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. 124
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 31
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
- ---------------------------------------------------------------------
Kristen A. Richards, 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 September 20, 1999 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, 1998 was filed on March 30, 1999.
==================================================================
<PAGE>
United Funds, Inc.
United Accumulative Fund
United Bond Fund
United Income Fund
United Science and Technology Fund
The Securities and Exchange Commission has not approved or disapproved the
Funds' securities, or determined whether this Prospectus is accurate or
adequate. It is a criminal offense to state otherwise.
Prospectus
September 20, 1999
<PAGE>
Table of Contents
An Overview of the Funds.....................................................4
United Accumulative Fund.....................................................4
United Bond Fund............................................................11
United Income Fund..........................................................18
United Science and Technology Fund..........................................25
The Investment Principles of the Funds......................................32
Investment Goals, Principal Strategies and Other Investments..............32
All Funds...................................................................
Risk Considerations of Principal Strategies and Other Investments.......36
Year 2000 and Euro Issues...................................................
Your Account................................................................39
Choosing a Share Class......................................................
Sales Charge Reductions and Waivers...........Error! Bookmark not defined.
Waivers for Certain Investors.................Error! Bookmark not defined.
Ways to Set Up Your Account...............................................50
Buying Shares.............................................................51
2
<PAGE>
Minimum Investments.......................................................54
Adding to Your Account....................................................55
Selling Shares............................................................55
Telephone Transactions......................................................
Shareholder Services......................................................61
Personal Service........................................................62
Reports.................................................................62
Exchanges...............................................................62
Automatic Transactions for Class A, Class B and Class C Shareholders....63
Distributions and Taxes...................................................63
Distributions...........................................................63
Taxes...................................................................64
The Management of the Funds.................................................66
Portfolio Management......................................................66
Management Fee............................................................67
Financial Highlights..............................Error! Bookmark not defined.
3
<PAGE>
An Overview of the Funds
United Accumulative Fund
Goals
United Accumulative Fund seeks capital growth, with current income a secondary
goal.
Principal Strategies
United Accumulative Fund invests primarily in common stocks of largely
capitalized U.S. and foreign companies. The Fund may invest in companies of any
size and of any industry in order to achieve its primary goal of growth.
WRIMCO attempts to select securities with appreciation possibilities by looking
at many factors, including:
o stability and predictability of earnings growth;
o acceleration of earnings and/or revenue;
o improvement in profitability; and
o potential turnaround opportunities.
In general, in determining whether to sell a stock, WRIMCO will use the same
type of analysis that it uses in buying stocks in order to determine whether the
security no longer offers significant growth potential. WRIMCO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
Principal Risks of Investing in the Fund
Because United Accumulative Fund owns different types of investments, a variety
of factors can affect its investment performance, such as:
o adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline;
o the mix of securities in the Fund's portfolio, particularly the
relative weightings in, and exposure to, different sectors of the
economy;
o the earnings performance, credit quality and other conditions of
the companies whose securities the Fund holds;
4
<PAGE>
o the skill of Waddell & Reed Investment Management Company ("WRIMCO"), the
Fund's investment manager, in evaluating and selecting securities for the
Fund.
Market risk for small to medium sized companies may be greater than the market
risk for large companies. Smaller companies are more likely to have limited
financial resources and inexperienced management. As well, stock of smaller
companies may experience volatile trading and price fluctuations. An investment
in foreign securities presents additional risks such as currency fluctuations
and political or economic conditions affecting the foreign country.
As with any mutual fund, the value of the Fund's shares will change, and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
United Accumulative Fund is designed for investors seeking long-term investment
growth not by seeking to maximize the upside potential of the market but rather
by seeking to reduce potential market risk in a declining market. You should
consider whether the Fund fits your particular investment objectives.
5
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in United Accumulative Fund by showing changes in the Fund's
performance from year to year and by showing how the Fund's average annual total
returns for the periods shown compare with those of a broad measure of market
performance and a peer group average.
o The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
o The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
o The performance table shows Class A and Class Y average annual total returns
and compares them to the market indicators listed. No performance information
is provided for Class B or Class C shares since these classes do not have
annual returns for at least one calendar year.
o The bar chart and the performance table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does not
necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
<TABLE>
<CAPTION>
<S> <C>
1989 28.36%
1990 -11.05%
1991 24.72%
1992 14.04%
1993 9.06%
1994 0.04%
1995 34.21%
1996 12.18%
1997 29.58%
1998 22.62%
</TABLE>
In the period shown in the chart, the highest quarterly return was 14.14%
(the second quarter of 1997) and the lowest quarterly return was -13.59%
(the third quarter of 1990). The Fund's return for its Class A shares for
the year through June 30, 1999 was 9.97%.
6
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Returns
as of December 31, 1998 (%)
1 Year 5 Years 10 Years Life of Class*
<S> <C> <C> <C> <C>
Class A Shares of
Accumulative Fund 15.57% 17.67% 14.82%
S&P 500 Index 28.70% 24.08% 19.21% 28.22%
Lipper Growth Fund
Universe Average 22.86% 18.63% 16.71% 21.26%
Class Y Shares of
Accumulative Fund 22.79% 22.08%
S&P 500 Index 28.70% 24.08% 19.21% 28.22%
Lipper Growth Fund
Universe Average 22.86% 18.63% 16.71% 21.26%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goals of
the Fund.
*Since July 11, 1995 for Class Y shares. Because the Class commenced operations
on a date other than at the end of a month, and partial month calculations of
the performance of the above index are not available, index performance is
from July 1, 1995.
7
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Accumulative Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ----- ----- ----- -----
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)(1) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
</TABLE>
Annual Fund Operating Expenses(2)
(expenses that are deducted from Fund assets)
- --------
(1) The contingent deferred sales charge ("CDSC") which is imposed on the lesser
of amount invested or redemption value of Class B shares declines from 5% for
redemptions made within the first calendar year of purchase, to 4% for
redemptions made within the second calendar year, to 3% for redemptions made
within the third and fourth calendar years, to 2% for redemptions made within
the fifth calendar year, to 1% for redemptions made within the sixth calendar
year and to 0% for redemptions made after the sixth calendar year. Please note
that the CDSC is not based on the length of time that shares are held. Instead,
the CDSC is based on the calendar year of purchase and the calendar year of
redemption. For Class C shares, a 1% CDSC applies to the lesser of amount
invested or redemption value of Class C shares redeemed within twelve months.
(2) Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise
expense ratios are based on other Fund-level expenses for the fiscal year ended
December 31, 1998, and for Class B and Class C, the expenses attributable to
each class that are anticipated for the current year. Actual expenses may be
greater or lesser than those shown.
(3) It is possible that long-term Class A, Class B and Class C shareholders of
the Fund may bear 12b-1 distribution fees which are more than the maximum
asset-based sales charge permitted under the rules of the National Association
of Securities Dealers, Inc.
8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Management Fees 0.68% 0.68% 0.68% 0.68%
Distribution and
Service (12b-1) Fees(3) 0.22% 1.00% 1.00% None
Other Expenses 0.12% 0.12% 0.12% 0.20%
Total Annual Fund
Operating Expenses 1.02% 1.80% 1.80% 0.88%
</TABLE>
Example: This example is intended to help you compare the cost of investing in
the shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
<TABLE>
<CAPTION>
If shares are redeemed
at end of period: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares $673 $881 $1,106 $1,751
Class B Shares $583 $866 $1,075 $1,909*
Class C Shares $283 $566 $ 975 $2,116
Class Y Shares $ 90 $281 $ 488 $1,084
If shares are not redeemed
at end of period: 1 year 3 years 5 years 10 years
Class A Shares $673 $881 $1,106 $1,751
Class B Shares $183 $566 $ 975 $1,909*
Class C Shares $183 $566 $ 975 $2,116
Class Y Shares $ 90 $281 $ 488 $1,084
</TABLE>
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
(3)It is possible that long-term Class A, Class B and Class C shareholders of
the Fund may bear 12b-1 distribution fees which are more than the maximum
asset-based sales charge permitted under the rules of the National Association
of Securities Dealers, Inc.
9
<PAGE>
United Bond Fund
Goal
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital.
Principal Strategies
United Bond Fund seeks to achieve its goal by investing primarily in domestic
debt securities usually of investment grade (rated BBB and higher by Standard &
Poor's ("S&P") and Baa and higher by Moody's Investors Service, Inc. ("MIS")).
The Fund has no limitations regarding the maturity duration or dollar weighted
average of its holdings. In selecting the debt securities for the Fund's
portfolio, WRIMCO considers yield and relative safety and, in the case of
convertible securities, the possibility of capital growth. The Fund can invest
in securities of companies of any size.
In selecting debt securities for the Fund, WRIMCO may look at many factors.
These include the issuer's past, present and estimated future:
o financial strength;
o cash flow;
o management;
o borrowing requirements; and
o responsiveness to changes in interest rates and business
conditions.
As well, WRIMCO will consider the maturity of the obligation and the size or
nature of the bond issue.
In general, in determining whether to sell a security, WRIMCO will use the same
type of analysis that it uses in buying securities. For example, WRIMCO may sell
a holding if the issuer's financial strength weakens and/or the yield and
relative safety of the security declines. WRIMCO may also sell a security to
take advantage of more attractive investment opportunities or to raise cash.
Principal Risks of Investing in the Fund
Because United Bond Fund primarily owns different types of debt securities, a
variety of factors can affect its investment performance, such as:
o an increase in interest rates, which may cause the value of the Fund's
fixed-income securities, especially bonds with longer maturities, to decline;
10
<PAGE>
o prepayment of higher-yielding bonds held by the Fund;
o the credit quality, earnings performance and other conditions of
the companies whose securities the Fund holds;
o changes in the maturities of bonds owned by the Fund;
o adverse bond and stock market conditions sometimes in response to general
economic and industry news that may cause the Fund's holdings to fall as
part of a broad market decline;
o WRIMCO's skill in evaluating and managing the interest rate and credit risks
of the Fund's portfolio.
As well, market risk for small or medium sized companies may be greater than the
market risk for large companies. Smaller companies are more likely to have
limited financial resources and inexperienced management. As well, stock of
smaller companies may experience volatile trading and price fluctuations.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
United Bond Fund is designed for investors who primarily seek current income
while also seeking to preserve investment principal. You should consider whether
the Fund fits your particular investment objectives.
11
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in United Bond Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns for
the periods shown compare with those of a broad measure of market performance
and a peer group average.
o The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
o The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
o The performance table shows Class A and Class Y average annual total returns
and compares them to the market indicators listed. No performance information
is provided for Class B or Class C shares since these classes do not have
annual returns for at least one calendar year.
o The bar chart and the performance table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does not
necessarily indicate how it will perform in the future.
Chart of Year-by-Year Returns
as of December 31 each year (%)
<TABLE>
<S> <C>
1989 10.60%
1990 4.24%
1991 17.76%
1992 7.84%
1993 13.19%
1994 -5.76%
1995 20.50%
1996 3.20%
1997 9.77%
1998 7.27%
</TABLE>
In the period shown in the chart, the highest quarterly return was 7.11%
(the third quarter of 1991) and the lowest quarterly return was -7.37%
(the first quarter of 1997). The Fund's return for its Class A shares for
the year through June 30, 1999 was -1.64%.
12
<PAGE>
Average Annual Total Returns
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life of Class*
<S> <C> <C> <C> <C>
Class A Shares of Bond Fund 1.10% 5.40% 8.04%
Salomon Brothers Broad
Investment Grade Index 8.71% 7.30% 9.31% 8.08%
Lipper Corporate Debt Funds
A-Rated Universe Average 7.47% 6.54% 8.82% 7.40%
Class Y Shares of Bond Fund 7.54% 7.92%
Salomon Brothers Broad
Investment Grade Index 8.71% 7.30% 9.31% 8.08%
Lipper Corporate Debt Funds
A-Rated Universe Average 7.47% 6.54% 8.82% 7.40%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
* Since June 19, 1995 for Class Y shares. Because the Class commenced operations
on a date other than at the end of a month, and partial month calculations of
the performance of the above index are not available, index performance is
from July 1, 1995.
13
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Bond Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ----- ----- ----- -----
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)(4) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
</TABLE>
- -----------
(4)The CDSC which is imposed on the lesser of amount invested or redemption
value of Class B shares declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that shares are held. Instead, the CDSC is based on the calendar year of
purchase and the calendar year of redemption. For Class C shares, a 1% CDSC
applies to the lesser of amount invested or redemption value of Class C shares
redeemed within twelve months.
14
<PAGE>
Annual Fund Operating Expenses(5)
(expenses that are deducted from Fund assets)(6)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Management Fees 0.52% 0.52% 0.52% 0.52%
Distribution and
Service (12b-1) Fees(8) 0.23% 1.00% 1.00% None
Other Expenses 0.18% 0.18% 0.18% 0.18%
Total Annual Fund
Operating Expenses 0.93% 1.70% 1.70% 0.70%
</TABLE>
Example: This example is intended to help you compare the cost of investing in
the shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
<TABLE>
<CAPTION>
If shares are redeemed
at end of period: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares $664 $854 $1,060 $1,652
Class B Shares $573 $836 $1,023 $1,803*
Class C Shares $273 $536 $ 923 $2,009
Class Y Shares $ 72 $224 $ 390 $ 871
</TABLE>
<TABLE>
<CAPTION>
If shares are not redeemed
at end of period: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares $664 $854 $1,060 $1,652
Class B Shares $173 $536 $ 923 $1,803*
Class C Shares $173 $536 $ 923 $2,009
Class Y Shares $ 72 $224 $ 390 $ 871
</TABLE>
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first year of purchase.
- ----------
(5)Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise
expense ratios are based on other Fund-level expenses for the fiscal year ended
December 31, 1998, and for Class B and Class C, the expenses attributable to
each class that are anticipated for the current year. Actual expenses may be
greater or lesser than those shown.
(6)It is possible that long-term Class A, Class B and Class C shareholders of
the Fund may bear 12b-1 distribution fees which are more than the maximum
asset-based sales charge permitted under the rules of the National Association
of Securities Dealers, Inc.
15
<PAGE>
United Income Fund
Goals
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.
Principal Strategies
United Income Fund seeks to achieve its primary goal by investing in the common
stocks of large U.S. and foreign companies. WRIMCO looks for securities that
have a record of paying regular dividends on common stock. In order to achieve
its secondary goal of growth, the Fund invests in securities that have the
potential for capital appreciation or that WRIMCO expects to resist market
decline. The Fund may invest in securities of any size company.
WRIMCO attempts to select securities with income and growth possibilities by
looking at many factors including the company's:
o dividend payment history;
o profitability record;
o history of improving sales and profits;
o management;
o leadership position in its industry; and
o stock price value.
In general, in determining whether to sell a stock, WRIMCO will use the same
type of analysis that it uses in buying stocks in order to determine whether the
security no longer offers significant growth potential. WRIMCO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
Principal Risks of Investing in the Fund
Because United Income Fund owns different types of investments, a variety of
factors can affect its investment performance, such as:
o adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline;
o the earnings performance, credit quality and other conditions of
the companies whose securities the Fund holds; and
16
<PAGE>
o WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small- or medium-sized companies may be greater than the market
risk for large companies. Smaller companies are more likely to have limited
financial resources and inexperienced management. As well, stock of smaller
companies may experience volatile trading and price fluctuations.
Also, investments in foreign securities present additional risks such as
currency fluctuations and political or economic conditions affecting the foreign
country.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
United Income Fund is designed for investors who seek dividend income with
potential for capital growth. You should consider whether the Fund fits your
investment objectives.
17
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in United Income Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual total returns for
the periods shown compare with those of a broad measure of market performance
and a peer group average.
o The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
o The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
o The performance table shows Class A and Class Y average annual total returns
and compares them to the market indicators listed. No performance information
is provided for Class B or Class C shares since these classes do not have
annual returns for at least one calendar year.
o The bar chart and the performance table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does not
necessarily indicate how it will perform in the future.
<TABLE>
<CAPTION>
Chart of Year-by-Year Returns
as of December 31 each year (%)
<S> <C>
1989 28.56%
1990 -6.85%
1991 30.66%
1992 11.90%
1993 16.05%
1994 -1.82%
1995 29.60%
1996 20.36%
1997 27.34%
1998 24.02%
</TABLE>
In the period shown in the chart, the highest quarterly return was 18.72%
(the second quarter of 1997) and the lowest quarterly return was -17.35%
(the third quarter of 1990). The Fund's return for its Class A shares for
the year through June 30, 1999 was 6.80%.
18
<PAGE>
Average Annual Total Returns
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life of Class*
<S> <C> <C> <C> <C>
Class A Shares of Income Fund 16.90% 17.93% 16.56%
S&P 500 Index 28.70% 24.08% 19.21% 28.64%
Lipper Equity Income Fund
Universe Average 10.89% 16.62% 14.47% 20.00%
Class Y Shares of Income Fund 24.27% 22.83%
S&P 500 Index 28.70% 24.08% 19.21% 28.64%
Lipper Equity Income Fund
Universe Average 10.89% 16.62% 14.47% 20.00%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goals of
the Fund.
*Since June 19, 1995 for Class Y shares. Because the Class commenced operations
on a date other than at the end of a month, and partial month calculations of
the performance of the above index are not available, index performance is
from July 1, 1995.
19
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Income Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ----- ----- ----- -----
<S> <C> <C> <C> <C>
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)(7) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
Annual Fund Operating Expenses(8)
(expenses that are deducted from Fund assets)
</TABLE>
- ---------------
(7)The CDSC which is imposed on the lesser of amount invested or redemption
value of Class B shares declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that shares are held. Instead, the CDSC is based on the calendar year of
purchase and the calendar year of redemption. For Class C shares, a 1% CDSC
applies to the lesser of amount invested or redemption value of Class C shares
redeemed within twelve months.
(8)Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise
expense ratios are based on other Fund-level expenses for the fiscal year ended
December 31, 1998, and for Class B and Class C, the expenses attributable to
each class that are anticipated for the current year. Actual expenses may be
greater or lesser than those shown.
20
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Management Fees 0.58% 0.58% 0.58% 0.58%
Distribution and
Service (12b-1) Fees(9) 0.22% 1.00% 1.00% None
Other Expenses 0.13% 0.13% 0.13% 0.16%
Total Annual Fund
Operating Expenses 0.93% 1.71% 1.71% 0.74%
</TABLE>
Example: This example is intended to help you compare the cost of investing in
the shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
<TABLE>
<CAPTION>
If shares are redeemed
at end of period: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares $664 $854 $1,060 $1,652
Class B Shares $574 $839 $1,028 $1,028*
Class C Shares $274 $539 $ 928 $2,019
Class Y Shares $ 76 $237 $ 411 $ 918
<CAPTION>
If shares are not redeemed
at end of period: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares $664 $854 $1,060 $1,652
Class B Shares $174 $539 $ 928 $1,811*
Class C Shares $174 $539 $ 928 $2,019
Class Y Shares $ 76 $237 $ 411 $ 918
</TABLE>
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
- --------------------------------------------------------------------------------
(9)It is possible that long-term Class A, Class B and Class C shareholders of
the Fund may bear 12b-1 distribution fees which are more than the maximum
asset-based sales charge permitted under the rules of the National Association
of Securities Dealers, Inc.
21
<PAGE>
United Science and Technology Fund
Goal
United Science and Technology Fund seeks long-term capital growth.
Principal Strategies
United Science and Technology Fund seeks to achieve its goal of growth by
concentrating its investments primarily in the common stock of science and
technology securities of U.S. and foreign companies. 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
use or commercial application of scientific or technological developments or
discoveries. The Fund may invest in companies of any size.
WRIMCO typically emphasizes growth potential in selecting stocks. A stock has
growth potential if, in WRIMCO's opinion, the earnings of the company are likely
to grow faster than the economy.
In general, in determining whether to sell a stock, WRIMCO will use the same
type of analysis that it uses in buying stocks in order to determine whether the
security no longer offers significant growth potential. WRIMCO may also sell a
security to take advantage of more attractive investment opportunities or to
raise cash.
Principal Risks of Investing in the Fund
Because United Science and Technology Fund owns different types of investments,
a variety of factors can affect its investment performance, such as:
o the mix of securities in the Fund's portfolio, particularly the relative
weightings in, and exposure to, different sectors of the science and
technology industries;
o rapid obsolescence of products or processes of companies in which the Fund
invests;
o government regulation in the science and technology industry;
o the earnings performance, credit quality and other conditions of the
companies whose securities the Fund holds;
o adverse stock and bond market conditions, sometimes in response to general
economic or industry news, that may cause the prices of the Fund's holdings
to fall as part of a broad market decline; and
22
<PAGE>
o WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small to medium sized companies may be greater than that for
large companies. Smaller companies are more likely to have limited financial
resources and inexperienced management. As well, stock of smaller companies may
experience volatile trading and price fluctuations.
Investments in foreign securities presents additional risks such as currency
fluctuations and political or economic conditions affecting the foreign country.
As with any mutual fund, the value of the Fund's shares will change and you
could lose money on your investment. An investment in the Fund is not a bank
deposit and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
Who May Want to Invest
United Science and Technology Fund is designed for investors who seek long-term
capital growth by investing in an actively managed portfolio concentrating in
science and technology securities. This Fund is not suitable for all investors.
You should consider whether the Fund fits your investment objectives.
23
<PAGE>
Performance
The bar chart and performance table below provide some indication of the risks
of investing in United Science and Technology Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual total returns for the periods shown compare with those of a broad measure
of market performance and a peer group average.
o The bar chart presents the average annual total returns for Class A and shows
how performance has varied from year to year over the past ten calendar
years.
o The bar chart does not reflect any sales charge that you may be required to
pay upon purchase of the Fund's Class A shares. If the sales charge was
included, the returns would be less than those shown.
o The performance table shows Class A and Class Y average annual total returns
and compares them to the market indicators listed. No performance information
is provided for Class B or Class C shares since these classes do not have
annual returns for at least one calendar year.
o The bar chart and the performance table assume reinvestment of dividends and
distributions. As with all mutual funds, the Fund's past performance does not
necessarily indicate how it will perform in the future.
<TABLE>
<CAPTION>
Chart of Year-by-Year Returns
as of December 31 each year (%)
<S> <C>
1989 28.04%
1990 -4.57%
1991 60.66%
1992 -4.03%
1993 8.51%
1994 9.78%
1995 55.37%
1996 8.35%
1997 7.22%
1998 59.31%
</TABLE>
In the period shown in the chart, the highest quarterly return was 34.47%
(the fourth quarter of 1998) and the lowest quarterly return was -15.89%
(the third quarter of 1990). The Fund's return for its Class A shares for
the year through June 30, 1999 was 23.01%.
24
<PAGE>
Average Annual Total Returns
as of December 31, 1998 (%)
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years Life of Class*
<S> <C> <C> <C> <C>
Class A Shares of Science
and Technology Fund 50.15% 24.37% 19.75%
S&P 400 Index 33.85% 24.84% 19.37% 29.24%
Lipper Science and Technology
Fund Universe Average 50.81% 24.26% 23.62% 22.42%
Class Y Shares of Science
and Technology Fund 59.71% 22.26%
S&P 400 Index 33.85% 24.84% 19.37% 29.24%
Lipper Science and Technology
Fund Universe Average 50.81% 24.26% 23.62% 22.42%
</TABLE>
The index shown is a broad-based, securities market index that is unmanaged. The
Lipper average is a composite of mutual funds with goals similar to the goal of
the Fund.
*Since February 27, 1996 for Class Y shares. Because the Class commenced
operations on a date other than at the end of a month, and partial month
calculations of the performance of the above index are not available, index
performance is from February 29, 1996.
25
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of United Science and Technology Fund:
<TABLE>
<CAPTION>
Shareholder Fees Class A Class B Class C Class Y
(fees paid directly from Shares Shares Shares Shares
your investment) ----- ----- ----- -----
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None None
Maximum Deferred Sales
Charge (Load)(10) None 5% 1% None
(as a percentage of
lesser of amount invested
or redemption value)
</TABLE>
Annual Fund Operating Expenses(11)
(expenses that are deducted from Fund assets)
- ---------
(10)The CDSC which is imposed on the lesser of amount invested or redemption
value of Class B shares declines from 5% for redemptions made within the first
calendar year of purchase, to 4% for redemptions made within the second calendar
year, to 3% for redemptions made within the third and fourth calendar years, to
2% for redemptions made within the fifth calendar year, to 1% for redemptions
made within the sixth calendar year and to 0% for redemptions made after the
sixth calendar year. Please note that the CDSC is not based on the length of
time that shares are held. Instead, the CDSC is based on the calendar year of
purchase and the calendar year of redemption. For Class C shares, a 1% CDSC
applies to the lesser of amount invested or redemption value of Class C shares
redeemed within twelve months.
(11)Management Fees and Total Annual Fund Operating Expenses have been restated
to reflect the change in management fees effective June 30, 1999; otherwise
expense ratios are based on other Fund-level expenses for the fiscal year ended
December 31, 1998, and for Class B and Class C, the expenses attributable to
each class that are anticipated for the current year. Actual expenses may be
greater or lesser than those shown.
26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Management Fees 0.85% 0.85% 0.85% 0.85%
Distribution and
Service (12b-1) Fees(12) 0.24% 1.00% 1.00% None
Other Expenses 0.22% 0.22% 0.22% 0.20%
Total Annual Fund
Operating Expenses 1.31% 2.07% 2.07% 1.05%
</TABLE>
Example: This example is intended to help you compare the cost of investing in
the shares of the Fund with the cost of investing in other mutual funds. The
example assumes that (a) you invest $10,000 in the particular Class A, Class B,
Class C or Class Y shares for each time period specified, (b) your investment
has a 5% return each year, and (c) the expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
<TABLE>
<CAPTION>
If shares are redeemed
at end of period: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares $701 $966 $1,252 $2,063
Class B Shares $610 $949 $1,214 $2,204*
Class C Shares $310 $649 $1,114 $2,400
Class Y Shares $107 $334 $ 579 $1,283
<CAPTION>
If shares are not redeemed
at end of period: 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Class A Shares $701 $966 $1,252 $2,063
Class B Shares $210 $649 $1,114 $2,204*
Class C Shares $210 $649 $1,114 $2,400
Class Y Shares $107 $334 $ 579 $1,283
</TABLE>
* Reflects annual operating expenses of Class A after conversion of Class B
shares into Class A shares at the end of the seventh calendar year following
the first calendar year of purchase.
(12)It is possible that long-term Class A, Class B and Class C shareholders of
the Fund may bear 12b-1 distribution fees which are more than the maximum
asset-based sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
27
<PAGE>
The Investment Principles of the Funds
Investment Goals, Principal Strategies and Other Investments
United Accumulative Fund
The primary goal of United Accumulative Fund is capital growth. As a secondary
goal, the Fund seeks current income. The Fund seeks to achieve these goals by
investing primarily in a diversified portfolio of common stocks, or securities
convertible into common stocks, of U.S. and foreign companies, the risks of
which are, in WRIMCO's opinion, consistent with the Fund's goals. Generally, the
Fund invests in stocks with large market capitalization that, in WRIMCO's
opinion, have a slightly higher market volatility and slightly higher growth
rates than other stocks. There is no guarantee that the Fund will achieve its
goals.
As a temporary defensive measure, at times when WRIMCO believes that common
stocks do not offer a good investment opportunity, the Fund may hold up to all
of its assets in cash, debt securities (typically, of investment grade),
preferred stock, or common stocks that WRIMCO chooses because the securities are
less volatile rather than for their growth potential. By taking a temporary
defensive position in any of these ways, the Fund may not achieve its investment
objectives.
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
primarily in a diversified portfolio of debt securities of any quality, and to a
lesser extent, in non-investment grade securities, convertible securities and
debt securities with warrants attached. There is no guarantee that the Fund will
achieve its goal.
28
<PAGE>
The Fund limits its acquisition of securities so that at least 90% of its total
assets will consist of debt securities. These debt securities primarily include
corporate bonds, mostly of investment grade, and securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities.
The Fund may invest in junk bonds (rated below BBB by S&P or below Baa by MIS),
which are more susceptible to the risk of non-payment or default, and their
prices may be more volatile than higher-rated bonds.
Also, the Fund can invest in foreign securities, which present additional risks
such as currency fluctuations and political or economic conditions affecting the
foreign country.
When WRIMCO believes that a defensive position is desirable, due to present or
anticipated market or economic conditions, WRIMCO may take a number of actions.
The Fund may:
o sell longer-term bonds and buy shorter-term bonds or money market
instruments with the sales proceeds;
o buy bonds with put options or exercise put options on bonds held;
and
o buy money market instruments.
By taking a temporary defensive position, the Fund may not achieve its
investment objective.
United Income Fund
United Income Fund's primary goal is to maintain current income subject to
market conditions. As a secondary goal, the Fund seeks capital growth. The Fund
seeks to achieve its goals by
29
<PAGE>
investing, during normal market conditions, primarily in a diversified portfolio
of income-producing securities, typically the stocks of large, high-quality U.S.
companies that are well known and have been consistently profitable. There is no
guarantee that the Fund will achieve its goals.
When WRIMCO views stocks with high yields as less attractive than other common
stocks, the Fund may hold lower-yielding common stocks because of their
prospects for appreciation. When WRIMCO believes that the return on debt
securities and preferred stocks is more attractive than the return on common
stocks, or that a temporary defensive position is desirable, the Fund may seek
to achieve its goals by investing up to all of its assets in debt securities
(typically, investment grade) and preferred stocks. However, by taking a
temporary defensive position, the Fund may not achieve its investment
objectives.
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 investing primarily 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 use or commercial application of scientific
or technological discoveries. There is no guarantee that the Fund will achieve
its goal.
The Fund invests in such areas as:
o aerospace and defense electronics;
o biotechnology;
o business machines;
o cable and broadband access;
30
<PAGE>
o communications and electronic equipment;
o computer software and services;
o computer systems;
o electronics;
o electronic media;
o internet and internet-related services;
o medical devices and drugs;
o medical and hospital supplies and services; and
o office equipment and supplies.
The Fund primarily owns common stock, however, it may also invest to a lesser
extent in preferred stock, debt securities and convertible securities.
The Fund may invest a limited amount of its assets in foreign securities.
Investments in foreign securities present additional risks such as currency
fluctuations and political or economic conditions affecting the foreign country.
Under normal economic and market conditions, the Fund will not invest more than
20% of its total assets in securities other than science or technology
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,
mostly of investment grade. By taking a temporary defensive position, the Fund
may not achieve its investment objective.
All Funds
Each Fund may also invest in and use other types of instruments in seeking to
achieve its goal(s). For example, each Fund is permitted to invest in options,
futures contracts, asset-backed securities and other derivative instruments if
it is permitted to invest in the type of asset by which the return on, or value
of,
31
<PAGE>
the derivative is measured. At this time, each Fund has limited exposure to
derivative investments. You will find more information about each Fund's
permitted investments and strategies, as well as the restrictions that apply to
them, in the Statement of Additional Information ("SAI").
Risk Considerations of Principal Strategies
and Other Investments
Risks exist in any investment. Each Fund is subject to market risk, financial
risk and, for United Bond Fund, prepayment risk.
o Market risk is the possibility of a change in the price of the security
because of market factors, including changes in interest rates. Bonds with
longer maturities are more interest-rate sensitive. For example, if interest
rates increase, the value of a bond with a longer maturity is more likely to
decrease. Because of market risk, the share price of each Fund will likely
change as well.
o Financial risk is based on the financial situation of the issuer of the
security. To the extent a Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the underlying securities in
which it invests. For an equity investment, a Fund's financial risk may
depend, for example, on the earnings performance of the company issuing the
stock.
o Prepayment risk is the possibility that, during periods of falling interest
rates, a debt security with a high stated interest rate will be prepaid
before its expected maturity date.
Certain types of each Fund's authorized investments and strategies (such as
foreign securities, junk bonds and derivative instruments) involve special
risks. Depending on how much a Fund invests or uses these strategies, these
special risks may become significant. For example, foreign investments may
subject a Fund to restrictions on receiving the investment proceeds from a
foreign country, foreign taxes, and potential difficulties in enforcing
contractual obligations, as well as fluctuations in foreign currency values and
other developments that may adversely affect a foreign country. Junk bonds pose
a greater risk of nonpayment of interest or principal than higher-rated bonds.
Derivative instruments may expose a Fund to greater volatility
32
<PAGE>
than an investment in a more traditional stock, bond or other security.
Because each Fund owns different types of investments, its performance will be
affected by a variety of factors. The value of a Fund's investments and the
income it generates 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.
United Accumulative Fund may actively trade securities in seeking to achieve its
goal. Doing so may increase transaction costs (which may reduce performance) and
increase distributions paid by the Fund, which may increase your taxable income.
Year 2000 and Euro Issues
Like other mutual funds, financial institutions and business organizations and
individuals around the world, each 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. WRIMCO is taking steps that it believes are reasonably designed
to address Year 2000 computer-related problems with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by a Fund's other major service providers. Although there can be no
assurances, WRIMCO believes that these steps will be sufficient to avoid any
adverse impact on any of the Funds. Similarly, the companies and other issuers
in which a Fund invests could be adversely affected by Year 2000
computer-related problems, and there can be no assurance that the steps taken,
if any, by these issuers will be sufficient to avoid any adverse impact on a
Fund.
Each Fund could also be adversely affected by the conversion of certain European
currencies into the Euro. This
33
<PAGE>
conversion, which is under way, is scheduled to be completed in 2002. However,
problems with the conversion process and delays could increase volatility in
world capital markets and affect European capital markets in particular.
34
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers four classes of shares for each Fund: Class A, Class B,
Class C and Class Y. Each class has its own sales charge, if any, and expense
structure. The decision as to which class of shares is best suited to your needs
depends on a number of factors that you should discuss with your financial
advisor. Some factors to consider are how much you plan to invest and how long
you plan to hold your investment. For example, if you are investing a
substantial amount and plan to hold your shares for a long time, Class A shares
may be the most appropriate for you. If you are investing a lesser amount, you
may want to consider Class B shares (if investing for at least seven calendar
years) or Class C shares (if investing for less than seven calendar years).
Class Y shares are designed for institutional investors and others investing
through certain intermediaries, as described below. Since your objectives may
change over time, you may want to consider another class when you buy additional
Fund shares. All of your future investments in a Fund will be made in the class
you select when you open your account, unless you inform the Fund otherwise, in
writing, when you make a future investment.
General Comparison of Class A, Class B and Class C Shares
Class A Class B Class C
o Initial sales charge o No initial sales o No initial sales
charge charge
o No deferred sales o Deferred sales charge o A 1% deferred sales
charge on shares you sell charge on shares
within six calendar you sell within
years twelve months
o Maximum distribution o Maximum distribution o Maximum distribution
and service (12b-1) and service (12b-1) and service (12b-1)
fees of 0.25% fees of 1.00% fees of 1.00%
o For an investment o Converts to Class A o Does not convert to
of $2,000,000 or shares at the end of Class A shares, so
more, Waddell & Reed the seventh calendar annual expenses do
financial advisors year following the not decrease
will recommend year of purchase,
purchase of Class A thus reducing future
shares due to no annual expenses
sales charge and
lower annual expenses
35
<PAGE>
o For an investment of
$300,000 or more, Waddell
& Reed financial advisors
often may recommend purchase
of Class A shares due to a
reduced sales charge and
lower annual expenses
Each Fund has adopted a Distribution and Service Plan ("Plan") pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended, for each of its
Class A, Class B and Class C shares. Under the Class A Plan, each Fund may pay
Waddell & Reed, Inc. a fee of up to 0.25%, on an annual basis, of the average
daily net assets of the Class A shares. This fee is to reimburse Waddell & Reed,
Inc. for the amounts it spends for distributing the Fund's Class A shares,
providing service to Class A shareholders and/or maintaining Class A shareholder
accounts. Under the Class B Plan and the Class C Plan, each Fund may pay Waddell
& Reed, Inc., on an annual basis, a service fee of up to 0.25% of the average
daily net assets of the class to compensate Waddell & Reed, Inc. for providing
service to shareholders of that class and/or maintaining shareholder accounts
for that class and a distribution fee of up to 0.75% of the average daily net
assets of the class to compensate Waddell & Reed, Inc. for distributing shares
of that class. Because a class's fees are paid out of the assets of that class
on an on-going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
Class A shares are subject to a sales charge when you buy them, based on the
amount of your investment, according to the table below. Class A shares pay an
annual 12b-1 fee of up to 0.25% of average Class A net assets. The ongoing
expenses of this class are lower than those for Class B or Class C shares and
higher than those for Class Y shares.
36
<PAGE>
<TABLE>
<CAPTION>
Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
- -------- -------- -------
<S> <C> <C>
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
</TABLE>
Sales Charge Reductions and Waivers
Lower sales charges are available by:
o Combining additional purchases of Class A shares of any of the funds in the
United Group, except shares of United Cash Management, Inc., unless acquired
by exchange for Class A shares on which a sales charge was paid (or as a
dividend or distribution on such acquired shares), with the net asset value
("NAV") of Class A shares already held ("Rights of Accumulation");
o Grouping all purchases of Class A shares, except shares of United Cash
Management, Inc., made during a thirteen-month
37
<PAGE>
period ("Letter of Intent"); and
o Grouping purchases by certain related persons.
Additional information and applicable forms are available from Waddell & Reed
financial advisors.
Waivers for Certain Investors
Class A shares may be purchased at NAV by:
o The Directors and officers of the Corporation, employees of Waddell & Reed,
Inc., employees of their affiliates, financial advisors of Waddell & Reed,
Inc. and the spouse, children, parents, children's spouses and spouse's
parents of each;
o Certain retirement plans and certain trusts for these persons; and
o A 401(k) plan or a 457 plan having 100 or more eligible employees.
You will find more information in the SAI about sales charge reductions and
waivers.
Contingent Deferred Sales Charge. A contingent deferred sales charge ("CDSC")
may be assessed against your redemption amount of Class B or Class C shares and
paid to Waddell & Reed, Inc. (the "Distributor"), as further described below.
The purpose of the CDSC is to compensate the Distributor for the costs incurred
by it in connection with the sale of the Fund's Class B or Class C shares. The
CDSC will not be imposed on Class B or Class C shares representing payment of
dividends or distributions or on amounts which represent an increase in the
value of a shareholder's account resulting from capital appreciation above the
amount paid for Class B or Class C shares purchased during the CDSC period. The
date of redemption is measured, in calendar years, from the first calendar year
of purchase. For example, if a shareholder opens an account on November 1, 1999,
then redeems all shares on March 1, 2000, the shareholder would pay a CDSC of
4%, the rate applicable to redemptions made within the second calendar year of
purchase. Please note that the CDSC is not based on the length of time that
shares are held. Instead, the CDSC is based on the calendar year of purchase and
the calendar year of redemption. The CDSC is applied to the lesser of amount
invested or redemption value.
To keep your CDSC as low as possible, each time you place a
38
<PAGE>
request to redeem shares, the Fund assumes that a redemption is made first of
shares not subject to a deferred sales charge (including shares which represent
appreciation on shares held, reinvested dividends and distributions), and then
of shares that represent the lowest sales charge.
Unless instructed otherwise, a Fund, when requested to redeem a specific dollar
amount, will redeem additional Class B or Class C shares equal in value to the
CDSC. For example, should you request a $1,000 redemption and the applicable
CDSC is $27, the Fund will redeem shares having an aggregate NAV of $1,027,
absent different instructions.
Class B shares are not subject to a sales charge when you buy them. However, you
may pay a CDSC if you sell your Class B shares within six calendar years of
their purchase, based on the table below. Class B shares pay an annual 12b-1
service fee of up to 0.25% of average net assets and a distribution fee of up to
0.75% of average net assets. Over time, these fees will increase the cost of
your investment and may cost you more than if you had bought Class A shares.
Class B shares of a Fund will automatically convert to Class A shares at the end
of the seventh calendar year following the year of purchase. The Class A shares
have lower on going expenses.
