........................ 80,000 6,500,000
Timken Company (The) ................... 77,000 2,733,500
TRAUB AG (A)* .......................... 18,000 2,157,318
Total ................................. 11,390,818
Metals and Mining - 0.15%
Phelps Dodge Corporation ............... 11,200 637,000
Multi-Industry - 2.13%
ITT Corporation ........................ 90,000 9,236,250
Oil Services - 1.37%
Schlumberger Limited ................... 100,000 5,962,500
Paper - 2.16%
Union Camp Corporation ................. 100,000 5,187,500
Westvaco Corporation ................... 100,000 4,150,000
Total ................................. 9,337,500
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1995
Shares Value
COMMON STOCKS (Continued)
Public Utilities - Electric - 0.42%
VEBA AG (A) ............................ 5,000 $ 1,806,855
Publishing and Advertising - 2.75%
American Greetings Corporation,
Class A ............................... 200,000 5,962,400
McGraw-Hill, Inc. ...................... 83,000 5,955,250
Total ................................. 11,917,650
Railroads - 2.45%
Conrail Inc. ........................... 70,000 3,928,750
Norfolk Southern Corporation ........... 100,000 6,687,500
Total ................................. 10,616,250
Retailing - 5.11%
May Department Stores Company (The) .... 140,000 5,180,000
Mercantile Stores Company, Inc. ........ 100,000 4,462,500
Penney (J.C.) Company, Inc. ............ 155,000 6,955,625
Tommy Hilfiger Corporation* ............ 251,400 5,530,800
Total ................................. 22,128,925
Telecommunications - 5.88%
AT&T Corporation ....................... 114,600 5,930,550
BellSouth Corporation .................. 110,000 6,545,000
GTE Corporation ........................ 150,000 4,987,500
MCI Communications Corporation ......... 250,000 5,140,500
Telefonos de Mexico S.A. de C.V., ADR .. 100,000 2,850,000
Total ................................. 25,453,550
TOTAL COMMON STOCKS - 60.22% $260,761,398
(Cost: $239,967,936)
PREFERRED STOCKS
Airlines - 1.11%
Delta Air Lines, Incorporated, Convertible
Depository Shares ..................... 90,000 4,792,500
Automotive - 1.02%
Ford Motor Company, Convertible
Depository Shares ..................... 50,000 4,412,500
Banks and Savings and Loans - 1.76%
BankAmerica Corporation, Convertible ... 76,400 4,116,050
Citicorp, Convertible Depository Shares 180,000 3,487,500
Total ................................. 7,603,550
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1995
Shares Value
PREFERRED STOCKS (Continued)
Computers and Office Equipment - 3.32%
General Motors Corporation, Class E,
Convertible Depository Shares ......... 250,000 $ 14,375,000
Hospital Management - 0.55%
National Health Investors,
Convertible ........................... 106,000 2,398,250
TOTAL PREFERRED STOCKS - 7.76% $ 33,581,800
(Cost: $29,391,314)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Domestic Oil - 0.91%
BP America Inc.,
10.0%, 7-1-2018 ....................... $ 3,500 3,926,930
Electrical Equipment - 1.61%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 6,983,275
Financial - 2.71%
Ford Motor Credit Company,
8.875%, 6-15-99 ....................... 3,000 3,132,690
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,067,530
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,410,313
Merrill Lynch Mortgage Investors, Inc.,
8.3%, 4-15-2012 ....................... 3,100 3,131,000
Total ................................. 11,741,533
Multi-Industry - 1.12%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 5,000 4,850,000
Railroad Equipment - 0.04%
Union Tank Car Co.,
9.5%, 12-15-95 ........................ 177 180,007
Telecommunications - 0.93%
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-2003 ...................... 3,812 4,014,854
TOTAL CORPORATE DEBT SECURITIES - 7.32% $ 31,696,599
(Cost: $30,043,768)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1995
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
7.5%, 4-25-2002 ....................... $ 3,000 $ 2,941,860
6.0%, 6-25-2007 ....................... 3,000 2,731,860
8.25%, 6-1-2008 ....................... 723 716,180
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 180 188,728
9.0%, 8-15-2016 ....................... 287 300,368
9.0%, 10-15-2016 ...................... 1,494 1,560,774
9.0%, 11-15-2016 ...................... 424 442,395
9.0%, 1-15-2017 ....................... 153 159,370
9.0%, 3-15-2017 ....................... 365 381,208
9.0%, 4-15-2017 ....................... 362 378,608
9.0%, 7-15-2017 ....................... 277 289,098
United States Treasury:
7.125%, 2-29-2000 ..................... 6,000 6,008,460
8.875%, 5-15-2000 ..................... 17,000 18,301,520
8.0%, 5-15-2001 ....................... 23,000 23,973,820
6.375%, 8-15-2002 ..................... 12,000 11,439,360
7.5%, 2-15-2005 ....................... 6,000 6,121,860
7.25%, 5-15-2016 ...................... 8,500 8,218,395
TOTAL UNITED STATES GOVERNMENT SECURITIES - 19.44% $ 84,153,864
(Cost: $85,084,285)
TOTAL SHORT-TERM SECURITIES - 4.85% $ 21,009,283
(Cost: $21,009,283)
TOTAL INVESTMENT SECURITIES - 99.59% $431,202,944
(Cost: $405,496,586)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.41% 1,794,317
NET ASSETS - 100.00% $432,997,261
