<PAGE>
File No. 811-5017
File No. 33-11466
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. 13
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 13
TMK/UNITED FUNDS, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on May 1, 1996 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, 1995 was filed on February 27,
1996.
<PAGE>
TMK/UNITED FUNDS, INC.
======================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... *
(b) ..................... Prospectus Summary
(c) ..................... *
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance Information
(d)...................... Financial Highlights
4(a) ..................... The Fund; Goals and Investment Policies of
the Portfolios; Other Information
(b) ..................... Goals and Investment Policies of the
Portfolios
(c) ..................... Goals and Investment Policies of the
Portfolios
5(a) ..................... Other Information
(b)...................... Management; Back Cover
(c) ..................... Management
(d) ..................... Management; Back Cover
(e) ..................... *
(f) ..................... Management
(g)(i) .................. *
(g)(ii) ................. *
5A......................... **
6(a) ..................... The Fund; Other Information
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... Other Information
(f)...................... Dividends and Distributions
(g) ..................... Taxes
(h) ..................... *
7(a) ..................... Management; Back Cover
(b) ..................... Net Asset Value; Purchases and Redemptions
(c) ..................... *
(d) ..................... *
(e) ..................... *
(f) ..................... *
8(a) ..................... Purchases and Redemptions
(b) ..................... *
(c) ..................... *
(d) ..................... Purchases and Redemptions
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goals and Investment Policies
(b) ..................... Goals and Investment Policies
(c) ..................... Goals and Investment Policies
(d) ..................... Goals and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
15(a) ..................... *
(b) ..................... *
(c) ..................... *
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Investment Management and Other Services;
Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) ..................... *
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... *
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchases and Redemptions
(b) ..................... Net Asset Value; Purchases and Redemptions
(c) ..................... Purchases and Redemptions
20 ........................ Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a)...................... Performance Information
(b)...................... Performance Information
23 ........................ Financial Statements
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
TMK/UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
- -----------------------------------------------------------------
May 1, 1996
PROSPECTUS
- -----------------------------------------------------------------
TMK/United Funds, Inc. (the "Fund") is a diversified, open-end
management investment company commonly known as a mutual fund, with ten
separate Portfolios each with separate goals and investment policies. The
goals and investment policies of the Portfolios, which may be changed by
the Directors of the Fund without a vote of the shareholders, are generally
as follows:
Money Market Portfolio
Maximum current income consistent with stability of principal by
investing in money market securities.
Bond Portfolio
Current income with an emphasis on preservation of capital by
investing primarily in debt securities of varying yields, quality and
maturities.
High Income Portfolio
Primary goal of high current income with a secondary goal of capital
growth by investing primarily in high-yield, high-risk fixed income
securities but with the ability to invest not more than 20% of assets in
common stocks.
Growth Portfolio
Primary goal of capital growth with a secondary goal of current income
by investing in common stocks or securities convertible into common stocks.
Income Portfolio
Maintenance of current income, subject to market conditions, by
investing primarily in common stocks or securities convertible into common
stocks.
International Portfolio
Primary goal of long-term appreciation of capital with a secondary
goal of current income by investing primarily in securities issued by
companies or governments of any nation.
Small Cap Portfolio
Capital growth through a diversified holding of securities, primarily
in the common stocks of, or securities convertible into the common stocks
of, relatively new or unseasoned companies, companies that are in their
early stages of development or smaller companies positioned in new and
emerging industries where the opportunity for rapid growth is anticipated
to be above average.
Balanced Portfolio
Primary goal of current income with a secondary goal of long-term
appreciation of capital by investing in a variety of securities, including
debt securities, common stocks and preferred stocks.
Limited-Term Bond Portfolio
High level of current income consistent with preservation of
capital by investing primarily in debt securities of investment grade,
including debt securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities"). The
Portfolio will maintain a dollar-weighted average maturity of its portfolio
of two to five years.
Asset Strategy Portfolio
High total return with reduced risk over the long term through
investments in stocks, bonds and short-term instruments.
This Prospectus contains concise information about the Fund of
which you should be aware before applying for certain variable life
insurance policies and variable annuity policies offered by Participating
Insurance Companies. Additional information about the Fund has been filed
with the Securities and Exchange Commission and is contained in the
Statement of Additional Information (the "SAI") dated May 1, 1996. You may
obtain a copy of the SAI free of charge by request to the Fund or its
Distributor, Waddell & Reed, Inc., at the address or telephone number shown
above or from United Investors Life Insurance Company, Variable Products
Division, P.O. Box 156, Birmingham, Alabama 35201-0156. The SAI is
incorporated by reference into this Prospectus and you will not be aware of
all facts unless you read both this Prospectus and the SAI.
An investment in the Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government. There can be no assurance that the
Money Market Portfolio will be able to maintain a stable net asset value of
$1.00 per share.
THE HIGH INCOME PORTFOLIO MAY INVEST UP TO ALL OF ITS ASSETS IN BONDS
ISSUED BY DOMESTIC OR FOREIGN ISSUERS RATED BELOW INVESTMENT GRADE,
COMMONLY KNOWN AS "JUNK BONDS," WHICH ENTAIL GREATER RISKS, INCLUDING
DEFAULT RISKS, THAN THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS
SHOULD CAREFULLY CONSIDER THESE RISKS BEFORE INVESTING. SEE "GOALS AND
INVESTMENT POLICIES OF THE PORTFOLIOS" INCLUDED IN THIS PROSPECTUS FOR A
DISCUSSION OF THE RISKS ASSOCIATED WITH NON-INVESTMENT GRADE DEBT
SECURITIES. SEE APPENDIX A FOR A DISCUSSION OF BOND RATINGS.
Retain This Prospectus For Future Reference.
SHARES OF THE FUND ARE AVAILABLE AND ARE BEING MARKETED EXCLUSIVELY AS A
FUNDING OR INVESTMENT VEHICLE FOR LIFE INSURANCE COMPANIES WRITING ALL
TYPES OF VARIABLE LIFE INSURANCE POLICIES AND VARIABLE ANNUITY POLICIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing in the body of the Prospectus. Cross-
references in this summary are to headings in the body of the Prospectus.
The Portfolios: This Prospectus describes ten separate portfolios (each
a "Portfolio" and, collectively, the "Portfolios") of
an open-end, management investment company with
different goals and investment policies. Each of the
Portfolios is a diversified portfolio. Shares of the
Fund are being marketed exclusively as a funding or
investment vehicle for life insurance companies writing
various types of variable life insurance policies and
variable annuity policies.
Investment Goals and Policies:
Money Market Portfolio: Maximum current income consistent with
stability of principal by investing in money market securities.
Bond Portfolio: Current income with an emphasis on preservation of
capital by investing primarily in debt securities of varying yields,
quality and maturities.
High Income Portfolio: Primary goal of high current income with a
secondary goal of capital growth by investing primarily in high-yield,
high-risk fixed income securities but with the ability to invest not more
than 20% of its assets in common stocks.
Growth Portfolio: Primary goal of capital growth with a secondary
goal of current income by investing in common stocks or securities
convertible into common stocks.
Income Portfolio: Maintenance of current income, subject to market
conditions, by investing primarily in common stocks or securities
convertible into common stocks.
International Portfolio: Primary goal of long-term appreciation of
capital with a secondary goal of current income by investing primarily in
securities issued by companies or governments of any nation.
Small Cap Portfolio: Capital growth through a diversified holding of
securities, primarily in the common stocks of, or securities convertible
into the common stocks of, relatively new or unseasoned companies,
companies that are in their early stages of development or smaller
companies positioned in new and emerging industries where the opportunity
for rapid growth is anticipated to be above average.
Balanced Portfolio: Primary goal of current income with a secondary
goal of long-term appreciation of capital by investing in a variety of
securities, including debt securities, common stocks and preferred stocks.
Limited-Term Bond Portfolio: High level of current income consistent
with preservation of capital by investing primarily in debt securities of
investment grade, including U.S. Government Securities. The Portfolio will
maintain a dollar-weighted average maturity of its portfolio of two to five
years.
Asset Strategy Portfolio: High total return with reduced risk over
the long term by allocating its assets among stocks, bonds and short-term
instruments.
There can be no assurance that a Portfolio will be successful in
meeting its investment goal. For a further description of the ten
Portfolios, their investment techniques and certain risks which may be
associated with investments in repurchase agreements, the securities of
foreign issuers, non-investment grade debt securities, options and futures
contracts, and with other investment techniques, see "Investment Policies
Common to the Ten Portfolios."
Investment Manager: Waddell & Reed Investment Management Company, a wholly-
owned subsidiary of Waddell & Reed, Inc., acts as
investment manager for each Portfolio. See
"Management."
Distributor: Waddell & Reed, Inc. acts as principal distributor and
underwriter for the Fund. See "Management."
Purchases: The Fund is the funding or investment vehicle for
variable life insurance policies and variable annuity
policies offered by the separate accounts of certain
life insurance companies. As of the date of this
Prospectus, the only participating insurance company is
United Investors Life Insurance Company. Individual
policyowners are not direct shareholders of the Fund.
The participating insurance companies and their
separate accounts are the actual shareholders. The
separate accounts of the participating insurance
companies place orders to purchase shares of each
Portfolio. Shares of a Portfolio are sold at their net
asset value and a sales charge is not incurred upon the
purchase of shares of a Portfolio. See "Purchases and
Redemptions" and "The Fund."
Redemptions: The separate accounts of the participating insurance
companies place orders to redeem shares of each
Portfolio. Redemptions are made at net asset value.
See "Purchases and Redemptions."
Dividends: Dividends are ordinarily declared and paid annually,
except by the Money Market Portfolio which are declared
and paid daily.
Dividends and other distributions are paid in
additional full and fractional shares of the paying
Portfolio. See "Dividends and Distributions."
<PAGE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout each period)
<TABLE>
THE GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the fiscal year ended December 31,
---------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
period .......... $5.8986 $6.1962 $6.1505 $5.5973 $4.9479 $5.4025 $4.9837 $4.7846 $5.0000
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ........ 0.0903 0.1211 0.0537 0.1013 0.1229 0.1661 0.1611 0.1539 0.0523
Net realized and
unrealized gain
(loss) on
investments ... 2.1842 0.0268 0.8087 1.0653 1.6636 (0.4546) 1.2150 0.4944 (0.2154)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ...... 2.2745 0.1479 0.8624 1.1666 1.7865 (0.2885) 1.3761 0.6483 (0.1631)
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income ........ (0.0903) (0.1211) (0.0537) (0.1013) (0.1229) (0.1661) (0.1611) (0.1539) (0.0523)
Distribution from
capital gains . (1.2568) (0.3244) (0.7569) (0.5121) (1.0142) (0.0000) (0.7962) (0.2953) (0.0000)
Distribution in
excess of capital
gains ......... (0.0000) (0.0000) (0.0061) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (1.3471) (0.4455) (0.8167) (0.6134) (1.1371) (0.1661) (0.9573) (0.4492) (0.0523)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period $6.8260 $5.8986 $6.1962 $6.1505 $5.5973 $4.9479 $5.4025 $4.9837 $4.7846
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return ...... 38.57% 2.39% 14.02% 20.84% 36.10% -5.34% 27.61% 13.55% -6.86%
Net assets, end of
period (000
omitted) ........ $418,826 $276,737 $220,590 $122,363 $69,044 $37,440 $28,510 $14,521 $5,636
Ratio of expenses
to average net
assets .......... 0.75% 0.77% 0.78% 0.80% 0.86% 0.86% 0.85% 0.96% 0.91%
Ratio of net investment
income to average
net assets ...... 1.35% 2.07% 1.01% 2.00% 2.43% 3.58% 3.40% 3.79% 4.92%
Portfolio turnover
rate ............ 245.80% 277.36% 297.81% 225.87% 316.72% 331.15% 344.71% 278.57% 127.80%
*The Growth Portfolio's inception date is December 2, 1986; however, since this
Portfolio did not have any investment activity or incur expenses prior to the
date of initial offering, the per share information is for a capital share
outstanding for the period from July 13, 1987 (initial offering) through
December 31, 1987. Ratios and portfolio turnover rates have been annualized.
</TABLE>
<PAGE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout each period)
THE INCOME PORTFOLIO
For the fiscal year ended December 31,
-----------------------------------------------
1995 1994 1993 1992 1991*
---- ---- ---- ---- ----
Net asset value,
beginning of
period .......... $6.7689 $6.9180 $5.9530 $5.3158 $5.0000
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ........ 0.0839 0.0702 0.0651 0.0803 0.0633
Net realized and
unrealized gain
(loss) on
investments ... 2.0525 (0.1490) 0.9650 0.6496 0.3158
------- ------- ------- ------- -------
Total from investment
operations ...... 2.1364 (0.0788) 1.0301 0.7299 0.3791
------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income ........ (0.0839) (0.0703) (0.0651) (0.0803) (0.0633)
Distribution from
capital gains . (0.1457) (0.0000) (0.0000) (0.0124) (0.0000)
Distribution in
excess of
capital gains . (0.0001) (0.0000) (0.0000) (0.0000) (0.0000)
------- ------- ------- ------- -------
Total distributions (0.2297) (0.0703) (0.0651) (0.0927) (0.0633)
------- ------- ------- ------- -------
Net asset value,
end of period $8.6756 $6.7689 $6.9180 $5.9530 $5.3158
======= ======= ======= ======= =======
Total return ...... 31.56% -1.14% 17.30% 13.78% 17.43%
Net assets, end of
period (000
omitted) ........ $331,194 $218,774 $155,092 $65,027 $15,640
Ratio of expenses
to average net
assets .......... 0.77% 0.77% 0.79% 0.85% 0.89%
Ratio of net investment
income to average
net assets ...... 1.13% 1.16% 1.36% 1.78% 2.47%
Portfolio turnover
rate ............ 15.00% 23.32% 18.38% 15.74% 4.41%
*The Income Portfolio's inception date is May 16, 1991; however, since
this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for a
capital share outstanding for the period from July 16, 1991 (initial
offering) through December 31, 1991. Ratios and portfolio turnover rates
have been annualized.
<PAGE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout each period)
THE INTERNATIONAL PORTFOLIO
For the period
ended December 31,
------------------
1995 1994*
---- ----
Net asset value,
beginning of
period ........ $4.9926 $5.0000
------- -------
Income from investment
operations:
Net investment
income ...... 0.0846 0.0207
Net realized and
unrealized gain (loss)
on investments 0.2790 (0.0074)
------- -------
Total from investment
operations ..... 0.3636 0.0133
Less dividends from net
investment
income ......... (0.0772) (0.0207)
------- -------
Net asset value,
end of period .. $5.2790 $4.9926
======= =======
Total return ..... 7.28% 0.26%
Net assets, end of
period (000
omitted) ....... $50,196 $26,020
Ratio of expenses
to average net
assets ......... 1.02% 1.26%
Ratio of net investment
income to average
net assets ..... 1.99% 1.37%
Portfolio turnover
rate ........... 34.93% 23.23%
*The International Portfolio's inception date is April 28, 1994; however,
since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information
is for a capital share outstanding for the period from May 3, 1994
(initial offering) through December 31, 1994. Ratios and portfolio
turnover rates have been annualized.
<PAGE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout each period)
THE SMALL CAP PORTFOLIO
For the period
ended December 31,
------------------
1995 1994*
---- ----
Net asset value,
beginning of
period ......... $5.9918 $5.0000
------- -------
Income from investment
operations:
Net investment
income ....... 0.0900 0.0376
Net realized and
unrealized gain
on investments 1.8470 1.0086
------- -------
Total from investment
operations ..... 1.9370 1.0462
------- -------
Less distributions:
Dividends from net
investment income (0.0900) (0.0376)
Distribution from
capital gains (0.1456) (0.0168)
------- -------
Total distributions (0.2356) (0.0544)
------- -------
Net asset value,
end of period .. $7.6932 $5.9918
======= =======
Total return ..... 32.32% 20.92%
Net assets, end of
period (000
omitted) ....... $55,591 $16,080
Ratio of expenses
to average net
assets ......... 0.96% 1.08%
Ratio of net investment
income to average
net assets ..... 1.77% 2.35%
Portfolio turnover
rate ........... 43.27% 21.61%
*The Small Cap Portfolio's inception date is April 28, 1994; however,
since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information
is for a capital share outstanding for the period from May 3, 1994
(initial offering) through December 31, 1994. Ratios and portfolio
turnover rates have been annualized.
<PAGE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout each period)
THE BALANCED PORTFOLIO
For the period
ended December 31,
-----------------
1995 1994*
---- ----
Net asset value,
beginning of
period ......... $4.9359 $5.0000
------- -------
Income from investment
operations:
Net investment
income ....... 0.1333 0.0460
Net realized and
unrealized gain (loss)
on investments 1.0611 (0.0641)
------- -------
Total from investment
operations ..... 1.1944 (0.0181)
Less distributions:
Dividends from net
investment
income ....... (0.1333) (0.0460)
Distribution from
capital gains (0.0970) (0.0000)
------- -------
Total distributions (0.2303) (0.0460)
------- -------
Net asset value,
end of period .. $5.9000 $4.9359
======= =======
Total return ..... 24.19% -0.37%
Net assets, end of
period (000
omitted) ....... $23,603 $8,671
Ratio of expenses
to average net
assets ......... 0.72% 0.95%
Ratio of net investment
income to average
net assets ..... 3.22% 3.14%
Portfolio turnover
rate ........... 62.87% 19.74%
*The Balanced Portfolio's inception date is April 28, 1994; however, since
this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for a
capital share outstanding for the period from May 3, 1994 (initial
offering) through December 31, 1994. Ratios and portfolio turnover rates
have been annualized.
<PAGE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout the period)
THE ASSET STRATEGY PORTFOLIO
For the
period ended
December 31,
1995*
-----------
Net asset value,
beginning of
period ......... $5.0000
-------
Income from investment
operations:
Net investment
income ....... 0.0717
Net realized and
unrealized gain
on investments 0.0193
-------
Total from investment
operations ..... 0.0910
-------
Less distributions:
Dividends from net
investment
income ....... (0.0713)
Distribution from
capital gains (0.0060)
-------
Total distributions (0.0773)
-------
Net asset value,
end of period .. $5.0137
=======
Total return ..... 1.80%
Net assets, end of
period (000
omitted) ....... $4,344
Ratio of expenses
to average net
assets ......... 0.91%
Ratio of net investment
income to average
net assets ..... 4.42%
Portfolio turnover
rate ........... 149.17%
*The Asset Strategy Portfolio's inception date is February 14, 1995;
however, since this Portfolio did not have any investment activity or
incur expenses prior to the date of initial offering, the per share
information is for a capital share outstanding for the period from May 1,
1995 (initial offering) through December 31, 1995. Ratios have been
annualized.
<PAGE>
<TABLE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout each period)
THE MONEY MARKET PORTFOLIO
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the fiscal year ended December 31,
---------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
period ......... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- ------- ------- ------- ------- -------
Net investment
income ......... 0.0542 0.0368 0.0260 0.0324 0.0536 0.0753 0.0852 0.0677 0.0297
Less dividends
declared ....... (0.0542) (0.0368) (0.0260) (0.0324) (0.0536) (0.0753) (0.0852) (0.0677) (0.0297)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return ..... 5.56% 3.72% 2.63% 3.29% 5.49% 7.82% 8.91% 7.37% 6.57%
Net assets, end of
period (000
omitted) ....... $36,872 $30,812 $26,000 $23,995 $19,797 $16,870 $11,753 $8,711 $5,868
Ratio of expenses
to average net
assets ......... 0.62% 0.65% 0.65% 0.65% 0.76% 0.79% 0.78% 0.94% 0.89%
Ratio of net investment
income to average
net assets ..... 5.42% 3.72% 2.61% 3.17% 5.33% 7.52% 8.49% 6.84% 6.81%
*The Money Market Portfolio's inception date is December 2, 1986; however,
since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information
is for a capital share outstanding for the period from July 13, 1987
(initial offering) through December 31, 1987. Ratios have been
annualized.
</TABLE>
<PAGE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout each period)
THE LIMITED-TERM BOND PORTFOLIO
For the period
ended December 31,
-------------------
1995 1994*
---- ----
Net asset value,
beginning of
period ........ $4.8611 $5.0000
------- -------
Income from investment
operations:
Net investment
income ...... 0.2841 0.1507
Net realized and
unrealized gain (loss)
on investments 0.4122 (0.1375)
------- -------
Total from investment
operations ..... 0.6963 0.0132
------- -------
Less distributions:
Dividends from net
investment
income ....... (0.2841) (0.1507)
Distribution from
capital gains (0.0212) (0.0014)
------- -------
Total distributions (0.3053) (0.1521)
------- -------
Net asset value,
end of period .. $5.2521 $4.8611
======= =======
Total return ..... 14.29% 0.26%
Net assets, end of
period (000
omitted) ....... $2,853 $1,645
Ratio of expenses
to average net
assets ......... 0.71% 0.93%
Ratio of net investment
income to average
net assets ..... 6.22% 5.89%
Portfolio turnover
rate ........... 18.16% 93.83%
*The Limited-Term Bond Portfolio's inception date is April 28, 1994;
however, since this Portfolio did not have any investment activity or
incur expenses prior to the date of initial offering, the per share
information is for a capital share outstanding for the period from May 3,
1994 (initial offering) through December 31, 1994. Ratios and portfolio
turnover rates have been annualized.
<PAGE>
<TABLE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout each period)
THE BOND PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the fiscal year ended December 31,
---------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
period ......... $4.7393 $5.4045 $5.2626 $5.2661 $4.9534 $5.0249 $4.8852 $4.9246 $5.0000
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ....... 0.3556 0.3507 0.3334 0.3643 0.3867 0.4025 0.4155 0.4088 0.1861
Net realized and
unrealized gain
(loss) on
investments .. 0.6202 (0.6652) 0.3046 0.0216 0.3771 (0.0715) 0.1397 (0.0394) (0.0249)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ..... 0.9758 (0.3145) 0.6380 0.3859 0.7638 0.3310 0.5552 0.3694 0.1612
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income ....... (0.3559) (0.3507) (0.3334) (0.3643) (0.3867) (0.4025) (0.4155) (0.4088) (0.1861)
Distribution from
capital gains . (0.0000) (0.0000) (0.1627) (0.0251) (0.0644) (0.0000) (0.0000) (0.0000) (0.0505)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.3559) (0.3507) (0.4961) (0.3894) (0.4511) (0.4025) (0.4155) (0.4088) (0.2366)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period .. $5.3592 $4.7393 $5.4045 $5.2626 $5.2661 $4.9534 $5.0249 $4.8852 $4.9246
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return ..... 20.56% -5.90% 12.37% 7.67% 16.19% 7.03% 11.82% 7.74% 7.20%
Net assets, end of
period (000
omitted) ....... $88,570 $74,017 $81,727 $49,428 $29,112 $16,464 $11,530 $6,465 $2,923
Ratio of expenses
to average net
assets ......... 0.60% 0.62% 0.62% 0.64% 0.72% 0.78% 0.81% 0.96% 0.79%
Ratio of net investment
income to average
net assets ..... 6.73% 6.73% 6.01% 6.91% 7.65% 8.05% 8.34% 8.17% 8.96%
Portfolio turnover
rate ........... 71.17% 135.82% 68.75% 44.32% 52.50% 51.50% 42.83% 29.18% 187.93%
*The Bond Portfolio's inception date is December 2, 1986; however, since
this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for a
capital share outstanding for the period from July 13, 1987 (initial
offering) through December 31, 1987. Ratios and portfolio turnover rates
have been annualized.
</TABLE>
<PAGE>
<TABLE>
TMK/United Funds, Inc.
Financial Highlights
The following information has been audited by Price Waterhouse LLP,
independent accountants, and should be read in conjunction with the
financial statements and notes thereto, together with the report of Price
Waterhouse LLP included in the SAI.
(For a share outstanding throughout each period)
THE HIGH INCOME PORTFOLIO
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
For the fiscal year ended December 31,
----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987*
---- ---- ---- ---- ---- ---- ---- ---- ----
Net asset value,
beginning of
period ......... $4.1118 $4.6373 $4.2886 $4.0770 $3.4067 $4.1288 $4.8837 $4.7333 $5.0000
------- ------- ------- ------- ------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income ....... 0.4165 0.4106 0.3899 0.4050 0.4368 0.4346 0.5810 0.5263 0.2425
Net realized and
unrealized gain
(loss) on
investments .. 0.3330 (0.5255) 0.3487 0.2116 0.6703 (0.7221) (0.7549) 0.1595 (0.2667)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations ..... 0.7495 (0.1149) 0.7386 0.6166 1.1071 (0.2875) (0.1739) 0.6858 (0.0242)
------- ------- ------- ------- ------- ------- ------- ------- -------
Less distributions:
Dividends from
net investment
income ....... (0.4165) (0.4106) (0.3899) (0.4050) (0.4368) (0.4346) (0.5810) (0.5263) (0.2425)
Distribution from
capital gains (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0000) (0.0091) (0.0000)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.4165) (0.4106) (0.3899) (0.4050) (0.4368) (0.4346) (0.5810) (0.5354) (0.2425)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period .. $4.4448 $4.1118 $4.6373 $4.2886 $4.0770 $3.4067 $4.1288 $4.8837 $4.7333
======= ======= ======= ======= ======= ======= ======= ======= =======
Total return ..... 18.19% -2.55% 17.90% 15.70% 34.19% -7.44% -4.19% 15.14% -0.99%
Net assets, end of
period (000
omitted) ....... $86,686 $72,644 $71,265 $41,456 $24,394 $13,868 $15,717 $12,779 $4,521
Ratio of expenses
to average net
assets ......... 0.72% 0.74% 0.75% 0.77% 0.87% 0.90% 0.82% 0.91% 0.79%
Ratio of net investment
income to average
net assets ..... 9.25% 9.03% 8.66% 9.48% 11.32% 11.55% 12.54% 10.85% 10.70%
Portfolio turnover
rate ........... 41.78% 37.86% 54.22% 60.79% 34.00% 12.21% 74.97% 46.75% 7.09%
</TABLE>
*The High Income Portfolio's inception date is December 2, 1986; however,
since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share information
is for a capital share outstanding for the period from July 13, 1987
(initial offering) through December 31, 1987. Ratios and portfolio
turnover rates have been annualized.
<PAGE>
THE FUND
The Fund is a series fund consisting of ten Portfolios: the Money
Market Portfolio, the Bond Portfolio, the High Income Portfolio, the Growth
Portfolio, the Income Portfolio, the International Portfolio, the Small Cap
Portfolio, the Balanced Portfolio, the Limited-Term Bond Portfolio and the
Asset Strategy Portfolio. The Fund is the funding or investment vehicle
for variable life insurance policies and variable annuity policies
(hereinafter collectively referred to as the "Policies") offered by the
separate accounts of certain life insurance companies ("Participating
Insurance Companies"). As of the date of this Prospectus, the only
Participating Insurance Company is United Investors Life Insurance Company.
The Policies are described in the accompanying prospectus issued by the
Participating Insurance Company. The Fund assumes no responsibility for
such prospectus.
The Fund does not perceive any risks to the Policyowners resulting
from the use of the same funding vehicle for both annuity and life
insurance policies nor any disadvantages to Policyowners arising from the
fact that the interests of annuity and life insurance Policyowners may
differ. Nevertheless, the Board of Directors will monitor events in order
to identify any material, irreconcilable conflict in the interests of such
Policyowners which may arise.
The individual Policyowners are not direct shareholders of the Fund.
Rather, the Participating Insurance Companies and their separate accounts
are the actual shareholders. To the extent required by law, Policyowners
are entitled to give voting instructions with respect to Fund shares held
in the separate accounts of the Participating Insurance Companies.
Performance Information
From time to time advertisements or information furnished may
include performance data. Performance may be shown by presenting one or
more performance measurements, including yield, total return and
performance rankings. Performance data will be accompanied by or used in
calculating performance data for the respective separate accounts that
invest in the Portfolio. Information regarding the performance of the
Portfolios is contained in the Fund's annual report to shareholders which
may be obtained without charge by request to the Fund at the address or
phone number shown on the cover of this Prospectus.
Bond Portfolio, High Income Portfolio, Growth Portfolio, Income Portfolio,
International Portfolio, Small Cap Portfolio, Balanced Portfolio, Limited-
Term Bond Portfolio, Asset Strategy Portfolio
A Portfolio's total return is its overall change in value for the
period shown including the effect of reinvesting dividends and capital
gains distributions and any change in the net asset value per share. A
cumulative total return reflects the Portfolio's change in value over a
stated period of time. An average annual total return reflects the
hypothetical annually compounded return that would have produced the
cumulative total return for a stated period if the Portfolio's performance
had been constant during each year of that period. Average annual total
returns are not actual year-by-year results and investors should realize
that total returns will fluctuate. No sales charge is required to be paid
by the Participating Insurance Companies for purchase of Portfolio shares.
The Fund may also provide non-standardized performance information.
Money Market Portfolio
The "current yield" of the Money Market Portfolio refers to the income
generated by an investment in the Portfolio over a stated seven-day period.
This income is then "annualized." That is, the amount of income generated
by the investment during that period is assumed to be generated each week
over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "current yield" because
of the compounding effect of the assumed reinvestment.
General
From time to time, advertisements and information furnished to present
or prospective Policyholders may include 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. A Portfolio's performance may also be
compared to that of other selected mutual funds or selected recognized
market indicators. Performance information may be quoted numerically or
presented in a table, graph or other illustration.
All performance information included in advertisements or information
provided to present or prospective Policyholders is historical in nature
and is not intended to represent or guarantee future results. Yield
information cannot necessarily be used to compare Portfolio shares with
investment alternatives which provide fixed yields, such as bank accounts
(which accounts may be insured), or with yields of similar investment
companies which may be computed in a different manner. An investment in
Portfolio shares is not insured. The value of any Portfolio's shares when
redeemed may be more or less than their original cost. See the SAI for
total return and yield and methods of computation.
GOALS AND INVESTMENT POLICIES OF THE PORTFOLIOS
Each of the ten Portfolios has a different goal that it pursues
through separate investment policies that are described below. The
different goals of the Portfolios and the different investment policies
utilized by each Portfolio in attempting to achieve its goal can be
expected to affect the degree of market and financial risk to which each
Portfolio is subject as well as the return of each Portfolio. There can be
no assurance that a Portfolio will achieve its goals; some market risks are
inherent in all securities to varying degrees.
The goals, investment policies and restrictions of each Portfolio may,
unless otherwise specifically stated, be changed by the Directors of the
Fund without a vote of the shareholders. In addition to the investment
policies for each Portfolio discussed below, each Portfolio may engage in
certain other investment strategies described under "Investment Policies
Common to the Ten Portfolios." Additional information concerning
investment policies may be found in the SAI.
The Money Market Portfolio
The goal of the Money Market Portfolio is maximum current income
consistent with stability of principal. The Portfolio seeks to achieve
this goal by investing in money market securities such as commercial paper,
including variable amount master demand notes, corporate debt obligations,
bank obligations of domestic and foreign banks and foreign branches of
domestic banks and instruments secured by bank obligations, obligations of
the U.S. and Canadian governments or their respective agencies and
instrumentalities and repurchase agreements.
Investments are limited to those that are dollar denominated and that
are rated in one of the two highest rating categories by the requisite
nationally recognized statistical rating organization(s) or are comparable
unrated securities. See Appendix A to this Prospectus for a description of
some of these ratings. Investments in the securities of any one issuer
(except securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Securities")) are limited
to no more than 5% of the Portfolio's assets. Investments in securities
rated in the second highest rating category by the requisite rating
organization(s) or comparable unrated securities are limited to no more
than 5% of the Portfolio's assets, with investments in such securities of
any one issuer (except U.S. Government Securities) being limited to the
greater of one percent of the Portfolio's assets or $1,000,000. The
Portfolio may only invest in securities with a remaining maturity of not
more than thirteen months.
The Portfolio seeks to maintain a constant net asset value of $1.00
per share, although this may not always be possible. It uses the amortized
cost method of securities valuation. The Portfolio's income fluctuates
with changes in prevailing interest rates and there is no assurance that
its goal will be achieved. See the SAI for a discussion of the valuation
method.
The Bond Portfolio
The goal of the Bond Portfolio is to provide current income with an
emphasis on preservation of capital. It ordinarily invests at least 65% of
its assets in debt securities of varying yields, quality and maturities.
In selecting debt securities for this Portfolio, the Fund's
investment manager, Waddell & Reed Investment Management Company (the
"Manager"), considers yield and relative safety and, in the case of
convertible securities, the possibility of capital growth. The Portfolio
may not purchase any securities other than debt securities if, after such
purchase, more than 10% of its total assets would be invested in non-debt
securities. However, this 10% limit does not include any non-debt
securities held as a result of conversion of a debt security or exercise of
a warrant.
The Portfolio may invest a significant, but varying, percentage of its
assets in U.S. Government Securities. See "Investment Policies Common to
the Ten Portfolios" for a further discussion of the Portfolio's ability to
invest in U.S. Government Securities. Under unusual market or economic
conditions, for temporary defensive purposes, the Portfolio may invest up
to all of its assets in cash or cash equivalents. Taking a defensive
position might result in a lower yield.
The Portfolio is actively managed and may have a turnover rate in
excess of 200%, which will result in correspondingly higher commission
expenses and transaction costs and may result in certain tax consequences.
In determining what proportion of the Portfolio will be invested in what
type and quality of securities, the Manager considers what investments will
be most effective in achieving the Portfolio's goal. The proportions may
vary depending upon the outlook for the economy and the securities markets,
the quality of available investments, the level of interest rates, the
ability to preserve capital and other factors.
The Portfolio's income will vary and the net asset value of its shares
will increase or decrease with changes in the market prices of its
investments. Market prices of debt securities will increase or decrease
depending in large part on changes in prevailing interest rates. If
interest rates increase, the value of debt securities is likely to go down;
if rates decrease the value may go up. There is no assurance that the goal
of the Bond Portfolio will be achieved.
The High Income Portfolio
The primary goal of the High Income Portfolio is high current
income; as a secondary goal it seeks capital growth when consistent with
the primary goal. The Portfolio attempts to achieve these goals by
investing primarily in a diversified portfolio of high-yield, high-risk
fixed income securities. These include corporate bonds and notes,
convertible securities and preferred stocks that are rated in the lower
rating categories of the established rating services (Baa or lower by
Moody's Investors Service, Inc. ("MIS") or BBB or lower by Standard and
Poor's Ratings Services ("S&P")), or are unrated securities that are, in
the opinion of the Manager, of similar quality to rated bonds in these
categories.
Under normal market conditions at least 65% of the value of the
Portfolio's total assets will be invested to seek a high level of current
income, which securities may include high-yield, high-risk securities. A
portion of the Portfolio's assets may be invested in common stocks;
however, the Portfolio will not purchase any common stocks if, after such
purchase, more than 20% of the value of its total assets would be invested
in common stocks. This 20% limit includes common stocks acquired on
conversion of convertible securities, on exercise of warrants or call
options or in any other voluntary manner. The Portfolio will invest in
common stocks in order to attempt to achieve either a combination of its
primary and secondary goals, in which case the common stocks will be
dividend-paying, or to achieve its secondary goal, in which case the common
stocks may not pay dividends. The Portfolio does not anticipate investing
more than 4% of its total assets in non-dividend-paying common stocks.
Under unusual market or economic conditions, for temporary defensive
purposes, the Portfolio may invest up to all of its assets in (i) higher-
rated securities if the Manager believes that the risk of loss of income
and principal may be reduced with a relatively small reduction in yield; or
(ii) cash or cash equivalents. Taking a defensive position might result in
a lower yield.
The Portfolio may invest in zero coupon securities. Although the
Manager does not believe that investing in such securities results in
material risks, such investing may jeopardize the Portfolio's ability to
meet its goals or meet the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code").
The Portfolio's income will vary and the net asset value of its shares
will increase or decrease with changes in the market prices of its
investments. There is no assurance that the goals of the High Income
Portfolio will be achieved. The Portfolio is actively managed and may have
a turnover rate in excess of 100%, which will result in correspondingly
higher commission expenses and transaction costs and may result in certain
tax consequences.
The Growth Portfolio
The goal of the Growth Portfolio is capital growth with current income
as a secondary goal. It seeks to achieve these goals by investing in
common stocks or securities convertible into common stocks. The Portfolio
is free to invest in a wide range of marketable securities offering the
potential for growth. This enables it to pursue investment values in
various sectors of the market.
Under unusual market or economic conditions, for temporary defensive
purposes, the Portfolio may invest up to all of its assets in cash or fixed
income securities or in common stocks chosen for their relative stability
rather than for growth potential. Taking a defensive position might result
in a lower yield.
The net asset value of the shares of the Portfolio will increase or
decrease with changes in the market price of the investments held by the
Portfolio. There is no assurance that the goals of the Portfolio will be
achieved. The Portfolio is actively managed and may have a turnover rate
in excess of 200%, which will result in correspondingly higher commission
expenses and transaction costs and may result in certain tax consequences.
The Income Portfolio
The goal of the Income Portfolio is the maintenance of current
income, subject to market conditions. It seeks to achieve this goal by
investing primarily in common stocks, or securities convertible into common
stocks, of companies that have the potential for capital growth or that may
be expected to resist market decline. When investment conditions are such
that stocks with high yields are less attractive than other common stocks,
lower yielding common stocks may be held because of their prospects for
appreciation. At other times, the Portfolio may seek to achieve this goal
by holding cash or investing in debt securities and preferred stocks when
the return on these securities is attractive relative to the return on
common stocks.
The net asset value of the shares of the Portfolio will increase or
decrease with changes in the market price of the investments held by the
Portfolio. There is no assurance that the goal of the Portfolio will be
achieved. The Portfolio may have a portfolio turnover rate in excess of
100%, which will result in correspondingly higher commission expenses and
transaction costs and may result in certain tax consequences.
The International Portfolio
The primary goal of the International Portfolio is the long-term
appreciation of capital. Current income is a secondary goal. The
Portfolio seeks to achieve these goals by investing primarily in securities
issued by companies or governments of any nation. The securities selected
to attempt to achieve the Portfolio's primary goal are those issued by
companies that the Manager believes have the potential for long-term
growth. There are three main kinds of securities that the Portfolio may
own: common stocks, preferred stocks and debt securities. Securities
purchased because they may increase in value over the long term will
usually be common stocks, securities that may be converted into common
stocks or rights for the purchase of common stocks.
Under unusual market or economic conditions, for temporary defensive
purposes, up to all of the Portfolio's assets may be invested in either
debt securities (including commercial paper or short-term U.S. Government
Securities) or preferred stocks or both. Taking a defensive position may
result in a lower yield.
The Portfolio will not invest more than 5% of its assets, taken at
market value at the time of investment, in companies, including
predecessors, with less than three years continuous operation. This
restriction does not apply to any U.S. Government Securities or to
collateralized mortgage obligations ("CMOs"), other mortgage related
securities or indexed securities. The Portfolio may buy shares of other
investment companies that do not redeem their shares, subject to the
conditions stated in the SAI.
All or a substantial portion of the Portfolio's assets may be invested
in foreign securities if, in the opinion of the Manager, doing so might
assist in achieving the Portfolio's goal. The Portfolio may purchase
restricted foreign securities provided that, after such purchase, not more
than 5% of its assets consist of such securities. See "Investment Policies
Common to the Ten Portfolios" for a further discussion of the Portfolio's
ability to invest in foreign securities.
The Portfolio's income will vary and the net asset value of its shares
will increase or decrease with changes in the market prices of its
investments. There is no assurance that the goals of the Portfolio will be
achieved. The Portfolio may have a turnover rate in excess of 100%, which
will result in correspondingly higher commission expenses and transaction
costs and may result in certain tax consequences. The ability to invest
all or a substantial amount of the Portfolio's assets in foreign securities
may result in a higher turnover rate and higher costs.
The Small Cap Portfolio
The goal of the Small Cap Portfolio is to seek the growth of
capital. The Portfolio seeks to achieve this goal through a diversified
holding of securities, primarily in the common stocks of, or securities
convertible into the common stocks of, companies that are relatively new or
unseasoned, in their early stages of development or smaller companies
positioned in new and emerging industries where the opportunity for rapid
growth is above average. Under normal market conditions, at least 65% of
the Portfolio's total assets will be invested in those companies that have
market capitalization of up to $500,000,000 as of the company's latest
annual report. Subject to such limitations, the Portfolio may occasionally
invest in securities of larger companies that are being fundamentally
changed and revitalized or have a position that is considered strong
relative to the market as a whole or that otherwise offer unusual
opportunities for above-average growth. There are three main kinds of
securities that the Portfolio may own: common stocks, preferred stocks and
debt securities.
Under unusual market or economic conditions, for temporary defensive
purposes, up to all of the assets of the Portfolio may be invested in
either debt securities (including commercial paper or short-term U.S.
Government Securities) or preferred stocks or both. Taking a defensive
position may result in a lower yield.
The Portfolio may buy shares of other investment companies that do
not redeem their shares, subject to the conditions stated in the SAI. The
Portfolio may purchase foreign securities as described in this Prospectus
and the SAI. The Portfolio will not invest more than 5% of its assets,
taken at market value at the time of investment, in companies, including
predecessors, with less than three years continuous operation. This
restriction does not apply to any U.S. Government Securities, or to CMOs,
other mortgage-related securities or indexed securities.
The Portfolio may borrow money on an unsecured basis in order to
purchase securities. Borrowing for investment increases both investment
opportunity and risk. Since substantially all of the Portfolio's assets
fluctuate in value, but borrowing obligations are fixed, net asset value
per share will tend to correspondingly increase or decrease more when the
portfolio assets increase or decrease in value, a factor known as
leveraging. The Portfolio may borrow money only from banks and only to the
extent that the value of its assets, less its liabilities other than
borrowings, is equal to at least 300% of all borrowings including the
proposed borrowing.
The Portfolio is designed for investors who are willing to accept
greater risks than are present with many other mutual funds. It is not
intended for those investors who desire assured income and conservation of
capital. The Portfolio ordinarily invests in securities whose market price
often is subject to rapid and wide fluctuation. In selecting companies,
the Manager may look for such characteristics as aggressive or creative
management, technological or specialized expertise, new or unique products
or services, entry into new or emerging industries and special situations
arising out of governmental priorities and programs. Certain risks are
associated with securities of companies that are relatively new or
unseasoned, in their early stages of development or smaller companies
positioned in new or emerging industries where the opportunity for growth
is above average, including potential greater volatility in share price due
to the less established nature of the companies.
The Portfolio's income will vary and the net asset value of its shares
will increase or decrease with changes in the market prices of its
investments. There is no assurance that the goal of the Portfolio will be
achieved. The Portfolio may have a turnover rate in excess of 100%, which
will result in correspondingly higher commission expenses and transaction
costs and may result in certain tax consequences.
The Balanced Portfolio
The primary goal of the Balanced Portfolio is to provide current
income to the extent that, in the opinion of the Manager, market and
economic conditions permit. Secondarily, the Portfolio seeks long-term
appreciation of capital. The Portfolio usually will purchase securities
because of the dividends and interest paid on them and may also purchase
securities because they may increase in value. There are three main kinds
of securities that the Portfolio may own: debt securities, common stocks
and preferred stocks. The Portfolio will ordinarily have at least 25% of
its total assets invested in fixed-income senior securities. Under unusual
market or economic conditions, for temporary defensive purposes, the
Portfolio may have up to all of its assets invested in common stock or
other securities that are not fixed-income senior securities or both.
Taking a defensive position may result in a lower yield.
The Portfolio may buy shares of other investment companies which do
not redeem their shares, subject to the conditions stated in the SAI.
The Portfolio's income will vary and the net asset value of its shares
will increase or decrease with changes in the market prices of its
investments. There is no assurance that the goals of the Portfolio will be
achieved. The Portfolio may have a turnover rate in excess of 100%, which
will result in correspondingly higher commission expenses and transaction
costs and may result in certain tax consequences.
The Limited-Term Bond Portfolio
The goal of the Limited-Term Bond Portfolio is to provide a high level
of current income consistent with preservation of capital by investing
primarily in debt securities of investment grade (subject to the policy
regarding non-investment grade securities described below), including U.S.
Government Securities. "Limited-Term" means that the Portfolio will
maintain a dollar-weighted average maturity of its portfolio of not less
than two years and not more than five years. The maturity of CMOs and
other asset-backed securities will be deemed to be the estimated average
life of such securities, as determined in accordance with certain
prescribed models or formulas, such as those provided by the Public
Securities Association. The maturity of other debt securities will be
deemed to be the earlier of the call date or the maturity date, whichever
is appropriate. The debt securities, other than U.S. Government
Securities, in which the Portfolio may invest include, without limitation,
corporate bonds, medium-term notes, asset-backed securities (such as
mortgage-backed securities) and other financial obligations that are
commonly considered debt, all of which securities will be denominated in
U.S. dollars. At least 65% of the Portfolio's total assets during normal
market conditions will be invested in debt securities. The Portfolio
intends to invest a significant percentage of its net assets in CMOs.
Subject to the Portfolio's other policies, the two main kinds of securities
that the Portfolio may own are common stocks and debt securities. It may
also own convertible securities, including convertible preferred stock in
certain circumstances.
Under unusual market or economic conditions, for temporary defensive
purposes, the Portfolio may, with respect to up to all of its assets: (i)
shorten the average maturity of the Portfolio's portfolio; (ii) hold cash
or cash equivalents; (iii) emphasize debt securities of a higher quality
than those the Portfolio would ordinarily hold; or (iv) invest in
convertible preferred stock. Taking a defensive position may result in a
lower yield.
The Portfolio will not invest more than 5% of its assets, taken at
market value at the time of investment, in companies, including
predecessors, with less than three years continuous operation. This
restriction does not apply to any U.S. Government Securities, or to CMOs,
other mortgage-related securities or indexed securities.
The Portfolio's income will vary and the net asset value of its shares
will increase or decrease with changes in the market prices of its
investments. There is no assurance that the goal of the Portfolio will be
achieved. The Portfolio may have a turnover rate in excess of 300%, which
will result in correspondingly higher commission expenses and transaction
costs and may result in certain tax consequences.
The Asset Strategy Portfolio
The goal of the Asset Strategy Portfolio is high total return with
reduced risk over the long term. The Portfolio seeks to achieve this goal
by allocating its assets among stocks, bonds, and short-term instruments.
Allocating assets among different types of investments allows the
Portfolio to take advantage of opportunities wherever they may occur, but
also subjects the Portfolio to the risks of a given investment type. Stock
values generally fluctuate in response to the activities of individual
companies and general market and economic conditions. The value of bonds
and short-term instruments generally fluctuates based on changes in
interest rates and in the credit quality of the issuer.
The Manager regularly reviews Asset Strategy Portfolio's allocation of
assets and makes changes to favor investments that it believes provide the
most favorable outlook for achieving the Portfolio's goal. Although the
Manager uses its expertise and resources in choosing investments and
allocating assets, the Manager's decisions may not always be advantageous
to the Portfolio.
The Portfolio allocates its assets among the following classes, or
types, of investments. The stock class includes equity securities of all
types. The bond class includes all varieties of fixed-income instruments
with maturities of more than three years (including adjustable rate
preferred stocks). The short-term class includes all types of short-term
instruments with remaining maturities of three years or less. Within each
of these classes, the Portfolio may invest in both domestic and foreign
securities.
The Manager has the ability to allocate the Portfolio's assets within
specified ranges. The Portfolio's mix indicates the benchmark for its
combination of investments in each class over time. The Manager may change
the mix within the specified ranges from time to time. The range and
approximate percentage of the mix for each asset class are shown below.
Some types of investments, such as indexed securities, can fall into more
than one asset class.
Mix Range
------------- ------
Stock class 10-60%
40%
Bond class 20-60%
40%
Short-term class 0-70%
20%
The Portfolio's approach spreads the Portfolio's assets among all
three classes, attempting to moderate the risk potential of stocks, bonds,
and short-term instruments. In pursuit of the Portfolio's goal, the
Manager will not try to pinpoint the precise moment when a major
reallocation should be made. Asset shifts among classes may be made
gradually over time. Under normal circumstances, a single reallocation
will not involve more than 10% of the Portfolio's total assets.
The Portfolio does not currently intend to invest in money-market
instruments rated below A-1 by S&P or Prime 1 by MIS, or judged by the
Manager to be of equivalent quality. The Portfolio may invest in preferred
stock rated in any rating category by an established rating service and
unrated preferred stock judged by the Manager to be of equivalent
quality.
The Portfolio may invest in zero coupon bonds. Although the Manager
does not believe that investing in such securities results in material
risks, such investing may jeopardize the Portfolio's ability to meet its
investment goals or meet the requirements of Subchapter M of the Code.
The Portfolio may borrow from banks. As a fundamental policy, the
Portfolio may borrow only for emergency or extraordinary purposes (not for
leveraging or investment) in an amount not exceeding 33 1/3% of the value
of its total assets. The Portfolio may not invest more than 5% of its
assets taken at market value at the time of investment in companies,
including predecessors, with less than three years continuous operation.
This restriction does not apply to any U.S. Government Securities, or to
CMOs, other mortgage-related securities or indexed securities. The
Portfolio may buy shares of other investment companies that do not redeem
their shares, subject to certain conditions stated in the SAI.
The Manager normally invests the Portfolio's assets according to its
investment strategy; however, as a temporary defensive measure at times
when the Manager believes that stocks, bonds and certain short-term
instruments do not offer a good investment opportunity, it may temporarily
invest up to all of the Portfolio's assets in money market instruments
rated A-1 by S&P or Prime 1 by MIS, or unrated securities judged by the
Manager to be of equivalent quality.
The net asset value of the shares of the Portfolio will increase or
decrease with changes in the market price of the investments held by the
Portfolio. There is no assurance that the goals of the Portfolio will be
achieved. The Asset Strategy Portfolio cannot precisely predict what its
portfolio turnover rates will be; however, it is anticipated that the
annual turnover rate for the common stock portion of its portfolio will not
exceed 200% and the annual turnover rate for the other portion of its
portfolio will not exceed 200%. Higher turnover rates result in
correspondingly higher commission expenses and transaction costs and may
result in certain tax consequences.
The Asset Strategy Portfolio diversifies across investment types more
than most mutual funds. No one mutual fund, however, can provide an
appropriate balanced investment plan for all investors.
Investment Policies Common to the Ten Portfolios
The following pages contain more detailed information about types
of instruments in which the Portfolios may invest, and strategies the
Manager may employ in pursuit of the Portfolios' goals. A summary of risks
associated with these instrument types and investment practices is included
as well. Except as otherwise noted, the investment policies described
below are applicable to each of the ten Portfolios.
The Manager might not buy all of these instruments or use all of these
techniques to the full extent permitted by a Portfolio's goals and
investment restrictions unless it believes that doing so will help a
Portfolio achieve its goal.
Certain of the investment policies and restrictions of each Portfolio
are also stated below. Policies and limitations are typically considered
at the time of purchase; the sale of instruments is usually not required in
the event of a subsequent change in circumstances.
The Portfolios may engage in short-term trading. This results in
correspondingly greater commission expenses and transaction costs and may
result in certain tax consequences.
