United
Continental
Income Fund,
Inc.
SEMIANNUAL
REPORT
-------------------------------------------
For the six months ended September 30, 1995
<PAGE>
This report is submitted for the general information of the shareholders of
United Continental Income Fund, Inc. It is not authorized for distribution to
prospective investors in the Fund unless accompanied with or preceded by the
United Continental Income Fund, Inc. current prospectus.
<PAGE>
PRESIDENT'S LETTER
- -----------------------------------------------------------------
SEPTEMBER 30, 1995
Dear Shareholder:
As President of your Fund, I would like to thank you for your continued
confidence in our products and services. We strive to provide the best service
possible to our shareholders: from the Fund's manager, to Waddell & Reed's
customer service representatives, to your personal account representative and
the Waddell & Reed office nearest you.
While personalized service has become increasingly rare in the investment
industry, we remain committed to locally based account representatives who
provide the personal service you need. They are ready to assist you through
regular reviews of your financial plan and to answer any financial questions you
may have. Your account representative is anxious to help you plan for your
retirement, fund a child's education or make plans for other long-term financial
goals.
We want to help you open the door to a better financial future. We will
continue to help you meet your specific financial needs through quality
investment products and personalized service that makes the investment process
more convenient and accessible for you.
Should you have any questions about your account or other financial issues,
contact your personal account representative or your local Waddell & Reed
office. They're ready to help you make the most of your financial future.
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
long-term capital
appreciation.
Normally at least 25%
Debt Securities or STRATEGY: Invests in debt
Preferred Stock securities, preferred
stock and common stock.
Generally less than 10% (May purchase securities
Foreign Securities subject to repurchase
agreements. May invest
Cash Reserves in certain options or
futures.)
The use of cash reserves (often invested
in money market securities) for
defensive purposes is a strategy that
may be utilized by the Continental
Income Fund from time to time.
Moving into cash reserve positions at
times thought to be near a major stock
market peak allows the Fund the
opportunity to capture profits and
attempts to cushion the impact of market
declines. The added flexibility
provided by our CASH RESERVES STRATEGY
has from time to time been an important
element in our past success and, when
deemed appropriate, may be used in the
management of the portfolio in the
future.
FOUNDED: 1970
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY (March, June, September,
December)
<PAGE>
PERFORMANCE SUMMARY
PER SHARE DATA
For the Six Months Ended September 30, 1995
- ----------------------------------------
DIVIDENDS PAID $ 0.34
======
NET ASSET VALUE ON
9/30/95 $23.23
3/31/95 20.84
------
CHANGE PER SHARE $ 2.39
======
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 9-30-95 9.99% 16.71%
5-year period ended 9-30-95 12.91% 14.25%
10-year period ended 9-30-95 11.41% 12.07%
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, 1995, United Continental Income Fund, Inc. had net assets
totaling $475,591,601 invested in a diversified portfolio of:
61.45% Common Stocks
27.70% Debt Securities
5.79% Preferred Stocks
5.06% Cash and Cash Equivalents
As a shareholder of United Continental Income Fund, Inc., for every $100 you had
invested on September 30, 1995, your Fund owned:
$20.85 United States Government Securities
18.38 Technological Stocks
15.86 Basic Industries Stocks
15.22 Consumer Stocks
6.85 Corporate Debt Securities
6.64 Financial Stocks
5.79 Preferred Stocks
5.06 Cash and Cash Equivalents
3.82 Energy and Energy-Related Stocks
1.53 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.
