File No. 811-2552
File No. 2-21867
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ____
Post-Effective Amendment No. 120
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 27
UNITED FUNDS, INC.
- ---------------------------------------------------------------------
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
- ---------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
- ---------------------------------------------------------------------
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
- ---------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
_____ on (date) pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
__X__ on July 31, 1997 pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
==================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2(a)(1). Notice for the
Registrant's fiscal year ended December 31, 1996 was filed on February 25, 1997.
<PAGE>
UNITED FUNDS, INC.
==================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Funds
(c) ..................... An Overview of the Funds
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d)...................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Funds;
About the Management and Expenses of the Funds
(b) ..................... About the Investment Principles of the Funds
(c) ..................... An Overview of the Funds; About the Investment
Principles of the Funds
5(a) ..................... About the Management and Expenses of the Funds
(b)...................... Inside Back Cover; About the Management and
Expenses of the Funds
(c) ..................... About the Management and Expenses of the Funds
(d) ..................... Inside Back Cover; About the Management and
Expenses of the Funds
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Funds
(f) ..................... About the Management and Expenses of the Funds
(g)(i)................... *
(g)(ii).................. About the Management and Expenses of the Funds
5A........................ **
6(a) ..................... About the Management and Expenses of the Funds
(b) ..................... *
(c) ..................... *
(d) ..................... About the Management and Expenses of the Fund
(e) ..................... About Your Account
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Funds
7(a) ..................... Inside Back Cover; About Your Account
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Funds
8(a) ..................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 *
13(a) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... *
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Investment Management and Other Services
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... *
(e) ..................... Portfolio Transactions and Brokerage
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv) ................. Performance Information
23 ........................ Financial Statements
- -------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Funds that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated July 31, 1997. The SAI is available free upon request to the Funds or
Waddell & Reed, Inc., the Funds' underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus, and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
United Funds, Inc.
Class A Shares
United Funds, Inc. (the "Corporation") is a management investment company that
has four separate funds (the "Funds"), each of which is designed for investors
with different goals.
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital.
United Income Fund seeks, as a primary goal, the maintenance of current
income subject to market conditions. As a secondary goal, the Fund seeks
capital growth.
United Accumulative Fund seeks capital growth of your investment with current
income a secondary goal.
United Science and Technology Fund seeks long-term capital growth through
investment in a portfolio emphasizing science and technology securities.
This Prospectus describes one class of shares of each of the Funds -- Class A
shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus
July 31, 1997
UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
800-366-5465
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS.............................................6
EXPENSES.............................................................8
FINANCIAL HIGHLIGHTS................................................10
PERFORMANCE.........................................................14
Explanation of Terms ..............................................14
ABOUT WADDELL & REED................................................16
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS........................17
Investment Goals and Principles ...................................17
Risk Considerations .............................................18
Securities and Investment Practices ...............................20
ABOUT YOUR ACCOUNT..................................................38
Ways to Set Up Your Account .......................................38
Buying Shares .....................................................39
Minimum Investments ...............................................43
Adding to Your Account ............................................44
Selling Shares ....................................................44
Shareholder Services ..............................................47
Personal Service ................................................47
Reports .........................................................47
Exchanges .......................................................47
Automatic Transactions ..........................................47
Distributions and Taxes ...........................................48
Distributions ...................................................48
Taxes ...........................................................49
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS......................52
WRIMCO and Its Affiliates .........................................53
Breakdown of Expenses .............................................55
Management Fee ..................................................55
Other Expenses ..................................................56
APPENDIX A..........................................................59
DESCRIPTION OF BOND RATINGS .......................................59
DESCRIPTION OF PREFERRED STOCK RATINGS 63
<PAGE>
An Overview of the Funds
The Funds: This Prospectus describes the Class A shares of four separate series
(each a "Fund" and, collectively, the "Funds") of an open-end, management
investment company. Each Fund has different goals and policies. Each of the
Funds is a diversified Fund.
Goals and Strategies:
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital. This Fund invests primarily in debt securities, including convertible
securities and debt securities with warrants attached.
United Income Fund seeks, as a primary goal, to maintain current income,
subject to market conditions. As a secondary goal, this Fund seeks capital
growth. This Fund invests primarily in common stocks, or securities convertible
into common stocks, of companies that have a record of paying regular dividends
on common stock or have the potential for capital growth or that may be expected
to resist market decline.
United Accumulative Fund seeks capital growth, with current income a secondary
goal. This Fund invests primarily in common stocks or securities convertible
into common stocks.
United Science and Technology Fund seeks long-term capital growth. This Fund
invests primarily in science and technology securities.
See "About the Investment Principles of the Funds" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to each of the Funds and manages each Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell &
Reed, Inc. and its predecessors have provided investment management services to
registered investment companies since 1940. See "About the Management and
Expenses of the Funds" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Funds.
Purchases: You may buy Class A shares of the Funds through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class A share of a Fund is
the net asset value of a Class A share plus a sales charge. See "About Your
Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption and reinvestment procedures.
Who May Want to Invest: The Funds offer a variety of investment goals that are
compatible with different investment decisions. You should consider whether a
Fund, or group of Funds, fits with your particular investment objectives.
Risk Considerations: Because the Funds own different types of investments,
their performance will be affected by a variety of factors. The value of each
Fund's investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "Securities and Investment Practices" for information about
the risks associated with the Funds' respective investments.
<PAGE>
Expenses
United
United United United Science and
Bond Income AccumulativeTechnology
Fund Fund Fund Fund
---- ---- ---- ----
Shareholder Transaction Expenses
are charges you pay when you buy or sell shares of a fund.
Maximum sales
load on purchases
(as a percentage
of offering price) 5.75% 5.75% 5.75% 5.75%
Maximum sales load
on reinvested
dividends None None None None
Deferred sales load None None None None
Redemption fees None None None None
Exchange fee None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets).
Management fees 0.44% 0.56% 0.56% 0.61%
12b-1 fees1 0.14% 0.15% 0.13% 0.15%
Other expenses2 0.20% 0.16% 0.14% 0.23%
Total Fund
operating
expenses3 0.78% 0.87% 0.83% 0.99%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return4 and (2) redemption at the end of each time period:
1 Year $ 65 $ 66 $ 65 $ 67
3 Years $ 81 $ 84 $ 82 $ 87
5 Years $ 98 $103 $101 $109
10 Years $149 $159 $154 $172
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class A shares of each Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
1 It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc. See "Breakdown of Expenses."
2Expense information has been restated to reflect the current shareholder
servicing fee which became effective April 1, 1996.
3Retirement plan accounts may be subject to a $2 fee imposed by the plan
custodian for use of the Flexible Withdrawal Service.
4Use of an assumed annual return of 5% is for illustration purposes only and not
a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
United Bond Fund
The following information has been audited in conjunction with the
annual audits of the Financial Statements of the Fund. Financial Statements for
the fiscal year ended December 31, 1996, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class A share outstanding throughout each period.*
<TABLE>
For the fiscal year ended December 31,
--------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ............ $6.34 $5.62 $6.39 $6.31 $6.32 $5.80 $6.07 $6.03 $6.11 $6.42
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment
income .......... 0.39 0.40 0.39 0.41 0.45 0.47 0.50 0.55 0.54 0.56
Net realized and
unrealized gain
(loss) on
investments ..... (0.20) 0.72 (0.75) 0.41 0.00 0.56 (0.26) 0.07 (0.02) (0.28)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ........ 0.19 1.12 (0.36) 0.82 0.45 1.03 0.24 0.62 0.52 0.28
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment
income .......... (0.39) (0.40) (0.39) (0.41) (0.46) (0.47) (0.50) (0.56) (0.54) (0.55)
Distributions from
capital gains ... (0.00) (0.00) (0.02) (0.33) (0.00) (0.04) (0.01) (0.02) (0.06) (0.04)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions . (0.39) (0.40) (0.41) (0.74) (0.46) (0.51) (0.51) (0.58) (0.60) (0.59)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ..... $6.14 $6.34 $5.62 $6.39 $6.31 $6.32 $5.80 $6.07 $6.03 $6.11
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ...... 3.20% 20.50% -5.76% 13.19% 7.50% 18.78% 4.24% 10.61% 8.99% 4.50%
Net assets, end of
period (000
omitted) .......... $518,873 $563,445 $517,836 $641,668 $589,946 $524,404 $439,487 $403,010 $335,337 $319,273
Ratio of expenses to
average net assets 0.77% 0.74% 0.72% 0.65% 0.64% 0.65% 0.67% 0.64% 0.65% 0.64%
Ratio of net investment
income to average
net assets ........ 6.34% 6.54% 6.60% 6.14% 7.29% 7.96% 8.54% 8.97% 9.00% 8.83%
Portfolio turnover
rate .............. 55.74% 66.38% 127.11% 175.39% 115.17% 318.76% 294.66% 353.57% 179.07% 232.65%
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
</TABLE>
<PAGE>
United Income Fund
The following information has been audited in conjunction with the
annual audits of the Financial Statements of the Fund. Financial Statements for
the fiscal year ended December 31, 1996, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class A share outstanding throughout each period.*
<TABLE>
For the fiscal year ended December 31,
--------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ................ $28.96 $23.34 $24.77 $22.05 $20.44 $16.46 $18.69 $16.76 $15.08 $17.03
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income . 0.33 0.36 0.36 0.40 0.46 0.51 0.61 0.65 0.60 0.72
Net realized and
unrealized gain
(loss) on
investments ......... 5.53 6.53 (0.80) 3.11 1.96 4.29 (1.61) 3.89 2.35 0.59
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ............ 5.86 6.89 (0.44) 3.51 2.42 4.80 (1.00) 4.54 2.95 1.31
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment
income ............. (0.32) (0.35) (0.36) (0.40) (0.46) (0.53) (0.63) (0.65) (0.67) (0.66)
Distributions from
capital gains ...... (1.59) (0.92) (0.63) (0.39) (0.35) (0.29) (0.60) (1.96) (0.60) (2.60)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions .... (1.91) (1.27) (0.99) (0.79) (0.81) (0.82) (1.23) (2.61) (1.27) (3.26)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period ........ $32.91 $28.96 $23.34 $24.77 $22.05 $20.44 $16.46 $18.69 $16.76 $15.08
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return** ......... 20.36% 29.60% -1.82% 16.05% 11.96% 29.64% -5.45% 27.49% 19.83% 7.17%
Net assets, end of
period (000
omitted) .......... $4,850,419 $3,975,717 $3,144,904 $3,060,073 $2,537,161 $2,150,986 $1,578,543 $1,550,387 $1,149,934 $964,521
Ratio of expenses to
average net assets ... 0.86% 0.83% 0.74% 0.66% 0.65% 0.66% 0.68% 0.64% 0.67% 0.63%
Ratio of net investment
income to average
net assets ........... 1.03% 1.31% 1.45% 1.70% 2.19% 2.71% 3.44% 3.41% 3.65% 3.99%
Portfolio turnover
rate ................. 22.24% 17.59% 18.54% 21.70% 19.25% 24.68% 30.94% 60.77% 48.64% 58.46%
Average commission
rate paid ............ $0.0496
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
</TABLE>
<PAGE>
United Accumulative Fund
The following information has been audited in conjunction with the
annual audits of the Financial Statements of the Fund. Financial Statements for
the fiscal year ended December 31, 1996, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class A share outstanding throughout each period.*
<TABLE>
For the fiscal year ended December 31,
--------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ............... $7.78 $6.58 $7.19 $7.50 $7.15 $6.03 $7.12 $6.43 $5.75 $7.78
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income 0.11 0.11 0.13 0.11 0.16 0.19 0.28 0.31 0.26 0.25
Net realized and
unrealized gain
(loss) on
investments ........ 0.82 2.12 (0.13) 0.55 0.85 1.22 (0.99) 1.43 0.71 0.19
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ........... 0.93 2.23 0.00 0.66 1.01 1.41 (0.71) 1.74 0.97 0.44
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment
income ............. (0.11) (0.11) (0.13) (0.11) (0.16) (0.20) (0.29) (0.29) (0.29) (0.32)
Distributions from
capital gains ...... (0.85) (0.92) (0.48) (0.84) (0.50) (0.09) (0.09) (0.76) (0.00) (2.15)
Distribution in excess
of capital gains ... (0.00) (0.00) (0.00) (0.02) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions .... (0.96) (1.03) (0.61) (0.97) (0.66) (0.29) (0.38) (1.05) (0.29) (2.47)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period ........ $7.75 $7.78 $6.58 $7.19 $7.50 $7.15 $6.03 $7.12 $6.43 $5.75
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ......... 12.18% 34.21% 0.04% 9.06% 14.20% 23.68% -10.17% 27.56% 17.05% 4.53%
Net assets, end of
period (000
omitted) .......... $1,285,227 $1,206,128 $967,020 $1,033,774 $992,924 $904,635 $767,218 $877,109 $737,231 $696,359
Ratio of expenses to
average net assets ... 0.83% 0.80% 0.71% 0.65% 0.62% 0.63% 0.64% 0.60% 0.63% 0.59%
Ratio of net investment
income to average
net assets ........... 1.34% 1.42% 1.76% 1.34% 2.13% 2.79% 4.12% 4.19% 4.09% 3.17%
Portfolio turnover
rate ................. 240.37% 229.03% 205.40% 230.29% 194.41% 241.11% 288.64% 338.24% 245.42% 316.74%
Average commission
rate paid ............ $0.0575
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.</TABLE>
<PAGE>
United Science and Technology Fund
The following information has been audited in conjunction with the
annual audits of the Financial Statements of the Fund. Financial Statements for
the fiscal year ended December 31, 1996, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class A share outstanding throughout each period.*
<TABLE>
For the fiscal year ended December 31,
--------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ............... $22.89 $15.21 $14.83 $14.64 $15.42 $10.27 $11.72 $9.91 $9.28 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment
income (loss) ...... (0.07) (0.01) 0.00 0.01 0.03 0.10 0.24 0.20 0.20 0.19
Net realized and
unrealized gain
(loss) on
investments ........ 2.00 8.40 1.40 1.21 (0.66) 5.90 (0.65) 2.50 0.64 1.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ........... 1.93 8.39 1.40 1.22 (0.63) 6.00 (0.41) 2.70 0.84 1.25
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment
income ............. (0.00) (0.00) (0.00) (0.01) (0.03) (0.10) (0.25) (0.19) (0.21) (0.25)
Distributions from
capital gains ...... (1.47) (0.71) (1.02) (0.95) (0.12) (0.75) (0.79) (0.70) (0.00) (1.72)
Distribution in excess
of capital gains ... (0.00) (0.00) (0.00) (0.07) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions .... (1.47) (0.71) (1.02) (1.03) (0.15) (0.85) (1.04) (0.89) (0.21) (1.97)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period ........ $23.35 $22.89 $15.21 $14.83 $14.64 $15.42 $10.27 $11.72 $9.91 $9.28
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return** ......... 8.35% 55.37% 9.78% 8.51% -4.03% 59.25% -3.51% 27.40% 9.05% 12.43%
Net assets, end of
period (000
omitted) .............$980,547 $820,783 $496,503 $446,611 $428,806 $405,380 $239,077 $247,584 $214,693 $214,828
Ratio of expenses to
average net assets ... 0.98% 0.93% 0.96% 0.91% 0.87% 0.85% 0.90% 0.84% 0.89% 0.81%
Ratio of net investment
income (loss) to average
net assets ........... -0.33% -0.07% 0.00% 0.06% 0.24% 0.75% 2.06% 1.73% 1.94% 1.65%
Portfolio turnover
rate ................. 33.90% 32.89% 64.39% 68.38% 45.79% 59.24% 63.86% 83.19% 60.67% 85.35%
Average commission
rate paid ............ $0.0538
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
</TABLE>
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Funds
may also advertise their performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in a Fund over
a given period, assuming reinvestment of any dividends and other distributions.
A cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may not reflect deduction
of the applicable sales charge or may be for periods other than those required
to be presented or may otherwise differ from standardized total return. Total
return quotations that do not reflect the applicable sales charge will reflect a
higher rate of return.
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. A Fund's yield is
based on a 30-day period ending on a specific date and is computed by dividing
the Fund's net investment income per share earned during the period by the
Fund's maximum offering price per share on the last day of the period.
Performance Rankings are comparisons of a Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average, or non-market indices or averages of mutual fund
industry groups. A Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a ranking,
the Fund may provide additional information, such as the particular category to
which it relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
All performance information that each Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of a Fund's shares when redeemed may be more or less than their original cost.
Each Fund's recent performance and holdings will be detailed twice a year
in that Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of
their financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives located
throughout the United States. Your primary contact in your dealings with
Waddell & Reed will be your local account representative. However, the Waddell
& Reed shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling the telephone number listed on the inside back
cover of this Prospectus.
About the Investment Principles of the Funds
<PAGE>
Investment Goals and Principles
The goals of each Fund are set forth below. There is no assurance that a
Fund will achieve its goals; some risks are inherent in all securities to
varying degrees.
United Bond Fund. The goal of United Bond Fund is a reasonable return with
more emphasis on preservation of capital. The Fund seeks to achieve this goal
by investing in debt securities, which may include convertible securities and
debt securities with warrants attached. In selecting debt securities for the
portfolio of the Fund, WRIMCO considers yield and relative safety and, in the
case of convertible securities, the possibility of capital growth.
The Fund may purchase securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Securities").
The Fund will invest in U.S. Government Securities that are not backed by the
full faith and credit of the United States only when WRIMCO is satisfied that
the credit risk is acceptable. Among the U.S. Government Securities that the
Fund may purchase are mortgage-backed securities of the Government National
Mortgage Association ("Ginnie Mae"). These mortgage-backed securities include
pass-through securities, participation certificates and collateralized mortgage
obligations ("CMOs").
United Bond Fund may not purchase any securities other than debt securities
if after such purchase more than 10% of its total assets would consist of other
than debt securities. This 10% limit does not include premiums paid or received
by the Fund in connection with options transactions, the value of options or
futures contracts held by the Fund, margin deposits as to options and futures
contracts, or non-debt securities held as a result of conversion or exercise of
a warrant.
United Income Fund. The primary goal of United Income Fund is the
maintenance of current income, subject to market conditions. As a secondary
goal, the Fund seeks capital growth. The Fund seeks to achieve these goals by
investing in common stocks, or securities convertible into common stocks, of
companies that have a record of paying regular dividends on common stock or have
the potential for capital growth or that may be expected to resist market
decline. At least 65% of United Income Fund's total assets will be invested
during normal market conditions in income-producing securities. When investment
conditions are such that stocks with high yields are less attractive than other
common stocks, the Fund may hold lower-yielding common stocks because of their
prospects for appreciation. When investment conditions are such that the return
on debt securities and preferred stocks is more attractive than the return on
common stocks, or when WRIMCO believes a temporary defensive position is
desirable, the Fund may seek to achieve its goal by investing up to all of its
assets in debt securities and preferred stocks.
United Accumulative Fund. The goal of United Accumulative Fund is capital
growth, with current income a secondary goal. The Fund seeks to achieve these
goals by investing in common stocks or securities convertible into common
stocks. As a temporary defensive measure at times when WRIMCO believes that
such securities do not offer a good investment opportunity, the Fund may hold up
to all of its assets in cash or fixed-income securities (i.e., debt securities
or preferred stock) or in common stocks that WRIMCO chooses because they are
less volatile rather than for their growth potential.
United Science and Technology Fund. The goal of United Science and
Technology Fund is long-term capital growth. The Fund seeks to achieve this
goal by concentrating its investments in science and technology securities.
Science and technology securities are securities of companies whose products,
processes or services, in WRIMCO's opinion, are being or are expected to be
significantly benefited by the utilization or commercial application of
scientific or technological discoveries or developments in such areas as
aerospace, communications and electronic equipment, computer systems, computer
software and services, electronics, electronic media, business machines, office
equipment and supplies, biotechnology, medical and hospital supplies and
services, medical devices and drugs. Certain risks are associated with science
and technology securities, including the impact of governmental regulation and
rapid obsolescence of issuers' products or processes.
Under normal economic and market conditions, United Science and Technology
Fund will not invest in any securities other than science securities or
technology securities if, after such investment, more than 20% of its total
assets would be invested in such other securities. The Fund may own common
stock, preferred stock, debt securities and convertible securities. At times,
as a temporary defensive measure, the Fund may invest up to all of its assets in
U.S. Government Securities or other debt securities.
Risk Considerations
There are risks inherent in any investment. The Funds are subject to
varying degrees of market risk, financial risk and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risks, you should
anticipate that the share prices of the Funds will fluctuate. Financial risk is
based on the financial situation of the issuer. The financial risk of a Fund
depends on the credit quality of the underlying securities. Prepayment risk is
the possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Certain types of instruments in which the Funds may invest, and certain
strategies WRIMCO may employ in pursuit of a Fund's goal(s), involve special
risks. United Bond Fund invests primarily in debt securities, including, among
others, U.S. Government Securities and non-investment grade debt securities
(commonly called "junk bonds"). The market risk to which the Fund is subject is
the possibility that the price of its debt securities will fall because of
changing interest rates. The financial risk to which the Fund is subject is the
possibility that an issuer will fail to make timely payments of interest or
principal to the Fund. The Fund is also subject to prepayment risk. Although
investments in U.S. Government Securities provide substantial protection against
financial risk, they do not protect investors against price changes due to
market risk. Lower-quality debt securities involve greater risk of default or
price changes due to changes in the issuer's creditworthiness. The market
prices of these securities may fluctuate more than high-quality securities and
may decline significantly in periods of general economic difficulty.
United Income Fund and United Accumulative Fund invest primarily in equity
securities. These Funds are subject to greater market risk than funds investing
solely in debt securities. The market risk to which these Funds are subject is
the possibility of a change in the price of securities caused by stock market
price changes. The financial risk to which these Funds are subject is the
possibility that the price of a security will fall because of poor earnings
performance by the issuer.
United Science and Technology Fund may invest in equity securities and debt
securities. This Fund is subject to differing market risks, financial risks and
prepayment risks depending on the types of securities in which it invests. For
equity securities, market risk is the possibility of change in price caused by
stock market price changes; for debt securities, market risk is the possibility
that the price will fall because of changing interest rates. For equity
securities, financial risk is the possibility that the price of the security
will fall because of poor earnings performance by the issuer. For debt
securities, financial risk is the possibility that a bond issuer will fail to
make timely payments of interest or principal to the Fund. The Fund is also
subject to prepayment risk.
A Fund may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, forward contracts,
swaps, caps, collars, floors, indexed securities, stripped securities and
mortgage-backed and other asset-backed securities. The use of derivative
instruments involves special risks. See "Risks of Derivative Instruments" for
further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Funds may invest and strategies WRIMCO may employ in
pursuit of the Funds' investment goal(s). A summary of risks associated with
these instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by a Fund's investment policies and
restrictions unless it believes that doing so will help a Fund achieve its
goal(s).
Certain of the investment policies and restrictions of each Fund are
also stated below. A fundamental policy of a Fund may not be changed without
the approval of the shareholders of that Fund. Operating policies may be
changed by the Board of Directors without the approval of the affected
shareholders. The goal(s) of a Fund and the type of securities in which a Fund
may invest are fundamental policies. Unless otherwise indicated, the types of
other assets in which a Fund may invest and other policies are operating
policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Funds' investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which a Fund invests may include preferred
stock that converts to common stock either automatically or after a specified
period of time or at the option of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face value. The debt securities in which a
Fund invests may include debt securities whose performance is linked to a
specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
Lower-quality debt securities are considered to be speculative and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
high-quality securities and may decline significantly in periods of general
economic difficulty. While the market for high-yield, high-risk corporate debt
securities has been in existence for many years and has weathered previous
economic downturns, the 1980s brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and restructurings.
Past experience may not provide an accurate indication of the future performance
of the high-yield, high-risk bond market, especially during periods of economic
recession. The market for lower-rated debt securities may be thinner and less
active than that for higher-rated debt securities, which can adversely affect
the prices at which the former are sold. Adverse publicity and changing
investor perceptions may decrease the values and liquidity of lower-rated debt
securities, especially in a thinly-traded market.
Valuation becomes more difficult and judgment plays a greater role in
valuing lower-rated debt securities than with respect to securities for which
more external sources of quotations and last sale information are available.
Since the risk of default is higher for lower-rated debt securities, WRIMCO's
research and credit analysis are an especially important part of managing
securities of this type held by a Fund. WRIMCO continuously monitors the
issuers of lower-rated debt securities in a Fund's portfolio in an attempt to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments. A Fund may choose, at its expense or
in conjunction with others, to pursue litigation or otherwise to exercise its
rights as a security holder to seek to protect the interests of security holders
if it determines this to be in the best interest of the Fund's shareholders.
U.S. Government securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government ("U.S. Government Securities"). Not all
U.S. Government Securities are backed by the full faith and credit of the United
States. Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S. Government to
purchase the agencies' obligations; while others are supported only by the
credit of the instrumentality. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment.
A Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with original issue discount ("OID"). Zero coupon
bonds are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or that specify a future date when the
securities begin to pay current interest; instead, they are sold at a deep
discount from their face value and are redeemed at face value when they mature.
Because zero coupon bonds do not pay current income, their prices can be very
volatile when interest rates change and generally are subject to greater
fluctuations in response to changing interest rates than the prices of debt
obligations of comparable maturities that make current distributions of interest
in cash.
The Federal tax law requires that a holder of a security with OID accrue a
ratable portion of the OID on the security as income each year, even though the
holder may receive no interest payment on the security during the year.
Accordingly, although a Fund will receive no payments on its zero coupon bonds
prior to their maturity or disposition, it will have current income attributable
to those securities. Nevertheless, for income and excise tax purposes each Fund
annually must distribute to its shareholders substantially all of its net
investment income, including OID. Accordingly, each Fund will be required to
include in its dividends an amount equal to the income attributable to its zero
coupon and other OID bonds. See "Taxes" in the SAI. Those dividends will be
paid from a Fund's cash assets or by liquidation of portfolio securities, if
necessary, at a time when the Fund otherwise might not have done so.
Subject to its investment restrictions, a Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest category (D by Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P"), and C by Moody's Investors
Service, Inc. ("MIS")). In addition, a Fund will treat unrated securities
judged by WRIMCO to be of equivalent quality to a rated security to be
equivalent to securities having that rating. The rating categories of S&P and
MIS are described in Appendix A. While credit ratings are only one factor
WRIMCO relies on in evaluating high-yield debt securities, certain risks are
associated with credit ratings. Credit ratings evaluate the safety of principal
and interest payments, not market value risk. Credit ratings for individual
securities may change from time to time, and a Fund may retain a portfolio
security whose rating has been changed.
Policies and Restrictions: At least 65% of the total assets of United Bond
Fund will be invested during normal market conditions in bonds.
United Income Fund, United Accumulative Fund and United Science and
Technology Fund do not intend to invest in non-investment grade debt securities
if, as a result of such investment, more than 5% of that Fund's assets would
consist of such investments.
United Bond Fund does not currently intend to invest more than 20% of its
assets in non-investment grade debt securities.
Debt Holdings, by Ratings. During the fiscal year ended December 31, 1996,
the percentage of the assets of United Bond Fund invested in debt securities in
each of the rating categories of S&P and the corporate debt securities not rated
by an established rating service, determined on a dollar-weighted average, were
as follows:
Percentage of
Rated Assets of United
by S&P Bond Fund
- ------ ----------------
AAA 37.9%
AA 9.9
A 18.4
BBB 18.6
BB 11.3
B 1.6
CCC 0.0
CC 0.0
C 0.0
D 0.0
Unrated 1.2
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in United Bond Fund's
portfolio at the end of each month in the thirteen-month period ended with its
last fiscal year, averaged over its last fiscal year. The rating used for each
security is that security's rating as of the end of each month and, as ratings
may change over time, does not necessarily indicate past or future ratings of
any particular security or the ratings of securities in the Fund's portfolio in
general. Asset composition of the Fund by rating categories at any particular
time does not necessarily indicate future asset composition by rating
categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A.
The Funds may invest in preferred stock rated in any rating category by an
established rating service and unrated preferred stock judged by WRIMCO to be of
equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities generally have higher
yields than common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities, are less subject to fluctuation in value
than the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: Each Fund may invest in convertible securities
as long as WRIMCO determines that it is consistent with the Fund's goal(s) and
investment policies.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse diplomatic
developments. There is no assurance that WRIMCO will be able to anticipate
these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: As a fundamental policy, each Fund may
purchase an unlimited amount of foreign securities; however, as an operating
policy, a Fund may not invest more than 20% of its net assets in foreign
securities.
As a fundamental policy, less than 5% of the total assets of the
Corporation may be invested in securities issued by foreign governments.
Options, Futures and Other Strategies. A Fund may use certain options,
futures contracts, forward currency contracts, swaps, caps, collars, floors,
indexed securities, mortgage-backed and other asset-backed securities and
certain other strategies described herein to attempt to enhance income or yield
or to attempt to reduce the risk of its investments. The strategies described
below may be used in an attempt to manage a Fund's foreign currency exposure as
well as other risks of a Fund's investments that can affect fluctuation in its
net asset value. A Fund may also use various techniques to increase or decrease
its exposure to changing security prices, interest rates, currency exchange
rates, commodity prices or other factors that affect security values.
A Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Policies and Restrictions: Subject to the further limitations stated in
the SAI, generally a Fund may purchase and sell any type of derivative
instrument (including, without limitation, futures contracts, options, forward
contracts, swaps, caps, collars and floors and indexed securities). However, a
Fund will only purchase or sell a particular derivative instrument if the Fund
is authorized to invest in the type of asset by which the return on, or value
of, the derivative instrument is primarily measured or, with respect to foreign
currency derivatives, if the Fund is authorized to invest in foreign securities.
Options. A Fund may engage in certain strategies involving options to
attempt to enhance its income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed-upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in a Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. A Fund
will be able to close a position in an option it has written only if there is a
market for the put or call. If a Fund is not able to enter into a closing
transaction on an option it has written, it will be required to maintain the
securities, or cash in the case of an option on an index, subject to the call or
the collateral underlying the put until a closing purchase transaction can be
entered into or the option expires. Because index options are settled in cash,
a Fund cannot provide in advance for its potential settlement obligations on a
call it has written on an index by holding the underlying securities. The Fund
bears the risk that the value of the securities it holds will vary from the
value of the index.
Futures Contracts and Options on Futures Contracts. When a Fund purchases
a futures contract, it incurs an obligation to take delivery of a specified
amount of the obligation underlying the contract at a specified time in the
future for a specified price. When a Fund sells a futures contract, it incurs
an obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed-upon price.
When a Fund writes an option on a futures contract, it becomes
obligated, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time during the term of the
option. If a Fund writes a call, it assumes a short futures position. If it
writes a put, it assumes a long futures position. When the Fund purchases an
option on a futures contract, it acquires the right, in return for the premium
it pays, to assume a position in the futures contract (a long position if the
option is a call and a short position if the option is a put).
Forward Contracts and Foreign Currencies. A Fund may enter into forward
currency contracts for the purchase or sale of a specified currency at a
specified future date either with respect to specific transactions or with
respect to portfolio positions in order to minimize the risk to the Fund from
adverse changes in the relationship between the U.S. dollar and a foreign
currency. For example, when WRIMCO anticipates purchasing or selling a security
denominated in a foreign currency, the Fund may enter into a forward contract in
order to set the exchange rate at which the transaction will be made. A Fund
also may enter into a forward contract to sell an amount of a foreign currency
approximating the value of some or all of the Fund's securities positions
denominated in such currency. A Fund may also use forward contracts in one
currency or a basket of currencies to attempt to hedge against fluctuations in
the value of securities denominated in a different currency if WRIMCO
anticipates that there will be a correlation between the two currencies.
A Fund may also use forward currency contracts to shift the Fund's exposure
to foreign currency exchange rate changes from one foreign currency to another.
For example, if the Fund owns securities denominated in a foreign currency and
WRIMCO believes that currency will decline relative to another currency, it
might enter into a forward contract to sell the appropriate amount of the first
foreign currency with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as "cross
hedging." Use of a different foreign currency magnifies a Fund's exposure to
foreign currency exchange rate fluctuations. A Fund may also purchase forward
currency contracts to enhance income when WRIMCO anticipates that the foreign
currency will appreciate in value, but securities denominated in that currency
do not present attractive investment opportunities.
Successful use of forward currency contracts depends on WRIMCO's skill in
analyzing and predicting currency values. Forward contracts may substantially
change a Fund's investment exposure to changes in currency exchange rates and
could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to the Fund or that it will hedge at an
appropriate time.
A Fund may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
Indexed Securities. Each Fund may purchase indexed securities, which are
securities the value of which varies in relation to the value of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators, subject to its operating policy
regarding derivative instruments. Indexed securities typically, but not always,
are debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. The performance
of indexed securities depends to a great extent on the performance of the
security, currency, or other instrument to which they are indexed and may also
be influenced by interest rate changes in the United States and abroad. At the
same time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments.
Swaps, Caps, Collars and Floors. Each Fund may enter into swaps, caps,
collars and floors as described below. A Fund may enter into these transactions
to preserve a return or spread on a particular investment or portion of its
portfolio, to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date or to attempt to enhance income or yield.
Swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive cash flows, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of a cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified index
falls below a predetermined value, to receive payments on a notional principal
amount from the party selling such floor. An interest rate collar combines
elements of buying a cap and selling a floor.
Depending on how they are used, the swap, cap, collar and floor agreements
used by a Fund may also increase or decrease the overall volatility of its
investments and its share price and yield. The most significant factor in the
performance of these agreements is the change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the Fund.
A Fund usually will enter into swaps on a net basis, i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments. If, however, an agreement calls for
payments by a Fund, the Fund must be prepared to make such payments when due.
The creditworthiness of firms with which a Fund enters into swaps, caps, collars
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Board of Directors. If a firm's creditworthiness declines, the value of an
agreement would be likely to decline, potentially resulting in losses. If a
default occurs by the other party to such transaction, a Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The Funds understand that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
securities and are, therefore, subject to the limitations on investment in
illiquid securities as described in the SAI.
Mortgage-Backed and Other Asset-Backed Securities are bonds backed by
specific types of assets. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. Government mortgage-backed securities are issued or
guaranteed as to principal and interest (but not as to market value) by the
Government National Mortgage Association, Fannie Mae (formerly, the Federal
National Mortgage Association), the Federal Home Loan Mortgage Corporation or
other government-sponsored enterprises. Other mortgage-backed securities are
sponsored or issued by private entities, including investment banking firms and
mortgage originators.
Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
prospectus as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of
these payments that investors receive, as well as the priority of their rights
to receive payments, are determined by the specific terms of the CMO class.
For example, interest-only ("IO") classes are entitled to receive all or a
portion of the interest, but none (or only a nominal amount) of the principal
payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest payments allocable to the IO class, and therefore
the yield to investors, generally will be reduced. In some instances, an
investor in an IO may fail to recoup all of his or her initial investment, even
if the security is government guaranteed or considered to be of the highest
quality. Conversely, principal-only ("PO") classes are entitled to receive all
or a portion of the principal payments, but none of the interest, from the
underlying mortgage assets. PO classes are purchased at substantial discounts
from par, and the yield to investors will be reduced if principal payments are
slower than expected. IOs, POs and other CMOs involve special risks, and
evaluating them requires special knowledge.
When interest rates decline and homeowners refinance their mortgages,
mortgage-backed bonds may be paid off more quickly than investors expect. When
interest rates rise, mortgage-backed bonds may be paid off more slowly than
originally expected. Changes in the rate or "speed" of these prepayments can
cause the value of mortgage-backed securities to fluctuate rapidly.
Other asset-backed securities are similar to mortgage-backed securities,
except that the underlying assets are different. These underlying assets may be
nearly any type of financial asset or receivable, such as motor vehicle
installment sales contracts, home equity loans, leases of various types of real
and personal property and receivables from credit cards.
The yield characteristics of mortgage-backed and other asset-backed
securities differ from those of traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently
and that principal may be prepaid at any time because the underlying mortgage
loans or other assets generally may be prepaid at any time. Generally,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed and other asset-backed securities may also decrease in value as
a result of increases in interest rates and, because of prepayments, may benefit
less than other bonds from declining interest rates. Reinvestments of
prepayments may occur at lower interest rates than the original investment, thus
adversely affecting a Fund's yield. Actual prepayment experience may cause the
yield of a mortgage-backed security to differ from what was assumed when the
Fund purchased the security.
The market for privately issued mortgage-backed and other asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specially structured in a manner
that provides any of a wide variety of investment characteristics, such as
yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.
Policies and Restrictions: Each Fund may invest in mortgage-backed, asset-
backed and stripped securities as long as WRIMCO determines that it is
consistent with the Fund's goal(s) and investment policies.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, forward contracts, swaps, caps, collars and
floors, and the investment in indexed securities, stripped securities and
mortgage-backed and other asset-backed securities involve special risks,
including (i) possible imperfect or no correlation between price movements of
the portfolio investments (held or intended to be purchased) involved in the
transaction and price movements of the instruments involved in the transaction,
(ii) possible lack of a liquid secondary market for any particular instrument at
a particular time, (iii) the need for additional portfolio management skills and
techniques, (iv) losses due to unanticipated market price movements, (v) the
fact that, while such strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in investments involved in the transaction, (vi)
incorrect forecasts by WRIMCO concerning interest or currency exchange rates or
direction of price fluctuations of the investment involved in the transaction,
which may result in the strategy being ineffective, (vii) loss of premiums paid
by a Fund on options it purchases, and (viii) the possible inability of a Fund
to purchase or sell a portfolio security at a time when it would otherwise be
favorable for it to do so, or the possible need for a Fund to sell a portfolio
security at a disadvantageous time, due to the need for the Fund to maintain
"cover" or to segregate assets in connection with such transactions and the
possible inability of a Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of a Fund's portfolio diverges from instruments underlying a hedging
instrument. Such equal price changes are not always possible because the
investment underlying the hedging instruments may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments for hedging purposes to adjust the
risk characteristics of a Fund's portfolio of investments and may use these
instruments to adjust the return characteristics of a Fund's portfolio of
investments. The use of derivative techniques for speculative purposes can
increase investment risk. If WRIMCO judges market conditions incorrectly or
employs a strategy that does not correlate well with a Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
a Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is not
a liquid secondary market to close out a position that a Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest rate,
currency exchange rate or stock market trends by WRIMCO may still not result in
a successful transaction. WRIMCO may be incorrect in its expectations as to the
extent of various interest or currency exchange rate or stock market movements
or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transactions
costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. Each Fund may use these instruments and techniques to the extent
consistent with its goal(s), investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect a
Fund's yield.
When purchasing securities on a delayed-delivery basis, a Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When a Fund sells a security on a delayed-delivery basis, a Fund
does not participate in further gains or losses with respect to the security.
If the other party to a delayed-delivery transaction fails to deliver or pay for
the securities, a Fund could miss a favorable price or yield opportunity, or
could suffer a loss.
Policies and Restrictions: Each Fund may purchase securities in which it
may invest on a when-issued or delayed-delivery basis or sell them on a delayed-
delivery basis.
Repurchase Agreements. In a repurchase agreement, a Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Policies and Restrictions: Each Fund may purchase securities subject to
repurchase agreements if, as a result, no more than 10% of its net assets would
consist of illiquid investments (which include repurchase agreements not
terminable within seven days).
Restricted Securities and Illiquid Investments. Restricted securities are
securities that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Corporation's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to a Fund.
Policies and Restrictions: Each Fund may purchase restricted
securities. United Income Fund does not intend to invest more than 10% of its
assets in restricted securities.
A Fund may not purchase a security if as a result more than 10% of its net
assets would consist of illiquid investments.
Diversification. Diversifying a Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, a Fund may not,
with respect to 75% of its total assets, purchase securities of any one issuer
(other than cash items and "Government Securities" as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")), if immediately after and as a
result of such purchase, (a) the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the value of the Fund's total assets, or
(b) the Fund owns more than 10% of the outstanding voting securities of such
issuer.
As a fundamental policy, no Fund other than United Science and Technology
Fund may buy a security if, as a result, 25% or more of the Fund's total assets
would then be invested in securities of companies in any one industry.
Borrowing. As a fundamental policy, the Funds may not borrow money;
however, this policy shall not prevent a Fund from pledging its assets in
connection with its purchase and sale of futures contracts, options, forward
contracts, swaps, caps, collars, floors and other financial instruments.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing a Fund's income. This practice could result in a
loss or a delay in recovering a Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, a Fund will not lend
more than 10% of its assets at any one time, and such loans must be on a
collateralized basis in accordance with applicable regulatory requirements.
Other Instruments may include securities of closed-end investment
companies. As a shareholder in an investment company, a Fund would bear its pro
rata share of that investment company's expenses, which could result in
duplication of certain fees, including management and administrative fees.
Policies and Restrictions: As a fundamental policy, each Fund may purchase
shares of other investment companies that do not redeem their shares, but not
more than 10% of the total assets of the Corporation may be invested in such
shares. Each Fund does not currently intend to invest more than 5% of its
assets in the shares of other investment companies.
Each Fund, other than United Science and Technology Fund, does not
currently intend to purchase the securities of any issuer (other than securities
issued or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total assets would be
invested in the securities of business enterprises that, including predecessors,
have a record of less than three years of continuous operation. This
restriction does not apply to any obligations issued or guaranteed by the U.S.
government, or a state or local government authority, or their respective
agencies or instrumentalities, or to collateralized mortgage obligations, other
mortgage-related securities, asset-backed securities, indexed securities or
over-the-counter derivative financial instruments. Each Fund may invest in
warrants.
<PAGE>
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts may be
tax deductible.
_ Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. For 1997, the
maximum for an investor and his or her spouse is $4,000 ($2,000 for each
spouse) or, if less, the couple's combined earned income for the taxable
year.
_ Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
_ Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh, but with fewer administrative
requirements.
_
_ Savings Incentive Match Plans for Employees (SIMPLE Plans) can be established
by small employers to contribute to their employees' retirement accounts and
involve fewer administrative requirements than 401(k) or other qualified
plans generally.
_ Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
_ 401(k) Programs allow employees of corporations and non-governmental tax-
exempt organizations of all sizes to contribute a percentage of their wages
on a tax-deferred basis. These accounts need to be established by the
administrator or trustee of the plan.
_ 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
_ 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
_
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain
tax benefits. An individual can give up to $10,000 a year per child without
paying Federal transfer tax. Depending on state laws, you can set up a
custodial account under the Uniform Gifts to Minors Act ("UGMA") or the Uniform
Transfers to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of the Funds through Waddell & Reed, Inc. and its
account representatives. To open your account you must complete and sign an
application. Your Waddell & Reed, Inc. account representative can help you with
any questions you might have. The Prospectus has been made available on a
diskette that can be used with certain software programs that have a reader,
i.e., a voice capability feature which can convert the data on the diskette into
an oral format.
The price to buy a share of each Fund, called the offering price, is
calculated every business day.
The offering price of a Class A share (price to buy one Class A share) is
each Fund's Class A net asset value ("NAV") plus the sales charge shown in the
table below.
Sales
Sales Charge
Charge as
as Approx.
PercentPercent
of of
Size of Offering Amount
Purchase Price Invested
- -----------------------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,0001.50 1.52
$1,000,000
to less
than
$2,000,0001.00 1.01
$2,000,000
and over 0.00 0.00
A Fund's Class A NAV is the value of a single Class A share. The Class A
NAV is computed by adding with respect to that class the value of a Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class A shares outstanding.
The securities in each Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices quoted by a third-party pricing service. Short-term debt
securities are valued at amortized cost, which approximates market value. Other
assets are valued at their fair value by or at the direction of the Board of
Directors.
A Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Funds normally calculate their NAVs as of the later of the
close of business of the NYSE, normally 4 p.m. Eastern time, or the close of the
regular session of any other securities or commodities exchange on which an
option or future held by a Fund is traded.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted. Note
the following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
When you sign your account application, you will be asked to certify that
your Social Security or other taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income to
the Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Funds reserve the right to
discontinue offering Fund shares for purchase.
Lower sales charges are available by combining additional purchases of
Class A shares of any of the funds in the United Group, to the extent otherwise
permitted, except United Municipal Bond Fund, Inc., United Cash Management,
Inc., United Government Securities Fund, Inc. and United Municipal High Income
Fund, Inc., with the NAV of Class A shares already held ("rights of
accumulation") and by grouping all purchases of Class A shares made during a
thirteen-month period ("Statement of Intention"). Class A shares of Income
Fund, Accumulative Fund or Science and Technology Fund or of another fund
purchased through a contractual plan may not be included unless the plan has
been completed. Purchases by certain related persons may be grouped. Any
person who was a holder of an uncompleted (i) United Income Investment Program,
(ii) United Periodic Investment Plan to Acquire United Accumulative Fund Shares
of United Funds, Inc., or (iii) United Periodic Investment Plan to Acquire
United Science Fund Shares of United Funds, Inc. (each a "Plan") on May 30,
1996, with a face amount of less than $12,000, may purchase Class A shares of
the Fund corresponding to such Plan (i.e., United Income Fund, United
Accumulative Fund or United Science and Technology Fund, respectively) at net
asset value ("NAV") plus a maximum sales charge of 2%, up to the amount
representing the unpaid balance of such Plan, if the purchase order is so
designated. Additional information and applicable forms are available from
Waddell & Reed account representatives.
Fund Class A shares may be purchased at NAV by the Directors and officers
of the Corporation, employees of Waddell & Reed, Inc., employees of their
affiliates, account representatives of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each such
Director, officer, employee and account representative. Any holder of an
uncompleted Plan on May 30, 1996, with a face amount of $12,000 or more, may
purchase Class A shares of the Fund corresponding to such Plan at NAV, up to the
amount representing the unpaid balance of the Plan, if the purchase order is so
designated. In addition, any person who was a holder of a Plan on May 30, 1996
may purchase Class A shares of the Fund corresponding to such Plan at NAV up to
the amount representing partial Plan withdrawals outstanding on May 30, 1996,
provided the purchase order is so designated. Purchases of Class A shares in
certain retirement plans and certain trusts for these persons may also be made
at NAV. Purchases of Class A shares in a 401(k) plan having 100 or more
eligible employees and purchases of Class A shares in a 457 plan having 100 or
more eligible employees may be made at NAV. Shares may also be issued at NAV in
a merger, acquisition or exchange offer made pursuant to a plan of
reorganization to which the Fund is a party.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service
$50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account
For certain exchanges $100
For Automatic Investment Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc.
