United
Continental
Income Fund,
Inc.
ANNUAL
REPORT
----------------------------------------
For the fiscal year ended March 31, 1994
<PAGE>
FUND MANAGER'S LETTER
- -----------------------------------------------------------------
MARCH 31, 1994
Dear Shareholder:
This report relates to the operation of United Continental Income Fund,
Inc. for the fiscal year ended March 31, 1994. The following discussion, graphs
and tables provide you with information regarding the Fund's performance during
that period.
During the first half of the Fund's past fiscal year, interest rates and
inflation declined, providing a good environment for both stocks and bonds.
Since October, interest rates have increased as a result of an accelerating
economy, although inflation has remained low. Throughout the year, basic
industry stocks exhibited improvement in overall profitability, while areas such
as health care and consumer product companies suffered significant share price
declines.
Conditions during the Fund's past fiscal year led us to increase the Fund's
holdings in basic industry stocks. For example, we invested in shares of each
of the Big Three auto makers because reduced costs and an improved competitive
position against the Japanese enabled profits to soar. We also reduced the
Fund's exposure to interest sensitive stocks, particularly bank and savings and
loan stocks which seemed vulnerable as interest rates were bottoming out.
The strategies and techniques we applied resulted in the direction of the
Fund's performance during its past fiscal year 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
Standard & Poor's 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 and the LBGCBI are presented because the Fund invests in both stocks and
bonds. The Fund's performance was positively impacted by its emphasis on basic
industry stocks and the Fund's lack of exposure to areas such as health care and
consumer product companies.
We anticipate a stable to slightly increasing interest rate environment and
a continued low inflationary environment, both of which should provide a good
market for stocks and bonds. We expect that the best share price performances
in the near future will come from companies that can show surprisingly improved
earnings. We expect to continue to reduce the Fund's exposure to interest-
sensitive securities. Some further increases in our basic industry stock
holdings are possible, but as profit potentials appear fully realized, a
shifting to consumer stocks may become appropriate should good investment
opportunities arise in that sector.
We appreciate your continued confidence.
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 line graph which appears here is the paper version which was filed on Form
SE on May 24, 1994.
<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 Fiscal Year Ended March 31, 1994
- ----------------------------------------
DIVIDENDS PAID $ 0.70
======
CAPITAL GAINS DISTRIBUTION $ 0.39
======
NET ASSET VALUE ON
3/31/94 $20.67 adjusted to:$21.06 (A)
3/31/93 20.45
------
CHANGE PER SHARE $0.61
======
(A)This number includes the capital gains distribution of $0.39 paid in December
1993 added to the actual net asset value on March 31, 1994.
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 3-31-94 0.28% 6.40%
5-year period ended 3-31-94 10.20% 11.51%
10-year period ended 3-31-94 12.53% 13.19%
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, 1994, United Continental Income Fund, Inc. had net assets totaling
$412,843,198 invested in a diversified portfolio of:
57.44% Common Stocks
22.57% Debt Securities
11.90% Cash and Cash Equivalents
8.09% Preferred Stocks
As a shareholder in United Continental Income Fund, Inc., for every $100 you had
invested on March 31, 1994, your Fund owned:
$23.49 Basic Industries Stocks
15.32 United States Government Securities
14.44 Consumer Stocks
11.90 Cash and Cash Equivalents
9.40 Technological Stocks
8.09 Preferred Stocks
7.25 Corporate Debt Securities
6.99 Financial Stocks
3.12 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, 1994
Shares Value
COMMON STOCKS
Aerospace - 0.80%
TRW Inc. ............................... 48,000 $ 3,288,000
Automotive - 4.39%
Chrysler Corporation ................... 100,000 5,162,500
Eaton Corporation ...................... 80,000 4,630,000
Ford Motor Company ..................... 50,000 2,937,500
General Motors Corporation ............. 100,000 5,400,000
Total ................................. 18,130,000
Banks and Savings and Loans - 4.01%
First Bank System, Inc. ................ 200,000 6,400,000
