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. 123
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 30
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
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(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 April 15, 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 will be filed on or about March 29, 1999.
<PAGE>
United Funds, Inc.
Class A Shares
Class B Shares
Class C Shares
United Funds, Inc. (the "Corporation") is a management investment company that
has four separate funds (the "Funds"), each of which is designed for investors
with different goals.
United Accumulative Fund seeks capital growth of your investment with current
income a secondary goal.
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital.
United Income Fund seeks, as a primary goal, the maintenance of current income
subject to market conditions. As a secondary goal, the Fund seeks capital
growth.
United Science and Technology Fund seeks long-term capital growth through
investment in a portfolio emphasizing science and technology securities.
The Securities and Exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this Prospectus is accurate or
adequate. It is a criminal offense to state otherwise.
Prospectus
April 15, 1999
<PAGE>
Table of Contents
An Overview of the Funds.......................................................4
United Accumulative Fund.......................................................4
Performance....................................................................6
Fees and Expenses..............................................................8
United Bond Fund..............................................................10
Performance...................................................................12
Fees and Expenses.............................................................14
United Income Fund............................................................16
Performance...................................................................17
Fees and Expenses.............................................................19
United Science and Technology Fund............................................21
Performance...................................................................23
Fees and Expenses.............................................................25
The Investment Principles of the Funds........................................27
Investment Goals, Principal Strategies and Other Investments...............27
Risk Considerations of Principal Strategies and Other Investments..........30
Financial Highlights..........................................................32
Your Account..................................................................36
Sales Charge Reductions and Waivers........................................37
Waivers for Certain Investors...........................................38
Ways to Set Up Your Account................................................41
Buying Shares..............................................................43
Minimum Investments........................................................44
Adding to Your Account.....................................................45
2
<PAGE>
Selling Shares.............................................................45
Shareholder Services.......................................................47
Personal Service........................................................48
Reports.................................................................48
Exchanges...............................................................48
Automatic Transactions..................................................49
Distributions and Taxes....................................................49
Distributions...........................................................49
Taxes...................................................................50
The Management of the Funds...................................................52
Portfolio Management.......................................................52
Management Fee.............................................................53
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 large capitalization common stocks
of 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.
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;
o an increase in interest rates which may cause the value of the Fund's
fixed-income securities to decline; and
o the skill of Waddell & Reed Investment Management Company ("WRIMCO")
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.
4
<PAGE>
Performance
The chart and 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 returns for 1, 5 and 10
years compare with those of a broad measure of market performance.
o The chart presents the total annual returns for Class A and shows how
performance has varied from year to year over the past ten years.
o The table shows Class A average annual returns and compares them to
the market indicators listed.
o Both the chart and the 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 (%)
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%
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 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
were included, the returns would be less than those shown.
Average Annual Total Returns
as of December 31, 1998 (%)
1 Year 5 Years 10 Years
------------------------------------------
Class A Shares of
Accumulative Fund 15.57% 17.67% 14.82%
S&P 500 Index 28.70% 24.08% 19.21%
Lipper Growth Fund
Universe Average 22.86% 18.63% 16.71%
The table reflects the maximum sales charge that you may be required to pay upon
purchase of the Fund's Class A shares.
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.
5
<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:
Class A Class B Class C
Shares Shares Shares
---- ---- ----
Shareholder Fees
(fees paid directly from
your investment)
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) ............................ 5.75% None None
Maximum Deferred Sales
Charge (Load)(1) .............................. None 5% 1%
(as a percentage of
amount invested)
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends
(and other Distributions) ..................... None None None
Redemption Fees .................................. None None None
Exchange Fee ..................................... None None None
Maximum Account Fee .............................. None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)(2)
Management Fees .................................. 0.54% 0.% 0.%
Distribution and
Service (12b-1) Fees(3) ....................... 0.22% 1.00% 1.00%
Other Expenses ................................... 0.12% 0.% 0.%
Total Annual Fund
Operating Expenses ............................ 0.88% 0.% 0.%
- -------------------
(1) The contingent deferred sales charge which is imposed on redemption
proceeds of Class B shares declines from 5% of the amount invested to 0%
after 7 years. For Class C shares, a 1% contingent deferred sales charge
applies to the proceeds of redemption of Class C shares held for less than
12 months.
(2) Expense ratios are based on the management fees and other Fund-level
expenses of the Fund 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 less
that those shown.
(3) It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities
Dealers, Inc.
6
<PAGE>
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 Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class A
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Class A $ 660 $ 840 $1,035 $1,597
Class B (assuming
redemption of all
shares at end of period) $ $ $ $
Class B (assuming
no redemption
at end of period) $ $ $ $
Class C (assuming
redemption of all
shares at end of period) $ $ $ $
Class C (assuming
no redemption
at end of period) $ $ $ $
Your Class A costs would be the same whether or not you redeemed your shares at
the end of each time period. For a more complete discussion of certain expenses
and fees, see "Management Fee."
7
<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 maintains 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.
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 to decline -- the longer the maturity of the
Funds holdings the greater the interest rate risk; 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.
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.
8
<PAGE>
Performance
The chart and 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 returns for 1, 5 and 10 years
compare with those of a broad measure of market performance.
o The chart presents the total annual returns for Class A and shows how
performance has varied from year to year over the past ten years.
o The table shows Class A average annual returns and compares them to
the market indicators listed.
o Both the chart and the 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 (%)
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%
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 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
were included, the returns would be less than those shown.
Average Annual Total Returns
as of December 31, 1998 (%)
1 Year 5 Years 10 Years
------------------------------------------
Class A Shares of Bond Fund 1.10% 5.40% 8.04%
Lehman Brothers Gov't./Corp.
Bond Index 8.76% 7.20% 9.18%
Salomon Brothers Broad
Investment Grade Index 8.71% 7.30% 9.31%
Lipper Corporate Debt Funds
A-Rated Universe Average 7.47% 6.54% 8.82%
The table reflects the maximum sales charge that you may be required to pay upon
purchase of the Fund's Class A shares.
The indexes shown are broad-based, securities market indexes that are unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the goal
of the Fund.
9
<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:
Class A Class B Class C
Shares Shares Shares
---- ---- ----
Shareholder Fees
(fees paid directly from
your investment)
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) ............................ 5.75% None None
Maximum Deferred Sales
Charge (Load)(4) .............................. None 5% 1%
(as a percentage of
amount invested)
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends ..................................... None None None
(and other Distributions)
Redemption Fees .................................. None None None
Exchange Fee ..................................... None None None
Maximum Account Fee .............................. None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)(5)
Management Fees .................................. 0.42% 0.% 0.%
Distribution and
Service (12b-1) Fees(6) ....................... 0.23% 1.00% 1.00%
Other Expenses ................................... 0.18% 0.% 0.%
Total Annual Fund
Operating Expenses ............................ 0.83% 0.% 0.%
- ----------
(4) The contingent deferred sales charge which is imposed on redemption
proceeds of Class B shares declines from 5% of the amount invested to 0%
after 7 years. For Class C shares, a 1% contingent deferred sales charge
applies to the proceeds of redemption of Class C shares held for less than
12 months.
(5) Expense ratios are based on the management fees and other Fund-level
expenses of the Fund 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 less
that those shown.
(6) It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities
Dealers, Inc.
10
<PAGE>
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 Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class A
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years
Class A $ 655 $ 825 $1,009 $1,541
Class B (assuming
redemption of all
shares at end of period) $ $ $ $
Class B (assuming
no redemption
at end of period) $ $ $ $
Class C (assuming
redemption of all
shares at end of period) $ $ $ $
Class C (assuming
no redemption
at end of period) $ $ $ $
Your Class A costs would be the same whether or not you redeemed your shares at
the end of each time period. For a more complete discussion of certain expenses
and fees, see "Management Fee."
11
<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 primarily 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.
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
o WRIMCO's skill in evaluating and selecting securities for the Fund.
Market risk for small- or medium-sized companies may be greater than that for
large companies.
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.
12
<PAGE>
Performance
The chart and 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 returns for 1, 5 and 10 years
compare with those of a broad measure of market performance.
o The chart presents the total annual returns for Class A and shows how
performance has varied from year to year over the past ten years.
o The table shows Class A average annual returns and compares them to the
market indicators listed.
o Both the chart and the 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 (%)
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%
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 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
were included, the returns would be less than those shown.
Average Annual Total Returns
as of December 31, 1998 (%)
1 Year 5 Years 10 Years
------------------------------------------
Class A Shares of Income Fund 16.90% 17.93% 16.56%
S&P 500 Index 28.70% 24.08% 19.21%
Lipper Equity Income Fund
Universe Average 10.89% 16.62% 14.47%
The table reflects the maximum sales charge that you may be required to pay upon
purchase of the Fund's Class A shares.
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.
13
<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:
Class A Class B Class C
Shares Shares Shares
---- ---- ----
Shareholder Fees
(fees paid directly from
your investment)
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) ............................ 5.75% None None
Maximum Deferred Sales
Charge (Load)(7) .............................. None 5% 1%
(as a percentage of
amount invested)
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends ..................................... None None None
(and other Distributions)
Redemption Fees .................................. None None None
Exchange Fee ..................................... None None None
Maximum Account Fee .............................. None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)(8)
Management Fees .................................. 0.54% 0.% 0.%
Distribution and
Service (12b-1) Fees(9) ....................... 0.22% 1.00% 1.00%
Other Expenses ................................... 0.13% 0.% 0.%
Total Annual Fund
Operating Expenses ............................ 0.89% 0.% 0.%
- ----------
(7) The contingent deferred sales charge which is imposed on redemption
proceeds of Class B shares declines from 5% of the amount invested to 0%
after 7 years. For Class C shares, a 1% contingent deferred sales charge
applies to the proceeds of redemption of Class C shares held for less than
12 months.
(8) Expense ratios are based on the management fees and other Fund-level
expenses of the Fund 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 less
that those shown.
(9) It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities
Dealers, Inc.
14
<PAGE>
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 Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class A
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years
Class A $ 661 $ 843 $ 1,040 $1,608
Class B (assuming
redemption of all
shares at end of period) $ $ $ $
Class B (assuming
no redemption
at end of period) $ $ $ $
Class C (assuming
redemption of all
shares at end of period) $ $ $ $
Class C (assuming
no redemption
at end of period) $ $ $ $
Your Class A costs would be the same whether or not you redeemed your shares at
the end of each time period. For a more complete discussion of certain expenses
and fees, see "Management Fee."
15
<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.
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 governmental 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
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.
An investment by the Fund 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 with your investment objectives.
16
<PAGE>
Performance
The chart and 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 returns for 1, 5
and 10 years compare with those of a broad measure of market performance.
o The chart presents the total annual returns for Class A and shows how
performance has varied from year to year over the past ten years.
o The table shows Class A average annual returns and compares them to the
market indicators listed.
o Both the chart and the 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 (%)
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%
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 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
were included, the returns would be less than those shown.
Average Annual Total Returns
as of December 31, 1998 (%)
1 Year 5 Years 10 Years
------------------------------------------
Class A Shares of Science
and Technology Fund 50.15% 24.37% 19.75%
S&P 400 Index 33.85% 24.84% 19.37%
Lipper Science and Technology
Fund Universe Average 50.81% 24.26% 23.62%
The table reflects the maximum sales charge that you may be required to pay upon
purchase of the Fund's Class A shares.
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.
17
<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:
Class A Class B Class C
Shares Shares Shares
------- ------- -------
Shareholder Fees
(fees paid directly from
your investment)
Maximum Sales Charge(Load)
Imposed on Purchases
(as a percentage
of offering price) 5.75% None None
Maximum Deferred Sales
Charge (Load)(10) None 5% 1%
(as a percentage of
amount invested)
Maximum Sales Charge (Load)
Imposed on Reinvested
Dividends None None None
(and other Distributions)
Redemption Fees None None None
Exchange Fee None None None
Maximum Account Fee None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)(11)
Management Fees 0.59% 0.% 0.%
Distribution and
Service (12b-1) Fees(12) 0.24% 1.00% 1.00%
Other Expenses 0.22% 0.% 0.%
Total Annual Fund
Operating Expenses 1.05% 0.% 0.%
- ----------
(10) The contingent deferred sales charge which is imposed on redemption
proceeds of Class B shares declines from 5% of the amount invested to 0%
after 7 years. For Class C shares, a 1% contingent deferred sales charge
applies to the proceeds of redemption of Class C shares held for less than
12 months.
(11) Expense ratios are based on the management fees and other Fund-level
expenses of the Fund 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 less
that those shown.
(12) It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees which are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities
Dealers, Inc.
18
<PAGE>
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 Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class A
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years
Class A $ 676 $ 890 $1,121 1,784
Class B (assuming
redemption of all
shares at end of period) $ $ $ $
Class B (assuming
no redemption
at end of period) $ $ $ $
Class C (assuming
redemption of all
shares at end of period) $ $ $ $
Class C (assuming
no redemption
at end of period) $ $ $ $
Your Class A costs would be the same whether or not you redeemed your shares at
the end of each time period. For a more complete discussion of certain expenses
and fees, see "Management Fee."
19
<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.
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.
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 which
means rated at least BBB by S&P and at least Baa by MIS) or preferred stock, or
in common stocks that WRIMCO chooses because they are less volatile rather than
for their growth potential. Taking a defensive position in any of these ways may
reduce the potential for appreciation in the Fund's portfolio.
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, non-investment grade securities, convertible securities and debt
securities with warrants attached. There is no guarantee that the Fund will
achieve its goal.
The Fund limits its acquisition of securities so that at least 90% of its 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.
20
<PAGE>
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.
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.
WRIMCO may also consider the maturity of the obligation and the size or nature
of the bond issue.
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 defensive position, the Fund's yield may be reduced.
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 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.
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.
21
<PAGE>
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. Taking a defensive position
may reduce the potential for appreciation in the Fund's portfolio yield.
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;
o communications and electronic equipment;
o computer software and services;
o computer systems; 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 in preferred
stock, debt securities and convertible securities.
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.
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. Taking a defensive position, in any manner, may
reduce the potential for appreciation in the Fund's portfolio.
22
<PAGE>
Each Fund may also invest in and use other types of instruments in seeking to
achieve its goals. 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, the derivative is measured. At this time, the Funds have limited exposure to
derivative investments. You will find more information in the Statement of
Additional Information ("SAI") about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them.
WRIMCO will generally sell a security if it determines that the security no
longer presents sufficient appreciation or growth potential, falls short of
WRIMCO's expectations, or WRIMCO believes there are alternative investment
opportunities for the Funds.