Repurchase Agreements
In a repurchase agreement, a Portfolio purchases a security at one
price and simultaneously agrees to sell it back at a higher price. Delays
or losses could result if the other party to the agreement defaults or
becomes insolvent. Repurchase agreements are entered into only with those
issuers approved on the basis of criteria established by the Board of
Directors. Each of the Portfolios may purchase securities subject to
repurchase agreements subject to its limitation on investment in illiquid
securities, which include repurchase agreements not terminable within seven
days.
Options, Futures and Other Strategies
As described below, certain of the Portfolios may use certain
swaps, caps, collars, floors, options, futures contracts, forward currency
contracts and indexed securities to attempt to enhance income or yield or
may attempt to reduce the overall risk of their investments by using
certain options, futures contracts, forward currency contracts, swaps,
caps, collars and floors and certain other strategies described herein.
The strategies described below may be used in an attempt to manage a
Portfolio's foreign currency exposures as well as other risks of a
Portfolio's investments that can affect fluctuation in its net asset
value.
The Asset Strategy Portfolio may also use various techniques to
increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates, commodity prices or other factors that
affect security values. These techniques may involve derivative
transactions such as buying and selling options and futures contracts,
entering into forward currency contracts or swap agreements, and purchasing
indexed securities.
A Portfolio's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. A Portfolio might
not use any of these strategies, and there can be no assurance that any
strategy that is used will succeed. The risks associated with such
strategies are described below. Also see the SAI for more information on
these strategies and risk considerations relating thereto.
Options. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed upon
exercise price during the option period. A put option gives the purchaser
the right to sell, and obligates the writer to buy, the underlying
investment at the agreed upon exercise price during the option period.
Purchasers of options pay an amount, known as a premium, to the option
writer in exchange for the right under the option contract.
Options offer large amounts of leverage, which will result in a
Portfolio's net asset value being more sensitive to changes in the value of
the related investment. There is no assurance that a liquid secondary
market will exist for exchange-listed options. The market for options that
are not listed on an exchange may be less active than the market for
exchange-listed options. A Portfolio will be able to close a position in
an option it has written only if there is a market for the put or call. If
a Portfolio is not able to enter into a closing transaction on an option it
has written, it will be required to maintain the securities, or cash in the
case of an option on an index, subject to the call or the collateral
underlying the put until a closing transaction can be entered into or the
option expires. Because index options are settled in cash, a Portfolio
cannot provide in advance for its potential settlement obligations on a
call it has written on an index by holding the underlying securities. The
Portfolio bears the risk that the value of the securities it holds will
vary from the value of the index. Option transactions may increase the
portfolio turnover rate creating greater commission expenses, transaction
costs and tax consequences.
The Bond Portfolio, High Income Portfolio, Growth Portfolio and Income
Portfolio may each write (sell) covered call options on securities on up to
25% of its assets. The International Portfolio may write (sell) covered
call options on securities on no more than 10% of its total assets.
"Covered" means that the Portfolio owns the securities subject to the call
or has the right to acquire them without additional payment. Each of these
Portfolios may purchase a call option on a security only to close its
position in a call it has written. Calls written by these Portfolios must
be listed on a domestic securities exchange; however, the Bond Portfolio,
High Income Portfolio, Growth Portfolio and Income Portfolio may write
over-the-counter ("OTC") calls on U.S. Government Securities. Writing
calls may increase each of these Portfolio's turnover rates and result in
higher brokerage commissions.
The Small Cap Portfolio and Balanced Portfolio may each write (sell)
covered call options on securities on not more than 25% of its total assets
and may each purchase calls and write and purchase puts on securities in
which the Portfolio may invest. Calls written by these Portfolios must be
listed on a domestic securities exchange. Each of these Portfolios may
only purchase or sell options on securities issued by the Options Clearing
Corporation (the "OCC"), except that each may write OTC put options and
purchase OTC put and call options on U.S. Government Securities and may
purchase optional delivery standby commitments.
The Limited-Term Bond Portfolio may write (sell) and purchase listed
and OTC options on domestic debt securities, which securities include,
without limitation, U.S. Government Securities ("Domestic Debt
Securities"). The Limited-Term Bond Portfolio may not write call options
having aggregate exercise prices greater than 25% of its net assets.
Each Portfolio (other than the Money Market Portfolio) may write
options on securities for the purpose of increasing income in the form of
premiums paid by the purchaser of the options. While writing covered calls
may result in the realization of income, the Portfolio will lose the
opportunity to profit from an increase in the price of the security subject
to the call over the exercise price. In writing puts, the Portfolio
assumes the risk of loss should the market value of the underlying security
decline below the exercise price at which the Portfolio is obligated to
purchase the security.
The Small Cap Portfolio, Balanced Portfolio and Limited-Term Bond
Portfolio may each purchase calls to take advantage of an expected rise in
the market value of securities and to close positions in calls it has
written. Each may purchase puts on related investments it owns
("protective puts") or on related investments it does not own
("nonprotective puts"). Buying a protective put permits the Portfolio to
protect itself during the put period against a decline in the value of the
related investments below the exercise price by selling them through the
exercise of the put. Buying a nonprotective put permits the Portfolio, if
the market price of the related investments is below the put price during
the put period, either to resell the put or to buy the related investments
and sell them at the exercise price. Each of these Portfolios may also
purchase puts to close positions in puts it has written. If an option
purchased by a Portfolio is not exercised or sold, it will become worthless
at its expiration date and the Portfolio will lose the amount of the
premium it paid.
Each of the Small Cap Portfolio and Balanced Portfolio may also write
(sell) and purchase listed options on stock indices that are not limited to
stocks of any industry or group of industries ("broadly-based stock
indices"). Each may write options on broadly-based stock indices to
generate income. Each may purchase calls on broadly-based stock indices to
hedge against an anticipated increase in the price of securities it wishes
to acquire and may purchase puts on broadly-based stock indices to hedge
against an anticipated decline in the market value of its portfolio
securities. Because stock index options are settled in cash, a Portfolio
cannot provide in advance for its potential settlement obligations on a
call it has written on a stock index by holding the underlying securities.
Each Portfolio bears the risk that the value of the securities it holds
will vary from the value of the index.
There is no limitation on the types of options that the Asset Strategy
Portfolio may purchase and sell. See the SAI for the limitations on the
Asset Strategy Portfolio's use of options.
Futures Contracts and Options on Futures Contracts. When a Portfolio
purchases a futures contract, it incurs an obligation to take delivery of a
specified amount of the obligation underlying the contract at a specified
time in the future for a specified price. When a Portfolio sells a futures
contract, it incurs an obligation to deliver the specified amount of the
underlying obligation at a specified time in return for an agreed upon
price.
When a Portfolio writes an option on a futures contract, it becomes
obligated, in return for the premium paid, to assume a position in a
futures contract at a specified exercise price at any time during the term
of the option. If a Portfolio has written a call, it assumes a short
futures position. If it has written a put, it assumes a long futures
position. When a Portfolio purchases an option on a futures contract, it
acquires a right in return for the premium it pays to assume a position in
a futures contract (a long position if the option is a call and a short
position if the option is a put).
Each of the Small Cap Portfolio and Balanced Portfolio may buy and
sell futures contracts on debt securities ("Debt Futures"), futures
contracts on broadly-based stock indices ("Stock Index Futures"), and
options on Debt Futures and Stock Index Futures. The Limited-Term Bond
Portfolio may buy and sell futures on Domestic Debt Securities ("Domestic
Debt Futures") and options on Domestic Debt Futures. Each of these
Portfolios may purchase or sell futures contracts and options thereon for
the purpose of hedging against changes in the market value of its portfolio
securities or changes in the market value of securities that the Manager
anticipates it may wish to include in the Portfolio's portfolio. Each of
these Portfolios may write options on futures contracts to increase income.
The Limited-Term Bond Portfolio may not purchase or sell options on
securities, futures contracts or options on futures contracts if the
aggregate value of such options and futures held by that Portfolio would
exceed 25% of its assets.
Neither the Small Cap Portfolio nor the Balanced Portfolio may
purchase options on securities or futures contracts if the aggregate value
of the premiums paid (adjusted for the portion of any premium attributable
to the difference between the "strike price" of the option and the market
price of the underlying security or futures contract at the time of
purchase) exceeds 20% of the Portfolio's total assets. The aggregate
amount of the obligations underlying put options on securities or futures
contracts written by each of the Small Cap Portfolio and Balanced Portfolio
may not exceed 25% of its net assets computed at the time of sale.
There is no limitation on the types of futures contracts and
options thereon that the Asset Strategy Portfolio may purchase or sell.
See the SAI for the limitations on the Asset Strategy Portfolio's use of
futures contracts and options on futures contracts.
Forward Contracts and Currencies. A forward currency contract is
an obligation to purchase or sell a specific currency at a future date at a
fixed price. The International Portfolio may enter into forward currency
contracts, provided that it does not thereafter have more than 15% of the
value of its assets committed to the consummation of all such contracts;
however, it will not enter into forward currency contracts or maintain a
net exposure to such forward currency contracts where the consummation of
the forward currency contracts would obligate the International Portfolio
to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency. The
International Portfolio enters into forward currency contracts to attempt
to protect against losses that may result from changes in the value of
currencies but at the same time forward currency contracts tend to limit
any potential gain that might result from currency changes.
The Asset Strategy Portfolio may enter into forward currency contracts
for the purchase or sale of a specified currency at a specified future date
either with respect to specific transactions or with respect to portfolio
positions in order to minimize the risk to the Portfolio from adverse
changes in the relationship between the U.S. dollar and foreign currencies.
For example, when the Manager anticipates purchasing or selling a security,
the Portfolio may enter into a forward currency contract in order to set
the exchange rate at which the transaction will be made. The Asset
Strategy Portfolio also may enter into a forward currency contract to sell
an amount of a foreign currency approximating the value of some or all of
the Portfolio's securities positions denominated in such currency. The
Asset Strategy Portfolio may also use forward currency contracts in one
currency or a basket of currencies to attempt to hedge against fluctuations
in the value of securities denominated in a different currency if the
Manager anticipates that there will be a correlation between the two
currencies.
The Asset Strategy Portfolio may also use forward currency contracts
to shift the Portfolio's exposure to foreign currency exchange rate changes
from one foreign currency to another. For example, if the Portfolio owns
securities denominated in a foreign currency and the Manager believes that
currency will decline relative to another currency, it might enter into a
forward contract to sell the appropriate amount of the first foreign
currency with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as
"cross hedging." Use of a different foreign currency magnifies the
Portfolio's exposure to foreign currency exchange rate fluctuations. The
Asset Strategy Portfolio may also purchase forward currency contracts to
enhance income when the Manager anticipates that the foreign currency will
appreciate in value, but securities denominated in that currency do not
present attractive investment opportunities.
The Asset Strategy Portfolio does not currently intend to invest more
than 5% of its total assets in forward currency contracts.
The Asset Strategy Portfolio may purchase and sell foreign currency
and invest in foreign currency deposits. The International Portfolio may
only hold foreign currency contracts for up to four business days and in
connection with the purchase or sale of foreign securities. The other
Portfolios (other than the Money Market Portfolio and the Limited-Term Bond
Portfolio) may briefly hold foreign currencies in connection with the
purchase or sale of foreign securities. Currency conversion involves
dealer spreads and other costs, although commissions usually are not
charged.
Successful use of forward currency contracts will depend on the
Manager's skill in analyzing and predicting currency values. Forward
currency contracts may substantially change a Portfolio's investment
exposure to changes in currency exchange rates, and could result in losses
to the Portfolio if currencies do not perform as the Manager anticipates.
There is no assurance that the Manager's use of forward currency contracts
will be advantageous to a Portfolio or that it will hedge at an appropriate
time.
See the SAI for further information about these instruments and their
risks.
Swaps, Caps and Floors. The Limited-Term Bond Portfolio may enter
into interest rate swap transactions, and purchase or sell interest rate
caps and floors, with respect to domestic interest rates. These
transactions may only be entered into for hedging purposes. The Limited-
Term Bond Portfolio expects to enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities the
Limited-Term Bond Portfolio anticipates purchasing at a later date.
The Asset Strategy Portfolio is not limited in the type of swap, cap,
collar or floor it may enter into as long as the Manager determines it is
consistent with the Portfolio's goal and investment policies. Depending on
how they are used, the swap, cap, collar and floor agreements used by the
Asset Strategy Portfolio may increase or decrease the overall volatility of
its investments and its share price and yield. The most significant factor
in the performance of these agreements is the change in the specific
interest rate, currency, or other factors that determine the amounts of
payments due to and from the Portfolio.
Swaps involve the exchange by a Portfolio with another party of their
respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of a cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined value, to receive payments on a notional principal amount
from the party selling such cap. The purchase of a floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
value, to receive payments on a notional principal amount from the party
selling such floor. An interest rate collar combines elements of buying a
cap and selling a floor.
A Portfolio usually will enter into swaps on a net basis, i.e., the
two payment streams are netted out, with the Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. If, however,
an agreement calls for payments by a Portfolio, the Portfolio must be
prepared to make such payments when due. The creditworthiness of firms
with which a Portfolio enters into swaps, caps, collars or floors will be
monitored by the Manager in accordance with procedures adopted by the Board
of Directors. If a firm's creditworthiness declines, the value of an
agreement would be likely to decline, potentially resulting in losses. If
a default occurs by the other party to such transaction, the Portfolio will
have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation.
The Portfolios understand that the position of the staff of the
Securities and Exchange Commission is that assets involved in such
transactions are illiquid securities and are, therefore, subject to the
limitations on investment in illiquid securities as described in the SAI.
See the SAI for further information about these instruments and their
risks.
Indexed Securities. Each Portfolio (other than the Growth
Portfolio) may purchase and sell indexed securities, which are securities
whose prices are indexed to the prices of other securities, securities
indices, currencies, precious metals or other commodities, or other
financial indicators, as long as the Manager determines that it is
consistent with the Portfolio's goal and investment policies. 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 Money Market Portfolio may, however, only
invest in bank obligations if they are obligations of a bank subject to
regulation by the U.S. Government (including foreign branches of these
banks) or obligations of a foreign bank having total assets equal to at
least U.S. $500,000,000, and instruments secured by any such obligation.
The Limited-Term Bond Portfolio may invest in deposits in banks
(represented by certificates of deposit or other evidence of deposit issued
by such banks of varying maturities) the principal of which is insured by
the Federal Deposit Insurance Corporation ("Insured Deposits"). The
performance of indexed securities depends to a great extent on the
performance of the security, currency, or other instrument to which they
are indexed, and may also be influenced by interest rate changes in the
United States and abroad. At the same time, indexed securities are subject
to the credit risks associated with the issuer of the security, and their
values may decline substantially if the issuer's creditworthiness
deteriorates. Indexed securities may be more volatile than the underlying
instruments.
Mortgage-Backed Securities
Mortgage-backed securities may include pools of mortgages, such as
CMOs and stripped mortgage-backed securities. The value of these
securities may be significantly affected by changes in interest rates, the
market's perception of the issuers, and the creditworthiness of the parties
involved. The Portfolios (other than the Money Market Portfolio and the
Growth Portfolio) may invest in mortgage-backed securities as long as the
Manager determines that it is consistent with the Portfolio's goal and
investment policies. The Asset Strategy Portfolio does not currently
intend to invest more than 40% of its total assets in mortgage-backed
securities.
The yield characteristics of mortgage-backed securities differ from
those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently on mortgage-backed
securities and that principal may be prepaid at any time because the
underlying mortgage loans generally may be prepaid at any time. As a
result, if a Portfolio purchases these securities at a premium, a
prepayment rate that is faster than expected will reduce yield to maturity
while a prepayment rate that is slower than expected will have the opposite
effect of increasing yield to maturity. Conversely, if a Portfolio
purchases these securities at a discount, faster than expected prepayments
will increase, while slower than expected prepayments will reduce, yield to
maturity. Accelerated prepayments on securities purchased by a Portfolio
at a premium also impose a risk of loss of principal because the premium
may not have been fully amortized at the time the principal is repaid in
full.
Timely payment of principal and interest on pass-through securities of
the Government National Mortgage Association (but not the Federal Home Loan
Mortgage Corporation or the Federal National Mortgage Association) is
guaranteed by the full faith and credit of the United States. This is not
a guarantee against market decline of the value of these securities or
shares of a Portfolio. It is possible that the availability and
marketability (i.e., liquidity) of these securities could be adversely
affected by actions of the U.S. Government to tighten the availability of
its credit.
Stripped Securities
Stripped securities are the separate income or principal components
of a debt instrument. These involve risks that are similar to those of
other debt securities, although they may be more volatile. The prices of
stripped mortgage-backed securities may be particularly affected by changes
in interest rates. The Portfolios may invest in stripped securities as
long as the Manager determines that it is consistent with the Portfolio's
goal and investment policies. The Asset Strategy Portfolio does not
currently intend to invest more than 5% of its total assets in stripped
securities.
Risks of Derivatives Instruments
The use of options, futures contracts, options on futures contracts,
forward contracts, swaps, caps, collars, floors and the investment in
mortgage-backed securities, stripped securities and indexed securities,
involve special risks, including (i) possible imperfect or no correlation
between price movements of the portfolio investments (held or intended to
be purchased) involved in the transaction and price movements of the
instruments involved in the transaction, (ii) possible lack of a liquid
secondary market for any particular instrument at a particular time, (iii)
the need for additional portfolio management skills and techniques, (iv)
losses due to unanticipated market price movements, (v) the fact that,
while such strategies can reduce the risk of loss, they can also reduce the
opportunity for gain, or even result in losses, by offsetting favorable
price movements in investments involved in the transaction, (vi) incorrect
forecasts by the Manager concerning interest or currency exchange rates or
direction of price fluctuations of the investment involved in the
transaction, which may result in the strategy being ineffective, (vii) loss
of premiums paid by a Portfolio on options it purchases, and (viii) the
possible inability of a Portfolio to purchase or sell a portfolio security
at a time when it would otherwise be favorable for it to do so, or the
possible need for a Portfolio to sell a portfolio security at a
disadvantageous time, due to the need for the Portfolio to maintain "cover"
or to segregate securities in connection with such transactions and the
possible inability of a Portfolio to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of
the hedging instrument must equal the price change of the investment being
hedged. The risk of imperfect correlation of these price changes increases
as the composition of the Portfolios' respective portfolios diverges from
instruments underlying a hedging instrument. Such equal price changes are
not always possible because the investment underlying the hedging
instruments may not be the same investment that is being hedged. The
Manager will attempt to create a closely correlated hedge but hedging
activity may not be completely successful in eliminating market value
fluctuation.
The Manager may use derivative instruments, including securities
with embedded derivatives, for hedging purposes to adjust the risk
characteristics of a Portfolio's portfolio of investments and may use some
of these instruments to adjust the return characteristics of a Portfolio's
portfolio of investments. An embedded derivative is a derivative that is
part of another financial instrument. Embedded derivatives typically, but
not always, are debt securities whose return of principal or interest, in
part, is determined by something that is not intrinsic to the security
itself. The use of derivative techniques for speculative purposes can
increase investment risk. If the Manager judges market conditions
incorrectly or employs a strategy that does not correlate well with a
Portfolio's investments, these techniques could result in a loss,
regardless of whether the intent was to reduce risk or increase return.
These techniques may increase the volatility of a Portfolio and may involve
a small investment of cash relative to the magnitude of the risk assumed.
In addition, these techniques could result in a loss if the counterparty to
the transaction does not perform as promised or if there is not a liquid
secondary market to close out a position that a Portfolio has entered into.
The ordinary spreads between prices in the cash and futures markets,
due to the differences in the natures of those markets, are subject to
distortion. Due to the possibility of distortion, a correct forecast of
general interest rate, foreign currency exchange rate or stock market
trends by the Manager may still not result in a successful transaction.
The Manager may be incorrect in its expectations as to the extent of
various interest or foreign exchange rate movements or stock market
movements or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover
rates, which results in correspondingly greater commission expenses and
transactions costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. Each Portfolio may use these instruments and techniques to the
extent consistent with its goal, investment policies and regulatory
requirements applicable to investment companies.
Foreign Securities
The Money Market Portfolio may invest up to 10% of its total assets in
Canadian Government obligations and may also invest in foreign bank
obligations and obligations of foreign branches of domestic banks, subject
to the diversification requirements applicable to the Money Market
Portfolio. The Money Market Portfolio will not invest more than 25% of its
assets in a combination of Canadian Government obligations and foreign bank
obligations, both of which must be denominated in U.S. dollars.
The International Portfolio normally invests at least 80% of its
assets in foreign securities. It may not purchase a particular foreign
security if as a result more than 75% of its assets would be invested in
issuers of that foreign country. For defensive purposes, the Portfolio may
at times temporarily invest completely or substantially in U.S. securities.
Under normal market conditions, the International Portfolio intends to have
at least 65% of its assets invested in issuers of at least three different
countries outside of the United States. The International Portfolio will
not invest more than 25% of its assets in securities issued by the
government of any one foreign country.
The Balanced Portfolio may purchase an unlimited amount of foreign
securities. Normally, however, less than 10% of this Portfolio's total
assets will consist of foreign securities. This percentage might increase
in the event the Manager believed that, in light of U.S. economic
conditions, there were increased investment opportunities in foreign
securities.
Under normal conditions, the Asset Strategy Portfolio intends to limit
its investments in foreign securities to no more than 50% of its total
assets. The Asset Strategy Portfolio currently intends to limit its
investments in obligations of any single foreign government to less than
25% of its total assets.
The other Portfolios, except the Limited-Term Bond Portfolio, may
invest up to 20% of their respective total assets in securities of foreign
issuers. The Limited-Term Bond Portfolio may not invest in foreign
securities.
Investments in foreign securities may involve a higher degree of risk
than U.S. securities because of the absence of uniform accounting, auditing
and financial standards, less government regulation, changes in currency
rates and in exchange regulations, political instability, limited publicly
available information, less liquidity and the difficulty of obtaining and
enforcing a judgment against a foreign issuer. These considerations
generally are intensified for investments in developing countries.
Developing countries may have relatively unstable governments, economies
based on only a few industries, and securities markets that trade a small
number of securities. See the SAI for further information regarding the
types of, and risks associated with, foreign securities in which the
Portfolios may invest.
Debt Securities
Bonds and other debt instruments are used by issuers to borrow money
from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in
which the Portfolios (other than the Money Market Portfolio) may invest may
include certain instruments whose performance is linked to a specified
equity security or securities index.
Securities issued or guaranteed by the U.S. Government include a
variety of Treasury securities and other securities that differ as to
interest rates, maturities and dates of issuance. Except for U.S. Treasury
securities, obligations of U.S. Government agencies and instrumentalities
may or may not be supported by the full faith and credit of the United
States. Some are backed by the right of the issuer to borrow from the
Treasury; others by discretionary authority of the U.S. Government to
purchase the agencies' obligations; while still others are supported only
by the credit of the instrumentality. In the case of securities not backed
by the full faith and credit of the United States, the investor must look
principally to the agency issuing or guaranteeing the obligation for
ultimate repayment. A Portfolio (other than the Asset Strategy Portfolio)
will invest in securities of such agencies and instrumentalities only when
the Manager is satisfied that the credit risk is acceptable. Mortgage-
backed securities include pass-through securities, participation
certificates and CMOs. See "Mortgage-Backed Securities."
Zero coupon bonds do not make interest payments; instead, they are
sold at a deep discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be very volatile when interest rates change. In
calculating its dividends, a Portfolio takes into account as income a
portion of the difference between a zero coupon bond's purchase price and
its face value.
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. While the
market for high-yield, high-risk corporate debt securities has been in
existence for many years and has weathered previous economic downturns, the
1980s brought a dramatic increase in the use of such securities to fund
highly-leveraged corporate acquisitions and restructurings. Past
experience may not provide an accurate indication of the future performance
of the high-yield, high-risk bond market, especially during periods of
economic recession.
The market for lower-rated debt securities may be thinner and less
active than that for higher-rated debt securities, which can adversely
affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of
lower-rated debt securities, especially in a thinly-traded market.
Valuation becomes more difficult and judgment plays a greater role in
valuing lower-rated debt securities than with respect to securities for
which more external sources of quotations and last sale information are
available. Since the risk of default is higher for lower-rated debt
securities, the Manager's research and credit analysis are an especially
important part of managing securities of this type held by the Fund. The
Manager continuously monitors the issuers of lower-rated debt securities in
the 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. The Fund may choose, at its expense or in conjunction with
others, to pursue litigation or otherwise to exercise its rights as a
security holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the Fund's shareholders.
The Asset Strategy Portfolio may not invest more than 35% of its
assets in lower-quality debt securities (those rated below BBB by S&P or
Baa by MIS and unrated securities judged by the Manager to be of equivalent
quality). However, the Asset Strategy Portfolio does not currently intend
to invest more than 20% of its total assets in securities rated below
investment grade or judged by the Manager to be of equivalent quality.
Each of the Growth Portfolio, the Income Portfolio, the Limited-Term Bond
Portfolio, the Balanced Portfolio, the Small Cap Portfolio and the
International Portfolio do not intend to invest in non-investment grade
debt securities if, as a result of such investment, more than 5% of their
respective assets would consist of such investments. Subject to these
limitations, each of these Portfolios may invest in debt securities rated
in any rating category of the established rating services and unrated
securities judged by the Manager to be of equivalent quality.
The High Income Portfolio and the Bond Portfolio may invest in debt
securities rated in any rating category of the established rating services
and unrated securities judged by the Manager to be of equivalent quality.
While credit ratings are only one factor the Manager relies on in
evaluating high-yield debt securities, certain risks are associated with
credit ratings. Credit ratings evaluate the safety of principal and
interest payments, not market value risk. Credit rating agencies may fail
to timely change the credit ratings to reflect subsequent events; however,
the Manager continuously monitors the issuers of high-yield debt securities
in the Portfolios in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. Credit ratings for individual securities may change from time to
time and a Portfolio may retain a security whose rating has been changed.
During the fiscal year ended December 31, 1995, the percentage of the
assets of the Bond Portfolio and High Income Portfolio invested in debt
securities in each of the rating categories of S&P, and the debt securities
not rated by an established rating service, determined on a dollar-weighted
average, were as follows:
Rated by Percentage of
S&P Fund Assets
-------- -------------
Bond Portfolio High Income Portfolio
-------------- ---------------------
AAA 29.7% 0.0%
AA 6.4 0.0
A 15.4 0.1
BBB 26.6 0.5
BB 11.8 10.3
B 4.0 69.9
CCC 0.0 2.3
CC 0.0 0.0
C 0.0 0.0
D 0.0 0.0
Unrated (Equivalent To)
AAA 1.2% 0.0%
AA 0.0 0.0
A 0.0 0.0
BBB 0.0 0.1
BB 0.2 0.3
B 0.0 2.5
CCC 0.0 0.0
CC 0.0 0.0
C 0.0 0.0
D 0.0 0.3
The percentage of assets in each category was calculated on the basis
of a monthly dollar-weighted average. The monthly dollar-weighted average
was calculated using the market value of the securities in the Portfolio's
portfolio at the end of each month in the thirteen-month period ended with
the Portfolio's last fiscal year, averaged over the Portfolio's last fiscal
year. The rating used for each security is that security's rating as of
the end of each month and, as ratings may change over time, does not
necessarily indicate past or future ratings of any particular security or
the ratings of securities in the portfolio in general. Asset composition
of a Portfolio by rating categories at any particular time does not
necessarily indicate future asset composition by rating categories.
Direct Debt
The Asset Strategy Portfolio may invest in direct debt instruments.
Loans and other direct debt instruments are interests in amounts owed to
another party by a company, government, or other borrower. They have
additional risks beyond conventional debt securities.
Investments in direct debt instruments may entail less legal
protection for the Asset Strategy Portfolio. Certain types of direct
indebtedness purchased by the Portfolio, such as letters of credit,
revolving credit facilities or other standby financing commitments,
obligate the Portfolio to pay additional cash on demand. These commitments
may have the effect of requiring the Portfolio to increase its investment
in a borrower at a time when it would not otherwise have done so, even if
the borrower's condition makes it unlikely that the amount will ever be
repaid. Other types of direct debt instruments, such as loans through
direct assignment of a financial institution's interest with respect to a
loan, may involve additional risks to the Portfolio. For example, if a
loan is foreclosed, the Portfolio could become part owner of any
collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral.
Convertible Securities
Each Portfolio (other than the Money Market Portfolio) 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 a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest
paid or accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than those of common stocks of the same or
similar issuers, but lower yields than comparable nonconvertible
securities, (ii) are less subject to fluctuation in value than the
underlying stock because they have fixed income characteristics, and (iii)
provide the potential for capital appreciation if the market price of the
underlying common stock increases. Convertible securities are usually
subordinated to comparable-tier non-convertible securities but rank senior
to common stock in the corporation's capital structure. The value of a
convertible security is a function of (i) its yield in comparison with the
yields of other securities of comparable maturity and quality that do not
have a conversion privilege, and (ii) its worth, at market value, if
converted into the underlying common stock.
The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market
value, if converted into the underlying common stock). The investment
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. The conversion value of a convertible security is determined by the
market price of the underlying common stock. If the conversion value is
low relative to the investment value, the price of the convertible security
is governed principally by its investment value and generally the
conversion value decreases as the convertible security approaches maturity.
To the extent the market price of the underlying common stock approaches or
exceeds the conversion price, the price of the convertible security will be
increasingly influenced by its conversion value. In addition, a
convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right
to acquire the underlying common stock while holding a fixed-income
security.
Preferred Stock
Preferred stock is rated by S&P and MIS, as described in Appendix A
to this Prospectus. Preferred stock rated AAA, AA, A or BBB by S&P or aaa,
aa, a or baa by MIS is considered to be of investment grade. Preferred
stock rated BB or lower by S&P or ba or lower by MIS is considered to have
speculative characteristics. The Portfolios (other than the Money Market
Portfolio) may invest in preferred stock rated in any rating category by an
established rating service and unrated preferred stock judged by the
Manager to be of equivalent quality. The preferred stock in which the
Portfolios (other than the Money Market Portfolio) may invest may include
certain preferred stock that converts to common stock either automatically
after a specified period of time or at the option of the issuer.
When-Issued and Delayed-Delivery Transactions
Each Portfolio may without limitation purchase securities on a "when-
issued" or delayed-delivery basis or without limitation sell them on a
delayed-delivery basis in order to secure what is considered to be, at the
time of entering into the transaction, an advantageous price and yield.
From the time of entering into the transaction until delivery and payment
is made at a later date, the securities which are the subject of the
transaction are subject to market fluctuations.
Lending Securities
A Portfolio may lend its securities on a short-term or long-term
basis for the purpose of increasing income. As a fundamental policy, not
more than 30% of the total assets of the Limited-Term Bond Portfolio and no
more than 10% of the total assets of any other Portfolio, will be loaned at
any one time. Loans must be fully collateralized. There are risks
associated with loans of securities including possible loss of, or delay
in, recovering the collateral. If a material event is to be voted upon
affecting a Portfolio's investment with respect to securities that are on
loan, the Portfolio will take such action as may be appropriate in order to
vote its shares.
Restricted Securities and Illiquid Investments
Restricted securities are securities that are subject to legal or
contractual restrictions on resale. Restricted securities may be illiquid
due to restrictions on their resale. Subject to their respective
limitations on investment in illiquid investments and certain other
limitations described in the SAI, each Portfolio may invest in restricted
securities. Restricted securities may be determined to be liquid pursuant
to guidelines adopted by the Fund's Board of Directors.
Illiquid investments may be difficult to sell promptly at an
acceptable price. Difficulty in selling securities may result in a loss or
may be costly to a Portfolio.
Warrants and Rights
The Bond Portfolio, the High Income Portfolio, the Growth
Portfolio, the Income Portfolio and the Small Cap Portfolio may invest up
to 5% of their respective net assets, valued at the lower of cost or
market, in warrants. The Asset Strategy Portfolio may invest in warrants
and rights to purchase securities. This Portfolio does not currently
intend to purchase warrants, valued at the lower of cost or market, in
excess of 5% of its net assets. Included in that amount, but not to exceed
2% of its net assets, may be warrants that are not listed on the New York
Stock Exchange (the "NYSE") or the American Stock Exchange. Warrants
acquired by the Asset Strategy Portfolio in units or attached to securities
are not subject to these restrictions. The International Portfolio may
invest in warrants and rights to purchase securities, provided that as a
result of such investment not more than 5% of its net assets consist of
warrants, rights or a combination thereof.
MANAGEMENT
Waddell & Reed, Inc. and its predecessors served as investment
manager to the Fund since its inception and to each of the registered
investment companies in the United Group of Mutual Funds, except United
Asset Strategy Fund, Inc., since 1940 or the inception of the investment
company, whichever was later. On January 8, 1992, subject to the authority
of the Fund's Board of Directors, Waddell & Reed, Inc. assigned its
investment management duties (and assigned its professional staff for
investment management services) to the Manager, a wholly-owned subsidiary
of Waddell & Reed, Inc. The Manager 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 distributor for the Fund and as
underwriter for each of the investment companies in the United Group of
Mutual Funds and Waddell & Reed Funds, Inc. Waddell & Reed, Inc. is an
indirect subsidiary of Torchmark Corporation, a holding company, and United
Investors Management Company, a holding company, and a direct subsidiary of
Waddell & Reed Financial Services, Inc., a holding company.
Subject to the authority of the Fund's Board of Directors, the Manager
provides investment advice and supervises investments for which it is paid
a fee consisting of two elements: (i) a specific fee computed on each
Portfolio's net asset value as of the close of business each day at the
following annual rates: Money Market Portfolio - none; Bond Portfolio -
.03 of 1% of net assets; High Income Portfolio - .15 of 1% of net assets;
Growth Portfolio - .20 of 1% of net assets; Income Portfolio - .20 of 1% of
net assets; International Portfolio - .30 of 1% of net assets; Small Cap
Portfolio - .35 of 1% of net assets; Balanced Portfolio - .10 of 1% of net
assets; Limited-Term Bond Portfolio - .05 of 1% of net assets; Asset
Strategy Portfolio - .30 of 1% of net assets; and (ii) a base fee computed
each day on the combined net asset values of all of the Portfolios and
allocated among the Portfolios based on their relative net asset size at
the annual rates shown in the following table.
Base Fee Rate
Group Net Asset Level Annual Base Fee
(all dollars in millions) Rate for Each 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%
Over $2,250 .45 of 1%
Prior to September 1, 1994, the annual base fee was .51 of 1%. Prior
to the above-described assignment to the Manager on January 8, 1992, the
fees were paid to Waddell & Reed, Inc.
As of December 31, 1995, the combined net assets of all of the
Portfolios were approximately $1.1 billion.
For the fiscal year ended December 31, 1995, management fees for each
Portfolio as a percent of each such Portfolio's average net assets and
total expenses for each such Portfolio as a percent of the Portfolio's
average net assets for that year are as follows:
Management Fees Total Expenses
Money Market Portfolio 0.51% 0.62%
Bond Portfolio 0.54% 0.60%
High Income Portfolio 0.66% 0.72%
Growth Portfolio 0.71% 0.75%
Income Portfolio 0.72% 0.77%
International Portfolio 0.81% 1.02%
Small Cap Portfolio 0.86% 0.96%
Balanced Portfolio 0.61% 0.72%
Limited-Term Bond Portfolio 0.56% 0.71%
Asset Strategy Portfolio* 0.54% 0.91%
*The Asset Strategy Portfolio commenced operations May 1, 1995.
Waddell & Reed Services Company, a subsidiary of Waddell & Reed, Inc.,
acts as Agent ("Accounting Services Agent") in providing bookkeeping and
accounting services and assistance to the Fund and pricing daily the value
of shares of each Portfolio. For these services, each Portfolio pays the
Accounting Services Agent a monthly fee of one-twelfth of the annual fee
shown in the following table.
Accounting Services Fee
Average
Net Asset Level Annual Fee
(all dollars in millions) Rate for Each Portfolio
- ------------------------- -----------------------
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
The Fund is responsible for the payment of certain expenses, including
the management fees and accounting services fees described above, fees and
expenses of certain directors, costs of materials sent to shareholders,
audit and outside legal fees, taxes, brokerage commissions, interest,
insurance premiums, fees payable under securities laws and to the
Investment Company Institute, costs of shareholder records, costs of
systems or services used to price Portfolio securities and extraordinary
expenses, including litigation and indemnification relating to litigation.
Richard K. Poettgen is primarily responsible for the day-to-day
management of the portfolio of the Money Market Portfolio. Mr. Poettgen
has held his responsibilities for the Money Market Portfolio since January
1989. He is Vice President of the Manager. He is Vice President and
Assistant Treasurer of the Fund and Vice President and Assistant Treasurer
of other investment companies for which the Manager serves as investment
manager. Mr. Poettgen has served as the portfolio manager for investment
companies managed by Waddell & Reed, Inc. and its successor, the Manager,
since January 1989 and has been an employee of Waddell & Reed, Inc. and its
successor, the Manager, since April 1968.
James C. Cusser is primarily responsible for the day-to-day management
of the portfolio of the Bond Portfolio. Mr. Cusser has held his
responsibilities for the Bond Portfolio since August 1992. He is Vice
President of the Manager, Vice President of the Fund and Vice President of
other investment companies for which the Manager serves as investment
manager. Mr. Cusser has served as the portfolio manager for investment
companies managed by the Manager since August 1992 and has been an employee
of the Manager since August 1992. Prior to that date, Mr. Cusser was a
fixed income strategist for a major brokerage firm.
Louise D. Rieke is primarily responsible for the day-to-day
management of the portfolio of the High Income Portfolio. Ms. Rieke has
held her responsibilities for the High Income Portfolio since July 1987,
the Portfolio's inception. She is Vice President of the Manager and Vice
President of Waddell & Reed Asset Management Company, an affiliate of the
Manager. She is Vice President of the Fund and Vice President of other
investment companies for which the Manager serves as investment manager.
Ms. Rieke has served as the portfolio manager for investment companies
managed by Waddell & Reed, Inc. and its successor, the Manager, since
January 1990 and has been an employee of Waddell & Reed, Inc. and its
successor, the Manager, since May 1971.
Antonio Intagliata is primarily responsible for the day-to-day
management of the portfolio of the Growth Portfolio. Mr. Intagliata has
held his responsibilities for the Growth Portfolio since July 1987, the
Portfolio's inception. He is Senior Vice President of the Manager. He is
Vice President of the Fund and Vice President of other investment companies
for which the Manager serves as investment manager. Mr. Intagliata has
served as the portfolio manager for investment companies managed by Waddell
& Reed, Inc. and its successor, the Manager, since February 1979 and has
been an employee of Waddell & Reed, Inc. and its successor, the Manager,
since June 1973.
Russell E. Thompson is primarily responsible for the day-to-day
management of the portfolio of the Income Portfolio. Mr. Thompson has held
his responsibilities for the Income Portfolio since July 1991, the
Portfolio's inception. He is Senior Vice President of the Manager and
Senior Vice President of Waddell & Reed Asset Management Company, an
affiliate of the Manager. He is Vice President of the Fund and Vice
President of other investment companies for which the Manager serves as
investment manager. Mr. Thompson has served as the portfolio manager for
investment companies managed by Waddell & Reed, Inc. and its successor, the
Manager, since January 1976 and has been an employee of Waddell & Reed,
Inc. and its successor, the Manager, since March 1971.
Thomas A. Mengel is primarily responsible for the day-to-day
management of the portfolio of the International Portfolio. Mr. Mengel has
held his responsibilities for the International Portfolio since May 1,
1996. From 1993 to May 1, 1996, Mr. Mengel was the President of Sal.
Oppenheim jr. & Cie. Securities, Inc.; from 1992 until 1993, Mr. Mengel was
a Vice President of Hauck & Hope Securities; and from 1989 until 1992, Mr.
Mengel was Manager of German equities at Berliner Bank in Berlin, Germany.
Zachary H. Shafran is primarily responsible for the day-to-day
management of the portfolio of the Small Cap Portfolio. Mr. Shafran has
held his responsibilities for the Small Cap Portfolio since January 2,
1996. He is Vice President of the Manager and Vice President of the Fund.
Mr. Shafran has been an investment analyst with Waddell & Reed, Inc. and
its successor, the Manager, since June 1990.
Cynthia P. Prince-Fox is primarily responsible for the day-to-day
management of the portfolio of the Balanced Portfolio. Ms. Prince-Fox has
held her responsibilities for the Balanced Portfolio since July 1994, the
Portfolio's inception. She is Vice President of the Manager, Vice
President of the Fund and Vice President of other investment companies for
which the Manager serves as investment manager. Ms. Prince-Fox has served
as the portfolio manager for investment companies managed by the Manager
since January 1993 and has been an investment analyst with Waddell & Reed,
Inc. and its successor, the Manager, since February 1983.
Patrick W. Sterner is primarily responsible for the day-to-day
management of the portfolio of the Limited-Term Bond Portfolio. Mr.
Sterner has held his responsibilities for the Limited-Term Bond Portfolio
since July 1994, the Portfolio's inception. He is Vice President of the
Manager, Vice President of the Fund and Vice President of investment
companies for which the Manager serves as investment manager. Mr. Sterner
has served as the portfolio manager for investment companies managed by the
Manager since September 1992 and has been an employee of the Manager since
August 1992. Prior to that date, Mr. Sterner was Chief Investment Officer
of a bank.
James D. Wineland is primarily responsible for the day-to-day
management of the portfolio of the Asset Strategy Portfolio. Mr. Wineland
has held his responsibilities for the Asset Strategy Portfolio since May
1995, the inception of the Portfolio. He is Vice President of the Manager,
Vice President of the Fund and Vice President of other investment companies
for which the Manager serves as investment manager. Mr. Wineland has
served as the portfolio manager for investment companies managed by Waddell
& Reed, Inc. and its successor, the Manager, since January 1988 and has
been an employee of Waddell & Reed, Inc. and its successor, the Manager,
since November 1984.
Other members of the Manager's investment management department
provide input on market outlook, economic conditions, investment research
and other considerations relating to the investments of the Portfolios.
NET ASSET VALUE
The net asset value of a share of a Portfolio is the value of its
assets, less liabilities, divided by the total number of shares.
The net asset value per share of each Portfolio is computed daily
as of the later of the close of business 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 a Portfolio is traded on each day that the NYSE is
open for trading. The NYSE's regular session ordinarily closes at 4:00
P.M. eastern time.
The Money Market Portfolio uses the amortized cost method for valuing
its portfolio securities. See the SAI for discussion of this method. Net
asset value of the Money Market Portfolio is normally fixed at $1.00 per
share. See the SAI for a discussion of extraordinary circumstances which
could result in a change in this fixed share value.
The securities of the other Portfolios that are listed or traded on a
U.S. or foreign stock exchange are valued at the last sales price on that
day. OTC securities traded on Nasdaq are valued at a price which is the
mean between the closing bid and asked prices. Bonds, other than
convertible bonds, are valued using a pricing system provided by a major
dealer in bonds. Convertible bonds are valued using this pricing system
only on days when there is no sale reported. Short-term debt securities
with a maturity of 60 days or less are valued at amortized cost. When
market quotations for options and futures positions or non-exchange traded
foreign securities held by a Portfolio are readily available, those
positions and securities will be valued based upon such quotations. Market
quotations generally will not be available for options traded in the OTC
market. When market quotations are not readily available, securities,
options, futures and other assets are valued at fair value in a manner
determined in good faith under procedures established by and under the
general supervision and responsibility of the Board of Directors.
Certain of the Portfolios may invest in securities listed on foreign
exchanges which may trade on Saturdays and on customary U.S. national
business holidays when the NYSE is closed. Consequently, the net asset
value of a Portfolio could be significantly affected on days when the
Portfolio does not price its shares.
PURCHASES AND REDEMPTIONS
The separate accounts of the Participating Insurance Companies place
orders to purchase and redeem shares of each Portfolio based on, among
other things, the amount of premium payments to be invested and the number
of surrender and transfer requests to be effected on any day according to
the terms of the Policies. Shares of a Portfolio are sold at their net
asset value per share next determined after receipt of the order to
purchase from the Participating Insurance Company. No sales charge is
required to be paid by the Participating Insurance Company for purchase of
shares.
Redemptions will be made at the net asset value per share of the
Portfolio next determined after receipt of the request to redeem from the
Participating Insurance Company. Payment is generally made within seven
days after receipt of a proper request to redeem. No fee is charged to
shareholders upon redemption of Portfolio shares. The Fund may suspend the
right of redemption of shares of any Portfolio and may postpone payment for
any period if any of the following conditions exist: (i) the Exchange is
closed other than customary weekend and holiday closings or trading on the
Exchange is restricted; (ii) the Securities and Exchange Commission has
determined that a state of emergency exists which may make payment or
transfer not reasonably practicable; (iii) the Securities and Exchange
Commission has permitted suspension of the right of redemption of shares
for the protection of the security holders of the Fund; or (iv) applicable
laws and regulations otherwise permit the Fund to suspend payment on the
redemption of shares. Redemptions are ordinarily made in cash.
Should any conflict between Policyowners arise which would require
that a substantial amount of net assets be withdrawn from the Fund, orderly
management of portfolio securities could be disrupted to the potential
detriment of Policyowners.
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all the net
investment income, if any, of each Portfolio. For dividend purposes, net
investment income of each Portfolio, other than the Money Market Portfolio,
consists of dividends and interest received by such Portfolio less the
estimated expenses of such Portfolio. The Money Market Portfolio's net
investment income for dividend purposes consists of all interest income
accrued on the Portfolio's securities, plus or minus realized gains or
losses on those securities, less the Portfolio's expenses.
Dividends from the Money Market Portfolio are declared and paid
daily in additional full and fractional shares. Dividends from the Growth
Portfolio, Bond Portfolio, High Income Portfolio, Income Portfolio,
International Portfolio, Small Cap Portfolio, Balanced Portfolio, Limited-
Term Bond Portfolio and the Asset Strategy Portfolio usually are declared
and paid annually in December in additional full and fractional shares of
the respective Portfolio. Ordinarily, dividends are paid on shares
starting on the day after they are issued and through the day they are
redeemed.
All net realized long-term or short-term capital gains of each
Portfolio, if any, other than the Money Market Portfolio, are declared and
paid annually in December in additional full and fractional shares of the
respective Portfolio. Short-term capital gains of the Money Market
Portfolio--it does not anticipate realizing any long-term capital gains--
are declared and paid daily in additional full and fractional shares of
that Portfolio.
TAXES
Each of the Portfolios has qualified for treatment as a "regulated
investment company" ("RIC") under Subchapter M of the Code. So long as a
Portfolio qualifies as such, the Portfolio will be relieved of Federal
income tax on the income and gains distributed to its shareholders.
Each Portfolio intends to comply with the diversification requirements
imposed by section 817(h) of the Code and the regulations thereunder.
These requirements, which are in addition to the diversification
requirements imposed on the Portfolios by the 1940 Act and Subchapter M of
the Code, place certain limitations on the assets of each separate account
- -- and, because section 817(h) and those regulations treat the assets of
each Portfolio as assets of the related separate account, of each Portfolio
- -- that may be invested in securities of a single issuer. Specifically,
the regulations provide that, except as permitted by the "safe harbor"
described below, as of the end of each calendar quarter or within 30 days
thereafter, no more than 55% of a Portfolio's total assets may be
represented by any one investment, no more than 70% by any two investments,
no more than 80% by any three investments and no more than 90% by any four
investments. For this purpose, all securities of the same issuer are
considered a single investment, and while each U.S. Government agency and
instrumentality is considered a separate issuer, a particular foreign
government and its agencies, instrumentalities and political subdivisions
all will be considered the same issuer. Section 817(h) provides, as a safe
harbor, that a separate account will be treated as being adequately
diversified if the diversification requirements under Subchapter M are
satisfied and no more than 55% of the value of the account's total assets
are cash and cash items, government securities and securities of other
RICs. Failure of a Portfolio to satisfy the section 817(h) requirements
would result in taxation of the Participating Insurance Companies and
treatment of the Policyowners other than as described in the prospectuses
for the Policies.
The foregoing is only a summary of some of the important Federal
income tax considerations generally affecting the Portfolios; see the SAI
for a more detailed discussion.
Because the only shareholders of the Portfolios will be the
Participating Insurance Companies and their separate accounts, no
discussion is included herein as to the Federal income tax consequences to
the Portfolios' shareholders. For information concerning the Federal tax
consequences to Policyowners, see the prospectuses for the Policies.
Prospective investors are urged to consult with their tax advisers.
OTHER INFORMATION
The Fund was incorporated in Maryland on December 2, 1986. It has a
Board of Directors which has overall responsibility for the management of
its affairs. Capital stock is currently divided into the ten classes that
are designated the Money Market Portfolio, the Bond Portfolio, the High
Income Portfolio, the Growth Portfolio, the Income Portfolio, the
International Portfolio, the Small Cap Portfolio, the Balanced Portfolio,
the Limited-Term Bond Portfolio and the Asset Strategy Portfolio. The Fund
may establish additional portfolios in the future. Shares of each class
are fully paid and nonassessable when issued. The Fund does not hold
annual meetings of shareholders; however, certain significant corporate
matters, such as the approval of a new investment advisory agreement or a
change in a fundamental investment policy which require shareholder
approval, will be presented to shareholders at an annual meeting or special
meeting called by the Board of Directors for such purpose.
All shares of the Fund have equal voting rights (regardless of the
net asset value per share) except that on matters affecting only one
Portfolio, only shares of the respective Portfolio are entitled to vote.
Matters in which the interests of all the Portfolios are substantially
identical are voted on by all shareholders without regard to the separate
Portfolios. Matters that affect all the Portfolios but where the interests
of the Portfolios are not substantially identical are voted on separately
by each Portfolio. Matters affecting only one Portfolio, such as a change
in its fundamental policies, are voted on separately by that Portfolio.
Shareholder inquiries may be addressed to the Fund or Waddell & Reed,
Inc. at the address that appears on the front cover of this Prospectus.
<PAGE>
APPENDIX A
The following are descriptions of some of the ratings of securities
which the Fund may use. The Fund may also use ratings provided by other
nationally recognized statistical rating organizations in determining the
eligibility of securities for the Portfolios.
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Services. A S&P corporate or municipal
bond rating is a current assessment of the creditworthiness of an obligor
with respect to a specific obligation. This assessment of creditworthiness
may take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished to S&P by the
issuer or obtained by S&P from other sources it considers reliable. S&P
does not perform any audit in connection with any ratings and may, on
occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation.;.
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
A brief description of the applicable S&P rating symbols and their
meanings follow:
AAA -- Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high-quality debt. Capacity to
pay interest and repay principal is very strong, and debt rated AA differs
from AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as
having predominantly speculative characteristics with respect to capacity
to pay interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major exposures to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal. The B rating
category is also used for debt subordinated to senior debt that is assigned
an actual or implied BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to
senior debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior
debt which is assigned an actual or implied CCC- debt rating. The C rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest
is being paid.
D -- Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace periods. The D rating will also be
used upon a filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of
credit quality, the ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
NR -- Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not
take into account currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the
top four categories (AAA, AA, A, BBB, commonly known as "Investment Grade"
ratings) are generally regarded as eligible for bank investment. In
addition, the Legal Investment Laws of various states governing legal
investments may impose certain rating or other standards for obligations
eligible for investment by savings banks, trust companies, insurance
companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the
applicable MIS rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
NOTE: Bonds within the above categories which possess the strongest
investment attributes are designated by the symbol "1" following the
rating.
