United
Continental
Income Fund,
Inc.
SEMIANNUAL
REPORT
-------------------------------------------
For the six months ended September 30, 1996
<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, 1996
Dear Shareholder:
As President of your Fund, I would like to thank you for your continued
confidence in our products and services. Our goal to provide the best service
possible to our shareholders has not changed since we opened our doors nearly 60
years ago. Waddell & Reed's team of professionals, including the Fund's
manager, our customer service representatives and your personal account
representative continue to strive to meet your financial needs.
Waddell & Reed plays a special role in the investment industry. We take
pride in being one of the few financial services firms committed to locally
based account representatives who provide the personal service you need. When
you're ready to evaluate your financial plan to keep up with life's changes, or
to find an answer to a financial question that you may have, your representative
is ready to assist you--when you need it. He or she is available to help you
plan for your retirement, fund a child's education or make plans for other long-
term financial goals.
All of us are committed to helping you meet the financial goals that are
important to you. This is accomplished by our offering investment products to
meet a variety of personal financial objectives, along with the personal service
to make the investment process more convenient and accessible.
We want to continue to meet your financial needs for many years to come.
Should you have any questions about your account or other financial issues that
are important to you, 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 -- Class A Shares
PER SHARE DATA
For the Six Months Ended September 30, 1996
- -------------------------------------------
DIVIDENDS PAID $0.34
======
NET ASSET VALUE ON
9/30/96 $24.08
3/31/96 24.00
------
CHANGE PER SHARE $0.08
======
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 9-30-96 4.50% 10.88%
5-year period ended 9-30-96 10.42% 11.73%
10-year period ended 9-30-96 9.07% 9.72%
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, 1996, United Continental Income Fund, Inc. had net assets
totaling $506,704,238 invested in a diversified portfolio of:
57.40% Common Stocks
35.12% Debt Securities
6.48% Cash and Cash Equivalents
1.00% Preferred Stock
As a shareholder of United Continental Income Fund, Inc., for every $100 you had
invested on September 30, 1996, your Fund owned:
$25.76 United States Government Securities
25.04 Manufacturing Stocks
9.91 Transportation, Communication, Electric
and Sanitary Services Stocks
9.36 Corporate Debt Securities
6.48 Cash and Cash Equivalents
6.18 Wholesale and Retail Trade Stocks
5.70 Services Stocks
5.66 Finance, Insurance and Real Estate Stocks
2.59 Miscellaneous Investing Institutions Stocks
1.67 Mining Stocks
1.00 Preferred Stock
0.65 Contract Construction Stocks
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 0.80%
Gap, Inc. (The) ......................... 140,000 $ 4,042,500
Apparel and Other Textile Products - 0.12%
Liz Claiborne, Inc. .................... 16,000 596,000
Business Services - 2.98%
Cerner Corporation* .................... 200,000 3,112,400
Electronic Data Systems Corporation .... 195,638 12,007,282
Total ................................. 15,119,682
Chemicals and Allied Products - 7.07%
American Home Products Corporation ..... 140,000 8,925,000
Astra AB, Class A (A) .................. 150,000 6,341,250
Dow Chemical Company (The) ............. 80,000 6,420,000
du Pont (E.I.) de Nemours and Company .. 75,000 6,618,750
Pfizer Inc. ............................ 95,000 7,516,875
Total ................................. 35,821,875
Communication - 5.40%
AT&T Corporation ....................... 114,600 5,987,850
GTE Corporation ........................ 150,000 5,775,000
Nokia Corporation, Series A, ADR ....... 98,400 4,354,200
SBC Communications Inc. ................ 160,000 7,700,000
Viacom Inc., Class B* .................. 100,000 3,550,000
Total ................................. 27,367,050
Depository Institutions - 3.57%
BankAmerica Corporation ................ 98,771 8,111,568
Citicorp ............................... 64,476 5,843,138
Wells Fargo & Company .................. 16,000 4,160,000