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 the Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the 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.
Because the Funds own different types of investments, their performance will be
affected by a variety of factors. In general, the value of each Fund's
investments and the income it may generate will vary from day to day, generally
due to changes in market conditions, interest rates and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments.
United Accumulative Fund and United Science and Technology Fund may each
actively trade securities in seeking to achieve their goals. Doing so may
increase transaction costs (which may reduce performance) and increase
distributions paid by the Funds which may increase your taxable income.
Certain types of each Funds' authorized investments and strategies (such as
foreign securities, "junk bonds" and derivative instruments) involve special
risks. Depending on how much the 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
23
<PAGE>
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 (bonds rated BB and below by S&P and Ba and below by MIS) pose a greater
risk of nonpayment of interest or principal than higher-rated bonds. Derivative
instruments may expose a Fund to greater volatility than an investment in a more
traditional stock, bond or other security.
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.
Also, each Fund may be adversely affected by the conversion of certain European
currencies into the Euro. This 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.
24
<PAGE>
Financial Highlights
United Accumulative Fund
The following information is to help you understand the financial
performance of the Fund's Class A* 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 the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class A share outstanding throughout each period.*
For the fiscal year ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Per-share Data
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%
Ratios/Supplemental Data
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%
*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.
25
<PAGE>
United Bond Fund
The following information is to help you understand the financial
performance of the Fund's Class A* 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 the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class A share outstanding throughout each period.*
For the fiscal year ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Per-share Data
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%
Ratios/Supplemental Data
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%
*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.
26
<PAGE>
United Income Fund
The following information is to help you understand the financial
performance of the Fund's Class A* 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 the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class A share outstanding throughout each period.*
For the fiscal year ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Per-share Data
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%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) ................ $7,368 $6,196 $4,850 $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%
*On June 17, 1995, Fund shares outstanding were designated Class A shares.
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.
27
<PAGE>
United Science and Technology Fund
The following information is to help you understand the financial
performance of the Fund's Class A* 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 the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class A share outstanding throughout each period.*
For the fiscal year ended December 31,
----------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Per-share Data
Net asset value,
beginning of
period ................... $6.71 $7.78 $7.63 $5.07 $4.94
----- ----- ----- ----- -----
Income from investment operations:
Net investment
income (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%
Ratios/Supplemental Data
Net assets, end of
period (in
millions) ................ $1,668 $1,062 $981 $821 $497
Ratio of expenses to
average net assets ....... 1.05% 1.02% 0.98% 0.93% 0.96%
Ratio of net investment
income (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%
*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.
28
<PAGE>
Your Account
Choosing a Share Class
This Prospectus offers three classes of shares for each Fund: Class A,
Class B and Class C. Each class has its own sales charge and expense structure.
You should choose the class that seems best for you, which usually depends on
how much you plan to invest and how long you plan to hold your shares. 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 a least seven years) or Class C shares (if investing for less than seven
years). 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 the
future investment.
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 service fee of up to 0.25% of average net assets. The
ongoing expenses of this class are lower than those for Class B or Class C
shares.
Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
- -------- -------- -------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
29
<PAGE>
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 NAV of Class A shares already held ("rights of
accumulation");
o Grouping all purchases of Class A shares made during a thirteen-month
period ("Statement of Intention"); 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 A purchaser using the proceeds of a redemption, made within 30 days
prior to the Class A shares purchase, of shares of a mutual fund,
other than a fund managed by WRIMCO, on which an initial sales charge
or a contingent deferred sales charge was paid, if this waiver is
requested at the time the Class A share purchase order is placed and,
if required, evidence of qualification for the waiver is provided to
Waddell & Reed, Inc.;
o 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;
o Certain retirement plans and certain trusts for these persons; and
o A 401(k) plan having 100 or more eligible employees.
You will find more information in the SAI about sales charge reductions
and waivers.
Class B shares are not subject to a sales charge when you buy them.
However, you may pay a contingent deferred sales charge if you sell your Class B
shares within seven 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
an annual distribution fee of up to 0.75% of average net assets. Over time,
these fees will increase the cost our your investment and may cost you more than
if you had bought Class A shares. If you hold your Class B shares for seven
years, they will automatically convert to Class A shares, which have lower
ongoing expenses.
The Corporation 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 contingent deferred sales charge discussed herein.
Deferred
Date of Sales
Redemption Charge
any time during the calendar year of investment and the first full calendar year
after the calendar year of investment 5%
second full calendar year 4%
third full calendar year 3%
fourth full calendar year 3%
fifth full calendar year 2%
sixth full calendar year 1%
after sixth full calendar year 0%
30
<PAGE>
The deferred sales charge will be applied to the total amount invested
during a calendar year to acquire shares or the value of the shares redeemed,
whichever is less. All investments made during a calendar year are deemed a
single investment during that calendar year for purposes of calculating the
deferred sales charge.
Contingent Deferred Sales Charge. A contingent deferred sales charge
may be assessed against your redemption amount and paid to Waddell & Reed, Inc.
(the "Distributor"), subject to the limitation described under "Distribution"
and as further described below. The purpose of the deferred sales charge is to
compensate the Distributor for the costs incurred by it in connection with the
sale of a Fund's Class B shares. The deferred sales charge will not be imposed
on Class B 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 shares
purchased during the deferred sales charge period.
For purposes of determining the applicability and rate of any deferred
sales charge, it will be assumed that a redemption is made first of Class B
shares purchased during the deferred sales charge period representing capital
appreciation, next of Class B shares purchased during the deferred sales charge
period representing payment of dividends and distributions and then of Class B
shares held by the shareholder for the longest period of time.
Unless instructed otherwise, the Corporation, when requested to redeem
a specific dollar amount, will redeem additional Class B shares equal in value
to the deferred sales charge. For example, should you request a $1,000
redemption and the applicable deferred sales charge is $27, the Fund will redeem
shares having an aggregate NAV of $1,027, absent different instructions.
The deferred sales charge will not apply in the following
circumstances:
o in connection with redemptions of Class B shares requested within one year
of the shareholder's death or disability, provided the Corporation is
notified of the death or disability at the time of the request and
furnished proof of such event satisfactory to the Distributor.
31
<PAGE>
o in connection with redemptions of Class B shares that are made to effect a
distribution from a qualified retirement plan following retirement, a
required minimum distribution from an individual retirement account, Keogh
plan or Internal Revenue Code section 403(b)(7) custodial account, or 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 in connection with redemptions of Class B shares purchased by current or
retired directors of the Corporation, or current or retired officers or
employees of the Corporation, WRIMCO, the Distributor or their affiliated
companies, registered representatives of Waddell & Reed, Inc., and by the
members of immediate families of such persons.
o in connection with redemptions of Class B shares made pursuant to a
shareholder's participation in any systematic withdrawal plan adopted for a
Fund. (The Plan and this exclusion from the deferred sales charge do not
apply to a one-time withdrawal.)
o in connection with redemptions the proceeds of which are reinvested in
Class B shares of a Fund within thirty days after such redemption.
o in connection with the exercise of certain exchange privileges.
o on redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's Class B shares of a Fund if the aggregate NAV of those shares
is less than $500.
o in connection with 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 shares of a Fund
acquired pursuant to such reorganization.
These exceptions may be modified or eliminated by the Corporation at
any time without prior notice to shareholders, except with respect to
redemptions effected pursuant to the Corporation's right to liquidate a
shareholder's shares, which requires certain notices.
Class C shares are not subject to a sales charge when you buy them, but
if you sell your Class C shares within 12 months of buying them, you will pay a
1% deferred sales charge. Class C shares pay an annual 12b-1 fee of up to 0.25%
of average net assets and an annual 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.
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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).
- -------------------------------------------------
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.
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<PAGE>
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 involve fewer administrative requirements than 401(k) or other
qualified plans generally.
o Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with
a maximum of $30,000 per year.
o 401(k) Programs allow employees of corporations and non-governmental
tax-exempt organizations of all sizes to contribute a percentage of their
wages on a tax-deferred basis. These accounts need to be established by the
administrator or trustee of the plan.
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.
- -------------------------------------------------
34
<PAGE>
Buying Shares
You may buy shares of the Fund 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.
The price to buy a Fund share is its offering price, which is
calculated every business day.
The offering price of a share (price to buy one share of a particular
class) is the net asset value ("NAV") 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.
A Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Funds normally calculate their NAVs as of the 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.
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.
35
<PAGE>
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.
Each Fund has adopted a Distribution and Service Plan ("Plan") pursuant
to Rule 12b-1 under the Investment Company Act of 1940. Under the Class A Plan,
the 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 services to Class A shareholders or maintaining Class A
shareholder accounts. Under the Class B Plan and the Class C Plan, the Fund may
pay Waddell & Reed, Inc. a service fee of up to 0.25% and a distribution fee of
up to 0.75%, on an annual basis, of the average daily net assets of the shares
of the class to compensate Waddell & Reed, Inc. for distributing the shares of
that class, providing services to shareholders of that class and/or maintaining
shareholders accounts for 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.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts
opened with Automatic Investment Service $50
For certain retirement accounts and accounts
opened through payroll deductions for or by
employees of WRIMCO, Waddell & Reed, Inc. and
their affiliates $25
To Add to an Account
For certain exchanges $100
For Automatic Investment Service $25
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<PAGE>
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can
make additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc.
Mail the check along with:
o the detachable form that accompanies the confirmation of a prior
purchase or your year-to-date statement; or
o a letter stating your account number, the account registration
and the class of shares that you wish to purchase.
Mail to Waddell & Reed, Inc. at the address printed on your
confirmation or year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one share of a particular class) is
the NAV per share of that class, subject to any contingent deferred sales
charges applicable to Class B or Class C shares.
To sell shares, your request must be made in writing.
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, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed, Inc. will send a check to
the address on the account.
37
<PAGE>
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or Joint Tenant The written instructions must be 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 Organization At least one person authorized by corporate
resolution to act on the account must sign the
written instructions.
Conservator, Guardian or The written instructions must be signed by the
Other Fiduciary person properly authorized by court order to act
in the particular fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request for redemption in good
order by Waddell & Reed, Inc. at its home office, subject to applicable
contingent deferred sales charges. Note the following:
o If more than one person owns the shares, each owner must sign the written
request.
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
38
<PAGE>
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.
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 intended 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.
Each Fund reserves the right to redeem at NAV all 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 the Fund.
The deferred sales charge will not apply to the proceeds of Class B or
Class C shares which are redeemed and then reinvested in Class B or Class C
shares within thirty days after such redemption. 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 may be reinvested, without payment of a sales
charge, in Class A shares of any United Group fund in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
39
<PAGE>
Personal Service
Your local Waddell & Reed financial advisor is available to provide
personal service. Additionally, one toll-free call, 1-800-366-5465, connects you
to a Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Service staff is
available to answer your questions or update your account records. At almost any
time of the day or night, you may access TeleWaddell from a touch-tone phone 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 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 payment of an additional
sales charge or a contingent deferred sales charge when you exchange the shares.
For Class B and C shares, the time period for the contingent deferred sales
charge will continue to run. 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.
40
<PAGE>
Automatic Transactions
Flexible withdrawal service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular Investment Plans allow you to transfer money into your Fund
account, or between Fund accounts, automatically. While Regular Investment Plans
do not guarantee a profit and will not protect you against loss in a declining
market, they can be an excellent way to invest for retirement, a home,
educational expenses and other long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also
apply for retirement accounts. Speak with your Waddell & Reed financial advisor
for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to a Fund whether in the same or
a different account
Minimum Frequency
$100 Monthly
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income
and net capital gains to its shareholders each year. 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.
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
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.
41
<PAGE>
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.
3. Cash Option. You will be sent a check for your dividends, capital gains and
other distributions.
For retirement accounts, all distributions are automatically paid in
Fund 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 (if you are a noncorporate shareholder of the Fund) may
be taxable at different rates depending on how long the Fund held the assets
generating the gains, but 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 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 distributions and redemption proceeds payable to individuals and certain
other noncorporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends and
capital gains distributions also is required for shareholders subject to backup
withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the
42
<PAGE>
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.
43
<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 1940 or the inception of the company, whichever
was later. 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 since February 1979 and has been an
employee of WRIMCO 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.
Russell E. Thompson and James D. Wineland are primarily responsible for
the management of the portfolio of United Income Fund. Mr. Thompson has held his
Fund responsibilities since February 1979. He is Senior Vice President of
WRIMCO, Vice President of the Fund and Vice President of other investment
companies for which WRIMCO serves as investment manager. From January 1992 to
March 1998, Mr. Thompson was Senior Vice President of, and a portfolio manager
for, Waddell & Reed Asset Management Company, a former affiliate of WRIMCO. Mr.
Thompson has served as the portfolio manager for investment companies managed by
WRIMCO since January 1976, and has been an employee of WRIMCO since March 1971.
Mr. Wineland has held his Fund responsibilities since July 1, 1997. He
is Vice President of WRIMCO, Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. From
March 1995 to March 1998, Mr. Wineland was Vice President of, and a portfolio
manager for, Waddell & Reed Asset Management Company. Mr. Wineland has served as
the portfolio manager for investment companies managed by WRIMCO since January
1988 and has been an employee of WRIMCO since November 1984.
44
<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 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 of each Fund is calculated by adding a group fee to
a specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on each Fund's net asset value as of the
close of business each day at the annual rate of .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 is determined on the basis of
the combined net asset values of all the funds in the United Group at the annual
rates shown in the following table and then allocated pro rata to the Fund based
on its relative net assets.
45
<PAGE>
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
The combined net asset values of all of the funds in the United Group
were approximately $21.0 billion as of December 31, 1998.
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%.
46
<PAGE>
United Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
47
<PAGE>
United Funds, Inc.
Class A Shares
Class B Shares
Class C Shares
PROSPECTUS
April 15, 1999
You can get more information about the Funds in--
o the Statement of Additional Information (SAI) dated April 15, 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 Fund's 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.
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
printed on recycled paper NUP1000(4-99)
48
<PAGE>
United Funds, Inc.
Class Y Shares
United Funds, Inc. (the "Corporation") is a management investment company that
has four separate funds (the "Funds"), each of which is designed for investors
with different goals.
United Accumulative Fund seeks capital growth of your investment with current
income a secondary goal.
United Bond Fund seeks a reasonable return with more emphasis on preservation of
capital.
United Income Fund seeks, as a primary goal, the maintenance of current income
subject to market conditions. As a secondary goal, the Fund seeks capital
growth.
United Science and Technology Fund seeks long-term capital growth through
investment in a portfolio emphasizing science and technology securities.