Ba -- Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF PREFERRED STOCK RATINGS
Standard & Poor's Ratings Services. A S&P preferred stock rating is
an assessment of the capacity and willingness of an issuer to pay preferred
stock dividends and any applicable sinking fund obligations. A preferred
stock rating differs from a bond rating inasmuch as it is assigned to an
equity issue, which issue is intrinsically different from, and subordinated
to, a debt issue. Therefore, to reflect this difference, the preferred
stock rating symbol will normally not be higher than the debt rating symbol
assigned to, or that would be assigned to, the senior debt of the same
issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment - capacity and willingness of the issuer to meet
the timely payment of preferred stock dividends and any applicable
sinking fund requirements in accordance with the terms of the
obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditors' rights.
AAA -- This is the highest rating that may be assigned by S&P to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA -- A preferred stock issue rated AA also qualifies as a high-
quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues
rated AAA.
A -- An issue rated A is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions.
BBB -- An issue rated BBB is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to
make payments for a preferred stock in this category than for issues in the
'A' category.
BB, B, CCC -- Preferred stock rated BB, B, and CCC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity
to pay preferred stock obligations. BB indicates the lowest degree of
speculation and CCC the highest degree of speculation. While such issues
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse
conditions.
CC -- The rating CC is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.
C -- A preferred stock rated C is a non-paying issue.
D -- A preferred stock rated D is a non-paying issue with the issuer
in default on debt instruments.
NR -- This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not
rate a particular type of obligation as a matter of policy.
Plus (+) or minus (-) -- To provide more detailed indications of
preferred stock quality, the rating from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
A preferred stock rating is not a recommendation to purchase, sell, or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to S&P by the issuer or obtained by S&P from other
sources it considers reliable. S&P does not perform an audit in connection
with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information, or based on
other circumstances.
Moody's Investors Service, Inc. Note: MIS applies numerical
modifiers 1, 2 and 3 in each rating classification; the modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking and the modifier 3
indicates that the issue ranks in the lower end of its generic rating
category.
Preferred stock rating symbols and their definitions are as follows:
aaa -- An issue which is rated aaa is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least
risk of dividend impairment within the universe of preferred stocks.
aa -- An issue which is rated aa is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance the
earnings and asset protection will remain relatively well-maintained in the
foreseeable future.
a -- An issue which is rated a is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater than
in the aaa and aa classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa -- An issue which is rated baa is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and
asset protection appear adequate at present but may be questionable over
any great length of time.
ba -- An issue which is rated ba is considered to have speculative
elements and its future cannot be considered well assured. Earnings and
asset protection may be very moderate and not well safeguarded during
adverse periods. Uncertainty of position characterizes preferred stocks in
this class.
b -- An issue which is rated b generally lacks the characteristics of
a desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa -- An issue which is rated caa is likely to be in arrears on
dividend payments. This rating designation does not purport to indicate
the future status of payments.
ca -- An issue which is rated ca is speculative in a high degree and
is likely to be in arrears on dividends with little likelihood of eventual
payments.
c -- This is the lowest rated class of preferred or preference stock.
Issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Ratings are graded into several categories, ranging from A-1 for
the highest quality obligations to D for the lowest. Issuers rated A are
further referred to by use of numbers 1, 2 and 3 to indicate the relative
degree of safety. Issues assigned an A rating (the highest rating) are
regarded as having the greatest capacity for timely payment. An A-1
designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation. An A-2
rating indicates that capacity for timely payment is satisfactory; however,
the relative degree of safety is not as high as for issues designated A-1.
Issues rated A-3 have adequate capacity for timely payment; however, they
are more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations. Issues rated B are regarded
as having only speculative capacity for timely payment. A C rating is
assigned to short-term debt obligations with a doubtful capacity for
payment. Debt rated D is in payment default, which occurs when interest
payments or principal payments are not made on the date due, even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
MIS commercial paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. MIS employs the designations of Prime 1, Prime 2
and Prime 3, all judged to be investment grade, to indicate the relative
repayment capacity of rated issuers. Issuers rated Prime 1 have a superior
capacity for repayment of short-term promissory obligations and repayment
capacity will normally be evidenced by (1) leading market positions in well
established industries; (2) high rates of return on funds employed; (3)
conservative capitalization structures with moderate reliance on debt and
ample asset protection; (4) broad margins in earnings coverage of fixed
financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity. Issuers rated Prime 2 also have a strong capacity for
repayment of short-term promissory obligations as will normally be
evidenced by many of the characteristics described above for Prime 1
issuers, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation; capitalization
characteristics, while still appropriate, may be more affected by external
conditions; and ample alternate liquidity is maintained. Issuers rated
Prime 3 have an acceptable capacity for repayment of short-term promissory
obligations, as will normally be evidenced by many of the characteristics
above for Prime 1 issuers, but to a lesser degree. The effect of industry
characteristics and market composition may be more pronounced; variability
in earnings and profitability may result in changes in the level of debt
protection measurements and requirement for relatively high financial
leverage; and adequate alternate liquidity is maintained.
DESCRIPTION OF NOTE RATINGS
Standard & Poor's Ratings Services. A S&P note rating reflects the
liquidity factors and market access risks unique to notes. Notes maturing
in 3 years or less will likely receive a note rating. Notes maturing
beyond 3 years will most likely receive a long-term debt rating. The
following criteria will be used in making that assessment.
--Amortization schedule (the larger the final maturity relative to other
maturities, the more likely the issue is to be treated as a note).
--Source of Payment (the more the issue depends on the market for its
refinancing, the more likely it is to be treated as a note.)
The note rating symbols and definitions are as follows:
SP-1 Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics are given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the
term of the notes.
SP-3 Speculative capacity to pay principal and interest.
Moody's Investors Service, Inc. MIS Short-Term Loan Ratings -- MIS
ratings for state and municipal short-term obligations will be designated
Moody's Investment Grade (MIG). This distinction is in recognition of the
differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of major importance in bond
risk are of lesser importance over the short run. Rating symbols and their
meanings follow:
MIG 1 -- This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2 -- This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
MIG 3 -- This designation denotes favorable quality. All security
elements are accounted for but this is lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
MIG 4 -- This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and
although not distinctly or predominantly speculative, there is specific
risk.
<PAGE>
TMK/UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
PROSPECTUS
May 1, 1996
Custodian
UMB Bank, n. a.
Kansas City, Missouri
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue NW
Washington, D. C.
Independent Accountants
Price Waterhouse LLP
Kansas City, Missouri
Investment Manager
Waddell & Reed Investment Management Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
Distributor and Underwriter
Waddell & Reed, Inc.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
Accounting Services Agent
Waddell & Reed Services Company
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
TABLE OF CONTENTS
Prospectus Summary ..................... 2
Financial Highlights ................... 4
The Fund ............................... 14
Goals and Investment Policies
of the Portfolios .................... 15
Management ............................. 35
Net Asset Value ........................ 38
Purchases and Redemptions .............. 39
Dividends and Distributions ............ 39
Taxes .................................. 40
Other Information ...................... 40
Appendix A ............................. 42
<PAGE>
TMK/UNITED FUNDS, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
913/236-2000
May 1, 1996
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a
prospectus. This SAI should be read in conjunction with the prospectus
(the "Prospectus") of TMK/United Funds, Inc. (the "Fund") dated May 1,
1996, which may be obtained by request to the Fund or its distributor and
underwriter, Waddell & Reed, Inc., at the address or telephone number shown
above.
TABLE OF CONTENTS
Performance Information .......................... 2
Goals and Investment Policies .................... 5
Investment Management and Other Services ......... 47
Net Asset Value .................................. 50
Purchases and Redemptions ........................ 53
Shareholder Communications ....................... 54
Taxes ............................................ 54
Dividends and Distributions ...................... 58
Portfolio Transactions and Brokerage ............. 59
Directors and Officers ........................... 61
Other Information ................................ 67
Financial Statements ............................. 70
<PAGE>
PERFORMANCE INFORMATION
From time to time, advertisements and sales materials for one or more
of the Portfolios may include total return information, yield information
and/or performance rankings. Performance data will be accompanied by or
used in calculating performance data for the respective separate accounts
that invest in the Portfolio.
Total Return
The following relates to Bond Portfolio, High Income Portfolio, Growth
Portfolio, Income Portfolio, International Portfolio, Small Cap Portfolio,
Balanced Portfolio, Limited-Term Bond Portfolio and Asset Strategy
Portfolio. 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. Total return is calculated by assuming an initial
$1,000 investment. No sales charge is required to be paid by the
Participating Insurance Companies for purchase of shares. All dividends
and distributions are assumed to be reinvested at net asset value as of the
day the dividend or distribution is paid. The formula used to calculate
the total return 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.
The average annual total return quotations as of December 31, 1995,
which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
One-year Five-year
period from period from Period from
1-1-95 to 1-1-90 to 7-13-87* to
12-31-95 12-31-95 12-31-95
----------- ----------- -----------
Bond Portfolio 20.56% 9.66% 9.30%
High Income Portfolio 18.19% 16.08% 9.41%
Growth Portfolio 38.57% 21.62% 16.05%
Income Portfolio 31.56% 15.05%**
International Portfolio 7.28% 4.48%***
Small Cap Portfolio 32.32% 32.66%***
Balanced Portfolio 24.19% 13.66%***
Limited-Term Bond Portfolio 14.29% 8.53%***
Asset Strategy Portfolio 1.80%****
*Date of initial public offering.
**Period from July 16, 1991, date of initial offering, to December 31, 1995.
***Period from May 3, 1994, date of initial offering, to December 31, 1995.
****Period from May 1, 1995, date of initial offering, to December 31, 1995.
Unaveraged or cumulative total return may also be quoted. Such total
return data reflects the change in value of an investment 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. The Fund may also provide non-standardized
performance information.
Yield
The following relates to Bond Portfolio, High Income Portfolio,
Growth Portfolio, Income Portfolio and Limited-Term Bond Portfolio. A
yield quoted for a Portfolio is computed by dividing the net investment
income per share earned during the period for which the yield is shown by
the maximum offering price per share on the last day of that period
according to the following formula:
6
Yield = 2((((a-b)/cd)+1) -1)
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
The yield computed according to the formula for the 30-day period
ended on December 31, 1995, the date the most recent balance sheet included
in this SAI, is as follows:
Bond Portfolio 6.53%
High Income Portfolio 9.01%
Limited-Term Bond Portfolio 7.14%
The following relates to the Money Market Portfolio. There are two
methods by which Money Market Portfolio's yield for a specified time is
calculated. The first method, which results in an amount referred to as
the "current yield," assumes an account containing exactly one share at the
beginning of the period. The net asset value of this share will be $1.00
except under extraordinary circumstances. The net change in the value of
the account during the period is then determined by subtracting this
beginning value from the value of the account at the end of the period
which will include all dividends accrued; however, capital changes are
excluded from the calculation, i.e., realized gains and losses from the
sale of securities and unrealized appreciation and depreciation. However,
so that the change will not reflect the capital changes to be excluded, the
dividends used in the yield computation may not be the same as the
dividends actually declared, as certain realized gains and losses and,
under unusual circumstances, unrealized gains and losses (see "Purchases
and Redemptions"), will be taken into account in the calculation of
dividends actually declared. Instead, the dividends used in the yield
calculation will be those which would have been declared if the capital
changes had not affected the dividends.
This net change in the account value is then divided by the value of
the account at the beginning of the period (i.e., normally $1.00 as
discussed above) and the resulting figure (referred to as the "base period
return") is then annualized by multiplying it by 365 and dividing it by the
number of days in the period with the resulting current yield figure
carried to at least the nearest hundredth of one percent.
The second method results in a figure referred to as the "effective
yield." This represents an annualization of the current yield with
dividends reinvested daily. Effective yield is calculated by compounding
the base period return by adding 1, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result and rounding the result to
the nearest hundredth of one percent according to the following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)] -1
The Money Market Portfolio's current yield as calculated above for
the seven days ended December 31, 1995, the date of the most recent balance
sheet included in this SAI, was 5.95% and its effective yield calculated
for the same period was 6.13%.
Performance Rankings
The following relates to each of the Portfolios. From time to time,
advertisements and information furnished to present or prospective
Policyholders may include 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. A Portfolio's performance may also be
compared to that of other selected mutual funds or recognized market
indicators such as the Standard & Poor's 500 Stock Index and the Dow Jones
Industrial Average. Performance information may be quoted numerically or
presented in a table, graph or other illustration.
General
Change in yields primarily reflect different interest rates received
by a Portfolio as its portfolio securities change. Yield is also affected
by portfolio quality, portfolio maturity, type of securities held and
operating expense ratio.
All performance information included in advertisements or sales
material is historical in nature and is not intended to represent or
guarantee future results. The value of a Portfolio's shares when redeemed
may be more or less than their original cost.
GOALS AND INVESTMENT POLICIES
The following information supplements the disclosure in the Prospectus
concerning the goals and investment policies of each Portfolio. Unless
otherwise specified, this information pertains to each of the Portfolios.
The investment policies described may be changed by the Directors of the
Fund without a vote of shareholders, unless otherwise stated.
The Money Market Portfolio
The Money Market Portfolio may invest in the money market
obligations and instruments listed below. Under Rule 2a-7 ("Rule 2a-7") of
the Investment Company Act of 1940, as amended (the "1940 Act"),
investments are limited to those that are denominated in U.S. dollars and
that are rated in one of the two highest rating categories by the requisite
nationally recognized statistical rating organization(s) ("NRSRO(s)"), as
defined in Rule 2a-7, or are comparable unrated securities. See Appendix A
to the Prospectus for a description of some of these ratings. In addition,
Rule 2a-7 limits investments in securities of any one issuer (except
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities")) to no more than 5% of the
Portfolio's assets. Investments in securities rated in the second highest
rating category by the requisite NRSRO(s) or comparable unrated securities
are limited to no more than 5% of the Portfolio's assets, with investments
in such securities of any one issuer (except U.S. Government Securities)
being limited to the greater of one percent of the Portfolio's assets or
$1,000,000. Under Rule 2a-7, the Portfolio may only invest in securities
with a remaining maturity of not more than thirteen months, as further
described in the Rule.
(1) U.S. Government Securities: See "U.S. Government Securities."
(2) Bank obligations and instruments secured thereby: Subject to the
limitations described above, time deposits, certificates of deposit,
bankers' acceptances and other bank obligations if they are obligations of
a bank subject to regulation by the U.S. Government (including obligations
issued by foreign branches of these banks) or obligations issued by a
foreign bank having total assets equal to at least U.S. $500,000,000, and
instruments secured by any such obligation. A "bank" includes commercial
banks and savings and loan associations. Time deposits are monies kept on
deposit with U.S. banks or other U.S. financial institutions for a stated
period of time at a fixed rate of interest. At present, bank time deposits
are not considered by the Board of Directors or Waddell & Reed Investment
Management Company (the "Manager"), to be readily marketable. There may be
penalties for the early withdrawal of such time deposits, in which case,
the yield of these investments will be reduced.
(3) Commercial Paper Obligations Including Variable Amount Master
Demand Notes: Commercial paper rated as described above. See Appendix A
to the Prospectus for a description of some of these ratings. A variable
amount master demand note represents a borrowing arrangement under a letter
agreement between a commercial paper issuer and an institutional lender.
(4) Corporate Debt Obligations: Corporate debt obligations if they
are rated as described above. See Appendix A to the Prospectus for a
description of some of these bond ratings.
(5) Canadian Government Obligations: Obligations of, or obligations
guaranteed by, the Government of Canada, a Province of Canada or any
agency, instrumentality or political subdivision of that Government or any
Province. The Portfolio will not invest in Canadian Government obligations
if more than 10% of the value of its total assets would then be so
invested, subject to the diversification requirements applicable to the
Money Market Portfolio.
(6) Certain Other Obligations: Obligations other than those listed
in (1) through (5) above only if such other obligation is guaranteed as to
principal and interest by either a bank or a corporation whose securities
the Portfolio is eligible to hold under the Rule.
The value of the obligations and instruments in which the Portfolio
invests will fluctuate depending in large part on changes in prevailing
interest rates. If these rates go up after the Portfolio buys an
obligation or instrument, its value may go down; if these rates go down,
its value may go up. Changes in interest rates will be more quickly
reflected in the yield of a portfolio of short-term obligations than in the
yield of a portfolio of long-term obligations.
The High Income Portfolio
The High Income Portfolio may invest in certain high-yield, high-
risk, non-investment grade debt securities (commonly referred to as "junk
bonds"). As discussed in the Prospectus, the market for such securities
may differ from that for investment grade debt securities. See the
Prospectus for a discussion of the risks associated with non-investment
grade debt securities.
The Asset Strategy Portfolio
The Asset Strategy Portfolio allocates its assets among the following
classes, or types, of investments:
The short-term class includes all types of domestic and foreign
securities and money market instruments with remaining maturities of three
years or less. The Manager will seek to maximize total return within the
short-term asset class by taking advantage of yield differentials between
different instruments, issuers, and currencies. Short-term instruments may
include corporate debt securities, such as commercial paper and notes; U.S.
Government Securities or securities issued by foreign governments or their
agencies or instrumentalities; bank deposits and other financial
institution obligations; repurchase agreements involving any type of
security; and other similar short-term instruments. These instruments may
be denominated in U.S. dollars or foreign currency.
The bond class includes all varieties of domestic and foreign fixed-
income securities with maturities greater than three years. The Manager
seeks to maximize total return within the bond class by adjusting the
Portfolio's investments in securities with different credit qualities,
maturities, and coupon or dividend rates, and by seeking to take advantage
of yield differentials between securities. Securities in this class may
include bonds, notes, adjustable-rate preferred stocks, convertible bonds,
mortgage-related and asset-backed securities, domestic and foreign
government and government agency securities, zero coupon bonds, and other
intermediate and long-term securities. As with the short-term class, these
securities may be denominated in U.S. dollars or foreign currency. The
Portfolio may also invest in lower quality, high-yielding debt securities.
The Portfolio currently intends to limit its investments in these
securities to 20% of its total assets.
The stock class includes domestic and foreign equity securities of all
types (other than adjustable-rate preferred stocks which are included in
the bond class). The Manager seeks to maximize total return within this
asset class by actively allocating assets to industry sectors expected to
benefit from major trends, and to individual stocks that the Manager
believes to have superior growth potential. Securities in the stock class
may include common stocks, fixed-rate preferred stocks (including
convertible preferred stocks), warrants, rights, depositary receipts,
securities of closed-end investment companies, and other equity securities
issued by companies of any size, located anywhere in the world.
The Manager intends to take advantage of yield differentials by
considering the purchase or sale of instruments when differentials on
spreads between various grades and maturities of such instruments approach
extreme levels relative to long-term norms.
In making asset allocation decisions, the Manager typically evaluates
projections of risk, market conditions, economic conditions, volatility,
yields, and returns.
Foreign Securities and Currency
The International Portfolio and the Small Cap Portfolio may each
purchase foreign securities only if they are (i) listed or admitted to
trading on a domestic or foreign securities exchange, with the exception of
warrants, rights or restricted securities, which need not be so listed or
admitted; or (ii) represented by American Depositary Receipts (receipts
issued against securities of foreign issuers deposited or to be deposited
with an American depository) so listed or admitted on a domestic securities
exchange or traded in the United States over-the-counter ("OTC") market; or
(iii) issued or guaranteed by any foreign government or any subdivision,
agency or instrumentality thereof. Each of the Asset Strategy Portfolio,
the Money Market Portfolio, the Bond Portfolio, the High Income Portfolio,
the Growth Portfolio, the Income Portfolio and the Balanced Portfolio may
invest in foreign securities, subject to the limitations described in the
Prospectus.
In general, depositary receipts are securities convertible into and
evidencing ownership of securities of foreign corporate issuers, although
depositary receipts may not necessarily be denominated in the same currency
as the securities into which they may be converted. American Depositary
Receipts, in registered form, are dollar-denominated receipts typically
issued by a U.S. bank or trust company evidencing ownership of the
underlying securities. International depositary receipts and European
depositary 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 depositary receipts are more recently
developed receipts designed to facilitate the trading of foreign issuers by
U.S. and non-U.S. investors and traders.
The Manager 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. The Manager
believes that ability to invest assets abroad might enable a Portfolio to
take advantage of these differences and strengths where they are favorable.
Further, an investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations (i.e.,
currency blockage). A Portfolio may bear a transaction charge in
connection with the exchange of currency. There may be less publicly
available information about a foreign company than about a domestic
company. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Most foreign stock markets have
substantially less volume than the New York Stock Exchange (the "NYSE") and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. There is generally less
government regulation of stock exchanges, brokers and listed companies than
in the United States. In addition, with respect to certain foreign
countries, there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that
could adversely affect investments in securities of issuers located in
those countries. If it should become necessary, a Portfolio would normally
encounter greater difficulties in commencing a lawsuit against the issuer
of a foreign security than it would against a U.S. issuer.
A Portfolio (other than the Asset Strategy Portfolio) will not
speculate in foreign currencies, but each Portfolio, except the Money
Market Portfolio and the Limited-Term Bond Portfolio, may briefly hold
foreign currencies in connection with the purchase or sale of foreign
securities. The Asset Strategy Portfolio may purchase and sell foreign
currency and invest in foreign currency deposits as described in the
Prospectus and this SAI, and the Asset Strategy Portfolio and the
International Portfolio may enter into forward currency contracts as
described in the Prospectus and this SAI. A Portfolio may incur a
transaction charge in connection with the exchange of currency.
Borrowing
As a fundamental policy, the Asset Strategy Portfolio may borrow
money for emergency or extraordinary purposes (not for leveraging or
investment) in an amount not exceeding 33 1/3% of the value of its total
assets (less liabilities other than borrowings). This Portfolio may borrow
money only from a bank and will not purchase any security while borrowings
representing more than 5% of its total assets are outstanding.
From time to time the Small Cap Portfolio may increase its ownership
of securities by borrowing on an unsecured basis at fixed rates of interest
and investing the borrowed funds. Any such borrowing will be made only
from banks and only to the extent that the value of its assets, less its
liabilities other than borrowings, is equal to at least 300% of all
borrowings including the proposed borrowing.
The 300% asset coverage requirement is contained in the 1940 Act. If
the value of a Portfolio's assets so computed should fail to meet the 300%
asset coverage requirement, it is required within three days to reduce its
borrowings to the extent necessary to meet that requirement and may have to
sell a portion of its investments at a time when independent investment
judgment would not dictate such sale. For purposes of this limitation,
"three days" means three days, exclusive of Sundays and holidays.
Interest on money borrowed is an expense the Portfolio would not
otherwise incur, so that it may have little or no net investment income
during periods of substantial borrowings. Borrowing for investment
increases both investment opportunity and risk.
U.S. Government Securities
U.S. Government Securities include Treasury Bills (which mature within
one year of the date they are issued), Treasury Notes (which have
maturities of one to ten years) and Treasury Bonds (which generally have
maturities of more than 10 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, Federal National Mortgage Association, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Farm Credit Banks, Maritime
Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of
the United States. Some, such as securities issued by the Federal Home
Loan Banks, are backed by the right of the agency or instrumentality to
borrow from the Treasury. Others, such as securities issued by the Federal
National Mortgage Association ("Fannie Mae"), are supported only by the
credit of the instrumentality and not by the Treasury. 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. A Portfolio (other than Asset Strategy Portfolio) will
invest in securities of such agencies and instrumentalities only if the
Manager is satisfied that the credit risk involved is acceptable.
U.S. Government Securities may include mortgage-backed securities of
the Government National Mortgage Association ("Ginnie Mae"), the Federal
Home Loan Mortgage Corporation ("Freddie Mac") and Fannie Mae. These
mortgage-backed securities include "pass-through" securities and
"participation certificates." Another type of mortgage-backed security is
a collateralized mortgage obligation ("CMO"). See "Mortgage-Backed
Securities." Timely payment of principal and interest on Ginnie Mae pass-
throughs is guaranteed by the full faith and credit of the United States.
Freddie Mac and Fannie Mae are both instrumentalities of the U.S.
Government, but their obligations are not backed by the full faith and
credit of the United States. It is possible that the availability and the
marketability (i.e., liquidity) of the securities discussed in this section
could be adversely affected by actions of the U.S. Government to tighten
the availability of its credit.
Zero Coupon Bonds
A broker-dealer creates a derivative zero by separating the interest
and principal components of a U.S. Treasury security and selling them as
two individual securities. CATS (Certificates of Accrual on Treasury
Securities), TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury
Receipts) are examples of derivative zeros.
A Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and
principal components of an outstanding U.S. Treasury bond and selling them
as individual securities. Bonds issued by the Resolution Funding
Corporation (REFCORP) and the Financing Corporation (FICO) can also be
separated in this fashion. Original issue zeros are zero coupon securities
originally issued by the U.S. Government, a government agency, or a
corporation in zero coupon form.
Mortgage-Backed Securities
A mortgage-backed security may be an obligation of the issuer backed
by a mortgage or pool of mortgages or a direct interest in an underlying
pool of mortgages. Mortgage-backed securities are based on different types
of mortgages including those on commercial real estate or residential
properties. Some mortgage-backed securities, such as CMOs, make payments
of both principal and interest at a variety of intervals; others make
semiannual interest payments at a predetermined rate and repay principal at
maturity (like a typical bond). Pass-through securities and participation
certificates represent pools of mortgages that are assembled, with
interests sold in the pool; the assembly is made by an "issuer," such as a
mortgage banker, commercial bank or savings and loan association, which
assembles the mortgages in the pool and passes through payments of
principal and interest for a fee payable to it. Payments of principal and
interest by individual mortgagors are passed through to the holders of the
interest in the pool. Monthly or other regular payments on pass-through
securities and participation certificates include payments of principal
(including prepayments on mortgages in the pool) rather than only interest
payments.
Each Portfolio (other than the Money Market Portfolio and the
Growth Portfolio) may purchase mortgage-backed securities issued by both
governmental and non-governmental 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 Portfolio may
invest in them if the Manager determines they are consistent with its goal
and investment policies.
The value of mortgage-backed securities may change due to shifts in
the market's perception of issuers. In addition, regulatory or tax changes
may adversely affect the mortgage securities market as a whole. Non-
government mortgage-backed securities may offer higher yields than those
issued by government entities, but also may be subject to greater price
changes than government issues. Mortgage-backed securities are subject to
prepayment risk. Prepayment, which occurs when unscheduled or early
payments are made on the underlying mortgages, may shorten the effective
maturities of these securities and may lower their total returns.
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.
The prices of stripped mortgage-backed securities may be particularly
affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase
prices of POs. Rising interest rates can have the opposite effect.
Asset-Backed Securities
Asset-backed securities represent interests in pools of consumer
loans (generally unrelated to mortgage loans) and most often are structured
as pass-through securities. Interest and principal payments ultimately
depend upon payment of the underlying loans by individuals, although the
securities may be supported by letters of credit or other credit
enhancements. 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. The Limited-Term Bond Portfolio and the Asset Strategy
Portfolio may invest in asset-backed securities. The Asset Strategy
Portfolio does not currently intend to invest in asset-backed securities.
Bank Deposits
Among the other debt securities in which the Limited-Term Bond
Portfolio 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, currently to the extent of $100,000 per
bank. Bank Deposits are not marketable, and the Limited-Term Bond
Portfolio 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.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased
directly from issuers) bear variable or floating interest rates and carry
rights that permit holders to demand payment of the unpaid principal
balance plus accrued interest from the issuers or certain financial
intermediaries. Floating rate securities have interest rates that change
whenever there is a change in a designated base rate, while variable rate
instruments provide for a specified periodic adjustment in the interest
rate. These formulas are designed to result in a market value for the
instrument that approximates its par value. Each Portfolio may invest in
variable or floating rate instruments as long as the Manager determines
that it is consistent with the Portfolio's goal and investment
policies.
Loans and Other Direct Debt Instruments
Direct debt instruments are interests in amounts owed by a corporate,
governmental, or other borrower to lenders or lending syndicates (loans and
loan participations), to suppliers of goods or services (trade claims or
other receivables), or to other parties. The Asset Strategy Portfolio's
investments in direct debt instruments are subject to its policies
regarding the quality of debt securities.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of
principal and interest. Direct debt instruments may not be rated by any
nationally recognized rating service. If the Asset Strategy Portfolio does
not receive scheduled interest or principal payments on such indebtedness,
the Portfolio's share price and yield could be adversely affected. Loans
that are fully secured offer the Portfolio more protections than an
unsecured loan in the event of non-payment of scheduled interest or
principal. However, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the borrower's obligation, or
that the collateral could be liquidated. Indebtedness of borrowers whose
creditworthiness is poor involves substantially greater risks, and may be
highly speculative. Borrowers that are in bankruptcy or restructuring may
never pay off their indebtedness, or may pay only a small fraction of the
amount owed. Direct indebtedness of developing countries also involves a
risk that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling, to pay interest and principal when due.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional risks
to the Portfolio. For example, if a loan is foreclosed, the Portfolio
could become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. Direct
debt instruments may also involve a risk of insolvency of the lending bank
or other intermediary. Direct debt instruments that are not in the form of
securities may offer less legal protection to the Portfolio in the event of
fraud or misrepresentation. In the absence of definitive regulatory
guidance, the Portfolio relies on the Manager's research in an attempt to
avoid situations where fraud or misrepresentation could adversely affect
the Portfolio.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of the
loan, as specified in the loan agreement. Unless, under the terms of the
loan or other indebtedness, the Portfolio has direct recourse against the
borrower, it may have to rely on the agent to apply appropriate credit
remedies against a borrower. If assets held by the agent for the benefit
of the Portfolio were determined to be subject to the claims of the agent's
general creditors, the Portfolio might incur certain costs and delays in
realizing payment on the loan or loan participation and could suffer a loss
of principal or interest.
Investments in direct debt instruments may entail less legal
protection for the Portfolio. Direct indebtedness purchased by the
Portfolio may include letters of credit, revolving credit facilities, or
other standby financing commitments obligating the Portfolio to pay
additional cash on demand. These commitments may have the effect of
requiring the Portfolio to increase its investment in a borrower at a time
when it would not otherwise have done so, even if the borrower's condition
makes it unlikely that the amount will ever be repaid. The Portfolio will
set aside appropriate liquid assets in a segregated custodial account to
cover its potential obligations under standby financing commitments. Other
types of direct debt instruments, such as loans through direct assignment
of a financial institution's interest with respect to a loan, may involve
additional risks to the Portfolio. For example, if a loan is foreclosed,
the Portfolio could become part owner of any collateral, and would bear the
costs and liabilities associated with owning and disposing of the
collateral.
For purposes of the limitations on the amount of total assets that the
Asset Strategy Portfolio will invest in any one issuer or in issuers within
the same industry, the Portfolio generally will treat the borrower as the
"issuer" of indebtedness held by the Portfolio. In the case of loan
participations where a bank or other lending institution serves as
financial intermediary between the Portfolio and the borrower, if the
participation does not shift to the Portfolio the direct debtor-creditor
relationship with the borrower, Securities and Exchange Commission ("SEC")
interpretations require the Portfolio, in appropriate circumstances, to
treat both the lending bank or other lending institution and the borrower
as "issuers" for these purposes. Treating a financial intermediary as an
issuer of indebtedness may restrict the Portfolio's ability to invest in
indebtedness related to a single financial intermediary, or a group of
intermediaries engaged in the same industry, even if the underlying
borrowers represent many different companies and industries.
Lending Securities
One of the ways in which a Portfolio may try to increase income is by
lending its securities. If a Portfolio does this, the borrower pays the
Portfolio an amount equal to the dividends or interest on the securities
that the Portfolio would have received if it had not loaned the securities.
The Portfolio also receives additional compensation.
Any securities loans that a Portfolio makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines").
Under the present Guidelines, the collateral must consist of cash or U.S.
Government Securities or bank letters of credit, at least equal in value to
the market value of the securities loaned on each day that the loan is
outstanding. If the market value of the loaned securities exceeds the
value of the collateral, the borrower must add more collateral so that it
at least equals the market value of the securities loaned. If the market
value of the securities decreases, the borrower is entitled to return of
the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method
is available for all three types of collateral. The second method, which
is not available when letters of credit are used as collateral, is for a
Portfolio 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 Portfolio may accept as collateral are
agreements by banks (other than the borrowers of the Portfolio'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
Portfolio, while the letter is in effect, amounts demanded by the Portfolio
if the demand meets the terms of the letter. The Portfolio'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 Portfolio's custodian bank) must be satisfactory to the
Portfolio.
A Portfolio may lend securities only to broker-dealers and financial
institutions deemed creditworthy by the Manager. The Portfolios will make
loans only under rules of the NYSE, which presently require the borrower to
return the securities to the Portfolio within five business days after the
Portfolio instructs it to do so. The Manager will evaluate the
creditworthiness of the borrower. If a Portfolio 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 Portfolio 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 increases, risks
of delay in recovering the securities loaned or even loss of rights in the
collateral should the borrower fail financially.
Repurchase Agreements
Each of the Portfolios may purchase securities subject to repurchase
agreements, subject to its limitation on investment in illiquid
investments. See "Illiquid Investments." A repurchase agreement is an
instrument under which a Portfolio 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 repurchase agreements in which a Portfolio 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 Portfolio 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
Portfolio. 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 or loss of interest.
A Portfolio's repurchase agreements can be considered as collateralized
loans (such agreements being defined as loans under and for the purpose of
the 1940 Act) and will be structured so as to fully collateralize the
loans. The value of the securities subject to the agreement, which will be
held by the Portfolio's custodian bank or by a third party that qualifies
as a custodian under section 17(f) of the 1940 Act, is and, during the
entire term of the agreement, remains at least equal to the value of the
loan, including the accrued interest earned thereon. A Portfolio's
repurchase agreements are entered into only with those entities approved on
the basis of criteria established by the Fund's Board of Directors.
Options, Futures Contracts and Other Strategies
General. As discussed in the Prospectus, the Manager may use
certain options, futures contracts (sometimes referred to as "futures"),
options on futures contracts, forward currency contracts, swaps and indexed
securities (collectively, "Financial Instruments") to attempt to enhance
the Portfolios' income or yield or to attempt to hedge the Portfolios'
portfolios.
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 Portfolio's portfolio. Thus, in
a short hedge a Portfolio 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 Portfolio intends to
acquire. Thus, in a long hedge a Portfolio 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 Portfolio does not own a corresponding security and,
therefore, the transaction does not relate to a security the Portfolio
owns. Rather, it relates to a security that the Portfolio intends to
acquire. If a Portfolio does not complete the hedge by purchasing the
security it anticipated purchasing, the effect on the Portfolio'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 Portfolio owns or intends to acquire. Financial
Instruments on indices, in contrast, generally are used to attempt to hedge
against price movements in market sectors in which a Portfolio 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 SEC, the several exchanges on which they are traded, the Commodity
Futures Trading Commission (the "CFTC") and various state regulatory
authorities. In addition, the Portfolios' ability to use these instruments
will be limited by tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described
below and in the Prospectus, the Manager expects to discover additional
opportunities in connection with options, futures contracts, options on
futures contracts, forward currency contracts, swaps, caps, collars, floors
and other similar or related techniques. These opportunities may become
available as the Manager develops new techniques, as regulatory authorities
broaden the range of permitted transactions and as new options, futures
contracts, options on futures contracts, forward currency contracts, swaps,
caps, collars, floors or other techniques are developed. The Manager may
utilize these opportunities to the extent that they are consistent with a
Portfolio's goals and are permitted by the Portfolio's investment
limitations and applicable regulatory authorities. The Portfolios'
Prospectus or SAI will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or
in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the
sections that follow.
(1) Successful use of most Financial Instruments depends upon the
Manager's ability to predict movements of the overall securities, currency
and interest rate markets, which requires different skills than predicting
changes in the prices of individual securities. There can be no assurance
that any particular strategy will succeed.
(2) There might be imperfect correlation, or even no correlation,
between price movements of a Financial Instrument and price movements of
the investments being hedged. For example, if the value of a Financial
Instrument used in a short hedge increased by less than the decline in
value of the hedged investment, the hedge would not be fully successful.
Such a lack of correlation might occur due to factors unrelated to the
value of the investments being hedged, such as speculative or other
pressures on the markets in which Financial Instruments are traded. The
effectiveness of hedges using Financial Instruments on indices will depend
on the degree of correlation between price movements in the index and price
movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options
and futures contracts, it is likely that the standardized contracts
available will not match a Portfolio's current or anticipated investments
exactly. A Portfolio 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
Portfolio's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
Portfolio's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interests 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 Portfolio 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 Portfolio'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 Portfolio entered into a short hedge because the Manager
projected a decline in the price of a security in the Portfolio'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 Portfolio could suffer a loss. In either such case, the Portfolio
would have been in a better position had it not attempted to hedge at all.
(4) As described below, a Portfolio might be required to
maintain assets as "cover," maintain segregated accounts or make margin
payments when it takes positions in Financial Instruments involving
obligations to third parties (i.e., Financial Instruments other than
purchased options). If a Portfolio 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 Portfolio'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 Portfolio sell a portfolio
security at a disadvantageous time. A Portfolio'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
(the "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 Portfolio.
Cover for Financial Instruments. Transactions using Financial
Instruments, other than purchased options, expose a Portfolio to an
obligation to another party. A Portfolio 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, receivables and short-term debt securities with a
value sufficient at all times to cover its potential obligations not
covered as provided in (1) above. Each Portfolio will comply with SEC
guidelines regarding cover for these instruments and, if the guidelines so
require, set aside cash, U.S. Government Securities or other liquid, high-
grade debt securities in a segregated account with its custodian in the
prescribed amount as determined daily on a mark-to-market basis.
Assets used as cover or held in a segregated 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 Portfolio's assets to cover or
segregated accounts could impede portfolio management or the Portfolio's
ability to meet redemption requests or other current obligations.
Certain Limitations. The Limited-Term Bond Portfolio may not purchase
or sell options, futures contracts or options on futures contracts if the
aggregate value of such options and futures held by that Portfolio would
exceed 25% of its assets.
Neither the Small Cap Portfolio nor the Balanced Portfolio may
purchase options on securities or futures contracts if the aggregate value
of the premiums paid (adjusted for the portion of any premium attributable
to the difference between the "strike price" of the option and the market
price of the underlying security or futures contract at the time of
purchase) exceeds 20% of the Portfolio's total assets. The aggregate
amount of the obligations underlying put options on securities or futures
contracts written by each of the Small Cap Portfolio and Balanced Portfolio
may not exceed 25% of its net assets computed at the time of sale.
The Asset Strategy Portfolio will not: (a) sell futures contracts,
purchase put options, or write call options if, as a result, more than 50%
of the Portfolio's total assets would be hedged with futures and options
under normal conditions; or (b) purchase futures contracts or write put
options if, as a result, the Portfolio's total obligations upon settlement
or exercise of purchased futures contracts and written put options would
exceed 25% of its total assets. These limitations do not apply to options
attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
For as long as required by applicable state securities regulation,
(1) the aggregate value of securities underlying put options written
by the Asset Strategy Portfolio, determined as of the date the put options
are written, will not exceed 50% of the Portfolio's net assets,
(2) the Asset Strategy Portfolio will only buy or sell (a) options on
securities, indices or futures contracts, or (b) futures contracts, in each
case that are offered through the facilities of a national securities
association or that are listed on a national securities or commodities
exchange, other than the permitted OTC options described under "Limitations
on the Use of Options" below,
(3) the aggregate premiums paid on all options on securities, indices
or futures contracts purchased by the Asset Strategy Portfolio that are
held at any time will not exceed 20% of the Portfolio's total net assets,
and
(4) the aggregate margin deposits on all futures and options thereon
held at any time by the Asset Strategy Portfolio will not exceed 5% of the
Portfolio's total assets.
Options. As discussed in the Prospectus and below, certain of the
Portfolios may purchase and/or write (sell) call and put options on equity
and debt securities, foreign currencies, stock indices and bond indices.
The purchase of call options serves as a long hedge, and the purchase of
put options serves as a short hedge. Writing put or call options can
enable a Portfolio 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 of the option, minus the premium received, the Portfolio would expect
to suffer a loss.
Writing call options can serve as a limited short hedge, because
declines in the value of the hedged instrument would be offset to the
extent of the premium received for writing the option. However, if the
security 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
Portfolio will be obligated to sell the security 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 Portfolio 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 in "Illiquid Investments."
The value of an option position will reflect, among other things, a
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 Portfolio may effectively terminate its right or obligation under
an option by entering into a closing transaction. For example, a Portfolio
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 Portfolio 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 Portfolio to realize profits or limit losses on an option position
prior to its exercise or expiration.
A type of put that each of the Small Cap Portfolio, the Balanced
Portfolio and the Asset Strategy Portfolio may purchase is an "optional
delivery standby commitment," which is entered into by parties selling debt
securities to a Portfolio. An optional delivery standby commitment gives a
Portfolio the right to sell the security back to the seller on specified
terms. This right is provided as an inducement to purchase the security.
Risks of Options on Securities. Certain of the Portfolios may
purchase or write both exchange-traded and OTC options. Exchange markets
for options on debt securities and foreign currencies exist, but these
instruments are primarily traded on the OTC market. 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 Portfolio and its
counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when a Portfolio 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 Portfolio as well as the loss of any expected benefit
of the transaction. The Manager evaluates the ability to enter into
closing transactions on OTC options prior to investing in them.
Generally, the OTC foreign currency options used by a Portfolio 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.
A Portfolio'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. Although a Portfolio (other
than the Asset Strategy Portfolio) will enter into OTC options only with
major dealers in unlisted options, there is no assurance that the Portfolio
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,
the Portfolio might be unable to close out an OTC option position at any
time prior to its expiration.
If a Portfolio 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 Portfolio could cause material losses
because the Portfolio 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 Portfolio 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 Portfolio 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 ("multiplier"), which determines the
total dollar value for each point of such difference. When a Portfolio
buys a call on an index, it pays a premium and has the same rights as to
such call as are indicated above. When a Portfolio buys a put on an index,
it pays a premium and has the right, prior to the expiration date, to
require the seller of the put, upon the Portfolio's exercise of the put, to
deliver to the Portfolio 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 Portfolio writes a put on an index, it receives a
premium and the purchaser has the right, prior to the expiration date, to
require the Portfolio 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 if 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 Portfolio writes a call on an index it cannot
provide in advance for its potential settlement obligations by acquiring
and holding the underlying securities. A Portfolio can offset some of the
risk of writing a call index option by holding a diversified portfolio of
securities similar to those on which the underlying index is based.
However, a Portfolio 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 Portfolio 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 Portfolio as the
call writer will not learn that it 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 common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as
of a fixed time in the past. So long as the writer already owns the
underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the
exercise date is borne by the exercising holder. In contrast, even if the
writer of an index call holds securities that exactly match the composition
of the underlying index, it will not be able to satisfy its assignment
obligations by delivering those securities against payment of the exercise
price. Instead, it will be required to pay cash in an amount based on the
closing index value on the exercise date. By the time it learns that it
has been assigned, the index may have declined, with a corresponding
decline in the value of its portfolio. This "timing risk" is an inherent
limitation on the ability of index call writers to cover their risk
exposure by holding securities positions.
If a Portfolio 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 Portfolio
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.
Limitations on the Use of Options. The Portfolios' use of options is
governed by the following guidelines, which can be changed by the Fund's
Board of Directors without a shareholder vote:
The Bond Portfolio, High Income Portfolio, Growth Portfolio and Income
Portfolio may each write (sell) covered call options on securities on up to
25% of its assets. The International Portfolio may write (sell) covered
call options on securities on no more than 10% of its total assets.
"Covered" means that the Portfolio owns the securities subject to the call
or has the right to acquire them without additional payment. Each of these
Portfolios may purchase a call option on a security only to close its
position in a call it has written. Calls written by these Portfolios must
be listed on a domestic securities exchange; however, the Bond Portfolio,
High Income Portfolio, Growth Portfolio and Income Portfolio may write OTC
calls on U.S. Government Securities.
The Money Market Portfolio may not purchase or sell options on
securities or indices.
The Small Cap Portfolio and the Balanced Portfolio may each write
(sell) covered call options on securities on not more than 25% of its total
assets. These calls must be issued by the Options Clearing Corporation
(the "OCC") and listed on a domestic securities exchange.
The Small Cap Portfolio and the Balanced Portfolio may each write
(sell) put options and purchase calls and puts on securities in which the
Portfolio may invest. Each of these Portfolios may only sell put options
on securities issued by the OCC, except that each may write OTC put options
on U.S. Government Securities. Each of these Portfolios may only purchase
options on securities issued by the OCC, except that each may purchase OTC
put and call options on U.S. Government Securities and may purchase
optional delivery standby commitments.
Each of the Small Cap Portfolio and the Balanced Portfolio may write
(sell) and purchase listed options on stock indices that are not limited to
stocks of any industry or group of industries ("broadly-based stock
indices"). Each may write options on broadly-based stock indices to
generate income when the Manager anticipates that the index price will not
increase or decrease by more than the premium received by the Portfolio.
Each may purchase calls on broadly-based stock indices to hedge against an
anticipated increase in the price of securities it wishes to acquire and
may purchase puts on broadly-based stock indices to hedge against an
anticipated decline in the market value of its portfolio securities.
The Limited-Term Bond Portfolio may write (sell) and purchase listed
and OTC options on domestic debt securities, which securities include,
without limitation, U.S. Government Securities ("Domestic Debt
Securities"). The Limited-Term Bond Portfolio may not write call options
having aggregate exercise prices greater than 25% of its net assets.
The Asset Strategy Portfolio may purchase a put or call option
(including any straddles or spreads) only if the value of its premium, when
aggregated with the premiums on all other options held by the Portfolio,
does not exceed 5% of the Portfolio's total assets. For so long as
required by applicable state securities regulation, the Asset Strategy
Portfolio will only trade OTC options (a) if exchange-traded options are
not available, (b) there is an active OTC market in such options, and (c)
transactions are all through a broker-dealer with a minimum net worth of
$20 million.
For further limitations on certain Portfolios' use of options, see
"Limitations on the Use of Futures Contracts and Options Thereon" below.
Futures Contracts and Options on Futures Contracts. Each of
the Small Cap Portfolio and the Balanced Portfolio may sell futures
contracts on broadly-based stock indices ("Stock Index Futures"), or write
a call or purchase a put on a Stock Index Future, if the Manager
anticipates that a general market or market sector decline may adversely
affect the market value of any or all of the Portfolio's common stock
holdings. Each of the Small Cap Portfolio and the Balanced Portfolio may
buy a Stock Index Future, or purchase a call or sell a put on a Stock Index
Future, if the Manager anticipates a significant market sector advance in
the common stock it intends to purchase for the Portfolio's portfolio.
Each of the Small Cap Portfolio and the Balanced Portfolio may purchase a
Stock Index Future, or purchase a call or sell a put thereon, as a
temporary substitute for the purchase of individual stocks that may then be
purchased in an orderly fashion.
In the case of debt securities, each of the Small Cap Portfolio and
the Balanced Portfolio may sell futures contracts on debt securities ("Debt
Futures"), or write a call or purchase a put on a Debt Future, to attempt
to protect against the risk that the value of the debt securities held by
the Portfolio might decline. The Limited-Term Bond Portfolio may sell
futures contracts on domestic debt securities ("Domestic Debt Futures"), or
write a call or purchase a put on a Domestic Debt Future, in the same way.
Each of the Small Cap Portfolio and the Balanced Portfolio may purchase a
Debt Future, or purchase a call or write a put on a Debt Future, to protect
against the risk of an increase in the value of debt securities at a time
when the Portfolio is not invested in debt securities to the extent
permitted by its investment policies. The Limited-Term Bond Portfolio may
purchase a Domestic Debt Future, or purchase a call or write a put on a
Domestic Debt Future, in the same way. As securities are purchased,
corresponding futures or options positions would be terminated.
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 strategies also can be used to manage the average duration of
a Portfolio's fixed-income portfolio. If the Manager wishes to shorten the
average duration of a Portfolio's fixed-income portfolio, the Portfolio may
sell a debt futures contract or a call option thereon, or purchase a put
option thereon. If the Manager wishes to lengthen the average duration of
a Portfolio's fixed-income portfolio, the Portfolio may purchase 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 Portfolio is required to deposit
"initial margin" consisting of cash or U.S. Government Securities, in an
amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract,
in accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Portfolio at the termination of the
transaction if all contractual obligations have been satisfied. Under
certain circumstances, such as periods of high volatility, the Portfolio
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 Portfolio's obligations to
or from a futures broker. When a Portfolio purchases an option on a
future, the premium paid plus transaction costs is all that is at risk. In
contrast, when a Portfolio 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
Portfolio has insufficient cash to meet daily variation margin
requirements, it might need to sell securities at a time when such sales
are disadvantageous.
Purchasers and sellers of futures contracts and options on futures
can enter into offsetting closing transactions, similar to closing
transactions in options, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Positions in
futures and options on futures may be closed only on an exchange or board
of trade that provides a secondary market. Although the Portfolios (other
than the Asset Strategy Portfolio) intend to buy and sell futures contracts
and options thereon only on exchanges where there appears to be an active
secondary market, there is no assurance that a liquid secondary market will
exist for any particular futures contract or option thereon at any
particular time. In such event, it may not be possible to close a futures
contract or options position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or option thereon
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 the liquidation of unfavorable positions.
If a Portfolio were unable to liquidate a futures contract or option
thereon due to the absence of a liquid secondary market or the imposition
of price limits, it could incur substantial losses. The Portfolio would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Portfolio would 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 cash or securities in a segregated account.
Risks 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 the Manager may still not result in a successful
transaction. The Manager 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
Portfolio's portfolio diverges from the securities included in the
applicable index. The price of the index futures 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 Portfolio 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, a Portfolio 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 Portfolio
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 Portfolio has sold futures contracts to hedge
its portfolio against decline in the market, the market may advance and the
value of the securities held in the portfolio may decline. If this
occurred, a Portfolio 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 Portfolio is able to invest in them in
an orderly fashion, it is possible that the market may decline instead. If
the Portfolio 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.
Limitations on the Use of Futures Contracts and Options Thereon. The
Portfolios' use of futures is governed by the following guidelines, which
can be changed by the Fund's Board of Directors without a shareholder vote.
Each of the Small Cap Portfolio and the Balanced Portfolio may buy
and sell Debt Futures, Stock Index Futures, and options on Debt Futures and
Stock Index Futures. The Limited-Term Bond Portfolio may buy and sell
Domestic Debt Futures and options on Domestic Debt Futures. Each of these
Portfolios may purchase or sell futures contracts and options thereon for
the purpose of hedging against changes in the market value of its portfolio
securities or changes in the market value of securities that the Manager
anticipates it may wish to include in the Portfolio's portfolio. Each of
these Portfolios may write options on futures contracts to increase
income.
The Limited-Term Bond Portfolio may purchase futures contracts and
options thereon only if no more than 30% of its total assets would be so
invested. The value of all futures contracts sold by the Limited-Term Bond
Portfolio may not exceed the total market value of its portfolio.
To the extent that a Portfolio 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") will not exceed 5% of the liquidation value of
the Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Portfolio 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 guideline does not limit to 5% the percentage of
the Portfolio's assets that are at risk in futures contracts and related
options transactions.
