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. 121
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 28
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)
__X__ on March 31, 1998 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) 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, 1997 was filed on or about March 27,
1998.
<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 March 31, 1998. 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
March 31, 1998
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........................................3
EXPENSES........................................................5
FINANCIAL HIGHLIGHTS............................................6
PERFORMANCE....................................................15
Explanation of Terms .........................................15
ABOUT WADDELL & REED...........................................15
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS...................16
Investment Goals and Principles ..............................16
Risk Considerations ........................................17
Securities and Investment Practices ..........................19
ABOUT YOUR ACCOUNT.............................................34
Ways to Set Up Your Account ..................................34
Buying Shares ................................................35
Minimum Investments ..........................................38
Adding to Your Account .......................................38
Selling Shares ...............................................38
Shareholder Services .........................................41
Personal Service ...........................................41
Reports ....................................................41
Exchanges ..................................................41
Automatic Transactions .....................................41
Distributions and Taxes ......................................42
Distributions ..............................................42
Taxes ......................................................43
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS.................46
WRIMCO and Its Affiliates ....................................47
Breakdown of Expenses ........................................49
Management Fee .............................................49
Other Expenses .............................................50
APPENDIX A.....................................................52
DESCRIPTION OF BOND RATINGS ..................................52
DESCRIPTION OF PREFERRED STOCK RATINGS .......................55
<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 appreciation 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 0.43% 0.55% 0.55% 0.60%
12b-1 fees1 0.14% 0.15% 0.14% 0.16%
Other expenses 0.20% 0.14% 0.13% 0.26%
Total Fund
operating
expenses 0.77% 0.84% 0.82% 1.02%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return2 and (2) redemption at the end of each time period:
1 Year $ 65 $ 66 $ 65 $ 67
3 Years $ 81 $ 83 $ 82 $ 88
5 Years $ 98 $101 $100 $111
10 Years $147 $155 $153 $175
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."
1It 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."
2Use 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, 1997, 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,
-----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $6.14 $6.34 $5.62 $6.39 $6.31 $6.32 $5.80 $6.07 $6.03 $6.11
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment
income ......... 0.39 0.39 0.40 0.39 0.41 0.45 0.47 0.50 0.55 0.54
Net realized and
unrealized gain
(loss) on
investments .... 0.19 (0.20) 0.72 (0.75) 0.41 0.00 0.56 (0.26) 0.07 (0.02)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.58 0.19 1.12 (0.36) 0.82 0.45 1.03 0.24 0.62 0.52
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income ......... (0.40) (0.39) (0.40) (0.39) (0.41) (0.46) (0.47) (0.50) (0.56) (0.54)
From capital gains (0.00) (0.00) (0.00) (0.02) (0.33) (0.00) (0.04) (0.01) (0.02) (0.06)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.40) (0.39) (0.40) (0.41) (0.74) (0.46) (0.51) (0.51) (0.58) (0.60)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $6.32 $6.14 $6.34 $5.62 $6.39 $6.31 $6.32 $5.80 $6.07 $6.03
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ..... 9.77% 3.20% 20.50% -5.76% 13.19% 7.50% 18.78% 4.24% 10.61% 8.99%
Net assets, end of
period (000
omitted) ......... $523,574 $518,873 $563,445 $517,836 $641,668 $589,946 $524,404 $439,487 $403,010 $335,337
Ratio of expenses to
average net assets 0.77% 0.77% 0.74% 0.72% 0.65% 0.64% 0.65% 0.67% 0.64% 0.65%
Ratio of net investment
income to average
net assets ....... 6.34% 6.34% 6.54% 6.60% 6.14% 7.29% 7.96% 8.54% 8.97% 9.00%
Portfolio turnover
rate ............. 35.08% 55.74% 66.38% 127.11% 175.39% 115.17% 318.76% 294.66% 353.57% 179.07%
*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, 1997, 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,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $32.91 $28.96 $23.34 $24.77 $22.05 $20.44 $16.46 $18.69 $16.76 $15.08
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.28 0.33 0.36 0.36 0.40 0.46 0.51 0.61 0.65 0.60
Net realized and
unrealized gain
(loss) on
investments .... 8.64 5.53 6.53 (0.80) 3.11 1.96 4.29 (1.61) 3.89 2.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations ....... 8.92 5.86 6.89 (0.44) 3.51 2.42 4.80 (1.00) 4.54 2.95
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
From net investment
income ......... (0.29) (0.32) (0.35) (0.36) (0.40) (0.46) (0.53) (0.63) (0.65) (0.67)
From capital gains (3.59) (1.59) (0.92) (0.63) (0.39) (0.35) (0.29) (0.60) (1.96) (0.60)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (3.88) (1.91) (1.27) (0.99) (0.79) (0.81) (0.82) (1.23) (2.61) (1.27)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period .... $37.95 $32.91 $28.96 $23.34 $24.77 $22.05 $20.44 $16.46 $18.69 $16.76
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return** ..... 27.34% 20.36% 29.60% -1.82% 16.05% 11.96% 29.64% -5.45% 27.49% 19.83%
Net assets, end of
period (000
omitted) .........$6,195,522$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
Ratio of expenses to
average net assets 0.84% 0.86% 0.83% 0.74% 0.66% 0.65% 0.66% 0.68% 0.64% 0.67%
Ratio of net investment
income to average
net assets ....... 0.74% 1.03% 1.31% 1.45% 1.70% 2.19% 2.71% 3.44% 3.41% 3.65%
Portfolio turnover
rate ............. 33.59% 22.24% 17.59% 18.54% 21.70% 19.25% 24.68% 30.94% 60.77% 48.64%
Average commission
rate paid ........ $0.0534 $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, 1997, 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,
-----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $7.75 $7.78 $6.58 $7.19 $7.50 $7.15 $6.03 $7.12 $6.43 $5.75
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income 0.10 0.11 0.11 0.13 0.11 0.16 0.19 0.28 0.31 0.26
Net realized and
unrealized gain
(loss) on
investments .... 2.14 0.82 2.12 (0.13) 0.55 0.85 1.22 (0.99) 1.43 0.71
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ....... 2.24 0.93 2.23 0.00 0.66 1.01 1.41 (0.71) 1.74 0.97
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income ......... (0.09) (0.11) (0.11) (0.13) (0.11) (0.16) (0.20) (0.29) (0.29) (0.29)
From capital gains (2.13) (0.85) (0.92) (0.48) (0.84) (0.50) (0.09) (0.09) (0.76) (0.00)
In excess of capital
gains .......... (0.00) (0.00) (0.00) (0.00) (0.02) (0.00) (0.00) (0.00) (0.00) (0.00)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (2.22) (0.96) (1.03) (0.61) (0.97) (0.66) (0.29) (0.38) (1.05) (0.29)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $7.77 $7.75 $7.78 $6.58 $7.19 $7.50 $7.15 $6.03 $7.12 $6.43
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** ..... 29.58% 12.18% 34.21% 0.04% 9.06% 14.20% 23.68% -10.17% 27.56% 17.05%
Net assets, end of
period (000
omitted) .........$1,595,457$1,285,227$1,206,128 $967,020$1,033,774 $992,924 $904,635 $767,218 $877,109 $737,231
Ratio of expenses to
average net assets 0.82% 0.83% 0.80% 0.71% 0.65% 0.62% 0.63% 0.64% 0.60% 0.63%
Ratio of net investment
income to average
net assets ....... 1.16% 1.34% 1.42% 1.76% 1.34% 2.13% 2.79% 4.12% 4.19% 4.09%
Portfolio turnover
rate ............. 313.99% 240.37% 229.03% 205.40% 230.29% 194.41% 241.11% 288.64% 338.24% 245.42%
Average commission
rate paid ........ $0.0565 $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, 1997, 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,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ........... $23.35 $22.89 $15.21 $14.83 $14.64 $15.42 $10.27 $11.72 $9.91 $9.28
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Income from investment operations:
Net investment
income (loss) .. (0.03) (0.07) (0.01) 0.00 0.01 0.03 0.10 0.24 0.20 0.20
Net realized and
unrealized gain
(loss) on
investments .... 1.39 2.00 8.40 1.40 1.21 (0.66) 5.90 (0.65) 2.50 0.64
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations ....... 1.36 1.93 8.39 1.40 1.22 (0.63) 6.00 (0.41) 2.70 0.84
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Less distributions:
From net investment
income ......... (0.00) (0.00) (0.00) (0.00) (0.01) (0.03) (0.10) (0.25) (0.19) (0.21)
From capital gains (4.58) (1.47) (0.71) (1.02) (0.95) (0.12) (0.75) (0.79) (0.70) (0.00)
In excess of capital
gains .......... (0.00) (0.00) (0.00) (0.00) (0.07) (0.00) (0.00) (0.00) (0.00) (0.00)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distributions (4.58) (1.47) (0.71) (1.02) (1.03) (0.15) (0.85) (1.04) (0.89) (0.21)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net asset value,
end of period .... $20.13 $23.35 $22.89 $15.21 $14.83 $14.64 $15.42 $10.27 $11.72 $9.91
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Total return** ..... 7.22% 8.35% 55.37% 9.78% 8.51% -4.03% 59.25% -3.51% 27.40% 9.05%
Net assets, end of
period (000
omitted) ......... $1,062,467 $980,547 $820,783 $496,503 $446,611 $428,806 $405,380 $239,077 $247,584 $214,693
Ratio of expenses to
average net assets 1.02% 0.98% 0.93% 0.96% 0.91% 0.87% 0.85% 0.90% 0.84% 0.89%
Ratio of net investment
income (loss) to average
net assets ....... -0.18% -0.33% -0.07% 0.00% 0.06% 0.24% 0.75% 2.06% 1.73% 1.94%
Portfolio turnover
rate ............. 87.68% 33.90% 32.89% 64.39% 68.38% 45.79% 59.24% 63.86% 83.19% 60.67%
Average commission
rate paid ........ $0.0586 $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 the annual and semiannual reports, which are sent to all Fund
shareholders.
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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 appreciation 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 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
securities 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 securities 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
securities 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 securities. 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, 1997,
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 33.5%
AA 10.3
A 23.6
BBB 17.3
BB 12.6
B 0.6
CCC 0.0
CC 0.0
C 0.0
D 0.0
Unrated (Equivalent to)
- -------
AAA 0.8%
AA 0.0
A 0.1
BBB 0.0
BB 0.1
B 0.0
CCC 0.0
CC 0.0
C 0.0
D 0.0
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, 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 offsetting put or call. If a Fund is not able to enter into an
offsetting 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 Currency 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 currency
contract in order to set the exchange rate at which the transaction will be
made. A Fund also may enter into a forward currency 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
currency 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 currency 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 currency 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. A 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
and are, therefore, subject to the limitations on investment in illiquid
investments 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 Ginnie
Mae, 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 securing the debt 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.
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: 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 warrants, rights and 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.
<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 (other
than Roth IRAs and Education IRAs) 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. 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.
_ Roth IRAs enable an individual whose adjusted gross income (or combined
adjusted gross income, if married) does not exceed certain levels to make
non-deductible contributions up to $2,000 per year. Withdrawals of earnings
from a Roth IRA generally are not taxable if the account has been held at
least five years and the account holder has reached age 59 1/2 (or other
conditions are met).
_ Education IRAs may be established for the benefit of a minor, and
contributions up to $500 per child per year may be made by any person whose
adjusted gross income does not exceed certain levels. Generally, withdrawals
used to pay the qualified higher education expenses of the beneficiary (or a
family member) are not taxable.
_ 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 Plan, 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 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.
Percent Percent
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
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 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 futures contract 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, one toll-free call, 1-800-366-5465, connects
you to a Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Service staff is
available to respond to your inquiries or update your account records. At
almost any time of the day or night, you may access TeleWaddell from a touch-
tone phone to:
. Obtain information about your accounts;
. Obtain price information about other funds in the United Group; or
. Request duplicate statements.
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 above for Customer Service 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 ongoing 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 gains
over net short-term capital losses) that are distributed to its shareholders.
There are certain tax requirements that all Funds must satisfy 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. Under the Taxpayer Relief Act of 1997
("1997 Act"), different maximum tax rates apply to a noncorporate taxpayer's net
capital gain depending on the taxpayer's holding period and marginal rate of
Federal income tax - generally, 28% for gain recognized on securities held for
more than one year but not more than 18 months and 20% (10% for taxpayers in the
15% marginal tax bracket) for gain recognized on securities held for more than
18 months. The Internal Revenue Service permits a Fund to divide each net
capital gain distribution into a 28% rate gain distribution and a 20% rate gain
distribution (in accordance with the Fund's holding periods for the securities
it sold that generated the distributed gain) and requires Fund shareholders to
treat those portions accordingly.
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
including the portions of capital gains distributions, if any, subject to the
different maximum rates of tax applicable under the 1997 Act.
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 or others investing through certain
intermediaries. 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 and has
been an employee of WRIMCO since August 1992.
Russell E. Thompson and James D. Wineland are 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.
Mr. Wineland has held his Fund responsibilities since July 1, 1997. 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.
Wineland has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1988 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since November
1984.
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 and
Vice President of the Fund. 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,
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 a subsidiary of Waddell & Reed
Financial, Inc., 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 $17.8 billion as of December 31, 1997.
Management fees for each Fund as a percent of each Fund's net assets for
the fiscal year ended December 31, 1997 were as follows: United Bond Fund
0.43%, United Income Fund 0.55%, United Accumulative Fund 0.55%, United Science
and Technology Fund 0.60%.
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 0.25% 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.
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 Auditors 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
March 31, 1998
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.
NUP2000(3-98)
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 March 31, 1998. 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
March 31, 1998
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........................................3
EXPENSES........................................................5
FINANCIAL HIGHLIGHTS............................................6
PERFORMANCE....................................................10
Explanation of Terms .........................................10
ABOUT WADDELL & REED...........................................11
ABOUT THE INVESTMENT PRINCIPLES OF THE FUNDS...................12
Investment Goals and Principles ..............................12
Risk Considerations ........................................13
Securities and Investment Practices ..........................15
ABOUT YOUR ACCOUNT.............................................30
Buying Shares ................................................30
Minimum Investments ..........................................32
Adding to Your Account .......................................32
Selling Shares ...............................................32
Telephone Transactions .......................................34
Shareholder Services .........................................34
Personal Service ...........................................34
Reports ....................................................35
Exchanges ..................................................35
Distributions and Taxes ......................................35
Distributions ..............................................35
Taxes ......................................................36
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUNDS.................38
WRIMCO and Its Affiliates ....................................39
Breakdown of Expenses ........................................41
Management Fee .............................................41
Other Expenses .............................................42
APPENDIX A.....................................................43
DESCRIPTION OF BOND RATINGS ..................................43
DESCRIPTION OF PREFERRED STOCK RATINGS .......................46
<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 appreciation 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 or through other authorized third parties. 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 0.43% 0.55% 0.55% 0.60%
12b-1 fees None None None None
Other expenses 0.21% 0.17% 0.20% 0.25%
Total Fund
operating
expenses 0.64% 0.72% 0.75% 0.85%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return3 and (2) redemption at the end of each time period:
1 Year $ 7 $ 7 $ 8 $ 9
3 Years $20 $23 $24 $ 27
5 Years $36 $40 $42 $ 47
10 Years $80 $89 $93 $105
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."