The Fund will redeem your Class B shares at their NAV next calculated after
receipt of a written request for redemption in good order, subject to the CDSC
discussed below.
<TABLE>
<CAPTION>
Deferred
Date of Sales
Redemption Charge
<S> <C>
anytime within 1st calendar year 5%
anytime within 2nd calendar year 4%
anytime within 3rd calendar year 3%
anytime within 4th calendar year 3%
anytime within 5th calendar year 2%
anytime within 6th calendar year 1%
after 6th calendar year 0%
</TABLE>
39
<PAGE>
All Class B investments made in a Fund during a calendar year are deemed a
single investment during that calendar year for purposes of calculating the
CDSC.
Class C shares are not subject to a sales charge when you buy them, but if you
sell your Class C shares within twelve months of buying them, you will pay a 1%
CDSC. For purposes of the CDSC, purchases of Class C shares within a month will
be considered as being purchased on the first day of the month. Class C shares
pay an annual 12b-1 service fee of up to 0.25% of average net assets and a
distribution fee of up to 0.75% of average net assets. Over time, these fees
will increase the cost of your investment and may cost you more than if you had
bought Class A shares. Class C shares do not convert to any other class.
For Class C shares, the CDSC will be applied to the lesser of amount invested or
redemption value of shares that have been held for twelve months or less.
The CDSC will not apply in the following circumstances:
o redemptions of Class B or Class C shares requested within one year of the
shareholder's death or disability, provided the Fund is notified of the death
or disability at the time of the request and furnished proof of such event
satisfactory to the Distributor.
o redemptions of Class B or Class C shares made to satisfy required
minimum distributions after age 70 1/2 from a qualified retirement
plan, a required minimum distribution from an individual retirement
account, Keogh plan or custodial account under section 403(b)(7) of
the Internal Revenue Code of 1986, as amended ("Code"), a tax-free
return of an excess contribution, or that otherwise results from the
death or disability of the employee, as well as in connection with
redemptions by any tax-exempt employee benefit plan for which, as a
result of a subsequent law or legislation, the continuation of its
investment would be improper.
o redemptions of Class B or Class C shares made pursuant to a shareholder's
participation in any systematic withdrawal service adopted for a Fund. (The
service and this exclusion from the CDSC do not apply to a one-time
withdrawal.)
o redemptions of which the proceeds are reinvested in Class B or Class C shares
(must be reinvested in the same class as that which was redeemed) of a Fund
within thirty days after such redemption.
40
<PAGE>
o the exercise of certain exchange privileges.
o redemptions effected pursuant to a Fund's right to liquidate a shareholder's
Class B or Class C shares if the aggregate NAV of those shares is less than
$500.
o redemptions effected by another registered investment company by virtue of a
merger or other reorganization with a Fund or by a former shareholder of such
investment company of Class B or Class C shares of a Fund acquired pursuant
to such reorganization.
These exceptions may be modified or eliminated by a Fund at any time without
prior notice to shareholders, except with respect to redemptions effected
pursuant to the Fund's right to liquidate a shareholder's shares, which requires
certain notices.
Class Y shares are not subject to a sales charge or annual 12b-1 fees.
Class Y shares are only available for purchase by:
o participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401 of the Code, including 401(k)
plans, when the plan has 100 or more eligible employees and holds the shares
in an omnibus account on the Fund's records;
o 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;
o government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
o certain retirement plans and trusts for employees and financial
advisors of Waddell & Reed, Inc. and its affiliates.
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<PAGE>
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).
- -------------------------------------------------
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<PAGE>
Business or Organization
For investment needs of corporations, associations, partnerships,
institutions or other groups
- -------------------------------------------------
Retirement Plans
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.
o Individual Retirement Accounts (IRAs) allow an individual under age 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.
o IRA Rollovers retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
o Roth IRAs allow certain individuals to make nondeductible contributions up to
$2,000 per year. Withdrawals of earnings may be tax free if the account is at
least five years old and certain other requirements are met.
o Education IRAs are established for the benefit of a minor, with nondeductible
contributions, and permit tax-free withdrawals to pay the higher education
expenses of the beneficiary.
o 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.
o Savings Incentive Match Plans for Employees (SIMPLE Plans) can be established
by small employers to contribute to their employees' retirement accounts and
generally involve fewer administrative requirements than 401(k) or other
qualified plans.
o Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves of up to 25% of their annual earned income, with
a maximum of $30,000 per year.
o Pension and Profit-Sharing Plans, including 401(k) Plans, allow corporations
and nongovernmental tax-exempt organizations of all sizes and/or their
employees to contribute a percentage of the employees'
43
<PAGE>
wages or other amounts on a tax-deferred basis. These accounts need to be
established by the administrator or trustee of the plan.
o 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
o 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 free of Federal
transfer tax consequences. 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
financial advisor for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of each of the Funds through Waddell & Reed, Inc. and its
financial advisors. To open your account you must complete and sign an
application. Your Waddell & Reed financial advisor can help you with any
questions you might have.
To purchase any class of shares by check, make your check payable to Waddell &
Reed, Inc. Mail the check, along with your completed application, to:
Waddell & Reed, Inc.
P.O. Box 29217
Shawnee Mission, Kansas
66201-9217
To purchase Class Y shares by wire, you must first obtain an account number by
calling 1-800-366-2520, then mail a completed application to Waddell & Reed,
Inc., P.O. Box 29217, Shawnee Mission, Kansas 66201-9217, or fax it to
913-236-5044.
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<PAGE>
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.
You may also buy Class Y shares of a Fund indirectly through certain
broker-dealers, banks and other third parties, some of which may charge you a
fee. These firms may have additional requirements regarding the purchase of
Class Y shares.
The price to buy a Fund share is its offering price, which is calculated every
business day.
The offering price of a share (the price to buy one share of a particular class)
is the next NAV calculated per share of that class plus, for Class A shares, the
sales charge shown in the table above.
In the calculation of a Fund's NAV:
o The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market prices.
o Bonds are generally valued according to prices quoted by an independent
pricing service.
o Short-term debt securities are valued at amortized cost, which approximates
market value.
o Other investment assets for which market prices are unavailable are valued at
their fair value by or at the direction of the Board of Directors.
Each 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 close of business of
the NYSE, normally 4 p.m. Eastern time, except that an option or futures
contract held by a Fund may be priced at the close of the regular session of any
other securities exchange on which that instrument is traded.
The Funds may invest in securities listed on foreign exchanges which may trade
on Saturdays or on U.S. national business holidays when the NYSE is closed.
Consequently, the NAV of Fund shares may be significantly affected on days when
a Fund does not price its shares and when you are not able to purchase or redeem
a Fund's shares. Similarly, if an event materially affecting the value of
foreign investments or foreign currency exchange rates occurs prior to the close
of business of the NYSE but after the time their values are otherwise
determined, such investments or exchange rates may be valued at their fair value
as determined in good faith by or under the direction of the Board of Directors.
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<PAGE>
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:
o Orders are accepted only at the home office of Waddell & Reed, Inc.
o All of your purchases must be made in U.S. dollars.
o 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.
o The Funds do not issue certificates representing Class B, Class C or Class Y
shares.
o If you purchase Class Y shares of a Fund 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 Class Y 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 shares of
the Fund 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.
46
<PAGE>
Minimum Investments
For Class A, Class B and Class C:
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 Any amount
For certain exchanges $100
For Automatic Investment Service $25
For Class Y:
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
To Add to an Account Any amount
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 to Waddell & Reed, Inc., along with:
o the detachable form that accompanies the confirmation of a prior
purchase or your year-to-date statement; or
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<PAGE>
o a letter stating your account number, the account registration, the Fund and
the class of shares that you wish to purchase.
To add to your Class Y 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.
If you purchase Class Y shares from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those firms.
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 share of a particular class of a Fund)
is the NAV per share of that Fund class, subject to any CDSC applicable to Class
B or Class C shares.
To sell shares by written request: Complete an Account Service Request form,
available from your Waddell & Reed financial advisor, or write a letter of
instruction with:
o the name on the account registration;
o the Fund's name;
o the Fund account number;
o the dollar amount or number, and the class, of shares to be
redeemed; and
o any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed financial advisor, or
mail it to:
Waddell & Reed Services Company
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed Services Company will send a check
to the address on the account.
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<PAGE>
To sell Class Y 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 Class Y
shares and make payment by wire to your predesignated bank account or by check
to you at the address on the account.
When you place an order to sell shares, your shares will be sold at the next NAV
calculated, subject to any applicable CDSC, after receipt of a written request
for redemption in good order by Waddell & Reed Services Company at the address
listed above. Note the following:
o If more than one person owns the shares, each owner must sign the written
request.
49
<PAGE>
o If you hold a certificate, it must be properly endorsed and sent to the
Corporation.
o 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 that
the check has cleared and been honored. If you do not, payment of the
redemption proceeds on these shares will be delayed until the earlier of 10
days or the date the Fund can verify that your purchase check has cleared
and been honored.
o 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.
o Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
50
<PAGE>
Special Requirements for Selling Shares
<TABLE>
<CAPTION>
Account Type Special Requirements
<S> <C>
Individual or Joint The written instructions must be
Tenant signed by all persons required to
sign for transactions, exactly as
their names appear on the account.
Sole Proprietorship The written instructions must be
signed by the individual owner of
the business.
UGMA, UTMA The custodian must sign the written
instructions indicating capacity as
custodian.
Retirement Account The written instructions must 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 by
Organization corporate resolution to act on the
account must sign the written
instructions.
Conservator, The written instructions must be
Guardian or Other signed by the person properly
Fiduciary authorized by court order to act in
the particular fiduciary capacity.
</TABLE>
A Fund may require a signature guarantee in certain situations such as:
o a redemption request made by a corporation, partnership or
fiduciary;
o a redemption request made by someone other than the owner of record; or
o the check is made payable to someone other than the owner of
record.
This requirement is to protect you and Waddell & Reed from fraud. You can obtain
a signature guarantee from most banks and securities dealers, but not from a
notary public.
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<PAGE>
Each Fund reserves the right to redeem at NAV all of your Fund shares in your
account if their aggregate NAV is less than $500. The Fund will give you notice
and a 60-day opportunity to purchase a sufficient number of additional shares to
bring the aggregate NAV of your shares to $500.
You may reinvest, without charge, all or part of the amount of Class A shares of
a Fund 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 with Class A shares of a
Fund.
The deferred sales charge will not apply to the proceeds of Class B or Class C
shares of a Fund which are redeemed and then reinvested in Class B or Class C
shares of the Fund within thirty days after such redemption. The Distributor
will, with your reinvestment, restore an amount equal to the deferred sales
charge attributable to the amount reinvested by adding the deferred sales charge
amount to your reinvestment. For purposes of determining future deferred sales
charges, the reinvestment will be treated as a new investment. You may do this
only once as to Class B shares of a Fund and only once as to Class C shares of a
Fund.
Payments of principal and interest on loans made pursuant to Waddell & Reed's
401(k) prototype plan (if such loans are permitted by the plan) may be
reinvested, without payment of a sales charge, in Class A shares of any United
Group fund in which the plan may invest.
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<PAGE>
Telephone Transactions
The Funds and their agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. Each Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If a Fund fails to do so, the Fund 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.
53
<PAGE>
Personal Service
Your local Waddell & Reed financial advisor is available to provide personal
service. Additionally, a toll-free call, 1-800-366-5465, connects you to a
Customer Service Representative or our automated customer telephone service.
During normal business hours, our Customer Service staff is available to answer
your questions or update your account records. At almost any time of the day or
night, you may access your account information from a touch-tone phone, or from
our web site, www.waddell.com, to:
o Obtain information about your accounts;
o Obtain price information about other funds in the United Group; or
o Request duplicate statements.
Reports
Statements and reports sent to you include the following:
o confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange,
transfer or redemption)
o year-to-date statements (quarterly)
o annual and semiannual reports to shareholders (every six months)
To reduce expenses, only one copy of the most recent 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 additional copies of annual or semiannual reports
or account information.
Exchanges
You may sell your shares and buy shares of the same Class of another Fund or of
other funds in the United Group without the payment of an additional sales
charge if you buy Class A shares or payment of a CDSC when you exchange the
Class B or Class C shares. For Class B and C shares, the time period for the
deferred sales charge will continue to run. In addition, exchanging Class Y
shareholders may buy Class A shares of United Cash Management, Inc.
54
<PAGE>
You may exchange only into funds that are legally permitted 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 for Class A, Class B and Class C Shareholders
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 financial advisor for more
information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
<TABLE>
<CAPTION>
Minimum Amount Minimum Frequency
<S> <C>
$25 Monthly
</TABLE>
Funds Plus Service
To move money from United Cash Management, Inc. to a Fund whether in the same or
a different account in the same class
<TABLE>
<CAPTION>
Minimum Amount Minimum Frequency
<S> <C>
$100 Monthly
</TABLE>
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year. Usually, a Fund distributes net
investment income 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) usually are distributed in December.
55
<PAGE>
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 dividends, capital gains and other distributions
with respect to a class will be automatically paid in additional shares of
the same class 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 with
respect to a class will be automatically paid in shares of the same class
of the Fund, but you will be sent a check for each dividend distribution.
However, if the dividend distribution is less than five dollars, the
distribution will be automatically paid in additional shares of the same
class of the Fund.
3. Cash Option. You will be sent a check for your dividends, capital gains and
other distributions if the total distribution is equal to or greater than
five dollars. If the distribution is less than five dollars, it will be
automatically paid in additional shares of the same class of the Fund.
For retirement accounts, all distributions are automatically paid in
additional shares.
Taxes
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. For Federal income tax purposes, your
long-term capital gains generally are taxed at a maximum rate of 20%.
Each Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that year.
A portion of the dividends paid by a Fund, whether received in cash or paid in
additional Fund shares, may be eligible for the
56
<PAGE>
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
Federal alternative minimum tax.
Withholding. Each Fund must withhold 31% of all dividends, capital gains and
other 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, capital
gains and other distributions also is required for shareholders subject to
backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in a taxable
gain or loss to you, depending on whether the redemption proceeds are more or
less than what you paid 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 Class A Fund shares through a redemption or
exchange within ninety days after your purchase and then reacquire Fund Class A
shares or acquire Class A shares of another fund in the United Group without
paying a sales charge due to the thirty-day reinvestment privilege or exchange
privilege. See "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 and local 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 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 sale 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; you will find
more information in the SAI. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
57
<PAGE>
The Management of the Funds
Portfolio Management
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. WRIMCO and its predecessors have served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, Waddell & Reed Funds, Inc. and Target/United Funds, Inc.
since the inception of the company. WRIMCO is located at 6300 Lamar Avenue, P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217.
Antonio Intagliata is primarily responsible for the 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 WRIMCO and its predecessors since February 1979 and has
been an employee of such since June 1973.
James C. Cusser is primarily responsible for the 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.
James D. Wineland is primarily responsible for the management of the portfolio
of United Income Fund. 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. From March 1995 to March 1998, Mr. Wineland was Vice
President of, and a portfolio manager for, Waddell & Reed Asset Management
Company, a former affiliate of WRIMCO. Mr. Wineland has served as the portfolio
manager for investment companies managed by WRIMCO and its predecessors since
January 1988 and has been an employee of such since November 1984.
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<PAGE>
Abel Garcia is primarily responsible for the 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 the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. From May 1988 to March 1998, Mr. Garcia was
Vice President of, and a portfolio manager for, Waddell & Reed Asset Management
Company. Mr. Garcia has been an employee of WRIMCO and its predecessors 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.
Management Fee
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 in the SAI.
The management fee is payable at the annual rates of:
for United Accumulative Fund, 0.70% of net assets up to $1 billion, 0.65% of net
assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion
and up to $3 billion, and 0.55% of net assets over $3 billion;
for United Bond Fund, 0.525% of net assets up to $500 million, 0.50% of net
assets over $500 million and up to $1 billion, 0.45% of net assets over $1
billion and up to $1.5 billion, and 0.40% of net assets over $1.5 billion;
for United Income Fund, 0.70% of net assets up to $1 billion, 0.65% of net
assets over $1 billion and up to $2 billion, 0.60% of net assets over $2 billion
and up to $3 billion, 0.55% of net assets over $3 billion and up to $6 billion,
and 0.50% of net assets over $6 billion; and
for United Science and Technology Fund, 0.85% of net assets up to $1 billion,
0.83% of net assets over $1 billion and up to $2 billion, 0.80% of net assets
over $2 billion and up to $3 billion, and 0.76% of net assets over $3 billion.
59
<PAGE>
Prior to June 30, 1999, the management fee of a Fund was calculated by adding a
group fee to a specific fee. The specific fee was computed on the Fund's net
asset value as of the close of business each day at the annual rate of .15 of 1%
of the net assets of United Accumulative Fund, .03 of 1% of the net assets of
United Bond Fund, .15 of 1% of the net assets of United Income Fund and .20 of
1% of the net assets of United Science and Technology Fund. The group fee was
determined on the basis of the combined net asset values of all the funds in the
United Group and then allocated pro rata to the Fund based on its relative net
assets at the annual rates shown in the following table:
Group Fee Rate
<TABLE>
<CAPTION>
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
<S> <C>
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%
</TABLE>
60
<PAGE>
Management fees for each Fund as a percent of each Fund's net assets for the
fiscal year ended December 31, 1998 were as follows: United Bond Fund 0.52%,
United Income Fund 0.54%, United Accumulative Fund 0.54%, United Science and
Technology Fund 0.59%.
61
<PAGE>
Financial Highlights
The following information is to help you understand the financial performance of
each Fund's Class A and Class Y shares for the fiscal periods shown. Certain
information reflects financial results for a single Fund share. "Total return"
shows how much your investment would have increased (or decreased) during each
period, assuming reinvestment of all dividends and distributions. This
information has been audited by Deloitte & Touche LLP, whose independent
auditors' report, along with each Fund's financial statements for the year ended
December 31, 1998 and the six-month period ended June 30, 1999, is included in
the SAI, which is available upon request.
United Accumulative Fund
For a Class A share outstanding throughout each period:*
<TABLE>
<CAPTION>
For the For the fiscal year
six months ended December 31,
ended ---------------------------------------------
6-30-99 1998 1997 1996 1995 1994
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Class A Per-Share Data
Net asset value,
beginning of
period ........... $8.28 $7.77 $7.75 $7.78 $6.58 $7.19
----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment
income......... 0.02 0.10 0.10 0.11 0.11 0.13
Net realized and
unrealized gain
(loss) on
investments ... 0.81 1.60 2.14 0.82 2.12 (0.13)
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.83 1.70 2.24 0.93 2.23 0.00
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income ........ (0.02) (0.11) (0.09) (0.11) (0.11) (0.13)
From capital
gains ......... (0.00) (1.08) (2.13) (0.85) (0.92) (0.48)
----- ----- ----- ----- ----- -----
Total distributions . (0.02) (1.19) (2.22) (0.96) (1.03) (0.61)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $9.09 $8.28 $7.77 $7.75 $7.78 $6.58
===== ===== ===== ===== ===== =====
Class A Ratios/Supplemental Data
Total return** ...... 9.97% 22.62% 29.58% 12.18% 34.21% 0.04%
Net assets, end of
period (in
millions) ........ $2,025 $1,864 $1,595 $1,285 $1,206 $967
Ratio of expenses to
average net
assets ........... 0.93%*** 0.88% 0.82% 0.83% 0.80% 0.71%
Ratio of net investment
income to average
net assets ...... 0.47%*** 1.12% 1.16% 1.34% 1.42% 1.76%
Portfolio turnover
rate ............. 207.86% 373.78% 313.99% 240.37% 229.03% 205.40%
</TABLE>
* On June 17, 1995, Fund shares outstanding were designated Class A shares.
There were no Class B or Class C shares outstanding during the periods
shown.
** Total return calculated without taking into account the sales load
deducted on an initial purchase.
*** Annualized.
62
<PAGE>
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the For the fiscal year For the
six months ended December 31, period from
ended ------------------------ 7/11/95* to
6-30-99 1998 1997 1996 12/31/95
------- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share Data
Net asset value,
beginning of period $8.28 $7.77 $7.75 $7.78 $7.84
----- ----- ----- ----- -----
Income from
investment
operations:
Net investment
income............... 0.03 0.12 0.11 0.12 0.05
Net realized and
unrealized gain
on investments .. 0.80 1.59 2.14 0.82 0.87
----- ----- ----- ----- -----
Total from investment
operations ........ 0.83 1.71 2.25 0.94 0.92
----- ----- ----- ----- -----
Less distributions:
From net investment
income.......... (0.02) (0.12) (0.10) (0.12) 0.06)
From capital gains (0.00) (1.08) (2.13) (0.85) (0.92)
----- ----- ----- ----- -----
Total distributions . (0.02) (1.20) (2.23) (0.97) (0.98)
----- ----- ----- ----- -----
Net asset value,
end of period ..... $9.09 $8.28 $7.77 $7.75 $7.78
===== ===== ===== ===== =====
Class Y Ratios/Supplemental Data
Total return ........ 10.06% 22.79% 29.67% 12.27% 11.92%
Net assets, end of
period (in
millions) ......... $4 $4 $4 $3 $1
Ratio of expenses to
average net assets. 0.74%** 0.75% 0.75% 0.74% 0.76%**
Ratio of net investment
income to average
net assets ........ 0.66%** 1.21% 1.22% 1.45% 1.24%**
Portfolio turnover
rate .............. 207.86% 373.78% 313.99% 240.37% 229.03%**
</TABLE>
* Commencement of operations.
** Annualized.
63
<PAGE>
United Bond Fund
For a Class A share outstanding throughout each period:*
<TABLE>
<CAPTION>
For the For the fiscal year
six months ended December 31,
ended --------------------------------------------
6-30-99 1998 1997 1996 1995 1994
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Class A Per-Share Data
Net asset value,
beginning of
period ........... $6.39 $6.32 $6.14 $6.34 $5.62 $6.39
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income ........ 0.18 0.38 0.39 0.39 0.40 0.39
Net realized and
unrealized gain
(loss) on
investments ... (0.28) 0.07 0.19 (0.20) 0.72 (0.75)
----- ----- ----- ----- ----- -----
Total from investment
operations ....... (0.10) 0.45 0.58 0.19 1.12 (0.36)
----- ----- ----- ----- ----- -----
Less distributions:
From net
investment
income ........ (0.18) (0.38) (0.40) (0.39) (0.40) (0.39)
From capital
gains ........... (0.00) (0.00) (0.00) (0.00 (0.00) (0.02)
----- ----- ----- ----- ----- -----
Total distributions . (0.18) (0.38) (0.40) (0.39) (0.40) (0.41)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $6.11 $6.39 $6.32 $6.14 $6.34 $5.62
===== ===== ===== ===== ===== =====
Class A Ratios/
Supplemental Data
Total return** ...... -1.64% 7.27% 9.77% 3.20% 20.50% -5.76%
Net assets, end of
period (in
millions) ........ $531 $551 $524 $519 $563 $518
Ratio of expenses to
average net
assets ........... 0.91%*** 0.84% 0.77% 0.77% 0.74% 0.72%
Ratio of net investment
income to average
net assets ....... 5.67%*** 5.88% 6.34% 6.34% 6.54% 6.60%
Portfolio turnover
rate ............. 19.66% 33.87% 35.08% 55.74% 66.38% 127.11%
</TABLE>
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
There were no Class B or Class C shares outstanding during the periods shown.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
***Annualized.
64
<PAGE>
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the For the fiscal year For the
six months ended December 31, period from
ended ------------------------ 6/19/95* to
6-30-99 1998 1997 1996 12/31/95
------- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share
Data
Net asset value,
beginning of period $6.39 $6.32 $6.14 $6.34 $6.11
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... 0.22 0.39 0.42 0.40 0.21
Net realized and
unrealized gain
(loss)
on investments .. (0.31) 0.07 0.17 (0.20) 0.22
----- ----- ----- ----- -----
Total from investment
operations ........ (0.09) 0.46 0.59 0.20 0.43
----- ----- ----- ----- -----
Less distributions:
From net investment
income........... (0.19) (0.39) (0.41) (0.40) (0.20)
From capital gains (0.00) (0.00) (0.00) (0.00) (0.00)
----- ----- ----- ----- -----
Total distributions . (0.19) (0.39) (0.41) (0.40) (0.20)
----- ----- ----- ----- -----
Net asset value,
end of period ..... $6.11 $6.39 $6.32 $6.14 $6.34
===== ===== ===== ===== =====
Class Y Ratios/
Supplemental Data
Total return ........ -1.50% 7.54% 9.91% 3.35% 7.20%
Net assets, end of
period (in
millions) ......... $2 $6 $5 $12 $3
Ratio of expenses to
average net assets. 0.64%** 0.61% 0.64% 0.62% 0.63%**
Ratio of net
investment
income to average
net assets ........ 5.94%** 6.10% 6.48% 6.52% 6.41%**
Portfolio turnover
rate .............. 19.66% 33.87% 35.08% 55.74% 66.38%**
*Commencement of operations.
**Annualized.
</TABLE>
65
<PAGE>
United Income Fund
For a Class A share outstanding throughout each period:*
<TABLE>
<CAPTION>
For the For the fiscal year
six months ended December 31,
ended ---------------------------------------------
6-30-99 1998 1997 1996 1995 1994
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Class A Per-Share
Data
Net asset value,
beginning of
period ........... $7.52 $7.59 $6.58 $5.79 $4.67 $4.95
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income ....... 0.04 0.20 0.06 0.07 0.07 0.08
Net realized and
unrealized gain
(loss) on
investments ... 0.47 1.66 1.73 1.10 1.30 (0.16)
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 0.51 1.86 1.79 1.17 1.37 (0.08)
----- ----- ----- ----- ----- -----
Less distributions:
From net
investment
income ........ (0.04) (0.19) (0.06) (0.06) (0.07) (0.07)
From capital
gains ......... (0.00) (1.74) (0.72) (0.32) (0.18) (0.13)
----- ----- ----- ----- ----- -----
Total distributions . (0.04) (1.93) (0.78) (0.38) (0.25) (0.20)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $7.99 $7.52 $7.59 $6.58 $5.79 $4.67
===== ===== ===== ===== ===== =====
Class Y Ratios/
Supplemental Data
Total return** ...... 6.80% 24.02% 27.34% 20.36% 29.60% -1.82%
Net assets, end of
period (in
millions) ........ $7,769 $7,368 $6,196 $4,850 $3,976 $3,145
Ratio of expenses to
average net
assets .......... 0.94%*** 0.89% 0.84% 0.86% 0.83% 0.74%
Ratio of net investment
income to average
net assets ....... 1.07%*** 1.11% 0.74% 1.03% 1.31% 1.45%
Portfolio turnover
rate ............. 17.18% 49.29% 33.59% 22.24% 17.59% 18.54%
</TABLE>
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
Per-share and share amounts have been adjusted retroactively to reflect the
400% stock dividend effected June 26, 1998. There were no Class B or Class C
shares outstanding for the periods shown.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
***Annualized.
66
<PAGE>
For a Class Y share outstanding throughout each period:*
<TABLE>
<CAPTION>
For the For the fiscal year For the
six months ended December 31, period from
ended ------------------------ 6/19/95** to
6-30-99 1998 1997 1996 12/31/95
------- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
Class Y Per-Share
Data
Net asset value,
beginning of
period ............ $7.52 $7.59 $6.58 $5.79 $5.55
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income........... 0.05 0.24 0.07 0.07 0.04
Net realized and
unrealized gain
on investments .. 0.47 1.66 1.73 1.11 0.42
----- ----- ----- ----- -----
Total from investment
operations ........ 0.52 1.90 1.80 1.18 0.46
----- ----- ----- ----- -----
Less distributions:
From net investment
income........... (0.05) (0.23) (0.07) (0.07) (0.04)
From capital gains (0.00) (1.74) (0.72) (0.32) (0.18)
----- ----- ----- ----- -----
Total distributions . (0.05) (1.97) (0.79) (0.39) (0.22)
----- ----- ----- ----- -----
Net asset value,
end of period ..... $7.99 $7.52 $7.59 $6.58 $5.79
===== ===== ===== ===== =====
Class Y Ratios/
Supplemental Data
Total return ........ 6.94% 24.27% 27.49% 20.53% 8.45%
Net assets, end of
period (in
millions) ......... $335 $399 $299 $151 $108
Ratio of expenses to
average net assets. 0.72%*** 0.71% 0.72% 0.73% 0.74%***
Ratio of net
investment
income to average
net assets ........ 1.30%*** 1.29% 0.85% 1.17% 1.36%***
Portfolio turnover
rate .............. 17.18% 49.29% 33.59% 22.24% 17.59%***
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
400% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
67
<PAGE>
United Science and Technology Fund
For a Class A share outstanding throughout each period:*
<TABLE>
<CAPTION>
For the For the fiscal year
six months ended December 31,
ended ---------------------------------------------
6-30-99 1998 1997 1996 1995 1994
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Class A Per-Share
Data
Net asset value,
beginning of
period ........... $9.91 $6.71 $7.78 $7.63 $5.07 $4.94
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income (loss) (0.04) (0.03) (0.01) (0.02) (0.00) 0.00
Net realized and
unrealized gain
on investments 2.32 3.93 0.46 0.66 2.80 0.47
----- ----- ----- ----- ----- -----
Total from investment
operations ....... 2.28 3.90 0.45 0.64 2.80 0.47
----- ----- ----- ----- ----- -----
Less distributions:
From net
investment
income ........ (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
From capital
gains ......... (0.00) (0.70) (1.52) (0.49) (0.24) (0.34)
----- ----- ----- ----- ----- -----
Total distributions . (0.00) (0.70) (1.52) (0.49) (0.24) (0.34)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .... $12.19 $9.91 $6.71 $7.78 $7.63 $5.07
====== ===== ===== ===== ===== =====
Class A Ratios/
Supplemental Data
Total return** ...... 23.01% 59.31% 7.22% 8.35% 55.37% 9.78%
Net assets, end of
period (in
millions) ........ $2,161 $1,668 $1,062 $981 $821 $497
Ratio of expenses to
average net
assets ........... 1.07%*** 1.05% 1.02% 0.98% 0.93% 0.96%
Ratio of net
investment
income (loss) to
average
net assets ....... -0.69%*** -0.37% -0.18% -0.33% -0.07% 0.00%
Portfolio turnover
rate ............. 23.61% 55.70% 87.68% 33.90% 32.89% 64.39%
</TABLE>
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
Per-share and share amounts have been adjusted retroactively to reflect the
200% stock dividend effected June 26, 1998. There were no Class B or Class C
shares outstanding during the periods shown.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
***Annualized.
68
<PAGE>
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the For the fiscal year For the
six months ended December 31, period from
ended ---------------- 2/27/96** to
6-30-99 1998 1997 12/31/96
------- ---- ---- --------
<S> <C> <C> <C> <C>
Class Y Per-Share
Data
Net asset value,
beginning of
period ............ $9.98 $6.74 $7.79 $8.02
----- ----- ----- -----
Income from investment
operations:
Net investment
loss ............ (0.02) (0.01) (0.00) (0.01)
Net realized and
unrealized gain
on investments .. 2.35 3.95 0.47 0.27
----- ----- ----- -----
Total from investment
operations ........ 2.33 3.94 0.47 0.26
----- ----- ----- -----
Less distributions:
From net investment
income .......... (0.00) (0.00) (0.00) (0.00)
From capital gains (0.00) (0.70) (1.52) (0.49)
----- ----- ----- -----
Total distributions . (0.00) (0.70) (1.52) (0.49)
----- ----- ----- -----
Net asset value,
end of period ..... $12.31 $9.98 $6.74 $7.79
====== ===== ===== =====
Class Y Ratios/
Supplemental Data
Total return ........ 23.35% 59.71% 7.43% 3.25%
Net assets, end of
period (in
millions) ......... $9 $6 $4 $3
Ratio of expenses to
average net assets. 0.80%*** 0.79% 0.85% 0.80%***
Ratio of net
investment
loss to average
net assets ........ -0.42%*** -0.12% -0.01% -0.12%**
Portfolio turnover
rate .............. 23.61% 55.70% 87.68% 33.90%**
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
200% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
69
<PAGE>
United Funds, Inc.
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
70
<PAGE>
United Funds, Inc.
September 20, 1999
You can get more information about the Funds in--
o the Statement of Additional Information (SAI) dated September 20, 1999,
which contains detailed information about each Fund, particularly the
investment policies and practices. You may not be aware of important
information about each Fund unless you read both the Prospectus and the
SAI. The current SAI is on file with the Securities and Exchange
Commission (SEC) and it is incorporated into this Prospectus by
reference (that is, the SAI is legally part of the Prospectus).
o the Annual and Semiannual Reports to Shareholders, which detail each
Fund's actual investments and include financial statements as of the
close of the particular annual or semiannual period. The annual report
also contains a discussion of the market conditions and investment
strategies that significantly affected each Fund's performance during
the year covered by the report.
To request a copy of the current SAI or copies of the Funds' most recent Annual
and Semiannual reports, without charge, or for other inquiries, contact the Fund
or Waddell & Reed, Inc. at the address and telephone number below. Copies of the
SAI, Annual and/or Semiannual reports may also be requested via e-mail at
[email protected].
Information about the Funds (including the current SAI and most recent Annual
and Semiannual Reports) is available from the SEC's web site at
http://www.sec.gov and from the SEC's Public Reference Room in Washington, D.C.
You can find out about the operation of the Public Reference Room and applicable
copying charges by calling 1-800-SEC-0330.
The Funds' SEC file number is: 811-2552.
WADDELL & REED, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913-236-2000
800-366-5465
71
<PAGE>
NUP2000(9-99)
72
<PAGE>
UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
(800) 366-5465
September 20, 1999
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 United Funds, Inc. (the "Corporation") dated September 20, 1999, which
may be obtained from the Corporation or its underwriter, Waddell & Reed, Inc.,
at the address or telephone number shown above.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Performance Information .......................................... 2
Investment Strategies, Policies and Practices..................... 5
Investment Management and Other Services ......................... 33
Purchase, Redemption and Pricing of Shares ....................... 38
Directors and Officers ........................................... 54
Payments to Shareholders ......................................... 61
Taxes ............................................................ 63
Portfolio Transactions and Brokerage ............................. 67
Other Information ................................................ 70
Financial Statements ............................................. 72
</TABLE>
<PAGE>
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, diversified management company organized as a
Maryland corporation on February 21, 1974, as a successor to a Delaware
corporation which commenced operations in 1940.
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
Total return is the overall change in the value of an investment over a
given period of time. 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, deducting the
maximum sales load of 5.75%. 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 June 30, 1999, which is the most recent balance sheet
included in this SAI, for the periods shown were as follows:
2
<PAGE>
<TABLE>
<CAPTION>
One-year Five-year Ten-year
period from period from period from
7-1-98 to 7-1-94 to 7-1-89 to
6-30-99 6-30-99 6-30-99
----------- ----------- -----------
<S> <C> <C> <C>
United Accumulative Fund 9.35% 20.50% 14.20%
United Bond Fund -4.13% 6.33% 7.01%
United Income Fund 5.79% 20.07% 15.55%
United Science and
Technology Fund 41.80% 32.44% 20.65%
</TABLE>
The average annual total return quotations for Class A shares without
sales load deducted as of June 30, 1999, which is the most recent balance sheet
included in this SAI, for the periods shown were as follows:
<TABLE>
<CAPTION>
One-year Five-year Ten-year
period from period from period from
7-1-98 to 7-1-94 to 7-1-89 to
6-30-99 6-30-99 6-30-99
----------- ----------- -----------
<S> <C> <C> <C>
United Accumulative Fund 16.02% 21.94% 14.88%
United Bond Fund 1.72% 7.59% 7.64%
United Income Fund 12.25% 21.50% 16.23%
United Science and
Technology Fund 50.45% 34.02% 21.36%
</TABLE>
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 June 30, 1999, which
is the most recent balance sheet included in this SAI, for the periods shown
were as follows:
<TABLE>
<CAPTION>
One year
period Period from
ended inception* to
June 30, 1999 June 30, 1999
-------------- --------------
<S> <C> <C>
United Accumulative Fund 16.23% 21.98%
United Bond Fund 1.74% 6.52%
United Income Fund 12.52% 21.78%
United Science and
Technology Fund 51.15% 26.36%
</TABLE>
*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.
3
<PAGE>
No total return information is provided for Class B or Class C since
neither had commenced operations as of June 30, 1999.
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
Yield refers to the income generated by an investment in the Fund over a
given period of time. 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 June 30, 1999, the date of the most
recent balance sheet included in this SAI, is 5.42%. The yield for United Bond
Fund Class Y shares computed according to the formula for the 30-day period
ended on June 30, 1999, the date of the most recent balance sheet included in
this SAI, is 6.04%. No yield information is provided for United Bond Fund Class
B or Class C shares since neither class had commenced operations as of June 30,
1999.
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
4
<PAGE>
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. In connection with a
ranking, the Fund may provide additional information, such as the particular
category to which it related, 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 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.
INVESTMENT STRATEGIES, POLICIES AND PRACTICES
This SAI supplements the information contained in the Prospectus and
contains more detailed information about the investment strategies and policies
the Fund's investment manager, Waddell & Reed Investment Management Company
("WRIMCO"), may employ and the types of instruments in which a Fund may invest,
in pursuit of the Fund's goal(s). A summary of the 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, or use them to the full extent permitted by a Fund's investment
policies and restrictions. WRIMCO buys an instrument or uses a technique only if
it believes that doing so will help a Fund achieve its goal(s). See "Investment
Restrictions and Limitations" for a listing of the fundamental and
non-fundamental (e.g., operating) investment restrictions and policies of the
Funds.
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 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,
5
<PAGE>
electronic media, business machines, office equipment and supplies,
biotechnology, medical and hospital supplies and services, medical devices and
drugs.
United Bond Fund
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.
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.
6
<PAGE>
Securities - General
The main types of securities in which the Funds may invest include common
stock, preferred stock, debt securities and convertible securities. 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. A Fund may invest in preferred stock in any rating category
that is rated by an established rating service or, if unrated, judged by WRIMCO
to be of equivalent quality. 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 securities
fall and, conversely, when interest rates fall, the values of fixed-rate debt
rise. Similarly, long-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
Lower quality debt securities (commonly called "junk bonds") 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. 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 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.
Each of the Funds may invest in debt securities rated in any rating
category of the established rating services, including securities rated in the
lowest category (such as those rated D by Standard & Poor's ("S&P") and C by
Moody's Investors Service, Inc. ("MIS")). Debt securities rated D by S&P or C by
MIS are in payment default or are regarded as having extremely poor prospects of
ever attaining any real investment standing. Debt
7
<PAGE>
securities rated at least BBB by S&P or Baa by MIS are considered to be
investment grade debt securities. Securities rated BBB or Baa may have
speculative characteristics. In addition, a Fund will treat unrated securities
judged by WRIMCO to be of equivalent quality to a rated security having that
rating.
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 the Fund may retain a portfolio security whose rating has been
changed.
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 invest in 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 different issuer within a particular period of time at a specified price
or formula. 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 the value that 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.
8
<PAGE>
The credit standing of the issuer and other factors also may have an effect on
the convertible security's investment value.
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") are high quality debt
instruments issued or guaranteed as to principal or interest by the U.S.
Treasury or an agency or instrumentality of the U.S. Government. These
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.
9
<PAGE>
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.
Money Market Instruments
Money market instruments are high-quality, short-term debt instruments
that present minimal credit risk. They may include U.S. Government securities,
commercial paper and other short-term corporate obligations, and certificates of
deposit and other financial institution obligations. These instruments may carry
fixed or variable interest rates.
10
<PAGE>
Zero Coupon Securities
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 price fluctuations in response to changing interest rates than prices
of comparable maturities that make current distributions of interest in cash.
Each of the Funds 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"). 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 and includable in the dividends paid to its shareholders. Those
dividends will be paid from a Fund's cash assets or by liquidation of portfolio
securities, if necessary, at a time when a Fund otherwise might not have done
so.
