Waddell & Reed Advisors
Continental
Income Fund,
Inc.
SEMIANNUAL
REPORT
-------------------------------------------
For the six months ended September 30, 2000
<PAGE>
CONTENTS
3 President's Letter
5 Performance Summary
7 Portfolio Highlights
8 Investments
13 Statement of Assets and Liabilities
14 Statement of Operations
15 Statement of Changes in Net Assets
16 Financial Highlights
20 Notes to Financial Statements
25 Independent Auditors' Report
26 Directors & Officers
This report is submitted for the general information of the
shareholders of Waddell & Reed Advisors Continental Income Fund, Inc.
It is not authorized for distribution to prospective investors in the
Fund unless accompanied with or preceded by the Waddell & Reed
Advisors Continental Income Fund, Inc. current prospectus and current
Fund performance information.
<PAGE>
PRESIDENT'S LETTER OF CONTINENTAL INCOME FUND
SEPTEMBER 30, 2000
Dear Shareholder:
We are delighted to share with you this report on your Fund's
operations for the six months ended September 30, 2000.
The last six months marked an unusual and frenetic time for the
markets and the economy. Concerns during the second quarter of
2000 centered on a soaring economy, the potential for increased
inflation and a drop in the valuation of technology stocks.
During the third quarter, rising energy prices, a faltering
euro, worries about violence in the Middle East and doubts
about third quarter corporate earnings reports replaced those
previous concerns.
Together, these issues served to depress stock prices as we
entered the fourth quarter of 2000. Additionally, a pending
presidential election has made the Federal Reserve hesitant to
take any action, although it appears that a soft landing has
been engineered for the once-flying economy.
For the last six months, the technology-heavy Nasdaq Composite Index
was down 19.68 percent, while the Nasdaq Industrial Index was down
15.43 percent. The performance of the two major indices was also down
over the period, as the Standard & Poor's 500 declined 3.81 percent
and the Dow Jones Industrial Average was down a more modest 1.82
percent. During the third quarter of 2000, the Dow rebounded a bit,
increasing 2.36 percent.
By contrast, bonds have done fairly well during the last six months.
It appears that a combination of decreasing concerns about inflation
and the Fed being less aggressive in raising interest rates has helped
bond performance during the period.
Going forward, we believe it is essential for investors to maintain a
long-term perspective and to stick with specific financial plans.
Short-term downturns often create excellent buying opportunities, as
well as opportunities to further diversify a portfolio.
Overall, investors have been rewarded well in recent years.
Those who continue a structured and consistent investment
program remain well positioned to take advantage of
opportunities, including those presented by the market's
occasional downdrafts. Just as we urge you not to become
unduly concerned if the market moves downward in the near term,
we would urge that you not become too exuberant when it moves
higher in similarly short time periods.
It is impossible to predict with certainty where markets will go next,
but one thing that remains certain is that a well-thought-out
investment plan is important. Remember, a plan that is appropriate
for you is appropriate regardless of inevitable market changes. You
have a partnership with your Waddell & Reed financial advisor, and
that partnership is built upon a customized program based on your
specific needs. Focusing on that plan, despite market fluctuations,
could be your key to a sound financial future. Thank you for your
ongoing commitment and support.
Respectfully,
Robert L. Hechler
President
<PAGE>
SHAREHOLDER SUMMARY
--------------------------------------------------------------
Waddell & Reed Advisors Continental Income Fund, Inc.
PORTFOLIO STRATEGY:
Normally not more than GOALS: To seek to provide current
75% of assets in income. As a secondary goal,
Common Stocks the Fund seeks long-term
appreciation of capital.
Normally at least 25%
of assets in Debt Securities STRATEGY: Invests primarily in income-
or Preferred Stock producing securities
including equity securities
Generally less than 10% of medium to large, well-
Foreign Securities established dividend-paying
companies and debt securities,
either U.S. Government
securities or investment-grade
corporate bonds.
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, 2000
-------------------------------------------
DIVIDENDS PAID $0.08
=====
NET ASSET VALUE ON
9-30-00 $ 8.07
3-31-00 8.20
------
CHANGE PER SHARE $(0.13)
======
Past performance is not necessarily indicative of future results.
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (1)
Class A Class B
----------------------- -----------------------*
With Without With Without
Period Sales Load(2)Sales Load(3) CDSC(4) CDSC(5)
------ ---------- ---------- ----------- ----------
1-year period
ended 9-30-00 7.38% 13.93% --- ---
5-year period
ended 9-30-00 10.24% 11.55% --- ---
10-year period
ended 9-30-00 12.23% 12.89% --- ---
Cumulative return
since inception
of Class (6) --- --- 6.55% 11.52%
(1)Performance data represents share price appreciation, including
reinvestment of all income and capital gains distributions.