3Use 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, 1997, 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 ended period from
------------------------------ 6/19/95* to
12/31/97 12/31/96 12/31/95
---------- ---------- -----------
Net asset value,
beginning of period $6.14 $6.34 $6.11
---- ---- ----
Income from investment
operations:
Net investment income 0.42 0.40 0.21
Net realized and
unrealized gain (loss)
on investments .. 0.17 (0.20) 0.22
---- ---- ----
Total from investment
operations ....... 0.59 0.20 0.43
---- ---- ----
Less distributions:
From net investment
income........... (0.41) (0.40) (0.20)
From capital gains (0.00) (0.00) (0.00)
---- ---- ----
Total distributions (0.41) (0.40) (0.20)
---- ---- ----
Net asset value,
end of period .... $6.32 $6.14 $6.34
==== ==== ====
Total return ....... 9.91% 3.35% 7.20%
Net assets, end of
period (000
omitted) ......... $5,122 $11,779 $3,032
Ratio of expenses to
average net assets 0.64% 0.62% 0.63%**
Ratio of net investment
income to average
net assets ....... 6.48% 6.52% 6.41%**
Portfolio turnover
rate ............. 35.08% 55.74% 66.38%**
*Commencement of operations.
**Annualized.
<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, 1997, 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 ended period from
------------------------- 6/19/95* to
12/31/97 12/31/96 12/31/95
---------- ---------- -----------
Net asset value,
beginning of period $32.91 $28.96 $27.73
----- ----- -----
Income from investment
operations:
Net investment income 0.33 0.36 0.21
Net realized and
unrealized gain
on investments .. 8.64 5.54 2.14
----- ----- -----
Total from investment
operations ....... 8.97 5.90 2.35
----- ----- -----
Less distributions:
From net investment
income........... (0.34) (0.36) (0.20)
From capital gains (3.59) (1.59) (0.92)
----- ----- -----
Total distributions (3.93) (1.95) (1.12)
----- ----- -----
Net asset value,
end of period .... $37.95 $32.91 $28.96
===== ===== =====
Total return ....... 27.49% 20.53% 8.45%
Net assets, end of
period (000
omitted) ......... $299,467 $151,344 $107,703
Ratio of expenses to
average net assets 0.72% 0.73% 0.74%**
Ratio of net investment
income to average
net assets ....... 0.85% 1.17% 1.36%**
Portfolio turnover
rate ............. 33.59% 22.24% 17.59%**
Average commission
rate paid ........ $0.0534 $0.0496
*Commencement of operations.
**Annualized.
<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, 1997, 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 fiscal year ended period from
-------------------------- 7/11/95* to
12/31/97 12/31/96 12/31/95
---------- ---------- -----------
Net asset value,
beginning of period $7.75 $7.78 $7.84
---- ---- ----
Income from investment
operations:
Net investment income 0.11 0.12 0.05
Net realized and
unrealized gain
on investments .. 2.14 0.82 0.87
---- ---- ----
Total from investment
operations ....... 2.25 0.94 0.92
---- ---- ----
Less distributions:
From net investment
income........... (0.10) (0.12) (0.06)
From capital gains (2.13) (0.85) (0.92)
---- ---- ----
Total distributions (2.23) (0.97) (0.98)
---- ---- ----
Net asset value,
end of period .... $7.77 $7.75 $7.78
==== ==== ====
Total return ....... 29.67% 12.27% 11.92%
Net assets, end of
period (000
omitted) ......... $3,585 $2,640 $655
Ratio of expenses to
average net assets 0.75% 0.74% 0.76%**
Ratio of net investment
income to average
net assets ....... 1.22% 1.45% 1.24%**
Portfolio turnover
rate ............. 313.99% 240.37% 229.03%**
Average commission
rate paid ........ $0.0565 $0.0575
*Commencement of operations.
**Annualized.
<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, 1997, 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 period from
year ended 2/27/96* to
12/31/97 12/31/96
---------- ----------
Net asset value,
beginning of period $23.38 $24.05
----- -----
Income from investment
operations:
Net investment
loss ............ (0.00) (0.02)
Net realized and
unrealized gain
on investments .. 1.41 0.82
----- -----
Total from investment
operations ....... 1.41 0.80
----- -----
Less distributions:
From net investment
income .......... (0.00) (0.00)
From capital gains (4.58) (1.47)
----- -----
Total distributions (4.58) (1.47)
----- -----
Net asset value,
end of period .... $20.21 $23.38
===== =====
Total return ....... 7.43% 3.25%
Net assets, end of
period (000
omitted) ......... $4,327 $3,090
Ratio of expenses to
average net assets 0.85% 0.80%**
Ratio of net investment
income to average
net assets ....... -0.01% -0.12%**
Portfolio turnover
rate ............. 87.68% 33.90%**
Average commission
rate paid ........ $0.0586 $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 the 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.
<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 appreciation 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 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
securities 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 securities 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
securities 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 securities. 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, 1997,
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 33.5%
AA 10.3
A 23.6
BBB 17.3
BB 12.6
B 0.6
CCC 0.0
CC 0.0
C 0.0
D 0.0
Unrated (Equivalent to)
- -------
AAA 0.8%
AA 0.0
A 0.1
BBB 0.0
BB 0.1
B 0.0
CCC 0.0
CC 0.0
C 0.0
D 0.0
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, 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 offsetting put or call. If a Fund is not able to enter into an
offsetting 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 Currency 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 currency
contract in order to set the exchange rate at which the transaction will be
made. A Fund also may enter into a forward currency 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
currency 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 currency 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 currency 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. A 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
and are, therefore, subject to the limitations on investment in illiquid
investments 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 Ginnie
Mae, 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 securing the debt 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.
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: 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 warrants, rights and 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.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors or others investing
through certain intermediaries. 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-
800-366-5465, 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.
You may also buy shares of certain of the Funds indirectly through certain
broker-dealers, banks and other third parties, some of which may charge you a
fee. These firms may have additional requirements to buy shares.
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 futures contract 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.
. If you purchase Fund shares from certain broker-dealers, banks or other
authorized third parties, the Fund will be deemed to have received your
purchase order when that third party (or its designee) has received your
order. Your order will receive the offering price next calculated after the
order has been received in proper form by the authorized third party (or its
designee). You should consult that firm to determine the time by which it
must receive your order for you to purchase Fund shares at that day's
price.
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
If you purchase Fund shares from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through that
firm.
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.
. If you purchased Fund shares from certain broker-dealers, banks or other
authorized third parties, you may sell those shares through those firms, some
of which may charge you a fee and may have additional requirements to sell
Fund shares. The Fund will be deemed to have received your order to sell
shares when that firm (or its designee) has received your order. Your order
will receive the offering price next calculated after the order has been
received in proper form by the authorized firm (or its designee). You should
consult that firm to determine the time by which it must receive your order
for you to sell Fund shares at that day's price.
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, one toll-free call, 1-800-366-5465, connects
you to a Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Service staff is
available to respond to your inquiries or update your account records. At
almost any time of the day or night, you may access TeleWaddell from a touch-
tone phone to:
. Obtain information about your accounts;
. Obtain price information about other funds in the United Group; or
. Request duplicate statements.
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 the 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 above for Customer Service 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 or Class A shares of United Cash Management, Inc. 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 gains 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 gains 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 gains
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 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 satisfy 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 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. Under the Taxpayer Relief Act of 1997
("1997 Act"), different maximum tax rates apply to a noncorporate taxpayer's net
capital gain depending on the taxpayer's holding period and marginal rate of
Federal income tax - generally, 28% for gain recognized on securities held for
more than one year but not more than 18 months and 20% (10% for taxpayers in the
15% marginal tax bracket) for gain recognized on securities held for more than
18 months. The Internal Revenue Service permits a Fund to divide each net
capital gain distribution into a 28% rate gain distribution and a 20% rate gain
distribution (in accordance with the Fund's holding periods for the securities
it sold that generated the distributed gain) and requires Fund shareholders to
treat those portions accordingly.
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
including the portions of capital gains distributions, if any, subject to the
different maximum rates of tax applicable under the 1997 Act.
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. 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
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 and has
been an employee of WRIMCO since August 1992.
Russell E. Thompson and James D. Wineland are 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.
Mr. Wineland has held his Fund responsibilities since July 1, 1997. 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.
Wineland has served as the portfolio manager for investment companies managed by
Waddell & Reed, Inc. and its successor, WRIMCO, since January 1988 and has been
an employee of Waddell & Reed, Inc. and its successor, WRIMCO, since November
1984.
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 and
Vice President of the Fund. 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,
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 a subsidiary of Waddell & Reed
Financial, Inc., 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 $17.8 billion as of December 31, 1997.
For the fiscal year ended December 31, 1997, management fees for each Fund
as a percent of each Fund's net assets were as follows: United Bond Fund 0.43%,
United Income Fund 0.55%, United Accumulative Fund 0.55%, United Science and
Technology Fund 0.60%.
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 Auditors 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
March 31, 1998
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
NUP2000-Y(3-98)
<PAGE>
UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
(800) 366-5465
March 31, 1998
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 March 31, 1998, 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 .............. 35
Purchase, Redemption and Pricing of Shares ............ 41
Directors and Officers ................................ 57
Payments to Shareholders .............................. 65
Taxes ................................................. 66
Portfolio Transactions and Brokerage .................. 71
Other Information ..................................... 74
Financial Statements .................................. 76
<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, 1997, 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
1-1-97 to 1-1-93 to 1-1-88 to
12-31-97 12-31-97 12-31-97
----------- ----------- -----------
United Bond Fund 3.45% 6.53% 8.21%
United Income Fund 20.02 16.36 16.16
United Accumulative Fund 22.13 14.94 14.28
United Science and
Technology Fund 1.06 15.17 15.30
The average annual total return quotations for Class A shares without sales
load deducted as of December 31, 1997, 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
1-1-97 to 1-1-93 to 1-1-88 to
12-31-97 12-31-97 12-31-97
----------- ----------- -----------
United Bond Fund 9.77% 7.80% 8.86%
United Income Fund 27.34 17.75 16.85
United Accumulative Fund 29.58 16.31 14.96
United Science and
Technology Fund 7.22 16.55 15.98
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, 1997,
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, 1997 December 31, 1997
-------------- --------------
United Bond Fund 9.91% 8.08%
United Income Fund 27.49 22.31
United Accumulative Fund 29.67 21.79
United Science and
Technology Fund 7.43 5.78
*United Income Fund and United Bond Fund commenced selling Class Y shares on
June 19, 1995, 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, 1997, the date of the most
recent balance sheet included in this SAI, is 5.62%. The yield for United Bond
Fund Class Y shares computed according to the formula for the 30-day period
ended on December 31, 1997, the date of the most recent balance sheet included
in this SAI, is 6.01%.
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 practicable 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,
Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed securities
include pass-through securities, participation certificates and collateralized
mortgage obligations. See "Mortgage-Backed 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 Securities
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 and Asset-Backed Securities
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-backed 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. 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) bank deposits
unless they are payable at principal plus accrued interest on demand or within
seven days after demand; (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 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 to 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 futures contract, 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
contracts 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 contracts
and options on futures contracts may be closed only on an exchange or board of
trade that provides a secondary market. However, 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
option 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.
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
forward currency 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 currency 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 currency 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 an 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 currency 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 currency 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 U.S. 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 shall 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, 1997 and December 31, 1996 were as follows:
1997 1996
---- ----
United Bond Fund 35.08% 55.74%
United Income Fund 33.59 22.24
United Accumulative Fund 313.99 240.37
United Science and
Technology Fund 87.68 33.90
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 Waddell & Reed Financial, Inc.
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 Waddell & Reed Financial, Inc. Waddell & Reed Financial,
Inc. is a subsidiary of Torchmark Corporation. Torchmark Corporation is a
publicly held company. The address of Torchmark Corporation 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:
1997 1996 1995
---- ---- ----
United Bond Fund ........ $ 2,221,667 $ 2,344,627 $ 2,407,401
United Income Fund ...... 32,837,940 25,277,033 20,740,095
United Accumulative Fund 8,111,304 6,879,322 6,103,149
United Science and Technology
Fund ................. 5,997,091 5,667,206 4,025,985
----------- ---------- -----------
Total ................ $49,168,002 $40,168,188 $33,276,630
=========== =====================
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 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, 1997, 1996
and 1995 were as follows:
1997 1996 1995
---- ---- ----
United Bond Fund ........ $60,000 $61,667 $ 65,000
United Income Fund ...... 100,000 100,000 100,000
United Accumulative Fund 100,000 100,000 96,250
United Science and
Technology Fund ...... 93,750 88,750 71,667
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, 1997, 1996 and 1995 were $28,736,826, $26,543,939 and
$18,952,707, respectively, and the amounts retained by Waddell & Reed, Inc. were
$12,109,175, $11,396,996 and $8,341,305, 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 for Class A shares, 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 Class A-related 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, 1997, service
fees paid (or accrued) with respect to Class A shares were as follows:
1997
----
United Bond Fund ........ $ 749,908
United Income Fund ...... 8,740,306
United Accumulative Fund 2,042,469
United Science and Technology
Fund ................. 1,617,788
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 auditors, audits each Fund's financial statements.
Year 2000 Issue
Like other mutual funds, financial and business organizations and
individuals around the world, a Fund could be adversely affected if the computer
systems used by WRIMCO and the Fund's other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." WRIMCO is taking
steps that it believes are reasonably designed to address the Year 2000 Problem
with respect to the computer systems that it uses and to obtain assurances that
comparable steps are being taken by the Fund's other, major service providers.
Although there can be no assurances, WRIMCO believes these steps will be
sufficient to avoid any adverse impact on the Funds.
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, 1997 was as follows:
United Bond Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $6.32
Add: selling commission (5.75% of offering
price) ................................... .39
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $6.71
=====
United Income Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $37.95
Add: selling commission (5.75% of offering
price) ................................... 2.32
------
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $40.27
======
United Accumulative Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $7.77
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%) $8.24
=====
United Science and Technology Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $20.13
Add: selling commission (5.75% of offering
price) ................................... 1.23
------
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $21.36
======
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, Martin Luther King, Jr. 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 the Nasdaq Stock Market, 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 an ongoing 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 or for Class A shares of United Cash Management,
Inc.
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 model or 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 a traditional IRA, an
investor can contribute each year up to 100% of his or her earned income, up to
an annual maximum of $2,000 (provided the investor has not reached age 70 1/2).
For a married couple, 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. Generally, 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. However, for tax years after 1997, a married investor who is not an
active participant, files jointly with his or her spouse and whose combined
adjusted gross income does not exceed $150,000, is not affected by the spouse's
active participant status.
An investor may also use a traditional 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 a traditional 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.
Roth IRAs. Investors whose adjusted gross income (or combined adjusted
gross income, if married) does not exceed certain levels may establish and
contribute up to $2,000 per tax year to a Roth IRA. In addition, for an
investor whose adjusted gross income does not exceed $100,000 (or is not married
filing a separate return), certain distributions from traditional IRAs may be
rolled over to a Roth IRA and any of the investor's traditional IRAs may be
converted into a Roth IRA; these rollover distributions and conversions are,
however, subject to Federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in the Roth IRA, and withdrawals of earnings are not subject
to Federal income tax if the account has been held for at least five years (or
in the case of earnings attributable to rollover contributions or conversions of
a traditional IRA, the rollover or conversion occurred more than 5 years prior
to the withdrawal) and the account holder has reached age 59 1/2 (or certain
other conditions apply).