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
11
<PAGE>
collectively referred to in this SAI 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 the 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.
The U.S. Government mortgage-backed securities in which a 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.
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 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 the investor's 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
12
<PAGE>
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.
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
13
<PAGE>
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. Changes in the rate or "speed" of these payments can
cause the value of the mortgage backed securities to fluctuate rapidly. 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.
The market for privately issued mortgage-backed and asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specifically 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
reduced. These changes can result in volatility in the market value and in some
instances reduced liquidity, of the CMO class.
14
<PAGE>
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. 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 investments.
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
15
<PAGE>
indexed securities that are not traded on an established market may be deemed
illiquid.
Foreign Securities and Currency
Each of the Funds may invest in the securities of foreign issuers,
including depository receipts. In general, depository receipts are securities
convertible into and evidencing ownership of securities of foreign corporate
issuers, although depository receipts may not necessarily be denominated in the
same currency as the securities into which they may be converted. American
depository receipts, in registered form, are dollar-denominated receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities. International depository receipts and European depository
receipts, in bearer form, are foreign receipts evidencing a similar arrangement
and are designed for use by non-U.S. investors and traders in non-U.S. markets.
Global depository receipts are designed to facilitate the trading of securities
of foreign issuers by U.S. and non-U.S. investors and traders.
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. Thus, 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. WRIMCO believes that a Fund's ability to invest assets abroad
might enable it to take advantage of these differences and strengths where they
are favorable.
However, foreign securities and foreign currencies involve additional
significant risks, apart from the risks inherent in U.S. investments. 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 conditions 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
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may be subject to less government 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 greater possibility of
default by foreign governments or 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 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.
Currency conversion involves dealer spreads and other costs, although
commissions are not usually charged. See "Options, Futures and Other Strategies
- - Forward Currency Contracts" below.
Restricted Securities
Each of the Funds may purchase restricted securities. Restricted
securities are securities that are subject to legal or contractual restrictions
on resale. However, restricted securities generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration under the
Securities Act of 1933, as amended, 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
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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. Certain restricted
securities, e.g. 144A securities, may be determined to be liquid in accordance
with guidelines adopted by the Board of Directors. See "Illiquid Investments."
Investment Company Securities
Each Fund may purchase 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.
Lending Securities
Securities loans may be made on a short-term or long-term basis for the
purpose of increasing a Fund's income. If a Fund lends securities, 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 lent the securities. The Fund
also receives additional compensation.
Any securities loan that a Fund makes must be collateralized in accordance
with applicable regulatory requirements (the "Guidelines"). At the time of each
loan, the Fund must receive collateral equal to no less than 100% of the market
value of the securities loaned. 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 lent on each day that
the loan is outstanding. If the market value of the lent 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 lent. 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
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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. The Fund will not enter into a repurchase transaction that will
cause more than 10% of its net assets to be invested in 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
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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.
In either case, payment and delivery for the securities take place at a future
date. 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. When purchasing securities on a when issued or
delayed-delivery basis, a Fund assumes the rights and risks of ownership,
including the risk of price and yield fluctuations. 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. When a Fund sells a security on a
delayed-delivery basis, the Fund does not participate in further gains or losses
with respect to the security. 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. 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.
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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
Illiquid investments are investments that cannot be sold or
disposed of in the ordinary course of business within seven days at
approximately the price at which they are valued. 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
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(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.
If through a change in values, net assets, or other circumstances, the
Fund were in a position where more than 10% of its net assets were invested in
illiquid securities, it would seek to take appropriate steps to protect
liquidity.
Options, Futures and Other Strategies
General. WRIMCO may use certain options, futures contracts (sometimes
referred to as "futures"), options on futures contracts, forward currency
contracts, swaps, caps, collars, floors, indexed securities and other derivative
instruments (collectively, "Financial Instruments") to attempt to enhance income
or yield or to attempt to hedge a Fund's 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.
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. Since each Fund is authorized to invest in foreign securities it may
purchase and sell foreign currency derivatives.
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
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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,
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
might not use any of these strategies, and there can be no assurance that any
strategy used will succeed. 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. In general,
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. 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
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particular strategy will succeed, and use of Financial Instruments could result
in a loss, regardless of whether the intent was to reduce risk or increase
return.
(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
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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.
(5) 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.
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Options. A call option gives the purchaser the right to buy, and obligates
the writer to sell, the underlying investment at the agreed-upon 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 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.
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
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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. 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 instrument. 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
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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
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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
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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 (including the Euro), 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
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<PAGE>
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.
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<PAGE>
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 Euros, it could enter into a forward
currency contract to sell Euros in return for U.S. dollars to hedge against
possible declines in the Euro'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 Euro. 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.
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<PAGE>
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.
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 exposure to changes in currency exchange rates and
could result in losses to a Fund if currencies do not perform as WRIMCO
anticipates. There is no assurance that WRIMCO's use of forward
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<PAGE>
currency contracts will be advantageous to a Fund or that WRIMCO will hedge at
an appropriate time.
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. Each of the Funds may enter into swaps,
caps, collars and floors to preserve a return or a 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 yield. Swaps involve the exchange by the 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 the 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 the floor. A
collar combines elements of buying a cap and selling a floor.
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<PAGE>
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 the overall volatility of a Fund's investments and its
share price and yield because, and to the extent, these agreements affect 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. If a firm's creditworthiness declines, the
value of the 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 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. The position of the SEC is that assets involved in swap
transactions are illiquid and are, therefore, subject to the limitations on
investing in illiquid securities.
Investment Restrictions and Limitations
Certain of the Funds' investment restrictions and other limitations are
described in this SAI. The following are each Fund's fundamental investment
limitations set forth in their entirety, which, like the Fund's goal(s) and the
types of securities in which the Fund may invest, cannot be changed without
shareholder approval. For this purpose, shareholder
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approval means the approval, at a meeting of Fund shareholders, by the lesser of
(1) the holders of 67% or more of the Fund's shares represented at the meeting,
if more than 50% of the Fund's outstanding shares are present in person or by
proxy or (2) more than 50% of the Fund's outstanding shares. A Fund 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 to the extent allowed, and in accordance with the
requirements, under the 1940 Act and enter into repurchase
agreements except as indicated above (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)
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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;
(x) Invest more than 5% of the Corporation's total assets in securities
issued by foreign governments;
(xi) 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; or
(xii) Issue senior securities.
The following investment restrictions are not fundamental and may be
changed by the Board of Directors without shareholder approval:
(i) At least 65% of United Bond Fund's total assets will be invested
during normal market conditions in bonds. United Bond Fund may not
purchase any securities other than debt securities if, as a result,
more than 10% of the value of the Fund's total assets would consist
of such other securities. This 10% limit does not include (1) 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 (2) 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
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
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
(2) above.
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(ii) United Accumulative Fund, United Income 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 its
assets would consist of such investments. United Bond Fund does not
intend to invest in non-investment grade debt securities if, as a
result of such investment, more than 20% of its assets would consist
of such investments.
(iii) Each Fund may not invest more than 20% of its net assets in foreign
securities.
(iv) Each Fund may not purchase a security if, as a result, more than 10%
of its net assets would consist of illiquid investments.
(v) Each Fund does not currently intend to invest more than 5% of its
assets in the securities of other investment companies.
(vi) 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 instrumentalities, or to collateralized mortgage
obligations, other mortgage-related securities, asset-backed
securities, indexed securities or OTC derivative instruments.
An investment policy or limitation that states a maximum percentage of a
Fund's assets that may be so invested or prescribes quality standards is
typically applied immediately after, and based on, a Fund's acquisition of an
asset. Accordingly, a subsequent change in the asset's value, net assets, or
other circumstances will not be considered when determining whether the
investment complies with a Fund's investment policies and limitations.
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
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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, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
United Accumulative Fund .............. 373.78% 313.99%
United Bond Fund ...................... 33.87% 35.08%
United Income Fund .................... 49.29% 33.59%
United Science and
Technology Fund .................... 55.70% 87.68%
</TABLE>
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.
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
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Financial Services, Inc. is a wholly owned subsidiary of Waddell & Reed
Financial, Inc., a publicly held company. The address of these companies is 6300
Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
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
company's inception date, whichever was later, and to Target/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 for which
Target/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.
42
<PAGE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United Accumulative Fund ..... $ 9,490,941 $ 8,111,304 $ 6,879,322
United Bond Fund ............. 2,284,751 2,221,667 2,344,627
United Income Fund ........... 39,808,311 32,837,940 25,277,033
United Science and Technology
Fund ...................... 7,557,688 5,997,091 5,667,206
----------- ---------- -----------
Total ..................... $59,141,691 $49,168,002 $40,168,188
=========== =========== ===========
</TABLE>
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, Class
B and Class C 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.
43
<PAGE>
Accounting Services Fee
<TABLE>
<CAPTION>
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------ ------------------
<S> <C>
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
</TABLE>
Fees paid to the Agent for the fiscal years ended December 31, 1998, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
United Accumulative Fund ..... $100,000 $100,000 $100,000
United Bond Fund ............. 61,667 60,000 61,667
United Income Fund ........... 100,000 100,000 100,000
United Science and
Technology Fund ........... 100,000 93,750 88,750
</TABLE>
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, 1998, 1997 and 1996 were $33,372,169, $28,736,826 and
$26,543,939, respectively, and the amounts retained by Waddell & Reed, Inc. were
$13,986,977, $12,109,175 and $11,396,996, respectively.
44
<PAGE>
No portion of the sales charge is reallowed to dealers. A major portion of
the sales charge for Class A shares and the contingent deferred sales charges
for Class B and Class C shares is paid to financial advisors and managers of
Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate its financial advisors
as to purchases for which there is no sales charge or deferred 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 the Distribution and Service Plan (the "Class A Plan") for Class A
shares 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 a 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, Class B and Class C 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 cost 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 Class A 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 Class A 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
45
<PAGE>
and/or maintaining shareholder accounts with respect to Class A shares. For its
fiscal year ended December 31, 1998, service and distribution fees paid (or
accrued) under the Class A Plan were as follows:
<TABLE>
<CAPTION>
Service Distribution
Fee Fee
----------- ------------
<S> <C> <C>
United Accumulative Fund $ 3,666,444 $160,493
United Bond Fund 1,167,287 49,734
United Income Fund 14,667,555 650,530
United Science and Technology
Fund 2,896,641 139,285
</TABLE>
To the extent that Waddell & Reed, Inc. incurs expenses for which
reimbursement may be made under the Plan that relate to distribution activities
also involving another fund in the United Group of Funds or Waddell & Reed
Funds, Inc., Waddell & Reed, Inc. typically determines the amount attributable
to each Fund's expenses under the Plan on the basis of a combination of the
respective classes' relative net assets and number of shareholder accounts.
Under the Plans adopted by the Corporation for Class B shares and Class C
shares, respectively, each Fund may pay Waddell & Reed, Inc. a service fee not
to exceed .25% and a distribution fee not to exceed .75% of a Fund's average
annual net assets attributable to that class, paid monthly, to compensate
Waddell & Reed, Inc. for its services in connection with the distribution of
shares of that class and/or the service and/or maintenance of shareholder
accounts of that class. The Class B Plan and the Class C Plan each permit
Waddell & Reed, Inc. to receive compensation, through the distribution fee and
service fee, respectively, for its distribution activities for that class, which
are similar to the distribution activities described with respect to the Class A
Plan, and for its activities in providing personal services to shareholders of
that class and/or maintaining shareholder accounts of that class, which are
similar to the corresponding activities for which it is entitled to
reimbursement under the Class A Plan.
The only Directors or interested persons, as defined in the 1940 Act, of
the Corporation who have a direct or indirect financial interest in the
operation of a Plan are the officers and Directors who are also officers of
either Waddell & Reed, Inc. or its affiliate(s) or who are shareholders of
Waddell & Reed Financial, Inc., the indirect parent company of Waddell & Reed,
Inc. Each Plan is anticipated to benefit a Fund and its shareholders of the
affected class through Waddell & Reed, Inc.'s activities not only to distribute
the shares of the affected class but also to provide personal services to
shareholders of that class and thereby, promote the maintenance of their
accounts with the Fund. The Corporation anticipates that shareholders of a
particular class may benefit to the extent
46
<PAGE>
that Waddell & Reed's activities are successful in increasing the assets of a
Fund, through increased sales or reduced redemptions, or a combination of these,
and reducing the Fund and class expenses of a shareholder's share of Fund and
class expenses. Increased Fund assets may also provide greater resources with
which to pursue the goal(s) of the Fund. Further, continuing sales of Fund
shares may also reduce the likelihood that it will be necessary to liquidate
portfolio securities, in amounts or at times that may be disadvantageous to the
Fund, to meet redemption demands. In addition, the Corporation anticipates that
the revenues from the Plan will provide Waddell & Reed, Inc. with greater
resources to make the financial commitments necessary to continue to improve the
quality and level of services to a Fund and the shareholders of the affected
class. Each 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 each Plan or any
agreement referred to in each Plan (hereafter, the "Plan Directors"). Each Class
A Plan was also approved by the affected shareholders of the Fund.
Among other things, each 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
shares of the affected class 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.
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
47
<PAGE>
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 sales charge is
paid to Waddell & Reed, Inc., the Fund's underwriter. The price makeup as of
June 30, 1999, which is the most recent balance sheet included in this SAI, was
as follows:
United Accumulative Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ....................................... $9.09
Add: selling commission (5.75% of offering
price) ............................................ .55
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) ........ $9.64
=====
United Bond Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ....................................... $6.11
Add: selling commission (5.75% of offering
price) ............................................ .37
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) ........ $6.48
=====
United Income Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ....................................... $7.99
Add: selling commission (5.75% of offering
price) ............................................ .49
------
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) ........ $8.48
======
48
<PAGE>
United Science and Technology Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ....................................... $12.19
Add: selling commission (5.75% of offering
price) ............................................ .74
------
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) ........ $12.93
======
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 B, Class C or 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
49
<PAGE>
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
50
<PAGE>
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, Class B and Class C 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);
51
<PAGE>
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"), or salary reduction plan account
under Section 457 of the Internal Revenue Code of 1986, as amended (the
"Code"), 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
52
<PAGE>
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. All qualified
employee benefit plans of an employer who is a franchisor and those of its
franchisee(s) may also be grouped.
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.
53
<PAGE>
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.
Letter of Intent
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Letter of Intent. By signing a Letter of Intent
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 Letter of Intent is accepted by Waddell &
Reed, Inc. Each purchase made from time to time under the Letter of Intent is
treated as if the purchaser were buying at one time the total amount which he or
she intends
54
<PAGE>
to invest. The sales charge applicable to all purchases of Class A shares made
under the terms of the Letter of Intent 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 Letter of Intent, 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 Letter of Intent 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 Letter of Intent 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 Letter of Intent 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 Letter of Intent 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 Letter of Intent only if the
contractual plan has been completed.
The minimum initial investment under a Letter of Intent is 5% of the
dollar amount which must be invested under the Letter of Intent. An amount equal
to 5% of the purchase required under the Letter of Intent will be held "in
escrow." If a purchaser does not, during the period covered by the Letter of
Intent, invest the amount required to qualify for the reduced sales charge under
the terms of the Letter of Intent, 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 Letter of
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Intent which is not completed will be collected by redeeming part of the shares
purchased under the Letter of Intent 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 Letter of Intent, the lower sales charge will apply.
A Letter of Intent does not bind the purchaser to buy, or Waddell & Reed,
Inc. to sell, the shares covered by the Letter of Intent.
With respect to Letters of Intent for $2,000,000 or purchases otherwise
qualifying for no sales charge under the terms of the Letter of Intent, 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 Letter of
Intent will be deducted in computing the aggregate purchases under the Letter of
Intent.
Letters of Intent 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 Class A shares of any of the funds in the United Group
subject to a sales charge. A purchase of Class A shares, or Class A shares held,
in any of the funds in the United Group subject to a sales charge will be
treated as an investment in a Fund in determining the applicable sales charge.
For these purposes, Class A shares of United Cash Management, Inc. that were
acquired by exchange of another United Group fund's Class A shares on which a
sales charge was paid, plus the shares paid as dividends on those acquired
shares, are also taken into account. Holders 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 that $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, up to the amount representing the unpaid
balance of such Plan, if the purchase order is so designated.
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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, financial advisors of Waddell &
Reed, Inc. and the spouse, children, parents, children's spouses and spouse's
parents of each such Director, officer, employee and financial advisor. "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. "Employees" also includes individuals who, on November 6, 1998, were
employees (including retired employees) of a company that on that date was an
affiliate of Waddell & Reed, Inc. "Financial advisors" includes retired
financial advisors. A "retired financial advisor" is any financial advisor who
was, at the time of separation from service from Waddell & Reed, Inc., a Senior
Financial Advisor. A custodian under UGMA or UTMA purchasing for the child or
grandchild of any employee or financial advisor 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, 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.
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.
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
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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 Letter of
Intent 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, Class B and Class C 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, Class B or Class C 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 Class A shares while
the Service is in effect because it would result in duplication of sales
charges. Class C shares purchased within the past year remain subject to the
CDSC; however, Class B shares redeemed under the Service are not
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subject to a CDSC. Applicable forms to start the Service are available through
Waddell & Reed Services Company.
The maximum amount of the withdrawal for monthly, quarterly, semiannual
and annual withdrawals is 2%, 6%, 12% and 24% respectively of the value of your
account at the time the Service is established. The withdrawal proceeds are not
subject to the deferred sales charge, but only within these percentage
limitations. The minimum withdrawal is $50. The Service, and this exclusion from
the deferred sales charge, does not apply to a one-time withdrawal.
To qualify for the Service, you must have invested at least $10,000 in
Class A, Class B or Class C shares which you still own of any of the funds in
the United Group; or, you must own Class A, Class B or Class C 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 of a class you have made
available for the Service are paid in additional shares of that class. All
payments under the Service are made by redeeming shares, which may involve a
gain or loss for tax purposes. To the extent that payments exceed dividends and
distributions, the number of 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.
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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
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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 B Share Exchanges
You may exchange Class B shares of one Fund of the Corporation for Class B
shares of another Fund of the Corporation, or for Class B shares of other funds
in the United Group without charge.
The redemption of a Fund's Class B shares as part of an exchange is not
subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class B shares of United Cash
Management, Inc. automatically exchanged each month into Class B shares of a
Fund or any other fund in the United Group, provided you already own Class B
shares of the fund. The shares of United Cash Management, Inc. which you
designate for automatic exchange must be worth at least $100, which may be
allocated among different Funds 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.
Class C Share Exchanges
You may exchange Class C shares of one Fund of the Corporation for Class C
shares of another Fund of the Corporation, or for Class C shares of other funds
in the United Group without charge.
The redemption of a Fund's Class C shares as part of an exchange is not
subject to the deferred sales charge. For purposes of computing the deferred
sales charge, if any, applicable to the redemption of the shares acquired in the
exchange, those acquired shares are treated as having been purchased when the
original redeemed shares were purchased.
You may have a specific dollar amount of Class C shares of United Cash
Management, Inc. automatically exchanged each month into Class C shares of a
Fund or any other fund in the United Group, provided you already own Class C
shares of the fund. The shares of United Cash Management, Inc. which
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you designate for automatic exchange must be worth at least $100, which may be
allocated among different Funds 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.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of another
Fund or 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
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, 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.
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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 (and who 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 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).
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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.
Pension and Profit-Sharing Plans, including 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.
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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
Each Fund offers a one-time reinvestment privilege that allows you to
reinvest without charge all or part of any amount of Class A shares you redeem
from the Fund by sending any one or more of the Funds the amount you wish to
reinvest. The amount you return will be reinvested in Class A shares of the Fund
at the net asset value next determined after the Fund receives the returned
amount. Your written request to reinvest and the amount to be reinvested must be
received within 30 days after your redemption request was received. You can do
this only once as to Class A shares of a Fund, and the Fund must be offering
Class A shares at the time your reinvestment request is received. 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.
There is also a reinvestment privilege for Class B and Class C shares
under which you may reinvest in any one or more of the Funds all or part of any
amount of Class B or Class C shares you redeemed and have the corresponding
amount of the deferred sales charge, if any, which you paid restored to your
account by adding the amount of that charge to the amount you are reinvesting.
If Class B or Class C shares of a Fund are then being offered, you can put all
or part of your redemption payment back into the Class B or Class C shares of
that Fund 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. You can do this only once as to Class B shares of a Fund and
only
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once as to Class C shares of a Fund. For purposes of determining future deferred
sales charges, the reinvestment will be treated as a new investment. You do not
use up this privilege by redeeming Class B or Class C shares to invest the
proceeds at net asset value in a Keogh plan or an IRA.
Mandatory Redemption of Certain Small Accounts
Each Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their accounts up to
the minimum before this redemption is processed.
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
majority of the Directors is not affiliated with Waddell & Reed, Inc.
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. Vogel 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,
Target/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.
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KEITH A. TUCKER*
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors, Chief Executive
Officer, Principal Financial Officer and Director of Waddell & Reed Financial,
Inc.; President, Chairman of the Board of Directors and Chief Executive Officer
of Waddell & Reed Financial Services, Inc.; Chairman of the Board of Directors
of WRIMCO, Waddell & Reed, Inc. and Waddell & Reed Services Company; formerly,
President of each of the funds in the Fund Complex; formerly, Chairman of the
Board of Directors of Waddell & Reed Asset Management Company, a former
affiliate of Waddell & Reed Financial, Inc. 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
President, JoDill Corp., an agricultural company; President and Director
of Dillingham Enterprises Inc.; formerly, Director and consultant, McDougal
Construction Company; formerly, Instructor at Central Missouri State University;
formerly, Member of the Board of Police Commissioners, Kansas City, Missouri;
formerly, Senior Vice President-Sales and Marketing, Garney Companies, Inc., a
specialty utility contractor. Date of birth: January 9, 1939.
DAVID P. GARDNER
525 Middlefield Road, Suite 200
Menlo Park, California 94025
President of Hewlett Foundation and Chairman of George S. and Delores Dori
Eccles Foundation. Director of First Security Corp., a bank holding company, and
Director of Fluor Corp., a company with interests in coal. Date of birth: March
24, 1933.
LINDA K. GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas. Partner, Levy and Craig, P.C., a law firm. Date of
birth: July 29, 1953.
JOSEPH HARROZ, JR.
125 South Creekdale Drive
Norman, Oklahoma 73072
General Counsel of the Board of Regents and Adjunct Professor of Law at
the University
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of Oklahoma College of Law; formerly, Vice President for Executive Affairs of
the University of Oklahoma; formerly, an Attorney with Crowe & Dunlevy, a law
firm. Date of birth: January 17, 1967.
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 of the Board of
Directors, Gilliland & Hayes, P.A., a law firm; formerly, President, Gilliland &
Hayes, P.A. Date of birth: December 11, 1919.
ROBERT L. HECHLER*
President and Principal Financial Officer of the Fund and each of the
other funds in the Fund Complex; Executive Vice President, Chief Operating
Officer and Director of Waddell & Reed Financial, Inc.; Vice President, Chief
Operating 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; formerly, Vice President of each
of the funds in the Fund Complex; formerly, Director and Treasurer of Waddell &
Reed Asset Management Company, a former affiliate of Waddell & Reed Financial,
Inc. Date of birth: November 12, 1936.
HENRY J. HERRMANN*
Vice President of the Fund and each of the other funds in the Fund
Complex; President, Chief Investment Officer, Treasurer and Director of Waddell
& Reed Financial, Inc.; 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; formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company, a former affiliate of
Waddell & Reed Financial, Inc. Date of birth: December 8, 1942.
GLENDON E. JOHNSON
13635 Deering Bay Drive
Unit 284
Miami, Florida 33158
Retired; formerly, Director and Chief Executive Officer of John Alden
Financial Corporation and subsidiaries. Date of birth: February 19, 1924.
68
<PAGE>
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of
each of the funds 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. Date of birth:
April 27, 1928.
RONALD C. REIMER
2601 Verona Road
Mission Hills, Kansas 66208
Retired. Co-founder and teacher at Servant Leadership School of Kansas
City; Director of Network Rehabilitation Services; formerly, Employment
Counselor and Director of McCue-Parker Center. Date of birth: August 3, 1934.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm. Date of
birth: April 9, 1953.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Professor of Business Administration, University of Missouri-Kansas City;
formerly, 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.
Helge K. Lee
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Secretary and General Counsel of Waddell & Reed
Financial, Inc.; 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;
formerly, Executive Vice President, Secretary and Chief Compliance Officer of
LGT Asset Management, Inc. and affiliates; formerly, Senior Vice President,
General Counsel and Secretary of Strong Capital Management, Inc. and affiliates.
Date of birth: March 30, 1946.
69
<PAGE>
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.
James C. Cusser
Vice President of the Corporation and two 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; formerly, 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; formerly, Senior Vice President 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.
James D. Wineland
Vice President of the Corporation and two other funds in the Fund Complex;
Vice President of WRIMCO; formerly, Vice President of Waddell & Reed Asset
Management Company; 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.
The Directors who may be deemed to be "interested persons" as defined in
the 1940 Act of its underwriter, Waddell & Reed, Inc., or of WRIMCO 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
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<PAGE>
resignation from the Board provided the director has attained the age of 70 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. Henry L. Bellmon, Jay B. Dillingham,
Doyle Patterson, Ronald K. Richey and Paul S. Wise retired as Directors of the
Corporation and of each of the funds in the Fund Complex and elected a position
as Director Emeritus.
The funds in the United Group, Target/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 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 , Target/United
Funds, Inc. and Waddell & Reed Funds, Inc. based on their relative size.
During the Corporation's fiscal year ended December 31, 1998, the
Corporation's Directors received the following fees for service as a director:
Compensation Table
<TABLE>
<CAPTION>
Total
Aggregate Compensation
Compensation From Corporation
From and Fund
Director Corporation Complex*
- -------- ------------ ------------
<S> <C> <C>
Robert L. Hechler $ 0 $ 0
Henry J. Herrmann 0 0
Keith A. Tucker 0 0
James M. Concannon 27,380 57,500
John A. Dillingham 27,380 57,500
David P. Gardner 6,945 14,500
Linda K. Graves 27,380 57,500
Joseph Harroz, Jr. 5,813 12,000
John F. Hayes 27,380 57,500
Glendon E. Johnson 26,913 56,500
William T. Morgan 27,380 57,500
Ronald C. Reimer 5,813 12,000
Frank J. Ross, Jr. 27,380 57,500
Eleanor B. Schwartz 27,380 57,500
Frederick Vogel III 27,380 57,500
</TABLE>
*No pension or retirement benefits have been accrued as a part of Fund expenses.
71
<PAGE>
Mr. Gardner was elected as a Director on August 19, 1998. Messrs. Harroz,
Hechler, Herrmann and Reimer were elected as Directors on November 18, 1998. The
officers are paid by WRIMCO or its affiliates.
Shareholdings
As of August 31, 1999, 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
August 31, 1999, regarding the beneficial ownership of the series, and classes
thereof, of the Corporation's shares.
<TABLE>
<CAPTION>
Shares owned
Name and Address Series and Beneficially
of Beneficial Owner Class or of Record Percent
- ------------------- ---------- ------------ -------
<S> <C> <C> <C>
USX Corporation Income Fund
Savings Fund Class Y %
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
Unit Elec
PO Box 419260
Kansas City MO 64141
T Rowe Price Trust Income Fund
Company Class Y
FBO Honeywell
ATTN: Retirement Plan Services
10090 Red Run Blvd
Owings Mills MD 21117
Mac & Co Income Fund
Mutual Funds Operations Class Y
PO Box 3198
Pittsburgh PA 15230
Waddell & Reed Science and Technology Fund
Financial, Inc. Class Y
Savings & Investment Plan
6300 Lamar Avenue Accumulative Fund
Overland Park KS 66201 Class Y
Bond Fund
Class Y
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
Torchmark Corporation Science and Technology Fund
Savings & Investment Class Y
Plan
2001 Third Avenue South Accumulative Fund
Birmingham AL 35202 Class Y
Fiduciary Trust Co NH TR Accumulative Fund
Corporate Money Pension Class Y
Plan
Okanogan County Hospital Bond Fund
District 3 Class Y
FBO Unallocated Assets
Qualified Plan 1329481
P. O. Box 793
Omak WA 98841
Marine Midland Bank Bond Fund
NA FBO Class Y
CIBC Incentive Savings Plan
ATTN: Mutual Fund Processing
PO Box 1329
Buffalo NY 14240
</TABLE>
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 that 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
73
<PAGE>
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. However, a total dividend and/or distribution amount less
than five dollars will be automatically paid in shares of the Fund of the same
class as that with respect to which it was paid You can change your instructions
at any time. If you give no instructions, your dividends and distributions will
be paid in shares of the 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.
74
<PAGE>
TAXES
General
The Fund (each Fund being treated as a separate entity for these purposes)
has qualified for treatment as a regulated investment company ("RIC") under the
Code, so that it is 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) that is distributed to its shareholders. To continue to qualify as
a RIC, the Fund must distribute to its shareholders for each taxable year at
least 90% of the sum of its investment company taxable income ("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.
If a Fund failed to qualify for treatment as a RIC for any taxable year,
(a) it would be taxed as an ordinary corporation on the full amount of its
taxable income for that year (even if it distributed that income to its
shareholders) and (b) the shareholders would treat all distributions out of its
earnings and profits, including distributions of net capital gain (the excess of
net long-term capital gain over net short-term capital loss), as dividends (that
is, ordinary income). In addition, the Fund could be required to recognize
unrealized gains, pay substantial taxes and interest, and make substantial
distributions before qualifying for RIC treatment.
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
75
<PAGE>
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, and gains realized, by a Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions ("foreign taxes") that would reduce the yield and/or total
return on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate 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
76
<PAGE>
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 provided 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
77
<PAGE>
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, futures contracts and forward currency contracts 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 contracts subject to a
"mixed straddle" election made by the Fund are "marked-to-market" (that is,
treated as sold at that time 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. That 60% portion
will qualify for the 20% (10% for taxpayers in the 15% marginal tax bracket)
maximum tax rate on net capital gains enacted by the Taxpayer Relief Act of
1997. Section 1256 contracts also may be marked-to-market for purposes of the
Excise Tax and other purposes. The Fund may need to distribute any
mark-to-market 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. The regulations under section
1092 also provide certain "wash sale" rules that apply to transactions where a
78
<PAGE>
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.
If a Fund has an appreciated financial position -- generally, an interest
(including an interest through an option, futures or forward currency contract
or short sale) with respect to any stock, debt instrument (other than "straight
debt") or partnership interest the fair market value of which exceeds its
adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward currency contract entered into by the
Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
Zero Coupon and Payment-in-Kind Securities
Certain Funds may acquire zero coupon or other securities issued with 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
79
<PAGE>
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 or WRIMCO may otherwise combine orders for a Fund
with those of other funds in the United Group, Target/United Funds, Inc. and
Waddell & Reed Funds, Inc. or other accounts for which it has investment
discretion, including accounts affiliated with WRIMCO. Under current written
procedures, 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, except where the combined
order is not filled completely. In this case, WRIMCO will ordinarily allocate
the transaction pro rata based on the orders placed, subject to certain
variances provided for in the written procedures. 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 through combined
orders.
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 seek "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 ("research and 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.
Research and 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
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<PAGE>
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 research and/or
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 research or
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
request 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,
1998, 1997 and 1996. 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.
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<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
United Accumulative
Fund ................... $10,437,061 $ 8,215,119 $6,157,885
United Bond Fund .......... 0 0 0
United Income Fund ........ 5,534,850 4,447,377 2,444,984
United Science and
Technology Fund ........ 777,363 968,118 438,029
----------- ---------- ----------
Total ..................... $16,749,274 $13,630,614 $9,040,898
=========== ========== ==========
</TABLE>
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.
<TABLE>
<CAPTION>
Amount of Brokerage
Transactions Commissions
-------------- ----------
<S> <C> <C>
United Accumulative Fund .................... $ 6,659,151,988 $ 7,382,565
United Bond Fund ............................ --- ---
United Income Fund .......................... 3,861,041,722 4,217,519
United Science and Technology Fund .......... 432,862,203 514,668
--------------- -----------
Total .................................... $10,953,055,913 $12,114,752
=============== ===========
</TABLE>
As of December 31, 1998, United Bond Fund owned securities of Salomon Inc.
in the amount of $4,998,300. Salomon Inc. is 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.
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 four classes of its shares: Class A, Class B, Class C 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
82
<PAGE>
A shares are subject to an initial sales charge and to an ongoing distribution
and/or service fee; Class B and Class C are subject to a contingent deferred
sales charge and to ongoing distribution and service fees; Class B shares
convert at the end of the seventh calendar year following the first year of
purchase to Class A shares; and Class Y shares, which are designated for
institutional investors, have no sales charge nor ongoing distribution and/or
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 four classes, dividends and liquidation
proceeds of Class B shares and Class C shares are expected to be lower than for
Class A shares of the same Fund, which in turn are expected to be lower than for
Class Y shares of that Fund. Shares are fully paid and nonassessable when
purchased.
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 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 the 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 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 Fund, 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 each of the
Funds vote together as a single class, except as to any matter for which a
separate vote of any class is required by the 1940 Act, and except as to any
matter which affects the interests of one or more particular classes, in which
case only the shareholders of the affected classes are entitled to vote, each as
a separate class.
83
<PAGE>
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.
84
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
JUNE 30, 1999
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS
Business Services - 4.06%
Compuware Corporation* ................................................. 1,000,000 $ 31,781,250
Microsoft Corporation* ................................................. 150,000 13,518,750
Oracle Corporation* .................................................... 1,000,000 37,125,000
Total ............................................................... 82,425,000
Chemicals and Allied Products - 6.50%
Air Products and Chemicals, Inc. ....................................... 100,600 4,049,150
Elan Corporation PLC, ADR* ............................................. 325,000 9,018,750
Hercules Incorporated .................................................. 300,000 11,793,750
Pharmacia & Upjohn, Inc. ............................................... 600,000 34,087,500
Praxair, Inc. .......................................................... 225,000 11,010,938
Rohm and Haas Company .................................................. 58,000 2,486,750
Schering-Plough Corporation ............................................ 500,000 26,500,000
SmithKline Beecham plc, ADR ............................................ 500,000 33,031,250
Total ............................................................... 131,978,088
Communication - 11.77%
Chancellor Media Corporation, Class A* ................................. 1,100,000 60,603,125
Clear Channel Communications, Inc.* .................................... 250,000 17,234,375
MediaOne Group, Inc.* .................................................. 1,000,000 74,375,000
Nextel Communications, Inc.* ........................................... 500,000 25,109,375
Qwest Communications International Inc.*................................ 500,000 16,546,875
Time Warner Telecom Inc., Class A* ..................................... 300,000 8,690,625
VoiceStream Wireless Corporation* ...................................... 800,000 22,775,000
Western Wireless Corporation, Class A* ................................. 500,000 13,515,625
Total ............................................................... 238,850,000
Depository Institutions - 13.91%
Chase Manhattan Corporation (The) ...................................... 700,000 60,637,500
Citigroup Inc. ......................................................... 250,000 11,875,000
Comerica Incorporated .................................................. 900,000 53,493,750
KeyCorp ................................................................ 350,000 11,243,750
Mellon Bank Corporation ................................................ 1,000,000 36,375,000
Mercantile Bankshares Corporation ...................................... 550,000 19,439,062
Summit Bancorp. ........................................................ 500,000 20,906,250
U. S. Bancorp. ......................................................... 750,000 25,500,000
Wells Fargo & Company .................................................. 1,000,000 42,750,000
Total ............................................................... 282,220,312
Electric, Gas and Sanitary Services - 2.47%
Allied Waste Industries, Inc., New* .................................... 2,000,000 39,500,000
Williams Companies, Inc. (The) ......................................... 250,000 10,640,625
Total ............................................................... 50,140,625
See Notes to Schedules of Investments on page .
1
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 3.77%
Cooper Industries, Inc. ................................................ 150,000 $ 7,800,000
EchoStar Communications Corporation,
Class A* ............................................................ 150,000 23,020,313
Intel Corporation ...................................................... 200,000 11,893,750
Tellabs* ............................................................... 500,000 33,796,875
Total................................................................ 76,510,938
Fabricated Metal Products - 0.92%
Lockheed Martin Corporation ............................................ 500,000 18,625,000
Furniture and Fixtures - 0.56%
Ethan Allen Interiors Inc. ............................................. 300,000 11,325,000
Health Services - 2.04%
Columbia/HCA Healthcare Corporation .................................... 1,000,000 22,812,500
Tenet Healthcare Corporation* .......................................... 1,000,000 18,562,500
Total ............................................................... 41,375,000
Holding and Other Investment Offices - 2.07%
Equity Office Properties Trust ......................................... 500,000 12,812,500
Host Marriott Corporation .............................................. 500,000 5,937,500
"Shell" Transport and Trading
Company, p.l.c. (The), ADR .......................................... 500,000 23,187,500
Total ............................................................... 41,937,500
Industrial Machinery and Equipment - 2.77%
AGCO Corporation ....................................................... 500,000 5,656,250
Cisco Systems, Inc.* ................................................... 200,000 12,881,250
Deere & Company ........................................................ 250,000 9,906,250
Ingersoll-Rand Company ................................................. 150,000 9,693,750
Parker Hannifin Corporation ............................................ 396,700 18,149,025
Total ............................................................... 56,286,525
Instruments and Related Products - 2.70%
General Motors Corporation, Class H* ................................... 500,000 28,125,000
Litton Industries, Inc.* ............................................... 77,200 5,539,100
Raytheon Company, Class B .............................................. 300,000 21,112,500
Total ............................................................... 54,776,600
Insurance Carriers - 10.78%
ACE Limited ............................................................ 700,000 19,775,000
Allmerica Financial Corporation ........................................ 300,000 18,243,750
American International Group, Inc. ..................................... 200,000 23,412,500
Chartwell Re Corporation ............................................... 500,000 9,312,500
Everest Reinsurance Holdings, Inc. ..................................... 410,100 13,379,512
Hartford Life, Inc., Class A ........................................... 325,000 17,103,125
Liberty Corporation (The) .............................................. 350,000 19,075,000
LifePoint Hospitals, Inc.* ............................................. 299,999 4,021,862
See Notes to Schedules of Investments on page .
2
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
Insurance Carriers (Continued)
Lincoln National Corporation ........................................... 400,000 $ 20,925,000
Nationwide Financial Services, Class A ................................. 375,000 16,968,750
ReliaStar Financial Corp. .............................................. 500,000 21,875,000
St. Paul Companies, Inc. (The) ......................................... 300,000 9,543,750
StanCorp Financial Group, Inc.* ........................................ 700,000 21,000,000
Triad Hospitals, Inc.* ................................................. 299,999 4,040,612
Total ............................................................... 218,676,361
Nondepository Institutions - 2.64%
CIT Group, Inc. (The), Class A ......................................... 1,300,000 37,537,500
Heller Financial, Inc. ................................................. 575,000 15,992,187
Total ............................................................... 53,529,687
Oil and Gas Extraction - 6.90%
Anadarko Petroleum Corporation ......................................... 750,000 27,609,375
Burlington Resources Incorporated ...................................... 1,100,000 47,575,000
Total, S.A., ADR* ...................................................... 500,000 32,218,750
USX Corporation - Marathon Group ....................................... 1,000,000 32,562,500
Total ............................................................... 139,965,625
Paper and Allied Products - 3.77%
Champion International Corporation ..................................... 600,000 28,725,000
International Paper Company ............................................ 550,000 27,775,000
Kimberly-Clark Corporation ............................................. 350,000 19,950,000
Total ............................................................... 76,450,000
Petroleum and Coal Products - 5.95%
Coastal Corporation (The) .............................................. 700,000 28,000,000
Royal Dutch Petroleum Company .......................................... 500,000 30,125,000
Texaco Inc. ............................................................ 1,000,000 62,500,000
Total ............................................................... 120,625,000
Railroad Transportation - 1.07%
Burlington Northern Santa Fe Corporation ............................... 700,000 21,700,000
Security and Commodity Brokers - 1.56%
Charles Schwab Corporation (The) ....................................... 75,000 8,240,625
Goldman Sachs Group, Inc. (The)* ....................................... 325,000 23,481,250
Total ............................................................... 31,721,875
Transportation by Air - 4.10%
AMR Corporation* ....................................................... 200,000 13,650,000
Southwest Airlines Co. ................................................. 1,500,000 46,687,500
UAL Corporation* ....................................................... 350,000 22,750,000
Total ............................................................... 83,087,500
See Notes to Schedules of Investments on page .
