United
Continental
Income Fund,
Inc.
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1996
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1996
Dear Shareholder:
This report relates to the operation of United Continental Income Fund for the
fiscal year ended March 31, 1996. The following discussion, graphs and tables
provide you with information regarding the Fund's performance during that
period.
During the first three quarters of the past fiscal year, interest rates and
inflation declined and corporate profits rose. Numerous corporate takeovers and
share repurchases caused a reduction in the supply of stock available for public
purchases. These factors contributed to strong performances in both stock and
bond markets during most of 1995. During the latter stages of the fiscal year,
leading economic indicators provided conflicting information regarding the
strength of the economy. The economy displayed signs of weakness across a broad
cross-section of industries, yet, contradictorily, government reports indicated
surprisingly strong increases in employment.
During the past fiscal year, the Fund continued to pursue a strategy of
increasing the total return of its portfolio while striving to preserve capital.
To achieve this objective, the Fund attempted to reduce risk to its portfolio by
diversifying its investments across a broad number of industries. The Fund
maintained a cash position during the fiscal year to enhance its flexibility and
its ability to take advantage of attractive investment opportunities.
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. The Fund outperformed the most comparable
index, the Lipper Balanced Fund Universe Average. The Fund's performance
relative to the S&P 500 Index was negatively impacted by exposure to bonds.
We anticipate that economic growth will remain moderate during the next fiscal
year. We expect inflation to be subdued and feel the recent interest rates run-
up to be excessive. We expect to continue investing in securities that present
the opportunity for positive long-term returns consistent with the Fund's
objectives.
Thank you very much for your continued support and confidence in our
organization.
Respectfully,
Cynthia P. Prince-Fox
Manager, United Continental Income Fund
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
UNITED CONTINENTAL INCOME FUND, INC. CLASS A SHARES,
THE S&P 500 INDEX,
THE LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX,
AND THE LIPPER BALANCED FUND UNIVERSE AVERAGE
United Lehman
Contintental Brothers Lipper
Income Government/ Balanced
Fund, S&P Corporate Fund
Class 500 Bond Universe
A Shares Index Index Average
------------------ ---------- ----------
03/31/86 Purchase 9,425 10,000 10,000 10,000
03/31/87 10,802 12,621 10,809 11,669
03/31/88 9,546 11,569 11,288 11,333
03/31/89 10,429 13,669 11,852 12,440
03/31/90 12,087 16,303 13,239 13,933
03/31/91 12,886 18,653 14,894 15,651
03/31/92 14,816 20,712 16,589 17,623
03/31/93 16,903 23,867 18,962 19,882
03/31/94 17,985 24,218 19,488 20,445
03/31/95 19,135 27,989 20,382 21,847
03/31/96 23,593 36,973 22,608 26,401
+++++ S&P 500 Index -- $36,973
- ---------- Lipper Balanced Fund Universe Average -- $26,401
===== United Continental Income Fund, Class A Shares* -- $23,593
- - - - - - Lehman Brothers Government/Corporate Bond Index - $22,608
*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
3/31/96 16.20% N/A
5 Years Ended
3/31/96 11.53% N/A
10 Years Ended
3/31/96 8.96% N/A
Aggregate Total
Return for Life
of Class Y +++ N/A 3.53%
+ 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 3/31/96.
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% (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 -- Class A Shares
PER SHARE DATA
For the Fiscal Year Ended March 31, 1996
- ----------------------------------------
DIVIDENDS PAID $ 0.68
======
CAPITAL GAINS DISTRIBUTION $ 0.92
======
NET ASSET VALUE ON
3/31/96 $24.00 adjusted to:$24.92 (A)
3/31/95 20.84
------
CHANGE PER SHARE $ 4.08
======
(A)This number includes the capital gains distribution of $0.92 paid in December
1995 added to the actual net asset value on March 31, 1996.