Total ................................. 18,114,706
Electric, Gas and Sanitary Services - 1.61%
Baltimore Gas and Electric Company ...... 110,000 2,873,750
Houston Industries Incorporated ........ 240,000 5,310,000
Total ................................. 8,183,750
Electronic and Other Electric Equipment - 3.36%
Duracell International Inc. ............. 125,000 8,015,625
Emerson Electric Co. ................... 100,000 9,012,500
Total ................................. 17,028,125
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS (Continued)
Food and Kindred Products - 1.12%
PepsiCo, Inc. .......................... 200,000 $ 5,650,000
General Merchandise Stores - 2.99%
Dillard Department Stores, Inc., Class A 115,000 3,708,750
May Department Stores Company (The) .... 140,000 6,807,500
Wal-Mart Stores, Inc. .................. 175,000 4,615,625
Total ................................. 15,131,875
Health Services - 1.76%
Tenet Healthcare Corporation* .......... 400,000 8,900,000
Heavy Construction, Excluding Building - 0.65%
Foster Wheeler Corporation ............. 75,000 3,281,250
Holding and Other Investment Offices - 2.59%
LTC Properties, Inc. ................... 370,000 6,058,750
National Health Investors, Inc. ........ 133,930 4,469,914
VEBA AG (A) ............................ 50,000 2,617,784
Total ................................. 13,146,448
Hotels and Other Lodging Places - 0.96%
ITT Corporation* ....................... 112,000 4,886,000
Industrial Machinery and Equipment - 3.85%
Deere & Company ........................ 190,000 7,980,000
Seagate Technology, Inc.* .............. 120,000 6,705,000
York International Corporation ......... 100,000 4,837,500
Total ................................. 19,522,500
Instruments and Related Products - 0.88%
St. Jude Medical, Inc.* ................ 110,000 4,448,070
Insurance Agents, Brokers and Service - 1.30%
ITT Hartford Group, Inc. ............... 112,000 6,608,000
Insurance Carriers - 0.79%
United HealthCare Corporation .......... 96,000 3,996,000
Oil and Gas Extraction - 1.67%
Schlumberger Limited ................... 100,000 8,450,000
Paper and Allied Products - 2.01%
Temple-Inland Inc. ..................... 100,000 5,275,000
Union Camp Corporation ................. 100,000 4,887,500
Total ................................. 10,162,500
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1996
Shares Value
COMMON STOCKS (Continued)
Petroleum and Coal Products - 1.23%
Royal Dutch Petroleum Company .......... 40,000 $ 6,245,000
Primary Metal Industries - 0.80%
Nucor Corporation ...................... 80,000 4,060,000
Printing and Publishing - 3.42%
Belo (A. H.) Corporation, Class A ...... 90,000 3,105,000
Berkshire Hathaway Inc., Class B* ...... 3,000 3,219,000
McGraw-Hill, Inc. ...................... 100,000 4,262,500
Time Warner Incorporated ............... 175,000 6,759,375
Total ................................. 17,345,875
Railroad Transportation - 1.61%
Canadian National Railway Company ...... 150,000 3,075,000
Conrail Inc. ........................... 70,000 5,066,250
Total ................................. 8,141,250
Rubber and Miscellaneous Plastics Products - 1.18%
adidas AG (A) .......................... 50,000 4,550,816
Vans, Inc.* ............................ 75,000 1,443,750
Total ................................. 5,994,566
Transportation by Air - 1.29%
Delta Air Lines, Inc. .................. 68,445 4,928,040
Southwest Airlines Co. ................. 70,000 1,601,250
Total ................................. 6,529,290
Wholesale Trade - Nondurable Goods - 2.39%
Sara Lee Corporation ................... 150,000 5,362,500
SYSCO Corporation ...................... 200,000 6,725,000
Total.................................. 12,087,500
TOTAL COMMON STOCKS - 57.40% $290,859,812
(Cost: $230,801,332)
PREFERRED STOCK - 1.00%
Transportation Equipment
Ford Motor Company, Convertible
Depository Shares ..................... 50,000 $ 5,093,750
(Cost: $2,500,000)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Communication - 0.70%
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-2003 ...................... $3,329 $ 3,564,423
Electronic and Other Electric Equipment - 1.02%
Cooper Industries, Inc.,
6.0%, 1-1-99 (Exchangeable) ........... 3,416 5,186,500
General Merchandise Stores - 0.46%
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,344,905