Mail the check along with:
the detachable form that accompanies the confirmation of a prior purchase by
you or your year-to-date statement; or
a letter stating your account number, the account registration and that you
wish to purchase Class A shares of the Fund.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class A share) is the Fund's Class
A NAV.
To sell shares, your request must be made in writing.
Complete an Account Service Request form, available from your Waddell &
Reed account representative, or write a letter of instruction with:
the name on the account registration;
the Fund's name;
the Fund account number;
the dollar amount or number of shares to be redeemed; and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed, Inc. will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must
Joint Tenant be signed by all persons
required to sign for
transactions, exactly as their
names appear on the account.
Sole The written instructions must
Proprietorship be signed by the individual
owner of the business.
UGMA, UTMA The custodian must sign the
written instructions
indicating capacity as
custodian.
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
Conservator, The written instructions must
Guardian or be signed by the person
Other Fiduciary properly authorized by court
order to act in the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request for redemption in good
order by Waddell & Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you hold a certificate, it must be properly endorsed and sent to the
Corporation.
If you recently purchased the shares by check, a Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund is able to
verify that your purchase check has cleared and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
Each Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed, Inc. from fraud. A Fund may require a signature guarantee in certain
situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
Each Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent. A notary public cannot provide a signature guarantee.
You may reinvest in a Fund without charge all or part of the amount you
redeemed by sending to the Fund the amount you want to reinvest. The reinvested
amounts must be received by the Fund within thirty days after the date of your
redemption. You may do this only once as to Class A shares of the Fund.
Under the terms of the 401(k) prototype plan which Waddell & Reed, Inc. has
available, the plan may have the right to make a loan to a plan participant by
redeeming Fund shares held by the plan. Principal and interest payments on the
loan made in accordance with the terms of the plan may be reinvested by the
plan, without payment of a sales charge, in Class A shares of any of the funds
in the United Group in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange, transfer
or redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of annual and semiannual reports of
each Fund will be mailed to your household, even if you have more than one
account with a Fund. Call the telephone number listed on the inside back cover
of this Prospectus if you need copies of annual or semiannual reports or
historical account information.
Exchanges
You may sell your Class A shares and buy Class A shares of other funds in
the United Group without payment of an additional sales charge. You may
exchange only into funds that are legally registered for sale in your state of
residence. Note that exchanges out of a Fund may have tax consequences for you.
Before exchanging into a fund, read its prospectus.
The Funds reserve the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up monthly, quarterly, semiannual
or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund
account, or between Fund accounts, automatically. While Regular Investment
Plans do not guarantee a profit and will not protect you against loss in a
declining market, they can be an excellent way to invest for retirement, a home,
educational expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account representative
for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to a Fund whether in the same or
a different account
Minimum Frequency
$100 Monthly
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and
net capital gains to its shareholders each year. Ordinarily, dividends are
distributed from a Fund's net investment income, which includes accrued
interest, earned OID, dividends and other income earned on portfolio assets less
expenses, at the following times: United Accumulative Fund and United Science
and Technology Fund, semiannually in June and December; United Income Fund,
quarterly in March, June, September and December; and United Bond Fund, monthly.
Net capital gains (and any net gains from foreign currency transactions)
ordinarily are distributed in December. Each Fund may make additional
distributions if necessary to avoid Federal income or excise taxes on certain
undistributed income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. Each Fund offers three
options:
1. Share Payment Option. Your dividend and capital gains and other
distributions will be automatically paid in additional Class A shares of the
Fund. If you do not indicate a choice on your application, you will be
assigned this option.
2. Income-Earned Option. Your capital gains and other distributions will be
automatically paid in Class A shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividend and capital gains
and other distributions.
For retirement accounts, all distributions are automatically paid in Class
A shares.
Taxes
Each Fund, which is treated as a separate corporation for Federal income
tax purposes, has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Internal Revenue Code of 1986, as
amended, so that it will be relieved of Federal income tax on that part of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gains and net gains from certain foreign currency
transactions) and net capital gains (the excess of net long-term capital gain
over net short-term capital loss) that are distributed to its shareholders.
There are certain tax requirements that all Funds must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, each
Fund may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in a Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from a Fund's investment company taxable
income generally are taxable to you as ordinary income whether received in cash
or paid in additional Fund shares. Distributions of a Fund's net capital gains,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or paid in additional Fund shares and regardless of the length
of time you have owned your shares. Each Fund notifies you after each calendar
year-end as to the amounts of dividends and other distributions paid (or deemed
paid) to you for that year.
A portion of the dividends paid by a Fund, whether received in cash or paid
in additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by a Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. Each Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate from dividends
and capital gains distributions also is required for such shareholders who
otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than your adjusted basis for the redeemed shares (which normally
includes any sales charge paid). An exchange of Fund shares for shares of any
other fund in the United Group generally will have similar tax consequences.
However, special rules apply when you dispose of Fund shares through a
redemption or exchange within ninety days after your purchase thereof and
subsequently reacquire Fund shares or acquire shares of another fund in the
United Group without paying a sales charge due to the thirty-day reinvestment
privilege or exchange privilege. See "About Your Account." In these cases, any
gain on the disposition of the original Fund shares would be increased, or loss
decreased, by the amount of the sales charge you paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if you purchase shares of a Fund within
thirty days before or after redeeming other shares of a Fund (regardless of
class) at a loss, part or all of that loss will not be deductible and will
increase the basis of the newly-purchased shares.
State Income Taxes. The portion of the dividends paid by United Bond
Fund and United Income Fund (and, to a lesser extent, the other Funds)
attributable to the interest earned on its U.S. Government Securities generally
is not subject to state and local income taxes, although distributions by any
Fund to its shareholders of net realized gains on the disposition of those
securities are fully subject to those taxes. You should consult your tax
adviser to determine the taxability of dividends and other distributions by the
Funds in your state and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting each Fund and its shareholders; see the SAI
for a more detailed discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
<PAGE>
About the Management and Expenses of the Funds
United Funds, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Corporation is an open-end management investment company organized as a
corporation under Maryland law on February 21, 1974, as successor to a Delaware
corporation which commenced operations in 1940.
The Corporation is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Corporation has four series of shares (the "Funds"), each of which
operates as a separate mutual fund with separate assets and liabilities. Each
Fund is a diversified fund. In addition to the Class A shares offered by this
Prospectus, the Corporation has issued and outstanding Class Y shares which are
offered by Waddell & Reed, Inc. through a separate prospectus. Class Y shares
are designed for institutional investors. Class Y shares are not subject to a
sales charge on purchases and are not subject to redemption fees. Class Y
shares are not subject to a Rule 12b-1 fee. Additional information about Class
Y shares may be obtained by calling or writing to Waddell & Reed, Inc. at the
telephone number or address on the inside back cover of this Prospectus.
The Corporation does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by a Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Corporation are met. There will normally
be no meeting of the shareholders for the purpose of electing directors until
such time as less than a majority of directors holding office have been elected
by shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the 1940 Act applies to the Corporation, the directors are required to
call a meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the shareholders
of record of not less than 10% of a Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of a Fund (and
classes thereof) vote together as a single class, except as to any matter for
which a separate vote of any Fund or class is required by the 1940 Act, and
except as to any matter which affects the interests of one or more particular
Fund or classes, in which case only the shareholders of the affected Fund or
class are entitled to vote, each as a separate class. Shares are fully paid and
nonassessable when purchased.
WRIMCO and Its Affiliates
The Funds are managed by WRIMCO, subject to the authority of the
Corporation's Board of Directors. WRIMCO provides investment advice to each of
the Funds and supervises each Fund's investments. Waddell & Reed, Inc. and its
predecessors have served as investment manager to each of the registered
investment companies in the United Group of Mutual Funds, except United Asset
Strategy Fund, Inc., since 1940 or the inception of the company, whichever was
later, and to TMK/United Funds, Inc. since that Fund's inception, until January
8, 1992, when it assigned its duties as investment manager and assigned its
professional staff for investment management services to WRIMCO. WRIMCO has
also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992 and United Asset Strategy Fund, Inc. since it
commenced operations in March 1995.
James C. Cusser is primarily responsible for the day-to-day management of
the portfolio of United Bond Fund. Mr. Cusser has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Mr. Cusser has served as the portfolio
manager for the Fund and other investment companies managed by WRIMCO since
August 1992 and has been an employee of WRIMCO since August 1992. From January
1987 to August 1992, Mr. Cusser was Vice President of Kidder, Peabody & Co., New
York.
Russell E. Thompson is primarily responsible for the day-to-day management
of the portfolio of United Income Fund. Mr. Thompson has held his Fund
responsibilities since February 1979. He is Senior Vice President of WRIMCO and
Senior Vice President of Waddell & Reed Asset Management Company, an affiliate
of WRIMCO. He is Vice President of the Fund and Vice President of other
investment companies for which WRIMCO serves as investment manager. Mr.
Thompson has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1976 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since March 1971.
Antonio Intagliata is primarily responsible for the day-to-day management
of the portfolio of United Accumulative Fund. Mr. Intagliata has held his Fund
responsibilities since November 1979. He is Senior Vice President of WRIMCO,
Vice President of the Fund and Vice President of other investment companies for
which WRIMCO serves as investment manager. Mr. Intagliata has served as the
portfolio manager for investment companies managed by Waddell & Reed, Inc. and
its successor, WRIMCO, since February 1979 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since June 1973.
Abel Garcia is primarily responsible for the day-to-day management of
the portfolio of United Science and Technology Fund. Mr. Garcia has held his
Fund responsibilities since January 1984. He is Vice President of WRIMCO, Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO,
and Vice President of the Fund and Vice President of other investment companies
for which WRIMCO serves as investment manager. Mr. Garcia has been an employee
of Waddell & Reed, Inc. and its successor, WRIMCO, since August 1983.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to a Fund's investments.
Waddell & Reed, Inc. serves as the Corporation's underwriter and as
underwriter for each of the other funds in the United Group of Mutual Funds and
Waddell & Reed Funds, Inc. and acts as the principal underwriter and distributor
for variable life insurance and variable annuity policies issued by United
Investors Life Insurance Company for which TMK/United Funds, Inc. is the
underlying investment vehicle.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Corporation and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services Agent")
in providing bookkeeping and accounting services and assistance to the
Corporation and pricing daily the value of shares of the Funds.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of each Fund and in doing
so may consider sales of Fund shares as a factor in the selection of brokers to
execute portfolio transactions, subject to best execution. For further
information concerning Fund portfolio transactions, please see "Portfolio
Transactions and Brokerage" in the SAI.
Breakdown of Expenses
Like all mutual funds, the Funds pay fees related to their daily
operations. Expenses paid out of each Fund's assets are reflected in its share
price or dividends; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. Each Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of each Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on each Fund's net asset value as of the close
of business each day at the annual rate of .03 of 1% of the net assets of United
Bond Fund, .15 of 1% of the net assets of United Income Fund and United
Accumulative Fund and .20 of 1% of the net assets of United Science and
Technology Fund. The group fee is a pro rata participation based on the
relative net asset size of each Fund in the group fee computed each day on the
combined net asset values of all the funds in the United Group at the annual
rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $15.1 billion as of December 31, 1996.
Management fees for each Fund as a percent of each Fund's net assets for
the fiscal year ended December 31, 1996 were as follows: United Bond Fund
0.44%, United Income Fund 0.56%, United Accumulative Fund 0.56%, United Science
and Technology Fund 0.61%.
Other Expenses
While the management fee is a significant component of each Fund's annual
operating costs, the Funds have other expenses as well.
Each Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class A shares, each Fund pays the Shareholder Servicing Agent a monthly fee for
each Class A shareholder account that was in existence at any time during the
month, and a fee for each account on which a dividend or distribution had a
record date during the month.
Each Fund has adopted a Distribution and Service Plan (the "Plan")
pursuant to Rule 12b-1 of the 1940 Act with respect to its Class A shares.
Under the Plan, the Fund may pay monthly a fee to Waddell & Reed, Inc. in an
amount not to exceed .25% of the Fund's average annual net assets of its Class A
shares. The fee is to be paid to reimburse Waddell & Reed, Inc. for amounts it
expends in connection with the distribution of the Class A shares, and/or
provision of personal services to Class A shareholders and maintenance of Class
A shareholder accounts.
There are two parts to this fee: all or a portion of the fee may be paid
to Waddell & Reed, Inc. for distribution services and distribution expenses,
including commissions paid by Waddell & Reed, Inc. to its account
representatives, account managers and/or other broker-dealers (the "distribution
fee") with respect to the Fund's Class A shares; and all or a portion of the fee
may be paid to Waddell & Reed, Inc. for the provision by Waddell & Reed, Inc.,
Waddell & Reed Services Company and/or other third-parties (including broker-
dealers who may sell Class A shares), of personal services to Class A
shareholders and other services to maintain Class A shareholder accounts (the
"service fee"). However, the total amount of the distribution fee and service
fee paid by the Fund pursuant to the Plan will not exceed, on an annual basis,
0.25% of the average annual net assets of the Fund's Class A shares.
A Fund cannot precisely predict what its portfolio turnover rate will be,
but each Fund may have a high portfolio turnover. United Accumulative Fund may
engage in short-term trading and have a corresponding high turnover rate. A
higher turnover will increase transaction and commission costs and could
generate taxable income or loss.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which a
Fund may use. A Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
corporate or municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment of creditworthiness may take into consideration obligors such as
guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace periods. The D rating will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable MIS
rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest
investment attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
DESCRIPTION OF PREFERRED STOCK RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
preferred stock rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the debt rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment -- capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of MIS' familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
United Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Accountants Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Funds, Inc.
Class A Shares
PROSPECTUS
July 31, 1997
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1000(7-97)
printed on recycled paper
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Funds that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated July 31, 1997. The SAI is available free upon request to the Funds or
Waddell & Reed, Inc., the Funds' underwriter, at the address or telephone number
below. The SAI is incorporated by reference into this Prospectus and you will
not be aware of all facts unless you read both this Prospectus and the SAI.
United Funds, Inc.
Class Y Shares
United Funds, Inc. (the "Corporation") is a management investment company that
has four separate funds (the "Funds"), each of which is designed for investors
with different goals.
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital.
United Income Fund seeks, as a primary goal, the maintenance of current
income subject to market conditions. As a secondary goal, the Fund seeks
capital growth.
United Accumulative Fund seeks capital growth of your investment with current
income a secondary goal.
United Science and Technology Fund seeks long-term capital growth through
investment in a portfolio emphasizing science and technology securities.
This Prospectus describes one class of shares of each of the Funds -- Class Y
Shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus
July 31, 1997
UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-366-5465
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUNDS.......................................... 5
EXPENSES............................................................. 7
FINANCIAL HIGHLIGHTS................................................. 9
PERFORMANCE......................................................... 17
Explanation of Terms .............................................. 17
ABOUT WADDELL & REED................................................ 19
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS........................ 20
ABOUT YOUR ACCOUNT.................................................. 21
Buying Shares ..................................................... 21
Minimum Investments ............................................... 23
Adding to Your Account ............................................ 23
Selling Shares .................................................... 23
Telephone Transactions ............................................ 25
Shareholder Services .............................................. 25
Personal Service ................................................ 26
Reports ......................................................... 26
Exchanges ....................................................... 26
Distributions and Taxes ........................................... 26
Distributions ................................................... 26
Taxes ........................................................... 27
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS...................... 29
WRIMCO and Its Affiliates ......................................... 30
Breakdown of Expenses ............................................. 32
Management Fee .................................................. 32
Other Expenses .................................................. 33
APPENDIX A.......................................................... 35
DESCRIPTION OF BOND RATINGS ....................................... 35
DESCRIPTION OF PREFERRED STOCK RATINGS ............................ 39
<PAGE>
An Overview of the Funds
The Funds: This Prospectus describes the Class Y shares of four separate series
(each a "Fund" and, collectively, the "Funds") of an open-end, management
investment company. Each Fund has different goals and policies. Each of the
Funds is a diversified Fund.
Goals and Strategies: United Bond Fund seeks a reasonable return with more
emphasis on preservation of capital. This Fund invests primarily in debt
securities, including convertible securities and debt securities with warrants
attached.
United Income Fund seeks, as a primary goal, to maintain current income,
subject to market conditions. As a secondary goal, this Fund seeks capital
growth. This Fund invests primarily in common stocks, or securities convertible
into common stocks, of companies that have a record of paying regular dividends
on common stock or have the potential for capital growth or that may be expected
to resist market decline.
United Accumulative Fund seeks capital growth, with current income a secondary
goal. This Fund invests primarily in common stocks or securities convertible
into common stocks.
United Science and Technology Fund seeks long-term capital growth. This Fund
invests primarily in science and technology securities.
See "About the Investment Principles of the Funds" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to each of the Funds and manages each Fund's investments.
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell &
Reed, Inc. and its predecessors have provided investment management services to
registered investment companies since 1940. See "About the Management and
Expenses of the Funds" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Funds.
Purchases: You may buy Class Y shares of the Funds through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class Y share of a Fund is
the net asset value of a Class Y share. There is no sales charge incurred upon
purchase of Class Y shares of a Fund. See "About Your Account" for information
on how to purchase Class Y shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption and reinvestment procedures.
Who May Want to Invest: The Funds offer a variety of investment goals that are
compatible with different investment decisions. You should consider whether a
Fund, or group of Funds, fits with your particular investment objectives.
Risk Considerations: Because the Funds own different types of investments,
their performance will be affected by a variety of factors. The value of each
Fund's investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "Securities and Investment Practices" for information about
the risks associated with the Funds' respective investments.
<PAGE>
Expenses
United
United United United Science and
Bond Income AccumulativeTechnology
Fund Fund Fund Fund
---- ---- ---- ----
Shareholder Transaction Expenses
are charges you pay when you buy or sell shares of a fund.
Maximum sales
load on
purchases None None None None
Deferred sales
load None None None None
Redemption fees None None None None
Exchange fee None None None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management
fees 0.44% 0.56% 0.56% 0.61%
12b-1 fees None None None None
Other expenses 0.19% 0.17% 0.19% 0.20%
Total Fund
operating
expenses 0.63% 0.73% 0.75% 0.81%5
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return6 and (2) redemption at the end of each time period:
1 Year $ 6 $ 7 $ 8 $ 8
3 Years $20 $23 $24 $ 26
5 Years $35 $41 $42 $ 45
10 Years $79 $91 $93 $100
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class Y shares of each Fund will bear
directly or indirectly. The example should not be considered a representation
of past or future expenses; actual expenses may be greater or lesser than those
shown. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
5 Expense ratios are based on the management fees and other Fund-level expenses
of the applicable Fund for the fiscal year ended December 31, 1996, and the
expenses attributable to a Fund's Class Y shares that are anticipated for the
current year based on annualization of the Class Y expenses incurred during the
fiscal year ended December 31, 1996. Actual expenses may be greater or lesser
than those shown.
6Use of an assumed annual return of 5% is for illustration purposes only and not
a representation of a Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
UNITED BOND FUND
The following information has been audited in conjunction with the
annual audits of the Financial Statements of the Fund. Financial Statements for
the fiscal year ended December 31, 1996, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class Y share outstanding throughout each period:
For the For the
fiscal year period from
ended 6/19/95* to
12/31/96 12/31/95
---------- -----------
Net asset value,
beginning of period $6.34 $6.11
----- ----
Income from investment
operations:
Net investment income 0.40 0.21
Net realized and
unrealized gain (loss)
on investments .. (0.20) 0.22
---- ----
Total from investment
operations ....... 0.20 0.43
---- ----
Less distributions:
Dividends from net
investment income (0.40) (0.20)
Distribution from
capital gains ... (0.00) (0.00)
---- ----
Total distributions (0.40) (0.20)
---- ----
Net asset value,
end of period .... $6.14 $6.34
==== ====
Total return ....... 3.35% 7.20%
Net assets, end of
period (000
omitted) ......... $11,779 $3,032
Ratio of expenses to
average net assets 0.62% 0.63%**
Ratio of net investment
income to average
net assets ....... 6.52% 6.41%**
Portfolio turnover
rate ............. 55.74% 66.38%**
*Commencement of operations.
**Annualized.
<PAGE>
Financial Highlights
UNITED INCOME FUND
The following information has been audited in conjunction with the
annual audits of the Financial Statements of the Fund. Financial Statements for
the fiscal year ended December 31, 1996, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class Y share outstanding throughout each period:
For the For the
fiscal year period from
ended 6/19/95* to
12/31/96 12/31/95
---------- -----------
Net asset value,
beginning of period $28.96 $27.73
----- -----
Income from investment
operations:
Net investment income 0.36 0.21
Net realized and
unrealized gain
on investments .. 5.54 2.14
----- -----
Total from investment
operations ....... 5.90 2.35
----- -----
Less distributions:
Dividends from net
investment income (0.36) (0.20)
Distribution from
capital gains ... (1.59) (0.92)
----- -----
Total distributions (1.95) (1.12)
----- -----
Net asset value,
end of period .... $32.91 $28.96
===== =====
Total return ....... 20.53% 8.45%
Net assets, end of
period (000
omitted) ......... $151,344 $107,703
Ratio of expenses to
average net assets 0.73% 0.74%**
Ratio of net investment
income to average
net assets ....... 1.17% 1.36%**
Portfolio turnover
rate ............. 22.24% 17.59%**
Average commission
rate paid ........ $0.0496
*Commencement of operations.
**Annualized.
<PAGE>
Financial Highlights
UNITED ACCUMULATIVE FUND
The following information has been audited in conjunction with the
annual audits of the Financial Statements of the Fund. Financial Statements for
the fiscal year ended December 31, 1996, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class Y share outstanding throughout each period:
For the For the
fiscal year period from
ended 7/11/95* to
12/31/96 12/31/95
---------- -----------
Net asset value,
beginning of period $7.78 $7.84
---- ----
Income from investment
operations:
Net investment income 0.12 0.05
Net realized and
unrealized gain
on investments .. 0.82 0.87
---- ----
Total from investment
operations ....... 0.94 0.92
---- ----
Less distributions:
Dividends from net
investment income (0.12) (0.06)
Distribution from
capital gains ... (0.85) (0.92)
---- ----
Total distributions (0.97) (0.98)
---- ----
Net asset value,
end of period .... $7.75 $7.78
==== ====
Total return ....... 12.27% 11.92%
Net assets, end of
period (000
omitted) ......... $2,640 $655
Ratio of expenses to
average net assets 0.74% 0.76%**
Ratio of net investment
income to average
net assets ....... 1.45% 1.24%**
Portfolio turnover
rate ............. 240.37% 229.03%**
Average commission
rate paid ........ $0.0575
*Commencement of operations.
**Annualized.
<PAGE>
Financial Highlights
UNITED SCIENCE AND TECHNOLOGY FUND
The following information has been audited in conjunction with the
annual audits of the Financial Statements of the Fund. Financial Statements for
the fiscal year ended December 31, 1996, and the independent auditors' report of
Deloitte & Touche LLP thereon, are included in the SAI and should be read in
conjunction with the Financial Highlights.
For a Class Y share outstanding throughout the period:
For the
period from
2/27/96* to
12/31/96
----------
Net asset value,
beginning of period $24.05
-----
Income from investment
operations:
Net investment loss (0.02)
Net realized and
unrealized gain
on investments .. 0.82
-----
Total from investment
operations ....... 0.80
-----
Less distributions:
Dividends from net
investment income (0.00)
Distribution from
capital gains ... (1.47)
-----
Total distributions (1.47)
-----
Net asset value,
end of period .... $23.38
=====
Total return ....... 3.25%
Net assets, end of
period (000
omitted) ......... $3,090
Ratio of expenses to
average net assets 0.80%**
Ratio of net investment
income to average
net assets ....... -0.12%**
Portfolio turnover
rate ............. 33.90%**
Average commission
rate paid ........ $0.0538
*Commencement of operations.
**Annualized.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Funds
may also advertise their performance by showing yield and performance rankings.
Performance information is calculated and presented separately for each class of
Fund shares.
Explanation of Terms
Total Return is the overall change in value of an investment in a Fund over
a given period, assuming reinvestment of any dividends and other distributions.
A cumulative total return reflects actual performance over a stated period of
time. An average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Average annual total
returns smooth out variations in performance; they are not the same as actual
year-by-year results. Non-standardized total return may be for periods other
than those required to be presented or may otherwise differ from standardized
total return.
Yield refers to the income generated by an investment in the Fund over a
given period of time, expressed as an annual percentage rate. A Fund's yield is
based on a 30-day period ending on a specific date and is computed by dividing
the Fund's net investment income per share earned during the period by the
Fund's maximum offering price per share on the last day of the period.
Performance Rankings are comparisons of a Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average, or non-market indices or averages of mutual fund
industry groups. A Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a ranking,
the Fund may provide additional information, such as the particular category to
which it relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
All performance information that each Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of a Fund's shares when redeemed may be more or less than their original cost.
Each Fund's recent performance and holdings will be detailed twice a year
in that Fund's annual and semiannual reports, which are sent to all Fund
shareholders.
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of
their financial future by helping them take advantage of various financial
services. Today, Waddell & Reed has over 2500 account representatives located
throughout the United States. Your primary contact in your dealings with
Waddell & Reed will be your local account representative. However, the Waddell
& Reed shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a customer
service representative by calling the telephone number listed on the inside back
cover of this Prospectus.
<PAGE>
About the Investment Principles of the Funds
Investment Goals and Principles
The goals of each Fund are set forth below. There is no assurance that a
Fund will achieve its goals; some risks are inherent in all securities to
varying degrees.
United Bond Fund. The goal of United Bond Fund is a reasonable return with
more emphasis on preservation of capital. The Fund seeks to achieve this goal
by investing in debt securities, which may include convertible securities and
debt securities with warrants attached. In selecting debt securities for the
portfolio of the Fund, WRIMCO considers yield and relative safety and, in the
case of convertible securities, the possibility of capital growth.
The Fund may purchase securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities ("U.S. Government Securities").
The Fund will invest in U.S. Government Securities that are not backed by the
full faith and credit of the United States only when WRIMCO is satisfied that
the credit risk is acceptable. Among the U.S. Government Securities that the
Fund may purchase are mortgage-backed securities of the Government National
Mortgage Association ("Ginnie Mae"). These mortgage-backed securities include
pass-through securities, participation certificates and collateralized mortgage
obligations ("CMOs").
United Bond Fund may not purchase any securities other than debt securities
if after such purchase more than 10% of its total assets would consist of other
than debt securities. This 10% limit does not include premiums paid or received
by the Fund in connection with options transactions, the value of options or
futures contracts held by the Fund, margin deposits as to options and futures
contracts, or non-debt securities held as a result of conversion or exercise of
a warrant.
United Income Fund. The primary goal of United Income Fund is the
maintenance of current income, subject to market conditions. As a secondary
goal, the Fund seeks capital growth. The Fund seeks to achieve these goals by
investing in common stocks, or securities convertible into common stocks, of
companies that have a record of paying regular dividends on common stock or have
the potential for capital growth or that may be expected to resist market
decline. At least 65% of United Income Fund's total assets will be invested
during normal market conditions in income-producing securities. When investment
conditions are such that stocks with high yields are less attractive than other
common stocks, the Fund may hold lower-yielding common stocks because of their
prospects for appreciation. When investment conditions are such that the return
on debt securities and preferred stocks is more attractive than the return on
common stocks, or when WRIMCO believes a temporary defensive position is
desirable, the Fund may seek to achieve its goal by investing up to all of its
assets in debt securities and preferred stocks.
United Accumulative Fund. The goal of United Accumulative Fund is capital
growth, with current income a secondary goal. The Fund seeks to achieve these
goals by investing in common stocks or securities convertible into common
stocks. As a temporary defensive measure at times when WRIMCO believes that
such securities do not offer a good investment opportunity, the Fund may hold up
to all of its assets in cash or fixed-income securities (i.e., debt securities
or preferred stock) or in common stocks that WRIMCO chooses because they are
less volatile rather than for their growth potential.
United Science and Technology Fund. The goal of United Science and
Technology Fund is long-term capital growth. The Fund seeks to achieve this
goal by concentrating its investments in science and technology securities.
Science and technology securities are securities of companies whose products,
processes or services, in WRIMCO's opinion, are being or are expected to be
significantly benefited by the utilization or commercial application of
scientific or technological discoveries or developments in such areas as
aerospace, communications and electronic equipment, computer systems, computer
software and services, electronics, electronic media, business machines, office
equipment and supplies, biotechnology, medical and hospital supplies and
services, medical devices and drugs. Certain risks are associated with science
and technology securities, including the impact of governmental regulation and
rapid obsolescence of issuers' products or processes.
Under normal economic and market conditions, United Science and Technology
Fund will not invest in any securities other than science securities or
technology securities if, after such investment, more than 20% of its total
assets would be invested in such other securities. The Fund may own common
stock, preferred stock, debt securities and convertible securities. At times,
as a temporary defensive measure, the Fund may invest up to all of its assets in
U.S. Government Securities or other debt securities.
Risk Considerations
There are risks inherent in any investment. The Funds are subject to
varying degrees of market risk, financial risk and, in some cases, prepayment
risk. Market risk is the potential for fluctuations in the price of the
security because of market factors. Because of market risks, you should
anticipate that the share prices of the Funds will fluctuate. Financial risk is
based on the financial situation of the issuer. The financial risk of a Fund
depends on the credit quality of the underlying securities. Prepayment risk is
the possibility that, during periods of falling interest rates, a debt security
with a high stated interest rate will be prepaid prior to its expected maturity
date.
Certain types of instruments in which the Funds may invest, and certain
strategies WRIMCO may employ in pursuit of a Fund's goal(s), involve special
risks. United Bond Fund invests primarily in debt securities, including, among
others, U.S. Government Securities and non-investment grade debt securities
(commonly called "junk bonds"). The market risk to which the Fund is subject is
the possibility that the price of its debt securities will fall because of
changing interest rates. The financial risk to which the Fund is subject is the
possibility that an issuer will fail to make timely payments of interest or
principal to the Fund. The Fund is also subject to prepayment risk. Although
investments in U.S. Government Securities provide substantial protection against
financial risk, they do not protect investors against price changes due to
market risk. Lower-quality debt securities involve greater risk of default or
price changes due to changes in the issuer's creditworthiness. The market
prices of these securities may fluctuate more than high-quality securities and
may decline significantly in periods of general economic difficulty.
United Income Fund and United Accumulative Fund invest primarily in equity
securities. These Funds are subject to greater market risk than funds investing
solely in debt securities. The market risk to which these Funds are subject is
the possibility of a change in the price of securities caused by stock market
price changes. The financial risk to which these Funds are subject is the
possibility that the price of a security will fall because of poor earnings
performance by the issuer.
United Science and Technology Fund may invest in equity securities and debt
securities. This Fund is subject to differing market risks, financial risks and
prepayment risks depending on the types of securities in which it invests. For
equity securities, market risk is the possibility of change in price caused by
stock market price changes; for debt securities, market risk is the possibility
that the price will fall because of changing interest rates. For equity
securities, financial risk is the possibility that the price of the security
will fall because of poor earnings performance by the issuer. For debt
securities, financial risk is the possibility that a bond issuer will fail to
make timely payments of interest or principal to the Fund. The Fund is also
subject to prepayment risk.
A Fund may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, forward contracts,
swaps, caps, collars, floors, indexed securities, stripped securities and
mortgage-backed and other asset-backed securities. The use of derivative
instruments involves special risks. See "Risks of Derivative Instruments" for
further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Funds may invest and strategies WRIMCO may employ in
pursuit of the Funds' investment goal(s). A summary of risks associated with
these instrument types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by a Fund's investment policies and
restrictions unless it believes that doing so will help a Fund achieve its
goal(s).
Certain of the investment policies and restrictions of each Fund are
also stated below. A fundamental policy of a Fund may not be changed without
the approval of the shareholders of that Fund. Operating policies may be
changed by the Board of Directors without the approval of the affected
shareholders. The goal(s) of a Fund and the type of securities in which a Fund
may invest are fundamental policies. Unless otherwise indicated, the types of
other assets in which a Fund may invest and other policies are operating
policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Funds' investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which a Fund invests may include preferred
stock that converts to common stock either automatically or after a specified
period of time or at the option of the issuer.
Debt Securities. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face value. The debt securities in which a
Fund invests may include debt securities whose performance is linked to a
specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
Lower-quality debt securities are considered to be speculative and involve
greater risk of default or price changes due to changes in the issuer's
creditworthiness. The market prices of these securities may fluctuate more than
high-quality securities and may decline significantly in periods of general
economic difficulty. While the market for high-yield, high-risk corporate debt
securities has been in existence for many years and has weathered previous
economic downturns, the 1980s brought a dramatic increase in the use of such
securities to fund highly leveraged corporate acquisitions and restructurings.
Past experience may not provide an accurate indication of the future performance
of the high-yield, high-risk bond market, especially during periods of economic
recession. The market for lower-rated debt securities may be thinner and less
active than that for higher-rated debt securities, which can adversely affect
the prices at which the former are sold. Adverse publicity and changing
investor perceptions may decrease the values and liquidity of lower-rated debt
securities, especially in a thinly-traded market.
Valuation becomes more difficult and judgment plays a greater role in
valuing lower-rated debt securities than with respect to securities for which
more external sources of quotations and last sale information are available.
Since the risk of default is higher for lower-rated debt securities, WRIMCO's
research and credit analysis are an especially important part of managing
securities of this type held by a Fund. WRIMCO continuously monitors the
issuers of lower-rated debt securities in a Fund's portfolio in an attempt to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments. A Fund may choose, at its expense or
in conjunction with others, to pursue litigation or otherwise to exercise its
rights as a security holder to seek to protect the interests of security holders
if it determines this to be in the best interest of the Fund's shareholders.
U.S. Government securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government ("U.S. Government Securities"). Not all
U.S. Government Securities are backed by the full faith and credit of the United
States. Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S. Government to
purchase the agencies' obligations; while others are supported only by the
credit of the instrumentality. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment.
A Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with original issue discount ("OID"). Zero coupon
bonds are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or that specify a future date when the
securities begin to pay current interest; instead, they are sold at a deep
discount from their face value and are redeemed at face value when they mature.
Because zero coupon bonds do not pay current income, their prices can be very
volatile when interest rates change and generally are subject to greater
fluctuations in response to changing interest rates than the prices of debt
obligations of comparable maturities that make current distributions of interest
in cash.
The Federal tax law requires that a holder of a security with OID accrue a
ratable portion of the OID on the security as income each year, even though the
holder may receive no interest payment on the security during the year.
Accordingly, although a Fund will receive no payments on its zero coupon bonds
prior to their maturity or disposition, it will have current income attributable
to those securities. Nevertheless, for income and excise tax purposes each Fund
annually must distribute to its shareholders substantially all of its net
investment income, including OID. Accordingly, each Fund will be required to
include in its dividends an amount equal to the income attributable to its zero
coupon and other OID bonds. See "Taxes" in the SAI. Those dividends will be
paid from a Fund's cash assets or by liquidation of portfolio securities, if
necessary, at a time when the Fund otherwise might not have done so.
Subject to its investment restrictions, a Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest category (D by Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P"), and C by Moody's Investors
Service, Inc. ("MIS")). In addition, a Fund will treat unrated securities
judged by WRIMCO to be of equivalent quality to a rated security to be
equivalent to securities having that rating. The rating categories of S&P and
MIS are described in Appendix A. While credit ratings are only one factor
WRIMCO relies on in evaluating high-yield debt securities, certain risks are
associated with credit ratings. Credit ratings evaluate the safety of principal
and interest payments, not market value risk. Credit ratings for individual
securities may change from time to time, and a Fund may retain a portfolio
security whose rating has been changed.
Policies and Restrictions: At least 65% of the total assets of United Bond
Fund will be invested during normal market conditions in bonds.
United Income Fund, United Accumulative Fund and United Science and
Technology Fund do not intend to invest in non-investment grade debt securities
if, as a result of such investment, more than 5% of that Fund's assets would
consist of such investments.
United Bond Fund does not currently intend to invest more than 20% of its
assets in non-investment grade debt securities.
Debt Holdings, by Ratings. During the fiscal year ended December 31, 1996,
the percentage of the assets of United Bond Fund invested in debt securities in
each of the rating categories of S&P and the corporate debt securities not rated
by an established rating service, determined on a dollar-weighted average, were
as follows:
Percentage of
Rated Assets of United
by S&P Bond Fund
- ------ ----------------
AAA 37.9%
AA 9.9
A 18.4
BBB 18.6
BB 11.3
B 1.6
CCC 0.0
CC 0.0
C 0.0
D 0.0
Unrated 1.2
The percentage of assets in each category was calculated on the basis of a
monthly dollar-weighted average. The monthly dollar-weighted average was
calculated using the market value of the securities in United Bond Fund's
portfolio at the end of each month in the thirteen-month period ended with its
last fiscal year, averaged over its last fiscal year. The rating used for each
security is that security's rating as of the end of each month and, as ratings
may change over time, does not necessarily indicate past or future ratings of
any particular security or the ratings of securities in the Fund's portfolio in
general. Asset composition of the Fund by rating categories at any particular
time does not necessarily indicate future asset composition by rating
categories.
Preferred Stock is also rated by S&P and MIS, as described in Appendix A.
The Funds may invest in preferred stock rated in any rating category by an
established rating service and unrated preferred stock judged by WRIMCO to be of
equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities generally have higher
yields than common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities, are less subject to fluctuation in value
than the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: Each Fund may invest in convertible securities
as long as WRIMCO determines that it is consistent with the Fund's goal(s) and
investment policies.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse diplomatic
developments. There is no assurance that WRIMCO will be able to anticipate
these potential events or counter their effects.
The considerations noted above generally are intensified for investments in
developing countries. A developing country is a nation that, in WRIMCO's
opinion, is likely to experience long-term gross domestic product growth above
that expected to occur in the United States, the United Kingdom, France,
Germany, Italy, Japan and Canada. Developing countries may have relatively
unstable governments, economies based on only a few industries and securities
markets that trade a small number of securities.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: As a fundamental policy, each Fund may
purchase an unlimited amount of foreign securities; however, as an operating
policy, a Fund may not invest more than 20% of its net assets in foreign
securities.
As a fundamental policy, less than 5% of the total assets of the
Corporation may be invested in securities issued by foreign governments.
Options, Futures and Other Strategies. A Fund may use certain options,
futures contracts, forward currency contracts, swaps, caps, collars, floors,
indexed securities, mortgage-backed and other asset-backed securities and
certain other strategies described herein to attempt to enhance income or yield
or to attempt to reduce the risk of its investments. The strategies described
below may be used in an attempt to manage a Fund's foreign currency exposure as
well as other risks of a Fund's investments that can affect fluctuation in its
net asset value. A Fund may also use various techniques to increase or decrease
its exposure to changing security prices, interest rates, currency exchange
rates, commodity prices or other factors that affect security values.
A Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Policies and Restrictions: Subject to the further limitations stated in
the SAI, generally a Fund may purchase and sell any type of derivative
instrument (including, without limitation, futures contracts, options, forward
contracts, swaps, caps, collars and floors and indexed securities). However, a
Fund will only purchase or sell a particular derivative instrument if the Fund
is authorized to invest in the type of asset by which the return on, or value
of, the derivative instrument is primarily measured or, with respect to foreign
currency derivatives, if the Fund is authorized to invest in foreign securities.
Options. A Fund may engage in certain strategies involving options to
attempt to enhance its income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed-upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in a Fund's net
asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options that are not listed on an
exchange may be less active than the market for exchange-listed options. A Fund
will be able to close a position in an option it has written only if there is a
market for the put or call. If a Fund is not able to enter into a closing
transaction on an option it has written, it will be required to maintain the
securities, or cash in the case of an option on an index, subject to the call or
the collateral underlying the put until a closing purchase transaction can be
entered into or the option expires. Because index options are settled in cash,
a Fund cannot provide in advance for its potential settlement obligations on a
call it has written on an index by holding the underlying securities. The Fund
bears the risk that the value of the securities it holds will vary from the
value of the index.
Futures Contracts and Options on Futures Contracts. When a Fund purchases
a futures contract, it incurs an obligation to take delivery of a specified
amount of the obligation underlying the contract at a specified time in the
future for a specified price. When a Fund sells a futures contract, it incurs
an obligation to deliver the specified amount of the underlying obligation at a
specified time in return for an agreed-upon price.
When a Fund writes an option on a futures contract, it becomes
obligated, in return for the premium paid, to assume a position in the futures
contract at a specified exercise price at any time during the term of the
option. If a Fund writes a call, it assumes a short futures position. If it
writes a put, it assumes a long futures position. When the Fund purchases an
option on a futures contract, it acquires the right, in return for the premium
it pays, to assume a position in the futures contract (a long position if the
option is a call and a short position if the option is a put).
Forward Contracts and Foreign Currencies. A Fund may enter into forward
currency contracts for the purchase or sale of a specified currency at a
specified future date either with respect to specific transactions or with
respect to portfolio positions in order to minimize the risk to the Fund from
adverse changes in the relationship between the U.S. dollar and a foreign
currency. For example, when WRIMCO anticipates purchasing or selling a security
denominated in a foreign currency, the Fund may enter into a forward contract in
order to set the exchange rate at which the transaction will be made. A Fund
also may enter into a forward contract to sell an amount of a foreign currency
approximating the value of some or all of the Fund's securities positions
denominated in such currency. A Fund may also use forward contracts in one
currency or a basket of currencies to attempt to hedge against fluctuations in
the value of securities denominated in a different currency if WRIMCO
anticipates that there will be a correlation between the two currencies.
A Fund may also use forward currency contracts to shift the Fund's exposure
to foreign currency exchange rate changes from one foreign currency to another.
For example, if the Fund owns securities denominated in a foreign currency and
WRIMCO believes that currency will decline relative to another currency, it
might enter into a forward contract to sell the appropriate amount of the first
foreign currency with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as "cross
hedging." Use of a different foreign currency magnifies a Fund's exposure to
foreign currency exchange rate fluctuations. A Fund may also purchase forward
currency contracts to enhance income when WRIMCO anticipates that the foreign
currency will appreciate in value, but securities denominated in that currency
do not present attractive investment opportunities.
Successful use of forward currency contracts depends on WRIMCO's skill in
analyzing and predicting currency values. Forward contracts may substantially
change a Fund's investment exposure to changes in currency exchange rates and
could result in losses to the Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward currency
contracts will be advantageous to the Fund or that it will hedge at an
appropriate time.
A Fund may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
Indexed Securities. Each Fund may purchase indexed securities, which
are securities the value of which varies in relation to the value of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators, subject to its operating policy
regarding derivative instruments. Indexed securities typically, but not always,
are debt securities or deposits whose value at maturity or coupon rate is
determined by reference to a specific instrument or statistic. The performance
of indexed securities depends to a great extent on the performance of the
security, currency, or other instrument to which they are indexed and may also
be influenced by interest rate changes in the United States and abroad. At the
same time, indexed securities are subject to the credit risks associated with
the issuer of the security, and their values may decline substantially if the
issuer's creditworthiness deteriorates. Indexed securities may be more volatile
than the underlying instruments.
Swaps, Caps, Collars and Floors. Each Fund may enter into swaps, caps,
collars and floors as described below. A Fund may enter into these transactions
to preserve a return or spread on a particular investment or portion of its
portfolio, to protect against any increase in the price of securities the Fund
anticipates purchasing at a later date or to attempt to enhance income or yield.
Swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive cash flows, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of a cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined value, to receive
payments on a notional principal amount from the party selling such cap. The
purchase of a floor entitles the purchaser, to the extent that a specified index
falls below a predetermined value, to receive payments on a notional principal
amount from the party selling such floor. An interest rate collar combines
elements of buying a cap and selling a floor.
Depending on how they are used, the swap, cap, collar and floor agreements
used by a Fund may also increase or decrease the overall volatility of its
investments and its share price and yield. The most significant factor in the
performance of these agreements is the change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the Fund.
A Fund usually will enter into swaps on a net basis, i.e., the two payment
streams are netted out, with the Fund receiving or paying, as the case may be,
only the net amount of the two payments. If, however, an agreement calls for
payments by a Fund, the Fund must be prepared to make such payments when due.
The creditworthiness of firms with which a Fund enters into swaps, caps, collars
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Board of Directors. If a firm's creditworthiness declines, the value of an
agreement would be likely to decline, potentially resulting in losses. If a
default occurs by the other party to such transaction, a Fund will have
contractual remedies pursuant to the agreements related to the transaction.
The Funds understand that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
securities and are, therefore, subject to the limitations on investment in
illiquid securities as described in the SAI.
Mortgage-Backed and Other Asset-Backed Securities are bonds backed by
specific types of assets. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. Government mortgage-backed securities are issued or
guaranteed as to principal and interest (but not as to market value) by the
Government National Mortgage Association, Fannie Mae (formerly, the Federal
National Mortgage Association), the Federal Home Loan Mortgage Corporation or
other government-sponsored enterprises. Other mortgage-backed securities are
sponsored or issued by private entities, including investment banking firms and
mortgage originators.
Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
prospectus as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of
these payments that investors receive, as well as the priority of their rights
to receive payments, are determined by the specific terms of the CMO class.
For example, interest-only ("IO") classes are entitled to receive all or a
portion of the interest, but none (or only a nominal amount) of the principal
payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest payments allocable to the IO class, and therefore
the yield to investors, generally will be reduced. In some instances, an
investor in an IO may fail to recoup all of his or her initial investment, even
if the security is government guaranteed or considered to be of the highest
quality. Conversely, principal-only ("PO") classes are entitled to receive all
or a portion of the principal payments, but none of the interest, from the
underlying mortgage assets. PO classes are purchased at substantial discounts
from par, and the yield to investors will be reduced if principal payments are
slower than expected. IOs, POs and other CMOs involve special risks, and
evaluating them requires special knowledge.