The Securities and Exchange Commission has not approved or disapproved the
Fund's securities, or determined whether this Prospectus is accurate or
adequate. It is a criminal offense to state otherwise.
Prospectus
April 15, 1999
<PAGE>
Table of Contents
An Overview of the Funds.....................................................4
United Accumulative Fund.....................................................4
Performance..................................................................6
Fees and Expenses............................................................7
United Bond Fund.............................................................9
Performance.................................................................11
Fees and Expenses...........................................................12
United Income Fund..........................................................14
Performance.................................................................15
Fees and Expenses...........................................................16
United Science and Technology Fund..........................................18
Performance.................................................................20
Fees and Expenses...........................................................21
The Investment Principles of the Funds......................................23
Investment Goals, Principal Strategies and Other Investments.............23
Risk Considerations of Principal Strategies and Other Investments........26
Financial Highlights........................................................28
Your Account................................................................36
Buying Shares............................................................36
Minimum Investments......................................................38
Adding to Your Account...................................................38
Selling Shares...........................................................38
Telephone Transactions...................................................40
2
<PAGE>
Shareholder Services.....................................................41
Personal Service......................................................41
Reports...............................................................41
Exchanges.............................................................41
Distributions and Taxes..................................................42
Distributions.........................................................42
Taxes.................................................................42
The Management of the Funds.................................................44
Portfolio Management.....................................................44
Management Fee...........................................................45
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 large capitalization common stocks
of 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.
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;
o an increase in interest rates which may cause the value of the Fund's
fixed-income securities to decline; and
o the skill of Waddell & Reed Investment Management Company ("WRIMCO") 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.
4
<PAGE>
Performance
The chart and 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 returns for 1 year and the
life of the class compare with those of a broad measure of market performance.
o The chart presents the total annual returns for Class Y since these shares
were first offered and shows how performance has varied from year to year.
o The table shows Class Y average annual returns and compares them to the
market indicators listed.
o Both the chart and the 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 (%)
1996 12.27%
1997 29.67%
1998 22.79%
In the period shown in the chart, the highest quarterly return was
14.04% (the second quarter of 1997) and the lowest quarterly return was
-7.33% (the third quarter of 1997).
Average Annual Total Returns
as of December 31, 1998 (%)
1 Year Life of Class*
Class Y Shares of Accumulative Fund 22.79% 22.08%
S&P 500 Index 28.70% 28.22%
Lipper Growth Fund Universe Average 22.86% 21.26%
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 July 11, 1995.
5
<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.
Shareholder Fees
(fees paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price) None
Maximum Deferred Sales
Charge (Load) None
(as a percentage of
amount invested)
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends (and other
Distributions) None
Redemption Fees None
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.54%
Distribution and
Service (12b-1) Fees None
Other Expenses 0.20%
Total Annual Fund
Operating Expenses 0.74%
Example: This example is intended to help you compare the cost of investing in
the Class Y shares of the Fund with the cost of investing in other mutual funds.
The example assumes that (a) you invest $10,000 in the Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class Y
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 Year $ 76
3 Years $237
5 Years $411
10 Years $918
Your costs would be the same whether or not you redeemed your shares at the end
of each time period. For a more complete discussion of certain expenses and
fees, see "Management Fee."
6
<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 maintains 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 may invest
in companies of any size.
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 to decline -- the longer the maturity of the Fund's
holdings the greater the interest rate risk;
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.
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.
7
<PAGE>
Performance
The chart and 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 returns for 1 year and the life of
the class compare with those of a broad measure of market performance.
o The chart presents the total annual returns for Class Y since these shares
were first offered and shows how performance has varied from year to year.
o The table shows Class Y average annual returns and compares them to the
market indicators listed.
o Both the chart and the 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 (%)
1996 3.35%
1997 9.91%
1998 7.54%
In the period shown in the chart, the highest quarterly return was
3.83% (the second quarter of 1997) and the lowest quarterly return was
-2.27% (the first quarter of 1996).
Average Annual Total Returns
as of December 31, 1998 (%)
1 Year Life of Class*
Class Y Shares of Bond Fund 7.54% 7.92%
Salomon Brothers Broad Investment
Grade Index 8.71% 8.08%
Lipper Corporate Debt Funds
A-Rated Universe Average 7.47% 7.40%
The indexes shown are broad-based, securities market indexes that are unmanaged.
The Lipper average is a composite of mutual funds with goals similar to the goal
of the Fund.
*Since June 19, 1995.
8
<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.
Shareholder Fees
(fees paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price) None
Maximum Deferred Sales
Charge (Load) None
(as a percentage of
amount invested)
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends (and other
Distributions) None
Redemption Fees None
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.42%
Distribution and
Service (12b-1) Fees None
Other Expenses 0.18%
Total Annual Fund
Operating Expenses 0.60%
Example: This example is intended to help you compare the cost of investing in
the Class Y shares of the Fund with the cost of investing in other mutual funds.
The example assumes that (a) you invest $10,000 in the Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class Y
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 Year $ 61
3 Years $192
5 Years $335
10 Years $750
Your costs would be the same whether or not you redeemed your shares at the end
of each time period. For a more complete discussion of certain expenses and
fees, see "Management Fee."
9
<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 primarily 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.
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 earnings performance, credit quality and other conditions of the companies
whose securities the Fund holds; and
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.
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.
10
<PAGE>
Performance
The chart and table below show 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 returns for 1 year and the
life of the class compare with those of a broad measure of market performance.
o The chart presents the total annual returns for Class Y since these shares
were first offered and shows how performance has varied from year to year.
o The table shows Class Y average annual returns and compares them to the
market indicators listed.
o Both the chart and the 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 (%)
1996 20.53%
1997 27.49%
1998 24.27%
In the period shown in the chart, the highest quarterly return was
18.76% (the second quarter of 1997) and the lowest quarterly return was
-7.23% (the third quarter of 1998).
Average Annual Total Returns
as of December 31, 1998 (%)
1 Year Life of Class*
Class Y Shares of Income Fund 24.27% 22.83%
S&P 500 Index 28.70% 28.64%
Lipper Equity Income Fund
Universe Average 10.89% 20.00%
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.
11
<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.
Shareholder Fees
(fees paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price) None
Maximum Deferred Sales
Charge (Load) None
(as a percentage of
amount invested)
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends (and other
Distributions) None
Redemption Fees None
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.54%
Distribution and
Service (12b-1) Fees None
Other Expenses 0.16%
Total Annual Fund
Operating Expenses 0.70%
Example: This example is intended to help you compare the cost of investing in
the Class Y shares of the Fund with the cost of investing in other mutual funds.
The example assumes that (a) you invest $10,000 in the Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class Y
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 Year $ 72
3 Years $224
5 Years $390
10 Years $871
Your costs would be the same whether or not you redeemed your shares at the end
of each time period. For a more complete discussion of certain expenses and
fees, see "Management Fee."
12
<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.
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 governmental 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
o WRIMCO's skill 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 by the Fund 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 with your investment objectives.
13
<PAGE>
Performance
The chart and table below show 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
returns for 1 year and the life of the class compare with those of a broad
measure of market performance.
o The chart presents the total annual returns for Class Y since these shares
were first offered and shows how performance has varied from year to year.
o The table shows Class Y average annual returns and compares them to the
market indicators listed.
o Both the chart and the 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 (%)
1997 7.43%
1998 59.71%
In the period shown in the chart, the highest quarterly return was
34.49% (the fourth quarter of 1998) and the lowest quarterly return was
-15.14% (the first quarter of 1997).
Average Annual Total Returns
as of December 31, 1998 (%)
1 Year Life of Class*
Class Y Shares of Science and
Technology Fund 59.71% 22.26%
S&P 400 Index 33.85% 29.24%
Lipper Science and Technology Fund
Universe Average 50.81% 22.42%
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.
14
<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.
Shareholder Fees
(fees paid directly from
your investment)
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price) None
Maximum Deferred Sales
Charge (Load) None
(as a percentage of
amount invested)
Maximum Sales Charge
(Load) Imposed on Reinvested
Dividends (and other
Distributions) None
Redemption Fees None
Exchange Fee None
Maximum Account Fee None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.59%
Distribution and
Service (12b-1) Fees None
Other Expenses 0.20%
Total Annual Fund
Operating Expenses 0.79%
Example: This example is intended to help you compare the cost of investing in
the Class Y shares of the Fund with the cost of investing in other mutual funds.
The example assumes that (a) you invest $10,000 in the Fund for each time period
specified, (b) your investment has a 5% return each year, and (c) the Class Y
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:
1 Year $ 81
3 Years $252
5 Years $439
10 Years $978
Your costs would be the same whether or not you redeemed your shares at the end
of each time period. For a more complete discussion of certain expenses and
fees, see "Management Fee."
15
<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.
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.
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 which
means rated at least BBB by S&P and at least Baa by MIS) or preferred stock, or
in common stocks that WRIMCO chooses because they are less volatile rather than
for their growth potential. Taking a defensive position in any of these ways may
reduce the potential for appreciation in the Fund's portfolio.
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, non-investment grade securities, convertible securities and debt
securities with warrants attached. There is no guarantee that the Fund will
achieve its goal.
The Fund limits its acquisition of securities so that at least 90% of its 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.
16
<PAGE>
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.
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.
WRIMCO may also consider the maturity of the obligation and the size or nature
of the bond issue.
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 defensive position, the Fund's yield may be reduced.
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 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.
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.
17
<PAGE>
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. Taking a defensive position
may reduce the potential for appreciation in the Fund's portfolio yield.
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;
o communications and electronic equipment;
o computer software and services;
o computer systems; 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 in preferred
stock, debt securities and convertible securities.
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.
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. Taking a defensive position, in any manner, may
reduce the potential for appreciation in the Fund's portfolio.
18
<PAGE>
Each Fund may also invest in and use other types of instruments in seeking to
achieve its goals. 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, the derivative is measured. At this time, the Funds have limited exposure to
derivative investments. You will find more information in the Statement of
Additional Information ("SAI") about each Fund's permitted investments and
strategies, as well as the restrictions that apply to them.
WRIMCO will generally sell a security if it determines that the security no
longer presents sufficient appreciation or growth potential, falls short of
WRIMCO's expectations, or WRIMCO believes there are alternative investment
opportunities for the Funds.
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 the Fund invests in debt securities, the Fund's
financial risk depends on the credit quality of the 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.
Because the Funds own different types of investments, their performance will be
affected by a variety of factors. In general, the value of each Fund's
investments and the income it may generate will vary from day to day, generally
due to changes in market conditions, interest rates and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments.
United Accumulative Fund and United Science and Technology Fund may each
actively trade securities in seeking to achieve their goals. Doing so may
increase transaction costs (which may reduce performance) and increase
distributions paid by the Funds which may increase your taxable income.
Certain types of each Funds' authorized investments and strategies (such as
foreign securities, "junk bonds" and derivative instruments) involve special
risks. Depending on how much the Fund invests or uses these strategies, these
special
19
<PAGE>
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 (bonds
rated BB and below by S&P and Ba and below by MIS) pose a greater risk of
nonpayment of interest or principal than higher-rated bonds. Derivative
instruments may expose a Fund to greater volatility than an investment in a more
traditional stock, bond or other security.
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.
Also, each Fund may be adversely affected by the conversion of certain European
currencies into the Euro. This 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.
20
<PAGE>
Financial Highlights
UNITED ACCUMULATIVE FUND
The following information is to help you understand the financial
performance of the Fund's 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 the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the fiscal year For the
ended December 31, period from
------------------------------ 7/11/95* to
1998 1997 1996 12/31/95
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Per-share Data
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%
Ratios/Supplemental Data
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.
21
<PAGE>
UNITED BOND FUND
The following information is to help you understand the financial
performance of the Fund's 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 the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class Y share 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>
Per-share Data
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%
Ratios/Supplemental Data
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.
22
<PAGE>
UNITED INCOME FUND
The following information is to help you understand the financial
performance of the Fund's 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 the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class Y share 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>
Per-share Data
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%
Ratios/Supplemental Data
Net assets, end of
period (in millions) ............ $399 $299 $151 $108
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>
*Commencement of operations.
**Annualized.
23
<PAGE>
UNITED SCIENCE AND TECHNOLOGY FUND
The following information is to help you understand the financial
performance of the Fund's 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 the Fund's financial statements for the fiscal year
ended December 31, 1998, is included in the SAI, which is available upon
request.
For a Class Y share outstanding throughout each period:
<TABLE>
<CAPTION>
For the For the For the
fiscal fiscal period from
year ended year ended 2/27/96* to
12/31/98 12/31/97 12/31/96
---------- ---------- -----------
<S> <C> <C> <C>
Per-share Data
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%
Ratios/Supplemental Data
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>
*Commencement of operations.
**Annualized.
24
<PAGE>
Your Account
Class Y shares are designed for institutional investors or others
investing through certain intermediaries. Class Y shares are available for
purchase by:
o participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended (the "Code"), when the plan has
100 or more eligible employees and holds the shares in an omnibus account
on the Fund's records;
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.
Buying Shares
You may buy shares 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, Inc. financial advisor can help you with any
questions you might have.
The price to buy a share of each Fund, called the offering price, is
calculated every business day.
The offering price of a Class Y share (price to buy one Class Y share)
is each Fund's Class Y net asset value ("NAV") per share.
To purchase by wire, you must first obtain an account number by calling
1-800-366-5465, then mail a completed application to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217 or fax it to 913-236-5044.
Instruct your bank to wire the amount you wish to invest to UMB Bank, n.a., ABA
Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc.
Mail the check, along with your completed account application, to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217.
25
<PAGE>
You may also buy shares of certain of the Funds indirectly through
certain broker-dealers, banks and other third parties, some of which may charge
you a fee. These firms may have additional requirements to buy shares.
In the calculation of a Fund's Class Y NAV:
o The securities in each 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.
A Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Funds normally calculate their NAVs as of the 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 or commodities 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 the Fund's shares.
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 Y shares of the
Funds.
o If you purchase Fund shares from certain broker-dealers, banks or other
authorized third parties, the Fund will be deemed to have received your
purchase order when that third party (or its designee) has received your
order. Your order will
26
<PAGE>
receive the offering price next calculated after the order has been
received in proper form by the authorized third party (or its designee).
You should consult that firm to determine the time by which it must receive
your order for you to purchase Fund shares at that day's price.
When you sign your account application, you will be asked to certify
that your Social Security or other taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income to
the Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Funds reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation: $10 million (within
first twelve months)
For other investors: Any amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount
you wish to invest, along with the account number and registration, to UMB Bank,
n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer
Name and Account Number.