3
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
Transportation Equipment - 7.57%
AlliedSignal Inc. ...................................................... 350,000 $ 22,050,000
Borg-Warner Automotive, Inc. ........................................... 375,000 20,625,000
Dana Corporation ....................................................... 500,000 23,031,250
Federal-Mogul Corporation .............................................. 450,000 23,400,000
Ford Motor Company ..................................................... 400,000 22,575,000
General Motors Corporation ............................................. 500,000 33,000,000
Newport News Shipbuilding Inc. ......................................... 300,000 8,850,000
Total ............................................................... 153,531,250
Wholesale Trade -- Nondurable Goods - 0.40%
McKesson HBOC, Inc. .................................................... 250,000 8,031,250
TOTAL COMMON STOCKS - 98.28% $1,993,769,136
(Cost: $1,919,809,228)
PREFERRED STOCK - 0.97%
Communication
Adelphia Communications Corporation,
5.5%, Convertible* .................................................. 100,000 $ 19,700,000
(Cost: $20,000,000)
TOTAL SHORT-TERM SECURITIES - 1.53% $ 31,140,692
(Cost: $31,140,692)
TOTAL INVESTMENT SECURITIES - 100.78% $2,044,609,828
(Cost: $1,970,949,920)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.78%) (15,879,594)
NET ASSETS - 100.00% $2,028,730,234
</TABLE>
See Notes to Schedules of Investments on page .
4
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
JUNE 30, 1999
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 2.14%
Procter & Gamble Company (The),
8.0%, 9-1-2024 ...................................................... $10,000 $11,389,900
Communication - 2.58%
BellSouth Telecommunications, Inc.,
5.85%, 11-15-2045 ................................................... 3,000 2,990,250
Jones Intercable, Inc.,
9.625%, 3-15-2002 ................................................... 2,500 2,675,000
Tele-Communications, Inc.,
8.35%, 2-15-2005 .................................................... 7,500 8,089,350
Total ............................................................... 13,754,600
Depository Institutions - 12.26%
AmSouth Bancorporation,
6.75%, 11-1-2025 .................................................... 6,500 6,411,470
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-2005 .................................................... 1,500 1,518,750
First Union Corporation:
6.824%, 8-1-2026 .................................................... 7,500 7,598,325
6.55%, 10-15-2035 ................................................... 4,500 4,456,845
Kansallis-Osake-Pankki,
10.0%, 5-1-2002 ..................................................... 6,000 6,502,320
NBD Bank, National Association,
8.25%, 11-1-2024 .................................................... 6,000 6,640,320
NationsBank Corporation,
8.57%, 11-15-2024 ................................................... 5,000 5,629,950
Riggs National Corporation,
8.5%, 2-1-2006 ...................................................... 7,000 7,297,290
See Notes to Schedules of Investments on page .
5
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
JUNE 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Depository Institutions (Continued)
SouthTrust Bank of Alabama, National Association:
5.58%, 2-6-2006 ..................................................... $ 7,800 $ 7,750,158
7.69%, 5-15-2025 .................................................... 5,000 5,360,200
Sovereign Bancorp, Inc.,
8.0%, 3-15-2003 ..................................................... 2,000 1,990,000
Wachovia Corporation,
6.605%, 10-1-2025 ................................................... 4,250 4,189,693
Total ............................................................... 65,345,321
Electric, Gas and Sanitary Services - 7.43%
California Infrastructure and Economic Development
Bank, Special Purpose Trust:
PG&E-1,
6.42%, 9-25-2008 .................................................... 5,000 4,972,400
SCE-1,
6.38%, 9-25-2008 .................................................... 5,000 4,946,850
Cleveland Electric Illuminating Co. (The),
9.5%, 5-15-2005 ..................................................... 4,000 4,265,840
Entergy Arkansas, Inc.,
7.5%, 8-1-2007 ...................................................... 3,750 3,891,187
Korea Electric Power Corporation,
6.375%, 12-1-2003 ................................................... 2,500 2,333,425
Niagara Mohawk Power Corporation:
9.5%, 6-1-2000 ...................................................... 1,500 1,543,320
7.375%, 7-1-2003 .................................................... 5,500 5,594,160
Pacific Gas & Electric Co.,
6.875%, 12-1-99 ..................................................... 4,750 4,754,085
Pennsylvania Power & Light Co.,
9.25%, 10-1-2019 .................................................... 4,000 4,170,920
TXU Eastern Funding Company,
6.45%, 5-15-2005 (A) ................................................ 3,250 3,139,565
Total ............................................................... 39,611,752
Food and Kindred Products - 3.94%
Anheuser-Busch Companies, Inc.,
7.0%, 9-1-2005 ...................................................... 3,000 3,007,020
Coca-Cola Enterprises Inc.:
0.0%, 6-20-2020 ..................................................... 45,000 10,022,850
6.7%, 10-15-2036 .................................................... 5,500 5,545,705
Coca-Cola FEMSA, S.A. de C.V.,
8.95%, 11-1-2006 .................................................... 2,500 2,450,000
Total ............................................................... 21,025,575
See Notes to Schedules of Investments on page .
6
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
JUNE 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
General Merchandise Stores - 1.09%
Fred Meyer, Inc.:
7.15%, 3-1-2003 ..................................................... $ 3,750 $ 3,777,787
7.45%, 3-1-2008 ..................................................... 2,000 2,017,700
Total ............................................................... 5,795,487
Health Services - 1.58%
Tenet Healthcare Corporation:
7.875%, 1-15-2003 ................................................... 3,500 3,430,000
8.625%, 12-1-2003 ................................................... 5,000 5,000,000
Total ............................................................... 8,430,000
Holding and Other Investment Offices - 0.96%
Bay Apartment Communities, Inc.,
6.5%, 1-15-2005 ..................................................... 3,000 2,875,470
GRUMA, S.A. de C.V.,
7.625%, 10-15-2007................................................... 2,500 2,237,500
Total ............................................................... 5,112,970
Insurance Carriers - 0.57%
Reliance Group Holdings, Inc.,
9.0%, 11-15-2000 .................................................... 3,000 3,057,510
Nondepository Institutions - 10.38%
Asset Securitization Corporation,
7.49%, 4-14-2029 .................................................... 6,000 6,150,960
CHYPS CBO 1997-1 Ltd.,
6.72%, 1-15-2010 (A) ................................................ 8,500 8,158,640
Chrysler Financial Corporation,
12.75%, 11-1-99 ..................................................... 9,000 9,208,710
Equicon Loan Trust,
7.3%, 2-18-2013 ..................................................... 4,571 4,562,246
General Electric Capital Corporation,
8.625%, 6-15-2008 ................................................... 3,500 3,969,735
General Motors Acceptance Corporation,
8.875%, 6-1-2010 .................................................... 5,500 6,227,870
See Notes to Schedules of Investments on page .
7
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
JUNE 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions (Continued)
IMC Home Equity Loan Trust,
6.9%, 1-20-2022 ..................................................... $ 4,500 $ 4,498,560
Norse CBO, Ltd. and Norse CBO, Inc.,
6.515%, 8-13-2010 (A) ............................................... 3,750 3,543,750
Residential Asset Securities Corporation,
Mortgage Pass-Through Certificates,
8.0%, 10-25-2024 .................................................... 4,000 4,066,240
Westinghouse Electric Corporation,
8.875%, 6-14-2014 ................................................... 4,500 4,985,685
Total ............................................................... 55,372,396
Oil and Gas Extraction - 2.86%
Anadarko Petroleum Corporation,
7.25%, 3-15-2025 .................................................... 5,000 5,028,900
Mitchell Energy & Development Corp.,
9.25%, 1-15-2002 .................................................... 165 171,965
Oryx Energy Company,
10.0%, 4-1-2001 ..................................................... 3,500 3,690,785
Pemex Finance Ltd.,
5.72%, 11-15-2003 (A) ............................................... 2,500 2,446,875
YPF Sociedad Anoima,
8.0%, 2-15-2004 ..................................................... 4,000 3,896,040
Total ............................................................... 15,234,565
Paper and Allied Products - 1.99%
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-2002 .................................................... 4,500 4,741,245
Champion International Corporation,
6.4%, 2-15-2026 ..................................................... 6,100 5,884,609
Total ............................................................... 10,625,854
Petroleum and Coal Products - 0.55%
Conoco Inc.,
5.9%, 4-15-2004 ..................................................... 3,000 2,927,340
Printing and Publishing - 1.38%
News America Holdings Incorporated,
7.45%, 6-1-2000 ..................................................... 2,500 2,530,475
Quebecor Printing Capital Corporation,
6.5%, 8-1-2027 ...................................................... 5,000 4,816,550
Total ............................................................... 7,347,025
Railroad Transportation - 0.94%
CSX Corporation,
6.95%, 5-1-2027 ..................................................... 5,000 5,032,500
See Notes to Schedules of Investments on page .
8
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
JUNE 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Security and Commodity Brokers - 0.96%
Salomon Inc.,
3.65%, 2-14-2002 .................................................... $ 5,000 $ 5,107,700
Stone, Clay and Glass Products - 1.64%
Cemex, S.A. de C.V.,
9.5%, 9-20-2001 ..................................................... 3,500 3,552,500
Owens-Illinois, Inc.,
7.15%, 5-15-2005..................................................... 3,250 3,124,485
USG Corporation,
9.25%, 9-15-2001 .................................................... 2,000 2,094,880
Total ............................................................... 8,771,865
Transportation Equipment - 0.65%
Coltec Industries Inc.,
7.5%, 4-15-2008 ..................................................... 2,500 2,506,250
Federal-Mogul Corporation,
7.75%, 7-1-2006 ..................................................... 1,000 957,510
Total ............................................................... 3,463,760
United States Postal Service - 0.31%
Postal Square Limited Partnership,
6.5%, 6-15-2022 ..................................................... 1,701 1,633,679
Wholesale Trade -- Durable Goods - 1.78%
Motorola, Inc.,
8.4%, 8-15-2031 ..................................................... 8,500 9,502,915
TOTAL CORPORATE DEBT SECURITIES - 55.99% $298,542,714
(Cost: $299,608,171)
OTHER GOVERNMENT SECURITIES
Canada - 5.77%
Hydro-Quebec:
8.05%, 7-7-2024 ..................................................... 10,000 10,837,300
7.4%, 3-28-2025 ..................................................... 5,150 5,774,540
Province de Quebec:
5.67%, 2-27-2026 .................................................... 9,200 9,190,432
6.29%, 3-6-2026 ..................................................... 5,000 4,971,450
Total ............................................................... 30,773,722
See Notes to Schedules of Investments on page .
9
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
JUNE 30, 1999
Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITIES (Continued)
Korea - 0.47%
Korea Development Bank (The),
7.90%, 2-1-2002 ..................................................... $ 2,500 $ 2,491,175
Supranational - 1.07%
Inter-American Development Bank,
8.4%, 9-1-2009 ...................................................... 5,000 5,692,900
TOTAL OTHER GOVERNMENT SECURITIES - 7.31% $ 38,957,797
(Cost: $37,524,730)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
7.5%, 2-15-2007 ..................................................... 6,396 6,490,419
6.5%, 9-25-2018 ..................................................... 2,000 1,985,000
7.0%, 1-15-2019 ..................................................... 2,000 2,000,620
7.5%, 4-15-2019 ..................................................... 15,360 15,503,472
7.95%, 12-15-2020 ................................................... 1,177 1,177,800
6.25%, 1-15-2021 .................................................... 12,000 11,861,160
Federal National Mortgage Association:
5.875%, 7-16-2003 ................................................... 5,000 4,902,350
7.0%, 7-25-2006 ..................................................... 10,000 10,065,600
6.09%, 4-1-2009 ..................................................... 4,484 4,274,328
0.0%, 2-12-2018 ..................................................... 4,500 1,303,110
7.0%, 9-25-2020 ..................................................... 2,000 2,007,500
6.5%, 8-25-2021 ..................................................... 2,500 2,458,200
7.0%, 8-25-2021 ..................................................... 10,000 10,028,100
7.0%, 6-1-2024 ...................................................... 6,426 6,351,937
6.0%, 12-1-2028 ..................................................... 6,891 6,473,590
Government National Mortgage Association:
7.5%, 7-15-2023 ..................................................... 3,083 3,116,262
7.5%, 12-15-2023 .................................................... 3,472 3,509,786
8.0%, 9-15-2025 ..................................................... 4,796 4,962,764
7.0%, 7-20-2027 ..................................................... 269 263,893
7.0%, 9-20-2027 ..................................................... 4,325 4,246,926
7.75%, 10-15-2031 ................................................... 1,969 2,092,078
Tennessee Valley Authority,
5.88%, 4-1-2036 ..................................................... 3,750 3,677,025
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 4,070,000
1998-1 Class 2-B,
7.0%, 6-15-2019 ..................................................... 750 757,732
1999-2 Class 1-B,
6.5%, 12-1-2020 ..................................................... 5,500 5,448,410
See Notes to Schedules of Investments on page .
10
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
JUNE 30, 1999
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES (Continued) United States Treasury:
5.75%, 10-31-2000 ................................................... $3,000 $ 3,013,110
5.25%, 1-31-2001 .................................................... 5,000 4,984,350
7.5%, 2-15-2005 ..................................................... 10,000 10,765,600
6.5%, 8-15-2005 ..................................................... 5,750 5,926,985
6.5%, 10-15-2006 .................................................... 24,000 24,780,000
11.25%, 2-15-2015 ................................................... 2,500 3,742,175
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 32.30% $172,240,282
(Cost: $174,026,059)
TOTAL SHORT-TERM SECURITIES - 3.15% $ 16,793,609
(Cost: $16,793,609)
TOTAL INVESTMENT SECURITIES - 98.75% $526,534,402
(Cost: $527,952,569)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.25% 6,656,670
NET ASSETS - 100.00% $533,191,072
See Notes to Schedules of Investments on page .
11
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS
Apparel and Accessory Stores - 0.49%
Gap, Inc. (The) ........................................................ 787,500 $ 39,670,313
Building Materials and Garden Supplies - 1.11%
Home Depot, Inc. (The) ................................................. 1,394,200 89,838,763
Business Services - 2.87%
America Online, Inc.* .................................................. 255,700 28,254,850
Microsoft Corporation* ................................................. 1,772,800 159,773,600
SAP AG, ADR ............................................................ 1,275,900 44,178,038
Total ............................................................... 232,206,488
Chemicals and Allied Products - 17.19%
ABB AG (B) ............................................................. 67,000 99,144,309
Air Products and Chemicals, Inc. ....................................... 1,429,200 57,525,300
Biogen, Inc.* .......................................................... 667,600 42,955,887
Bristol-Myers Squibb Company ........................................... 1,345,500 94,773,656
Colgate-Palmolive Company .............................................. 787,800 77,795,250
du Pont (E.I.) de Nemours and Company .................................. 2,073,000 141,611,813
Forest Laboratories, Inc.* ............................................. 80,200 3,709,250
Gillette Company (The) ................................................. 1,569,900 64,365,900
Lilly (Eli) and Company ................................................ 1,540,100 110,309,662
Merck & Co., Inc. ...................................................... 1,492,700 110,459,800
Monsanto Company ....................................................... 2,100,000 82,818,750
PPG Industries, Inc. ................................................... 705,300 41,656,781
Pfizer Inc. ............................................................ 731,300 80,260,175
Pharmacia & Upjohn, Inc. ............................................... 1,031,900 58,624,819
Procter & Gamble Company (The) ......................................... 780,300 69,641,775
Schering-Plough Corporation ............................................ 1,327,000 70,331,000
Warner-Lambert Company ................................................. 2,700,000 187,312,500
Total ............................................................... 1,393,296,627
Communication - 5.94%
Clear Channel Communications, Inc.* .................................... 1,112,000 76,658,500
Cox Communications, Inc., Class A* ..................................... 3,795,400 139,718,163
MCI WORLDCOM, Inc.* .................................................... 1,037,000 89,214,406
SBC Communications Inc. ................................................ 1,500,000 87,000,000
Vodafone Airtouch Public Limited
Company, ADR ........................................................ 450,000 88,650,000
Total ............................................................... 481,241,069
See Notes to Schedules of Investments on page .
12
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
Depository Institutions - 2.46%
Chase Manhattan Corporation (The) ...................................... 1,050,000 $ 90,956,250
Citigroup Inc. ......................................................... 2,287,500 108,656,250
Total ............................................................... 199,612,500
Electric, Gas and Sanitary Services - 2.55%
Duke Energy Corp. ...................................................... 1,275,000 69,328,125
Texas Utilities Company ................................................ 3,325,000 137,156,250
Total ............................................................... 206,484,375
Electronic and Other Electric Equipment - 8.81%
Analog Devices, Inc.* .................................................. 1,575,000 79,045,312
General Electric Company ............................................... 1,970,200 222,632,600
Intel Corporation ...................................................... 2,804,000 166,750,375
Nokia, AB (B) .......................................................... 1,520,000 133,166,440
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................................................. 3,419,000 112,506,469
Total ............................................................... 714,101,196
Fabricated Metal Products - 1.92%
Lockheed Martin Corporation ............................................ 4,176,300 155,567,175
Food and Kindred Products - 2.34%
Bestfoods .............................................................. 1,400,000 69,300,000
Coca-Cola Company (The) ................................................ 685,500 42,843,750
Panamerican Beverages Inc., Class A .................................... 1,336,000 31,813,500
Ralston-Ralston Purina Group ........................................... 1,509,100 45,933,231
Total ............................................................... 189,890,481
Food Stores - 1.19%
Kroger Co. (The)* ...................................................... 3,450,000 96,384,375
See Notes to Schedules of Investments on page .
13
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
General Merchandise Stores - 2.40%
Dayton Hudson Corporation .............................................. 565,900 $ 36,783,500
Wal-Mart Stores, Inc. .................................................. 3,261,000 157,343,250
Total ............................................................... 194,126,750
Health Services - 0.78%
Tenet Healthcare Corporation* .......................................... 3,393,700 62,995,556
Holding and Other Investment Offices - 0.32%
Lagardere SCA (B) ...................................................... 700,000 26,045,789
Industrial Machinery and Equipment - 7.67%
Apple Computer, Inc.* .................................................. 1,046,700 48,540,713
Case Corporation ....................................................... 3,329,000 160,208,125
Cisco Systems, Inc.* ................................................... 2,003,400 129,031,481
Deere & Company ........................................................ 1,299,700 51,500,612
EMC Corporation* ....................................................... 1,404,000 77,220,000
International Business Machines
Corporation ......................................................... 1,200,000 155,100,000
Total ............................................................... 621,600,931
Instruments and Related Products - 3.94%
General Motors Corporation, Class H* ................................... 759,700 42,733,125
Guidant Corporation .................................................... 2,400,000 123,450,000
Medtronic, Inc. ........................................................ 972,000 75,694,500
Raytheon Company, Class A .............................................. 1,124,981 77,483,066
Total ............................................................... 319,360,691
Insurance Carriers - 2.40%
American International Group, Inc. ..................................... 916,950 107,340,459
Chubb Corporation (The) ................................................ 1,259,000 87,500,500
Total ............................................................... 194,840,959
Miscellaneous Retail - 0.38%
Costco Companies, Inc.* ................................................ 382,500 30,611,953
Motion Pictures - 1.78%
Time Warner Incorporated ............................................... 1,000,000 73,500,000
Walt Disney Company (The) .............................................. 2,296,900 70,773,231
Total ............................................................... 144,273,231
See Notes to Schedules of Investments on page .
14
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
Nondepository Institutions - 6.04%
Associates First Capital Corporation,
Class A ............................................................. 2,976,970 $ 131,916,983
Fannie Mae ............................................................. 2,858,400 195,443,100
Freddie Mac ............................................................ 2,800,000 162,400,000
Total ............................................................... 489,760,083
Oil and Gas Extraction - 2.31%
Burlington Resources Incorporated ...................................... 3,300,000 142,725,000
Schlumberger Limited ................................................... 700,000 44,581,250
Total ............................................................... 187,306,250
Petroleum and Coal Products - 3.13%
Chevron Corporation .................................................... 450,000 42,834,375
Exxon Corporation ...................................................... 500,000 38,562,500
Mobil Corporation ...................................................... 800,000 79,200,000
Royal Dutch Petroleum Company .......................................... 1,544,000 93,026,000
Total ............................................................... 253,622,875
Primary Metal Industries - 0.99%
Alcoa Incorporated ..................................................... 1,300,000 80,437,500
Transportation by Air - 0.67%
AMR Corporation* ....................................................... 800,000 54,600,000
Transportation Equipment - 1.71%
DaimlerChrysler AG ..................................................... 713,907 63,448,485
Ford Motor Company ..................................................... 1,332,000 75,174,750
Total ............................................................... 138,623,235
Wholesale Trade - Durable Goods - 1.09%
Johnson & Johnson ...................................................... 899,000 88,102,000
Wholesale Trade - Nondurable Goods - 1.22%
Safeway Inc.* .......................................................... 2,000,000 99,000,000
TOTAL COMMON STOCKS - 83.70% $6,783,601,165
(Cost: $3,687,300,853)
See Notes to Schedules of Investments on page .
15
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
JUNE 30, 1999
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Depository Institutions - 0.13%
Morgan Guaranty Trust Company of New York,
7.375%, 2-1-2002 .................................................... $ 10,250 $ 10,493,540
Nondepository Institutions - 0.14%
General Electric Capital Corporation,
8.3%, 9-20-2009 ..................................................... 10,000 11,185,400
TOTAL CORPORATE DEBT SECURITIES - 0.27% $ 21,678,940
(Cost: $20,055,074)
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association,
5.9%, 7-9-2003 ...................................................... 100,000 97,937,000
United States Treasury:
6.75%, 4-30-2000 .................................................... 37,000 37,433,640
5.75%, 8-15-2003 .................................................... 50,000 50,031,000
6.5%, 10-15-2006 .................................................... 50,000 51,625,000
5.625%, 5-15-2008 ................................................... 50,000 48,976,500
10.375%, 11-15-2012 ................................................. 8,500 10,830,870
7.5%, 11-15-2016 .................................................... 80,000 90,162,400
9.0%, 11-15-2018 .................................................... 20,000 26,025,000
8.75%, 8-15-2020 .................................................... 75,000 96,468,750
5.5%, 8-15-2028 (C) ................................................. 600,000 549,372,000
5.25%, 11-15-2028 ................................................... 50,000 44,320,500
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 13.61% $1,103,182,660
(Cost: $1,206,945,392)
TOTAL SHORT-TERM SECURITIES - 2.36% $ 191,367,534
(Cost: $191,367,534)
TOTAL INVESTMENT SECURITIES - 99.94% $8,099,830,299
(Cost: $5,105,668,853)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.06% 4,659,631
NET ASSETS - 100.00% $8,104,489,930
See Notes to Schedules of Investments on page .
16
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS
Building Materials and Garden Supplies - 0.97%
Fastenal Company ....................................................... 400,000 $ 20,950,000
Business Services - 35.79%
Amazon.com, Inc.* ...................................................... 300,000 37,528,125
America Online, Inc.* .................................................. 1,000,000 110,500,000
American Management Systems, Incorporated* ............................. 115,000 3,683,594
Citrix Systems, Inc.* .................................................. 1,000,000 56,343,750
Concord EFS, Inc.* ..................................................... 817,300 34,607,547
EarthLink Network, Inc.* ............................................... 234,300 14,402,128
eBay Inc.* ............................................................. 259,500 39,257,484
HNC Software Inc.* ..................................................... 600,000 18,468,750
Inktomi Corporation* ................................................... 470,000 61,819,687
Intuit Inc.* ........................................................... 508,800 45,887,400
Microsoft Corporation* ................................................. 600,000 54,075,000
Oracle Corporation* .................................................... 500,000 18,562,500
TMP Worldwide Inc.* .................................................... 500,000 31,843,750
TenFold Corporation* ................................................... 368,800 11,617,200
Teradyne, Inc.* ........................................................ 400,000 28,700,000
Transaction Systems Architects, Inc.,
Class A* ............................................................ 600,000 23,400,000
USWeb Corporation* ..................................................... 600,000 13,331,250
Veritas Software Corp.* ................................................ 500,000 47,484,375
Wind River Systems, Inc.* .............................................. 825,000 13,225,781
Yahoo! Inc.* ........................................................... 650,000 111,942,188
Total ............................................................... 776,680,509
Chemicals and Allied Products - 8.65%
Abbott Laboratories .................................................... 500,000 22,750,000
Biogen, Inc.* .......................................................... 700,000 45,040,625
Bristol-Myers Squibb Company ........................................... 400,000 28,175,000
Pfizer Inc. ............................................................ 230,000 25,242,500
Schering-Plough Corporation ............................................ 600,000 31,800,000
Warner-Lambert Company ................................................. 500,000 34,687,500
Total ............................................................... 187,695,625
See Notes to Schedules of Investments on page .
17
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
Communication - 7.47%
Clear Channel Communications, Inc.* .................................... 547,300 $ 37,729,494
COLT Telecom Group plc, ADR* ........................................... 400,000 34,387,500
Cox Communications, Inc., Class A* ..................................... 942,400 34,692,100
Global TeleSystems Group, Inc.* ........................................ 217,000 17,570,219
Level 3 Communications, Inc.* .......................................... 300,000 18,037,500
Vodafone Airtouch Public Limited
Company, ADR ........................................................ 100,000 19,700,000
Total ............................................................... 162,116,813
Electronic and Other Electric Equipment - 19.86%
ADC Telecommunications, Inc.* .......................................... 400,600 18,239,819
Analog Devices, Inc.* .................................................. 1,000,000 50,187,500
Broadcom Corporation, Class A* ......................................... 500,000 72,265,625
Concord Communications, Inc.* .......................................... 182,700 8,152,987
EchoStar Communications Corporation,
Class A* ............................................................ 300,000 46,040,625
Gemstar International Group Limited* ................................... 720,000 47,025,000
General Electric Company ............................................... 325,000 36,725,000
Inet Technologies, Inc.* ............................................... 125,150 2,999,689
Intel Corporation ...................................................... 750,000 44,601,563
Lucent Technologies Inc. ............................................... 330,000 22,254,375
Micron Technology, Inc.* ............................................... 300,000 12,093,750
Nokia Corporation, Series A, ADR ....................................... 400,000 36,625,000
Tellabs* ............................................................... 500,000 33,796,875
Total ............................................................... 431,007,808
Engineering and Management Services - 5.04%
Abacus Direct Corporation* ............................................. 356,000 32,295,875
Incyte Pharmaceuticals, Inc.* .......................................... 998,400 26,364,000
Paychex, Inc. .......................................................... 900,000 28,631,250
Quintiles Transnational Corp.* ......................................... 525,500 22,054,578
Total ............................................................... 109,345,703
Fabricated Metal Products - 1.03%
Lockheed Martin Corporation ............................................ 600,000 22,350,000
General Merchandise Stores - 0.98%
Wal-Mart Stores, Inc. .................................................. 440,000 21,230,000
Industrial Machinery and Equipment - 7.44%
Apple Computer, Inc.* .................................................. 600,000 27,825,000
Applied Materials, Inc.* ............................................... 250,000 18,460,937
Cisco Systems, Inc.* ................................................... 1,289,100 83,026,097
International Business Machines Corporation ............................ 230,000 29,727,500
Juniper Networks, Inc.* ................................................ 16,800 2,505,825
Total ............................................................... 161,545,359
See Notes to Schedules of Investments on page .
18
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
JUNE 30, 1999
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 2.65%
Guidant Corporation .................................................... 209,300 $ 10,765,869
Medtronic, Inc. ........................................................ 400,000 31,150,000
STERIS Corporation* .................................................... 800,000 15,500,000
Total ............................................................... 57,415,869
Insurance Carriers - 0.42%
Rambus Inc.* ........................................................... 100,000 9,215,625
Motion Pictures - 2.71%
AT&T Corp. - Liberty Media Group,
Class A* ............................................................ 600,000 22,050,000
Time Warner Incorporated ............................................... 500,000 36,750,000
Total ............................................................... 58,800,000
Wholesale Trade -- Durable Goods - 1.81%
Johnson & Johnson ...................................................... 400,000 39,200,000
Wholesale Trade -- Nondurable Goods - 1.33%
Cardinal Health, Inc. .................................................. 450,000 28,856,250
TOTAL COMMON STOCKS - 96.15% $2,086,409,561
(Cost: $1,070,469,896)
TOTAL SHORT-TERM SECURITIES - 3.54% $ 76,897,674
(Cost: $76,897,674)
TOTAL INVESTMENT SECURITIES - 99.69% $2,163,307,235
(Cost: $1,147,367,570)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.31% 6,783,823
NET ASSETS - 100.00% $2,170,091,058
</TABLE>
See Notes to Schedules of Investments on page .
19
<PAGE>
UNITED FUNDS, INC.
JUNE 30, 1999
Notes to Schedules of Investments
*No dividends were paid during the preceding 12 months.
(A) Security was purchased pursuant to Rule 144A under the Securities Act
of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At June 30, 1999, the value
of these securities amounted to $17,288,830 or 3.24% of net assets for
United Bond Fund.
(B) Listed on an exchange outside the United States.
(C) See Note 7 to financial statements.
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.
20
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 1999 United
(In Thousands, Except United United United Science and
for Per Share Amounts) Accumulative Bond Income Technology
Fund Fund Fund Fund
Assets ---------- -------- ---------- ----------
<S> <C> <C> <C> <C>>
Investment securities --
at value (Notes 1 and 3) $2,044,610 $526,534 $8,099,830 $2,163,307
Cash ................................ 61 2 7,600 1,790
Receivables:
Investment securities sold ............. 51,006 --- 2,470 6,424
Dividends and interest.................. 1,992 7,860 28,595 258
Fund shares sold ....................... 1,616 746 6,344 2,657
Prepaid insurance
premium ................................ 31 14 46 10
---------- -------- ---------- ----------
Total assets ......................... 2,099,316 535,156 8,144,885 2,174,446
---------- -------- ---------- ----------
Liabilities
Payable for investment
securities purchased.................... 66,236 --- 16,709 ---
Payable to Fund
shareholders ........................... 3,478 1,660 20,590 3,371
Accrued service fee (Note 2)............... 369 97 1,436 361
Accrued transfer agency
and dividend disbursing
(Note 2) ............................... 217 85 954 312
Accrued distribution fee (Note 2).......... 46 14 182 59
Accrued management
fee (Note 2) ........................... 37 8 127 50
Accrued accounting
services fee (Note 2)................... 8 5 8 8
Other 195 96 389 194
---------- -------- ---------- ----------
Total liabilities..................... 70,586 1,965 40,395 4,355
---------- -------- ---------- ----------
Total net assets .................. $2,028,730 $533,191 $8,104,490 $2,170,091
========== ======== ========== ==========
Net Assets
$1.00 par value capital stock
Capital stock .......................... $ 223,273 $ 87,224 $1,014,624 $ 177,948
Additional paid-in
capital............................... 1,364,234 464,935 3,646,987 752,965
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment
income (loss) ........................ 3,279 67 10,491 (6,382)
Accumulated undistributed net
realized gain (loss) on
investment
transactions.......................... 364,298 (17,617) 438,255 229,625
Net unrealized appreciation
(depreciation) of
investments .......................... 73,646 (1,418) 2,994,133 1,015,935
---------- -------- ---------- ----------
Net assets applicable to
outstanding units
of capital ........................ $2,028,730 $533,191 $8,104,490 $2,170,091
========== ======== ========== ==========
Capital shares outstanding
Class A ................................ 222,798 86,844 972,640 177,179
Class Y ................................ 475 380 41,984 769
Capital shares authorized .................... 500,000 300,000 2,000,000 400,000
Net asset value per share
(net assets divided by
shares outstanding)
Class A ................................ $9.09 $6.11 $7.99 $12.19
Class Y ................................ $9.09 $6.11 $7.99 $12.31
See notes to financial statements.
</TABLE>
21
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended JUNE 30, 1999
<TABLE>
<CAPTION>
(In Thousands) United
United United United Science and
Accumulative Bond Income Technology
Fund Fund Fund Fund
Investment Income ------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Income (Note 1B):
Interest and
amortization ......................... $ 3,052 $17,836 $ 40,148 $ 1,674
Dividends .............................. 10,296 --- 38,650 1,812
-------- ------- ------- --------
Total income ......................... 13,348 17,836 78,798 3,486
-------- ------- ------- --------
Expenses (Note 2):
Investment
management fee........................ 5,156 1,140 21,123 5,482
Service fees -- Class A................. 2,124 610 8,368 2,049
Transfer agency and
dividend disbursing
-- Class A .......................... 1,063 496 4,718 1,681
Distribution
fees -- Class A ...................... 168 59 695 261
Custodian fees ......................... 26 9 287 17
Shareholder servicing
fee -- Class Y........................ 4 2 277 7
Accounting services fee................. 50 31 50 50
Legal fees ............................. 12 3 44 10
Audit fees ............................. 10 10 11 10
Other ................................ 229 115 897 337
-------- ------- ------- --------
Total expenses ....................... 8,842 2,475 36,470 9,904
-------- ------- ------- --------
Net investment
income (loss) .................. 4,506 15,361 42,328 (6,418)
-------- ------- ------- --------
Realized and Unrealized
Gain (Loss) on Investments (Notes 1 and 3)
Realized net gain
on securities .......................... 299,179 874 409,901 184,856
Realized net gain (loss) on foreign
currency transactions .................. (102) --- (393) 36
-------- ---------- -------- --------
Realized net gain
on investments ....................... 299,077 874 409,508 184,892
Unrealized appreciation (depreciation)
in value of investments
during the period....................... (119,653) (24,890) 70,943 218,866
-------- ---------- -------- --------
Net gain (loss) on
investments ................ 179,424 (24,016) 480,451 403,758
-------- ---------- -------- --------
Net increase (decrease) in net
assets resulting from
operations.............. $183,930 $(8,655) $522,779 $397,340
======== ======== ======== ========
See notes to financial statements.
</TABLE>
22
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended JUNE 30, 1999
<TABLE>
<CAPTION>
(In Thousands) United
United United United Science and
Accumulative Bond Income Technology
Fund Fund Fund Fund
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment
income (loss) ........................ $ 4,506 $ 15,361 $ 42,328 $ (6,418)
Realized net gain
on investments ....................... 299,077 874 409,508 184,892
Unrealized appreciation
(depreciation) ....................... (119,653) (24,890) 70,943 218,866
---------- -------- ---------- ----------
Net increase (decrease) in net
assets resulting
from operations.................... 183,930 (8,655) 522,779 397,340
---------- -------- ---------- ----------
Distributions to shareholders
from (Note 1E):*
Net investment income:
Class A .............................. (3,333) (15,433) (39,031) ---
Class Y .............................. (11) (64) (2,345) ---
Realized net gains on investment
transactions:
Class A .............................. --- --- --- ---
Class Y .............................. --- --- --- ---
---------- -------- ---------- ----------
(3,344) (15,497) (41,376) ---
---------- -------- ---------- ----------
Capital share
transactions (Note 5)................... (19,893) 195 (144,214) 98,268
---------- -------- ---------- ----------
Total increase (decrease) 160,693 (23,957) 337,189 495,608
Net Assets
Beginning of period ....................... 1,868,037 557,148 7,767,301 1,674,483
---------- -------- ---------- ----------
End of period ............................. $2,028,730 $533,191 $8,104,490 $2,170,091
========== ======== ========== ==========
Undistributed
net investment
income (loss) ........................ $3,279 $67 $10,491 $(6,382)
====== === ======= =======
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
23
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Fiscal Year Ended DECEMBER 31, 1998 United
(In Thousands) United United United Science and
Accumulative Bond Income Technology
Fund Fund Fund Fund
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Increase in Net Assets
Operations:
Net investment
income (loss) ........................ $ 19,519 $ 31,745 $ 82,228 $ (4,737)
Realized net gain
on investments ....................... 259,891 4,756 1,363,007 139,225
Unrealized
appreciation ......................... 75,732 1,500 102,526 492,528
-------- ---------- ---------- ----------
Net increase in net
assets resulting
from operations.................... 355,142 38,001 1,547,761 627,016
-------- ---------- ---------- ----------
Distributions to shareholders from
(Note 1E):*
Net investment income:
Class A .............................. (20,979) (31,553) (69,402) ---
Class Y .............................. (50) (359) (4,557) ---
Realized net gains on investment
transactions:
Class A .............................. (214,379) --- (1,392,072) (108,718)
Class Y .............................. (421) --- (76,922) (380)
-------- ---------- ---------- ----------
(235,829) (31,912) (1,542,953) (109,098)
-------- ---------- ---------- ----------
Capital share
transactions (Note 5)................... 149,682 22,363 1,267,504 89,771
-------- ---------- ---------- ----------
Total increase ......................... 268,995 28,452 1,272,312 607,689
Net Assets
Beginning of period ....................... 1,599,042 528,696 6,494,989 1,066,794
---------- -------- ---------- ----------
End of period $1,868,037 $557,148 $7,767,301 $1,674,483
========== ======== ========== ==========
Undistributed
net investment
income ............................... $2,219 $203 $9,932 $---
====== ==== ====== ====
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
24
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the
six months For the fiscal year ended December 31,
ended --------------------------------------
6/30/99 1998 1997 1996 1995 1994
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .............. $8.28 $7.77 $7.75 $7.78 $6.58 $7.19
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income ........................ 0.02 0.10 0.10 0.11 0.11 0.13
Net realized and
unrealized gain
(loss) on
investments ................... 0.81 1.60 2.14 0.82 2.12 (0.13)
----- ----- ----- ----- ----- -----
Total from investment
operations ...................... 0.83 1.70 2.24 0.93 2.23 0.00
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income ........................ (0.02) (0.11) (0.09) (0.11) (0.11) (0.13)
From capital gains ............... (0.00) (1.08) (2.13) (0.85) (0.92) (0.48)
----- ----- ----- ----- ----- -----
Total distributions ................. (0.02) (1.19) (2.22) (0.96) (1.03) (0.61)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .................... $9.09 $8.28 $7.77 $7.75 $7.78 $6.58
===== ===== ===== ===== ===== =====
Total return* ....................... 9.97% 22.62% 29.58% 12.18% 34.21% 0.04%
Net assets, end of
period (in
millions) ........................ $2,025 $1,864 $1,595 $1,285 $1,206 $967
Ratio of expenses to
average net assets ............... 0.93%** 0.88% 0.82% 0.83% 0.80% 0.71%
Ratio of net investment
income to average
net assets ....................... 0.47%** 1.12% 1.16% 1.34% 1.42% 1.76%
Portfolio turnover
rate ............................. 207.86% 373.78% 313.99% 240.37% 229.03% 205.40%
</TABLE>
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
**Annualized.
See notes to financial statements.