When interest rates decline and homeowners refinance their mortgages,
mortgage-backed bonds may be paid off more quickly than investors expect. When
interest rates rise, mortgage-backed bonds may be paid off more slowly than
originally expected. Changes in the rate or "speed" of these prepayments can
cause the value of mortgage-backed securities to fluctuate rapidly.
Other asset-backed securities are similar to mortgage-backed securities,
except that the underlying assets are different. These underlying assets may be
nearly any type of financial asset or receivable, such as motor vehicle
installment sales contracts, home equity loans, leases of various types of real
and personal property and receivables from credit cards.
The yield characteristics of mortgage-backed and other asset-backed
securities differ from those of traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently
and that principal may be prepaid at any time because the underlying mortgage
loans or other assets generally may be prepaid at any time. Generally,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed and other asset-backed securities may also decrease in value as
a result of increases in interest rates and, because of prepayments, may benefit
less than other bonds from declining interest rates. Reinvestments of
prepayments may occur at lower interest rates than the original investment, thus
adversely affecting a Fund's yield. Actual prepayment experience may cause the
yield of a mortgage-backed security to differ from what was assumed when the
Fund purchased the security.
The market for privately issued mortgage-backed and other asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specially structured in a manner
that provides any of a wide variety of investment characteristics, such as
yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.
Policies and Restrictions: Each Fund may invest in mortgage-backed, asset-
backed and stripped securities as long as WRIMCO determines that it is
consistent with the Fund's goal(s) and investment policies.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, forward contracts, swaps, caps, collars and
floors, and the investment in indexed securities, stripped securities and
mortgage-backed and other asset-backed securities involve special risks,
including (i) possible imperfect or no correlation between price movements of
the portfolio investments (held or intended to be purchased) involved in the
transaction and price movements of the instruments involved in the transaction,
(ii) possible lack of a liquid secondary market for any particular instrument at
a particular time, (iii) the need for additional portfolio management skills and
techniques, (iv) losses due to unanticipated market price movements, (v) the
fact that, while such strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in investments involved in the transaction, (vi)
incorrect forecasts by WRIMCO concerning interest or currency exchange rates or
direction of price fluctuations of the investment involved in the transaction,
which may result in the strategy being ineffective, (vii) loss of premiums paid
by a Fund on options it purchases, and (viii) the possible inability of a Fund
to purchase or sell a portfolio security at a time when it would otherwise be
favorable for it to do so, or the possible need for a Fund to sell a portfolio
security at a disadvantageous time, due to the need for the Fund to maintain
"cover" or to segregate assets in connection with such transactions and the
possible inability of a Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of a Fund's portfolio diverges from instruments underlying a hedging
instrument. Such equal price changes are not always possible because the
investment underlying the hedging instruments may not be the same investment
that is being hedged. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments for hedging purposes to adjust the
risk characteristics of a Fund's portfolio of investments and may use these
instruments to adjust the return characteristics of a Fund's portfolio of
investments. The use of derivative techniques for speculative purposes can
increase investment risk. If WRIMCO judges market conditions incorrectly or
employs a strategy that does not correlate well with a Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
a Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is not
a liquid secondary market to close out a position that a Fund has entered into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest rate,
currency exchange rate or stock market trends by WRIMCO may still not result in
a successful transaction. WRIMCO may be incorrect in its expectations as to the
extent of various interest or currency exchange rate or stock market movements
or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transactions
costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. Each Fund may use these instruments and techniques to the extent
consistent with its goal(s), investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect a
Fund's yield.
When purchasing securities on a delayed-delivery basis, a Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When a Fund sells a security on a delayed-delivery basis, a Fund
does not participate in further gains or losses with respect to the security.
If the other party to a delayed-delivery transaction fails to deliver or pay for
the securities, a Fund could miss a favorable price or yield opportunity, or
could suffer a loss.
Policies and Restrictions: Each Fund may purchase securities in which it
may invest on a when-issued or delayed-delivery basis or sell them on a delayed-
delivery basis.
Repurchase Agreements. In a repurchase agreement, a Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Policies and Restrictions: Each Fund may purchase securities subject to
repurchase agreements if, as a result, no more than 10% of its net assets would
consist of illiquid investments (which include repurchase agreements not
terminable within seven days).
Restricted Securities and Illiquid Investments. Restricted securities are
securities that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Corporation's Board of Directors.
Illiquid investments may be difficult to sell promptly at an acceptable
price. Difficulty in selling securities may result in a loss or may be costly
to a Fund.
Policies and Restrictions: Each Fund may purchase restricted
securities. United Income Fund does not intend to invest more than 10% of its
assets in restricted securities.
A Fund may not purchase a security if as a result more than 10% of its net
assets would consist of illiquid investments.
Diversification. Diversifying a Fund's investment portfolio can reduce the
risks of investing. This may include limiting the amount of money invested in
any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, a Fund may not,
with respect to 75% of its total assets, purchase securities of any one issuer
(other than cash items and "Government Securities" as defined in the Investment
Company Act of 1940, as amended (the "1940 Act")), if immediately after and as a
result of such purchase, (a) the value of the holdings of the Fund in the
securities of such issuer exceeds 5% of the value of the Fund's total assets, or
(b) the Fund owns more than 10% of the outstanding voting securities of such
issuer.
As a fundamental policy, no Fund other than United Science and Technology
Fund may buy a security if, as a result, 25% or more of the Fund's total assets
would then be invested in securities of companies in any one industry.
Borrowing. As a fundamental policy, the Funds may not borrow money;
however, this policy shall not prevent a Fund from pledging its assets in
connection with its purchase and sale of futures contracts, options, forward
contracts, swaps, caps, collars, floors and other financial instruments.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing a Fund's income. This practice could result in a
loss or a delay in recovering a Fund's securities. Loans will be made only to
parties deemed by WRIMCO to be creditworthy.
Policies and Restrictions: As a fundamental policy, a Fund will not lend
more than 10% of its assets at any one time, and such loans must be on a
collateralized basis in accordance with applicable regulatory requirements.
Other Instruments may include securities of closed-end investment
companies. As a shareholder in an investment company, a Fund would bear its pro
rata share of that investment company's expenses, which could result in
duplication of certain fees, including management and administrative fees.
Policies and Restrictions: As a fundamental policy, each Fund may purchase
shares of other investment companies that do not redeem their shares, but not
more than 10% of the total assets of the Corporation may be invested in such
shares. Each Fund does not currently intend to invest more than 5% of its
assets in the shares of other investment companies.
Each Fund, other than United Science and Technology Fund, does not
currently intend to purchase the securities of any issuer (other than securities
issued or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of its total assets would be
invested in the securities of business enterprises that, including predecessors,
have a record of less than three years of continuous operation. This
restriction does not apply to any obligations issued or guaranteed by the U.S.
government, or a state or local government authority, or their respective
agencies or instrumentalities, or to collateralized mortgage obligations, other
mortgage-related securities, asset-backed securities, indexed securities or
over-the-counter derivative financial instruments. Each Fund may invest in
warrants.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors. Class Y shares
are available for purchase by:
participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended (the "Code"), when the plan has 100
or more eligible employees and holds the shares in an omnibus account on the
Fund's records;
banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records;
government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
certain retirement plans and trusts for employees and account representatives
of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Funds through Waddell & Reed, Inc. and its
account representatives. To open your account you must complete and sign an
application. Your Waddell & Reed, Inc. account representative can help you with
any questions you might have.
The price to buy a share of each Fund, called the offering price, is
calculated every business day.
The offering price of a Class Y share (price to buy one Class Y share) is
each Fund's Class Y net asset value ("NAV").
To purchase by wire, you must first obtain an account number by calling 1-
800-366-2520, then mail a completed application to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217 or fax it to 913-236-5044.
Instruct your bank to wire the amount you wish to invest to UMB Bank, n.a., ABA
Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail
the check, along with your completed account application, to Waddell & Reed,
Inc., P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
A Fund's Class Y NAV is the value of a single Class Y share. The Class Y
NAV is computed by adding with respect to that class the value of a Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class Y shares outstanding.
The securities in each Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices quoted by a third-party pricing service. Short-term debt
securities are valued at amortized cost, which approximates market value. Other
assets are valued at their fair value by or at the direction of the Board of
Directors.
A Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Funds normally calculate their NAVs as of the later of the
close of business of the NYSE, normally 4 p.m. Eastern time, or the close of the
regular session of any other securities or commodities exchange on which an
option or future held by a Fund is traded.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted. Note
the following:
Orders are accepted only at the home office of Waddell & Reed, Inc.
All of your purchases must be made in U.S. dollars.
If you buy shares by check, and then sell those shares by any method other
than by exchange to another Fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
The Funds do not issue certificates representing Class Y shares of the Funds.
When you sign your account application, you will be asked to certify that
your Social Security or other taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income to
the Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Funds reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million (within
first twelve months)
For other investors: Any amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you
wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer
Name and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed,
Inc. Mail the check along with a letter stating your account number, the
account registration and that you wish to purchase Class Y shares of a Fund to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class
Y NAV.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
the name on the account registration;
the Fund's name;
the Fund account number;
the dollar amount or number of shares to be redeemed; and
any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed, Inc. will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request for redemption in good
order by Waddell & Reed, Inc. at its home office. Note the following:
If more than one person owns the shares, each owner must sign the written
request.
If you recently purchased the shares by check, a Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares
will be delayed until the earlier of 10 days or the date the Fund is able to
verify that your purchase check has cleared and been honored.
Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted or as permitted by the Securities and Exchange Commission.
Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
Each Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed, Inc. from fraud. A Fund may require a signature guarantee in certain
situations such as:
the request for redemption is made by a corporation, partnership or
fiduciary;
the request for redemption is made by someone other than the owner of record;
or
the check is being made payable to someone other than the owner of record.
Each Fund will accept a signature guarantee from a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent. A notary public cannot provide a signature guarantee.
Telephone Transactions
The Corporation and its agents will not be liable for following
instructions communicated by telephone that they reasonably believe to be
genuine. The Corporation will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Corporation fails to
do so, the Corporation may be liable for losses due to unauthorized or
fraudulent instructions. Current procedures relating to instructions
communicated by telephone include tape recording instructions, requiring
personal identification and providing written confirmations of transactions
effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, the Waddell & Reed Customer Services staff is
available to respond promptly to your inquiries and requests.
Reports
Statements and reports sent to you include the following:
confirmation statements (after every purchase, exchange, transfer or
redemption)
year-to-date statements (quarterly)
annual and semiannual reports (every six months)
To reduce expenses, only one copy of most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Fund. Call the telephone number listed on the inside back cover of
this Prospectus if you need copies of annual or semiannual reports or historical
account information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in
the United Group. You may exchange only into funds that are legally registered
for sale in your state of residence. Note that exchanges out of a Fund may have
tax consequences for you. Before exchanging into a fund, read its prospectus.
The Funds reserve the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and
net capital gains to its shareholders each year. Ordinarily, dividends are
distributed from a Fund's net investment income, which includes accrued
interest, earned OID, dividends and other income earned on portfolio assets less
expenses, at the following times: United Accumulative Fund and United Science
and Technology Fund, semiannually in June and December; United Income Fund,
quarterly in March, June, September and December; and United Bond Fund, monthly.
Net capital gains (and any net gains from foreign currency transactions)
ordinarily are distributed in December. Each Fund may make additional
distributions if necessary to avoid Federal income or excise taxes on certain
undistributed income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. Each Fund offers three
options:
1.Share Payment Option. Your dividend and capital gain and other distributions
will be automatically paid in additional Class Y shares of the Fund. If you
do not indicate a choice on your application, you will be assigned this
option.
2.Income-Earned Option. Your capital gain and other distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
3.Cash Option. You will be sent a check for your dividend and capital gain and
other distributions.
For retirement accounts, all distributions are automatically paid in Class
Y shares.
Taxes
Each Fund, which is treated as a separate corporation for Federal income
tax purposes, has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Code so that it will be relieved of
Federal income tax on that part of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and
net gains from certain foreign currency transactions) and net capital gain (the
excess of net long-term capital gain over net short-term capital loss) that are
distributed to its shareholders.
There are certain tax requirements that all Funds must follow in order to
avoid Federal taxation. In its effort to adhere to these requirements, each
Fund may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in a Fund
will be taxed. If your account is not a tax-deferred retirement account, you
should be aware of the following tax implications:
Taxes on distributions. Dividends from a Fund's investment company taxable
income are generally taxable to you as ordinary income whether received in cash
or paid in additional Fund shares. Distributions of a Fund's net capital gain,
when designated as such, are taxable to you as long-term capital gains, whether
received in cash or paid in additional Fund shares and regardless of the length
of time you have owned your shares. Each Fund notifies you after each calendar
year-end as to the amounts of dividends and other distributions paid (or deemed
paid) to you for that year.
A portion of the dividends paid by a Fund, whether received in cash or paid
in additional Fund shares, may be eligible for the dividends-received deduction
allowed to corporations. The eligible portion may not exceed the aggregate
dividends received by a Fund from U.S. corporations. However, dividends
received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
Withholding. Each Fund is required to withhold 31% of all dividends,
capital gain distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate from dividends
and capital gain distributions also is required for such shareholders who
otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than your adjusted basis for the redeemed shares. An exchange of
Fund shares for shares of any other fund in the United Group generally will have
similar tax consequences. In addition, if you purchase Fund shares within
thirty days before or after redeeming other Fund shares (regardless of class) at
a loss, part or all of that loss will not be deductible and will increase the
basis of the newly-purchased shares.
State Income Taxes. The portion of the dividends paid by United Bond
Fund and United Income Fund (and, to a lesser extent, the other Funds)
attributable to the interest earned on its U.S. Government Securities generally
is not subject to state and local income taxes, although distributions by any
Fund to its shareholders of net realized gains on the disposition of those
securities are fully subject to those taxes. You should consult your tax
adviser to determine the taxability of dividends and other distributions by the
Funds in your state and locality.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting each Fund and its shareholders; see the SAI
for a more detailed discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
<PAGE>
About the Management and Expenses of the Funds
United Funds, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Corporation is an open-end management investment company organized as a
corporation under Maryland law on February 21, 1974, as successor to a Delaware
corporation which commenced operations in 1940.
The Corporation is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Corporation has four series of shares (the "Funds"), each of which
operates as a separate mutual fund with separate assets and liabilities. Each
Fund is a diversified fund. In addition to the Class Y shares offered by this
Prospectus, the Corporation has issued and outstanding Class A shares which are
offered by Waddell & Reed, Inc. through a separate prospectus. Class A shares
are subject to a sales charge on purchases but are not subject to redemption
fees. Class A shares are subject to a Rule 12b-1 fee at an annual rate of up to
0.25% of each Fund's average net assets attributable to Class A shares.
Additional information about Class A shares may be obtained by calling or by
writing to Waddell & Reed, Inc. at the telephone number or address on the inside
back cover of this Prospectus.
The Corporation does not hold annual meetings of shareholders; however,
certain significant corporate matters, such as the approval of a new investment
advisory agreement or a change in a fundamental investment policy, which require
shareholder approval will be presented to shareholders at a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon
receipt by a Fund of a request in writing signed by shareholders holding not
less than 25% of all shares entitled to vote at such meeting, provided certain
conditions stated in the Bylaws of the Corporation are met. There will normally
be no meeting of the shareholders for the purpose of electing directors until
such time as less than a majority of directors holding office have been elected
by shareholders, at which time the directors then in office will call a
shareholders' meeting for the election of directors. To the extent that Section
16(c) of the 1940 Act applies to the Corporation, the directors are required to
call a meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the shareholders
of record of not less than 10% of a Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of a Fund (and
classes thereof) vote together as a single class, except as to any matter for
which a separate vote of any Fund or class is required by the 1940 Act, and
except as to any matter which affects the interests of one or more particular
Fund or classes, in which case only the shareholders of the affected Fund or
class are entitled to vote, each as a separate class. Shares are fully paid and
nonassessable when purchased.
WRIMCO and Its Affiliates
The Funds are managed by WRIMCO, subject to the authority of the
Corporation's Board of Directors. WRIMCO provides investment advice to each of
the Funds and supervises each Fund's investments. Waddell & Reed, Inc. and its
predecessors have served as investment manager to each of the registered
investment companies in the United Group of Mutual Funds, except United Asset
Strategy Fund, Inc., since 1940 or the inception of the company, whichever was
later, and to TMK/United Funds, Inc. since that Fund's inception, until January
8, 1992, when it assigned its duties as investment manager and assigned its
professional staff for investment management services to WRIMCO. WRIMCO has
also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992 and United Asset Strategy Fund, Inc. since it
commenced operations in March 1995.
James C. Cusser is primarily responsible for the day-to-day management of
the portfolio of United Bond Fund. Mr. Cusser has held his Fund
responsibilities since September 1992. He is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. Mr. Cusser has served as the portfolio
manager for the Fund and other investment companies managed by WRIMCO since
August 1992 and has been an employee of WRIMCO since August 1992. From January
1987 to August 1992, Mr. Cusser was Vice President of Kidder, Peabody & Co., New
York.
Russell E. Thompson is primarily responsible for the day-to-day management
of the portfolio of United Income Fund. Mr. Thompson has held his Fund
responsibilities since February 1979. He is Senior Vice President of WRIMCO and
Senior Vice President of Waddell & Reed Asset Management Company, an affiliate
of WRIMCO. He is Vice President of the Fund and Vice President of other
investment companies for which WRIMCO serves as investment manager. Mr.
Thompson has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1976 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since March 1971.
Antonio Intagliata is primarily responsible for the day-to-day management
of the portfolio of United Accumulative Fund. Mr. Intagliata has held his Fund
responsibilities since November 1979. He is Senior Vice President of WRIMCO,
Vice President of the Fund and Vice President of other investment companies for
which WRIMCO serves as investment manager. Mr. Intagliata has served as the
portfolio manager for investment companies managed by Waddell & Reed, Inc., and
its successor, WRIMCO, since February 1979 and has been an employee of Waddell &
Reed, Inc. and its successor, WRIMCO, since June 1973.
Abel Garcia is primarily responsible for the day-to-day management of
the portfolio of United Science and Technology Fund. Mr. Garcia has held his
Fund responsibilities since January 1984. He is Vice President of WRIMCO, Vice
President of Waddell & Reed Asset Management Company, an affiliate of WRIMCO,
and Vice President of the Fund and Vice President of other investment companies
for which WRIMCO serves as investment manager. Mr. Garcia has been an employee
of Waddell & Reed, Inc. and its successor, WRIMCO, since August 1983.
Other members of WRIMCO's investment management department provide input on
market outlook, economic conditions, investment research and other
considerations relating to a Fund's investments.
Waddell & Reed, Inc. serves as the Corporation's underwriter and as
underwriter for each of the other funds in the United Group of Mutual Funds and
Waddell & Reed Funds, Inc. and acts as the principal underwriter and distributor
for variable life insurance and variable annuity policies issued by United
Investors Life Insurance Company for which TMK/United Funds, Inc. is the
underlying investment vehicle.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Corporation and processes the payments of dividends.
Waddell & Reed Services Company also acts as agent ("Accounting Services Agent")
in providing bookkeeping and accounting services and assistance to the
Corporation and pricing daily the value of shares of the Funds.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
United Investors Management Company, a holding company, and Torchmark
Corporation, a holding company.
WRIMCO places transactions for the portfolio of each Fund and in doing
so may consider sales of Fund shares as a factor in the selection of brokers to
execute portfolio transactions, subject to best execution. For further
information concerning Fund portfolio transactions, please see "Portfolio
Transactions and Brokerage" in the SAI.
Breakdown of Expenses
Like all mutual funds, the Funds pay fees related to their daily
operations. Expenses paid out of each Fund's assets are reflected in its share
price or dividends; they are neither billed directly to shareholders nor
deducted from shareholder accounts.
Each Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. Each Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of each Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on each Fund's net asset value as of the close
of business each day at the annual rate of .03 of 1% of the net assets of United
Bond Fund, .15 of 1% of the net assets of United Income Fund and United
Accumulative Fund and .20 of 1% of the net assets of United Science and
Technology Fund. The group fee is a pro rata participation based on the
relative net asset size of each Fund in the group fee computed each day on the
combined net asset values of all the funds in the United Group at the annual
rates shown in the following table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $15.1 billion as of December 31, 1996.
For the fiscal year ended December 31, 1996, management fees for each Fund
as a percent of each Fund's net assets were as follows: United Bond Fund 0.44%,
United Income Fund 0.56%, United Accumulative Fund 0.56%, United Science and
Technology Fund 0.61%.
Other Expenses
While the management fee is a significant component of each Fund's annual
operating costs, the Funds have other expenses as well.
Each Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class Y shares, each Fund pays the Shareholder Servicing Agent a monthly fee
based on the average daily net assets of the class for the preceding month.
Each Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, taxes, brokerage commissions, interest, insurance premiums,
custodian fees, fees payable by the Fund under federal or other securities laws
and to the Investment Company Institute, and extraordinary expenses including
litigation and indemnification relative to litigation.
A Fund cannot precisely predict what its portfolio turnover rate will be,
but each Fund may have a high portfolio turnover. United Accumulative Fund may
engage in short-term trading and have a corresponding high turnover rate. A
higher turnover will increase transaction and commission costs and could
generate taxable income or loss.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities which a
Fund may use. A Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
DESCRIPTION OF BOND RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
corporate or municipal bond rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment of creditworthiness may take into consideration obligors such as
guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the
issuer or obtained by S&P from other sources it considers reliable. S&P does
not perform an audit in connection with any rating and may, on occasion, rely on
unaudited financial information. The ratings may be changed, suspended or
withdrawn as a result of changes in, or unavailability of, such information, or
based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1.Likelihood of default -- capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2.Nature of and provisions of the obligation;
3.Protection afforded by, and relative position of, the obligation in the event
of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to pay
interest and repay principal is very strong, and debt rated AA differs from AAA
issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless S&P believes that such payments will be made
during such grace periods. The D rating will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable MIS
rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest
investment attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
DESCRIPTION OF PREFERRED STOCK RATINGS
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. An S&P
preferred stock rating is an assessment of the capacity and willingness of an
issuer to pay preferred stock dividends and any applicable sinking fund
obligations. A preferred stock rating differs from a bond rating inasmuch as it
is assigned to an equity issue, which issue is intrinsically different from, and
subordinated to, a debt issue. Therefore, to reflect this difference, the
preferred stock rating symbol will normally not be higher than the debt rating
symbol assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
1.Likelihood of payment - capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2.Nature of, and provisions of, the issue;
3.Relative position of the issue in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA -- This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations is very
strong, although not as overwhelming as for issues rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the 'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations. BB indicates the lowest degree of speculation
and CCC the highest degree of speculation. While such issues will likely have
some quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer in
default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of preferred
stock quality, the rating from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or hold
a security inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished
to S&P by the issuer or obtained by S&P from other sources it considers
reliable. S&P does not perform an audit in connection with any rating and may,
on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or based on other circumstances.
Moody's Investors Service, Inc. Because of the fundamental differences
between preferred stocks and bonds, a variation of MIS' familiar bond rating
symbols is used in the quality ranking of preferred stock. The symbols are
designed to avoid comparison with bond quality in absolute terms. It should
always be borne in mind that preferred stock occupies a junior position to bonds
within a particular capital structure and that these securities are rated within
the universe of preferred stocks.
Note: MIS applies numerical modifiers 1, 2 and 3 in each rating
classification; the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well-maintained in the foreseeable
future.
a -- An issue which is rated a is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the aaa
and aa classification, earnings and asset protection are, nevertheless, expected
to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over any
great length of time.
ba -- An issue which is rated ba is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
b -- An issue which is rated b generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of other
terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca -- An issue which is rated ca is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
<PAGE>
United Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Accountants Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Funds, Inc.
Class Y Shares
PROSPECTUS
July 31, 1997
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
printed on recycled paper
NUP1000-Y(7-97)
<PAGE>
UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
(800) 366-5465
July 31, 1997
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. Investors should read this SAI in conjunction with a prospectus
("Prospectus") for the Class A shares or the Class Y shares, as applicable, of
United Funds, Inc. (the "Corporation") dated July 31, 1997, which may be
obtained from the Corporation or its underwriter, Waddell & Reed, Inc., at the
address or telephone number shown above.
TABLE OF CONTENTS
Performance Information ............................... 2
Goals and Investment Policies ......................... 5
Investment Management and Other Services .............. 32
Purchase, Redemption and Pricing of Shares ............ 37
Directors and Officers ................................ 52
Payments to Shareholders .............................. 58
Taxes ................................................. 60
Portfolio Transactions and Brokerage .................. 64
Other Information ..................................... 67
Financial Statements .................................. 69
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Corporation's underwriter, or the Corporation
may, from time to time, publish for one or more of the four Funds total return
information, yield information and/or performance rankings in advertisements and
sales materials.
Total Return
An average annual total return quotation is computed by finding the average
annual compounded rates of return over the one-, five-, and ten-year periods
that would equate the initial amount invested to the ending redeemable value.
Standardized total return information is calculated by assuming an initial
$1,000 investment and, for Class A shares, from which the maximum sales load of
5.75% is deducted. All dividends and distributions are assumed to be reinvested
in shares of the applicable class at net asset value for the class as of the day
the dividend or distribution is paid. No sales load is charged on reinvested
dividends or distributions on Class A shares. The formula used to calculate the
total return for a particular class of a Fund is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented. For
example, a Fund may also compute total return for its Class A shares without
deduction of the sales load in which case the same formula noted above will be
used but the entire amount of the $1,000 initial payment will be assumed to have
been invested. If the sales charge applicable to Class A shares were reflected,
it would reduce the performance quoted for that class.
The average annual total return quotations for Class A shares with sales
load deducted as of December 31, 1996, which is the most recent balance sheet
included in this SAI, for the periods shown were as follows:
One-year Five-year Ten-year
period from period from period from
1-1-96 to 1-1-92 to 1-1-87 to
12-31-96 12-31-96 12-31-96
----------- ----------- -----------
United Bond Fund -2.74% 6.09% 7.68%
United Income Fund 13.44 13.40 14.17
United Accumulative Fund 5.73 12.07 11.86
United Science and
Technology Fund 2.12 12.65 15.85
The average annual total return quotations for Class A shares without sales
load deducted as of December 31, 1996, which is the most recent balance sheet
included in this SAI, for the periods shown were as follows:
One-year Five-year Ten-year
period from period from period from
1-1-96 to 1-1-92 to 1-1-87 to
12-31-96 12-31-96 12-31-96
----------- ----------- -----------
United Bond Fund 3.20% 7.35% 8.32%
United Income Fund 20.36 14.76 14.85
United Accumulative Fund 12.18 13.41 12.52
United Science and
Technology Fund 8.35 13.99 16.53
Prior to October 1, 1993, United Science and Technology Fund was named
United Science and Energy Fund, and its investment policies related to
investments in science and energy securities rather than science and technology
securities.
Prior to June 17, 1995, each Fund offered only one class of shares to the
public. Shares outstanding on that date were designated as Class A shares.
Since that date, Class Y shares of the Funds have been available for certain
institutional investors.
The total return quotations for Class Y shares as of December 31, 1996,
which is the most recent balance sheet included in this SAI, for the periods
shown were as follows:
One year
period Period from
ended inception* to
December 31, 1996 December 31, 1996
United Bond Fund 3.35% 6.52%
United Income Fund 20.53 19.04
United Accumulative Fund 12.27 16.72
United Science and
Technology Fund 3.25
*United Income Fund and United Bond Fund commenced selling Class Y shares on
June 19, 1995 and United Accumulative Fund commenced selling Class Y shares on
July 11, 1995 and United Science and Technology Fund commenced selling Class Y
shares on February 27, 1996.
A Fund may also quote unaveraged or cumulative total return for a class
which reflects the change in value of an investment in that class over a stated
period of time. Cumulative total returns will be calculated according to the
formula indicated above but without averaging the rate for the number of years
in the period.
Yield
A yield quoted for a class of a Fund is computed by dividing the net
investment income per share of that class earned during the period for which the
yield is shown by the maximum offering price per share of that class on the last
day of that period according to the following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where, with respect to a particular class of a Fund:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of the class outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share of the class on the last day
of the period.
The yield for United Bond Fund Class A shares computed according to the
formula for the 30-day period ended on December 31, 1996, the date of the most
recent balance sheet included in this SAI, is 5.70%. The yield for United Bond
Fund Class Y shares computed according to the formula for the 30-day period
ended on December 31, 1996, the date of the most recent balance sheet included
in this SAI, is 6.17%.
Change in yields primarily reflect different interest rates received by a
Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses of
the applicable class.
Performance Rankings
Waddell & Reed, Inc. or the Corporation also may, from time to time,
publish in advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. Each class of a Fund may also compare its
performance to that of other selected mutual funds or selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average. Performance information may be quoted numerically
or presented in a table, graph or other illustration.
All performance information that a Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of a Fund's shares when redeemed may be more or less
than their original cost.
GOALS AND INVESTMENT POLICIES
The goals and investment policies of United Bond Fund, United Income Fund,
United Accumulative Fund and United Science and Technology Fund (each a "Fund"
and, collectively, the "Funds") are described in the Prospectus, which refers to
the following investment methods and practices.
United Science and Technology Fund
As described in the Prospectus, the portfolio of United Science and
Technology Fund emphasizes science and technology securities. Science and
technology securities are securities of companies whose products, processes or
services, in the opinion of Waddell & Reed Investment Management Company, the
Fund's investment manager ("WRIMCO"), are being or are expected to be
significantly benefited by the utilization or commercial application of
scientific or technological discoveries or developments in such areas as
aerospace, communications and electronic equipment, computer systems, computer
software and services, electronics, electronic media, business machines, office
equipment and supplies, biotechnology, medical and hospital supplies and
services, medical devices and drugs.
United Bond Fund
This Fund may not purchase any securities other than debt securities if
immediately after such purchase more than 10% of the value of the Fund's total
assets would consist of such other securities. This 10% limit does not include
(i) any securities required to be sold as promptly as practicable after
conversion of convertible debt securities or exercise of warrants, as set forth
below, or (ii) premiums paid or received by the Fund as to those put and call
options that this Fund is permitted to use, the value of any put or call options
or futures contracts held by it or the amount of initial or variation margin
deposits as to those puts, calls or futures contracts that it is permitted to
use. The debt securities that the Fund may purchase may include convertible
debt securities and debt securities with warrants attached. The Fund may
convert convertible debt securities and exercise warrants provided that, if as a
result of conversion or exercise and/or as a result of warrants becoming
separately salable more than 10% of the value of the Fund's total assets
consists of non-debt securities, sufficient non-debt securities will be sold as
promptly as practical to reduce the percentage of such non-debt securities held
by the Fund to 10% or less of its total assets, less the amounts set forth in
(ii) above. Any such sale shall be made with due regard for losses that might
result from an unduly hasty disposition. A debt security may not be purchased
if, at the time of purchase, it is in default in the payment of interest or if
there is less than $1,000,000 principal amount outstanding.
In selecting debt securities for the portfolio of this Fund, consideration
will be given to their yield; this yield would include the yield to maturity in
the case of debt securities purchased at a discount. Consideration will also be
given to the relative safety of debt securities purchased and, in the case of
convertible debt securities, the possibility of capital growth.
Among the other debt securities in which the Fund may invest are deposits
in banks (represented by certificates of deposit or other evidence of deposit
issued by such banks) of varying maturities. The Federal Deposit Insurance
Corporation insures the principal of certain such deposits ("Insured Deposits"),
currently to the extent of $100,000 per bank. Insured Deposits are not
marketable, and the Fund will invest in them only within the 10% limit mentioned
below under "Illiquid Investments" unless such obligations are payable at
principal amount plus accrued interest on demand or within seven days after
demand.
Securities - General
The main types of securities in which the Funds may invest include common
stock, preferred stock, debt securities and convertible securities, as described
in the Prospectus. These securities may include the following securities from
time to time.
Each of the Funds may purchase debt securities whose principal amount at
maturity is dependent upon the performance of a specified equity security. The
issuer of such debt securities, typically an investment banking firm, is
unaffiliated with the issuer of the equity security to whose performance the
debt security is linked. Equity-linked debt securities differ from ordinary
debt securities in that the principal amount received at maturity is not fixed,
but is based on the price of the linked equity security at the time the debt
security matures. The performance of equity-linked debt securities depends
primarily on the performance of the linked equity security and may also be
influenced by interest rate changes. In addition, although the debt securities
are typically adjusted for diluting events such as stock splits, stock dividends
and certain other events affecting the market value of the linked equity
security, the debt securities are not adjusted for subsequent issuances of the
linked equity security for cash. Such an issuance could adversely affect the
price of the debt security. In addition to the equity risk relating to the
linked equity security, such debt securities are also subject to credit risk
with regard to the issuer of the debt security. In general, however, such debt
securities are less volatile than the equity securities to which they are
linked.
Each of the Funds may also invest in a type of convertible preferred stock
that pays a cumulative, fixed dividend that is senior to, and expected to be in
excess of, the dividends paid on the common stock of the issuer. At the
mandatory conversion date, the preferred stock is converted into not more than
one share of the issuer's common stock at the "call price" that was established
at the time the preferred stock was issued. If the price per share of the
related common stock on the mandatory conversion date is less than the call
price, the holder of the preferred stock will nonetheless receive only one share
of common stock for each share of preferred stock (plus cash in the amount of
any accrued but unpaid dividends). At any time prior to the mandatory
conversion date, the issuer may redeem the preferred stock upon issuing to the
holder a number of shares of common stock equal to the call price of the
preferred stock in effect on the date of redemption divided by the market value
of the common stock, with such market value typically determined one or two
trading days prior to the date notice of redemption is given. The issuer must
also pay the holder of the preferred stock cash in an amount equal to any
accrued but unpaid dividends on the preferred stock. This convertible preferred
stock is subject to the same market risk as the common stock of the issuer,
except to the extent that such risk is mitigated by the higher dividend paid on
the preferred stock. The opportunity for equity appreciation afforded by an
investment in such convertible preferred stock, however, is limited, because in
the event the market value of the issuer's common stock increases to or above
the call price of the preferred stock, the issuer may (and would be expected to)
call the preferred stock for redemption at the call price. This convertible
preferred stock is also subject to credit risk with regard to the ability of the
issuer to pay the dividend established upon issuance of the preferred stock.
Generally, convertible preferred stock is less volatile than the related common
stock of the issuer.
Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities") include Treasury Bills (which
mature within one year of the date they are issued), Treasury Notes (which have
maturities of one to ten years) and Treasury Bonds (which generally have
maturities of more than ten years). All such Treasury securities are backed by
the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Fannie Mae (formerly, the Federal National Mortgage Association), Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Farm Credit Banks,
Maritime Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by Fannie Mae, are supported only
by the credit of the instrumentality and by a pool of mortgage assets. If the
securities are not backed by the full faith and credit of the United States, the
owner of the securities must look principally to the agency issuing the
obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment. United Bond Fund will invest in securities of agencies and
instrumentalities only if WRIMCO is satisfied that the credit risk involved is
acceptable.
U.S. Government Securities may include mortgage-backed securities issued
by U.S. Government agencies or instrumentalities including, but not limited to,
the Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed securities
include pass-through securities, participation certificates and collateralized
mortgage obligations. See "Mortgage-Backed Securities" and "Asset-Backed
Securities." Timely payment of principal and interest on Ginnie Mae pass-
throughs is guaranteed by the full faith and credit of the United States.
Freddie Mac and Fannie Mae are both instrumentalities of the U.S. Government,
but their obligations are not backed by the full faith and credit of the United
States. It is possible that the availability and the marketability (i.e.,
liquidity) of the securities discussed in this section could be adversely
affected by actions of the U.S. Government to tighten the availability of its
credit.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and
the Financing Corporation (FICO) can also be separated in this fashion.
Original issue zeros are zero coupon securities originally issued by the U.S.
Government, a government agency, or a corporation in zero coupon form.
Mortgage-Backed Securities
Mortgage-backed securities represent direct or indirect participations in,
or are secured by and payable from, mortgage loans secured by real property and
include single- and multi-class pass-through securities and collateralized
mortgage obligations. Multi-class pass-through securities and collateralized
mortgage obligations are collectively referred to in this SAI as "CMOs." The
U.S. Government mortgage-backed securities in which the Fund may invest include
mortgage-backed securities issued or guaranteed as to the payment of principal
and interest (but not as to market value) by Ginnie Mae, Fannie Mae, or Freddie
Mac. Other mortgage-backed securities are issued by private issuers, generally
originators of and investors in mortgage loans, including savings associations,
mortgage bankers, commercial banks, investment bankers and special purpose
entities. Payments of principal and interest (but not the market value) of such
private mortgage-backed securities may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. Government or one of its agencies or instrumentalities, or they may
be issued without any government guarantee of the underlying mortgage assets but
with some form of non-government credit enhancement. These credit enhancements
do not protect investors from changes in market value.
Each Fund may purchase mortgage-backed securities issued by both government
and non-government entities such as banks, mortgage lenders, or other financial
institutions. Other types of mortgage-backed securities will likely be
developed in the future, and a Fund may invest in them if WRIMCO determines they
are consistent with the Fund's goal(s) and investment policies.
Stripped Mortgage-Backed Securities
Stripped mortgage-backed securities are created when a U.S. Government
agency or a financial institution separates the interest and principal
components of a mortgage-backed security and sells them as individual
securities. The holder of the "principal-only" security ("PO") receives the
principal payments made by the underlying mortgage-backed security, while the
holder of the "interest-only" security ("IO") receives interest payments from
the same underlying security.
Asset-Backed Securities
Asset-backed securities have structural characteristics similar to
mortgage-backed securities, as discussed above. However, the underlying assets
are not first lien mortgage loans or interests therein, but include assets such
as motor vehicle installment sales contracts, other installment sale contracts,
home equity loans, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts or special purpose corporations. Payments
or distributions of principal and interest may be guaranteed up to a certain
amount and for a certain time period by a letter of credit or pool insurance
policy issued by a financial institution unaffiliated with the issuer, or other
credit enhancements may be present. The value of asset-backed securities may
also depend on the creditworthiness of the servicing agent for the loan pool,
the originator of the loans, or the financial institution providing the credit
enhancement.
Special Characteristics of Mortgage-Backed and Asset-Backed Securities
The yield characteristics of mortgage- and asset-backed securities differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other obligations generally may be prepaid at any time. Prepayments on a
pool of mortgage loans are influenced by a variety of economic, geographic,
social and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Similar factors apply to prepayments
on asset-backed securities, but the receivables underlying asset-backed
securities generally are of a shorter maturity and thus are likely to experience
substantial prepayments. Such securities, however, often provide that for a
specified time period the issuers will replace receivables in the pool that are
repaid with comparable obligations. If the issuer is unable to do so, repayment
of principal on the asset-backed securities may commence at an earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the mortgage-
backed securities, and this delay reduces the effective yield to the holder of
such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools of
fixed rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and may carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries on dates prior to
their stated maturities. Floating rate securities have interest rates that
change whenever there is a change in a designated base rate while variable rate
instruments provide for a specified periodic adjustment in the interest rate.
These formulas are designed to result in a market value for the instrument that
approximates its par value.
Indexed Securities
Each Fund may purchase securities the value of which varies in relation
to the value of other securities, securities indices, currencies, precious
metals or other commodities, or other financial indicators, subject to its
operating policy regarding derivative instruments. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security whose
price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument, or their
maturity value may decline when foreign currencies increase, resulting in a
security whose price characteristics are similar to a put on the underlying
currency. Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations and
certain U.S. Government agencies. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
Foreign Securities and Currency
As a fundamental policy, each of the Funds may purchase an unlimited amount
of foreign securities, but less than 5% of the combined total assets of all of
the Funds will consist of securities of foreign governments. As an operating
policy, not more than 20% of the net assets of each Fund will be invested in
foreign securities. WRIMCO believes that there are investment opportunities as
well as risks in investing in foreign securities. Individual foreign economies
may differ favorably or unfavorably from the U.S. economy or each other in such
matters as gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Individual foreign
companies may also differ favorably or unfavorably from domestic companies in
the same industry. Foreign currencies may be stronger or weaker than the U.S.
dollar or than each other. WRIMCO believes that the Funds' ability to invest
assets abroad might enable them to take advantage of these differences and
strengths where they are favorable.
Further, an investment in foreign securities may be affected by changes in
currency rates and in exchange control regulations (i.e., currency blockage). A
Fund may bear a transaction charge in connection with the exchange of currency.
There may be less publicly available information about a foreign company than
about a domestic company. Foreign companies are not generally subject to
uniform accounting, auditing and financial reporting standards comparable to
those applicable to domestic companies. Most foreign stock markets have
substantially less volume than the New York Stock Exchange (the "NYSE") and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. There is generally less government
regulation of stock exchanges, brokers and listed companies than in the United
States. In addition, with respect to certain foreign countries, there is a
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect investments
in securities of issuers located in those countries. If it should become
necessary, a Fund would normally encounter greater difficulties in commencing a
lawsuit against the issuer of a foreign security than it would against a U.S.
issuer.
Restricted Securities
Each of the Funds may purchase restricted securities. United Income
Fund does not intend to invest more than 10% of its assets in restricted
securities. Restricted securities are subject to legal or contractual
restrictions on resale because they are not registered under the Securities Act
of 1933, as amended (the "1933 Act"). Restricted securities generally can be
sold in privately negotiated transactions, pursuant to an exemption from
registration under the 1933 Act, or in a registered public offering. Where
registration is required, a Fund may be obligated to pay all or part of the
registration expense and a considerable period may elapse between the time it
decides to seek registration and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Fund might obtain a less favorable
price than prevailed when it decided to seek registration of the security.
There are risks associated with investment in restricted securities in that
there can be no assurance of a ready market for resale. Also, the contractual
restrictions on resale might prevent a Fund from reselling the securities at a
time when such sale would be desirable. Restricted securities in which a Fund
seeks to invest need not be listed or admitted to trading on an exchange and may
be less liquid than listed securities. See "Illiquid Investments."
Lending Securities
One of the ways in which a Fund may try to realize income is by lending
securities. If a Fund does this, the borrower pays the Fund an amount equal to
the dividends or interest on the securities that the Fund would have received if
it had not loaned the securities. The Funds also receive additional
compensation.
Any securities loan that a Fund makes must be collateralized in accordance
with applicable regulatory requirements (the "Guidelines"). This policy can
only be changed by shareholder vote. Under the present Guidelines, the
collateral must consist of cash, U.S. Government Securities or bank letters of
credit, at least equal in value to the market value of the securities loaned on
each day that the loan is outstanding. If the market value of the loaned
securities exceeds the value of the collateral, the borrower must add more
collateral so that it at least equals the market value of the securities loaned.
If the market value of the securities decreases, the borrower is entitled to
return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for a Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that a Fund may accept as collateral are agreements
by banks (other than the borrowers of the Fund's securities), entered into at
the request of the borrower and for its account and risk, under which the banks
are obligated to pay to the Fund, while the letter is in effect, amounts
demanded by the Fund if the demand meets the terms of the letter. The Fund's
right to make this demand secures the borrower's obligations to it. The terms
of any such letters and the creditworthiness of the banks providing them (which
might include the Fund's custodian bank) must be satisfactory to the Fund.
Under the Fund's current securities lending procedures, each Fund may lend
securities only to creditworthy broker-dealers and financial institutions deemed
creditworthy by WRIMCO. Each Fund will make loans only under rules of the NYSE,
which presently require the borrower to give the securities back to the Fund
within five business days after the Fund gives notice to do so. If a Fund loses
its voting rights on securities loaned, it will have the securities returned to
it in time to vote them if a material event affecting the investment is to be
voted on. A Fund may pay reasonable finder's, administrative and custodian fees
in connection with loans of securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned goes up, risks of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to: (i) whom securities may be loaned; (ii) the investment of cash collateral;
or (iii) voting rights.
Repurchase Agreements
Each of the Funds may purchase securities subject to repurchase agreements
if as a result no more than 10% of its net assets would consist of illiquid
investments (which include repurchase agreements not terminable within seven
days). See "Illiquid Investments." A repurchase agreement is an instrument
under which a Fund purchases a security and the seller (normally a commercial
bank or broker-dealer) agrees, at the time of purchase, that it will repurchase
the security at a specified time and price. The amount by which the resale
price is greater than the purchase price reflects an agreed-upon market interest
rate effective for the period of the agreement. The return on the securities
subject to the repurchase agreement may be more or less than the return on the
repurchase agreement.
The majority of the repurchase agreements in which a Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that a
Fund may suffer a loss if the seller fails to pay the agreed-upon amount on the
delivery date and that amount is greater than the resale price of the underlying
securities and other collateral held by the Fund. In the event of bankruptcy or
other default by the seller, there may be possible delays and expenses in
liquidating the underlying securities or other collateral, decline in their
value and loss of interest. The return on such collateral may be more or less
than that from the repurchase agreement. The Funds' repurchase agreements will
be structured so as to fully collateralize the loans. In other words, the value
of the underlying securities, which will be held by the Funds' custodian bank or
by a third party that qualifies as a custodian under Section 17(f) of the
Investment Company Act of 1940, as amended (the "1940 Act"), is and, during the
entire term of the agreement, will remain at least equal to the value of the
loan, including the accrued interest earned thereon. Repurchase agreements are
entered into only with those entities approved by WRIMCO on the basis of
criteria established by the Board of Directors.
When-Issued and Delayed-Delivery Transactions
Each Fund may purchase any securities in which it may invest on a when-
issued or delayed-delivery basis or sell them on a delayed-delivery basis. The
securities so purchased or sold by a Fund are subject to market fluctuation;
their value may be less or more when delivered than the purchase price paid or
received. For example, delivery to a Fund and payment by a Fund in the case of
a purchase by it, or delivery by a Fund and payment to it in the case of a sale
by a Fund, may take place a month or more after the date of the transaction.