To add to your account by mail: Make your check payable to Waddell &
Reed, Inc. Mail the check along with a letter stating your account number, the
account registration and that you wish to purchase Class Y shares of a Fund to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
If you purchase Fund shares from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through these 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.
27
<PAGE>
The redemption price (price to sell one Class Y share) is the Fund's
Class Y NAV per share.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed 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 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, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
Unless otherwise instructed, Waddell & Reed, Inc. will send a check to
the address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
------------ --------------------
Retirement 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
Organization by corporate resolution to act on the account
must sign the written instructions.
28
<PAGE>
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request for redemption in good
order by Waddell & Reed, Inc. at its home office. Note the following:
o If more than one person owns the shares, each owner must sign the written
request.
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.
o If you purchased Fund shares from certain broker-dealers, banks or other
authorized third parties, you may sell those shares through those firms,
some of which may charge you a fee and may have additional requirements to
sell Fund shares. The Fund will be deemed to have received your order to
sell shares when that firm (or its designee) has received your order. Your
order will receive the offering price next calculated after the order has
been received in proper form by the authorized firm (or its designee). You
should consult that firm to determine the time by which it must receive
your order for you to sell Fund shares at that day's price.
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 intended 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.
29
<PAGE>
Telephone Transactions
The Corporation and its agents will not be liable for following
instructions communicated by telephone that they reasonably believe to be
genuine. The Corporation will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If the Corporation fails to
do so, the Corporation may be liable for losses due to unauthorized or
fraudulent instructions. Current procedures relating to instructions
communicated by telephone include tape recording instructions, requiring
personal identification and providing written confirmations of transactions
effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed financial advisor is available to provide
personal service. Additionally, one toll-free call, 1-800-366-5465, connects you
to a Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Service staff is
available to answer your questions or update your account records. At almost any
time of the day or night, you may access TeleWaddell from a touch-tone phone 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, 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 will be mailed to your household, even if you have more than
one account with the Fund. Call the telephone number listed above for Customer
Service if you need copies of annual or semiannual reports or account
information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds
in the United Group or Class A shares of United Cash Management, Inc. You may
exchange only into funds that are legally 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.
30
<PAGE>
The Funds reserve the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Distributions and Taxes
Distributions
Each Fund distributes substantially all of its net investment income
and net capital gains to its shareholders each year. Usually, the 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.
<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
will be automatically paid in additional Class Y shares of the Fund. If you
do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains and other distributions will be
automatically paid in Class Y shares, but you will be sent a check for each
dividend distribution.
3. Cash Option. You will be sent a check for your dividends, capital gains and
other distributions.
For retirement accounts, all distributions are automatically paid in
Class Y 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 are generally taxable to you as ordinary income whether received
in cash or paid in additional Fund shares. Distributions of a Fund's net capital
gains, when designated as such, are taxable to you as long-term capital gains,
whether received in cash or paid in additional Fund shares and regardless of the
length of time you have owned your shares. For Federal income tax purposes, your
long-term capital gains (if you are a noncorporate shareholder of the Fund) may
be taxable at
31
<PAGE>
different rates depending on how long the Fund held the assets generating the
gains, but 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 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 distributions and redemption proceeds payable to individuals and certain
other noncorporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate from dividends and
capital gains distributions also is required for shareholders subject to backup
withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than what you paid for the redeemed shares. An exchange of Fund
shares for shares of any other fund in the United Group generally will have
similar tax consequences. In addition, if you purchase Fund shares within thirty
days before or after redeeming other Fund shares (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly purchased shares.
State 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.
32
<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 1940 or the inception of the company, whichever
was later. 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 since February 1979 and has been an
employee of WRIMCO 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.
Russell E. Thompson and James D. Wineland are primarily responsible for
the management of the portfolio of United Income Fund. Mr. Thompson has held his
Fund responsibilities since February 1979. He is Senior Vice President of
WRIMCO, Vice President of the Fund and Vice President of other investment
companies for which WRIMCO serves as investment manager. From January 1992 to
March 1998, Mr. Thompson was Senior Vice President of, and a portfolio manager
for, Waddell & Reed Asset Management Company, a former affiliate of WRIMCO. Mr.
Thompson has served as the portfolio manager for investment companies managed by
WRIMCO since January 1976, and has been an employee of WRIMCO since March 1971.
Mr. Wineland has held his Fund responsibilities since July 1, 1997. He
is Vice President of WRIMCO, Vice President of the Fund and Vice President of
other investment companies for which WRIMCO serves as investment manager. From
March 1995 to March 1998, Mr. Wineland was Vice President of, and a portfolio
manager for, Waddell & Reed Asset Management Company. Mr. Wineland has served as
the portfolio manager for investment companies managed by WRIMCO since January
1988 and has been an employee of WRIMCO since November 1984.
33
<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 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 of each Fund is calculated by adding a group fee to
a specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on each Fund's net asset value as of the
close of business each day at the annual rate of .03 of 1% of the net assets of
United Bond Fund, .15 of 1% of the net assets of United Income Fund and United
Accumulative Fund and .20 of 1% of the net assets of United Science and
Technology Fund. The group fee is a determined on the basis of the combined net
asset values of all the funds in the United Group at the annual rates shown in
the following table and then allocated pro rata to the Fund based on its
relative net assets.
34
<PAGE>
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
The combined net asset values of all of the funds in the United Group
were approximately $21.0 billion as of December 31, 1998.
For the fiscal year ended December 31, 1998, management fees for each
Fund as a percent of each Fund's net assets were as follows: United Bond Fund
0.42%, United Income Fund 0.54%, United Accumulative Fund 0.54%, United Science
and Technology Fund 0.59%.
35
<PAGE>
United Funds, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
36
<PAGE>
United Funds, Inc.
Class Y Shares
PROSPECTUS
April 15, 1999
You can get more information about the Funds in--
o the Statement of Additional Information (SAI) dated April 15, 1999, which
contains detailed information about each Fund, particularly its investment
policies and practices. You may not be aware of important information about
a 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.
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 Fund's 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
printed on recycled paper NUP1000-Y(4-99)
37
<PAGE>
UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
(800) 366-5465
April 15, 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 Class A, Class B and Class C shares or the Class Y
shares, as applicable, of United Funds, Inc. (the "Corporation") dated April 15,
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
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
<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 December 31, 1998, which is the most recent balance
sheet included in this SAI, for the periods shown were as follows:
2
<PAGE>
One-year Five-year Ten-year
period from period from period from
1-1-98 to 1-1-94 to 1-1-89 to
12-31-98 12-31-98 12-31-98
----------- ----------- -----------
United Accumulative Fund 15.57% 17.67% 14.82%
United Bond Fund 1.10% 5.40% 8.04%
United Income Fund 16.90% 17.93% 16.56%
United Science and
Technology Fund 50.15% 24.37% 19.75%
The average annual total return quotations for Class A shares without
sales load deducted as of December 31, 1998, which is the most recent balance
sheet included in this SAI, for the periods shown were as follows:
One-year Five-year Ten-year
period from period from period from
1-1-98 to 1-1-94 to 1-1-89 to
12-31-98 12-31-98 12-31-98
----------- ----------- -----------
United Accumulative Fund 22.62% 19.07% 15.50%
United Bond Fund 7.27% 6.65% 8.69%
United Income Fund 24.02% 19.33% 17.26%
United Science and
Technology Fund 59.31% 25.85% 20.47%
Prior to October 1, 1993, United Science and Technology Fund was named
United Science and Energy Fund, and its investment policies related to
investments in science and energy securities rather than science and technology
securities.
Prior to June 17, 1995, each Fund offered only one class of shares to
the public. Shares outstanding on that date were designated as Class A shares.
Since that date, Class Y shares of the Funds have been available for certain
institutional investors.
The total return quotations for Class Y shares as of December 31, 1998,
which is the most recent balance sheet included in this SAI, for the periods
shown were as follows:
One year
period Period from
ended inception* to
December 31, 1998 December 31, 1998
-------------- --------------
United Accumulative Fund 22.79% 22.08%
United Bond Fund 7.54% 7.92%
United Income Fund 24.27% 22.83%
United Science and
Technology Fund 59.71% 22.26%
*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>
A Fund may also quote unaveraged or cumulative total return for a class
which reflects the change in value of an investment in that class over a stated
period of time. Cumulative total returns will be calculated according to the
formula indicated above but without averaging the rate for the number of years
in the period.
Yield
A yield quoted for a class of a Fund is computed by dividing the net
investment income per share of that class earned during the period for which the
yield is shown by the maximum offering price per share of that class on the last
day of that period according to the following formula:
6
Yield = 2((((a - b)/cd)+1) -1)
Where, with respect to a particular class of a Fund:
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares of the class
outstanding during the period that were entitled to
receive dividends.
d = the maximum offering price per share of the class on
the last day of the period.
The yield for United Bond Fund Class A shares computed according to the
formula for the 30-day period ended on December 31, 1998, the date of the most
recent balance sheet included in this SAI, is 4.91%. The yield for United Bond
Fund Class Y shares computed according to the formula for the 30-day period
ended on December 31, 1998, the date of the most recent balance sheet included
in this SAI, is 5.65%.
Change in yields primarily reflect different interest rates received by
a Fund as its portfolio securities change. Yield is also affected by portfolio
quality, portfolio maturity, type of securities held and operating expenses of
the applicable class.
Performance Rankings
Waddell & Reed, Inc. or the Corporation also may, from time to time,
publish in advertisements or sales material performance rankings as published by
recognized independent mutual fund statistical services such as Lipper
Analytical Services, Inc., or by publications of general interest such as
Forbes, Money, The Wall Street Journal, Business Week, Barron's, Fortune or
Morningstar Mutual Fund Values. Each class of a Fund may also compare its
performance to that of other selected mutual funds or
4
<PAGE>
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. 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. See "Investment
Restrictions" 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, electronic media, business machines, office
equipment and supplies, biotechnology, medical and hospital supplies and
services, medical devices and drugs.
5
<PAGE>
United Bond Fund
This Fund may not purchase any securities other than debt securities if
immediately after such purchase more than 10% of the value of the Fund's total
assets would consist of such other securities. This 10% limit does not include
(i) any securities required to be sold as promptly as practicable after
conversion of convertible debt securities or exercise of warrants, as set forth
below, or (ii) premiums paid or received by the Fund as to those put and call
options that this Fund is permitted to use, the value of any put or call options
or futures contracts held by it or the amount of initial or variation margin
deposits as to those puts, calls or futures contracts that it is permitted to
use. The debt securities that the Fund may purchase may include convertible debt
securities and debt securities with warrants attached. The Fund may convert
convertible debt securities and exercise warrants provided that, if as a result
of conversion or exercise and/or as a result of warrants becoming separately
salable more than 10% of the value of the Fund's total assets consists of
non-debt securities, sufficient non-debt securities will be sold as promptly as
practicable to reduce the percentage of such non-debt securities held by the
Fund to 10% or less of its total assets, less the amounts set forth in (ii)
above. Any such sale shall be made with due regard for losses that might result
from an unduly hasty disposition. A debt security may not be purchased if, at
the time of purchase, it is in default in the payment of interest or if there is
less than $1,000,000 principal amount outstanding.
In selecting debt securities for the portfolio of this Fund,
consideration will be given to their yield; this yield would include the yield
to maturity in the case of debt securities purchased at a discount.
Consideration will also be given to the relative safety of debt securities
purchased and, in the case of convertible debt securities, the possibility of
capital growth.
Among the other debt securities in which the Fund may invest are
deposits in banks (represented by certificates of deposit or other evidence of
deposit issued by such banks) of varying maturities. The Federal Deposit
Insurance Corporation insures the principal of certain such deposits ("Insured
Deposits"), currently to the extent of $100,000 per bank. Insured Deposits are
not marketable, and the Fund will invest in them only within the 10% limit
mentioned below under "Illiquid Investments" unless such obligations are payable
at principal amount plus accrued interest on demand or within seven days after
demand.
Securities - General
The main types of securities in which the Funds may invest include
common stock, preferred stock, debt securities and convertible securities.
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
6
<PAGE>
smaller companies. A Fund may invest in preferred stock 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 ("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 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
7
<PAGE>
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. 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
8
<PAGE>
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.
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
9
<PAGE>
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.
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
10
<PAGE>
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 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
11
<PAGE>
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 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
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lien mortgage loans or interests therein, but include assets such as motor
vehicle installment sales contracts, other installment sale contracts, home
equity loans, leases of various types of real and personal property and
receivables from revolving credit (credit card) agreements. Such assets are
securitized through the use of trusts or special purpose corporations. Payments
or distributions of principal and interest may be guaranteed up to a certain
amount and for a certain time period by a letter of credit or pool insurance
policy issued by a financial institution unaffiliated with the issuer, or other
credit enhancements may be present. The value of asset-backed securities may
also depend on the creditworthiness of the servicing agent for the loan pool,
the originator of the loans, or the financial institution providing the credit
enhancement.
Special Characteristics of Mortgage-Backed and Asset-Backed Securities.
The yield characteristics of mortgage-backed and asset-backed securities differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other obligations generally may be prepaid at any time. Prepayments on a pool
of mortgage loans are influenced by a variety of economic, geographic, social
and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Similar factors apply to prepayments
on asset-backed securities, but the receivables underlying asset-backed
securities generally are of a shorter maturity and thus are likely to experience
substantial prepayments. Such securities, however, often provide that for a
specified time period the issuers will replace receivables in the pool that are
repaid with comparable obligations. If the issuer is unable to do so, repayment
of principal on the asset-backed securities may commence at an earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the
mortgage-backed securities, and this delay reduces the effective yield to the
holder of such securities.
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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.
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
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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 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
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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 more recently developed
receipts 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 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
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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. These 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 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
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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. Each of the Funds makes loans of its
securities only to parties deemed by WRIMCO to be creditworthy.
Any securities loan that a Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). This
policy can only be changed by shareholder vote. Under the present Guidelines,
the collateral must consist of cash, U.S. Government securities or bank letters
of credit, at least equal in value to the market value of the securities 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
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
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custodian bank) must be satisfactory to the Fund. Under the Fund's current
securities lending procedures, each Fund may lend securities only to
creditworthy broker-dealers and financial institutions deemed creditworthy by
WRIMCO. Each Fund will make loans only under rules of the NYSE, which presently
require the borrower to give the securities back to the Fund within five
business days after the Fund gives notice to do so. If a Fund loses its voting
rights on securities loaned, it will have the securities returned to it in time
to vote them if a material event affecting the investment is to be voted on. A
Fund may pay reasonable finder's, administrative and custodian fees in
connection with loans of securities.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned goes up, risks of delay in
recovering the securities loaned or even loss of rights in the collateral should
the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to: (i) whom securities may be loaned; (ii) the investment of cash collateral;
or (iii) voting rights.