Health Services - 0.58%
ARV Assisted Living, Inc., Convertible,
6.75%, 4-1-2006 (B) ................... 3,000 2,921,250
Instruments and Related Products - 1.01%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 5,000 5,100,000
Nondepository Institutions - 3.26%
Ford Motor Credit Company,
8.875%, 6-15-99 ....................... 3,000 3,162,270
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 7,033,260
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,139,980
Merrill Lynch Mortgage Investors, Inc.,
8.3%, 4-15-2012 ....................... 3,100 3,168,758
Total ................................. 16,504,268
Oil and Gas Extraction - 0.56%
Enron Corp.,
6.25%, 12-*13-98 (Exchangeable) ....... 2,588 2,826,250
Petroleum and Coal Products - 0.75%
BP America Inc.,
10.0%, 7-1-2018 ....................... 3,500 3,825,850
Security And Commodity Brokers - 1.02%
Salomon Inc,
7.625%, 5-15-99 (Exchangeable) ........ 4,792 5,152,500
TOTAL CORPORATE DEBT SECURITIES - 8.80% $47,425,946
(Cost: $43,221,526)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
7.5%, 4-25-2002 ....................... $ 3,000 $ 2,999,040
6.0%, 6-25-2007 ....................... 3,000 2,895,000
8.25%, 6-1-2008 ....................... 584 589,171
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 134 142,398
9.0%, 8-15-2016 ....................... 279 296,912
9.0%, 10-15-2016 ...................... 1,062 1,127,943
9.0%, 11-15-2016 ...................... 331 351,181
9.0%, 1-15-2017 ....................... 111 117,579
9.0%, 3-15-2017 ....................... 315 334,384
9.0%, 4-15-2017 ....................... 336 357,232
9.0%, 7-15-2017 ....................... 222 236,397
United States Treasury:
5.625%, 8-31-97 ....................... 6,000 5,989,680
5.125%, 2-28-98 ....................... 4,000 3,953,120
5.5%, 2-28-99 ......................... 7,000 6,891,710
7.125%, 2-29-2000 ..................... 6,000 6,138,720
8.875%, 5-15-2000 ..................... 17,000 18,360,000
8.0%, 5-15-2001 ....................... 23,000 24,401,620
6.375%, 8-15-2002 ..................... 12,000 11,917,440
7.5%, 2-15-2005 ....................... 33,000 34,727,220
7.25%, 5-15-2016 ...................... 8,500 8,684,620
TOTAL UNITED STATES GOVERNMENT SECURITIES - 25.76% $130,511,367
(Cost: $130,269,453)
TOTAL SHORT-TERM SECURITIES - 6.13% $ 31,063,039
(Cost: $31,063,039)
TOTAL INVESTMENT SECURITIES - 99.65% $504,953,914
(Cost: $437,855,350)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.35% 1,750,324
NET ASSETS - 100.00% $506,704,238
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1996
Notes To Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
(B) As of September 30, 1996, the following restricted security was owned:
Principal
Acquisition Amount Market
Security Date in 000's Cost Value
-------- ----------- --------------------------------
ARV Assisted Living,
Inc., Convertible,
6.75%, 4-1-2006 3/28/96 $3,000$3,000,000 $2,921,250
========= ==========
The total market value of restricted securities represents approximately
0.58% of the total net assets at September 30, 1996.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $504,953,914
Cash ............................................. 28,842
Receivables:
Dividends and interest .......................... 3,641,526
Fund shares sold ................................ 340,004
Prepaid insurance premium ........................ 22,702
------------
Total assets .................................. 508,986,988
------------
Liabilities
Payable for Fund shares redeemed ................. 1,447,234
Payable for investment securities purchased ...... 579,432
Accrued service fee .............................. 161,500
Accrued transfer agency and dividend disbursing .. 75,259
Accrued accounting services fee .................. 5,000
Other ............................................ 14,325
------------
Total liabilities ............................. 2,282,750
------------
Total net assets ............................. $506,704,238
============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 21,044,817
Additional paid-in capital ...................... 382,712,053
Accumulated undistributed income:
Accumulated undistributed net investment income . 1,174,522
Accumulated undistributed net realized gain
on investment transactions .................... 34,674,282