The purchase or sale price are fixed on the transaction date. A Fund will enter
into when-issued or delayed-delivery transactions in order to secure what is
considered to be an advantageous price and yield at the time of entering into
the transaction. No interest accrues to a Fund until delivery and payment is
completed. When a Fund makes a commitment to purchase securities on a when-
issued or delayed-delivery basis, it will record the transaction and thereafter
reflect the value of the securities in determining its net asset value per
share. The securities so sold by a Fund on a delayed-delivery basis are also
subject to market fluctuation; their value when a Fund delivers them may be more
than the purchase price the Fund receives. When a Fund makes a commitment to
sell securities on a delayed basis, it will record the transaction and
thereafter value the securities at the sales price in determining the Fund's net
asset value per share.
Ordinarily a Fund purchases securities on a when-issued or delayed-delivery
basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Warrants and Rights
Warrants are options to purchase equity securities at specific prices valid
for a specific period of time. Their prices do not necessarily move parallel to
the prices of the underlying securities. Rights are similar to warrants, but
normally have a short duration and are distributed directly by the issuer to its
shareholders. Rights and warrants have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer. Warrants and
rights are highly volatile and, therefore, more susceptible to a sharp decline
in value than the underlying security might be. They are also generally less
liquid than an investment in the underlying shares.
Illiquid Investments
Each Fund has an operating policy, which may be changed without
shareholder approval, which provides that the Fund may not invest more than 10%
of its net assets in illiquid investments. Investments currently considered to
be illiquid include: (i) repurchase agreements not terminable within seven
days; (ii) securities for which market quotations are not readily available;
(iii) Over-the-counter ("OTC") options and their underlying collateral; (iv)
Insured Deposits; (v) restricted securities not determined to be liquid pursuant
to guidelines established by the Corporation's Board of Directors; (vi) non-
government stripped fixed-rate mortgage-backed securities; and (vii) securities
involved in swap, cap, collar and floor transactions. The assets used as cover
for OTC options written by a Fund will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure will be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
option.
Options, Futures and Other Strategies
General. As discussed in the Prospectus, WRIMCO may use certain
options, futures contracts (sometimes referred to as "futures"), options on
futures contracts, forward currency contracts, swaps, caps, collars, floors and
indexed securities (collectively, "Financial Instruments") to attempt to enhance
income or yield or to attempt to hedge a Fund's investments. Generally, a Fund
may purchase and sell any type of Financial Instrument. However, as an
operating policy, a Fund will only purchase or sell a particular Financial
Instrument if the Fund is authorized to invest in the type of asset by which the
return on, or value of, the Financial Instrument is primarily measured or, with
respect to foreign currency derivatives, if the Fund is authorized to invest in
foreign securities.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Fund's portfolio. Thus, in a short hedge a Fund takes a
position in a Financial Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that a Fund intends to acquire. Thus, in a long
hedge a Fund takes a position in a Financial Instrument whose price is expected
to move in the same direction as the price of the prospective investment being
hedged. A long hedge is sometimes referred to as an anticipatory hedge. In an
anticipatory hedge transaction, a Fund does not own a corresponding security
and, therefore, the transaction does not relate to a security the Fund owns.
Rather, it relates to a security that the Fund intends to acquire. If a Fund
does not complete the hedge by purchasing the security it anticipated
purchasing, the effect on the Fund's portfolio is the same as if the transaction
were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that a
Fund owns or intends to acquire. Financial Instruments on indices, in contrast,
generally are used to attempt to hedge against price movements in market sectors
in which a Fund has invested or expects to invest. Financial Instruments on
debt securities may be used to hedge either individual securities or broad debt
market sectors.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission (the "SEC"), the several exchanges upon
which they are traded and the Commodity Futures Trading Commission (the "CFTC").
In addition, a Fund's ability to use Financial Instruments will be limited by
tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below and
in the Prospectus, WRIMCO expects to discover additional opportunities in
connection with Financial Instruments and other similar or related techniques.
These new opportunities may become available as WRIMCO develops new techniques,
as regulatory authorities broaden the range of permitted transactions and as new
Financial Instruments or other techniques are developed. WRIMCO may utilize
these opportunities to the extent that they are consistent with the Funds'
goal(s) and permitted by the Funds' investment limitations and applicable
regulatory authorities. The Funds' Prospectus or SAI will be supplemented to
the extent that new products or techniques involve materially different risks
than those described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a Fund's current or anticipated investments exactly. A Fund may
invest in options and futures contracts based on securities with different
issuers, maturities or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
Fund entered into a short hedge because WRIMCO projected a decline in the price
of a security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would
have been in a better position had it not attempted to hedge at all.
(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Financial Instruments involving obligations to third parties (i.e.,
Financial Instruments other than purchased options). If a Fund were unable to
close out its positions in such Financial Instruments, it might be required to
continue to maintain such assets or accounts or make such payments until the
position expired or matured. These requirements might impair a Fund's ability
to sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that a Fund sell a portfolio
security at a disadvantageous time. A Fund's ability to close out a position in
a Financial Instrument prior to expiration or maturity depends on the existence
of a liquid secondary market or, in the absence of such a market, the ability
and willingness of the other party to the transaction ("counterparty") to enter
into a transaction closing out the position. Therefore, there is no assurance
that any position can be closed out at a time and price that is favorable to the
Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. A Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in securities, currencies or other options, futures
contracts or forward contracts, or (2) cash and liquid assets with a value
marked-to-market daily, sufficient to cover its potential obligations to the
extent not covered as provided in (1) above. Each Fund will comply with SEC
guidelines regarding cover for these instruments and will, if the guidelines so
require, set aside cash or liquid assets in an account with its custodian in the
prescribed amount as determined daily.
Assets used as cover or held in an account cannot be sold while the
position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of a Fund's assets to cover or accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options. The purchase of call options can serve as a long hedge, and the
purchase of put options can serve as a short hedge. Writing put or call options
can enable a Fund to enhance income or yield by reason of the premiums paid by
the purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price on the option,
minus the premium received, the Fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because declines
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security or currency at less than its market value. If the call option
is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Fund will be obligated
to purchase the security or currency at more than its market value. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
A Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, a Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
A type of put which the Funds may purchase is an "optional delivery
standby commitment" which is entered into by parties selling debt securities to
a Fund. An optional delivery standby commitment gives a Fund purchasing the
security the right to sell the security back to the seller on specified terms.
This right is provided as an inducement to purchase the security.
Risks of Options on Securities. Each of the Funds may purchase or write
both exchange-traded and OTC options. Exchange-traded options in the United
States are issued by a clearing organization affiliated with the exchange on
which the option is listed that, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its counterparty (usually a securities dealer or a bank) with
no clearing organization guarantee. Thus, when a Fund purchases an OTC option,
it relies on the counterparty from whom it purchased the option to make or take
delivery of the underlying investment upon exercise of the option. Failure by
the counterparty to do so would result in the loss of any premium paid by the
Fund as well as the loss of any expected benefit of the transaction.
A Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. There can be no assurance that a Fund will in fact be able to close out
an OTC option position at a favorable price prior to expiration. In the event
of insolvency of the counterparty, a Fund might be unable to close out an OTC
option position at any time prior to its expiration.
If a Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Options on Indices. Puts and calls on indices are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When a Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple (the
"multiplier"), which determines the total dollar value for each point of such
difference. When a Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When a Fund buys a put on a
stock index, it pays a premium and has the right, prior to the expiration date,
to require the seller of the put, upon the Fund's exercise of the put, to
deliver to the Fund an amount of cash if the closing level of the index upon
which the put is based is less than the exercise price of the put, which amount
of cash is determined by the multiplier, as described above for calls. When a
Fund writes a put on an index, it receives a premium and the purchaser of the
put has the right, prior to the expiration date, to require the Fund to deliver
to it an amount of cash equal to the difference between the closing level of the
index and the exercise price times the multiplier is the closing level is less
than the exercise price.
Risks of Options on Indices. The risks of investment in options on indices
may be greater than options on securities. Because index options are settled in
cash, when a Fund writes a call on an index it cannot provide in advance for its
potential settlement obligations by acquiring and holding the underlying
securities. A Fund can offset some of the risk of its writing a call index
option by holding a diversified portfolio of securities similar to those on
which the underlying index is based. However, a Fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, a Fund as the call writer will not learn that the Fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as a common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns
the underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities positions.
If a Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund will be required to pay the difference
between the closing index value and the exercise price of the option (times the
applicable multiplier) to the assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size and strike
price, the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows a Fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than exchange-
traded options, which are guaranteed by the clearing organization of the
exchanges where they are traded.
Generally, OTC foreign currency options used by a Fund are European-style
options. This means that the option is only exercisable immediately prior to
its expiration. This is in contrast to American-style options, which are
exercisable at any time prior to the expiration date of the option.
Futures Contracts and Options on Futures Contracts. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge. Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies also can be used to manage the average
duration of a Fund's fixed-income portfolio. If WRIMCO wishes to shorten the
average duration of a Fund's fixed-income portfolio, the Fund may sell a debt
futures contract or a call option thereon, or purchase a put option on that
futures contract. If WRIMCO wishes to lengthen the average duration of a Fund's
fixed-income portfolio, the Fund may buy a debt futures contract or a call
option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory
action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may
be closed only on an exchange or board of trade that provides a secondary
market. There can be no assurance that a liquid secondary market will exist for
a particular contract at a particular time. In such event, it may not be
possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily
price limits do not limit potential losses because prices could move to the
daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures contract or an option on a
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to be
required to make daily variation margin payments and might be required to
maintain the position being hedged by the futures contract or option or to
maintain liquid assets in an account.
Risk of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to differences in the natures of those markets, are subject to the
following factors, which may create distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of
general interest rate, currency exchange rate or stock market trends by WRIMCO
may still not result in a successful transaction. WRIMCO may be incorrect in
its expectations as to the extent of various interest rate, currency exchange
rate or stock market movements or the time span within which the movements take
place.
Index Futures. The risk of imperfect correlation between movements in the
price of an index future and movements in the price of the securities that are
the subject of the hedge increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
index future may move more than or less than the price of the securities being
hedged. If the price of the index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, a Fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where a Fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the securities held in the portfolio may decline. If this
occurred, a Fund would lose money on the futures contract and also experience a
decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase in
the price of securities before a Fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the Fund then
concludes not to invest in them at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
Operating Policy. As an operating policy, to the extent that a Fund enters
into futures contracts, options on futures contracts or options on foreign
currencies traded on a CFTC-regulated exchange, in each case other than for bona
fide hedging purposes (as defined by the CFTC), the aggregate initial margin and
premiums required to establish those positions (excluding the amount by which
options are "in-the-money" at the time of purchase) will not exceed 5% of the
liquidation value of the Fund's portfolio, after taking into account unrealized
profits and unrealized losses on any contracts the Fund has entered into. (In
general, a call option on a futures contract is "in-the-money" if the value of
the underlying futures contract exceeds the strike, i.e., exercise, price of the
call; a put option on a futures contract is "in-the-money" if the value of the
underlying futures contract is exceeded by the strike price of the put.) This
policy does not limit to 5% the percentage of a Fund's assets that are at risk
in futures contracts, options on futures contracts and currency options.
Foreign Currency Hedging Strategies--Special Considerations. Each Fund may
use options and futures contracts on foreign currencies, as described above, and
foreign currency forward contracts, as described below, to attempt to hedge
against movements in the values of the foreign currencies in which the Fund's
securities are denominated or to attempt to enhance income or yield. Currency
hedges can protect against price movements in a security that a Fund owns or
intends to acquire that are attributable to changes in the value of the currency
in which it is denominated. Such hedges do not, however, protect against price
movements in the securities that are attributable to other causes.
Each Fund might seek to hedge against changes in the value of a particular
currency when no Financial Instruments on that currency are available or such
Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, a Fund may seek to hedge against price movements in
that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the values of which WRIMCO believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction is magnified when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, a Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Financial Instruments until they
reopen.
Settlement of transactions involving foreign currencies might be required
to take place within the country issuing the underlying currency. Thus, a Fund
might be required to accept or make delivery of the underlying foreign currency
in accordance with any U.S. or foreign regulations regarding the maintenance of
foreign banking arrangements by U.S. residents and might be required to pay any
fees, taxes and charges associated with such delivery assessed in the issuing
country.
Forward Currency Contracts. Each Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, a Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that a Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security, dividend or
interest payment denominated in a foreign currency.
Each Fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
a Fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. Each Fund could also hedge the position by selling
another currency expected to perform similarly to the pound sterling, for
example, by entering into a forward contract to sell Deutsche Marks or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
Each Fund also may use forward currency contracts to attempt to enhance
income or yield. A Fund could use forward currency contracts to increase its
exposure to foreign currencies that WRIMCO believes might rise in value relative
to the U.S. dollar, or shift its exposure to foreign currency fluctuations from
one country to another. For example, if a Fund owned securities denominated in
a foreign currency and WRIMCO believed that currency would decline relative to
another currency, it might enter into a forward contract to sell an appropriate
amount of the first foreign currency, with payment to be made in the second
foreign currency.
The cost to a Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When a Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that a Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, a Fund might be unable to close out a forward
currency contract at any time prior to maturity. In either event, the Fund
would continue to be subject to market risk with respect to the position, and
would continue to be required to maintain a position in securities denominated
in the foreign currency or to maintain cash or liquid assets in a segregated
account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, a Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.
Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, WRIMCO believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that the best interests of a Fund will be served.
Combined Positions. A Fund may purchase and write options in combination
with each other, or in combination with futures or forward contracts, to adjust
the risk and return characteristics of its overall position. For example, a
Fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
Turnover. A Fund's options and futures activities may affect its turnover
rate and brokerage commission payments. The exercise of calls or puts written
by a Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once a Fund
has received an exercise notice on an option it has written, it cannot effect a
closing transaction in order to terminate its obligation under the option and
must deliver or receive the underlying securities at the exercise price. The
exercise of puts purchased by a Fund may also cause the sale of related
investments, also increasing turnover; although such exercise is within the
Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. A Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Swaps, Caps, Collars and Floors. Swap agreements, including caps,
collars and floors, can be individually negotiated and structured to include
exposure to a variety of different types of investments or market factors.
Depending on their structure, swap agreements may increase or decrease a Fund's
exposure to long- or short-term interest rates (in the United States or abroad),
foreign currency values, mortgage-backed security values, corporate borrowing
rates or other factors such as security prices or inflation rates.
Swap agreements will tend to shift a Fund's investment exposure from one
type of investment to another. For example, if a Fund agrees to exchange
payments in dollars for payments in foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options.
The creditworthiness of firms with which a Fund enters into swaps, caps or
floors will be monitored by WRIMCO in accordance with procedures adopted by the
Corporation's Board of Directors. If a default occurs by the other party to
such transaction, a Fund will have contractual remedies pursuant to the
agreements related to the transaction.
The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the Fund's
custodian that satisfies the requirements of the 1940 Act. Each Fund will also
establish and maintain such account with respect to its total obligations under
any swaps that are not entered into on a net basis and with respect to any caps
or floors that are written by the Fund. WRIMCO and the Funds believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Fund's borrowing
restrictions.
Investment Restrictions
Certain of the Funds' investment restrictions are described in the
Prospectus. The following are fundamental policies and together with certain
restrictions described in the Prospectus cannot be changed without shareholder
approval. Under these additional restrictions, the Funds may not:
(i) Buy real estate nor any nonliquid interests in real estate investment
trusts;
(ii) Buy shares of other investment companies that redeem their shares. A
Fund can buy shares of investment companies that do not redeem their
shares if it does so in a regular transaction in the open market and
then does not have more than one-tenth (i.e., 10%) of the total assets
of the four Funds in these shares;
(iii) Lend money or other assets, other than through certain limited types
of loans; the Funds may buy debt securities and other obligations
consistent with their respective goals and their other investment
policies and restrictions; they may also lend their portfolio
securities (see "Lending Securities" above) and enter into repurchase
agreements (see "Repurchase Agreements" above);
(iv) Invest for the purpose of exercising control or management of other
companies;
(v) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(vi) Sell securities short (unless a Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold
short), or purchase securities on margin, except that (1) this policy
does not prevent a Fund from entering into short positions in foreign
currency, futures contracts, options, forward contracts, swaps, caps,
collars, floors and other financial instruments, (2) a Fund may obtain
such short-term credits as are necessary for the clearance of
transactions, and (3) a Fund may make margin payments in connection
with futures contracts, options, forward contracts, swaps, caps,
collars, floors and other financial instruments;
(vii) Engage in the underwriting of securities, that is, the selling of
securities for others;
(viii) With respect to 75% of its total assets, purchase securities
of any one issuer (other than cash items and "Government Securities"
as defined in the 1940 Act, if immediately after and as a result of
such purchase, (a) the value of the holdings of a Fund in the
securities of such issuer exceeds 5% of the value of a Fund's total
assets, or (b) a Fund owns more than 10% of the outstanding voting
securities of such issuer; United Income Fund, United Accumulative
Fund and United Bond Fund may not buy securities of companies in any
one industry if more than 25% of that Fund's total assets would then
be invested in companies in that industry;
(ix) Purchase or sell physical commodities; however, this policy does not
prevent a Fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, collars, floors
and other financial instruments; or
(x) Borrow money.
Portfolio Turnover
A portfolio turnover rate is, in general, the percentage computed by taking
the lesser of purchases or sales of portfolio securities for a year and dividing
it by the monthly average of the market value of such securities during the
year, excluding certain short-term securities. A Fund's turnover rate may vary
greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares.
The portfolio turnover rates for each of the Funds for the fiscal years
ended December 31, 1996 and December 31, 1995 were as follows:
1996 1995
---- ----
United Bond Fund 55.74% 66.38%
United Income Fund 22.24 17.59
United Accumulative Fund 240.37 229.03
United Science and
Technology Fund 33.90 32.89
A high turnover rate will increase transaction costs and commission costs
that will be borne by the Funds and could generate taxable income or loss.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Corporation has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Corporation's Board of Directors, Waddell & Reed, Inc. assigned
the Management Agreement and all related investment management duties (and
related professional staff) to WRIMCO, a wholly-owned subsidiary of Waddell &
Reed, Inc. Under the Management Agreement, WRIMCO is employed to supervise the
investments of the Funds and provide investment advice to the Funds. The
address of WRIMCO and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217,
Shawnee Mission, Kansas 66201-9217. Waddell & Reed, Inc. is the Corporation's
underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Corporation. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Corporation's Board of Directors prior to approving any
Shareholder Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and United Investors Management Company
WRIMCO is a wholly-owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly-
owned subsidiary of United Investors Management Company. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly-held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual Funds,
except United Asset Strategy Fund, Inc., since 1940 or the company's inception
date, whichever was later, and to TMK/United Funds, Inc. since that fund's
inception, until January 8, 1992, when it assigned its duties as investment
manager for these funds (and the related professional staff) to WRIMCO. WRIMCO
has also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992 and United Asset Strategy Fund, Inc. since it
commenced operations in March 1995. Waddell & Reed, Inc. serves as principal
underwriter for the investment companies in the United Group of Mutual Funds and
Waddell & Reed Funds, Inc. and acts as principal underwriter and distributor for
variable life insurance and variable annuity policies issued by United Investors
Life Insurance Company for which TMK/United Funds, Inc. is the underlying
investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the
Corporation and Waddell & Reed Services Company (the "Agent"), a subsidiary of
Waddell & Reed, Inc., the Agent performs shareholder servicing functions,
including the maintenance of shareholder accounts, the issuance, transfer and
redemption of shares, distribution of dividends and payment of redemptions, the
furnishing of related information to the Corporation and handling of shareholder
inquiries. A new Shareholder Servicing Agreement, or amendments to the existing
one, may be approved by the Corporation's Board of Directors without shareholder
approval.
Accounting Services
Under the Accounting Services Agreement entered into between the
Corporation and the Agent, the Agent provides each Fund with bookkeeping and
accounting services and assistance, including maintenance of the Corporation's
records, pricing of the Corporation's shares, and preparation of prospectuses
for existing shareholders, proxy statements and certain reports. A new
Accounting Services Agreement, or amendments to an existing one, may be approved
by the Corporation's Board of Directors without shareholder approval.
Payments by the Corporation for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Corporation pays WRIMCO a fee as described in the Prospectus.
The management fees paid to WRIMCO for each Fund during the last three
fiscal years were as follows:
1996 1995 1994
---- ---- ----
United Bond Fund ........ $ 2,344,627 $ 2,407,401 $ 2,552,094
United Income Fund ...... 25,277,033 20,740,095 15,069,003
United Accumulative Fund 6,879,322 6,103,149 4,773,506
United Science and Technology
Fund ................. 5,667,206 4,025,985 2,777,832
----------- ---------- -----------
Total ................ $40,168,188 $33,276,630 $25,172,435
=========== =========== ==========
For purposes of calculating the daily fee the Corporation does not include
money owed to it by Waddell & Reed, Inc. for shares which it has sold but not
yet paid the Corporation. The Corporation accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, with respect to Class A shares,
each Fund pays the Agent a monthly fee of $1.3125 ($1.0208 prior to April 1,
1996) for each shareholder account that 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. For Class Y shares, each Fund
pays the Agent a monthly fee equal to one-twelfth of .15 of 1% of the average
daily net assets of that class for the preceding month. The Corporation also
pays certain out-of-pocket expenses of the Agent, including long distance
telephone communications costs; microfilm and storage costs for certain
documents; forms, printing and mailing costs; and costs of legal and special
services not provided by Waddell & Reed, Inc., WRIMCO or the Agent.
Under the Accounting Services Agreement, each Fund pays the Agent 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 Fund
------------------------ ------------------
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
Fees paid to the Agent for the fiscal years ended December 31, 1996, 1995
and 1994 were as follows:
1996 1995 1994
---- ---- ----
United Bond Fund ........ $61,667 $ 65,000 $ 66,667
United Income Fund ...... 100,000 100,000 100,000
United Accumulative Fund 100,000 96,250 92,500
United Science and
Technology Fund ...... 88,750 71,667 60,000
Since the Corporation pays a management fee for investment supervision and
an accounting services fee for accounting services as discussed above, WRIMCO
and the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Corporation under the Shareholder Servicing
Agreement are described above. Waddell & Reed, Inc. and affiliates pay the
Corporation's Directors and officers who are affiliated with WRIMCO and its
affiliates. The Corporation pays the fees and expenses of the Corporation's
other Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Corporation's underwriter, i.e., sells its shares on a continuous
basis. Waddell & Reed, Inc. is not required to sell any particular number of
shares, and sells shares only for purchase orders received. Under this
agreement, Waddell & Reed, Inc. pays the costs of sales literature, including
the costs of shareholder reports used as sales literature, and the costs of
printing the prospectus furnished to it by the Corporation. The aggregate
dollar amounts of underwriting commissions for Class A shares for the fiscal
years ended December 31, 1996, 1995 and 1994 were $26,543,939, $18,952,707 and
$19,687,406, respectively, and the amounts retained by Waddell & Reed, Inc. were
$11,396,996, $8,341,305 and $8,600,788, respectively.
A major portion of the sales charge for Class A shares is paid to account
representatives and managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may
compensate its account representatives as to purchases for which there is no
sales charge.
The Corporation pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Corporation under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Under a Distribution and Service Plan for Class A shares (the "Plan")
adopted by the Corporation pursuant to Rule 12b-1 under the 1940 Act, each Fund
may pay Waddell & Reed, Inc., the principal underwriter for the Corporation, a
fee not to exceed .25% of each Fund's average annual net assets attributable to
Class A shares, paid monthly, to reimburse Waddell & Reed, Inc. for its costs
and expenses in connection with the distribution of the Class A shares and/or
the service and/or maintenance of Class A shareholder accounts.
Waddell & Reed, Inc. offers each Fund's shares through its registered
representatives and sales managers (sales force) unless it elects, which is not
currently contemplated, to make distribution of shares also through other
broker-dealers. In distributing shares through its sales force, Waddell & Reed,
Inc. will pay commissions and incentives to the sales force at or about the time
of sale and will incur other expenses including for prospectuses, sales
literature, advertisements, sales office maintenance, processing of orders and
general overhead with respect to its efforts to distribute the Fund's shares.
The Plan permits Waddell & Reed, Inc. to receive reimbursement for these
distribution activities through the distribution fee, subject to the limit
contained in the Plan. The Plan also permits Waddell & Reed, Inc. to be
reimbursed for amounts it expends in compensating, training and supporting
registered account representatives, sales managers and/or other appropriate
personnel in providing personal services to Class A shareholders of each Fund
and/or maintaining Class A shareholder accounts; increasing services provided to
Class A shareholders of each Fund by office personnel located at field sales
offices; engaging in other activities useful in providing personal service to
Class A shareholders of each Fund and/or maintenance of Class A shareholder
accounts; and in compensating broker-dealers who may regularly sell Class A
shares of each Fund, and other third parties, for providing shareholder services
and/or maintaining shareholder accounts with respect to Class A shares. For its
fiscal year ended December 31, 1996, service fees paid (or accrued) with respect
to Class A shares were as follows:
1996
----
United Bond Fund......... $ 749,534
United Income Fund ...... 6,498,915
United Accumulative Fund 1,606,204
United Science and Technology
Fund .................. 1,405,418
The Plan was approved by the Corporation's Board of Directors, including
the Directors who are not interested persons of the Corporation and who have no
direct or indirect financial interest in the operations of the Plan or any
agreement referred to in the Plan (hereafter, the "Plan Directors"). The Plan
was also approved by the affected shareholders of each Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Corporation at least quarterly, and the
Directors will review, a report of amounts expended under the Plan and the
purposes for which such expenditures were made, (ii) the Plan will continue in
effect only so long as it is approved at least annually, and any material
amendments thereto will be effective only if approved, by the Directors
including the Plan Directors acting in person at a meeting called for that
purpose, (iii) amounts to be paid by a Fund under the Plan may not be materially
increased without the vote of the holders of a majority of the outstanding Class
A shares of that Fund, and (iv) while the Plan remains in effect, the selection
and nomination of the Directors who are Plan Directors will be committed to the
discretion of the Plan Directors.
Custodial and Auditing Services
The custodian for the four Funds is UMB Bank, n.a., Kansas City, Missouri.
In general, the custodian is responsible for holding each Fund's cash and
securities. Deloitte & Touche LLP, Kansas City, Missouri, the Corporation's
independent accountants, audits each Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each class of the shares of a Fund is the value of
the assets of that class, less the class's liabilities, divided by the total
number of outstanding shares of that class.
Class A shares of the Funds are sold at their next determined net asset
value plus the sales charge described in the Prospectus. The price makeup as of
December 31, 1996 was as follows:
United Bond Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $6.14
Add: selling commission (5.75% of offering
price) ................................... .37
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $6.51
=====
United Income Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $32.91
Add: selling commission (5.75% of offering
price) ................................... 2.01
------
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $34.92
======
United Accumulative Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $7.75
Add: selling commission (5.75% of offering
price) ................................... .47
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $8.22
=====
United Science and Technology Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $23.35
Add: selling commission (5.75% of offering
price) ................................... 1.42
------
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $24.77
======
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge. The
offering price of a Class Y share is its net asset value next determined
following acceptance of a purchase order. The number of shares you receive for
your purchase depends on the next offering price after Waddell & Reed, Inc.
receives and accepts your order at its principal business office at the address
shown on the cover of this SAI. You will be sent a document called a
confirmation after your purchase which will indicate how many shares you have
purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Corporation may determine to discontinue offering Corporation shares for
purchase.
The net asset value and offering price per share are ordinarily computed
once on each day that the NYSE is open for trading as of the later of the close
of the regular session of the NYSE or the close of the regular session of any
other securities or commodities exchange on which an option or future held by
the Fund is traded. The NYSE annually announces the days on which it will not
be open for trading. The most recent announcement indicates that it will not be
open on the following days: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, it is possible that the NYSE may close on other days. The net asset
value will change every business day, since the value of the assets and the
number of shares outstanding change every business day.
The securities in the portfolio of each Fund, except as otherwise noted,
that are listed or traded on a stock exchange, are valued on the basis of the
last sale on that day or, lacking any sales, at a price which is the mean
between the closing bid and asked prices. Other securities which are traded
over-the-counter are priced using National Association of Securities Dealers
Automated Quotations system ("Nasdaq"), which provides information on bid and
asked prices quoted by major dealers in such stocks. Bonds, other than
convertible bonds, are valued using a third-party pricing system. Convertible
bonds are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities are valued at amortized cost, which
approximates market. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in good faith
under procedures established by and under the general supervision and
responsibility of the Board of Directors. Foreign currency exchange rates are
generally determined prior to the close of trading of the regular session of the
NYSE. Occasionally events affecting the value of foreign investments and such
exchange rates occur between the time at which they are determined and the close
of the regular session of trading on the NYSE, which events will not be
reflected in a computation of a Fund's net asset value on that day. If events
materially affecting the value of such investments or currency exchange rates
occur during such time period, investments will be valued at their fair value as
determined in good faith by or under the direction of the Board of Directors.
The foreign currency exchange transactions of a Fund conducted on a spot (that
is, cash) basis are valued at the spot rate for purchasing or selling currency
prevailing on the foreign exchange market. This rate under normal market
conditions differs from the prevailing exchange rate in an amount generally less
than one-tenth of one percent due to the costs of converting from one currency
to another.
Options and futures contracts purchased and held by a Fund are valued at
the last sales price thereof on the securities or commodities exchanges on which
they are traded, or, if there are no transactions, at the mean between bid and
asked prices. Ordinarily, the close of the regular session for options trading
on national securities exchanges is 4:10 p.m. Eastern time and the close of the
regular session for commodities exchanges is 4:15 p.m. Eastern time. Futures
contracts will be valued by reference to established futures exchanges. The
value of a futures contract purchased by a Fund will be either the closing price
of that contract or the bid price. Conversely, the value of a futures contract
sold by a Fund will be either the closing price or the asked price.
When a Fund writes a put or call, an amount equal to the premium received
is included in that Fund's Statement of Assets and Liabilities as an asset, and
an equivalent deferred credit is included in the liability section. The
deferred credit is "marked-to-market" to reflect the current market value of the
put or call. If a call a Fund wrote is exercised, the proceeds received on the
sale of the related investment are increased by the amount of the premium that
the Fund received. If a Fund exercises a call it purchased, the amount paid to
purchase the related investment is increased by the amount of the premium paid.
If a put written by a Fund is exercised, the amount that Fund pays to purchase
the related investment is decreased by the amount of the premium it received.
If a Fund exercises a put it purchased, the amount that Fund receives from the
sale of the related investment is reduced by the amount of the premium it paid.
If a put or call written by a Fund expires, it has a gain in the amount of the
premium; if it enters into a closing purchase transaction, it will have a gain
or loss depending on whether the premium was more or less than the cost of the
closing transaction.
Optional delivery standby commitments are valued at fair value under the
general supervision and responsibility of the Corporation's Board of Directors.
They are accounted for in the same manner as exchange-listed puts.
Minimum Initial and Subsequent Investments
For Class A shares, initial investments must be at least $500 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to certain exchanges of shares from another fund in the United Group.
A $50 minimum initial investment pertains to purchases for certain retirement
plan accounts and to accounts for which an investor has arranged, at the time of
initial investment, to make subsequent purchases for the account by having
regular monthly withdrawals of $25 or more made from a bank account. A minimum
initial investment of $25 is applicable to purchases made through payroll
deduction for or by employees of WRIMCO, Waddell & Reed, Inc., their affiliates
or certain retirement plan accounts. Except with respect to certain exchanges
and automatic withdrawals from a bank account, a shareholder may make subsequent
investments of any amount. See "Exchanges for Shares of Other Funds in the
United Group."
For Class Y shares, investments by government entities or authorities or by
corporations must total at least $10 million within the first twelve months
after initial investment. There is no initial investment minimum for other
Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges. The
schedule of sales charges appears in the Prospectus for Class A shares. For the
purpose of taking advantage of the lower sales charges available for large
purchases, a purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with purchases
in any other of these categories:
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own account
(includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in a
Uniform Gifts to Minors Act ("UGMA") or Uniform Transfers to Minors Act
("UTMA") account;
6. Purchases by that individual or his or her spouse for his or her Individual
Retirement Account ("IRA"), Section 457 of the Internal Revenue Code of
1986, as amended (the "Code") salary reduction plan account provided that
such purchases are subject to a sales charge (see "Net Asset Value
Purchases"), tax sheltered annuity account ("TSA") or Keogh Plan account,
provided that the individual and spouse are the only participants in the
Keogh Plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens a UGMA account for grandson A; Grandmother has an
account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in the
trust account is eligible for grouping with an IRA account of W, H's
wife;
C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account held
by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.
All purchases of Class A shares made for a participant in a multi-
participant Keogh plan may be grouped only with other purchases made under the
same plan; a multi-participant Keogh plan is defined as a plan in which there is
more than one participant where one or more of the participants is other than
the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made under
the plan with any purchases in categories 1 through 7 above.
Example B: H has established a Keogh Plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.
All purchases of Class A shares made under a "qualified" employee benefit
plan of an incorporated business will be grouped. A "qualified" employee
benefit plan is established pursuant to Section 401 of the Code. All qualified
employee benefit plans of any one employer or affiliated employers will also be
grouped. An affiliate is defined as an employer that directly, or indirectly,
controls or is controlled by or is under control with another employer.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.
All purchases of Class A shares made under a simplified employee pension
plan ("SEP"), payroll deduction plan or similar arrangement adopted by an
employer or affiliated employers (as defined above) may be grouped provided that
the employer elects to have all such purchases grouped at the time the plan is
set up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping may
be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at the same
time, H's parents open up three UGMA accounts for H and W's three
minor children and invest $10,000 in each child's name; the combined
purchase of $105,000 of Class A shares is subject to a reduced sales
load of 4.75% provided that Waddell & Reed, Inc. is advised that the
purchases are entitled to grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional purchase is
made in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the existing
account as of the date the new purchase is accepted by Waddell & Reed, Inc. for
the purpose of determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a net asset value of $80,000. His wife,
W, now wishes to invest $20,000 in Class A shares of the Fund. W's
purchase will be combined with H's existing account and will be
entitled to a reduced sales charge of 4.75%. H's original purchase
was subject to a full sales charge and the reduced charge does not
apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under such plan may be combined with the additional
purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a Statement
of Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount which
is sufficient to qualify for a reduced sales charge. The 13-month period begins
on the date the first purchase made under the Statement of Intention is accepted
by Waddell & Reed, Inc. Each purchase made from time to time under the
Statement of Intention is treated as if the purchaser were buying at one time
the total amount which he or she intends to invest. The sales charge applicable
to all purchases of Class A shares made under the terms of the Statement of
Intention will be the sales charge in effect on the beginning date of the 13-
month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, Class A shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
Class A shares at the sales charge applicable to a purchase of
$100,000. H has an IRA account and the Class A shares held under the
IRA in the Fund have a net asset value as of the date the Statement of
Intention is accepted by Waddell & Reed, Inc. of $15,000; H's wife, W,
has an account in her own name invested in another fund in the United
Group which charges the same sales load as the Fund, with a net asset
value as of the date of acceptance of the Statement of Intention of
$10,000; H needs to invest $75,000 in Class A shares over the 13-month
period in order to qualify for the reduced sales load applicable to a
purchase of $100,000.
A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount of Class A shares which must be purchased within the 13-month
period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under the plan will be taken into account in determining
the amount which must be invested under the Statement of Intention only if the
contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of the
dollar amount which must be invested under the Statement of Intention. An
amount equal to 5% of the purchase required under the Statement of Intention
will be held "in escrow." If a purchaser does not, during the period covered by
the Statement of Intention, invest the amount required to qualify for the
reduced sales charge under the terms of the Statement of Intention, he or she
will be responsible for payment of the sales charge applicable to the amount
actually invested. The additional sales charge owed on purchases of Class A
shares made under a Statement of Intention which is not completed will be
collected by redeeming part of the shares purchased under the Statement of
Intention and held "in escrow" unless the purchaser makes payment of this amount
to Waddell & Reed, Inc. within 20 days of Waddell & Reed, Inc.'s request for
payment.
If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell &
Reed, Inc. to sell, the shares covered by the Statement of Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement of Intention will be deducted in computing the aggregate purchases
under the Statement of Intention.
Statements of Intention are not available for purchases made under an SEP
where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the funds in the United Group which are subject to a sales
charge. A purchase of, or shares held in, any of the funds in the United Group
which are subject to the same sales charge as the Fund will be treated as an
investment in the Fund for the purpose of determining the applicable sales
charge. The following funds in the United Group have shares that are subject to
a maximum 5.75% ("full") sales charge as described in the prospectus of each
Fund: United Funds, Inc., United International Growth Fund, Inc., United
Continental Income Fund, Inc., United Vanguard Fund, Inc., United Retirement
Shares, Inc., United High Income Fund, Inc., United New Concepts Fund, Inc.,
United Gold & Government Fund, Inc., United High Income Fund II, Inc. and United
Asset Strategy Fund, Inc. The following funds in the United Group have shares
that are subject to a "reduced" sales charge as described in the prospectus of
each fund: United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. For the purposes of obtaining
the lower sales charge which applies to large purchases, purchases in a fund in
the United Group of shares that are subject to a full sales charge may not be
grouped with purchases of shares in a fund in the United Group that are subject
to a reduced sales charge; conversely, purchases of shares in a fund with a
reduced sales charge may not be grouped or combined with purchases of shares of
a fund that are subject to a full sales charge.
United Cash Management, Inc. is not subject to a sales charge. Purchases
in that fund are not eligible for grouping with purchases in any other fund.
Any person who was a holder of an uncompleted (i) United Income Investment
Program, (ii) United Periodic Investment Plan to Acquire United Accumulative
Fund Shares of United Funds, Inc., or (iii) United Periodic Investment Plan to
Acquire United Science Fund Shares of United Funds, Inc. (each a "Plan") on May
30, 1996, with a face amount of less than $12,000, may purchase Class A shares
of the Fund corresponding to such Plan (i.e., United Income Fund, United
Accumulative Fund or United Science and Technology Fund, respectively) at net
asset value ("NAV") plus a maximum sales charge of 2%, up to the amount
representing the unpaid balance of such Plan, if the purchase order is so
designated.
Net Asset Value Purchases of Class A Shares
As stated in the Prospectus, Class A shares of a Fund may be purchased at
net asset value by the Directors and officers of the Fund, employees of Waddell
& Reed, Inc., employees of their affiliates, account representatives of Waddell
& Reed, Inc. and the spouse, children, parents, children's spouses and spouse's
parents of each such Director, officer, employee and account representative.
"Child" includes stepchild; "parent" includes stepparent. Purchases of Class A
shares in an IRA sponsored by Waddell & Reed, Inc. established for any of these
eligible purchasers may also be at net asset value. Purchases of Class A shares
in any tax qualified retirement plan under which the eligible purchaser is the
sole participant may also be made at net asset value. Trusts under which the
grantor and the trustee or a co-trustee are each an eligible purchaser are also
eligible for net asset value purchases of Class A shares. "Employees" includes
retired employees. A retired employee is an individual separated from service
from Waddell & Reed, Inc. or affiliated companies with a vested interest in any
Employee Benefit Plan sponsored by Waddell & Reed, Inc. or its affiliated
companies. "Account representatives" includes retired account representatives.
A "retired account representative" is any account representative who was, at the
time of separation from service from Waddell & Reed, Inc., a Senior Account
Representative. A custodian under UGMA or UTMA purchasing for the child or
grandchild of any employee or account representative may purchase Class A shares
at net asset value whether or not the custodian himself is an eligible
purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at net asset value.
Any holder of an uncompleted Plan on May 30, 1996, with a face amount of
$12,000 or more, may purchase Class A shares of the Fund corresponding to such
Plan at NAV, up to the amount representing the unpaid balance of the Plan, if
the purchase order is so designated. In addition, any person who was a holder
of a Plan on May 30, 1996 may purchase Class A shares of the Fund corresponding
to such Plan at NAV up to the amount representing partial Plan withdrawals
outstanding on May 30, 1996, provided the purchase order is so designated.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus for the Class A shares, there are
a number of instances in which a Fund's Class A shares are sold or issued on a
basis other than the maximum public offering price, that is, the net asset value
plus the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one time
or over a period of time as under a Statement of Intention or right of
accumulation. See the table of sales charges in the Prospectus. The reasons
for these quantity discounts are, in general, that (i) they are traditional and
have long been permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such discounts, (ii)
certain quantity discounts are required by rules of the National Association of
Securities Dealers, Inc. (as are elimination of sales charges on the
reinvestment of dividends and distributions), and (iii) they are designed to
avoid an unduly large dollar amount of sales charges on substantial purchases in
view of reduced selling expenses. Quantity discounts are made available to
certain related persons for reasons of family unity and to provide a benefit to
tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales of Class A shares without sales charge are permitted to
Directors, officers and certain others due to reduced or eliminated selling
expenses and since such sales may aid in the development of a sound employee
organization, encourage incentive, responsibility and interest in the United
Group and an identification with its aims and policies. Limited reinvestments
of redemptions of Class A shares at no sales charge are permitted to attempt to
protect against mistaken or not fully informed redemption decisions. Class A
shares may be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such issuance is
exempted by the 1940 Act from the otherwise applicable restrictions as to what
charge must be imposed. In no case in which there is a reduced or eliminated
sales charge are the interests of existing Class A shareholders adversely
affected since, in each case, the Fund receives the net asset value per share of
all shares sold or issued.
Flexible Withdrawal Service for Class A Shareholders
If you qualify, you may arrange to receive through the Flexible Withdrawal
Service (the "Service") regular monthly, quarterly, semiannual or annual
payments by redeeming on a regular basis Class A shares that you own of a Fund
or of any of the funds in the United Group. It would be a disadvantage to an
investor to make additional purchases of shares while a withdrawal program is in
effect because it would result in duplication of sales charges. Applicable
forms to start the Service are available through Waddell & Reed, Inc.
To qualify for the Service, you must have invested at least $10,000 in
Class A shares which you still own of any of the funds in the United Group; or,
you must own Class A shares having a value of at least $10,000. The value for
this purpose is the value at the offering price.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to one-twelfth
of a percentage of the value of the shares in the Account (you select the
percentage); or
3. a monthly or quarterly payment, which will change each month or
quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of their service.
If you have a share certificate for the shares you want to make available
for the Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares you have made available for the
Service are paid in additional Class A shares. All payments under the Service
are made by redeeming Class A shares, which may involve a gain or loss for tax
purposes. To the extent that payments exceed dividends and distributions, the
number of Class A shares you own will decrease. When all of the shares in your
account are redeemed, you will not receive any further payments. Thus, the
payments are not an annuity or income or return on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed to any of the other choices originally available to you. You
may at any time redeem part or all of the shares in your account; if you redeem
all of the shares, the Service is terminated. The Corporation can also
terminate the Service by notifying you in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchanges for Shares of Other Funds in the United Group
Class A Share Exchanges
Once a sales charge has been paid on shares of a fund in the United
Group, these shares and any shares added to them from dividends or distributions
paid in shares may be freely exchanged for Class A shares of another fund in the
United Group. The shares you exchange must be worth at least $100 or you must
already own shares of the fund in the United Group into which you want to
exchange.
You may exchange Class A shares you own in another fund in the United Group
for Class A shares of a Fund without charge if (i) a sales charge was paid on
these shares, or (ii) the shares were received in exchange for shares for which
a sales charge was paid, or (iii) the shares were acquired from reinvestment of
dividends and distributions paid on such shares. There may have been one or
more such exchanges so long as a sales charge was paid on the shares originally
purchased. Also, shares acquired without a sales charge because the purchase
was $2 million or more will be treated the same as shares on which a sales
charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund, Inc.
and United Municipal High Income Fund, Inc. shares are the exceptions and
special rules apply. Class A shares of any of these funds may be exchanged for
Class A shares of the Funds only if (i) you received those shares as a result of
one or more exchanges of shares on which a sales charge was originally paid, or
(ii) the shares have been held from the date of the original purchase for at
least six months.
Subject to the above rules regarding sales charges, you may have a specific
dollar amount of Class A shares of United Cash Management, Inc. automatically
exchanged each month into Class A shares of a Fund or any other fund in the
United Group. The Class A shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100 or you must own
Class A shares of the fund in the United Group into which you want to exchange.
The minimum value of shares which you may designate for automatic exchange
monthly is $100, which may be allocated among the Class A shares of different
funds in the United Group so long as each fund receives a value of at least $25.
Minimum initial investment and minimum balance requirements apply to such
automatic exchange service.
You may redeem your Class A shares of a Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for purchasing
Class Y shares.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any other
fund in the United Group.
General Exchange Information
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your exchange request is received in good order.
These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time
and any such exchange may not be accepted.
Retirement Plans
As described in the Prospectus for Class A shares, your account may be set
up as a funding vehicle for a retirement plan. For individual taxpayers meeting
certain requirements, Waddell & Reed, Inc. offers prototype documents for the
following retirement plans. All of these plans involve investment in shares of
a Fund (or shares of certain other funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under an IRA, an investor can
contribute each year up to 100% of his or her earned income, up to an annual
maximum of $2,000. For tax years after 1996, the annual maximum is $4,000
($2,000 for each spouse) or, if less, the couple's combined earned income for
the taxable year, even if one spouse had no earned income. The contributions
are deductible unless the investor (or, if married, either spouse) is an active
participant in a qualified retirement plan or if, notwithstanding that the
investor or one or both spouses so participate, their adjusted gross income does
not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution that is
either (a) a direct rollover distribution from an employer's plan or (b) a
rollover of an eligible distribution paid to the investor from an employer's
plan or another IRA. To the extent a rollover contribution is made to an IRA,
the distribution will not be subject to Federal income tax until distributed
from the IRA. A direct rollover generally applies to any distribution from an
employer's plan (including a custodial account under Section 403(b)(7) of the
Code, but not an IRA) other than certain periodic payments, required minimum
distributions and other specified distributions. In a direct rollover, the
eligible rollover distribution is paid directly to the IRA, not to the investor.
