United
Continental
Income Fund,
Inc.
SEMIANNUAL
REPORT
-------------------------------------------
For the six months ended September 30, 1994
<PAGE>
This report is submitted for the general information of the shareholders of
United Continental Income Fund, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United Continental Income Fund, Inc. current prospectus.
<PAGE>
PRESIDENT'S LETTER
SEPTEMBER 30, 1994
Dear Shareholder:
This report covers the investment performance of your Fund for the six
months ended September 30, 1994.
During the past six months, bond and equity markets have been affected by
increases in interest rates and the fear of higher inflation. We expect these
markets will continue to react to action, if any, taken by the Federal Reserve
to prevent increases in the inflation rate. Although markets have declined
since the beginning of 1994, historically such intermediate and short-term
fluctuations have had limited impact on achieving investors' long-term financial
goals.
Over time, interest rates follow inflation. Once it has been determined
that the rate of economic growth is manageable, the Federal Reserve Board's
actions will be seen as beneficial to combating inflation, which eventually
should lead to interest rates that are more favorable to the markets.
Based on our 57 years in the financial services industry, we believe that
our commitment to professional portfolio management is the key value-added
service we provide: we select and continuously supervise the Fund's investments
using the most up-to-date information and research available to ensure the
investments meet the Fund's stated objectives.
And, we believe our "hands-on" approach to investment management can help
reward the patient investor over the long term. We never forget that we manage
your money.
The following is an in-depth review of your Fund's recent performance. We
believe the information included in this review continues to reflect our aim of
achieving the goals and purposes of the Fund. Thank you for your continued
confidence in our products and services.
Respectfully,
Keith A. Tucker
President
<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 appreciation.
Normally at least 25%
Debt Securities or STRATEGY: Invests in both debt
Preferred Stock securities and common
stock, generally
Generally less than 10% maintaining a balanced
Foreign Securities portfolio of these 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.
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
DIVIDENDS: PAID QUARTERLY (March, June, September,
December)
<PAGE>
PERFORMANCE SUMMARY
PER SHARE DATA
For the Six Months Ended September 30, 1994
- -------------------------------------------
DIVIDENDS PAID $ 0.32
======
NET ASSET VALUE ON
9/30/94 $21.00
3/31/94 20.67
------
CHANGE PER SHARE $ 0.33
======
Past performance is not necessarily indicative of future results.
TOTAL RETURN HISTORY
Average Annual Total Return
---------------------------
With Without
Period Sales Load* Sales Load**
- ------ ----------- ------------
1-year period ended 9-30-94 -2.71% 3.23%
5-year period ended 9-30-94 7.67% 8.95%
10-year period ended 9-30-94 11.96% 12.63%
Performance data quoted represents past performance and is based on deduction of
5.75% sales load on the initial purchase in each of the three periods.
Performance data quoted in this column represents past performance without
taking into account the sales load deducted on an initial purchase.
Investment return and principal value will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 1994, United Continental Income Fund, Inc. had net assets
totaling $427,834,609 invested in a diversified portfolio of:
59.66% Common Stocks
22.88% Debt Securities
9.67% Cash and Cash Equivalents
7.79% Preferred Stocks
As a shareholder in United Continental Income Fund, Inc., for every $100 you had
invested on September 30, 1994, your Fund owned:
$25.06 Basic Industries Stocks
16.60 United States Government Securities
14.30 Consumer Stocks
9.67 Cash and Cash Equivalents
9.45 Technological Stocks
7.79 Preferred Stocks
7.55 Financial Stocks
6.28 Corporate Debt Securities
1.91 Public Utilities Stocks
1.39 Energy and Energy-Related 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.
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS
Aerospace - 1.52%
TRW Inc. ............................... 89,400 $ 6,481,500
Automotive - 3.80%
Eaton Corporation ...................... 140,000 6,650,000
Ford Motor Company ..................... 100,000 2,775,000
General Motors Corporation ............. 100,000 4,687,500
Standard Products Company (The) ........ 85,000 2,125,000
Total ................................. 16,237,500
Banks and Savings and Loans - 2.45%
First Security Corporation ............. 150,000 4,312,500
Norwest Corporation .................... 250,000 6,187,500
Total ................................. 10,500,000
Biotechnology and Medical Services - 1.26%
St. Jude Medical, Inc. ................. 150,000 5,381,250
Building - 3.61%
Simon Property Group, Inc. ............ 100,000 2,562,500
Temple-Inland Inc. ..................... 120,000 6,630,000
York International Corporation ......... 150,000 6,243,750
Total ................................. 15,436,250
Chemicals Major - 3.21%
du Pont (E.I.) de Nemours and Company .. 75,000 4,350,000
Rohm & Haas Company .................... 75,000 4,284,375
Union Carbide Corporation .............. 150,000 5,100,000
Total ................................. 13,734,375
Domestic Oil - 1.39%
Amoco Corporation ...................... 100,000 5,925,000
Drugs and Hospital Supply - 0.84%
ASTRA AB (A) ........................... 150,000 3,598,500
Electronics - 1.63%
AMP Incorporated ....................... 90,000 6,963,750
Engineering and Construction - 0.60%
Foster Wheeler Corporation ............. 75,000 2,578,125
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS (Continued)
Financial - 2.17%
Federal National Mortgage Association .. 50,000 $ 3,937,500
Household International, Inc. .......... 150,000 5,362,500
Total ................................. 9,300,000
Food and Related - 2.39%
CPC International Inc. ................. 100,000 5,062,500
Sara Lee Corporation ................... 230,000 5,175,000
Total ................................. 10,237,500
Hospital Management - 2.30%
LTC Properties, Inc. ................... 350,000 4,768,750
United HealthCare Corporation .......... 96,000 5,088,000
Total ................................. 9,856,750
Insurance - 2.93%
SAFECO Corporation ..................... 75,000 3,871,875
St. Paul Companies, Inc. (The) ......... 100,000 4,062,500
UNUM Corporation ....................... 100,000 4,600,000
Total ................................. 12,534,375
Leisure Time - 0.75%
RFS Hotel Investors, Inc. .............. 200,000 3,225,000
Machinery - 4.98%
Caterpillar Inc. ....................... 140,000 7,577,500
Deere & Company ........................ 80,000 5,490,000
Parker Hannifin Corporation ............ 115,000 4,585,625
Timken Company (The) ................... 77,000 2,897,125
TRAUB AG (A)* .......................... 6,000 754,398
Total ................................. 21,304,648
Multi-Industry - 1.75%
ITT Corporation ........................ 90,000 7,503,750
Paper - 3.87%
International Paper Company ............ 100,000 7,850,000
Union Camp Corporation ................. 100,000 4,912,500
Westvaco Corporation ................... 100,000 3,812,500
Total ................................. 16,575,000
Public Utilities - Electric - 1.91%
FPL Group, Inc. ........................ 200,000 6,500,000
VEBA AG (A) ............................ 5,000 1,659,680
Total ................................. 8,159,680
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1994
Shares Value
COMMON STOCKS (Continued)
Publishing and Advertising - 1.25%
McGraw-Hill, Inc. ...................... 43,000 $ 3,149,750
New York Times Co., Class A ............ 100,000 2,187,500
Total ................................. 5,337,250
Railroads - 2.26%
Conrail Inc. ........................... 70,000 3,465,000
Norfolk Southern Corporation ........... 100,000 6,225,000
Total ................................. 9,690,000
Retailing - 6.67%
Dillard Department Stores, Inc.,
Class A ............................... 175,000 4,681,250
Home Depot, Inc. (The) ................. 60,000 2,520,000
Limited Inc. (The) ..................... 200,000 3,925,000
May Department Stores Company (The) .... 180,000 7,087,500
Penney (J.C.) Company, Inc. ............ 105,000 5,420,625
Tommy Hilfiger Corporation* ............ 125,700 4,886,588
Total ................................. 28,520,963
Services, Consumer and Business - 0.94%
Dun & Bradstreet Corporation ........... 70,000 4,025,000
Steel - 0.98%
Bethlehem Steel Corporation* ........... 200,000 4,200,000
Telecommunications - 4.20%
MCI Communications Corporation ......... 250,000 6,343,750
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 100,000 5,362,500
Telefonos de Mexico S.A. de C.V., ADR .. 100,000 6,250,000
Total ................................. 17,956,250
TOTAL COMMON STOCKS - 59.66% $255,262,416
(Cost: $229,747,142)
PREFERRED STOCKS
Airlines - 0.95%
Delta Air Lines, Incorporated, Depository Shares,
Convertible ........................... 90,000 4,050,000
Automotive - 1.07%
Ford Motor Company, Depository Shares .. 50,000 4,587,500
Banks and Savings and Loans - 1.78%
BankAmerica Corporation, Convertible ... 76,400 4,096,950
Citicorp, Convertible .................. 180,000 3,510,000
Total ................................. 7,606,950
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1994
Shares Value