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 3-31-96 16.20% 23.29%
5-year period ended 3-31-96 11.53% 12.85%
10-year period ended 3-31-96 8.96% 9.61%
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, 1996, United Continental Income Fund, Inc. had net assets totaling
$507,753,539 invested in a diversified portfolio of:
61.04% Common Stocks
31.39% Debt Securities
5.38% Cash and Cash Equivalents
2.19% Preferred Stocks
As a shareholder of United Continental Income Fund, Inc., for every $100 you had
invested on March 31, 1996, your Fund owned:
$25.90 Manufacturing Stocks
22.86 United States Government Securities
9.83 Transportation, Communication, Electric
and Sanitary Services Stocks
8.53 Corporate Debt Securities
7.31 Services Stocks
6.81 Finance, Insurance and Real Estate Stocks
5.87 Wholesale and Retail Trade Stocks
5.38 Cash and Cash Equivalents
2.62 Mining Stocks
2.19 Preferred Stocks
2.04 Miscellaneous Investing Institutions Stocks
0.66 Contract Construction Stocks
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1996
Shares Value
COMMON STOCKS
Apparel and Other Textile Products - 2.95%
adidas AG (A)* ......................... 110,000 $ 8,048,235
Tommy Hilfiger Corporation* ............ 151,400 6,945,475
Total ................................. 14,993,710
Business Services - 4.22%
Cerner Corporation* .................... 200,000 4,600,000
General Motors Corporation, Class E .... 295,638 16,851,366
Total ................................. 21,451,366
Chemicals and Allied Products - 7.05%
American Home Products Corporation ..... 70,000 7,586,250
Astra AB, Class A (A) .................. 150,000 6,940,188
Dow Chemical Company (The) ............. 100,000 8,687,500
du Pont (E.I.) de Nemours and Company .. 75,000 6,225,000
Rohm and Haas Company .................. 75,000 4,987,500
USA Detergents, Inc.* .................. 42,700 1,393,088
Total ................................. 35,819,526
Communication - 4.83%
AT&T Corporation ....................... 114,600 7,019,250
GTE Corporation ........................ 150,000 6,581,250
MCI Communications Corporation ......... 250,000 7,578,000
Nokia Corporation, Series A, ADS ....... 98,400 3,370,200
Total ................................. 24,548,700
Depository Institutions - 4.57%
Ahmanson (H.F.) & Company .............. 175,000 4,243,750
BankAmerica Corporation ................ 123,771 9,592,252
Citicorp ............................... 64,476 5,158,080
Great Western Financial Corporation .... 175,000 4,221,875
Total ................................. 23,215,957
Electric, Gas and Sanitary Services - 2.62%
Baltimore Gas and Electric Company ...... 110,000 3,038,750
Houston Industries Incorporated ........ 240,000 5,190,000
PECO Energy Company ..................... 100,000 2,662,500
VEBA AG (A) ............................ 50,000 2,430,391
Total ................................. 13,321,641
Electronic and Other Electric Equipment - 3.22%
AVX Corporation ........................ 39,500 864,062
Duracell International Inc. ............. 100,000 4,962,500
Emerson Electric Co. ................... 130,000 10,497,500
Total ................................. 16,324,062
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1996
Shares Value
COMMON STOCKS (Continued)
Food and Kindred Products - 1.25%
PepsiCo, Inc. .......................... 100,000 $ 6,325,000
General Merchandise Stores - 2.11%
Dillard Department Stores, Inc., Class A 115,000 3,981,875
May Department Stores Company (The) .... 140,000 6,755,000
Total ................................. 10,736,875
Health Services - 2.02%
Assisted Living Concepts, Inc.* ........ 100,000 1,837,500
Tenet Healthcare Corporation* .......... 400,000 8,400,000
Total ................................. 10,237,500
Heavy Construction, Excluding Building - 0.66%
Foster Wheeler Corporation ............. 75,000 3,328,125
Holding and Other Investment Offices - 2.04%
LTC Properties, Inc. ................... 370,000 6,012,500
National Health Investors, Inc. ........ 133,930 4,352,725
Total ................................. 10,365,225
Hotels and Other Lodging Places - 1.32%
ITT Corporation* ....................... 112,000 6,720,000
Industrial Machinery and Equipment - 3.74%
Applied Materials, Inc.* ............... 68,600 2,388,103
Deere & Company ........................ 190,000 7,932,500
TRAUB AG (A)* .......................... 18,000 1,304,790
York International Corporation ......... 150,000 7,350,000
Total ................................. 18,975,393
Instruments and Related Products - 0.94%
Teradyne, Inc.* ........................ 285,000 4,773,750
Insurance Agents, Brokers and Service - 1.08%
ITT Hartford Group, Inc. ................ 112,000 5,488,000
Insurance Carriers - 1.16%
United HealthCare Corporation .......... 96,000 5,904,000
Oil and Gas Extraction - 2.62%
Apache Corporation ..................... 200,000 5,375,000
Schlumberger Limited ................... 100,000 7,912,500