If, instead, an investor receives payment of an eligible rollover distribution,
all or a portion of that distribution generally may be rolled over to an IRA
within 60 days after receipt of the distribution. Because mandatory Federal
income tax withholding applies to any eligible rollover distribution which is
not paid in a direct rollover, investors should consult their tax advisers or
pension consultants as to the applicable tax rules. If you already have an IRA,
you may have the assets in that IRA transferred directly to an IRA offered by
Waddell & Reed, Inc.
Simplified Employee Pension (SEP) plans. Employers can make contributions
to SEP-IRAs established for employees. An employer may contribute up to 15% of
compensation or $24,000, whichever is less, per year for each employee.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures. Redemption
payments are made within seven days unless delayed because of emergency
conditions determined by the SEC, when the NYSE is closed other than for
weekends or holidays, or when trading on the NYSE is restricted. Payment is
made in cash, although under extraordinary conditions redemptions may be made in
portfolio securities. Payment for redemptions of shares of the Corporation may
be made in portfolio securities when the Corporation's Board of Directors
determines that conditions exist making cash payments undesirable. Securities
used for payment of redemptions are valued at the value used in figuring net
asset value. There would be brokerage costs to the redeeming shareholder in
selling such securities. The Corporation, however, has elected to be governed
by Rule 18f-1 under the 1940 Act, pursuant to which it is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one shareholder.
Reinvestment Privilege
The Prospectus for Class A shares discusses the reinvestment privilege for
Class A shares under which, if you redeem your Class A shares and then decide it
was not a good idea, you may reinvest. If Class A shares of a Fund are then
being offered, you can put all or part of your redemption payment back into
Class A shares of that Fund without any sales charge at the net asset value next
determined after you have returned the amount. Your written request to do this
must be received within 30 days after your redemption request was received. You
can do this only once as to Class A shares of that Fund. You do not use up this
privilege by redeeming Class A shares to invest the proceeds at net asset value
in a Keogh plan or an IRA.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Corporation are handled by outside
organizations selected by the Board of Directors. The Board of Directors has
responsibility for establishing broad corporate policies for the Corporation and
for overseeing overall performance of the selected experts. It has the benefit
of advice and reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Wise is a member of the Corporation's Board of Directors. The
other persons are officers but not members of the Board of Directors. For
purposes of this section, the term "Fund Complex" includes each of the
registered investment companies in the United Group of Mutual Funds, TMK/United
Funds, Inc. and Waddell & Reed Funds, Inc. Each of the Corporation's Directors
is also a Director of each of the other funds in the Fund Complex and each of
its officers is also an officer of one or more of the funds in the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors of Waddell & Reed
Financial Services, Inc., United Investors Management Company and United
Investors Life Insurance Company; Chairman of the Board of Directors and Chief
Executive Officer of Torchmark Corporation; Chairman of the Board of Directors
of Vesta Insurance Group, Inc.; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc. Father of Linda Graves, Director of the Fund and each of
the other funds in the Fund Complex. Date of birth: June 16, 1926.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell & Reed,
Inc., Waddell & Reed Services Company, Waddell & Reed Asset Management Company
and Torchmark Distributors, Inc., an affiliate of Waddell & Reed, Inc.; Vice
Chairman of the Board of Directors, Chief Executive Officer and President of
United Investors Management Company; Vice Chairman of the Board of Directors of
Torchmark Corporation; Director of Southwestern Life Corporation; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company. Date of birth: February 11, 1945.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma. Date of birth: September 3, 1921.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies, an actuarial consulting company;
President, Buchanan Ranch Corporation; formerly, Professor and Chairman of
Marketing, College of Business, University of Colorado. Date of birth: April
18, 1931.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law. Date of
birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
Director and consultant, McDougal Construction Company; formerly Senior
Vice President-Sales and Marketing, Garney Companies, Inc., a specialty utility
contractor. Date of birth: January 9, 1939.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Chairman of the Board of the Fund and each of the
other funds in the Fund Complex. Date of birth: July 29, 1953.
JOHN F. HAYES*
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Kansas Bankshares;
Director of Central Properties, Inc.; Chairman, Gilliland & Hayes, P.A., a law
firm; formerly, President, Gilliland & Hayes, P.A. Date of birth: December 11,
1919.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries. Date of birth: February 19, 1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of the
Fund and each fund in the Fund Complex then in existence. (Mr. Morgan retired
as Chairman of the Board of Directors and President of the funds in the Fund
Complex then in existence on April 30, 1993); formerly, President, Director and
Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly, Chairman
of the Board of Directors of Waddell & Reed Services Company; formerly, Director
of Waddell & Reed Asset Management Company, United Investors Management Company
and United Investors Life Insurance Company, affiliates of Waddell & Reed, Inc.
Date of birth: April 27, 1928.
WILLIAM L. ROGERS
1999 Avenue of the Stars
Los Angeles, California 90067
Principal, Colony Capital, Inc., a real estate related investment company;
formerly, partner in Trivest, a private investment concern. Date of birth:
September 8, 1946.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Partner, Polsinelli, White, Vardeman & Shalton, a law firm. Date of birth:
April 9, 1953.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City. Date of birth: January 1,
1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan. Date of birth: July 16,
1920.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Vice President, Chief Operations Officer,
Director and Treasurer of Waddell & Reed Financial Services, Inc.; Executive
Vice President, Principal Financial Officer, Director and Treasurer of WRIMCO;
President, Chief Executive Officer, Principal Financial Officer, Director and
Treasurer of Waddell & Reed, Inc.; Director and Treasurer of Waddell & Reed
Asset Management Company; President, Director and Treasurer of Waddell & Reed
Services Company; Vice President, Treasurer and Director of Torchmark
Distributors, Inc. Date of birth: November 12, 1936.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
Vice President, Chief Investment Officer and Director of Waddell & Reed
Financial Services, Inc.; Director of Waddell & Reed, Inc.; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and Waddell &
Reed Asset Management Company; Senior Vice President and Chief Investment
Officer of United Investors Management Company. Date of birth: December 8,
1942.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund and
each of the other funds in the Fund Complex; Vice President of Waddell & Reed
Services Company. Date of birth: July 18, 1942.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Vice President, Secretary and General Counsel
of Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Director, Senior Vice
President, Secretary and General Counsel of Waddell & Reed Services Company;
Director, Secretary and General Counsel of Waddell & Reed Asset Management
Company; Vice President, Secretary and General Counsel of Torchmark
Distributors, Inc.; formerly, Assistant General Counsel of WRIMCO, Waddell &
Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company. Date of birth:
February 9, 1959.
James C. Cusser
Vice President of the Corporation and three other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Kidder Peabody &
Company.
Abel Garcia
Vice President of the Corporation and two other funds in the Fund Complex;
Senior Vice President of WRIMCO; Vice President of Waddell & Reed Asset
Management Company; formerly, Vice President of Waddell & Reed, Inc.
John M. Holliday
Vice President of the Corporation and nine other funds in the Fund Complex;
Senior Vice President of WRIMCO and of Waddell & Reed Asset Management Company;
formerly, Senior Vice President of Waddell & Reed, Inc.
Antonio Intagliata
Vice President of the Corporation; Senior Vice President of WRIMCO;
formerly, Senior Vice President of Waddell & Reed, Inc.
Carl E. Sturgeon
Vice President of the Corporation and eleven other funds in the Fund
Complex; Vice President of WRIMCO; formerly, Vice President of Waddell & Reed,
Inc.
Russell E. Thompson
Vice President of the Corporation and two other funds in the Fund Complex;
Senior Vice President of WRIMCO; Vice President of Waddell and Reed Asset
Management Company; formerly, Senior Vice President of Waddell & Reed, Inc.
The address of each person is 6300 Lamar Avenue, P. O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, six of the Corporation's Directors may be
deemed to be "interested persons" as defined in the 1940 Act of its underwriter,
Waddell & Reed, Inc., or of WRIMCO. The Directors who may be deemed to be
"interested persons" are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after resignation from the Board
provided the director has attained the age of 75 and has served as a director of
the funds in the United Group for a total of at least five years. A Director
Emeritus receives fees in recognition of his or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but has no
authority or responsibility with respect to management of the Corporation.
Messrs. Doyle Patterson and Jay B. Dillingham retired as Directors of the
Corporation and of each of the funds in the Fund Complex effective January 1,
1997 and January 14, 1997, respectively and each has elected a position as
Director Emeritus. During the Corporation's fiscal year ended December 31,
1996, Mr. Patterson received total compensation for his service as a Director of
$48,000 from the Fund Complex and the Corporation and aggregate compensation
from the Corporation of $21,482. During the Corporation's fiscal year ended
December 31, 1996, Mr. Dillingham received total compensation for his service as
a Director of $49,000 from the Fund Complex and the Corporation and aggregate
compensation from the Corporation of $21,929.
As of April 1, 1996, the funds in the United Group, TMK/United Funds, Inc.
and Waddell & Reed Funds, Inc. pay to each Director a total of $44,000 per year,
plus $1,000 for each meeting of the Board of Directors attended plus
reimbursement of expenses of attending such meeting (prior to April 1, 1996, the
funds in the United Group (with the exception of United Asset Strategy Fund,
Inc.), TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. paid to each
Director a fee of $40,000 per year, plus $1,000 for each meeting of the Board of
Directors attended) and $500 for each committee meeting attended which is not in
conjunction with a Board of Directors meeting, other than Directors who are
affiliates of Waddell & Reed, Inc. The fees to the Directors who receive them
are divided among the funds in the United Group , TMK/United Funds, Inc. and
Waddell & Reed Funds, Inc. based on their relative size.
During the Corporation's fiscal year ended December 31, 1996, the
Corporation's Directors received the following fees for service as a director:
Compensation Table
Total
Aggregate Compensation
Compensation From Corporation
From and Fund
Director Corporation Complex*
- -------- ------------ ------------
Ronald K. Richey $ 0 $ 0
Keith A Tucker 0 0
Henry L. Bellmon 21,929 49,000
Dodds I. Buchanan 21,929 49,000
Linda Graves 21,929 49,000
John F. Hayes 21,929 49,000
Glendon E. Johnson 21,482 48,000
William T. Morgan 21,929 49,000
William L. Rogers 4,914 11,000
Frank J. Ross, Jr. 4,914 11,000
Eleanor B. Schwartz 21,482 48,000
Frederick Vogel III 21,929 49,000
Paul S. Wise 21,929 49,000
*No pension or retirement benefits have been accrued as a part of Fund expenses.
Mr. Concannon and Mr. John Dillingham were elected as Directors on July
24, 1997. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of June 30, 1997, all of the Corporation's Directors and officers as
a group owned less than 1% of the outstanding shares of the Corporation. As of
such date no person owned of record or was known by the Corporation to own
beneficially 5% or more of the Corporation's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments a Fund makes to you as a
shareholder of a class of shares of a Fund, other than payments when you redeem
your shares. The first source is net investment income, which is derived from
the dividends, interest and earned discount on the securities a Fundholds, less
expenses (which will vary by class). The second source is net realized capital
gains, which are derived from proceeds received from a Fund's sale of securities
at a price higher than the Fund's basis (usually cost) in such securities, less
losses from sales of securities at a price lower than the Fund's basis therein;
these gains can be either long-term or short-term, depending on how long the
Fund has owned the securities before it sells them. The third source is net
realized gains from foreign currency transactions.
The payments made to shareholders from net investment income, net short-
term capital gains and net realized gains from certain foreign currency
transactions are called dividends. Payments, if any, from net long-term capital
gains and the remaining foreign currency gains are called distributions.
Each Fund pays distributions from net capital gain (the excess of net
long-term capital gain over net short-term capital loss). A Fund may or may not
have such gain, depending on whether securities are sold and at what price. If
a Fund has net capital gain, it will pay distributions once each year, in the
latter part of the fourth calendar quarter; except to the extent it has net
capital losses from a prior year or years to offset the gains. It is the policy
of each Fund to make annual capital gain distributions to the extent that net
capital gain is realized in excess of available capital loss carryovers.
Income and expenses are earned and incurred separately by each Fund, and
gains and losses on portfolio transactions of each Fund are attributable only to
that Fund. For example, capital losses realized by one Fund would not affect
capital gains realized by another Fund.
Choices you have on your Dividends and Distributions
On your application form, you can give instructions that (i) you want cash
for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid. You can change your instructions at any time. If you
give no instructions, your dividends and distributions will be paid in shares of
that Fund of the same class as that with respect to which they were paid. All
payments in shares are at net asset value without any sales charge. The net
asset value used for this purpose is that computed as of the record date for the
dividend or distribution, although this could be changed by the Directors. The
record date is the date used to determine which shareholders are entitled to
receive a dividend or distribution; investors who own shares on that date are so
entitled.
Even if you get dividends and distributions on Class A shares in cash, you
can thereafter reinvest them (or distributions only) in Class A shares of that
Fund at net asset value (i.e., no sales charge) next determined after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment. The
reinvestment must be within 45 days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, a Fund (each Fund being treated as a separate
entity for these purposes) must distribute to its shareholders for each taxable
year at least 90% of its investment company taxable income (consisting generally
of net investment income, net short-term capital gain and net gains from certain
foreign currency transactions) ("Distribution Requirement") and must meet
several additional requirements. With respect to each Fund, these requirements
include the following: (1) the Fund must derive at least 90% of its gross
income each taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of securities or
foreign currencies, or other income (including gains from options, futures
contracts or forward contracts) derived with respect to its business of
investing in securities or those currencies ("Income Requirement"); (2) the Fund
must derive less than 30% of its gross income each taxable year from the sale or
other disposition of securities, or any of the following, that were held for
less than three months--options or futures contracts (other than those on
foreign currencies), or foreign currencies (or options, futures contracts or
forward contracts thereon) that are not directly related to the Fund's principal
business of investing in securities (or options and futures contracts with
respect to securities) ("Short-Short Limitation"); (3) at the close of each
quarter of the Fund's taxable year, at least 50% of the value of its total
assets must be represented by cash and cash items, U.S. Government Securities,
securities of other RICs and other securities that are limited, in respect of
any one issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets and that does not represent more than 10% of the issuer's
outstanding voting securities ("50% Diversification Requirement"); and (4) at
the close of each quarter of the Fund's taxable year, not more than 25% of the
value of its total assets may be invested in securities (other than U.S.
Government Securities or the securities of other RICs) of any one issuer.
Dividends and distributions declared by a Fund in October, November or
December of any year and payable to its shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to the shareholders for the year in which that December 31 falls.
If shares of a Fund are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any distributions received on those shares. Investors also
should be aware that if shares are purchased shortly before the record date for
a dividend or distribution, the investor will receive some portion of the
purchase price back as a taxable dividend or distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. It is the policy of each Fund to pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax. The Code permits
each Fund to defer into the next calendar year net capital losses incurred
between November 1 and the end of the current calendar year.
Income from Foreign Securities
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors.
Each of the Funds may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, a Fund will be
subject to Federal income tax on a portion of any "excess distribution" received
on the stock of a PFIC or of any gain on disposition of the stock (collectively
"PFIC income"), plus interest thereon, even if the Fund distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC
income will be included in the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain -- which
probably would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Funds, would
be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each taxable
year the excess, as of the end of that year, of the fair market value of such a
PFIC's stock over the adjusted basis in that stock (including mark-to-market
gain for each prior year for which an election was in effect).
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, may increase or decrease the amount of a
Fund's investment company taxable income to be distributed to its shareholders.
Income from Options, Futures and Forward Contracts and Foreign Currencies
The use of hedging and option income strategies, such as writing (selling)
and purchasing options and futures contracts and entering into forward
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses the Fund
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures contracts and forward contracts derived by a
Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
However, income from the disposition of options, futures contracts and forward
contracts (other than those on foreign currencies) will be subject to the Short-
Short Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures contracts and forward
contracts thereon, that are not directly related to a Fund's principal business
of investing in securities (or options and futures contracts with respect to
securities) also will be subject to the Short-Short Limitation if they are held
for less than three months.
If a Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. Each
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of each Fund's hedging transactions. To the
extent this treatment is not available, a Fund may be forced to defer the
closing out of certain options, futures contracts and forward contracts and/or
foreign currency positions beyond the time when it otherwise would be
advantageous to do so, in order for the Fund to continue to qualify as a RIC.
Any income a Fund earns from writing options is treated as short-term
capital gain. If a Fund enters into a closing purchase transaction, it will
have short-term capital gain or loss based on the difference between the premium
it receives for the option it wrote and the premium it pays for the option it
buys. If an option written by a Fund lapses without being exercised, the
premium it receives also will be a short-term capital gain. If such an option
is exercised and the Fund thus sells the securities subject to the option, the
premium the Fund receives will be added to the exercise price to determine the
gain or loss on the sale. A Fund will not write so many options that it could
fail to continue to qualify as a RIC.
Certain options and futures in which the Funds may invest may be "section
1256 contracts." Section 1256 contracts held by a Fund at the end of its
taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, are "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gains or losses recognized on these deemed sales, and 60% of
any net realized gains or losses from any actual sales of section 1256
contracts, are treated as long-term capital gains or losses, and the balance is
treated as short-term capital gains or losses. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax and for other purposes. The
Fund may need to distribute any such gains to its shareholders to satisfy the
Distribution Requirement and/or avoid imposition of the Excise Tax even though
it may not have closed the transactions and received cash to pay the
distributions.
Code Section 1092 (dealing with straddles) may also affect the taxation of
options and futures contracts in which the Funds may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules that apply to transactions where a position is sold at
a loss and a new offsetting position is acquired within a prescribed period and
"short sale" rules applicable to straddles. If a Fund makes certain elections,
the amount, character and timing of the recognition of gains and losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. Because only a few of the regulations implementing the
straddle rules have been promulgated, the tax consequences of straddle
transactions to the Funds are not entirely clear.
Zero Coupon and Payment-in-Kind Securities
Certain Funds may acquire zero coupon or other securities issued with
original issue discount. As the holder of those securities, a Fund must include
in its income the original issue discount that accrues on the securities during
the taxable year, even if the Fund receives no corresponding payment on the
securities during the year. Similarly, a Fund must include in its gross income
securities it receives as "interest" on payment-in-kind securities. Because
each Fund annually must distribute substantially all of its investment company
taxable income, including any accrued original issue discount and other non-cash
income, in order to satisfy the Distribution Requirement and to avoid imposition
of the Excise Tax, a Fund may be required in a particular year to distribute as
a dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions will be made from a Fund's cash assets or from
the proceeds of sales of portfolio securities, if necessary. A Fund may realize
capital gains or losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gain. In addition, any
such gains may be realized on the disposition of securities held for less than
three months. Because of the Short-Short Limitation, any such gains would
reduce a Fund's ability to sell other securities, or certain options, futures
contracts, forward contracts or foreign currency positions, held for less than
three months that it might wish to sell in the ordinary course of its portfolio
management.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management Agreement
is to arrange the purchase and sale of securities for the portfolio of each
Fund. Transactions in securities other than those for which an exchange is the
primary market are generally done with dealers acting as principals or market
makers. Brokerage commissions are paid primarily for effecting transactions in
securities traded on an exchange and otherwise only if it appears likely that a
better price or execution can be obtained. The individual who manages a Fund
may manage other advisory accounts with similar investment objectives. It can
be anticipated that the manager will frequently place concurrent orders for all
or most accounts for which the manager has responsibility. Transactions
effected pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each fund or
advisory account.
To effect the portfolio transactions of a Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of brokers
which provide execution and research services and other services, including
pricing or quotation services directly or through others ("brokerage services")
considered by WRIMCO to be useful or desirable for its investment management of
the Fund and/or the other funds and accounts over which WRIMCO or its affiliates
have investment discretion.
Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may
be higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations WRIMCO may also consider sales of Fund shares as a
factor in the selection of broker-dealers to execute portfolio transactions. No
allocation of brokerage or principal business is made to provide any other
benefits to WRIMCO or its affiliates.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and its affiliates and
investment research received for the commissions of those other accounts may be
useful both to the Fund and one or more of such other accounts. To the extent
that electronic or other products provided by such brokers to assist WRIMCO in
making investment management decisions are used for administration or other non-
research purposes, a reasonable allocation of the cost of the product
attributable to its non-research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
instance of a broker) includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of WRIMCO;
serves to make available additional views for consideration and comparisons; and
enables WRIMCO to obtain market information on the price of securities held in
the Fund's portfolio or being considered for purchase.
The Corporation may also use its brokerage to pay for pricing or quotation
services to value securities. The table below sets forth the brokerage
commissions paid by each of the Funds during the fiscal years ended December 31,
1996, 1995 and 1994. These figures do not include principal transactions or
spreads or concessions on principal transactions, i.e., those in which a Fund
sells securities to a broker-dealer firm or buys from a broker-dealer firm
securities owned by it.
1996 1995 1994
---------- ---------- ----------
United Bond Fund ..... $ 0 $ 469 $ 0
United Income Fund ... 2,444,984 1,882,280 1,730,535
United Accumulative Fund 6,157,885 4,952,823 4,787,543
United Science and
Technology Fund ... 438,029 321,141 516,617
---------- ---------- ----------
Total ................ $9,040,898 $7,156,713 $7,034,695
========== ========== ==========
The next table shows for each of the Fund's last fiscal year the
transactions, other than principal transactions, which were directed to broker-
dealers who provided research as well as execution and the brokerage commissions
paid. These transactions were allocated to these broker-dealers by the internal
allocation procedures described above.
Amount of Brokerage
Transactions Commissions
-------------- ----------
United Bond Fund ....................$ --- $ ---
United Income Fund .................. 1,340,802,642 1,727,912
United Accumulative Fund ............ 3,411,550,423 4,628,899
United Science and Technology Fund .. 167,432,432 246,179
-------------- ----------
Total ............................ $4,919,785,497 $6,602,990
============== ==========
As of December 31, 1996, United Accumulative Fund owned securities of
Merrill Lynch & Co., Inc. and Paine Webber Group Inc. in the amounts of
$4,977,542 and $7,031,250, respectively. Merrill Lynch & Co. and Paine Webber
Group Inc. is each a regular broker of the Fund.
The Corporation, WRIMCO and Waddell & Reed, Inc. have adopted a Code of
Ethics which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
Buying and Selling With Other Funds
A Fund and one or more of the other funds in the United Group, TMK/United
Funds, Inc. and Waddell & Reed Funds, Inc. or accounts over which Waddell & Reed
Asset Management Company exercises investment discretion frequently buy or sell
the same securities at the same time. If this happens, the amount of each
purchase or sale is divided. This is done on the basis of the amount of
securities each fund or account wanted to buy or sell. Sharing in large
transactions could affect the price a Fund pays or receives or the amount it
buys or sells. However, sometimes a better-negotiated commission is available.
OTHER INFORMATION
The Shares of the Four Funds
The shares of each of the four Funds represents an interest in that Fund's
securities and other assets and in its profits or losses. Each fractional share
of a class has the same rights, in proportion, as a full share of that class.
Each Fund offers two classes of its shares: Class A and Class Y. Each
class of a Fund represents an interest in the same assets of the Fund and differ
as follows: each class of shares has exclusive voting rights on matters
pertaining to matters appropriately limited to that class; Class A shares are
subject to an initial sales charge and to an ongoing service fee; each class may
bear differing amounts of certain class-specific expenses; and each class has a
separate exchange privilege. The Funds do not anticipate that there will be any
conflicts between the interests of holders of the different classes of shares of
the same Fund by virtue of those classes. On an ongoing basis, the Board of
Directors will consider whether any such conflict exists and, if so, take
appropriate action. Each share of a Fund is entitled to equal voting, dividend,
liquidation and redemption rights, except that due to the differing expenses
borne by the two classes, dividends and liquidation proceeds of Class A shares
are expected to be lower than for Class Y shares of the same Fund.
Each share of each Fund (regardless of class) is entitled to one vote. On
certain matters such as the election of Directors, all shares of all of the four
Funds vote together as a single class. On other matters affecting a particular
Fund, the shares of that Fund vote together as a separate class, such as with
respect to a change in an investment restriction of a particular Fund, except
that as to matters for which a separate vote of a class is required by the 1940
Act or which affects the interests of one or more particular classes, the
affected shareholders vote as a separate class. In voting on a Management
Agreement, approval by the shareholders of a Fund is effective as to that Fund
whether or not enough votes are received from the shareholders of the other
Funds to approve the Management Agreement for the other Funds.
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Amusement and Recreation Services - 1.97%
MGM Grand Hotel Finance Corp.,
11.75%, 5-1-99 ........................ $10,000 $ 10,437,500
Chemicals and Allied Products - 4.26%
Dow Capital BV,
9.0%, 5-15-2010 ....................... 5,000 5,729,700
Dow Chemical Company (The),
8.55%, 10-15-2009 ..................... 5,000 5,569,200
Procter & Gamble Company (The),
8.0%, 9-1-2024 ........................ 10,000 11,325,100
Total ................................. 22,624,000
Communication - 7.99%
Bell Telephone Company of Pennsylvania (The),
8.35%, 12-15-2030 ..................... 5,000 5,875,700
BellSouth Telecommunications, Inc.,
5.85%, 11-15-2045 ..................... 3,000 2,954,790
Cablevision Industries Corporation,
9.25%, 4-1-2008 ....................... 5,000 5,303,050
Centel Capital Corporation,
9.0%, 10-15-2019 ...................... 5,585 6,619,007
Continental Cablevision, Inc.,
8.5%, 9-15-2001 ....................... 5,000 5,327,350
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................... 1,750 1,846,250
Jones Intercable, Inc.,
9.625%, 3-15-2002 ..................... 2,500 2,625,000
Tele-Communications, Inc.,
6.58%, 2-15-2005 ...................... 7,500 7,756,575
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... 4,000 4,083,240
Total ................................. 42,390,962
Depository Institutions - 9.79%
AmSouth Bancorporation,
6.75%, 11-1-2025 ...................... 6,000 5,912,520
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-2005 ...................... 1,500 1,530,000
Deutsche Bank Financial Inc.,
6.7%, 12-13-2006 ...................... 4,250 4,170,780
J.P. Morgan & Co. Incorporated,
7.54%, 1-15-2027 ...................... 4,250 4,153,483
Kansallis-Osake-Pankki,
10.0%, 5-1-2002 ....................... 6,000 6,809,400
NBD Bank, National Association,
8.25%, 11-1-2024 ...................... 6,000 6,757,140
NationsBank Corporation,
8.57%, 11-15-2024 ..................... 5,000 5,722,550
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (CONTINUED)
Depository Institutions (Continued)
Riggs National Corporation,
8.5%, 2-1-2006 ........................ $ 5,000 $ 5,225,000
SouthTrust Bank of Alabama, N.A.:
5.58%, 2-6-2006 ....................... 4,500 4,350,060
7.69%, 5-15-2025 ...................... 5,000 5,282,150
Sovereign Bancorp, Inc.,
8.0%, 3-15-2003 ....................... 2,000 2,027,500
Total ................................. 51,940,583
Electric, Gas and Sanitary Services - 2.01%
Arkla, Inc.,
10.0%, 11-15-2019 ..................... 8,000 8,911,680
El Paso Electric Company,
7.25%, 2-1-99 ......................... 1,750 1,745,695
Total ................................. 10,657,375
Fabricated Metal Products - 0.58%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 3,000 3,090,000
Food and Kindred Products - 4.31%
Coca-Cola Enterprises Inc.:
0.0%, 6-20-2020 ....................... 60,000 11,680,200
6.7%, 10-15-2036 ...................... 5,000 5,046,000
Nabisco, Inc.,
6.8%, 9-1-2001 ........................ 6,000 6,133,200
Total ................................. 22,859,400
General Building Contractors - 0.78%
Del Webb Corporation,
10.875%, 3-31-2000 .................... 4,000 4,120,000
Health Services - 0.99%
Tenet Healthcare Corporation,
8.625%, 12-1-2003 ..................... 5,000 5,275,000
Hotels and Other Lodging Places - 1.77%
Marriott International, Inc.,
7.875%, 4-15-2005 ..................... 5,000 5,193,550
RHG Finance Corporation,
8.875%, 10-1-2005 ..................... 4,000 4,228,480
Total ................................. 9,422,030
Industrial Machinery and Equipment - 0.62%
Joy Technologies Inc.,
10.25%, 9-1-2003 ...................... 3,000 3,307,500
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (CONTINUED)
Insurance Carriers - 1.42%
Penn Central Corporation (The),
10.625%, 4-15-2000 .................... $ 4,000 $ 4,423,120
Reliance Group Holdings, Inc.,
9.0%, 11-15-2000 ...................... 3,000 3,090,000
Total ................................. 7,513,120
Lumber and Wood Products - 0.40%
Doman Industries Limited,
8.75%, 3-15-2004 ...................... 2,250 2,103,750
Metal Mining - 0.93%
Noranda Inc.,
7.0%, 7-15-2005 ....................... 5,000 4,936,300
Nondepository Institutions - 15.06%
Associates Corporation of North America,
7.95%, 2-15-2010 ...................... 7,250 7,937,082
Banc One Credit Card Master Trust,
Series 1994-B, Class A,
7.55%, 12-15-99 ....................... 5,000 5,071,850
Chrysler Financial Corporation,
12.75%, 11-1-99 ....................... 9,000 10,419,930
Countrywide Mortgage Backed Securities,
Inc.,
6.5%, 4-25-2024 ....................... 10,000 9,752,300
DLJ Mortgage Acceptance Corp.,
6.5%, 4-25-2024 ....................... 4,802 4,566,403
Equicon Loan Trust,
7.3%, 2-18-2013 ....................... 4,571 4,509,447
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 8,000 8,920,320
General Motors Acceptance Corporation,
8.875%, 6-1-2010 ...................... 10,000 11,572,200
Residential Asset Securities Corporation,
Mortgage Pass-Through Certificates,
1995-KS3 Class D,
8.0%, 10-25-2024 ...................... 4,000 4,031,640
Residential Funding Mortgage
Securities, Inc.,
8.0%, 8-25-2020 ....................... 8,224 8,244,742
WFS Financial 1996-B Owner Trust, Class A-2,
6.2%, 5-20-99 ......................... 4,884 4,898,600
Total ................................. 79,924,514
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (CONTINUED)
Oil and Gas Extraction - 3.70%
Anadarko Petroleum Corporation,
7.25%, 3-15-2025 ...................... $ 5,000 $ 5,181,650
Oryx Energy Company:
10.0%, 4-1-2001 ....................... 3,500 3,841,915
8.375%, 7-15-2004 ..................... 3,500 3,631,355
Seagull Energy Corporation,
7.875%, 8-1-2003 ...................... 1,250 1,260,937
Union Texas Petroleum Holdings, Inc.,
8.25%, 11-15-99 ....................... 2,250 2,319,998
YPF Sociedad Anoima,
8.0%, 2-15-2004 ....................... 3,500 3,377,500
Total ................................. 19,613,355
Paper and Allied Products - 1.26%
Boise Cascade Office Products Corporation,
9.875%, 2-15-2001 ..................... 2,500 2,646,975
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-2002 ...................... 4,000 4,063,920
Total ................................. 6,710,895
Petroleum and Coal Products - 1.06%
Coastal Corporation (The),
10.375%, 10-1-2000 .................... 5,000 5,612,450
Printing and Publishing - 1.81%
News America Holdings Incorporated,
9.125%, 10-15-99 ...................... 5,000 5,335,200
Viacom International Inc.:
9.125%, 8-15-99 ....................... 1,500 1,533,750
10.25%, 9-15-2001 ..................... 2,500 2,725,000
Total ................................. 9,593,950
Stone, Clay and Glass Products - 1.57%
Owens-Corning Fiberglas Corporation,
8.875%, 6-1-2002 ...................... 5,000 5,421,950
USG Corporation:
9.25%, 9-15-2001 ...................... 2,000 2,130,000
8.5%, 8-1-2005 ........................ 750 783,750
Total ................................. 8,335,700
Transportation Equipment - 1.75%
General Motors Corporation,
8.8%, 3-1-2021 ........................ 3,250 3,704,383
McDonnell Douglas Corporation,
9.25%, 4-1-2002 ....................... 5,000 5,584,500
Total ................................. 9,288,883
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (CONTINUED)
Wholesale Trade -- Durable Goods- 2.52%
Fisher Scientific International Inc.,
7.125%, 12-15-2005 .................... $ 3,500 $ 3,443,860
Motorola, Inc.,
8.4%, 8-15-2031 ....................... 8,500 9,956,815
Total ................................. 13,400,675
TOTAL CORPORATE DEBT SECURITIES - 66.55% $353,157,942
(Cost: $345,970,426)
OTHER GOVERNMENT SECURITIES
Canada - 4.19%
Hydro Quebec:
8.05%, 7-7-2024 ....................... 10,000 10,995,200
7.4%, 3-28-2025 ....................... 5,000 5,592,200
Province of Nova Scotia,
8.25%, 11-15-2019 ..................... 5,000 5,661,350
Total ................................. 22,248,750
Supranational - 1.08%
Inter-American Development Bank,
8.4%, 9-1-2009 ........................ 5,000 5,706,650
TOTAL OTHER GOVERNMENT SECURITIES - 5.27% $ 27,955,400
(Cost: $26,104,636)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.83%, 7-3-2002 ....................... 4,500 4,473,270
7.5%, 2-15-2007 ....................... 10,000 10,240,600
7.5%, 11-15-2017 ...................... 10,000 10,231,200
7.5%, 4-15-2019 ....................... 12,741 12,486,130
7.95%, 12-15-2020 ..................... 9,000 9,210,870
Federal National Mortgage Association:
7.09%, 4-1-2004 ....................... 4,500 4,459,230
7.0%, 7-25-2006 ....................... 10,000 10,100,000
7.5%, 9-1-2009 ........................ 4,242 4,300,130
7.0%, 8-25-2021 ....................... 10,000 9,828,100
Government National Mortgage Association:
7.5%, 7-15-2023 ....................... 6,504 6,545,750
7.5%, 12-15-2023 ...................... 5,559 5,594,786
8.0%, 9-15-2025 ....................... 9,726 10,051,343
7.75%, 10-15-2031 ..................... 1,998 2,023,848
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
Tennessee Valley Authority,
5.98%, 4-1-2036 ....................... $ 5,000 $ 5,078,200
United States Treasury:
5.5%, 2-28-99 ......................... 10,000 9,915,600
6.75%, 5-31-99 ........................ 4,000 4,068,120
0.0%, 5-15-2007 ....................... 15,000 7,658,850
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 23.79% $126,266,027
(Cost: $125,180,107)
TOTAL SHORT-TERM SECURITIES - 3.45% $ 18,289,860
(Cost: $18,289,860)
TOTAL INVESTMENT SECURITIES - 99.06% $525,669,229
(Cost: $515,545,029)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.94% 4,983,182
NET ASSETS - 100.00% $530,652,411
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 1.21%
Gap, Inc. (The) ........................ 2,000,000 $ 60,250,000
Apparel and Other Textile Products - 0.54%
Tommy Hilfiger Corporation* ............ 560,000 26,880,000
Building Materials and Garden Supplies - 0.77%
Home Depot, Inc. (The) ................. 765,000 38,345,625
Business Services - 4.80%
Computer Associates International, Inc. 562,500 27,984,375
Electronic Data Systems Corporation .... 1,081,000 46,753,250
Manpower Inc. .......................... 147,400 4,790,500
Microsoft Corporation* ................. 800,000 66,149,600
Oracle Systems Corporation* ............ 1,650,000 68,783,550
3Com Corporation* ...................... 350,000 25,659,200
Total ................................. 240,120,475
Chemicals and Allied Products - 16.57%
ABB AG (A) ............................. 25,000 31,102,892
Abbott Laboratories .................... 1,100,000 55,825,000
Air Products and Chemicals, Inc. ....... 1,150,000 79,493,750
Amgen Inc.* ............................ 400,000 21,774,800
Astra AB, Class A (A) .................. 600,000 29,445,172
BetzDearborn Inc. ...................... 320,000 18,720,000
Colgate-Palmolive Company .............. 600,000 55,350,000
Dow Chemical Company (The) ............. 575,000 45,065,625
du Pont (E.I.) de Nemours and Company .. 1,000,000 94,375,000
IMC Global, Inc. ....................... 600,000 23,475,000
Lilly (Eli) and Company ................ 300,000 21,900,000
Merck & Co., Inc. ...................... 700,000 55,475,000
PPG Industries, Inc. ................... 1,250,000 70,156,250
Pfizer Inc. ............................ 650,000 53,868,750
Praxair, Inc. .......................... 1,000,000 46,125,000
Procter & Gamble Company (The) ......... 600,000 64,500,000
Union Carbide Corporation .............. 875,000 35,765,625
Warner-Lambert Company ................. 350,000 26,250,000
Total ................................. 828,667,864
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Communication - 2.14%
AT&T Corporation ....................... 500,000 $ 21,750,000
MCI Communications Corporation ......... 1,875,000 61,288,125
SBC Communications Inc. ................ 460,000 23,805,000
Total ................................. 106,843,125
Depository Institutions - 4.67%
BankAmerica Corporation ................ 475,000 47,381,250
Chase Manhattan Corporation (The) ...... 525,000 46,856,250
Citicorp ............................... 550,000 56,650,000
First Bank System, Inc. ................ 500,000 34,125,000
Grupo Financiero Bancomer, S.A. de
C.V., B, CPO Shares (A)* .............. 2,000,000 800,305
Norwest Corporation .................... 1,100,000 47,850,000
Total ................................. 233,662,805
Electric, Gas and Sanitary Services - 0.39%
WMX Technologies, Inc. ................. 600,000 19,575,000
Electronic and Other Electric Equipment - 11.54%
AMP Incorporated ....................... 1,100,000 42,212,500
Analog Devices, Inc.* .................. 1,230,000 41,666,250
Duracell International Inc. ............ 1,000,000 69,875,000
Emerson Electric Co. ................... 400,000 38,700,000
General Electric Company ............... 1,200,000 118,650,000
Intel Corporation ...................... 1,530,000 200,333,610
Nokia Corporation, Series A (A) ........ 760,000 44,123,164
TRINOVA Corporation .................... 600,000 21,825,000
Total ................................. 577,385,524
Engineering and Management Services - 0.50%
Fluor Corporation ...................... 400,000 25,100,000
Food and Kindred Products - 1.94%
CPC International Inc. ................. 500,000 38,750,000
PepsiCo, Inc. .......................... 2,000,000 58,500,000
Total ................................. 97,250,000
Food Stores - 0.49%
Kroger Co. (The) ....................... 525,000 24,412,500
Forestry - 1.32%
Georgia-Pacific Corporation ............ 425,000 30,600,000
Weyerhaeuser Company ................... 750,000 35,531,250
Total ................................. 66,131,250
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Furniture and Home Furnishings Stores - 0.96%
Circuit City Stores, Inc. .............. 1,600,000 $ 48,200,000
General Merchandise Stores - 3.82%
Cifra, S.A. de C.V., Series C (A)* ..... 8,000,000 9,756,098
Dayton Hudson Corporation .............. 949,800 37,279,650
Kmart Corporation* ..................... 4,000,000 41,500,000
May Department Stores Company (The) .... 1,000,000 46,750,000
Penney (J.C.) Company, Inc. ............ 676,000 32,955,000
Wal-Mart Stores, Inc. .................. 1,000,000 22,875,000
Total ................................. 191,115,748
Health Services - 1.41%
Columbia/HCA Healthcare Corporation .... 1,192,500 48,594,375
Tenet Healthcare Corporation* .......... 1,000,000 21,875,000
Total ................................. 70,469,375
Heavy Construction, Excluding Building - 0.30%
Foster Wheeler Corporation ............. 400,000 14,850,000
Holding and Other Investment Offices - 0.44%
Grupo Financiero Banamex Accival,
S.A. de C.V., L (A)* .................. 749,775 1,424,877
Grupo Financiero Banamex Accival,
S.A. de C.V., B, CPO shares (A)*....... 9,800,000 20,690,549
Total ................................. 22,115,426
Hotels and Other Lodging Places - 0.91%
ITT Corporation* ....................... 1,050,204 45,552,598
Industrial Machinery and Equipment - 13.63%
Applied Materials, Inc.* ............... 1,730,000 62,171,010
Case Corporation ....................... 1,214,600 66,195,700
Caterpillar Inc. ....................... 1,400,000 105,350,000
cisco Systems, Inc.* ................... 1,730,000 110,178,510
Compaq Computer Corporation* ........... 350,000 25,987,500
Deere & Company ........................ 2,055,000 83,484,375
Eaton Corporation ...................... 500,000 34,875,000
Harnischfeger Industries, Inc. ......... 600,000 28,875,000
Hewlett-Packard Company ................ 850,000 42,712,500
Ingersoll-Rand Company ................. 400,000 17,800,000
Mannesmann AG (A) ...................... 65,000 28,180,046
Parker Hannifin Corporation ............ 600,000 23,250,000
United Technologies Corporation ........ 800,000 52,800,000
Total ................................. 681,859,641
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 1.58%
General Motors Corporation, Class H .... 176,100 $ 9,905,625
Guidant Corporation .................... 260,000 14,820,000
Medtronic, Inc. ........................ 800,000 54,400,000
Total ................................. 79,125,625
Insurance Carriers - 0.52%
Aetna Life & Casualty Company .......... 325,000 26,000,000
Miscellaneous Manufacturing Industries - 1.25%
Armstrong World Industries, Inc. ....... 900,000 62,550,000
Motion Pictures - 0.97%
Walt Disney Company (The) .............. 700,000 48,737,500
Nondepository Institutions - 2.89%
Federal Home Loan Mortgage Corporation . 700,000 77,087,500
Federal National Mortgage Association .. 1,805,800 67,266,050
Total ................................. 144,353,550
Paper and Allied Products - 1.88%
Champion International Corporation ..... 500,000 21,625,000
International Paper Company ............ 1,200,000 48,450,000
Union Camp Corporation ................. 500,000 23,875,000
Total ................................. 93,950,000
Petroleum and Coal Products - 2.04%
Mobil Corporation ...................... 400,000 48,900,000
Royal Dutch Petroleum Company .......... 300,000 51,225,000
Tosco Corporation ...................... 25,000 1,978,125
Total ................................. 102,103,125
Primary Metal Industries - 1.13%
Aluminum Company of America ............ 650,000 41,437,500
Nucor Corporation ...................... 300,000 15,300,000
Total ................................. 56,737,500
Railroad Transportation - 0.60%
Union Pacific Corporation .............. 500,000 30,062,500
Rubber and Miscellaneous Plastics Products - 1.03%
Goodyear Tire & Rubber Company (The) ... 1,000,000 51,375,000
Special Trade Contractors - 1.21%
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 2,000,000 60,374,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Transportation By Air - 2.77%
AMR Corporation* ....................... 400,000 $ 35,250,000
Southwest Airlines Co. ................. 1,600,000 35,400,000
USAir Group, Inc.* ..................... 2,900,000 67,787,500
Total ................................. 138,437,500
Transportation Equipment - 5.99%
AlliedSignal Inc. ...................... 700,000 46,900,000
Boeing Company (The) ................... 635,000 67,548,125
Chrysler Corporation ................... 2,200,000 72,600,000
Dana Corporation ....................... 760,000 24,795,000
Ford Motor Company ..................... 1,000,000 31,875,000
General Motors Corporation ............. 1,000,000 55,750,000
Total ................................. 299,468,125
Wholesale Trade -- Durable Goods - 0.89%
Motorola, Inc. ......................... 725,000 44,496,875
Wholesale Trade -- Nondurable Goods - 2.02%
Gillette Company (The) ................. 1,000,000 77,750,000
Safeway Inc.* .......................... 550,000 23,512,500
Total ................................. 101,262,500
TOTAL COMMON STOCKS - 95.12% $4,757,820,756
(Cost: $2,671,018,401)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Depository Institutions - 0.21%
Morgan Guaranty Trust Company of New York,
7.375%, 2-1-2002 ...................... $10,250 10,568,672
Nondepository Institutions - 0.23%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 10,000 11,150,400
TOTAL CORPORATE DEBT SECURITIES - 0.44% $ 21,719,072
(Cost: $19,957,223)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.75%, 4-30-2000 ...................... $37,000 $ 37,699,670
5.75%, 8-15-2003 ...................... 50,000 48,500,000
10.375%, 11-15-2012 ................... 8,500 10,946,385
9.0%, 11-15-2018 ...................... 20,000 25,096,800
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 2.44% $ 122,242,855
(Cost: $114,802,668)
TOTAL SHORT-TERM SECURITIES - 2.99% $ 149,369,721
(Cost: $149,369,721)
TOTAL INVESTMENT SECURITIES - 100.99% $5,051,152,404
(Cost: $2,955,148,013)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.99%) (49,389,091)
NET ASSETS - 100.00% $5,001,763,313
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS
Building Materials and Garden Supplies - 1.17%
Home Depot, Inc. (The) ................. 300,000 $ 15,037,500
Business Services - 4.90%
Automatic Data Processing, Inc. ........ 350,000 15,006,250
Broderbund Software, Inc.* ............. 200,000 5,937,400
Cerner Corporation* .................... 900,000 13,837,500
Computer Associates International, Inc. 250,000 12,437,500
Intuit Inc.* ........................... 150,000 4,762,500
Physician Computer Network* ............ 400,000 3,400,000
Shared Medical Systems Corporation ..... 125,000 6,156,250
Summit Medical Systems, Inc.* .......... 206,000 1,532,022
Total ................................. 63,069,422
Chemicals and Allied Products - 13.27%
American Home Products Corporation ..... 700,000 41,037,500
Amgen Inc.* ............................ 250,000 13,609,250
Astra AB, Class A, ADR ................. 248,900 12,196,100
Lilly (Eli) and Company ................ 250,000 18,250,000
Liposome Company, Inc. (The)* .......... 500,000 9,593,500
Pfizer Inc. ............................ 200,000 16,575,000
Schering-Plough Corporation ............ 350,000 22,662,500
SmithKline Beecham plc, ADR ............ 350,000 23,800,000
Warner-Lambert Company ................. 175,000 13,125,000
Total ................................. 170,848,850
Communication - 2.46%
Intermedia Communications of Florida,
Inc.* ................................ 400,000 10,274,800
Nokia Corporation, Series A, ADS ....... 150,000 8,643,750
360 Communications Company* ............ 550,000 12,718,750
Total ................................. 31,637,300
Depository Institutions - 17.27%
Banc One Corporation ................... 300,000 12,900,000
Bank of New York Company, Inc. (The) ... 500,000 16,875,000
Barnett Banks, Inc. .................... 400,000 16,450,000
Chase Manhattan Corporation (The) ...... 400,000 35,700,000
Dime Bancorp, Inc.* .................... 700,000 10,325,000
First American Corporation ............. 200,000 11,550,000
First Bank System, Inc. ................ 200,000 13,650,000
Glendale Federal Bank, Federal
Savings Bank* ......................... 165,400 3,845,550
Hibernia Corporation, Class A ......... 500,000 6,625,000
Long Island Bancorp, Inc. .............. 339,600 11,886,000
Mercantile Bancorporation Inc. ......... 135,200 6,945,900
Norwest Corporation .................... 300,000 13,050,000
Roosevelt Financial Group, Inc. ........ 1,000,000 20,875,000
SouthTrust Corporation ................. 225,000 7,846,875
State Street Boston Corporation ........ 150,000 9,675,000
Wells Fargo & Company .................. 90,000 24,277,500
Total ................................. 222,476,825
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Electric, Gas and Sanitary Services - 3.69%
Columbia Gas System, Inc. (The) ........ 150,000 $ 9,543,750
PanEnergy Corporation .................. 500,000 22,500,000
Sonat Inc. ............................. 300,000 15,450,000
Total ................................. 47,493,750
Engineering and Management Services - 1.45%
Fluor Corporation ...................... 175,000 10,981,250
Neurex Corporation* .................... 450,000 7,677,900
Total ................................. 18,659,150
Food and Kindred Products - 2.55%
ConAgra, Inc. .......................... 300,000 14,925,000
Heinz (H. J.) Company .................. 500,000 17,875,000
Total ................................. 32,800,000
General Merchandise Stores - 4.02%
Federated Department Stores, Inc.* ..... 425,000 14,503,125
May Department Stores Company (The) .... 500,000 23,375,000
Sears, Roebuck and Co. ................. 300,000 13,837,500
Total ................................. 51,715,625
Health Services - 2.93%
Beverly Enterprises, Inc.* ............. 711,800 9,075,450
Columbia/HCA Healthcare Corporation .... 550,000 22,412,500
MedPartners, Inc.* ..................... 300,000 6,300,000
Total ................................. 37,787,950
Holding and Other Investment Offices - 3.71%
Conseco, Inc. .......................... 500,000 31,875,000
Duke Realty Investments, Inc. .......... 200,000 7,700,000
Equity Residential Properties .......... 200,000 8,250,000
Total ................................. 47,825,000
Instruments and Related Products - 7.60%
Baxter International Inc. .............. 900,000 36,900,000
General Signal Corporation ............. 300,000 12,825,000
Raytheon Company ....................... 500,000 24,062,500
St. Jude Medical, Inc.* ................ 250,000 10,656,250
Target Therapeutics, Inc.* ............. 320,600 13,445,002
Total ................................. 97,888,752
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Insurance Carriers - 14.02%
Allstate Corporation (The) ............. 700,000 $ 40,512,500
American International Group, Inc. ..... 286,500 31,013,625
Berkley (W. R.) Corporation ............ 325,000 16,595,150
Berkshire Hathaway Inc.* ............... 450 15,345,000
Chubb Corporation (The) ................ 100,000 5,375,000
NAC Re Corporation ..................... 350,000 11,856,250
ReliaStar Financial Corp. .............. 300,000 17,325,000
TIG Holdings, Inc. ..................... 595,000 20,155,625
Trenwick Group Inc. .................... 275,000 12,787,500
Western National Corporation .......... 500,000 9,625,000
Total ................................. 180,590,650
Nondepository Institutions - 2.89%
Federal National Mortgage Association .. 1,000,000 37,250,000
Oil and Gas Extraction - 0.59%
Enron Oil & Gas Company ................ 300,000 7,575,000
Petroleum and Coal Products - 4.53%
Coastal Corporation (The) .............. 300,000 14,662,500
Exxon Corporation ...................... 300,000 29,400,000
Valero Energy Corporation .............. 500,000 14,312,500
Total ................................. 58,375,000
Railroad Transportation - 1.24%
Illinois Central Corporation, Class A .. 500,000 16,000,000
Security and Commodity Brokers - 1.15%
Lehman Brothers Holdings Inc. .......... 250,000 7,843,750
Paine Webber Group Inc. ................ 250,000 7,031,250
Total ................................. 14,875,000
Transportation By Air - 0.97%
Southwest Airlines Co. ................. 562,000 12,434,250
Transportation Equipment - 1.56%
AlliedSignal Inc. ...................... 300,000 20,100,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Wholesale Trade -- Nondurable Goods - 4.12%
Johnson & Johnson ...................... 700,000 $ 34,825,000
Lockheed Martin Corporation ............ 200,000 18,300,000
Total ................................. 53,125,000
TOTAL COMMON STOCKS - 96.09% $1,237,565,024
(Cost: $1,165,068,670)
TOTAL SHORT-TERM SECURITIES - 4.64% $ 59,682,244
(Cost: $59,682,244)
TOTAL INVESTMENT SECURITIES - 100.73% $1,297,247,268
(Cost: $1,224,750,914)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.73%) (9,380,476)
NET ASSETS - 100.00% $1,287,866,792
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS
Business Services - 40.92%
Alternative Resources Corporation* ..... 350,000 $ 6,015,450
America Online, Inc.* .................. 590,000 19,617,500
Broderbund Software, Inc.* ............. 286,600 8,508,294
CKS Group, Inc.* ....................... 394,000 11,056,428
CUC International Inc.* ................ 900,000 21,375,000
Computer Associates International,
Inc. .................................. 337,500 16,790,625
DST Systems, Inc.* ..................... 200,000 6,275,000
Electronic Data Systems Corporation .... 325,000 14,056,250
First Data Corporation ................. 300,000 10,950,000
HBO & Company .......................... 702,000 41,681,250
HCIA Inc.* ............................. 385,000 13,354,495
HPR Inc.* .............................. 509,000 6,935,125
IMNET Systems, Inc.* ................... 200,000 4,800,000
Informix Corporation* .................. 600,000 12,262,200
Intuit Inc.* ........................... 288,100 9,147,175
i2 Technologies, Inc.* ................. 100,000 3,862,500
Macromedia, Inc.* ...................... 600,000 10,875,000
McAfee Associates, Inc.* ............... 235,000 10,295,820
Microsoft Corporation* ................. 200,000 16,537,400
Netscape Communications Corporation* ... 100,000 5,687,500
Objective Systems Integrators, Inc.* .... 114,800 2,719,268
Oracle Systems Corporation* ............ 500,000 20,843,500
Parametric Technology Corporation* ..... 800,000 41,149,600
PeopleSoft, Inc.* ...................... 100,000 4,793,700
Premisys Communications, Inc.* ......... 250,000 8,437,500
Pure Atria Corporation* ................ 386,700 9,498,125
Shared Medical Systems Corporation ..... 250,000 12,312,500
Summit Medical Systems, Inc.* .......... 200,000 1,487,400
Synopsys, Inc.* ........................ 400,000 18,400,000
TMP Worldwide Inc.* .................... 250,000 3,234,250
3Com Corporation* ...................... 240,000 17,594,880
USCS International, Inc.* .............. 226,500 3,878,812
Xylan Corporation* ..................... 285,100 8,018,438
Total ................................. 402,450,985
Chemicals and Allied Products - 5.77%
Abbott Laboratories .................... 250,000 12,687,500
Amgen Inc.* ............................ 200,000 10,887,400
Lilly (Eli) and Company ................ 100,000 7,300,000
Pfizer Inc. ............................ 200,000 16,575,000
Roche Holdings AG (A) .................. 1,200 9,338,713
Total ................................. 56,788,613
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Communication - 5.48%
Intermedia Communications of Florida,
Inc.* ................................. 400,000 $ 10,274,800
MFS Communications Company, Inc.* ...... 400,000 21,750,000
Nokia Corporation, Series A, ADS ....... 300,000 17,287,500
360 Communications Company* ............ 200,000 4,625,000
Total ................................. 53,937,300
Depository Institutions - 2.06%
BankAmerica Corporation ................ 100,000 9,975,000
Citicorp ............................... 100,000 10,300,000
Total ................................. 20,275,000
Electronic and Other Electric Equipment - 16.49%
Ascend Communications, Inc.* ........... 1,000,000 62,125,000
Cascade Communications Corp.* .......... 930,600 51,415,650
General Electric Company ............... 140,000 13,842,500
PairGain Technologies, Inc.* ........... 400,000 12,174,800
Tellabs* ............................... 600,000 22,612,200
Total ................................. 162,170,150
Engineering and Management Services - 0.58%
Neurex Corporation* .................... 334,300 5,703,827
Food and Kindred Products - 0.45%
Hershey Foods Corporation .............. 100,000 4,375,000
Health Services - 4.39%
Columbia/HCA Healthcare Corporation .... 200,000 8,150,000
Idexx Laboratories, Inc.* .............. 300,000 10,837,500
PhyCor, Inc.* .......................... 400,000 11,300,000
Renal Treatment Centers, Inc.* ......... 250,000 6,375,000
Tenet Healthcare Corporation* .......... 300,000 6,562,500
Total ................................. 43,225,000
Industrial Machinery and Equipment - 6.36%
cisco Systems, Inc.* ................... 751,200 47,841,674
Compaq Computer Corporation* ........... 100,000 7,425,000
Digital Link Corporation* .............. 300,000 7,331,100
Total ................................. 62,597,774
Instruments and Related Products - 5.43%
Boston Scientific Corporation* ......... 250,000 15,000,000
Medtronic, Inc. ........................ 200,000 13,600,000
STERIS Corporation* .................... 300,000 13,068,600
Target Therapeutics, Inc.* ............. 279,400 11,717,198
Total ................................. 53,385,798
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1996
Shares Value
COMMON STOCKS (Continued)
Oil and Gas Extraction - 0.97%
Noble Affiliates, Inc. ................. 200,000 $ 9,575,000
Petroleum and Coal Products - 1.16%
Valero Energy Corporation .............. 400,000 11,450,000
Wholesale Trade -- Durable Goods - 2.37%
OmniCare, Inc. ......................... 725,000 23,290,625
Wholesale Trade -- Nondurable Goods - 1.17%
Cardinal Health, Inc. .................. 196,966 11,473,270
TOTAL COMMON STOCKS - 93.60% $920,698,342
(Cost: $499,887,006)
PREFERRED STOCK - 0.57%
Business Services
SAP Aktiengesellschaft (A) ............. 40,000 $ 5,589,860
(Cost: $5,901,364)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Communication - 0.41%
GTE Corporation,
5.48%, 1-16-97 ........................ $4,060 4,050,730
Depository Institutions - 0.34%
U.S. Bancorp,
Master Note............................ 3,340 3,340,000
Electric, Gas and Sanitary Services - 0.45%
Public Service Electric & Gas Co.,
5.57%, 2-4-97 ......................... 4,485 4,461,407
Food and Kindred Products - 1.91%
General Mills, Inc.,
Master Note ........................... 345 345,000
Hercules Inc.:
5.45%, 1-10-97 ........................ 3,215 3,210,620
5.52%, 1-28-97 ........................ 3,570 3,555,220
Quaker Oats Co.,
5.63%, 1-23-97 ........................ 6,495 6,472,654
Ralston Purina Co.,
5.52%, 2-7-97 ......................... 5,275 5,245,073
Total ................................. 18,828,567
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1996
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Forestry - 0.42%
Weyerhaeuser Co.,
5.45%, 2-19-97 ........................ $ 4,140 $ 4,109,289
Metal Mining - 0.87%
BHP Finance (USA) Inc.:
5.35%, 1-28-97 ........................ 6,635 6,608,377
5.4%, 2-5-97 .......................... 1,975 1,964,631
Total ................................. 8,573,008
Textile Mill Products - 1.76%
Sara Lee Corporation,
Master Note ........................... 17,255 17,255,000
Transportation Equipment - 0.20%
Echlin, Inc.,
5.4%, 2-3-97 .......................... 1,965 1,955,273
Total Commercial Paper - 6.36% 62,573,274
Municipal Obligations - 0.51%
Indiana
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds
(Amoco Oil Company Project), Taxable
Series 1995,
5.55%, 1-13-97 ........................ 5,000 5,000,000
TOTAL SHORT-TERM SECURITIES - 6.87% $ 67,573,274
(Cost: $67,573,274)
TOTAL INVESTMENT SECURITIES - 101.04% $993,861,476
(Cost: $573,361,644)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.04%) (10,224,129)
NET ASSETS - 100.00% $983,637,347
See Notes to Schedules of Investments on page .