Education IRAs. Although not technically for retirement savings, Education
IRAs provide a vehicle for saving for a child's higher education. An Education
IRA may be established for the benefit of any minor, and any person whose
adjusted gross income does not exceed certain levels may contribute up to $500
to an Education IRA (or to each of multiple Education IRAs), provided that no
more than $500 may be contributed for any year to Education IRAs for the same
beneficiary. Contributions are not deductible and may not be made after the
beneficiary reaches age 18; however, earnings accumulate tax-free, and
withdrawals are not subject to tax if used to pay the qualified higher education
expenses of the beneficiary (or a member of his or her family).
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.
Savings Incentive Match Plans for Employees (SIMPLE Plans). An employer
with 100 or fewer employees who does not sponsor another active retirement plan
may sponsor a SIMPLE to contribute to its employees' retirement accounts. A
SIMPLE plan can be funded by either an IRA or a 401(k) plan. In general, an
employer can choose to match employee contributions dollar-for-dollar (up to 3%
of an employee's compensation) or may contribute to all eligible employees 2% of
their compensation, whether or not they defer salary to their retirement plans.
SIMPLE plans involve fewer administrative requirements than 401(k) or other
qualified plans generally.
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
Director of the Fund and each of the other funds in the Fund Complex;
Director of Waddell & Reed Financial, Inc.; Chairman of the Board of Directors
and Director of United Investors Life Insurance Company; Chief Executive Officer
and Director of Torchmark Corporation; Chairman of the Board of Directors of
Vesta Insurance Group, Inc.; Director of Full House Resorts, Inc., a developer
of resorts and gaming casinos; formerly, Chairman of the Board of Directors of
Waddell & Reed, Inc.; formerly, Chairman of the Board of Directors of Torchmark
Corporation; formerly, Chairman of the Board of Directors of the Fund and each
of the other funds in the Fund Complex; formerly, Chairman of the Board of
Directors of Waddell & Reed Financial Services, 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, Chairman of the Board of Directors, Chief Executive Officer and
Director of Waddell & Reed Financial Services, Inc.; Chairman of the Board of
Directors and Director of WRIMCO, Waddell & Reed, Inc., Waddell & Reed Services
Company and Waddell & Reed Distributors, Inc., an affiliate of Waddell & Reed,
Inc.; Chairman of the Board of Directors, Chief Executive Officer, Chief
Financial Officer and Director of Waddell & Reed Financial, Inc.; Director of
Southwestern Life Corporation; formerly, Vice Chairman of the Board of Directors
and Director of Torchmark Corporation; formerly, Chairman of the Board of
Directors and Director of Waddell & Reed Asset Management Company; formerly,
partner in Trivest, a private investment concern; formerly, Director of Atlantis
Group, Inc., a diversified company. Date of birth: February 11, 1945.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law; Director,
AmVestors CBO II Inc. Date of birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
Director and consultant, McDougal Construction Company; President, JoDill
Corp.; 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 Financial
Corporation; 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, Waddell & Reed Financial, Inc. 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.
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. 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, a fertilizer company. 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.; President, Director and Treasurer of Waddell
& Reed Services Company; President, Treasurer and Director of Waddell & Reed
Distributors, Inc.; Executive Vice President, Chief Operations Officer and
Director of Waddell & Reed Financial, Inc. Formerly, Director and Treasurer of
Waddell & Reed Asset Management Company. 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; President,
Chief Investment Officer, Treasurer and Director of Waddell & Reed Financial,
Inc. Formerly, President, Chief Executive Officer, Chief Investment Officer and
Director of Waddell & Reed Asset 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, General Counsel and
Director of Waddell & Reed Financial Services, Inc.; Senior Vice President,
Secretary and General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior Vice
President, Secretary, General Counsel and Director of Waddell & Reed Services
Company; Vice President, Secretary and General Counsel of Waddell & Reed
Distributors, Inc.; Secretary and Director of Waddell & Reed Financial, 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. Formerly, Director, Secretary and General
Counsel of Waddell & Reed Asset Management 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. Date of birth: May 30, 1949.
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. Date of
birth: April 28, 1949.
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. Date of birth: June
11, 1935.
Antonio Intagliata
Vice President of the Corporation; Senior Vice President of WRIMCO;
formerly, Senior Vice President of Waddell & Reed, Inc. Date of birth:
February 7, 1938.
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. Date of birth: July 24, 1934.
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.
Date of birth: March 3, 1940.
James D. Wineland
Vice President of the Fund and two other funds in the Fund Complex; Vice
President of WRIMCO; formerly, Vice President of Waddell & Reed, Inc. Date of
birth: September 25, 1951.
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, Jay B. Dillingham and Henry L. Bellmon retired as
Directors of the Corporation and of each of the funds in the Fund Complex
effective January 1, 1997, January 14, 1997 and February 11, 1998, respectively
and each has elected a position as Director Emeritus.
The funds in the United Group, TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. pay to each Director a total of $48,000 per year, plus $2,500 for
each meeting of the Board of Directors attended plus reimbursement of expenses
of attending such meeting (prior to January 1, 1998, the funds in the United
Group, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. paid to each
Director a fee of $44,000 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, 1997, 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
James M. Concannon 11,789 25,000
John A. Dillingham 11,789 25,000
Linda Graves 23,245 50,000
John F. Hayes 23,245 50,000
Glendon E. Johnson 23,245 50,000
William T. Morgan 23,245 50,000
William L. Rogers 22,779 49,000
Frank J. Ross, Jr. 23,245 50,000
Eleanor B. Schwartz 23,245 50,000
Frederick Vogel III 23,245 50,000
Paul S. Wise 23,245 50,000
*No pension or retirement benefits have been accrued as a part of Fund expenses.
Messrs. Concannon and Dillingham were elected as Directors on July 24,
1997. The officers are paid by WRIMCO or its affiliates.
Shareholdings
As of February 28, 1998, all of the Corporation's Directors and officers as
a group owned less than 1% of the outstanding shares of the Corporation. The
following table sets forth information with respect to the Corporation, as of
February 28, 1998, regarding the beneficial ownership of the series, and classes
thereof, of the Corporation's shares.
Shares owned
Name and Address Series and Beneficially
of Beneficial Owner Class or of Record Percent
- ------------------- ---------- ------------ -------
USX Corporation Income Fund
Savings Fund Class Y 2,808,291 32.32%
Plan for Salaried Employees
ATTN: Michael A Stehura Mgr
600 Grant St Room 2618
Pittsburgh PA 15219
UMBSC & Co Income Fund
FBO Interstate Brands Class Y 2,418,848 27.84
Unit Elec
PO Box 419260
Kansas City MO 64141
T Rowe Price Trust Income Fund
Company Class Y 1,620,631 18.65
FBO Honeywell
ATTN: Retirement Plan Services
10090 Red Run Blvd
Owings Mills MD 21117
Mac & Co Income Fund
Mutual Funds Operations Class Y 769,638 8.86
PO Box 3198
Pittsburgh PA 15230
Waddell & Reed Science and Technology Fund
Financial, Inc. Class Y 133,386 61.94
Savings & Investment Plan
6300 Lamar Avenue Accumulative Fund
Overland Park KS 66201 Class Y 323,893 69.04
Bond Fund
Class Y 225,085 26.72
Torchmark Corporation Science and Technology Fund
Savings & Investment Class Y 76,761 35.64
Plan
2001 Third Avenue South Accumulative Fund
Birmingham AL 35202 Class Y 116,430 24.82
Fiduciary Trust Co NH TR Accumulative Fund
Corporate Money Pension Class Y 26,829 5.72
Plan
Okanogan County Hospital Bond Fund
District 3 Class Y 49,091 5.83
FBO Unallocated Assets
Qualified Plan 1329481
P. O. Box 793
Omak WA 98841
Marine Midland Bank Bond Fund
NA FBO Class Y 522,070 61.98
CIBC Incentive Savings Plan
ATTN: Mutual Fund Processing
PO Box 1329
Buffalo NY 14240
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 Fund holds, 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 gains (the excess of net
long-term capital gains over net short-term capital loss). A Fund may or may
not have such gains, depending on whether securities are sold and at what price.
If a Fund has net capital gains, 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 gains distributions to the extent that net
capital gains are 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 gains 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) 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
(3) 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 other than a "controlled
foreign corporation" (i.e., a foreign corporation in which, on any day during
its taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly,
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly, or constructively, at least 10% of that
voting power) as to which a Fund is a U.S. shareholder 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 gains -- 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
gains 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.
A Fund may elect to "mark to market" its stock in any PFIC. "Marking-to-
market," in this context, means including in ordinary income each taxable year
the excess, if any, of the fair market value of a PFIC's stock over the Fund's
adjusted basis therein as of the end of that year. Pursuant to the election,
the Fund also would be allowed to deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net mark-to-
market gains with respect to that stock included by the Fund for prior taxable
years. The Fund's adjusted basis in each PFIC's stock with respect to which it
makes this election will be adjusted to reflect the amounts of income included
and deductions taken under the election. Regulations proposed in 1992 would
provide a similar election with respect to the stock of certain PFICs.
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 Currency 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 currency
contracts, involves complex rules that will determine for income tax purposes
the amount, 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 currency 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.
Any income a Fund earns from writing options is treated as short-term
capital gains. 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.
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. As of the date of this SAI, it
is not entirely clear whether that 60% portion will qualify for the reduced
maximum tax rates on net capital gain enacted by the Taxpayer Relief Act of 1997
- - 20% (10% for taxpayers in the 15% marginal tax bracket) for gain recognized on
capital assets held for more than 18 months - instead of the 28% rate in effect
before that legislation, which now applies to gain recognized on capital assets
held for more than one year but not more than 18 months, although technical
corrections legislation passed by the House of Representatives would treat it as
qualifying therefor. 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 ("OID"). As the holder of those securities, a Fund must
include in its income the OID 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 OID 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 gains.
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 has 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.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO, 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,
1997, 1996 and 1995. 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.
1997 1996 1995
---------- ---------- ----------
United Bond Fund ..... $ 0 $ 0 $ 469
United Income Fund ... 4,447,377 2,444,984 1,882,280
United Accumulative Fund 8,215,119 6,157,885 4,952,823
United Science and
Technology Fund ... 968,118 438,029 321,141
---------- ---------- ----------
Total ................ $13,630,614 $9,040,898 $7,156,713
========== ========== ==========
The next table shows for each of the Fund's last fiscal year the
transactions, other than principal transactions, which were directed to broker-
dealers who provided research as well as execution and the brokerage commissions
paid. These transactions were allocated to these broker-dealers by the internal
allocation procedures described above.
Amount of Brokerage
Transactions Commissions
-------------- ----------
United Bond Fund ....................$ --- $ ---
United Income Fund .................. 2,476,716,081 3,260,859
United Accumulative Fund ............ 5,378,307,435 6,294,593
United Science and Technology Fund .. 510,714,697 641,862
-------------- ----------
Total ............................ $8,365,738,213 $10,197,314
============== ==========
As of December 31, 1997, United Income Fund owned securities of Credit
Suisse Group in the amount of $30,997,468. Credit Suisse Group is a regular
broker of the Fund. At December 31, 1997, United Accumulative Fund owned
securities of J.P. Morgan and Co. Incorporated, Paine Webber Group Inc., Bear
Stearns Companies Inc. (The) and Credit Suisse Group in the amounts of
$21,935,607, $17,281,000, $15,366,250 and $20,881,528, respectively. J.P.
Morgan and Co. Incorporated, Paine Webber Group Inc., Bear Stearns Companies
Inc. (The) and Credit Suisse Group are each a regular broker of the Fund. At
December 31, 1997, United Science and Technology Fund owned securities of Credit
Suisse Group and Merrill Lynch & Co. Inc. in the amounts of $13,456,985 and
$2,414,141, respectively. Credit Suisse Group and Merrill Lynch & Co. Inc., are
each a regular broker of the Fund. At December 31, 1997, United Bond Fund owned
securities of Salomon Inc. and J.P. Morgan & Co. Incorporated in the amounts of
$4,988,050 and $5,079,300, respectively. Salomon Inc. and J.P. Morgan & Co.