Foreign Currency Hedging Strategies--Special Considerations. Certain
of the Portfolios may use options and futures contracts on foreign
currencies, as described above, and foreign currency forward contracts, as
described below, to attempt to hedge against movements in the values of the
foreign currencies in which the Portfolios' securities are denominated.
Such currency hedges can protect against price movements in a security that
a Portfolio 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.
The Portfolios 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 Portfolio may seek to hedge
against price movements in that currency by entering into transactions
using Financial Instruments on another currency or a basket of currencies,
the values of which the Manager 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, the Portfolios 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 hedging transactions involving foreign currencies might
be required to take place within the country issuing the underlying
currency. Thus, a Portfolio 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. The Asset Strategy Portfolio and the
International Portfolio may enter into forward currency contracts ("forward
contracts") to purchase or sell foreign currencies for a fixed amount of
U.S. dollars or another foreign currency. A forward 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 contracts are traded directly
between currency traders (usually large commercial banks) and their
customers.
Such transactions may serve as long hedges; for example, a Portfolio
may purchase a forward contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Portfolio intends to
acquire. Forward currency contract transactions may also serve as short
hedges; for example, a Portfolio may sell a forward 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 of these Portfolios may also use forward contracts to hedge
against a decline in the value of existing investments denominated in
foreign currency. For example, if a Portfolio owned securities denominated
in pounds sterling, it could enter into a forward contract to sell pounds
sterling in return for U.S. dollars to hedge against possible declines in
the pound's value. Such a hedge, sometimes referred to as a "position
hedge," would tend to offset both positive and negative currency
fluctuations, but would not offset changes in security values caused by
other factors. Each of these Portfolios 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.
The Asset Strategy Portfolio also may use forward contracts for
"cross-hedging." Under this strategy, the Portfolio would increase its
exposure to foreign currencies that the Manager 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
Portfolio owned securities denominated in a foreign currency and the
Manager believed that currency would decline relative to another currency,
it might enter into a forward contract to sell an appropriate amount of the
first foreign currency, with payment to be made in the second foreign
currency.
The cost to a Portfolio of engaging in forward contracts varies with
factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward contracts are
usually entered into on a principal basis, no fees or commissions are
involved. When a Portfolio enters into a forward contract, it relies on
the counterparty to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the counterparty to do so would
result in the loss of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of
forward 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 contracts, with the
result that closing transactions generally can be made for forward
contracts only by negotiating directly with the counterparty. Thus, there
can be no assurance that a Portfolio will in fact be able to close out a
forward contract at a favorable price prior to maturity. In addition, in
the event of insolvency of the counterparty, a Portfolio might be unable to
close out a forward contract at any time prior to maturity. In either
event, the Portfolio 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 securities in a segregated account.
The precise matching of forward 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
foreign contract has been established. Thus, a Portfolio might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by forward contracts. The
projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain.
The International Portfolio does not intend to enter into forward
currency contracts on a regular basis.
Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with respect to
overall diversification strategies. However, the Manager believes that it
is important to have flexibility to enter into forward currency contracts
when it determines that the best interests of a Portfolio may be served.
Limitations on the Use of Forward Contracts. The International
Portfolio may enter into forward contracts, provided that it does not
thereafter have more than 15% of the value of its assets committed to the
consummation of all such forward contracts; however, it will not enter into
forward contracts or maintain a net exposure to such forward contracts
where the consummation of the forward contracts would obligate the
International Portfolio to deliver an amount of foreign currency in excess
of the value of its portfolio securities or other assets denominated in
that currency. The International Portfolio may hold foreign currency only
in connection with forward contracts, only up to four business days, as
well as in connection with the purchase or sale of foreign securities, but
not otherwise. Generally, the International Portfolio will not enter into
a Forward Contract with a term greater than one year.
The Asset Strategy Portfolio does not currently intend to invest more
than 5% of its total assets in forward contracts.
Combined Positions. A Portfolio 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 a example, a Portfolio may purchase a put option and write a
call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in
the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction costs
and may be more difficult to open and close out.
Turnover. A Portfolio's options and futures activities may affect
its turnover rate and brokerage commission payments. The exercise of calls
or puts written by a Portfolio, and the sale or purchase of futures
contracts, may cause it to sell or purchase related investments, thus
increasing its turnover rate. Once a Portfolio 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 Portfolio may also cause the sale of related
investments, also increasing turnover; although such exercise is within a
Portfolio'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 Portfolio will pay a brokerage commission each time it buys or
sells a put or call or purchases or sells a futures contract. Such
commissions may be higher than those that would apply to direct purchases
or sales.
Swaps, Caps, Collars and Floors. Swap agreements, including caps,
collars and floors, can be individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on their structure, swap agreements may increase or
decrease a Portfolio's exposure to long- or short-term interest rates (in
the U.S. or abroad), foreign currency values, mortgage-backed security
values, corporate borrowing rates, or other factors such as security
prices or inflation rates.
Swap agreements will tend to shift a Portfolio's investment exposure
from one type of investment to another. For example, if a Portfolio agrees
to exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the Portfolio'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 Portfolio enters into
swaps, caps, collars or floors will be monitored by the Manager in
accordance with procedures adopted by the Fund's Board of Directors. If a
default occurs by the other party to such transaction, a Portfolio will
have contractual remedies pursuant to the agreements related to the
transaction.
The net amount of the excess, if any, of a Portfolio's obligations
over its entitlements with respect to each swap will be accrued on a daily
basis and an amount of cash, U.S. Government Securities or other liquid
high-grade debt obligations having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account by the
Portfolio's custodian that satisfies the requirements of the 1940 Act.
Each Portfolio will also establish and maintain such segregated accounts
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 Portfolio. The Manager and the Portfolios believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to a Portfolio's
borrowing restrictions.
Indexed Securities. Each Portfolio (other than Growth Portfolio)
may purchase securities whose prices are indexed to the prices of other
securities, securities indices, currencies, precious metals or other
commodities, or other financial indicators, as long as the Manager
determines that it is consistent with the Portfolio's goal and investment
policies. Indexed securities typically, but not always, are debt
securities or deposits whose value at maturity or coupon rate is determined
by reference to a specific instrument or statistic. Gold-indexed
securities, for example, typically provide for a maturity value that
depends on the price of gold, resulting in a security whose price tends to
rise and fall together with gold prices. Currency-indexed securities
typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values
of one or more specified foreign currencies, and may offer higher yields
than U.S. dollar-denominated securities of equivalent issuers. Currency-
indexed securities may be positively or negatively indexed; that is, their
maturity value may increase when the specified currency value increases,
resulting in a security that performs similarly to a foreign-denominated
instrument, or their maturity value may decline when foreign currencies
increase, resulting in a security whose price characteristics are similar
to a put on the underlying currency. Currency-indexed securities may also
have prices that depend on the values of a number of different foreign
currencies relative to each other.
Recent issuers of indexed securities have included banks,
corporations, and certain U.S. government agencies. The Manager will use
its judgment in determining whether indexed securities should be treated as
short-term instruments, bonds, stocks, or as a separate asset class for
purposes of Asset Strategy Portfolio's investment allocations, depending on
the individual characteristics of the securities. Certain indexed
securities that are not traded on an established market may be deemed
illiquid.
Warrants and Rights
Each Portfolio (other than the Money Market Portfolio, the Limited-
Term Bond Portfolio, and the Balanced Portfolio) may purchase warrants.
The Bond Portfolio, the High Income Portfolio, the Growth Portfolio, the
Income Portfolio and the Small Cap Portfolio may purchase warrants provided
that such purchase will not cause more than 5% of their respective net
assets, valued at the lower of cost or market, to be invested in warrants.
The Asset Strategy Portfolio does not currently intend to purchase
warrants, valued at the lower of cost or market, in excess of 5% of the
Portfolio's net assets. Included in that amount, but not to exceed 2% of
the Asset Strategy Portfolio's net assets, may be warrants that are not
listed on the NYSE or the American Stock Exchange. Warrants acquired by
the Asset Strategy Portfolio in units or attached to securities are not
subject to these restrictions. The International Portfolio may purchase
warrants and rights to purchase securities, provided that as a result of
such purchase not more than 5% of its net assets will consist of warrants,
rights or a combination thereof.
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 shorter duration and are distributed directly
by the issuer to its shareholders. Warrants and rights have no voting
rights, receive no dividends and have no rights with respect to the assets
of the issuer. Warrants and rights acquired in units or attached to other
securities are not considered for purposes of computing the 5% limitation.
Certain states may impose a lower percentage limit on investments in
warrants and rights.
When-Issued and Delayed-Delivery Transactions
Each Portfolio may purchase securities on a when-issued or delayed-
delivery basis or sell them on a delayed-delivery basis. Delivery may take
place a month or more after the date of the transaction. The purchase or
sale price is fixed on the transaction date. A Portfolio will enter into
when-issued or delayed-delivery transactions in order to secure what is
considered to be an advantageous price and yield at the time of entering
into the transaction. The securities so purchased by a Portfolio are
subject to market fluctuation. The value of when-issued or delayed-
delivery securities may be less or more when delivered than the purchase
price paid or received. Typically, no interest accrues to a Portfolio
until delivery and payment are completed. When a Portfolio makes a
commitment to purchase securities on a when-issued or delayed-delivery
basis, it will record the transaction and thereafter reflect the value of
the securities in determining its net asset value per share. The
securities sold by a Portfolio on a delayed-delivery basis are also subject
to market fluctuation. Therefore, their value when a Portfolio delivers
them may be more than the purchase price the Portfolio receives. When a
Portfolio 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 Portfolio's net asset value per share.
Ordinarily, a Portfolio 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 and before it
has paid for them (the "settlement date"), a Portfolio may sell the
securities for investment reasons. The Portfolio will segregate cash or
high-quality debt obligations at least equal in value to the amount it will
have to pay on the settlement date; these segregated securities may,
however, be sold at or before the settlement date to pay the purchase price
of the when-issued or delayed-delivery securities.
Restricted Securities
The Portfolios may purchase commercial paper that is issued in
reliance on the exemption from registration that is afforded by Section
4(2) of the Securities Act of 1933, as amended ("Section 4(2) paper").
Section 4(2) paper is subject to legal or contractual restrictions on
resale under the federal securities laws. It is generally sold to
institutional investors who agree that they are purchasing the paper for
investment and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors through or with the assistance of
investment dealers who make a market in the Section 4(2) paper, thus
providing liquidity. Any such paper purchased must meet the credit,
maturity and other criteria that apply to other securities in which the
Portfolios invest. Although WRIMCO is of the opinion that this type of
paper is nearly as liquid as other commercial paper in which the Portfolios
invest, there is no assurance that a market will exist for Section 4(2)
paper that the Portfolios may own. WRIMCO will determine the liquidity of
Section 4(2) paper in accordance with guidelines established by the Board
of Directors. These restricted securities will be valued in the same
manner as other commercial paper held by the Portfolios is valued. See
"Net Asset Value."
The High Income Portfolio, the Growth Portfolio, the Income Portfolio
and the Asset Strategy Portfolio may also invest in other securities that
are subject to legal or contractual restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the
"1933 Act") or are otherwise subject to contractual restrictions on resale.
These securities are generally referred to as private placements or
restricted securities. Restricted securities generally can be sold in
privately negotiated transactions, pursuant to an exemption from
registration under the 1933 Act, or in a registered public offering. Where
registration is required, a Portfolio 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 Portfolio may be
permitted to sell a security under an effective registration statement.
If, during such a period, adverse market conditions were to develop, a
Portfolio might obtain a less favorable price than prevailed when it
decided to seek registration of the security.
The International Portfolio and the Asset Strategy Portfolio may also
purchase foreign restricted securities; provided that the International
Portfolio will not purchase restricted securities if as a result of such
purchase more than 5% of its total assets would consist of restricted
securities. Restricted securities in which the International Portfolio
seeks to invest need not be listed or admitted to trading on a foreign or
domestic exchange and may be less liquid than listed securities.
The Bond Portfolio, the Small Cap Portfolio, the Balanced Portfolio
and the Limited-Term Bond Portfolio do not intend to invest in restricted
securities.
Limitations on the resale of such securities may have an adverse
effect on their marketability and may prevent a Portfolio from disposing of
them promptly at reasonable prices. Restricted securities may be
determined to be liquid in accordance with guidelines established by the
Fund's Board of Directors.
The Portfolios do not anticipate adjusting for any diminution in value
of these securities on account of their restrictive feature if there is an
active market which creates liquidity and if actual market quotations for
these restricted securities are available. In the event that there should
cease to be an active market for these securities or actual market
quotations become unavailable, the securities will be 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.
Certain Other Securities
The Portfolios (other than the Money Market Portfolio) 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.
The Portfolios (other than the Money Market Portfolio) may also invest
in a type of convertible preferred stock that pays a cumulative, fixed
dividend that is senior to, and expected to be in excess of, the dividends
paid on the common stock of the issuer. At the mandatory conversion date,
the preferred stock is converted into not more than one share of the
issuer's common stock at the "call price" that was established at the time
the preferred stock was issued. If the price per share of the related
common stock on the mandatory conversion date is less than the call price,
the holder of the preferred stock will nonetheless receive only one share
of common stock for each share of preferred stock (plus cash in the amount
of any accrued but unpaid dividends). At any time prior to the mandatory
conversion date, the issuer may redeem the preferred stock upon issuing to
the holder a number of shares of common stock equal to the call price of
the preferred stock in effect on the date of redemption divided by the
market value of the common stock, with such market value typically
determined one or two trading days prior to the date notice of redemption
is given. The issuer must also pay the holder of the preferred stock cash
in an amount equal to any accrued but unpaid dividends on the preferred
stock. This convertible preferred stock is subject to the same market risk
as the common stock of the issuer, except to the extent that such risk is
mitigated by the higher dividend paid on the preferred stock. The
opportunity for equity appreciation afforded by an investment in such
convertible preferred stock, however, is limited, because in the event the
market value of the issuer's common stock increases to or above the call
price of the preferred stock, the issuer may (and would be expected to)
call the preferred stock for redemption at the call price. This
convertible preferred stock is also subject to credit risk with regard to
the ability of the issuer to pay the dividend established upon issuance of
the preferred stock. Generally, convertible preferred stock is less
volatile than the related common stock of the issuer.
Illiquid Investments
A Portfolio (other than the Asset Strategy Portfolio) may not make
illiquid investments if thereafter more than 10% of its net assets would
consist of such investments. The Asset Strategy Portfolio does not
currently intend to purchase any security if, as a result, more than 15% of
its net assets would be invested in illiquid investments. Investments
currently considered to be illiquid include: (i) repurchase agreements not
terminable within seven days; (ii) bank deposits, unless they are payable
at principal amount plus accrued interest on demand or within seven days
after demand; (iii) securities for which market quotations are not readily
available; (iv) restricted securities not determined to be liquid pursuant
to guidelines established by or under the direction of the Fund's Board of
Directors; (v) OTC options and their underlying collateral; (vi) securities
involved in swap, cap, collar and floor transactions; (vii) non-government
stripped fixed-rate mortgage-backed securities; and (viii) direct debt
instruments. Illiquid investments do not include any obligations payable
at principal amount plus accrued interest on demand or within seven days
after demand. The assets used as cover for OTC options written by a
Portfolio will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Portfolio 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 would be considered illiquid only to the extent that the
maximum repurchase price under the formula exceeds the intrinsic value of
the option.
Securities of other Investment Companies
The International Portfolio, the Small Cap Portfolio and the Balanced
Portfolio may buy shares of investment companies that do not redeem their
shares if it does it in a regular transaction in the open market and then
does not have more than 10% of its total assets in these shares; however,
these Portfolios do not have any current intent to invest more than 5% of
their respective assets in such securities in the foreseeable future.
These Portfolios may also buy these shares as part of a merger or
consolidation.
The Asset Strategy Portfolio does not currently intend to (i) purchase
securities of other investment companies, except in the open market where
no commission except the ordinary broker's commission is paid and if, as a
result of such purchase, the Portfolio does not have more than 10% of its
total assets invested in such securities, or (ii) purchase or retain
securities issued by other open-end investment companies. Limitations (i)
and (ii) do not apply to securities received as dividends, through offers
of exchange, or as a result of a reorganization, consolidation, or merger.
As a shareholder in an investment company, a Portfolio 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.
Investment Restrictions
The following investment restrictions are fundamental policies of each
Portfolio other than the Asset Strategy Portfolio and may not be changed
without shareholder approval. A Portfolio (other than the Asset Strategy
Portfolio) may not:
(i) Issue senior securities (except that each Portfolio may borrow
money as described below);
(ii) Buy or sell commodities or commodity contracts except that each
Portfolio may use options, futures contracts, forward currency
contracts and interest rate swaps, caps and floors, and purchase
and sell foreign currencies, in the manner described in the
Prospectus and this SAI;
(iii) Buy real estate or any nonliquid interests in real estate
investment trusts;
(iv) Make loans, except loans of portfolio securities and except to the
extent that investment in debt securities may be deemed to be a
loan;
(v) Invest for the purpose of exercising control or management of
other companies;
(vi) Sell securities short, buy securities on margin or engage in
arbitrage transactions;
(vii) Engage in the underwriting of securities, except insofar as it may
be deemed an underwriter in selling shares of a Portfolio and
except as it may be deemed such in the sale of restricted
securities;
(viii) Except for the Small Cap Portfolio (see "Borrowing"), borrow money
except from banks as a temporary measure or for extraordinary or
emergency purposes and not for investment purposes, and only up to
5% of the value of a Portfolio's total assets;
(ix) Pledge, mortgage or hypothecate assets as security for
indebtedness except to secure permitted borrowings;
(x) Buy a security if, as a result, a Portfolio would own more than
10% of the issuer's voting securities, or if more than five
percent of its total assets would be invested in securities of
that issuer, or if more than 25% of its assets would then be
invested in securities of companies in any one industry (U.S.
Government securities are not included in these restrictions.
The following are fundamental policies of the Asset Strategy Portfolio
and may not be changed without shareholder approval. The Asset Strategy
Portfolio may not:
(i) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than obligations issued or
guaranteed by the United States government, or any of its
agencies or instrumentalities) if, as a result thereof, (a) more
than 5% of the Portfolio's total assets would be invested in the
securities of such issuer, or (b) the Portfolio would hold more
than 10% of the outstanding voting securities of such issuer;
(ii) issue bonds or any other class of securities preferred over
shares of the Portfolio in respect of the Portfolio's assets or
earnings, provided that the Portfolio may issue additional
classes of shares in accordance with the Fund's Articles of
Incorporation;
(iii) sell securities short, provided that transactions in futures
contracts, options and other financial instruments are not deemed
to constitute short sales;
(iv) purchase securities on margin, except that the Portfolio may
obtain such short-term credits as are necessary for the clearance
of transactions, and provided that the Portfolio may make initial
and variation margin payments in connection with transactions in
futures contracts, options and other financial instruments;
(v) borrow money, except that the Portfolio may borrow money for
emergency or extraordinary purposes (not for leveraging or
investment) in an amount not exceeding 33 1/3% of the value of
its total assets (less liabilities other than borrowings). Any
borrowings that come to exceed 33 1/3% of the value of the
Portfolio's total assets by reason of a decline in net assets
will be reduced within three days to the extent necessary to
comply with the 33 1/3% limitation. For purposes of this
limitation, "three days" means three days, exclusive of Sundays
and holidays;
(vi) underwrite securities issued by others, except to the extent that
the Portfolio may be deemed to be an underwriter within the
meaning of the Securities Act of 1933 in the disposition of
restricted securities;
(vii) purchase the securities of any issuer (other than obligations
issued or guaranteed by the United States government or any of
its agencies or instrumentalities) if, as a result, more than 25%
of the Portfolio's total assets (taken at current value) would be
invested in the securities of issuers having their principal
business activities in the same industry;
(viii) invest in real estate limited partnerships or purchase or sell
real estate unless acquired as a result of ownership of
securities (but this shall not prevent the Portfolio from
purchasing and selling securities issued by companies or other
entities or investment vehicles that deal in real estate or
interests therein, nor shall this prevent the Portfolio from
purchasing interests in pools of real estate mortgage loans);
(ix) purchase or sell physical commodities unless acquired as a result
of ownership of securities (but this shall not prevent the
Portfolio from purchasing and selling currencies, futures
contracts, options, forward currency contracts or other financial
instruments);
(x) make loans, except (a) by lending portfolio securities provided
that no securities loan will be made if, as a result thereof,
more than 10% of the Portfolio's total assets (taken at current
value) would be lent to another party; (b) through the purchase
of a portion of an issue of debt securities in accordance with
its investment objective, policies, and limitations; and (c) by
engaging in repurchase agreements with respect to portfolio
securities; or
(xi) purchase or retain the securities of an issuer if the officers
and directors of the Portfolio and of the Manager owning
beneficially more than .5 of 1% of the securities of an issuer
together own beneficially more than 5% of the securities of that
issuer.
In addition to the fundamental policies described above, the
Portfolios indicated below have adopted the following investment policies
which, unlike the fundamental policies, may be changed without shareholder
approval:
(i) A Portfolio (other than the Asset Strategy Portfolio) may not
buy shares of other investment companies that redeem their
shares. Certain Portfolios may buy shares of other investment
companies which do not redeem their shares as described in the
Prospectus and the SAI;
(ii) A Portfolio may not participate on a joint, or a joint and
several, basis in any trading account in any securities (but this
does not prohibit the "bunching" of orders for the sale or
purchase of Portfolio securities with any other Portfolio or with
other advisory accounts of the Manager or any of its affiliates
to reduce brokerage commissions or otherwise to achieve best
execution);
(iii) The Asset Strategy Portfolio does not currently intend to lend
assets other than securities to other parties, except by
acquiring loans, loan participations, or other forms of direct
debt instruments. This limitation does not apply to purchases of
debt securities or to repurchase agreements;
(iv) The Asset Strategy Portfolio does not currently intend to
purchase the securities of any issuer (other than securities
issued or guaranteed by domestic or foreign governments or
political subdivision 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, its agencies or instrumentalities, or to CMOs, other
mortgage-related securities, asset-backed securities or indexed
securities; and
(v) The Asset Strategy Portfolio does not currently intend to invest
in oil, gas, or other mineral exploration or development programs
or leases.
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
Portfolio's turnover rate may vary greatly from year to year as well as
within a particular year.
The portfolio turnover rates for the fiscal years ended December
31, 1995 and December 31, 1994 for each of the Portfolios then in existence
were as follows:
1995 1994
---- ----
Money Market Portfolio 0.00% 0.00%
Bond Portfolio 71.17 135.82
High Income Portfolio 41.78 37.86
Growth Portfolio 245.80 277.36
Income Portfolio 15.00 23.32
International Portfolio 34.93 23.23
Small Cap Portfolio 43.27 21.61
Balanced Portfolio 62.87 19.74
Limited-Term Bond Portfolio 18.16 93.83
Asset Strategy Portfolio 149.17
The Asset Strategy Portfolio began operations in 1995. The Asset
Strategy Portfolio cannot precisely predict what its portfolio turnover
rate will be, but it is anticipated that the annual turnover rate for the
common stock portion of its portfolio will not exceed 200% and that the
annual turnover rate for the other portion of its portfolio will not exceed
200%.
The high portfolio turnover rate for the Growth Portfolio was due to
the active management of the portfolio and the volatility of the stock
market during this period. A high turnover rate will increase transaction
costs and commission costs that will be borne by the Fund and may generate
taxable income or loss. Because short-term securities are generally
excluded from computation of the turnover rate, a rate will not be computed
for the Money Market Portfolio.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Management Agreement
The Fund has an Investment Management Agreement (the "Management
Agreement") with Waddell & Reed, Inc. On January 8, 1992, subject to the
authority of the Fund's Board of Directors, Waddell & Reed, Inc. assigned
the Management Agreement and all related investment management duties (and
related professional staff) to the Manager, a wholly-owned subsidiary of
Waddell & Reed, Inc. Under the Management Agreement, the Manager is
employed to supervise the investments of each Portfolio and provide
investment advice to each Portfolio. The address of the Manager and
Waddell & Reed, Inc. is 6300 Lamar Avenue, P. O. Box 29217, Shawnee
Mission, Kansas 66201-9217. Waddell & Reed, Inc. is the Fund's
distributor and underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate
of Waddell & Reed, Inc. to enter into a separate agreement for accounting
services ("Accounting Services Agreement") with the Fund. The Management
Agreement contains detailed provisions as to the matters to be considered
by the Fund's Directors prior to approving any Accounting Services
Agreement.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund
and Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell
& Reed, Inc., the Agent provides the Fund with bookkeeping and accounting
services and assistance including maintenance of the Fund's records,
pricing of the Portfolios' shares, and preparation of prospectuses, proxy
statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Board of
Directors without shareholder approval.
Torchmark Corporation and United Investors Management Company
The Manager is a wholly-owned subsidiary of Waddell & Reed, Inc.
Waddell & Reed, Inc. is a wholly-owned subsidiary of Waddell & Reed
Financial Services, Inc., a holding company. Waddell & Reed Financial
Services, Inc. is a wholly-owned subsidiary of United Investors Management
Company which in turn is a wholly-owned subsidiary of Torchmark
Corporation. Torchmark Corporation is a publicly-held company. The
address of Torchmark Corporation and United Investors Management Company is
2001 Third Avenue South, Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment
manager to the Fund and 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, until
January 8, 1992, when it assigned its duties as investment manager for
these funds (and the related professional staff) to the Manager. The
Manager 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 began operations in March 1995. Waddell & Reed, Inc. serves
as distributor for the Fund and as underwriter for the investment companies
in the United Group of Mutual Funds and Waddell & Reed Funds, Inc.
Payments by the Fund for Management and Accounting Services
Under the Management Agreement, for the Manager's management
services, the Fund pays the Manager a fee as described in the Prospectus.
Prior to the above-described assignment from Waddell & Reed, Inc. to the
Manager, all fees were paid to Waddell & Reed, Inc. The management fees
paid to the investment manager, during the fiscal years ended December 31,
1995, 1994 and 1993, for each Portfolio then in existence were as follows:
Periods ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
Bond Portfolio $ 440,716$ 424,370 $357,307
High Income Portfolio 527,940 494,237 367,396
Growth Portfolio 2,425,494 1,813,171 1,179,870
Money Market Portfolio 147,383 116,644 122,205
Income Portfolio 1,979,061 1,374,533 747,849
International Portfolio* 321,777 63,291
Small Cap Portfolio* 302,739 36,355
Balanced Portfolio* 96,718 15,489
Limited-Term Bond Portfolio* 12,948 4,712
Asset Strategy Portfolio** 10,993
*Began operations April 29, 1994.
**Began operations May 1, 1995.
The Fund accrues and pays this fee daily.
Under the Accounting Services Agreement, the Fund pays Waddell &
Reed Services Company a fee for accounting services as described in the
Prospectus. Fees paid to the Agent for the fiscal years ended December 31,
1995, 1994 and 1993 for each Portfolio then in existence were as follows:
Periods ended December 31,
----------------------------
1995 1994 1993
---- ---- ----
Bond Portfolio $30,000 $30,000 $30,000
High Income Portfolio 30,000 30,000 26,667
Growth Portfolio 55,000 50,000 40,833
Money Market Portfolio 20,000 10,833 12,500
Income Portfolio 50,000 44,167 35,833
International Portfolio* 20,000 3,333
Small Cap Portfolio* 19,167 1,667
Balanced Portfolio* 9,167 ---
Limited-Term Bond Portfolio* --- ---
Asset Strategy Portfolio** ---
*Began operations April 29, 1994.
**Began operations May 1, 1995.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, the
Manager and Waddell & Reed Services Company, respectively, pay all of their
own expenses in providing these services. Waddell & Reed, Inc. and
affiliates pay the Fund's Directors and officers who are affiliated with
the Manager and Waddell & Reed, Inc. The Fund pays the fees and expenses
of the Fund's other Directors. The Fund pays all of its other expenses.
These include the costs of printing and mailing materials sent to
shareholders, audit and outside legal fees, taxes, brokerage commissions,
interest, insurance premiums, fees payable under securities laws and to the
Investment Company Institute, cost of processing and maintaining
shareholder records, cost of systems or services used to price Portfolio
securities and nonrecurring and extraordinary expenses, including
litigation and indemnification relating to litigation.
Custodial and Auditing Services
The Custodian for each Portfolio is UMB Bank, n.a., Kansas City,
Missouri. In general, the Custodian is responsible for holding the
Portfolios' cash and securities. Price Waterhouse LLP, Kansas City,
Missouri, the Fund's independent accountants, audits the Fund's financial
statements.
NET ASSET VALUE
The net asset value of one of the shares of a Portfolio is the value
of the Portfolio's assets, less liabilities, divided by the total number of
shares outstanding. For example, if on a particular day a Portfolio owned
securities worth $100 and held cash of $15, the total value of the assets
would be $115. If it had a liability of $5, the net asset value would be
$110 ($115 minus $5). If it had 11 shares outstanding, the net asset value
of one share would be $10 ($110 divided by 11).
The net asset value per share of each Portfolio is computed 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 a Portfolio is traded. The NYSE ordinarily closes at 4:00 P.M. Eastern
time. The NYSE annually announces the days on which it will not be open
for trading. The most recent announcement indicates that it will not be
open on the following days: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. However, it is possible that the NYSE may close on other days.
Under Rule 2a-7, the Money Market Portfolio uses the "amortized cost
method" for valuing its portfolio securities provided it meets certain
conditions. The conditions imposed under Rule 2a-7 relating to the
Portfolio's investments include the following: (i) the Portfolio must not
maintain a dollar-weighted average portfolio maturity in excess of 90 days;
(ii) it must limit its investments, including repurchase agreements, to
those instruments which are denominated in U.S. dollars and which the
Fund's Board of Directors determines present minimal credit risks and which
are rated in one of the two highest rating categories by the requisite
NRSRO(s), as defined in Rule 2a-7; or, in the case of any instrument that
is not rated, of comparable quality as determined under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Directors; (iii) it must limit its investments in the
securities of any one issuer (except U.S. Government Securities) to no more
than 5% of its assets; (iv) it must limit its investments in securities
rated in the second highest rating category by the requisite NRSRO(s) or
comparable unrated securities to no more than 5% of its assets; (v) it must
limit its investments in the securities of any one issuer which are rated
in the second highest rating category by the requisite NRSRO(s) or
comparable unrated securities to the greater of 1% of its assets or
$1,000,000; and (vi) it must limit its investments to securities with a
remaining maturity of not more than thirteen months. Rule 2a-7 sets forth
the method by which the maturity of a security is determined. The
amortized cost method involves valuing an instrument at its cost and
thereafter assuming a constant amortization rate to maturity of any
discount or premium, and does not reflect the impact of fluctuating
interest rates on the market value of the security. This method does not
take into account unrealized gains or losses.
While the amortized cost method provides some degree of certainty in
valuation, there may be periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would
receive if it sold the instrument. During periods of declining interest
rates, the daily yield on the Portfolio's shares may tend to be higher than
a like computation made by a fund with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices
for all of its portfolio instruments and changing its dividends based on
these changing prices. Thus, if the use of amortized cost by the Portfolio
resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in the Portfolio's shares would be able to obtain a
somewhat higher yield than would result from investment in such a fund, and
existing investors in the Portfolio's shares would receive less investment
income. The converse would apply in a period of rising interest rates.
Under Rule 2a-7, the Fund's Board of Directors must establish
procedures designed to stabilize, to the extent reasonably possible, the
Portfolio's price per share as computed for the purpose of sales and
redemptions at $1.00. Such procedures must include review of the portfolio
holdings by the Board at such intervals as it may deem appropriate and at
such intervals as are reasonable in light of current market conditions to
determine whether the Portfolio's net asset value calculated by using
available market quotations (see below) deviates from the per share value
based on amortized cost.
For the purpose of determining whether there is any deviation between
the value of the Portfolio based on amortized cost and that determined on
the basis of available market quotations, if there are readily available
market quotations, investments are valued at the mean between the bid and
asked prices. If such market quotations are not available, the investments
will be valued at their fair value as determined in good faith under
procedures established by and under the general supervision and
responsibility of the Fund's Board of Directors, including being valued at
prices based on market quotations for investments of similar type, yield
and duration.
Under Rule 2a-7, if the extent of any deviation between the net asset
value per share based upon available market quotations and the net asset
value per share based on amortized cost exceeds one-half of 1%, the Board
must promptly consider what action, if any, will be initiated. When the
Board believes that the extent of any deviation may result in material
dilution or other unfair results, it is required to take such action as it
deems appropriate to eliminate or reduce to the extent reasonably
practicable such dilution or unfair results. Such actions could include
the sale of portfolio securities prior to maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends
or payment of distributions from capital or capital gains, redemptions of
shares in kind, or establishing a net asset value per share using available
market quotations.
The portfolio securities of the Portfolios (other than the Money
Market Portfolio) that are listed or traded on U.S. or foreign stock
exchanges are valued at the last sales price on that day or, lacking any
sales on such day, at the mean of the last bid and asked prices available.
In cases where securities or other instruments are traded on more than one
exchange, such securities or other instruments generally are valued on the
exchange designated by the Manager (under procedures established by and
under the general supervision and responsibility of the Board of Directors)
as the primary market. Securities traded in the OTC market and included in
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") are valued at the last available sale price on Nasdaq prior to
the time of valuation; other OTC securities and instruments are valued at
the mean of the closing bid and asked prices.
Bonds, other than convertible bonds, are valued using a pricing system
provided by a major dealer in bonds. Convertible bonds are valued using
this pricing system only on days when there is no sale reported. Short-
term debt securities held by the Portfolios (other than the Money Market
Portfolio) are valued at amortized cost. When market quotations for
options and futures positions and non-exchange traded foreign securities
held by a Portfolio are readily available, those positions and securities
will be valued based upon such quotations. Market quotations generally
will not be available for options traded in the OTC market. Warrants and
rights to purchase securities are valued at market value. When market
quotations are not readily available, securities, options, futures 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.
When a Portfolio writes a call or a put option, an amount equal to the
premium received is included in that Portfolio'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 option. If an option a Portfolio
wrote is exercised, the proceeds received on the sale of the related
investment are increased by the amount of the premium that the Portfolio
received. If an option written by a Portfolio expires, it has a gain in
the amount of the premium; if it enters into a closing transaction, it will
have a gain or loss depending on whether the premium was more or less than
the cost of the closing transaction.
All securities and other assets quoted in foreign currency and forward
currency contracts are valued weekly in U.S. dollars on the basis of the
foreign currency exchange rate prevailing at the time such valuation is
determined by the Portfolio's Custodian. Foreign currency exchange rates
are generally determined prior to the close of the NYSE. Occasionally,
events affecting the value of foreign securities and such exchange rates
occur between the time at which they are determined and the close of the
NYSE, which events will not be reflected in a computation of the
Portfolio's net asset value. If events materially affecting the value of
such securities or assets or currency exchange rates occurred during such
time period, the securities or assets would be valued at their fair value
as determined in good faith under procedures established by and under the
general supervision and responsibility of the Board of Directors. The
foreign currency exchange transactions of a Portfolio conducted on a spot
basis are valued at the spot rate for purchasing or selling currency
prevailing on the foreign exchange market. Under normal market conditions
this rate differs from the prevailing exchange rate by an amount generally
less than one-tenth of one percent due to the costs of converting from one
currency to another.
Optional delivery standby commitments are valued at fair value under
the general supervision and responsibility of the Fund's Board of
Directors. They are accounted for in the same manner as exchange-listed
puts.
PURCHASES AND REDEMPTIONS
The separate accounts of the Participating Insurance Companies place
orders to purchase and redeem shares of each Portfolio based on, among
other things, the amount of premium payments to be invested and the number
of surrender and transfer requests to be effected on any day according to
the terms of the Policies. Shares of a Portfolio are sold at their net
asset value per share. No sales charge is paid by the Participating
Insurance Company for purchase of shares. Redemptions will be made at the
net asset value per share of the Portfolio. Payment is generally made
within seven days after receipt of a proper request to redeem. The Fund
may suspend the right of redemption of shares of any Portfolio and may
postpone payment for any period if any of the following conditions exist:
(i) the NYSE is closed other than customary weekend and holiday closings or
trading on the NYSE is restricted; (ii) the SEC has determined that a state
of emergency exists which may make payment or transfer not reasonably
practicable; (iii) the SEC has permitted suspension of the right of
redemption of shares for the protection of the shareholders of the Fund; or
(iv) applicable laws and regulations otherwise permit the Fund to suspend
payment on the redemption of shares. Redemptions are ordinarily made in
cash but under extraordinary conditions the Fund's Board may determine that
the making of cash payments is undesirable. In such case, redemption
payments may be made in Portfolio securities. The redeeming shareholders
would incur brokerage costs in selling such securities. The Fund 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.
Should any conflict between Policyowners arise which would require
that a substantial amount of net assets be withdrawn from a Portfolio,
orderly portfolio management could be disrupted to the potential detriment
of Policyowners. The Fund need not accept any purchase order and it may
discontinue offering the shares of any Portfolio.
SHAREHOLDER COMMUNICATIONS
Policyowners will receive from the Participating Insurance Companies
financial statements of the Fund as required under the 1940 Act. Each
report shows the investments owned by the Portfolio and the market values
thereof and provides other information about the Fund and its operations.
TAXES
General
Shares of the Portfolios are offered only to insurance company
separate accounts that fund variable annuity contracts ("Contracts"). See
the applicable Contract prospectus for a discussion of the special taxation
of insurance companies with respect to such accounts and of the Contract
holders.
Each Portfolio is treated as a separate corporation for Federal
income tax purposes. In order to qualify or continue to qualify for
treatment as a regulated investment company ("RIC") under the Internal
Revenue Code of 1986, as amended (the "Code"), each Portfolio must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income, net short-term capital gain and, for each Portfolio
other than the Money Market Portfolio, net gains from certain foreign
currency transactions) ("Distribution Requirement"), and must meet several
additional requirements. With respect to each Portfolio, these
requirements include the following: (1) the Portfolio 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 or forward contracts) derived with respect to
its business of investing in securities or those currencies ("Income
Requirement"); (2) the Portfolio must derive less than 30% of its gross
income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months --
options or futures, foreign currencies or forward contracts that are not
directly related to the Fund's principal business of investing in
securities (or in options and futures with respect to securities) ("Short-
Short Limitation"); (3) at the close of each quarter of the Portfolio's
taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government Securities, securities
of other RICs and other securities that are limited, in respect of any one
issuer, to an amount that does not exceed 5% of the value of the Fund's
total assets and that does not represent more than 10% of the issuer's
outstanding voting securities ("50% Diversification Requirement"); and
(4) at the close of each quarter of the Portfolio'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.
As noted in the Prospectus, each Portfolio must, and intends to,
comply or continue to comply with the diversification requirements imposed
by section 817(h) of the Code and the regulations thereunder. These
requirements, which are in addition to the diversification requirements
mentioned in (3) and (4) above, place certain limitations on the proportion
of each Portfolio's assets that may be represented by any single investment
(which includes all securities of the same issuer). For these purposes,
each U.S. Government agency or instrumentality is treated as a separate
issuer, while a particular foreign government and its agencies,
instrumentalities and political subdivisions all are considered the same
issuer.
Income from Foreign Securities
Dividends and interest received by a Portfolio (other than the
Limited-Term Bond Portfolio) may be subject to income, withholding or other
taxes imposed by foreign countries and U.S. possessions that would reduce
the yield on its securities. Tax conventions between certain countries and
the United States may reduce or eliminate these foreign taxes, however, and
many foreign countries do not impose taxes on capital gains in respect of
investments by foreign investors.
Each of the International Portfolio, Asset Strategy Portfolio,
Balanced Portfolio, Growth Portfolio, Income Portfolio, Small Cap
Portfolio, Bond Portfolio and High Income Portfolio may invest in the stock
of "passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (i) at
least 75% of its gross income is passive or (ii) an average of at least 50%
of its assets produce, or are held for the production of, passive income.
Under certain circumstances, a Portfolio 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 Portfolio distributes the PFIC
income as a taxable dividend to its shareholders. The balance of the PFIC
income will be included in the Portfolio'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 Portfolio 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 Portfolio would be required to include in income
each year its pro rata share of the QEF's annual ordinary earnings and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) -- which would have to be distributed to satisfy the
Distribution Requirement and to avoid imposition of the Excise Tax -- even
if those earnings and gain were not received by the Portfolio. In most
instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Proposed regulations have been published pursuant to which open-end
RICs, such as the Portfolios, would be entitled to elect to "mark-to-
market" their stock in certain PFICs. "Marking-to-market," in this
context, means recognizing as gain for each taxable year the excess, as of
the end of that year, of the fair market value of such a PFIC's stock over
the adjusted basis in that stock (including mark-to-market gain for each
prior year for which an election was in effect).
Foreign Currency Gains and Losses
For each Portfolio (other than the Money Market Portfolio and
Limited-Term Bond Portfolio), gains or losses (i) from the disposition of
foreign currencies, (ii) from the disposition of a debt security
denominated in a 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 (iii) that are attributable to
fluctuations in exchange rates that occur between the time a Portfolio
accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the
Portfolio 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 Portfolio's investment company taxable income
to be distributed to its shareholders.
Income from Options, Futures Contracts and Currencies
The use of hedging strategies, such as writing (selling) and
purchasing options and futures in a designated hedging transaction and
entering into forward contracts, involves complex rules that will determine
for income tax purposes the character and timing of recognition of the
gains and losses a Portfolio realizes in connection therewith. Income from
foreign currencies (except certain gains therefrom that may be excluded by
future regulations), and income from transactions in options, futures and
forward contracts derived by a Portfolio with respect to its business of
investing in securities, will qualify as permissible income under the
Income Requirement. However, income from the disposition of options,
futures and forward contracts (other than those on foreign currencies) will
be subject to the Short-Short Limitation if they are held for less than
three months. Income from the disposition of foreign currencies, and
options, futures and forward contracts thereon, that are not directly
related to the Portfolio's principal business of investing in securities
(or options and futures with respect to securities) also will be subject to
the Short-Short Limitation if they are held for less than three months.
If a Portfolio satisfies certain requirements, any increase in value
of a position that is part of a "designated hedge" will be offset by any
decrease in value (whether realized or not) of the offsetting hedging
position during the period of the hedge for purposes of determining whether
the Portfolio satisfies the Short-Short Limitation. Thus, only the net
gain (if any) from the designated hedge will be included in gross income
for purposes of that limitation. Each Portfolio authorized to engage in
hedging transactions intends that, when it does so engage, the hedging
transactions will qualify for this treatment, but at the present time it is
not clear whether this treatment will be available for all of each such
Portfolio's hedging transactions. To the extent this treatment is not
available, such a Portfolio may be forced to defer the closing out of
certain options, futures and forward contracts beyond the time when it
otherwise would be advantageous to do so, in order for the Portfolio to
qualify or continue to qualify as a RIC.
Any income a Portfolio earns from writing options is taxed as short-
term capital gains. If a Portfolio enters into a closing purchase
transaction, it will have a 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
Portfolio expires without being exercised, the premium it receives also
will be a short-term capital gain. If such an option is exercised and thus
the Portfolio sells the securities subject to the option, the premium the
Portfolio receives will be added to the exercise price to determine the
gain or loss on the sale. A Portfolio will not write so many options that
it could fail to continue to qualify as a RIC.
Certain options and futures contracts in which a Portfolio may invest
will be "section 1256 contracts." Section 1256 contracts held by a
Portfolio at the end of each taxable year, other than section 1256
contracts that are part of a "mixed straddle" with respect to which the
Portfolio has made an election not to have the following rules apply, are
"marked-to-market" (that is, treated as sold for their fair market value)
for Federal income tax purposes, with the result that unrealized gains or
losses are treated as though they were realized. Sixty percent of any net
gain or loss recognized on these deemed sales, and 60% of any net realized
gain or loss from any actual sales of section 1256 contracts, are treated
as long-term capital gain or loss, and the balance is treated as short-term
capital gain or loss. Section 1256 contracts also may be marked-to-market
for purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) also may affect the
taxation of options and futures contracts in which a Portfolio may invest.
Section 1092 defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent
the loss exceeds the unrealized gain on the offsetting position(s) of the
straddle. Section 1092 also provides certain "wash sale" rules, which
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 Portfolio 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 a Portfolio are not entirely
clear.
Zero Coupon and Payment-in-Kind Securities
As the holder of zero coupon or other securities issued with
original issue discount, a Portfolio must include in its income any
original issue discount that accrues on the securities during the taxable
year, even if the Portfolio receives no corresponding payment on the
securities during the year. Similarly, a Portfolio must include in its
gross income securities it receives as "interest" on payment-in-kind
securities. Because a Portfolio annually must distribute substantially all
of its investment company taxable income, including any original issue
discount and other non-cash income, in order to satisfy the Distribution
Requirement and to avoid imposition of the Excise Tax, it 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 Portfolio's cash assets or from the proceeds of sales
of portfolio securities, if necessary. A Portfolio may realize capital
gains or losses from those sales, which would increase or decrease its
investment company taxable income and/or net capital gain. In addition,
any such gains may be realized on the disposition of securities held for
less than three months. Because of the Short-Short Limitation, any such
gains would reduce a Portfolio's ability to sell other securities, or
certain options, futures or forward contracts, held for less than three
months that it might wish to sell in the ordinary course of its portfolio
management.
The foregoing is only a general summary of some of the important
Federal income tax considerations generally affecting the Portfolios. No
attempt is made to present a complete explanation of the Federal tax
treatment of their activities, and this discussion is not intended as a
substitute for careful tax planning. Accordingly, potential investors are
urged to consult with their own tax advisers for more detailed information
and for information regarding any state, local or foreign taxes applicable
to the Portfolios and to dividends and other distributions therefrom.
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all the net
investment income, if any, of each Portfolio. For dividend purposes, net
investment income of each Portfolio, other than the Money Market Portfolio,
will consist of all payments of dividends or interest received by such
Portfolio less the estimated expenses of such Portfolio. The Money Market
Portfolio's net investment income for dividend purposes consists of all
interest income accrued on the Portfolio, plus or minus realized gains or
losses on portfolio securities, less the Portfolio's expenses.
Dividends on the Money Market Portfolio are declared and reinvested
daily in additional full and fractional shares. Dividends from investment
income of the Growth Portfolio, the Bond Portfolio, the High Income
Portfolio, the Income Portfolio, the International Portfolio, the Small Cap
Portfolio, the Balanced Portfolio, the Limited-Term Bond Portfolio and the
Asset Strategy Portfolio will usually be declared, paid and reinvested
annually in December in additional full and fractional shares of the
respective Portfolio. Ordinarily, dividends are paid on shares starting on
the day after they are issued and on shares the day they are redeemed.
Under the amortized cost procedures which pertain to the Money Market
Portfolio in certain circumstances dividends of the Money Market Portfolio
might be eliminated or reduced.
All net realized long-term or short-term capital gains of the
Portfolios, if any, other than short-term capital gains of the Money Market
Portfolio, are declared and distributed annually in December to the
shareholders of the Portfolios to which such gains are attributable.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by the Manager in the Management
Agreement is the purchase and sale of securities for the Portfolios.
Purchases and sales of securities for the Money Market Portfolio and of
securities for the other Portfolios, other than those for which an exchange
is the primary market, are generally done with underwriters, dealers acting
as principals ("dealers") or directly with issuers. Purchases from
underwriters include a commission or concession paid by the issuer to the
underwriter and purchases from dealers will include the spread between the
bid and the asked prices. If the execution and price offered by more than
one dealer are equal, the order may be allocated to a dealer which has
provided research advice, quotations on portfolio securities or other
services. Brokerage commissions are paid on such transactions only if it
appears likely that a better price or execution can be obtained.
To effect the portfolio transactions of each Portfolio in securities
traded on an exchange, the Manager is authorized to engage broker-dealers
("brokers") which, in its best judgment based on all relevant factors, will
implement the policy of the Portfolio to achieve "best execution" (prompt
and reliable execution at the best price obtainable) for reasonable and
competitive commissions. The Manager 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 Portfolio. Subject to
review by the Board of Directors, such policies include the selection of
brokers which provide execution and/or research services and other
services, including pricing or quotation services directly or through
others ("brokerage services") considered by the Manager to be useful or
desirable for its investment management of the Portfolio and/or the other
funds and accounts over which the Manager or its affiliates has investment
discretion.
Brokerage services are, in general, defined by reference to Section
28(e) of the Securities Exchange Act of 1934 as including (i) advice,
either directly or through publications or writings, as to the value of
securities, the advisability of investing in, purchasing or selling
securities and the availability of securities and purchasers or sellers,
(ii) furnishing analyses and reports, or (iii) effecting securities
transactions and performing functions incidental thereto (such as
clearance, settlement and custody). "Investment discretion" is, in
general, defined as having authorization to determine what securities shall
be purchased or sold for an account, or making those decisions even though
someone else has responsibility.
The commissions paid to brokers that provide such brokerage services
may be higher than another qualified broker would charge if a good faith
determination is made by the Manager that the commission is reasonable in
relation to the services provided. No allocation of brokerage or principal
business is made to provide any other benefits to the Manager or its
affiliates.
The investment research provided by a particular broker may be useful
only to one or more of the other advisory accounts of the Manager or its
affiliates and investment research received for the commissions of those
other accounts may be useful both to a Portfolio and one or more of such
other accounts. To the extent that electronic or other products provided
by such brokers to assist the Manager 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 the Manager.
Such investment research, which may be supplied by a third party at
the instance of a broker, includes information on particular companies and
industries as well as market, economic or institutional activity areas. It
serves to broaden the scope and supplement the research activities of the
Manager; serves to make available additional views for consideration and
comparisons; and enables the Manager to obtain market information on the
price of securities held in a Portfolio or being considered for purchase.
The individual who manages a Portfolio 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. Combining purchases and
sales in that manner may result in a lower negotiated commission being paid
for the transaction. However, large transactions could affect the price of
the securities by driving the price up in the case of a purchase by the
accounts or driving the price down in the case of a sale.
The table below sets forth the brokerage commissions paid during
the fiscal years ended December 31, 1995, 1994 and 1993:
Periods ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
Bond Portfolio $ 313 $ ---$ ---
High Income Portfolio --- 1,268 1,580
Growth Portfolio 1,761,353 1,567,746 1,163,320
Money Market Portfolio --- --- ---
Income Portfolio 137,932 199,012 150,525
International Portfolio* 140,000 49,880
Small Cap Portfolio* 16,816 3,450
Balanced Portfolio* 28,505 6,437
Limited-Term Bond Portfolio* --- ---
Asset Strategy Portfolio** 1,483
---------- -------- --------
$2,086,402 $1,827,793$1,315,425
========== ========== ========
*Began operations April 29, 1994.
**Began operations May 1, 1995.
The next table shows the transactions, other than principal
transactions, which were directed to broker-dealers who provided research
as well as execution and the brokerage commissions paid for the fiscal year
ended December 31, 1995. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
Amount of Brokerage
Transactions Commissions
------------ -----------
Bond Portfolio $ --- $ ---
High Income Portfolio --- ---
Growth Portfolio 837,507,367 1,264,157
Money Market Portfolio --- ---
Income Portfolio 75,600,616 114,510
International Portfolio --- ---
Small Cap Portfolio 2,473,446 4,362
Balanced Portfolio 12,775,282 21,133
Limited-Term Bond Portfolio --- ---
Asset Strategy Portfolio* 730,446 1,356
------------ ----------
$929,087,157 $1,405,518
============ ==========
*Began operations May 1, 1995.