First Security Corporation ............. 150,000 4,181,250
Norwest Corporation .................... 250,000 5,968,750
Total ................................. 16,550,000
Building - 3.90%
Pulte Corporation ....................... 76,000 2,204,000
Rayonier Timberlands, L.P. ............. 15,000 420,000
Simon Property Group, Inc. ............ 100,000 2,562,500
Temple-Inland Inc. ..................... 120,000 5,490,000
York International Corporation ......... 150,000 5,437,500
Total ................................. 16,114,000
Chemicals Major - 2.77%
du Pont (E.I.) de Nemours and Company .. 75,000 3,975,000
Rohm & Haas Company .................... 75,000 4,096,875
Union Carbide Corporation .............. 150,000 3,375,000
Total ................................. 11,446,875
Chemicals Specialty and Miscellaneous
Technology - 0.90%
Ferro Corporation ...................... 120,000 3,720,000
Drugs and Hospital Supply - 1.26%
ASTRA AB (A) ........................... 150,000 2,931,900
Baxter International Inc. .............. 100,000 2,262,500
Total ................................. 5,194,400
Electronics - 2.54%
AMP Incorporated ....................... 90,000 5,422,500
Applied Materials, Inc.* ............... 114,000 5,087,250
Total ................................. 10,509,750
Engineering and Construction - 0.73%
Foster Wheeler Corporation ............. 75,000 3,000,000
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1994
Shares Value
COMMON STOCKS (Continued)
Financial - 1.08%
Household International, Inc. .......... 150,000 $ 4,443,750
Food and Related - 1.15%
CPC International Inc. ................. 100,000 4,737,500
Hospital Management - 2.12%
LTC Properties, Inc. ................... 350,000 4,637,500
United HealthCare Corporation .......... 96,000 4,104,000
Total ................................. 8,741,500
Household Products - 1.07%
Avon Products, Inc. .................... 78,000 4,407,000
Insurance - 1.90%
SAFECO Corporation ..................... 75,000 3,956,250
St. Paul Companies, Inc. ............... 50,000 3,887,500
Total ................................. 7,843,750
Machinery - 4.00%
Caterpillar Inc. ....................... 70,000 7,866,250
Deere & Company ........................ 40,000 3,360,000
Parker Hannifin Corporation ............ 115,000 4,068,125
Timken Company (The) ................... 37,000 1,216,375
Total ................................. 16,510,750
Multi-Industry - 1.25%
ITT Corporation ........................ 60,000 5,145,000
Paper - 2.31%
International Paper Company ............ 75,000 5,109,375
Union Camp Corporation ................. 100,000 4,425,000
Total ................................. 9,534,375
Public Utilities - Electric - 3.12%
FPL Group, Inc. ........................ 200,000 6,625,000
Niagara Mohawk Power Corporation ....... 350,000 6,256,250
Total ................................. 12,881,250
Publishing and Advertising - 1.34%
McGraw-Hill, Inc. ...................... 43,000 2,811,125
New York Times Co., Class A ............ 100,000 2,737,500
Total ................................. 5,548,625
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1994
Shares Value
COMMON STOCKS (Continued)
Railroads - 2.54%
Conrail Inc. ........................... 70,000 $ 4,042,500
Norfolk Southern Corporation ........... 100,000 6,462,500
Total ................................. 10,505,000
Retailing - 7.77%
Dillard Department Stores, Inc.,
Class A ............................... 125,000 4,187,500
Ethan Allen Interiors Inc.* ............ 153,900 4,001,400
Home Depot, Inc. (The) ................. 60,000 2,445,000
May Department Stores Company (The) .... 180,000 7,492,500
Penney (J.C.) Company, Inc. ............ 105,000 5,551,875
Tommy Hilfiger Corporation* ............ 90,000 3,228,750
Wal-Mart Stores, Inc. .................. 200,000 5,175,000
Total ................................. 32,082,025
Services, Consumer and Business - 0.99%
Dun & Bradstreet Corporation ........... 70,000 4,112,500
Steel - 0.73%
Bethlehem Steel Corporation ............ 150,000 3,000,000
Telecommunications - 3.90%
MCI Communications Corporation ......... 250,000 5,859,250
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 100,000 4,206,200
Telefonos de Mexico S.A. de C.V., ADR .. 100,000 6,025,000
Total ................................. 16,090,450
Tire and Rubber - 0.87%
Goodyear Tire & Rubber Company (The) ... 89,000 3,604,500
TOTAL COMMON STOCKS - 57.44% $237,141,000
(Cost: $214,587,252)
PREFERRED STOCKS
Airlines - 1.04%
Delta Air Lines, Inc., Depository Shares,
Convertible ........................... 90,000 4,263,750
Automotive - 1.19%