Incorporated are 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, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 5.36%
Dow Capital B.V.,
9.0%, 5-15-2010 ....................... $ 5,000 $ 5,911,950
Dow Chemical Company (The),
8.55%, 10-15-2009 ..................... 5,000 5,769,300
Procter & Gamble Company (The),
8.0%, 9-1-2024 ........................ 10,000 12,008,700
Rohm & Haas,
9.375%, 11-15-2019 .................... 4,250 4,637,812
Total ................................. 28,327,762
Communication - 6.26%
Bell Telephone Company of Pennsylvania (The),
8.35%, 12-15-2030 ..................... 5,000 6,228,550
BellSouth Telecommunications, Inc.,
5.85%, 11-15-2045 ..................... 3,000 3,019,350
Brooks Fiber Properties, Inc.,
0.0%, 3-1-2006 (A) .................... 3,750 3,112,500
Centel Capital Corporation,
9.0%, 10-15-2019 ...................... 3,000 3,693,780
Jones Intercable, Inc.,
9.625%, 3-15-2002 ..................... 2,500 2,681,250
Tele-Communications, Inc.,
6.58%, 2-15-2005 ...................... 7,500 7,987,875
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... 4,000 4,488,080
Videotron Holdings Plc,
0.0%, 7-1-2004 (A) .................... 2,000 1,904,960
Total ................................. 33,116,345
Depository Institutions - 10.72%
AmSouth Bancorporation,
6.75%, 11-1-2025 ...................... 6,000 6,147,780
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-2005 ...................... 1,500 1,545,000
Citicorp,
9.5%, 2-1-2002 ........................ 4,500 5,011,830
J.P. Morgan & Co. Incorporated,
7.54%, 1-15-2027 ...................... 5,000 5,079,300
Kansallis-Osake-Pankki,
10.0%, 5-1-2002 ....................... 6,000 6,818,340
NBD Bank, National Association,
8.25%, 11-1-2024 ...................... 6,000 7,283,400
NationsBank Corporation,
8.57%, 11-15-2024 ..................... 5,000 6,211,450
Riggs National Corporation,
8.5%, 2-1-2006 ........................ 6,000 6,293,160
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (CONTINUED)
Depository Institutions (Continued)
SouthTrust Bank of Alabama, National Association:
5.58%, 2-6-2006 ....................... $ 4,500 $ 4,438,170
7.69%, 5-15-2025 ...................... 5,000 5,758,500
Sovereign Bancorp, Inc.,
8.0%, 3-15-2003 ....................... 2,000 2,077,500
Total ................................. 56,664,430
Electric, Gas and Sanitary Services - 6.68%
Cajun Electric Power Cooperative, Inc.,
8.92%, 3-15-2019 ...................... 5,000 5,387,550
California Infrastructure and Economic Development
Bank Special Purpose Trust:
PG&E-1,
6.42%, 9-25-2008 ...................... 3,500 3,535,560
SCE-1,
6.38%, 9-25-2008 ...................... 4,250 4,289,397
Cleveland Electric Illuminating Co. (The),
9.5%, 5-15-2005 ....................... 4,000 4,436,080
Consolidated Edison Company
of New York, Inc.,
8.05%, 12-15-2027 ..................... 4,500 4,741,110
El Paso Electric Company,
7.25%, 2-1-99 ......................... 2,250 2,260,553
Niagara Mohawk Power,
9.5%, 6-1-2000 ........................ 1,500 1,587,060
Pacific Gas & Electric Co.,
6.875%, 12-1-99........................ 4,750 4,763,205
Pennsylvania Power & Light Co.,
9.25%, 10-1-2019 ...................... 4,000 4,326,440
Total ................................. 35,326,955
Food and Kindred Products - 4.55%
Anheuser-Busch,
7.0%, 9-1-2005 ........................ 3,000 3,053,820
Coca-Cola Enterprises Inc.,
0.0%, 6-20-2020 ....................... 63,500 14,394,180
Hershey Foods,
6.7%, 10-1-2005 ....................... 500 513,770
Nabisco, Inc.,
6.8%, 9-1-2001 ........................ 6,000 6,115,980
Total ................................. 24,077,750
Food Stores - 0.40%
Kroger Co. (The),
7.65%, 4-15-2007 ...................... 2,000 2,137,420
Health Services - 1.66%
Tenet Healthcare Corporation:
7.875%, 1-15-2003 ..................... 3,500 3,543,750
8.625%, 12-1-2003 ..................... 5,000 5,212,500
Total ................................. 8,756,250
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (CONTINUED)
Hotels and Other Lodging Places - 1.89%
Marriott International, Inc.,
7.875%, 4-15-2005 ..................... $ 5,000 $ 5,439,950
RHG Finance Corporation,
8.875%, 10-1-2005 ..................... 4,000 4,545,400
Total ................................. 9,985,350
Instruments and Related Products - 0.71%
Raytheon Co.,
6.45%, 8-15-2002 ...................... 3,750 3,768,413
Insurance Carriers - 0.60%
Reliance Group Holdings, Inc.,
9.0%, 11-15-2000 ...................... 3,000 3,145,020
Lumber and Wood Products - 0.41%
Doman Industries Limited,
8.75%, 3-15-2004 ...................... 2,250 2,148,750
Nondepository Institutions - 14.71%
Associates Corporation of North America,
7.95%, 2-15-2010 ...................... 5,000 5,612,550
CHYPS CBO 1997-1 Ltd.,
6.72%, 1-15-2010 (B)................... 8,500 8,223,750
CWMBS, Inc.,
6.5%, 4-25-2024 ....................... 10,000 9,967,200
Chrysler Financial Corporation,
12.75%, 11-1-99 ....................... 9,000 9,992,880
Equicon Loan Trust,
7.3%, 2-18-2013 ....................... 4,571 4,672,826
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 5,000 5,780,900
General Motors Acceptance Corporation,
8.875%, 6-1-2010 ...................... 10,000 11,939,700
IMC Home Equity Loan Trust 1997-5 A7,
6.9%, 1-20-2022 ....................... 4,500 4,533,750
National Rural Utilities Cooperative Finance Corp.,
6.1%, 12-22-2000 ...................... 4,000 4,005,000
Residential Asset Securities Corporation,
Mortgage Pass-Through Certificates,
1995-KS3 Class D,
8.0%, 10-25-2024 ...................... 4,000 4,171,560
U S WEST Communications Group,
6.95%, 1-15-2037 ...................... 3,750 3,862,762
Westinghouse Electric Corporation,
8.875%, 6-14-2014 ..................... 4,500 4,998,690
Total ................................. 77,761,568
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (CONTINUED)
Oil and Gas Extraction - 3.53%
Anadarko Petroleum Corporation,
7.25%, 3-15-2025 ...................... $ 5,000 $ 5,457,200
Louis Dreyfus Natural Gas Corp.,
9.25%, 6-15-2004 ...................... 4,500 5,040,000
Mitchell Energy & Development Corp.,
9.25%, 1-15-2002 ...................... 165 179,284
Oryx Energy Company,
10.0%, 4-1-2001 ....................... 3,500 3,844,995
YPF Sociedad Anoima,
8.0%, 2-15-2004 ....................... 4,000 4,130,680
Total ................................. 18,652,159
Paper and Allied Products - 1.31%
Boise Cascade Office Products Corporation,
9.875%, 2-15-2001 ..................... 2,500 2,594,450
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-2002 ...................... 4,000 4,308,880
Total ................................. 6,903,330
Printing and Publishing - 0.52%
Viacom International Inc.,
10.25%, 9-15-2001 ..................... 2,500 2,752,400
Security and Commodity Brokers - 0.94%
Salomon Inc.,
3.65%, 2-14-2002 ...................... 5,000 4,988,050
Stone, Clay and Glass Products - 1.93%
Owens-Corning Fiberglas Corporation,
8.875%, 6-1-2002 ...................... 5,000 5,440,650
Owens-Illinois, Inc.,
7.85%, 5-15-2004 ...................... 2,500 2,626,350
USG Corporation,
9.25%, 9-15-2001 ...................... 2,000 2,140,000
Total ................................. 10,207,000
United States Postal Service - 0.33%
Postal Square Limited Partnership,
6.5%, 7-15-2022 ....................... 1,750 1,754,375
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (CONTINUED)
Wholesale Trade -- Durable Goods - 2.61%
Fisher Scientific International Inc.,
7.125%, 12-15-2005 .................... $ 3,500 $ 3,274,845
Motorola, Inc.,
8.4%, 8-15-2031 ....................... 8,500 10,533,795
Total ................................. 13,808,640
TOTAL CORPORATE DEBT SECURITIES - 65.12% $344,281,967
(Cost: $329,194,429)
OTHER GOVERNMENT SECURITIES
Canada - 6.13%
Hydro Quebec:
8.05%, 7-7-2024 ....................... 10,000 11,512,700
7.4%, 3-28-2025 ....................... 5,000 6,079,250
Province de Quebec:
5.67%, 2-27-2026 ...................... 3,500 3,689,105
6.29%, 3-6-2026 ....................... 5,000 5,155,100
Province of Nova Scotia,
8.25%, 11-15-2019 ..................... 5,000 5,962,650
Total ................................. 32,398,805
Supranational - 1.12%
Inter-American Development Bank,
8.4%, 9-1-2009 ........................ 5,000 5,937,700
TOTAL OTHER GOVERNMENT SECURITIES - 7.25% $ 38,336,505
(Cost: $34,404,421)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
7.5%, 2-15-2007 ....................... 10,000 10,265,600
7.5%, 11-15-2017 ...................... 10,000 10,153,100
7.0%, 1-15-2019 ....................... 2,000 2,043,120
7.5%, 4-15-2019 ....................... 13,730 14,111,896
7.95%, 12-15-2020 ..................... 9,000 9,247,500
Federal National Mortgage Association:
7.0%, 7-25-2006 ....................... 10,000 10,146,800
7.0%, 9-25-2020 ....................... 2,000 2,040,000
7.0%, 8-25-2021 ....................... 10,000 10,121,800
Government National Mortgage Association:
7.5%, 7-15-2023 ....................... 5,773 5,940,383
7.5%, 12-15-2023 ...................... 5,006 5,151,884
8.0%, 9-15-2025 ....................... 8,636 9,072,865
7.0%, 7-20-2027 ....................... 359 360,850
7.0%, 9-20-2027 ....................... 5,562 5,589,630
7.75%, 10-15-2031 ..................... 1,987 2,060,520
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued)
United States Department of Veterans Affairs,
Guaranteed Remic Pass-Through Certificates,
Vendee Mortgage Trust, 1997-2 Class C,
7.5%, 8-15-2017 ....................... $ 4,000 $ 4,163,720
United States Treasury:
6.75%, 5-31-99 ........................ 7,500 7,610,175
5.75%, 10-31-2000 ..................... 9,000 9,011,250
5.25%, 1-31-2001 ...................... 5,000 4,939,050
0.0%, 2-15-2019 ....................... 4,000 1,122,120
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 23.29% $123,152,263
(Cost: $120,200,214)
TOTAL SHORT-TERM SECURITIES - 3.44% $ 18,181,383
(Cost: $18,181,383)
TOTAL INVESTMENT SECURITIES - 99.10% $523,952,118
(Cost: $501,980,447)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.90% 4,743,665
NET ASSETS - 100.00% $528,695,783
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 1.64%
Gap, Inc. (The) ........................ 3,000,000 $ 106,311,000
Building Materials and Garden Supplies - 1.04%
Home Depot, Inc. (The) ................. 1,147,500 67,559,062
Business Services - 1.29%
Microsoft Corporation* ................. 650,000 83,991,700
Chemicals and Allied Products - 20.10%
Air Products and Chemicals, Inc. ....... 1,150,000 94,515,050
Astra AB, Class A (C) .................. 1,600,000 27,738,901
Avon Products, Inc. .................... 450,000 27,618,750
BetzDearborn Inc. ...................... 563,000 34,377,906
Colgate-Palmolive Company .............. 1,200,000 88,200,000
Dow Chemical Company (The) ............. 575,000 58,362,500
du Pont (E.I.) de Nemours and Company .. 2,000,000 120,124,000
Gillette Company (The) ................. 1,904,000 191,232,048
Lilly (Eli) and Company ................ 1,250,000 87,031,250
Merck & Co., Inc. ...................... 700,000 74,375,000
Monsanto Company ....................... 1,625,200 68,258,400
Novartis AG (C) ......................... 15,625 25,344,775
PPG Industries, Inc. ................... 1,250,000 71,406,250
Pfizer Inc. ............................ 1,300,000 96,930,600
Praxair, Inc. .......................... 500,000 22,500,000
Procter & Gamble Company (The) ......... 1,200,000 95,774,400
Solutia Inc. ........................... 136,000 3,629,432
Union Carbide Corporation .............. 875,000 37,569,875
Warner-Lambert Company ................. 650,000 80,600,000
Total ................................. 1,305,589,137
Communication - 3.49%
AirTouch Communications* ............... 900,000 37,405,800
Cox Communications, Inc.* .............. 1,250,000 50,077,500
Grupo Televisa, S.A., GDR* ............. 525,000 20,310,675
Nokia Corporation, Series A (C) ........ 760,000 53,984,802
SBC Communications Inc. ................ 460,000 33,695,000
WorldCom, Inc.* ........................ 1,037,000 31,401,397
Total ................................. 226,875,174
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS (Continued)
Depository Institutions - 5.57%
BankAmerica Corporation ................ 950,000 $ 69,350,000
Chase Manhattan Corporation (The) ...... 525,000 57,487,500
Citicorp ............................... 500,000 63,218,500
Credit Suisse Group, Registered
Shares (C) ............................ 200,400 30,997,468
Norwest Corporation .................... 2,200,000 84,975,000
U. S. Bancorp. ......................... 500,000 55,968,500
Total ................................. 361,996,968
Eating and Drinking Places - 0.09%
TRICON Global Restaurants, Inc.* ....... 200,000 5,812,400
Electric, Gas and Sanitary Services - 1.09%
Duke Energy Corp. ...................... 1,275,000 70,603,125
Electronic and Other Electric Equipment - 9.80%
Aeroquip-Vickers Inc. .................. 464,000 22,764,768
Analog Devices, Inc.* .................. 1,740,000 48,175,380
Emerson Electric Co. ................... 800,000 45,149,600
General Electric Company ............... 2,400,000 176,100,000
Intel Corporation ...................... 2,300,000 161,501,400
Lucent Technologies Inc. ............... 425,000 33,946,875
Maytag Corporation ..................... 1,100,000 41,043,200
NextLevel Systems, Inc.* ............... 1,863,800 33,315,425
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................... 2,000,000 74,686,000
Total ................................. 636,682,648
Food and Kindred Products - 2.86%
CPC International Inc. ................. 700,000 75,600,000
Coca-Cola Company (The) ................ 560,000 37,310,000
PepsiCo, Inc. .......................... 2,000,000 72,874,000
Total ................................. 185,784,000
Food Stores - 0.60%
Kroger Co. (The)* ...................... 1,050,000 38,783,850
Forestry - 1.11%
Georgia-Pacific Corporation ............ 425,000 25,818,750
Georgia-Pacific Corporation, Timber Group* 425,000 9,641,975
Weyerhaeuser Company ................... 750,000 36,796,500
Total ................................. 72,257,225
Furniture and Fixtures - 0.11%
Lear Corporation* ...................... 146,200 6,944,500
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS (Continued)
Furniture and Home Furnishings Stores - 0.88%
Circuit City Stores, Inc. .............. 1,600,000 $ 56,899,200
General Merchandise Stores - 3.42%
Cifra, S.A. de C.V., Series C (C) ...... 8,000,000 17,947,447
Dayton Hudson Corporation .............. 949,800 64,170,387
Federated Department Stores, Inc.* ...... 760,000 32,727,120
Wal-Mart Stores, Inc. .................. 2,725,000 107,465,825
Total ................................. 222,310,779
Health Services - 0.77%
Tenet Healthcare Corporation* .......... 1,500,000 49,687,500
Industrial Machinery and Equipment - 11.67%
Applied Materials, Inc.* ............... 1,910,000 57,477,630
Case Corporation ....................... 1,214,600 73,406,780
Caterpillar Inc. ....................... 2,800,000 135,973,600
cisco Systems, Inc.* ................... 1,125,000 62,788,500
Compaq Computer Corporation* ........... 1,125,000 63,491,625
Deere & Company ........................ 2,055,000 119,831,160
Eaton Corporation ...................... 500,000 44,625,000
Hewlett-Packard Company ................ 225,400 14,087,500