Total ................................. 13,287,500
Paper and Allied Products - 2.08%
Temple-Inland Inc. ..................... 120,000 5,625,000
Union Camp Corporation ................. 100,000 4,962,500
Total ................................. 10,587,500
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1996
Shares Value
COMMON STOCKS (Continued)
Personal Services - 1.07%
Block (H&R), Inc. ....................... 150,000 $ 5,418,750
Primary Metal Industries - 1.48%
Aluminum Company of America ............. 120,000 7,515,000
Printing and Publishing - 2.63%
McGraw-Hill, Inc. ...................... 83,000 7,200,250
Time Warner Incorporated ............... 150,000 6,131,250
Total ................................. 13,331,500
Railroad Transportation - 1.50%
Canadian National Railway Company ...... 150,000 2,587,500
Conrail Inc. ........................... 70,000 5,013,750
Total ................................. 7,601,250
Transportation by Air - 0.88%
Southwest Airlines Co. ................. 150,000 4,443,750
Transportation Equipment - 1.23%
Chrysler Corporation ................... 100,000 6,225,000
Wholesale Trade - Nondurable Goods - 1.77%
Sara Lee Corporation ................... 150,000 4,893,750
SYSCO Corporation ...................... 125,000 4,109,375
Total.................................. 9,003,125
TOTAL COMMON STOCKS - 61.04% $309,942,205
(Cost: $240,896,976)
PREFERRED STOCKS
Transportation by Air - 1.09%
Delta Air Lines, Incorporated, Convertible
Depository Shares ..................... 90,000 5,501,250
Transportation Equipment - 1.10%
Ford Motor Company, Convertible
Depository Shares ..................... 50,000 5,600,000
TOTAL PREFERRED STOCKS - 2.19% $ 11,101,250
(Cost: $7,503,910)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Communication - 0.75%
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-2003 ...................... $3,500 $ 3,794,513
Electronic and Other Electric Equipment - 0.80%
Cooper Industries, Inc.,
6.0%, 1-1-99 (Exchangeable) ........... 3,416 4,079,625
General Merchandise Stores - 0.47%
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,394,135
Health Services - 0.81%
ARV Assisted Living, Inc., Convertible,
6.75%, 4-1-2006 (B) ................... 4,000 4,120,000
Instruments and Related Products - 1.02%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 5,000 5,200,000
Nondepository Institutions - 2.68%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 7,246,330
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,176,880
Merrill Lynch Mortgage Investors, Inc.,
8.3%, 4-15-2012 ....................... 3,100 3,187,172
Total ................................. 13,610,382
Oil and Gas Extraction - 0.60%
Enron Corp.,
6.25%, 12-13-98 (Exchangeable)......... 2,588 3,019,625
Petroleum and Coal Products - 0.77%
BP America Inc.,
10.0%, 7-1-2018 ....................... 3,500 3,887,800
Transportation Equipment - 0.63%
Ford Motor Credit Company,
8.875%, 6-15-99 ....................... 3,000 3,205,500
Total ................................. 6,382,380
TOTAL CORPORATE DEBT SECURITIES - 8.53% $ 43,311,580
(Cost: $39,590,546)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
7.5%, 4-25-2002 ....................... $ 3,000 $ 3,012,180
6.0%, 6-25-2007 ....................... 3,000 2,905,290
8.25%, 6-1-2008 ....................... 615 625,755
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 158 170,582
9.0%, 8-15-2016 ....................... 283 305,190
9.0%, 10-15-2016 ...................... 1,267 1,366,680
9.0%, 11-15-2016 ...................... 378 408,385
9.0%, 1-15-2017 ....................... 117 126,761
9.0%, 3-15-2017 ....................... 345 372,197
9.0%, 4-15-2017 ....................... 356 384,075
9.0%, 7-15-2017 ....................... 242 260,594
United States Treasury:
7.125%, 2-29-2000 ..................... 6,000 6,219,360
8.875%, 5-15-2000 ..................... 17,000 18,729,240
8.0%, 5-15-2001 ....................... 23,000 24,857,940
6.375%, 8-15-2002 ..................... 12,000 12,069,360
7.5%, 2-15-2005 ....................... 33,000 35,412,960
7.25%, 5-15-2016 ...................... 8,500 8,867,880
TOTAL UNITED STATES GOVERNMENT SECURITIES - 22.86% $116,094,429
(Cost: $114,140,322)
TOTAL SHORT-TERM SECURITIES - 4.76% $ 24,147,518
(Cost: $24,147,518)
TOTAL INVESTMENT SECURITIES - 99.38% $504,596,982
(Cost: $426,279,272)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.62% 3,156,557
NET ASSETS - 100.00% $507,753,539
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1996
Notes To Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) As of March 31, 1996, the following restricted security was owned:
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
ARV Assisted Living,
Inc., Convertible,
6.75%, 4-1-2006 3/28/96 $4,000$4,000,000 $4,120,000
========= =========
The total market value of restricted securities represents approximately
0.81% of the total net assets at March 31, 1996.