Ford Motor Company, Depository Shares .. 50,000 4,906,250
Banks and Savings and Loans - 1.83%
BankAmerica Corporation, Convertible ... 76,400 4,011,000
Citicorp, Convertible .................. 180,000 3,555,000
Total ................................. 7,566,000
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1994
Shares Value
PREFERRED STOCKS (Continued)
Building - 0.64%
National Health Investors,
Inc., Convertible ..................... 106,000 $ 2,650,000
Computers and Office Equipment - 3.39%
General Motors Corporation, Class E,
Depository Shares ..................... 250,000 14,000,000
TOTAL PREFERRED STOCKS - 8.09% $ 33,386,000
(Cost: $29,391,314)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Domestic Oil - 0.95%
BP America Inc.,
10.0%, 7-1-2018 ....................... $ 3,500 3,932,740
Electrical Equipment - 1.72%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 7,088,900
Financial - 2.93%
Ford Motor Credit Company,
8.875%, 6-15-99 ....................... 3,000 3,245,700
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,153,300
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,458,125
Merrill Lynch Mortgage Investors, Inc.,
8.3%, 4-15-2012 ....................... 3,100 3,230,758
Total ................................. 12,087,883
Railroad Equipment - 0.11%
Union Tank Car Co.,
9.5%, 12-15-95 ........................ 444 471,635
Retailing - 0.46%
Best Buy Co., Inc.,
8.625%, 10-1-2000 ..................... 2,000 1,880,000
Telecommunications - 1.08%
BellSouth Savings & Security ESOP Trust,
9.125%, 7-1-2003 ...................... 4,093 4,467,761
TOTAL CORPORATE DEBT SECURITIES - 7.25% $ 29,928,919
(Cost: $27,928,320)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1994
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
7.5%, 4-25-2002 ....................... $ 3,000 $ 3,031,680
6.0%, 6-25-2007 ....................... 3,000 2,734,680
8.25%, 6-1-2008 ....................... 798 809,943
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 267 283,666
9.0%, 8-15-2016 ....................... 320 338,897
9.0%, 10-15-2016 ...................... 1,709 1,812,732
9.0%, 11-15-2016 ...................... 497 527,317
9.0%, 1-15-2017 ....................... 166 175,972
9.0%, 3-15-2017 ....................... 433 459,775
9.0%, 4-15-2017 ....................... 392 415,865
9.0%, 7-15-2017 ....................... 281 297,740
United States Treasury:
8.875%, 5-15-2000 ..................... 17,000 19,087,770
8.0%, 5-15-2001 ....................... 23,000 24,778,820
7.25%, 5-15-2016 ...................... 8,500 8,494,645
TOTAL UNITED STATES GOVERNMENT SECURITIES - 15.32% $ 63,249,502
(Cost: $62,361,301)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 0.81%
U.S. Bancorp,
Master Note............................ 3,344 3,344,000
Building - 0.77%
Weyerhaeuser Company,
3.56%, 4-4-94 ......................... 3,175 3,174,058
Electronics - 1.38%
Hewlett-Packard Company,
3.4%, 4-5-94 .......................... 5,700 5,697,847
Financial - 2.67%
Associates Corporation of North America,
Master Note ........................... 1,701 1,701,000
BHP Finance (U.S.A.) Inc.,
3.57%, 4-18-94 ........................ 4,450 4,442,498
Bell Atlantic Financial Services Inc.,
3.5%, 4-4-94 .......................... 4,900 4,898,571
Total ................................. 11,042,069
Food and Related - 0.67%
Sara Lee Corporation,
Master Note ........................... 2,770 2,770,000
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
MARCH 31, 1994
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Metals and Mining - 0.41%
Aluminum Company of America,
3.53%, 4-12-94 ........................ $ 1,700 $ 1,698,166
Publishing and Advertising - 1.79%
Times Mirror Company (The),
3.57%, 4-21-94......................... 7,420 7,405,284
Retailing - 1.54%
Rite Aid Corp.,
3.75%, 4-4-94 ......................... 6,350 6,348,016
Telecommunications - 1.89%
Siemens Corp.,
3.47%, 4-7-94 ......................... 3,970 3,967,704
Southwestern Bell Telephone Company,
3.55%, 4-19-94 ........................ 3,820 3,813,219
Total ................................. 7,780,923
TOTAL SHORT-TERM SECURITIES - 11.93% $ 49,260,363
(Cost: $49,260,363)
TOTAL INVESTMENT SECURITIES - 100.03% $412,965,784
(Cost: $383,528,550)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.03%) (122,586)
NET ASSETS - 100.00% $412,843,198
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, 1994
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $412,965,784
Cash ............................................. 23,214
Receivables:
Dividends and interest .......................... 2,754,924
