United
Continental
Income Fund,
Inc.
SEMIANNUAL
REPORT
----------------------------------------
For the six months ended September 30, 1997
<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, 1997
Dear Shareholder:
As Waddell & Reed celebrates its 60th anniversary in the financial services
industry, I would like to thank you for your continued confidence in our
products and services. Since we opened our doors in 1937, our goal has been and
continues to be to provide the best service possible to our shareholders. This
commitment is reflected in every area of our organization: starting with your
financial advisor and continuing with our investment management and customer
service people of our affiliated companies.
Your confidence in the success of the products and services offered by Waddell &
Reed and its affiliates is reflected in the growth the Funds have experienced
over our 60 years. Total mutual fund assets under management reached the $1
billion mark in 1961, and over the $5 billion mark in 1985. As of September 30,
1997, mutual fund assets under management totaled more than $20.6 billion.
We look forward to helping you meet the financial goals that are important to
you, now and for many years to come. Should you have any questions about your
account or other financial issues that are important to you, contact your
financial advisor 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 and
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. For more
information about the Fund's cash
reserves flexibility, please consult the
Prospectus.
FOUNDED: 1970
SCHEDULED DIVIDEND FREQUENCY: QUARTERLY (March, June, September,
December)
PERFORMANCE SUMMARY -- Class A Shares
PER SHARE DATA
For the Six Months Ended September 30, 1997
- -------------------------------------------
DIVIDENDS PAID $0.34
=====
NET ASSET VALUE ON
9/30/97 $25.74
3/31/97 22.72
------
CHANGE PER SHARE $3.02
======
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 9-30-97 12.63% 19.50%
5-year period ended 9-30-97 11.84% 13.17%
10-year period ended 9-30-97 9.65% 10.31%
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, 1997, United Continental Income Fund, Inc. had net assets
totaling $573,208,695 invested in a diversified portfolio of:
64.14% Common Stocks
30.58% Debt Securities
5.28% Cash and Cash Equivalents
As a shareholder of United Continental Income Fund, Inc., for every $100 you had
invested on September 30, 1997, your Fund owned:
$32.85 Manufacturing Stocks
21.95 United States Government Securities
11.14 Transportation, Communication, Electric
and Sanitary Services Stocks
8.63 Corporate Debt Securities
5.91 Wholesale and Retail Trade Stocks
5.28 Finance, Insurance and Real Estate Stocks
5.28 Cash and Cash Equivalents
3.43 Miscellaneous Investing Institutions Stocks
3.06 Mining Stocks
0.97 Services Stocks
0.93 Agriculture, Forestry and Fisheries Stocks
0.57 Contract Construction Stocks
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON STOCKS
Automotive Dealers and Service Stations _ 0.39%
Circuit City Stores, Inc.* ............. 135,300 $ 2,240,839
Chemicals and Allied Products _ 9.10%
American Home Products Corporation ..... 125,000 9,125,000
Avon Products, Inc. .................... 70,000 4,340,000
Dial Corporation (The) ................. 250,000 4,343,750
Dow Chemical Company (The) ............. 80,000 7,254,960
du Pont (E.I.) de Nemours and Company .. 114,000 7,018,068
Hoechst AG (A) ......................... 166,000 7,364,835
International Flavors & Fragrances Inc. 115,000 5,635,000
Pfizer Inc. ............................ 118,000 7,087,316
Total ................................. 52,168,929
Communication _ 6.41%
AT&T Corporation ....................... 225,000 9,970,200
GTE Corporation ........................ 150,000 6,806,250
Nokia Corporation, Series A, ADR ....... 98,400 9,237,300
SBC Communications Inc. ................ 175,000 10,740,625
Total ................................. 36,754,375
Depository Institutions _ 3.11%
BankAmerica Corporation ................ 163,542 11,989,591
Wells Fargo & Company .................. 21,300 5,857,500