Ingersoll-Rand Company ................. 600,000 24,262,200
International Business Machines
Corporation ........................... 600,000 62,737,200
Parker Hannifin Corporation ............ 900,000 41,287,500
United Technologies Corporation ........ 800,000 58,249,600
Total ................................. 758,218,295
Instruments and Related Products - 4.77%
General Motors Corporation, Class H .... 674,700 24,921,394
Guidant Corporation .................... 1,800,000 112,050,000
Medtronic, Inc. ........................ 1,600,000 83,699,200
Raytheon Company, Class A* ............. 454,381 22,406,437
Xerox Corporation ...................... 900,000 66,430,800
Total ................................. 309,507,831
Insurance Carriers - 0.90%
American International Group, Inc. .... 539,200 58,638,000
Miscellaneous Retail - 0.53%
Costco Companies, Inc.* ................ 765,000 34,113,645
Motion Pictures - 1.07%
Walt Disney Company (The) .............. 700,000 69,343,400
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS (Continued)
Nondepository Institutions - 3.95%
Associates First Capital Corporation ... 500,000 $ 35,968,500
Fannie Mae ............................. 1,805,800 103,042,560
Freddie Mac ............................ 2,800,000 117,423,600
Total ................................. 256,434,660
Paper and Allied Products - 1.17%
Champion International Corporation ..... 500,000 22,656,000
International Paper Company ............ 600,000 25,875,000
Willamette Industries, Inc. ............ 860,000 27,680,820
Total ................................. 76,211,820
Petroleum and Coal Products - 2.85%
British Petroleum p.l.c (The), ADR ..... 400,000 31,874,800
Exxon Corporation ...................... 500,000 30,593,500
Mobil Corporation ...................... 800,000 57,749,600
Royal Dutch Petroleum Company .......... 1,200,000 65,024,400
Total ................................. 185,242,300
Primary Metal Industries - 0.70%
Aluminum Company of America ............ 650,000 45,743,750
Railroad Transportation - 0.47%
Burlington Northern Santa Fe Corporation 325,000 30,204,525
Rubber and Miscellaneous Plastics Products - 0.98%
Goodyear Tire & Rubber Company (The) ... 1,000,000 63,625,000
Transportation By Air - 1.43%
AMR Corporation* ....................... 400,000 51,400,000
Delta Air Lines, Inc. .................. 350,000 41,671,700
Total ................................. 93,071,700
Transportation Equipment - 6.06%
AlliedSignal Inc. ...................... 1,400,000 54,511,800
Boeing Company (The) ................... 1,270,000 62,149,990
Chrysler Corporation ................... 2,750,000 96,764,250
Dana Corporation ....................... 760,000 36,100,000
Ford Motor Company ..................... 1,500,000 73,030,500
General Motors Corporation ............. 1,175,000 71,234,375
Total ................................. 393,790,915
Wholesale Trade -- Durable Goods - 0.70%
Motorola, Inc. ......................... 800,000 45,649,600
Wholesale Trade -- Nondurable Goods - 0.54%
Safeway Inc.* .......................... 550,000 34,718,750
TOTAL COMMON STOCKS - 91.65% $5,952,602,459
(Cost: $3,145,426,762)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Depository Institutions - 0.16%
Morgan Guaranty Trust Company of New York,
7.375%, 2-1-2002 ...................... $10,250 $ 10,655,695
Nondepository Institutions - 0.18%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 10,000 11,561,800
TOTAL CORPORATE DEBT SECURITIES - 0.34% $ 22,217,495
(Cost: $20,010,806)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
6.75%, 4-30-2000 ...................... 37,000 37,843,970
5.75%, 8-15-2003 ...................... 50,000 50,031,000
10.375%, 11-15-2012 ................... 8,500 11,294,375
9.0%, 11-15-2018 ...................... 20,000 27,018,800
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 1.94% $ 126,188,145
(Cost: $114,887,534)
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 0.62%
duPont (E.I.) de Nemours and Company:
5.75%, 1-21-98 ........................ 10,330 10,297,001
5.75%, 1-23-98 ........................ 25,000 24,912,153
Monsanto Company,
5.82%, 1-15-98 ........................ 5,195 5,183,242
Total ................................. 40,392,396
Communication - 0.70%
Ameritech Corp.,
5.89%, 2-3-98 ......................... 20,430 20,319,695
Bell Atlantic Financial Services Inc.,
5.8%, 1-5-98 .......................... 25,000 24,983,889
Total ................................. 45,303,584
Depository Institutions - 0.51%
Canadian Imperial Holdings Inc.,
5.82%, 1-7-98 ......................... 26,000 25,974,780
National Australia Funding (DE) Inc.,
5.8%, 1-12-98 ......................... 6,920 6,907,736
Total ................................. 32,882,516
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Electric, Gas and Sanitary Services - 1.06%
Carolina Power & Light Co.,
6.1%, 1-21-98 ......................... $ 1,740 $ 1,734,103
Commonwealth Edison Co.:
6.18%, 1-14-98 ........................ 1,460 1,456,742
6.18%, 1-28-98 ........................ 14,620 14,552,236
Florida Power Corp.,
5.77%, 1-29-98 ........................ 8,500 8,461,854
Idaho Power Co.,
5.82%, 1-5-98 ......................... 5,000 4,996,767
Public Service Co. Of Colorado,
6.1%, 1-8-98 .......................... 33,000 32,960,858
Puget Sound Energy Inc.,
6.12%, 1-9-98 ......................... 4,860 4,853,391
Total ................................. 69,015,951
Fabricated Metal Products - 0.00%
Danaher Corporation,
5.7227%, Master Note .................. 110 110,000
Food and Kindred Products - 0.62%
ConAgra Inc.,
6.7%, 1-15-98 ......................... 1,000 997,395
Hercules Inc.,
6.09%, 1-16-98 .................7,655 7,635,575
Seagram (Joseph E.) & Sons Inc.:
5.85%, 1-15-98 ........................ 21,880 21,830,223
6.45%, 1-15-98 ........................ 1,085 1,082,279
5.8%, 2-2-98 .......................... 8,600 8,555,662
Total ................................. 40,101,134
Food Stores - 0.22%
Albertson's Inc.,
5.76%, 1-22-98 ........................ 14,515 14,466,230
Industrial Machinery and Equipment - 0.06%
Hewlett-Packard Company,
5.95%, 1-21-98 ........................ 4,040 4,026,646
Instruments and Related Products - 0.39%
Baxter International Inc.:
6.07%, 1-14-98 ................10,18510,162,675
6.1%, 1-30-98 15,000......14,926,292
Total ................................. 25,088,967
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES(Continued)
Commercial Paper (Continued)
Insurance Agents, Brokers and Service - 0.09%
Aon Corp.,
5.9%, 1-30-98 ......................... $ 5,645 $ 5,618,171
Insurance Carriers - 0.20%
USAA Capital Corp.:
5.9%, 1-21-98 ......................... 9,425 9,394,107
5.72%, 2-3-98 ......................... 3,695 3,675,626
Total ................................. 13,069,733
Motion Pictures - 0.32%
Walt Disney Company (The),
5.7%, 1-13-98 ......................... 20,780 20,740,518
Nondepository Institutions - 0.89%
Deere (John) Capital Corp.,
5.75%, 1-15-98 ........................ 24,640 24,584,902
General Electric Capital Corporation,
5.79%, 1-7-98 ......................... 9,670 9,660,668
Island Finance Puerto Rico Inc.,
5.72%, 1-30-98 ........................ 4,150 4,130,878
Textron Financial Corp.:
6.0%, 1-20-98 ......................... 18,000 17,943,000
6.05%, 2-4-98 ......................... 1,650 1,640,572
Total ................................. 57,960,020
Printing and Publishing - 0.01%
American Greetings Corp.,
5.8%, 1-9-98 .......................... 1,000 998,711
Tobacco Products - 0.42%
B.A.T Capital Corp.:
5.9%, 1-20-98 7,055........7,033,031
5.8%, 1-23-98 20,070......19,998,863
Total 27,031,894
TOTAL SHORT-TERM SECURITIES - 6.11% $ 396,806,471
(Cost: $396,806,471)
TOTAL INVESTMENT SECURITIES - 100.04% $6,497,814,570
(Cost: $3,677,131,573)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.04%) (2,825,126)
NET ASSETS - 100.00% $6,494,989,444
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 1.13%
Nordstrom, Inc. ......................... 300,000 $ 18,075,000
Business Services - 0.67%
Cerner Corporation* .................... 500,000 10,656,000
Chemicals and Allied Products - 15.38%
American Home Products Corporation ..... 775,000 59,287,500
Centocor, Inc.* ........................ 200,000 6,675,000
Gilead Sciences* ....................... 200,000 7,675,000
Novartis AG, ADR ....................... 900,000 73,068,300
Pfizer Inc. ............................ 500,000 37,281,000
Warner-Lambert Company ................. 500,000 62,000,000
Total ................................. 245,986,800
Communication - 10.44%
Intermedia Communications of Florida, Inc.* 397,800 24,141,289
LCI International, Inc.* ............... 700,000 21,525,000
Southern New England Telecommunications
Corporation ........................... 377,000 18,967,624
Sprint Corporation ..................... 550,000 32,243,750
Telecom Italia S.p.A., ADR ............. 350,000 22,400,000
Teleport Communications Group Inc.* .... 500,000 27,468,500
360. Communications Company* ........... 1,000,000 20,187,000
Total ................................. 166,933,163
Depository Institutions - 17.49%
AmSouth Bancorporation ................. 150,000 8,146,800
BankAmerica Corporation* ............... 550,000 40,150,000
Compass Bancshares, Inc. ............... 150,000 6,571,800
Credit Suisse Group, Registered
Shares (C) ............................ 135,000 20,881,528
Crestar Financial Corporation .......... 400,000 22,800,000
First American Corporation ............. 500,000 24,906,000
First Chicago NBD Corporation .......... 350,000 29,202,950
First Virginia Banks, Inc. ............. 300,000 15,525,000
Fleet Financial Group, Inc. ............ 255,000 19,108,935
Mellon Bank Corporation ................ 550,000 33,343,750
Mercantile Bancorporation Inc. ......... 218,400 13,431,600
Mercantile Bankshares Corporation ...... 310,000 12,012,500
Northern Trust Corporation ............. 100,000 7,000,000
Riggs National Corporation ............. 400,000 10,800,000
Washington Federal Inc. ................ 500,000 15,734,000
Total ................................. 279,614,863
Eating and Drinking Places - 1.05%
Wendys International, Inc. ............. 700,000 16,843,400
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS (Continued)
Electric, Gas and Sanitary Services - 3.27%
Columbia Gas System, Inc. (The) ........ 200,000 $ 15,712,400
Sonat Inc. ............................. 800,000 36,600,000
Total ................................. 52,312,400
Food and Kindred Products - 1.51%
Nabisco Holdings, Class A .............. 500,000 24,218,500
General Merchandise Stores - 1.35%
Federated Department Stores, Inc.* ..... 500,000 21,531,000
Health Services - 1.12%
Total Renal Care Holdings, Inc.* ....... 650,000 17,956,250
Holding and Other Investment Offices - 3.16%
Duke Realty Investments, Inc. .......... 300,000 7,275,000
Equity Residential Properties .......... 150,000 7,612,500
Grupo Financiero Banamex Accival,
S.A. de C.V., B, CPO Shares (C)* ...... 2,500,000 7,483,267
Kilroy Realty Corporation .............. 550,000 15,812,500
Mack-Cali Realty Corporation ........... 300,000 12,300,000
Total ................................. 50,483,267
Instruments and Related Products - 1.58%
Baxter International Inc. .............. 500,000 25,218,500
Insurance Agents, Brokers and Service - 3.09%
Humana Inc.* ........................... 1,300,000 26,975,000
Marsh & McLennan Companies, Inc. ....... 300,000 22,368,600
Total ................................. 49,343,600
Insurance Carriers - 9.21%
Chartwell Re Corporation ............... 500,000 16,875,000
Chubb Corporation (The) ................ 500,000 37,812,500
Liberty Corporation (The) .............. 350,000 16,362,500
Ohio Casualty Corporation .............. 350,000 15,793,750
Penn-America Group, Inc. ............... 150,000 3,065,550
ReliaStar Financial Corp. .............. 700,000 28,830,900
Trenwick Group Inc. .................... 500,000 18,437,500
Vesta Insurance Group, Inc. ............ 171,500 10,182,812
Total ................................. 147,360,512
Miscellaneous Retail - 0.98%
Costco Companies, Inc.* ................ 350,000 15,607,550
Nondepository Institutions - 3.79%
CIT Group, Inc. (The), Class A* ........ 500,000 16,125,000
Fannie Mae ............................. 450,000 25,677,900
Freddie Mac ............................ 450,000 18,871,650
Total ................................. 60,674,550
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS (Continued)
Oil and Gas Extraction - 2.40%
Schlumberger Limited ................... 250,000 $ 20,125,000
Western Atlas, Inc.* ................... 250,000 18,265,500
Total.................................. 38,390,500
Petroleum and Coal Products - 1.33%
Unocal Corporation ..................... 550,000 21,346,600
Printing and Publishing - 1.16%
Gannett Co., Inc. ...................... 300,000 18,543,600
Security and Commodity Brokers - 2.04%
Bear Stearns Companies Inc. (The) ...... 323,500 15,366,250
Paine Webber Group Inc. ................ 500,000 17,281,000
Total ................................. 32,647,250
Transportation Equipment - 1.71%
Hayes Wheels International, Inc.* ...... 235,000 6,580,000
Northrop Grumman Corporation ........... 180,000 20,700,000
Total ................................. 27,280,000
TOTAL COMMON STOCKS - 83.86% $1,341,023,305
(Cost: $1,223,694,190)
PREFERRED STOCK - 0.64%
Real Estate
Equity Residential Properties, 7.25% ... 400,000 $ 10,250,000
(Cost: $10,012,400)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 2.38%
Air Products and Chemicals Inc.,
5.85%, 1-23-98 ........................ $ 4,355 4,339,431
Monsanto Company,
5.82%, 1-15-98 ........................ 26,740 26,679,478
Procter & Gamble Company (The),
5.9%, 1-16-98 ......................... 7,085 7,067,583
Total ................................. 38,086,492
Communication - 1.03%
BellSouth Telecommunications, Inc.,
5.95%, 1-7-98 ......................... 8,195 8,186,873
GTE Corporation,
6.55%, 1-27-98 ........................ 8,330 8,290,595
Total ................................. 16,477,468
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES(Continued)
Commercial Paper (Continued)
Depository Institutions - 1.96%
J.P. Morgan & Co. Incorporated,
5.8%, 2-5-98 .......................... $22,060 $ 21,935,607
Toronto-Dominion Holdings USA Inc.:
5.77%, 1-12-98 ........................ 4,360 4,352,313
5.85%, 1-12-98 ........................ 4,975 4,966,107
Total ................................. 31,254,027
Electric, Gas and Sanitary Services - 3.60%
Bay State Gas Co.,
5.62%, 1-5-98 ......................... 645 644,597
Commonwealth Edison Co.,
6.18%, 1-14-98 ........................ 6,540 6,525,405
Georgia Power Co.,
5.88%, 1-15-98 ........................ 25,000 24,942,833
Public Service Electric & Gas Co.,
5.85%, 2-3-98 ......................... 1,055 1,049,343
Southern California Edison Co.:
5.78%, 1-15-98 ........................ 8,520 8,500,849
5.83%, 1-15-98 ........................ 16,000 15,963,724
Total ................................. 57,626,751
Electronic and Other Electric Equipment - 0.72%
Sony Capital Corp.,
5.86%, 2-4-98 ......................... 7,000 6,961,259
Whirlpool Corp.,
6.5%, 1-5-98 .......................... 4,580 4,576,692
Total ................................. 11,537,951
Fabricated Metal Products - 0.00%
Danaher Corporation,