<PAGE>
UNITED FUNDS, INC.
DECEMBER 31, 1996
Notes to Schedules of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Assets
Investment securities --
at value (Notes 1 and 3) $525,669,229 $5,051,152,404 $1,297,247,268 $ 993,861,476
Cash .................... 2,169 --- 31,233 7,418
Receivables:
Dividends and interest 7,703,706 7,753,902 1,382,273 254,895
Fund shares sold ...... 487,408 6,915,601 449,714 7,463,455
Prepaid insurance
premium ............... 15,993 57,237 34,184 12,737
------------ -------------- -------------- --------------
Total assets ........ 533,878,505 5,065,879,144 1,299,144,672 1,001,599,981
------------ -------------- -------------- --------------
Liabilities
Payable for investment
securities purchased .. --- 38,622,803 --- ---
Payable for Fund
shares redeemed ....... 2,917,604 22,934,409 10,638,028 17,355,079
Due to custodian ........ --- 3,711 --- ---
Accrued service fee (Note 2) 192,300 1,706,300 419,800 344,550
Accrued transfer agency
and dividend disbursing
(Note 2) .............. 68,296 565,456 130,177 187,232
Accrued accounting
services fee (Note 2) . 5,000 8,333 8,333 8,333
Other ................... 42,894 274,819 81,542 67,440
------------ -------------- -------------- --------------
Total liabilities ... 3,226,094 64,115,831 11,277,880 17,962,634
------------ -------------- -------------- --------------
Total net assets .. $530,652,411 $5,001,763,313 $1,287,866,792 $ 983,637,347
============ ============== ============== ==============
Net Assets
$1.00 par value capital stock
Capital stock ......... $ 86,368,101 $ 152,004,636 $ 166,148,578 $ 42,131,690
Additional paid-in
capital ............. 459,573,882 2,678,442,344 994,196,461 500,595,912
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income 802,660 2,937,972 1,310,231 ---
Accumulated undistributed net
realized gain (loss) on
investment
transactions ........ (26,216,432) 72,382,654 53,715,148 20,411,017
Net unrealized appreciation
of investments
at end of period .... 10,124,200 2,095,995,707 72,496,374 420,498,728
------------ -------------- -------------- --------------
Net assets applicable to
outstanding units
of capital ........ $530,652,411 $5,001,763,313 $1,287,866,792 $983,637,347
============ ============== ============== ==============
Net asset value per share
(net assets divided by
shares outstanding)
Class A ............... $6.14 $32.91 $7.75 $23.35
Class Y ............... $6.14 $32.91 $7.75 $23.38
Capital shares outstanding
Class A ............... 84,451,146 147,405,344 165,808,020 41,999,526
Class Y ............... 1,916,955 4,599,292 340,558 132,164
Capital shares authorized 400,000,000 600,000,000 600,000,000 200,000,000
See notes to financial statements.
</TABLE>
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1996
<TABLE>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment Income (Loss)
Income (Note 1B):
Dividends ........... $ --- $ 66,534,296 $ 19,372,299 $ 1,673,423
Interest ............ 38,151,761 19,406,967 7,360,999 4,409,509
----------- ------------ ------------ -----------
Total income ...... 38,151,761 85,941,263 26,733,298 6,082,932
----------- ------------ ------------ -----------
Expenses (Note 2):
Investment
management fee ...... 2,344,627 25,277,033 6,879,322 5,667,206
Transfer agency and
dividend disbursing
-- Class A .......... 802,643 5,752,718 1,304,462 1,677,814
Service fee -- Class A 749,534 6,498,915 1,606,204 1,405,418
Custodian fees ........ 22,984 351,762 52,439 52,910
Accounting services fee 61,667 100,000 100,000 88,750
Audit fees ............ 42,966 31,245 58,740 24,290
Shareholder servicing
fee -- Class Y ...... 11,532 188,544 4,123 3,330
Legal fees ............ 4,849 41,588 11,284 8,315
Other ................. 83,928 599,978 168,743 199,824
----------- ------------ ------------ -----------
Total expenses ...... 4,124,730 38,841,783 10,185,317 9,127,857
----------- ------------ ------------ -----------
Net investment
income (loss) ... 34,027,031 47,099,480 16,547,981 (3,044,925)
----------- ------------ ------------ -----------
Realized and Unrealized
Gain (Loss) on Investments (Notes 1 and 3)
Realized net gain
on securities ....... 1,229,324 276,362,531 155,566,702 71,724,354
Realized net gain (loss) on foreign
currency transactions 261,674 (227,240) 5,662 11,558
----------- ------------ ------------ -----------
Realized net gain
on investments .... 1,490,998 276,135,291 155,572,364 71,735,912
Unrealized appreciation
(depreciation) in value
of investments during
the period .......... (19,287,816) 518,056,427 (28,379,142) 2,339,175
----------- ------------ ------------ -----------
Net gain (loss) on
investments ....... (17,796,818) 794,191,718 127,193,222 74,075,087
----------- ------------ ------------ -----------
Net increase
in net assets
resulting from
operations ...... $16,230,213 $841,291,198 $143,741,203 $71,030,162
=========== ============ ============ ===========
See notes to financial statements.
</TABLE>
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1996
<TABLE>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment
income (loss) ..... $ 34,027,031 $ 47,099,480 $ 16,547,981 $ (3,044,925)
Realized net gain
on investments .... 1,490,998 276,135,291 155,572,364 71,735,912
Unrealized
appreciation
(depreciation) .... (19,287,816) 518,056,427 (28,379,142) 2,339,175
----------- ------------ ------------ -----------
Net increase in net
assets resulting
from operations . 16,230,213 841,291,198 143,741,203 71,030,162
----------- ------------ ------------ -----------
Dividends to shareholders
from (Note 1E):*
Net investment income
Class A ............. (33,563,721) (44,582,972) (16,526,936) ---
Class Y ............. (498,286) (1,535,780) (39,149) ---
Realized net gain on
investment transactions
Class A ............. --- (223,378,753) (126,903,435) (57,680,201)
Class Y ............. --- (6,868,127) (256,540) (174,464)
----------- ------------ ------------ -----------
(34,062,007) (276,365,632) (143,726,060) (57,854,665)
----------- ------------ ------------ -----------
Capital share
transactions (Note 5) . (17,992,840) 353,417,280 81,068,885 149,679,267
----------- ------------ ------------ -----------
Total increase (decrease) (35,824,634) 918,342,846 81,084,028 162,854,764
Net Assets
Beginning of period ... 566,477,045 4,083,420,467 1,206,782,764 820,782,583
----------- ------------- ------------- -----------
End of period ......... $530,652,411 $5,001,763,313 $1,287,866,792 $983,637,347
============ ============== ============== ============
Undistributed
net investment
income ............ $802,660 $2,937,972 $1,310,231 $---
======== ========== ========== ====
*See "Financial Highlights" on pages .
See notes to financial statements.
</TABLE>
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended DECEMBER 31, 1995
<TABLE>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Increase in Net Assets
Operations:
Net investment
income ............ $ 35,631,421 $ 48,335,097 $ 15,451,348 $ (430,999)
Realized net gain
on investments .... 4,111,327 137,562,148 161,864,113 26,780,950
Unrealized
appreciation ...... 61,755,254 742,707,419 140,365,483 255,993,038
------------ -------------- -------------- --------------
Net increase in
net assets resulting
from operations . 101,498,002 928,604,664 317,680,944 282,342,989
------------ -------------- -------------- --------------
Dividends to shareholders
from (Note 1E):*
Net investment income
Class A ........... (35,740,983) (46,382,026) (14,998,659) ---
Class Y ........... (90,066) (676,269) (4,366) ---
Realized net gain on
investment transactions
Class A ........... --- (121,455,126) (127,689,006) (24,276,021)
Class Y ........... --- (3,204,607) (68,073) ---
------------ -------------- -------------- --------------
(35,831,049) (171,718,028) (142,760,104) (24,276,021)
------------ -------------- -------------- --------------
Capital share
transactions (Note 5) (17,026,228) 181,629,624 64,841,625 66,213,033
------------ -------------- -------------- --------------
Total increase ....... 48,640,725 938,516,260 239,762,465 324,280,001
Net Assets
Beginning of period .... 517,836,320 3,144,904,207 967,020,299 496,502,582
------------ -------------- -------------- --------------
End of period .......... $566,477,045 $4,083,420,467 $1,206,782,764 $820,782,583
============ ============== ============== ==============
Undistributed net
investment income $575,962 $2,184,484 $1,322,673 $---
======== ========== ========== ====
*See "Financial Highlights" on pages .
See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
--------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
Net asset value,
beginning of period $6.34 $5.62 $6.39 $6.31 $6.32
---- ---- ---- ---- ----
Income from investment
operations:
Net investment income 0.39 0.40 0.39 0.41 0.45
Net realized and
unrealized gain
(loss) on
investments ..... (0.20) 0.72 (0.75) 0.41 0.00
---- ---- ---- ---- ----
Total from investment
operations ....... 0.19 1.12 (0.36) 0.82 0.45
---- ---- ---- ---- ----
Less distributions:
Dividends from net
investment income (0.39) (0.40) (0.39) (0.41) (0.46)
Distribution from
capital gains ... (0.00) (0.00) (0.02) (0.33) (0.00)
---- ---- ---- ---- ----
Total distributions (0.39) (0.40) (0.41) (0.74) (0.46)
---- ---- ---- ---- ----
Net asset value,
end of period .... $6.14 $6.34 $5.62 $6.39 $6.31
===== ===== ===== ===== =====
Total return* ...... 3.20% 20.50% -5.76% 13.19% 7.50%
Net assets, end of
period (000
omitted) ......... $518,873$563,445$517,836$641,668$589,946
Ratio of expenses to
average net assets 0.77% 0.74% 0.72% 0.65% 0.64%
Ratio of net investment
income to average
net assets ....... 6.34% 6.54% 6.60% 6.14% 7.29%
Portfolio turnover
rate ............. 55.74% 66.38% 127.11%175.39% 115.17%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period from
ended 6/19/95* to
12/31/96 12/31/95
---------- -----------
Net asset value,
beginning of period $6.34 $6.11
---- ----
Income from investment
operations:
Net investment income 0.40 0.21
Net realized and
unrealized gain (loss)
on investments .. (0.20) 0.22
---- ----
Total from investment
operations ....... 0.20 0.43
---- ----
Less distributions:
Dividends from net
investment income (0.40) (0.20)
Distribution from
capital gains ... (0.00) (0.00)
---- ----
Total distributions (0.40) (0.20)
---- ----
Net asset value,
end of period .... $6.14 $6.34
==== ====
Total return ....... 3.35% 7.20%
Net assets, end of
period (000
omitted) ......... $11,779 $3,032
Ratio of expenses to
average net assets 0.62% 0.63%**
Ratio of net investment
income to average
net assets ....... 6.52% 6.41%**
Portfolio turnover
rate ............. 55.74% 66.38%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
Net asset value,
beginning of period $28.96 $23.34 $24.77 $22.05 $20.44
----- ----- ----- ----- -----
Income from investment
operations:
Net investment income 0.33 0.36 0.36 0.40 0.46
Net realized and
unrealized gain
(loss) on
investments ..... 5.53 6.53 (0.80) 3.11 1.96
----- ----- ----- ----- -----
Total from investment
operations ....... 5.86 6.89 (0.44) 3.51 2.42
----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment income (0.32) (0.35) (0.36) (0.40) (0.46)
Distribution from
capital gains ... (1.59) (0.92) (0.63) (0.39) (0.35)
----- ----- ----- ----- -----
Total distributions (1.91) (1.27) (0.99) (0.79) (0.81)
----- ----- ----- ----- -----
Net asset value,
end of period .... $32.91 $28.96 $23.34 $24.77 $22.05
====== ====== ====== ====== ======
Total return* ...... 20.36% 29.60% -1.82% 16.05% 11.96%
Net assets, end of
period (000
omitted) ......... $4,850,419$3,975,717$3,144,904$3,060,073 $2,537,161
Ratio of expenses to
average net assets 0.86% 0.83% 0.74% 0.66% 0.65%
Ratio of net investment
income to average
net assets ....... 1.03% 1.31% 1.45% 1.70% 2.19%
Portfolio turnover
rate ............. 22.24% 17.59% 18.54% 21.70% 19.25%
Average commission
rate paid ........ $0.0496
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period from
ended 6/19/95* to
12/31/96 12/31/95
---------- -----------
Net asset value,
beginning of period $28.96 $27.73
----- -----
Income from investment
operations:
Net investment income 0.36 0.21
Net realized and
unrealized gain
on investments .. 5.54 2.14
----- -----
Total from investment
operations ....... 5.90 2.35
----- -----
Less distributions:
Dividends from net
investment income (0.36) (0.20)
Distribution from
capital gains ... (1.59) (0.92)
----- -----
Total distributions (1.95) (1.12)
----- -----
Net asset value,
end of period .... $32.91 $28.96
===== =====
Total return ....... 20.53% 8.45%
Net assets, end of
period (000
omitted) ......... $151,344 $107,703
Ratio of expenses to
average net assets 0.73% 0.74%**
Ratio of net investment
income to average
net assets ....... 1.17% 1.36%**
Portfolio turnover
rate ............. 22.24% 17.59%**
Average commission
rate paid ........ $0.0496
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
--------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
Net asset value,
beginning of period $7.78 $6.58 $7.19 $7.50 $7.15
---- ---- ---- ---- ----
Income from investment
operations:
Net investment
income........... 0.11 0.11 0.13 0.11 0.16
Net realized and
unrealized gain
(loss) on
investments ..... 0.82 2.12 (0.13) 0.55 0.85
---- ---- ---- ---- ----
Total from investment
operations ....... 0.93 2.23 0.00 0.66 1.01
---- ---- ---- ---- ----
Less distributions:
Dividends from net
investment income (0.11) (0.11) (0.13) (0.11) (0.16)
Distribution from
capital gains ... (0.85) (0.92) (0.48) (0.84) (0.50)
Distribution in
excess of capital
gains............ (0.00) (0.00) (0.00) (0.02) (0.00)
---- ---- ---- ---- ----
Total distributions (0.96) (1.03) (0.61) (0.97) (0.66)
---- ---- ---- ---- ----
Net asset value,
end of period .... $7.75 $7.78 $6.58 $7.19 $7.50
==== ==== ==== ==== ====
Total return* ...... 12.18% 34.21% 0.04% 9.06% 14.20%
Net assets, end of
period (000
omitted) ......... $1,285,227$1,206,128$967,020$1,033,774 $992,924
Ratio of expenses to
average net assets 0.83% 0.80% 0.71% 0.65% 0.62%
Ratio of net investment
income to average
net assets ....... 1.34% 1.42% 1.76% 1.34% 2.13%
Portfolio turnover
rate ............. 240.37%229.03% 205.40%230.29% 194.41%
Average commission
rate paid ........ $0.0575
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period from
ended 7/11/95* to
12/31/96 12/31/95
---------- -----------
Net asset value,
beginning of period $7.78 $7.84
---- ----
Income from investment
operations:
Net investment income 0.12 0.05
Net realized and
unrealized gain
on investments .. 0.82 0.87
---- ----
Total from investment
operations ....... 0.94 0.92
---- ----
Less distributions:
Dividends from net
investment income (0.12) (0.06)
Distribution from
capital gains ... (0.85) (0.92)
---- ----
Total distributions (0.97) (0.98)
---- ----
Net asset value,
end of period .... $7.75 $7.78
==== ====
Total return ....... 12.27% 11.92%
Net assets, end of
period (000
omitted) ......... $2,640 $655
Ratio of expenses to
average net assets 0.74% 0.76%**
Ratio of net investment
income to average
net assets ....... 1.45% 1.24%**
Portfolio turnover
rate ............. 240.37% 229.03%**
Average commission
rate paid ........ $0.0575
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
--------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
Net asset value,
beginning of period $22.89 $15.21 $14.83 $14.64 $15.42
------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) ... (0.07) (0.01) 0.00 0.01 0.03
Net realized and
unrealized gain
(loss) on
investments ..... 2.00 8.40 1.40 1.21 (0.66)
------ ------ ------ ------ ------
Total from investment
operations ....... 1.93 8.39 1.40 1.22 (0.63)
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income (0.00) (0.00) (0.00) (0.01) (0.03)
Distribution from
capital gains ... (1.47) (0.71) (1.02) (0.95) (0.12)
Distribution in
excess of capital
gains ........... (0.00) (0.00) (0.00) (0.07) (0.00)
------ ------ ------ ------ ------
Total distributions (1.47) (0.71) (1.02) (1.03) (0.15)
------ ------ ------ ------ ------
Net asset value,
end of period .... $23.35 $22.89 $15.21 $14.83 $14.64
====== ====== ====== ====== ======
Total return* ...... 8.35% 55.37% 9.78% 8.51% -4.03%
Net assets, end of
period (000
omitted) ......... $980,547$820,783$496,503$446,611$428,806
Ratio of expenses to
average net assets 0.98% 0.93% 0.96% 0.91% 0.87%
Ratio of net investment
income to average
net assets ....... -0.33% -0.07% 0.00% 0.06% 0.24%
Portfolio turnover
rate ............. 33.90% 32.89% 64.39% 68.38% 45.79%
Average commission
rate paid ........ $0.0538
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout The Period:
For the
period from
2/27/96* to
12/31/96
----------
Net asset value,
beginning of period $24.05
-----
Income from investment
operations:
Net investment loss (0.02)
Net realized and
unrealized gain
on investments .. 0.82
-----
Total from investment
operations ....... 0.80
-----
Less distributions:
Dividends from net
investment income (0.00)
Distribution from
capital gains ... (1.47)
-----
Total distributions (1.47)
-----
Net asset value,
end of period .... $23.38
=====
Total return ....... 3.25%
Net assets, end of
period (000
omitted) ......... $3,090
Ratio of expenses to
average net assets 0.80%**
Ratio of net investment
income to average
net assets ....... -0.12%**
Portfolio turnover
rate ............. 33.90%**
Average commission
rate paid ........ $0.0538
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 -- Significant Accounting Policies
United Funds, Inc. (the "Corporation") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Corporation issues four series of capital shares; each series represents
ownership of a separate mutual fund. The assets belonging to each Fund are held
separately by the Custodian. The capital shares of each Fund represent a pro
rata beneficial interest in the principal, net income and realized and
unrealized capital gains or losses of its respective investments and other
assets. The following is a summary of significant accounting policies
consistently followed by the Corporation 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. Securities for which
quotations are not readily available are valued as determined in good faith
in accordance with procedures established by and under the general
supervision of the Corporation'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 except that certain dividends from foreign securities are
recorded as soon as the Corporation is informed of the ex-dividend date.
Interest income is recorded on the accrual basis. See Note 3 -- Investment
Securities 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
Corporation 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 Corporation'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 Corporation 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 each 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. At December 31, 1996, United Science and
Technology Fund reclassified $3,033,367 between additional paid-in-capital
and undistributed net investment income. Net investment income, net
realized gains and net assets were not affected by this change.
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 Corporation 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 .03% of net assets for
United Bond Fund, .15% of net assets for United Income Fund and United
Accumulative Fund, and .20% for United Science and Technology Fund; 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 $15.1 billion of
combined net assets at December 31, 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 Corporation accrues and
pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between the
Corporation and Waddell & Reed, Inc. ("W&R"), Waddell & Reed Investment
Management Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as the
Corporation's investment manager.
The Corporation 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 Corporation and pricing daily the value of shares of the
Corporation. For these services, each of the four Funds 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 Fund
------------------------- ------------------
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 Corporation also pays WARSCO a 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 Corporation 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 Corporation also reimburses W&R and WARSCO for certain
out-of-pocket costs.
As principal underwriter for the Corporation's shares, W&R received direct
and indirect gross sales commissions for Class A shares (which are not an
expense of the Corporation) of $26,543,939, out of which W&R paid sales
commissions of $15,146,943 and all expenses in connection with the sale of the
Corporation's shares, except for registration fees and related expenses.
Under a Service Plan for Class A shares adopted by the Corporation pursuant
to Rule 12b-1 under the Investment Company Act of 1940, the Corporation may pay
monthly a fee to W&R in an amount not to exceed .25% of the Corporation'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 provision of personal services to Fund
shareholders and/or maintenance of shareholder accounts.
The Corporation paid Directors' fees of $275,573.
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 Securities Transactions
Investment securities transactions for the period ended December 31, 1996
are summarized as follows:
United
United United United Science and
Bond IncomeAccumulative Technology
Fund Fund Fund Fund
----------- ------------------------ ------------
Purchases of investment
securities, excluding
short-term and U.S.
Government securities $163,449,027$1,139,035,334$2,665,933,791$ 378,142,051
Purchases of U.S. Government
securities 125,145,374 --- --- ---
Purchases of short-term
securities 257,590,4362,081,228,4542,057,921,1431,209,331,008
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 168,342,799 969,708,8512,709,657,580 290,614,463
Proceeds from maturities and
sales of U.S. Government
securities 148,368,629 --- --- ---
Proceeds from maturities and sales
of short-term securities 247,302,2442,085,954,1942,068,622,3901,209,150,083
For Federal income tax purposes, cost of investments owned at December 31,
1996 and the related appreciation (depreciation) were as follows:
Aggregate
Cost AppreciationDepreciation Appreciation
-------------- --------------------------------------
United Bond Fund $515,545,029 $12,031,129$(1,906,929) $10,124,200
United Income Fund $2,955,148,013$2,113,212,126$(17,207,735)$2,096,004,391
United Accumulative
Fund $1,224,938,232 $106,704,670$(34,395,634) $72,309,036
United Science and
Technology Fund $573,361,644 $451,107,803$(30,607,971) $420,499,832
NOTE 4 -- Federal Income Tax Matters
The Corporation's income and expenses attributed to each Fund and the gains
and losses on security transactions of each Fund have been attributed to that
Fund for Federal income tax purposes as well as for accounting purposes. For
Federal income tax purposes, United Income Fund, United Accumulative Fund and
United Science and Technology Fund realized capital gain net income of
$276,362,531, $155,754,021 and $71,640,888, respectively, during the year ended
December 31, 1996, a portion of which was paid to shareholders during the period
ended December 31, 1996. Remaining capital gain net income will be distributed
to each Fund's shareholders. For Federal income tax purposes, United Bond Fund
realized capital gain net income of $1,229,324 during the year ended December
31, 1996, which was entirely offset by utilization of capital loss
carryforwards. Remaining prior year capital loss carryforwards of United Bond
Fund aggregated $26,199,056 as of December 31, 1996, and are available to offset
future capital gain net income as follows: $26,118,153 through December 31,
2002 and $80,903 through December 31, 2003.
NOTE 5 -- Commencement of Multiclass Operations
On June 17, 1995, each Fund within the Corporation 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 with respect to each Fund.
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 Corporation.
United Income Fund and United Bond Fund commenced multiclass operations on June
19, 1995 and United Accumulative Fund commenced multiclass operations on July
11, 1995. United Science and Technology Fund commenced multiclass operations on
February 27, 1996.
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.
Transactions in capital stock for the fiscal year ended December 31, 1996
are summarized below.
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
----------- ------------ ------------------------
Shares issued from sale
of shares:
Class A ............ 6,465,124 16,133,571 8,009,525 27,427,545
Class Y ............ 1,782,344 1,298,483 379,703 139,882
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class A ............ 4,659,208 7,718,525 17,504,459 2,334,666
Class Y ............ 44,921 258,999 38,631 7,370
Shares redeemed:
Class A ............ (15,509,353) (13,716,661) (14,780,542)(23,624,041)
Class Y ............ (388,283) (677,004) (161,934) (15,088)
--------- ---------- -------- ---------
Increase (decrease) in
outstanding capital
shares:
Class A ............ (4,385,021) 10,135,435 10,733,442 6,138,170
Class Y ............ 1,438,982 880,478 256,400 132,164
--------- ---------- ---------- ---------
Total for Fund .... (2,946,039) 11,015,913 10,989,842 6,270,334
========= ========== ========== =========
Value issued from sale
of shares:
Class A ............ $39,560,061 $509,911,318 $64,177,016$676,558,274
Class Y ............ 10,740,902 40,986,800 3,050,529 3,450,514
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class A ............ 28,366,563 250,527,856 133,871,990 55,192,015
Class Y ............ 272,967 8,403,907 295,689 174,465
Value redeemed:
Class A ............ (94,554,914) (435,082,498) (118,996,801)(585,325,217)
Class Y ............ (2,378,419) (21,330,103) (1,329,538) (370,784)
----------- ------------ -----------------------
Increase (decrease) in
outstanding capital:
Class A ............ (26,628,290) 325,356,676 79,052,205 146,425,072
Class Y ............ 8,635,450 28,060,604 2,016,680 3,254,195
----------- ------------ -----------------------
Total for Fund .... $(17,992,840) $353,417,280 $81,068,885$149,679,267
=========== ============ =======================
Transactions in capital stock for the fiscal year ended December 31, 1995
are summarized below.
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
----------- ------------ ------------------------
Shares issued from sale
of shares:
Class A ............ 7,903,177 13,156,068 3,690,645 15,272,219
Class Y ............ 494,273 3,737,901 76,842 ---
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class A ............ 4,996,291 5,453,592 17,417,933 1,060,921
Class Y ............ 14,634 133,843 9,457 ---
Shares redeemed:
Class A ............ (16,233,171) (16,103,667) (12,973,028)(13,108,833)
Class Y ............ (30,934) (152,930) (2,141) ---
----------- ----------- ---------- ----------
Increase (decrease) in
outstanding capital
shares:
Class A ............ (3,333,703) 2,505,993 8,135,550 3,224,307
Class Y ............ 477,973 3,718,814 84,158 ---
----------- ----------- ---------- ----------
Total for Fund .... (2,855,730) 6,224,807 8,219,708 3,224,307
========= ========== ========= =========
Value issued from sale
of shares:
Class A ............ $47,524,601 $358,973,863 $28,187,349$315,997,134
Class Y ............ 3,026,041 104,695,114 600,969 ---
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class A ............ 29,904,406 155,645,364 133,229,799 23,096,462
Class Y ............ 90,066 3,880,877 72,439 ---
Value redeemed:
Class A ............ (97,382,064) (437,078,074) (97,231,889)(272,880,563)
Class Y ............ (189,278) (4,487,520) (17,042) ---
----------- ------------ ----------- -----------
Increase (decrease) in
outstanding capital:
Class A ............ (19,953,057) 77,541,153 64,185,259 66,213,033
Class Y ............ 2,926,829 104,088,471 656,366 ---
----------- ----------- ---------- ----------
Total for fund .... $(17,026,228) $181,629,624 $64,841,625 $66,213,033
=========== ============ =========== ===========
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Funds, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United Bond Fund, United Income Fund, United
Accumulative Fund, and United Science and Technology Fund (collectively the
"Funds") comprising United Funds, Inc., as of December 31, 1996, the related
statements of operations and changes in net assets for the year then ended, and
the financial highlights for the year then ended. These financial statements
and the financial highlights are the responsibility of the Funds' management.
Our responsibility is to express an opinion on these financial statements and
the financial highlights based on our audits. The financial statements and the
financial highlights of the Funds for each of the years in the four-year period
ended December 31, 1995 were audited by other auditors whose report, dated
February 8, 1996, expressed an unqualified opinion on those statements and
financial highlights.
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
December 31, 1996 by correspondence with the custodian and brokers or other
alternative procedures. 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 each of the
respective funds comprising United Funds, Inc. as of December 31, 1996, the
results of their operations, the changes in their net assets, and their
financial highlights for the year then ended in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 7, 1997
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Funds, Inc.
Included in Part B:
-------------------
As of December 31, 1996
Statement of Assets and Liabilities
For the year ended December 31, 1996
Statements of Operations
For each of the two years in the period ended December 31, 1996
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of December 31, 1996
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedule
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
(b) Exhibits:
(1) Articles of Incorporation, as amended, filed April 18, 1995 as EX-
99.B1-charter to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Articles Supplementary as proposed, filed April 18, 1995 as EX-99.B1-
ufartsup to the Post-Effective Amendment No. 117 to the Registration
Statement on Form N-1A*
(2) Bylaws, as amended, filed March 26, 1997 as EX-99.B2-ufbylaw to Post-
Effective Amendment No. 119 to the Registration Statement on Form N-
1A*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of Incorporation, as
amended, filed April 18, 1995 as EX-99.B1-charter to the Post-
effective Amendment No. 117 to the Registration Statement on Form N-
1A*; Article I, Article IV and Article VII of the Bylaws, as amended,
filed March 26, 1997 as EX-99.B2-ufbylaw to Post-Effective Amendment
No. 119 to the Registration Statement on Form N-1A*
(5) Investment Management Agreement filed September 30, 1994 as EX-99.B5-
UFIMA to Post-Effective Amendment No. 116 to the Registration
Statement on Form N-1A*
Assignment of the Investment Management Agreements filed March 28,
1996 as EX-99.B5-ufassign to the Post-Effective Amendment No. 118 to
the Registration Statement on Form N-1A*
(6) Underwriting Agreement, dated February 8, 1995, filed April 18, 1995
as EX-99.B6-ufua to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
(7) Not applicable
(8) Custodian Agreement, as amended, attached hereto as EX-99.B8-ufca
(9) Shareholder Servicing Agreement filed March 26, 1997 as EX-99.B9-ufssa
to Post-Effective Amendment No. 119 to the Registration Statement on
Form N-1A*
Fund Class A application, as amended, attached hereto as EX.99.B9-
ufappca
Fund Class Y application filed April 18, 1995 as EX-99.B9-ufappcy to
the Post-Effective Amendment No. 117 to the Registration Statement on
Form N-1A*
Fund NAV application filed April 18, 1995 as EX-99.B9-ufappnav to the
Post-Effective Amendment No. 117 to the Registration Statement on Form
N-1A*
Accounting Services Agreement filed April 18, 1995 as EX-99.B9-ufasa
to the Post-Effective Amendment No. 117 to the Registration Statement
on Form N-1A*
Service Agreement filed August 11, 1993 as Exhibit (b)(15) to Post-
Effective Amendment No. 114 to the Registration Statement on Form N-
1A*
Amendment to Service Agreement filed April 18, 1995 as EX-99.B9-ufsaa
to the Post-Effective Amendment No. 117 to the Registration Statement
on Form N-1A*
Class Y Letter of Understanding filed March 28, 1996 as EX-99.B9-uflou
to the Post-Effective Amendment No. 118 to the Registration Statement
on Form N-1A*
(10) Not applicable
(11) 1. Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B11-ufconsnt
2. Consent of Price Waterhouse LLP, Independent Accountants,
attached hereto as EX-99.B11-ufpwcon
3. Opinion of Price Waterhouse LLP, attached hereto as EX-99.B11-
ufpwopin
(12) Not applicable
(13) Not applicable
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution Basic
Plan Document filed December 16, 1994 as EX-99.B14-1-03bpd to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description filed December
16, 1994 as EX-99.B14-2-03spd to Pre-Effective Amendment No. 1 to
the Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed December
16, 1994 as EX-99.B14-3-403baa to Pre-Effective Amendment No. 1
to the Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-4-457aa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
N-1A of United Asset Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-8-nsmppaa to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
N-1A of United Asset Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-9-nspspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
10. Standardized 401(k) Profit sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-10-s401aa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan Description
filed December 16, 1994 as EX-99.B14-11-s401gis to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
12. Universal Simplified Employee Pension Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-12-sepaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
13. Universal Simplified Employee Pension Plan-Basic Plan Document
filed December 16, 1994 as EX-99.B14-13-sepbpd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
14. National Standardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-14-smppaa to Pre-
Effective Amendment No. 1 to the Registration Statement on Form
N-1A of United Asset Strategy Fund, Inc.*
15. Standardized Money Purchase pension Plan-Summary Plan Description
filed December 16, 1994 as EX-99.B14-15-smppgis to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
16. Standardized Profit Sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-16-spspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
17. Standardized Profit Sharing Plan-summary Plan Description field
December 16, 1994 as EX-99.B14-17-spspgis to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A of
United Asset Strategy Fund, Inc.*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement filed
December 16, 1994 as EX-99.B14-18-tsa to Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-1A of United Asset
Strategy Fund, Inc.*
19. Title I 403(b) Plan Document filed December 16, 1994 as EX-
99.B14-19-ttllpbd to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
20. Simple IRA Plan Document filed March 26, 1997 as EX-99.B14-20-
simple to Post-Effective Amendment No. 119 to the Registration
Statement on Form N-1A*
21. Individual Retirement Plan filed March 26, 1997 as EX-99.B14-21-
crp00005 to Post-Effective Amendment No. 119 to the Registration
Statement on Form N-1A*
22. Retirement Plan Distribution/Withdrawal Document filed May 16,
1997 as EX-99.B14-22-crp1665 to Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A* of Waddell & Reed Funds,
Inc.
23. Special Tax Notice Regarding Plan Payments filed May 16, 1997 as
EX-99.B14-23-crp1666 to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A* of Waddell & Reed Funds,
Inc.
24. Waiver of Joint and Survivor Annuity filed May 16, 1997 as EX-
99.B14-24-crp1667 to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A* of Waddell & Reed Funds,
Inc.