Net unrealized appreciation in value of
investments at end of period .................. 67,098,564
------------
Net assets applicable to outstanding
units of capital ............................. $506,704,238
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $24.08
Class Y .......................................... $24.08
Capital shares outstanding
Class A .......................................... 20,782,863
Class Y .......................................... 261,954
Capital shares authorized .......................... 100,000,000
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 1996
Investment Income
Income:
Interest ........................................ $ 6,660,758
Dividends ....................................... 3,252,497
-----------
Total income .................................. 9,913,255
-----------
Expenses (Note 2):
Investment management fee ....................... 1,397,273
Transfer agency and dividend
disbursing - Class A .......................... 431,098
Service fee - Class A ........................... 400,542
Accounting services fee ......................... 30,000
Custodian fees .................................. 20,271
Audit fees ...................................... 8,940
Legal fees ...................................... 5,262
Shareholder servicing - Class Y ................. 4,469
Other ........................................... 87,405
-----------
Total expenses ................................ 2,385,260
-----------
Net investment income ........................ 7,527,995
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on securities .................. 12,293,916
Realized net loss on foreign
currency transactions ........................... (6,404)
-----------
Realized net gain on investments ................ 12,287,512
Unrealized depreciation in value of investments
during the period ............................... (11,219,146)
-----------
Net gain on investments ....................... 1,068,366
-----------
Net increase in net assets resulting from
operations ................................. $ 8,596,361
===========
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,
1996 1996
Increase (Decrease) in Net Assets ------------ -----------
Operations:
Net investment income ...............$ 7,527,995 $ 14,492,651
Realized net gain on investments .... 12,287,512 31,402,590
Unrealized appreciation (depreciation)(11,219,146) 52,611,352
------------ ------------
Net increase in net assets
resulting from operations ........ 8,596,361 98,506,593
------------ ------------
Dividends to shareholders from:*
Net investment income
Class A ........................... (7,049,533) (13,953,021)
Class Y ........................... (90,306) (38,201)
Realized gains on securities transactions
Class A ........................... --- (18,608,382)
Class Y ........................... --- ---
------------ ------------
(7,139,839) (32,599,604)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A (623,446 and 1,201,223
shares, respectively) ............ 14,836,691 27,526,704
Class Y (46,916 and 229,596
shares, respectively) ............ 1,118,631 5,539,710
Proceeds from reinvestment of dividends
and/or capital gains distribution
Class A (280,781 and 1,363,819
shares, respectively) ............ 6,744,383 31,366,543
Class Y (3,759 and 1,606
shares, respectively) ............ 90,306 38,201
Payments for shares redeemed
Class A (1,046,237 and 2,417,223
shares, respectively)............. (24,905,949) (55,539,467)
Class Y (16,504 and 3,419
shares, respectively) ............ (389,885) (82,402)
------------ ------------
Net increase (decrease) in net assets
resulting from capital
share transactions................ (2,505,823) 8,849,289
------------ ------------
Total increase (decrease) ........ (1,049,301) 74,756,278
Net Assets
Beginning of period .................. 507,753,539 432,997,261
------------ ------------
End of period, including undistributed
net investment income of $1,174,522 and
$792,770, respectively...............$506,704,238 $507,753,539
============ ============
*See "Financial Highlights" on pages 15 - 16.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
six months For the fiscal year ended March 31,
ended -----------------------------------
9-30-96 1996 1995 1994 1993 1992
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $24.00 $20.84 $20.67 $20.45 $18.70 $16.93