5.7227%, Master Note .................. 49 49,000
Food and Kindred Products - 1.79%
ConAgra, Inc.,
6.72%, 1-9-98 ......................... 1,970 1,967,058
Heinz (H.J.) Company,
5.8%, 2-10-98 17,000......16,890,445
Hercules Inc.:
6.05%, 1-9-98 5,425........5,417,707
6.15%, 1-9-98 2,770........2,766,214
Seagram (Joseph E.) & Sons Inc.,
5.8%, 2-2-98 .......................... 1,590 1,581,803
Total ................................. 28,623,227
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES(Continued)
Commercial Paper (Continued)
Industrial Machinery and Equipment - 0.10%
Hewlett-Packard Company,
5.77%, 1-5-98 ......................... $ 1,515 $ 1,514,029
Insurance Carriers - 0.25%
Transamerica Finance Corp.,
5.75%, 1-22-98 ........................ 4,005 3,991,567
Metal Mining - 0.38%
BHP Finance (USA) Inc.,
5.72%, 1-13-98 ........................ 6,000 5,988,560
Nondepository Institutions - 2.09%
General Electric Capital Corp.,
5.79%, 1-7-98 ......................... 19,530 19,511,154
Textron Financial Corp.,
6.15%, 1-29-98 ........................ 14,000 13,933,033
Total ................................. 33,444,187
Personal Services - 0.86%
Block Financial Corp.:
5.77%, 1-16-98 ........................ 5,000 4,987,979
5.77%, 1-20-98 ........................ 3,573 3,562,119
5.82%, 2-19-98 ........................ 5,290 5,248,094
Total ................................. 13,798,192
Petroleum and Coal Products - 0.13%
BP America Inc.,
6.1%, 1-21-98 ......................... 2,090 2,082,917
Textile Mill Products - 0.34%
Sara Lee Corporation,
5.5727%, Master Note .................. 5,421 5,421,000
Transportation Equipment - 0.62%
Dana Credit Corp.,
6.03%, 2-2-98 ......................... 10,000 9,946,400
Total Commercial Paper - 16.25% 259,841,768
Municipal Obligations - 0.43%
California
California Pollution Control Financing Authority,
Environmental Improvement Revenue Bonds
(Shell Martinez Refining Company Project),
Series 1996 (Taxable),
5.95%, 1-14-98 ........................ 6,840 6,840,000
TOTAL SHORT-TERM SECURITIES - 16.68% $ 266,681,768
(Cost: $266,681,768)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1997
Value
TOTAL INVESTMENT SECURITIES - 101.18% $1,617,955,073
(Cost: $1,500,388,358)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.18%) (18,912,611)
NET ASSETS - 100.00% $1,599,042,462
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS
Building Materials and Garden Supplies - 0.88%
Fastenal Company ....................... 244,600 $ 9,401,690
Business Services - 34.79%
America Online, Inc.* .................. 500,000 44,593,500
Autodesk, Inc. ......................... 325,000 11,984,375
BMC Software, Inc.* .................... 400,000 26,224,800
CKS Group, Inc.* ....................... 400,000 5,662,400
Cendant Corporation* ................... 1,000,000 34,375,000
Concord EFS, Inc.* ..................... 400,000 9,974,800
E*TRADE Group, Inc.* ................... 212,500 4,894,088
HBO & Company .......................... 745,400 35,755,347
HCIA Inc.* ............................. 300,000 3,637,500
HNC Software Inc.* ..................... 270,000 11,660,490
i2 Technologies, Inc.* ................. 279,500 14,752,290
Intuit Inc.* ........................... 510,000 21,069,120
J. D. Edwards* ......................... 252,700 7,501,905
Microsoft Corporation* ................. 175,000 22,613,150
Networks Associates, Inc.* ............. 300,000 15,834,300
Parametric Technology Corporation* ..... 210,000 9,935,520
Primark Corporation* ................... 50,000 2,034,350
Security Dynamics Technologies, Inc.* .. 200,000 7,162,400
Shared Medical Systems Corporation ..... 300,000 19,800,000
TMP Worldwide Inc.* .................... 500,000 11,437,500
Transaction Systems Architects, Inc.* .. 300,000 11,381,100
Veritas Software Corp.* ................ 120,000 6,105,000
Wind River Systems, Inc.* .............. 476,700 18,829,650
Yahoo! Inc.* ........................... 200,000 13,868,600
Total ................................. 371,087,185
Chemicals and Allied Products - 11.90%
Abbott Laboratories .................... 325,000 21,307,650
Lilly (Eli) and Company ................ 400,000 27,850,000
Pfizer Inc. ............................ 400,000 29,824,800
Roche Holdings AG (C) .................. 1,200 11,912,942
Schering-Plough Corporation ............ 300,000 18,637,500
Warner-Lambert Company ................. 140,000 17,360,000
Total ................................. 126,892,892
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS (Continued)
Communication - 7.37%
AirTouch Communications* ............... 300,000 $ 12,468,600
COLT Telecom Group plc, ADR* ........... 100,000 4,231,200
Intermedia Communications of Florida, Inc.* 500,000 30,343,500
Teleport Communications Group Inc.* .... 300,000 16,481,100
WorldCom, Inc.* ........................ 500,000 15,140,500
Total ................................. 78,664,900
Depository Institutions - 1.26%
Credit Suisse Group,
Registered Shares (C) ................. 87,000 13,456,985
Electronic and Other Electric Equipment - 12.94%
ADE Corporation* ....................... 179,500 3,141,250
Advanced Fibre Communications, Inc.* ... 600,000 17,550,000
Altera Corp.* .......................... 300,000 9,946,800
ANADIGICS, Inc.* ....................... 99,000 3,007,125
Ciena Corp.* ........................... 100,000 6,125,000
Excel Switching Corporation* ........... 57,000 1,022,409
General Electric Company ............... 400,000 29,350,000
Intel Corporation ...................... 200,000 14,043,600
Linear Technology Corporation .......... 200,000 11,512,400
PairGain Technologies, Inc.* ........... 400,000 7,762,400
Tellabs* ............................... 400,000 21,112,400
Texas Instruments Incorporated ......... 300,000 13,500,000
Total ................................. 138,073,384
Engineering and Management Services - 4.73%
Incyte Pharmaceuticals, Inc.* .......... 410,000 18,296,250
Paychex, Inc. .......................... 330,000 16,767,960
Quintiles Transnational Corp.* ......... 400,000 15,350,000
Total ................................. 50,414,210
Furniture and Fixtures - 1.11%
Lear Corporation* ...................... 250,000 11,875,000
Health Services - 1.93%
Concentra Managed Care, Inc.* .......... 357,200 12,032,996
Vencor, Incorporated* .................. 350,000 8,552,950
Total ................................. 20,585,946
Industrial Machinery and Equipment - 3.16%
Cisco Systems, Inc.* ................... 479,700 26,773,016
Culligan Water Technologies, Inc.* ..... 101,500 5,100,375
Kulicke & Soffa Industries, Inc.* ...... 100,000 1,868,700
Total ................................. 33,742,091
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1997
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 3.78%
Medtronic, Inc. ........................ 400,000 $ 20,924,800
STERIS Corporation* .................... 400,000 19,400,000
Total ................................. 40,324,800
Petroleum and Coal Products - 2.71%
Tosco Corporation ...................... 350,000 13,234,200
Valero Energy Corporation .............. 500,000 15,718,500
Total ................................. 28,952,700
Wholesale Trade -- Durable Goods - 3.70%
Johnson & Johnson ...................... 175,000 11,528,125
OmniCare, Inc. ......................... 900,000 27,900,000
Total ................................. 39,428,125
Wholesale Trade -- Nondurable Goods - 2.13%
Cardinal Health, Inc. .................. 301,966 22,685,196
TOTAL COMMON STOCKS - 92.39% $ 985,585,104
(Cost: $681,046,668)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Communication - 1.89%
Ameritech Corp.,
5.89%, 2-3-98 ......................... $20,230 20,120,775
Depository Institutions - 1.90%
National Australia Funding (DE) Inc.,
5.8%, 1-12-98 ......................... 8,545 8,529,856
Toronto-Dominion Holdings USA Inc.,
5.77%, 1-12-98 ........................ 11,775 11,754,240
Total ................................. 20,284,096
Electric, Gas and Sanitary Services - 1.74%
Southern California Edison Company,
5.78%, 1-15-98 ........................ 5,480 5,467,682
Western Resources Inc.,
6.0%, 1-9-98 7,330........7,320,227
Wisconsin Electric Power Co.,
5.77%, 2-10-98 ........................ 5,850 5,812,495
Total ................................. 18,600,404
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1997
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Fabricated Metal Products - 0.08%
Danaher Corporation,
5.7227%, Master Note .................. $ 850 $ 850,000
General Merchandise Stores - 1.03%
Dillard Investment Co. Inc.,
5.88%, 1-6-98 ......................... 11,000 10,991,017
Nondepository Institutions - 0.30%
Associates Corporation of North America,
5.77%, 2-9-98 ......................... 3,215 3,194,903
Personal Services - 0.65%
Block Financial Corp.,
5.9%, 1-7-98 .......................... 7,000 6,993,117
Petroleum and Coal Products - 0.38%
BP America Inc.,
5.9%, 1-21-98 ......................... 4,055 4,041,709
Security and Commodity Brokers - 0.23%
Merrill Lynch & Co. Inc.,
5.81%, 1-16-98 ........................ 2,420 2,414,141
Textile Mill Products - 0.04%
Sara Lee Corporation,
5.5727%, Master Note .................. 480 480,000
TOTAL SHORT-TERM SECURITIES - 8.24% $ 87,970,162
(Cost: $87,970,162)
TOTAL INVESTMENT SECURITIES - 100.63% $1,073,555,266
(Cost: $769,016,830)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.63%) (6,761,315)
NET ASSETS - 100.00% $1,066,793,951
See Notes to Schedules of Investments on page .
<PAGE>
UNITED FUNDS, INC.
DECEMBER 31, 1997
Notes to Schedules of Investments
*No dividends were paid during the preceding 12 months.
(A) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(B) As of December 31, 1997, the following restricted security was owned:
Principal
Acquisition Amount Market
Security Date in Thousands Cost Value
-------- ----------- --------------------------------
United Bond Fund
CHYPS CBO 1997-1 Ltd.,
6.72%, 1-15-2010 11/25/97 $8,500$8,183,019 $8,223,750
========== ==========
The total market value of restricted securities represents approximately
1.56% of the total net assets at December 31, 1997.
(C) 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, 1997
<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) .... $523,952,118 $6,497,814,570 $1,617,955,073 $1,073,555,266
Cash .......................... --- --- --- 4,549
Receivables:
Investment securities sold .. --- 20,334,806 --- 1,837,439
Dividends and interest ...... 6,846,984 7,168,003 1,709,774 568,001
Fund shares sold .............. 888,584 7,097,178 1,053,539 961,113
Prepaid insurance premium ..... 16,368 62,728 35,732 13,225
------------ -------------- -------------- --------------
Total assets ................ 531,704,054 6,532,477,285 1,620,754,118 1,076,939,593
------------ -------------- -------------- --------------
Liabilities
Payable for investment
securities purchased ........ --- 2,197,852 20,759,792 ---
Payable to Fund shareholders .. 2,679,261 31,747,789 73,837 9,452,513
Accrued service fee (Note 2) .. 207,098 2,549,745 602,681 393,121
Accrued transfer agency
and dividend disbursing
(Note 2) .................... 61,766 629,395 150,945 207,035
Accrued management
fee (Note 2) ................ 6,172 97,186 23,933 17,444
Due to custodian .............. 10,733 26,608 22,950 ---
Accrued accounting
services fee (Note 2) ....... 5,000 8,333 8,333 8,333
Other ......................... 38,241 230,933 69,185 67,196
------------ -------------- -------------- --------------
Total liabilities ........... 3,008,271 37,487,841 21,711,656 10,145,642
------------ -------------- -------------- --------------
Total net assets .......... $528,695,783 $6,494,989,444 $1,599,042,462 $1,066,793,951
============ ============== ============== ==============
Net Assets
$1.00 par value capital stock
Capital stock ............... $ 83,692,392 $ 171,163,106 $ 205,830,288 $ 53,005,490
Additional paid-in capital .. 445,909,085 3,367,156,982 1,251,888,135 690,471,195
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income ..... 369,716 1,964,249 3,786,861 ---
Accumulated undistributed net
realized gain (loss) on
investment transactions ... (23,247,081) 134,040,474 19,970,463 18,775,979
Net unrealized appreciation
of investments ............ 21,971,671 2,820,664,633 117,566,715 304,541,287
------------ -------------- -------------- --------------
Net assets applicable to
outstanding units
of capital .............. $528,695,783 $6,494,989,444 $1,599,042,462 $1,066,793,951
============ ============== ============== ==============
Net asset value per share
(net assets divided by
shares outstanding)
Class A ....................... $6.32 $37.95 $7.77 $20.13
Class Y ....................... $6.32 $37.95 $7.77 $20.21
Capital shares outstanding
Class A ....................... 82,881,735 163,272,437 205,368,815 52,791,385
Class Y ....................... 810,657 7,890,669 461,473 214,105
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, 1997
<TABLE>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
------------ -------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment Income
Income (Note 1B):
Dividends ................... $ --- $ 75,978,463 $ 9,278,199 $ 3,405,630
Interest and amortization ..... 36,844,690 18,616,823 9,900,758 5,043,858
------------ -------------- -------------- --------------
Total income ................ 36,844,690 94,595,286 29,178,957 8,449,488
------------ -------------- -------------- --------------
Expenses (Note 2):
Investment management fee ..... 2,221,667 32,837,940 8,111,304 5,997,091
Transfer agency and dividend
disbursing -- Class A ....... 818,069 6,811,413 1,525,434 2,181,649
Service fee -- Class A ........ 749,908 8,740,306 2,042,469 1,617,788
Custodian fees ................ 17,074 384,819 86,176 57,891
Accounting services fee ....... 60,000 100,000 100,000 93,750
Audit fees .................... 15,415 25,598 17,850 18,010
Shareholder servicing
fee -- Class Y .............. 8,952 374,630 6,002 7,019
Legal fees .................... 6,296 69,847 17,088 12,308
Other ......................... 102,186 829,845 191,753 253,103
------------ -------------- -------------- --------------
Total expenses .............. 3,999,567 50,174,398 12,098,076 10,238,609
------------ -------------- -------------- --------------
Net investment income (loss) 32,845,123 44,420,888 17,080,881 (1,789,121)
------------ -------------- -------------- --------------
Realized and Unrealized
Gain (Loss) on Investments (Notes 1 and 3)
Realized net gain on securities 2,969,351 621,709,672 312,008,177 193,782,308
Realized net gain (loss) on foreign
currency transactions ....... --- (162,511) 54,791 (109,327)
------------ -------------- -------------- --------------
Realized net gain
on investments ............ 2,969,351 621,547,161 312,062,968 193,672,981
Unrealized appreciation
(depreciation) in value
of investments during
the period .................. 11,847,471 724,668,926 45,070,341 (115,957,441)
------------ -------------- -------------- --------------
Net gain on investments ..... 14,816,822 1,346,216,087 357,133,309 77,715,540
------------ -------------- -------------- --------------
Net increase in
net assets resulting
from operations ......... $47,661,945 $1,390,636,975 $374,214,190 $75,926,419
=========== ============== ============== ==============
See notes to financial statements.