As of December 31, 1995, the Money Market Portfolio owned Merrill
Lynch & Co., Inc. securities in the aggregate amount of $997,771. Merrill
Lynch & Co., Inc. is a regular broker of the Portfolio. As of December 31,
1995, the Growth Portfolio owned J.P. Morgan & Co. Incorporated securities
in the aggregate amount of $6,018,750, Donaldson, Lufkin & Jenrette, Inc.
securities in the aggregate amount of $2,343,750, and Paine Webber Group
Inc. securities in the aggregate amount of $600,000. J.P. Morgan & Co.
Incorporated, Donaldson, Lufkin & Jenrette, Inc. and Paine Webber Group
Inc. are regular brokers of the Portfolio. As of December 31, 1995, the
Income Portfolio owned Merrill Lynch & Co., Inc. securities in the
aggregate amount of $5,204,136. Merrill Lynch & Co., Inc. is a regular
broker of the Portfolio. As of December 31, 1995, the International
Portfolio owned J.P. Morgan & Co. Incorporated securities in the aggregate
amount of $1,353,451. J.P. Morgan & Co. Incorporated is a regular broker
of the Portfolio. As of December 31, 1995, the Small Cap Portfolio owned
Merrill Lynch & Co., Inc. securities in the aggregate amount of $1,994,250.
Merrill Lynch & Co., Inc. is a regular broker of the Portfolio. As of
December 31, 1995, the Balanced Portfolio owned Merrill Lynch & Co., Inc.
securities in the aggregate amount of $697,988. Merrill Lynch & Co., Inc.
is a regular broker of the Portfolio. As of December 31, 1995, the Asset
Strategy Portfolio owned Merrill Lynch & Co., Inc. securities in the
aggregate amount of $149,569. Merrill Lynch & Co., Inc. is a regular
broker of the Portfolio.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside
organizations selected by the Board of Directors. The Board of Directors
has responsibility for establishing broad corporate policies for the Fund
and for overseeing overall performance of the selected experts. It has the
benefit of advice and reports from independent counsel and independent
auditors.
The principal occupation of each Director and officer during at
least the past five years is given below. Each of the persons listed
through and including Mr. Wise is a member of the Fund's Board of
Directors. The other persons are officers but not Board members. For
purposes of this section, the term "Fund Complex" includes the Fund, each
of the funds in the United Group of Mutual Funds and Waddell & Reed Funds,
Inc.
Each of the Fund's Directors is also a Director of each of the funds
in the Fund Complex and each of the Fund's officers is also an officer of
one or more of the funds in the Fund Complex.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund and each of the other
funds in the Fund Complex; Chairman of the Board of Directors of Waddell &
Reed Financial Services, Inc., United Investors Management Company and
United Investors Life Insurance Company; Chairman of the Board of Directors
and Chief Executive Officer of Torchmark Corporation; Chairman of the Board
of Directors of Vesta Insurance Group, Inc.; formerly, Chairman of the
Board of Directors of Waddell & Reed, Inc. Father of Linda Graves,
Director of the Fund and each of the other funds in the Fund Complex.
KEITH A. TUCKER*
President of the Fund and each of the other funds in the Fund Complex;
President, Chief Executive Officer and Director of Waddell & Reed Financial
Services, Inc.; Chairman of the Board of Directors of WRIMCO, Waddell &
Reed, Inc., Waddell & Reed Services Company, Waddell & Reed Asset
Management Company and Torchmark Distributors, Inc., an affiliate of
Waddell & Reed, Inc.; Vice Chairman of the Board of Directors, Chief
Executive Officer and President of United Investors Management Company;
Vice Chairman of the Board of Directors of Torchmark Corporation; Director
of Southwestern Life Corporation; formerly, partner in Trivest, a private
investment concern; formerly, Director of Atlantis Group, Inc., a
diversified company.
HENRY L. BELLMON
Route 1
P. O. Box 26
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma.
DODDS I. BUCHANAN
905 13th Street
Boulder, Colorado 80302
Advisory Director, The Hand Companies; President, Buchanan Ranch
Corp.; formerly, Senior Vice President and Director of Marketing Services,
The Meyer Group of Management Consultants; formerly, Professor of
Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Retired.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law
firm. Daughter of Ronald K. Richey, Chairman of the Board of the Fund and
each of the other funds in the Fund Complex.
JOHN F. HAYES*
335 N. Washington
Suite 260
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Chairman of Gilliland & Hayes,
P.A., a law firm; formerly, President of Gilliland & Hayes, P.A.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial
Corporation and subsidiaries.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of
the Fund and each fund in the Fund Complex then in existence (Mr. Morgan
retired as Chairman of the Board of Directors and President of the funds in
the Fund Complex then in existence on April 30, 1993); formerly, President,
Director and Chief Executive Officer of WRIMCO and Waddell & Reed, Inc.;
formerly, Chairman of the Board of Directors of Waddell & Reed Services
Company; formerly, Director of Waddell & Reed Asset Management Company,
United Investors Management Company and United Investors Life Insurance
Company, affiliates of Waddell & Reed, Inc.
DOYLE PATTERSON
1030 West 56th Street
Kansas City, Missouri 64113
Associated with Republic Real Estate, engaged in real estate
management and investment; formerly, Director of The Vendo Company, a
manufacturer and distributor of vending machines.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64110
Chancellor, University of Missouri-Kansas City; formerly, Interim
Chancellor, University of Missouri-Kansas City; formerly, Vice Chancellor
for Academic Affairs, University of Missouri-Kansas City.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund and each of
the other funds in the Fund Complex; Vice President, Chief Operations
Officer, Director and Treasurer of Waddell & Reed Financial Services, Inc.;
Executive Vice President, Principal Financial Officer, Director and
Treasurer of WRIMCO; President, Chief Executive Officer, Principal
Financial Officer, Director and Treasurer of Waddell & Reed, Inc.; Director
and Treasurer of Waddell & Reed Asset Management Company; President,
Director and Treasurer of Waddell & Reed Services Company; Vice President,
Treasurer and Director of Torchmark Distributors, Inc.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund
Complex; Vice President, Chief Investment Officer and Director of Waddell &
Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.; President,
Chief Executive Officer, Chief Investment Officer and Director of WRIMCO
and Waddell & Reed Asset Management Company; Senior Vice President and
Chief Investment Officer of United Investors Management Company.
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.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of
the other funds in the Fund Complex; Vice President, Secretary and General
Counsel of Waddell & Reed Financial Services, Inc.; Senior Vice President,
Secretary and General Counsel of WRIMCO and Waddell & Reed, Inc.; Director,
Senior Vice President, Secretary and General Counsel of Waddell & Reed
Services Company; Director, Secretary and General Counsel of Waddell & Reed
Asset Management Company; Vice President, Secretary and General Counsel of
Torchmark Distributors, Inc.; formerly, Assistant General Counsel of
WRIMCO, Waddell & Reed Financial Services, Inc., Waddell & Reed, Inc.,
Waddell & Reed Asset Management Company and Waddell & Reed Services
Company.
James C. Cusser
Vice President of the Fund and two other funds in the Fund Complex;
Vice President of the Manager; formerly, Vice President of Kidder Peabody &
Company.
Antonio Intagliata
Vice President of the Fund and one other fund in the Fund Complex;
Senior Vice President of the Manager; formerly, Senior Vice President of
Waddell & Reed, Inc.
Richard K. Poettgen
Vice President of the Fund and one other fund in the Fund Complex;
Vice President of the Manager; formerly, Vice President of Waddell & Reed,
Inc.
Cynthia P. Prince-Fox
Vice President of the Fund and two other funds in the Fund Complex;
Vice President of the Manager; Vice President of Waddell & Reed Asset
Management Company; employee of Waddell & Reed, Inc.
Louise D. Rieke
Vice President of the Fund and two other funds in the Fund Complex;
Vice President of the Manager; Vice President of Waddell & Reed Asset
Management Company; formerly, Vice President of Waddell & Reed, Inc.
Zachary H. Shafran
Vice President of the Fund; Vice President of the Manager; employee of
Waddell & Reed, Inc.
W. Patrick Sterner
Vice President of the Fund and one other fund in the Fund Complex;
Vice President of the Manager; Vice President of Waddell & Reed Asset
Management Company; formerly, Chief Investment Officer of the Merchants
Bank.
Carl E. Sturgeon
Vice President of the Fund and eleven other funds in the Fund Complex;
Vice President of the Manager; formerly, Vice President of Waddell & Reed,
Inc.
Russell E. Thompson
Vice President of the Fund and two other funds in the Fund Complex;
Senior Vice President of the Manager; Vice President of Waddell and Reed
Asset Management Company; formerly, Senior Vice President of Waddell &
Reed, Inc.
James D. Wineland
Vice President of the Fund and three other funds in the Fund Complex;
Vice President of the Manager; formerly, Vice President of Waddell & Reed,
Inc.
The address of each person is 6300 Lamar Avenue, P. O. Box 29217,
Shawnee Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, five of the Fund's Directors may be deemed
to be "interested persons" as defined in the 1940 Act of the Manager and
Waddell & Reed, Inc. The Directors who may be deemed to be "interested
persons" are indicated as such by an asterisk.
The Board has created an honorary position of Director Emeritus,
which position a Director may elect after resignation from the Board
provided the Director has attained the age of 75 and has served as a
Director of the Funds for a total of at least five years. A Director
Emeritus receives fees in recognition of his past services whether or not
services are rendered in his capacity as Director Emeritus, but has no
authority or responsibility with respect to management of the Fund. Mr.
Leslie S. Wright retired as a Director of the Fund and of each of the Funds
in the Fund Complex effective April 1, 1996, and has elected a position as
Director Emeritus. During the Fund's fiscal year ended December 31, 1995,
Mr. Wright received total compensation for his service as a Director of
$42,000 from the Fund Complex and the Fund and aggregate compensation from
the Fund of $2,604.
The Fund, the Funds in the United Group of Mutual Funds and Waddell &
Reed Funds, Inc. pay to each Director a total of $44,000 per year, plus
$1,000 for each meeting of the Board of Directors attended (prior to April
1, 1996, the fee was $40,000 per year, plus $1,000 for each meeting of the
Board of Directors attended) and $500 for each committee meeting attended
which is not in conjunction with a Board of Directors meeting, other than
Directors who are affiliates of Waddell & Reed, Inc. The fees are divided
among the Portfolios, the funds in the United Group and the series of
Waddell & Reed Funds, Inc. based on their relative net asset size. During
the Fund's fiscal year ended December 31, 1995, the Fund's Directors
received the following fees for service as a director:
COMPENSATION TABLE
Pension
or Retirement Total
Aggregate Benefits Compensation
Compensation Accrued As From Fund
From Part of Fund and Fund
Director Fund Expenses Complex
- -------- ------------ -------------- ------------
Ronald K. Richey $ 0 $0 $ 0
Keith A Tucker 0 0 0
Henry L. Bellmon 2,808 0 45,000
Dodds I. Buchanan 2,808 0 45,000
Jay B. Dillingham 2,808 0 45,000
Linda Graves 832 0 12,000
John F. Hayes 2,808 0 45,000
Glendon E. Johnson 2,808 0 45,000
William T. Morgan 2,808 0 45,000
Doyle Patterson 2,808 0 45,000
Eleanor B. Schwartz 832 0 12,000
Frederick Vogel III 2,808 0 45,000
Paul S. Wise 2,808 0 45,000
Ms. Graves and Ms. Schwartz were elected as Directors on July 12,
1995. The officers are paid by the Manager or its affiliates.
OTHER INFORMATION
Capital Stock
The Fund was incorporated in Maryland on December 2, 1986. Capital
stock is currently divided into the following classes which are a type of
class designated a "series" as that term is defined in the Articles of
Incorporation of the Fund: the Money Market Portfolio, the Bond Portfolio,
the High Income Portfolio, the Growth Portfolio, the Income Portfolio, the
International Portfolio, the Small Cap Portfolio, the Balanced Portfolio,
and the Limited-Term Bond Portfolio and the Asset Strategy Portfolio.
The balance of shares authorized but not divided into classes may be
issued to an existing Portfolio, or to new series having the number of
shares and descriptions, powers, and rights, and the qualifications,
limitations, and restrictions as the Board of Directors may determine. The
Board of Directors may also change the designation of any Portfolio and may
increase or decrease the numbers of shares of any Portfolio but may not
decrease the number of shares of any Portfolio below the number of shares
then outstanding.
Each issued and outstanding share in a Portfolio is entitled to
participate equally in dividends and distributions declared by the
respective Portfolio and, upon liquidation or dissolution, in net assets of
such Portfolio remaining after satisfaction of outstanding liabilities.
The shares of each Portfolio when issued are fully paid and nonassessable.
Voting Rights
All shares of the Fund have equal voting rights (regardless of the net
asset value per share) except that on matters affecting only one Portfolio,
only shares of the respective Portfolio are entitled to vote. The shares
do not have cumulative voting rights. Accordingly, the holders of more
than 50% of the shares of the Fund voting for the election of directors can
elect all of the directors of the Fund if they choose to do so, and in such
event the holders of the remaining shares would not be able to elect any
directors.
Matters in which the interests of all the Portfolios are substantially
identical (such as the election of Directors or the approval of independent
public accountants) will be voted on by all shareholders without regard to
the separate Portfolios. Matters that affect all the Portfolios but where
the interests of the Portfolios are not substantially identical (such as
approval of the Investment Management Agreement) will be voted on
separately by each Portfolio. Matters affecting only one Portfolio, such
as a change in its fundamental policies, will be voted on separately by the
Portfolio.
Matters requiring separate shareholder voting by a Portfolio shall
have been effectively acted upon with respect to any Portfolio if a
majority of the outstanding voting securities of that Portfolio votes for
approval of the matter, notwithstanding that: (1) the matter has not been
approved by a majority of the outstanding voting securities of any other
Series; or (2) the matter has not been approved by a majority of the
outstanding voting securities of the Fund.
The phrase "a majority of the outstanding voting securities" of a
series (or of a Fund) means the vote of the lesser of: (1) 67% of the
shares of a series (or the Fund) present at a meeting if the holders of
more than 50% of the outstanding shares are present in person or by proxy;
or (2) more than 50% of the outstanding shares of a series (or a Fund).
To the extent required by law, Policyholders are entitled to give
voting instructions with respect to Fund shares held in the separate
accounts of Participating Insurance Companies. Participating Insurance
Companies will vote the shares in accordance with such instructions unless
otherwise legally required or permitted to act with respect to such
instructions.
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS
Airlines - 0.47%
USAir Group, Inc.* ..................... 150,000 $ 1,987,500
Automotive - 1.70%
Federal-Mogul Corporation .............. 108,700 2,133,238
Ford Motor Company ..................... 175,000 5,075,000
Total ................................. 7,208,238
Banks and Savings and Loans - 13.88%
Ahmanson (H.F.) & Company .............. 175,000 4,637,500
Barnett Banks, Inc. .................... 100,000 5,900,000
BayBanks, Inc. ......................... 45,000 4,410,000
Boatmen's Bancshares, Inc. ............. 125,000 5,117,125
City National Corporation .............. 125,000 1,750,000
Crestar Financial Corporation .......... 100,000 5,912,500
First Security Corporation* ............ 45,000 1,721,250
Great Western Financial Corporation .... 200,000 5,100,000
Mercantile Bancorporation Inc. ......... 100,000 4,600,000
Morgan (J.P.) & Co. Incorporated ....... 75,000 6,018,750
Northern Trust Corporation ............. 100,000 5,568,700
Roosevelt Financial Group, Inc. ........ 225,000 4,331,250
Whitney Holding Corporation ............ 100,000 3,075,000
Total ................................. 58,142,075
Beverages - 0.36%
Hart Brewing, Inc.* .................... 100,000 1,500,000
Biotechnology and Medical Services - 1.12%
MediSense, Inc.* ....................... 28,200 897,098
Owen Healthcare, Inc.* ................. 72,000 1,944,000
Pyxis Corporation* ..................... 50,000 734,350
Zoll Medical Corporation* .............. 125,000 1,093,750
Total ................................. 4,669,198
Building - 1.15%
American Health Properties, Inc. ....... 50,000 1,075,000
National Health Investors, Inc. ........ 113,125 3,747,265
Total ................................. 4,822,265
Chemicals Major - 3.18%
du Pont (E.I.) de Nemours and Company .. 125,000 8,734,375
PPG Industries, Inc. ................... 100,000 4,575,000
Total ................................. 13,309,375
Chemicals Specialty and Miscellaneous Technology - 1.59%
Ecolab Inc. ............................ 100,000 3,000,000
Geon Company (The) ..................... 150,000 3,656,250
Total ................................. 6,656,250
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Computer Services and Software - 10.62%
General Motors Corporation, Class E .... 150,000 $ 7,800,000
HBO & Company .......................... 70,000 5,355,000
HPR Inc.* .............................. 41,400 1,242,000
Inference Corporation, Class A* ........ 154,500 2,896,875
Informix Corporation* .................. 300,000 9,018,600
Intuit Inc.* ........................... 75,000 5,859,375
META Group, Inc.* ...................... 50,000 1,531,250
PSINet Inc.* ........................... 75,000 1,720,275
Parametric Technology Corporation* ...... 75,000 4,978,125
Pixar* ................................. 50,000 1,440,600
Summit Medical Systems, Inc.* .......... 125,000 2,656,250
Total ................................. 44,498,350
Computer Systems - 2.15%
Cerner Corporation* .................... 230,000 4,715,000
DST Systems, Inc.* ..................... 150,000 4,275,000
Total ................................. 8,990,000
Drugs and Hospital Supply - 12.22%
Abbott Laboratories .................... 225,000 9,393,750
ALZA Corporation* ...................... 53,200 1,316,700
Baxter International Inc. .............. 130,000 5,443,750
Johnson & Johnson ...................... 65,000 5,565,625
Lilly (Eli) and Company ................ 150,000 8,437,500
Pfizer Inc. ............................ 90,000 5,670,000
Quest Medical, Inc.* ................... 100,000 1,037,500
SmithKline Beecham plc, ADR ............ 130,000 7,215,000
United States Surgical Corporation ..... 150,000 3,206,250
Warner-Lambert Company ................. 40,000 3,885,000
Total ................................. 51,171,075
Electrical Equipment - 2.81%
Emerson Electric Co. ................... 100,000 8,175,000
General Electric Company ............... 50,000 3,600,000
Total ................................. 11,775,000
Electronics - 0.35%
Digital Link Corporation* .............. 103,300 1,478,430
Financial - 2.87%
Donaldson, Lufkin & Jenrette, Inc. ..... 75,000 2,343,750
Lehman Brothers Holdings Inc. .......... 30,000 637,500
Paine Webber Group Inc. ................ 30,000 600,000
Regional Acceptance Corporation* ....... 225,000 2,137,500
Travelers Group, Inc. .................. 100,000 6,287,500
Total ................................. 12,006,250
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Food and Related - 2.74%
Archer-Daniels-Midland Company ......... 226,200 $ 4,071,600
Pioneer Hi-Bred International, Inc. .... 50,000 2,781,250
Ralcorp Holdings* ...................... 191,000 4,631,750
Total ................................. 11,484,600
Hospital Management - 4.19%
Beverly Enterprises, Inc.* ............. 500,000 5,312,500
LTC Properties, Inc. ................... 50,000 750,000
Sierra Health Services, Inc.* .......... 125,000 3,968,750
Sterling House Corporation* ............ 150,000 1,443,750
Tenet Healthcare Corporation* .......... 150,000 3,112,500
Total Renal Care Holdings, Inc.* ....... 100,000 2,950,000
Total ................................. 17,537,500
Insurance - 12.56%
Allstate Corporation (The) ............. 150,000 6,168,750
American International Group, Inc. ..... 100,000 9,250,000
Amerin Corporation* .................... 48,900 1,305,141
Berkley (W. R.) Corporation ............ 100,000 5,350,000
General Re Corporation ................. 40,000 6,200,000
Guarantee Life Companies Inc. (The)* ... 51,300 811,156
Home Beneficial Corporation, Class B ... 10,000 241,250
Independent Insurance Group, Inc. ...... 50,000 1,362,500
John Alden Financial Corporation ....... 75,000 1,565,625
Liberty Corporation (The) .............. 65,000 2,193,750
Lincoln National Corporation ........... 130,000 6,987,500
Meadowbrook Insurance Group, Inc.* ..... 42,100 1,410,350
Prudential Reinsurance Holdings, Inc. .. 200,000 4,675,000
Security-Connecticut Corporation ....... 100,000 2,712,500
Unitrin, Inc. .......................... 50,000 2,381,250
Total ................................ 52,614,772
International Oil - 0.61%
ENI S.p.A., ADR* ....................... 75,000 2,568,750
Leisure Time - 4.28%
Boston Chicken, Inc.* .................. 200,000 6,412,400
Bristol Hotel Company* ................. 60,000 1,462,500
Comcast Corporation, Class A ........... 250,000 4,546,750
Tele-Communications, Inc., Class A* .... 275,000 5,482,675
Total ................................. 17,904,325
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Machinery - 3.45%
Cooper Industries, Inc. ................ 125,000 $ 4,593,750
Ingersoll-Rand Company ................. 75,000 2,634,375
Keystone International, Inc. ........... 125,000 2,500,000
Parker Hannifin Corporation ............ 75,000 2,568,750
TRINOVA Corporation .................... 75,000 2,146,875
Total ................................. 14,443,750
Metals and Mining - 1.14%
Aluminum Company of America ............ 90,000 4,758,750
Multi-Industry - 1.47%
Berkshire Hathaway Inc.* ............... 35 1,123,500
ITT Corporation* ....................... 40,000 2,120,000
ITT Hartford Group, Inc.* .............. 40,000 1,935,000
ITT Industries, Inc. ................... 40,000 960,000
Total ................................. 6,138,500
Public Utilities - Electric - 1.38%
Central and South West Corporation ..... 60,000 1,672,500
Detroit Edison Company (The) ........... 60,000 2,070,000
Texas Utilities Electric Company ....... 50,000 2,056,250
Total ................................. 5,798,750
Railroads - 3.05%
Conrail Inc. ........................... 100,000 7,000,000
Illinois Central Corporation ........... 150,000 5,756,250
Total ................................. 12,756,250
Retailing - 1.73%
Family Dollar Stores, Inc. ............. 190,000 2,612,500
Mercantile Stores Company, Inc. ........ 100,000 4,625,000
Total ................................. 7,237,500
Services, Consumer and Business - 0.73%
Block (H & R), Inc. .................... 75,000 3,037,500
Telecommunications - 3.74%
Ascend Communications, Inc.* ........... 55,000 4,465,285
MFS Communications Company, Inc.* ...... 100,000 5,350,000
Nokia Corporation, Series A, ADS ....... 150,000 5,831,250
Total ................................. 15,646,535
Textiles and Apparel - 0.16%
Warnaco Group, Inc. (The), Class A ..... 27,600 690,000
TOTAL COMMON STOCKS - 95.70% $400,831,488
(Cost: $367,893,754)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE GROWTH PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITY - 0.33%
Financial
American Travellers Corporation, Convertible,
6.5%, 10-1-2005 ....................... $ 1,000 $ 1,370,000
(Cost: $1,000,000)
SHORT-TERM SECURITIES
Drugs and Hospital Supply - 0.64%
Abbott Laboratories,
5.63%, 1-16-96 ........................ 2,670 2,663,736
Financial - 1.20%
Dresdner U.S. Finance Inc.,
5.61%, 1-19-96 ........................ 5,035 5,020,877
Food and Related - 2.62%
General Mills, Inc.,
Master Note ........................... 5,360 5,360,000
Sara Lee Corporation,
Master Note............................ 5,597 5,597,000
Total ................................. 10,957,000
Telecommunications - 0.71%
BellSouth Telecommunications Inc.,
5.8%, 1-5-96 .......................... 3,000 2,998,067
TOTAL SHORT-TERM SECURITIES - 5.17% $ 21,639,680
(Cost: $21,639,680)
TOTAL INVESTMENT SECURITIES - 101.20% $423,841,168
(Cost: $390,533,434)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.20%) (5,015,484)
NET ASSETS - 100.00% $418,825,684
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS
Aerospace - 1.56%
Boeing Company (The) ................... 47,100 $ 3,691,462
Sundstrand Corporation ................. 21,000 1,477,875
Total ................................. 5,169,337
Airlines - 2.84%
AMR Corporation* ....................... 29,700 2,205,225
Southwest Airlines Co. ................. 183,600 4,268,700
USAir Group, Inc.* ..................... 220,000 2,915,000
Total ................................. 9,388,925
Automotive - 5.22%
Chrysler Corporation ................... 81,600 4,518,600
Dana Corporation ....................... 56,400 1,649,700
Eaton Corporation ...................... 37,100 1,989,487
Ford Motor Company ..................... 140,900 4,086,100
General Motors Corporation ............. 74,200 3,923,325
Magna International Inc., Class A ...... 26,000 1,124,500
Total ................................. 17,291,712
Banks and Savings and Loans - 1.69%
Citicorp ............................... 55,600 3,739,100
First Bank System Inc. ................. 37,100 1,841,087
Total ................................. 5,580,187
Beverages - 1.62%
Pepsi-Cola Puerto Rico Bottling
Company, Class B ...................... 105,600 1,214,400
PepsiCo, Inc. .......................... 74,200 4,145,925
Total ................................. 5,360,325
Biotechnology and Medical Services - 1.00%
Medtronic, Inc. ........................ 59,300 3,313,388
Building - 5.90%
Armstrong World Industries, Inc. ....... 66,800 4,141,600
Centex Corporation ..................... 134,400 4,670,400
Georgia-Pacific Corporation ............ 31,500 2,161,687
Pulte Corporation ...................... 148,900 5,006,762
Temple-Inland Inc. ..................... 26,000 1,147,250
Weyerhaeuser Company ................... 55,600 2,404,700
Total ................................. 19,532,399
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Chemicals Major - 7.08%
Air Products and Chemicals, Inc. ....... 85,300 $ 4,499,575
Albemarle Corporation .................. 72,800 1,410,500
Dow Chemical Company (The) ............. 45,400 3,195,025
du Pont (E.I.) de Nemours and Company .. 74,200 5,184,725
PPG Industries, Inc. ................... 92,700 4,241,025
Praxair, Inc. .......................... 74,200 2,494,975
Union Carbide Corporation .............. 64,900 2,433,750
Total ................................. 23,459,575
Chemicals Specialty and Miscellaneous Technology - 3.20%
Crompton & Knowles Corporation ......... 98,500 1,305,125
Geon Company (The) ..................... 100,600 2,452,125
Polaroid Corporation ................... 56,500 2,676,688
WMX Technologies, Inc. ................. 44,500 1,329,438
Xerox Corporation ...................... 20,800 2,849,600
Total ................................. 10,612,976
Computer Services and Software - 3.41%
Computer Associates International, Inc. 27,750 1,578,281
General Motors Corporation, Class E .... 80,200 4,170,400
Microsoft Corporation* ................. 22,300 1,958,208
Oracle Systems Corporation* ............ 84,700 3,589,162
Total ................................. 11,296,051
Consumer Electronics and Appliances - 1.20%
Harman International Industries,
Incorporated .......................... 24,150 969,019
Whirlpool Corporation .................. 56,700 3,019,275
Total ................................. 3,988,294
Drugs and Hospital Supply - 2.05%
Abbott Laboratories .................... 40,200 1,678,350
Baxter International Inc. .............. 38,900 1,628,937
Merck & Co., Inc. ...................... 29,700 1,952,775
Pfizer Inc. ............................ 24,100 1,518,300
Total ................................. 6,778,362
Electrical Equipment - 2.67%
Emerson Electric Co. ................... 29,700 2,427,975
General Electric Company ............... 89,000 6,408,000
Total ................................. 8,835,975
Electronics - 12.37%
AMP Incorporated ....................... 81,600 3,131,400
Analog Devices, Inc.* .................. 193,200 6,834,450
Applied Materials, Inc.* ............... 128,300 5,043,730
cisco Systems, Inc.* ................... 74,200 5,541,775
Intel Corporation ...................... 113,500 6,448,162
LSI Logic Corporation* ................. 134,400 4,401,600
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Electronics (Continued)
Linear Technology Corporation .......... 42,600 $ 1,677,375
Micron Technology, Inc. ................ 63,800 2,528,075
Molex Incorporated, Class A ............ 78,187 2,404,250
Teradyne, Inc.* ........................ 59,900 1,497,500
Texas Instruments Incorporated ......... 28,100 1,454,175
Total ................................. 40,962,492
Engineering and Construction - 0.97%
Fluor Corporation ...................... 29,700 1,960,200
Foster Wheeler Corporation ............. 29,700 1,262,250
Total ................................. 3,222,450
Financial - 1.76%
Federal Home Loan Mortgage Corporation . 37,100 3,097,850
Federal National Mortgage Association .. 21,900 2,718,337
Total ................................. 5,816,187
Food and Related - 0.77%
CPC International Inc. ................. 37,100 2,545,987
Hospital Management - 1.84%
Columbia/HCA Healthcare Corporation .... 27,800 1,410,850
Tenet Healthcare Corporation* .......... 74,200 1,539,650
United HealthCare Corporation .......... 48,200 3,157,100
Total ................................. 6,107,600
Household Products - 3.23%
Colgate-Palmolive Company .............. 44,500 3,126,125
Gillette Company (The) ................. 74,200 3,867,675
Procter & Gamble Company (The) ......... 44,500 3,693,500
Total.................................. 10,687,300
Leisure Time - 2.34%
Walt Disney Company (The) .............. 51,900 3,062,100
McDonald's Corporation ................. 103,900 4,688,488
Total ................................. 7,750,588
Machinery - 6.23%
Case Corporation ....................... 97,500 4,460,625
Caterpillar Inc. ....................... 118,700 6,973,625
Deere & Company ........................ 152,400 5,372,100
Ingersoll-Rand Company ................. 29,700 1,043,212
Parker Hannifin Corporation ............ 44,500 1,524,125
TRINOVA Corporation .................... 44,500 1,273,812
Total ................................. 20,647,499
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Multi-Industry - 2.11%
ITT Corporation* ....................... 55,700 $ 2,952,100
ITT Hartford Group, Inc.* .............. 55,700 2,694,487
ITT Industries, Inc. ................... 55,700 1,336,800
Total ................................. 6,983,387
Paper - 1.92%
Bowater Incorporated ................... 34,100 1,210,550
International Paper Company ............ 89,000 3,370,875
Union Camp Corporation ................. 37,100 1,766,888
Total ................................. 6,348,313
Railroads - 2.93%
CSX Corporation ........................ 52,000 2,372,500
Conrail Inc. ........................... 44,500 3,115,000
Norfolk Southern Corporation ........... 22,200 1,762,125
Union Pacific Corporation .............. 37,100 2,448,600
Total ................................. 9,698,225
Retailing - 8.12%
Circuit City Stores, Inc. .............. 118,700 3,279,088
Dayton Hudson Corporation .............. 34,500 2,587,500
Gap, Inc. (The) ........................ 51,900 2,179,800
General Nutrition Companies, Inc.* ..... 70,000 1,627,500
Home Depot, Inc. (The) ................. 56,700 2,714,513
May Department Stores Company (The) .... 74,200 3,134,950
Nordstrom, Inc. ........................ 27,800 1,122,425
OfficeMax, Inc.* ....................... 69,750 1,560,656
Penney (J.C.) Company, Inc. ............ 50,100 2,386,013
Tommy Hilfiger Corporation* ............ 109,400 4,635,825
Wal-Mart Stores, Inc. .................. 74,200 1,660,225
Total ................................. 26,888,495
Services, Consumer and Business - 0.47%
Block (H & R), Inc. .................... 38,700 1,567,350
Steel - 0.38%
Nucor Corporation ...................... 22,300 1,273,888
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Telecommunications - 6.59%
AT&T Corporation ....................... 37,100 $ 2,402,225
General Instrument Corporation* ........ 57,900 1,353,413
General Motors Corporation, Class H .... 13,100 643,538
MCI Communications Corporation ......... 139,100 3,642,612
MFS Communications Company, Inc.* ...... 29,900 1,599,650
Motorola, Inc. ......................... 126,100 7,187,700
Telefonaktiebolaget LM Ericsson,
Class B, ADR ......................... 148,400 2,893,800
Vanguard Cellular Systems, Inc.,
Class A* .............................. 105,000 2,113,125
Total ................................. 21,836,063
Tire and Rubber - 1.02%
Goodyear Tire & Rubber Company (The) ... 74,200 3,366,825
TOTAL COMMON STOCKS - 92.49% $306,310,155
(Cost: $225,958,227)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Banks and Savings and Loans - 0.45%
U.S. Bancorp,
Master Note ........................... $1,505 1,505,000
Financial - 3.17%
Merrill Lynch & Co., Inc.,
5.75%, 1-26-96 ........................ 5,225 5,204,136
Nestle Capital Corp.,
5.75%, 1-12-96 ........................ 5,290 5,280,706
Total ................................. 10,484,842
Food and Related - 1.85%
General Mills, Inc.,
Master Note ........................... 2,257 2,257,000
Sara Lee Corporation,
Master Note............................ 3,875 3,875,000
Total ................................. 6,132,000
Public Utilities - Electric - 0.94%
Potomac Electric Power Co.,
5.72%, 1-4-96 ......................... 3,115 3,113,515
Telecommunications - 0.75%
GTE Corporation,
5.95%, 2-2-96 ......................... 2,500 2,486,778
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INCOME PORTFOLIO
DECEMBER 31, 1995
Value
TOTAL SHORT-TERM SECURITIES - 7.16% $ 23,722,135
(Cost: $23,722,135)
TOTAL INVESTMENT SECURITIES - 99.65% $330,032,290
(Cost: $249,680,362)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.35% 1,161,742
NET ASSETS - 100.00% $331,194,032
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS
Australia - 1.77%
Westpac Banking Corp. (A) .............. 200,000 $ 886,013
Finland - 4.13%
Enso-Gutzeit Oy (A) .................... 40,400 269,327
Kymmene Oy (A) ......................... 13,000 343,670
Metsa-Serla Oy, Series B (A) ........... 20,000 616,078
Nokia Corporation, Series K (A) ........ 15,000 593,090
Tampella OY (A)* ....................... 200,000 252,868
Total ................................. 2,075,033
France - 2.95%
Lapeyre S.A. (A) ....................... 6,625 329,831
Societe Industrielle de Transports
Automobiles S.A. (A) .................. 3,500 613,446
Television Francaise 1-TF1 S.A. (A) .... 5,000 535,605
Total ................................. 1,478,882
Germany - 13.09%
adidas AG (A)* ......................... 10,000 526,499
DURR Beteiligungs AG (A) ............... 4,500 1,349,372
Fag Kugelfischer AG (A) ................ 6,000 774,058
GILDEMEISTER Aktiengesellschaft (A)* ... 13,750 1,246,513
Herlitz International Trading AG (A) ... 1,500 538,703
Mannesman AG (A) ....................... 4,300 1,369,463
TRAUB AG (A)* .......................... 8,500 767,608
Total ................................. 6,572,216
Hong Kong - 4.67%
First Pacific Company Limited (A) ...... 750,000 834,142
Guangdong Corporation Limited (A) ...... 1,000,000 601,358
HSBC Holdings Plc (A) .................. 60,000 907,856
Total ................................. 2,343,356
Indonesia - 2.78%
PT Matahari Putra Prima, F (A) ......... 573,750 1,009,991
PT United Tractors, F (A) .............. 205,000 385,524
Total ................................. 1,395,515
Japan - 2.10%
Aloka Co. Ltd. (A) ..................... 13,000 177,530
Hitachi (A) ............................ 50,000 503,632
Kyocera Corporation (A) ................ 5,000 371,428
Total ................................. 1,052,590
Korea - 2.27%
Samsung Electronics Co., Ltd., GDR (B)* 19,000 1,140,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Malaysia 0.19%
Asiatic Development Berhad (A) ......... 100,000 $ 92,924
Mexico - 8.09%
Cemex, S.A., CPO Shares, Series A (A) .. 150,000 491,899
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., Class B (A)* ............ 200,000 733,636
Empresas ICA Sociedad Controladora,
S.A. de C.V., ADS ..................... 50,000 512,500
Grupo Carso, S.A. de C.V.,
Series 1A (A)* ........................ 150,000 810,758
Grupo Financiero Bancomer, S.A. de
C.V., B, CPO Shares (A)* .............. 2,000,000 557,356
Telefonos de Mexico, S.A. de C.V., ADR . 30,000 956,250
Total ................................. 4,062,399
Netherlands - 1.07%
Philips Electronics N.V. NY Shares ..... 15,000 538,125
Norway - 2.11%
Kvaerner a.s. (A) ...................... 30,000 1,061,092
Phillipines - 1.68%
Universal Robina Corporation (A) ....... 1,700,000 842,547
Sweden - 11.58%
Astra AB, Class A (A) .................. 35,000 1,396,522
Bergman & Beving, Series B (A) ......... 30,000 844,689
Kinnevik AB, Series B (A) .............. 21,500 671,723
Skandia Enskilda Banken, Class A (A) ... 150,000 1,242,189
Trelleborg AB, Series B (A) ............ 40,000 430,626
AB Volvo (A) ........................... 60,000 1,228,638
Total ................................. 5,814,387
Switzerland - 2.02%
Swiss Bank Corporation (A) ............. 2,500 1,013,865
United Kingdom - 7.18%
BTR PLC (A) ............................ 200,000 1,019,096
Next plc (A) ........................... 150,000 1,062,594
Pilkington PLC (A) ..................... 104,000 326,359
United Biscuits (Holdings) Public
Limited Co. (A) ....................... 75,000 297,689
Vodafone Group Plc (A) ................. 250,000 897,146
Total ................................. 3,602,884
TOTAL COMMON STOCKS - 67.68% $ 33,971,828
(Cost: $32,872,941)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1995
Shares Value
PREFERRED STOCKS - 3.23%
Germany
Hornbach-Baumarkt-AG (A) ............... 7,000 $ 610,181
Marschollek, Lautenschlager und
Partner AG (A) ........................ 1,000 683,403
STO AG (A) ............................. 666 325,105
Total ................................. $ 1,618,689
(Cost: $1,712,070)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.64%
U.S. Bancorp,
Master Note ........................... $1,826 1,826,000
Financial - 6.67%
BHP Finance (USA) Inc.,
5.78%, 1-12-96 ........................ 1,000 998,234
Morgan (J.P.) & Co. Incorporated,
5.88%, 1-8-96 ......................... 1,355 1,353,451
Nestle Capital Corp.,
5.75%, 1-12-96 ........................ 1,000 998,243
Total ................................. 3,349,928
Food and Related - 12.24%
General Mills, Inc.,
Master Note ........................... 2,183 2,183,000
Quaker Oats Co.,
5.82%, 1-23-96 ........................ 2,000 1,992,887
Sara Lee Corporation,
Master Note............................ 1,970 1,970,000
Total ................................. 6,145,887
Public Utilities - Gas - 1.99%
Michigan Consolidated Gas Company,
5.8%, 1-10-96 ......................... 1,000 998,550
Telecommunications - 3.98%
Southwestern Bell Telephone Company,
5.8%, 1-8-96 .......................... 2,000 1,997,744
TOTAL SHORT-TERM SECURITIES - 28.52% $14,318,109
(Cost: $14,318,109)
TOTAL INVESTMENT SECURITIES - 99.43% $49,908,626
(Cost: $48,903,120)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE INTERNATIONAL PORTFOLIO
DECEMBER 31, 1995
Value
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.57% $ 287,719
NET ASSETS - 100.00% $50,196,345
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS
Beverages - 0.28%
Redhook Ale Brewery, Incorporated* ..... 6,000 $ 157,500
Biotechnology and Medical Services - 5.85%
American Healthcorp, Inc.* ............. 100,000 937,500
Daig Corporation* ...................... 30,000 693,750
Owen Healthcare, Inc.* ................. 15,000 405,000
St. Jude Medical, Inc.* ................ 16,500 707,437
Tecnol Medical Products, Inc.* ......... 10,000 177,500
Ventritex, Inc.* ....................... 5,000 87,810
VidaMed, Inc.* ......................... 25,000 243,750
Total ................................. 3,252,747
Computer Services and Software - 25.17%
Adobe Systems Incorporated ............. 20,000 1,242,500
AVANT! Corporation* .................... 37,300 704,037
CyCare Systems, Inc.* .................. 20,000 512,500
Desktop Data, Inc.* .................... 10,000 246,250
Eagle Point Software Corporation* ...... 30,000 622,500
Electronic Arts Inc.* .................. 8,000 209,496
Expert Software, Inc.* ................. 50,000 706,250
GT Interactive Software Corp.* ......... 50,000 703,100
HCIA Inc.* ............................. 20,000 932,500
HPR Inc.* .............................. 6,500 195,000
Macromedia, Inc.* ...................... 15,000 780,930
MapInfo Corporation* ................... 5,000 102,500
Mecon, Inc.* ........................... 35,000 555,625
Medic Computer Systems, Inc.* .......... 7,000 422,625
Meta-Software, Inc.* ................... 45,400 777,475
Minnesota Educational Computing
Corporation* .......................... 15,000 376,875
Parametric Technology Corporation* ..... 18,000 1,194,750
Pure Software Inc.* .................... 11,600 371,200
Quarterdeck Corporation* ............... 15,000 412,500
Shiva Corporation* ..................... 15,000 1,095,000
Summit Medical Systems, Inc.* .......... 35,000 743,750
Synopsys, Inc.* ........................ 10,000 381,250
Wall Data Incorporated* ................ 20,000 327,500
Wonderware Corporation* ................ 22,000 372,614
Total ................................. 13,988,727
Computer Systems - 4.03%
America Online, Inc.*. ................. 22,000 820,864
Cerner Corporation* .................... 40,000 820,000
PHAMIS, Inc.* .......................... 20,000 600,000
Total ................................. 2,240,864
Drugs and Hospital Supply - 5.18%
LUNAR CORPORATION ...................... 37,500 1,017,187
OmniCare, Inc. ......................... 10,000 447,500
PacifiCare Health Systems, Inc.* ....... 9,000 785,250
Watson Pharmaceuticals Inc.* ........... 12,900 632,100
Total ................................. 2,882,037
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Electronics - 3.37%
Information Storage Devices, Inc.* ..... 30,000 $ 330,000
LSI Logic Corporation* ................. 7,000 229,250
SDL, Inc.* ............................. 36,000 882,000
Silicon Valley Group, Inc.* ............ 17,000 430,304
Total ................................. 1,871,554
Hospital Management - 7.72%
ARV Assisted Living, Inc.* ............. 70,000 822,500
Emeritus Corporation* .................. 50,000 581,250
Inphynet Medical Management Inc.* ...... 20,000 477,500
Quorum Health Group, Inc.* ............. 11,000 240,625
Sierra Health Services, Inc.* .......... 15,000 476,250
Sterling House Corporation* ............ 58,500 563,063
United HealthCare Corporation .......... 7,000 458,500
Vencor, Incorporated* .................. 20,675 671,938
Total ................................. 4,291,626
Insurance - 0.75%
United Dental Care, Inc.* .............. 10,000 415,000
Leisure Time - 0.65%
Longhorn Steaks, Inc.* ................. 20,000 362,500
Publishing and Advertising - 1.06%
Franklin Electronic Publishers, Inc.* .. 20,000 590,000
Retailing - 1.07%
Eastbay, Inc.* ......................... 7,000 135,625
Movie Gallery, Inc.* ................... 15,000 459,375
Total ................................. 595,000
Services, Consumer and Business - 5.91%
CMG Information Services, Inc.* ........ 25,000 2,312,500
Stewart Enterprises, Inc., Class A ..... 26,500 973,875
Total ................................. 3,286,375
Telecommunications - 3.90%
MFS Communications Company, Inc.* ...... 22,000 1,177,000
Mobile Telecommunication Technologies
Corp.* ................................ 20,000 427,500
TESSCO Technologies Incorporated* ...... 20,000 562,500
Total ................................. 2,167,000
Textiles and Apparel - 0.90%
Department 56, Inc.* ................... 13,000 498,875
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Trucking - 0.25%
Knight Transportation, Inc.* ........... 10,000 $ 140,000
TOTAL COMMON STOCKS - 66.09% $36,739,805
(Cost: $27,788,215)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.41%
U.S. Bancorp,
Master Note ........................... $ 1,896 1,896,000
Consumer Electronics and Appliances - 3.59%
TDK (USA) Corp.,
5.71%, 1-22-96 ........................ 2,000 1,993,338
Financial - 6.30%
Merrill Lynch & Co., Inc.,
5.75%, 1-19-96 ........................ 2,000 1,994,250
Philip Morris Capital Corp.,
5.72%, 1-19-96 ........................ 1,510 1,505,681
Total ................................. 3,499,931
Food and Related - 5.53%
General Mills, Inc.,
Master Note ........................... 1,719 1,719,000
Sara Lee Corporation,
Master Note............................ 1,355 1,355,000
Total ................................. 3,074,000
Insurance - 2.88%
Aon Corporation,
5.72%, 1-9-96 ......................... 1,605 1,602,960
Public Utilities - Electric - 3.61%
Pacificorp,
5.72%, 2-2-96 ......................... 2,020 2,009,729
Public Utilities - Gas - 4.58%
Michigan Consolidated Gas Company,
5.8%, 1-10-96 ......................... 2,550 2,546,303
Telecommunications - 3.59%
Southwestern Bell Telephone Company,
5.8%, 1-8-96 .......................... 2,000 1,997,745
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE SMALL CAP PORTFOLIO
DECEMBER 31, 1995
Value
TOTAL SHORT-TERM SECURITIES - 33.49% $18,620,006
(Cost: $18,620,006)
TOTAL INVESTMENT SECURITIES - 99.58% $55,359,811
(Cost: $46,408,221)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.42% 231,636
NET ASSETS - 100.00% $55,591,447
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS
Airlines - 0.79%
Southwest Airlines Co. ................. 8,000 $ 186,000
Automotive - 1.81%
Eaton Corporation ...................... 6,000 321,750
AB Volvo AK, ADR, Series B ............. 5,100 104,866
Total ................................. 426,616
Banks and Savings and Loans - 4.05%
Ahmanson (H.F.) & Company .............. 14,500 384,250
BankAmerica Corporation ................ 4,500 291,375
Great Western Financial Corporation .... 11,000 280,500
Total ................................. 956,125
Beverages - 1.47%
PepsiCo, Inc. .......................... 6,200 346,425
Biotechnology and Medical Services - 0.60%
St. Jude Medical, Inc.* ................ 3,300 141,488
Building - 2.51%
National Health Investors, Inc. ........ 12,000 397,500
Temple-Inland Inc. ..................... 800 35,300
York International Corporation ......... 3,400 159,800
Total ................................. 592,600
Chemicals Major - 3.22%
du Pont (E.I.) de Nemours and Company .. 2,400 167,700
PPG Industries, Inc. ................... 6,500 297,375
Praxair, Inc. .......................... 8,800 295,900
Total ................................. 760,975
Chemicals Specialty and Miscellaneous
Technology - 0.80%
Crompton & Knowles Corporation ......... 14,300 189,475
Computer Systems - 1.04%
Cerner Corporation* .................... 12,000 246,000
Domestic Oil - 3.31%
Amoco Corporation ....................... 4,100 294,688
Apache Corporation ..................... 6,000 177,000
Atlantic Richfield Company ............. 2,800 310,100
Total ................................. 781,788
Drugs and Hospital Supply - 1.44%
American Home Products Corporation ..... 3,500 339,500
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Electrical Equipment - 1.04%
Emerson Electric Co. ................... 3,000 $ 245,250
Electronics - 3.04%
AVX Corporation ........................ 13,700 363,050
Applied Materials, Inc.* ............... 9,000 353,808
Total ................................. 716,858
Engineering and Construction - 0.99%
Foster Wheeler Corporation ............. 5,500 233,750
Hospital Management - 3.21%
LTC Properties, Inc. ................... 18,000 270,000
Tenet Healthcare Corporation* .......... 9,600 199,200
United HealthCare Corporation .......... 4,400 288,200
Total ................................. 757,400
Household Products - 0.90%
Estee Lauder Companies Inc. (The),
Class A* .............................. 6,100 212,737
Insurance - 3.39%
Amerin Corporation* .................... 18,700 499,103
Chubb Corporation (The) ................ 3,100 299,925
Total ................................. 799,028
International Oil - 0.71%
Mobil Corporation ...................... 1,500 168,000
Leisure Time - 1.33%
Red Lion Hotels, Inc.* ................. 6,500 113,750
Time Warner Incorporated ............... 5,300 200,737
Total ................................. 314,487
Machinery - 2.34%
Deere & Company ........................ 6,000 211,500
Keystone International, Inc. ........... 17,000 340,000
Total ................................. 551,500
Metals and Mining - 1.34%
Aluminum Company of America ............ 6,000 317,250
Multi-Industry - 2.18%
ITT Corporation* ....................... 4,100 217,300
ITT Hartford Group, Inc.* .............. 4,100 198,338
ITT Industries, Inc. ................... 4,100 98,400
Total ................................. 514,038
Oil Services - 1.11%
Schlumberger Limited ................... 3,800 263,150
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS (Continued)
Paper - 1.40%
Champion International Corporation ..... 5,800 $ 243,600
Union Camp Corporation ................. 1,800 85,725
Total ................................. 329,325
Public Utilities - Electric - 1.23%
Houston Industries Incorporated ........ 12,000 291,000
Publishing and Advertising - 0.96%
McGraw-Hill, Inc. ...................... 2,600 226,525
Railroads - 0.47%
Conrail Inc. ........................... 1,600 112,000
Retailing - 6.18%
Gymboree Corporation (The)* ............ 8,600 176,833
May Department Stores Company (The) .... 10,400 439,400
Mercantile Stores Company, Inc. ........ 3,000 138,750
Penney (J.C.) Company, Inc. ............ 4,000 190,500
SYSCO Corporation ...................... 9,000 292,500
Tommy Hilfiger Corporation* ............ 5,200 220,350
Total ................................. 1,458,333
Services, Consumer and Business - 0.98%
Block (H & R), Inc. .................... 5,700 230,850
Steel - 1.21%
Nucor Corporation ...................... 5,000 285,625
Telecommunications - 5.93%
AT&T Corporation ....................... 4,100 265,475
BellSouth Corporation .................. 4,800 208,800
GTE Corporation ........................ 5,300 233,200
General Motors Corporation, Class H .... 6,600 324,225
MCI Communications Corporation ......... 6,000 157,122
Motorola, Inc. ......................... 2,600 148,200
Nokia Corporation, Series A, ADS ....... 1,600 62,200
Total ................................. 1,399,222
TOTAL COMMON STOCKS - 60.98% $14,393,320
(Cost: $12,530,593)
PREFERRED STOCKS
Airlines - 0.15%
Delta Air Lines, Incorporated, Depository
Shares, Convertible ................... 600 35,625
Computer Services and Software - 0.34%
General Motors Corporation, Class E,
Depository Shares, Convertible ........ 1,100 80,575
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1995
Shares Value
PREFERRED STOCKS (Continued)
Drugs and Hospital Supply - 1.18%
United States Surgical Corporation,
Series A, Convertible ................. 11,000 $ 277,750
TOTAL PREFERRED STOCKS - 1.67% $ 393,950
(Cost: $374,906)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Domestic oil - 1.22%
Enron Corp.,
6.25%, 12-13-98 (Exchangeable) ........ $ 261 288,000
Metals and Mining - 1.11%
Cooper Industries, Inc.,
6.0%, 1-1-99 (Exchangeable) ........... 257 261,250
TOTAL CORPORATE DEBT SECURITIES - 2.33%
(Cost: $517,500) $ 549,250
UNITED STATES GOVERNMENT SECURITIES - 18.99%
United States Treasury:
6.875%, 8-31-99 ....................... 250 262,735
7.75%, 11-30-99 ....................... 1,500 1,625,385
7.125%, 2-29-2000 ..................... 500 532,265
6.375%, 8-15-2002 ..................... 100 104,859
7.5%, 2-15-2005 ....................... 1,500 1,700,160
6.25%, 8-15-2023 ...................... 250 257,227
Total ................................. $ 4,482,631
(Cost: $4,130,639)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 2.21%
U.S. Bancorp,
Master Note ........................... 521 521,000
Financial - 2.96%
Merrill Lynch & Co., Inc.,
5.75%, 1-19-96 ........................ 700 697,988
Food and Related - 7.81%
General Mills, Inc.,
Master Note ........................... 759 759,000
Sara Lee Corporation,
Master Note............................ 1,086 1,086,000
Total ................................. 1,845,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BALANCED PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Paper - 2.11%
Kimberly-Clark Corp.,
5.75%, 1-26-96 ........................ $500 $ 498,003
TOTAL SHORT-TERM SECURITIES - 15.09% $ 3,561,991
(Cost: $3,561,991)
TOTAL INVESTMENT SECURITIES - 99.06% $23,381,142
(Cost: $21,115,629)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.94% 221,730
NET ASSETS - 100.00% $23,602,872
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS
Beverages - 1.57%
Buenos Aires Embotelladora
S.A., ADR ............................. 3,300 $ 68,063
Computer Systems - 1.03%
SanDisk Corporation* ................... 3,000 44,625
Electronics - 4.83%
Silicon Valley Group, Inc.* ............ 4,200 106,310
Texas Instruments Incorporated ......... 2,000 103,500
Total ................................. 209,810
Retailing - 3.63%
adidas AG (A)* ......................... 3,000 157,950
Telecommunications - 4.77%
Motorola, Inc. ......................... 2,000 114,000
Nokia Corporation, Series A, ADS ....... 2,400 93,300
Total ................................. 207,300
TOTAL COMMON STOCKS - 15.83% $ 687,748
(Cost: $741,729)
Principal
Amount in
Thousands
SHORT-TERM SECURITIES
Commercial Paper
Banks and Savings and Loans - 3.18%
U.S. Bancorp,
Master Note ........................... $ 138 138,000
Consumer Electronics and Appliances - 3.44%
TDK (USA) Corp.,
5.71%, 1-22-96 ........................ 150 149,500
Financial - 11.48%
BHP Finance (USA) Inc.,
5.78%, 1-12-96 ........................ 150 149,735
Merrill Lynch & Co., Inc.,
5.75%, 1-19-96 ........................ 150 149,569
Nestle Capital Corp.,
5.75%, 1-12-96 ........................ 200 199,649
Total ................................. 498,953
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE ASSET STRATEGY PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Commercial Paper (Continued)
Food and Related - 12.42%
General Mills, Inc.,
Master Note ........................... $ 204 $ 204,000
Quaker Oats Co.,
5.82%, 1-23-96 ........................ 150 149,467
Sara Lee Corporation,
Master Note............................ 186 186,000
Total ................................. 539,467
Insurance - 4.60%
Aon Corporation,
5.72%, 1-9-96 ......................... 200 199,746
Public Utilities - Electric - 4.60%
Potomac Electric Power Co.,
5.75%, 1-4-96 ......................... 200 199,904
Telecommunications - 4.60%
Southwestern Bell Telephone Company,