Fund shares sold ................................ 769,488
Prepaid insurance premium ........................ 20,202
------------
Total assets .................................. 416,533,612
------------
Liabilities
Payable for investment securities purchased ...... 2,414,497
Payable for Fund shares redeemed ................. 1,098,728
Accrued service fee .............................. 87,849
Accrued transfer agency and dividend disbursing .. 67,252
Accrued accounting services fee .................. 5,000
Other ............................................ 17,088
------------
Total liabilities ............................. 3,690,414
------------
Total net assets ............................. $412,843,198
============
Net Assets
$1.00 par value capital stock, authorized --
50,000,000; shares outstanding -- 19,968,824
Capital stock ................................... $ 19,968,824
Additional paid-in capital ...................... 360,983,260
Accumulated undistributed income:
Accumulated undistributed net investment income . 195,900
Accumulated undistributed net realized gain
on investment transactions .................... 2,257,980
Net unrealized appreciation in value of
investments at end of period .................. 29,437,234
------------
Net assets applicable to outstanding
units of capital ............................. $412,843,198
============
Net asset value per share (net assets divided by
shares outstanding) .............................. $20.67
Sales load (offering price x 5.75%) ................ 1.26
------
Offering price per share (net asset value
divided by 94.25%) ............................... $21.93
======
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, 1994
Investment Income
Income:
Interest ........................................ $ 9,712,178
Dividends ....................................... 7,131,949
-----------
Total income .................................. 16,844,127
-----------
Expenses (Note 2):
Investment management fee ....................... 2,128,295
Transfer agency and dividend disbursing ......... 739,723
Service fee ..................................... 219,693
Accounting services fee ......................... 60,000
Custodian fees .................................. 27,699
Audit fees ...................................... 25,548
Legal fees ...................................... 6,541
Other ........................................... 109,506
-----------
Total expenses ................................ 3,317,005
-----------
Net investment income ........................ 13,527,122
-----------
Realized and Unrealized Gain on Investments
Realized net gain on investments ................. 8,098,843
Unrealized appreciation in value of investments
during the period ............................... 3,398,722
-----------
Net gain on investments ......................... 11,497,565
-----------
Net increase in net assets resulting from
operations ................................... $25,024,687
===========
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
March 31,
------------------------
1994 1993
------------ ------------
Increase in Net Assets
Operations:
Net investment income ...............$ 13,527,122 $ 15,279,213
Realized net gain on investments .... 8,098,843 17,455,244
Unrealized appreciation ............. 3,398,722 15,056,891
------------ ------------
Net increase in net assets
resulting from operations ........ 25,024,687 47,791,348
------------ ------------
Dividends to shareholders from:*
Net investment income ............... (13,543,155) (15,340,050)
Realized gains on securities
transactions ...................... (7,540,828) ---
------------ ------------
(21,083,983) (15,340,050)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(1,875,493 and 1,821,878
shares, respectively) ............. 39,716,188 35,452,473
Proceeds from reinvestment of
dividends and/or capital gains
distribution (955,113 and 740,706
shares, respectively) ............. 20,076,172 14,456,023
Payments for shares redeemed
(1,805,773 and 1,773,079 shares,
respectively) ...................... (38,270,420) (34,519,054)
------------ ------------
Net increase in net assets
resulting from capital share
transactions ..................... 21,521,940 15,389,442
------------ ------------
Total increase.................... 25,462,644 47,840,740
Net Assets
Beginning of period .................. 387,380,554 339,539,814
------------ ------------
End of period, including undistributed
net investment income of $195,900
and $211,933, respectively ..........$412,843,198 $387,380,554
============ ============
*See "Financial Highlights" on page 15.