</TABLE>
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended December 31, 1997
<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) ............. $ 32,845,123 $ 44,420,888 $ 17,080,881 $ (1,789,121)
Realized net gain
on investments ............ 2,969,351 621,547,161 312,062,968 193,672,981
Unrealized appreciation
(depreciation) ............ 11,847,471 724,668,926 45,070,341 (115,957,441)
------------ -------------- -------------- --------------
Net increase in net assets
resulting from operations 47,661,945 1,390,636,975 374,214,190 75,926,419
------------ -------------- -------------- --------------
Distributions to shareholders
from (Note 1E):*
Net investment income
Class A ................... (32,938,829) (43,070,623) (14,624,558) ---
Class Y ................... (339,238) (2,161,477) (34,484) ---
Realized net gains on
investment transactions
Class A ................... --- (534,500,984) (344,991,667) (194,627,909)
Class Y ................... --- (25,550,868) (761,195) (789,437)
------------ -------------- -------------- --------------
(33,278,067) (605,283,952) (360,411,904) (195,417,346)
------------ -------------- -------------- --------------
Capital share
transactions (Note 5) ....... (16,340,506) 707,873,108 297,373,384 202,647,531
------------ -------------- -------------- --------------
Total increase (decrease) ... (1,956,628) 1,493,226,131 311,175,670 83,156,604
Net Assets
Beginning of period ........... 530,652,411 5,001,763,313 1,287,866,792 983,637,347
------------ -------------- -------------- --------------
End of period ................. $528,695,783 $6,494,989,444 $1,599,042,462 $1,066,793,951
============ ============== ============== ==============
Undistributed net investment
income .................... $369,716 $1,964,249 $3,786,861 $---
======== ========== ========== ====
*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, 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
------------ -------------- -------------- --------------
Distributions 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 gains 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>
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,
--------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
Net asset value,
beginning of period $6.14 $6.34 $5.62 $6.39 $6.31
---- ---- ---- ---- ----
Income from investment
operations:
Net investment income 0.39 0.39 0.40 0.39 0.41
Net realized and
unrealized gain
(loss) on
investments ..... 0.19 (0.20) 0.72 (0.75) 0.41
---- ---- ---- ---- ----
Total from investment
operations ....... 0.58 0.19 1.12 (0.36) 0.82
---- ---- ---- ---- ----
Less distributions:
From net investment
income .......... (0.40) (0.39) (0.40) (0.39) (0.41)
From capital gains (0.00) (0.00) (0.00) (0.02) (0.33)
---- ---- ---- ---- ----
Total distributions (0.40) (0.39) (0.40) (0.41) (0.74)
---- ---- ---- ---- ----
Net asset value,
end of period .... $6.32 $6.14 $6.34 $5.62 $6.39
===== ===== ===== ===== =====
Total return* ...... 9.77% 3.20% 20.50% -5.76% 13.19%
Net assets, end of
period (000
omitted) ......... $523,574$518,873$563,445$517,836$641,668
Ratio of expenses to
average net assets 0.77% 0.77% 0.74% 0.72% 0.65%
Ratio of net investment
income to average
net assets ....... 6.34% 6.34% 6.54% 6.60% 6.14%
Portfolio turnover
rate ............. 35.08% 55.74% 66.38%127.11% 175.39%
*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 ended period from
------------------------------ 6/19/95* to
12/31/97 12/31/96 12/31/95
---------- ---------- -----------
Net asset value,
beginning of period $6.14 $6.34 $6.11
---- ---- ----
Income from investment
operations:
Net investment income 0.42 0.40 0.21
Net realized and
unrealized gain (loss)
on investments .. 0.17 (0.20) 0.22
---- ---- ----
Total from investment
operations ....... 0.59 0.20 0.43
---- ---- ----
Less distributions:
From net investment
income........... (0.41) (0.40) (0.20)
From capital gains (0.00) (0.00) (0.00)
---- ---- ----
Total distributions (0.41) (0.40) (0.20)
---- ---- ----
Net asset value,
end of period .... $6.32 $6.14 $6.34
==== ==== ====
Total return ....... 9.91% 3.35% 7.20%
Net assets, end of
period (000
omitted) ......... $5,122 $11,779 $3,032
Ratio of expenses to
average net assets 0.64% 0.62% 0.63%**
Ratio of net investment
income to average
net assets ....... 6.48% 6.52% 6.41%**
Portfolio turnover
rate ............. 35.08% 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,
--------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
Net asset value,
beginning of period $32.91 $28.96 $23.34 $24.77 $22.05
----- ----- ----- ----- -----
Income from investment
operations:
Net investment income 0.28 0.33 0.36 0.36 0.40
Net realized and
unrealized gain
(loss) on
investments ..... 8.64 5.53 6.53 (0.80) 3.11
----- ----- ----- ----- -----
Total from investment
operations ....... 8.92 5.86 6.89 (0.44) 3.51
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.29) (0.32) (0.35) (0.36) (0.40)
From capital gains (3.59) (1.59) (0.92) (0.63) (0.39)
----- ----- ----- ----- -----
Total distributions (3.88) (1.91) (1.27) (0.99) (0.79)
----- ----- ----- ----- -----
Net asset value,
end of period .... $37.95 $32.91 $28.96 $23.34 $24.77
====== ====== ====== ====== ======
Total return* ...... 27.34% 20.36% 29.60% -1.82% 16.05%
Net assets, end of
period (000
omitted) .........$6,195,522$4,850,419$3,975,717$3,144,904$3,060,073
Ratio of expenses to
average net assets 0.84% 0.86% 0.83% 0.74% 0.66%
Ratio of net investment
income to average
net assets ....... 0.74% 1.03% 1.31% 1.45% 1.70%
Portfolio turnover
rate ............. 33.59% 22.24% 17.59% 18.54% 21.70%
Average commission
rate paid ........ $0.0534$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 ended period from
------------------------- 6/19/95* to
12/31/97 12/31/96 12/31/95
---------- ---------- -----------
Net asset value,
beginning of period $32.91 $28.96 $27.73
----- ----- -----
Income from investment
operations:
Net investment income 0.33 0.36 0.21
Net realized and
unrealized gain
on investments .. 8.64 5.54 2.14
----- ----- -----
Total from investment
operations ....... 8.97 5.90 2.35
----- ----- -----
Less distributions:
From net investment
income........... (0.34) (0.36) (0.20)
From capital gains (3.59) (1.59) (0.92)
----- ----- -----
Total distributions (3.93) (1.95) (1.12)
----- ----- -----
Net asset value,
end of period .... $37.95 $32.91 $28.96
===== ===== =====
Total return ....... 27.49% 20.53% 8.45%
Net assets, end of
period (000
omitted) ......... $299,467 $151,344 $107,703
Ratio of expenses to
average net assets 0.72% 0.73% 0.74%**
Ratio of net investment
income to average
net assets ....... 0.85% 1.17% 1.36%**
Portfolio turnover
rate ............. 33.59% 22.24% 17.59%**
Average commission
rate paid ........ $0.0534 $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,
-----------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
Net asset value,
beginning of period $7.75 $7.78 $6.58 $7.19 $7.50
---- ---- ---- ---- ----
Income from investment
operations:
Net investment
income........... 0.10 0.11 0.11 0.13 0.11
Net realized and
unrealized gain
(loss) on
investments ..... 2.14 0.82 2.12 (0.13) 0.55
---- ---- ---- ---- ----
Total from investment
operations ....... 2.24 0.93 2.23 0.00 0.66
---- ---- ---- ---- ----
Less distributions:
From net investment
income .......... (0.09) (0.11) (0.11) (0.13) (0.11)
From capital gains (2.13) (0.85) (0.92) (0.48) (0.84)
In excess of
capital gains.... (0.00) (0.00) (0.00) (0.00) (0.02)
---- ---- ---- ---- ----
Total distributions (2.22) (0.96) (1.03) (0.61) (0.97)
---- ---- ---- ---- ----
Net asset value,
end of period .... $7.77 $7.75 $7.78 $6.58 $7.19
==== ==== ==== ==== ====
Total return* ...... 29.58% 12.18% 34.21% 0.04% 9.06%
Net assets, end of
period (000
omitted) .........$1,595,457$1,285,227$1,206,128$967,020$1,033,774
Ratio of expenses to
average net assets 0.82% 0.83% 0.80% 0.71% 0.65%
Ratio of net investment
income to average
net assets ....... 1.16% 1.34% 1.42% 1.76% 1.34%
Portfolio turnover
rate ............. 313.99%240.37% 229.03%205.40% 230.29%
Average commission
rate paid ........ $0.0565$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 fiscal year ended period from
-------------------------- 7/11/95* to
12/31/97 12/31/96 12/31/95
---------- ---------- -----------
Net asset value,
beginning of period $7.75 $7.78 $7.84
---- ---- ----
Income from investment
operations:
Net investment income 0.11 0.12 0.05
Net realized and
unrealized gain
on investments .. 2.14 0.82 0.87
---- ---- ----
Total from investment
operations ....... 2.25 0.94 0.92
---- ---- ----
Less distributions:
From net investment
income........... (0.10) (0.12) (0.06)
From capital gains (2.13) (0.85) (0.92)
---- ---- ----
Total distributions (2.23) (0.97) (0.98)
---- ---- ----
Net asset value,
end of period .... $7.77 $7.75 $7.78
==== ==== ====
Total return ....... 29.67% 12.27% 11.92%
Net assets, end of
period (000
omitted) ......... $3,585 $2,640 $655
Ratio of expenses to
average net assets 0.75% 0.74% 0.76%**
Ratio of net investment
income to average
net assets ....... 1.22% 1.45% 1.24%**
Portfolio turnover
rate ............. 313.99% 240.37% 229.03%**
Average commission
rate paid ........ $0.0565 $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,
--------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
Net asset value,
beginning of period $23.35 $22.89 $15.21 $14.83 $14.64
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income (loss) ... (0.03) (0.07) (0.01) 0.00 0.01
Net realized and
unrealized gain on
investments ..... 1.39 2.00 8.40 1.40 1.21
----- ----- ----- ----- -----
Total from investment
operations ....... 1.36 1.93 8.39 1.40 1.22
----- ----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.00) (0.00) (0.00) (0.00) (0.01)
From capital gains (4.58) (1.47) (0.71) (1.02) (0.95)
In excess of
capital gains ... (0.00) (0.00) (0.00) (0.00) (0.07)
----- ----- ----- ----- -----
Total distributions (4.58) (1.47) (0.71) (1.02) (1.03)
----- ----- ----- ----- -----
Net asset value,
end of period .... $20.13 $23.35 $22.89 $15.21 $14.83
====== ====== ====== ====== ======
Total return* ...... 7.22% 8.35% 55.37% 9.78% 8.51%
Net assets, end of
period (000
omitted) ......... $1,062,467$980,547$820,783$496,503$446,611
Ratio of expenses to
average net assets 1.02% 0.98% 0.93% 0.96% 0.91%
Ratio of net investment
income to average
net assets ....... -0.18% -0.33% -0.07% 0.00% 0.06%
Portfolio turnover
rate ............. 87.68% 33.90% 32.89% 64.39% 68.38%
Average commission
rate paid ........ $0.0586$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 Each Period:
For the For the
fiscal period from
year ended 2/27/96* to
12/31/97 12/31/96
---------- ----------
Net asset value,
beginning of period $23.38 $24.05
----- -----
Income from investment
operations:
Net investment
loss ............ (0.00) (0.02)
Net realized and
unrealized gain
on investments .. 1.41 0.82
----- -----
Total from investment
operations ....... 1.41 0.80
----- -----
Less distributions:
From net investment
income .......... (0.00) (0.00)
From capital gains (4.58) (1.47)
----- -----
Total distributions (4.58) (1.47)
----- -----
Net asset value,
end of period .... $20.21 $23.38
===== =====
Total return ....... 7.43% 3.25%
Net assets, end of
period (000
omitted) ......... $4,327 $3,090
Ratio of expenses to
average net assets 0.85% 0.80%**
Ratio of net investment
income to average
net assets ....... -0.01% -0.12%**
Portfolio turnover
rate ............. 87.68% 33.90%**
Average commission
rate paid ........ $0.0586 $0.0538
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 the Nasdaq Stock Market, 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, 1997, United Science and Technology Fund
reclassified $1,898,448 between additional paid-in-capital and
undistributed net investment income. In addition, for each of the Funds,
the following amounts were reclassified between accumulated undistributed
net investment income and accumulated undistributed net realized gain on
investment transactions.
Increase Increase
(Decrease) (Decrease)
Undistributed Undistributed
Net Investment Net Realized
Income Gain
------ ------
United Income Fund $(162,511) $162,511
United Accumulative Fund 54,791 (54,791)
United Science and Technology Fund (109,327) 109,327
Net investment income, net realized gains and net assets were not affected
by these changes.
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 $17.8 billion of
combined net assets at December 31, 1997) at annual rates of .51% of the first
$750 million of combined net assets, .49% on that amount between $750 million
and $1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between
$2.25 billion and $3 billion, .43% between $3 billion and $3.75 billion, .40%
between $3.75 billion and $7.5 billion, .38% between $7.5 billion and $12
billion, and .36% of that amount over $12 billion. The 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,
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 gross
sales commissions for Class A shares (which are not an expense of the
Corporation) of $28,736,826, out of which W&R paid sales commissions of
$16,627,651 and all expenses in connection with the sale of the Corporation's
shares, except for registration fees and related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's average annual net assets. The fee is to be paid to
reimburse W&R for amounts it expends in connection with the distribution of the
Class A shares and/or provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts.
The Corporation paid Directors' fees of $321,632, which are included in
other expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Securities Transactions
Investment securities transactions for the period ended December 31, 1997
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 $128,181,313$1,936,936,021$4,055,830,225$797,167,769
Purchases of U.S. Government
securities 46,907,126 --- --- ---
Purchases of short-term
securities 249,805,2952,346,850,0393,167,343,5751,588,489,713
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 138,860,4042,084,253,1304,298,932,265 815,123,642
Proceeds from maturities and
sales of U.S. Government
securities 52,321,215 --- --- ---
Proceeds from maturities and sales
of short-term securities 250,573,8652,107,048,5802,969,969,9111,572,758,792
For Federal income tax purposes, cost of investments owned at December 31,
1997 and the related appreciation were as follows:
Aggregate
Cost AppreciationDepreciation Appreciation
-------------- --------------------------------------
United Bond Fund $ 501,980,447$ 22,275,152$ (303,481)$ 21,971,671
United Income Fund 3,677,131,5732,841,782,134(21,099,137) 2,820,682,997
United Accumulative 1,500,388,358 134,297,136(16,730,421) 117,566,715
Fund
United Science and
Technology Fund 769,016,830 360,251,075(55,712,639) 304,538,436
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
$621,709,672, $311,820,858 and $193,782,308, respectively, during the year ended
December 31, 1997, a portion of which was paid to shareholders during the period
ended December 31, 1997. 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 $2,969,351 during the year ended December
31, 1997, which was entirely offset by utilization of capital loss
carryforwards. Remaining prior year capital loss carryforwards of United Bond
Fund aggregated $23,229,705 as of December 31, 1997, and are available to offset
future capital gain net income as follows: $23,148,802 through December 31,
2002 and $80,903 through December 31, 2003.