5.8%, 1-8-96 .......................... 200 199,774
Total Commercial Paper - 44.32% 1,925,344
Commercial Paper (backed by irrevocable
letter of credit) - 3.33%
Centric Funding Corp. (Wachovia Bank
of North Carolina N.A.),
5.77%, 1-16-96 ........................ 145 144,651
United States Treasury Bill - 34.90%
Federal National Mortgage Association,
5.57%, 2-8-96 ......................... 1,525 1,516,034
TOTAL SHORT-TERM SECURITIES - 82.55% $3,586,029
(Cost: $3,586,029)
TOTAL INVESTMENT SECURITIES - 98.38% $4,273,777
(Cost: $4,327,758)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.62% 70,165
NET ASSETS - 100.00% $4,343,942
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
BANK OBLIGATIONS
Certificates of Deposit
Domestic - 5.42%
Barnett Bank of Florida, Jacksonville,
5.9375%, 1-26-96 ...................... $1,000 $ 999,981
Wachovia Bank and Trust,
5.82%, 1-29-96 ........................ 1,000 1,000,000
Total ................................. 1,999,981
Yankee - 8.13%
Banque Nationale de Paris,
6.1%, 10-10-96 ........................ 1,000 999,125
Creditanstalt - Bankverein,
6.0%, 10-11-96 ........................ 1,000 999,257
Societe Generale - New York,
5.75%, 2-8-96 ......................... 1,000 1,000,000
Total ................................. 2,998,382
Total Certificates of Deposit - 13.55% 4,998,363
Commercial Paper - 3.57%
U.S. Bancorp,
Master Note ........................... 1,315 1,315,000
Notes - 4.07%
Bank One Milwaukee, N.A.,
7.25%, 2-9-96 ......................... 500 500,000
PNC Bank, N.A.,
5.88%, 12-20-96 ....................... 1,000 999,623
Total ................................. 1,499,623
TOTAL BANK OBLIGATIONS - 21.19% $ 7,812,986
(Cost: $7,812,986)
CORPORATE OBLIGATIONS
Commercial Paper
Chemicals Major - 5.41%
Air Products and Chemicals, Inc.,
5.75%, 1-16-96 ........................ 1,000 997,604
du Pont (E.I.) de Nemours and Company,
5.77%, 1-19-96 ........................ 1,000 997,115
Total ................................. 1,994,719
Chemicals Specialty and Miscellaneous Technology - 3.10%
Minnesota Mining and Manufacturing Company,
5.75%, 1-18-96 ........................ 1,145 1,141,891
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Consumer Electronics and Appliances - 2.70%
TDK (USA) Corp.,
5.71%, 1-22-96 ........................ $1,000 $ 996,669
Domestic Oil - 4.88%
Amoco Corporation,
5.77%, 2-16-96 ........................ 1,000 1,000,000
Atlantic Richfield Company,
5.78%, 1-19-96 ........................ 800 797,688
Total ................................. 1,797,688
Financial - 19.67%
AT&T Capital Corp.,
5.72%, 1-26-96 ........................ 1,000 996,028
Avco Financial Services, Inc.,
5.67%, 2-9-96 ......................... 1,000 993,858
B.A.T. Capital Corp.,
5.72%, 1-18-96 ........................ 600 598,379
Merrill Lynch & Co., Inc.,
5.75%, 1-29-96 ........................ 500 497,764
Safeco Credit Company, Inc.,
5.71%, 1-25-96 ........................ 1,000 996,193
Sony Capital Corp.,
5.7%, 2-13-96 ......................... 1,000 993,192
Swedish Export Credit Corporation,
5.72%, 1-24-96 ........................ 1,000 996,346
Transamerica Financial Group:
5.72%, 1-11-96 ........................ 750 748,808
5.72%, 1-25-96 ........................ 435 433,341
Total ................................. 7,253,909
Food and Related - 8.07%
CPC International Inc.,
5.62%, 3-13-96 ........................ 875 865,165
General Mills, Inc.,
Master Note ........................... 1,000 1,000,000
Sara Lee Corporation,
Master Note ........................... 1,110 1,110,000
Total ................................. 2,975,165
Insurance - 2.71%
Aon Corporation,
5.72%, 1-9-96 ......................... 1,000 998,729
Paper - 2.90%
Kimberly-Clark Corp.,
5.75%, 1-26-96 ........................ 1,075 1,070,707
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE OBLIGATIONS (Continued)
Commercial Paper (Continued)
Public Utilities - Electric - 3.52%
Baltimore Gas and Electric Company,
5.7%, 1-11-96 ......................... $1,300 $ 1,297,942
Public Utilities - Gas - 5.41%
Michigan Consolidated Gas Company,
5.8%, 1-10-96 ......................... 1,000 998,550
Questar Corp.,
5.9%, 1-19-96 ......................... 1,000 997,050
Total ................................. 1,995,600
Telecommunications - 2.71%
U.S. West Communications, Inc.,
5.77%, 1-19-96 ........................ 1,000 997,115
Total Commercial Paper - 61.08% 22,520,134
Notes - 1.35%
Financial
Merrill Lynch & Co., Inc.,
5.935%, 2-20-96 ....................... 500 500,007
TOTAL CORPORATE OBLIGATIONS - 62.43% $23,020,141
(Cost: $23,020,141)
MUNICIPAL OBLIGATIONS
California - 3.53%
City of Anaheim, California, Certificates
of Participation (1993 Arena Financing
Project), Municipal Adjustable Rate
Taxable Securities (Credit Suisse),
5.9%, 2-1-96 .......................... 800 800,000
Oakland-Alameda County Coliseum Lease
Revenue Bonds (Oakland Coliseum Project),
1995 Series B-1 (Canadian Imperial Bank
of Commerce),
5.85%, 1-10-96 ........................ 500 500,000
Total ................................. 1,300,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE MONEY MARKET PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
MUNICIPAL OBLIGATIONS (Continued)
Pennsylvania - 0.54%
Montgomery County Industrial Development
Authority, Revenue Bonds (410 Horsham Associates
Project), Series of 1995 (Meridian Bank),
6.1%, 1-3-96 .......................... $ 200 $ 200,000
Texas - 1.35%
Metrocrest Hospital Authority, Series 1989A
(The Bank of New York),
5.85%, 1-31-96 ........................ 500 497,562
TOTAL MUNICIPAL OBLIGATIONS - 5.42% $ 1,997,562
(Cost: $1,997,562)
UNITED STATES GOVERNMENT
OBLIGATIONS
Federal Home Loan Banks,
5.9%, 7-8-96 .......................... 1,000 1,000,000
Federal Home Loan Mortgage Corporation,
5.95%, 6-7-96 ......................... 1,000 1,000,000
Student Loan Management Association,
5.35%, 1-3-96 ......................... 1,000 1,000,000
TOTAL UNITED STATES GOVERNMENT
OBLIGATIONS - 8.14% $ 3,000,000
(Cost: $3,000,000)
TOTAL INVESTMENT SECURITIES - 97.18% $35,830,689
(Cost: $35,830,689)
CASH AND OTHER ASSETS,
NET OF LIABILITIES - 2.82% 1,041,555
NET ASSETS - 100.00% $36,872,244
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Airlines - 3.86%
Federal Express Corporation,
10.0%, 9-1-98 ......................... $100 $ 110,147
Automotive - 1.79%
General Motors Corporation,
7.625%, 2-15-97 ....................... 50 51,091
Banks and Savings and Loans - 13.63%
BankAmerica Corporation,
9.7%, 8-1-2000 ........................ 100 114,773
Boatmen's Bancshares, Inc.,
9.25%, 11-1-2001 ...................... 50 57,363
NCNB Corporation,
10.5%, 3-15-99 ........................ 50 50,458
Norwest Financial, Inc.,
7.75%, 8-15-2001 ...................... 50 54,437
Wells Fargo & Company,
8.375%, 5-15-2002 ..................... 100 111,864
Total ................................. 388,895
Chemicals Major - 3.01%
ICI Wilmington, Inc.,
9.5%, 11-15-2000 ...................... 75 85,790
Chemicals Specialty and Miscellaneous
Technology - 4.90%
Polaroid Corporation,
8.0%, 3-15-99 ......................... 85 89,790
Xerox Credit Corporation,
6.25%, 1-15-96 ........................ 50 50,003
Total ................................. 139,793
Domestic Oil - 1.88%
BP America Inc.,
9.5%, 1-1-98 .......................... 50 53,738
Drugs and Hospital Supply - 5.54%
American Home Products Corporation,
7.7%, 2-15-2000 ....................... 100 106,999
Baxter International Inc.,
9.25%, 9-15-96 ........................ 50 51,190
Total ................................. 158,189
Electrical Equipment - 4.89%
Burlington Resources Inc.,
8.5%, 10-1-2001 ....................... 125 139,672
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Financial - 15.64%
American General Finance Corporation,
8.25%, 1-15-98 ........................ $ 50 $ 52,470
Associates Corporation of North America,
7.875%, 9-30-2001 ..................... 100 109,113
Avco Financial Services, Inc.,
5.5%, 4-1-2000 ........................ 50 49,133
Ford Motor Credit Company,
8.0%, 1-15-99 ......................... 75 79,294
General Motors Acceptance Corporation,
7.75%, 1-15-99 ........................ 100 104,899
Household Finance Corporation,
7.75%, 6-15-97 ........................ 50 51,454
Total ................................. 446,363
Insurance - 1.92%
Transamerica Finance Corporation,
8.75%, 10-1-99 ........................ 50 54,705
International Oil - 3.89%
Chevron Corporation,
8.11%, 12-1-2004 ...................... 50 55,390
Texaco Capital Inc.,
9.0%, 12-15-99 ........................ 50 55,576
Total ................................. 110,966
Machinery - 1.78%
Ingersoll-Rand Company,
8.25%, 11-1-96 ........................ 50 50,928
Multi-Industry - 1.78%
ITT Hartford,
7.25%, 12-1-96 ........................ 50 50,664
Public Utilities - Pipelines - 1.91%
Consolidated Natural Gas Company,
8.75%, 6-1-99 ......................... 50 54,529
Retailing - 7.54%
Penney (J.C.) Company, Inc.,
10.0%, 10-15-97 ....................... 100 107,460
Sears, Roebuck and Co.,
9.25%, 4-15-98 ........................ 100 107,592
Total ................................. 215,052
TOTAL CORPORATE DEBT SECURITIES - 73.96% $2,110,522
(Cost: $2,036,895)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE LIMITED-TERM BOND PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
UNITED STATES GOVERNMENT SECURITIES
Federal National Mortgage Association:
6.0%, 11-1-2000 ....................... $82 $ 82,148
5.0%, 12-25-2001 ...................... 100 99,312
11.0%, 10-1-2020 ...................... 41 47,274
Government National Mortgage Association,
7.0%, 9-15-2008 ....................... 90 91,684
United States Treasury:
6.375%, 8-15-2002...................... 50 52,429
6.25%, 2-15-2003 ...................... 100 104,328
TOTAL UNITED STATES GOVERNMENT SECURITIES - 16.72% $ 477,175
(Cost: $458,965)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 3.15%
U.S. Bancorp,
Master Note ........................... 90 90,000
Food and Related - 3.44%
General Mills, Inc.,
Master Note ........................... 98 98,000
TOTAL SHORT-TERM SECURITIES - 6.59% $ 188,000
(Cost: $188,000)
TOTAL INVESTMENT SECURITIES - 97.27% $2,775,697
(Cost: $2,683,860)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 2.73% 77,782
NET ASSETS - 100.00% $2,853,479
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Aerospace - 1.28%
McDonnell Douglas Corporation:
8.625%, 4-1-97 ........................ $ 534 $ 552,957
9.25%, 4-1-2002 ....................... 500 582,200
Total ................................. 1,135,157
Airlines - 1.23%
Federal Express Corporation,
7.89%, 9-23-2008 ...................... 1,000 1,088,980
Automotive - 2.78%
General Motors Corporation,
8.8%, 3-1-2021 ........................ 2,000 2,465,060
Banks and Savings and Loans - 15.92%
Bank of Boston Corporation,
6.625%, 12-1-2005 ..................... 500 508,695
BarclaysAmericanCorporation,
9.125%, 12-1-97 ....................... 225 238,743
BayBanks, Inc.,
5.812%, 9-30-97 ....................... 2,900 2,894,896
Bayerische Landesbank Girozentale, NY
Branch, CD, Currency Protected Deutschemark
Swap Rate Inverse Floating Rate,
5.235%, 3-28-97 (C) ................... 1,000 997,500
Chevy Chase Savings Bank, F.S.B.,
9.25%, 12-1-2005 ...................... 500 510,000
Citicorp,
7.75%, 6-15-2006 ...................... 1,000 1,111,780
First Union Corporation,
6.55%, 10-15-2035 ..................... 500 520,015
Kansallis-Osake-Pankki,
10.0%, 5-1-2002 ....................... 1,000 1,196,440
NBD Bank, National Association,
8.25%, 11-1-2024 ...................... 1,000 1,223,770
NationsBank Corporation,
8.57%, 11-15-2024 ..................... 1,000 1,215,340
Riggs National Corporation,
8.5%, 2-1-2006 ........................ 1,000 1,070,000
Skandia Enskilda Banken, NY Branch
Certificate of Deposit Dollarized
Australian Dollar Reset,
4.0%, 4-5-99 .......................... 1,000 931,250
SouthTrust Bank of Alabama, N.A.,
7.69%, 5-15-2025 ...................... 500 550,610
Wells Fargo & Company,
8.75%, 5-1-2002 ....................... 1,000 1,131,860
Total ................................. 14,100,899
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Beverages - 1.15%
Coca-Cola Enterprises Inc.,
0.0%, 6-20-2020 ....................... $ 5,000 $ 1,014,600
Building - 7.59%
Boise Cascade Office Products Corporation,
9.875%, 2-15-2001 ..................... 500 551,535
Canadian Pacific Forest Products Ltd.,
9.25%, 6-15-2002 ...................... 1,000 1,120,830
Doman Industries Limited,
8.75%, 3-15-2004 ...................... 500 473,750
Noranda Forest Inc.,
7.5%, 7-15-2003 ....................... 1,000 1,054,250
Noranda Inc.,
7.0%, 7-15-2005 ....................... 500 517,740
Owens-Corning Fiberglas Corporation,
8.875%, 6-1-2002 ...................... 1,000 1,120,240
USG Corporation,
9.25%, 9-15-2001 ...................... 1,000 1,070,000
Del Webb Corporation,
10.875%, 3-31-2000 .................... 800 816,000
Total ................................. 6,724,345
Chemicals Major - 1.02%
Dow Capital BV,
9.0%, 5-15-2010 ....................... 750 899,677
Computer Systems - 0.55%
Unisys Corporation,
9.75%, 9-15-96 ........................ 500 485,000
Domestic Oil - 3.30%
Anadarko Petroleum Corporation,
7.25%, 3-15-2025 ...................... 1,000 1,148,550
Seagull Energy Corporation,
7.875%, 8-1-2003 ...................... 1,250 1,243,750
Union Texas Petroleum Holdings, Inc.,
8.25%, 11-15-99 ....................... 500 532,090
Total ................................. 2,924,390
Electrical Equipment - 2.02%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... 1,500 1,791,825
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Financial - 9.40%
Banc One Credit Card Master Trust,
7.55%, 12-15-99 ....................... $1,000 $ 1,036,560
Chrysler Financial Corporation,
12.75%, 11-1-99 ....................... 1,000 1,227,580
Countrywide Mortgage Backed Securities,
Inc.,
6.5%, 4-25-2024 ....................... 2,000 1,974,200
DLJ Mortgage Acceptance Corp.,
6.5%, 4-25-2024 ....................... 970 950,949
General Motors Acceptance Corporation,
8.875%, 6-1-2010 ...................... 1,000 1,217,310
JCP Master Credit Card Trust,
9.625%, 6-15-2000 ..................... 500 546,715
National Credit Card Trust 1989-4,
9.45%, 12-31-97 ....................... 350 355,688
Residential Asset Securities Corporation,
Mortgage Pass-Through Certificates,
8.0%, 10-25-2024 ...................... 1,000 1,015,370
Total ................................. 8,324,372
Hospital Management - 0.59%
Tenet Healthcare Corporation,
8.625%, 12-1-2003 ..................... 500 525,000
Household Products - 2.81%
Procter & Gamble Company (The),
8.0%, 9-1-2024 ........................ 2,000 2,488,180
International Oil - 0.53%
YPF Sociedad Anoima,
8.0%, 2-15-2004 ....................... 500 470,000
Leisure Time - 6.46%
Jones Intercable, Inc.,
9.625%, 3-15-2002 ..................... 500 537,500
Marriott International, Inc.,
6.75%, 12-15-2003 ..................... 1,000 1,019,970
Tele-Communications, Inc.,
6.58%, 2-15-2005 ...................... 1,000 1,056,840
Time Warner Incorporated,
7.75%, 6-15-2005 ...................... 1,000 1,041,030
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... 1,000 1,038,060
Viacom International Inc.:
9.125%, 8-15-99 ....................... 500 522,500
6.75%, 1-15-2003 ...................... 500 504,295
Total ................................. 5,720,195
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Machinery - 1.27%
Joy Technologies Inc.,
10.25%, 9-1-2003 ...................... $1,000 $ 1,120,000
Multi-Industry - 1.17%
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 1,000 1,040,000
Public Utilities - Electric - 1.22%
Kansas Gas and Electric Company,
7.6%, 12-15-2003 ...................... 1,000 1,082,560
Public Utilities - Pipelines - 1.85%
Arkla, Inc.,
8.875%, 7-15-99 ....................... 500 536,305
Coastal Corporation (The),
10.375%, 10-1-2000 .................... 500 584,340
NorAm Energy Corp.,
7.5%, 8-1-2000 ........................ 500 513,065
Total ................................. 1,633,710
Publishing and Advertising - 0.62%
News America Holdings Incorporated,
9.125%, 10-15-99 ...................... 500 552,690
Railroads - 1.21%
Penn Central Corporation (The),
10.625%, 4-15-2000 .................... 1,000 1,068,560
Steel - 1.22%
USX Corporation,
8.21%, 1-21-2000 ...................... 1,000 1,082,620
Telecommunications - 3.24%
Motorola, Inc.,
8.4%, 8-15-2031 ....................... 1,000 1,271,060
Southwestern Bell Telephone Company,
7.0%, 8-26-2002 ....................... 1,000 1,058,810
US WEST, Inc.,
8.4%, 9-15-99 ......................... 500 541,595
Total ................................. 2,871,465
TOTAL CORPORATE DEBT SECURITIES - 68.43% $60,609,285
(Cost: $57,395,820)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
OTHER GOVERNMENT SECURITIES
Australia - 0.82%
New South Wales Treasury,
7.0%, 2-1-2000 (D) .................... $A 1,000 $ 723,075
Canada - 3.91%
Hydro Quebec:
8.05%, 7-7-2024 ....................... $ 1,000 1,141,760
7.4%, 3-28-2025 ....................... 1,000 1,158,630
Province of Nova Scotia,
8.25%, 11-15-2019...................... 1,000 1,163,570
Total ................................. 3,463,960
Supranationals - 1.39%
Inter-American Development Bank,
8.4%, 9-1-2009 ........................ 1,000 1,229,480
TOTAL OTHER GOVERNMENT SECURITIES - 6.12% $ 5,416,515
(Cost: $4,975,832)
UNITED STATES GOVERNMENT SECURITIES
Federal Home Loan Mortgage Corporation:
6.83%, 7-3-2002 ....................... 500 512,580
7.5%, 11-15-2017 ...................... 1,538 1,592,783
7.5%, 4-15-2019 ....................... 1,283 1,292,650
7.95%, 12-15-2020 ..................... 3,000 3,127,500
7.0%, 1-15-2021 ....................... 500 506,560
8.0%, 11-1-2024 ....................... 931 965,010
8.0%, 4-1-2025 ........................ 879 911,118
Federal National Mortgage Association,
7.09%, 4-1-2004 ....................... 500 505,780
United States Treasury:
7.875%, 11-15-99 ...................... 2,000 2,174,380
7.875%, 8-15-2001 ..................... 2,000 2,233,740
7.5%, 2-15-2005 ....................... 1,000 1,133,440
5.875%, 11-15-2005 .................... 2,000 2,045,000
0.0%, 5-15-2020 ....................... 8,000 1,768,800
TOTAL UNITED STATES GOVERNMENT
SECURITIES - 21.19% $18,769,341
(Cost: $18,161,720)
TOTAL SHORT-TERM SECURITIES - 2.84% $ 2,516,805
(Cost: $2,516,805)
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE BOND PORTFOLIO
DECEMBER 31, 1995
Value
TOTAL INVESTMENT SECURITIES - 98.58% $87,311,946
(Cost: $83,050,177)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 1.42% 1,257,561
NET ASSETS - 100.00% $88,569,507
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1995
Shares Value
COMMON STOCKS
Building - 0.35%
Walter Industries, Inc.* ............... 23,272 $ 303,979
Gaming - 0.16%
Trump Hotels & Casino Resorts, Inc.* ... 6,250 134,375
Leisure Time - 1.46%
Infinity Broadcasting Corporation* ..... 33,750 1,257,187
Sinclair Broadcast Group, Inc.* ........ 500 8,500
Total ................................. 1,265,687
Hospital Management - 0.87%
LTC Properties, Inc. ................... 50,000 750,000
Services, Consumer and Business - 0.40%
Bell & Howell Holdings Company* ........ 12,500 350,000
TOTAL COMMON STOCKS - 3.24% $ 2,804,041
(Cost: $1,580,674)
PREFERRED STOCKS
Banks and Savings and Loans - 0.62%
California Federal Bank, F.S.B. ........ 5,000 541,875
Leisure Time - 0.63%
Cablevision Systems Corporation,
Convertible* .......................... 20,000 545,000
TOTAL PREFERRED STOCKS - 1.25% $ 1,086,875
(Cost: $1,000,000)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Automotive - 2.27%
Lear Seating Corporation,
8.25%, 2-1-2002 ....................... $1,500 1,470,000
Walbro Corporation,
9.875%, 7-15-2005 ..................... 500 498,750
Total ................................. 1,968,750
Beverages - 0.47%
Dr Pepper Bottling Holdings, Inc.,
0.0%, 2-15-2003 (E) ................... 500 410,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Biotechnology and Medical Services - 3.70%
Abbey Healthcare Group, Incorporated,
9.5%, 11-1-2002 ....................... $ 500 $ 532,500
IVAC Corporation,
9.25%, 12-1-2002 ...................... 500 517,500
Quorum Health Group, Inc.:
11.875%, 12-15-2002 ................... 1,000 1,120,000
8.75%, 11-1-2005 ...................... 1,000 1,035,000
Total ................................. 3,205,000
Building - 7.64%
American Standard Inc.:
9.875%, 6-1-2001 ...................... 1,000 1,077,500
9.25%, 12-1-2016 ...................... 500 520,000
Beazer Homes USA, Inc.,
9.0%, 3-1-2004 ........................ 750 727,500
Eagle Industries, Inc.,
0.0%, 7-15-2003 (E) ................... 1,500 1,256,250
NVR L.P.,
11.0%, 4-15-2003 ...................... 1,000 1,006,250
Nortek, Inc.,
9.875%, 3-1-2004 ...................... 500 467,500
Triangle Pacific Corp.,
10.5%, 8-1-2003 ....................... 1,000 1,060,000
U.S. Home Corporation,
9.75%, 6-15-2003 ...................... 500 511,875
Total ................................. 6,626,875
Chemicals Specialty and Miscellaneous Technology - 0.35%
UCAR Global Enterprises Inc.,
12.0%, 1-15-2005 ...................... 265 306,075
Computers Services and Software - 0.56%
Mail-Well Corporation,
10.5%, 2-15-2004 ...................... 500 482,500
Domestic Oil - 1.54%
Clark R & M Holdings, Inc.,
0.0%, 2-15-2000 ....................... 2,000 1,337,500
Drugs and Hospital Supply - 1.70%
AmeriSource Distribution Corporation,
11.25%, 7-15-2005 ..................... 368 399,275
General Medical Corporation,
12.125%, 8-15-2005 .................... 1,124 1,078,093
Total ................................. 1,477,368
Electronics - 1.13%
Essex Group, Inc.,
10.0%, 5-1-2003 ....................... 1,000 980,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Financial - 0.58%
Scotsman Group, Inc.,
9.5%, 12-15-2000 ...................... $ 500 $ 505,000
Food and Related - 2.51%
Pilgrim's Pride Corporation,
10.875%, 8-1-2003 ..................... 300 265,500
Specialty Foods Corporation:
10.25%, 8-15-2001 ..................... 1,000 940,000
11.125%, 10-1-2002 .................... 1,000 970,000
Total ................................. 2,175,500
Gaming - 7.74%
California Hotel Finance Corporation,
11.0%, 12-1-2002 ...................... 1,000 1,060,000
GNF, CORP.,
10.625%, 4-1-2003 ..................... 1,000 932,500
GNS Finance Corp.,
9.25%, 3-15-2003 ...................... 1,500 1,616,250
Rio Hotel & Casino, Inc.,
10.625%, 7-15-2005 .................... 1,000 1,025,000
Showboat, Inc.,
9.25%, 5-1-2008 ....................... 1,000 1,005,000
Trump Hotels & Casino Resorts
Holdings, L.P.,
15.5%, 6-15-2005 ...................... 1,000 1,070,000
Total ................................. 6,708,750
Hospital Management - 2.42%
LTC Properties, Inc., Convertible,
8.5%, 1-1-2000 ........................ 1,000 1,000,000
Tenet Healthcare Corporation,
9.625%, 9-1-2002 ...................... 1,000 1,100,000
Total ................................. 2,100,000
Household Products - 2.79%
Exide Corporation:
10.75%, 12-15-2002 .................... 750 813,750
0.0%, 12-15-2004 (E) .................. 500 420,000
10.0%, 4-15-2005 ...................... 1,000 1,085,000
MacAndrews & Forbes Group, Incorporated,
13.0%, 3-1-99 ......................... 100 100,750
Total ................................. 2,419,500
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Leisure Time - 18.93%
Argyle Television Operations, Inc.,
9.75%, 11-1-2005 ...................... $1,000 $ 995,000
Cablevision Systems Corporation,
9.875%, 2-15-2013 ..................... 1,450 1,540,625
Comcast Corporation,
0.0%, 3-5-2000 ........................ 1,000 770,000
Continental Cablevision, Inc.:
10.625%, 6-15-2002 .................... 500 533,750
8.875%, 9-15-2005 ..................... 500 523,750
8.3%, 5-15-2006 (B) ................... 500 501,875
11.0%, 6-1-2007 ....................... 500 558,750
Diamond Cable Communications Plc,
0.0%, 12-15-2005 (E) .................. 500 293,750
EZ Communications, Inc.,
9.75%, 12-1-2005 ...................... 1,000 1,007,500
FLAGSTAR COMPANIES, INC.,
10.75%, 9-15-2001 ..................... 500 455,000
Granite Broadcasting Corporation,
10.375%, 5-15-2005 .................... 500 512,500
HMC Acquisition Properties, Inc.,
9.0%, 12-15-2007 (B) .................. 500 505,000
Hines Horticulture, Inc.,
11.75%, 10-15-2005 (B) ................ 500 522,500
Infinity Broadcasting Corporation,
10.375%, 3-15-2002 .................... 1,000 1,075,000
Marcus Cable Operating Company, L.P.,
0.0%, 8-1-2004 (E) .................... 1,500 1,128,750
Plitt Theatres, Inc.,
10.875%, 6-15-2004 .................... 1,000 905,000
Sinclair Broadcast Group Inc.:
10.0%, 12-15-2003 ..................... 375 382,500
10.0%, 9-30-2005 ...................... 500 510,000
Turner Broadcasting System, Inc.,
8.375%, 7-1-2013 ...................... 1,000 1,038,060
Viacom International, Inc.,
8.0%, 7-7-2006 ........................ 2,000 2,035,000
United International Holdings, Inc.,
0.0%, 11-15-99 ........................ 1,000 620,000
Total ................................. 16,414,310
Manufacturers - 0.57%
RBX Corporation,
11.25%, 10-15-2005 (B) ................ 500 495,000
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Metals and Mining - 0.56%
Russel Metals Inc.,
10.25%, 6-15-2000 ..................... $ 500 $ 485,000
Multi-Industry - 2.83%
Jordan Industries, Inc.,
10.375%, 8-1-2003 ..................... 1,000 890,000
Mark IV Industries, Inc.,
8.75%, 4-1-2003 ....................... 1,500 1,560,000
Total ................................. 2,450,000
Packaging and Containers - 4.39%
Container Corporation of America,
11.25%, 5-1-2004 ...................... 1,500 1,545,000
Owens-Illinois, Inc.,
10.25%, 4-1-99 ........................ 1,000 1,030,000
Silgan Corporation,
0.0%, 12-15-2002 (E)................... 500 472,500
Sweetheart Cup Company, Inc.,
10.5%, 9-1-2003 ....................... 750 755,625
Total ................................. 3,803,125
Paper - 1.70%
APP International Finance Company B.V.,
11.75%, 10-1-2005 ..................... 1,000 980,000
Fort Howard Corporation,
11.0%, 1-2-2002 ....................... 468 491,724
Total ................................. 1,471,724
Publishing and Advertising - 3.08%
American Media Operations, Inc.,
11.625%, 11-15-2004 ................... 1,000 1,010,000
Big Flower Press, Inc.,
10.75%, 8-1-2003 ...................... 666 709,290
Outdoor Systems, Inc.,
10.75%, 8-15-2003 ..................... 1,000 950,000
Total ................................. 2,669,290
Railroad Equipment - 0.60%
Westinghouse Air Brake Company,
9.375%, 6-15-2005 ..................... 500 521,250
Railroads - 1.13%
Southern Pacific Rail Corporation,
9.375%, 8-15-2005 ..................... 900 976,500
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Retailing - 7.37%
Big V Supermarkets, Inc.,
11.0%, 2-15-2004 ...................... $ 500 $ 402,500
Bruno's, Inc.,
10.5%, 8-1-2005 ....................... 1,500 1,485,000
Kroger Co. (The),
9.75%, 2-15-2004 ...................... 1,000 1,080,000
Penn Traffic Company (The),
10.375%, 10-1-2004 .................... 1,500 1,417,500
Ralphs Grocery Company,
10.45%, 6-15-2004 ..................... 1,000 1,015,000
WestPoint Stevens Inc.,
9.375%, 12-15-2005 .................... 1,000 987,500
Total ................................. 6,387,500
Services, Consumer and Business - 1.55%
Bell & Howell Company,
10.75%, 10-1-2002 ..................... 750 795,000
United Stationers Supply Co.,
12.75%, 5-1-2005 ...................... 500 546,250
Total ................................. 1,341,250
Steel - 0.97%
AK Steel Corporation,
10.75%, 4-1-2004 ...................... 250 277,500
Inland Steel Industries, Inc.,
12.75%, 12-15-2002 .................... 500 562,500
Total ................................. 840,000
Telecommunications - 5.52%
A+ Network, Inc.,
11.875%, 11-1-2005 .................... 500 505,000
Heartland Wireless Communications,
Inc., Units,
13.0%, 4-15-2003 (B)(F) ............... 500 563,750
MFS Communications Company, Inc.,
0.0%, 1-15-2004 (E) ................... 1,000 807,500
Metrocall, Inc.,
10.375%, 10-1-2007 .................... 500 530,000
PanAmSat, L.P.:
9.75%, 8-1-2000 ....................... 1,000 1,060,000
0.0%, 8-1-2003 (E) .................... 1,000 820,000
USA Mobile Communications, Inc., II,
9.5%, 2-1-2004 ........................ 500 495,000
Total ................................. 4,781,250
See Notes to Schedules of Investments on page .
<PAGE>
THE INVESTMENTS OF THE HIGH INCOME PORTFOLIO
DECEMBER 31, 1995
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Textiles and Apparel - 1.04%
CONSOLTEX GROUP INC.,
11.0%, 10-1-2003 ...................... $1,000 $ 900,000
TOTAL CORPORATE DEBT SECURITIES - 85.64% $74,239,017
(Cost: $72,177,584)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 1.01%
U.S. Bancorp,
Master Note ........................... 875 875,000
Financial - 1.31%
BHP Finance (U.S.A.) Inc.,
5.78%, 1-12-96 ........................ 1,135 1,132,996
Food and Related - 3.74%
General Mills, Inc.,
Master Note ........................... 2,624 2,624,000
Sara Lee Corporation,
Master Note ........................... 624 624,000
Total ................................. 3,248,000
TOTAL SHORT-TERM SECURITIES - 6.06% $ 5,255,996
(Cost: $5,255,996)
TOTAL INVESTMENT SECURITIES - 96.19% $83,385,929
(Cost: $80,014,254)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 3.81% 3,300,264
NET ASSETS - 100.00% $86,686,193
See Notes to Schedules of Investments on page .
<PAGE>
TMK/UNITED FUNDS, INC.
Notes to Schedules of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside of the United States.
(B) As of December 31, 1995, the following restricted security was owned
in the
International Portfolio:
Acquisition Acquisition Market
Security Date Shares Cost Value
---------------- --------------------------------------------
Samsung Electronics Co.,
Ltd., GDR 05/17/95 15,000 $777,750$ 900,000
05/25/95 4,000 206,500 240,000
------------------
$984,250$1,140,000
==================
The total market value of restricted securities represents
approximately 2.27% of the total net assets in the International
Portfolio at December 31, 1995.
As of December 31, 1995, the following restricted securities were owned
in the High Income Portfolio:
Principal
Acquisition Amount Acquisition Market
Security Date (in 000's) Cost Value
---------------- --------------------------------------------
Continental Cablevision, Inc.:
8.3%, 5-15-2006 12/8/95 500$ 498,395$ 501,875
HMC Acquisition Properties, Inc.,
9.0%, 12-15-2007 12/15/95 500 500,000 505,000
Heartland Wireless Communications,
Inc., Units,
13.0%, 4-15-2003 4/20/95 500 500,000 563,750
Hines Horticulture, Inc.,
11.75%, 10-15-2005 10/16/95 500 500,000 522,500
RBX Corporation,
11.25%, 10-15-2005 10/6/95 500 502,500 495,000
--------------------
$2,500,895$2,588,125
====================
The total market value of restricted securities represents
approximately 2.99% of the total net assets in the High Income
Portfolio at December 31, 1995.
(C) Coupon resets semiannually based on 14.13% - 1.5 (5 year Deutschemark
swap rate). Coupon guaranteed at 3%.
(D) Principal amounts are denominated in the indicated foreign currency
where applicable ($A - Australian dollar).
TMK/UNITED FUNDS, INC.
Notes to Schedules of Investments
(E) The security does not bear interest for an initial period of time and
subsequently becomes interest bearing.
(F) Each unit consists of one thousand face value 13.0% corporate bonds
due 4-15-2003 and six warrants expiring 4-15-2003.
See Note 1 to financial statements for security valuation and other
significant accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
Growth IncomeInternational
Portfolio Portfolio Portfolio
Assets ----------- ---------- -----------
Investment securities--at
value (Notes 1 and 3) $423,841,168$330,032,290 $49,908,626
Cash .............. 3,825 5,663 3,210
Receivables:
Fund shares sold .. 866,174 841,200 186,096
Dividends and interest 716,658 424,875 125,293
Investment securities
sold ............ 1,461,714 --- ---
Prepaid insurance
premium ........... 2,035 1,111 309
------------------------ -----------
Total assets .... 426,891,574 331,305,139 50,223,534
Liabilities ------------------------ -----------
Payable for investment
securities purchased 7,938,034 --- ---
Payable for Fund shares
redeemed .......... 93,137 82,575 9,307
Accrued accounting
services fee ...... 5,000 4,167 1,667
Other .............. 29,719 24,365 16,215
------------------------ -----------
Total liabilities 8,065,890 111,107 27,189
------------------------ -----------
Total net assets $418,825,684$331,194,032 $50,196,345
Net Assets ======================== ===========
$0.01 par value capital stock
Capital stock ..... $ 613,573$ 381,755 $ 95,087
Additional paid-in
capital ......... 384,904,377 250,462,056 49,201,903
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income --- --- ---
Accumulated undistributed
net realized gain (loss)
(loss) on investment
transactions .... --- (1,764) (105,777)
Net unrealized appreciation
(depreciation) of investments
at end of period 33,307,734 80,351,985 1,005,132
------------------------ -----------
Net assets applicable to
outstanding units
of capital ..... $418,825,684$331,194,032 $50,196,345
======================== ===========
Net asset value, redemption
and offering price per share $6.8260 $8.6756 $5.2790
======= ======= =======
Capital shares outstanding 61,357,269 38,175,493 9,508,741
Capital shares authorized 100,000,000 100,000,000 100,000,000
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
Small Cap BalancedAsset Strategy
Portfolio Portfolio Portfolio
Assets ---------- ---------- -----------
Investment securities--at
value (Notes 1 and 3) $55,359,811 $23,381,142 $4,273,777
Cash .............. 7,561 5,157 3,628
Receivables:
Fund shares sold .. 499,326 94,938 64,253
Dividends and interest 22,356 124,553 3,164
Investment securities
sold ............ 153,001 --- ---
Prepaid insurance
premium ........... 291 182 31
----------- ----------- ----------
Total assets .... 56,042,346 23,605,972 4,344,853
Liabilities ----------- ----------- ----------
Payable for investment
securities purchased 439,830 --- ---
Payable for Fund shares
redeemed .......... 3,359 251 ---
Accrued accounting
services fee ...... 2,500 833 ---
Other .............. 5,210 2,016 911
----------- ----------- ----------
Total liabilities 450,899 3,100 911
----------- ----------- ----------
Total net assets $55,591,447 $23,602,872 $4,343,942
Net Assets =========== =========== ==========
$0.01 par value capital stock
Capital stock ..... $ 72,260 $ 40,005 $ 8,664
Additional paid-in
capital ......... 46,567,597 21,297,354 4,389,259
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income --- --- ---
Accumulated undistributed
net realized gain
(loss) on investment
transactions ..... --- --- ---
Net unrealized appreciation
(depreciation) of investments
at end of period 8,951,590 2,265,513 (53,981)
----------- ----------- ----------
Net assets applicable to
outstanding units
of capital ..... $55,591,447 $23,602,872 $4,343,942
=========== =========== ==========
Net asset value, redemption
and offering price per share $7.6932 $5.9000 $5.0137
======= ======= =======
Capital shares outstanding 7,226,046 4,000,473 866,421
Capital shares authorized 100,000,000 50,000,000 100,000,000
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
Money MarketLimited-Term Bond
PortfolioBond Portfolio Portfolio
Assets ------------------------- -----------
Investment securities--at
value (Notes 1 and 3) $35,830,689 $2,775,697 $87,311,946
Cash .............. 20,525 4,043 3,039
Receivables:
Fund shares sold .. 2,722,876 21,581 97,792
Dividends and interest 135,212 52,400 1,278,908
Investment securities
sold ............ --- --- ---
Prepaid insurance
premium ........... 894 98 951
----------- ---------- -----------
Total assets .... 38,710,196 2,853,819 88,692,636
Liabilities ----------- ---------- -----------
Payable for investment
securities purchased --- --- ---
Payable for Fund shares
redeemed .......... 1,833,630 --- 115,253
Accrued accounting
services fee ...... 1,667 --- 2,500
Other .............. 2,655 340 5,376
----------- ---------- -----------
Total liabilities 1,837,952 340 123,129
----------- ---------- -----------
Total net assets $36,872,244 $2,853,479 $88,569,507
Net Assets =========== ========== ===========
$0.01 par value capital stock
Capital stock ..... $ 368,722 $ 5,433 $ 165,265
Additional paid-in
capital ......... 36,503,522 2,756,209 86,745,629
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income --- --- ---
Accumulated undistributed
net realized gain
(loss) on investment
transactions .... --- --- (2,603,035)
Net unrealized appreciation
(depreciation) of investments
at end of period --- 91,837 4,261,648
----------- ---------- -----------
Net assets applicable to
outstanding units
of capital ..... $36,872,244 $2,853,479 $88,569,507
=========== ========== ===========
Net asset value, redemption
and offering price per share $1.0000 $5.2521 $5.3592
======= ======= =======
Capital shares outstanding 36,872,244 543,300 16,526,517
Capital shares authorized 200,000,000 50,000,000 100,000,000
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
High Income
Portfolio
Assets -------------
Investment securities--at
value (Notes 1 and 3) $83,385,929
Cash .............. 22,283
Receivables:
Fund shares sold .. 58,940
Dividends and interest 1,847,331
Investment securities
sold ............ 1,551,250
Prepaid insurance
premium ........... 1,131
-----------
Total assets .... 86,866,864
Liabilities -----------
Payable for investment
securities purchased ---
Payable for Fund shares
redeemed .......... 99,291
Accrued accounting
services fee ...... 2,500
Other .............. 78,880
-----------
Total liabilities 180,671
-----------
Total net assets $86,686,193
Net Assets ===========
$0.01 par value capital stock
Capital stock ..... $195,030
Additional paid-in
capital ......... 86,308,522
Accumulated undistributed gain (loss):
Accumulated undistributed
net investment income ---
Accumulated undistributed
net realized gain
(loss) on investment
transactions ..... (3,189,034)
Net unrealized appreciation
(depreciation) of investments
at end of period 3,371,675
-----------
Net assets applicable to
outstanding units
of capital ..... $86,686,193
===========
Net asset value, redemption
and offering price per share $4.4448
=======
Capital shares outstanding 19,503,038
Capital shares authorized 100,000,000
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended DECEMBER 31, 1995
Growth IncomeInternational
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income:
Interest .......... $ 1,769,687 $ 988,611 $ 638,648
Dividends ......... 5,426,450 4,228,980 557,709
------------ ----------- ----------
Total income .... 7,196,137 5,217,591 1,196,357
----------- ----------- ----------
Expenses (Note 2):
Investment management
fee ............. 2,425,494 1,979,061 321,777
Accounting services
fee ............. 55,000 50,000 20,000
Custodian fees .... 31,799 16,336 48,394
Registration fees . 17,376 23,065 9,177
Audit fees ........ 15,809 12,886 2,641
Legal fees ........ 5,823 4,760 680
Other ............. 23,940 19,256 2,006
----------- ----------- ----------
Total expenses .. 2,575,241 2,105,364 404,675
----------- ----------- ----------
Net investment income 4,620,896 3,112,227 791,682
----------- ----------- ----------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on securities ..... 64,282,621 5,870,466 (84,768)
Realized net gain (loss)
on foreign currency
transactions ...... 612 447 (70,494)
----------- ----------- ----------
Realized net gain (loss)
on investments .. 64,283,233 5,870,913 (155,262)
Unrealized appreciation
(depreciation) in value
of investments during
the period ........ 42,925,336 63,977,939 1,669,228
----------- ----------- ----------
Net gain (loss) on
investments .... 107,208,569 69,848,852 1,513,966
----------- ----------- ----------
Net increase in net
assets resulting
from operations $111,829,465 $72,961,079 $2,305,648
============ =========== ==========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended DECEMBER 31, 1995
Small Cap BalancedAsset Strategy
Portfolio Portfolio Portfolio
---------- ---------- ----------
Investment Income
Income:
Interest .......... $ 960,351 $ 362,196 $72,008
Dividends ......... 3,340 264,024 740
---------- ---------- -------
Total income .... 963,691 626,220 72,748
---------- ---------- -------
Expenses (Note 2):
Investment management
fee ............. 302,739 96,718 10,993
Accounting services
fee ............. 19,167 9,167 ---
Custodian fees .... 6,190 2,263 1,259
Registration fees . 5,048 3,047 ---
Audit fees ........ 2,155 1,691 ---
Legal fees ........ 591 310 16
Other ............. 2,331 1,712 203
---------- ---------- -------
Total expenses .. 338,221 114,908 12,471
---------- ---------- -------
Net investment income 625,470 511,312 60,277
---------- ---------- -------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on securities ..... 1,011,622 375,170 5,026
Realized net gain (loss)
on foreign currency
transactions ...... --- --- (366)
---------- ---------- -------
Realized net gain (loss)
on investments .. 1,011,622 375,170 4,660
Unrealized appreciation
(depreciation) in value
of investments during
the period ........ 7,643,311 2,500,947 (53,981)
---------- ---------- -------
Net gain (loss) on
investments..... 8,654,933 2,876,117 (49,321)
---------- ---------- -------
Net increase in net
assets resulting
from operations $9,280,403 $3,387,429 $10,956
========== ========== =======
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended DECEMBER 31, 1995
Money MarketLimited-Term Bond
PortfolioBond Portfolio Portfolio
--------------- ---------- ----------
Investment Income
Income:
Interest .......... $1,755,470 $161,200 $ 6,004,853
Dividends ......... --- --- ---
---------- -------- ----------
Total income .... 1,755,470 161,200 6,004,853
---------- -------- ----------
Expenses (Note 2):
Investment management
fee ............. 147,383 12,948 440,716
Accounting services
fee ............. 20,000 --- 30,000
Custodian fees .... 5,660 620 8,353
Registration fees . 1,370 567 13
Audit fees ........ 2,567 1,288 5,081
Legal fees ........ 493 40 1,418
Other ............. 3,922 994 7,580
---------- -------- ----------
Total expenses .. 181,395 16,457 493,161
---------- -------- ----------
Net investment income 1,574,075 144,743 5,511,692
---------- -------- ----------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on securities ..... --- 10,804 876,661
Realized net gain (loss)
on foreign currency
transactions ...... --- --- 5,508
---------- -------- ----------
Realized net gain (loss)
on investments .. --- 10,804 882,169
Unrealized appreciation
(depreciation) in value
of investments during,
the period ........ --- 139,524 8,857,982
---------- -------- ----------
Net gain (loss) on
investments .... --- 150,328 9,740,151
---------- -------- ----------
Net increase in net
assets resulting
from operations $1,574,075 $295,071 $15,251,843
========== ======== ==========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF OPERATIONS
For the Period Ended DECEMBER 31, 1995
High Income
Portfolio
---------------
Investment Income
Income:
Interest .......... $ 7,888,184
Dividends ......... 120,000
-----------
Total income .... 8,008,184
-----------
Expenses (Note 2):
Investment management
fee ............. 527,940
Accounting services
fee ............. 30,000
Custodian fees .... 5,167
Registration fees . 1,165
Audit fees ........ 4,982
Legal fees ........ 1,393
Other ............. 7,564
-----------
Total expenses .. 578,211
-----------
Net investment income 7,429,973
-----------
Realized and Unrealized Gain (Loss)
on Investments
Realized net gain (loss)
on securities ..... (1,443,930)
Realized net gain (loss)
on foreign currency
transactions ...... ---
-----------
Realized net gain (loss)
on investments .. (1,443,930)
Unrealized appreciation
(depreciation) in value
of investments during
the period ........ 7,364,701
-----------
Net gain (loss) on
investments .... 5,920,771
-----------
Net increase in net
assets resulting
from operations $13,350,744
===========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1995
Growth IncomeInternational
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment
income .......... $ 4,620,896$ 3,112,227 $ 791,682
Realized net gain (loss)
on investments .. 64,283,233 5,870,913 (155,262)
Unrealized appreciation
(depreciation) .. 42,925,336 63,977,939 1,669,228
------------------------------------
Net increase in net
assets resulting
from operations. 111,829,465 72,961,079 2,305,648
------------------------ -----------
Dividends to shareholders:*
From net investment
income .......... (4,621,508) (3,112,674) (721,188)
From realized gains
on securities
transactions .... (64,282,621) (5,407,615) ---
In excess of realized
gains ---- (1,764) ---
------------------------ -----------
(68,904,129) (8,522,053) (721,188)
------------------------ -----------
Capital share
transactions** .... 99,163,713 47,981,404 22,592,251
------------------------ -----------
Total increase . 142,089,049 112,420,430 24,176,711
Net Assets
Beginning of period 276,736,635 218,773,602 26,019,634
------------------------ -----------
End of period ...... $418,825,684$331,194,032 $50,196,345
======================== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares .......... 8,244,920 7,529,946 5,011,325
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 10,094,216 982,290 136,620
Shares redeemed ...... (3,897,735) (2,657,368) (850,796)
---------- --------- ---------
Increase in outstanding
capital shares ...... 14,441,401 5,854,868 4,297,149
========== ========= =========
Value issued from sale
of shares .......... $57,245,750 $60,548,279 $26,298,441
Value issued from reinvest-
ment of dividends and/or,
distributions ...... 68,904,129 8,522,053 721,188
Value redeemed ....... (26,986,166)(21,088,928) (4,427,378)
----------- ----------- -----------
Increase in
outstanding capital $99,163,713 $47,981,404 $22,592,251
=========== =========== ===========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1995
Small Cap BalancedAsset Strategy
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income $ 625,470 $ 511,312 $ 60,277
Realized net gain (loss)
on investments .. 1,011,622 375,170 4,660
Unrealized appreciation
(depreciation) .. 7,643,311 2,500,947 (53,981)
----------- ----------- ----------
Net increase in net
assets resulting
from operations. 9,280,403 3,387,429 10,956
----------- ----------- ----------
Dividends to shareholders:*
From net investment
income .......... (625,470) (511,312) (59,911)
From realized gains
on securities
transactions .... (1,011,622) (371,952) (5,026)
In excess of realized
gains ---- --- ---
------------------------ ----------
(1,637,092) (883,264) (64,937)
------------------------ ----------
Capital share
transactions** .... 31,867,974 12,427,639 4,397,923
----------- ----------- ----------
Total increase . 39,511,285 14,931,804 4,343,942
Net Assets
Beginning of period 16,080,162 8,671,068 ---
----------- ----------- ----------
End of period ...... $55,591,447 $23,602,872 $4,343,942
=========== =========== ==========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares .......... 4,818,197 2,264,439 876,052
Shares issued from reinvest-
ment of dividends and/or,
distributions ...... 212,809 149,718 12,955
Shares redeemed ...... (488,640) (170,404) (22,586)
----------- ----------- ----------
Increase in outstanding
capital shares..... 4,542,366 2,243,753 866,421
=========== =========== ==========
Value issued from sale
of shares .......... $33,624,752 $12,476,652 $4,448,147
Value issued from reinvest-
ment of dividends and/or
distributions ...... 1,637,092 883,263 64,938
Value redeemed ....... (3,393,870) (932,276) (115,162)
----------- ----------- ----------
Increase in
outstanding capital $31,867,974 $12,427,639 $4,397,923
=========== =========== ==========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1995
Money MarketLimited-Term Bond
PortfolioBond Portfolio Portfolio
-------------- ----------- -----------
Increase in Net Assets
Operations:
Net investment income $ 1,574,075 $ 144,743 $ 5,511,692
Realized net gain (loss)
on investments .. --- 10,804 882,169
Unrealized appreciation
(depreciation) .. --- 139,524 8,857,982
----------- ---------- -----------
Net increase in net
assets resulting
from operations. 1,574,075 295,071 15,251,843
----------- ---------- -----------
Dividends to shareholders:*
From net investment
income .......... (1,574,075) (144,743) (5,517,200)
From realized gains
on securities
transactions .... --- (10,804) ---
In excess of realized
gains ---- --- ---
------------------------ ----------
(1,574,075) (155,547) (5,517,200)
Capital share
transactions**..... 6,059,981 1,068,809 4,818,014
----------- ---------- -----------
Total increase .. 6,059,981 1,208,333 14,552,657
Net Assets
Beginning of period 30,812,263 1,645,146 74,016,850
----------- ---------- -----------
End of period ...... $36,872,244 $2,853,479 $88,569,507
=========== ========== ===========
Undistributed net
investment income $--- $--- $---
==== ======= ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares .......... 169,760,641 294,605 1,918,955
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 1,573,890 29,626 1,029,828
Shares redeemed ...... (165,274,550) (119,359) (2,040,023)
----------- ------- ---------
Increase in outstanding
capital shares ..... 6,059,981 204,872 908,760
=========== ======= =========
Value issued from sale
of shares .......... $169,760,641 $1,551,139 $9,976,902
Value issued from reinvest-
ment of dividends and/or
distributions ...... 1,573,890 155,548 5,517,200
Value redeemed ....... (165,274,550) (637,878)(10,676,088)
------------ ---------- ----------
Increase in
outstanding capital $ 6,059,981 $1,068,809 $4,818,014
============ ========== ==========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1995
High Income
Portfolio
-----------
Increase in Net Assets
Operations:
Net investment income $ 7,429,973
Realized net gain (loss)
on investments .. (1,443,930)
Unrealized appreciation
(depreciation) .. 7,364,701
-----------
Net increase in net
assets resulting
from operations. 13,350,744
-----------
Dividends to shareholders:*
From net investment
income .......... (7,429,973)
From realized gains
on securities
transactions .... ---
In excess of realized
gains ----
------------
(7,429,973)
------------
Capital share
transactions**..... 8,121,747
-----------
Total increase .. 14,042,518
Net Assets
Beginning of period 72,643,675
-----------
End of period ...... $86,686,193
===========
Undistributed net
investment income $---
====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares .......... 2,353,273
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 1,672,287
Shares redeemed ...... (2,189,523)
---------
Increase in outstanding
capital shares ..... 1,836,037
=========
Value issued from sale
of shares .......... $10,517,788
Value issued from reinvest-
ment of dividends and/or
distributions ...... 7,429,973
Value redeemed ....... (9,826,014)
----------
Increase in
outstanding capital $8,121,747
==========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1994
Growth IncomeInternational
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 5,286,234$ 2,248,257 $ 106,617
Realized net gain (loss)
on investments .. 14,371,377 684,147 (21,009)
Unrealized appreciation
(depreciation) .. (13,761,465) (6,030,073) (664,096)
------------------------ -----------
Net increase (decrease)
in net assets resulting
from operations. 5,896,146 (3,097,669) (578,488)
------------------------ -----------
Dividends to shareholders from:*
Net investment income (5,286,234) (2,248,257) (106,617)
Realized gains on securities
transactions .... (14,154,374) --- ---
------------------------ -----------
(19,440,608) (2,248,257) (106,617)
------------------------ -----------
Capital share
transactions** .... 69,690,925 69,027,272 26,704,739
------------------------ -----------
Total increase
(decrease)...... 56,146,463 63,681,346 26,019,634
Net Assets
Beginning of period 220,590,172 155,092,256 ---
------------------------ -----------
End of period ...... $276,736,635$218,773,602 $26,019,634
======================== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares .......... 11,752,596 11,914,285 5,355,035
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 3,295,800 332,145 21,355
Shares redeemed ...... (3,733,563) (2,344,370) (164,798)
---------- ---------- ---------
Increase in outstanding
capital shares ...... 11,314,833 9,902,060 5,211,592
========== ========== =========
Value issued from sale
of shares .......... $73,683,884 $83,060,254 $27,436,654
Value issued from reinvest-
ment of dividends and/or
distributions ...... 19,440,608 2,248,256 106,617
Value redeemed ....... (23,433,567)(16,281,238) (838,532)
----------- ----------- -----------
Increase in
outstanding capital $69,690,925 $69,027,272 $26,704,739
=========== =========== ===========
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1994
Small Cap BalancedMoney Market
Portfolio Portfolio Portfolio
----------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 99,347 $ 79,610 $ 851,434
Realized net gain (loss)
on investments .. 44,381 (3,218) ---
Unrealized appreciation
(depreciation) .. 1,308,279 (235,434) ---
----------- ---------- -----------
Net increase (decrease)
in net assets resulting
from operations. 1,452,007 (159,042) 851,434
----------- ---------- -----------
Dividends to shareholders from:*
Net investment income (99,347) (79,610) (851,434)
Realized gains on securities
transactions .... (44,381) --- ---
----------- ---------- -----------
(143,728) (79,610) (851,434)
----------- ---------- -----------
Capital share
transactions** .... 14,771,883 8,909,720 4,812,395
----------- ---------- -----------
Total increase
(decrease) .... 16,080,162 8,671,068 4,812,395
Net Assets
Beginning of period --- --- 25,999,868
----------- ---------- -----------
End of period ...... $16,080,162 $8,671,068 $30,812,263
=========== ========== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares .......... 2,722,519 1,795,318 183,043,231
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 23,987 16,128 851,433
Shares redeemed ...... (62,826) (54,726)(179,082,269)
--------- --------- -----------
Increase in outstanding
capital shares..... 2,683,680 1,756,720 4,812,395
========= ========= ==========
Value issued from sale
of shares .......... $14,980,266 $9,104,454$183,043,231
Value issued from reinvest-
ment of dividends and/or
distributions ...... 143,729 79,610 851,433
Value redeemed ....... (352,112) (274,344)(179,082,269)
----------- ----------------------
Increase in
outstanding capital $14,771,883 $8,909,720$ 4,812,395
=========== =====================+
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ended DECEMBER 31, 1994
Limited-Term Bond High Income
Bond Portfolio Portfolio Portfolio
-------------- ----------- -----------
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 49,532 $ 5,286,973 $ 6,761,683
Realized net gain (loss)
on investments .. 455 (3,479,696) (1,428,391)
Unrealized appreciation
(depreciation) .. (47,687) (6,740,515) (7,299,167)
---------- ----------- -----------
Net increase (decrease)
in net assets resulting
from operations. 2,300 (4,933,238) (1,965,875)
---------- ----------- -----------
Dividends to shareholders
from:*
Net investment income (49,532) (5,286,973) (6,761,683)
Realized gains on securities
transactions .... (455) --- ---
---------- ----------- -----------
(49,987) (5,286,973) (6,761,683)
---------- ----------- -----------
Capital share
transactions**..... 1,692,833 2,510,419 10,105,884
---------- ----------- -----------
Total increase
(decrease) ..... 1,645,146 (7,709,792) 1,378,326
Net Assets
Beginning of period --- 81,726,642 71,265,349
---------- ----------- -----------
End of period ...... $1,645,146 $74,016,850 $72,643,675
========== =========== ===========
Undistributed net
investment income $--- $--- $---
==== ==== ====
*See "Financial Highlights" on pages .