25
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the
six For the fiscal year For the
months ended December 31, period from
ended -------------------- 7/11/95* to
6/30/99 1998 1997 1996 12/31/95
------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period................ $8.28 $7.77 $7.75 $7.78 $7.84
----- ----- ----- ----- -----
Income from investment
operations:
Net investment income ............. 0.03 0.12 0.11 0.12 0.05
Net realized and
unrealized gain
on investments ................. 0.80 1.59 2.14 0.82 0.87
----- ----- ----- ----- -----
Total from investment
operations ........................ 0.83 1.71 2.25 0.94 0.92
----- ----- ----- ----- -----
Less distributions:
From net investment
income ......................... (0.02) (0.12) (0.10) (0.12) (0.06)
From capital gains ................ (0.00) (1.08) (2.13) (0.85) (0.92)
----- ----- ----- ----- -----
Total distributions .................. (0.02) (1.20) (2.23) (0.97) (0.98)
----- ----- ----- ----- -----
Net asset value,
end of period ..................... $9.09 $8.28 $7.77 $7.75 $7.78
===== ===== ===== ===== =====
Total return ......................... 10.06% 22.79% 29.67% 12.27% 11.92%
Net assets, end of
period (in
millions) ......................... $4 $4 $4 $3 $1
Ratio of expenses to
average net assets ................ 0.74%** 0.75% 0.75% 0.74% 0.76%**
Ratio of net investment
income to average
net assets ........................ 0.66%** 1.21% 1.22% 1.45% 1.24%**
Portfolio turnover
rate .............................. 207.86% 373.78% 313.99% 240.37% 229.03%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
26
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the
six months For the fiscal year ended December 31,
ended --------------------------------------
6/30/99 1998 1997 1996 1995 1994
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............... $6.39 $6.32 $6.14 $6.34 $5.62 $6.39
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income ............ 0.18 0.38 0.39 0.39 0.40 0.39
Net realized and
unrealized gain
(loss) on
investments ................... (0.28) 0.07 0.19 (0.20) 0.72 (0.75)
----- ----- ----- ----- ----- -----
Total from investment
operations ....................... (0.10) 0.45 0.58 0.19 1.12 (0.36)
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income ........................ (0.18) (0.38) (0.40) (0.39) (0.40) (0.39)
From capital gains ............... (0.00) (0.00) (0.00) (0.00) (0.00) (0.02)
----- ----- ----- ----- ----- -----
Total distributions ................. (0.18) (0.38) (0.40) (0.39) (0.40) (0.41)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .................... $6.11 $6.39 $6.32 $6.14 $6.34 $5.62
===== ===== ===== ===== ===== =====
Total return* ....................... -1.64% 7.27% 9.77% 3.20% 20.50% -5.76%
Net assets, end of
period (in
millions) ........................ $531 $551 $524 $519 $563 $518
Ratio of expenses to
average net assets ............... 0.91%** 0.84% 0.77% 0.77% 0.74% 0.72%
Ratio of net investment
income to average
net assets ....................... 5.67%** 5.88% 6.34% 6.34% 6.54% 6.60%
Portfolio turnover
rate ............................. 19.66% 33.87% 35.08% 55.74% 66.38% 127.11%
</TABLE>
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
**Annualized.
See notes to financial statements.
27
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the
six For the fiscal year For the
months ended December 31, period from
ended -------------------- 6/19/95* to
6/30/99 1998 1997 1996 12/31/95
------- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............... $6.39 $6.32 $6.14 $6.34 $6.11
----- ----- ----- ----- -----
Income from investment
operations:
Net investment income ............ 0.22 0.39 0.42 0.40 0.21
Net realized and
unrealized gain (loss)
on investments ................ (0.31) 0.07 0.17 (0.20) 0.22
----- ----- ----- ----- -----
Total from investment
operations ...................... (0.09) 0.46 0.59 0.20 0.43
----- ----- ----- ----- -----
Less distributions:
From net investment
income ........................ (0.19) (0.39) (0.41) (0.40) (0.20)
From capital gains ............... (0.00) (0.00) (0.00) (0.00) (0.00)
----- ----- ----- ----- -----
Total distributions ................. (0.19) (0.39) (0.41) (0.40) (0.20)
----- ----- ----- ----- -----
Net asset value,
end of period .................... $6.11 $6.39 $6.32 $6.14 $6.34
===== ===== ===== ===== =====
Total return ........................ -1.50% 7.54% 9.91% 3.35% 7.20%
Net assets, end of
period (in
millions) ........................ $2 $6 $5 $12 $3
Ratio of expenses to
average net assets ............... 0.64%** 0.61% 0.64% 0.62% 0.63%**
Ratio of net investment
income to average
net assets ....................... 5.94%** 6.10% 6.48% 6.52% 6.41%**
Portfolio turnover
rate ............................. 19.66% 33.87% 35.08% 55.74% 66.38%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
28
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the
six months For the fiscal year ended December 31,
ended --------------------------------------
6/30/99 1998 1997 1996 1995 1994
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............... $7.52 $7.59 $6.58 $5.79 $4.67 $4.95
----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income ............ 0.04 0.20 0.06 0.07 0.07 0.08
Net realized and
unrealized gain
(loss) on
investments ................... 0.47 1.66 1.73 1.10 1.30 (0.16)
----- ----- ----- ----- ----- -----
Total from investment
operations ....................... 0.51 1.86 1.79 1.17 1.37 (0.08)
----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income ........................ (0.04) (0.19) (0.06) (0.06) (0.07) (0.07)
From capital gains ............... (0.00) (1.74) (0.72) (0.32) (0.18) (0.13)
----- ----- ----- ----- ----- -----
Total distributions ................. (0.04) (1.93) (0.78) (0.38) (0.25) (0.20)
----- ----- ----- ----- ----- -----
Net asset value,
end of period .................... $7.99 $7.52 $7.59 $6.58 $5.79 $4.67
===== ===== ===== ===== ===== =====
Total return** ...................... 6.80% 24.02% 27.34% 20.36% 29.60% -1.82%
Net assets, end of
period (in
millions) ........................ $7,769 $7,368 $6,196 $4,851 $3,976 $3,145
Ratio of expenses to
average net assets ............... 0.94%*** 0.89% 0.84% 0.86% 0.83% 0.74%
Ratio of net investment
income to average
net assets ....................... 1.07%*** 1.11% 0.74% 1.03% 1.31% 1.45%
Portfolio turnover
rate ............................. 17.18% 49.29% 33.59% 22.24% 17.59% 18.54%
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
400% stock dividend effected June 26, 1998.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
***Annualized.
See notes to financial statements.
29
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the
six For the fiscal year For the
months ended December 31, period from
ended ------------------- 6/19/95** to
6/30/99 1998 1997 1996 12/31/95
------- ---- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period .............. $7.52 $7.59 $6.58 $5.79 $5.55
----- ----- ----- ----- -----
Income from investment
operations:
Net investment income ............ 0.05 0.24 0.07 0.07 0.04
Net realized and
unrealized gain
on investments ................ 0.47 1.66 1.73 1.11 0.42
----- ----- ----- ----- -----
Total from investment
operations ....................... 0.52 1.90 1.80 1.18 0.46
----- ----- ----- ----- -----
Less distributions:
From net investment
income ........................ (0.05) (0.23) (0.07) (0.07) (0.04)
From capital gains ............... (0.00) (1.74) (0.72) (0.32) (0.18)
----- ----- ----- ----- -----
Total distributions ................. (0.05) (1.97) (0.79) (0.39) (0.22)
----- ----- ----- ----- -----
Net asset value,
end of period .................... $7.99 $7.52 $7.59 $6.58 $5.79
===== ===== ===== ===== =====
Total return ........................ 6.94% 24.27% 27.49% 20.53% 8.45%
Net assets, end of
period (in
millions) ........................ $335 $399 $299 $151 $107
Ratio of expenses to
average net assets ..... 0.72%*** 0.71% 0.72% 0.73% 0.74%***
Ratio of net investment
income to average
net assets ....................... 1.30%*** 1.29% 0.85% 1.17% 1.36%***
Portfolio turnover
rate ............................. 17.18% 49.29% 33.59% 22.24% 17.59%***
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
400% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
30
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the
six months For the fiscal year ended December 31,
ended --------------------------------------
6/30/99 1998 1997 1996 1995 1994
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............... $ 9.91 $6.71 $7.78 $7.63 $5.07 $4.94
------ ----- ----- ----- ----- -----
Income from investment
operations:
Net investment loss .............. (0.04) (0.03) (0.01) (0.02) (0.00) 0.00
Net realized and
unrealized gain on
investments ................... 2.32 3.93 0.46 0.66 2.80 0.47
------ ----- ----- ----- ----- -----
Total from investment
operations ....................... 2.28 3.90 0.45 0.64 2.80 0.47
------ ----- ----- ----- ----- -----
Less distributions:
From net investment
income ........................ (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
From capital gains ............... (0.00) (0.70) (1.52) (0.49) (0.24) (0.34)
------ ----- ----- ----- ----- -----
Total distributions ................. (0.00) (0.70) (1.52) (0.49) (0.24) (0.34)
------ ----- ----- ----- ----- -----
Net asset value,
end of period .................... $12.19 $9.91 $6.71 $7.78 $7.63 $5.07
====== ===== ===== ===== ===== =====
Total return** ...................... 23.01% 59.31% 7.22% 8.35% 55.37% 9.78%
Net assets, end of
period (in
millions) ........................ $2,161 $1,668 $1,063 $981 $821 $497
Ratio of expenses to
average net assets ............... 1.07%*** 1.05% 1.02% 0.98% 0.93% 0.96%
Ratio of net investment
loss to average
net assets ....................... -0.69%*** -0.37% -0.18% -0.33% -0.07% 0.00%
Portfolio turnover
rate ............................. 23.61% 55.70% 87.68% 33.90% 32.89% 64.39%
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
200% stock dividend effected June 26, 1998.
**Total return calculated without taking into account the sales load deducted
on an initial purchase.
***Annualized.
See notes to financial statements.
31
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the
For the fiscal year
six year ended For the
months December 31, period from
ended ------------ 2/27/96** to
6/30/99 1998 1997 12/31/96
------- ---- ---- ------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period .............. $9.98 $6.74 $7.79 $8.02
----- ----- ----- -----
Income from investment
operations:
Net investment
loss .......................... (0.02) (0.01) (0.00) (0.01)
Net realized and
unrealized gain
on investments ................ 2.35 3.95 0.47 0.27
----- ----- ----- -----
Total from investment
operations ....................... 2.33 3.94 0.47 0.26
----- ----- ----- -----
Less distributions:
From net investment
income ........................ (0.00) (0.00) (0.00) (0.00)
From capital gains ............... (0.00) (0.70) (1.52) (0.49)
----- ----- ----- -----
Total distributions ................. (0.00) (0.70) (1.52) (0.49)
----- ----- ----- -----
Net asset value,
end of period .................... $12.31 $9.98 $6.74 $7.79
====== ===== ===== =====
Total return ........................ 23.35% 59.71% 7.43% 3.25%
Net assets, end of
period (in
millions) ........................ $9 $6 $4 $3
Ratio of expenses to
average net assets ............... 0.80%*** 0.79% 0.85% 0.80%***
Ratio of net investment
loss to average
net assets ....................... -0.42%*** -0.12% -0.01% -0.12%***
Portfolio turnover
rate ............................. 23.61% 55.70% 87.68% 33.90%***
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
200% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
32
<PAGE>
UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
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 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. 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
33
<PAGE>
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 business day
following 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 carryovers.
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. Until
June 30, 1999, the fee consisted of two elements: (i) a "Specific" fee computed
on net asset value as of the close of business each day at the annual rate of
.15% of net assets for United Accumulative Fund and United Income Fund, .03% of
net assets for United Bond 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 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. Beginning June 30, 1999, the
fee is payable by each Fund at the following annual rates:
<TABLE>
<CAPTION>
Annual
Fund Net Asset Breakpoints Rate
-------------------------------------------------------------------------
<S> <C> <C>
United Accumulative Fund Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion .550%
United Bond Fund Up to $500 Million .525%
Over $500 Million up to $1 Billion .500%
Over $1 Billion up to $1.5 Billion .450%
Over $1.5 Billion .400%
United Income Fund Up to $1 Billion .700%
Over $1 Billion up to $2 Billion .650%
Over $2 Billion up to $3 Billion .600%
Over $3 Billion up to $6 Billion .550%
Over $6 Billion .500%
United Science and
Technology Fund Up to $1 Billion .850%
Over $1 Billion up to $2 Billion .830%
Over $2 Billion up to $3 Billion .800%
Over $3 Billion .760%
</TABLE>
34
<PAGE>
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
<TABLE>
<CAPTION>
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------- ------------------
<S> <C>
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
</TABLE>
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 $19,368,447, out of which W&R paid sales commissions of
$11,295,897 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.
35
<PAGE>
The Corporation paid Directors' fees of $232,641, which are included in
other expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding
company, and a direct subsidiary of Waddell & Reed Financial Services, Inc., a
holding company.
NOTE 3 -- Investment Securities Transactions
Investment securities transactions for the period ended June 30, 1999
are summarized as follows:
<TABLE>
<CAPTION>
United
United United United Science and
Accumulative Bond Income Technology
Fund Fund Fund Fund
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Purchases of investment securities,
excluding short-term and
U.S. Government securities $3,885,837,403 $ 52,046,592 $1,437,329,852 $ 564,289,694
Purchases of U.S. Government
securities --- 50,100,043 --- ---
Purchases of short-term
securities 2,306,581,164 542,066,282 2,250,637,212 1,253,427,698
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 3,653,708,598 60,873,345 1,314,816,702 427,242,674
Proceeds from maturities and
sales of U.S. Government
securities 199,577,344 46,948,706 --- ---
Proceeds from maturities and sales
of short-term securities 2,349,803,321 537,888,305 2,587,678,452 1,301,414,460
</TABLE>
For Federal income tax purposes, cost of investments owned at June 30,
1999 and the related appreciation (depreciation) were as follows:
<TABLE>
<CAPTION>
Aggregate
Appreciation
Cost Appreciation Depreciation (Depreciation)
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
United Accumulative
Fund $1,970,949,920 $ 145,940,039 $(72,280,131) $73,659,908
United Bond Fund 527,952,569 7,267,408 (8,685,575) (1,418,167)
United Income Fund 5,105,668,853 3,193,229,382 (199,067,936) 2,994,161,446
United Science and
Technology Fund 1,147,368,085 1,035,516,932 (19,577,782) 1,015,939,150
</TABLE>
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
$1,363,307,370, $260,569,759 and $139,112,131,
36
<PAGE>
respectively, during the year ended December 31, 1998, a portion of which was
paid to shareholders during the period ended December 31, 1998. 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 $4,755,689 during the year ended December 31, 1998, which was entirely offset
by utilization of capital loss carryovers. Remaining capital loss carryovers of
United Bond Fund aggregated $18,474,016 as of December 31, 1998, and are
available to offset future realized capital gain net income for Federal income
tax purposes but will expire if not utilized as follows: $18,393,113 at December
31, 2002 and $80,903 at December 31, 2003.
NOTE 5 -- Multiclass Operations
On June 17, 1995, each Fund within the Corporation was authorized to
offer investors 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 six month period ended June 30,
1999 are summarized below. Dollar amounts are in thousands.
37
<PAGE>
<TABLE>
<CAPTION>
United
United United United Science and
Accumulative Bond Income Technology
Fund Fund Fund Fund
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares issued from sale of shares:
Class A ............................ 10,392,424 35,459,848 58,837,191 29,950,598
Class Y ............................ 272,538 169,663 4,465,215 554,347
Shares issued from reinvestment of dividends:
Class A ............................ 312,188 2,180,598 4,580,834 ---
Class Y ............................ 1,181 10,335 304,499 ---
Shares redeemed:
Class A ............................ (13,060,403) (37,010,516) (71,061,411) (21,176,199)
Class Y ............................ (248,321) (788,774) (15,829,092) (378,048)
---------- ---------- ---------- ----------
Increase (decrease) in
outstanding capital
shares:
Class A ............................ (2,355,791) 629,930 (7,643,386) 8,774,399
Class Y ............................ 25,398 (608,776) (11,059,378) 176,299
---------- ---------- ---------- ----------
Total for Fund ..................... (2,330,393) 21,154 (18,702,764) 8,950,698
========== ========== ========== ==========
Value issued from sale of shares:
Class A ............................ $ 89,427 $221,320 $ 452,088 $322,661
Class Y ............................ 2,283 1,071 34,084 5,680
Value issued from reinvestment of dividends:
Class A ............................ 2,777 13,983 35,336 ---
Class Y ............................ 10 64 2,345 ---
Value redeemed:
Class A ............................ (112,307) (231,211) (547,189) (226,232)
Class Y ............................ (2,083) (5,032) (120,878) (3,841)
---------- ---------- ---------- ----------
Increase (decrease) in outstanding capital:
Class A ............................ (20,103) 4,092 (59,765) 96,429
Class Y ............................ 210 (3,897) (84,449) 1,839
---------- ---------- ---------- ----------
Total for Fund ..................... $(19,893) $ 195 $(144,214) $ 98,268
========== ========== ========== ==========
</TABLE>
Transactions in capital stock for the fiscal year ended December 31,
1998 are summarized below. Dollar amounts are in thousands.
38
<PAGE>
<TABLE>
<CAPTION>
United
United United United Science and
Accumulative Bond Income Technology
Fund Fund Fund* Fund*
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares issued from sale of shares:
Class A ............................ 15,967,129 31,835,303 100,626,223 77,529,963
Class Y ............................ 103,049 216,958 10,384,489 130,439
Shares issued from
reinvestment of dividends
and/or capital gains distribution:
Class A ............................ 27,472,978 4,341,736 185,178,374 11,704,260
Class Y ............................ 59,740 56,607 11,152,791 42,644
Shares redeemed:
Class A ............................ (23,654,895) (32,844,203) (121,882,974) (79,203,331)
Class Y ............................ (175,077) (95,711) (7,947,287) (223,072)
---------- ---------- ----------- ----------
Increase (decrease) in
outstanding capital
shares:
Class A ............................ 19,785,212 3,332,836 163,921,623 10,030,892
Class Y ............................ (12,288) 177,854 13,589,993 (49,989)
---------- ---------- ----------- ----------
Total for Fund ..................... 19,772,924 3,510,690 177,511,616 9,980,903
========== ========== =========== ==========
Value issued from sale of shares:
Class A ............................ $136,894 $202,677 $ 849,389 $618,721
Class Y ............................ 876 1,379 85,082 1,031
Value issued from
reinvestment of dividends
and/or capital gains distribution:
Class A ............................ 216,773 27,530 1,351,806 103,357
Class Y ............................ 472 359 81,473 379
Value redeemed:
Class A ............................ (203,897) (208,970) (1,035,016) (631,968)
Class Y ............................ (1,436) (612) (65,230) (1,749)
---------- ---------- ----------- ----------
Increase (decrease) in outstanding capital:
Class A ............................ 149,770 21,237 1,166,179 90,110
Class Y ............................ (88) 1,126 101,325 (339)
---------- ---------- ----------- ----------
Total for Fund ..................... $149,682 $ 22,363 $1,267,504 $ 89,771
========== ========== =========== ==========
</TABLE>
*Share transactions prior to June 27, 1998 have been adjusted to effect the
stock dividend of June 26, 1998.
Note 6 -- Stock Dividend
The Corporation's Board of Directors approved on February 11, 1998 a
stock dividend of 400% on United Income Fund and 200% on United Science and
Technology Fund effected on June 26, 1998. Authorized shares of United Income
Fund were accordingly increased by 1,400,000,000 and United Accumulative Fund
and United Bond Fund each reallocated 100,000,000 shares to United Science and
Technology Fund.
Note 7 -- Securities Loaned
On June 30, 1999, securities with a market value of $549,372,000 (which
are included in the accompanying schedule of investments) had been loaned under
agreements whereby the Income Fund received securities with a market
39
<PAGE>
value of $562,900,619 as collateral. The aggregate amount of such loans must be
continuously secured by 100% of the market value of the securities loaned. The
Fund derives income from its securities lending activities. These agreements may
be terminated by the borrower or the Fund upon proper notice. In the event the
borrower fails to deliver the securities within five business days, the Fund has
the right to use the collateral to purchase similar or other securities. During
the period ended June 30, 1999, Income Fund derived approximately $492,776 of
income, net of related expenses, from its securities lending activities.
40
<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 schedules of investments, of United Accumulative Fund, United Bond Fund,
United Income Fund and United Science and Technology Fund (collectively the
"Funds") comprising United Funds, Inc. as of June 30, 1999, and the related
statements of operations for the six-month period then ended, the statements of
changes in net assets for the six-month period then ended and fiscal year ended
December 31, 1998, and the financial highlights for the six-month period ended
June 30, 1999, and for each of the five fiscal years in the period ended
December 31, 1998. 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 as of June
30, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of each
of the respective Funds comprising United Funds, Inc. as of June 30, 1999, the
results of their operations for the six-month period then ended, the changes in
their net assets for the six-month period then ended and fiscal year ended
December 31, 1998 and the financial highlights for the six-month period ended
June 30, 1999, and for each of the five fiscal years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
August 6, 1999
41
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Principal
Amount in
Thousands Value
<S> <C> <C>
CORPORATE DEBT SECURITIES
Chemicals and Allied Products - 4.44%
Dow Capital B.V.,
9.0%, 5-15-2010 ..................................................... $ 5,000 $ 6,175,300
Dow Chemical Company (The),
8.55%, 10-15-2009 ................................................... 5,000 5,979,100
Procter & Gamble Company (The),
8.0%, 9-1-2024 ...................................................... 10,000 12,568,600
Total ............................................................... 24,723,000
Communication - 3.73%
Bell Telephone Company of Pennsylvania (The),
8.35%, 12-15-2030 ................................................... 5,000 6,509,250
BellSouth Telecommunications, Inc.,
5.85%, 11-15-2045 ................................................... 3,000 3,044,550
Jones Intercable, Inc.,
9.625%, 3-15-2002 ................................................... 2,500 2,693,750
Tele-Communications, Inc.,
6.58%, 2-15-2005 .................................................... 7,500 8,519,475
Total ............................................................... 20,767,025
Depository Institutions - 12.60%
AmSouth Bancorporation,
6.75%, 11-1-2025 .................................................... 6,000 6,280,020
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-2005 .................................................... 1,500 1,500,000
Citicorp,
9.5%, 2-1-2002 ...................................................... 4,500 4,994,145
First Union Corporation:
6.824%, 8-1-2026 .................................................... 7,500 8,308,200
6.55%, 10-15-2035 ................................................... 4,500 4,740,255
Kansallis-Osake-Pankki,
10.0%, 5-1-2002 ..................................................... 6,000 6,745,200
NBD Bank, National Association,
8.25%, 11-1-2024 .................................................... 6,000 7,355,400
NationsBank Corporation,
8.57%, 11-15-2024 ................................................... 5,000 6,226,450
Riggs National Corporation,
8.5%, 2-1-2006 ...................................................... 6,000 6,245,040
See Notes to Schedules of Investments on page .
42
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Depository Institutions (Continued)
SouthTrust Bank of Alabama, National Association:
5.58%, 2-6-2006 ..................................................... $ 5,500 $ 5,468,155
7.69%, 5-15-2025 .................................................... 5,000 5,893,250
Sovereign Bancorp, Inc.,
8.0%, 3-15-2003 ..................................................... 2,000 2,006,000
Wachovia Corporation,
6.605%, 10-1-2025 ................................................... 4,250 4,431,645
Total ............................................................... 70,193,760
Electric, Gas and Sanitary Services - 8.43%
Cajun Electric Power Cooperative, Inc.,
8.92%, 3-15-2019 .................................................... 6,500 6,892,860
California Infrastructure and Economic Development
Bank, Special Purpose Trust:
PG&E-1,
6.42%, 9-25-2008 .................................................... 5,000 5,152,100
SCE-1,
6.38%, 9-25-2008 .................................................... 5,000 5,188,500
Cleveland Electric Illuminating Co. (The),
9.5%, 5-15-2005 ..................................................... 4,000 4,368,040
El Paso Electric Company,
7.25%, 2-1-99 ....................................................... 2,250 2,251,823
Entergy Arkansas, Inc.,
7.5%, 8-1-2007 ...................................................... 3,750 3,891,600
Niagara Mohawk Power Corporation:
9.5%, 6-1-2000 ...................................................... 1,500 1,573,365
7.375%, 7-1-2003 .................................................... 3,000 3,079,290
Pacific Gas & Electric Co.,
6.875%, 12-1-99...................................................... 4,750 4,755,747
Pennsylvania Power & Light Co.,
9.25%, 10-1-2019 .................................................... 4,000 4,277,960
Southern Company Capital Trust I,
8.19%, 2-1-2037...................................................... 5,000 5,528,850
Total ............................................................... 46,960,135
Fabricated Metal Products - 0.51%
Mark IV Industries, Inc.,
7.5%, 9-1-2007 ...................................................... 3,000 2,857,500
Food and Kindred Products - 3.77%
Anheuser-Busch Companies, Inc.,
7.0%, 9-1-2005 ...................................................... 3,000 3,169,350
Coca-Cola Enterprises Inc.:
0.0%, 6-20-2020 ..................................................... 45,000 12,040,650
6.7%, 10-15-2036 .................................................... 5,500 5,823,675
Total ............................................................... 21,033,675
See Notes to Schedules of Investments on page .
43
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Food Stores - 0.39%
Kroger Co. (The),
7.65%, 4-15-2007 .................................................... $ 2,000 $ 2,192,060
General Merchandise Stores - 0.70%
Fred Meyer, Inc.,
7.15%, 3-1-2003 ..................................................... 3,750 3,901,425
Health Services - 1.58%
Tenet Healthcare Corporation:
7.875%, 1-15-2003 ................................................... 3,500 3,570,000
8.625%, 12-1-2003 ................................................... 5,000 5,237,500
Total ............................................................... 8,807,500
Holding and Other Investment Offices - 0.52%
Bay Apartment Communities, Inc.,
6.5%, 1-15-2005 ..................................................... 3,000 2,916,240
Instruments and Related Products - 0.69%
Raytheon Co.,
6.45%, 8-15-2002 .................................................... 3,750 3,846,075
Insurance Carriers - 0.56%
Reliance Group Holdings, Inc.,
9.0%, 11-15-2000 .................................................... 3,000 3,124,650
Nondepository Institutions - 9.69%
Asset Securitization Corporation,
7.49%, 4-14-2029 .................................................... 6,000 6,474,120
CHYPS CBO 1997-1 Ltd.,
6.72%, 1-15-2010 (A) ................................................ 8,500 8,539,865
Chrysler Financial Corporation,
12.75%, 11-1-99 ..................................................... 9,000 9,545,760
Equicon Loan Trust,
7.3%, 2-18-2013 ..................................................... 4,571 4,661,763
General Motors Acceptance Corporation,
8.875%, 6-1-2010 .................................................... 5,500 6,883,580
See Notes to Schedules of Investments on page .
44
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions (Continued)
IMC Home Equity Loan Trust,
6.9%, 1-20-2022 ..................................................... $ 4,500 $ 4,536,540
National Rural Utilities Cooperative Finance Corp.,
6.1%, 12-22-2000 .................................................... 4,000 4,059,600
Residential Asset Securities Corporation,
Mortgage Pass-Through Certificates,
8.0%, 10-25-2024 .................................................... 4,000 4,076,880
Westinghouse Electric Corporation,
8.875%, 6-14-2014 ................................................... 4,500 5,221,980
Total ............................................................... 54,000,088
Oil and Gas Extraction - 2.77%
Anadarko Petroleum Corporation,
7.25%, 3-15-2025 .................................................... 5,000 5,183,950
Mitchell Energy & Development Corp.,
9.25%, 1-15-2002 .................................................... 165 175,621
Oryx Energy Company,
10.0%, 4-1-2001 ..................................................... 3,500 3,769,220
Pemex Finance Ltd.,
5.72%, 11-15-2003 (A) ............................................... 2,500 2,496,625
YPF Sociedad Anoima,
8.0%, 2-15-2004 ..................................................... 4,000 3,800,000
Total ............................................................... 15,425,416
Paper and Allied Products - 1.21%
Boise Cascade Office Products Corporation,
9.875%, 2-15-2001 ................................................... 2,500 2,509,400
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-2002 .................................................... 4,000 4,257,440
Total ............................................................... 6,766,840
Printing and Publishing - 1.34%
News America Holdings Incorporated,
7.45%, 6-1-2000 ..................................................... 2,500 2,557,225
Quebecor Printing Capital Corporation,
6.5%, 8-1-2027 ...................................................... 5,000 4,912,300
Total ............................................................... 7,469,525
Railroad Transportation - 0.96%
CSX Corporation,
6.95%, 5-1-2027 ..................................................... 5,000 5,328,150
Security and Commodity Brokers - 0.90%
Salomon Inc.,
3.65%, 2-14-2002 .................................................... 5,000 4,998,300
See Notes to Schedules of Investments on page .
45
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Stone, Clay and Glass Products - 0.97%
Owens-Illinois, Inc.,
7.15%, 5-15-2005..................................................... $ 3,250 $ 3,257,183
USG Corporation,
9.25%, 9-15-2001 .................................................... 2,000 2,135,700
Total ............................................................... 5,392,883
Transportation Equipment - 0.47%
Coltec Industries Inc.,
7.5%, 4-15-2008 ..................................................... 2,500 2,646,875
United States Postal Service - 0.32%
Postal Square Limited Partnership,
6.5%, 6-15-2022 ..................................................... 1,717 1,764,015
Wholesale Trade -- Durable Goods - 1.94%
Motorola, Inc.,
8.4%, 8-15-2031 ..................................................... 8,500 10,783,865
TOTAL CORPORATE DEBT SECURITIES - 58.49% $325,899,002
(Cost: $310,097,960)
OTHER GOVERNMENT SECURITIES
Canada - 6.07%
Hydro Quebec:
8.05%, 7-7-2024 ..................................................... 10,000 12,000,500
7.4%, 3-28-2025 ..................................................... 5,000 6,210,200
Province de Quebec:
5.67%, 2-27-2026 .................................................... 9,200 10,071,148
6.29%, 3-6-2026 ..................................................... 5,000 5,535,050
Total ............................................................... 33,816,898
Supranational - 1.11%
Inter-American Development Bank,
8.4%, 9-1-2009 ...................................................... 5,000 6,156,850
TOTAL OTHER GOVERNMENT SECURITIES - 7.18% $ 39,973,748
(Cost: $34,860,104)
See Notes to Schedules of Investments on page .
46
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
7.5%, 2-15-2007 ..................................................... $ 8,935 $ 9,065,877
7.5%, 11-15-2017 .................................................... 392 390,701
6.5%, 9-25-2018 ..................................................... 2,000 2,068,740
7.0%, 1-15-2019 ..................................................... 2,000 2,042,500
7.5%, 4-15-2019 ..................................................... 14,796 15,008,580
7.95%, 12-15-2020 ................................................... 4,596 4,630,689
6.25%, 1-15-2021 .................................................... 12,000 12,105,000
Federal National Mortgage Association:
5.98%, 6-18-2003 .................................................... 1,500 1,523,205
5.875%, 7-16-2003 ................................................... 5,000 5,065,600
5.89%, 7-17-2003 .................................................... 3,500 3,547,040
7.0%, 7-25-2006 ..................................................... 10,000 10,121,800
0.0%, 2-12-2018 ..................................................... 9,500 3,070,400
0.0%, 10-9-2019 ..................................................... 21,500 6,416,460
7.0%, 9-25-2020 ..................................................... 2,000 2,034,360
6.5%, 8-25-2021 ..................................................... 2,500 2,515,225
7.0%, 8-25-2021 ..................................................... 10,000 10,137,500
Government National Mortgage Association:
7.5%, 7-15-2023 ..................................................... 3,649 3,765,515
7.5%, 12-15-2023 .................................................... 4,020 4,147,610
8.0%, 9-15-2025 ..................................................... 5,951 6,233,242
7.0%, 7-20-2027 ..................................................... 314 319,289
7.0%, 9-20-2027 ..................................................... 4,915 5,004,125
7.75%, 10-15-2031 ................................................... 1,975 2,061,126
Tennessee Valley Authority,
5.88%, 4-1-2036 ..................................................... 3,750 3,979,275
United States Department of Veterans Affairs,
Guaranteed Remic Pass-Through Certificates,
Vendee Mortgage Trust:
1998-1 Class 2-B,
7.0%, 5-15-2005 ..................................................... 750 768,045
1997-2 Class C,
7.5%, 8-15-2017 ..................................................... 4,000 4,075,000
United States Treasury:
5.75%, 10-31-2000 ................................................... 9,000 9,171,540
5.25%, 1-31-2001 .................................................... 5,000 5,061,700
6.5%, 8-15-2005 ..................................................... 5,750 6,319,595
6.5%, 10-15-2006 .................................................... 28,000 31,058,160
0.0%, 2-15-2019 ..................................................... 7,000 2,293,550
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 31.23% $174,001,449
(Cost: $171,444,232)
TOTAL SHORT-TERM SECURITIES - 2.16% $ 12,055,774
(Cost: $12,055,774)
See Notes to Schedules of Investments on page .
47
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1998
Value
TOTAL INVESTMENT SECURITIES - 99.06% $551,929,973
(Cost: $528,458,070)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.94% 5,217,640
NET ASSETS - 100.00% $557,147,613
</TABLE>
See Notes to Schedules of Investments on page .
48
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS
Apparel and Accessory Stores - 0.76%
Gap, Inc. (The) ........................................................ 1,050,000 $ 59,062,500
Building Materials and Garden Supplies - 1.10%
Home Depot, Inc. (The) ................................................. 1,394,200 85,307,612
Business Services - 2.48%
BMC Software, Inc.* .................................................... 1,569,900 70,007,728
Microsoft Corporation* ................................................. 886,400 122,794,100
Total ............................................................... 192,801,828
Chemicals and Allied Products - 14.12%
Air Products and Chemicals, Inc. ....................................... 1,429,200 57,168,000
Bristol-Myers Squibb Company ........................................... 350,000 46,834,375
Colgate-Palmolive Company .............................................. 787,800 73,166,925
du Pont (E.I.) de Nemours and Company .................................. 1,503,700 79,790,081
Gillette Company (The) ................................................. 1,569,900 75,845,794
Lilly (Eli) and Company ................................................ 1,250,000 111,093,750
Merck & Co., Inc. ...................................................... 325,000 47,998,437
Monsanto Company ....................................................... 2,100,000 99,750,000
Novartis, AG (B)........................................................ 37,500 73,716,782
PPG Industries, Inc. ................................................... 705,300 41,083,725
Pfizer Inc. ............................................................ 925,000 116,029,688
Procter & Gamble Company (The) ......................................... 780,300 71,251,144
Warner-Lambert Company ................................................. 2,700,000 203,006,250
Total ............................................................... 1,096,734,951
Communication - 6.04%
AT&T Corporation ....................................................... 243,600 18,330,900
AirTouch Communications* ............................................... 900,000 64,912,500
Clear Channel Communications, Inc.* .................................... 1,525,500 83,139,750
Cox Communications, Inc., Class A* ..................................... 2,138,000 147,789,250
MCI WORLDCOM, Inc.* .................................................... 1,037,000 74,437,156
SBC Communications Inc. ................................................ 1,500,000 80,437,500
Total ............................................................... 469,047,056
See Notes to Schedules of Investments on page .
49
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Depository Institutions - 2.91%
BankAmerica Corporation ................................................ 575,418 $ 34,597,007
Chase Manhattan Corporation (The) ...................................... 1,050,000 71,465,625
U. S. Bancorp. ......................................................... 2,091,000 74,230,500
Wells Fargo & Company .................................................. 1,139,400 45,504,788
Total ............................................................... 225,797,920
Electric, Gas and Sanitary Services - 3.63%
Consolidated Edison, Inc. .............................................. 848,700 44,875,013
Duke Energy Corp. ...................................................... 1,275,000 81,679,687
Texas Utilities Company ................................................ 3,325,000 155,235,938
Total ............................................................... 281,790,638
Electronic and Other Electric Equipment - 8.92%
Analog Devices, Inc.* .................................................. 1,575,000 49,415,625
General Electric Company ............................................... 1,970,200 201,083,538
General Instrument Corporation* ........................................ 2,210,000 75,001,875
Intel Corporation ...................................................... 1,200,000 142,237,500
Maytag Corporation ..................................................... 1,000,300 62,268,675
Nokia Corporation, Series A (B) ........................................ 760,000 93,091,254
Telefonaktiebolaget LM Ericsson, ADR,
Class B ............................................................. 2,925,000 69,925,781
Total ............................................................... 693,024,248
Fabricated Metal Products - 0.53%
Newell Co. ............................................................. 1,000,000 41,250,000
Food and Kindred Products - 1.90%
Bestfoods .............................................................. 1,400,000 74,550,000
Coca-Cola Company (The) ................................................ 685,500 45,842,812
Panamerican Beverages Inc., Class A .................................... 1,250,000 27,265,625
Total ............................................................... 147,658,437
Food Stores - 1.34%
Kroger Co. (The)* ...................................................... 1,725,000 104,362,500
Furniture and Fixtures - 0.32%
Lear Corporation* ...................................................... 653,000 25,140,500
See Notes to Schedules of Investments on page .
50
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
General Merchandise Stores - 2.96%
Dayton Hudson Corporation .............................................. 1,131,800 $ 61,400,150
Wal-Mart Stores, Inc. .................................................. 2,074,700 168,958,381
Total ............................................................... 230,358,531
Health Services - 1.54%
Tenet Healthcare Corporation* .......................................... 4,550,000 119,437,500
Industrial Machinery and Equipment - 3.52%
Case Corporation ....................................................... 1,214,600 26,493,463
Cisco Systems, Inc.* ................................................... 1,001,700 93,001,584
Deere & Company ........................................................ 1,299,700 43,052,562
International Business Machines
Corporation ......................................................... 600,000 110,850,000
Total ............................................................... 273,397,609
Instruments and Related Products - 3.32%
General Motors Corporation, Class H* ................................... 759,700 30,150,594
Guidant Corporation .................................................... 1,200,000 132,300,000
Medtronic, Inc. ........................................................ 972,000 72,171,000
Raytheon Company, Class A .............................................. 454,381 23,485,818
Total ............................................................... 258,107,412
Insurance Carriers - 2.23%
American International Group, Inc. ..................................... 916,950 88,600,294
Chubb Corporation (The) ................................................ 135,600 8,797,050
Citigroup Inc. ......................................................... 1,525,000 75,487,500
Total ............................................................... 172,884,844
Miscellaneous Manufacturing Industries - 0.48%
Tyco International Ltd. ................................................ 491,500 37,077,531
Miscellaneous Retail - 0.71%
Costco Companies, Inc.* ................................................ 765,000 55,342,969
Motion Pictures - 1.22%
Time Warner Incorporated ............................................... 1,000,000 62,062,500
Walt Disney Company (The) .............................................. 1,089,600 32,688,000
Total ............................................................... 94,750,500
See Notes to Schedules of Investments on page .
51
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Nondepository Institutions - 5.88%
Associates First Capital Corporation,
Class A ............................................................. 1,524,170 $ 64,586,704
Fannie Mae ............................................................. 2,858,400 211,521,600
Freddie Mac ............................................................ 2,800,000 180,425,000
Total ............................................................... 456,533,304
Oil and Gas Extraction - 1.25%
Burlington Resources Incorporated ...................................... 2,699,500 96,675,844
Paper and Allied Products - 0.72%
International Paper Company ............................................ 600,000 26,887,500
Willamette Industries, Inc. ............................................ 860,000 28,810,000
Total ............................................................... 55,697,500
Petroleum and Coal Products - 2.59%
Chevron Corporation .................................................... 450,000 37,321,875
Exxon Corporation ...................................................... 500,000 36,562,500
Mobil Corporation ...................................................... 800,000 69,700,000
Royal Dutch Petroleum Company .......................................... 1,200,000 57,450,000
Total ............................................................... 201,034,375
Primary Metal Industries - 0.62%
Aluminum Company of America ............................................ 650,000 48,465,625
Railroad Transportation - 0.42%
Burlington Northern Santa Fe Corporation ............................... 975,000 32,906,250
Rubber and Miscellaneous Plastics Products - 0.27%
Goodyear Tire & Rubber Company (The) ................................... 414,100 20,886,169
Transportation By Air - 0.61%
AMR Corporation* ....................................................... 800,000 47,500,000
Transportation Equipment - 3.62%
DaimlerChrysler AG ..................................................... 713,907 68,579,691
Dana Corporation ....................................................... 760,000 31,065,000
Ford Motor Company ..................................................... 1,000,000 58,687,500
Lockheed Martin Corporation ............................................ 1,450,000 122,887,500
Total ............................................................... 281,219,691
Wholesale Trade - Durable Goods - 0.50%
Johnson & Johnson ...................................................... 465,000 39,001,875
Wholesale Trade - Nondurable Goods - 1.57%
Safeway Inc.* .......................................................... 2,000,000 121,875,000
TOTAL COMMON STOCKS - 78.08% $6,065,130,719
(Cost: $3,162,992,028)
See Notes to Schedules of Investments on page .