NOTE 5 -- 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 Distribution and Service Plan and have a separate
transfer agency and dividend disbursement services fee structure. A
comprehensive discussion of the terms under which shares of either class are
offered is contained in the prospectus and the Statement of Additional
Information for the 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, 1997
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 ............ 6,890,848 22,609,422 8,676,214 32,462,059
Class Y ............ 195,545 3,328,299 51,857 71,281
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class A ............ 4,598,290 14,525,036 44,000,209 9,928,643
Class Y ............ 48,642 741,519 104,354 41,858
Shares redeemed:
Class A ............ (13,058,549) (21,267,365) (13,115,628)(31,598,843)
Class Y ............ (1,350,485) (778,441) (35,296) (31,198)
---------- ---------- ---------- ----------
Increase (decrease) in
outstanding capital
shares:
Class A ............ (1,569,411) 15,867,093 39,560,795 10,791,859
Class Y ............ (1,106,298) 3,291,377 120,915 81,941
---------- ---------- ---------- ----------
Total for Fund .... (2,675,709) 19,158,470 39,681,710 10,873,800
========== ========== ========== ==========
Value issued from sale
of shares:
Class A ............ $42,624,034 $862,082,128 $ 77,295,991$749,062,722
Class Y ............ 1,204,170 120,863,457 450,168 1,701,306
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class A ............ 28,302,450 542,416,253 335,422,948 186,553,441
Class Y ............ 299,565 27,712,409 795,679 789,437
Value redeemed:
Class A ............ (80,507,229) (814,233,373) (116,278,756)(734,711,669)
Class Y ............ (8,263,496) (30,967,766) (312,646) (747,706)
----------- ------------ ------------------------
Increase (decrease) in
outstanding capital:
Class A ............ (9,580,745) 590,265,008 296,440,183 200,904,494
Class Y ............ (6,759,761) 117,608,100 933,201 1,743,037
----------- ------------ ------------------------
Total for Fund .... $(16,340,506) $707,873,108 $297,373,384$202,647,531
=========== ============ ========================
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
============ ============ ========================
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Funds, Inc.:
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of United Bond Fund, United Income Fund, United
Accumulative Fund, and United Science & Technology Fund (collectively the
"Funds"), comprising United Funds, Inc., as of December 31, 1997, and the
related statements of operations for the year then ended and changes in net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period 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.
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, 1997 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, 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, 1997, the
results of their operations, the changes in their net assets, and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 6, 1998
<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, 1997
Statement of Assets and Liabilities
For the year ended December 31, 1997
Statements of Operations
For each of the two years in the period ended December 31, 1997
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of December 31, 1997
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, filed May 30, 1997 as EX-99.B8-ufca
to Post-Effective Amendment No. 120 to the Registration Statement on
Form N-1A*
(9) Shareholder Servicing Agreement, attached hereto as EX-99.B9-ufssa
Fund Class A application, as amended, filed May 30, 1997 as EX-99.B9-
ufappca to Post-Effective Amendment No. 120 to the Registration
Statement on Form N-1A*
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
(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, as amended, filed December 29, 1997 as
EX-99.B14-20-simple to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
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.
27. Transfer Amendment to Basic Plan Document filed December 29, 1997
as EX-99.B14-27-asamend to Post-Effective Amendment No. 6 to the
Registration Statement on Form N-1A of United Asset Strategy
Fund, 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 February 28, 1998
-------------- ------------------------------
Class A Capital Stock 479,017
Class Y Capital Stock 1,252
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. 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.
Advantage I
Advantage II
Advantage Plus
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(b) 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 27th
day of March, 1998.
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 March 27, 1998
- ---------------------- ------------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director March 27, 1998
- ---------------------- (Principal Executive ------------------
Keith A. Tucker Officer)
/s/Theodore W. Howard* Vice President, March 27, 1998
- ---------------------- Treasurer and Principal ------------------
Theodore W. Howard Accounting Officer
/s/Robert L. Hechler* Vice President and March 27, 1998
- ---------------------- Principal Financial ------------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director March 27, 1998
- ---------------------- ------------------
Henry L. Bellmon
/s/James M. Concannon* Director March 27, 1998
- --------------------- ------------------
James M. Concannon
/s/John A. Dillingham* Director March 27, 1998
- -------------------- ------------------
John A. Dillingham
/s/Linda Graves* Director March 27, 1998
- -------------------- ------------------
Linda Graves
/s/John F. Hayes* Director March 27, 1998
- ------------------- ------------------
John F. Hayes
Director
- ------------------- ------------------
Glendon E. Johnson
/s/William T. Morgan* Director March 27, 1998
- ------------------- ------------------
William T. Morgan
/s/William L. Rogers* Director March 27, 1998
- ------------------- ------------------
William L. Rogers
/s/Frank J. Ross, Jr.* Director March 27, 1998
- ------------------- ------------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director March 27, 1998
- -------------------- ------------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director March 27, 1998
- ------------------- ------------------
Frederick Vogel III
/s/Paul S. Wise* Director March 27, 1998
- ------------------- ------------------
Paul S. Wise
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Kristen Richards
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: December 10, 1997 /s/Keith A. Tucker
--------------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board December 10, 1997
- -------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker President and Director December 10, 1997
- -------------------- (Principal Executive ----------------
Keith A. Tucker Officer)
/s/Theodore W. Howard Vice President, Treasurer December 10, 1997
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and December 10, 1997
- -------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director December 10, 1997
- -------------------- ----------------
Henry L. Bellmon
/s/James M. Concannon Director December 10, 1997
- -------------------- ----------------
James M. Concannon
/s/John A. Dillingham Director December 10, 1997
- -------------------- ----------------
John A. Dillingham
/s/Linda Graves Director December 10, 1997
- -------------------- ----------------
Linda Graves
/s/John F. Hayes Director December 10, 1997
- -------------------- ----------------
John F. Hayes
Director
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director December 10, 1997
- -------------------- ----------------
William T. Morgan
/s/William L. Rogers Director December 10, 1997
- -------------------- ----------------
William L. Rogers
/s/Frank J. Ross, Jr. Director December 10, 1997
- -------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director December 10, 1997
- -------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director December 10, 1997
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director December 10, 1997
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B9-ufssa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 1ST day of November, 1992, by and between
UNITED FUNDS, INC., and Waddell & Reed Services Company (the "Agent"), as
amended and restated as of April 1, 1996,
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Company and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
(3) The Agent may appoint an entity or entities approved by the
Company in writing to perform any portion of Agent's duties hereunder (the
"Subagent").
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder under a
particular account registration number and includes shares subject to
instructions by the shareholder with respect to periodic redemptions and/or
reinvestment in additional shares of any dividends payable on said shares;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof, any or all of which duties may be delegated
to or performed by one or more Subagents pursuant to Paragraph (3) above.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this Paragraph
3, as may be required by or be reasonably necessary to comply with any statute,
act, governmental rule, regulation or directive or court order, including,
without limitation, the requirements imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of
1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in Exhibit
B of this Agreement or any amendment thereof. In addition, the Company agrees
to reimburse the Agent for the following "out-of-pocket" expenses of the Agent
within five days after receipt of an itemized statement of such expenses, to the
extent that payment of such expenses has not been or is not to be made directly
by the Company: (i) costs of stationery, appropriate forms, envelopes, checks,
postage, printing (except cost of printing prospectuses, annual and semi-annual
reports and proxy materials) and mailing charges, including returned mail and
proxies, incurred by the Agent with respect to materials and communications sent
to shareholders in carrying out its duties to the Company under this Agreement;
(ii) long distance telephone costs incurred by the Agent for telephone
communications and microfilm and storage costs for transfer agency records and
documents; (iii) costs of all ancillary and supporting services and related
expenses (other than insurance premiums) reasonably required by and provided to
the Agent, other than by its employees or employees of an affiliate, with
respect to functions of the Company being performed by it in its capacity as
Agent hereunder, including legal advice and representation in litigation to the
extent that such payments are permitted under Paragraph 7 of this Agreement and
charges to Agent made by any Subagent; (iv) costs for special reports or
information furnished on request pursuant to this Agreement and not specifically
required by the Agent by Paragraph 3 of this Agreement; and (v) reasonable costs
and expenses incurred by the Agent in connection with the duties of the Agent
described in Paragraph (3)(1)(i). In addition, the Company agrees to promptly
pay over to the Agent any fees or payment of charges it may receive from a
shareholder for services furnished to the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's or any Subagent's facilities in accordance with reasonable
procedures at the frequency necessary to assure proper administration of the
Agreement. The Agent will cooperate with the Company's auditors or
representatives of appropriate regulatory agencies and furnish all reasonably
requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
UNITED FUNDS, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.3125 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015197B ICI
Blanket Bond Form Mutual
Insurance
Company
Fidelity $18,800,000
Audit Expense 50,000
On Premises 18,800,000
In Transit 18,800,000
Forgery or Alteration 18,800,000
Securities 18,800,000
Counterfeit Currency 18,800,000
Uncollectible Items of
Deposit 25,000
Voice-Initiated Transactions 500,000
Total Limit 18,800,000
Directors and Officers/ 87015197D ICI
Errors and Omissions Liability Mutual
Insurance Form Insurance
Total Limit $ 5,000,000 Company
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna
Life &
Casualty
Blanket Undertaking Lost Instrument
Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
EX-99.B11-ufconsnt
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Post-Effective Amendment No. 121 to Registration
Statement No. 2-21867 of our report dated February 6, 1998 appearing in the
Satement 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 also are a part of such Registration
Statement.
Deloitte & Touche LLP
Kansas City, Missouri
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 3,677,131,573
<INVESTMENTS-AT-VALUE> 6,497,814,570
<RECEIVABLES> 34,599,987
<ASSETS-OTHER> 62,728
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,532,477,285
<PAYABLE-FOR-SECURITIES> 2,197,852
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35,289,989
<TOTAL-LIABILITIES> 37,487,841
<SENIOR-EQUITY> 171,163,106
<PAID-IN-CAPITAL-COMMON> 3,367,156,982
<SHARES-COMMON-STOCK> 171,163,106
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,964,249
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 134,040,474
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,820,664,633
<NET-ASSETS> 6,494,989,444
<DIVIDEND-INCOME> 75,978,463
<INTEREST-INCOME> 18,616,823
<OTHER-INCOME> 0
<EXPENSES-NET> (50,174,398)
<NET-INVESTMENT-INCOME> 44,420,888
<REALIZED-GAINS-CURRENT> 621,547,161
<APPREC-INCREASE-CURRENT> 724,668,926
<NET-CHANGE-FROM-OPS> 1,390,636,975
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (45,232,100)
<DISTRIBUTIONS-OF-GAINS> (560,051,852)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,937,721
<NUMBER-OF-SHARES-REDEEMED> (22,045,806)
<SHARES-REINVESTED> 15,266,555
<NET-CHANGE-IN-ASSETS> 1,493,226,131
<ACCUMULATED-NII-PRIOR> 2,937,972
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 32,837,940
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50,174,398
<AVERAGE-NET-ASSETS> 5,986,460,238
<PER-SHARE-NAV-BEGIN> 32.91
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> 8.64
<PER-SHARE-DIVIDEND> (0.29)
<PER-SHARE-DISTRIBUTIONS> (3.59)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 37.95
<EXPENSE-RATIO> 0.84
<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, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,500,388,358
<INVESTMENTS-AT-VALUE> 1,617,955,073
<RECEIVABLES> 2,763,313
<ASSETS-OTHER> 35,732
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,620,754,118
<PAYABLE-FOR-SECURITIES> 20,759,792
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 951,864
<TOTAL-LIABILITIES> 21,711,656
<SENIOR-EQUITY> 205,830,288
<PAID-IN-CAPITAL-COMMON> 1,251,888,135
<SHARES-COMMON-STOCK> 205,830,288
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,786,861
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,970,463
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 117,566,715
<NET-ASSETS> 1,599,042,462
<DIVIDEND-INCOME> 19,278,199
<INTEREST-INCOME> 9,900,758
<OTHER-INCOME> 0
<EXPENSES-NET> (12,098,076)
<NET-INVESTMENT-INCOME> 17,080,881
<REALIZED-GAINS-CURRENT> 312,062,968
<APPREC-INCREASE-CURRENT> 45,070,341
<NET-CHANGE-FROM-OPS> 374,214,190
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,659,042)
<DISTRIBUTIONS-OF-GAINS> (345,752,862)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,728,071
<NUMBER-OF-SHARES-REDEEMED> (13,150,924)
<SHARES-REINVESTED> 44,104,563
<NET-CHANGE-IN-ASSETS> 311,175,670
<ACCUMULATED-NII-PRIOR> 1,310,231
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,111,304
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,098,076
<AVERAGE-NET-ASSETS> 1,477,848,025
<PER-SHARE-NAV-BEGIN> 7.75
<PER-SHARE-NII> .1
<PER-SHARE-GAIN-APPREC> 2.14
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (2.13)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.77
<EXPENSE-RATIO> .82
<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, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 501,980,447
<INVESTMENTS-AT-VALUE> 523,952,118
<RECEIVABLES> 7,735,568
<ASSETS-OTHER> 16,368
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 531,704,054
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,008,171
<TOTAL-LIABILITIES> 3,008,271
<SENIOR-EQUITY> 83,692,392
<PAID-IN-CAPITAL-COMMON> 445,909,085
<SHARES-COMMON-STOCK> 83,692,392
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 369,716
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23,247,081)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,971,671
<NET-ASSETS> 528,695,783
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,844,690
<OTHER-INCOME> 0
<EXPENSES-NET> (3,999,567)
<NET-INVESTMENT-INCOME> 32,845,123
<REALIZED-GAINS-CURRENT> 2,969,351
<APPREC-INCREASE-CURRENT> 11,847,471
<NET-CHANGE-FROM-OPS> 47,661,945
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (33,278,067)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,086,393
<NUMBER-OF-SHARES-REDEEMED> (14,409,034)
<SHARES-REINVESTED> 4,646,932
<NET-CHANGE-IN-ASSETS> 47,661,945
<ACCUMULATED-NII-PRIOR> 802,660
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,221,667
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,999,567
<AVERAGE-NET-ASSETS> 517,916,508
<PER-SHARE-NAV-BEGIN> 6.14
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.40)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.32
<EXPENSE-RATIO> 0.77
<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, 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 769,016,830
<INVESTMENTS-AT-VALUE> 1,073,555,266
<RECEIVABLES> 3,366,553
<ASSETS-OTHER> 13,225
<OTHER-ITEMS-ASSETS> 4,549
<TOTAL-ASSETS> 1,076,939,593
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,145,642
<TOTAL-LIABILITIES> 10,145,642
<SENIOR-EQUITY> 53,005,490
<PAID-IN-CAPITAL-COMMON> 690,471,195
<SHARES-COMMON-STOCK> 53,005,490
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,775,979
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 304,541,287
<NET-ASSETS> 1,066,793,951
<DIVIDEND-INCOME> 3,405,630
<INTEREST-INCOME> 5,043,858
<OTHER-INCOME> 0
<EXPENSES-NET> (10,238,609)
<NET-INVESTMENT-INCOME> (1,789,121)
<REALIZED-GAINS-CURRENT> 193,672,981
<APPREC-INCREASE-CURRENT> (115,957,441)
<NET-CHANGE-FROM-OPS> 75,926,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (195,417,346)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,533,340
<NUMBER-OF-SHARES-REDEEMED> (31,630,041)
<SHARES-REINVESTED> (9,970,501)
<NET-CHANGE-IN-ASSETS> 83,156,604
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,997,091
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,238,609
<AVERAGE-NET-ASSETS> 1,001,843,731
<PER-SHARE-NAV-BEGIN> 23.35
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 1.39
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (4.58)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.13
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
March 27, 1998
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
Re: United Funds, Inc.
Post-Effective Amendment No. 121
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Yours truly,
Sharon K. Pappas
General Counsel
SKP:f