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, 1996
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $504,596,982
Cash ............................................. 7,568
Receivables:
Investment securities sold ...................... 4,910,326
Dividends and interest .......................... 3,576,550
Fund shares sold ................................ 304,801
Prepaid insurance premium ........................ 18,770
------------
Total assets .................................. 513,414,997
------------
Liabilities
Payable for investment securities purchased ...... 4,000,000
Payable for Fund shares redeemed ................. 1,409,258
Accrued service fee .............................. 147,693
Accrued transfer agency and dividend disbursing .. 64,652
Accrued accounting services fee .................. 5,000
Other ............................................ 34,855
------------
Total liabilities ............................. 5,661,458
------------
Total net assets ............................. $507,753,539
============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 21,152,656
Additional paid-in capital ...................... 385,110,037
Accumulated undistributed income:
Accumulated undistributed net investment income . 792,770
Accumulated undistributed net realized gain
on investment transactions .................... 22,380,366
Net unrealized appreciation in value of
investments at end of period .................. 78,317,710
------------
Net assets applicable to outstanding
units of capital ............................. $507,753,539
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $24.00
Class Y .......................................... $24.01
Capital shares outstanding
Class A .......................................... 20,924,873
Class Y .......................................... 227,783
Capital shares authorized .......................... 100,000,000
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended MARCH 31, 1996
Investment Income
Income:
Interest ........................................ $10,902,838
Dividends ....................................... 7,819,667
-----------
Total income .................................. 18,722,505
-----------
Expenses (Note 2):
Investment management fee ....................... 2,661,517
Transfer agency and dividend
disbursing - Class A .......................... 703,180
Service fee - Class A ........................... 614,322
Accounting services fee ......................... 60,000
Custodian fees .................................. 32,540
Audit fees ...................................... 25,838
Legal fees ...................................... 9,870
Shareholder servicing - Class Y ................. 618
Other ........................................... 121,969
-----------
Total expenses ................................ 4,229,854
-----------
Net investment income ........................ 14,492,651
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on securities .................. 31,415,805
Realized net loss on foreign
currency transactions ........................... (13,215)
-----------
Realized net gain on investments ................ 31,402,590
Unrealized appreciation in value of investments
during the period ............................... 52,611,352
-----------
Net gain on investments ....................... 84,013,942
-----------
Net increase in net assets resulting from
operations ................................. $98,506,593
===========
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
March 31,
------------------------
1996 1995
Increase in Net Assets ------------ ------------
Operations:
Net investment income ...............$ 14,492,651 $ 14,229,996
Realized net gain on investments .... 31,402,590 15,646,912
Unrealized appreciation (depreciation) 52,611,352 (3,730,876)
------------ ------------
Net increase in net assets
resulting from operations ........ 98,506,593 26,146,032
------------ ------------
Dividends to shareholders from:*
Net investment income
Class A ........................... (13,953,021) (14,116,118)
Class Y ........................... (38,201) ---
Realized gains on securities
transactions
Class A ........................... (18,608,382) (8,337,171)
Class Y ........................... --- ---
------------ ------------
(32,599,604) (22,453,289)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A (1,201,223 and 1,792,943
shares, respectively) ............ 27,526,704 37,123,344
Class Y (229,596 and 0
shares, respectively) ............ 5,539,710 ---
Proceeds from reinvestment of dividends
and/or capital gains distribution
Class A (1,363,819 and 1,055,139
shares, respectively) ............ 31,366,543 21,493,991
Class Y (1,606 and 0
shares, respectively) ............ 38,201 ---
Payments for shares redeemed
Class A (2,417,223 and 2,039,852
shares, respectively)............. (55,539,467)(42,156,015)
Class Y (3,419 and 0
shares, respectively) ............ (82,402) ---
------------ ------------
Net increase in net assets
resulting from capital
share transactions................ 8,849,289 16,461,320
------------ ------------
Total increase.................... 74,756,278 20,154,063
Net Assets
Beginning of period .................. 432,997,261 412,843,198
------------ ------------
End of period, including undistributed
net investment income of $792,770 and
$304,556, respectively...............$507,753,539 $432,997,261
============ ============
*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,
-----------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $20.84 $20.67 $20.45 $18.70 $16.93
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... .71 .70 .70 .83 .73
Net realized and
unrealized gain
on investments .. 4.05 .58 .61 1.75 1.76