Performance data represents past performance and is no guarantee of
future results. Share price, investment return and principal value
of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
(2)Performance data is based on deduction of 5.75% sales load on the
initial purchase in the periods.
(3)Performance data does not take into account the sales load deducted
on an initial purchase.
(4)Performance data reflects the effect of paying the applicable
contingent deferred sales charge (CDSC) at a maximum of 5.00% upon
redemption at the end of the period.
(5)Performance data does not reflect the effect of paying the
applicable CDSC upon redemption at the end of the period.
(6)10-4-99 for Class B shares (the date on which shares were first
acquired by shareholders).
AVERAGE ANNUAL TOTAL RETURN(1)
Class C Class Y(2)
----------------------- ----------
With Without
Period CDSC(3) CDSC(4)
------ ---------- ----------
1-year period
ended 9-30-00 --- --- 14.28%
5-year period
ended 9-30-00 --- --- ---
10-year period
ended 9-30-00 --- --- ---
Cumulative return
since inception
of Class(5) 10.73% 11.73% ---
Since inception
of Class(5) --- --- 11.24%
(1)Performance data represents share price appreciation, including
reinvestment of all income and capital gains distributions.
Performance data represents past performance and is no guarantee of
future results. Share price, investment return and principal value
of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
(2)Performance data does not include the effect of sales charges, as
Class Y shares are not subject to these charges.
(3)Performance data reflects the effect of paying the applicable
contingent deferred sales charge (CDSC) at a maximum of 1.00% which
declines to zero at the end of the first year after investment.
(4)Performance data does not reflect the effect of paying the
applicable CDSC upon redemption at the end of the period.
(5)10-5-99 for Class C shares and 1-4-96 for Class Y shares (the date
on which shares were first acquired by shareholders).
<PAGE>
PORTFOLIO HIGHLIGHTS
On September 30, 2000, Waddell & Reed Advisors Continental Income
Fund, Inc. had net assets totaling $577,051,979 invested in a
diversified portfolio of:
59.59% Common Stocks
25.82% United States Government Securities
7.72% Cash and Cash Equivalents
6.21% Corporate Debt Securities
0.66% Preferred Stock
As a shareholder of Waddell & Reed Advisors Continental Income Fund,
Inc., for every $100 you had invested on September 30, 2000, your Fund
owned:
$31.41 Manufacturing Stocks
25.82 United States Government Securities
12.46 Other Stocks
8.87 Finance, Insurance and Real Estate Stocks
7.72 Cash and Cash Equivalents
6.85 Transportation, Communication, Electric
and Sanitary Services Stocks
6.21 Corporate Debt Securities
0.66 Preferred Stock
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 2000
Shares Value
COMMON STOCKS
Business Services - 2.88%
Intuit Inc.* ............................ 80,000$ 4,562,500
Microsoft Corporation* .................. 106,000 6,393,125
Oracle Corporation* ..................... 72,000 5,670,000
Total ................................. 16,625,625
Chemicals and Allied Products - 10.69%
Air Products and Chemicals, Inc. ........ 222,600 8,013,600
American Home Products Corporation ...... 123,800 7,002,438
Bristol-Myers Squibb Company ............ 130,000 7,426,250
Colgate-Palmolive Company ............... 85,000 4,012,000
Dow Chemical Company (The) .............. 220,000 5,486,250
Forest Laboratories, Inc. ............... 65,000 7,454,687
Merck & Co., Inc. ....................... 90,000 6,699,375
Pfizer Inc. ............................. 239,750 10,773,766
Pharmacia Corporation ................... 55,930 3,366,287
Smith International, Inc.* .............. 17,800 1,451,812
Total ................................. 61,686,465
Communication - 4.45%
Cox Communications, Inc., Class A* ...... 86,000 3,289,500
General Motors Corporation, Class H ..... 55,440 2,061,259
Nextel Communications, Inc.* ............ 60,000 2,806,875
SBC Communications Inc. ................. 125,000 6,250,000
Sprint Corporation - FON Group .......... 160,000 4,690,000
Vodafone Airtouch Public Limited
Company, ADR ......................... 70,000 2,590,000