SEPTEMBER 30, 1995
Shares Value
COMMON STOCKS
Airlines - 0.80%
Southwest Airlines Co. ................. 150,000 $ 3,787,500
Banks and Savings and Loans - 4.10%
Ahmanson (H.F.) & Company .............. 175,000 4,440,625
BankAmerica Corporation ................ 123,771 7,410,788
Citicorp ............................... 49,528 3,504,106
Great Western Financial Corporation .... 175,000 4,156,250
Total ................................. 19,511,769
Beverages - 1.61%
PepsiCo, Inc. .......................... 150,000 7,650,000
Biotechnology and Medical Services - 2.00%
St. Jude Medical, Inc.* ................ 150,000 9,496,800
Building - 3.52%
National Health Investors, Inc. ........ 133,930 4,051,382
Temple-Inland Inc. ..................... 120,000 6,390,000
York International Corporation ......... 150,000 6,318,750
Total ................................. 16,760,132
Chemicals Major - 2.04%
du Pont (E.I.) de Nemours and Company .. 75,000 5,156,250
Rohm & Haas Company .................... 75,000 4,528,125
Total ................................. 9,684,375
Chemicals Specialty and Miscellaneous Technology - 1.84%
Browning-Ferris Industries, Inc. ....... 80,000 2,430,000
IMC Global, Inc. ....................... 100,000 6,337,500
Total ................................. 8,767,500
Computers and Office Equipment - 2.12%
Compaq Computer Corporation* ........... 150,000 7,256,250
International Business Machines
Corporation ........................... 30,000 2,831,250
Total ................................. 10,087,500
Domestic Oil - 2.45%
Amoco Corporation ...................... 100,000 6,412,500
Apache Corporation ..................... 200,000 5,250,000
Total ................................. 11,662,500
Drugs and Hospital Supply - 2.74%
American Home Products Corporation ..... 90,000 7,638,750
Astra AB, Class A (A) .................. 150,000 5,380,263
Total ................................. 13,019,013
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1995
Shares Value
COMMON STOCKS (Continued)
Electrical Equipment - 1.95%
Emerson Electric Co. ................... 130,000 $ 9,295,000
Electronics - 1.65%
AVX Corporation* ....................... 39,500 1,323,250
Applied Materials, Inc.* ............... 34,300 3,515,750
Intel Corporation ...................... 50,000 3,009,350
Total ................................. 7,848,350
Engineering and Construction - 0.56%
Foster Wheeler Corporation ............. 75,000 2,653,125
Financial - 1.31%
Federal National Mortgage Association .. 60,000 6,210,000
Hospital Management - 3.90%
Assisted Living Concepts, Inc.* ........ 100,000 1,562,500
LTC Properties, Inc. ................... 370,000 5,365,000
Tenet Healthcare Corporation* .......... 400,000 6,950,000
United HealthCare Corporation .......... 96,000 4,692,000
Total ................................. 18,569,500
Insurance - 1.23%
St. Paul Companies, Inc. (The) ......... 100,000 5,837,500
Leisure Time - 2.58%
Walt Disney Company (The) .............. 110,000 6,311,250
Time Warner Incorporated ............... 150,000 5,962,500
Total ................................. 12,273,750
Machinery - 1.85%
Deere & Company ........................ 80,000 6,510,000
TRAUB AG (A)* .......................... 18,000 2,292,673
Total ................................. 8,802,673
Multi-Industry - 2.92%
ITT Corporation ........................ 112,000 13,888,000
Oil Services - 1.37%
Schlumberger Limited ................... 100,000 6,525,000
Paper - 1.21%
Union Camp Corporation ................. 100,000 5,762,500
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1995
Shares Value
COMMON STOCKS (Continued)
Public Utilities - Electric - 1.53%
Houston Industries Incorporated ........ 120,000 $ 5,295,000
VEBA AG (A) ............................ 50,000 1,984,394
Total ................................. 7,279,394
Publishing and Advertising - 1.43%
McGraw-Hill, Inc. ...................... 83,000 6,785,250
Railroads - 1.01%
Conrail Inc. ........................... 70,000 4,812,500
Retailing - 4.10%
May Department Stores Company (The) .... 140,000 6,125,000
Mercantile Stores Company, Inc. ........ 100,000 4,500,000
Penney (J.C.) Company, Inc. ............ 80,000 3,970,000
Tommy Hilfiger Corporation* ............ 151,400 4,920,500
Total ................................. 19,515,500
Services, Consumer and Business - 0.80%
Block (H & R), Inc. .................... 100,000 3,800,000
Telecommunications - 8.03%
AT&T Corporation ....................... 114,600 7,534,950
BellSouth Corporation .................. 85,000 6,215,625
GTE Corporation ........................ 150,000 5,887,500
MCI Communications Corporation ......... 250,000 6,515,500
Motorola, Inc. ......................... 90,000 6,873,750
Nokia Corporation, Series A, ADS ....... 28,200 1,966,950
Telefonos de Mexico S.A. de C.V., ADR .. 100,000 3,175,000
Total ................................. 38,169,275
Textiles and Apparel - 0.80%
Liz Claiborne, Inc. .................... 150,000 3,787,500
TOTAL COMMON STOCKS - 61.45% $292,241,906
(Cost: $243,319,434)
PREFERRED STOCKS
Airlines - 1.07%
Delta Air Lines, Incorporated, Convertible