------ ------ ------ ------ ------
Total from investment
operations ....... 4.76 1.28 1.31 2.58 2.49
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.68) (0.70) (0.70) (0.83) (0.72)
Distribution from
capital gains ... (0.92) (0.41) (0.39) (0.00) (0.00)
------ ------ ------ ------ ------
Total
distributions .... (1.60) (1.11) (1.09) (0.83) (0.72)
------ ------ ------ ------ ------
Net asset value,
end of period .... $24.00 $20.84 $20.67 $20.45 $18.70
====== ====== ====== ====== ======
Total return* ...... 23.29% 6.39% 6.40% 14.08% 14.98%
Net assets, end of
period (000
omitted) ......... $502,285$432,997$412,843$387,381$339,540
Ratio of expenses to
average net assets 0.89% 0.89% 0.81% 0.77% 0.80%
Ratio of net investment
income to average net
assets ........... 3.06% 3.37% 3.29% 4.24% 4.03%
Portfolio turnover
rate ............. 41.34% 41.30% 41.01%111.36% 181.82%
*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 the Period:
For the
period
from 1/4/96
through
3/31/96*
--------
Net asset value,
beginning of period $23.35
------
Income from investment
operations:
Net investment
income .......... .07
Net realized and
unrealized gain
on investments... .76
------
Total from investment
operations ........ .83
------
Less distributions:
Dividends from net
investment
income........... (0.17)
Distribution from
capital gains.... (0.00)
------
Total distributions. (0.17)
------
Net asset value,
end of period ..... $24.01
======
Total return ....... 3.53%
Net assets, end of
period (000
omitted) ......... $5,469
Ratio of expenses
to average net
assets ............ 0.80%**
Ratio of net
investment income
to average net
assets ............ 3.35%**
Portfolio
turnover rate ..... 41.34%
*On August 29, 1995, the Fund began offering Class Y shares to the
public. Fund shares outstanding prior to that date were designated
Class A shares.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
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 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. 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 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, 1996, $13,215 was reclassified between
accumulated undistributed net investment income and accumulated 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 .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 $14.0 billion of
combined net assets at March 31, 1996) 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 $1.0208 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. 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 direct and
indirect gross sales commissions for Class A shares (which are not an expense of
the Fund) of $1,014,810, out of which W&R paid sales commissions of $564,966 and
all expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a 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
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 $18,475.
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 $155,258,441 while proceeds from
maturities and sales aggregated $198,100,033. Purchases of short-term
securities and U.S. Government securities aggregated $335,006,995 and
$29,912,969, respectively. Proceeds from maturities and sales of short-term
securities and U.S. Government securities aggregated $333,112,384 and $504,269,
respectively.
For Federal income tax purposes, cost of investments owned at March 31,
1996 was $426,309,198, resulting in net unrealized appreciation of $78,287,784,
of which $84,090,904 related to appreciated securities and $5,803,120 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $31,415,805 during the year ended March 31, 1996, of which a portion was paid
to shareholders during the period ended March 31, 1996. Remaining capital gain
net income will be distributed to the Fund's shareholders.
NOTE 5 -- Commencement of Multiclass Operations
On August 29, 1995, the Fund was authorized to offer investors a choice of 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 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. The Fund commenced multiclass operations on January 4,
1996.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
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, 1996, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
each of 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, 1996 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 10, 1996
<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
06-16-95 $0.170 $0.1700 $ --- $0.0920 $0.0780 $ ---
09-15-95 0.170 0.1700 --- 0.0916 0.0784 ---
12-15-95 1.087 0.3352 0.7518 0.0916 0.2436 0.7518
03-15-96 0.170 0.1700 --- 0.0854 0.0846 ---
------- ------- ------- ------- ------- -------
Total $1.597 $0.8452 $0.7518 $0.3606 $0.4846 $0.7518
======= ======= ======= ======= ======= =======
Class Y
03-15-96 $0.173 $0.1730 --- $0.0869 $0.0861
------- ------- ------- ------- ------- -------
Total $0.173 $0.1730 $--- $0.0869 $0.0861 $---
======= ======= ======= ======= ======= =======
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
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
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Los Angeles, California
Doyle Patterson, Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Sharon K. Pappas, Vice President and Secretary
Cynthia P. Prince-Fox, Vice President
Carl E. Sturgeon, Vice President
This report is submitted for the general information of the shareholders of
United Continental Income Fund, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United Continental Income Fund, Inc. current prospectus.
To all 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
Our INTERNET address is:
http://www.waddell.com
NUR1004A(3-96)
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