52
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Depository Institutions - 0.14%
Morgan Guaranty Trust Company of New York,
7.375%, 2-1-2002 .................................................... $ 10,250 $ 10,783,512
Nondepository Institutions - 0.16%
General Electric Capital Corporation,
8.3%, 9-20-2009 ..................................................... 10,000 12,250,400
TOTAL CORPORATE DEBT SECURITIES - 0.30% $ 23,033,912
(Cost: $20,027,550)
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association,
5.9%, 7-9-2003 ...................................................... 100,000 101,375,000
United States Treasury:
6.75%, 4-30-2000 .................................................... 37,000 37,971,250
5.75%, 8-15-2003 .................................................... 50,000 52,211,000
6.5%, 10-15-2006 .................................................... 50,000 55,461,000
5.625%, 5-15-2008 ................................................... 50,000 53,351,500
10.375%, 11-15-2012 ................................................. 8,500 11,727,365
7.5%, 11-15-2016 .................................................... 80,000 99,375,200
9.0%, 11-15-2018 .................................................... 20,000 28,737,400
8.75%, 8-15-2020 .................................................... 75,000 106,734,000
5.5%, 8-15-2028 ..................................................... 600,000 628,032,000
5.25%, 11-15-2028 ................................................... 50,000 51,187,500
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 15.79% $1,226,163,215
(Cost: $1,208,126,220)
SHORT-TERM SECURITIES
Commercial Paper
Auto Repair, Services and Parking - 0.12%
PHH Corp.,
6.3%, 1-15-99 ....................................................... 9,080 9,057,754
Chemicals and Allied Products - 0.95%
du Pont (E.I.) de Nemours and Company,
5.21%, 1-8-99 ....................................................... 50,000 49,949,348
Pfizer Inc.,
5.35%, 1-20-99 ...................................................... 24,000 23,932,233
Total ............................................................... 73,881,581
See Notes to Schedules of Investments on page .
53
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Communication - 0.26%
GTE Corp.:
5.38%, 1-25-99 ...................................................... $ 4,300 $ 4,284,577
5.5%, 2-4-99 ........................................................ 16,000 15,916,889
Total ............................................................... 20,201,466
Electric, Gas and Sanitary Services - 1.38%
Commonwealth Edison Co.,
6.22%, 1-14-99 ...................................................... 21,289 21,241,183
PacifiCorp:
5.07%, 1-19-99 ...................................................... 8,000 7,979,720
5.13%, 1-27-99 ...................................................... 3,900 3,885,551
Potomac Electric Power Co.,
5.5%, 1-25-99 ....................................................... 10,000 9,963,333
Public Service Co. of Colorado,
6.0%, 1-15-99 ....................................................... 8,000 7,981,333
Public Service Electric & Gas Co.:
5.87%, 1-22-99 ...................................................... 20,000 19,931,517
5.78%, 1-29-99 ...................................................... 10,000 9,955,045
Questar Corp.:
5.4%, 1-6-99 ........................................................ 10,000 9,992,500
5.2%, 1-12-99 ....................................................... 10,000 9,984,111
Western Resources, Inc.,
5.75%, 1-15-99 ...................................................... 6,090 6,076,382
Total ............................................................... 106,990,675
Electronic and Other Electric Equipment - 0.19%
Lucent Technologies Inc.,
5.25%, 1-14-99 ...................................................... 10,000 9,981,042
Sony Capital Corp.,
5.9%, 1-8-99 ........................................................ 5,000 4,994,264
Total ............................................................... 14,975,306
See Notes to Schedules of Investments on page .
54
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES(Continued)
Commercial Paper (Continued)
Engineering and Management Services - 0.16%
Halliburton Company,
5.29%, 2-26-99 ...................................................... $ 13,000 $ 12,893,024
Fabricated Metal Products - 0.03%
Danaher Corporation,
5.6288%, Master Note ................................................ 2,334 2,334,000
Food and Kindred Products - 0.01%
General Mills, Inc.,
5.4838%, Master Note ................................................ 663 663,000
Insurance Carriers - 0.43%
Transamerica Finance Corp.,
5.15%, 1-19-99 ...................................................... 24,000 23,938,200
USAA Capital Corp.,
5.1%, 1-19-99 ....................................................... 9,775 9,750,074
Total ............................................................... 33,688,274
Nondepository Institutions - 1.13%
American Express Company,
5.8%, 1-8-99 ........................................................ 41,000 40,953,761
Associates Corporation of North America,
5.35%, 1-20-99 ...................................................... 7,000 6,980,235
General Electric Capital Corporation,
5.46%, 2-3-99 ....................................................... 25,000 24,874,875
Textron Inc.:
6.1%, 1-6-99 ........................................................ 2,400 2,397,967
5.82%, 1-8-99 ....................................................... 13,000 12,985,288
Total ............................................................... 88,192,126
Paper and Allied Products - 0.83%
Sonoco Products Co.,
5.16%, 1-19-99 ...................................................... 29,350 29,274,277
Westvaco Corp.:
5.26%, 1-21-99 ...................................................... 11,370 11,336,774
5.5%, 1-21-99 ....................................................... 3,870 3,858,175
5.5%, 1-26-99 ....................................................... 20,000 19,923,611
Total ............................................................... 64,392,837
Petroleum and Coal Products - 0.44%
Kerr-McGee Credit Corp.:
6.05%, 1-19-99 ...................................................... 24,000 23,927,400
6.0%, 1-29-99 ....................................................... 10,000 9,953,333
Total ............................................................... 33,880,733
See Notes to Schedules of Investments on page .
55
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES(Continued)
Commercial Paper (Continued)
Tobacco Products - 0.19%
B.A.T. Capital Corp.,
5.57%, 1-22-99 ...................................................... $ 15,000 $ 14,951,263
Wholesale Trade -- Nondurable Goods - 0.12%
Enron Corp.,
5.73%, 1-13-99 ...................................................... 9,000 8,982,810
Total Commercial Paper - 6.24% 485,084,849
Municipal Obligations
California - 0.39%
California Pollution Control Financing Authority, Environmental Improvement
Revenue Bonds (Shell Martinez Refining Company Project), Series 1996
(Taxable), (Shell Oil Company):
5.13%, 1-19-99 ...................................................... 20,000 20,000,000
5.25%, 2-8-99 ....................................................... 10,000 10,000,000
Total ............................................................... 30,000,000
Indiana - 0.10%
City of Whiting, Indiana, Industrial Sewage
and Solid Waste Disposal Revenue Bonds, Taxable
Series 1995 (Amoco Oil Company Project),
5.23%, 3-8-99 ....................................................... 8,000 8,000,000
Total Municipal Obligations - 0.49% 38,000,000
TOTAL SHORT-TERM SECURITIES - 6.73% $ 523,084,849
(Cost: $523,084,849)
TOTAL INVESTMENT SECURITIES - 100.90% $7,837,412,695
(Cost: $4,914,230,647)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.90)% (70,112,131)
NET ASSETS - 100.00% $7,767,300,564
</TABLE>
See Notes to Schedules of Investments on page .
56
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS
Business Services - 8.05%
America Online, Inc.* .................................................. 100,000 $ 16,000,000
American Management Systems, Incorporated* ............................. 500,000 20,031,250
HNC Software Inc.* ..................................................... 250,000 10,109,375
Inktomi Corporation* ................................................... 125,000 16,246,094
Microsoft Corporation* ................................................. 400,000 55,412,500
Sun Microsystems, Inc.* ................................................ 200,000 17,112,500
Veritas Software Corp.* ................................................ 150,000 8,981,250
Xoom.com, Inc.* ........................................................ 200,000 6,537,500
Total ............................................................... 150,430,469
Chemicals and Allied Products - 9.91%
Bristol-Myers Squibb Company ........................................... 500,000 66,906,250
Pharmacia & Upjohn, Inc. ............................................... 300,000 16,987,500
Schering-Plough Corporation ............................................ 1,000,000 55,250,000
SmithKline Beecham plc, ADR ............................................ 500,000 34,750,000
Warner-Lambert Company ................................................. 150,000 11,278,125
Total ............................................................... 185,171,875
Communication - 13.30%
Bell Atlantic Corporation .............................................. 500,000 26,500,000
Clear Channel Communications, Inc.* .................................... 350,000 19,075,000
Cox Communications, Inc., Class A* ..................................... 350,000 24,193,750
Heftel Broadcasting Corporation, Class A* .............................. 300,000 14,812,500
Infinity Broadcasting Corporation,
Class A*............................................................. 550,000 15,056,250
SBC Communications Inc. ................................................ 1,196,000 64,135,500
U S WEST Communications, Inc. .......................................... 1,100,000 71,087,500
Western Wireless Corporation, Class A* ................................. 615,000 13,510,781
Total ............................................................... 248,371,281
Depository Institutions - 11.65%
Chase Manhattan Corporation (The) ...................................... 300,000 20,418,750
First Tennessee National Corporation ................................... 550,000 20,917,187
First Union Corporation ................................................ 500,000 30,406,250
Fleet Financial Group, Inc. ............................................ 500,000 22,343,750
MBNA Corp. ............................................................. 1,000,000 24,937,500
Mellon Bank Corporation ................................................ 300,000 20,625,000
PNC Bank Corp. ......................................................... 500,000 27,062,500
SunTrust Banks, Inc. ................................................... 300,000 22,950,000
Wells Fargo & Company .................................................. 700,000 27,956,250
Total ............................................................... 217,617,187
Electric, Gas and Sanitary Services - 3.21%
Allied Waste Industries, Inc., New* .................................... 1,500,000 35,437,500
Republic Services, Inc. Class A* ....................................... 900,000 16,593,750
Superior Services, Inc.* ............................................... 400,000 8,025,000
Total ............................................................... 60,056,250
See Notes to Schedules of Investments on page .
57
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 6.96%
Analog Devices, Inc.* .................................................. 700,000 $ 21,962,500
Ascend Communications, Inc.* ........................................... 700,000 46,046,875
Intel Corporation ...................................................... 350,000 41,485,938
Linear Technology Corporation .......................................... 125,000 11,191,406
Microchip Technology Incorporated* ..................................... 250,000 9,234,375
Total ............................................................... 129,921,094
Engineering & Management Services - 0.60%
Incyte Pharmaceuticals, Inc.* .......................................... 300,000 11,193,750
Food and Kindred Products - 1.76%
Anheuser-Busch Companies, Inc. ......................................... 500,000 32,812,500
Health Services - 2.52%
Columbia/HCA Healthcare Corporation .................................... 1,000,000 24,750,000
Tenet Healthcare Corporation* .......................................... 850,000 22,312,500
Total ............................................................... 47,062,500
Industrial Machinery and Equipment - 1.49%
Cisco Systems, Inc.* ................................................... 300,000 27,853,125
Instruments and Related Products - 6.17%
Baxter International Inc. .............................................. 700,000 45,018,750
Becton Dickinson and Company ........................................... 975,000 41,620,313
Bionx Implants, Inc.* .................................................. 235,000 1,975,469
Raytheon Company, Class B .............................................. 500,000 26,625,000
Total ............................................................... 115,239,532
Insurance Carriers - 5.51%
ACE Limited ............................................................ 550,000 18,940,625
American International Group, Inc. ..................................... 200,000 19,325,000
Chartwell Re Corporation ............................................... 500,000 11,875,000
Everest Reinsurance Holdings, Inc. ..................................... 321,500 12,518,406
Liberty Corporation (The) .............................................. 350,000 17,237,500
ReliaStar Financial Corp. .............................................. 500,000 23,062,500
Total ............................................................... 102,959,031
Motion Pictures - 1.33%
Time Warner Incorporated ............................................... 400,000 24,825,000
Nondepository Institutions - 5.58%
CIT Group, Inc. (The), Class A ......................................... 1,100,000 34,993,750
Fannie Mae ............................................................. 500,000 37,000,000
Freddie Mac ............................................................ 500,000 32,218,750
Total ............................................................... 104,212,500
Paper and Allied Products - 1.08%
Champion International Corporation ..................................... 500,000 20,250,000
See Notes to Schedules of Investments on page .
58
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Printing and Publishing - 0.52%
Gannett Co., Inc. ...................................................... 150,000 $ 9,675,000
Railroad Transportation - 0.99%
Burlington Northern Santa Fe Corporation ............................... 550,000 18,562,500
Transportation by Air - 0.60%
Southwest Airlines Co. ................................................. 500,000 11,218,750
Transportation Equipment - 1.26%
General Dynamics Corporation ........................................... 400,000 23,450,000
Wholesale Trade - Durable Goods - 2.20%
Johnson & Johnson ...................................................... 200,000 16,775,000
OmniCare, Inc. ......................................................... 700,000 24,325,000
Total ............................................................... 41,100,000
Wholesale Trade - Nondurable Goods - 0.98%
Safeway Inc.* .......................................................... 300,000 18,281,250
TOTAL COMMON STOCKS - 85.67% $1,600,263,594
(Cost: $1,411,940,630)
Principal
Amount in
Thousands
UNITED STATES GOVERNMENT SECURITY - 10.77%
United States Treasury,
6.25%, 8-15-2023 .................................................... $180,000 $201,178,800
(Cost: $196,224,695)
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 0.65%
du Pont (E.I.) de Nemours and Company,
5.55%, 1-12-99 ...................................................... 12,200 12,179,311
Communication - 0.56%
Bell Atlantic Network Funding Corp.,
5.9%, 1-5-99 ........................................................ 10,455 10,448,146
Electric, Gas and Sanitary Services - 0.62%
Allegheny Energy Inc.,
5.58%, 1-19-99 ...................................................... 8,100 8,077,401
Commonwealth Edison Co.,
5.94%, 1-20-99 ...................................................... 3,500 3,489,027
Total ............................................................... 11,566,428
See Notes to Schedules of Investments on page .
59
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES(Continued)
Commercial Paper (Continued)
Electronic and Other Electric Equipment - 0.75%
Lucent Technologies Inc.,
5.28%, 1-15-99 ...................................................... $ 14,000 $ 13,971,253
Fabricated Metal Products - 0.15%
Danaher Corporation,
5.6288%, Master Note ................................................ 2,792 2,792,000
Food and Kindred Products - 0.95%
ConAgra, Inc.,
5.52%, 1-6-99 ....................................................... 5,000 4,996,167
McCormick & Co. Inc.,
5.14%, 1-4-99 ....................................................... 12,900 12,894,474
Total ............................................................... 17,890,641
Textile Mill Products - 0.03%
Sara Lee Corporation,
5.4788%, Master Note ................................................ 545 545,000
Transportation Equipment - 0.16%
Dana Corporation,
6.3%, 1-7-99 ........................................................ 2,950 2,946,903
TOTAL SHORT-TERM SECURITIES - 3.87% $ 72,339,682
(Cost: $72,339,682)
TOTAL INVESTMENT SECURITIES - 100.31% $1,873,782,076
(Cost: $1,680,505,007)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (0.31%) (5,744,656)
NET ASSETS - 100.00% $1,868,037,420
</TABLE>
See Notes to Schedules of Investments on page .
60
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS
Building Materials and Garden Supplies - 0.92%
Fastenal Company ....................................................... 350,000 $ 15,389,062
Business Services - 42.47%
Amazon.com, Inc.* ...................................................... 65,000 20,879,219
America Online, Inc.* .................................................. 1,000,000 160,000,000
American Management Systems, Incorporated* ............................. 400,000 16,025,000
BMC Software, Inc.* .................................................... 800,000 35,675,000
Cerner Corporation* .................................................... 500,000 13,406,250
Citrix Systems, Inc.* .................................................. 300,000 29,109,375
Concord EFS, Inc.* ..................................................... 700,000 29,531,250
eBay Inc.* ............................................................. 81,500 19,672,063
HNC Software Inc.* ..................................................... 535,000 21,634,062
i2 Technologies, Inc.* ................................................. 110,000 3,337,813
Inktomi Corporation* ................................................... 220,000 28,593,125
Intuit Inc.* ........................................................... 508,800 36,888,000
Microsoft Corporation* ................................................. 300,000 41,559,375
Networks Associates, Inc.* ............................................. 450,000 29,854,687
Parametric Technology Corporation* ..................................... 700,000 11,375,000
Shared Medical Systems Corporation ..................................... 300,000 14,962,500
TMP Worldwide Inc.* .................................................... 500,000 21,281,250
Transaction Systems Architects, Inc.,
Class A* ............................................................ 500,000 25,156,250
Veritas Software Corp.* ................................................ 370,000 22,153,750
Wind River Systems, Inc.* .............................................. 500,000 23,468,750
Yahoo! Inc.* ........................................................... 450,000 106,607,812
Total ............................................................... 711,170,531
Chemicals and Allied Products - 10.28%
Abbott Laboratories .................................................... 600,000 29,400,000
Bristol-Myers Squibb Company ........................................... 100,000 13,381,250
Pfizer Inc. ............................................................ 350,000 43,903,125
Roche Holdings AG (B) .................................................. 1,200 14,642,883
Schering-Plough Corporation ............................................ 600,000 33,150,000
Warner-Lambert Company ................................................. 500,000 37,593,750
Total ............................................................... 172,071,008
See Notes to Schedules of Investments on page .
61
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Communication - 6.77%
AirTouch Communications* ............................................... 200,000 $ 14,425,000
Clear Channel Communications, Inc.* .................................... 547,300 29,827,850
COLT Telecom Group plc, ADR* ........................................... 400,000 24,025,000
Cox Communications, Inc., Class A* ..................................... 405,200 28,009,450
Global TeleSystems Group, Inc.* ........................................ 117,000 6,515,438
Intermedia Communications of Florida, Inc.* ............................ 605,000 10,474,062
Total ............................................................... 113,276,800
Electronic and Other Electric Equipment - 9.58%
Advanced Fibre Communications, Inc.* ................................... 750,000 8,203,125
Analog Devices, Inc.* .................................................. 500,000 15,687,500
Ascend Communications, Inc.* ........................................... 100,000 6,578,125
Broadcom Corporation, Class A* ......................................... 203,400 24,535,125
Gemstar International Group Limited* ................................... 300,000 17,165,625
General Electric Company ............................................... 350,000 35,721,875
Intel Corporation ...................................................... 200,000 23,706,250
Micron Technology, Inc.* ............................................... 300,000 15,168,750
Tellabs* ............................................................... 200,000 13,712,500
Total ............................................................... 160,478,875
Engineering and Management Services - 5.95%
Abacus Direct Corporation* ............................................. 356,000 16,298,125
Incyte Pharmaceuticals, Inc.* .......................................... 772,500 28,823,906
Paychex, Inc. .......................................................... 540,000 27,793,125
Quintiles Transnational Corp.* ......................................... 500,000 26,671,875
Total ............................................................... 99,587,031
General Merchandise Stores - 0.97%
Wal-Mart Stores, Inc. .................................................. 200,000 16,287,500
Health Services - 0.32%
Concentra Managed Care, Inc.* .......................................... 501,000 5,307,469
Industrial Machinery and Equipment - 3.57%
Cisco Systems, Inc.* ................................................... 644,550 59,842,439
See Notes to Schedules of Investments on page .
62
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1998
Shares Value
COMMON STOCKS (Continued)
Instruments and Related Products - 2.78%
Medtronic, Inc. ........................................................ 355,000 $ 26,358,750
STERIS Corporation* .................................................... 710,000 20,190,625
Total ............................................................... 46,549,375
Miscellaneous Manufacturing Industries - 1.35%
Tyco International Ltd. ................................................ 300,000 22,631,250
Motion Pictures - 1.66%
Time Warner Incorporated ............................................... 448,000 27,804,000
Printing and Publishing - 0.11%
IDG Books Worldwide, Inc., Class A* .................................... 109,000 1,859,813
Wholesale Trade -- Durable Goods - 3.87%
Johnson & Johnson ...................................................... 400,000 33,550,000
OmniCare, Inc. ......................................................... 900,000 31,275,000
Total ............................................................... 64,825,000
Wholesale Trade -- Nondurable Goods - 1.81%
Cardinal Health, Inc. .................................................. 400,000 30,350,000
TOTAL COMMON STOCKS - 92.41% $1,547,430,153
(Cost: $750,367,437)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Chemicals and Allied Products - 0.65%
Pfizer Inc.,
5.35%, 1-20-99 ...................................................... $11,000 $10,968,940
Electric, Gas and Sanitary Services - 1.87%
Commonwealth Edison Co.,
5.94%, 1-20-99 ...................................................... 3,000 2,990,595
PacifiCorp,
5.13%, 1-27-99 ...................................................... 16,100 16,040,350
Puget Sound Energy Inc.,
6.25%, 1-7-99 ....................................................... 3,750 3,746,094
Questar Corp.:
6.0% , 1-6-99 ....................................................... 3,000 2,997,500
5.35%, 1-15-99 ...................................................... 5,472 5,460,615
Total ............................................................... 31,235,154
See Notes to Schedules of Investments on page .
63
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Electronic and Other Electric Equipment - 1.05%
Lucent Technologies Inc.,
5.28%, 1-15-99 ...................................................... $8,600 $ 8,582,341
Sony Capital Corp.,
5.82%, 1-14-99 ...................................................... 9,000 8,981,085
Total ............................................................... 17,563,426
Fabricated Metal Products - 0.17%
Danaher Corporation,
5.6288%, Master Note ................................................ 2,871 2,871,000
Food and Kindred Products - 1.49%
ConAgra, Inc.,
6.5%, 1-6-99 ........................................................ 24,000 23,978,334
General Mills, Inc.,
5.4838%, Master Note ................................................ 1,046 1,046,000
Total ............................................................... 25,024,334
Personal Services - 0.30%
Block Financial Corp.,
5.2%, 1-28-99 ....................................................... 5,000 4,980,500
Primary Metal Industries - 1.23%
Aluminum Company of America,
5.55%, 1-15-99 ...................................................... 20,600 20,555,538
Textile Mill Products - 0.25%
Sara Lee Corporation,
5.4788%, Master Note ................................................ 4,152 4,152,000
Wholesale Trade -- Nondurable Goods - 0.36%
McKesson Corp.,
6.05%, 1-5-99 ....................................................... 6,000 5,995,967
TOTAL SHORT-TERM SECURITIES - 7.37% $ 123,346,859
(Cost: $123,346,859)
TOTAL INVESTMENT SECURITIES - 99.78% $1,670,777,012
(Cost: $873,714,296)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.22% 3,706,285
NET ASSETS - 100.00% $1,674,483,297
</TABLE>
See Notes to Schedules of Investments on page .
64
<PAGE>
UNITED FUNDS, INC.
DECEMBER 31, 1998
Notes to Schedules of Investments
*No dividends were paid during the preceding 12 months.
(A) Security was purchased pursuant to Rule 144a under the Securities Act
of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At December 31, 1998, the
value of these securities amounted to $11,036,490 or 1.98% of net
assets for United Bond Fund.
(B) 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.
65
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998 United
(In Thousands, Except United United United Science and
for Per Share Amounts) Bond Income Accumulative Technology
Fund Fund Fund Fund
Assets -------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Investment securities --
at value (Notes 1 and 3) $551,930 $7,837,413 $1,873,782 $1,670,777
Cash ......................... 3 --- --- ---
Receivables:
Investment securities sold --- --- --- 10,068
Dividends and interest........ 7,972 26,976 6,446 467
Fund shares sold ............. 593 8,560 1,103 2,152
Prepaid insurance premium....... 16 62 35 14
-------- ---------- ---------- ----------
Total assets ............... 560,514 7,873,011 1,881,366 1,683,478
Liabilities -------- ---------- ---------- ----------
Payable for investment
securities purchased.......... --- 9,210 --- 1,596
Payable to Fund
shareholders ................. 3,109 92,752 12,620 6,689
Accrued service fee (Note 2).... 101 1,277 319 257
Accrued distribution fee
(Note 2) ...................... 29 399 101 75
Accrued transfer agency
and dividend disbursing
(Note 2) ..................... 77 841 187 281
Accrued management
fee (Note 2) ................. 6 115 28 27
Due to custodian ............... --- 887 1 7
Accrued accounting
services fee (Note 2)......... 6 8 8 8
Other ......................... 38 221 65 55
-------- ---------- ---------- ----------
Total liabilities........... 3,366 105,710 13,329 8,995
-------- ---------- ---------- ----------
Total net assets ......... $557,148 $7,767,301 $1,868,037 $1,674,483
Net Assets ======== ========== ========== ==========
$1.00 par value capital stock
Capital stock ................ $ 87,203 $1,033,327 $ 225,603 $ 168,997
Additional paid-in
capital..................... 464,761 3,772,498 1,381,797 663,648
Accumulated undistributed
income (loss):
Accumulated undistributed
net investment income....... 203 9,932 2,219 ---
Accumulated undistributed net
realized gain (loss) on
investment
transactions................ (18,491) 28,354 65,119 44,769
Net unrealized appreciation
of investments ............. 23,472 2,923,190 193,299 797,069
-------- ---------- ---------- ----------
Net assets applicable to
outstanding units
of capital ............... $557,148 $7,767,301 $1,868,037 $1,674,483
======== ========== ========== ==========
Capital shares
outstanding
Class A ........................ 86,215 980,284 225,154 168,405
Class Y ........................ 988 53,043 449 592
Capital shares authorized ........ 600,000 2,000,000 600,000 400,000
Net asset value per share
(net assets divided by
shares outstanding)
Class A ........................ $6.39 $7.52 $8.28 $9.91
Class Y ........................ $6.39 $7.52 $8.28 $9.98
</TABLE>
See notes to financial statements.
66
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended DECEMBER 31, 1998
<TABLE>
<CAPTION>
(In Thousands) 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 ................ $ --- $ 68,033 $ 19,049 $ 3,569
Interest and
amortization ........... 36,240 78,631 15,895 5,102
------- ---------- -------- --------
Total income ........... 36,240 146,664 34,944 8,671
------- ---------- -------- --------
Expenses (Note 2):
Investment
management fee.......... 2,285 39,808 9,491 7,558
Transfer agency and
dividend disbursing
-- Class A ............ 807 7,410 1,644 2,411
Service fees -- Class A 1,167 14,668 3,667 2,897
Custodian fees ........... 16 484 140 80
Accounting services fee 62 100 100 100
Audit fees ............... 15 31 18 18
Shareholder servicing
fee -- Class Y.......... 9 565 6 7
Legal fees ............... 4 56 13 10
Distribution
fees -- Class A ........ 50 650 161 139
Other .................... 80 664 185 188
------- ---------- -------- --------
Total expenses ......... 4,495 64,436 15,425 13,408
------- ---------- -------- --------
Net investment
income (loss) ....... 31,745 82,228 19,519 (4,737)
------- ---------- -------- --------
Realized and Unrealized
Gain (Loss) on Investments
(Notes 1 and 3)
Realized net gain
on securities ............ 4,756 1,363,308 259,949 139,112
Realized net gain (loss)
on foreign currency
transactions ............. --- (301) (58) 113
------- ---------- -------- --------
Realized net gain
on investments ......... 4,756 1,363,007 259,891 139,225
Unrealized appreciation
in value of investments
during the period......... 1,500 102,526 75,732 492,528
------- ---------- -------- --------
Net gain on
investments .......... 6,256 1,465,533 335,623 631,753
------- ---------- -------- --------
Net increase
in net assets
resulting from
operations........... $38,001 $1,547,761 $355,142 $627,016
======= ========== ======== ========
</TABLE>
See notes to financial statements.
67
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended December 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
Increase in Net Assets
Operations:
Net investment
income (loss) .......... $ 31,745 $ 82,228 $ 19,519 $ (4,737)
Realized net gain
on investments ......... 4,756 1,363,007 259,891 139,225
Unrealized
appreciation ........... 1,500 102,526 75,732 492,528
-------- ---------- ---------- ----------
Net increase in net
assets resulting
from operations....... 38,001 1,547,761 355,142 627,016
-------- ---------- ---------- ----------
Distributions to shareholders
from (Note 1E):*
Net investment income:
Class A ................ (31,553) (69,402) (20,979) ---
Class Y ................ (359) (4,557) (50) ---
Realized net gains on
investment transactions:
Class A ................ --- (1,392,072) (214,379) (108,718)
Class Y ................ --- (76,922) (421) (380)
-------- ---------- ---------- ----------
(31,912) (1,542,953) (235,829) (109,098)
-------- ---------- ---------- ----------
Capital share
transactions (Note 5)..... 22,363 1,267,504 149,682 89,771
-------- ---------- ---------- ----------
Total increase ........... 28,452 1,272,312 268,995 607,689
Net Assets
Beginning of period ........ 528,696 6,494,989 1,599,042 1,066,794
-------- ---------- ---------- ----------
End of period............... $557,148 $7,767,301 $1,868,037 $1,674,483
======== ========== ========== ==========
Undistributed
net investment
income ................. $203 $9,932 $2,219 $---
==== ====== ====== =======
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
68
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended December 31, 1997
<TABLE>
<CAPTION>
(In Thousands) 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 $ 44,421 $ 17,081 $ (1,789)
Realized net gain
on investments ......... 2,969 621,547 312,063 193,673
Unrealized
appreciation
(depreciation) ......... 11,848 724,669 45,070 (115,958)
-------- ---------- ---------- ----------
Net increase in net
assets resulting
from operations....... 47,662 1,390,637 374,214 75,926
-------- ---------- ---------- ----------
Distributions to shareholders
from (Note 1E):*
Net investment income:
Class A ................ (32,939) (43,071) (14,625) ---
Class Y ................ (339) (2,161) (34) ---
Realized net gains on
investment transactions:
Class A ................ --- (534,501) (344,992) (194,628)
Class Y ................ --- (25,551) (761) (789)
-------- ---------- ---------- ----------
(33,278) (605,284) (360,412) (195,417)
-------- ---------- ---------- ----------
Capital share
transactions (Note 5)..... (16,341) 707,873 297,373 202,648
-------- ---------- ---------- ----------
Total increase (decrease) (1,957) 1,493,226 311,175 83,157
Net Assets
Beginning of period ........ 530,653 5,001,763 1,287,867 983,637
-------- ---------- ---------- ----------
End of period............... $528,696 $6,494,989 $1,599,042 $1,066,794
======== ========== ========== ==========
Undistributed
net investment
income ................. $370 $1,964 $3,787 $---
==== ====== ====== ====
</TABLE>
*See "Financial Highlights" on pages - .
See notes to financial statements.
69
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended December 31,
--------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period........... $6.32 $6.14 $6.34 $5.62 $6.39
---- ---- ---- ---- ----
Income from investment
operations:
Net investment income......... 0.38 0.39 0.39 0.40 0.39
Net realized and
unrealized gain
(loss) on
investments ................ 0.07 0.19 (0.20) 0.72 (0.75)
---- ---- ---- ---- ----
Total from investment
operations ................... 0.45 0.58 0.19 1.12 (0.36)
---- ---- ---- ---- ----
Less distributions:
From net investment
income ..................... (0.38) (0.40) (0.39) (0.40) (0.39)
From capital gains ........... (0.00) (0.00) (0.00) (0.00) (0.02)
---- ---- ---- ---- ----
Total distributions ............ (0.38) (0.40) (0.39) (0.40) (0.41)
---- ---- ---- ---- ----
Net asset value,
end of period ................ $6.39 $6.32 $6.14 $6.34 $5.62
===== ===== ===== ===== =====
Total return* .................. 7.27% 9.77% 3.20% 20.50% -5.76%
Net assets, end of
period (in
millions) .................... $551 $524 $519 $563 $518
Ratio of expenses to
average net assets.... ....... 0.84% 0.77% 0.77% 0.74% 0.72%
Ratio of net investment
income to average
net assets ................... 5.88% 6.34% 6.34% 6.54% 6.60%
Portfolio turnover
rate ......................... 33.87% 35.08% 55.74% 66.38% 127.11%
</TABLE>
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
See notes to financial statements.
70
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year For the
ended December 31, period from
-------------------- 6/19/95* to
1998 1997 1996 12/31/95
----- ----- ----- ----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.......... $6.32 $6.14 $6.34 $6.11
----- ----- ----- -----
Income from investment
operations:
Net investment income 0.39 0.42 0.40 0.21
Net realized and
unrealized gain (loss)
on investments ............ 0.07 0.17 (0.20) 0.22
----- ----- ----- -----
Total from investment
operations .................. 0.46 0.59 0.20 0.43
----- ----- ----- -----
Less distributions:
From net investment
income..................... (0.39) (0.41) (0.40) (0.20)
From capital gains .......... (0.00) (0.00) (0.00) (0.00)
----- ----- ----- -----
Total distributions ........... (0.39) (0.41) (0.40) (0.20)
----- ----- ----- -----
Net asset value,
end of period ............... $6.39 $6.32 $6.14 $6.34
===== ===== ===== =====
Total return .................. 7.54% 9.91% 3.35% 7.20%
Net assets, end of
period (in
millions) ................... $6 $5 $12 $3
Ratio of expenses to
average net assets........... 0.61% 0.64% 0.62% 0.63%**
Ratio of net investment
income to average
net assets .................. 6.10% 6.48% 6.52% 6.41%**
Portfolio turnover
rate ........................ 33.87% 35.08% 55.74% 66.38%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
71
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the fiscal year ended December 31,
--------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.......... $7.59 $6.58 $5.79 $4.67 $4.95
---- ----- ----- ----- -----
Income from investment
operations:
Net investment income........ 0.20 0.06 0.07 0.07 0.08
Net realized and
unrealized gain
(loss) on
investments ............... 1.66 1.73 1.10 1.30 (0.16)
----- ----- ----- ----- -----
Total from investment
operations .................. 1.86 1.79 1.17 1.37 (0.08)
----- ----- ----- ----- -----
Less distributions:
From net investment
income .................... (0.19) (0.06) (0.06) (0.07) (0.07)
From capital gains .......... (1.74) (0.72) (0.32) (0.18) (0.13)
----- ----- ----- ----- -----
Total distributions ........... (1.93) (0.78) (0.38) (0.25) (0.20)
----- ----- ----- ----- -----
Net asset value,
end of period ............... $7.52 $7.59 $6.58 $5.79 $4.67
===== ===== ===== ===== =====
Total return** ................ 24.02% 27.34% 20.36% 29.60% -1.82%
Net assets, end of
period (in
millions) ................... $7,368 $6,196 $4,851 $3,976 $3,145
Ratio of expenses to
average net assets .......... 0.89% 0.84% 0.86% 0.83% 0.74%
Ratio of net investment
income to average
net assets .................. 1.11% 0.74% 1.03% 1.31% 1.45%
Portfolio turnover
rate ........................ 49.29% 33.59% 22.24% 17.59% 18.54%
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
400% stock dividend effected June 26, 1998.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
See notes to financial statements.
72
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the fiscal year For the
ended December 31, period from
-------------------- 6/19/95** to
1998 1997 1996 12/31/95
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ......... $7.59 $6.58 $5.79 $5.55
----- ----- ----- -----
Income from investment
operations:
Net investment income........ 0.24 0.07 0.07 0.04
Net realized and
unrealized gain
on investments ............ 1.66 1.73 1.11 0.42
----- ----- ----- -----
Total from investment
operations .................. 1.90 1.80 1.18 0.46
----- ----- ----- -----
Less distributions:
From net investment
income..................... (0.23) (0.07) (0.07) (0.04)
From capital gains .......... (1.74) (0.72) (0.32) (0.18)
----- ----- ----- -----
Total distributions ........... (1.97) (0.79) (0.39) (0.22)
----- ----- ----- -----
Net asset value,
end of period ............... $7.52 $7.59 $6.58 $5.79
===== ===== ===== =====
Total return .................. 24.27% 27.49% 20.53% 8.45%
Net assets, end of
period (in
millions) ................... $399 $299 $151 $107
Ratio of expenses to
average net assets........... 0.71% 0.72% 0.73% 0.74%***
Ratio of net investment
income to average
net assets .................. 1.29% 0.85% 1.17% 1.36%***
Portfolio turnover
rate ........................ 49.29% 33.59% 22.24% 17.59%***
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
400% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
73
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended December 31,
--------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ......... $7.77 $7.75 $7.78 $6.58 $7.19
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income..................... 0.10 0.10 0.11 0.11 0.13
Net realized and
unrealized gain
(loss) on
investments ............... 1.60 2.14 0.82 2.12 (0.13)
----- ----- ----- ----- -----
Total from investment
operations .................. 1.70 2.24 0.93 2.23 0.00
----- ----- ----- ----- -----
Less distributions:
From net investment
income .................... (0.11) (0.09) (0.11) (0.11) (0.13)
From capital gains .......... (1.08) (2.13) (0.85) (0.92) (0.48)
----- ----- ----- ----- -----
Total distributions ........... (1.19) (2.22) (0.96) (1.03) (0.61)
----- ----- ----- ----- -----
Net asset value,
end of period ............... $8.28 $7.77 $7.75 $7.78 $6.58
===== ===== ===== ===== =====
Total return* ................. 22.62% 29.58% 12.18% 34.21% 0.04%
Net assets, end of
period (in
millions) ................... $1,864 $1,595 $1,285 $1,206 $967
Ratio of expenses to
average net assets .......... 0.88% 0.82% 0.83% 0.80% 0.71%
Ratio of net investment
income to average
net assets .................. 1.12% 1.16% 1.34% 1.42% 1.76%
Portfolio turnover
rate ........................ 373.78% 313.99% 240.37% 229.03% 205.40%
</TABLE>
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
See notes to financial statements.
74
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal
year ended For the
December 31, period from
-------------- 7/11/95* to
1998 1997 1996 12/31/95
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period........... $7.77 $7.75 $7.78 $7.84
----- ----- ----- -----
Income from investment
operations:
Net investment income......... 0.12 0.11 0.12 0.05
Net realized and
unrealized gain
on investments ............. 1.59 2.14 0.82 0.87
----- ----- ----- -----
Total from investment
operations ................... 1.71 2.25 0.94 0.92
----- ----- ----- -----
Less distributions:
From net investment
income...................... (0.12) (0.10) (0.12) (0.06)
From capital gains ........... (1.08) (2.13) (0.85) (0.92)
----- ----- ----- -----
Total distributions ............ (1.20) (2.23) (0.97) (0.98)
----- ----- ----- -----
Net asset value,
end of period ................ $8.28 $7.77 $7.75 $7.78
===== ===== ===== =====
Total return ................... 22.79% 29.67% 12.27% 11.92%
Net assets, end of
period (in
millions) .................... $4 $4 $3 $1
Ratio of expenses to
average net assets............ 0.75% 0.75% 0.74% 0.76%**
Ratio of net investment
income to average
net assets ................... 1.21% 1.22% 1.45% 1.24%**
Portfolio turnover
rate ......................... 373.78% 313.99% 240.37% 229.03%**
</TABLE>
*Commencement of operations.
**Annualized.
See notes to financial statements.