Williams Communications Group, Inc.* .... 200,100 4,002,000
Total ................................. 25,689,634
Depository Institutions - 2.25%
Bank of America Corporation ............. 159,904 8,374,972
Chase Manhattan Corporation (The) ....... 100,000 4,618,750
Total ................................. 12,993,722
Electric, Gas and Sanitary Services - 1.66%
Unicom Corporation ...................... 170,000 9,551,875
Electronic and Other Electric Equipment - 4.52%
Analog Devices, Inc.* ................... 87,000 7,182,937
General Electric Company ................ 100,100 5,774,519
Intel Corporation ....................... 70,000 2,907,187
Nokia Corporation, Series A, ADR ........ 115,000 4,578,495
Nortel Networks Corporation ............. 95,000 5,658,438
Total ................................. 26,101,576
Fabricated Metal Products - 0.55%
Tower Automotive, Inc.* ................. 340,000 3,187,500
See Notes to Schedule of Investments on page 12.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 2000
Shares Value
COMMON STOCKS (Continued)
Food and Kindred Products - 2.86%
Anheuser-Busch Companies, Inc. .......... 100,000$ 4,231,250
PepsiCo, Inc. ........................... 160,000 7,360,000
Seagram Company Ltd. (The) .............. 85,000 4,882,187
Total .................................. 16,473,437
Food Stores - 1.37%
Kroger Co. (The)* ....................... 350,000 7,896,875
Furniture and Fixtures - 0.52%
Lear Corporation* ....................... 145,400 2,989,787
General Merchandise Stores -2.63%
BJ's Wholesale Club, Inc.* .............. 170,000 5,801,250
Target Corporation ...................... 225,000 5,765,625
Wal-Mart Stores, Inc. ................... 75,000 3,609,375
Total ................................. 15,176,250
Industrial Machinery and Equipment -3.79%
Apple Computer, Inc.* ................... 74,000 1,903,187
Caterpillar Inc. ........................ 160,000 5,400,000
EMC Corporation* ........................ 100,800 9,991,800
Hewlett-Packard Company ................. 47,000 4,559,000
Total ................................. 21,853,987
Insurance Agents, Brokers and Service - 1.95%
Hartford Financial Services
Group Inc. (The) ...................... 154,000 11,232,375
Insurance Carriers -1.74%
Berkshire Hathaway Inc., Class B* ....... 3,000 6,210,000
Lincoln National Corporation ............ 80,000 3,850,000
Total ................................. 10,060,000
Motion Pictures - 1.55%
News Corporation Limited (The), ADR ..... 90,000 5,045,625
Time Warner Incorporated ................ 50,000 3,912,500
Total ................................. 8,958,125
Nondepository Institutions - 2.93%
Fannie Mae .............................. 125,000 8,937,500
Freddie Mac ............................. 147,000 7,947,188
Total ................................. 16,884,688
See Notes to Schedule of Investments on page 12.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 2000
Shares Value
COMMON STOCKS (Continued)
Oil and Gas Extraction -3.18%
Burlington Resources Incorporated ....... 218,600$ 8,047,213
Schlumberger Limited .................... 110,000 9,054,375
Transocean Sedco Forex Inc. ............. 21,296 1,248,478
Total ................................. 18,350,066
Paper and Allied Products - 0.58%
International Paper Company ............. 116,000 3,327,750
Petroleum and Coal Products - 3.48%
BP Amoco p.l.c., ADR .................... 88,096 4,669,088
Exxon Mobil Corporation ................. 83,169 7,412,437
Royal Dutch Petroleum Company, NY Shares. 55,000 3,296,563
Texaco Inc. ............................. 90,000 4,725,000
Total ................................. 20,103,088
Primary Metal Industries - 1.00%
Alcan Aluminium Limited ................. 200,000 5,787,500
Printing and Publishing - 0.89%
Meredith Corporation .................... 175,000 5,162,500
Stone, Clay and Glass Products - 0.57%
Corning Incorporated .................... 11,000 3,267,000
Transportation by Air - 0.74%
UAL Corporation ......................... 102,000 4,284,000
Transportation Equipment - 1.96%
Boeing Company (The) .................... 125,000 7,875,000
General Motors Corporation .............. 52,647 3,422,055
Total ................................. 11,297,055
Wholesale Trade -- Nondurable Goods - 0.85%