Repurchase Agreements
Each of the Funds may purchase securities subject to repurchase
agreements if as a result no more than 10% of its net assets would consist of
illiquid investments (which include repurchase agreements not terminable within
seven days). See "Illiquid Investments." A repurchase agreement is an instrument
under which a Fund purchases a security and the seller (normally a commercial
bank or broker-dealer) agrees, at the time of purchase, that it will repurchase
the security at a specified time and price. The amount by which the resale price
is greater than the purchase price reflects an agreed-upon market interest rate
effective for the period of the agreement. The return on the securities subject
to the repurchase agreement may be more or less than the return on the
repurchase agreement.
The majority of the repurchase agreements in which a Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that a
Fund may suffer a loss if the seller fails to pay the agreed-upon amount on the
delivery date and that amount is greater than the resale price of the underlying
securities and other collateral held by the Fund. In the event of bankruptcy or
other default by the seller, there may be possible delays and expenses in
liquidating the underlying securities or other collateral, decline in their
value and loss of interest. The return on such collateral may be more or less
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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.
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.
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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
(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.
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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 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
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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 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
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pressures on the markets in which Financial Instruments are traded. The
effectiveness of hedges using Financial Instruments on indices will depend on
the degree of correlation between price movements in the index and price
movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts available
will not match a Fund's current or anticipated investments exactly. A Fund may
invest in options and futures contracts based on securities with different
issuers, maturities or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts. A Fund may purchase or sell options and futures
contracts with a greater or lesser value than the securities it wishes to hedge
or intends to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Fund's options or futures
positions are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not offset by
gains in other investments.
(3) If successful, the above-discussed strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if a
Fund entered into a short hedge because WRIMCO projected a decline in the price
of a security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would have
been in a better position had it not attempted to hedge at all.
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(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.
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
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put or call options can enable a Fund to enhance income or yield by reason of
the premiums paid by the purchasers of such options. However, if the market
price of the security underlying a put option declines to less than the exercise
price on the option, minus the premium received, the Fund would expect to suffer
a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency appreciates to a price higher than the exercise price of the call
option, it can be expected that the option will be exercised and the Fund will
be obligated to sell the security or currency at less than its market value. If
the call option is an OTC option, the securities or other assets used as cover
would be considered illiquid to the extent described under "Illiquid
Investments."
Writing put options can serve as a limited long hedge because increases
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and a Fund will be obligated
to purchase the security or currency at more than its market value. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions.
Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a Fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit a Fund to realize profits or limit
losses on an option position prior to its exercise or expiration.
A type of put which the Funds may purchase is an "optional delivery
standby commitment" which is entered into by parties selling debt securities to
a Fund. An optional delivery standby commitment gives a Fund purchasing the
security the right to sell the security back to the seller on specified terms.
This right is provided as an inducement to purchase the security.
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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 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,
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it pays a premium and has the same rights as to such call as are indicated
above. When a Fund buys a put on a stock index, it pays a premium and has the
right, prior to the expiration date, to require the seller of the put, upon the
Fund's exercise of the put, to deliver to the Fund an amount of cash if the
closing level of the index upon which the put is based is less than the exercise
price of the put, which amount of cash is determined by the multiplier, as
described above for calls. When a Fund writes a put on an index, it receives a
premium and the purchaser of the put has the right, prior to the expiration
date, to require the Fund to deliver to it an amount of cash equal to the
difference between the closing level of the index and the exercise price times
the multiplier is the closing level is less than the exercise price.
Risks of Options on Indices. The risks of investment in options on
indices may be greater than options on securities. Because index options are
settled in cash, when a Fund writes a call on an index it cannot provide in
advance for its potential settlement obligations by acquiring and holding the
underlying securities. A Fund can offset some of the risk of its writing a call
index option by holding a diversified portfolio of securities similar to those
on which the underlying index is based. However, a Fund cannot, as a practical
matter, acquire and hold a portfolio containing exactly the same securities as
underlie the index and, as a result, bears a risk that the value of the
securities held will vary from the value of the index.
Even if a Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, a Fund as the call writer will not learn that the Fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as a common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the
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ability of index call writers to cover their risk exposure by holding securities
positions.
If a Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract size and
strike price, the terms of OTC options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows a Fund great flexibility to
tailor the option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchanges where they are traded.
Generally, OTC foreign currency options used by a Fund are
European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
Futures Contracts and Options on Futures Contracts. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge. Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies also can be used to manage the average
duration of a Fund's fixed-income portfolio. If WRIMCO wishes to shorten the
average duration of a Fund's fixed-income portfolio, the Fund may sell a debt
futures contract or a call option thereon, or purchase a put option on that
futures contract. If WRIMCO wishes to lengthen the average duration of a Fund's
fixed-income portfolio, the Fund may buy a debt futures contract or a call
option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike
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margin in securities transactions, initial margin on futures contracts does not
represent a borrowing, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required by
an exchange to increase the level of its initial margin payment, and initial
margin requirements might be increased generally in the future by regulatory
action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When a Fund purchases an option on a futures contract, the premium paid
plus transaction costs is all that is at risk. In contrast, when a Fund
purchases or sells a futures contract or writes a call or put option thereon, it
is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If the Fund has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures
contracts can enter into offsetting closing transactions, similar to closing
transactions on options, by selling or purchasing, respectively, an instrument
identical to the instrument purchased or sold. Positions in futures contracts
and options on futures contracts may be closed only on an exchange or board of
trade that provides a secondary market. However, there can be no assurance that
a liquid secondary market will exist for a particular contract at a particular
time. In such event, it may not be possible to close a futures contract or
option position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or an option on a
futures contract can vary from the previous day's settlement price; once that
limit is reached, no trades may be made that day at a price beyond the limit.
Daily price limits do not limit potential losses because prices could move to
the daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures contract or an option on a
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the futures contract or option or to maintain liquid
assets in an account.
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Risk of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to differences in the natures of those markets, are subject to the
following factors, which may create distortions. First, all participants in the
futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close
futures contracts through offsetting transactions, which could distort the
normal relationship between the cash and futures markets. Second, the liquidity
of the futures market depends on participants entering into offsetting
transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be
reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous
than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of general
interest rate, currency exchange rate or stock market trends by WRIMCO may still
not result in a successful transaction. WRIMCO may be incorrect in its
expectations as to the extent of various interest rate, currency exchange rate
or stock market movements or the time span within which the movements take
place.
Index Futures. The risk of imperfect correlation between movements in
the price of an index future and movements in the price of the securities that
are the subject of the hedge increases as the composition of a Fund's portfolio
diverges from the securities included in the applicable index. The price of the
index future may move more than or less than the price of the securities being
hedged. If the price of the index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, a Fund may buy or sell index
futures in a greater dollar amount than the dollar amount of the securities
being hedged if the historical volatility of the prices of such securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where a Fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and
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the value of the securities held in the portfolio may decline. If this occurred,
a Fund would lose money on the futures contract and also experience a decline in
value of its portfolio securities. However, while this could occur for a very
brief period or to a very small degree, over time the value of a diversified
portfolio of securities will tend to move in the same direction as the market
indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase
in the price of securities before a Fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the Fund then
concludes not to invest in them at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
As an operating policy, to the extent that a Fund enters into futures
contracts, options on futures contracts or options on foreign currencies traded
on a CFTC-regulated exchange, in each case other than for bona fide hedging
purposes (as defined by the CFTC), the aggregate initial margin and premiums
required to establish those positions (excluding the amount by which options are
"in-the-money" at the time of purchase) will not exceed 5% of the liquidation
value of the Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into. (In general, a
call option on a futures contract is "in-the-money" if the value of the
underlying futures contract exceeds the strike, i.e., exercise, price of the
call; a put option on a futures contract is "in-the-money" if the value of the
underlying futures contract is exceeded by the strike price of the put.) This
policy does not limit to 5% the percentage of a Fund's assets that are at risk
in futures contracts, options on futures contracts and currency options.
Foreign Currency Hedging Strategies--Special Considerations. Each Fund
may use options and futures contracts on foreign currencies, as described above,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or to attempt to enhance income or yield. Currency hedges can
protect against price movements in a security that a Fund owns or intends to
acquire that are attributable to changes in the value of the currency in which
it is denominated. Such hedges do not, however, protect against price movements
in the securities that are attributable to other causes.
Each Fund might seek to hedge against changes in the value of a
particular currency when no Financial Instruments on that currency are available
or such Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, a Fund may seek to hedge against price movements in
that
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currency by entering into transactions using Financial Instruments on another
currency or a basket of currencies, the values of which WRIMCO believes will
have a high degree of positive correlation to the value of the currency being
hedged. The risk that movements in the price of the Financial Instrument will
not correlate perfectly with movements in the price of the currency subject to
the hedging transaction is magnified when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, a Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
a Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. Each Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
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Such transactions may serve as long hedges; for example, a Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that a Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, a Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security, dividend or
interest payment denominated in a foreign currency.
Each Fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if a Fund owned securities denominated in pounds sterling, it could enter into a
forward currency contract to sell pounds sterling in return for U.S. dollars to
hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. Each Fund could also hedge the position by selling
another currency expected to perform similarly to the pound sterling, for
example, by entering into a forward contract to sell Deutsche Marks or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
Each Fund also may use forward currency contracts to attempt to enhance
income or yield. A Fund could use forward currency contracts to increase its
exposure to foreign currencies that WRIMCO believes might rise in value relative
to the U.S. dollar, or shift its exposure to foreign currency fluctuations from
one country to another. For example, if a Fund owned securities denominated in a
foreign currency and WRIMCO believed that currency would decline relative to
another currency, it might enter into a forward currency contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency.
The cost to a Fund of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are usually entered into on a principal basis, no fees or commissions are
involved. When a Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
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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 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
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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.
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.
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Swap agreements will tend to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agrees to exchange
payments in U.S. dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options.
The creditworthiness of firms with which a Fund enters into swaps, caps
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Corporation's Board of Directors. If a 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, cannot be
changed without shareholder approval. For this purpose, shareholder 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
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<PAGE>
does not have more than one-tenth (i.e., 10%) of the total
assets of the four Funds in these shares;
(iii) Lend money or other assets, other than through certain limited
types of loans; the Funds may buy debt securities and other
obligations consistent with their respective goals and their
other investment policies and restrictions; they may also lend
their portfolio securities (see "Lending Securities" above)
and enter into repurchase agreements (see "Repurchase
Agreements" above);
(iv) Invest for the purpose of exercising control or management of
other companies;
(v) Participate on a joint, or a joint and several, basis in any
trading account in any securities;
(vi) Sell securities short (unless a Fund owns or has the right to
obtain securities equivalent in kind and amount to the
securities sold short), or purchase securities on margin,
except that (1) this policy does not prevent a Fund from
entering into short positions in foreign currency, futures
contracts, options, forward contracts, swaps, caps, collars,
floors and other financial instruments, (2) a Fund may obtain
such short-term credits as are necessary for the clearance of
transactions, and (3) a Fund may make margin payments in
connection with futures contracts, options, forward contracts,
swaps, caps, collars, floors and other financial instruments;
(vii) Engage in the underwriting of securities, that is, the selling
of securities for others;
(viii) With respect to 75% of its total assets, purchase securities
of any one issuer (other than cash items and "Government
securities" as defined in the 1940 Act, if immediately after
and as a result of such purchase, (a) the value of the
holdings of a Fund in the securities of such issuer exceeds 5%
of the value of a Fund's total assets, or (b) a Fund owns more
than 10% of the outstanding voting securities of such issuer;
United Income Fund, United Accumulative Fund and United Bond
Fund may not buy securities of companies in any one industry
if more than 25% of that Fund's total assets would then be
invested in companies in that industry;
(ix) Purchase or sell physical commodities; however, this policy
shall not prevent a Fund from purchasing and selling foreign
currency, futures contracts, options, forward contracts,
swaps, caps, collars, floors and other financial instruments;
38
<PAGE>
(x) Borrow money; or
(xi) 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.
(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
39
<PAGE>
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 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:
1998 1997
---- ----
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%
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
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<PAGE>
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 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 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 issued by
United Investors Life Insurance Company 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
41
<PAGE>
maintenance of the Corporation's records, pricing of the Corporation's shares,
and preparation of prospectuses for existing shareholders, proxy statements and
certain reports. A new Accounting Services Agreement, or amendments to an
existing one, may be approved by the Corporation's Board of Directors without
shareholder approval.
Payments by the Corporation for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the
Corporation pays WRIMCO a fee as described in the Prospectus.
The management fees paid to WRIMCO for each Fund during the last three
fiscal years were as follows:
1998 1997 1996
----------- ----------- -----------
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
=========== =========== ===========
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.
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<PAGE>
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------ ------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $ 1,000 $ 85,000
$ 1,000 and Over $100,000
Fees paid to the Agent for the fiscal years ended December 31, 1998,
1997 and 1996 were as follows:
1998 1997 1996
-------- -------- --------
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
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.
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<PAGE>
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
account representatives and managers of Waddell & Reed, Inc. Waddell & Reed,
Inc. may compensate its account representatives as to purchases for which there
is no sales 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 a Distribution and Service Plan for Class A shares (the "Class A
Plan") adopted by the Corporation pursuant to Rule 12b-1 under the 1940 Act,
each Fund may pay Waddell & Reed, Inc., the principal underwriter for the
Corporation, a fee not to exceed .25% of each Fund's average annual net assets
attributable to Class A shares, paid monthly, to reimburse Waddell & Reed, Inc.
for its costs and expenses in connection with the distribution of the Class A
shares and/or the service and/or maintenance of Class A shareholder accounts.
Waddell & Reed, Inc. offers each Fund's shares through its registered
representatives and sales managers (sales force) unless it elects, which is not
currently contemplated for Class A, 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 and/or maintaining shareholder
accounts with respect to Class A
44
<PAGE>
shares. For its fiscal year ended December 31, 1998, service and distribution
fees paid (or accrued) with respect to Class A shares were as follows:
Service Distribution
Fee Fee
------- ------------
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
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.
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 the 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. The Plan is anticipated to benefit a Fund and its Class A shareholders
through Waddell & Reed, Inc.'s activities not only to distribute the Fund's
Class A shares but also to provide personal services to Class A shareholders and
thereby, promote the maintenance of their accounts with the Fund. The
Corporation anticipates that Class A shareholders may benefit to the extent 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 Class A shareholder. Increased Fund
assets may also provide greater resources with which to pursue the goal of the
Fund. Further, continuing sales of Class A 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 Class A shareholders.