75
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the fiscal year ended December 31,
--------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.......... $6.71 $7.78 $7.63 $5.07 $4.94
----- ----- ----- ----- -----
Income from investment
operations:
Net investment loss ......... (0.03) (0.01) (0.02) (0.00) 0.00
Net realized and
unrealized gain on
investments ............... 3.93 0.46 0.66 2.80 0.47
----- ----- ----- ----- -----
Total from investment
operations .................. 3.90 0.45 0.64 2.80 0.47
----- ----- ----- ----- -----
Less distributions:
From net investment
income .................... (0.00) (0.00) (0.00) (0.00) (0.00)
From capital gains .......... (0.70) (1.52) (0.49) (0.24) (0.34)
----- ----- ----- ----- -----
Total distributions ........... (0.70) (1.52) (0.49) (0.24) (0.34)
----- ----- ----- ----- -----
Net asset value,
end of period ............... $9.91 $6.71 $7.78 $7.63 $5.07
===== ===== ===== ===== =====
Total return** ................ 59.31% 7.22% 8.35% 55.37% 9.78%
Net assets, end of
period (in
millions) ................... $1,668 $1,063 $981 $821 $497
Ratio of expenses to
average net assets........... 1.05% 1.02% 0.98% 0.93% 0.96%
Ratio of net investment
loss to average
net assets .................. -0.37% -0.18% -0.33% -0.07% 0.00%
Portfolio turnover
rate ........................ 55.70% 87.68% 33.90% 32.89% 64.39%
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
200% stock dividend effected June 26, 1998.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
See notes to financial statements.
76
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
<TABLE>
<CAPTION>
For the
fiscal year
year ended For the
December 31, period from
------------- 2/27/96** to
1998 1997 12/31/96
----- ----- ------------
<S> <C> <C> <C>
Net asset value,
beginning of period ......... $6.74 $7.79 $8.02
----- ----- -----
Income from investment
operations:
Net investment
loss ...................... (0.01) (0.00) (0.01)
Net realized and
unrealized gain
on investments ............ 3.95 0.47 0.27
----- ----- -----
Total from investment
operations .................. 3.94 0.47 0.26
----- ----- -----
Less distributions:
From net investment
income .................... (0.00) (0.00) (0.00)
From capital gains .......... (0.70) (1.52) (0.49)
----- ----- -----
Total distributions ........... (0.70) (1.52) (0.49)
----- ----- -----
Net asset value,
end of period ............... $9.98 $6.74 $7.79
===== ===== =====
Total return .................. 59.71% 7.43% 3.25%
Net assets, end of
period (in
millions) ................... $6 $4 $3
Ratio of expenses to
average net assets........... 0.79% 0.85% 0.80%***
Ratio of net investment
loss to average
net assets .................. -0.12% -0.01% -0.12%***
Portfolio turnover
rate ........................ 55.70% 87.68% 33.90%***
</TABLE>
*Per-share and share amounts have been adjusted retroactively to reflect the
200% stock dividend effected June 26, 1998.
**Commencement of operations.
***Annualized.
See notes to financial statements.
77
<PAGE>
UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
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 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. 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
78
<PAGE>
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 business day
following 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 carryovers. At December 31,
1998, United Science and Technology Fund reclassified $4,624,009
between additional paid-in-capital, accumulated undistributed net
realized gain 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.
<TABLE>
<CAPTION>
Increase Increase
(Decrease) (Decrease)
Accumulated Accumulated
Undistributed Undistributed
Net Investment Net Realized
Income Gain
------ ------
<S> <C> <C>
United Income Fund $(300,519) $300,519
United Accumulative Fund (58,028) 58,028
United Science and Technology Fund 112,640 (112,640)
</TABLE>
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 $21.0 billion of
combined net assets at December 31, 1998) 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.
79
<PAGE>
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
<TABLE>
<CAPTION>
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------- ------------------
<S> <C>
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
</TABLE>
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 $33,372,169, out of which W&R paid sales commissions of
$19,385,192 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 $372,189, which are included in
other expenses.
W&R is a subsidiary of Waddell & Reed Financial, Inc., a holding company,
and a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
80
<PAGE>
NOTE 3 -- Investment Securities Transactions
Investment securities transactions for the period ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Purchases of investment
securities, excluding
short-term and U.S.
Government securities $111,813,798 $ 2,027,470,290 $5,663,150,713 $659,898,308
Purchases of U.S. Government
securities 92,333,863 1,093,907,031 196,340,625 ---
Purchases of short-term
securities 561,391,715 15,634,742,929 4,468,673,592 1,958,075,482
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 135,016,902 3,371,976,186 5,744,483,524 729,609,800
Proceeds from maturities and
sales of U.S. Government
securities 41,247,329 --- --- ---
Proceeds from maturities and sales
of short-term securities 568,252,086 15,559,056,251 4,674,703,528 1,927,543,817
</TABLE>
For Federal income tax purposes, cost of investments owned at December 31,
1998 and the related appreciation were as follows:
<TABLE>
<CAPTION>
Aggregate
Cost Appreciation Depreciation Appreciation
-------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
United Bond Fund $ 528,458,070 $ 24,668,693 $ (1,196,790) $ 23,471,903
United Income Fund 4,914,230,647 3,004,918,498 (81,736,450) 2,923,182,048
United Accumulative
Fund 1,681,126,770 207,356,879 (14,692,573) 192,664,306
United Science and
Technology Fund 873,714,811 822,026,657 (24,964,456) 797,062,201
</TABLE>
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
$1,363,307,370, $260,569,759 and $139,112,131, respectively, during the year
ended December 31, 1998, a portion of which was paid to shareholders during the
period ended December 31, 1998. 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 $4,755,689 during the year ended
December 31, 1998, which was entirely offset by utilization of capital loss
carryovers. Remaining prior year capital loss carryovers of United Bond Fund
aggregated $18,474,016 as of December 31, 1998, and are available to offset
future capital gain net income
81
<PAGE>
as follows: $18,393,113 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 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, 1998
are summarized below. Dollar amounts are in thousands.
82
<PAGE>
<TABLE>
<CAPTION>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund* Fund Fund*
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares issued from sale
of shares:
Class A ................. 31,835,303 100,626,223 15,967,129 77,529,963
Class Y ................. 216,958 10,384,489 103,049 130,439
Shares issued from
reinvestment of dividends
and/or capital gains distribution:
Class A ................. 4,341,736 185,178,374 27,472,978 11,704,260
Class Y ................. 56,607 11,152,791 59,740 42,644
Shares redeemed:
Class A ................. (32,844,203) (121,882,974) (23,654,895) (79,203,331)
Class Y ................. (95,711) (7,947,287) (175,077) (223,072)
----------- ----------- ---------- ----------
Increase (decrease) in
outstanding capital
shares:
Class A ................. 3,332,836 163,921,623 19,785,212 10,030,892
Class Y ................. 177,854 13,589,993 (12,288) (49,989)
----------- ----------- ---------- ----------
Total for Fund ........ 3,510,690 177,511,616 19,772,924 9,980,903
=========== =========== ========== ==========
Value issued from sale
of shares:
Class A ................. $202,677 $ 849,389 $136,894 $618,721
Class Y ................. 1,379 85,082 876 1,031
Value issued from
reinvestment of dividends:
Class A ................. 27,530 1,351,806 216,773 103,357
Class Y ................. 359 81,473 472 379
Value redeemed:
Class A ................. (208,970) (1,035,016) (203,897) (631,968)
Class Y ................. (612) (65,230) (1,436) (1,749)
----------- ----------- -------- --------
Increase (decrease) in
outstanding capital:
Class A ................. 21,237 1,166,179 149,770 90,110
Class Y ................. 1,126 101,325 (88) (339)
----------- ----------- -------- --------
Total for Fund ........ $ 22,363 $1,267,504 $149,682 $ 89,771
======== =========== ======== ========
</TABLE>
*Share transactions prior to June 27, 1998 have been adjusted to effect the
stock dividend of June 26, 1998.
Transactions in capital stock for the fiscal year ended December 31, 1997
are summarized below. Dollar amounts are in thousands.
<TABLE>
<CAPTION>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares issued from sale
of shares:
Class A ................. 6,890,848 113,047,110 8,676,214 97,386,177
Class Y ................. 195,545 16,641,495 51,857 213,843
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class A ................. 4,598,290 72,625,180 44,000,209 29,785,929
Class Y ................. 48,642 3,707,595 104,354 125,574
Shares redeemed:
Class A ................. (13,058,549) (106,336,825) (13,115,628) (94,796,529)
Class Y ................. (1,350,485) (3,892,205) (35,296) (93,594)
---------- ---------- ---------- ----------
Increase (decrease) in
outstanding capital
shares:
Class A ................. (1,569,411) 79,335,465 39,560,795 32,375,577
Class Y ................. (1,106,298) 16,456,885 120,915 245,823
---------- ---------- ---------- ----------
Total for Fund ........ (2,675,709) 95,792,350 39,681,710 32,621,400
========== ========== ========== ==========
Value issued from sale
of shares:
Class A ................. $42,624 $862,082 $ 77,296 $749,063
Class Y ................. 1,204 120,864 450 1,701
Value issued from
reinvestment of
dividends and/or capital
gains distribution:
Class A ................. 28,302 542,416 335,423 186,554
Class Y ................. 299 27,712 796 790
Value redeemed:
Class A ................. (80,507) (814,233) (116,279) (734,712)
Class Y ................. (8,263) (30,968) (313) (748)
-------- -------- -------- --------
Increase (decrease) in
outstanding capital:
Class A ................. (9,581) 590,265 296,440 200,905
Class Y ................. (6,760) 117,608 933 1,743
-------- -------- -------- --------
Total for Fund ........ $(16,341) $707,873 $297,373 $202,648
======== ======== ======== ========
</TABLE>
*Share transactions have been adjusted to effect the stock dividend of June 26,
1998.
Note 6 -- Stock Dividend
The Corporation's Board of Directors approved on February 11, 1998 a stock
dividend of 400% on United Income Fund and 200% on United Science and Technology
Fund effected on June 26, 1998. Authorized shares of United Income Fund were
accordingly increased by 1,400,000,000 and United Bond Fund and United
Accumulative Fund each reallocated 100,000,000 shares to United Science and
Technology Fund.
84
<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 schedules of investments, of United Bond Fund, United Income Fund, United
Accumulative Fund, and United Science and Technology Fund (collectively the
"Funds") comprising United Funds, Inc. as of December 31, 1998, and the related
statements of operations for the fiscal year then ended, the statements of
changes in net assets for each of the two fiscal years in the period then ended,
and the financial highlights for each of the five fiscal years in the 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 as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of each
of the respective Funds comprising United Funds, Inc. as of December 31, 1998,
the results of their operations for the fiscal year then ended, the changes in
their net assets for each of the two fiscal years in the period then ended and
the financial highlights for each of the five fiscal years in the period then
ended, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
February 5, 19
85
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits: United Funds, Inc.
(a) Articles of Incorporation, as amended, filed by EDGAR on 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 by EDGAR on April 18,
1995 as EX-99.B1-ufartsup to the Post-Effective Amendment No.
117 to the Registration Statement on Form N-1A*
Articles Supplementary attached hereto as EX-99.B(a)ufartsup
(b) Bylaws, as amended, filed by EDGAR on March 26, 1997 as
EX-99.B2-ufbylaw to Post-Effective Amendment No. 119 to the
Registration Statement on Form N-1A*
Amendment to Bylaws filed by EDGAR on April 1, 1999 as
EX-99.B2-ufamend to Post-Effective Amendment No. 123 to the
Registration Statement on Form N-1A*
(c) Not applicable
(d) Investment Management Agreement filed by EDGAR on 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 by
EDGAR on March 28, 1996 as EX-99.B5-ufassign to the
Post-Effective Amendment No. 118 to the Registration Statement
on Form N-1A*
Fee Schedule (Exhibit A) to the Investment Management Agreement,
as amended, attached hereto as EX-99.B(d)ufimafee
(e) Underwriting Agreement, dated February 8, 1995, filed by EDGAR
on April 18, 1995 as EX-99.B6-ufua to the Post-Effective
Amendment No. 117 to the Registration Statement on Form N-1A*
(f) Not applicable
(g) Custodian Agreement, as amended, filed by EDGAR on January 29,
1999 as EX-99.B8-ufca to Post-Effective Amendment No. 122 to the
Registration Statement on Form N-1A*
(h) Shareholder Servicing Agreement, filed by EDGAR on January 29,
1999 as EX-99.B9-ufssa to Post-Effective Amendment No. 122 to
the Registration Statement on Form N-1A*
Fund Class A application, as amended, filed by EDGAR on May 30,
1997 as EX-99.B9-ufappca to Post-Effective Amendment No. 120 to
the Registration Statement on Form N-1A*
<PAGE>
Fund Class Y application filed by EDGAR on 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 by EDGAR on 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 by EDGAR on 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 by EDGAR on 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 by EDGAR on 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 by EDGAR on March 28, 1996
as EX-99.B9-uflou to the Post-Effective Amendment No. 118 to the
Registration Statement on Form N-1A*
Compensation Table (Exhibit B) to the Shareholder Servicing
Agreement, as amended, attached hereto as EX-99.B(h)ufssacom
Fidelity Bond Coverage (Exhibit C) to the Shareholder Servicing
Agreement, as amended, attached hereto as EX-99.B(h)ufssafid
Fund Class A, B and C application (Non-Retirement Plan), as
amended, attached hereto as EX-99.B(h)ufappnon
Fund Class A, B and C application (Retirement Plan), as amended,
attached hereto as EX-99.B(h)ufappabc
(i) Opinion and Consent of Counsel attached hereto as
EX-99.B(i)uflegopn
(j) Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B(j)-ufconsnt
(k) Not applicable
(l) Not applicable
(m) Distribution and Service Plan, as amended, filed by EDGAR on
January 29, 1999 as EX-99.B15-ufd&spca to Post-Effective
Amendment No. 122 to the Registration Statement on Form N-1A*
Distribution and Service Plan for Class B shares attached hereto
as EX-99.B(m)ufdspb
Distribution and Service Plan for Class C shares attached hereto
as EX-99.B(m)ufdspc
(n) Not applicable
<PAGE>
(o) Multiple Class Plan, as amended, attached hereto as
EX-99.B(o)-ufmcp
24. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
25. 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.
26. 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 and to other investment advisory clients.
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. The address
of the officers is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
27. 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.
<PAGE>
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 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.
28. 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. Kristen A. Richards, as officers of the Registrant, each
of whose business address is Post Office Box 29217, Shawnee Mission,
Kansas 66201-9217.
29. 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 Items 23(h)
and Item 23(m) hereof.
30. Undertaking
-----------
Not applicable
- ---------------------------------
*Incorporated herein by reference
<PAGE>
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., UNITED
SMALL CAP FUND, INC., TARGET/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 KRISTEN A. RICHARDS, 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: August 18, 1999 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Keith A. Tucker Chairman of the Board August 18, 1999
- ------------------- -----------------
Keith A. Tucker
/s/Robert L. Hechler President, Principal August 18, 1999
- -------------------- Financial Officer and ----------------
Robert L. Hechler Director
/s/Henry J. Herrmann Vice President and August 18, 1999
- -------------------- Director ----------------
Henry J. Herrmann
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Theodore W. Howard Vice President, Treasurer August 18, 1999
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon Director August 18, 1999
- -------------------- ----------------
James M. Concannon
/s/John A. Dillingham Director August 18, 1999
- -------------------- ----------------
John A. Dillingham
/s/David P. Gardner Director August 18, 1999
- ------------------- ----------------
David P. Gardner
/s/Linda K. Graves Director August 18, 1999
- -------------------- ----------------
Linda K. Graves
/s/Joseph Harroz, Jr. Director August 18, 1999
- -------------------- ----------------
Joseph Harroz, Jr.
/s/John F. Hayes Director August 18, 1999
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director August 18, 1999
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director August 18, 1999
- -------------------- ----------------
William T. Morgan
/s/Ronald C. Reimer Director August 18, 1999
- -------------------- ----------------
Ronald C. Reimer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Frank J. Ross Director August 18, 1999
- -------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz Director August 18, 1999
- -------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III Director August 18, 1999
- -------------------- ----------------
Frederick Vogel III
</TABLE>
Attest:
/s/Kristen A. Richards
- ----------------------
Kristen A. Richards
Assistant Secretary
<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 16th day of September, 1999.
UNITED FUNDS, INC.
(Registrant)
By /s/ Robert L. Hechler*
------------------------
Robert L. Hechler, 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.
<TABLE>
<CAPTION>
Signatures Title
---------- -----
<S> <C> <C>
/s/Keith A. Tucker* Chairman of the Board September 16, 1999
- ---------------------- ------------------
Keith A. Tucker
/s/Robert L. Hechler* President, Principal September 16, 1999
- ---------------------- Financial Officer and ------------------
Robert L. Hechler Director
/s/Henry J. Herrmann* Vice President and September 16, 1999
- ---------------------- Director ------------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer September 16, 1999
- ---------------------- and Principal Accounting ------------------
Theodore W. Howard Officer
/s/James M. Concannon* Director September 16, 1999
- ------------------ ------------------
James M. Concannon
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/John A. Dillingham* Director September 16, 1999
- ------------------ ------------------
John A. Dillingham
/s/David P. Gardner* Director September 16, 1999
- ------------------ ------------------
David P. Gardner
/s/Linda K. Graves* Director September 16, 1999
- ------------------ ------------------
Linda K. Graves
/s/Joseph Harroz, Jr.* Director September 16, 1999
- ------------------ ------------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director September 16, 1999
- ------------------- ------------------
John F. Hayes
/s/Glendon E. Johnson* Director September 16, 1999
- ------------------- ------------------
Glendon E. Johnson
/s/William T. Morgan* Director September 16, 1999
- ------------------- ------------------
William T. Morgan
/s/Ronald C. Reimer* Director September 16, 1999
- ------------------ ------------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director September 16, 1999
- ------------------ ------------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director September 16, 1999
- ------------------- ------------------
Eleanor B. Schwartz
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Frederick Vogel III* Director September 16, 1999
- ------------------- ------------------
Frederick Vogel III
</TABLE>
*By
Kristen A. Richards
Attorney-in-Fact
ATTEST:
David R. Burford
Assistant Secretary
EX-99.B(a)ufartsup
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
UNITED FUNDS, INC.
United Funds, Inc. (the "Corporation"), a Maryland corporation, having
its principal office in Baltimore City, Maryland, hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The capital stock of the Corporation is divided into series and
classes and there are no changes in the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption as shares of capital stock as set forth
in the Corporation's Articles of Incorporation and Articles Supplementary
thereto, except as follows:
(1) The capital stock of Class A shares shall be subject to
fees, including a front-end sales load and a Rule 12b-1
fee, as determined by the Board of Directors of the
Corporation from time to time;
(2) The capital stock of Class Y shares shall not be subject
to either a front-end or contingent deferred sales charge
or Rule 12b-1 fees and is subject to a shareholder
servicing fee which differs from that of the Class A
shares;
(3) The capital stock of the Corporation is divided into such
other classes, having such preferences, conversion and
other rights, voting powers, restrictions, limitations as
to dividends, qualifications and terms and conditions of
redemption as shares of capital stock as are determined by
the Corporation's Board of Directors and described in the
Corporation's registration statement under the Securities
Act of 1933 ("1933 Act") or any amendment thereto or any
supplement to a prospectus or statement of additional
information contained therein.
SECOND: Pursuant to the authority vested in the Board of Directors of
the Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors has heretofore duly designated, in
accordance with Maryland General Corporation Law, the aggregate number of shares
of capital stock which the Corporation is authorized to issue at Three Billion
Two Hundred Million (3,200,000,000) shares of capital stock, (par value $1.00
per share), amounting in the aggregate to a par value of Three Billion Two
Hundred Million Dollars ($3,200,000,000.00). Such shares have heretofore been
classified by the Board of Directors among the series of the Corporation as
follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
United Bond Fund, Class A 200,000,000 shares
United Bond Fund, Class Y 100,000,000 shares
United Income Fund, Class A 1,700,000,000 shares
United Income Fund, Class Y 300,000,000 shares
United Accumulative Fund, Class A 400,000,000 shares
United Accumulative Fund, Class Y 100,000,000 shares
United Science and Technology Fund, Class A 300,000,000 shares
United Science and Technology Fund, Class Y 100,000,000 shares
</TABLE>
THIRD: Pursuant to the authority vested in the Board of Directors of
the Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors, in accordance with Maryland General
Corporation Law, now duly redesignates and reclassifies the capital stock of the
Corporation among the series of the Corporation and classes thereof as follows:
<TABLE>
<CAPTION>
<S> <C>
United Bond Fund, Class A 150,000,000 shares
United Bond Fund, Class Y 50,000,000 shares
United Bond Fund, Class B 50,000,000 shares
United Bond Fund, Class C 50,000,000 shares
United Income Fund, Class A 1,500,000,000 shares
United Income Fund, Class Y 300,000,000 shares
United Income Fund, Class B 100,000,000 shares
United Income Fund, Class C 100,000,000 shares
United Accumulative Fund, Class A 350,000,000 shares
United Accumulative Fund, Class Y 50,000,000 shares
United Accumulative Fund, Class B 50,000,000 shares
United Accumulative Fund, Class C 50,000,000 shares
United Science and Technology Fund, Class A 250,000,000 shares
United Science and Technology Fund, Class Y 50,000,000 shares
United Science and Technology Fund, Class B 50,000,000 shares
United Science and Technology Fund, Class C 50,000,000 shares
</TABLE>
The aggregate number of shares of all classes of stock of the
Corporation remains at Three Billion Two Hundred Million (3,200,000,000) shares
of capital stock, the par value remains $1.00 per share, and the aggregate value
of all authorized stock remains Three Billion Two Hundred Million Dollars
($3,200,000,000.00).
FOURTH: The Corporation is registered with the Securities and Exchange
Commission as an open-end investment company under the Investment Company Act of
1940, as amended.
IN WITNESS WHEREOF, the undersigned Vice President of the Corporation
hereby executes these Articles Supplementary on behalf of the Corporation this
31st day of August, 1999.
----------------------------
Helge K. Lee, Vice President
Attest: __________________
Kristen A Richards
Assistant Secretary
The undersigned, Vice President of United Funds, Inc. who executed on
behalf said Corporation the foregoing Articles Supplementary, of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said Corporation, the foregoing Articles Supplementary to be the act of said
Corporation and further certifies that, to the best of his knowledge,
information and belief, the matters and facts set forth therein with respect to
the approval thereof are true in all material respects, under the penalties of
perjury.
UNITED FUNDS, INC.
By:__________________________
Helge K. Lee, Vice President
EX-99.B(d)ufimafee
EXHIBIT A TO INVESTMENT MANAGEMENT AGREEMENT
UNITED FUNDS, INC.
FEE SCHEDULE
A cash fee computed each day on net asset value for each Fund at the annual
rates listed below:
<TABLE>
<CAPTION>
United Accumulative Fund
Net Assets Fee
<S> <C>
Up to $1 billion 0.70% of net assets
Over $1 billion and up to $2 billion 0.65% of net assets
Over $2 billion and up to $3 billion 0.60% of net assets
Over $3 billion 0.55% of net assets
United Bond Fund
Net Assets Fee
Up to $500 million 0.525% of net assets
Over $500 million and up to $1 billion 0.50% of net assets
Over $1 billion and up to $1.5 billion 0.45% of net assets
Over $1.5 billion 0.40% of net assets
United Income Fund
Net Assets Fee
Up to $1 billion 0.70% of net assets
Over $1 billion and up to $2 billion 0.65% of net assets
Over $2 billion and up to $3 billion 0.60% of net assets
Over $3 billion up to $6 billion 0.55% of net assets
Over $6 billion 0.50%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
United Science and Technology Fund
Net Assets Fee
<S> <C>
Up to $1 billion 0.85% of net assets
Over $1 billion and up to $2 billion 0.83% of net assets
Over $2 billion and up to $3 billion 0.80% of net assets
Over $3 billion 0.76% of net assets
</TABLE>
As Amended and Effective June 30, 1999.
EX-99.B(h)ufssacom
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 B 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 C 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.
EX-99.B(h)ufssafid
EXHIBIT C
<TABLE>
<CAPTION>
Bond or
Name of Bond Policy No. Insurer
<S> <C> <C> <C> <C>
Investment Company 87015199B ICI
Blanket Bond Form Mutual
Insurance
Company
Fidelity $ 20,400,000
Audit Expense 50,000
On Premises 20,400,000
In Transit 20,400,000
Forgery or Alteration 20,400,000
Securities 20,400,000
Counterfeit Currency 20,400,000
Uncollectible Items of
Deposit 25,000
Phone-Initiated Transactions 20,400,000
Total Limit 20,400,000
Directors and Officers/ 87015199D ICI
Errors and Omissions Liability Mutual
Insurance Form Insurance
Total Limit $ 10,000,000 Company
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna
Life &
casualty
Blanket Undertaking Lost Instrument
Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
</TABLE>
<TABLE>
<S> <C> <C>
Waddell & Reed, Inc. United Group of Funds Division Office Stamp
P.O. Box 29217 APPLICATION
Shawnee Mission, KS
66201-9217 (NON-RETIREMENT PLAN) Trans Code:________________________
Date Transmitted:__________________
</TABLE>
1 ------------------------------------------------------------------------------
I (We) make application for an account to be established as follows:
REGISTRATION TYPE (check one only)
<TABLE>
<S> <C>
[ ] Single Name [ ] Joint Tenants W/ROS [ ] Declaration of Trust Revocable (Attach CUF 0022)
TOD (Transfer On Death) [ ] Yes [ ] No NOT AVAILABLE IN ILLINOIS
[ ] Uniform Gifts (Transfers) To Minors (UGMA/UTMA) [ ] Other:_______________________________________
[ ] Dated Trust Date of Trust_________________
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
__________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT | |
(must have same ownership): |__________________|
</TABLE>
<TABLE>
<S> <C>
--------------------------------------------------------------------------------------
Individual Name (exactly as desired)/Trustee/Custodian (Tax-responsible party)
------------------------------------------------------- ------------------------------
[ ] Social Security # or [ ] Taxpayer Identification # Date of Birth (Month/Day/Year)
--------------------------------------------------------------------------------------
Joint Name (if any, exactly as desired)/Co-Trustee/Minor (for UGMA/UTMA)
------------------------------------------------------- ------------------------------
[ ] Social Security # or [ ] Taxpayer Identification # Date of Birth (Month/Day/Year)
</TABLE>
-----------------------------------------------------------------------------
Name of Trust
-----------------------------------------------------------------------------
Mailing Address
-----------------------------------------------------------------------------
City/State/Zip
-----------------------------------------------------------------------------
Telephone (home) Telephone (work) Citizenship (Required in VA)
------------------------------------------------------------------------------
INVESTMENTS Make check payable to Waddell & Reed, Inc.
<TABLE>
<CAPTION>
Monthly Div/C.G. Distr*
Fund Amount AIS (Assumes RR)
(enter code) Enclosed (If Any) RR CC CR
<S> <C> <C> <C> <C> <C> <C>
CLASS OF SHARES ____________
(ONLY ONE) | |
|____________| $_______ $_______ [ ] [ ] [ ]
____________
| |
A [ ] B [ ] C [ ] |____________| $_______ $_______ [ ] [ ] [ ]
____________
| |
IF NOT CHECKED, |____________| $_______ $_______ [ ] [ ] [ ]
ASSUME A ____________
| |
|____________| $_______ $_______ [ ] [ ] [ ]
____________
| |
|____________| $_______ $_______ [ ] [ ] [ ]
Total $_______ Total $_______
</TABLE>
* RR = Reinvest Div/Cap Gain CC = Cash Div/Cap Gain CR = Cash Div/Reinvest
Cap Gain All Dividends/Capital Gains under $5.00 will be Reinvested. See
Section 12 if you wish your distribution to go to another Fund or Account.
<TABLE>
<CAPTION>
FUNDS CODES A B C A B C A B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income 621 121 321 High Income 628 128 328 Asset Strategy 684 184 384
Science & Technology 622 122 322 Vanguard 629 129 329 Cash Management 750 150 350
Accumulative 623 123 323 New Concepts 630 130 330 Government Securities 753 153 353
Bond 624 124 324 High Income II 634 134 334 Municipal Bond 760 160 360
International Growth 625 125 325 Small Cap 677 177 377 Municipal High Income 762 162 362
Continental Income 627 127 327 Retirement Shares 680 180 380
</TABLE>
------------------------------------------------------------------------------
CLASS A ONLY
This purchase is entitled to a reduced sales load charge for the following
reason:
<TABLE>
<S> <C>
[ ] Letter of Intent To Invest $_____________ LOI Number____________
[ ] Cumulative discount number____________ or Rights of Accumulation With Existing Accounts____________
[ ] Identify Other New Accounts Established At This Time:________________________
</TABLE>
------------------------------------------------------------------------------
2 ------------------------------------------------------------------------------
LETTER OF INTENT (CLASS A SHARES ONLY) I agree to the terms of the Letter of
Intent conditions set forth in the Statement of Additional Information
(including the escrowing of shares). Although I am not obligated to do so, it
is my intention to invest over a 13-month period in shares of one or more
United funds in an aggregate amount at least equal to:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
[ ] $100,000 [ ] $200,000 [ ] $300,00 [ ] $500,00 [ ] $1,000,000 [ ] $2,000,000 See Section 9
</TABLE>
------------------------------------------------------------------------------
CAP1 Page 1 of 6
<PAGE>
3 ------------------------------------------------------------------------------
BENEFICIARY: For TOD (Transfer On Death) Accounts Only
To designate contingent beneficiaries or per stirpes distribution,
use MRP-0972 or MRP-1588
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
</TABLE>
------------------------------------------------------------------------------
4 ------------------------------------------------------------------------------
EXPEDITED REDEMPTION: For United Cash Management A [ ] B [ ] C [ ]
<TABLE>
<S> <C>
-------------------------------------------------- -------------------------------------------------
Name & Address of Bank/Financial Institution ABA/Routing # of Bank/Financial Institution
-------------------------------------------------- -------------------------------------------------
Street Customer's Bank Account Number
-------------------------------------------------- -------------------------------------------------
City/State/Zip
</TABLE>
On UCM Accounts where expedited redemption is requested, Waddell & Reed, Inc.
is authorized to honor any requests from anyone for redemption of fund shares
as long as the proceeds are transmitted to the identified account. All wires
must be transmitted exactly as registered on the UCM Account.
------------------------------------------------------------------------------
5 ------------------------------------------------------------------------------
CHECK SERVICE (CLASS "A" SHARES ONLY)
(Complete signature card)
[ ] United Government Securities [ ] United Cash Management (UCM)
SIGNATURE CARD FOR UNITED CASH MANAGEMENT/GOVERNMENT SECURITIES CLASS "A"
SHARES ONLY
The payment of funds on the conditions set forth below is authorized by the
persons signing below (the Shareholder).
UMB BANK, N.A. (the Bank) is authorized by the Shareholder to honor any
checks for not less than $250 presented against this account and is directed
to forward said checks to the redemption agent of United Cash Management,
Inc. and United Government Securities, Inc. (the "Mutual Funds") as authority
to pay the checks. Checks will be paid by redeeming a sufficient number of
shares for which share certificates have not been issued in the Shareholder's
account with the Mutual Funds.
Checks will be subject to the Bank's rules and regulations governing such
checks, including the right of the Bank not to honor checks in amounts
exceeding the value of the Shareholder's account with the Mutual Funds at the
time the check is presented for payment.
Shareholder hereby authorizes the Mutual Funds or their redemption agent to
honor redemption requests presented in the above manner by the Bank.
It is further agreed as follows:
1. Shareholder(s) below waive the right to receive the cancelled check(s)
after each check is processed and the underlying shares of the Mutual
Funds have been redeemed.
2. The account may not be used for any purpose other than the presentment,
forwarding and payment of checks relating to an account in the Mutual
Funds.
3. The Bank reserves the right to change, modify or terminate this agreement
at any time upon notification mailed to the address noted on the reverse
side of this card.
BY SIGNING BELOW, THE SIGNATOR(S) SIGNIFIES HIS (THEIR) AGREEMENT TO BE
SUBJECT TO THE RULES AND REGULATIONS OF UMB BANK, N.A. PERTAINING THERETO AND
AS AMENDED FROM TIME TO TIME, AND TO THE CONDITIONS PRINTED ABOVE.
Authorized Signature(s) "A" SHARES ONLY [ ] Check box if more than one
signature required on checks
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
------------------------------------------------------------------------------
Page 2 of 6
<PAGE>
6 ------------------------------------------------------------------------------
Establish NEW Automatic Investment Service
REGISTRATION INFORMATION
------------------------------------------------
Individual Name (exactly as registered)
------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
Fund Draft Is To Begin On
(Enter code) (Month/Day/Year) Draft Amount Special Instructions
<S> <C> <C> <C>
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
___________
| |
|___________| ____________________ $_____________ ______________________________
</TABLE>
Authorization to honor checks drawn by Waddell & Reed, Inc.
As a convenience to me, I hereby request and authorize you to pay and charge
to my or our account identified below, debit entries drawn on the account by
Waddell & Reed, Inc. provided there are sufficient funds in the account to
pay the same on presentation. This authorization shall remain in effect until
revoked by me in writing and until you actually receive such notice. I agree
that you shall be fully protected by honoring any such debit entry. I agree
that your rights in respect to any debit entry shall be the same as if it
were a check signed personally by me. I further agree, that if any such debit
entry be dishonored, whether intentionally or inadvertently, you shall be
under no liability whatsoever.
PLEASE COMPLETE THE FOLLOWING IN ITS ENTIRETY.
<TABLE>
<S> <C>
----------------------------------------------------- -------------------------
NAME OF DEPOSITOR (as shown on bank records(s)) Bank Account Number
----------------------------------------------------- See Section 10
BANK NAME
-----------------------------------------------------
BANK ADDRESS
-----------------------------------------------------
CITY/STATE/ZIP
</TABLE>
------------------------------------------------------------------------------
7 ------------------------------------------------------------------------------
Establish NEW Funds Plus Service
<TABLE>
<S> <C> <C> <C>
___________
REGISTRATION INFORMATION [ ] NEW ACCOUNT W/UCM or [ ] EXISTING ACCOUNT W/UCM |___________|
</TABLE>
-----------------------------------------------------
Individual Name (exactly as registered)
-----------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
FUNDS PLUS Service
Account(s) to RECEIVE Fund If new, Is To Begin On FUNDS PLUS
FUNDS PLUS Investment (Enter code) mark box (Month/Day/Year) Investment Amount
<S> <C> <C> <C> <C>
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
</TABLE>
------------------------------------------------------------------------------
Page 3 of 6
<PAGE>
8 ------------------------------------------------------------------------------
Establish NEW Flexible Withdrawal Service (See Section 11)
<TABLE>
<CAPTION>
Fund Changes To Be
(See Reverse Effective Beginning Amount
for Codes) (Month) (Year) Indicate dollars, shares or percentage Frequency Make Payable
<S> <C> <C> <C> <C>
____________ _________________ ______________
| | | | 20 | | | |
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] monthly [ ] To registered owner(s)
____________ _________________ ______________
| | | | 20 | | | | [ ] quarterly [ ] To Alternate Payee
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] %
____________ _________________ ______________ [ ] semi-annually [ ] To registered owner(s)
| | | | 20 | | | | at alternate address
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] annually
____________ _________________ ______________
| | | | 20 | | | | (If left blank,
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % annual payments
will be assumed)
</TABLE>
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Designate Alternate Payee or Address (for Electronic Deposits of FWS, see
section 10)
Complete this section if the check is TO BE PAYABLE TO AN ALTERNATE PAYEE
(other than as registered) or SENT TO AN ALTERNATE ADDRESS. If sending FWS to
another fund/account please indicate account/fund. Must be same class.
<TABLE>
<CAPTION>
Alternate Payee Alternate Address (check will be payable as registered and sent to the following)
<S> <C>
---------------------------------------------- ----------------------------------------------
Name or institution C/O Name
---------------------------------------------- ----------------------------------------------
Street Street
---------------------------------------------- ----------------------------------------------
City/State/Zip City/State/Zip
---------------------------------------------- ----------------------------------------------
Bank Account Number (if applicable) Bank Account Number (if applicable)
</TABLE>
------------------------------------------------------------------------------
9 ------------------------------------------------------------------------------
LOI TERMS AND CONDITIONS
1. This Agreement does not bind the investor to buy, or Waddell & Reed, Inc.
to sell, any shares.
2. This Agreement can only be terminated before the 13 months has elapsed by
submitting a written request signed by all owners.
3. Any purchase made under this Agreement will be made at the offering price
applicable to a one-time purchase of the amount the investor has checked
on the front of this Agreement as described in the prospectus of the fund
or funds being purchased.
4. If the amount invested during the 13-month period covered by this
Agreement exceeds the required amount and is large enough to qualify for a
sales charge lower than that available under this Agreement, the lower
sales charge will be applied to the amount invested. Upon termination of
this Agreement, a price adjustment will be made to give effect to the
lower sales charge and the amount of the price adjustment will be
reinvested in additional shares of the fund(s) on the date of termination.
5. If the amount invested during the 13-month period covered by this
Agreement is less than the required amount, the sales charge for the
investments reverts back to that outlined in the Fund Prospectus, as if
the Agreement had not been executed. Waddell & Reed, Inc. will subtract
shares equal in value to the amount of the additional sales charge due
from escrowed shares. The investor hereby irrevocably appoints Waddell &
Reed, Inc. or its successors or assigns, as attorney to surrender for
redemption shares in an amount equal to the additional sales charge owed
on the purchases made. This appointment and the authority granted herein
shall be binding on the heirs, legal representatives, successors and
assigns of the investor.
6. While the value of purchases made prior to the acceptance date of this
Agreement will be considered in determining the Intended Investment, the
sales charge imposed on prior purchases will not be retroactively reduced.
7. Shares purchased directly to United Cash Management, Inc. will not be
considered when determining the net asset value of shares presently held
by the investor as of the date of acceptance of this Agreement, nor for
determining the amount invested under this Agreement. However,
non-commissionable shares are considered for there purposes.
------------------------------------------------------------------------------
Page 4 of 6
<PAGE>
10------------------------------------------------------------------------------
BANK ACCOUNT OR CREDIT UNION INFORMATION (optional)
This information will be used for
[ ] Div / Cap gain distributions taken in cash (Sec. 1)
[ ] Systematic investments (Sec. 6)
[ ] Flexible withdrawals (Sec. 8)
<TABLE>
<S> <C> <C>
--------------------------------------- ---------------------------------------
Checking account Bank or credit union's ABA route number Bank or credit union account number
--------------------------------------- ---------------------------------------
Savings account Bank or credit union's ABA route number Bank or credit union account number
</TABLE>
Tape your voided check or deposit slip here
Bank and credit union routing information
For deposits or withdrawals to your checking account, please tape a voided
check so we may get bank or credit union account information.
For deposits or withdrawals to a savings account, please tape a preprinted
deposit slip. (Do not staple the slips.)
------------------------------------------------------------------------------
11------------------------------------------------------------------------------
FLEXIBLE WITHDRAWAL REQUIREMENTS AND CONSIDERATIONS
1. This application directs Waddell & Reed Services Company to redeem the
amounts listed on the 20th day of the indicated month, or if not a
business day, on the preceding business day.
2. Allow five days from the date your instructions are received in the home
office for processing of any changes and/or initiation of a Flexible
Withdrawal Service.
3. The aggregate total investment, or the present net asset value of the
shareholder's United Group of Funds/or W&R Funds combined accounts should
exceed $10,000. You may add to your account by additional investments of
at least $1,000, except in United Cash Management, Inc., which has no
minimum additional investment amount.
4. Minimum withdrawals for dollars or shares are $50 aggregate or a 5 share
minimum per fund.
5. If withdrawals are to be made monthly, 1/12th of the indicated percentage
of the asset value of the shares in the account will be redeemed. If
withdrawals are to be made quarterly, 1/4th of the indicated percentage of
the asset value of the shares in the account will be redeemed. If
withdrawals are to be made semi-annually, 1/2 of the indicated percentage
will be redeemed.
6. Dividends and capital gains distributions are automatically reinvested.
Information about the federal tax status of shares redeemed through the
Flexible Withdrawal Services will be mailed to shareholders annually.