Total ................................. 17,847,091
Electric, Gas and Sanitary Services _ 2.79%
Baltimore Gas and Electric Company ..... 110,000 3,052,500
Houston Industries Incorporated ........ 240,000 5,220,000
PECO Energy Company .................... 160,000 3,749,920
Unicom Corporation ..................... 170,000 3,973,750
Total ................................. 15,996,170
Electronic and Other Electric Equipment _ 4.08%
Intel Corporation ...................... 75,000 6,930,450
Emerson Electric Co. ................... 180,000 10,372,500
U. S. Industries, Inc. ................. 210,000 6,090,000
Total ................................. 23,392,950
Food and Kindred Products - 2.10%
CPC International Inc. ................. 65,000 6,020,625
Heinz (H. J.) Company .................. 130,000 6,004,310
Total ................................. 12,024,935
Forestry _ 0.93%
Weyerhaeuser Company ................... 90,000 5,343,750
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON STOCKS (Continued)
General Merchandise Stores _ 2.08%
Kohl's Corporation* .................... 80,000 $ 5,680,000
Wal-Mart Stores, Inc. .................. 170,000 6,226,250
Total ................................. 11,906,250
Health Services _ 0.97%
Tenet Healthcare Corporation* .......... 190,000 5,533,750
Heavy Construction, Excluding Building _ 0.57%
Foster Wheeler Corporation ............. 75,000 3,295,275
Holding and Other Investment Offices _ 3.43%
Berkshire Hathaway Inc., Class B* ...... 3,000 4,485,000
LTC Properties, Inc. ................... 370,000 7,030,000
National Health Investors, Inc. ........ 133,930 5,206,529
VEBA AG (A) ............................ 50,000 2,921,453
Total ................................. 19,642,982
Industrial Machinery and Equipment _ 3.21%
Applied Materials, Inc.* ............... 60,000 5,716,860
Deere & Company ........................ 115,000 6,195,625
Parker Hannifin Corporation ............ 144,000 6,480,000
Total ................................. 18,392,485
Instruments and Related Products _ 2.03%
St. Jude Medical, Inc.* ................ 110,000 3,856,820
Teradyne, Inc.* ........................ 145,000 7,802,740
Total ................................. 11,659,560
Insurance Carriers _ 2.17%
Hartford Financial Services
Group Inc. (The) ...................... 112,000 9,638,944
United HealthCare Corporation .......... 56,000 2,800,000
Total ................................. 12,438,944
Metal Mining _ 0.80%
Homestake Mining Company ............... 300,000 4,593,600
Miscellaneous Retail - 0.98%
Costco Companies, Inc.* ................ 150,000 5,638,950
Oil and Gas Extraction _ 2.26%
Noble Affiliates, Inc. ................. 85,000 3,803,750
Santa Fe International Corp. ........... 34,000 1,581,000
Schlumberger Limited ................... 90,000 7,576,830
Total ................................. 12,961,580
Paper and Allied Products _ 1.08%
Union Camp Corporation ................. 100,000 6,168,700
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1997
Shares Value
COMMON STOCKS (Continued)
Petroleum and Coal Products _ 2.16%
Royal Dutch Petroleum Company .......... 160,000 $ 8,880,000
Tosco Corporation ...................... 100,000 3,481,200
Total ................................. 12,361,200
Primary Metal Industries _ 1.68%
British Steel plc, ADR ................. 185,000 5,388,125
Nucor Corporation ...................... 80,000 4,214,960
Total ................................. 9,603,085
Printing and Publishing _ 3.92%
Gannett Co., Inc. ...................... 55,000 5,936,535
McGraw-Hill Companies, Inc. (The) ...... 100,000 6,768,700
Meredith Corporation ................... 200,000 6,625,000
Viacom Inc., Class B* .................. 100,000 3,162,500
Total ................................. 22,492,735
Railroad Transportation - 1.55%
Burlington Northern Santa Fe Corporation 50,000 4,831,250
Union Pacific Corporation .............. 65,000 4,074,655
Total ................................. 8,905,905
Rubber and Miscellaneous Plastics Products _ 0.16%
Vans, Inc.* ............................ 57,500 921,782