25. Spousal Consent on Early Distribution filed May 16, 1997 as EX-
99.B14-25-crp1668 to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A* of Waddell & Reed Funds,
Inc.
26. Consent to Lump Sum Distribution filed May 16, 1997 as EX-99.B14-
26-crp1669 to Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A* of Waddell & Reed Funds, Inc.
(15) Service Plan, as restated, filed April 18, 1995 as EX-99.B15-ufspca to
the Post-Effective Amendment No. 117 to the Registration Statement on
Form N-1A*
(16) Computation of average annual total return performance quotations (for
Class A shares) filed by EDGAR August 11, 1993 as Exhibit (b)(16) to
Post Effective Amendment No. 114 to the Registration Statement on Form
N-1A*
Computation of average annual total return performance quotations (for
Class Y shares) filed March 26, 1997 as EX-99.B16-ufaatrpq to Post-
Effective Amendment No. 119 to the Registration Statement on Form N-
1A*
Computation of yield performance quotation (for Class A shares) filed
March 28, 1996 as EX-99.B16-ufyield to Post-Effective Amendment No.
118 to the Registration Statement on Form N-1A*
Computation of yield performance quotation (for Class Y shares) filed
March 26, 1997 as EX-99.B16-ufyieldy to Post-Effective Amendment No.
119 to the Registration Statement on Form N-1A*
(17) Financial Data Schedules attached hereto as EX-27.B17-uffds1, EX-
27.B17-uffds2, EX-27.B17-uffds3, EX-27.B17-uffds4
(18) Multiple Class Plan filed March 28, 1996 as EX-99.B18-ufmcp to Post-
Effective Amendment No. 118 to the Registration Statement on Form N-
1A*
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class April 30, 1997
-------------- ------------------------------
Class A Capital Stock 454,290
Class Y Capital Stock 1,137
27. Indemnification
---------------
Reference is made to Article SEVENTH paragraph 6(b) through 6(f) of the
Articles of Incorporation, as amended, filed April 18, 1995 as EX-99.B1-
charter to the Post-Effective Amendment No. 117 to the Registration
Statement on Form N-1A*; and to Article IV of the Underwriting Agreement
filed April 18, 1995 as EX-99.B6-ufua to Post-Effective Amendment No. 117
to the Registration Statement on Form N-1A*, both of which provide
indemnification. Also refer to Section 2-418 of the Maryland General
Corporation Law regarding indemnification of directors, officers, employees
and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is to
provide investment management services to the Registrant. Waddell & Reed,
Inc. assigned its investment management duties under this agreement to
Waddell & Reed Investment Management Company on January 8, 1992. Waddell &
Reed Investment Management Company is not engaged in any business other
than the provision of investment management services to those registered
investment companies described in Part A and Part B of this Post-Effective
Amendment.
Each director and executive officer of Waddell & Reed Investment Management
Company has had as his sole business, profession, vocation or employment
during the past two years only his duties as an executive officer and/or
employee of Waddell & Reed Investment Management Company or its
predecessors, except as to persons who are directors and/or officers of the
Registrant and have served in the capacities shown in the Statement of
Additional Information of the Registrant, and except for Mr. Ronald K.
Richey. Mr. Richey is Chairman of the Board and Chief Executive Officer of
Torchmark Corporation, the parent company of Waddell & Reed, Inc., and
Chairman of the Board of United Investors Management Company, a holding
company of which Waddell & Reed, Inc. is an indirect subsidiary. Mr.
Richey's address is 2001 Third Avenue South, Birmingham, Alabama 35233.
The address of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas
66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter of the Registrant.
It is also the principal underwriter to the following investment
companies:
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, Inc.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There is no service contract other than as discussed in Part A and B of
this Post-Effective Amendment and as listed in response to Item (b)(9) and
Item (b)(15) hereof.
32. Undertaking
-----------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested
in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares, to call a meeting of the shareholders of
the Fund for the purpose of voting upon the question of removal of any
director and to assist in communications with other shareholders as
required by Section 16(c).
- ---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
Rule 485(a) of the Securities Act of 1933, and has duly caused this Post-
Effective Amendment to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Overland Park, and State of Kansas, on the 30th
day of May, 1997.
UNITED FUNDS, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board May 30, 1997
- ---------------------- ------------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director May 30, 1997
- ---------------------- (Principal Executive ------------------
Keith A. Tucker Officer)
/s/Theodore W. Howard* Vice President, May 30, 1997
- ---------------------- Treasurer and Principal ------------------
Theodore W. Howard Accounting Officer
/s/Robert L. Hechler* Vice President and May 30, 1997
- ---------------------- Principal Financial ------------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director May 30, 1997
- ---------------------- ------------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director May 30, 1997
- --------------------- ------------------
Dodds I. Buchanan
/s/Linda Graves* Director May 30, 1997
- -------------------- ------------------
Linda Graves
/s/John F. Hayes* Director May 30, 1997
- ------------------- ------------------
John F. Hayes
/s/Glendon E. Johnson Director May 30, 1997
- ------------------- ------------------
Glendon E. Johnson
/s/William T. Morgan* Director May 30, 1997
- ------------------- ------------------
William T. Morgan
/s/William L. Rogers* Director May 30, 1997
- ------------------- ------------------
William L. Rogers
/s/Frank J. Ross, Jr.* Director May 30, 1997
- ------------------- ------------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director May 30, 1997
- -------------------- ------------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director May 30, 1997
- ------------------- ------------------
Frederick Vogel III
/s/Paul S. Wise* Director May 30, 1997
- ------------------- ------------------
Paul S. Wise
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC. AND WADDELL & REED FUNDS, INC. (each hereinafter called
the "Corporation"), and certain directors and officers for the Corporation, do
hereby constitute and appoint KEITH A. TUCKER, ROBERT L. HECHLER, and SHARON K.
PAPPAS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement or amendment or supplement thereto; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
Date: February 5, 1997 /s/Keith A. Tucker
--------------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board February 5, 1997
- -------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker President and Director February 5, 1997
- -------------------- (Principal Executive ----------------
Keith A. Tucker Officer)
/s/Theodore W. Howard Vice President, Treasurer February 5, 1997
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and February 5, 1997
- -------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director February 5, 1997
- -------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan Director February 5, 1997
- -------------------- ----------------
Dodds I. Buchanan
/s/Linda Graves Director February 5, 1997
- -------------------- ----------------
Linda Graves
/s/John F. Hayes Director February 5, 1997
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director February 5, 1997
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director February 5, 1997
- -------------------- ----------------
William T. Morgan
/s/William L. Rogers Director February 5, 1997
- -------------------- ----------------
William L. Rogers
/s/Frank J. Ross, Jr. Director February 5, 1997
- -------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor Schwartz Director February 5, 1997
- -------------------- ----------------
Eleanor Schwartz
/s/Frederick Vogel III Director February 5, 1997
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director February 5, 1997
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
<PAGE>
EX-99.B8-ufca
CUSTODIAN AGREEMENT
Dated as of November 26, 1991
Between
UNITED MISSOURI BANK, n.a.
and
UNITED FUNDS, INC. UNITED BOND FUND
<PAGE>
Table of Contents
ARTICLE
I. Appointment of Custodian
II. Powers and Duties of Custodian
2.01 Safekeeping
2.02 Manner of Holding Securities
2.03 Purchase of Assets
2.04 Exchanges of Securities
2.05 Sales of Securities
2.06 Depositary Receipts
2.07 Exercise of Rights, Tender Offers, Etc.
2.08 Stock Dividends, Rights, Etc.
2.09 Options
2.10 Futures Contracts
2.11 Borrowing
2.12 Interest Bearing Deposit
2.13 Foreign Exchange Transactions
2.14 Securities Loan
2.15 Collections
2.16 Dividends, Distributions and Redemptions
2.17 Proceeds from Shares Sold
2.18 Proxies, Notices, Etc.
2.19 Bills and Other Disbursements
2.20 Nondiscretionary Functions
2.21 Bank Accounts
2.22 Deposit of Fund Assets in Securities System
2.23 Other Transfers
2.24 Establishment of Segregated Account
2.25 Custodian's Books and Records
2.26 Opinion of Fund's Independent
Certified Public Accountants
2.27 Reports by Independent Certified Public Accountants
2.28 Overdraft Facility
III. Proper Instructions, Special Instructions
and Related Matters
3.01 Proper Instruction and Special Instructions
3.02 Authorized Persons
3.03 Persons Having Access to Assets of the Portfolios
3.04 Actions of Custodian Based on Proper
Instructions and Special Instructions
IV. Subcustodians
4.01 Domestic Subcustodians
4.02 Foreign Sub-Subcustodians and
Interim Sub-Subcustodians
4.03 Special Subcustodians
4.04 Termination of a Subcustodian
4.05 Certification Regarding Foreign Sub-Subcustodians
V. Standard of Care, Indemnification
5.01 Standard of Care
5.02 Liability of the Custodian for Actions
of Other Person
5.03 Indemnification by Fund
5.04 Investment Limitations
5.05 Fund's Right to Proceed
5.06 Indemnification by Custodian
5.07 Custodian's Right to Proceed
VI. Compensation
VII. Termination
VIII. Defined Terms
IX. Miscellaneous
9.01 Execution of Documents, Etc.
9.02 Representations and Warranties
9.03 Entire Agreement
9.04 Waivers and Amendments
9.05 Interpretation
9.06 Captions
9.07 Governing Law
9.08 Notices
9.09 Assignment
9.10 Counterparts
9.11 Confidentiality
Appendices
Appendix "A"
Appendix "B"
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of the 26th day of November, 1991 between United Funds,
Inc. United Bond Fund (the "Fund") and United Missouri Bank, n.a. (the
"Custodian").
WITNESSETH
WHEREAS, the Fund desires to appoint the Custodian as custodian on behalf
of the Fund in accordance with the provisions of the Investment Company Act of
1940, as amended (the "1940 Act") and the rules and regulations thereunder,
under the terms and conditions set forth in this Agreement, and the Custodian
has agreed so to act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
Subject to the terms and provisions of this Agreement, the Fund hereby
employs and appoints the Custodian as a custodian of the cash, securities and
other assets owned by the Fund and deposited from time to time with the
Custodian ("Assets"). The Fund shall deliver to the Custodian, or shall cause
to be delivered to the Custodian, Assets during the term of this Agreement. The
Custodian is authorized to act under the terms and conditions of this Agreement
as the Fund's agent and shall be representing the Fund when acting within the
scope of this Agreement. The Custodian hereby accepts such appointment as
custodian and shall perform the duties and responsibilities set forth herein on
the terms and conditions set forth herein.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and duties
set forth in this Article II. Pursuant to and in accordance with Article IV
hereof, the Custodian may appoint one or more Subcustodians (as hereinafter
defined) to exercise the powers and perform the duties of the Custodian set
forth in this Article II and references to the Custodian in this Article II
shall include any Subcustodian so appointed.
Section 2.01. Safekeeping. The Custodian shall accept delivery of and
keep safely the Assets in accordance with the terms and conditions hereof on
behalf of the Fund.
Section 2.02. Manner of Holding Securities.
(a) The Custodian shall at all times hold securities of the Fund either:
(i) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form; or (ii) in book-entry
form by a Securities System (as hereinafter defined) in accordance with the
provisions of Section 2.22 below.
(b) The Custodian may at all times hold registered securities of the Fund
in the name of the Fund or the Fund's nominee, or in the nominee name of the
Custodian unless specifically directed by Proper Instructions (as hereinafter
defined) to hold such registered securities in so-called street name; provided
that, in any event, all Assets shall be held in an account of the Custodian
containing only assets of the Fund. Notwithstanding the foregoing, unless it
receives Proper Instructions to the contrary, the Custodian shall register all
securities in the name of the Custodian's nominee as authorized by the Fund.
All securities held directly or indirectly by the Custodian hereunder shall at
all times be identifiable on the records of the Custodian. Except as otherwise
provided herein, the Custodian shall keep the Assets physically segregated from
those of other persons or entities. The Custodian shall execute and deliver all
certificates and documents in connection with registration of securities as may
be required by the applicable provisions of the Internal Revenue Code, the laws
of any State or territory of the United States and the laws of any jurisdiction
in which the securities are held.
Section 2.03. Purchase of Assets.
(a) Security Purchases. Upon receipt of Proper Instructions, the
Custodian shall pay for and receive securities purchased for the account of the
Fund, provided that payment shall be made by Custodian only upon receipt of the
securities: (a) by the Custodian; (b) by a clearing corporation of a national
securities exchange of which the Custodian is a member; or (c) by a Securities
System. Notwithstanding the foregoing, upon receipt of Proper Instructions:
(i) in the case of a repurchase agreement, the Custodian may release funds to a
Securities System prior to the receipt of advice from the Securities System that
the securities underlying such repurchase agreement have been transferred by
book-entry into the Account (as hereinafter defined) maintained with such
Securities System by the Custodian, provided that the Custodian's instructions
to the Securities System require that the Securities System may make payment of
such funds to the other party to the repurchase agreement only upon transfer by
book-entry of the securities underlying the repurchase agreement into the
Account; (ii) in the case of time deposits, call account deposits, currency
deposits and other deposits, foreign exchange transactions, futures contracts or
options, pursuant to Sections 2.09, 2.10, 2.12 and 2.13 hereof, the Custodian
may make payment therefor before receipt of an advice or transaction; and (iii)
in the case of the purchase of securities, the settlement of which occurs
outside of the United States of America, the Custodian may make payment therefor
and receive delivery of such securities in accordance with local custom and
practice generally accepted by Institutional Clients (as hereinafter defined) in
the country in which the settlement occurs, but in all events subject to the
standard of care set forth in Article V hereof. For purposes of this Agreement,
an "Institutional Client" shall mean a major commercial bank, corporation,
insurance company, or substantially similar institution, which, as a substantial
part of its business operations, purchases or sells securities and makes use of
custodial services.
(b) Other Asset Purchases. Upon receipt of Proper Instructions and except
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of the Fund as provided in Proper Instructions.
Section 2.04. Exchanges of Securities. Upon receipt of Proper
Instructions, the Custodian shall exchange securities held by it for the account
of the Fund for other securities in connection with any reorganization,
recapitalization, split-up of shares, change of par value, conversion or other
event relating to the securities or the issuer of such securities, and shall
deposit any such securities in accordance with the terms of any reorganization
or protective plan. The Custodian shall, without receiving Proper Instructions:
surrender securities for transfer into the name of the Fund, the Fund's nominee
or the nominee name of the Custodian as permitted by Section 2.02(b); and
surrender securities for a different number of certificates or instruments
representing the same number of shares or same principal amount of indebtedness,
provided that the securities to be issued will be delivered to the Custodian.
Section 2.05. Sales of Securities. Upon receipt of Proper Instructions,
the Custodian shall make delivery of securities which have been sold for the
account of the Fund, but only against payment therefor in the form of: (a)
cash, certified check, bank cashier's check, bank credit, or bank wire transfer;
(b) credit to the account of the Custodian with a clearing corporation of a
national securities exchange of which the Custodian is a member; or (c) credit
to the Account of the Custodian with a Securities System, in accordance with the
provisions of Section 2.22 hereof. Notwithstanding the foregoing: (i) in the
case of the sale of securities, the settlement of which occurs outside of the
United States of America, such securities shall be delivered and paid for in
accordance with local custom and practice generally accepted by Institutional
Clients in the country in which the settlement occurs, but in all events subject
to the standard of care set forth in Article V hereof; and (ii) in the case of
securities held in physical form, such securities shall be delivered and paid
for in accordance with "street delivery custom" to a broker or its clearing
agent, against delivery to the Custodian of a receipt for such securities,
provided that the Custodian shall have taken reasonable steps to ensure prompt
collection of the payment for, or return of, such securities by the broker or
its clearing agent, and provided further that, subject to the standard of care
set forth in Article V hereof, the Custodian shall not be responsible for the
selection of or the failure or inability to perform of such broker or its
clearing agent.
Section 2.06. Depositary Receipts. Upon receipt of Proper Instructions,
the Custodian shall surrender securities to the depositary used for such
securities by an issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter referred to, collectively , a "ADRs"), against
a written receipt therefor adequately describing such securities and written
evidence satisfactory to the Custodian that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such securities in the
name of the Custodian or a nominee of the Custodian, for delivery to the
Custodian at such place as the Custodian may from time to time designate. Upon
receipt of Proper Instructions, the Custodian shall surrender ADRs to the issuer
thereof, against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depository to
deliver the securities underlying such ADRs to the Custodian.
Section 2.07. Exercise of Rights, Tender Offers, Etc. Upon receipt of
Proper Instructions, the Custodian shall: (a) deliver warrants, puts, calls,
rights or similar securities to the issuer or trustee thereof (or to the agent
of such issuer or trustee) for the purpose of exercise or sale, provided that
the new securities, cash or other Assets, if any, acquired as a result of such
actions are to be delivered to the Custodian; and (b) deposit securities upon
invitations for tenders thereof, provided that the consideration for such
securities is to be paid or delivered to the Custodian, or the tendered
securities are to be returned to the Custodian. Notwithstanding any provision
of this Agreement to the contrary, the Custodian shall promptly notify the Fund
in writing of (i) any default in payment of funds on securities; (ii) any
securities that have matured, been called or redeemed; and (iii) to the extent
the Custodian has notice which is contained in services to which it normally
subscribes for such purposes, or actual knowledge if not contained in such
services, any other default involving securities; and all announcements of
defaults, bankruptcies, reorganizations, mergers, consolidations,
recapitalizations or rights or privileges to subscribe, convert, exchange, put,
redeem or tender securities held subject to this Agreement. The Custodian
shall, following receipt or knowledge, convey such information to the Fund in a
timely manner based upon the circumstances of each particular case. Whenever
any such rights or privileges exist, the Fund will, in a timely manner based
upon the circumstances of each particular case, provide the Custodian with
Proper Instructions. Absent the Custodian's timely receipt of Proper
Instructions, the Custodian shall not be liable for not taking any action or not
exercising such rights prior to their expiration unless such failure is due to
Custodian's failure to give timely notice to the Fund in accordance with this
Section 2.07.
Section 2.08. Stock Dividends, Rights, Etc. The Custodian shall receive
and collect all stock dividends, rights and other items of like nature and, upon
receipt of Proper Instructions, take action with respect to the same as directed
in such Proper Instructions.
Section 2.09. Options. Upon receipt of Proper Instructions and in
accordance with the provisions of any agreement between the Custodian, any
registered broker-dealer and, if necessary, the Fund relating to compliance with
the rules of the Options Clearing Corporation (the "OCC") or of any registered
national securities exchange or similar organization(s), the Custodian shall:
(a) receive and retain confirmations or other documents, if any, evidencing the
purchase or writing of an option by the Fund; (b) deposit and maintain in a
segregated account, securities (either physically or by book-entry in a
Securities System), cash or other Assets; and (c) pay, release and/or transfer
such securities, cash or other Assets in accordance with any such agreement and
with notices or other communications evidencing the expiration, termination or
exercise of such options furnished by the OCC, the securities or options
exchange on which such options are traded or such other organization as may be
responsible for handling such option transactions. The Fund and the broker-
dealer shall be responsible for determining the sufficiency of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract; provided, however, that the Custodian shall be liable for performance
of its duties under this Agreement and in accordance with Proper Instructions,
and shall be liable for performance of its duties under any other agreement
between the Custodian, any registered broker-dealer and, if necessary, the Fund.
Notwithstanding anything herein to the contrary, if the Fund issues Proper
Instructions to sell a naked option (including stock index options), then as
part of the transaction, the Custodian, the Fund and the broker-dealer shall
have entered into a tri-party agreement, as described above.
Section 2.10. Futures Contracts. Upon receipt of Proper Instructions,
or pursuant to the provisions of any futures margin procedural agreement among
the Fund, the Custodian and any futures commission merchant (a "Procedural
Agreement"), the Custodian shall: (a) receive and retain confirmations, if any
evidencing the purchase of or sale of a futures contract or an option on a
futures contract by the Fund; (b) deposit and maintain in a segregated account
cash, securities and other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written by the Fund, in accordance with the provisions of the
Commodity Futures Trading Commission and/or any commodity exchange or contract
market (such as the Chicago Board of Trade), or any similar organization(s),
regarding such margin deposits; and (c) release assets from and/or transfer
assets into such margin accounts only in accordance with any such Procedural
Agreements. The Fund and such futures commission merchant shall be responsible
for determining the sufficiency of assets held in the segregated account in
compliance with applicable margin maintenance requirements and the performance
of any futures contract or option on a futures contract in accordance with its
terms; provided, however, that the Custodian shall be liable for performance of
its duties under this Agreement and in accordance with Proper Instructions, and
shall be liable for performance of its duties under any Procedural Agreement.
Section 2.11. Borrowing. Upon receipt of Proper Instructions, the
Custodian shall deliver securities of the Fund to lenders or their agents, or
otherwise establish a segregated account as agreed to by the Fund and the
Custodian, as collateral for borrowings effected by the Fund, provided that such
borrowed money is payable by the lender (a) to or upon the Custodian's order, as
Custodian for the Fund, and (b) concurrently with delivery of such securities.
Section 2.12. Interest Bearing Deposits. Upon receipt of Proper
Instructions directing the Custodian to purchase interest bearing fixed term and
call deposits (hereinafter referred to collectively, as "Interest Bearing
Deposits") for the account of the Fund, the Custodian shall purchase such
Interest Bearing Deposits in the name of the Fund with such banks or trust
companies (including the Custodian, any Subcustodian or any subsidiary or
affiliate of the Custodian) (hereinafter referred to as "Banking Institutions")
and in such amounts as the Fund may direct pursuant to Proper Instructions.
Such Interest Bearing Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine and direct pursuant to Proper
Instructions. The Custodian shall include in its records with respect to the
Assets of the Fund appropriate notation as to the amount and currency of each
such Interest Bearing Deposit, the accepting Banking Institution and all other
appropriate details, and shall retain such forms of advice or receipt evidencing
such account, if any, as may be forwarded to the Custodian by the Banking
Institution. The responsibilities of the Custodian to the Fund for Interest
Bearing Deposits accepted on the Custodian's books in the United States shall be
that of a U.S. bank for a similar deposit. With respect to Interest Bearing
Deposits other than those accepted on the Custodian's books, (a) the Custodian
shall be responsible for the collection of income as set forth in Section 2.15
and the transmission of cash and instructions to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or, so long as the Custodian acts in accordance with Proper
Instructions and the terms and conditions of this Agreement, for the failure of
such Banking Institution to pay upon demand. Upon receipt of Proper
Instructions, the Custodian shall take such reasonable actions as the Fund deems
necessary or appropriate to cause each such Interest Bearing Deposit account to
be insured to the maximum extent possible by all applicable deposit insurers
including, without limitation, the Federal Deposit Insurance Corporation.
Section 2.13. Foreign Exchange Transactions.
(a) Foreign Exchange Transactions Other than as Principal. Upon receipt
of Proper Instructions, the Custodian shall settle foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may determine and direct pursuant to Proper
Instructions. The Fund accepts full responsibility for its use of third party
foreign exchange brokers (any dealer other than the Foreign Subcustodian) (as
hereinafter defined) and for execution of said foreign exchange contracts and
understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange unless such loss, damage, or
expense is caused by, or results from the negligence, misfeasance or misconduct
of the Custodian. Notwithstanding the foregoing, the Custodian shall be
responsible for the transmission of cash and instructions to and from the
currency broker or Banking Institution with which the contract or option is
made, the safekeeping of all certificates and other documents and agreements
evidencing or relating to such foreign exchange transactions and the maintenance
of proper records as set forth in Section 2.25. The Custodian shall have no
duty with respect to the selection of the currency brokers or Banking
Institutions with which the Fund deals or, so long as the Custodian acts in
accordance with Proper Instructions, for the failure of such brokers or Banking
Institutions to comply with the terms of any contract or option.
(b) Foreign Exchange Contracts as Principal. The Custodian shall not be
obligated to enter into foreign exchange transactions as principal. However, if
the Custodian has made available to the Fund its services as a principal in
foreign exchange transactions, upon receipt of Proper Instructions, the
Custodian shall enter into foreign currencies for spot and future delivery on
behalf of and for the account of the Fund with the Custodian as principal. The
Custodian shall be responsible for the selection of the currency brokers or
Banking Institutions and the failure of such currency brokers or Banking
Institutions to comply with the terms of any contract or option.
(c) Payments. Notwithstanding anything to the contrary contained herein,
upon receipt of Proper Instructions the Custodian may, in connection with a
foreign exchange contract, make free outgoing payments of cash in the form of
U.S. Dollars or foreign currency prior to receipt of confirmation of such
foreign exchange contract or confirmation that the countervalue currency
completing such contract has been delivered or received.
Section 2.14. Securities Loans. Upon receipt of Proper Instructions,
the Custodian shall, in connection with loans of securities by the Fund, deliver
securities of the Fund to the borrower thereof and may, except as otherwise
provided below, deliver such securities prior to receipt of the collateral, if
any, for such borrowing; provided that, in cases of loans of securities secured
by cash collateral, the Custodian's instructions to the Securities System shall
require that the Securities System deliver the securities of the Fund to the
borrower thereof only upon receipt of the collateral for such borrowing. The
Custodian shall retain on the Fund's behalf the right to any dividends, interest
or distribution on such loaned securities and any other rights specified in
Proper Instructions. Upon receipt of Proper Instructions and the loaned
securities, the Custodian will release the collateral to the borrower.
Section 2.15. Collections. The Custodian shall: (a) collect amounts
due and payable to the Fund with respect to portfolio securities and other
Assets; (b) promptly credit to the account of the Fund all income and other
payments relating to portfolio securities and other Assets held by the Custodian
hereunder upon Custodian's receipt of such income or payments or as otherwise
agreed in writing by the Custodian and the Fund; (c) promptly endorse and
deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio securities and other Assets, or in connection
with the transfer of such securities or other Assets; provided, however, that
with respect to portfolio securities registered in so-called street name, or
physical securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to the Fund. The Custodian
shall promptly notify the Fund in writing by facsimile transmission or in such
other manner as the Fund and Custodian may agree in writing if any amount
payable with respect to portfolio securities or other Assets is not received by
the Custodian when due. The Custodian shall not be responsible for the
collection of amounts due and payable with respect to portfolio securities or
other Assets that are in default.
Section 2.16. Dividends, Distributions and Redemptions. To enable the
Fund to pay dividends or other distributions to shareholders of the Fund and to
make payment to shareholders who have requested repurchase or redemption of
their shares of the Fund (collectively, the "Shares"), the Custodian shall
promptly release cash or securities (a) in the case of cash, upon receipt of
Proper Instructions, to one or more Distribution Accounts (as hereinafter
defined) designated by the Fund in such Proper Instructions; or (b) in the case
of securities, upon the receipt of Special Instructions (as hereinafter defined)
to such entity or account designated by the Fund in such Special Instructions.
For purposes of this Agreement, a "Distribution Account" shall mean an account
established at a Banking Institution designated by the Fund in Special
Instructions.
Section 2.17. Proceeds from Shares Sold. The Custodian shall receive
funds representing cash payments received for Shares issued or sold from time to
time by the Fund, and shall promptly credit such funds to the account of the
Fund. The Custodian shall promptly notify the Fund of Custodian's receipt of
cash in payment for Shares issued by the Fund by facsimile transmission or in
such other manner as the Fund and Custodian may agree in writing. Upon receipt
of Proper Instructions, the Custodian shall: (a) deliver all federal funds
received by the Custodian in payment for Shares in payment for such investments
as may be set forth in such Proper Instructions and at a time agreed upon
between the Custodian and the Fund; and (b) make federal funds available to the
Fund as of specified times agreed upon from time to time by the Fund and the
Custodian, in the amount of checks received in payment for Shares which are
deposited to the accounts of the Fund.
Section 2.18. Proxies, Notices, Etc. The Custodian shall deliver or
cause to be delivered to the Fund, in the most expeditious manner practicable,
all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Proper Instructions, the Custodian shall execute and
deliver, or cause such Subcustodian or nominee to execute and deliver, such
proxies or other authorizations as may be required. Except as directed pursuant
to Proper Instructions, neither the Custodian nor any Subcustodian or nominee
shall vote upon any such securities, or execute any proxy to vote thereon, or
give any consent or take any other action with respect thereto. The Custodian
will not release the identity of the Fund to an issuer which requests such
information pursuant to the Shareholder Communications Act of 1985, for the
specific purpose of direct communications between such issuer and the Fund
unless the Fund directs the Custodian otherwise in writing.
Section 2.19. Bills and Other Disbursements. Upon receipt of Proper
Instructions, the Custodian shall pay or cause to be paid, all bills,
statements, or other obligations of the Fund.
Section 2.20. Nondiscretionary Functions. The Custodian shall attend
to all nondiscretionary details not specifically covered by this Agreement in
accordance with industry standards in connection with the sale, exchange,
substitution, purchase, transfer or other dealings with securities or other
Assets held by the Custodian, except as otherwise directed from time to time
pursuant to Proper Instructions.
Section 2.21. Bank Accounts.
(a) Accounts with the Custodian. The Custodian shall open and operate a
bank account or accounts (hereinafter referred to collectively, as "Bank
Accounts") on the books of the Custodian; provided that such Bank Account(s)
shall be in the name of the Custodian or a nominee thereof, for the account of
the Fund, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
(b) Deposit Insurance. Upon receipt of Proper Instructions, the
Custodian shall take such action as the Fund deems necessary or appropriate to
cause each deposit account established by the Custodian pursuant to this Section
2.21 to be insured to the maximum extent possible by all applicable deposit
insurers, including, without limitation, the Federal Deposit Insurance
Corporation.
Section 2.22. Deposit of Fund Assets in Securities Systems. The
Custodian may deposit and/or maintain domestic securities owned by the Fund in:
(a) The Depository Trust Company; (b) the Participants Trust Company; (c) any
book-entry system as provided in (i) Subpart O of Treasury Circular No. 300, 31
CFR 306.115 (ii) Subpart B of Treasury Circular Public Debt Series No. 27-76, 31
CFR 350.2, or (iii) the book-entry regulations of federal agencies substantially
in the form of 31 CFR 306.115; or (d) any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under Section 17A
of the Securities Exchange Act of 1934 (or as may otherwise be authorized by the
Securities and Exchange Commission to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies) which
acts as a securities depository; provided, however, that no such deposit or
maintenance of securities may be made except with respect to those agencies and
entities the use of which the Fund has previously approved by Special
Instructions (each of the foregoing being referred to in this Agreement as a
"Securities System"). Use of a Securities System shall be in accordance with
applicable Federal Reserve Board and SEC rules and regulations, if any, and
subject to the following provisions:
(A) The Custodian or any Subcustodian may deposit and/or maintain
securities held hereunder in a Securities System, provided that such securities
are represented in an account ("Account") of the Custodian in the Securities
System which Account shall not contain any assets of the Custodian other than
assets held as fiduciary, custodian or otherwise for customers.
(B) The books and records of the Custodian shall at all times identify
those securities belonging to the Fund which are maintained in a Securities
System.
(C) The Custodian shall pay for securities purchased for the account of the
Fund only upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account of the Custodian, and (ii) the
making of an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer securities
sold for the account of the Fund only upon (iii) receipt of advice from the
Securities System that payment for such securities has been transferred to the
Account of the Custodian, and (iv) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System relating to transfers of
securities for the account of the Fund shall identify the Fund, and shall be
maintained for the Fund by the Custodian. The Custodian shall deliver to the
Fund on the next succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the account of the
Fund. Such transaction reports shall be delivered to the Fund or any agent
designated by the Fund pursuant to Proper Instructions, by computer or in such
other manner as the Fund and Custodian may agree in writing.
(D) The Custodian shall, if requested by the Fund pursuant to Proper
Instructions, provide the Fund with all reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in the
Securities System.
(E) Upon receipt of Special Instructions, the Custodian shall terminate the
use of any Securities System (except the federal book-entry system) on behalf of
the Fund as promptly as practicable and shall take all actions reasonably
practicable to safeguard the securities of the Fund maintained with such
Securities System.
Section 2.23. Other Transfers. Upon receipt of Special Instructions,
the Custodian shall make such other dispositions of securities, funds, or other
Assets of the Fund in a manner or for purposes other than as expressly set forth
in this Agreement, provided that the Special Instructions relating to such
disposition shall include a statement of the purposes for which the delivery is
to be made, the amount of funds, Assets and/or securities to be delivered and
the name of the person or persons to whom delivery is to be made, and shall
otherwise comply with the provisions of Sections 3.01 and 3.03 hereof.
Section 2.24. Establishment of Segregated Account. Upon receipt of
Proper Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other Assets of the
Fund, including securities maintained by the Custodian in a Securities System
pursuant to Section 2.22 hereof, said account or accounts to be maintained: (a)
for the purposes set forth in Section 2.09, 2.10 and 2.11 hereof; (b) for the
purposes of compliance by the Fund with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies; or (c) for such other purposes as may be set forth, from time to
time, in Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this Section 2.24.
Section 2.25. Custodian's Books and Records. The Custodian shall
provide any assistance reasonably requested by the Fund in the preparation of
reports to Fund shareholders and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall maintain complete and
accurate records with respect to securities and other Assets held for the
accounts of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including, but
not limited to: (a) journals or other records of original entry containing a
detailed and itemized daily record of all receipts and deliveries of securities
(including certificate and transaction identification numbers, if any), and all
receipts and disbursements of cash; (b) ledgers or other records reflecting (i)
securities in transfer, (ii) securities in physical possession, (iii) securities
borrowed, loaned or collateralizing obligations of the Fund, (iv) monies
borrowed and monies loaned (together with a record of the collateral therefor
and substitutions of such collateral), and (v) dividends and interest received;
and (c) cancelled checks and bank records relating thereto. The Custodian shall
keep such other books and records of the Fund as the Fund shall reasonably
request. All such books and records maintained by the Custodian shall be
maintained in a form acceptable to the Fund and in compliance with the rules and
regulations of the SEC, including, but not limited to, books and records
required to be maintained by Section 31(a) of the 1940 Act and the rules and
regulations from time to time adopted thereunder. All books and records
maintained by the Custodian pursuant to this Agreement shall at all times be the
property of the Fund and shall be available during normal business hours for
inspection and use by the Fund and its agents, including without limitation, its
independent certified public accountants. Notwithstanding the preceding
sentence, the Funds shall not take any actions or cause the Custodian to take
any actions which would knowingly cause, either directly or indirectly, the
Custodian to violate any applicable laws, regulations or orders.
Notwithstanding the provisions of this Section 2.25, in the event the Fund
purchases cash, securities and other Assets requiring the use of a Domestic
Subcustodian or Foreign Sub-Subcustodian, the Custodian shall be entitled to
rely upon and use the books, records and accountings of the Domestic
Subcustodian as its means of accounting to the Fund for all cash, securities and
other Assets deposited with such entities; provided however, that such books,
records and accountings on which the Bank may rely must be maintained in the
United States by such Domestic Subcustodian and, provided further, that any
agreement between the Custodian and such Domestic Subcustodian must state that
the Domestic Subcustodian agrees to make any records available upon request and
preserve, for the periods described in Rule 31a-2 of the 1940 Act, the records
required to be maintained by Rule 31a-1 of the 1940 Act. In no event shall the
Custodian be entitled to rely upon and use books, records and accountings which
are maintained outside of the United States.
Section 2.26. Opinion of Fund's Independent Certified Public
Accountants. The Custodian shall take all reasonable action as the Fund may
request to obtain from year to year favorable opinions from the Fund's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Fund's Form N-1A
and the Fund's Form N-SAR or other periodic reports to the SEC and with respect
to any other requirements of the SEC.
Section 2.27. Reports by Independent Certified Public Accountants. At
the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
Section 2.28. Overdraft Facility. Notwithstanding any Proper or Special
Instructions, the Custodian shall not make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of such Fund.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
Section 3.01. Proper Instructions and Special Instructions.
(a) Proper Instructions. As used herein, the term "Proper Instructions"
shall mean: (i) a tested telex, a written (including, without limitation,
facsimile transmission) request, direction, instruction or certification signed
or initialed by or on behalf of the Fund by two or more Authorized Persons (as
hereinafter defined); (ii) a telephonic or other oral communication by one or
more Authorized Persons; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) by or on behalf of the Fund by one or more Authorized
Persons; provided, however, that communications of the types described in
clauses (ii) and (iii) above purporting to be given by an Authorized Person
shall be considered Proper Instructions only if the Custodian reasonably
believes such communications to have been given by an Authorized Person with
respect to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Fund by tested telex or in writing in
the manner set forth in clause (i) above, but the lack of such confirmation
shall in no way affect any action taken by the Custodian in reliance upon such
oral instructions prior to the Custodian's receipt of such confirmation. The
Fund and the Custodian are hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper Instructions may
relate to specific transactions or to types or classes of transactions, and may
be in the form of standing instructions.
(b) Special Instructions. As used herein, the term "Special Instructions"
shall mean Proper Instructions countersigned or confirmed in writing by the
Treasurer or any Assistant Treasurer of the Fund or any other person designated
by the Treasurer of the Fund in writing, which countersignature or confirmation
shall be (i) included on the same instrument containing the Proper Instructions
or on a separate instrument relating thereto, and (ii) delivered by hand, by
facsimile transmission or in such other manner as the Fund and the Custodian
agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian, duly certified as appropriate by a Treasurer or
Assistant Treasurer of the Fund, a certificate setting forth: (a) the names,
titles, signatures, and scope of authority of all persons authorized to give
Proper Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Fund (collectively, the "Authorized
Persons" and individually, an "Authorized Person"); and (b) the names, titles
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Proper Instructions or to
issue Special Instructions, such persons shall no longer be considered an
Authorized Person or authorized to issue Special Instructions.
Section 3.03. Persons Having Access to Assets of the Portfolios.
Notwithstanding anything to the contrary contained in this Agreement, no
Authorized Person, Director, officer, employee or agent of the Fund shall have
physical access to the Assets of the Fund held by the Custodian nor shall the
Custodian deliver any Assets of the Fund to an account of such person; provided,
however, that nothing in this Section 3.03 shall prohibit (a) any Authorized
Person from giving Proper Instructions, or any person authorized to issue
Special Instructions from issuing Special Instructions, so long as such action
does not result in delivery of or access to Assets of the Fund prohibited by
this Section 3.03; or (b) the Fund's independent certified public accountants
from examining or reviewing the Assets of the Fund held by the Custodian. The
Fund will deliver from time to time a written certificate executed by two
Authorized Persons identifying such Authorized Persons, Directors, officers,
employees and agents of the Fund. Notwithstanding the foregoing, to the extent
that the person acting on behalf of the Custodian in making such delivery has
actual knowledge that any person is an Authorized Person, Director, officer,
employee or agent of the Fund, the Custodian will comply with this Section 3.03
as if the name of such Authorized Person, Director, officer, employee or agent
had been contained in a written certificate provided pursuant to this Section
3.03.
Section 3.04. Actions of Custodian Based on Proper Instructions and
Special Instructions. So long as and to the extent that the Custodian acts in
accordance with (a) Proper Instructions or Special Instructions, as the case may
be, and (b) the terms of this Agreement, the Custodian shall not be responsible
for the title, validity or genuineness of any property, or evidence of title
thereof, received by it or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
From time to time, in accordance with the relevant provisions of this
Agreement, (i) the Custodian may appoint one or more Domestic Subcustodians and
Special Subcustodians (each, as hereinafter defined) to act on behalf of the
Fund; and (ii) any Domestic Subcustodian so appointed may appoint a Foreign Sub-
Subcustodian or Interim Sub-Subcustodian (as each are hereinafter defined) in
accordance with this Article IV. For purposes of this Agreement, all Domestic
Subcustodians, Special Subcustodians, Foreign Sub-Subcustodians and Interim Sub-
Subcustodians shall be referred to collectively as "Subcustodians".
Section 4.01. Domestic Subcustodians. The Custodian may, at any time
and from time to time, appoint any bank as defined in Section 2(a)(5) of the
1940 Act or any trust company or other entity any of which meet requirements of
a custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act as agent for the Custodian on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other Assets of the
Fund and performing other functions of the Custodian within the United States (a
"Domestic Subcustodian"); provided, that, the Custodian shall notify the Fund in
writing of the identity and qualifications of any proposed Domestic Subcustodian
at least sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and the Fund will notify the Custodian, in writing signed by two
or more Authorized Persons, of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and provided, further, that the Custodian may
not appoint any such Domestic Subcustodian without such prior written approval
of the Fund by such Authorized Persons. Each such duly approved Domestic
Subcustodian and the countries where, Foreign Sub-Subcustodians and the
securities depositories and clearing agencies through which they may hold
securities and other Assets of the Fund shall be as agreed upon by the parties
hereto in writing, from time to time, in accordance with the provisions of
Section 9.04 hereof (the "Subcustodian List").
Section 4.02. Foreign Sub-Subcustodians and Interim Sub-Subcustodians.
(a) Foreign Sub-Subcustodians. The Custodian may at any time appoint, or
cause a Domestic Subcustodian to appoint: (i) any bank, trust company or other
entity meeting requirements of an "eligible foreign custodian" under Section
17(f) of the 1940 Act and the rules and regulations thereunder or by order of
the Securities and Exchange Commission exempted therefrom, or (ii) any bank as
defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and regulations
thereunder to act on behalf of the Fund as a sub-subcustodian for purposes of
holding cash, securities and other Assets of the Fund and performing other
functions of the Domestic Subcustodian in countries other than the United States
of America (a "Foreign Sub-Subcustodian"); provided that, prior to the
appointment or approval of any Foreign Sub-Subcustodian the Custodian shall, or
shall cause the Domestic Subcustodian to, notify the Fund, in writing, of the
identity and qualifications of the proposed Foreign Sub-Subcustodian and make a
copy of the proposed sub-subcustodian agreement available to the Fund at least
sixty (60) days prior to the desired appointment; and provided further that the
Custodian shall have obtained written confirmation from two or more Authorized
Persons of the approval of the Board of Directors or other governing body of the
Fund (which approval may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with respect to (i) the identity
and qualifications of any proposed Foreign Sub-Subcustodian, and (ii) the
country or countries in which, and the securities depositories or clearing
agencies (hereinafter "Securities Depositories and Clearing Agencies"), if any,
through which, any proposed Foreign Sub-Subcustodian is authorized to hold
securities and other Assets of the Fund. Each such duly approved Foreign Sub-
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold securities and other Assets of the
Fund shall be listed on the Subcustodian List. The Fund shall be responsible
for informing the Custodian sufficiently in advance of a proposed investment
which is to be held in a country in which no Foreign Sub-Subcustodian is
authorized to act, in order that there shall be sufficient time for the
Custodian or any Domestic Subcustodian to effect the appropriate arrangements
with a proposed Foreign Sub-Subcustodian, including obtaining approval as
provided in this Section 4.02(a). In connection with the appointment of any
Foreign Sub-Subcustodian, the Custodian shall, or shall cause the Domestic
Subcustodian to, enter into a sub-subcustodian agreement with the Foreign Sub-
Subcustodian in form and substance approved by the Fund, provided that the
agreement shall, in all events, comply with the provisions of the 1940 Act and
the rules and regulations thereunder, and the terms and provisions of this
Agreement. The Custodian shall not and shall cause any Domestic Subcustodian
not to consent to the amendment of any sub-subcustodian agreement entered into
with a Foreign Sub-Subcustodian, or agree to any changes thereunder, or waive
any rights under such agreement, except upon prior approval pursuant to Special
Instructions.
(b) Interim Sub-Subcustodians. Notwithstanding the foregoing, in the
event that the Fund shall invest in a security or other Asset to be held in a
country in which no Foreign Sub-Subcustodian is authorized to act, the Custodian
shall, or shall cause the Domestic Subcustodian to, promptly notify the Fund in
writing by facsimile transmission or in such other manner as the Fund and
Custodian shall agree in writing of the unavailability of an approved Foreign
Sub-Subcustodian in such country; and upon the receipt of Special Instructions,
the Custodian shall, or shall cause the Domestic Subcustodian to, appoint or
approve any Person (as hereinafter defined) designated by the Fund in such
Special Instructions, to hold such security or other Asset. (Any Person
appointed or approved as a sub-subcustodian pursuant to this Section 4.02(b) is
hereinafter referred to as an "Interim Sub-Subcustodian.")
Section 4.03. Special Subcustodians. Upon receipt of Special
Instructions, the Custodian shall, on behalf of the Fund, appoint one or more
banks, trust companies or other entities designated in such Special Instructions
to act as a subcustodian for the purpose of (i) effecting third-party repurchase
transactions with banks, brokers, dealers or other entities, (ii) providing
depository and clearing agency services with respect to certain variable rate
demand note securities; and (iii) effecting any other transactions designated by
the Fund in Special Instructions. (Each such designated subcustodian is
hereinafter referred to as a "Special Subcustodian.") Each such duly appointed
Special Subcustodian shall be listed on the Subcustodian List. In connection
with the appointment of any Special Subcustodian, the Custodian shall enter into
a subcustodian agreement with the Special Subcustodian in form and substance
approved by the Fund, provided that such agreement shall in all events comply
with the provisions of the 1940 Act and the rules and regulations thereunder and
the terms and provisions of this Agreement. The Custodian shall not amend any
subcustodian agreement entered into with a Special Subcustodian, or agree to
change or permit any changes thereunder, or waive any rights under such
agreement, except upon prior approval pursuant to Special Instructions.