PREFERRED STOCKS (Continued)
Computers and Office Equipment - 3.36%
General Motors Corporation, Class E,
Depository Shares ..................... 250,000 $ 14,375,000
Hospital Management - 0.63%
National Health Investors,
Inc., Convertible ..................... 106,000 2,689,750
TOTAL PREFERRED STOCKS - 7.79% $ 33,309,200
(Cost: $29,391,314)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Domestic Oil - 0.89%
BP America Inc.,
10.0%, 7-1-2018 ....................... $ 3,500 3,810,450
Electrical Equipment - 1.58%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 6,756,230
Financial - 2.74%
Ford Motor Credit Company,
8.875%, 6-15-99 ....................... 3,000 3,123,510
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,050,880
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,420,145
Merrill Lynch Mortgage Investors, Inc.,
8.3%, 4-15-2012 ....................... 3,100 3,117,422
Total ................................. 11,711,957
Railroad Equipment - 0.10%
Union Tank Car Co.,
9.5%, 12-15-95 ........................ 444 458,141
Telecommunications - 0.97%
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-2003 ...................... 3,954 4,141,294
TOTAL CORPORATE DEBT SECURITIES - 6.28% $ 26,878,072
(Cost: $25,781,397)
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1994
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
7.5%, 4-25-2002 ....................... $ 3,000 $ 2,873,430
6.0%, 6-25-2007 ....................... 3,000 2,691,540
8.25%, 6-1-2008 ....................... 740 722,368
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 185 192,325
9.0%, 8-15-2016 ....................... 289 300,113
9.0%, 10-15-2016 ...................... 1,554 1,611,180
9.0%, 11-15-2016 ...................... 428 443,267
9.0%, 1-15-2017 ....................... 161 166,476
9.0%, 3-15-2017 ....................... 387 401,575
9.0%, 4-15-2017 ....................... 389 402,816
9.0%, 7-15-2017 ....................... 279 288,796
United States Treasury:
8.875%, 5-15-2000 ..................... 17,000 18,200,540
8.0%, 5-15-2001 ....................... 23,000 23,700,810
6.375%, 8-15-2002 ..................... 12,000 11,182,440
7.25%, 5-15-2016 ...................... 8,500 7,845,245
TOTAL UNITED STATES GOVERNMENT SECURITIES - 16.60% $ 71,022,921
(Cost: $73,239,515)
TOTAL SHORT-TERM SECURITIES - 9.88% $ 42,253,651
(Cost: $42,253,651)
TOTAL INVESTMENT SECURITIES - 100.21% $428,726,260
(Cost: $400,413,019)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.21%) (891,651)
NET ASSETS - 100.00% $427,834,609
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
SEPTEMBER 30, 1994
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $428,726,260
Cash ............................................. 8,290
Receivables:
Dividends and interest .......................... 2,865,749
Fund shares sold ................................ 539,176
Prepaid insurance premium ........................ 26,142
------------
Total assets .................................. 432,165,617
------------
Liabilities
Payable for investment securities purchased ...... 3,250,000
Payable for Fund shares redeemed ................. 851,585
Accrued transfer agency and dividend disbursing .. 93,754
Accrued service fee .............................. 86,959
Accrued accounting services fee .................. 5,000
Other ............................................ 43,710
------------
Total liabilities ............................. 4,331,008
------------
Total net assets ............................. $427,834,609
============
Net Assets
$1.00 par value capital stock, authorized --
50,000,000; shares outstanding -- 20,374,689
Capital stock ................................... $ 20,374,689
Additional paid-in capital ...................... 369,136,242
Accumulated undistributed income:
Accumulated undistributed net investment income . 621,263
Accumulated undistributed net realized gain
on investment transactions and foreign
currency transactions ......................... 9,389,174
Net unrealized appreciation in value of
investments at end of period .................. 28,313,241
------------
Net assets applicable to outstanding
units of capital ............................. $427,834,609
============
Net asset value per share (net assets divided by
shares outstanding) .............................. $21.00
======
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1994
Investment Income
Income:
Interest ........................................ $ 4,581,975
Dividends ....................................... 4,145,735
-----------
Total income .................................. 8,727,710
-----------
Expenses (Note 2):
Investment management fee ....................... 1,095,187
Transfer agency and dividend disbursing ......... 390,859
Service fee ..................................... 211,601
Accounting services fee ......................... 30,000
Audit fees ...................................... 15,283
Custodian fees .................................. 14,933
Legal fees ...................................... 4,777
Other ........................................... 85,899
-----------
Total expenses ................................ 1,848,539
-----------
Net investment income ........................ 6,879,171
-----------
Realized and Unrealized Gain on Investments
Realized net gain on securities .................. 7,136,384
Realized net loss on foreign
currency transactions ........................... (5,190)
-----------
Realized net gain on investments ................ 7,131,194
Unrealized depreciation in value of investments
during the period ............................... (1,123,993)
-----------
Net gain on investments ....................... 6,007,201
-----------