Textile Mill Products _ 0.63%
Sara Lee Corporation ................... 70,000 3,605,000
Transportation by Air _ 0.39%
Southwest Airlines Co. ................. 70,000 2,235,590
Transportation Equipment - 2.70%
Chrysler Corporation ................... 115,000 4,233,380
Sundstrand Corporation ................. 90,000 5,186,250
TRW Inc. ............................... 110,000 6,036,250
Total ................................. 15,455,880
Wholesale Trade - Durable Goods _ 1.69%
Motorola, Inc. ......................... 135,000 9,703,125
Wholesale Trade - Nondurable Goods _ 0.77%
Gillette Company (The) ................. 51,000 4,401,912
TOTAL COMMON STOCKS _ 64.14% $367,687,329
(Cost: $282,396,915)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Communication _ 0.55%
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-2003 ...................... $2,966 $ 3,161,439
Electronic and Other Electric Equipment _ 1.01%
Cooper Industries, Inc.,
6.0%, 1-1-99 (Exchangeable) ........... 3,416 5,819,000
Fabricated Metal Products _ 0.91%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 5,000 5,200,000
General Merchandise Stores _ 0.41%
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 2,250 2,347,717
Health Services _ 0.50%
ARV Assisted Living, Inc., Convertible,
6.75%, 4-1-2006 (B) ................... 3,000 2,838,750
Nondepository Institutions _ 2.87%
Ford Motor Credit Company,
8.875%, 6-15-99 ....................... 3,000 3,132,060
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 6,500 7,361,770
General Motors Acceptance Corporation,
8.4%, 10-15-99 ........................ 3,000 3,130,110
Merrill Lynch Mortgage Investors, Inc.,
8.3%, 4-15-2012 ....................... 2,818 2,856,290
Total ................................. 16,480,230
Oil and Gas Extraction _ 0.47%
Enron Corp.,
6.25%, 12-13-98 (Exchangeable) ........ 2,588 2,670,003
Petroleum and Coal Products _ 0.65%
BP America Inc.,
10.0%, 7-1-2018 ....................... 3,500 3,747,240
Security and Commodity Brokers _ 1.26%
Salomon Inc.,
7.625%, 5-15-99 (Exchangeable) ........ 4,793 7,200,000
TOTAL CORPORATE DEBT SECURITIES _ 8.63% $49,464,379
(Cost: $42,597,118)
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1997
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
7.5%, 4-25-2002 ....................... $ 2,790 $ 2,813,097
6.0%, 6-25-2007 ....................... 3,000 2,959,680
8.25%, 6-1-2008 ....................... 510 526,776
Government National Mortgage Association:
9.0%, 7-15-2016 ....................... 97 104,448
9.0%, 8-15-2016 ....................... 274 294,904
9.0%, 10-15-2016 ...................... 899 967,374
9.0%, 11-15-2016 ...................... 275 295,566
9.0%, 1-15-2017 ....................... 91 98,351
9.0%, 3-15-2017 ....................... 309 332,679
9.0%, 4-15-2017 ....................... 274 294,722
9.0%, 7-15-2017 ....................... 198 212,560
United States Treasury:
5.125%, 2-28-98 ....................... 4,000 3,995,000
5.5%, 2-28-99 ......................... 7,000 6,977,040
7.125%, 2-29-2000 ..................... 6,000 6,166,860
8.875%, 5-15-2000 ..................... 17,000 18,232,500
8.0%, 5-15-2001 ....................... 23,000 24,509,260
6.375%, 8-15-2002 ..................... 12,000 12,183,720
7.5%, 2-15-2005 ....................... 33,000 35,629,770
7.25%, 5-15-2016 ...................... 8,500 9,231,765
TOTAL UNITED STATES GOVERNMENT SECURITIES _ 21.95% $125,826,072
(Cost: $123,148,235)
TOTAL SHORT-TERM SECURITIES _ 4.78% $ 27,371,861
(Cost: $27,371,861)
TOTAL INVESTMENT SECURITIES _ 99.50% $570,349,641
(Cost: $475,514,129)
CASH AND OTHER ASSETS, NET OF LIABILITIES _ 0.50% 2,859,054
NET ASSETS - 100.00% $573,208,695
See Notes to Schedule of Investments on page 11.
<PAGE>
THE INVESTMENTS OF
UNITED CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 1997
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, 1997, 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 $2,838,750
========= ==========
The total market value of this restricted security represents 0.50% of the
total net assets at September 30, 1997.