The Plan was approved by the Corporation's Board of Directors,
including the Directors who are not interested persons of the Corporation and
who have no direct or indirect financial interest in the operations of each Plan
or any agreement referred
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<PAGE>
to in each Plan (hereafter, the "Plan Directors"). Each Plan was also approved
by the affected shareholders of each 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 each Plan and the
purposes for which such expenditures were made, (ii) each 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 each 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 each 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 and prepares each
Fund's tax returns.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each class of the shares of a Fund is the value
of the assets of that class, less the class's liabilities, divided by the total
number of outstanding shares of that class.
Class A shares of the Funds are sold at their next determined net asset
value plus the sales charge described in the Prospectus. The sales charge is
paid to Waddell & Reed, Inc., the Fund's underwriter. The price makeup as of
December 31, 1998 was as follows:
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<PAGE>
United Accumulative Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ........................................ $8.28
Add: selling commission (5.75% of offering
price) .............................................. .51
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) ......... $8.79
=====
United Bond Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ........................................ $6.39
Add: selling commission (5.75% of offering
price) .............................................. .39
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) ....... $6.78
=====
United Income Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ........................................ $7.52
Add: selling commission (5.75% of offering
price) .............................................. .46
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) ....... $7.98
=====
United Science and Technology Fund
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ....................................... $9.91
Add: selling commission (5.75% of offering
price) ............................................. .60
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) ........ $10.51
=====
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
47
<PAGE>
for your purchase depends on the next offering price after Waddell &
Reed, Inc. receives and accepts your order at its principal business office at
the address shown on the cover of this SAI. You will be sent a document called a
confirmation after your purchase which will indicate how many shares you have
purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the
Corporation may determine to discontinue offering Corporation shares for
purchase.
The net asset value and offering price per share are ordinarily
computed once on each day that the NYSE is open for trading as of the later of
the close of the regular session of the NYSE or the close of the regular session
of any other securities or commodities exchange on which an option or future
held by the Fund is traded. The NYSE annually announces the days on which it
will not be open for trading. The most recent announcement indicates that it
will not be open on the following days: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may
close on other days. The net asset value will change every business day, since
the value of the assets and the number of shares outstanding change every
business day.
The securities in the portfolio of each Fund, except as otherwise
noted, that are listed or traded on a stock exchange, are valued on the basis of
the last sale on that day or, lacking any sales, at a price which is the mean
between the closing bid and asked prices. Other securities which are traded
over-the-counter are priced using the Nasdaq Stock Market, which provides
information on bid and asked prices quoted by major dealers in such stocks.
Bonds, other than convertible bonds, are valued using a third-party pricing
system. Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Short-term debt securities are valued at amortized
cost, which approximates market. When market quotations are not readily
available, securities and other assets are valued at fair value as determined in
good faith under procedures established by and under the general supervision and
responsibility of the Board of Directors. Foreign currency exchange rates are
generally determined prior to the close of trading of the regular session of the
NYSE. Occasionally events affecting the value of foreign investments and such
exchange rates occur between the time at which they are determined and the close
of the regular session of trading on the NYSE, which events will not be
reflected in a computation of a Fund's net asset value on that day. If events
materially affecting the value of such investments or currency exchange rates
occur during such time period, investments will be valued at their fair value as
determined in good faith by or under the direction of the Board of Directors.
The foreign currency exchange transactions of a Fund conducted on a spot (that
is, cash) basis are valued at the spot rate for purchasing
48
<PAGE>
or selling currency prevailing on the foreign exchange market. This rate under
normal market conditions differs from the prevailing exchange rate in an amount
generally less than one-tenth of one percent due to the costs of converting from
one currency to another.
Options and futures contracts purchased and held by a Fund are valued
at the last sales price thereof on the securities or commodities exchanges on
which they are traded, or, if there are no transactions, at the mean between bid
and asked prices. Ordinarily, the close of the regular session for options
trading on national securities exchanges is 4:10 p.m. Eastern time and the close
of the regular session for commodities exchanges is 4:15 p.m. Eastern time.
Futures contracts will be valued by reference to established futures exchanges.
The value of a futures contract purchased by a Fund will be either the closing
price of that contract or the bid price. Conversely, the value of a futures
contract sold by a Fund will be either the closing price or the asked price.
When a Fund writes a put or call, an amount equal to the premium
received is included in that Fund's Statement of Assets and Liabilities as an
asset, and an equivalent deferred credit is included in the liability section.
The deferred credit is "marked-to-market" to reflect the current market value of
the put or call. If a call a Fund wrote is exercised, the proceeds received on
the sale of the related investment are increased by the amount of the premium
that the Fund received. If a Fund exercises a call it purchased, the amount paid
to purchase the related investment is increased by the amount of the premium
paid. If a put written by a Fund is exercised, the amount that Fund pays to
purchase the related investment is decreased by the amount of the premium it
received. If a Fund exercises a put it purchased, the amount that Fund receives
from the sale of the related investment is reduced by the amount of the premium
it paid. If a put or call written by a Fund expires, it has a gain in the amount
of the premium; if it enters into a closing purchase transaction, it will have a
gain or loss depending on whether the premium was more or less than the cost of
the closing transaction.
Optional delivery standby commitments are valued at fair value under
the general supervision and responsibility of the Corporation's Board of
Directors. They are accounted for in the same manner as exchange-listed puts.
Minimum Initial and Subsequent Investments
For Class A, 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
49
<PAGE>
has arranged, at the time of initial investment, to make subsequent purchases
for the account by having regular monthly withdrawals of $25 or more made from a
bank account. A minimum initial investment of $25 is applicable to purchases
made through payroll deduction for or by employees of WRIMCO, Waddell & Reed,
Inc., their affiliates or certain retirement plan accounts. Except with respect
to certain exchanges and automatic withdrawals from a bank account, a
shareholder may make subsequent investments of any amount. See "Exchanges for
Shares of Other Funds in the United Group."
For Class Y shares, investments by government entities or authorities
or by corporations must total at least $10 million within the first twelve
months after initial investment. There is no initial investment minimum for
other Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges.
The schedule of sales charges appears in the Prospectus for Class A shares. For
the purpose of taking advantage of the lower sales charges available for large
purchases, a purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with purchases
in any other of these categories:
1. Purchases by an individual for his or her own account (includes
purchases under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own
account (includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint
account;
4. Purchases by that individual or his or her spouse for the account of
their child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in
a Uniform Gifts to Minors Act ("UGMA") or Uniform Transfers to Minors
Act ("UTMA") account;
6. Purchases by that individual or his or her spouse for his or her
Individual Retirement Account ("IRA"), 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
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<PAGE>
Keogh Plan account, provided that the individual and spouse are the
only participants in the Keogh Plan; and
7. Purchases by a trustee under a trust where that individual or his or
her spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens a UGMA account for grandson A; Grandmother
has an account in her own name; A's father has an account in
his own name; the UGMA account may be grouped with A's
father's account but may not be grouped with Grandmother's
account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase
made in the trust account is eligible for grouping with an IRA
account of W, H's wife;
C. H's will provides for the establishment of a trust for the
benefit of his minor children upon H's death; his bank is
named as trustee; upon H's death, an account is established in
the name of the bank, as trustee; a purchase in the account
may be grouped with an account held by H's wife in her own
name.
D. X establishes a trust naming herself as trustee and R, her
son, as successor trustee and R and S as beneficiaries; upon
X's death, the account is transferred to R as trustee; a
purchase in the account may not be grouped with R's individual
account. If X's spouse, Y, was successor trustee, this
purchase could be grouped with Y's individual account.
All purchases of Class A shares made for a participant in a
multi-participant Keogh plan may be grouped only with other purchases made under
the same plan; a multi-participant Keogh plan is defined as a plan in which
there is more than one participant where one or more of the participants is
other than the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are
the only participants in the plan; they may group their
purchases made under the plan with any purchases in
categories 1 through 7 above.
Example B: H has established a Keogh Plan; his wife, W, is a
participant and they have hired one or more employees who
also become participants in the plan; H and W may not
combine any purchases made under the plan with any
purchases in categories 1 through 7 above;
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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.
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
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the new purchase is accepted by Waddell & Reed, Inc. for the purpose of
determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund
three years ago. His account has a net asset value of $80,000.
His wife, W, now wishes to invest $20,000 in Class A shares of
the Fund. W's purchase will be combined with H's existing
account and will be entitled to a reduced sales charge of
4.75%. H's original purchase was subject to a full sales
charge and the reduced charge does not apply retroactively to
that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under such plan may be combined with the
additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a Statement
of Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount which
is sufficient to qualify for a reduced sales charge. The 13-month period begins
on the date the first purchase made under the Statement of Intention is accepted
by Waddell & Reed, Inc. Each purchase made from time to time under the Statement
of Intention is treated as if the purchaser were buying at one time the total
amount which he or she intends to invest. The sales charge applicable to all
purchases of Class A shares made under the terms of the Statement of Intention
will be the sales charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, Class A shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to
invest in his own name a dollar amount sufficient to entitle
him to purchase Class A shares at the sales charge applicable
to a purchase of $100,000. H has an
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IRA account and the Class A shares held under the IRA in the
Fund have a net asset value as of the date the Statement of
Intention is accepted by Waddell & Reed, Inc. of $15,000;
H's wife, W, has an account in her own name invested in
another fund in the United Group which charges the same
sales load as the Fund, with a net asset value as of the
date of acceptance of the Statement of Intention of $10,000;
H needs to invest $75,000 in Class A shares over the
13-month period in order to qualify for the reduced sales
load applicable to a purchase of $100,000.
A copy of the Statement of Intention signed by a purchaser will be
returned to the purchaser after it is accepted by Waddell & Reed, Inc. and will
set forth the dollar amount of Class A shares which must be purchased within the
13-month period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a
contractual plan, the shares held under the plan will be taken into account in
determining the amount which must be invested under the Statement of Intention
only if the contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of
the dollar amount which must be invested under the Statement of Intention. An
amount equal to 5% of the purchase required under the Statement of Intention
will be held "in escrow." If a purchaser does not, during the period covered by
the Statement of Intention, invest the amount required to qualify for the
reduced sales charge under the terms of the Statement of Intention, he or she
will be responsible for payment of the sales charge applicable to the amount
actually invested. The additional sales charge owed on purchases of Class A
shares made under a Statement of Intention which is not completed will be
collected by redeeming part of the shares purchased under the Statement of
Intention and held "in escrow" unless the purchaser makes payment of this amount
to Waddell & Reed, Inc. within 20 days of Waddell & Reed, Inc.'s request for
payment.
If the actual amount invested is higher than the amount an investor
intends to invest, and is large enough to qualify for a sales charge lower than
that available under the Statement of Intention, the lower sales charge will
apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell
& Reed, Inc. to sell, the shares covered by the Statement of Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement of
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Intention will be deducted in computing the aggregate purchases under the
Statement of Intention.
Statements of Intention are not available for purchases made under an
SEP where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the 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.
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
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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 shares are sold or issued on
a basis other than the maximum public offering price, that is, the net asset
value plus the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one time
or over a period of time as under a Statement of Intention or right of
accumulation. See the table of sales charges in the Prospectus. The reasons for
these quantity discounts are, in general, that (i) they are traditional and have
long been permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such discounts, (ii)
certain quantity discounts are required by rules of the National Association of
Securities Dealers, Inc. (as are elimination of sales charges on the
reinvestment of dividends and distributions), and (iii) they are designed to
avoid an unduly large dollar amount of sales charges on substantial purchases in
view of reduced selling expenses. Quantity discounts are made available to
certain related persons for reasons of family unity and to provide a benefit to
tax-exempt plans and organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges for Class A shares are as
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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 shares that you own of
a Fund or of any of the funds in the United Group. It would be a disadvantage to
an investor to make additional purchases of shares while a withdrawal program is
in effect because it would result in duplication of sales charges. Applicable
forms to start the Service are available through Waddell & Reed, Inc.
To qualify for the Service, you must have invested at least $10,000 in
Class A, 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
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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.
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.
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United Municipal Bond Fund, Inc., United Government Securities Fund,
Inc. and United Municipal High Income Fund, Inc. shares are the exceptions and
special rules apply. Class A shares of any of these funds may be exchanged for
Class A shares of the Funds only if (i) you received those shares as a result of
one or more exchanges of shares on which a sales charge was originally paid, or
(ii) the shares have been held from the date of the original purchase for at
least six months.
Subject to the above rules regarding sales charges, you may have a
specific dollar amount of Class A shares of United Cash Management, Inc.
automatically exchanged each month into Class A shares of a Fund or any other
fund in the United Group. The Class A shares of United Cash Management, Inc.
which you designate for automatic exchange must be worth at least $100 or you
must own Class A shares of the fund in the United Group into which you want to
exchange. The minimum value of shares which you may designate for automatic
exchange monthly is $100, which may be allocated among the Class A shares of
different funds in the United Group so long as each fund receives a value of at
least $25. Minimum initial investment and minimum balance requirements apply to
such automatic exchange service.
You may redeem your Class A shares of a Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for purchasing
Class Y shares.
Class 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 A shares of United Cash
Management, Inc. automatically redeemed each month and invested in Class B
shares of a Fund. The shares of United Cash Management, Inc. which you designate
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 service. These exchange and other
rights can in most instances be eliminated or modified at any time, upon notice
in certain circumstances, and any related request may not be accepted.
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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 A shares of United Cash
Management, Inc. automatically redeemed each month and invested in Class C
shares of a Fund. The shares of United Cash Management, Inc. which you designate
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 service. These exchange and other
rights can in most instances be eliminated or modified at any time, upon notice
in certain circumstances, and any related request may not be accepted.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any
other fund in the United Group or for Class A shares of United Cash Management,
Inc.
General Exchange Information
When you exchange shares, the total shares you receive will have the
same aggregate net asset value as the total shares you exchange. The relative
values are those next figured after your exchange request is received in good
order.
These exchange rights and other exchange rights concerning the other
funds in the United Group can in most instances be eliminated or modified at
any time and any such exchange may not be accepted.
Retirement Plans
As described in the Prospectus, 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).
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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.
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
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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).
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.
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401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms
are available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures.