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,
------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $20.45 $18.70 $16.93 $16.72 $15.27
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... .70 .83 .73 .84 .91
Net realized and
unrealized gain
on investments .. .61 1.75 1.76 .20 1.50
------ ------ ------ ------ ------
Total from investment
operations ....... 1.31 2.58 2.49 1.04 2.41
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.70) (0.83) (0.72) (0.83) (0.96)
Distribution from
capital gains ... (0.39) 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------
Total
distributions .... (1.09) (0.83) (0.72) (0.83) (0.96)
------ ------ ------ ------ ------
Net asset value,
end of period .... $20.67 $20.45 $18.70 $16.93 $16.72
====== ====== ====== ====== ======
Total return* ...... 6.40% 14.08% 14.98% 6.61% 15.90%
Net assets, end of
period (000
omitted) .........$412,843$387,381$339,540$311,173$312,984
Ratio of expenses to
average net assets 0.81% 0.77% 0.80% 0.85% 0.81%
Ratio of net investment
income to average net
assets ........... 3.29% 4.24% 4.03% 5.15% 5.38%
Portfolio turnover
rate ............. 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.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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. 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.
D. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. During the period ended March
31, 1994, the Fund adopted Statement of Position 93-2 Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. Accordingly,
permanent book and tax basis differences relating to future shareholder
distributions have been reclassified to additional paid-in capital. As of
April 1, 1993, the cumulative effect of such differences totaling
$1,377,889 was reclassified from accumulated undistributed net realized
gain on investment transactions to additional paid-in capital. Net
investment income, net realized gains and net assets were not affected by
this change.
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 $10.9 billion of
combined net assets at March 31, 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
$1,660,985, out of which W&R paid sales commissions of $936,879 and all expenses
in connection with the sale of Fund shares, except for registration fees and
related expenses.
On September 28, 1993, shareholders of the Fund approved the adoption of a
12b-1 Service Plan with a maximum fee of .25%. The Plan went into effect
October 1, 1993.
The Fund paid Directors' fees of $15,472.
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 $140,178,292 while proceeds from
maturities and sales aggregated $99,691,580. Purchases of short-term securities
and U.S. Government securities aggregated $419,462,693 and $29,607,436,
respectively. Proceeds from maturities and sales of short-term securities and
U.S. Government securities aggregated $424,238,610 and $50,206,705,
respectively. There was no gain or loss on the sale of short-term securities.
There was a gain of $2,030,107 on the sale of U.S. Government securities.
For Federal income tax purposes, cost of investments owned at March 31,
1994 was $383,528,550, resulting in net unrealized appreciation of $29,437,234,
of which $35,787,799 related to appreciated securities and $6,350,565
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 March 31, 1994, 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, 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
Kansas City, Missouri
April 29, 1994
- -----------------------------------------------------------------
<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
- --------- ----- ---------------------------------------------------
06-11-93$0.1800 $0.1800 $0.0000 $0.0916 $0.0884 $0.0000
09-17-93 0.1800 0.1800 0.0000 0.0919 0.0881 0.0000
12-17-93 0.5690 0.3054 0.2636 0.0919 0.2135 0.2636
03-11-94 0.1600 0.1600 0.0000 0.0921 0.0679 0.0000
------- ------- ------- ------- ------- -------
Total $1.0890 $0.8254 $0.2636 $0.3675 $0.4579 $0.2636
======= ======= ======= ======= ======= =======
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
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
Rodney O. McWhinney, Vice President
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 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
NUR1004A(3-94)
printed on recycled paper