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, 1997
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $570,349,641
Cash ............................................. 3,059
Receivables:
Dividends and interest .......................... 3,759,662
Fund shares sold ................................ 392,208
Prepaid insurance premium ........................ 24,697
------------
Total assets .................................. 574,529,267
------------
Liabilities
Payable to Fund shareholders ..................... 1,028,509
Accrued service fee (Note 2) ..................... 154,623
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 107,128
Accrued management fee (Note 2) .................. 8,576
Accrued accounting services fee (Note 2) ......... 5,833
Other ............................................ 15,903
------------
Total liabilities ............................. 1,320,572
------------
Total net assets ............................. $573,208,695
============
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 22,270,327
Additional paid-in capital ...................... 408,162,131
Accumulated undistributed income:
Accumulated undistributed net investment income . 1,927,732
Accumulated undistributed net realized gain
on investment transactions .................... 46,013,069
Net unrealized appreciation in value of
investments ................................... 94,835,436
------------
Net assets applicable to outstanding
units of capital ............................. $573,208,695
============
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $25.74
Class Y .......................................... $25.74
Capital shares outstanding
Class A .......................................... 21,968,392
Class Y .......................................... 301,935
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, 1997
Investment Income
Income (Note 1B):
Interest and amortization........................ $7,481,332
Dividends ....................................... 3,712,392
-----------
Total income .................................. 11,193,724
-----------
Expenses (Note 2):
Investment management fee ....................... 1,511,997
Transfer agency and dividend
disbursing - Class A .......................... 454,812
Service fee - Class A ........................... 368,715
Accounting services fee ......................... 33,333
Custodian fees .................................. 18,160
Audit fees ...................................... 11,211
Legal fees ...................................... 7,658
Shareholder servicing - Class Y ................. 6,640
Other ........................................... 88,503
-----------
Total expenses ................................ 2,501,029
-----------
Net investment income ........................ 8,692,695
-----------
Realized and Unrealized Gain on
Investments (Notes 1 and 3)
Realized net gain on securities .................. 31,385,203
Realized net gain on foreign
currency transactions ........................... 73,373
-----------
Realized net gain on investments ................ 31,458,576
Unrealized appreciation in value of investments
during the period ............................... 35,039,731
-----------
Net gain on investments ....................... 66,498,307
-----------
Net increase in net assets resulting from
operations ................................. $75,191,002
===========
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the For the
six months fiscal year
ended ended
September 30, March 31,
1997 1997
Increase in Net Assets ------------ ------------
Operations:
Net investment income ...............$ 8,692,695 $ 15,471,282
Realized net gain on investments .... 31,458,576 32,460,692
Unrealized appreciation (depreciation) 35,039,731 (18,522,005)
------------ ------------
Net increase in net assets
resulting from operations ........ 75,191,002 29,409,969
------------ ------------
Distributions to shareholders from (Note 1E):*
Net investment income
Class A ........................... (7,464,028) (15,354,424)
Class Y ........................... (103,799) (196,761)
Realized gains on securities transactions
Class A ........................... -- (39,714,405)
Class Y ........................... -- (482,163)
------------ ------------
(7,567,827) (55,747,753)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
Class A (601,896 and 1,328,053
shares, respectively) ............ 14,730,543 31,639,891
Class Y (38,287 and 65,939
shares, respectively) ............ 955,680 1,571,523
Proceeds from reinvestment of dividends
and/or capital gains distribution
Class A (285,943 and 2,330,266
shares, respectively) ............ 7,144,745 53,263,591
Class Y (4,152 and 29,687
shares, respectively) ............ 103,798 678,923
Payments for shares redeemed