Section 4.04. Termination of a Subcustodian. The Custodian shall (i)
cause each Domestic Subcustodian to, and (ii) use its best efforts to cause each
Interim Sub-Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the subcustodian
agreement between the Custodian and such Domestic Subcustodian and Special
Subcustodian or between the Domestic Subcustodian and a Foreign Sub-Subcustodian
or Interim Sub-Subcustodian. In the event that the Custodian is unable to cause
such subcustodian or sub-subcustodian to fully perform its obligations
thereunder, the Custodian shall promptly notify the Fund in writing and
forthwith, upon the receipt of Special Instructions, terminate or cause the
termination of such Subcustodian or Sub-Subcustodian with respect to the Fund
and, if necessary or desirable, appoint or cause the appointment of a
replacement Subcustodian or Sub-Subcustodian in accordance with the provisions
of this Article IV. In addition to the foregoing, the Custodian (A) may, at any
time in its discretion, upon written notification to the Fund, terminate any
Domestic Subcustodian, and (B) shall, upon receipt of Special Instructions,
terminate any Special Subcustodian with respect to the Fund, in accordance with
the termination provisions under the applicable subcustodian agreement, and (C)
shall, upon receipt of Special Instructions, cause the Domestic Subcustodian to
terminate any Foreign Sub-Subcustodian or Interim Sub-Subcustodian as to its use
of such entities with respect to the Fund, in accordance with the termination
provisions under the applicable sub-subcustodian agreement.
Section 4.05. Certification Regarding Foreign Sub-Subcustodians. Upon
request of the Fund, the Custodian shall deliver to the Fund a certificate
stating: (i) the identity of each Foreign Sub-Subcustodian then acting on
behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agents through which each such Foreign Sub-
Subcustodian is then holding cash, securities and other Assets of the Fund; and
(iii) such other information as may be requested by the Fund to ensure
compliance with rules and regulations under the 1940 Act.
ARTICLE V
STANDARD OF CARE: INDEMNIFICATION
Section 5.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise reasonable
care and diligence in carrying out all of its duties and obligations under this
Agreement, and shall be liable to the Fund for all loss, damage and expense
suffered or incurred by the Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities Depository or Clearing Agency
utilized by any such Subcustodian, or any nominee of the Custodian or any
Subcustodian (individually, a "Person") is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction (and the Custodian
nor any other Person shall not be obligated to take any action contrary
thereto); or (ii) any act of God or war or other similar circumstance beyond the
control of the Custodian unless in each case, such delay or nonperformance is
caused by the negligence, misfeasance or misconduct of the Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Fund, (i) the Custodian
shall, (ii) the Custodian shall cause any applicable Domestic Subcustodian or
Foreign Sub-Subcustodian to, and (iii) the Custodian shall use its best efforts
to cause any applicable Interim Sub-Subcustodian or Special Subcustodian to, use
all commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid continuing harm
to the Fund.
(d) Advice of Counsel. The Custodian shall be without liability for any
action reasonably taken or omitted in good faith pursuant to the written advise
of (i) counsel for the Fund, or (ii) at the expense of the Custodian, such other
counsel as the Fund and the Custodian may agree upon in writing; provided,
however, with respect to the performance of any action or omission of any action
upon such advice, the Custodian shall be required to conform to the standard of
care set forth in Section 5.01 (a).
(e) Expenses of the Fund. In addition to the liability of the Custodian
under this Article V, the Custodian shall be liable to the Fund for all
reasonable costs and expenses incurred by the Fund in connection with any claim
by the Fund against the Custodian arising from the obligations of the Custodian
hereunder including, without limitation, all reasonable attorneys' fees and
expenses incurred by the Fund in asserting any such claim, and all expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim; provided however, that the Fund has
recovered from the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no liability in
respect of any loss, damage or expense suffered by the Fund, insofar as such
loss, damage or expense arises from the performance of the Custodian in reliance
upon records that were maintained for the Fund by entities other than the
Custodian prior to the Custodian's employment hereunder which the Custodian has
no reason to believe are inaccurate or incomplete after reasonable inquiry.
Section 5.02. Liability of the Custodian for Actions of Other Persons.
(a) Domestic Subcustodian and Foreign Sub-Subcustodian. The Custodian
shall be liable for the actions or omissions of any Domestic Subcustodian or
Foreign Sub-Subcustodian (excluding any Securities Depository or Clearing Agency
appointed by them) to the same extent as if such actions or omissions were
performed by the Custodian itself. In the event of any loss, damage or expense
suffered or incurred by the Fund caused by or resulting from the actions or
omissions of any Domestic Subcustodian or Foreign Sub-Subcustodian for which the
Custodian would otherwise be liable, the Custodian shall promptly reimburse the
Fund in the amount of any such loss, damage or expense.
(b) Special Subcustodians, Interim Sub-Subcustodians, Security Systems,
Securities Depositories and Clearing Agencies. The Custodian shall not be
liable to the Fund for any loss, damage or expense suffered or incurred by the
Fund resulting from the actions or omissions of a Special Subcustodian, Interim
Sub-Subcustodian, Securities System, Securities Depository or Clearing Agency
unless such loss, damage or expense is caused by, or results from, the
negligence, misfeasance or misconduct of the Custodian; provided, however, in
the event of any such loss, damage or expense, the Custodian shall take all
reasonable steps to enforce such rights as it may have against such Special
Subcustodian, Interim Sub-Subcustodian, Security System, Securities Depository
or Clearing Agency to protect the interest of the Fund.
(c) Reimbursement of Expenses. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under Section 5.01(c) as it
relates to Interim Sub-Subcustodians and Special Subcustodians and 5.02(b);
provided however, that such reimbursement shall not apply to expenses occasioned
by or resulting from the negligence, misfeasance or misconduct of the Custodian.
Section 5.03. Indemnification by Fund.
(a) Indemnification Obligations of Fund. Subject to the limitations set
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Custodian or its nominee
caused by or arising from actions taken by the Custodian, its employees or
agents in the performance of its duties and obligations under this Agreement;
provided, however, that such indemnity shall not apply to loss, damage and
expense occasioned by or resulting from the negligence, misfeasance or
misconduct of the Custodian or its nominee. In addition, the Fund agrees to
indemnify any Person against liability incurred by reason of taxes assessed to
such Person resulting from the fact that securities and other property of the
Fund are registered in the name of such Person in accordance with the provisions
of this Agreement; provided, however, that in no event shall such
indemnification be applicable to income, franchise or similar taxes which may be
imposed or assessed against any Person. It is also understood that the Fund
agrees to indemnify and hold harmless the Custodian and its nominee for any loss
arising from a foreign currency transaction or contract, where the loss results
from a Sovereign Risk (as hereinafter defined) or where any Person maintaining
securities, currencies, deposits or other Assets of the Fund in connection with
any such transactions has exercised reasonable care maintaining such property or
in connection with any such transaction involving such Assets. A "Sovereign
Risk" shall mean nationalization, expropriation, devaluation, revaluation,
confiscation, seizure, cancellation, destruction or similar action by any
governmental authority, de facto or de jure; or enactment, promulgation,
imposition or enforcement by any such governmental authority of currency
restrictions, exchange controls, taxes, levies or other charges affecting the
Fund's property; or acts of war, terrorism, insurrection or revolution.
(b) Notice of Litigation. Right to Prosecute, Etc. The Fund shall not
be liable for indemnification under this Section 5.03 unless a Person shall have
promptly notified the Fund in writing of the commencement of any litigation or
proceeding brought against the Custodian or other Person in respect of which
indemnity may be sought under this Section 5.03. With respect to claims in such
litigation or proceedings for which indemnity by the Fund may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Fund shall be entitled to participate in any such litigation or proceeding
with counsel of its choice at its own expense in respect of that portion of the
litigation for which the Fund may be subject to an indemnification obligation;
provided, however, a Person shall be entitled to participate in (but not
control) at its own cost and expense, the defense of any such litigation or
proceeding if the Fund has not acknowledged in writing it obligation to
indemnify the Person with respect to such litigation or proceeding. If the Fund
is not permitted to participate or control such litigation or proceeding under
applicable law or by a ruling of a court of competent jurisdiction, or if the
Fund chooses not to so participate, the Custodian or other Person shall not
consent to the entry of any judgment or enter into any settlement in any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment, and without the Fund's prior written consent which
consent shall not be unreasonably withheld or delayed. All Persons shall submit
written evidence to the Fund with respect to any cost or expense for which they
are seeking indemnification in such form and detail as the Fund may reasonably
request.
Section 5.04. Investment Limitations. If the Custodian has otherwise
complied with the terms and conditions of this Agreement in performing its duty
generally, and more particularly in connection with the purchase, sale or
exchange of securities made by or for the Fund, the Custodian shall not be
liable to the Fund and the Fund agrees to indemnify the Custodian and its
nominees, for any loss, damage or expense suffered or incurred by the Custodian
and its nominees arising out of any violation of any investment or other
limitation to which the Fund is subject except for violations of which the
Custodian has actual knowledge. For purposes of this Section 5.04 the term
"actual knowledge" shall mean knowledge gained by the Custodian by means other
than from any prospectus published by the Fund or contained in any filing by the
Fund with the SEC.
Section 5.05. Fund's Right to Proceed. Notwithstanding anything to the
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Fund by such Subcustodian, Securities System or other Person, which
the Custodian may have as a consequence of any such loss, damage or expense, if
and to the extent that the Fund has not been made whole for any such loss,
expense or damage. If the Custodian makes the Fund whole for any such loss,
expense or damage, the Custodian shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Fund's election to enforce any rights of the Custodian under this Section 5.05,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the loss, damage or
expense incurred by the Fund; provided that, so long as the Fund has
acknowledged in writing its obligation to indemnify the Custodian under Section
5.03 hereof with respect to such claim, the Fund shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Fund without the Custodian's consent and
provided further, that if the Fund has not made an acknowledgement of its
obligation to indemnify, the Fund shall not settle, compromise or terminate any
such action or proceeding without the written consent of the Custodian, which
consent shall not be unreasonably withheld or delayed. The Custodian agrees to
cooperate with the Fund and take all actions reasonably requested by the Fund in
connection with the Fund's enforcement of any rights of the Custodian. Nothing
contained in this Section 5.05 shall be construed as an obligation of the Fund
to enforce the Custodian's rights. The Fund agrees to reimburse the Custodian
for out-of-pocket expenses incurred by it in connection with the fulfillment of
its obligations under this Section 5.05; provided, however, that such
reimbursement shall not apply to expenses occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian.
Section 5.06. Indemnification by Custodian.
(a) Indemnification Obligations of Custodian. Subject to the limitations
set forth in this Agreement and in addition to the reimbursement obligations
provided in Section 5.02(a), the Custodian agrees to indemnify and hold harmless
the Fund and its nominees from all loss, damage and expense (including
reasonable attorneys' fees) suffered or incurred by the Fund or its nominee
caused by or arising from the failure of the Custodian, its nominee, employees
or agents to comply with the terms or conditions of this Agreement or arising
out of the negligence, misfeasance or misconduct of the Custodian or its
nominee.
(b) Notice of Litigation, Right to Prosecute, Etc. The Custodian shall
not be liable for indemnification under this Section 5.06 unless the Fund shall
have promptly notified the Custodian in writing of the commencement of any
litigation or proceeding brought against the Fund in respect of which indemnity
may be sought under this Section 5.06. With respect to claims in such
litigation or proceedings for which indemnity by the Custodian may be sought and
subject to applicable law and the ruling of any court of competent jurisdiction,
the Custodian shall be entitled to participate in any such litigation or
proceeding with counsel of its choice at its own expense in respect of that
portion of the litigation for which the Custodian may be subject to an
indemnification obligation; provided, however, the Fund shall be entitled to
participate in (but not control) at its own cost and expense, the defense of any
such litigation or proceeding if the Custodian has not acknowledged in writing
its obligation to indemnify the Fund with respect to such litigation or
proceeding. If the Custodian is not permitted to participate or control such
litigation or proceeding under applicable law or by a ruling of a court of
competent jurisdiction, or if the Custodian chooses not to so participate, the
Fund shall not consent to the entry of any judgement or enter into any
settlement in any such litigation or proceeding without providing the Custodian
with adequate notice of any such settlement or judgement, and without the
Custodian's prior written consent which consent shall not be unreasonably
withheld or delayed. The Fund shall submit written evidence to the Custodian
with respect to any cost or expense for which it is seeking indemnification in
such form and detail as the Custodian may reasonably request.
Section 5.07. Custodian's Right to Proceed. Notwithstanding anything
to the contrary contained herein, the Custodian shall have, at its election upon
reasonable notice to the Fund, the right to enforce, to the extent permitted by
any applicable agreement and applicable law, the Fund's rights against any
Subcustodian, Securities System or other Person for loss, damage or expense
caused the Custodian by such Subcustodian, Securities System or other Person,
which the Fund may have as a consequence of any such loss, damage or expense, if
and to the extent that the Custodian has not been made whole for any such loss,
expense or damage. If the Fund makes the Custodian whole for any such loss,
expense or damage, the Fund shall retain the ability to enforce its rights
directly against such Subcustodian, Securities System or other Person. Upon the
Custodian's election to enforce any rights of the Fund under this Section 5.07,
the Custodian shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Fund in respect of the loss, damage and expense
incurred by the Custodian; provided that, so long as the Custodian has
acknowledged in writing its obligation to indemnify the Fund under Section 5.06
hereof with respect to such claim, the Custodian shall retain the right to
settle, compromise and/or terminate any action or proceeding in respect of the
loss, damage or expense incurred by the Custodian without the Fund's consent and
provided further, that if the Custodian has not made an acknowledgement of its
obligation to indemnify, the Custodian shall not settle, compromise or terminate
any such action or proceeding without the written consent of the Fund, which
consent shall not be unreasonably withheld or delayed. The Fund agrees to
cooperate with the Custodian and take all actions reasonably requested by the
Custodian in connection with the Custodian's enforcement of any rights of the
Fund. Nothing contained in this Section 5.07 shall be construed as an
obligation of the Custodian to enforce the Fund's rights. The Custodian agrees
to reimburse the Fund for out-of-pocket expenses incurred by it in connection
with the fulfillment of its obligations under this Section 5.07; provided,
however, that such reimbursement shall not apply to expenses occasioned by or
resulting from the negligence, misfeasance or misconduct of the Fund.
ARTICLE VI
COMPENSATION
For the initial three year period beginning on the effective date of this
Agreement, the Fund shall compensate the Custodian in the amount and at the
times specified in Appendix "B" attached hereto. Thereafter, the Fund shall
compensate the Custodian in the amount, and at times, as may be agreed upon in
writing, from time to time, by the Custodian and the Fund.
ARTICLE VII
TERMINATION
This Agreement shall continue in full force and effect until the first to
occur of: (a) termination by the Custodian by an instrument in writing
delivered or mailed (certified mail, return receipt requested) to the Fund, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or receipt; (b) termination by the Fund by an instrument in
writing delivered or mailed (certified mail, return receipt requested) to the
Custodian, such termination to take effect not sooner than ninety (90) days
after the date of such delivery or receipt; or (c) termination by the Fund by an
instrument in writing delivered to the Custodian, based upon the Fund's
determination that there is reasonable basis to conclude that the Custodian is
insolvent or that the financial condition of the Custodian is deteriorating in
any material respect, in which case termination shall take effect upon the
Custodian's receipt of such notice or at such later time as the Fund shall
designate. In the event of termination pursuant to this Article VII, the Fund
shall make payment of all accrued fees and unreimbursed expenses within a
reasonable time following termination and delivery of a statement to the Fund
setting forth such fees and expenses. The Fund shall identify in any notice of
termination a successor custodian to which the cash, securities and other Assets
of the Fund shall, upon termination of this Agreement, be delivered. In the
event that securities and other Assets remain in the possession of the Custodian
after the date of termination hereof owing to failure of the Fund to appoint a
successor custodian, the Custodian shall be entitled to compensation for its
services in accordance with the fee schedule most recently in effect, for such
period as the Custodian retains possession of such securities and other Assets,
and the provisions of this Agreement relating to the duties and obligations of
the Custodian and the Fund shall remain in full force and effect for such
period. In the event of the appointment of a successor custodian, the cash,
securities and other Assets owned by the Fund and held by the Custodian, any
Subcustodian or nominee shall be delivered, at the terminating party's expense,
to the successor custodian; and the Custodian agrees to cooperate with the Fund
in the execution of documents and performance of other actions necessary or
desirable in order to substitute the successor custodian for the Custodian under
this Agreement.
ARTICLE VIII
DEFINED TERMS
The following terms are defined in the following sections:
Term Section
Account 2.22(A)
ADRs 2.06
Assets Article I
Authorized Person 3.02
Banking Institution 2.12
Bank Accounts 2.21
Clearing Agency 4.02(a)
Distribution Account 2.16
Domestic Subcustodian 4.01
Foreign Sub-Subcustodian 4.02(a)
Institutional Client 2.03
Interest Bearing Deposit 2.12
Interim Sub-Subcustodian 4.02(b)
OCC 2.09
Overdraft 2.28
Overdraft Notice 2.28
Person 5.01(b)
Procedural Agreement 2.10
Proper Instruction 3.01(a)
SEC 2.22
Securities Depositories 4.02(a)
Securities System 2.22
Shares 2.16
Sovereign Risk 5.03(a)
Special Instruction 3.01(b)
Special Subcustodian 4.03
Subcustodian Article IV
1940 Act Preamble
ARTICLE IX
MISCELLANEOUS
Section 9.01. Execution of Documents, Etc.
(a) Actions by the Fund. Upon request, the Fund shall execute and
deliver to the Custodian such proxies, powers of attorney or other instruments
as may be reasonable and necessary or desirable in connection with the
performance by the Custodian or any Subcustodian of their respective obligations
under this Agreement or any applicable subcustodian agreement, provided that the
exercise by the Custodian or any Subcustodian of any such rights shall in all
events be in compliance with the terms of this Agreement.
(b) Actions by Custodian. Upon receipt of Proper Instructions, the
Custodian shall execute and deliver to the Fund or to such other parties as the
Fund may designate in such Proper Instructions, all such documents, instruments
or agreements as may be reasonable and necessary or desirable in order to
effectuate any of the transactions contemplated hereby and designated therein.
Section 9.02. Representations and Warranties.
(a) Representations and Warranties of the Fund. The Fund hereby
represents and warrants that each of the following shall be true, correct and
complete as of the date of execution of this Agreement and, unless notice to the
contrary is provided by the Fund to the Custodian, at all times during the term
of this Agreement: (i) the Fund is duly organized under the laws of its
jurisdiction of organization and is registered as an open-end management
investment company under the 1940 Act or is a series of portfolio of such
entity; and (ii) the execution, delivery and performance by the Fund of this
Agreement are (w) within its power, (x) have been duly authorized by all
necessary action, and (y) will not (A) contribute to or result in a breach of or
default under or conflict with any existing law, order, regulation or ruling of
any governmental or regulatory agency or authority, or (B) violate any provision
of the Fund's corporate charter or other organizational document, or bylaws, or
any amendment thereof or any provision of its most recent Prospectus or
Statement of Additional Information.
(b) Representations and Warranties of the Custodian. The Custodian
hereby represents and warrants that each of the following shall be true, correct
and complete as of the date of execution of this Agreement and, unless notice to
the contrary is provided by the Custodian to the Fund, at all times during the
term of this Agreement: (i) the Custodian is duly organized under the laws of
its jurisdiction of organization and qualifies to serve as a custodian to open-
end management investment companies under the provisions of the 1940 Act; and
(ii) the execution, delivery and performance by the Custodian of this Agreement
are (w) within its power (x) have been duly authorized by all necessary action,
and (y) will not (A) contribute to or result in a breach of or default under or
conflict with any existing law, order, regulation or ruling of any governmental
or regulatory agency or authority, or (B) violate any provision of the
Custodian's corporate charter, or other organizational document, or bylaws, or
any amendment thereof. The Custodian acknowledges receipt of a copy of the
Fund's most recent Prospectus and Statement of Additional Information.
Section 9.03. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof and accordingly, supersedes as of the effective date of this
Agreement any custodian agreement heretofore in effect between the Fund and the
Custodian.
Section 9.04. Waivers and Amendments. No provisions of this Agreement
may be waived, amended or deleted except by a statement in writing signed by the
party against which enforcement of such waiver, amendment or deletion is sought;
provided, however, the Subcustodian List may be amended from time to time by the
Fund's execution and delivery to the Custodian of an amended Subcustodian List,
in which case such amendment shall take effect immediately upon execution by the
Custodian.
Section 9.05. Interpretation. In connection with the operation of this
Agreement, the Custodian and the Fund may agree in writing from time to time on
such provisions interpretative of or in addition to the provisions of this
Agreement as may in their joint opinion be consistent with the general tenor of
this Agreement. No interpretative or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this Agreement.
Section 9.06. Captions. Headings contained in this Agreement, which
are included as convenient references only, shall have no bearing upon the
interpretation of the terms of the Agreement or the obligations of the parties
hereto.
Section 9.07. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri, in each case
without giving effect to principles of conflicts of law.
Section 9.08. Notices. Except in the case of Proper Instructions or
Special Instructions, and as otherwise provided in this Agreement, notices and
other writings contemplated by this Agreement shall be delivered by hand or by
facsimile transmission or as otherwise agreed to by the Fund and the Custodian
in writing (provided that in the case of delivery by facsimile transmission,
notice shall also be mailed postage prepaid) to the parties at the following
addresses:
(a) If to the Fund:
United Funds, Inc. United Bond Fund
6300 Lamar Avenue
Overland Park, Kansas 66202
Attn: Fund Treasurer
Telephone: 913-236-2000
Telefax: 913-236-1595
(b) If to the Custodian:
United Missouri Bank, n.a.
928 Grand Avenue, 10th Floor
Kansas City, Missouri 64106
Attn: Securities Administration
Telephone: 816-860-7764
Telefax: 816-860-4869
or such other address as either party may have designated in writing to the
other party hereto.
Section 9.09. Assignment. This Agreement shall be binding on and shall
inure to the benefit of the Fund and the Custodian and their respective
successors and assigns, provided that, subject to the provisions of Section 7.01
hereof, neither party hereto may assign this Agreement or any of its rights or
obligations hereunder without the prior written consent of the other party.
Section 9.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original. This
Agreement shall become effective when one or more counterparts have been signed
and delivered by each of the parties.
Section 9.11. Confidentiality; Survival of Obligations. The parties
hereto agree that each shall treat confidentially the terms and conditions of
this Agreement and all information provided by each party to the other regarding
its business and operations. All confidential information provided by a party
hereto shall be used by any other party hereto solely for the purpose of
rendering services pursuant to this Agreement and, except as may be required in
carrying out this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall not be
applicable to any information that is publicly available when provided or
thereafter becomes publicly available other than through a breach of this
Agreement, or that is required to be disclosed by any bank examiner of the
Custodian or any Subcustodians, any auditor or examiner of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 9.11 and Section 9.01, 9.07, Section
2.28, Section 3.04, Section 4.05, Section 7.01, Article V and Article VI hereof
and any other rights or obligations incurred or accrued by any party hereto
prior to termination of this Agreement shall survive any termination of this
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in its name and behalf on the day and year first above written.
UNITED FUNDS, INC. UNITED BOND FUND UNITED MISSOURI BANK, n.a.
By: /s/Rodney O. McWhinney By: /s/David F. Larrabee
Name: Rodney O. McWhinney Name: David F. Larrabee
Title: Vice President Title: Vice President
<PAGE>
APPENDIX "A"
TO CUSTODIAN AGREEMENT
BETWEEN
UNITED FUNDS, INC. UNITED BOND FUND
AND
UMB BANK, n.a.
Dated as of April 25, 1997
This Appendix A relates to the Custodian Agreements between UMB Bank, n.a.
and each of the following funds dated the date specified by the fund's name, as
amended:
Fund Date
United Asset Strategy Fund, Inc. February 22, 1995
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Gold & Government Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
TMK/United Funds, Inc.
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balanced Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Asset Strategy Portfolio May 1, 1995
Science and Technology Portfolio April 4, 1997
Waddell & Reed Funds, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
International Growth Fund April 24, 1992
Growth Fund April 24, 1992
Asset Strategy Fund April 20, 1995
The following is a list of Domestic Subcustodians, Foreign Subcustodian and
Special Subcustodians under the Custodian Agreement as amended:
A. Domestic Custodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Custodians
Country Sub-Custodian Depository
Argentina Citibank, n.a. CDV; CRYL
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, BOVESPA, CLC
Brazil
Canada Canadian Imperial Bank of Commerce CDS; The Bank of Canada
Chile Citibank, n.a. None
China Standard Chartered Bank SSCCRC; SSCC
Czech Republic Ceskoslovenska Obchodni CNB; SCP
Banka A.S.
Denmark Den Danske Bank VP
Finland Merita Securities Association; Finnish
Central
Securities Depository Ltd.
France Banque Indosuez SICOVAM; Banque de France
Germany Deutsche Bank KASSENVEREIN
Hungary Citibank, N.A. KELER Ltd.
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities Clearing
Company
India Citibank, N.A., Mumbai National Securities Depository
Limited
Indonesia Citibank, n.a. None
Ireland Allied Irish Banks PLC Gilt Settlement Office
Israel Bank Hapoalim B.M. TASE Clearinghouse Ltd.
Italy Banca Commerciale Italiana MONTE TITOLI, Banca D'Italia
Japan The Bank of Tokyo, Ltd. JASDEC, Bank of Japan
Korea Citibank, n.a. Korean Securities Depository
Corporation (KSD)
Malaysia Hong Kong Bank Malaysia Berhad MCD; Bank Negara Malaysia
Mexico Citibank Mexico, s.a. INDEVAL; Banco De Mexico
Netherlands ABN - Amro Bank NECIGER; De
Nederlandsche Bank
Norway Christiana Bank VPS
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank, n.a. Phillipines Central
Depository, Inc.
Poland Bank Polska Kasa Opieki S.A. NPB
Portugal Banco Espirito Santo E Comercial Interbolsa
De Lisboa
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Taiwan Standard Chartered Bank, Taipei TSCD
Thailand HongKong & Shanghai Banking Corp. Share Depository Center (SDC)
Turkey Citibank, n.a. TvS, Central Bank of Turkey
United Kingdom Midland Securities PLC CMO; CGO; CrestCo
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
<PAGE>
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED FUNDS, INC. UNITED BOND FUND
AND
UMB BANK, N.A.
Dated as of May 1, 1997
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets
held in the United States including but not limited to American Depositary
Receipts. Foreign assets shall include all assets held outside the United
States including but not limited to securities which clear through Euroclear or
CEDEL. The Custodian will provide as soon as practicable after receiving the
information provided by the Fund with respect to the net asset level numbers, a
bill for the Fund, including such reasonable detail in support of each bill as
may be reasonably requested by the Fund. As used in this Appendix "B", "United
Funds" shall mean all funds in the United Group of Funds, TMK/United Funds, Inc.
and Waddell & Reed Funds, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00005 for the first $5,000,000,000 of the net assets of all the United
Funds, plus
.00004 for any net assets exceeding $5,000,000,000 of the assets of all the
United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(a)For each portfolio transaction* processed through a
Depository (DTC, PTC or Fed) $ 7.00
(b)For each portfolio transaction* processed through
the New York office (physical settlement) $20.00
(c)For each futures/option contract written $25.00
(d)For each principal/interest paydown $ 6.00
(e)For each interfund note transaction $ 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and cash
management balances of each Fund at the Custodian to earn the Custodian's
daily repurchase agreement rate less reserve requirements and FDIC
premiums. Negative earnings credits will be charged on all uncollected
custody and cash management balances of each Fund at the Custodian's prime
rate less 150 basis points on each day a negative balance occurs. Positive
and/or negative earnings credits will be monitored daily for each Fund and
the net positive or negative amount for each Fund will be included in the
monthly statements. Excess positive credits for each Fund will be carried
forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians)
Includes all charges by any Special Subcustodian to the Custodian as
Custodian for any Assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Global Fee Schedule:
Market: Annual Asset Fees Transaction Fees
Argentina .0037 $85
Australia .0009 $85
Austria .0011 $70
Belgium .0011 $60
Brazil .0035 $60
Canada .0008 $35
Chile .0045 $85
China .0045 $75
Czech Republic .0055 $135
Denmark .0011 $60
Finland .0011 $85
France .0011 $85
Germany .0008 $60
Hong Kong .0009 $85
Hungary .0065 $210
India .0055 $135
Indonesia .0009 $85
Ireland .0011 $60
Israel .0035 $160
Italy .0011 $70
Japan .0008 $40
Korea .0035 $60
Malaysia .0009 $85
Mexico .0016 $60
Netherlands .0011 $35
New Zealand .0009 $85
Norway .0011 $85
Peru .0070 $160
Phillippines .0035 $95
Poland .0060 $110
Portugal .0035 $145
Singapore .0009 $85
Spain .0009 $85
Sweden .0011 $70
Switzerland .0009 $85
Taiwan .0035 $85
Thailand .0009 $85
Turkey .0045 $110
U.K. .0011 $60
Note: Fee Schedule eliminates sub-custodian asset and transaction-based out-
of-pocket expenses. Other sub-custodian out-of-pocket expenses (i.e. Scrip
fees, stamp duties, certificate fees, etc.)
B. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.) :
Includes, but is not limited to telex, legal, telephones, postage, and
direct expenses including but not limited to tax reclaim, customized
systems programming, certificate fees, duties, and registration fees.
C. Short-term Dollar Denominated Global Assets
Eurodollar CDs, Time Deposits:
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of short-term dollar denominated assets), at
the annual rate of:
.0004 on all short-term dollar denominated assets of the United Funds.
(2) Portfolio Transaction Fees:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members $153.00
First Chicago Clearing Centre-Income Collection $ 64.00
D. Euroclear Eligible Issues:
(1) An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of Euroclear issues), at the annual rate of:
2.5 basis points on all United Funds Euroclear assets held in account
at UMB Bank, n.a.
(2) Portfolio Transaction Fees:
Euroclear $60.00
EX-99.B9-ufappca
(REVISED)
Waddell & Reed, Inc.
P.O. Box 29217 United Group of Funds Division Office
Stamp
Shawnee Mission, Kansas 66201-9217 APPLICATION
I (We) make application for an account to be established as follows:
________________________________________________________________________________
__________
REGISTRATION TYPE (one only) Trans Code: _________ Date Transmitted:
________________
________________________________________________________________________________
__________
NON RETIREMENT PLAN
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable
(Attach CUF0022)
[ ] Uniform Gifts (Transfers) To Minors [ ] Other: ______________________
(Use this section for
Retirement Plans with
Custodians other than
Fiduciary Trust Co.)
________________________________________________________________________________
__________
RETIREMENT PLAN (Fiduciary Trust Co. -- Cust., except for 457 Plans) See
Retirement Plan and Custody Agreement for annual custodian fees
[ ] Individual IRA
[ ] Spousal IRA [ ] SIMPLE IRA (For a new Plan, attach
MRP1659-AA)
[ ] Rollover (Qual. plan lump [ ] Owner-Only Profit Sharing Plan
sum distr.) (For a new Plan, attach MRP0651-AP)
[ ] Simplified Pension Plan (SEP) [ ] Owner-Only Money Purchase Plan
(For a new Plan, attach (For a new Plan, attach MRP0651-AM)
MRP1166-AA)
[ ] TSA _____________________________________
[ ] 457 Employer's Name (Do Not Abbreviate)
(For a new Plan,
______________________________________________________
attach MRP1401) Street City State
Zip
________________________________________________________________________________
______
REGISTRATION [ ]NEW ACCOUNT or [ ]NEW FUND FOR EXISTING ACCOUNT: [][][][][][][]-
[]
(Must have same ownership) Date of Birth
________________________________________________________________________________
______
Individual Name (exactly as desired) If spousal IRA, name of working spouse
______________________
Month Day Year
________________________________________________________________________________
______
Joint Name (if any, exactly as desired) If spousal IRA, name of non-working
spouse
______________________ ______________
Month Day Year Relationship (For grouping purposes)
________________________________________________________________________________
______
Mailing Address
_______________ ______________ ____________ _____/__________-________________
City State Zip Telephone
CITIZENSHIP __________________________
(Required in VA.)
Social Security #:[][][]-[][]-[][][][] or Taxpayer Identification #:[][]-
[][][][][][][]
________________________________________________________________________________
_______
BENEFICIARY: For Retirement Plan Accounts Only
Full Name of Beneficiary Tax Identification Number Date of Birth
________________________ _________________________ _____________
________________________ _________________________ _____________
________________________ _________________________ _____________
Relationship Percent
____________ _______%
____________ _______%
____________ _______%
________________________________________________________________________________
_______
INVESTMENTS: Make check payable to Waddell & Reed
Code Code
621 - Income 626 - Gold & Government
622 - Science and Technology 627 - Continental Income
623 - Accumulative 628 - High Income
624 - Bond 629 - Vanguard
625 - International Growth 630 - New Concepts
Code Code
634 - High Income II 760 - Municipal Bond (not available
680 - Retirement Shares for Ret. Plans)
684 - Asset Strategy 762 - Municipal High Income (not
750 - Cash Management available for Reg. Plan)
________________________________________________________________________________
_______
IF RETIREMENT PLAN
FUND Amount Trade Yr. Deductible or
(enter code) Enclosed Number of Contr. Non-Deductible
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
[][][] $__________ _________ 19_____ __________
Total $__________
Monthly DIV/C.G. Distr** Certificate
TOP From AIS* (Assumes RR) Desired
Another Carrier (if any) RR CC CR (Specify)
[] $______________ [] [] [] _________
[] $______________ [] [] [] _________
[] $______________ [] [] [] _________
[] $______________ [] [] [] _________
[] $______________ [] [] [] _________
$______________
________________________________________________________________________________
*Attach AIS Authorization Form #CUF0714 **RR=Reinvest Div/Cap Gain CC=Cash/Div
/Cap Gain CR=Cash Div/Reinvest Cap Gain
________________________________________________________________________________
___________
This purchase is entitled to a reduced sales load charge for the following
reason:
[ ] Statement of Intention to Invest $______ [ ] 600 Products [ ] 700
Products
[] New SOI (Attach CUF0671) [] Existing SOI
[ ] Rights of Accumulation With Accounts ______, ______, ______, or Group
________
[ ] Identify Other Accounts Established At This Time:
_____________________________________
________________________________________________________________________________
___________
CHECK SERVICE Send information to establish redemption checking account for:
[ ] United Government Securities [ ] United Cash Management
________________________________________________________________________________
___________
EXPEDITED REDEMPTION: For United Cash Management (UCM) Only.
______________________________________________
___________________________________________
Name and Address of Bank/Financial Institution ABA/Routing # of Bank/Financial
Institution
_________________________________________________________
_______________________________
Street Customer's Account
Number
_________________________________________________________
City State Zip
On UCM Accounts where expedited redemption is requested, Waddell & Reed, Inc. is
authorized to honor any requests from anyone for redemption of fund shares so
long as the proceeds are transmitted to the identified account. All wires must
be transmitted exactly as registered on the UCM Account.
________________________________________________________________________________
__
CONFIDENTIAL DATA (Required for New Accounts/New Products) 1. Marital Status:
____ (Required in VA.) 2. Gross Family Income: $____ 3. Taxable Income $_____ 4.
Number of Dependents ____ 5. Occupation:_________________________ 6. Employer
Name: ________________________ 7. Employer Address:
________________________________________
8. Savings and Liquid Assets: $_____ 9. Other Assets (excluding home,
furnishings, cars): $_____ 10. Net Worth (Assets minus liabilities): $___ 11.
Are you associated with an NASD Member? Yes ___ No ___ 12. Investment Objectives
(mark all that apply):
[ ] Retirement Savings [ ] Children's College [ ]
Reserves
[ ] Income [ ] Other needs/goals (specify in Special
Remarks)
13. Special Remarks/Considerations:
_______________________________________________
________________________________________________________________________________
___
14. Residence Address:
____________________________________________________________
(if different from Street City State
Zip
Mailing Address on
Reverse Side)
15. Was this investment solicited by a W&R Representative? Yes/No
16. Has any beneficial owner of this account conducted any prior investment
activity? Yes/No
If yes, which owner(s) _____________________________________________________
17. Are proceeds from the sale of another security being used to open this
account? Yes/No
If yes, specify:
___________________________________________________________________
(Questions 15, 16 and 17 are required in CT.)
________________________________________________________________________________
____________
ACKNOWLEDGMENT
* I (we) have received a copy of the current prospectus of the Funds
selected.
* If purchasing an IRA, I (we) certify that I (we) have read the Retirement
Plan
and Custody Agreement and agree to the terms and conditions set forth
therein,
and do hereby establish the Individual Retirement Plan.
* Under penalties of perjury, I certify that the social security number or
other
taxpayer identification number shown on reverse side is correct (or I am
waiting for
a number to be issued to me) and (strike the following if not true) that I
am not
subject to tax withholding because (a) I am exempt from backup
withholding, or (b) I
have not been notified by the IRS that I am subject to backup withholding
as a
result of a failure to report all interest and dividends, or (c) the IRS
has
notified me that I am no longer subject to backup withholding.
Signature(s) of Purchaser (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
"The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup
withholding."
_________________________ _________________________ _________________________
(Signature) (Printed Name) (Title, if any)
_________________________ _________________________ _________________________
(Signature) (Printed Name) (Title, if any)
_________________________ ____________________________
Representative Signature Date
[] [] [] [] []
Representative Number
If a Retirement Plan, Fiduciary Trust Company of New Hampshire accepts
appointment as Custodian in accordance with the Custody Agreement, as evidence
by the authorized signature/initials in the adjacent OSJ box. [OSJ: (H.O.USE)
]
Check Any Items Enclosed With Application
[] Declaration Trust Revocable (CUF0022)
[] Statement of Intention (CUF0671)
[] AIS Authorization (CUF0714)
[] Funds Plus (CUF1444)
[] Additional Applications ____________________________________
[] Check enclosed $___________________________
[] Signature Card (UCM/UGS only)
[] Other _____________________________________
CAP0001(1/97)
EX-99.B11-ufconsnt
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Post-Effective Amendment No. 120 to Registration
Statement No. 2-21867 of our report dated February 7, 1997 appearing in the
atement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectuses, which are also a part of such Registration
Statement.
Deloitte & Touche LLP
Kansas City, Missouri
May 29, 1997
EX-99.B11-ufpwcon
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 120 to the Registration
Statement on Form N-1A (the "Registration Statement") of our report dated
February 8, 1996, relating to the statement of changes in net assets for the
year ended December 31, 1995 and the financial highlights for each of the nine
years in the period ended December 31, 1995 of United Funds, Inc., which appears
in such Statement of Additional Information, and to the incorporation by
reference of our report into the Class A Shares Prospectus and the Class Y
Shares Prospectus which constitutes part of this Registration Statement.
Price Waterhouse LLP
Kansas City, Missouri
May 29, 1997
EX-99.B11-ufpwopin
Report of Independent Accountants
To the Board of Directors and Shareholders of
United Funds, Inc.
In our opinion, the accompanying statement of changes in net assets and the
financial highlights present fairly, in all material respects, the changes in
the net assets and financial highlights of each of the four mutual funds (United
Bond Fund, United Income Fund, United Accumulative Fund and United Science and
Technology Fund) comprising United Funds, Inc. (the "Corporation") for the year
ended December 31, 1995 and for each of the nine years in the period ended
December 31, 1995, respectively, in conformity with generally accepted
accounting principles. This statement of changes in net assets and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Corporation'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 December 31, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above. We have not audited the
financial statements of the United Funds, Inc. for the twelve month period ended
December 31, 1996.
Price Waterhouse LLP
Kansas City, Missouri
February 8, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000217420
<NAME> UNITED FUNDS, INC.
<SERIES>
<NUMBER> 04
<NAME> UNITED BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 515,545,029
<INVESTMENTS-AT-VALUE> 525,669,229
<RECEIVABLES> 8,191,114
<ASSETS-OTHER> 15,993
<OTHER-ITEMS-ASSETS> 2,169
<TOTAL-ASSETS> 533,878,505
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,226,094
<TOTAL-LIABILITIES> 3,226,094
<SENIOR-EQUITY> 83,368,101
<PAID-IN-CAPITAL-COMMON> 459,573,882
<SHARES-COMMON-STOCK> 86,368,101
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 802,660
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (26,216,432)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 10,124,200
<NET-ASSETS> 530,652,411
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 38,151,761
<OTHER-INCOME> 0
<EXPENSES-NET> (4,124,730)
<NET-INVESTMENT-INCOME> 34,027,031
<REALIZED-GAINS-CURRENT> 1,490,998
<APPREC-INCREASE-CURRENT> (19,287,816)
<NET-CHANGE-FROM-OPS> 16,230,213
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (34,062,007)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,247,468
<NUMBER-OF-SHARES-REDEEMED> (15,897,636)
<SHARES-REINVESTED> 4,704,129
<NET-CHANGE-IN-ASSETS> (35,824,634)
<ACCUMULATED-NII-PRIOR> 575,962
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,344,627
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,124,730
<AVERAGE-NET-ASSETS> 536,895,373
<PER-SHARE-NAV-BEGIN> 6.34
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> (.20)
<PER-SHARE-DIVIDEND> (.39)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.14
<EXPENSE-RATIO> .77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000217420
<NAME> UNITED FUNDS, INC.
<SERIES>
<NUMBER> 01
<NAME> UNITED INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2,955,148,013
<INVESTMENTS-AT-VALUE> 5,051,152,404
<RECEIVABLES> 14,669,503
<ASSETS-OTHER> 57,237
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,065,879,144
<PAYABLE-FOR-SECURITIES> 38,622,803
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,493,028
<TOTAL-LIABILITIES> 64,115,831
<SENIOR-EQUITY> 152,004,636
<PAID-IN-CAPITAL-COMMON> 2,678,442,344
<SHARES-COMMON-STOCK> 152,004,636
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,937,972
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 72,382,654
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,095,995,707
<NET-ASSETS> 5,001,763,313
<DIVIDEND-INCOME> 66,534,296
<INTEREST-INCOME> 19,406,967
<OTHER-INCOME> 0
<EXPENSES-NET> (38,841,783)
<NET-INVESTMENT-INCOME> 47,099,480
<REALIZED-GAINS-CURRENT> 276,135,291
<APPREC-INCREASE-CURRENT> 518,056,427
<NET-CHANGE-FROM-OPS> 841,291,198
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (46,118,752)
<DISTRIBUTIONS-OF-GAINS> (230,246,880)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,432,054
<NUMBER-OF-SHARES-REDEEMED> (14,393,665)
<SHARES-REINVESTED> (7,977,524)
<NET-CHANGE-IN-ASSETS> 918,342,846
<ACCUMULATED-NII-PRIOR> 2,184,484
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 25,277,033
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38,841,783
<AVERAGE-NET-ASSETS> 4,540,330,040
<PER-SHARE-NAV-BEGIN> 28.96
<PER-SHARE-NII> .33
<PER-SHARE-GAIN-APPREC> 5.53
<PER-SHARE-DIVIDEND> (0.32)
<PER-SHARE-DISTRIBUTIONS> (1.59)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 32.91
<EXPENSE-RATIO> 0.86
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000217420
<NAME> UNITED FUNDS, INC.
<SERIES>
<NUMBER> 02
<NAME> UNITED ACCUMULATIVE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1,224,750,914
<INVESTMENTS-AT-VALUE> 1,297,247,268
<RECEIVABLES> 1,831,987
<ASSETS-OTHER> 34,184
<OTHER-ITEMS-ASSETS> 31,233
<TOTAL-ASSETS> 1,299,144,672
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,277,880
<TOTAL-LIABILITIES> 11,277,880
<SENIOR-EQUITY> 166,148,578
<PAID-IN-CAPITAL-COMMON> 994,196,461
<SHARES-COMMON-STOCK> 166,148,578
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,310,231
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 53,715,148
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 72,496,374
<NET-ASSETS> 1,287,866,792
<DIVIDEND-INCOME> 19,372,299
<INTEREST-INCOME> 7,360,999
<OTHER-INCOME> 0
<EXPENSES-NET> (10,185,317)
<NET-INVESTMENT-INCOME> 16,547,981
<REALIZED-GAINS-CURRENT> 155,527,364
<APPREC-INCREASE-CURRENT> (28,379,142)
<NET-CHANGE-FROM-OPS> 143,741,203
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,566,085)
<DISTRIBUTIONS-OF-GAINS> (127,159,975)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,389,228
<NUMBER-OF-SHARES-REDEEMED> (14,942,476)
<SHARES-REINVESTED> 17,543,090
<NET-CHANGE-IN-ASSETS> 81,084,028
<ACCUMULATED-NII-PRIOR> 1,322,673
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,879,322
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,185,317
<AVERAGE-NET-ASSETS> 1,234,829,470
<PER-SHARE-NAV-BEGIN> 7.78
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> .82
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (.85)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.75
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000217420
<NAME> UNITED FUNDS, INC.
<SERIES>
<NUMBER> 03
<NAME> UNITED SCIENCE AND TECHNOLOGY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 573,361,644
<INVESTMENTS-AT-VALUE> 993,861,476
<RECEIVABLES> 7,718,350
<ASSETS-OTHER> 12,737
<OTHER-ITEMS-ASSETS> 7,418
<TOTAL-ASSETS> 1,001,599,981
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,962,634
<TOTAL-LIABILITIES> 17,962,634
<SENIOR-EQUITY> 42,131,690
<PAID-IN-CAPITAL-COMMON> 500,595,912
<SHARES-COMMON-STOCK> 42,131,690
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,411,017
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 420,498,728
<NET-ASSETS> 983,637,347
<DIVIDEND-INCOME> 1,673,423
<INTEREST-INCOME> 4,409,509
<OTHER-INCOME> 0
<EXPENSES-NET> (9,127,857)
<NET-INVESTMENT-INCOME> (3,044,925)
<REALIZED-GAINS-CURRENT> 71,735,912
<APPREC-INCREASE-CURRENT> 2,339,175
<NET-CHANGE-FROM-OPS> 71,030,162
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (57,854,665)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 27,567,427
<NUMBER-OF-SHARES-REDEEMED> (23,639,129)
<SHARES-REINVESTED> 2,342,036
<NET-CHANGE-IN-ASSETS> 162,8554,764
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,667,206
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,127,857
<AVERAGE-NET-ASSETS> 933,944,337
<PER-SHARE-NAV-BEGIN> 22.89
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> 2.00
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.47)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.35
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