Enron Corp. ............................. 56,000 4,907,000
TOTAL COMMON STOCKS - 59.59% $343,847,880
(Cost: $281,482,825)
PREFERRED STOCK - 0.66%
Communication
Cox Communications, Inc.,
7.0%, Convertible ..................... 71,000$ 3,798,500
(Cost: $3,550,000)
See Notes to Schedule of Investments on page 12.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 0.40%
American Home Products Corporation,
7.9%, 2-15-05 ......................... $ 2,250$ 2,315,700
Communication - 1.50%
Bell Atlantic Financial Services, Inc.,
Convertible,
5.75%, 4-1-03 (A) ..................... 3,000 3,011,790
BellSouth Savings and Security ESOP Trust,
9.125%, 7-1-03 ........................ 1,636 1,689,823
Comcast Corporation, ZONES, Convertible,
2.0%, 10-15-29 ........................ 2,750 2,629,082
Southwestern Bell Telephone Company,
5.77%, 10-14-03 ....................... 1,350 1,314,427
Total ................................. 8,645,122
Depository Institutions - 0.36%
Wachovia Corporation,
6.25%, 8-4-08 ......................... 2,250 2,104,155
Electric, Gas and Sanitary Services - 0.30%
California Infrastructure and Economic Development
Bank, Special Purpose Trust SCE-1,
6.38%, 9-25-08 ........................ 1,750 1,719,918
Food and Kindred Products - 0.77%
Coca-Cola Enterprises Inc.,
6.7%, 10-15-36 ........................ 4,500 4,450,545
Industrial Machinery and Equipment - 0.38%
Tyco International Group S.A.,
6.375%, 6-15-05 ....................... 2,250 2,185,673
Nondepository Institutions - 1.23%
General Electric Capital Corporation,
8.3%, 9-20-09 ......................... 6,500 7,074,990
Rubber and Miscellaneous Plastics Products - 0.69%
Mark IV Industries, Inc., Convertible,
4.75%, 11-1-04 (A) .................... 4,000 4,000,000
See Notes to Schedule of Investments on page 12.
<PAGE>
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 2000
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Transportation by Air - 0.58%
Southwest Airlines Co.,
7.875%, 9-1-07 ........................ $ 3,300$ 3,340,491
TOTAL CORPORATE DEBT SECURITIES - 6.21% $35,836,594
(Cost: $36,192,932)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation,
6.625%, 9-15-09 ....................... 5,000 4,940,600
Federal National Mortgage Association:
6.0%, 6-25-07 ......................... 3,000 2,969,040
6.51%, 5-6-08 ......................... 6,750 6,445,170
8.25%, 6-1-08 ......................... 260 263,560
6.19%, 7-7-08 ......................... 4,500 4,212,405
6.625%, 9-15-09 ....................... 4,000 3,952,480
7.25%, 1-15-10 ........................ 5,000 5,156,250
Government National Mortgage Association:
9.0%, 7-15-16 ......................... 30 31,235
9.0%, 8-15-16 ......................... 198 206,748
9.0%, 10-15-16 ........................ 326 341,205
9.0%, 11-15-16 ........................ 105 110,164
9.0%, 1-15-17 ......................... 52 53,932
9.0%, 3-15-17 ......................... 120 125,257
9.0%, 4-15-17 ......................... 103 108,152
9.0%, 7-15-17 ......................... 54 56,135
6.5%, 8-15-28 ......................... 8,976 8,645,332
United States Treasury:
8.0%, 5-15-01 ......................... 20,000 20,196,800
6.375%, 8-15-02 ....................... 12,000 12,067,440
7.5%, 2-15-05 ......................... 33,000 34,985,280
6.5%, 8-15-05 ......................... 4,000 4,100,640
7.25%, 5-15-16 ........................ 8,500 9,457,610
6.25%, 8-15-23 ........................ 30,000 30,585,900
TOTAL UNITED STATES GOVERNMENT SECURITIES - 25.82% $149,011,335
(Cost: $151,044,409)
TOTAL SHORT-TERM SECURITIES - 6.86% $ 39,623,742
(Cost: $39,623,742)
TOTAL INVESTMENT SECURITIES - 99.14% $572,118,051
(Cost: $511,893,908)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.86% 4,933,928
NET ASSETS - 100.00% $577,051,979
See Notes to Schedule of Investments on page 12.
<PAGE>
THE INVESTMENTS OF
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
SEPTEMBER 30, 2000
Notes To Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Security was purchased pursuant to Rule 144A under the Securities
Act of 1933 and may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At
September 30, 2000, the value of these securities amounted to
$7,011,790 or 1.22% of net assets.