Notes To Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
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, 1995
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $431,202,944
Cash ............................................. 7,749
Receivables:
Investment securities sold ...................... 5,656,326
Dividends and interest .......................... 3,253,511
Fund shares sold ................................ 337,785
Prepaid insurance premium ........................ 20,100
------------
Total assets .................................. 440,478,415
------------
Liabilities
Payable for investment securities purchased ...... 6,354,656
Payable for Fund shares redeemed ................. 945,416
Accrued service fee .............................. 91,344
Accrued transfer agency and dividend disbursing .. 65,234
Accrued accounting services fee .................. 5,000
Other ............................................ 19,504
------------
Total liabilities ............................. 7,481,154
------------
Total net assets ............................. $432,997,261
============
Net Assets
$1.00 par value capital stock, authorized --
40,000,000; shares outstanding -- 20,777,054
Capital stock ................................... $ 20,777,054
Additional paid-in capital ...................... 376,636,350
Accumulated undistributed income:
Accumulated undistributed net investment income . 304,556
Accumulated undistributed net realized gain
on investment transactions .................... 9,572,943
Net unrealized appreciation in value of
investments at end of period .................. 25,706,358
------------
Net assets applicable to outstanding
units of capital ............................. $432,997,261
============
Net asset value per share (net assets divided by
shares outstanding) .............................. $20.84
Sales load (offering price x 5.75%) ................ 1.27
------
Offering price per share (net asset value
divided by 94.25%) ............................... $22.11
======
On sales of $100,000 or more the sales load
is reduced as set forth in the Prospectus.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1995
Investment Income
Income:
Interest ........................................ $ 9,697,140
Dividends ....................................... 8,278,298
-----------
Total income .................................. 17,975,438
-----------
Expenses (Note 2):
Investment management fee ....................... 2,250,314
Transfer agency and dividend disbursing ......... 750,528
Service fee ..................................... 479,351
Accounting services fee ......................... 60,000
Custodian fees .................................. 31,295
Audit fees ...................................... 26,373
Legal fees ...................................... 13,023
Other ........................................... 134,558
-----------
Total expenses ................................ 3,745,442
-----------
Net investment income ........................ 14,229,996
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on securities .................. 15,652,134
Realized net loss on foreign
currency transactions ........................... (5,222)
-----------
Realized net gain on investments ................ 15,646,912
Unrealized depreciation in value of investments
during the period ............................... (3,730,876)
-----------
Net gain on investments ....................... 11,916,036
-----------
Net increase in net assets resulting from
operations ................................. $26,146,032
===========
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
March 31,
------------------------
1995 1994
------------ ------------
Increase in Net Assets
Operations:
Net investment income ...............$ 14,229,996 $ 13,527,122
Realized net gain on investments .... 15,646,912 8,098,843
Unrealized appreciation
(depreciation) .................... (3,730,876) 3,398,722
------------ ------------
Net increase in net assets
resulting from operations ........ 26,146,032 25,024,687
------------ ------------
Dividends to shareholders from:*
Net investment income ............... (14,116,118) (13,543,155)
Realized gains on securities
transactions ...................... (8,337,171) (7,540,828)
------------ ------------
(22,453,289) (21,083,983)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(1,792,943 and 1,875,493
shares, respectively) ............. 37,123,344 39,716,188
Proceeds from reinvestment of
dividends and/or capital gains
distribution (1,055,139 and 955,113
shares, respectively) ............. 21,493,991 20,076,172
Payments for shares redeemed
(2,039,852 and 1,805,773 shares,
respectively) ...................... (42,156,015) (38,270,420)
------------ ------------
Net increase in net assets
resulting from capital share
transactions ..................... 16,461,320 21,521,940
------------ ------------
Total increase.................... 20,154,063 25,462,644
Net Assets
Beginning of period .................. 412,843,198 387,380,554
------------ ------------
End of period, including undistributed
net investment income of $304,556
and $195,900, respectively ..........$432,997,261 $412,843,198
============ ============
*See "Financial Highlights" on page .