Net increase in net assets resulting from
operations ................................. $12,886,372
===========
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
six months fiscal year
ended ended
September 30, March 31,
1994 1994
------------ -----------
Increase in Net Assets
Operations:
Net investment income ...............$ 6,879,171 $ 13,527,122
Realized net gain on investments .... 7,131,194 8,098,843
Unrealized appreciation
(depreciation) .................... (1,123,993) 3,398,722
------------ ------------
Net increase in net assets
resulting from operations ........ 12,886,372 25,024,687
------------ ------------
Dividends to shareholders from:*
Net investment income ............... (6,453,808) (13,543,155)
Realized gains on securities
transactions ...................... --- (7,540,828)
------------ ------------
(6,453,808) (21,083,983)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(1,015,228 and 1,875,493
shares, respectively) ............. 21,262,148 39,716,188
Proceeds from reinvestment of
dividends and/or capital gains
distribution (290,196 and 955,113
shares, respectively) ............. 6,130,154 20,076,172
Payments for shares redeemed
(899,559 and 1,805,773 shares,
respectively) ...................... (18,833,455) (38,270,420)
------------ ------------
Net increase in net assets
resulting from capital share
transactions ..................... 8,558,847 21,521,940
------------ ------------
Total increase.................... 14,991,411 25,462,644
Net Assets
Beginning of period .................. 412,843,198 387,380,554
------------ ------------
End of period, including undistributed
net investment income of $621,263
and $195,900, respectively ..........$427,834,609 $412,843,198
============ ============
*See "Financial Highlights" on page 14.
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
six months For the fiscal year ended March 31,
ended -----------------------------------
9-30-94 1994 1993 1992 1991 1990
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $20.67 $20.45 $18.70 $16.93 $16.72 $15.27
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... .34 .70 .83 .73 .84 .91
Net realized and
unrealized gain
on investments .. .31 .61 1.75 1.76 .20 1.50
------ ------ ------ ------ ------ ------
Total from investment
operations ....... .65 1.31 2.58 2.49 1.04 2.41
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.32) (0.70) (0.83) (0.72) (0.83) (0.96)
Distribution from
capital gains ... 0.00 (0.39) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total
distributions .... (0.32) (1.09) (0.83) (0.72) (0.83) (0.96)
------ ------ ------ ------ ------ ------
Net asset value,
end of period .... $21.00 $20.67 $20.45 $18.70 $16.93 $16.72
====== ====== ====== ====== ====== ======
Total return* ...... 3.14% 6.40% 14.08% 14.98% 6.61% 15.90%
Net assets, end of
period (000
omitted) .........$427,835$412,843$387,381$339,540$311,173$312,984
Ratio of expenses to
average net assets 0.87%** 0.81% 0.77% 0.80% 0.85% 0.81%
Ratio of net investment
income to average net
assets ........... 3.25%** 3.29% 4.24% 4.03% 5.15% 5.38%
Portfolio turnover
rate ............. 31.00%**41.01%111.36% 181.82%207.62% 231.04%
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
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.
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 $11.2 billion of
combined net assets at September 30, 1994) 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
$795,131, out of which W&R paid sales commissions of $448,407 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 $7,591.
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 $64,524,364 while proceeds from maturities
and sales aggregated $58,635,891. Purchases of short-term securities and U.S.
Government securities aggregated $254,780,295 and $11,463,750, respectively.
Proceeds from maturities and sales of short-term securities and U.S. Government
securities aggregated $262,662,215 and $445,416, respectively.
For Federal income tax purposes, cost of investments owned at September 30,
1994 was $400,413,019, resulting in net unrealized appreciation of $28,313,241,
of which $37,656,013 related to appreciated securities and $9,342,772 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $7,756,065 during the year ended March 31, 1994, of which a portion was paid
to shareholders during the period ended March 31, 1994. Remaining capital gain
net income will be distributed to the Fund's shareholders. These net gains
include the effect of $403,562 of capital losses deferred from the year ended
March 31, 1993 and $60,783 of capital losses deferred to the year ending March
31, 1995 (see discussion below).
Internal Revenue Code regulations permit the Fund to defer into its next
fiscal year net capital losses incurred between each November 1 and the end of
its fiscal year ("post-October losses"). From November 1, 1993 through March
31, 1994, the Fund incurred net long-term capital losses of $60,783 which have
been deferred to the fiscal year ending March 31, 1995.
<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 September 30, 1994, the results of its operations for the
six months 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 September 30, 1994 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
October 31, 1994
- -----------------------------------------------------------------
<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 Continental Income Fund, Inc.
United Income Fund
United Municipal High Income Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
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.
United Retirement Shares, 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
NUR1004SA(9-94)
printed on recycled paper