Depository Shares ..................... 90,000 5,107,500
Automotive - 1.08%
Ford Motor Company, Convertible
Depository Shares ..................... 50,000 5,118,750
Banks and Savings and Loans - 0.23%
Citicorp, Convertible Depository Shares 53,496 1,083,294
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1995
Shares Value
PREFERRED STOCKS (Continued)
Computers and Office Equipment - 3.41%
General Motors Corporation, Class E,
Convertible Depository Shares ......... 250,000 $ 16,218,750
TOTAL PREFERRED STOCKS - 5.79% $ 27,528,294
(Cost: $20,792,976)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Domestic Oil - 0.83%
BP America Inc.,
10.0%, 7-1-2018 ....................... $ 3,500 3,928,015
Electrical Equipment - 1.54%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 7,328,685
Financial - 2.53%
Ford Motor Credit Company,
8.875%, 6-15-99 ....................... 3,000 3,226,920
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,189,090
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,410,313
Merrill Lynch Mortgage Investors, Inc.,
8.3%, 4-15-2012 ....................... 3,100 3,218,172
Total ................................. 12,044,495
Multi-Industry - 1.07%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 5,000 5,100,000
Railroad Equipment - 0.04%
Union Tank Car Co.,
9.5%, 12-15-95 ........................ 177 178,154
Telecommunications - 0.84%
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-2003 ...................... 3,658 3,985,174
TOTAL CORPORATE DEBT SECURITIES - 6.85% $ 32,564,523
(Cost: $29,910,378)
See Notes to Schedule of Investments on page 10.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1995
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
7.5%, 4-25-2002 ....................... $ 3,000 $ 3,050,610
6.0%, 6-25-2007 ....................... 3,000 2,903,430
8.25%, 6-1-2008 ....................... 630 645,387
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 166 176,942
9.0%, 8-15-2016 ....................... 285 304,169
9.0%, 10-15-2016 ...................... 1,388 1,479,813
9.0%, 11-15-2016 ...................... 397 423,707
9.0%, 1-15-2017 ....................... 138 146,644
9.0%, 3-15-2017 ....................... 348 370,636
9.0%, 4-15-2017 ....................... 359 382,961
9.0%, 7-15-2017 ....................... 275 292,858
United States Treasury:
7.125%, 2-29-2000 ..................... 6,000 6,251,220
8.875%, 5-15-2000 ..................... 17,000 18,968,260
8.0%, 5-15-2001 ....................... 23,000 25,095,070
6.375%, 8-15-2002 ..................... 12,000 12,178,080
7.5%, 2-15-2005 ....................... 16,000 17,427,520
7.25%, 5-15-2016 ...................... 8,500 9,085,735
TOTAL UNITED STATES GOVERNMENT SECURITIES - 20.85% $ 99,183,042
(Cost: $95,273,536)
TOTAL SHORT-TERM SECURITIES - 3.51% $ 16,725,256
(Cost: $16,725,256)
TOTAL INVESTMENT SECURITIES - 98.45% $468,243,021
(Cost: $406,021,580)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.55% 7,348,580
NET ASSETS - 100.00% $475,591,601
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, 1995
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $468,243,021
Cash ............................................. 5,931
Receivables:
Investment securities sold ...................... 4,940,515
Dividends and interest .......................... 3,300,533
Fund shares sold ................................ 156,620
Prepaid insurance premium ........................ 24,942
------------
Total assets .................................. 476,671,562
------------
Liabilities
Payable for Fund shares redeemed ................. 856,487
Accrued service fee .............................. 93,447
Accrued transfer agency and dividend disbursing .. 75,088
Accrued accounting services fee .................. 5,000
Other ............................................ 49,939
------------
Total liabilities ............................. 1,079,961
------------
Total net assets ............................. $475,591,601
============
Net Assets
$1.00 par value capital stock, authorized --
100,000,000; shares outstanding -- 20,472,401
Capital stock ................................... $ 20,472,401
Additional paid-in capital ...................... 370,245,467
Accumulated undistributed income:
Accumulated undistributed net investment income . 516,210
Accumulated undistributed net realized gain
on investment transactions .................... 22,136,082
Net unrealized appreciation in value of
investments at end of period .................. 62,221,441
------------
Net assets applicable to outstanding
units of capital ............................. $475,591,601
============
Net asset value per share (net assets divided by
shares outstanding) .............................. $23.23
======
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1995
Investment Income
Income:
Interest ........................................ $ 5,123,204
Dividends ....................................... 4,068,056
-----------
Total income .................................. 9,191,260
-----------
Expenses (Note 2):