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended March 31,
------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $20.67 $20.45 $18.70 $16.93 $16.72
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... .70 .70 .83 .73 .84
Net realized and
unrealized gain
on investments .. .58 .61 1.75 1.76 .20
------ ------ ------ ------ ------
Total from investment
operations ....... 1.28 1.31 2.58 2.49 1.04
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.70) (0.70) (0.83) (0.72) (0.83)
Distribution from
capital gains ... (0.41) (0.39) 0.00 0.00 0.00
------ ------ ------ ------ ------
Total
distributions .... (1.11) (1.09) (0.83) (0.72) (0.83)
------ ------ ------ ------ ------
Net asset value,
end of period .... $20.84 $20.67 $20.45 $18.70 $16.93
====== ====== ====== ====== ======
Total return* ...... 6.39% 6.40% 14.08% 14.98% 6.61%
Net assets, end of
period (000
omitted) ......... $432,997$412,843$387,381$339,540$311,173
Ratio of expenses to
average net assets 0.89% 0.81% 0.77% 0.80% 0.85%
Ratio of net investment
income to average net
assets ........... 3.37% 3.29% 4.24% 4.03% 5.15%
Portfolio turnover
rate ............. 41.30% 41.01% 111.36%181.82% 207.62%
*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.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
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. 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 major 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 NASDAQ
(National Association of Securities Dealers Automated Quotations) which
provides information on bid and asked or closing prices quoted by major
dealers in such stocks. 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 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
distributions 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, 1995, $5,222 was reclassified between
accumulated undistributed net investment income and accumulated
undistributed net realized gain on investment transactions.
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 .10% 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 $11.5 billion of
combined net assets at March 31, 1995) 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
The Fund also pays WARSCO a monthly per account charge for transfer agency
and dividend disbursement services of $1.0208 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. 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 direct and
indirect gross sales commissions (which are not an expense of the Fund) of
$1,332,061, out of which W&R paid sales commissions of $764,365 and all expenses
in connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund may pay monthly a fee to W&R in an
amount not to exceed .25% of the Fund's average annual net assets. The fee is
to be paid to reimburse W&R for amounts it expends in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts.
The Fund paid Directors' fees of $15,268.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, 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 $168,119,049 while proceeds from
maturities and sales aggregated $156,067,002. Purchases of short-term
securities and U.S. Government securities aggregated $521,576,762 and
$23,577,188, respectively. Proceeds from maturities and sales of short-term
securities and U.S. Government securities aggregated $551,901,708 and $591,630,
respectively.
For Federal income tax purposes, cost of investments owned at March 31,
1995 was $405,526,512, resulting in net unrealized appreciation of $25,676,432,
of which $34,803,014 related to appreciated securities and $9,126,582 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $15,621,276 during the year ended March 31, 1995, a portion of which was paid
to shareholders during the period ended March 31, 1995. Remaining capital gain
net income will be distributed to the Fund's shareholders. These net gains
include the effect of $60,783 of capital losses deferred from the year ended
March 31, 1994. Federal tax law permits the Fund to defer, to its next fiscal
year, net capital losses incurred from November 1 to the end of its fiscal year
("post-October losses").
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Continental Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United Continental Income Fund,
Inc. (the "Fund") at March 31, 1995, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
May 5, 1995
- -----------------------------------------------------------------
<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
- --------- ----- ---------------------------------------------------
06-17-94 $0.160 $0.1600 $0.0000 $0.0911 $0.0689 $0.0000
09-16-94 0.160 0.1600 0.0000 0.0915 0.0685 0.0000
12-16-94 0.617 0.3178 0.2992 0.1173 0.2005 0.2992
03-17-95 0.170 0.1700 0.0000 0.0934 0.0766 0.0000
------- ------- ------- ------- ------- -------
Total $1.107 $0.8078 $0.2992 $0.3933 $0.4145 $0.2992
======= ======= ======= ======= ======= =======
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>
To the Shareholders of United Continental Income Fund, Inc.:
United Continental Income Fund, Inc. held a special meeting of shareholders
on November 21, 1994. The matters voted upon at the meeting were:
Item 1 To ratify the selection of Price Waterhouse LLP as independent
accountants of the Fund for its current fiscal year
Item 2 To eliminate the Fund's fundamental investment restriction regarding
investments in restricted securities
Item 3 To amend the Fund's Investment Management Agreement to change the
"specific" fee paid by the Fund to Waddell & Reed Investment Management
Company
The results of the voting were as follows:
Affirmative Against Abstain
Item 1 10,462,945 130,007 685,068
Item 2 8,780,362 1,259,243 1,224,270
Item 3 8,098,011 1,789,676 1,376,187
There were 14,145 broker non-votes.
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
Jay B. Dillingham, Kansas City, Missouri
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Los Angeles, California
Doyle Patterson, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
Leslie S. Wright, Birmingham, Alabama
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
To all IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from an 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
(913) 236-1303
NUR1004A(3-95)
printed on recycled paper