**Shares issued from sale
of shares .......... 331,301 3,002,124 3,768,168
Shares issued from reinvest-
ment of dividends and/or
distributions ...... 10,283 1,081,257 1,593,245
Shares redeemed ...... (3,156) (3,587,525) (3,062,321)
------- --------- ---------
Increase in outstanding
capital shares ..... 338,428 495,856 2,299,092
======= ========= =========
Value issued from sale
of shares .......... $1,658,566 $15,437,912 $16,942,683
Value issued from reinvest-
ment of dividends and/or
distributions ...... 49,987 5,286,973 6,761,683
Value redeemed ....... (15,720)(18,214,466)(13,598,482)
---------- ----------- -----------
Increase in
outstanding capital $1,692,833 $ 2,510,419 $10,105,884
========== =========== ===========
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE GROWTH PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $5.8986 $6.1962 $6.1505 $5.5973 $4.9479
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0903 0.1211 0.0537 0.1013 0.1229
Net realized and
unrealized gain
on investments .. 2.1842 0.0268 0.8087 1.0653 1.6636
------- ------- ------- ------- -------
Total from investment
operations ....... 2.2745 0.1479 0.8624 1.1666 1.7865
------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0903)(0.1211) (0.0537)(0.1013) (0.1229)
Distribution from
capital gains ... (1.2568)(0.3244) (0.7569)(0.5121) (1.0142)
Distribution in
excess of capital
gains ........... (0.0000)(0.0000) (0.0061)(0.0000) (0.0000)
------- ------- ------- ------- -------
Total distributions. (1.3471)(0.4455) (0.8167)(0.6134) (1.1371)
------- ------- ------- ------- -------
Net asset value,
end of period .... $6.8260 $5.8986 $6.1962 $6.1505 $5.5973
======= ======= ======= ======= =======
Total return ....... 38.57% 2.39% 14.02% 20.84% 36.10%
Net assets, end of
period (000
omitted) ......... $418,826$276,737 $220,590$122,363 $69,044
Ratio of expenses
to average net
assets ............ 0.75% 0.77% 0.78% 0.80% 0.86%
Ratio of net investment
income to average
net assets ....... 1.35% 2.07% 1.01% 2.00% 2.43%
Portfolio turnover
rate ............. 245.80% 277.36% 297.81% 225.87% 316.72%
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE INCOME PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1995 1994 1993 1992 1991*
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $6.7689 $6.9180 $5.9530 $5.3158 $5.0000
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.0839 0.0703 0.0651 0.0803 0.0633
Net realized and
unrealized gain (loss)
on investments .. 2.0525 (0.1491) 0.9650 0.6496 0.3158
------- ------- ------- ------- -------
Total from investment
operations ....... 2.1364 (0.0788) 1.0301 0.7299 0.3791
------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.0839)(0.0703) (0.0651)(0.0803) (0.0633)
Distribution from
capital gains.... (0.1457)(0.0000) (0.0000)(0.0124) (0.0000)
Distribution in excess
of capital gains (0.0001)(0.0000) (0.0000)(0.0000) (0.0000)
------- ------- ------- ------- -------
Total distributions. (0.2297)(0.0703) (0.0651)(0.0927) (0.0633)
------- ------- ------- ------- -------
Net asset value,
end of period .... $8.6756 $6.7689 $6.9180 $5.9530 $5.3158
======= ======= ======= ======= =======
Total return........ 31.56% -1.14% 17.30% 13.78% 17.43%
Net assets, end of
period (000
omitted) ......... $331,194$218,774 $155,092 $65,027 $15,640
Ratio of expenses
to average net
assets ............ 0.77% 0.77% 0.79% 0.85% 0.89%
Ratio of net investment
income to average
net assets ....... 1.13% 1.16% 1.36% 1.78% 2.47%
Portfolio turnover
rate ............. 15.00% 23.32% 18.38% 15.74% 4.41%
*The Income Portfolio's inception date is May 16, 1991; however, since
this Portfolio did not have any investment activity or incur expenses
prior to the date of initial offering, the per share information is for
a capital share outstanding for the period from July 16, 1991 (initial
offering) through December 31, 1991. Ratios and the portfolio turnover
rate have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE INTERNATIONAL PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period
ended ended
12/31/95 12/31/94*
---------- ----------
Net asset value,
beginning of
period ........... $4.9926 $5.0000
------- -------
Income from investment
operations:
Net investment
income .......... 0.0846 0.0207
Net realized and
unrealized gain (loss)
on investments... 0.2790 (0.0074)
------- -------
Total from investment
operations ....... 0.3636 0.0133
Less dividends from net
investment
income .......... (0.0772) (0.0207)
------- -------
Net asset value,
end of period .... $5.2790 $4.9926
======= =======
Total return........ 7.28% 0.26%
Net assets, end of
period (000
omitted) ......... $50,196 $26,020
Ratio of expenses
to average net
assets ............ 1.02% 1.26%
Ratio of net investment
income to average
net assets ....... 1.99% 1.36%
Portfolio turnover
rate ............. 34.93% 23.23%
*The International Portfolio's inception date is April 28, 1994; however,
since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share
information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. Ratios and the
portfolio turnover rate have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE SMALL CAP PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period
ended ended
12/31/95 12/31/94*
---------- ----------
Net asset value,
beginning of
period ........... $5.9918 $5.0000
------- -------
Income from investment
operations:
Net investment
income .......... 0.0900 0.0376
Net realized and
unrealized gain
on investments .. 1.8470 1.0086
------- -------
Total from investment
operations ....... 1.9370 1.0462
------- -------
Less distributions:
Dividends from net
investment income (0.0900) (0.0376)
Distribution from
capital gains.... (0.1456) (0.0168)
------- -------
Total distributions (0.2356) (0.0544)
------- -------
Net asset value,
end of period .... $7.6932 $5.9918
======= =======
Total return........ 32.32% 20.92%
Net assets, end of
period (000
omitted) ......... $55,591 $16,080
Ratio of expenses
to average net
assets ............ 0.96% 1.08%
Ratio of net investment
income to average
net assets ....... 1.77% 2.35%
Portfolio turnover
rate ............. 43.27% 21.61%
*The Small Cap Portfolio's inception date is April 28, 1994; however,
since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share
information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. Ratios and the
portfolio turnover rate have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE BALANCED PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period
ended ended
12/31/95 12/31/94*
---------- ----------
Net asset value,
beginning of
period ........... $4.9359 $5.0000
------- -------
Income from investment
operations:
Net investment
income .......... 0.1333 0.0460
Net realized and
unrealized gain (loss)
on investments .. 1.0611 (0.0641)
------- -------
Total from investment
operations ....... 1.1944 (0.0181)
------- -------
Less distributions:
Dividends from net
investment
income .......... (0.1333) (0.0460)
Distribution from
capital gains.... (0.0970) (0.0000)
------- -------
Total distributions (0.2303) (0.0460)
------- -------
Net asset value,
end of period .... $5.9000 $4.9359
======= =======
Total return........ 24.19% -0.37%
Net assets, end of
period (000
omitted) ......... $23,603 $8,671
Ratio of expenses
to average net
assets ............ 0.72% 0.95%
Ratio of net investment
income to average
net assets ....... 3.22% 3.14%
Portfolio turnover
rate ............. 62.87% 19.74%
*The Balanced Portfolio's inception date is April 28, 1994; however,
since this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, the per share
information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. Ratios and the
portfolio turnover rate have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE ASSET STRATEGY PORTFOLIO
For a Share of Capital Stock Outstanding Throughout The Period:
For the
period
ended
12/31/95*
----------
Net asset value,
beginning of
period ........... $5.0000
-------
Income from investment
operations:
Net investment
income .......... 0.0717
Net realized and
unrealized gain
on investments .. 0.0193
-------
Total from investment
operations ....... 0.0910
-------
Less distributions:
Dividends from net
investment
income .......... (0.0713)
Distribution from
capital gains.... (0.0060)
-------
Total distributions (0.0773)
-------
Net asset value,
end of period .... $5.0137
=======
Total return........ 1.80%
Net assets, end of
period (000
omitted) ......... $4,344
Ratio of expenses
to average net
assets ............ 0.91%
Ratio of net investment
income to average
net assets ....... 4.42%
Portfolio turnover
rate ............. 149.17%
*The Asset Strategy Portfolio's inception date is February 14, 1995;
however, since this Portfolio did not have any investment activity or
incur expenses prior to the date of initial offering, the per share
information is for a capital share outstanding for the period from May
1, 1995 (initial offering) through December 31, 1995. Ratios have been
annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE MONEY MARKET PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
------- ------- ------- ------- -------
Net investment
income .......... 0.0542 0.0368 0.0260 0.0324 0.0536
Less dividends
declared ......... (0.0542)(0.0368) (0.0260)(0.0324) (0.0536)
------- ------- ------- ------- -------
Net asset value,
end of period .... $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
======= ======= ======= ======= =======
Total return ....... 5.56% 3.72% 2.63% 3.29% 5.49%
Net assets, end of
period (000
omitted) ......... $36,872 $30,812 $26,000 $23,995 $19,797
Ratio of expenses
to average net
assets ............ 0.62% 0.65% 0.65% 0.65% 0.76%
Ratio of net investment
income to average
net assets ....... 5.42% 3.72% 2.61% 3.17% 5.33%
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE LIMITED-TERM BOND PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the For the
fiscal year period
ended ended
12/31/95 12/31/94*
---------- ----------
Net asset value,
beginning of
period ........... $4.8611 $5.0000
------- -------
Income from investment
operations:
Net investment
income .......... 0.2841 0.1507
Net realized and
unrealized gain (loss)
on investments .. 0.4122 (0.1375)
------- -------
Total from investment
operations ....... 0.6963 0.0132
------- -------
Less distributions:
Dividends from net
investment
income .......... (0.2841) (0.1507)
Distribution from
capital gains ... (0.0212) (0.0014)
------- -------
Total distributions (0.3053) (0.1521)
------- -------
Net asset value,
end of period .... $5.2521 $4.8611
======= =======
Total return........ 14.29% 0.26%
Net assets, end of
period (000
omitted) ......... $2,853 $1,645
Ratio of expenses
to average net
assets ............ 0.71% 0.93%
Ratio of net investment
income to average
net assets ....... 6.22% 5.89%
Portfolio turnover
rate ............. 18.16% 93.83%
*The Limited-Term Bond Portfolio's inception date is April 28, 1994;
however, since this Portfolio did not have any investment activity or
incur expenses prior to the date of initial offering, the per share
information is for a capital share outstanding for the period from May
3, 1994 (initial offering) through December 31, 1994. Ratios and the
portfolio turnover rate have been annualized.
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE BOND PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $4.7393 $5.4045 $5.2626 $5.2661 $4.9534
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.3556 0.3507 0.3334 0.3643 0.3867
Net realized and
unrealized gain
(loss) on
investments ..... 0.6202 (0.6652) 0.3046 0.0216 0.3771
------- ------- ------- ------- -------
Total from investment
operations ....... 0.9758 (0.3145) 0.6380 0.3859 0.7638
------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment
income .......... (0.3559)(0.3507) (0.3334)(0.3643) (0.3867)
Distribution from
capital gains ... (0.0000)(0.0000) (0.1627)(0.0251) (0.0644)
------- ------- ------- ------- -------
Total distributions. (0.3559)(0.3507) (0.4961)(0.3894) (0.4511)
------- ------- ------- ------- -------
Net asset value,
end of period .... $5.3592 $4.7393 $5.4045 $5.2626 $5.2661
======= ======= ======= ======= =======
Total return ....... 20.56% -5.90% 12.37% 7.67% 16.19%
Net assets, end of
period (000
omitted) ......... $88,570 $74,017 $81,727 $49,428 $29,112
Ratio of expenses
to average net
assets ............ 0.60% 0.62% 0.62% 0.64% 0.72%
Ratio of net investment
income to average
net assets ....... 6.73% 6.73% 6.01% 6.91% 7.65%
Portfolio turnover
rate ............. 71.17% 135.82% 68.75% 44.32% 52.50%
See notes to financial statements.
<PAGE>
FINANCIAL HIGHLIGHTS OF
THE HIGH INCOME PORTFOLIO
For a Share of Capital Stock Outstanding Throughout Each Period:
For the fiscal year ended December 31,
-----------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Net asset value,
beginning of
period ........... $4.1118 $4.6373 $4.2886 $4.0770 $3.4067
------- ------- ------- ------- -------
Income from investment
operations:
Net investment
income .......... 0.4165 0.4106 0.3899 0.4050 0.4368
Net realized and
unrealized gain
(loss) on
investments ..... 0.3330 (0.5255) 0.3487 0.2116 0.6703
------- ------- ------- ------- -------
Total from investment
operations ....... 0.7495 (0.1149) 0.7386 0.6166 1.1071
------- ------- ------- ------- -------
Less dividends from
net investment
income ........... (0.4165)(0.4106) (0.3899)(0.4050) (0.4368)
------- ------- ------- ------- -------
Net asset value,
end of period .... $4.4448 $4.1118 $4.6373 $4.2886 $4.0770
======= ======= ======= ======= =======
Total return ....... 18.19% -2.55% 17.90% 15.70% 34.19%
Net assets, end of
period (000
omitted) ......... $86,686 $72,644 $71,265 $41,456 $24,394
Ratio of expenses
to average net
assets ............ 0.72% 0.74% 0.75% 0.77% 0.87%
Ratio of net investment
income to average
net assets ....... 9.25% 9.03% 8.66% 9.48% 11.32%
Portfolio turnover
rate ............. 41.78% 37.86% 54.22% 60.79% 34.00%
See notes to financial statements.
<PAGE>
TMK/UNITED FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- Significant Accounting Policies
TMK/United Funds, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment
company. Capital stock is currently divided into the ten classes that are
designated the Growth Portfolio, the Income Portfolio, the International
Portfolio, the Small Cap Portfolio, the Balanced Portfolio, the Asset
Strategy Portfolio, the Money Market Portfolio, the Limited-Term Bond
Portfolio, the Bond Portfolio and the High Income Portfolio. The assets
belonging to each Portfolio are held separately by the Custodian. The
capital shares of each Portfolio 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
Fund 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 major dealer in bonds.
Convertible bonds are valued using this pricing system only on days
when there is no sale reported. Stocks which are traded over-the-
counter are priced using Nasdaq (National Association of Securities
Dealers Automated Quotations) which provides information on bid and
asked or closing prices quoted by major dealers in such stocks.
Securities for which quotations are not readily available are valued
as determined in good faith in accordance with procedures established
by and under the general supervision of the Fund's Board of Directors.
Short-term debt securities are valued at amortized cost, which
approximates market.
B. Security transactions and related investment income -- Security
transactions are accounted for on the trade date (date the order to
buy or sell is executed). Securities gains and losses are calculated
on the identified cost basis. Original issue discount (as defined in
the Internal Revenue Code), premiums on the purchase of bonds and
post-1984 market discount are amortized for both financial and tax
reporting purposes over the remaining lives of the bonds. Dividend
income is recorded on the ex-dividend date except that certain
dividends from foreign securities are recorded as soon as the Fund is
informed of the ex-dividend date. Interest income is recorded on the
accrual basis. For International Portfolio, dividend income is net of
foreign withholding taxes of $58,345. 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 Fund combines fluctuations from currency
exchange rates and fluctuations in market value when computing net
realized and unrealized gain or loss from investments.
D. Federal income taxes -- It is the Fund's policy to distribute all of
its taxable income and capital gains to its shareholders and otherwise
qualify as a regulated investment company under the Internal Revenue
Code. In addition, the Fund intends to pay distributions as required
to avoid imposition of excise tax. Accordingly, provision has not
been made for Federal income taxes. See Note 4 -- Federal Income Tax
Matters.
E. Dividends and distributions -- Dividends and distributions to
shareholders are recorded by each Portfolio on the record date. Net
investment income distributions and capital gains distributions are
determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are
due to differing treatments for items such as deferral of wash sales
and post-October losses, foreign currency transactions, net operating
losses and expiring capital loss carryforwards. At December 31, 1995
the following amounts were reclassified between accumulated
undistributed net investment income and accumulated undistributed net
realized gain on investment transactions:
Increase/(Decrease) Increase/(Decrease)
Accumulated Undistributed Accumulated Undistributed
Fund Net Investment Income Net Realized Capital Gains
---- ------------------------- --------------------------
Growth Portfolio $ 612 (612)
Income Portfolio 447 (447)
International
Portfolio (70,494) 70,494
Asset Strategy
Portfolio (366) 366
Bond Portfolio 5,508 (5,508)
Net investment income, net realized gains and net assets were not
affected by these changes.
F. 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 Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The
fee consists of two elements: (i) a "Specific" fee computed on net asset
value as of the close of business each day at the following annual rates:
Growth Portfolio - .20% of net assets; Income Portfolio - .20% of net
assets; International Portfolio - .30% of net assets; Small Cap Portfolio -
.35% of net assets; Balanced Portfolio - .10% of net assets; Asset Strategy
Portfolio - .30% of net assets; Money Market Portfolio - none; Limited-Term
Bond Portfolio - .05% of net assets; Bond Portfolio - .03% of net assets;
High Income Portfolio - .15% of net assets and (ii) a base fee computed
each day on the combined net asset values of all of the Portfolios
(approximately $1.1 billion of combined net assets at December 31, 1995)
and allocated among the Portfolios based on their relative net asset size
at the annual rates of .51% of the first $750 million dollars of combined
net assets, .49% on that amount between $750 million and $1.5 billion, .47%
between $1.5 billion and $2.25 billion, and .45% of that amount over $2.25
billion. The Fund accrues and pays this fee daily.
Pursuant to assignment of the Investment Management Agreement between
the Fund and Waddell & Reed, Inc. (W&R), Waddell & Reed Investment
Management Company ("WRIMCO"), a wholly-owned subsidiary of W&R, serves as
the Fund's investment manager.
The Fund has an Accounting Services Agreement with Waddell & Reed
Services Company ("WARSCO"), a wholly-owned subsidiary of W&R. Under the
agreement, WARSCO acts as the agent in providing accounting services and
assistance to the Fund and pricing daily the value of shares of each
Portfolio. For these services, each Portfolio 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 Portfolio
-------------------------- -----------------------
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
The Fund paid Directors' fees of $32,281.
W&R is an indirect subsidiary of Torchmark Corporation, a holding
company, and United Investors Management Company, a holding company, and
a direct subsidiary of Waddell & Reed Financial Services, Inc., a holding
company.
NOTE 3 -- Investment Security Transactions
Investment securities transactions for the period ended December 31,
1995 are summarized as follows:
Growth Income International
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $858,227,387 $ 67,266,958 $ 30,438,851
Purchases of U.S. Government
securities --- --- ---
Purchases of short-term
securities 544,778,904 181,097,949 102,145,443
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 768,587,760 39,254,207 10,062,978
Proceeds from maturities
and sales of U.S.
Government securities --- --- ---
Proceeds from maturities
and sales of short-term
securities 596,124,525 168,364,484 100,399,849
Small Cap BalancedAsset Strategy
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $ 29,765,631 $16,851,592 $1,027,187
Purchases of U.S. Government
securities --- 3,574,140 ---
Purchases of short-term
securities 166,754,150 23,964,894 12,719,588
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 8,589,305 8,647,752 290,484
Proceeds from maturities
and sales of U.S.
Government securities --- --- ---
Proceeds from maturities
and sales of short-term
securities 157,985,380 23,878,329 9,179,000
Limited- High
Term Bond Bond Income
Portfolio Portfolio Portfolio
----------- --------- ---------
Purchases of investment
securities, excluding short-
term and U.S. Government
securities $1,041,998 $32,469,563 $ 35,416,260
Purchases of U.S. Government
securities 230,219 26,733,254 ---
Purchases of short-term
securities 2,291,827 54,807,829 59,283,828
Proceeds from maturities
and sales of investment
securities, excluding
short-term and U.S.
Government securities 210,644 34,237,921 29,954,086
Proceeds from maturities
and sales of U.S.
Government securities 163,617 21,395,617 ---
Proceeds from maturities
and sales of short-term
securities 2,263,040 53,268,459 59,170,000
For Federal income tax purposes, cost of investments owned at December
31, 1995 and the related unrealized appreciation (depreciation) were as
follows:
Aggregate
Appreciation
Cost Appreciation Depreciation(Depreciation)
------------------------------------------------------
Growth Portfolio $390,533,434 $44,741,347 $11,433,613 $33,307,734
Income Portfolio 249,682,126 82,973,918 2,623,754 80,350,164
International Portfolio 48,903,120 3,742,582 2,737,076 1,005,506
Small Cap Portfolio 46,408,221 11,135,467 2,183,877 8,951,590
Balanced Portfolio 21,115,629 2,544,157 278,644 2,265,513
Asset Strategy Portfolio 4,327,758 32,522 86,503 (53,981)
Money Market Portfolio 35,830,689 --- --- ---
Limited-Term Bond
Portfolio 2,683,860 92,966 1,129 91,837
Bond Portfolio 83,050,177 4,488,637 226,868 4,261,769
High Income Portfolio 80,014,254 4,352,155 980,480 3,371,675
NOTE 4 -- Federal Income Tax Matters
The Fund's income and expenses attributed to each Portfolio and the
gains and losses on security transactions of each Portfolio have been
attributed to that Portfolio for Federal income tax purposes as well as
accounting purposes. For Federal income tax purposes, Asset Strategy,
Small Cap, Limited-Term Bond and Growth Portfolios realized capital gain
net income of $5,026, $1,041,204, $10,804 and $64,691,827, respectively,
during the year ended December 31, 1995. For Federal income tax purposes,
Bond Portfolio realized capital gains of $876,661 during the year ended
December 31, 1995. The capital gains were entirely offset by utilization
of capital loss carryforwards. Remaining capital loss carryforwards of
Bond Portfolio totaled $2,603,035 at December 31, 1995, and are available
to offset future realized capital gain net income through December 31,
2002. For Federal income tax purposes, Income, International and Balanced
Portfolios realized capital gain net income of $5,409,380, $169,132 and
$371,952, respectively, which includes utilization of capital loss
carryovers of $459,928, $21,009 and $3,218, respectively. For Federal
income tax purposes, High Income Portfolio realized capital losses of
$1,443,930 during the year ended December 31, 1995. These amounts are
available to offset future realized capital gain net income through
December 31, 2003. Remaining prior year capital loss carryforwards of High
Income Portfolio aggregated $1,745,105, which are available to offset
future realized capital gain net income through December 31, 1999;
$1,428,392 is available through December 31, 2002. The capital gain net
income of Asset Strategy, Limited-Term Bond, Income and Balanced Portfolios
was paid to shareholders during the year ended December 31, 1995. A
portion of the capital gain net income of Growth, Small Cap and
International Portfolios was paid to shareholders during the period ended
December 31, 1995. Remaining capital gain net income will be distributed
to shareholders.
Internal Revenue Code regulations permit each Portfolio to defer into
its next calendar year net capital losses or net long-term capital losses
incurred between each November 1 and the end of its calendar year ("post-
October losses"). From November 1, 1995 through December 31, 1995, Growth,
International and Small Cap Portfolios incurred post-October losses of
$409,206, $274,909 and $29,582, respectively, which have been deferred to
the calendar year ending December 31, 1996.
Note 5 -- Organization
The inception date of the Asset Strategy Portfolio is February 14,
1995; however, this Portfolio did not have any investment activity or incur
expenses prior to the date of initial offering, May 1, 1995. The
accompanying financial statements reflect activity for these periods.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
TMK/United Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities,
including the schedules of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of each of
the ten portfolios comprising TMK/United Funds, Inc. (hereafter referred to
as the "Fund") at December 31, 1995, the results of its operations, the
changes in its net assets and the financial highlights for each of the
periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at December 31,
1995 by correspondence with the custodian and brokers and the application
of alternative auditing procedures where confirmations from brokers were
not received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Kansas City, Missouri
February 8, 1996
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- TMK/United Funds, Inc.
Included in Part B:
-------------------
As of December 31, 1995
Statements of Assets and Liabilities
For the year ended December 31, 1995
Statements of Operations
For each of the two years in the period ended December 31, 1995
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of December 31, 1995
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedules
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation, as amended, filed February 15, 1995 as
EX-99.B1-tmkart to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
(1) Articles Supplementary reflecting the addition of Asset
Strategy Portfolio, filed February 15, 1995 as EX-99.B1-
tmksup1 to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
(2) Articles Supplementary filed February 15, 1995 as EX-99.B1-
tmksup2 to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
(3) Articles Supplementary filed February 15, 1995 as EX-99.B1-
tmksup3 to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
(2) By-Laws (refiling by EDGAR), attached hereto as EX-99.B2-tmkbylaw
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of Registrant, filed February 15, 1995 as EX-99.B1-
tmkart to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A*; Article I, Article IV and Article VII of
the Bylaws of the Registrant, attached hereto as EX-99.B2-
tmkbylaw
(5) Investment Management Agreement with fee schedule amended to
reflect the addition of Asset Strategy Portfolio filed February
15, 1995 as EX-99.B5-tmkima to Post-Effective Amendment No. 11 to
the Registration Statement on Form N-1A*
Assignment of Investment Management Agreement filed October 3,
1995 as EX-99.B5-tmkassign to Post-Effective Amendment No. 12 to
the Registration Statement on Form N-1A*
(6) Form of Distribution Contract reflecting addition of Asset
Strategy Portfolio filed February 15, 1995 as EX-99.B6-tmkdisco
to Post-Effective Amendment No. 11 to the Registration Statement
on Form N-1A*
Principal Underwriting Agreement between Waddell & Reed, Inc. and
United Investors Life Insurance Company filed October 3, 1995 as
EX-99.B6-tmkpua to Post-Effective Amendment No. 12 to the
Registration Statement on Form N-1A*
(7) Not applicable
(8) Custodian Agreement filed October 3, 1995 as EX-99.B8-tmkca to
Post-Effective Amendment No. 12 to the Registration Statement on
Form N-1A*
(9) Accounting Services Agreement filed October 3, 1995 as EX-99.B9-
tmkasa to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A*
(10) Opinion and Consent of Counsel filed March 18, 1987 as Exhibit
(b)(10) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A*
(11) Consent of Independent Accountants, attached hereto as EX-99.B11-
- ---------------------------------
*Incorporated herein by reference
tmkconsent
(12) Not applicable
(13) Agreement between United Investors Life Insurance Company and
Income Portfolio filed April 21, 1992 as Exhibit No. 13 to Post-
Effective Amendment No. 8 to the Registration Statement on Form
N-1A*
Agreement between United Investors Life Insurance Company and
International Portfolio, Small Cap Portfolio, Balanced Portfolio
and Limited-Term Bond Portfolio filed February 15, 1995 as EX-
99.B13-tmkuil to Post-Effective Amendment No. 11 to the
Registration Statement on Form N-1A*
Agreement between United Investors Life Insurance Company and
Asset Strategy Portfolio filed October 3, 1995 as EX-99.B13-
tmkuilasp to Post-Effective Amendment No. 12 to the Registration
Statement on Form N-1A*
(14) Not applicable
(15) Not applicable
(16) Schedules for yield and total return computation attached hereto
as EX-99.B16-tmksched
(17) Financial Data Schedules, attached hereto as EX-27.B17-tmkfds1,
EX-27.B17-tmkfds2, EX-27.B17-tmkfds3, EX-27.B17-tmkfds4, EX-
27.B17-tmkfds5, EX-27.B17-tmkfds6, EX-27.B17-tmkfds7, EX-27.B17-
tmkfds8, EX-27.B17-tmkfds9, EX-27.B17-tmkfds10
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class March 31, 1996
-------------- ------------------------------
Common 2
27. Indemnification
---------------
Reference is made to Section 7 of Article SEVENTH of the Articles of
Incorporation of Registrant, as amended, filed February 15, 1995 as
EX-99.B1-tmkart to Post-Effective Amendment No. 11 to the Registration
Statement on Form N-1A*, and to Paragraph 7 of the Distribution
Agreement between United Investors Life Insurance Company and the
Registrant, filed February 15, 1995 as EX-99.B6-tmkdisco to Post-
Effective Amendment No. 11 to the Registration Statement on Form N-
1A*, each of which provides for indemnification. Also refer to
Section 2-418 of the Maryland General Corporation Law regarding
indemnification of directors, officers, employees and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager
of the Registrant. Under the terms of an Investment Management
- ---------------------------------
*Incorporated herein by reference
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 as described in Part A and Part B of this Post-Effective
Amendment.
Each director and executive officer of Waddell & Reed Investment
Management Company or its predecessors, has had as his sole business,
profession, vocation or employment during the past two years only his
duties as an executive officer and/or employee of Waddell & Reed
Investment Management Company or its predecessors, except as to
persons who are directors and/or officers of the Registrant and have
served in the capacities shown in the Statement of Additional
Information of the Registrant, and except for Mr. Ronald K. Richey.
Mr. Richey is Chairman of the Board and Chief Executive Officer of
Torchmark Corporation, the parent company of Waddell & Reed, Inc., and
Chairman of the Board of United Investors Management Company, a
holding company of which Waddell & Reed, Inc. is an indirect
subsidiary. Mr. Richey's address is 2001 Third Avenue South,
Birmingham, Alabama 35233. The address of the others is 6300 Lamar
Avenue, Shawnee Mission, Kansas 66202-4200.
As to each director and officer of Waddell & Reed Investment
Management Company, reference is made to the Prospectus and SAI of
this Registrant.
29. Principal Underwriter and Distributor
-------------------------------------
(a) Waddell & Reed, Inc. is the Principal Underwriter and Distributor
of the Registrant's shares. It is the principal underwriter to
the following investment companies:
United Funds, Inc.
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.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United
Science and Technology Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
- ---------------------------------
*Incorporated herein by reference
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on
form BD, under the Securities Exchange Act of 1934, is herein
incorporated by reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or
any affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Ms. Sharon K.
Pappas and Mr. Robert L. Hechler, as officers of the Registrant, each
of whose business address is Post Office Box 29217, Shawnee Mission,
Kansas 66201-9217.
31. Management Services
-------------------
There are no service contracts other than as discussed in Part A and B
of this Post-Effective Amendment and as listed in response to Item
(b)(9) hereof.
32. Undertakings
------------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to
shareholders upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if
requested in writing by the shareholders of record of not less
than 10% of the Fund's outstanding shares, to call a meeting of
the shareholders of the Fund for the purpose of voting upon the
question of removal of any director and to assist in
communications with other shareholders as required by Section
16(c).
<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 29th day of April, 1996.
TMK/UNITED FUNDS, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been
signed below by the following persons in the capacities and on the date
indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board April 29, 1996
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director April 29, 1996
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer April 29, 1996
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and April 29, 1996
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director April 29, 1996
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan Director April 29, 1996
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director April 29, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves* Director April 29, 1996
- ------------------- ----------------
Linda Graves
Director
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director April 29, 1996
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director April 29, 1996
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson Director April 29, 1996
- ------------------- ----------------
Doyle Patterson
/s/Eleanor B. Schwartz* Director April 29, 1996
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director April 29, 1996
- ------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise* Director April 29, 1996
- ------------------- ----------------
Paul S. Wise
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Sheryl Strauss
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC. AND WADDELL & REED FUNDS, INC. (each hereinafter called
the "Corporation"), and certain directors and officers for the Corporation, do
hereby constitute and appoint KEITH A. TUCKER, ROBERT L. HECHLER, and SHARON K.
PAPPAS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement or amendment or supplement thereto; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
Date: April 24, 1996 /s/Keith A. Tucker
--------------------------
Keith A. Tucker, President
/s/Ronald K. Richey Chairman of the Board April 24, 1996
- -------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker President and Director April 24, 1996
- -------------------- (Principal Executive ----------------
Keith A. Tucker Officer)
/s/Theodore W. Howard Vice President, Treasurer April 24, 1996
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler Vice President and April 24, 1996
- -------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon Director April 24, 1996
- -------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan Director April 24, 1996
- -------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham Director April 24, 1996
- -------------------- ----------------
Jay B. Dillingham
/s/Linda Graves Director April 24, 1996
- -------------------- ----------------
Linda Graves
Director April 24, 1996
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director April 24, 1996
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director April 24, 1996
- -------------------- ----------------
William T. Morgan
/s/Doyle Patterson Director April 24, 1996
- -------------------- ----------------
Doyle Patterson
/s/Eleanor Schwartz Director April 24, 1996
- -------------------- ----------------
Eleanor Schwartz
/s/Frederick Vogel III Director April 24, 1996
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director April 24, 1996
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B2-tmkbylaw
TMK/UNITED FUNDS, INC.
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation or at such other place within or
without the State of Maryland as may from time to time be designated by the
Board of Directors and stated in the notice of meeting.
Section 2. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such hour as may be determined by the Board of
Directors and as shall be designated in the notice of meeting on such date
within 31 days after the 1st day of July in each year as may be fixed by the
Board of Directors for the purpose of electing directors for the ensuing year
and for the transaction of such other business as may properly be brought before
the meeting. The Corporation shall not be required to hold an annual meeting in
any year in which none of the following is required to be acted on by the
stockholders under the Investment Company Act of 1940: (1) Election of
directors; (2) Approval of the Investment Management Agreement; (3) Ratification
of the selection of independent public accountants; and (4) Approval of a
Distribution Agreement.
Section 3. Special or Extraordinary Meetings. Special or extraordinary
meetings of the stockholders for any purpose or purposes may be called by the
Chairman of the Board of Directors, if any, or by the President or by the Board
of Directors and shall be called by the Secretary upon receipt of the request in
writing signed by stockholders holding not less than one fourth in amount of the
entire capital stock issued and outstanding and entitled to vote thereat. Such
request shall state the purpose or purposes of the proposed meeting.
Section 4. Notice of Meetings of Stockholders. Not less than ten days'
and not more than ninety days' written or printed notice of every meeting of
stockholders, stating the time and place thereof (and the general nature of the
business proposed to be transacted at any special or extraordinary meeting),
shall be given to each stockholder entitled to vote thereat by leaving the same
with him or at his residence or usual place of business or by mailing it,
postage prepaid and addressed to him at his address as it appears upon the books
of the Corporation.
No notice of the time, place or purpose of any meeting of stockholders need
be given to any stockholder who attends in person or by proxy or to any
stockholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.
Section 5. Record Dates. The Board of Directors may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of stockholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the stockholders entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.
Section 6. Quorum, Adjournment of Meetings. The presence in person or by
proxy of the holders of record of one-third of the shares of the stock of the
Corporation issued and outstanding and entitled to vote thereat, shall
constitute a quorum at all meetings of the stockholders. If at any meeting of
the stockholders there shall be less than a quorum present, the stockholders
present at such meeting may, without further notice, adjourn the same from time
to time until a quorum shall attend, but no business shall be transacted at any
such adjourned meeting except such as might have been lawfully transacted had
the meeting not been adjourned.
Section 7. Voting and Inspectors. At all meetings of stockholders every
stockholder of record entitled to vote thereat shall be entitled to vote at such
meeting either in person or by proxy appointed by instrument in writing
subscribed by such stockholder or his duly authorized attorney. No proxy which
is dated more than three months before the meeting at which it is offered shall
be accepted, unless such proxy shall, on its face, name a longer period for
which it is to remain in force.
All elections shall be had and all questions decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided in the
Articles of Incorporation or in these By-Laws or by specific statutory provision
superseding the restrictions and limitations contained in the Articles of
Incorporation or in these By-Laws.
At any election of Directors, the Board of Directors prior thereto may, or,
if they have not so acted, the Chairman of the meeting may, and upon the request
of the holders of ten per cent (10%) of the stock entitled to vote at such
election shall, appoint two inspectors of election who shall first subscribe an
oath or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
No candidate for the office of Director shall be appointed such Inspector.
The Chairman of the meeting may cause a vote by ballot to be taken upon any
election or matter, and such vote shall be taken upon the request of the holders
of ten per cent (10%) of the stock entitled to vote on such election or matter.
Section 8. Conduct of Stockholders' Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board of Directors,
if any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Directors, the President nor any Vice-President is present, by a chairman to be
elected at the meeting. The Secretary of the Corporation, if present, shall act
as Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act, if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.
Section 9. Concerning Validity of Proxies, Ballots, Etc. At every meeting
of the stockholders, all proxies shall be received and taken in charge of and
all ballots shall be received and canvassed by the secretary of the meeting, who
shall decide all questions touching the qualification of voters, the validity of
the proxies, and the acceptance or rejection of votes, unless inspectors of
election shall have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Tenure of Office. The business and property of the
Corporation shall be conducted and managed by a Board of Directors consisting of
that number of Directors named in the Articles of Incorporation, which number
may be increased or decreased as provided in Section 2 of this Article. Each
director shall hold office until the annual meeting of stockholders of the
Corporation next succeeding his election or until his successor is duly elected
and qualifies. Directors need not be stockholders.
Section 2. Increase or Decrease in Number of Directors. The Board of
Directors, by the vote of a majority of the entire Board, may increase the
number of Directors to a number not exceeding twenty, and may elect Directors to
fill the vacancies created by any such increase in the number of Directors until
the next annual meeting or until their successors are duly elected and qualify;
the Board of Directors, by the vote of a majority of the entire Board, may
likewise decrease the number of Directors to a number not less than three.
Vacancies occurring other than by reason of any such increase shall be filled as
provided by the Maryland General Corporation Law.
Section 3. Place of Meeting. The Directors may hold their meetings, have
one or more offices, and keep the books of the Corporation outside the State of
Maryland, at any office or offices of the Corporation or at any other place as
they may from time to time by resolution determine, or, in the case of meetings,
as they may from time to time by resolution determine or as shall be specified
or fixed in the respective notices or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
shall be held at such time and on such notice, if any, as the Directors may from
time to time determine.
The annual meeting of the Board of Directors shall be held as soon as
practicable after the annual meeting of the stockholders for the election of
Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held from time to time upon call of the Chairman of the Board of
Directors, if any, the President or two or more of the Directors, by oral or
telegraphic or written notice duly served on or sent or mailed to each Director
not less than one day before such meeting. No notice need be given to any
Director who attends in person or to any Director who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. One-third of the Directors then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Directors. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum shall have been obtained.
The act of the majority of the Directors present at any meeting at which there
is a quorum shall be the act of the Directors, except as may be otherwise
specifically provided by statute, by the Articles of Incorporation or by these
By-Laws.
Section 7. Executive Committee. The Board of Directors may, by the
affirmative vote of a majority of the entire Board, elect from the Directors an
Executive Committee to consist of such number of Directors as the Board may from
time to time determine. The Board of Directors by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Directors. When the Board of
Directors is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Directors in the management of the
business and affairs of the Corporation (including the power to authorize the
seal of the Corporation to be affixed to all papers which may require it) except
as provided by law and except the power to increase or decrease the size of, or
fill vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Directors, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 8. Other Committees. The Board of Directors, by the affirmative
vote of a majority of the entire Board, may appoint other committees which shall
in each case consist of such number of members (not less than two) and shall
have and may exercise such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee may determine
its action, and fix the time and place of its meetings, unless the Board of
Directors shall otherwise provide. The Board of Directors shall have power at
any time to change the members and powers of any such committee, to fill
vacancies, and to discharge any such committee.
Section 9. Informal Action by Directors and Committees. Any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if a written consent to
such action is signed by all members of the Board, or of such committee, as the
case may be.
Section 10. Compensation of Directors. Directors shall be entitled to
receive such compensation from the Corporation for their services as may from
time to time be voted by the Board of Directors.
Section 11. Power to Declare Dividends and/or Distributions: The Board of
Directors, from time to time as it may deem advisable, may declare and pay
dividends and/or distributions in shares of the Fund, cash or other property of
the Corporation, as determined by resolution of the Board of Directors out of
any source available for dividends and/or distributions, to the stockholders
according to their respective rights and interests in accordance with the
provisions of the Articles of Incorporation.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of the Corporation
shall be chosen by the Board of Directors as soon as may be practicable after
the annual meeting of the stockholders. These may include a Chairman of the
Board of Directors, and shall include a President, one or more Vice-Presidents
(the number thereof to be determined by the Board of Directors), a Secretary and
a Treasurer. The Chairman of the Board of Directors, if any, and the President
shall be selected from among the Directors. The Board of Directors may also in
its discretion appoint Assistant Secretaries, Assistant Treasurers, and other
officers, agents and employees, who shall have such authority and perform such
duties as the Board or the Executive Committee may determine. The Board of
Directors may fill any vacancy which may occur in any office. Any two offices,
except those of President and Vice-President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law or these By-Laws to be
executed, acknowledged or verified by two or more officers.