Class A (1,253,503 and 2,249,136
shares, respectively)............. (30,684,650) (53,683,778)
Class Y (16,771 and 47,142
shares, respectively) ............ (418,962) (1,131,539)
------------ ------------
Net increase (decrease) in net
assets resulting from capital
share transactions................ (8,168,846) 32,338,611
------------ ------------
Total increase ................... 59,454,329 6,000,827
Net Assets
Beginning of period .................. 513,754,366 507,753,539
------------ ------------
End of period, including undistributed
net investment income of $1,927,732 and
$729,491, respectively...............$573,208,695 $513,754,366
============ ============
*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 -----------------------------------
9-30-97 1997 1996 1995 1994 1993
------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $22.72 $24.00 $20.84 $20.67 $20.45 $18.70
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income .......... .39 0.72 0.71 0.70 0.70 0.83
Net realized and
unrealized gain
on investments .. 2.97 0.66 4.05 0.58 0.61 1.75
------ ------ ------ ------ ------ ------
Total from investment
operations ....... 3.36 1.38 4.76 1.28 1.31 2.58
------ ------ ------ ------ ------ ------
Less distributions:
From net investment
income .......... (0.34) (0.73) (0.68) (0.70) (0.70) (0.83)
From capital gains (0.00) (1.93) (0.92) (0.41) (0.39) (0.00)
------ ------ ------ ------ ------ ------
Total
distributions .... (0.34) (2.66) (1.60) (1.11) (1.09) (0.83)
------ ------ ------ ------ ------ ------
Net asset value,
end of period .... $25.74 $22.72 $24.00 $20.84 $20.67 $20.45
====== ====== ====== ====== ====== ======
Total return* ...... 14.84% 5.88% 23.29% 6.39% 6.40% 14.08%
Net assets, end of
period (000
omitted) .........$565,436$507,477$502,285$432,997$412,843$387,381
Ratio of expenses to
average net assets 0.91%** 0.93% 0.89% 0.89% 0.81% 0.77%
Ratio of net investment
income to average net
assets ........... 3.15%** 3.01% 3.06% 3.37% 3.29% 4.24%
Portfolio turnover
rate ............. 25.45% 40.29% 41.34% 41.30% 41.01% 111.36%
Average commission
rate paid ......... $0.0648 $0.0603
*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 For the
six fiscal period
months year from 1/4/96*
ended ended through
9/30/97 3/31/97 3/31/96
---------------- --------
Net asset value,
beginning of period $22.72 $24.01 $23.35
------ ------ ------
Income from investment
operations:
Net investment
income .......... 0.41 0.78 0.07
Net realized and
unrealized gain
on investments... 2.97 0.63 0.76
------ ------ ------
Total from investment
operations ........ 3.38 1.41 0.83
------ ------ ------
Less distributions:
From net investment
income........... (0.36) (0.77) (0.17)
From capital gains (0.00) (1.93) (0.00)
------ ------ ------
Total distributions. (0.36) (2.70) (0.17)
------ ------ ------
Net asset value,
end of period ..... $25.74 $22.72 $24.01
====== ====== ======
Total return ....... 14.91% 6.07% 3.53%
Net assets, end of
period (000
omitted) ......... $7,773 $6,277 $5,469
Ratio of expenses
to average net
assets ............ 0.76%** 0.75% 0.80%
Ratio of net
investment income
to average net
assets ............ 3.30%** 3.20% 3.35%
Portfolio
turnover rate ..... 25.45% 40.29% 41.34%**
Average commission
rate paid ......... $0.0648 $0.0603
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED CONTINENTAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
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 Subchapter M of 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
dividends 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 .15% 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 $18.0 billion of
combined net assets at September 30, 1997) 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,
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 gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$563,541, out of which W&R paid sales commissions of $325,045 and all expenses
in connection with the sale of Fund shares, except for registration fees and
related expenses.
Under a Distribution and 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 distribution and/or service 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 distribution of the
Class A shares and/or provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Fund paid Directors' fees of $9,543, which are included in other
expenses.
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 $129,429,773 while proceeds from
maturities and sales aggregated $121,498,018. Purchases of short-term
securities aggregated $320,074,180. Proceeds from maturities and sales of
short-term securities and U.S. Government securities aggregated $330,085,389 and
$6,409,016, respectively. No U.S. Government securities were purchased.