Investment management fee ....................... 1,288,510
Transfer agency and dividend disbursing ......... 353,500
Service fee ..................................... 245,587
Accounting services fee ......................... 30,000
Audit fees ...................................... 16,055
Custodian fees .................................. 15,148
Legal fees ...................................... 6,448
Other ........................................... 62,729
-----------
Total expenses ................................ 2,017,977
-----------
Net investment income ........................ 7,173,283
-----------
Realized and Unrealized Gain on Investments
Realized net gain on securities .................. 12,563,139
Realized net gain on foreign
currency transactions ........................... 219
-----------
Realized net gain on investments ................ 12,563,358
Unrealized appreciation in value of investments
during the period ............................... 36,515,083
-----------
Net gain on investments ....................... 49,078,441
-----------
Net increase in net assets resulting from
operations ................................. $56,251,724
===========
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
six months fiscal year
ended ended
September 30, March 31,
1995 1995
------------ -----------
Increase in Net Assets
Operations:
Net investment income ...............$ 7,173,283 $ 14,229,996
Realized net gain on investments .... 12,563,358 15,646,912
Unrealized appreciation
(depreciation) .................... 36,515,083 (3,730,876)
------------ ------------
Net increase in net assets
resulting from operations ........ 56,251,724 26,146,032
------------ ------------
Dividends to shareholders from:*
Net investment income ............... (6,961,848) (14,116,118)
Realized gains on securities
transactions ...................... --- (8,337,171)
------------ ------------
(6,961,848) (22,453,289)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(544,332 and 1,792,943
shares, respectively) ............. 12,030,773 37,123,344
Proceeds from reinvestment of
dividends and/or capital gains
distribution (293,924 and 1,055,139
shares, respectively) ............. 6,646,459 21,493,991
Payments for shares redeemed
(1,142,909 and 2,039,852 shares,
respectively) ...................... (25,372,768) (42,156,015)
------------ ------------
Net increase (decrease) in
net assets resulting from
capital share transactions........ (6,695,536) 16,461,320
------------ ------------
Total increase.................... 42,594,340 20,154,063
Net Assets
Beginning of period .................. 432,997,261 412,843,198
------------ ------------
End of period, including undistributed
net investment income of $516,210 and
$304,556, respectively...............$475,591,601 $432,997,261
============ ============
*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 -----------------------------------
9-30-95 1995 1994 1993 1992 1991
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $20.84 $20.67 $20.45 $18.70 $16.93 $16.72
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... .35 .70 .70 .83 .73 .84
Net realized and
unrealized gain
on investments .. 2.38 .58 .61 1.75 1.76 .20
------ ------ ------ ------ ------ ------
Total from investment
operations ....... 2.73 1.28 1.31 2.58 2.49 1.04
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.34) (0.70) (0.70) (0.83) (0.72) (0.83)
Distribution from
capital gains ... (0.00) (0.41) (0.39) 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
Total
distributions .... (0.34) (1.11) (1.09) (0.83) (0.72) (0.83)
------ ------ ------ ------ ------ ------
Net asset value,
end of period .... $23.23 $20.84 $20.67 $20.45 $18.70 $16.93
====== ====== ====== ====== ====== ======
Total return* ...... 13.15% 6.39% 6.40% 14.08% 14.98% 6.61%
Net assets, end of
period (000
omitted) .........$475,592$432,997$412,843$387,381$339,540$311,173
Ratio of expenses to
average net assets 0.88%** 0.89% 0.81% 0.77% 0.80% 0.85%
Ratio of net investment
income to average net
assets ........... 3.13%** 3.37% 3.29% 4.24% 4.03% 5.15%
Portfolio turnover
rate ............. 38.34%**41.30% 41.01% 111.36%181.82% 207.62%
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 -- Significant Accounting Policies
United Continental Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a major dealer in bonds. Convertible bonds are
valued using this pricing system only on days when there is no sale
reported. Stocks which are traded over-the-counter are priced using Nasdaq
(National Association of Securities Dealers Automated Quotations) which
provides information on bid and asked or closing prices quoted by major
dealers in such stocks. Short-term debt securities are valued at amortized
cost, which approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
3 -- Investment Security Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translations arise from changes in currency exchange rates. The
Fund combines fluctuations from currency exchange rates and fluctuations in
market value when computing net realized and unrealized gain or loss from
investments.
D. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards.
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 $13.3 billion of
combined net assets at September 30, 1995) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
The Fund also pays WARSCO a monthly per account charge for transfer agency
and dividend disbursement services of $1.0208 for each shareholder account which
was in existence at any time during the prior month plus $0.30 for each account
on which a dividend or distribution of cash or shares had a record date in that
month. The Fund also reimburses W&R and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions (which are not an expense of the Fund) of
$465,251, out of which W&R paid sales commissions of $258,077 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 $8,476.
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 $72,590,313 while proceeds from maturities
and sales aggregated $90,554,954. Purchases of short-term securities and U.S.
Government securities aggregated $158,513,057 and $10,611,719, respectively.
Proceeds from maturities and sales of short-term securities and U.S. Government
securities aggregated $163,331,376 and $278,595, respectively.
For Federal income tax purposes, cost of investments owned at September 30,
1995 was $406,051,506, resulting in net unrealized appreciation of $62,191,515,
of which $67,507,808 related to appreciated securities and $5,316,293 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $15,621,276 during the year ended March 31, 1995, of which a portion was paid
to shareholders during the period ended March 31, 1995. Remaining capital gain
net income will be distributed to the Fund's shareholders. These net gains
include the effect of $60,783 of capital losses deferred from the year ended
March 31, 1994. Federal tax law permits the Fund to defer, to its next fiscal
year, net capital losses incurred from November 1 to the end of its fiscal year
("post-October losses").
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Continental Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United Continental Income Fund,
Inc. (the "Fund") at September 30, 1995, 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, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
November 3, 1995
<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
James B. Judd, Kansas City, Missouri
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
Leslie S. Wright, Birmingham, Alabama
OFFICERS
Keith A. Tucker, President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Sharon K. Pappas, Vice President and Secretary
Cynthia P. Prince-Fox, Vice President
Carl E. Sturgeon, Vice President
To all IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from an IRA unless you make a written election not to
have taxes withheld. The election may be made by submitting forms provided by
Waddell & Reed, Inc. which can be obtained from your Waddell & Reed
representative or by submitting Internal Revenue Service form W-4P. Once made,
an election can be revoked by providing written notice to Waddell & Reed, Inc.
If you elect not to have tax withheld you may be required to make payments of
estimated tax. Penalties may be imposed by the IRS if withholding and estimated
tax payments are not adequate.
<PAGE>
The United Group of Mutual Funds
United Cash Management, Inc.
United Government Securities Fund, Inc.
United Bond Fund
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United Continental Income Fund, Inc.
United Retirement Shares, Inc.
United Asset Strategy Fund, Inc.
United Income Fund
United Accumulative Fund
United Vanguard Fund, Inc.
United New Concepts Fund, Inc.
United Science and Technology Fund
United International Growth Fund, Inc.
United Gold & Government Fund, Inc.
FOR MORE INFORMATION:
Contact your representative, or your
local office as listed on your
Account Statement, or contact:
WADDELL & REED
CUSTOMER SERVICE
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, KS 66201-9217
(913) 236-1303
Our INTERNET address is:
http://www.waddell.com
NUR1004SA(9-95)
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