------------------------------------------------------------------------------
12------------------------------------------------------------------------------
ALTERNATE PAYEE/ADDRESS
To send systematic withdrawals (Section 8) or distributions (Section 1) to a
third party, or to another United Fund account, please fill in the
appropriate information below.
This address will be used for (check one):
[ ] Flexible Withdrawals
[ ] Div/Cap Gains
<TABLE>
<S> <C>
------------------------------------------------------------- To another United Fund
Name
------------------------------------------------------------- ---------------------------------
Address (including apartment or box number) Account # Fund #
Must be to same class of shares
-------------------------------------------------------------
City/State/Zip
</TABLE>
------------------------------------------------------------------------------
Page 5 of 6
<PAGE>
13------------------------------------------------------------------------------
CONFIDENTIAL DATA (Required)
1. Marital Status:__________
(Required in VA)
2. Gross Family Income: $__________
3. Taxable Income: $__________
4. Number of Dependents:__________
5. Occupation:______________________________________________________________
6. Employer Name:___________________________________________________________
7. Employer Address:________________________________________________________
8. Savings and Liquid Assets: $__________
9. Other Assets (excluding home, furnishings, cars): $__________
10. Net Worth (Assets minus liabilities): $__________
11. Are you associated with an NASD Member? [ ] Yes [ ] No
12. Investment Objectives (mark all that apply):
[ ] Retirement Savings [ ] Reserves [ ] College Funds [ ] Buy Major Asset
[ ] Other Needs/Goals (specify in Special Remarks)
13. Special Remarks/Considerations:__________________________________________
_____________________________________________________________________________
14. Residence Address:_______________________________________________________
(if different from Street City State Zip
Mailing Address
on reverse side)
<TABLE>
<S> <C> <C>
(Required in CT)
15. Was this investment solicited by a W&R Advisor/Representative? [ ] Yes [ ] No
(Required in CT)
16. Has any beneficial owner of this account conducted any prior investment activity? [ ] Yes [ ] No
If yes, which owner(s)?_________________________________________________________________________
17. Are proceeds from the sale of another security being used to open this account? [ ] Yes [ ] No
If yes, specify:________________________________________________________________________________
________________________________________________________________________________
</TABLE>
------------------------------------------------------------------------------
14------------------------------------------------------------------------------
ACKNOWLEDGEMENT
o I (We) have received a copy of the current prospectus of the Funds
selected, and agree to the terms therein and herein.
o Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown in Section 1 is correct (or I
am waiting for a number to be issued to me) and (strike the following if
not true) that I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the IRS
that I am subject to backup withholding as a result of a failure to report
all interest and dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
o I (we) understand that there maybe a deferred sales charge upon the
redemption of any Class B or C shares held in the account for less than
the time specified in the prospectus.
Signature(s) of Purchasers (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid backup
withholding."
<TABLE>
<S> <C> <C>
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- --------------------
(Advisor/Representative Signature) (Date)
</TABLE>
_____________________________
| |
Advisor/Representative Number |_____________________________|
------------------------------------------------------------------------------
-----------------------------------------------|
Check Any Items Enclosed With Application |
|
[ ] Declaration Trust Revocable (CUF0022) |
|---------------|
[ ] Additional Applications______ |OSJ: |
|(H.O. USE) |
[ ] Check enclosed #______ | |
| |
[ ] Other:______ | |
-----------------------------------------------|---------------|
Page 6 of 6
<TABLE>
<S> <C> <C>
Waddell & Reed, Inc. United Group of Funds Division Office Stamp
P.O. Box 29217 APPLICATION
Shawnee Mission, KS
66201-9217 RETIREMENT PLAN Trans Code:________________________
ACCOUNT Date Transmitted:__________________
</TABLE>
1 ------------------------------------------------------------------------------
I (We) make application for an account to be established as follows:
PLAN TYPE -- DOCUMENT SPONSORED BY: [ ] W&R [ ] NON-W&R
PLEASE SELECT ONE OF THE FOLLOWING:
<TABLE>
<S> <C> <C>
[ ] IRA (701/050) [ ] Simplified Employee Pension -- SEP (702/050) [ ] 401(k) (401-801) [ ] Simple 401(k) (340)
(CRP0005) (MRP1166KT-Employer and CRP0005-Employee) (MRP0720-Non Inventory)
[ ] Rollover (703/050) [ ] Simple IRA (765/050) [ ] Owner-Only Profit Sharing (132)
(CRP0005) (MRP1659KT-Employer and MRP1699-Employee) (MRP0651 and MRP0651 AP)
[ ] Roth IRA (791/050) [ ] Non Title-1 TSA (773-050) [ ] ORP (773) [ ] Owner-Only Money Purchase (122)
(CRP1695) (MRP1198) (MRP0651 and MRP0651AM)
[ ] Conversion Roth IRA (792/050) [ ] Title-I TSA (724) [ ] 457 Plan (730/731) [ ] Multi Part. Profit Sharing (832/097/098)
(CRP1695) (MRP1198TI-Non Inventory) (MRP1401) (MRP0651 and MRP0651AP)
[ ] Education IRA (793/050) [ ] Church Sponsored TSA (774) [ ] Multi Part. Money Purchase (822/099/100)
(CRP1696) (Non Inventory-Case by Case) (MRP0651 and MRP0651AM)
</TABLE>
------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
__________________
REGISTRATION [ ] NEW ACCOUNT or [ ] NEW FUND FOR EXISTING ACCOUNT | |
(must have same ownership): |__________________|
</TABLE>
<TABLE>
<S> <C> <C> <C>
-----------------------------------------------------------------------------
Trustee/Custodian or Responsible Party (Education IRA Only)
-----------------------------------------------------------------------------
Employer or Business/Organization Name
------------------------------------------------------------ ----------------------------------------------
Participant, Planholder or Beneficiary (Education IRA Only) Plan Year End / Date of Birth (Month/Day/Year)
-----------------------------------------------------------------------------
Mailing Address
-----------------------------------------------------------------------------
City/State/Zip
------------------------- ----------------------- ----------------------------------
Social Security Number Employer Tax ID Number Plan (Trust) Identification Number
------------------------- ----------------------- ----------------------------------
Telephone (home) Telephone (work) Citizenship (Required in VA)
</TABLE>
------------------------------------------------------------------------------
INVESTMENTS Make check payable to Waddell & Reed, Inc.
<TABLE>
<CAPTION>
FUNDS CODES
A B C A B C A B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income 621 121 321 Continental Income 627 127 327 Small Cap 677 177 377
Science & Technology 622 122 322 High Income 628 128 328 Retirement Shares 680 180 380
Accumulative 623 123 323 Vanguard 629 129 329 Asset Strategy 684 184 384
Bond 624 124 324 New Concepts 630 130 330 Cash Management 750 150 350
International Growth 625 125 325 High Income II 634 134 334 Government Securities 753 153 353
</TABLE>
<TABLE>
<CAPTION>
IRA TOP From Monthly
Fund Amount Year of Deductible or Another AIS
(enter code) Enclosed Contribution Non-Deductible Carrier (If Any)
<S> <C> <C> <C> <C> <C> <C>
CLASS OF SHARES ____________
(ONLY ONE) | |
|____________| $_______ ____________ __________ [ ] $_______
____________
| |
A [ ] B [ ] C [ ] |____________| $_______ ____________ __________ [ ] $_______
____________
| |
IF NOT CHECKED, |____________| $_______ ____________ __________ [ ] $_______
ASSUME A ____________
| |
|____________| $_______ ____________ __________ [ ] $_______
____________
| |
|____________| $_______ ____________ __________ [ ] $_______
Total $_______ $_______
</TABLE>
To prevent possible tax penalties, Dividends and Capital gains are
automatically re-invested in Retirement Plan accounts.
------------------------------------------------------------------------------
CAP1771 Page 1 of 6
<PAGE>
------------------------------------------------------------------------------
BENEFICIARY
To designate contingent beneficiaries or per stirpes distribution,
use MRP-0972 or MRP-1588
<TABLE>
<CAPTION>
Full Name of Beneficiary Tax Identification Number Date of Birth Relationship Percent
<S> <C> <C> <C> <C>
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
---------------------------- ----------------------------- -----/-----/----- ---------------- -----------%
MO DA YR
</TABLE>
------------------------------------------------------------------------------
A SHARES ONLY
This purchase is entitled to a reduced sales load charge for the following
reason:
<TABLE>
<S> <C>
[ ] Existing Letter of Intent To Invest $_____________ LOI Number____________
[ ] Cumulative discount number____________ or Rights of Accumulation With Existing Accounts____________
[ ] Identify Other New Accounts Established At This Time:________________________
</TABLE>
------------------------------------------------------------------------------
2 ------------------------------------------------------------------------------
STATEMENT OF INTENT (A SHARES ONLY) I agree to the terms of the Statement of
Intent conditions set forth in the Statement of Additional Information
(including the escrowing of shares). Although I am not obligated to do so, it
is my intention to invest over a 13-month period in shares of one or more
United funds in an aggregate amount at least equal to:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
[ ] $100,000 [ ] $200,000 [ ] $300,00 [ ] $500,00 [ ] $1,000,000 [ ] $2,000,000 See Section 8
</TABLE>
------------------------------------------------------------------------------
3 ------------------------------------------------------------------------------
EXPEDITED REDEMPTION: For United Cash Management A [ ] B [ ] C [ ]
<TABLE>
<S> <C>
-------------------------------------------------- -------------------------------------------------
Name & Address of Bank/Financial Institution ABA/Routing # of Bank/Financial Institution
-------------------------------------------------- -------------------------------------------------
Street Customer's Bank Account Number
-------------------------------------------------- -------------------------------------------------
City/State/Zip
</TABLE>
On UCM Accounts where expedited redemption is requested, Waddell & Reed, Inc.
is authorized to honor any requests from anyone for redemption of fund shares
as long as the proceeds are transmitted to the identified account. All wires
must be transmitted exactly as registered on the UCM Account.
------------------------------------------------------------------------------
4 ------------------------------------------------------------------------------
Establish NEW Automatic Investment Service ______________
REGISTRATION INFORMATION EXISTING ACCOUNT:| |
|______________|
-----------------------------------------------------------------------------
Individual Name (exactly as registered)
-----------------------------------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
Fund Draft Is To Begin On
(Enter code) (Month/Day/Year) Draft Amount Special Instructions
<S> <C> <C> <C>
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
____________
| |
|____________| ____________________ $___________ ________________________________
</TABLE>
------------------------------------------------------------------------------
Page 2 of 6
<PAGE>
5 ------------------------------------------------------------------------------
Authorization to honor checks drawn by Waddell & Reed, Inc.
As a convenience to me, I hereby request and authorize you to pay and charge
to my or our account identified below, debit entries drawn on the account by
Waddell & Reed, Inc. provided there are sufficient funds in the account to
pay the same on presentation. This authorization shall remain in effect until
revoked by me in writing and until you actually receive such notice. I agree
that you shall be fully protected by honoring any such debit entry.
I agree that your rights in respect to any debit entry shall be the same as
if it were a check signed personally by me. I further agree, that if any such
debit entry be dishonored, whether intentionally or inadvertently, you shall
be under no liability whatsoever.
PLEASE COMPLETE THE FOLLOWING IN ITS ENTIRETY.
<TABLE>
<S> <C>
----------------------------------------------------- -------------------------
NAME OF DEPOSITOR (as shown on bank records(s)) Bank Account Number
----------------------------------------------------- See Section 9
BANK NAME
-----------------------------------------------------
BANK ADDRESS
-----------------------------------------------------
CITY/STATE/ZIP
</TABLE>
------------------------------------------------------------------------------
6 ------------------------------------------------------------------------------
Establish NEW Funds Plus Service
<TABLE>
<S> <C> <C> <C>
___________
REGISTRATION INFORMATION [ ] NEW ACCOUNT W/UCM or [ ] EXISTING ACCOUNT W/UCM |___________|
</TABLE>
-----------------------------------------------------
Individual Name (exactly as registered)
-----------------------------------------------------
Joint Name (if any, exactly as registered)
<TABLE>
<CAPTION>
FUNDS PLUS Service
Account(s) to RECEIVE Fund If new, Is To Begin On FUNDS PLUS
FUNDS PLUS Investment (Enter code) mark box (Month/Day/Year) Investment Amount
<S> <C> <C> <C> <C>
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
_____________________________ __________
| | | | [ ]
|_____________________________| |__________| __________________ $__________________
</TABLE>
------------------------------------------------------------------------------
7 ------------------------------------------------------------------------------
Establish NEW Flexible Withdrawal Service (See Section 10)
<TABLE>
<CAPTION>
Fund Changes To Be
(See Reverse Effective Beginning Amount
for Codes) (Month) (Year) Indicate dollars, shares or percentage Frequency Make Payable
<S> <C> <C> <C> <C>
____________ _________________ ______________
| | | | 20 | | | |
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] monthly [ ] To registered owner(s)
____________ _________________ ______________
| | | | 20 | | | | [ ] quarterly [ ] To Alternate Payee
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] %
____________ _________________ ______________ [ ] semi-annually [ ] To registered owner(s)
| | | | 20 | | | | at alternate address
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % [ ] annually
____________ _________________ ______________
| | | | 20 | | | | (If left blank,
|____________| |_____|______|____| |______________| [ ] $ [ ] SH [ ] % annual payments
will be assumed)
</TABLE>
------------------------------------------------------------------------------
Designate Alternate Payee or Address (for Electronic Deposits of FWS, see
section 9)
Complete this section if the check is TO BE PAYABLE TO AN ALTERNATE PAYEE
(other than as registered) or SENT TO AN ALTERNATE ADDRESS. Please provide
voided check if FWS is to be electronically deposited. If sending FWS to
another fund/account please indicate account/fund. Must be same class.
<TABLE>
<CAPTION>
Alternate Payee Alternate Address (check will be payable as registered and sent to the following)
<S> <C>
---------------------------------------------- ----------------------------------------------
Name or institution C/O Name
---------------------------------------------- ----------------------------------------------
Street Street
---------------------------------------------- ----------------------------------------------
City/State/Zip City/State/Zip
---------------------------------------------- ----------------------------------------------
Bank Account Number (if applicable) Bank Account Number (if applicable)
</TABLE>
------------------------------------------------------------------------------
Page 3 of 6
<PAGE>
7 ------------------------------------------------------------------------------
Con't.
TO ESTABLISH Life Expectancy Payment Option For Retirement Plan Accounts
IMPORTANT INFORMATION (read carefully before proceeding)
If this option is selected, the information (joint/single life, age) provided
below will be used to determine the withdrawal amount applicable for the
CURRENT year only. The withdrawal amount will remain unchanged until a change
is authorized by the planholder.
Check applicable box: [ ] Age 70-1/2 or over Retirement planholders who
have reached age 70-1/2 must take a minimum
distribution from their plan in accordance
with IRS regulations. It is NOT necessary to
complete this section to meet IRS minimum
mandatory withdrawal requirement. The minimum
withdrawal will be automatically processed
unless otherwise instructed.
[ ] Prior to age 70-1/2 Enter annual $___________
(Do not enter amount in section below)
If dollar amount is blank, payments will be
calculated on a non-amortized basis, and will
remain unchanged. If amount provided is based
on an amortized life expectancy calculation,
attach UNET worksheet. PAYMENTS MUST CONTINUE
UNTIL THE LATER OF AGE 59-1/2 OR FIVE
SUCCESSIVE YEARS.
Complete applicable information:
<TABLE>
<S> <C>
[ ] SINGLE LIFE OR [ ] JOINT LIFE
Indicate Account Owner's Indicate Account Owner's Date of Birth |__|__|__|__|__|__|
Date of Birth |__|__|__|__|__|__| (Month/Day/Year)
(Month/Day/Year) and Beneficiary's Date of Birth |__|__|__|__|__|__|
(Month/Day/Year)
</TABLE>
<TABLE>
<CAPTION>
Amount Frequency
Fund If blank amount will Indicated monthly,
(See Reverse Effective Beginning be calculated as quarterly, semi-
For Codes) (Month) (Day) described above annually or annually Make Payable
------------ -------------------- -------------------- --------------------- --------------------------
<S> <C> <C> <C> <C>
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] --------------------- [ ] To Registered owner(s)
(If left blank, annual pay-
ments will be assumed)
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] [ ] To Alternate Payee*
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] [ ] To Registered Owner(s) at
alternate address*
|__|__|__| |__|__| 2 | 0 |__|__| ________ [ ] [ ] [ ] *Complete Section 11
</TABLE>
FEDERAL INCOME TAX WITHHOLDING FOR RETIREMENT PLAN ACCOUNTS
Check One:*
A [ ] The undersigned directs that no Federal Income Tax shall be withheld
from the above described Withdrawal.
(Applicable to Retirement Plans only)
B [ ] The undersigned directs that Federal Income Tax be withheld from the
above described Withdrawal.
(Applicable to Retirement Plans only)
*IF NEITHER BLOCK IS SELECTED, FEDERAL INCOME TAXES WILL NOT BE
WITHHELD.
------------------------------------------------------------------------------
8 ------------------------------------------------------------------------------
LOI TERMS AND CONDITIONS
1. This Agreement does not bind the investor to buy, or Waddell & Reed, Inc.
to sell, any shares.
2. This Agreement can only be terminated before the 13 months has elapsed by
submitting a written request signed by all owners.
3. Any purchase made under this Agreement will be made at the offering price
applicable to a one-time purchase of the amount the investor has checked
on the front of this Agreement as described in the prospectus of the fund
or funds being purchased.
4. If the amount invested during the 13-month period covered by this
Agreement exceeds the required amount and is large enough to qualify for a
sales charge lower than that available under this Agreement, the lower
sales charge will be applied to the amount invested. Upon termination of
this Agreement, a price adjustment will be made to give effect to the
lower sales charge and the amount of the price adjustment will be
reinvested in additional shares of the fund(s) on the date of termination.
5. If the amount invested during the 13-month period covered by this
Agreement is less than the required amount, the sales charge for the
investments reverts back to that outlined in the Fund Prospectus, as if
the Agreement had not been executed. Waddell & Reed, Inc. will subtract
shares equal in value to the amount of the additional sales charge due
from escrowed shares. The investor hereby irrevocably appoints Waddell &
Reed, Inc. or its successors or assigns, as attorney to surrender for
redemption shares in an amount equal to the additional sales charge owed
on the purchases made. This appointment and the authority granted herein
shall be binding on the heirs, legal representatives, successors and
assigns of the investor.
6. While the value of purchases made prior to the acceptance date of this
Agreement will be considered in determining the Intended Investment, the
sales charge imposed on prior purchases will not be retroactively reduced.
7. Shares purchased directly to United Cash Management, Inc. will not be
considered when determining the net asset value of shares presently held
by the investor as of the date of acceptance of this Agreement, nor for
determining the amount invested under this Agreement. However,
non-commissionable shares are considered for these purposes.
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Page 4 of 6
<PAGE>
9 ------------------------------------------------------------------------------
BANK ACCOUNT OR CREDIT UNION INFORMATION (optional)
This information will be used for
[ ] Systematic investments (Sec. 4) [ ] Flexible withdrawals (Sec. 7)
<TABLE>
<S> <C> <C>
-----------------------------------------------------------------------------------
Checking account Bank or credit union's ABA route number Bank or credit union account number
-----------------------------------------------------------------------------------
Savings account Bank or credit union's ABA route number Bank or credit union account number
</TABLE>
Tape your voided check or deposit slip here
Bank and credit union routing information
For deposits or withdrawals to your checking account, please tape a voided
check so we may get bank or credit union account information.
For deposits or withdrawals to a savings account, please tape a preprinted
deposit slip.
(Do not staple the slips.)
------------------------------------------------------------------------------
10------------------------------------------------------------------------------
FLEXIBLE WITHDRAWAL REQUIREMENTS AND CONSIDERATIONS
1. This application directs Waddell & Reed Services Company to redeem the
amounts listed on the 20th day of the indicated month, or if not a
business day, on the preceding business day.
2. Allow five days from the date your instructions are received in the home
office for processing of any changes and/or initiation of a Flexible
Withdrawal Service.
3. The aggregate total investment, or the present net asset value of the
shareholder's United Group of Funds/or W&R Funds combined accounts should
exceed $10,000. You may add to your account by additional investments of
at least $1,000, except in United Cash Management, Inc., which has no
minimum additional investment amount.
4. Minimum withdrawals for dollars or shares are $50 aggregate or a 5 share
minimum per fund.
5. If withdrawals are to be made monthly, 1/12th of the indicated percentage
of the asset value of the shares in the account will be redeemed. If
withdrawals are to be made quarterly, 1/4th of the indicated percentage of
the asset value of the shares in the account will be redeemed. If
withdrawals are to be made semi-annually, 1/2 of the indicated percentage
will be redeemed.
6. Dividends and capital gains distributions are automatically reinvested.
Information about the federal tax status of shares redeemed through the
Flexible Withdrawal Services will be mailed to shareholders annually.
------------------------------------------------------------------------------
11------------------------------------------------------------------------------
ALTERNATE PAYEE/ADDRESS
To send systematic withdrawals (Section 7) to a third party, or to another
United Fund account, please fill in the appropriate information below.
This address will be used for (check one):
[ ] Flexible Withdrawals
[ ] Div/Cap Gains
<TABLE>
<S> <C>
------------------------------------------------------------- To another United Fund
Name
------------------------------------------------------------- ---------------------------------
Address (including apartment or box number) Account # Fund #
Must be to same class of shares
-------------------------------------------------------------
City/State/Zip
</TABLE>
------------------------------------------------------------------------------
Page 5 of 6
<PAGE>
13------------------------------------------------------------------------------
CONFIDENTIAL DATA (Required)
1. Marital Status:__________
(Required in VA)
2. Gross Family Income: $__________
3. Taxable Income: $__________
4. Number of Dependents:__________
5. Occupation:______________________________________________________________
6. Employer Name:___________________________________________________________
7. Employer Address:________________________________________________________
8. Savings and Liquid Assets: $__________
9. Other Assets (excluding home, furnishings, cars): $__________
10. Net Worth (Assets minus liabilities): $__________
11. Are you associated with an NASD Member? [ ] Yes [ ] No
12. Investment Objectives (mark all that apply):
[ ] Retirement Savings [ ] Reserves [ ] College Funds [ ] Buy Major Asset
[ ] Other Needs/Goals (specify in Special Remarks)
13. Special Remarks/Considerations:__________________________________________
_____________________________________________________________________________
14. Residence Address:_______________________________________________________
(if different from Street City State Zip
Mailing Address
on reverse side)
<TABLE>
<S> <C> <C>
(Required in CT)
15. Was this investment solicited by a W&R Advisor/Representative? [ ] Yes [ ] No
(Required in CT)
16. Has any beneficial owner of this account conducted any prior investment activity? [ ] Yes [ ] No
If yes, which owner(s)?_________________________________________________________________________
17. Are proceeds from the sale of another security being used to open this account? [ ] Yes [ ] No
If yes, specify:________________________________________________________________________________
________________________________________________________________________________
</TABLE>
------------------------------------------------------------------------------
14------------------------------------------------------------------------------
ACKNOWLEDGEMENT
o I (We) have received a copy of the current prospectus of the Funds
selected, and agree to the terms therein and herein.
o Under penalties of perjury, I certify that the social security number or
other taxpayer identification number shown in Section 1 is correct (or I
am waiting for a number to be issued to me) and (strike the following if
not true) that I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been notified by the IRS
that I am subject to backup withholding as a result of a failure to report
all interest and dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding.
o I (we) understand that there maybe a deferred sales charge upon the
redemption of any class B or C shares held in the account for less than
the time specified in the prospectus.
Signature(s) of Purchasers (all joint purchasers must sign). Sign exactly as
name(s) appear in registration.
"The Internal Revenue Service does not require your consent to any provision
of this document other than the certification required to avoid backup
withholding."
<TABLE>
<S> <C> <C>
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- ------------------------------------- -------------------------------------
(Signature) (Printed Name) (Title, if any)
------------------------------------- --------------------
(Advisor/Representative Signature) (Date)
</TABLE>
_____________________________
| |
Advisor/Representative Number |_____________________________|
------------------------------------------------------------------------------
-----------------------------------------------|
Check Any Items Enclosed With Application |
|
[ ] Declaration Trust Revocable (CUF0022) |
|---------------|
[ ] Additional Applications______ |OSJ: |
|(H.O. USE) |
[ ] Check enclosed #______ | |
| |
[ ] Other:______ | |
-----------------------------------------------|---------------|
Page 6 of 6
EX-99.B(i)uflegopn
September 16, 1999
United Funds, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
RE: United Funds, Inc.
Post-Effective Amendment No. 124
Dear Sir or Madam:
In connection with the public offering of shares of Capital Stock of United
Funds, Inc. (the "Fund"), I have examined such corporate records and documents
and have made such further investigation and examination as I deemed necessary
for the purpose of this opinion.
It is my opinion that the indefinite number of shares of such Capital Stock
covered by the Fund's Registration Statement on Form N-1A, when issued and paid
for in accordance with the terms of the offering, as set forth in the Prospectus
and Statement of Additional Information forming a part of the Registration
Statement, will be, when such Registration shall have become effective, legally
issued, fully paid and non-assessable by the Fund.
I hereby consent to the filing of this opinion as an Exhibit to the said
Registration Statement and to the reference to me in such Statement of
Additional Information.
Yours truly,
Helge K. Lee
General Counsel
HKL/fr
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 124 to Registration
Statement No. 2-21867 of United Funds, Inc. on Form N-1A of our reports dated
February 5, 1999 and August 6, 1999 appearing in the Prospectus, which is a part
of such Registration Statement, and to the reference to us under the caption
"Financial Highlights" in such Prospectus.
Deloitte & Touche LLP
Kansas City, Missouri
September 14, 19
EX-99.B(m)ufdspb
DISTRIBUTION AND SERVICE PLAN
FOR CLASS B SHARES
(Adopted on February 10, 1999)
This Plan is adopted by United Funds, Inc. (the "Fund"), pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Act") to provide for
payment by the Fund of certain expenses in connection with the distribution of
the Fund's Class B shares, provision of personal services to the Fund's Class B
shareholders and/or maintenance of its Class B shareholder accounts. Payments
under the Plan are to be made to Waddell & Reed, Inc. ("W&R") which serves as
the principal underwriter for the Fund under the terms of the Underwriting
Agreement pursuant to which W&R offers and sells the shares of the Fund.
Distribution Fee
With respect to each Fund, the Company is authorized to pay to W&R an amount not
to exceed on an annual basis .75 of 1% of each Fund's average net assets of
Class B shares as a "distribution fee" to finance the distribution of that
Fund's Class B shares payable to W&R daily or at such other intervals as the
board of directors may determine.
Service Fee
With respect to each Fund, the Company is authorized to pay to W&R an amount not
to exceed on an annual basis .25 of 1% of each Fund's average net assets of its
Class B shares as a "service fee" to finance shareholder servicing by W&R or its
affiliated companies to encourage and foster the maintenance of shareholder
accounts of the particular Fund's Class B shares. The amounts shall be payable
to W&R daily or at such other intervals as the board of directors may determine.
NASD Definition
For purposes of this Plan, the "distribution fee" may be considered as a sales
charge that is deducted from the Class B net assets of the Fund and does not
include the service fee. The "service fee" shall be considered a payment made by
the Fund for personal service and/or maintenance of Class B shareholder
accounts, as such is now defined by the National Association of Securities
Dealers, Inc. ("NASD"), provided, however, if the NASD adopts a definition of
"service fee" for purposes of Rule 2830 of the NASD Conduct Rules that differs
from the definition of "service fee" as presently used, or if the NASD adopts a
related definition intended to define the same concept, the definition of
"service fee" as used herein shall be automatically amended to conform to the
NASD definition.
Quarterly Reports
W&R shall provide to the board of directors of the Fund and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the distribution fee and/or service fee paid or payable to it under
this Plan and the purposes for which such expenditures were made.
Approval of Plan
This Plan shall become effective when it has been approved by a vote of the
board of directors of the Fund and of the directors who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operation of the Plan or any agreement related to this Plan (other than as
directors or shareholders of the Fund) ("independent directors") cast in person
at a meeting called for the purposes of voting on such Plan.
Continuance
This Plan shall continue in effect for a period of one (1) year and thereafter
from year to year only so long as such continuance is approved by the directors,
including the independent directors, as specified hereinabove for the adoption
of the Plan by the directors and independent directors.
Director Continuation
In considering whether to adopt, continue or implement this Plan, the directors
shall have a duty to request and evaluate, and W&R shall have a duty to furnish,
such information as may be reasonably necessary to an informed determination of
whether this Plan should be adopted, implemented or continued.
Termination
This Plan may be terminated at any time by a vote of a majority of the
independent directors of the Fund or by a vote of the majority of the
outstanding Class B voting securities of the Fund without penalty. On
termination, the payment of all distribution fees and service fees shall cease,
and the Fund shall have no obligation to W&R to reimburse it for any cost or
expenditure it has made or may make to distribute the Class B shares or service
Class B shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
distribution of Class B shares, personal service and/or maintenance of
shareholder accounts without approval of the Class B shareholders, and all
material amendments of this Plan must be approved in the manner prescribed for
the adoption of the Plan as provided hereinabove. The distribution and service
fees may be reduced by action of the board of directors without shareholder
approval.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Fund shall be committed to the discretion of
the directors who are not interested persons of the Fund.
Records
Copies of this Plan, the Underwriting Agreement and reports made pursuant to
this Plan shall be preserved as provided in Rule 12b-1(f) under the Act.
EX-99.B(m)ufdspc
DISTRIBUTION AND SERVICE PLAN
FOR CLASS C SHARES
(Adopted on February 10, 1999)
This Plan is adopted by United Funds, Inc. (the "Fund"), pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (the "Act") to provide for
payment by the Fund of certain expenses in connection with the distribution of
the Fund's Class C shares, provision of personal services to the Fund's Class C
shareholders and/or maintenance of its Class C shareholder accounts. Payments
under the Plan are to be made to Waddell & Reed, Inc. ("W&R") which serves as
the principal underwriter for the Fund under the terms of the Underwriting
Agreement pursuant to which W&R offers and sells the shares of the Fund.
Distribution Fee
With respect to each Fund, the Company is authorized to pay to W&R an amount not
to exceed on an annual basis .75 of 1% of each Fund's average net assets of
Class C shares as a "distribution fee" to finance the distribution of that
Fund's Class C shares payable to W&R daily or at such other intervals as the
board of directors may determine.
Service Fee
With respect to each Fund, the Company is authorized to pay to W&R an amount not
to exceed on an annual basis .25 of 1% of each Fund's average net assets of its
Class C shares as a "service fee" to finance shareholder servicing by W&R or its
affiliated companies to encourage and foster the maintenance of shareholder
accounts of the particular Fund's Class C shares. The amounts shall be payable
to W&R daily or at such other intervals as the board of directors may determine.
NASD Definition
For purposes of this Plan, the "distribution fee" may be considered as a sales
charge that is deducted from the Class C net assets of the Fund and does not
include the service fee. The "service fee" shall be considered a payment made by
the Fund for personal service and/or maintenance of Class C shareholder
accounts, as such is now defined by the National Association of Securities
Dealers, Inc. ("NASD"), provided, however, if the NASD adopts a definition of
"service fee" for purposes of Rule 2830 of the NASD Conduct Rules that differs
from the definition of "service fee" as presently used, or if the NASD adopts a
related definition intended to define the same concept, the definition of
"service fee" as used herein shall be automatically amended to conform to the
NASD definition.
Quarterly Reports
W&R shall provide to the board of directors of the Fund and the board of
directors shall review at least quarterly a written report of the amounts so
expended of the distribution fee and/or service fee paid or payable to it under
this Plan and the purposes for which such expenditures were made.
Approval of Plan
This Plan shall become effective when it has been approved by a vote of the
board of directors of the Fund and of the directors who are not interested
persons of the Fund and have no direct or indirect financial interest in the
operation of the Plan or any agreement related to this Plan (other than as
directors or shareholders of the Fund) ("independent directors") cast in person
at a meeting called for the purposes of voting on such Plan.
Continuance
This Plan shall continue in effect for a period of one (1) year and thereafter
from year to year only so long as such continuance is approved by the directors,
including the independent directors, as specified hereinabove for the adoption
of the Plan by the directors and independent directors.
Director Continuation
In considering whether to adopt, continue or implement this Plan, the directors
shall have a duty to request and evaluate, and W&R shall have a duty to furnish,
such information as may be reasonably necessary to an informed determination of
whether this Plan should be adopted, implemented or continued.
Termination
This Plan may be terminated at any time by a vote of a majority of the
independent directors of the Fund or by a vote of the majority of the
outstanding Class C voting securities of the Fund without penalty. On
termination, the payment of all distribution fees and service fees shall cease,
and the Fund shall have no obligation to W&R to reimburse it for any cost or
expenditure it has made or may make to distribute the Class C shares or service
Class C shareholder accounts.
Amendments
This Plan may not be amended to increase materially the amount to be spent for
distribution of Class C shares, personal service and/or maintenance of
shareholder accounts without approval of the Class C shareholders, and all
material amendments of this Plan must be approved in the manner prescribed for
the adoption of the Plan as provided hereinabove. The distribution and service
fees may be reduced by action of the board of directors without shareholder
approval.
Directors
While this Plan is in effect, the selection and nomination of the directors who
are not interested persons of the Fund shall be committed to the discretion of
the directors who are not interested persons of the Fund.
Records
Copies of this Plan, the Underwriting Agreement and reports made pursuant to
this Plan shall be preserved as provided in Rule 12b-1(f) under the Act.
EX-99.B(o)ufmcp
UNITED FUNDS, INC.
MULTIPLE CLASS PLAN PURSUANT TO RULE 18f-3
This Multiple Class Plan ("Plan") pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended ("1940 Act"), sets forth the multiple
class structure for each fund ("Fund") comprising United Funds, Inc. The Funds'
initial multiple class structure was approved by the Board of Directors of
United Funds, Inc. on February 8, 1995, under an order of exemption issued by
the Securities and Exchange Commission on January 11, 1995. Subsequent to such
approval, Rule 18f-3 under the Investment Company Act of 1940 was adopted. It
was determined that the Funds operate under Rule 18f-3, and this Plan was
adopted pursuant to Rule 18f-3. This Plan describes the classes of shares of
stock of each Fund: Class A shares and Class Y shares that were offered to the
public on or after June 17, 1995 ("Implementation Date"); and Class B shares and
Class C shares offered to the public on or after March 31, 1999.
General Description of the Classes:
Class A Shares. Class A shares will be sold to the general public
subject to an initial sales charge. The maximum sales charge is 5.75% of the
amount invested and declines to 0% based on discounts for volume purchases. The
initial sales charge is waived for certain eligible purchasers.
Class A shares also will be subject to a distribution and/or service
fee charged pursuant to a Distribution and Service Plan adopted pursuant to Rule
12b-1 under the 1940 Act ("Rule 12b-1") that provides for a maximum fee of 0.25%
of the average annual net assets of the Class A shares of the Fund. All of the
shares of the Fund issued pursuant to a Fund prospectus effective prior to the
Implementation Date and that are outstanding on the Implementation Date will be
designated as Class A shares.
Class B Shares. Class B shares will be sold subject to a contingent
deferred sales charge, which will be imposed on redemption proceeds. The maximum
contingent deferred sales charge will be 5.0% and will decline 1% per year
[after the first full calendar year] after investment to 0% after seven years,
except that there will be no decline in the fourth year, as follows: in the
first year, the contingent deferred sales charge will be 5%; in the second year,
4%; in the third and fourth years, 3%; in the fifth year, 2%; in the sixth year,
1%; and in the seventh year, 0%. Class B shares will also be subject to
distribution and service fees charged pursuant to a Distribution and Service
Plan adopted pursuant to Rule 12b-1 that provides for a maximum service fee of
0.25% and a maximum distribution fee of 0.75% of the average annual net assets
of the Class B shares of the Fund. Class B shares convert automatically into
Class A shares in the eighth year held.
Class C Shares. Class C shares will be sold without an initial sales
charge and will be subject to a contingent deferred sales charge of 1% if the
shares are redeemed within twelve months of purchase. Class C shares will be
subject to distribution and service fees charged pursuant to a Distribution and
Service Plan adopted pursuant to Rule 12b-1 that provides for a maximum service
fee of 0.25% and a maximum distribution fee of 0.75% of the average annual net
assets of the Class C shares of the Fund.
Class Y Shares. Class Y shares will be sold without an initial sales
charge and without a Rule 12b-1 fee. Class Y shares are designed for
institutional investors and will be available for purchase by: (i) 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, when the plan has 100 or more eligible employees and holds the
shares in an omnibus account on the Fund's records; (ii) 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; (iii) government entities or authorities and corporations whose
investment within the first twelve months after initial investment is $10
million or more; and (iv) certain retirement plans and trusts for employees and
sales representatives of Waddell & Reed, Inc. and its affiliates.
Expense Allocations of Each Class:
In addition to the differences with respect to 12b-1 fees, Class A,
Class B, and Class C shares differ from Class Y shares of a Fund with respect to
the applicable shareholder servicing fees. Class A, Class B and Class C shares,
respectively, pay a monthly shareholder servicing fee of $1.0208 for each Class
A, Class B or Class C shareholder account which was in existence during the
prior month, plus $0.30 for each Class A, Class B or Class C account on which a
dividend or distribution had a record date in that month. Class Y shares pay a
monthly shareholder servicing fee equal to one-twelfth of .15 of 1% of the
average daily net Class Y assets for the preceding month.
Each Class may also pay a different amount of the following other
expenses:
(a) stationary, printing, postage and delivery expenses
related to preparing and distributing materials such as shareholder
reports, prospectuses, and proxy statements to current shareholders of
a specific Class of shares;
(b) Blue Sky registration fees incurred by a specific Class of
shares;
(c) SEC registration fees incurred by a specific Class of
shares;
(d) expenses of administrative personnel and services required
to support the shareholders of a specific Class of shares;
(e) Directors' fees or expenses incurred as a result of issues
relating to a specific Class of shares;
(f) accounting expenses relating solely to a specific Class of
shares;
(g) auditors' fees, litigation expenses, and legal fees and
expenses relating to a specific Class of shares; and
(h) expenses incurred in connection with shareholders meetings
as a result of issues relating to a specific Class of shares.
For any Fund, these expenses may, but are not required to, be directly
attributed and charged to a particular Class. The shareholder servicing fees and
other expenses listed above that are attributed and charged to a particular
Class are borne on a pro rata basis by the outstanding shares of that Class.
The expenses of the Funds that are not attributed to any one Fund
generally are allocated to each Fund based on the relative net assets of the
Funds. Certain expenses that may be attributable to a particular Fund, but not a
particular Class, are allocated based on the relative daily net assets of the
Classes of that Fund.
Exchange Privileges:
Class A shares of a Fund may be exchanged for Class A shares of another
Fund or corresponding shares of any other fund in the United Group of Mutual
Funds.
Class B shares of a Fund may be exchanged for Class B shares of another
Fund or corresponding shares of any other fund in the United Group of Mutual
Funds.
Class C shares of a Fund may be exchanged for Class C shares of another
Fund or corresponding shares of any other fund in the United Group of Mutual
Funds.
Class Y shares may be exchanged for Class Y shares of another Fund or
of any other fund in the United Group of Mutual Funds.
These exchange privileges may be modified or terminated by a Fund, and
exchanges may only be made into funds that are legally registered for sale in
the investor's state of residence.
Additional Information:
This Plan is qualified by and subject to the terms of the then current
prospectus for the applicable Class after the Implementation Date; provided,
however, that none of the terms set forth in any such prospectus shall be
inconsistent with the terms of the Classes contained in this Plan. The
prospectus for each Class contains additional information about that Class and
the applicable Fund's multiple class structure.
Adopted April 17, 1995; as amended
December 6, 1995, effective January 9,
1996; and further amended February 10,
1999, effective March 31, 1999