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>
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2000
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $572,118
Cash ............................................. 2
Receivables:
Investment securities sold ....................... 7,117
Dividends and interest .......................... 2,810
Fund shares sold ................................ 247
Prepaid insurance premium ......................... 24
--------
Total assets ................................... 582,318
--------
Liabilities
Payable for investment securities purchased........ 3,992
Payable to Fund shareholders ...................... 1,016
Accrued service fee (Note 2) ...................... 105
Accrued transfer agency and dividend
disbursing (Note 2) ............................. 95
Accrued management fee (Note 2) ................... 22
Accrued distribution fee (Note 2) ................. 14
Accrued accounting services fee (Note 2) .......... 7
Other ............................................. 15
--------
Total liabilities .............................. 5,266
--------
Total net assets ............................. $577,052
========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 71,482
Additional paid-in capital ...................... 389,699
Accumulated undistributed income:
Accumulated undistributed net investment income . 1,295
Accumulated undistributed net realized gain
on investment transactions ..................... 54,352
Net unrealized appreciation in value of
investments .................................... 60,224
--------
Net assets applicable to outstanding
units of capital ............................. $577,052
========
Net asset value per share (net assets divided
by shares outstanding)
Class A ........................................... $8.07
Class B............................................ $8.07
Class C............................................ $8.07
Class Y ........................................... $8.07
Capital shares outstanding
Class A ........................................... 70,736
Class B............................................ 468
Class C............................................ 135
Class Y ........................................... 143
Capital shares authorized .......................... 200,000
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended SEPTEMBER 30, 2000
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ........................ $7,110
Dividends (net of foreign withholding taxes of $6) 2,419
-------
Total income ................................... 9,529
-------
Expenses (Note 2):
Investment management fee ....................... 2,048
Service fee:
Class A......................................... 668
Class B......................................... 3
Class C......................................... 1
Transfer agency and dividend
disbursing:
Class A......................................... 465
Class B......................................... 4
Class C......................................... 2
Distribution fee:
Class A......................................... 36
Class B......................................... 10
Class C......................................... 2
Accounting services fee ......................... 36
Custodian fees .................................. 12
Audit fees ...................................... 11
Legal fees ...................................... 3
Shareholder servicing - Class Y ................. 1
Other ........................................... 83
-------
Total expenses ................................. 3,385
-------
Net investment income ........................ 6,144
-------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on securities ................... 16,615
Unrealized depreciation in value of investments
during the period ............................... (26,472)
-------
Net loss on investments ........................ (9,857)
-------
Net decrease in net assets resulting from
operations .................................. $(3,713)
=======
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
(In Thousands)
For the six For the fiscal
months ended year ended
September 30, March 31,
2000 2000
Increase (Decrease) in Net Assets ------------ ------------
Operations:
Net investment income .............. $6,144 $13,052
Realized net gain on investments ... 16,615 76,590
Unrealized depreciation ............ (26,472) (671)
-------- --------
Net increase (decrease) in net
assets resulting from operations .. (3,713) 88,971
-------- --------
Distributions to shareholders from (Note 1E):*
Net investment income:
Class A ........................... (5,690) (12,798)
Class B ........................... (15) (6)
Class C ........................... (4) (1)
Class Y ........................... (13) (27)
Realized gains on securities transactions:
Class A ........................... --- (56,127)
Class B ........................... --- (50)
Class C ........................... --- (10)
Class Y ........................... --- (98)
-------- --------
(5,722) (69,117)
-------- --------
Capital share transactions
(Note 5) ........................... (13,181) (2,587)
-------- --------
Total increase (decrease) ...... (22,616) 17,267
Net Assets
Beginning of period .................. 599,668 582,401
-------- --------
End of period, including undistributed
net investment income of $1,295 and
$873, respectively .................. $577,052 $599,668
======== ========
*See "Financial Highlights" on pages 16 - 19.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS 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 -----------------------------------
9-30-00 2000 1999 1998 1997 1996
-------- ------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $8.20 $7.97 $8.32 $7.57 $8.00 $6.95
----- ----- ----- ----- ----- -----
Income (loss) from investment
operations:
Net investment
income ......... 0.09 0.18 0.33 0.24 0.24 0.24
Net realized and
unrealized gain (loss)
on investments . (0.14) 1.04 0.04 1.58 0.22 1.35
----- ----- ----- ----- ----- -----
Total from investment
operations ....... (0.05) 1.22 0.37 1.82 0.46 1.59
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income ......... (0.08) (0.18) (0.32) (0.24) (0.24) (0.23)
From capital gains (0.00) (0.81) (0.40) (0.83) (0.65) (0.31)
----- ----- ----- ----- ----- -----
Total
distributions .... (0.08) (0.99) (0.72) (1.07) (0.89) (0.54)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $8.07 $8.20 $7.97 $8.32 $7.57 $8.00
===== ===== ===== ===== ===== =====
Total return** .... -0.62% 16.36% 3.38% 25.20% 5.88% 23.29%
Net assets, end of
period (in
millions) ........ $571 $597 $581 $599 $508 $502
Ratio of expenses to
average net assets 1.15%***1.15% 0.99% 0.91% 0.93% 0.89%
Ratio of net investment
income to average net
assets ........... 2.10%***2.22% 2.69% 2.88% 3.01% 3.06%
Portfolio turnover
rate ............. 17.53% 72.40% 50.68% 55.46% 40.29% 41.34%
*Per-share amounts have been adjusted retroactively to reflect the
200% stock dividend effected June 26, 1998.