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.36 0.71 0.70 0.70 0.83 0.73
Net realized and
unrealized gain
on investments .. 0.06 4.05 0.58 0.61 1.75 1.76
------ ------ ------ ------ ------ ------
Total from investment
operations ....... 0.42 4.76 1.28 1.31 2.58 2.49
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment
income .......... (0.34) (0.68) (0.70) (0.70) (0.83) (0.72)
Distribution from
capital gains ... (0.00) (0.92) (0.41) (0.39) (0.00) (0.00)
------ ------ ------ ------ ------ ------
Total
distributions .... (0.34) (1.60) (1.11) (1.09) (0.83) (0.72)
------ ------ ------ ------ ------ ------
Net asset value,
end of period .... $24.08 $24.00 $20.84 $20.67 $20.45 $18.70
====== ====== ====== ====== ====== ======
Total return* ...... 1.76% 23.29% 6.39% 6.40% 14.08% 14.98%
Net assets, end of
period (000
omitted) .........$500,396$502,285$432,997$412,843$387,381$339,540
Ratio of expenses to
average net assets 0.95%** 0.89% 0.89% 0.81% 0.77% 0.80%
Ratio of net investment
income to average net
assets ........... 2.99%** 3.06% 3.37% 3.29% 4.24% 4.03%
Portfolio turnover
rate ............. 18.66% 41.34% 41.30% 41.01%111.36% 181.82%
Average commission
rate paid ......... $0.0595
*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.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the For the
six period
months from 1/4/96
ended through
9/30/96 3/31/96*
-------- --------
Net asset value,
beginning of period $24.01 $23.35
------ ------
Income from investment
operations:
Net investment
income .......... 0.39 0.07
Net realized and
unrealized gain
on investments... 0.04 0.76
------ ------
Total from investment
operations ........ 0.43 0.83
------ ------
Less distributions:
Dividends from net
investment
income........... (0.36) (0.17)
Distribution from
capital gains.... (0.00) (0.00)
------ ------
Total distributions. (0.36) (0.17)
------ ------
Net asset value,
end of period ..... $24.08 $24.01
====== ======
Total return ....... 1.85% 3.53%
Net assets, end of
period (000
omitted) ......... $6,308 $5,469
Ratio of expenses
to average net
assets ............ 0.76%** 0.80%**
Ratio of net
investment income
to average net
assets ............ 3.20%** 3.35%**
Portfolio
turnover rate ..... 18.66% 41.34%**
Average commission
rate paid ......... $0.0595
*On August 29, 1995, the Fund began offering Class Y shares to the
public. Fund shares outstanding prior to that date were designated
Class A shares.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE 1 -- Significant Accounting Policies
United Continental Income Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. Its investment objective is to provide current income to the extent
that, in the opinion of the Fund's investment manager, market and economic
conditions permit. As a secondary goal, this Fund seeks long-term appreciation
of capital. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles.
A. Security valuation -- Each stock and convertible bond is valued at the
latest sale price thereof on the last business day of the fiscal period as
reported by the principal securities exchange on which the issue is traded
or, if no sale is reported for a stock, the average of the latest bid and
asked prices. Bonds, other than convertible bonds, are valued using a
pricing system provided by a pricing service or 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 System) which provides information on bid and asked or closing
prices quoted by major dealers in such stocks. Restricted securities and
securities for which market quotations are not readily available are valued
at fair value as determined in good faith under procedures established by
and under the general supervision of the Fund's Board of Directors. Short-
term debt securities are valued at amortized cost, which approximates
market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). Securities gains and losses are calculated on the
identified cost basis. Original issue discount (as defined in the Internal
Revenue Code), premiums on the purchase of bonds and post-1984 market
discount are amortized for both financial and tax reporting purposes over
the remaining lives of the bonds. Dividend income is recorded on the ex-
dividend date. Interest income is recorded on the accrual basis. See Note
3 -- Investment Security Transactions.
C. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities, net realized and unrealized gains and losses from foreign
currency translations arise from changes in currency exchange rates. The
Fund combines fluctuations from currency exchange rates and fluctuations in
market value when computing net realized and unrealized gain or loss from
investments.
D. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under the Internal Revenue Code. In
addition, the Fund intends to pay distributions as required to avoid
imposition of excise tax. Accordingly, provision has not been made for
Federal income taxes. See Note 4 -- Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. Net investment income
distributions and capital gains distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are due to differing treatments
for items such as deferral of wash sales and post-October losses, foreign
currency transactions, net operating losses and expiring capital loss
carryforwards.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the annual rate of .10% of net assets and (ii)
a "Group" fee computed each day on the combined net asset values of all of the
funds in the United Group of mutual funds (approximately $14.7 billion of
combined net assets at September 30, 1996) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The Fund accrues and pays
this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Fund and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment Management
Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the Fund's
investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed Services
Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the agreement,
WARSCO acts as the agent in providing accounting services and assistance to the
Fund and pricing daily the value of shares of the Fund. For these services, the
Fund pays WARSCO a monthly fee of one-twelfth of the annual fee shown in the
following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Level
------------------------- -------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month
($1.0208 per account prior to April 1, 1996), plus $0.30 for each account on
which a dividend or distribution of cash or shares had a record date in that
month. With respect to Class Y shares, the Fund pays WARSCO a monthly fee at an
annual rate of .15% of the average daily net assets of the class for the
preceding month. The Fund also reimburses W&R and WARSCO for certain out-of-
pocket costs.
As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions for Class A shares (which are not an expense of
the Fund) of $591,308, out of which W&R paid sales commissions of $336,281 and
all expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Service Plan for Class A shares adopted by the Fund pursuant to
Rule 12b-1 under the Investment Company Act of 1940, the Fund may pay monthly a
fee to W&R in an amount not to exceed .25% of the Fund's average annual net
assets. The fee is to be paid to reimburse W&R for amounts it expends in
connection with the provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $9,133.
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 $70,965,302 while proceeds from maturities
and sales aggregated $94,692,613. Purchases of short-term securities and U.S.
Government securities aggregated $225,020,638 and $16,768,613, respectively.
Proceeds from maturities and sales of short-term securities and U.S. Government
securities aggregated $218,831,167 and $388,213, respectively.
For Federal income tax purposes, cost of investments owned at September 30,
1996 was $437,885,276, resulting in net unrealized appreciation of $67,068,638,
of which $72,064,185 related to appreciated securities and $4,995,547 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $31,415,805 during the year ended March 31, 1996, of which a portion was paid
to shareholders during the period ended March 31, 1996. Remaining capital gain
net income will be distributed to the Fund's shareholders.
NOTE 5 -- Multiclass Operations
On August 29, 1995, the Fund was authorized to offer investors a choice of
two classes of shares, Class A and Class Y, each of which has equal rights as to
assets and voting privileges. Class Y shares are not subject to a sales charge
on purchases; they are not subject to a Rule 12b-1 Service Plan and have a
separate transfer agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of either class are
offered is contained in the prospectus and the Statement of Additional
Information for the Fund.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Continental Income Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of United Continental Income Fund,
Inc. (the "Fund") at September 30, 1996, the results of its operations for the
six months then ended and the changes in its net assets and the financial
highlights for each of the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
November 8, 1996
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
Jay B. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Doyle Patterson, Kansas City, Missouri
William L. Rogers, Los Angeles, California
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Keith A. Tucker, Overland Park, Kansas
Frederick Vogel III, Milwaukee, Wisconsin
Paul S. Wise, Carefree, Arizona
OFFICERS
Keith A. Tucker, President
Robert L. Hechler, Vice President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Sharon K. Pappas, Vice President and Secretary
Cynthia P. Prince-Fox, Vice President
Carl E. Sturgeon, Vice President
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(9-96)
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