For Federal income tax purposes, cost of investments owned at September 30,
1997 was $475,514,129, resulting in net unrealized appreciation of $94,835,512,
of which $100,936,755 related to appreciated securities and $6,101,243 related
to depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $32,444,068 during the year ended March 31, 1997, of which a portion was paid
to shareholders during the period ended March 31, 1997. 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 Distribution and 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>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Continental Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United Continental Income Fund, Inc. (the
"Fund") as of September 30, 1997, the related statements of operations for the
six-month period then ended and changes in net assets for the six-month period
then ended and the year ended March 31, 1997, and the financial highlights for
the periods presented. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at
September 30, 1997 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United Continental
Income Fund, Inc. as of September 30, 1997, the results of its operations, the
changes in its net assets and the financial highlights for the periods presented
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
October 31, 1997
<PAGE>
Shareholder Meeting Results
A special meeting of shareholders of United Continental Income Fund, Inc. was
held on July 24, 1997. The matters voted upon by the shareholders and the
resulting votes for each matter are presented below.
Item 1.To elect the Board of Directors;
Broker
For WithheldNon-Votes*
Henry L. Bellmon 11,546,533 179,417 0
Dodds I. Buchanan 11,564,397 161,553 0
James M. Concannon 11,566,678 159,272 0
John A. Dillingham 11,560,144 165,806 0
Linda Graves 11,560,786 165,164 0
John F. Hayes 11,548,167 177,783 0
Glendon E. Johnson 11,550,078 175,872 0
William T. Morgan 11,563,322 162,628 0
Ronald K. Richey 11,558,556 167,394 0
William L. Rogers 11,558,522 167,428 0
Frank J. Ross, Jr. 11,564,213 161,737 0
Eleanor B. Schwartz 11,560,239 165,711 0
Keith A. Tucker 11,563,889 162,061 0
Frederick Vogel III 11,565,432 160,518 0
Paul S. Wise 11,549,049 176,901 0
Item 2.To ratify the selection of Deloitte & Touche LLP as the Fund's
independent accountants for its current fiscal year;
Broker
For Against AbstainNon-Votes*
11,186,048 60,871 479,031 0
Item 3.To approve or disapprove changes to the following fundamental investment
policies and restrictions:
3.1 Elimination of Fundamental Restrictions Regarding Restricted
Securities
Broker
For Against AbstainNon-Votes*
10,461,041 481,394 772,801 10,714
3.2 Modification and/or Elimination of Fundamental Restrictions
Regarding Options, Commodities, Forward Contracts and/or Futures
Contracts
Broker
For Against AbstainNon-Votes*
10,433,100 509,556 772,580 10,714
3.3 Elimination of Fundamental Restrictions Regarding Mortgaging or
Pledging Securities
Broker
For Against AbstainNon-Votes*
10,439,531 503,125 772,580 10,714
3.4 Modification of Fundamental Restriction Regarding Margin Purchases
of Securities
Broker
For Against AbstainNon-Votes*
10,438,592 504,064 772,580 10,714
3.5 Modification of Fundamental Restriction Regarding Short Sales of
Securities
Broker
For Against AbstainNon-Votes*
10,447,802 494,854 772,580 10,714
3.6 Elimination of Fundamental Restriction Regarding Investment in
Warrants and Rights
Broker
For Against AbstainNon-Votes*
10,453,385 489,842 772,009 10,714
3.7 Elimination of Fundamental Restrictions Regarding Arbitrage
Transactions
Broker
For Against AbstainNon-Votes*
10,447,460 495,767 772,009 10,714
3.8 Elimination of Fundamental Restriction Regarding Investments in
Issuers Whose Securities are Owned by Certain Persons
Broker
For Against AbstainNon-Votes*
10,448,740 494,487 772,009 10,714
3.9 Modification of Fundamental Policy Regarding Loans
Broker
For Against AbstainNon-Votes*
10,459,886 483,341 772,009 10,714
Item 4.To amend the terms of the service plan adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940.
Broker
For Against AbstainNon-Votes*
10,124,416 365,743 967,806 4,929
*Broker non-votes are proxies received by the Fund from brokers or nominees when
the broker or nominee neither has received instructions from the beneficial
owner or other persons entitled to vote nor has discretionary power to vote on
a particular matter.
<PAGE>
DIRECTORS
Ronald K. Richey, Birmingham, Alabama, Chairman of the Board
Henry L. Bellmon, Red Rock, Oklahoma
Dodds I. Buchanan, Boulder, Colorado
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
Linda Graves, Topeka, Kansas
John F. Hayes, Hutchinson, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
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
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
NUR1004SA(9-97)
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