**Total return calculated without taking into account the sales load
deducted on an initial purchase.
***Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class B Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the period
six from
months 10-4-99*
ended through
9-30-00 3-31-00
------- -------
Net asset value,
beginning of period $8.20 $8.11
---- ----
Income (loss) from investment
operations:
Net investment income 0.04 0.05
Net realized and
unrealized gain (loss)
on investments . (0.13) 0.91
---- ----
Total from investment
operations ....... (0.09) 0.96
---- ----
Less distributions:
From net investment
income ......... (0.04) (0.06)
From capital gains (0.00) (0.81)
---- ----
Total distributions (0.04) (0.87)
---- ----
Net asset value,
end of period .... $8.07 $8.20
==== ====
Total return ...... -1.09% 12.75%
Net assets, end of
period (in
millions) ........ $4 $1
Ratio of expenses to
average net assets 2.09%** 2.08%**
Ratio of net investment
income to average
net assets ....... 1.19%** 1.14%**
Portfolio turnover
rate ............. 17.53% 72.40%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class C Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the period
six from
months 10-5-99*
ended through
9-30-00 3-31-00
------- -------
Net asset value,
beginning of period $8.20 $8.09
---- ----
Income (loss) from investment
operations:
Net investment income 0.03 0.05
Net realized and
unrealized gain (loss)
on investments . (0.12) 0.93
---- ----
Total from investment
operations ....... (0.09) 0.98
---- ----
Less distributions:
From net investment
income ......... (0.04) (0.06)
From capital gains (0.00) (0.81)
---- ----
Total distributions (0.04) (0.87)
---- ----
Net asset value,
end of period .... $8.07 $8.20
==== ====
Total return ...... -1.10% 12.98%
Net assets, end of
period (000 omitted) $1,084 $279
Ratio of expenses to
average net assets 2.19%** 2.23%**
Ratio of net investment
income to average
net assets ....... 1.10%** 1.09%**
Portfolio turnover
rate ............. 17.53% 72.40%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:*
For the
For the period
six For the fiscal from
months year ended March 31, 1-4-96**
ended ---------------------------through
9-30-00 2000 1999 1998 1997 3-31-96
------- ------ ------ ------ ------ ------
Net asset value,
beginning of period $8.20 $7.97 $8.33 $7.57 $8.00 $7.78
----- ----- ----- ----- ----- -----
Income (loss) from investment
operations:
Net investment
income ......... 0.11 0.21 0.07 0.26 0.26 0.03
Net realized and
unrealized gain (loss)
on investments . (0.15) 1.03 0.32 1.58 0.21 0.25
----- ----- ----- ----- ----- -----
Total from investment
operations ....... (0.04) 1.24 0.39 1.84 0.47 0.28
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income ......... (0.09) (0.20) (0.35) (0.26) (0.26) (0.06)
From capital gains (0.00) (0.81) (0.40) (0.82) (0.64) (0.00)
----- ----- ----- ----- ----- -----
Total distributions (0.09) (1.01) (0.75) (1.08) (0.90) (0.06)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $8.07 $8.20 $7.97 $8.33 $7.57 $8.00
===== ===== ===== ===== ===== =====
Total return ...... -0.48% 16.72% 3.58% 25.43% 6.07% 3.53%
Net assets, end of
period (in
millions) ........ $1 $1 $1 $11 $6 $6
Ratio of expenses
to average net
assets ........... 0.89%***0.86% 0.81% 0.75% 0.75% 0.80%***
Ratio of net
investment income
to average net
assets ........... 2.37%***2.50% 3.32% 3.01% 3.20% 3.35%***
Portfolio
turnover rate .... 17.53% 72.40% 50.68% 55.46% 40.29% 41.34%***
*Per-share amounts have been adjusted retroactively to reflect the
200% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
<PAGE>
WADDELL & REED ADVISORS CONTINENTAL INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 -- Significant Accounting Policies
Waddell & Reed Advisors Continental Income Fund, Inc. (the
"Fund"), formerly United Continental Income Fund, Inc., 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 accounting principles
generally accepted in the United States of America.