Section 2. Term of Office. The term of office of all officers shall be
one year and until their respective successors are chosen and qualify; however,
any officer may be removed from office at any time with or without cause by the
vote of a majority of the entire Board of Directors.
Section 3. Powers and Duties. The officers of the Corporation shall have
such powers and duties as generally pertain to their respective offices, as well
as such powers and duties as may from time to time be conferred by the Board of
Directors or the Executive Committee.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Each stockholder of the Corporation
shall be entitled to a certificate or certificates for the full shares of the
class of stock of the Corporation owned by them in such form as the Board of
Directors may from time to time prescribe.
Section 2. Transfer of Shares. Shares of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in person or
by his duly authorized attorney or legal representative, upon surrender and
cancellation of certificates, if any, for the same number of shares, duly
endorsed or accompanied by proper instruments of assignment and transfer, with
such proof of the authenticity of the signature as the Corporation or its agents
may reasonably require, in the case of shares not represented by certificates,
the same or similar requirements may be imposed by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the Corporation,
containing the name and address of the stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the
Corporation or, if the Corporation employs a transfer agent, at the offices of
the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The Board of Directors
may determine the conditions upon which a new certificate of stock of the
Corporation of any class may be issued in place of a certificate which is
alleged to have been lost, stolen or destroyed; and may, in their discretion,
require the owner of such certificate or his legal representative to give bond,
with sufficient surety to the Corporation and the transfer agent, if any, to
indemnify it and such transfer agent against any and all loss or claims which
may arise by reason of the issue of a new certificate in the place of the one so
lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors shall provide a suitable corporate seal, in such
form and bearing such inscriptions as it may determine.
ARTICLE VI
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of
Directors.
ARTICLE VII
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added to or
repealed by the stockholders or by majority vote of the entire Board of
Directors, but any such alteration, amendment, addition or repeal of the By-Laws
by action of the Board of Directors may be altered or repealed by the
stockholders.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 13 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 8, 1996, relating to the financial statements and financial highlights
of TMK/United Funds, Inc., which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Custodial and Auditing
Services" in such Statement of Additional Information and to the references to
us under the headings "Financial Highlights" and "Independent Accountants" in
such Prospectus.
PRICE WATERHOUSE
Kansas City, Missouri
April 29, 1996
TMK/UNITED FUNDS, INC.
The formula used to calculate the total return 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.
TMK/UNITED BOND PORTFOLIO
For the one year period from January 1, 1995 to
December 31, 1995:
P = $1,000
n = 1
ERV = $1,205.55
T = 20.56%
For the five-year period from January 1, 1991 to
December 31, 1995:
P = $1,000
n = 5
ERV = $1,585.42
T = 9.66%
For the period from July 13, 1987 to
December 31, 1995:
P = $1,000
n = 8.474
ERV = $2,124.40
T = 9.30%
TMK/UNITED HIGH INCOME PORTFOLIO
For the one year period from January 1, 1995 to
December 31, 1995:
P = $1,000
n = 1
ERV = $1,181.86
T = 18.19%
For the five-year period from January 1, 1991 to
December 31, 1995:
P = $1,000
n = 5
ERV = $2,107.98
T = 16.08%
For the period from July 13, 1987 to
December 31, 1995:
P = $1,000
n = 8.474
ERV = $2,142.74
T = 9.41%
TMK/UNITED GROWTH PORTFOLIO
For the one year period from January 1, 1995 to
December 31, 1995:
P = $1,000
n = 1
ERV = $1,385.67
T = 38.57%
For the five-year period from January 1, 1991 to
December 31, 1995:
P = $1,000
n = 5
ERV = $2,660.62
T = 21.62%
For the period from July 13, 1987 to
December 31, 1995:
P = $1,000
n = 8.474
ERV = $3,530.32
T = 16.05%
TMK/UNITED INCOME PORTFOLIO
For the one year period from January 1, 1995 to
December 31, 1995:
P = $1,000
n = 1
ERV = $1,315.63
T = 31.56%
For the period from July 16, 1991 to
December 31, 1995:
P = $1,000
n = 4.463
ERV = $1,869.21
T = 15.05%
TMK/UNITED INTERNATIONAL PORTFOLIO
For the one year period from January 1, 1995 to
December 31, 1995:
P = $1,000
n = 1
ERV = $1,072.79
T = 7.28%
For the period from May 3, 1994 to
December 31, 1995:
P = $1,000
n = 1.663
ERV = $1,075.57
T = 4.48%
TMK/UNITED SMALL CAP PORTFOLIO
For the one year period from January 1, 1995 to
December 31, 1995:
P = $1,000
n = 1
ERV = $1,323.21
T = 32.32%
For the period from May 3, 1994 to
December 31, 1995:
P = $1,000
n = 1.663
ERV = $1,599.95
T = 32.66%
TMK/UNITED BALANCED PORTFOLIO
For the one year period from January 1, 1995 to
December 31, 1995:
P = $1,000
n = 1
ERV = $1,241.88
T = 24.19%
For the period from May 3, 1994 to
December 31, 1995:
P = $1,000
n = 1.663
ERV = $1,237.29
T = 13.66%
TMK/UNITED LIMITED-TERM BOND PORTFOLIO
For the one year period from January 1, 1995 to
December 31, 1995:
P = $1,000
n = 1
ERV = $1,142.85
T = 14.29%
For the period from May 3, 1994 to
December 31, 1995:
P = $1,000
n = 1.663
ERV = $1,145.78
T = 8.53%
TMK/UNITED ASSET STRATEGY PORTFOLIO
For the period from May 1, 1995 to
December 31, 1995:
P = $1,000
n = .669
ERV = $1,017.97
T = 1.80%
<PAGE>
<TABLE>
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD BOND 000000000000092
<S> <C> <C> <C> <C> <C> <C>
SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
- --------- ------------------------- -------- ------------- --------------- -------------------- --------------------
TT3165996 NEW SOUTH WALES INTL REGD YTM 4,833.30 7.78746910 STANDARD YTM
032511AH0__ANADARKO PETROLEUM P00 __YTM __ 6,003.55 __ 6.14793420 __STANDARD YTM
03739JA91__AON CORP GSC__ACTUAL __ 3,215.12 __ 5.72000000 __
041237AL2__ARKLA INC __YTM __ 3,079.64 __ 6.54315100 __STANDARD YTM
05944QAC4__BANC ONE CREDIT CARD MAST__YTM __ 5,679.74 __ 6.49986450 __STANDARD YTM
060716BQ9__BANK OF BOSTON __YTM __ 2,747.32 __ 6.38469330 __STANDARD YTM
067379AT4__BARCLAYS AMN CPN PUT 12/0__YTM __ 1,169.15 __ 5.71506580 __STANDARD YTM
072723AC3__BAYBANKS INC FRN __ACTUAL __ 14,644.22 __ 6.12500000 __
0727389A7__BAYERISCHE LANDESBANK __ACTUAL __ 4,314.56 __ 5.34000000 __
097383AM5__BOISE CASCADE DEBENTURES __YTM-CALL__ 2,993.05 __ 6.19169880 __STANDARD YTM
126690YL4__CWMBS 1994-G A5 __YTM __ 10,894.50 __ 6.60077110 __STANDARD YTM
13642NAB2__CP FOREST __YTM __ 6,663.81 __ 6.89872230 __STANDARD YTM
166784AE8__CHEVY CHASE SAVINGS BANK __YTM-CALL__ 3,839.06 __ 9.04630740 __STANDARD YTM
171205AU1__CHRYSLER FIN CORP __YTM __ 6,363.87 __ 6.01250070 __STANDARD YTM
173034GM5__CITICORP __YTM __ 5,957.47 __ 6.27564160 __STANDARD YTM
190441AJ4__COASTAL CORP __YTM __ 3,129.66 __ 6.21646970 __STANDARD YTM
191219AV6__COCA COLA ENTER P00 __YTM __ 5,529.37 __ 6.62471560 __STANDARD YTM
23321PJA7__DLJMA 1994-3 A13 __YTM __ 5,300.32 __ 6.65711450 __STANDARD YTM INC BASED ON EFF DT
257039AB3__DOMAN INDUSTRIES __YTM __ 3,885.14 __ 9.68732050 __STANDARD YTM
260540AA7__DOW CAPITAL __YTM __ 5,155.13 __ 6.80093550 __STANDARD YTM
312907FT0__FHR 1142 H __MORTGAGE__ 19,233.87 __ 7.95000000 __NO PAYDOWN
312908X43__FHR 1228 G __MORTGAGE__ 2,822.58 __ 7.00000000 __NO PAYDOWN
312910BS0__FHR 1290 F __MORTGAGE__ 9,302.42 __ 7.50000000 __NO PAYDOWN
312911SC5__FHR 1349 PN __MORTGAGE__ 7,761.84 __ 7.50000000 __NO PAYDOWN
31292GMZ6__FHLMC GOLD #C00376 __MORTGAGE__ 6,081.50 __ 8.00000000
31331FAH4__FEDERAL EXPRESS __YTM __ 6,344.32 __ 6.83054680 __STANDARD YTM
313391SD7 FEDERAL HOME LOAN BANK YTM 2,816.14 7.82993680 STANDARD YTM
3134A0DG4 FED HOME LOAN MTGE YTM 2,821.91 6.35183380 STANDARD YTM
31356NQG2 FGLMC POOL D59455 SEMORTGAGEIS 5,710.91 UR 8.00000000 IL
31364AQ54 FANNIEMAE FOYTM-CALLRI 985.27 HR 6.10628800 STANDARD YTM
337358BD6/UFIRST UNION CORP P05 YTM 459.31 6.27448430 STANDARD YTM
369622CB9 GE CAP CP NT P98 YTM 9,530.93 6.17542940 STANDARD YTM
370334MN1 GENERAL MILLS, INC ACTUAL 1,977.90 0.00000000
370424FV0 GMAC P00/05 YTM 6,665.50 6.52552970 STANDARD YTM
370442AJ4 GENERAL MOTORS DEB P98 ..YTM-CALL 1,932.71-83 1.67765930- STANDARD YTM NEGATIVE YTM
373298BN7 GEORGIA-PACIFIC ..YTM 615.45 76 7.44007280 STANDARD YTM REVERSAL IN PERIOD
398037AS0 GREYHOUND FINANCIAL ..YTM 867.83 81 5.91911860 STANDARD YTM
44881HEU4 HYDRO-QUEBEC MTN STEP/P00..YTM 6,127.64 00 6.21538740 STANDARD YTM
448814EJ8 HYDRO QUEBEC P06 ..YTM-CALL 6,139.03 6.19553540 STANDARD YTM
458182BS0 INTERAMER DEV BANK P99/04..YTM-CALL 2,362.56 96 1.89536450 STANDARD YTM
466115AC6 JC PENNY CREDIT CD TRUST YTM 3,328.39 7.13959860 STANDARD YTM
480206AJ0 JONES INTERCABLE YTM 3,704.89 8.06104250 STANDARD YTM
481206AD2 JOY TECHNOLOGIES YTM-CALL 6,753.95 7.01347000 STANDARD YTM
484610AB6 KANSALLIS - OSAKE SEYTM IS 6,343.91 UR 6.20043720 ILSTANDARD YTM
<PAGE>
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD BOND 000000000000092
SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
- --------- ------------------------- -------- ------------- --------------- -------------------- --------------------
485260AT0 KS G&E FIRST MORTAGE FOYTM RI 5,817.22 HR 6.26596750 STANDARD YTM
570387AG5__MARK IV INDUST SR SUB NOT__YTM __ 7,073.45 __ 8.00827240 __STANDARD YTM
571900AA7__MARRIOTT INTL __YTM __ 5,609.99 __ 6.42488850 __STANDARD YTM
580169AK6__MCDONNELL DOUGLAS NOTES __YTM __ 2,709.32 __ 5.63775670 __STANDARD YTM
580169AL4__MCDONNELL DOUGLAS __YTM __ 3,031.42 __ 6.04974590 __STANDARD YTM
620076AC3__MOTOROLA INC DEB (PUT 01)__YTM __ 4,909.59 __ 6.44788860 __STANDARD YTM
628931AB3__NBD BANK N.A. P04 __YTM __ 6,728.70 __ 6.51806500 __STANDARD YTM
635576AE1__NATL CREDIT CARD TRUST 19__YTM __ 2,565.22 __ 8.56304410 __STANDARD YTM
63858SAA7__NATIONSBANK CORP MTN P04 __YTM __ 6,983.89 __ 6.84802200 __STANDARD YTM
652478AD0__NEWS AMER HLDGS __YTM __ 2,843.37 __ 5.97315780 __STANDARD YTM
652478AQ1__NEWS AMER HLDGS __YTM __ 2,897.57 __ 7.62076320 __STANDARD YTM
655419AA7__NORAM ENERGY __YTM __ 3,040.85 __ 6.82452210 __STANDARD YTM
65542LAF8__NORANDA FOREST __YTM __ 6,024.63 __ 6.57530790 __STANDARD YTM
655422AN3__NORANDA INC. NOTES __YTM __ 2,913.31 __ 6.49468690 __STANDARD YTM
669827DH7__NOVA SCOTIA P01 __YTM __ 6,709.77 __ 6.84807300 __STANDARD YTM
68066RAK5__OLIN CORP GSC__ACTUAL __ 649.01 __ 5.90000000
690734AH1__OWENS CORNING FIBER __YTM __ 6,219.89 __ 6.54879820 __STANDARD YTM
707271AL6__PENN CENTRAL CORP SUB NOT__YTM __ 7,934.87 __ 8.67011690 __STANDARD YTM
742718BG3__PROCTOR & GAMBLE P04/14 __YTM __ 13,098.79 __ 6.17266930 __STANDARD YTM
76110WAG1__RASC 1995-KS3 CLASS D __YTM __ 6,679.94 __ 7.86501590 __STANDARD YTM
766570AD7__RIGGS NATIONAL SUB DEBENT__YTM-CALL__ 6,603.40 __ 7.18152730 __STANDARD YTM
803111MN0__SARA LEE CORP __ACTUAL __ 4,045.51 __ 0.00000000
812007AC6__SEAGULL ENERGY __YTM __ 8,548.50 __ 7.96211200 __STANDARD YTM
8305059B1 SE BANKEN NY BRANCH CD YTM 5,027.45 6.36321490 STANDARD YTM
8447HBAA0 SOUTHTRUST BK OF BIRM P05 YTM 3,182.58 6.88183920 STANDARD YTM
84534EAN8 SOUTHWESTERN BELL TELEPONSEYTM IS 5,328.85 UR 5.91793460 ILSTANDARD YTM
87924FAU0 TELECOMM STEP/ P99 FOYTM RI 5,261.25 HR 5.76883460 STANDARD YTM
88033GAC4/UTENET HEALTHCARE YTM 3,430.84 7.76601040 STANDARD YTM
887315AN9 TIME WARNER YTM 6,355.49 7.14505320 STANDARD YTM
900262AR7 TURNER BROADCASTING YTM 7,179.01 7.96803550 STANDARD YTM
903293AN8 USG CORP. YTM 7,083.91 7.70649730 STANDARD YTM
90337QAV9 USX MTN ..YTM 5,666.57 83 5.89222140 STANDARD YTM
908584BB0 UNION TANK CAR ..ACTUAL 29.87 76 9.50000000
908640AD7 UNION TEXAS PETROLEUM SR ..YTM 2,887.78 81 6.35195980 STANDARD YTM
909214AW8 UNISYS CORP ..YTM 4,587.88 00 14.69432750 STANDARD YTM
909214AY4 UNISYS CORP ..YTM 5,578.38 14.28985520 STANDARD YTM
911596MN1 U S BANCORP ..ACTUAL 70.16 96 0.00000000
912803AT0 US TREASURY STRIP YTM 9,164.19 6.28853270 STANDARD YTM
912810DZ8 US TREASURY BOND YTM 1,385.90 6.14020590 STANDARD YTM
912827B92 US TREASURY NOTE YTM 6,310.66 5.43369110 STANDARD YTM
912827S86 US TREASURY NOTE SEYTM IS 4,953.37 UR 5.61017390 ILSTANDARD YTM
912827V82 US TREASURY NOTE YTM 1,599.65 5.57458560 STANDARD YTM
912827YE6 US TREASURY YTM 9,970.63 5.35014630 STANDARD YTM
912917AL5 US WEST FIN MTN P00 SEYTM IS 2,753.89 UR 5.86670130 ILSTANDARD YTM
<PAGE>
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD BOND 000000000000092
SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
- --------- ------------------------- -------- ------------- --------------- -------------------- --------------------
925524AD2 VIACOM INC. FOYTM RI 1,639.64 HR 7.01514240 STANDARD YTM
925524AE0__VIACOM INC SR NOTES __YTM __ 1,310.99 __ 6.59293800 __STANDARD YTM
925526AH8__VIACOM INTERNATIONAL __YTM __ 3,445.48 __ 7.67424670 __STANDARD YTM
947423AD1__DEL WEBB SENIOR NOTES __YTM-CALL__ 6,376.47 __ 9.11970060 __STANDARD YTM
949740BU7__WELLS FARGO & CO __YTM __ 5,992.43 __ 6.19900380 __STANDARD YTM
96332BAP7__WHIRLPOOL CORP JPM__ACTUAL __ 8,448.00 __ 5.76000000 __
984245AA8__YPF SA __YTM __ 3,734.31 __ 9.05610600 __STANDARD YTM
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD BOND 000000000000092
S U M M A R Y D A T A
TOTAL INCOME.................. 474,617.16
TOTAL EXPENSES................ 26,131.06-
AVERAGE SHARES................ 15,576,702.4786
MAXIMUM OFFERING PRICE........ 5.360000
EXPONENT USED IN FORMULA...... 6
SEC ADVERTISED YIELD.......... 6.533178
<PAGE>
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD HIGH INCOME 000000000000093
SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
- --------- ------------------------- -------- ------------- --------------- -------------------- --------------------
001546AA8 AK STEEL SENIOR NOTES YTM-CALL 1,898.29 7.94674710 STANDARD YTM
00202BAC5 ASIA PULP & PAPER CO. LTD..YTM 10,188.34 12.09490910 STANDARD YTM
002033AA6 A PLUS NETWORK SR SUB NTS..YTM-CALL 5,005.45 96 11.66779390 STANDARD YTM
002786AB7 ABBEY HEALTHCARE SR SUB N YTM-CALL 3,781.69 8.39482570 STANDARD YTM
018593AD5 ALLIANCE ENTER. SR SUB NT YTM-CALL 9,741.08 11.14818010 STANDARD YTM
02744RAA5 AMERICAN MEDIA OPER SR SU YTM-CALL 9,823.73 11.55775840 STANDARD YTM
029717AB1 AMERICAN STANDARD SF DEB SEYTM-CALLIS 3,830.29 UR 8.80032930 ILSTANDARD YTM
029717AH8 AMERICAN STANDARD SR SUB YTM-CALL 6,725.69 7.39801940 STANDARD YTM
03071PAA0 AMERISOURCE PIK DIST SR YTM-CALL 3,274.59 9.41588330 STANDARD YTM
039914AA4 ARGYLE TELEVISION SEYTM IS 8,269.74 UR 9.82575720 ILSTANDARD YTM
05545AAC2 BHP FINANCE MOR ACTUAL 5,102.46 5.78000000
07556QAA3 BEAZER HOME USA SENIOR NO YTM 5,976.13 9.53264260 STANDARD YTM
077852101 BELL & HOWELL COMPANY SEDIVIDENDIS 0.00 UR 0.00000000 IL ZERO ANNUAL RATE
077912AB9 BELL & HOWELL SR NT SER BFOYTM-CALLRI 206.59 HR 9.12245320 STANDARD YTM
089162AA9/UBIG FLOWER PRESS SR SUB N YTM-CALL 8,319.76 9.26254910 STANDARD YTM
089698AB0 BIG V SPRMKT SER B SR SUB YTM 5,370.25 15.25931990 STANDARD YTM
116881AB9 BRUNOS SR SUB NOTES YTM 13,780.42 10.66655980 STANDARD YTM
12686CAD1 CABLEVISION SYST YTM-CALL 12,142.72 9.07650740 STANDARD YTM
12686C406 CABLEVISION SYS CONV PFD DIVIDEND 3,541.80 2.12500000
126915AD9 CABLEVISION INDUSTRIES FOYTM-CALLRI 3,604.68 HR 7.75106190 STANDARD YTM
130209505__CAL FED BK 10 5/8% PFD B __DIVIDEND__ 4,427.10 __ 10.62500000 __
13032RAG0__CALIFORNIA HOTEL SR SUB N__YTM-CALL__ 8,465.95 __ 9.50622470 __STANDARD YTM
181514AC4__CLARK R&M HLDG SR SER A __YTM __ 11,139.39 __ 9.99557420 __STANDARD YTM
199904AB9__COMCAST SER B SR REDEEM N__YTM __ 4,171.98 __ 6.45148400 __STANDARD YTM
210305AB4__CONSOLTEX SER B SR SUB NO__YTM __ 9,964.86 __ 13.08201140 __STANDARD YTM
210741AK0__CONTAINER CP SR NT SER A __YTM-CALL__ 13,733.51 __ 10.49363510 __STANDARD YTM
211177AD2 CONTINENTAL CABLE SR SUB YTM-CALL 4,192.27 9.06276530 STANDARD YTM
211177AE0 CONTINENTAL CABLE SR SUB YTM-CALL 3,960.32 8.39277280 STANDARD YTM
211177AJ9 CONTINENTAL CABLEVISION SSEYTM IS 3,644.89 UR 8.15410650 ILSTANDARD YTM
211177AL4 CONTL CABLEVISION 144A FOYTM RI 2,200.06 HR 8.24604190 STANDARD YTM
252567AB8/UDIAMOND CABLE COMM DISC YTM 756.70 5.41300070 STANDARD YTM
25612TAA1 DR PEPPER BTLG HLDG INC S YTM 981.97 2.80476110 STANDARD YTM
269288AB2 EZ COMMUN SR SUB NOTES YTM-CALL 8,132.71 9.60785560 STANDARD YTM
269612AB3 EAGLE INDUST SR DISC NOTE YTM 2,679.31 2.36526720 STANDARD YTM
297015AB5 ESSEX GROUP INC SR NOTES ..YTM 8,598.62 16 10.39079470 STANDARD YTM
302051AB3 EXIDE CORP SR NOTES ..YTM-CALL 6,060.28 06 8.52092210 STANDARD YTM
302051AC1 EXIDE CORP SR SUB DEF CPN..YTM 711.07 86 1.95577110 STANDARD YTM
302051AE7 EXIDE SR NOTES ..YTM-CALL 7,959.32 00 8.57227660 STANDARD YTM
338473AD3 FLAGSTAR SENIOR NOTES ..YTM 5,060.05 13.02272460 STANDARD YTM
347463AA9 FORT HOWARD PASS THRU CER..YTM 4,231.55 78 9.87612210 STANDARD YTM
361916AK5 GNS FINANCE SR NT SER B YTM-CALL 9,908.31 7.13612880 STANDARD YTM
361933AB0 GNF CORP SERIES B YTM 7,908.84 12.03827050 STANDARD YTM
370299AE9 GENL MED PIK SUB DB SER A YTM 12,006.94 12.87049610 STANDARD YTM
370334MN1 GENERAL MILLS, INC SEACTUAL IS 15,801.42 UR 0.00000000 IL
<PAGE>
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD HIGH INCOME 000000000000093
SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
- --------- ------------------------- -------- ------------- --------------- -------------------- --------------------
370471AC8 GEN NUTRITION SR SUB NOTEFOYTM-CALLRI 1,725.53 HR 5.73920380 STANDARD YTM
387241AE2 GRANITE BRDCST SR SUB NTS YTM-CALL 4,238.90 9.83291650 STANDARD YTM
403916AA7 HMC ACQ PPTYS 144A SR NT YTM 1,494.25 8.86235230 STANDARD YTM
42235WAB4 HEARTLAND WIRELESS 144A USEYTM-CALLIS 4,815.17 UR 10.28564100 ILSTANDARD YTM
433245AB3 HINES HORTICULTURE SR NTS YTM-CALL 163.15 11.23782350 STANDARD YTM
450698AA3 IVAC CORP SENIOR NOTES YTM-CALL 3,705.12 8.47856380 STANDARD YTM
456626AC4 INFINITY BROAD SR SUB NOTSEYTM-CALLIS 7,260.61 UR 7.90137560 ILSTANDARD YTM
456626100 INFINITY BROAD CORP CL A DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
457472AB4 INLAND STEEL NOTES YTM-CALL 4,242.10 8.71855560 STANDARD YTM
480695AC9 JORDAN INDUSTRIES SENIOR SEYTM IS 10,078.27 UR 12.66919100 ILSTANDARD YTM
501044AW1 KROGER SR SUB SER B DEB FOYTM-CALLRI 6,103.37 HR 6.49842060 STANDARD YTM
502175AB8/ULTC PROPERTIES CONVT SUB ACTUAL 6,929.35 8.50000000
502175102 LTC PROPERTIES INC DIVIDEND 5,250.00 1.26000000
521893AB3 LEAR SEATING SUBORDINATED YTM 10,962.82 8.67721400 STANDARD YTM
55272TAA9 MFS COMMUNICATIONS SR DIS YTM 1,901.06 2.67655650 STANDARD YTM
554208AA6 MACANDREWS & FORBES, INC YTM 1,110.76 12.68761780 STANDARD YTM
560319AA3 MAIL-WELL SR SUB NTS FOYTM RI 4,651.81 HR 11.16125160 STANDARD YTM
56632WAA5__MARCUS CABLE SR SUB GTD D__YTM __ 3,213.62 __ 3.33936560 __STANDARD YTM
570387AG5__MARK IV INDUST SR SUB NOT__YTM __ 10,610.16 __ 8.00827240 __STANDARD YTM
591647AA0__METROCALL INC SR SUB NOTE__YTM-CALL__ 4,285.21 __ 9.45841880 __STANDARD YTM
62944TAA3__NVR INC. SENIOR NOTES __YTM __ 9,174.23 __ 10.87231680 __STANDARD YTM
656559AQ4__NORTEK, INC. SR SUB NOTES__YTM __ 4,478.24 __ 11.09999160 __STANDARD YTM
671042AA7__OSI SPECIALTIES SR SUB NO__YTM-CALL__ 1,045.67 __ 5.99655560 __STANDARD YTM __INC BASED ON EFF DT
690057AA2 OUTDOOR SYSTEMS SENIOR NO YTM 9,592.57 11.75498310 STANDARD YTM
690768AG1 OWENS ILLINOIS SR SUB NOT YTM-CALL 6,896.30 7.67223440 STANDARD YTM
69830CAA2 PANAMSAT LP SR SECD NOTESSEYTM-CALLIS 7,229.66 UR 7.72024570 ILSTANDARD YTM
69830CAB0 PANAMSAT LP SR SUB DISC NFOYTM RI 1,872.67 HR 2.63316040 STANDARD YTM
707832AC5/UPENN TRAFFIC SR NOTES YTM 13,797.61 11.37710370 STANDARD YTM
721467AB4 PILGRIM'S PRIDE SR SUB NO YTM 2,978.99 13.32468850 STANDARD YTM
729173AB0 PLITT THEATRES SR SUB NTS YTM 9,847.64 12.73968190 STANDARD YTM
749084AA7 QUORUM HEALTH GROUP SR SU YTM-CALL 7,796.84 7.96266390 STANDARD YTM
749084AB5 QUORUM HEALTH SR SUB NTS ..YTM-CALL 7,146.66 16 8.07114390 STANDARD YTM
749280AA1 RBX CORP 144A SR SUB NOTE..YTM 4,800.52 06 11.41588440 STANDARD YTM
751258AA2 RALPHS GROCERY SR NOTES ..YTM 8,890.21 86 10.17951270 STANDARD YTM
767147AC5 RIO HOTEL SR SUB NOTE ..YTM 9,113.89 00 10.20729620 STANDARD YTM
781903AD1 RUSSELL METALS INC ..YTM 4,671.47 11.11851430 STANDARD YTM
803111MN0 SARA LEE CORP ..ACTUAL 3,009.69 78 0.00000000
809337AA6 SCOTSMAN GROUP SENIOR NOT YTM 3,980.55 9.24196160 STANDARD YTM
825390AB3 SHOWBOAT 1ST MTG BONDS YTM 7,798.39 9.17832380 STANDARD YTM
827048AB5 SILGAN CORP SR SUB DEB YTM 319.04 0.81464170 STANDARD YTM
829226AA7 SINCLAIR BROAD SR SUB NOTSEYTM IS 3,136.88 UR 9.63281750 ILSTANDARD YTM
829226AB5 SINCLAIR BROADCAST SR SUB YTM-CALL 4,464.10 10.28018690 STANDARD YTM
829226109 SINCLAIR BROADCASTING GRP DIVIDEND 0.00 0.00000000 ZERO ANNUAL RATE
843584AA1 SOUTHERN PAC RAIL SENIOR SEYTM-CALLIS 6,069.34 UR 7.22555470 ILSTANDARD YTM
<PAGE>
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD HIGH INCOME 000000000000093
SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
- --------- ------------------------- -------- ------------- --------------- -------------------- --------------------
847499AC4 SPECIALTY FOODS SR NTS B FOYTM RI 9,574.22 HR 11.73008520 STANDARD YTM
847499AF7 SPECIALTY FOODS SR NTS YTM 9,936.33 11.77261560 STANDARD YTM
870426AA1 SWEETHEART CUP YTM 6,728.63 10.35021430 STANDARD YTM
88033GAA8 TENET HEALTHCARE CORP SEYTM IS 7,258.56 UR 7.67720230 ILSTANDARD YTM
895912AC7 TRIANGLE PACIFIC CORP SR YTM-CALL 8,707.31 9.21532580 STANDARD YTM
89816MAA6 TRUMP HLDGS FDNG SENIOR N YTM 13,076.65 14.13192180 STANDARD YTM
898168109 TRUMP HOTELS & CASINO RESSEDIVIDENDIS 0.00 UR 0.00000000 IL ZERO ANNUAL RATE
900262AR7 TURNER BROADCASTING FOYTM RI 7,179.01 HR 7.96803550 STANDARD YTM
902933AB6/UUCAR GLOBAL SR SUB YTM 2,521.92 9.41430120 STANDARD YTM
90329KAA8 USA MOBILE SENIOR NOTES YTM 4,150.54 9.67822010 STANDARD YTM
910734AC6 UTD INTL HLDG DISC NOTE YTM 6,653.15 12.72482000 STANDARD YTM
911596MN1 U S BANCORP ACTUAL 1,907.80 0.00000000
911920AB2 U.S. HOME CORP SENIOR NOT YTM-CALL 1,728.34 9.31137480 STANDARD YTM
913008AB4 UTD STATIONER SR SUB FOYTM-CALLRI 5,166.54 HR 11.17192450 STANDARD YTM
925524AC4__VIACOM INTL __YTM __ 13,659.87 __ 7.75373290 __STANDARD YTM
931154AC2__WALBRO SENIOR NOTES __YTM __ 4,306.70 __ 9.91482630 __STANDARD YTM
93317Q105__WALTER INDUSTRIES INC __DIVIDEND__ 0.00 __ 0.00000000 __ __ZERO ANNUAL RATE
960386AA8__WESTINGHOUSE AIR BRAKE SR__YTM __ 3,855.02 __ 8.70518980 __STANDARD YTM
961238AB8__WESTPOINT STEVENS SR SUB __YTM __ 8,023.99 __ 9.57116020 __STANDARD YTM
969307AF4__WILLIAMHOUSE SR SUB DEB __YTM __ 812.60 __ 11.67498900 __STANDARD YTM __INC BASED ON EFF DT
<PAGE>
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD HIGH INCOME 000000000000093
S U M M A R Y D A T A
TOTAL INCOME.................. 623,380.72
TOTAL EXPENSES................ 35,255.21-
AVERAGE SHARES................ 17,964,439.3939
MAXIMUM OFFERING PRICE........ 4.440000
EXPONENT USED IN FORMULA...... 6
SEC ADVERTISED YIELD.......... 9.012906
<PAGE>
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD LIMITED-TERM BOND 000000000000099
SECURITY SHORT NAME METHOD INCOME ANNUAL RATE COMMENT CALCULATION ERROR
- --------- ------------------------- -------- ------------- --------------- -------------------- --------------------
02635KBU7 AMERICAN GENERAL FINANCE YTM 262.20 5.65181640 STANDARD YTM
026609AD9 AMERICAN HOME PRODUCTS FOYTM RI 537.15 HR 5.76641630 STANDARD YTM
046003EW5/UASSOC CORP N.A. YTM 559.42 5.97592470 STANDARD YTM
053528BW4 AVCO FINANCIAL SERVICES YTM 250.98 5.96492820 STANDARD YTM
055625AD9 BP AMERICA YTM 263.79 5.50577520 STANDARD YTM
066050BH7 BANKAMERICA CORP 9.7 YTM 598.66 5.96775670 STANDARD YTM
071813AC3 BAXTER INTL ..YTM 256.66 86 5.74975890 STANDARD YTM
096650AB2 BOATMENS BANCSHARES ..YTM 304.08 24 6.20097360 STANDARD YTM
122014AD5 BURLINGTON RESOURCE DEB ..YTM 726.83 29 6.05024380 STANDARD YTM
16675HAF9 CHEVRON CORP ..YTM 312.76 00 6.49929080 STANDARD YTM
209615BH5 CONSOL NAT GAS ..YTM 269.94 5.78940310 STANDARD YTM
31331CDP0 FEDERAL EXPRESS ..YTM 557.13 46 5.83740940 STANDARD YTM
31358UPV2 FNMA REMIC 1993-43 C MORTGAGE 138.89 5.00000000 NO PAYDOWN
313615SE7 FNMA # 50917 MORTGAGE 403.41 6.00000000
31363WBL8 FNMA PASS THRU #100042 MORTGAGE 291.59 11.00000000
345397GM9 FORD MOTOR CREDIT F8 SEYTM IS 404.87 UR 5.91419360 ILSTANDARD YTM
36203R4H9 GNMA #357324 FOMORTGAGERI 506.34 HR 7.00000000
370334MN1/UGENERAL MILLS, INC ACTUAL 466.85 0.00000000
370424GG2 GMAC YTM 549.61 5.96346010 STANDARD YTM
370442AP0 GENERAL MOTORS GM INDUSTR YTM 250.17 5.58770770 STANDARD YTM
441812CE2 HOUSEHOLD FIN CO YTM 253.09 5.64183730 STANDARD YTM
449909AA8 ICI WILMINGTON ..YTM 441.89 50 6.04537730 STANDARD YTM
45068HAB2 ITT HARTFORD ..YTM 249.19 09 5.73765020 STANDARD YTM
456866AF9 INGERSOLL RAND ..YTM 259.60 52 5.92678850 STANDARD YTM
628855AM0 NCNB CORP ..YTM 437.08 00 10.14659310 STANDARD YTM
669383CV1 NORWEST FINL INC ..YTM 277.41 5.87244960 STANDARD YTM
708160AY2 JC PENNEY DEBENTURES YTM 520.20 5.55808960 STANDARD YTM
731095AD7 POLAROID CORP YTM 470.12 6.03674240 STANDARD YTM
803111MN0 SARA LEE CORP SEACTUAL IS 3.10-UR 0.00000000 IL
812387AX6 SEARS ROEBUCK CO FOYTM RI 529.50 HR 5.66347620 STANDARD YTM
881685AM3/UTEXACO CAPITAL YTM 279.38 5.80495160 STANDARD YTM
893502BH6 TRANSAMERICA FIN YTM 279.40 5.91253010 STANDARD YTM
911596MN1 U S BANCORP ACTUAL 319.28 0.00000000
912827G55 US TREASURY NOTE YTM 248.49 5.48876560 STANDARD YTM
912827J78 US TREASURY NOTE ..YTM 496.23 06 5.50605240 STANDARD YTM
941063AH2 WASTE MANAGEMENT NOTES ..ACTUAL 112.41 90 6.25000000
949740BV5 WELLS FARGO & COMPANY ..YTM 580.96 92 6.09868370 STANDARD YTM
983901BK4 XEROX CREDIT ..ACTUAL 252.33 00 6.25000000
<PAGE>
SEC ADVERTISING YIELD SECURITY INCOME DETAIL
FOR THE PERIOD 12/01/95 THROUGH 12/31/95
TMK/UTD LIMITED-TERM BOND 000000000000099
S U M M A R Y D A T A
TOTAL INCOME.................. 13,914.79
TOTAL EXPENSES................ 1,693.54
AVERAGE SHARES................ 506,766.7958
MAXIMUM OFFERING PRICE........ 5.250000
EXPONENT USED IN FORMULA...... 6
SEC ADVERTISED YIELD.......... 7.144020
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 10
<NAME> ASSET STRATEGY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 4,327,758
<INVESTMENTS-AT-VALUE> 4,273,777
<RECEIVABLES> 67,417
<ASSETS-OTHER> 31
<OTHER-ITEMS-ASSETS> 3,628
<TOTAL-ASSETS> 4,344,853
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 911
<TOTAL-LIABILITIES> 911
<SENIOR-EQUITY> 8,664
<PAID-IN-CAPITAL-COMMON> 4,389,259
<SHARES-COMMON-STOCK> 866,421
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (53,981)
<NET-ASSETS> 4,343,942
<DIVIDEND-INCOME> 740
<INTEREST-INCOME> 72,008
<OTHER-INCOME> 0
<EXPENSES-NET> (12,471)
<NET-INVESTMENT-INCOME> 60,277
<REALIZED-GAINS-CURRENT> 4,660
<APPREC-INCREASE-CURRENT> (53,981)
<NET-CHANGE-FROM-OPS> 10,956
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (59,911)
<DISTRIBUTIONS-OF-GAINS> (5,026)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 876,052
<NUMBER-OF-SHARES-REDEEMED> (22,586)
<SHARES-REINVESTED> 12,955
<NET-CHANGE-IN-ASSETS> 4,343,942
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,471
<AVERAGE-NET-ASSETS> 2,033,967
<PER-SHARE-NAV-BEGIN> 5
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> .02
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.01
<EXPENSE-RATIO> .91
<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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 35,830,689
<INVESTMENTS-AT-VALUE> 35,830,689
<RECEIVABLES> 2,858,088
<ASSETS-OTHER> 894
<OTHER-ITEMS-ASSETS> 20,525
<TOTAL-ASSETS> 38,710,196
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,837,952
<TOTAL-LIABILITIES> 1,837,952
<SENIOR-EQUITY> 368,722
<PAID-IN-CAPITAL-COMMON> 36,503,522
<SHARES-COMMON-STOCK> 36,872,244
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 36,872,244
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,755,470
<OTHER-INCOME> 0
<EXPENSES-NET> (181,395)
<NET-INVESTMENT-INCOME> 1,574,075
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,574,075
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,574,075)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 169,760,641
<NUMBER-OF-SHARES-REDEEMED> (165,274,550)
<SHARES-REINVESTED> 1,573,890
<NET-CHANGE-IN-ASSETS> 6,059,981
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 147,383
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 181,395
<AVERAGE-NET-ASSETS> 29,024,889
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .62
<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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 2
<NAME> BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 83,050,177
<INVESTMENTS-AT-VALUE> 87,311,946
<RECEIVABLES> 1,376,700
<ASSETS-OTHER> 951
<OTHER-ITEMS-ASSETS> 3,039
<TOTAL-ASSETS> 88,692,636
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 123,129
<TOTAL-LIABILITIES> 123,129
<SENIOR-EQUITY> 165,265
<PAID-IN-CAPITAL-COMMON> 86,745,629
<SHARES-COMMON-STOCK> 16,526,517
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,603,035)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,261,648
<NET-ASSETS> 88,569,507
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,004,853
<OTHER-INCOME> 0
<EXPENSES-NET> (493,161)
<NET-INVESTMENT-INCOME> 5,511,692
<REALIZED-GAINS-CURRENT> 882,169
<APPREC-INCREASE-CURRENT> 8,857,982
<NET-CHANGE-FROM-OPS> 15,251,843
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,517,200)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,918,955
<NUMBER-OF-SHARES-REDEEMED> (2,040,023)
<SHARES-REINVESTED> 1,029,828
<NET-CHANGE-IN-ASSETS> 14,552,657
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 440,716
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 493,161
<AVERAGE-NET-ASSETS> 81,914,510
<PER-SHARE-NAV-BEGIN> 4.74
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> .62
<PER-SHARE-DIVIDEND> (0.36)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.36
<EXPENSE-RATIO> .6
<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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 3
<NAME> HIGH INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 80,014,254
<INVESTMENTS-AT-VALUE> 83,385,929
<RECEIVABLES> 3,457,521
<ASSETS-OTHER> 1,131
<OTHER-ITEMS-ASSETS> 22,283
<TOTAL-ASSETS> 86,866,864
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 180,671
<TOTAL-LIABILITIES> 180,671
<SENIOR-EQUITY> 195,030
<PAID-IN-CAPITAL-COMMON> 86,308,522
<SHARES-COMMON-STOCK> 19,503,038
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,189,034)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,371,675
<NET-ASSETS> 86,686,193
<DIVIDEND-INCOME> 120,000
<INTEREST-INCOME> 7,888,184
<OTHER-INCOME> 0
<EXPENSES-NET> (578,211)
<NET-INVESTMENT-INCOME> 7,429,973
<REALIZED-GAINS-CURRENT> (1,443,930)
<APPREC-INCREASE-CURRENT> 7,364,701
<NET-CHANGE-FROM-OPS> 13,350,744
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,429,973)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,353,273
<NUMBER-OF-SHARES-REDEEMED> (2,189,523)
<SHARES-REINVESTED> 1,672,287
<NET-CHANGE-IN-ASSETS> 14,042,518
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 527,940
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 578,211
<AVERAGE-NET-ASSETS> 80,285,935
<PER-SHARE-NAV-BEGIN> 4.11
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> .33
<PER-SHARE-DIVIDEND> (.42)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.44
<EXPENSE-RATIO> .72
<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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 4
<NAME> GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 390,533,434
<INVESTMENTS-AT-VALUE> 423,841,168
<RECEIVABLES> 3,044,546
<ASSETS-OTHER> 2,035
<OTHER-ITEMS-ASSETS> 3,825
<TOTAL-ASSETS> 426,891,574
<PAYABLE-FOR-SECURITIES> 7,938,034
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 127,856
<TOTAL-LIABILITIES> 8,065,890
<SENIOR-EQUITY> 613,573
<PAID-IN-CAPITAL-COMMON> 384,904,377
<SHARES-COMMON-STOCK> 61,357,269
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 33,307,734
<NET-ASSETS> 418,825,684
<DIVIDEND-INCOME> 5,426,450
<INTEREST-INCOME> 1,769,687
<OTHER-INCOME> 0
<EXPENSES-NET> (2,575,241)
<NET-INVESTMENT-INCOME> 4,620,896
<REALIZED-GAINS-CURRENT> 64,283,233
<APPREC-INCREASE-CURRENT> 42,925,336
<NET-CHANGE-FROM-OPS> 111,829,465
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,621,508)
<DISTRIBUTIONS-OF-GAINS> (64,282,621)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,244,920
<NUMBER-OF-SHARES-REDEEMED> (3,897,735)
<SHARES-REINVESTED> 10,094,216
<NET-CHANGE-IN-ASSETS> 142,089,049
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,425,494
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,575,241
<AVERAGE-NET-ASSETS> 342,611,377
<PER-SHARE-NAV-BEGIN> 5.90
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 2.19
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (1.26)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.83
<EXPENSE-RATIO> .75
<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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 5
<NAME> INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 249,680,362
<INVESTMENTS-AT-VALUE> 330,032,290
<RECEIVABLES> 1,266,075
<ASSETS-OTHER> 1,111
<OTHER-ITEMS-ASSETS> 5,663
<TOTAL-ASSETS> 331,305,139
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 111,107
<TOTAL-LIABILITIES> 111,107
<SENIOR-EQUITY> 381,755
<PAID-IN-CAPITAL-COMMON> 250,462,056
<SHARES-COMMON-STOCK> 38,175,493
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,764)
<ACCUM-APPREC-OR-DEPREC> 80,351,985
<NET-ASSETS> 331,194,032
<DIVIDEND-INCOME> 4,228,980
<INTEREST-INCOME> 988,611
<OTHER-INCOME> 0
<EXPENSES-NET> (2,105,364)
<NET-INVESTMENT-INCOME> 3,112,227
<REALIZED-GAINS-CURRENT> 5,870,913
<APPREC-INCREASE-CURRENT> 63,977,939
<NET-CHANGE-FROM-OPS> 72,961,079
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,112,674)
<DISTRIBUTIONS-OF-GAINS> (5,407,615)
<DISTRIBUTIONS-OTHER> (1,764)
<NUMBER-OF-SHARES-SOLD> 7,529,946
<NUMBER-OF-SHARES-REDEEMED> (2,657,368)
<SHARES-REINVESTED> 982,290
<NET-CHANGE-IN-ASSETS> 112,420,430
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,979,061
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,105,364
<AVERAGE-NET-ASSETS> 274,289,675
<PER-SHARE-NAV-BEGIN> 6.77
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 2.05
<PER-SHARE-DIVIDEND> (0.08)
<PER-SHARE-DISTRIBUTIONS> (0.15)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.68
<EXPENSE-RATIO> .77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 6
<NAME> INTERNATIONAL PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 48,903,120
<INVESTMENTS-AT-VALUE> 49,908,626
<RECEIVABLES> 311,389
<ASSETS-OTHER> 309
<OTHER-ITEMS-ASSETS> 3,210
<TOTAL-ASSETS> 50,223,534
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,189
<TOTAL-LIABILITIES> 27,189
<SENIOR-EQUITY> 95,087
<PAID-IN-CAPITAL-COMMON> 49,201,903
<SHARES-COMMON-STOCK> 9,508,741
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (105,777)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,005,132
<NET-ASSETS> 50,196,345
<DIVIDEND-INCOME> 557,709
<INTEREST-INCOME> 638,648
<OTHER-INCOME> 0
<EXPENSES-NET> (404,675)
<NET-INVESTMENT-INCOME> 791,682
<REALIZED-GAINS-CURRENT> (155,262)
<APPREC-INCREASE-CURRENT> 1,669,228
<NET-CHANGE-FROM-OPS> 2,305,648
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (721,188)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,011,325
<NUMBER-OF-SHARES-REDEEMED> (850,796)
<SHARES-REINVESTED> 136,620
<NET-CHANGE-IN-ASSETS> 24,176,711
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 321,777
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 404,675
<AVERAGE-NET-ASSETS> 39,835,764
<PER-SHARE-NAV-BEGIN> 4.99
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> .28
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.28
<EXPENSE-RATIO> 1.02
<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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 7
<NAME> SMALL CAP PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 46,408,221
<INVESTMENTS-AT-VALUE> 55,359,811
<RECEIVABLES> 674,683
<ASSETS-OTHER> 291
<OTHER-ITEMS-ASSETS> 7,561
<TOTAL-ASSETS> 56,042,346
<PAYABLE-FOR-SECURITIES> 439,830
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,069
<TOTAL-LIABILITIES> 450,899
<SENIOR-EQUITY> 72,260
<PAID-IN-CAPITAL-COMMON> 46,567,597
<SHARES-COMMON-STOCK> 7,226,046
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,951,590
<NET-ASSETS> 55,591,447
<DIVIDEND-INCOME> 3,340
<INTEREST-INCOME> 960,351
<OTHER-INCOME> 0
<EXPENSES-NET> (338,221)
<NET-INVESTMENT-INCOME> 625,470
<REALIZED-GAINS-CURRENT> 1,011,622
<APPREC-INCREASE-CURRENT> 7,643,311
<NET-CHANGE-FROM-OPS> 9,280,403
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (625,470)
<DISTRIBUTIONS-OF-GAINS> (1,011,622)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,818,197
<NUMBER-OF-SHARES-REDEEMED> (488,640)
<SHARES-REINVESTED> 212,809
<NET-CHANGE-IN-ASSETS> 39,511,285
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 302,739
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 338,221
<AVERAGE-NET-ASSETS> 35,349,540
<PER-SHARE-NAV-BEGIN> 5.99
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 1.85
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.15)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.69
<EXPENSE-RATIO> .96
<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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 8
<NAME> BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 21,115,629
<INVESTMENTS-AT-VALUE> 23,381,142
<RECEIVABLES> 219,491
<ASSETS-OTHER> 182
<OTHER-ITEMS-ASSETS> 5,157
<TOTAL-ASSETS> 23,605,972
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,100
<TOTAL-LIABILITIES> 3,100
<SENIOR-EQUITY> 40,005
<PAID-IN-CAPITAL-COMMON> 21,297,354
<SHARES-COMMON-STOCK> 4,000,473
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,265,513
<NET-ASSETS> 23,602,872
<DIVIDEND-INCOME> 264,024
<INTEREST-INCOME> 362,196
<OTHER-INCOME> 0
<EXPENSES-NET> (114,908)
<NET-INVESTMENT-INCOME> 511,312
<REALIZED-GAINS-CURRENT> 375,170
<APPREC-INCREASE-CURRENT> 2,500,947
<NET-CHANGE-FROM-OPS> 3,387,429
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (511,312)
<DISTRIBUTIONS-OF-GAINS> (371,952)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,264,439
<NUMBER-OF-SHARES-REDEEMED> (170,404)
<SHARES-REINVESTED> 149,718
<NET-CHANGE-IN-ASSETS> 14,931,804
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96,718
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 114,908
<AVERAGE-NET-ASSETS> 15,900,988
<PER-SHARE-NAV-BEGIN> 4.94
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.10)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.90
<EXPENSE-RATIO> 0.72
<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, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000810016
<NAME> TMK/UNITED FUNDS, INC.
<SERIES>
<NUMBER> 9
<NAME> LIMITED-TERM BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 2,683,860
<INVESTMENTS-AT-VALUE> 2,775,697
<RECEIVABLES> 73,981
<ASSETS-OTHER> 98
<OTHER-ITEMS-ASSETS> 4,043
<TOTAL-ASSETS> 2,853,819
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 340
<TOTAL-LIABILITIES> 340
<SENIOR-EQUITY> 5,433
<PAID-IN-CAPITAL-COMMON> 2,756,209
<SHARES-COMMON-STOCK> 543,300
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 91,837
<NET-ASSETS> 2,853,479
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 161,200
<OTHER-INCOME> 0
<EXPENSES-NET> (16,457)
<NET-INVESTMENT-INCOME> 144,743
<REALIZED-GAINS-CURRENT> 10,804
<APPREC-INCREASE-CURRENT> 139,524
<NET-CHANGE-FROM-OPS> 295,071
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (144,743)
<DISTRIBUTIONS-OF-GAINS> (10,804)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 294,605
<NUMBER-OF-SHARES-REDEEMED> (119,359)
<SHARES-REINVESTED> 29,626
<NET-CHANGE-IN-ASSETS> 1,208,333
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 12,948
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 16,457
<AVERAGE-NET-ASSETS> 2,327,244
<PER-SHARE-NAV-BEGIN> 4.86
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> .41
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.25
<EXPENSE-RATIO> .71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
April 29, 1996
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
RE: TMK/United Funds, Inc.
Post-Effective Amendment No. 13
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Very truly yours,
Sharon K. Pappas
General Counsel
SKP/sw