Redemption payments are made within seven days unless delayed because of
emergency conditions determined by the SEC, when the NYSE is closed other than
for weekends or holidays, or when trading on the NYSE is restricted. Payment is
made in cash, although under extraordinary conditions redemptions may be made in
portfolio securities. Payment for redemptions of shares of the Corporation may
be made in portfolio securities when the Corporation's Board of Directors
determines that conditions exist making cash payments undesirable. Securities
used for payment of redemptions are valued at the value used in figuring net
asset value. There would be brokerage costs to the redeeming shareholder in
selling such securities. The Corporation, however, has elected to be governed by
Rule 18f-1 under the 1940 Act, pursuant to which it is obligated to redeem
shares solely in cash up to the lesser of $250,000 or 1% of its net asset value
during any 90-day period for any one shareholder.
Reinvestment Privilege
The Prospectus discusses the reinvestment privilege for Class A shares
under which, if you redeem your Class A shares and then decide it was not a good
idea, you may reinvest. If Class A shares of a Fund are then being offered, you
can put all or part of your redemption payment back into Class A shares of that
Fund without any sales charge at the net asset value next determined after you
have returned the amount. Your written request to do this must be received
within 30 days after your redemption request was received. You can do this only
once as to Class A shares of that Fund. You do not use up this privilege by
redeeming Class A shares to invest the proceeds at net asset value in a Keogh
plan or an IRA.
The Prospectus also discusses the 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
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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 that Fund and only
once as to Class C shares of that 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
The 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 the Fund and each of the other 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 of Oklahoma College of Law; formerly, Vice President for
Executive Affairs of the University
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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 the
Fund and each of the other 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.
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WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired; formerly, Chairman of the Board of Directors and President of
the Fund and each fund in the Fund Complex then in existence. (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in the
Fund Complex then in existence on April 30, 1993); formerly, President, Director
and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.; formerly,
Chairman of the Board of Directors of Waddell & Reed Services Company. 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.
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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.
Russell E. Thompson
Vice President of the Corporation and two other funds in the Fund
Complex; Senior Vice President of WRIMCO; formerly, Vice President of Waddell
and Reed Asset Management Company; formerly, Senior Vice President of Waddell &
Reed, Inc. Date of birth: March 3, 1940.
James D. Wineland
Vice President of the 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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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:
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Compensation Table
Total
Aggregate Compensation
Compensation From Corporation
From and Fund
Director Corporation Complex*
- -------- ------------ ------------
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
*No pension or retirement benefits have been accrued as a part of Fund expenses.
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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 February 28, 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 February 28, 1999, regarding the beneficial ownership of the
series, and classes thereof, of the Corporation's shares.
Shares owned
Name and Address Series and Beneficially
of Beneficial Owner Class or of Record Percent
- ------------------- ---------- ------------ -------
USX Corporation Income Fund
Savings Fund Class Y %
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
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Bond Fund
Class Y
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
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments a Fund makes to you as a
shareholder of a class of shares of a Fund, other than payments when you redeem
your shares. The first source is net investment income, which is derived from
the dividends, interest and earned discount on the securities a Fund holds, less
expenses (which will vary by class). The second source is net realized capital
gains, which are derived from proceeds received from a Fund's sale of securities
at a price higher than the Fund's basis (usually cost) in such securities, less
losses from sales of securities at a price lower than the Fund's basis therein;
these gains can be either long-term or short-term, depending on how long the
Fund has owned the securities before it sells them. The third source is net
realized gains from foreign currency transactions.
The payments made to shareholders from net investment income, net
short-term capital gains and net realized gains from certain foreign currency
transactions are called dividends. Payments, if any, from net long-term capital
gains and the remaining foreign currency gains are called distributions.
Each Fund pays distributions from net capital gains (the excess of net
long-term capital gains over net short-term capital loss). A Fund may or may not
have such gains, depending on whether securities are sold and at what price. If
a Fund has net
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capital gains, it will pay distributions once each year, in the
latter part of the fourth calendar quarter, except to the extent it has net
capital losses from a prior year or years to offset the gains. It is the policy
of each Fund to make annual capital gains distributions to the extent that net
capital gains are realized in excess of available capital loss carryovers.
Income and expenses are earned and incurred separately by each Fund,
and gains and losses on portfolio transactions of each Fund are attributable
only to that Fund. For example, capital losses realized by one Fund would not
affect capital gains realized by another Fund.
Choices you have on your Dividends and Distributions
On your application form, you can give instructions that (i) you want
cash for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of a Fund of the same class as that with respect to
which they were paid. You can change your instructions at any time. If you give
no instructions, your dividends and distributions will be paid in shares of that
Fund of the same class as that with respect to which they were paid. All
payments in shares are at net asset value without any sales charge. The net
asset value used for this purpose is that computed as of the record date for the
dividend or distribution, although this could be changed by the Directors. The
record date is the date used to determine which shareholders are entitled to
receive a dividend or distribution; investors who own shares on that date are so
entitled.
Even if you get dividends and distributions on Class A shares in cash,
you can thereafter reinvest them (or distributions only) in Class A shares of
that Fund at net asset value (i.e., no sales charge) next determined after
receipt by Waddell & Reed, Inc. of the amount clearly identified as a
reinvestment. The reinvestment must be within 45 days after the payment.
TAXES
General
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.
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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.
Dividends and distributions declared by a Fund in October, November or
December of any year and payable to its shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to the shareholders for the year in which that December 31 falls.
If shares of a Fund are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short-term, capital
loss to the extent of any distributions received on those shares. Investors also
should be aware that if shares are purchased shortly before the record date for
a dividend or distribution, the investor will receive some portion of the
purchase price back as a taxable dividend or distribution.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. It is the policy of each Fund to pay sufficient dividends and
distributions each year to avoid imposition of the Excise Tax. The Code permits
each Fund to defer into the next calendar year net capital losses incurred
between November 1 and the end of the current calendar year.
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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 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
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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 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.
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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
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
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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
original issue discount ("OID"). As the holder of those securities, a Fund must
include in its income the OID that accrues on the securities during the taxable
year, even if the Fund receives no corresponding payment on the securities
during the year. Similarly, a Fund must include in its gross income securities
it receives as "interest" on payment-in-kind securities. Because each Fund
annually must distribute substantially all of its investment company taxable
income, including any accrued OID and other non-cash income, in order to satisfy
the Distribution Requirement and to avoid imposition of the Excise Tax, a Fund
may be required in a particular year to distribute as a dividend an amount that
is greater than the total amount of cash it actually receives. Those
distributions will be made from a Fund's cash assets or from the proceeds of
sales of portfolio securities, if necessary. A Fund may realize capital gains or
losses from those sales, which would increase or decrease its investment company
taxable income and/or net capital gains.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the portfolio of
each Fund. Transactions in securities other than those for which an exchange is
the primary market are generally done with dealers acting as principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in securities traded on an exchange and otherwise only if it
appears likely that a better price or execution can be obtained. The individual
who manages a Fund may manage other advisory accounts with similar investment
objectives. It can be anticipated that the manager will frequently place
concurrent orders for all or most accounts for which the manager has
responsibility 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.
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. Sharing in large transactions could affect the
price a Fund pays or receives
78
<PAGE>
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 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.
79
<PAGE>
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.
1998 1997 1996
----------- ----------- ----------
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
=========== =========== ==========
The next table shows for each of the Fund's last fiscal year the
transactions, other than principal transactions, which were directed to
broker-dealers who provided research as well as execution and the brokerage
commissions paid. These transactions were allocated to these broker-dealers by
the internal allocation procedures described above.
Amount of Brokerage
Transactions Commissions
------------ ----------
United 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
=============== ===========
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.
80
<PAGE>
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 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; 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
81
<PAGE>
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.
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.
82
<PAGE>
THE INVESTMENTS OF UNITED BOND FUND
DECEMBER 31, 1998
Principal
Amount in
Thousands Value
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 .
1
<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 .
2
<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 .
3
<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 .
4
<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 .
5
<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 42.
6
<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
See Notes to Schedules of Investments on page .
7
<PAGE>
THE INVESTMENTS OF UNITED INCOME FUND
DECEMBER 31, 1998
Shares Value
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 .
8
<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 .
9
<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 .
10
<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 .
11
<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 .
12
<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 .
13
<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 .
14
<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
See Notes to Schedules of Investments on page .
15
<PAGE>
THE INVESTMENTS OF UNITED ACCUMULATIVE FUND
DECEMBER 31, 1998
Shares Value
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 .
16
<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 .
17
<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 .
18
<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
See Notes to Schedules of Investments on page .
19
<PAGE>
THE INVESTMENTS OF UNITED SCIENCE AND TECHNOLOGY FUND
DECEMBER 31, 1998
Shares Value
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 .
20
<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 .
21
<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 .
22
<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
See Notes to Schedules of Investments on page .
23
<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.
24
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(In Thousands, Except
for Per Share Amounts)
<TABLE>
<CAPTION>
United
United United United Science and
Bond Income Accumulative Technology
Fund Fund Fund Fund
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Assets
Investment securities --
at value (Notes 1 and 3) ......................... $ 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.
25
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
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>
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.
26
<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.
27
<PAGE>
UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Fiscal Year Ended December 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
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.
28
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
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%
*Total return calculated without taking into account the sales load
deducted on an initial purchase.
See notes to financial statements.
29
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED BOND FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year For the
ended December 31, period from
--------------------------- 6/19/95* to
1998 1997 1996 12/31/95
----- ----- ----- ----------
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%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
30
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal year ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
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%
*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.
31
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED INCOME FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal year For the
ended December 31, period from
---------------------------- 6/19/95** to
1998 1997 1996 12/31/95
----- ----- ----- -----------
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%***
*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.
32
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- -------- -------- -------- --------
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%
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
33
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED ACCUMULATIVE FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal
year ended For the
December 31, period from
-------------- 7/11/95* to
1998 1997 1996 12/31/95
----- ----- ----- -----------
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%**
*Commencement of operations.
**Annualized.
See notes to financial statements.
34
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
Class A Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the fiscal year ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
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%
*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.
35
<PAGE>
FINANCIAL HIGHLIGHTS OF
UNITED SCIENCE AND TECHNOLOGY FUND
Class Y Shares
For a Share of Capital Stock Outstanding Throughout Each Period:*
For the
fiscal year
year ended For the
December 31, period from
------------------ 2/27/96** to
1998 1997 12/31/96
----- ----- --------
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%***
*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.
36
<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
37
<PAGE>
otherwise qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code. In addition, the Corporation intends to
pay distributions as required to avoid imposition of excise tax.
Accordingly, provision has not been made for Federal income taxes. See
Note 4 -- Federal Income Tax Matters.
E. Dividends and distributions -- Dividends and distributions to
shareholders are recorded by each Fund on the 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.
Increase Increase
(Decrease) (Decrease)
Accumulated Accumulated
Undistributed Undistributed
Net Investment Net Realized
Income Gain
------ ------
United Income Fund $(300,519) $300,519
United Accumulative Fund (58,028) 58,028
United Science and Technology Fund 112,640 (112,640)
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.
38
<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
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Fund
------------------------- ------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
For Class A shares, the Corporation also pays WARSCO a per account
charge for transfer agency and dividend disbursement services of $1.3125 for
each shareholder account which was in existence at any time during the prior
month, plus $0.30 for each account on which a dividend or distribution of cash
or shares had a record date in that month. With respect to Class Y shares, the
Corporation pays WARSCO a monthly fee at an annual rate of .15% of the average
daily net assets of the class for the preceding month. The Corporation also
reimburses W&R and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Corporation's shares, W&R received
gross sales commissions for Class A shares (which are not an expense of the
Corporation) of $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.
39
<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 as follows: $18,393,113 through December 31, 2002
and $80,903 through December 31, 2003.
40
<PAGE>
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.
41
<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.
42
<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 ............................................ 6,890,848 565,235,550 8,676,214 292,158,531
Class Y ............................................ 195,545 83,207,475 51,857 641,529
Shares issued from
reinvestment of
dividends and/or capital
gains distribution:
Class A ............................................ 4,598,290 363,125,900 44,000,209 89,357,787
Class Y ............................................ 48,642 18,537,975 104,354 376,722
Shares redeemed:
Class A ............................................ (13,058,549) (531,684,125) (13,115,628) (284,389,587)
Class Y ............................................ (1,350,485) (19,461,025) (35,296) (280,782)
------------ ------------- ------------ ------------
Increase (decrease) in
outstanding capital
shares:
Class A ............................................ (1,569,411) 396,677,325 39,560,795 97,126,731
Class Y ............................................ (1,106,298) 82,284,425 120,915 737,469
------------ ------------- ------------ ------------
Total for Fund .................................. (2,675,709) 478,961,750 39,681,710 97,864,200
============ ============= ============ ============
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.
43
<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, 1999
44
<PAGE>
22. Financial Statements
---------------------------------
(a) Financial Statements -- United Funds, Inc.
Included in Part B:
-------------------
As of December 31, 1998
Statement of Assets and Liabilities
For the year ended December 31, 1998
Statements of Operations
For each of the two years in the period ended December 31, 1998
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of December 31, 1998
Report of Independent Accountants
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
23. Exhibits:
(a) Articles of Incorporation, as amended, filed April 18, 1995 as
EX-99.B1-charter to the Post-Effective Amendment No. 117 to
the Registration Statement on Form N-1A*
Articles Supplementary as proposed, filed April 18, 1995 as
EX-99.B1-ufartsup to the Post-Effective Amendment No. 117 to
the Registration Statement on Form N-1A*
(b) Bylaws, as amended, filed March 26, 1997 as EX-99.B2-ufbylaw
to Post-Effective Amendment No. 119 to the Registration
Statement on Form N-1A*
Amendment to Bylaws attached hereto as EX-99.B2-ufamend
(c) Not applicable
(d) Investment Management Agreement filed September 30, 1994 as
EX-99.B5-UFIMA to Post-Effective Amendment No. 116 to the
Registration Statement on Form N-1A*
Assignment of the Investment Management Agreements filed March
28, 1996 as EX-99.B5-ufassign to the Post-Effective Amendment
No. 118 to the Registration Statement on Form N-1A*
(e) Underwriting Agreement, dated February 8, 1995, filed April
18, 1995 as EX-99.B6-ufua to the Post-Effective Amendment No.