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 the Nasdaq Stock Market, which provides
information on bid and asked 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 business day
following record date. Net investment income dividends and
capital gains distributions are determined in accordance with
income tax regulations which may differ from accounting
principles generally accepted in the United States of America.
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 carryovers.
The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of
America 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 is payable by the Fund at the annual rates of 0.70%
of net assets up to $1 billion, 0.65% of net assets over $1 billion
and up to $2 billion, 0.60% of net assets over $2 billion and up to $3
billion, and 0.55% of net assets over $3 billion. The Fund accrues
and pays the 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 $ 11,000
From $ 25 to $ 50 $ 22,000
From $ 50 to $ 100 $ 33,000
From $ 100 to $ 200 $ 44,000
From $ 200 to $ 350 $ 55,000
From $ 350 to $ 550 $ 66,000
From $ 550 to $ 750 $ 77,000
From $ 750 to $1,000 $ 93,500
$1,000 and Over $110,000
In addition, for each class of shares in excess of one, the Fund pays
WARSCO a monthly per-class fee equal to 2.5% of the monthly base fee.
Prior to September 1, 2000, the Accounting Services Agreement was as
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, Class B and Class C shares, the Fund pays WARSCO a
monthly per account charge for transfer agency and dividend
disbursement services of $1.4125 for each shareholder account which
was in existence at any time during the prior month. With respect to
Class Y shares, the Fund pays WARSCO a monthly fee at an annual rate
of 0.15% 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.
Prior to September 1, 2000, for Class A, Class B and Class C
shares, the Fund paid 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.
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 $415,476. During the period ended September 30, 2000,
W&R received $978 and $175 in deferred sales charges for Class B
shares and Class C shares, respectively. With respect to Class A,
Class B and Class C shares, W&R paid sales commissions of $297,349 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 0.25% of the Fund's Class A 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.
Under the Distribution and Service Plan adopted by the Fund for
Class B and Class C shares, respectively, the Fund may pay W&R, on an
annual basis, a service fee of up to 0.25% of the average daily net
assets of the class to compensate W&R for providing services to
shareholders of that class and/or maintaining shareholder accounts for
that class and a distribution fee of up to 0.75% of the average daily
net assets of the class to compensate W&R for distributing the shares
of that class. The Class B Plan and the Class C Plan each permit W&R
to receive compensation, through the distribution and service fee,
respectively, for its distribution activities for that class, which
are similar to the distribution activities described with respect to
the Class A Plan, and for its activities in providing personal
services to shareholders of that class and/or maintaining shareholder
accounts of that class, which are similar to the corresponding
activities for which it is entitled to reimbursement under the Class A
Plan.
The Fund paid Directors' fees of $8,712, which are included in
other expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., 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 $97,119,224 while
proceeds from maturities and sales aggregated $122,744,279. Purchases
of short-term securities aggregated $579,141,306. Proceeds from
maturities and sales of short-term securities and U.S. Government
securities aggregated $552,728,734 and $17,461,927, respectively.
For Federal income tax purposes, cost of investments owned at
September 30, 2000 was $512,146,023, resulting in net unrealized
appreciation of $59,972,028, of which $84,653,382 related to
appreciated securities and $24,681,354 related to depreciated
securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain
net income of $77,669,478 during the fiscal year ended March 31, 2000,
of which a portion was paid to shareholders during the period ended
March 31, 2000. Remaining capital gain net income will be distributed
to the Fund's shareholders.
NOTE 5 -- Multiclass Operations
The Fund is authorized to offer four classes of shares, Class A,
Class B, Class C and Class Y, each of which have equal rights as to
assets and voting privileges. Class Y shares are not subject to a
sales charge on purchases, are not subject to a Rule 12b-1
Distribution and Service Plan and are subject to a separate transfer
agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of each 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 their relative net assets as of the beginning of each day
adjusted for the prior day's capital share activity.
Transactions in capital stock are summarized below. Amounts are
in thousands.
For the For the
six months fiscal year
ended ended
September 30, March 31,
2000 2000
------------ ------------
Shares issued from sale
of shares:
Class A ............ 2,048 4,530
Class B............. 303 181
Class C............. 105 33
Class Y ............ 34 25
Shares issued from
reinvestment of dividends
and/or capital gains
distribution:
Class A ............ 666 8,645
Class B............. 1 8
Class C............. 1 1
Class Y ............ 1 16
Shares redeemed:
Class A ............ (4,756) (13,314)
Class B............. (8) (17)
Class C............. (5) ---*
Class Y ............ (28) (41)
------ ------
Increase (decrease) in
outstanding capital
shares.............. (1,638) 67
====== ======
Value issued from sale
of shares:
Class A ............ 16,580 $36,528
Class B............. 2,446 1,432
Class C............. 848 259
Class Y ............ 274 202
Value issued from
reinvestment of dividends
and/or capital gains
distribution:
Class A ............ 5,441 66,193
Class B............. 15 56
Class C............. 4 11
Class Y ............ 12 125
Value redeemed:
Class A ............ (38,470) (106,928)
Class B............. (63) (128)
Class C............. (41) (2)
Class Y ............ (227) (335)
-------- -------
Decrease in outstanding
capital ............ $(13,181) $ (2,587)
======== =======
*Not shown due to rounding.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Waddell & Reed Advisors Continental Income Fund, Inc.:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Waddell & Reed Advisors
Continental Income Fund, Inc. (formerly United Continental Income
Fund, Inc.) (the "Fund") as of September 30, 2000, and the related
statement of operations for the six-month period then ended, the
statement of changes in net assets for the six-month period then ended
and the fiscal year ended March 31, 2000, and the financial highlights
for the six-month period ended September 30, 2000 and for each of the
five fiscal years in the period ended March 31, 2000. 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 auditing standards
generally accepted in the United States of America. 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 as of September 30, 2000, by
correspondence with the custodian and brokers. 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Waddell & Reed Advisors Continental Income Fund,
Inc. as of September 30, 2000, the results of its operations for the
six-month period then ended, the changes in its net assets for the
six-month period then ended and the fiscal year ended March 31, 2000,
and the financial highlights for the six-month period ended September
30, 2000 and for each of the five fiscal years in the period ended
March 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
November 3, 2000
<PAGE>
DIRECTORS
Keith A. Tucker, Overland Park, Kansas, Chairman of the Board
James M. Concannon, Topeka, Kansas
John A. Dillingham, Kansas City, Missouri
David P. Gardner, San Mateo, California
Linda K. Graves, Topeka, Kansas
Joseph Harroz, Jr., Norman, Oklahoma
John F. Hayes, Hutchinson, Kansas
Robert L. Hechler, Overland Park, Kansas
Henry J. Herrmann, Overland Park, Kansas
Glendon E. Johnson, Miami, Florida
William T. Morgan, Coronado, California
Ronald C. Reimer, Mission Hills, Kansas
Frank J. Ross, Jr., Kansas City, Missouri
Eleanor B. Schwartz, Kansas City, Missouri
Frederick Vogel III, Milwaukee, Wisconsin
OFFICERS
Robert L. Hechler, President
Henry J. Herrmann, Vice President
Theodore W. Howard, Vice President and Treasurer
Cynthia P. Prince-Fox, Vice President
Kristen A. Richards, Vice President and Secretary
Daniel C. Schulte, Vice President
To all traditional IRA Planholders:
As required by law, income tax will automatically be withheld from any
distribution or withdrawal from a traditional 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 Waddell & Reed Advisors Group of Mutual Funds
Waddell & Reed Advisors Accumulative Fund
Waddell & Reed Advisors Asset Strategy Fund, Inc.
Waddell & Reed Advisors Bond Fund
Waddell & Reed Advisors Cash Management, Inc.
Waddell & Reed Advisors Continental Income Fund, Inc.
Waddell & Reed Advisors Core Investment Fund
Waddell & Reed Advisors Global Bond Fund, Inc.
Waddell & Reed Advisors Government Securities Fund, Inc.
Waddell & Reed Advisors High Income Fund, Inc.
Waddell & Reed Advisors International Growth Fund, Inc.
Waddell & Reed Advisors Municipal Bond Fund, Inc.
Waddell & Reed Advisors Municipal High Income Fund, Inc.
Waddell & Reed Advisors New Concepts Fund, Inc.
Waddell & Reed Advisors Retirement Shares, Inc.
Waddell & Reed Advisors Science and Technology Fund
Waddell & Reed Advisors Small Cap Fund, Inc.
Waddell & Reed Advisors Tax-Managed Equity Fund, Inc.
Waddell & Reed Advisors Vanguard 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
(888)-WADDELL
(888)-923-3355
Our INTERNET address is:
http://www.waddell.com
NUR1004SA(9-00)
For more complete information regarding any of the mutual funds in
Waddell & Reed Advisors Funds, including charges and expenses, please
obtain the Fund's prospectus by calling or writing to the number or
address listed above. Please read the prospectus carefully before
investing.