117 to the Registration Statement on Form N-1A*
(f) Not applicable
(g) Custodian Agreement, as amended, filed 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 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 May 30, 1997 as
EX-99.B9-ufappca to Post-Effective Amendment No. 120 to the
Registration Statement on Form N-1A*
Fund Class Y application filed April 18, 1995 as
EX-99.B9-ufappcy to the Post-Effective Amendment No. 117 to
the Registration Statement on Form N-1A*
Fund NAV application filed April 18, 1995 as EX-99.B9-ufappnav
to the Post-Effective Amendment No. 117 to the Registration
Statement on Form N-1A*
Accounting Services Agreement filed April 18, 1995 as
EX-99.B9-ufasa to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Service Agreement filed August 11, 1993 as Exhibit (b)(15) to
Post-Effective Amendment No. 114 to the Registration Statement
on Form N-1A*
Amendment to Service Agreement filed April 18, 1995 as
EX-99.B9-ufsaa to the Post-Effective Amendment No. 117 to the
Registration Statement on Form N-1A*
Class Y Letter of Understanding filed March 28, 1996 as
EX-99.B9-uflou to the Post-Effective Amendment No. 118 to the
Registration Statement on Form N-1A*
(i) Not applicable
(j) Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B11-ufconsnt
(k) Not applicable
(l) Not applicable
(m) Distribution and Service Plan, as amended, filed January 29,
1999 as EX-99.B15-ufd&spca to Post-Effective Amendment No. 122
to the Registration Statement on Form N-1A*
(n) Applicable Financial Data Schedules attached hereto as
EX-27.B17-uffds1, EX-27.B17-uffds2, EX-27.B17-uffds3,
EX-27.B17-uffds4
(o) Multiple Class Plan filed March 28, 1996 as EX-99.B18-ufmcp to
Post-Effective Amendment No. 118 to the Registration Statement
on Form N-1A*
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.
United Retirement Shares, Inc.
United Municipal Bond Fund, Inc.
United High Income Fund, Inc.
United Cash Management, Inc.
United Government Securities Fund, Inc.
United New Concepts Fund, Inc.
United Gold & Government Fund, Inc.
United Municipal High Income Fund, Inc.
United High Income Fund II, Inc.
United Asset Strategy Fund, Inc.
Advantage I
Advantage II
Advantage Plus
Waddell & Reed Funds, Inc.
(b) The information contained in the underwriter's application on
form BD, under the Securities Exchange Act of 1934, is herein
incorporated by reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant
or any affiliated person of such affiliated person.
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 Item (b)(9)
and Item (b)(15) hereof.
30. Undertaking
-----------
Not applicable
- ---------------------------------
*Incorporated herein by reference
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
Rule 485(b) of the Securities Act of 1933, and has duly caused this
Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Overland Park, and State of Kansas, on
the 1st day of April, 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.
Signatures Title
---------- -----
/s/Keith A. Tucker* Chairman of the Board April 1, 1999
- ---------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler* President, Principal April 1, 1999
- ---------------------- Financial Officer and ----------------
Robert L. Hechler Director
/s/Henry J. Herrmann* Vice President and April 1, 1999
- ---------------------- Director ----------------
Henry J. Herrmann
/s/Theodore W. Howard* Vice President, Treasurer April 1, 1999
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon* Director April 1, 1999
- ------------------ ----------------
James M. Concannon
/s/John A. Dillingham* Director April 1, 1999
- ------------------ ----------------
John A. Dillingham
/s/David P. Gardner* Director April 1, 1999
- ------------------ ----------------
David P. Gardner
/s/Linda K. Graves* Director April 1, 1999
- ------------------ ----------------
Linda K. Graves
/s/Joseph Harroz, Jr.* Director April 1, 1999
- ------------------ ----------------
Joseph Harroz, Jr.
/s/John F. Hayes* Director April 1, 1999
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director April 1, 1999
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director April 1, 1999
- ------------------- ----------------
William T. Morgan
/s/Ronald C. Reimer* Director April 1, 1999
- ------------------ ----------------
Ronald C. Reimer
/s/Frank J. Ross, Jr.* Director April 1, 1999
- ------------------ ----------------
Frank J. Ross, Jr.
/s/Eleanor B Schwartz* Director April 1, 1999
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director April 1, 1999
- ------------------- ----------------
Frederick Vogel III
*By
Kristen A. Richards
Attorney-in-Fact
ATTEST:
David R. Burford
Assistant Secretary
<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., 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: November 18, 1998 /s/ Robert L. Hechler
--------------------------------
Robert L. Hechler, President
/s/ Keith A. Tucker Chairman of the Board November 18, 1998
- ---------------------------- -----------------
Keith A Tucker
/s/ Robert L. Hechler President, Principal November 18, 1998
- ---------------------------- Financial Officer and -----------------
Robert L. Hechler Director
/s/ Henry J. Herrmann Vice President and November 18, 1998
- ---------------------------- Director -----------------
Henry J. Herrmann
/s/ Theodore W. Howard Vice President, Treasurer November 18, 1998
- ---------------------------- and Principal Accounting -----------------
Theorodre W. Howard Officer
/s/ James M. Concannon Director November 18, 1998
- ---------------------------- -----------------
James M. Concannon
/s/ John A. Dillingham Director November 18, 1998
- ---------------------------- -----------------
John A. Dillingham
/s/ David P. Gardner Director November 18, 1998
- ---------------------------- -----------------
David P. Gardner
/s/ Linda K. Graves Director November 18, 1998
- ---------------------------- -----------------
Linda K. Graves
/s/ Joseph Harroz, Jr. Director November 18, 1998
- ---------------------------- -----------------
Joseph Harroz, Jr.
/s/ John F. Hayes Director November 18, 1998
- ---------------------------- -----------------
John F. Hayes
/s/ Glendon E. Johnson Director November 18, 1998
- ---------------------------- -----------------
Glendon E. Johnson
/s/ William T. Morgan Director November 18, 1998
- ---------------------------- -----------------
William T. Morgan
/s/ Ronald C. Reimer Director November 18, 1998
- ---------------------------- -----------------
Ronald C. Reimer
/s/ Frank J. Ross Director November 18, 1998
- ---------------------------- -----------------
Frank J. Ross
/s/ Eleanor B. Schwartz Director November 18, 1998
- ---------------------------- -----------------
Eleanor B. Schwartz
/s/ Frederick Vogel III Director November 18, 1998
- ---------------------------- -----------------
Frederick Vogel III
Attest:
/s/ Kristen A. Richards
- ----------------------------
Kristen A. Richards
Assistant Secretary
EX-99.B2-ufamend
AMENDMENT TO BYLAWS
RESOLVED, That the Bylaws of each of United Funds, Inc., United Asset
Strategy Fund, Inc., United Cash Management, Inc., United Continental Income
Fund, Inc., United Gold & Government Fund, Inc., United Government Securities
Fund, Inc., United High Income Fund, Inc., United High Income Fund II, Inc.,
United International Growth Fund, Inc., United Municipal Bond Fund, Inc., United
Municipal High Income Fund, Inc., United New Concepts Fund, Inc., United
Retirement Shares, Inc., United Vanguard Fund, Inc., Target/United Funds, Inc.
and Waddell & Reed Funds, Inc. are amended by substitution of the following for
the initial paragraph of Article I, Section 7, regarding voting and inspectors;
and, with respect to United Asset Strategy Fund, Inc., United Retirement Shares,
Inc. and Waddell & Reed Funds, Inc., for Article II, Section 2, regarding voting
and proxies:
At all meetings of the stockholders, every stockholder of record
entitled to vote thereat shall be entitled to vote either in person or
by proxy, which term shall include proxies provided by such
stockholder, or his duly authorized attorney, through written,
electronic, telephonic, computerized, facsimile, telecommunications,
telex or oral communication or by any other form of communication, each
pursuant to such voting procedures and through such systems as are
authorized by the Board of Directors or one or more executive officers
of the Corporation. No proxy which is dated or, if otherwise provided
as permitted by these Bylaws and applicable Maryland law, provided more
than three months before the meeting at which it is offered shall be
accepted, unless such proxy shall, on its face, name or, if otherwise
provided as permitted by these Bylaws and applicable Maryland law,
provide a longer period for which it is to remain in force.
I certify that I am Assistant Secretary of each of the following
Corporations, and as such officer, have custody of the minute books of the
Corporations, and that the foregoing resolutions are true and correct
resolutions duly passed by the Board of Directors of each of the following
Corporations at a meeting held on February 10, 1999.
United Funds, Inc.
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
Target/United Funds, Inc.
Waddell & Reed Funds, Inc.
----------------------------------------
Kristen A. Richards, Assistant Secretary
Dated this 10th day of February, 1999.
EX-99.B(j)-ufconst
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 123 to Registration
Statement No. 2-21867 of United Funds, Inc. on Form N-1A of our report dated
February 5, 1999, appearing in the Statement of Additional Information, which is
part of such Registration Statement, and to the reference to us under the
caption "Financial Highlights" appearing in the Prospectuses, which are part of
such Registration Statement.
Deloitte & Touche LLP
Kansas City, Missouri
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000217420
<NAME> UNITED FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> UNITED BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 528,458
<INVESTMENTS-AT-VALUE> 551,930
<RECEIVABLES> 8,565
<ASSETS-OTHER> 16
<OTHER-ITEMS-ASSETS> 3
<TOTAL-ASSETS> 560,514
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,366
<TOTAL-LIABILITIES> 3,366
<SENIOR-EQUITY> 87,203
<PAID-IN-CAPITAL-COMMON> 464,761
<SHARES-COMMON-STOCK> 87,203
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 203
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (18,491)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23,472
<NET-ASSETS> 557,148
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 36,240
<OTHER-INCOME> 0
<EXPENSES-NET> (4,495)
<NET-INVESTMENT-INCOME> 31,745
<REALIZED-GAINS-CURRENT> 4,756
<APPREC-INCREASE-CURRENT> 1,500
<NET-CHANGE-FROM-OPS> 38,001
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (31,912)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,052
<NUMBER-OF-SHARES-REDEEMED> (32,940)
<SHARES-REINVESTED> 4,398
<NET-CHANGE-IN-ASSETS> 28,452
<ACCUMULATED-NII-PRIOR> 370
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,285
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,495
<AVERAGE-NET-ASSETS> 539,781
<PER-SHARE-NAV-BEGIN> 6.32
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> .07
<PER-SHARE-DIVIDEND> (0.38)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.39
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000217420
<NAME> UNITED FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> UNITED INCOME FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 4,914,231
<INVESTMENTS-AT-VALUE> 7,837,413
<RECEIVABLES> 35,536
<ASSETS-OTHER> 62
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,873,011
<PAYABLE-FOR-SECURITIES> 9,210
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 96,500
<TOTAL-LIABILITIES> 105,710
<SENIOR-EQUITY> 1,033,327
<PAID-IN-CAPITAL-COMMON> 3,772,498
<SHARES-COMMON-STOCK> 1,033,327
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 9,932
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,354
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,923,190
<NET-ASSETS> 7,767,301
<DIVIDEND-INCOME> 68,033
<INTEREST-INCOME> 78,631
<OTHER-INCOME> 0
<EXPENSES-NET> (64,436)
<NET-INVESTMENT-INCOME> 82,228
<REALIZED-GAINS-CURRENT> 1,363,007
<APPREC-INCREASE-CURRENT> 102,426
<NET-CHANGE-FROM-OPS> 1,547,761
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (73,959)
<DISTRIBUTIONS-OF-GAINS> (1,468,994)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 111,011
<NUMBER-OF-SHARES-REDEEMED> (129,830)
<SHARES-REINVESTED> 196,331
<NET-CHANGE-IN-ASSETS> 1,272,312
<ACCUMULATED-NII-PRIOR> 1,964
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 39,808
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64,436
<AVERAGE-NET-ASSETS> 7,329,899
<PER-SHARE-NAV-BEGIN> 7.59
<PER-SHARE-NII> .2
<PER-SHARE-GAIN-APPREC> 1.66
<PER-SHARE-DIVIDEND> (.19)
<PER-SHARE-DISTRIBUTIONS> (1.74)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.52
<EXPENSE-RATIO> .89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000217420
<NAME> UNITED FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> UNITED SCIENCE AND TECHNOLOGY FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 873,714
<INVESTMENTS-AT-VALUE> 1,670,777
<RECEIVABLES> 12,687
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,683,478
<PAYABLE-FOR-SECURITIES> 1,596
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,399
<TOTAL-LIABILITIES> 8,995
<SENIOR-EQUITY> 168,997
<PAID-IN-CAPITAL-COMMON> 663,648
<SHARES-COMMON-STOCK> 168,997
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 44,769
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 797,069
<NET-ASSETS> 1,674,483
<DIVIDEND-INCOME> 3,569
<INTEREST-INCOME> 5,102
<OTHER-INCOME> 0
<EXPENSES-NET> (13,408)
<NET-INVESTMENT-INCOME> (4,737)
<REALIZED-GAINS-CURRENT> 139,225
<APPREC-INCREASE-CURRENT> 492,528
<NET-CHANGE-FROM-OPS> 627,016
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (109,098)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 77,660
<NUMBER-OF-SHARES-REDEEMED> (79,426)
<SHARES-REINVESTED> 11,747
<NET-CHANGE-IN-ASSETS> 607,689
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,558
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,408
<AVERAGE-NET-ASSETS> 1,274,343
<PER-SHARE-NAV-BEGIN> 6.71
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> 3.93
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.91
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000217420
<NAME> UNITED FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> UNITED ACCUMULATIVE FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,680,505
<INVESTMENTS-AT-VALUE> 1,873,782
<RECEIVABLES> 7,549
<ASSETS-OTHER> 35
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,881,366
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,329
<TOTAL-LIABILITIES> 13,329
<SENIOR-EQUITY> 225,603
<PAID-IN-CAPITAL-COMMON> 1,381,797
<SHARES-COMMON-STOCK> 225,603
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,219
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 65,119
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 193,299
<NET-ASSETS> 1,868,037
<DIVIDEND-INCOME> 19,049
<INTEREST-INCOME> 15,895
<OTHER-INCOME> 0
<EXPENSES-NET> (15,425)
<NET-INVESTMENT-INCOME> 19,519
<REALIZED-GAINS-CURRENT> 259,891
<APPREC-INCREASE-CURRENT> 75,732
<NET-CHANGE-FROM-OPS> 355,142
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21,029)
<DISTRIBUTIONS-OF-GAINS> (214,800)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,070
<NUMBER-OF-SHARES-REDEEMED> (23,830)
<SHARES-REINVESTED> 27,532
<NET-CHANGE-IN-ASSETS> 268,995
<ACCUMULATED-NII-PRIOR> 3,787
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,491
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,425
<AVERAGE-NET-ASSETS> 1,747,272
<PER-SHARE-NAV-BEGIN> 7.77
<PER-SHARE-NII> .1
<PER-SHARE-GAIN-APPREC> 1.6
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (1.08)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.28
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
