<PAGE>
UNITED INTERNATIONAL GROWTH INVESTMENT PROGRAMS
October 15, 1994
United International Growth Investment Programs offer you a flexible means
to indirectly accumulate shares of United International Growth Fund, Inc. (the
"Fund"). The Fund seeks as its primary objective the long-term appreciation of
your investment, with income only a secondary objective.
The Programs, called Variable Investment Programs, provide for regular
monthly investment payments from $30 to $625 over a ten-year period, but also
provide flexibility by permitting payments to be made at any time you prefer and
in any multiple of the monthly payment. A minimum of at least one monthly
payment is required to start a Program. Sales charges range from 7.10% of total
payments for a $3,600 Program to 5.30% of total payments for a $75,000 Program
(7.64% and 5.60% of the net amount invested). On a $3,600 Program, a sales
charge of 50% of the payment is deducted from the first 12 payments and 2.33% is
deducted on all subsequent payments. Total deductions for sales charges and
custodian fees range from 9.61% to 5.81% of the net amount invested. In
addition there is an administrative fee. You should not undertake a Variable
Investment Program unless you intend to complete it. You would probably incur a
loss if you terminated your Program in the early years. If you terminate your
Program at the end of one year, the total charges amount to 51.67% of the amount
paid in; at the end of two years, 27.83% of the amount paid in; and at the end
of three years, 19.89% of the amount paid in. See the tables on pages 2 and 3
for deductions. Since the Programs are designed as a long-range investment, you
should take into account your financial ability to continue your Program through
periods of low price levels as well as through periods of high price levels.
You will suffer a loss if you terminate your Program when the value of the Fund
shares held under your Program is less than their cost.
You have the right to a 45-day refund of the value of your account plus
sales charges and custodian fees deducted from payments or a limited refund of
your investment for certain periods of time and under the conditions described
in more detail on page 5.
FUND SHARES ARE ALSO AVAILABLE FOR OUTRIGHT PURCHASES UNDER AN OPEN
PURCHASE ACCOUNT AT A SALES CHARGE NOT IN EXCESS OF 5.75% OF THE OFFERING PRICE
WITHOUT PENALTY FOR EARLY TERMINATION AND WITHOUT DEDUCTIONS OF CUSTODIAN AND
ADMINISTRATIVE FEES, AS SET FORTH IN THE FUND PROSPECTUS. A comparison of the
sales charges of a Variable Investment Program with an Open Purchase Account is
shown on page 4.
- ------------------------------
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.
- ------------------------------
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY
THE CURRENT PROSPECTUS OF UNITED INTERNATIONAL GROWTH FUND, INC.
Retain This Prospectus for Future Reference
<PAGE>
Payments, less authorized deductions, are applied to the purchase of Fund
shares at net asset value. Information regarding the investment portfolio,
investment research and supervision, officers and directors and other pertinent
aspects of the Fund's business is stated in the accompanying Fund Prospectus and
in the Statement of Additional Information for the Fund. The redemption value
of a Program at any time will depend upon the then net asset value of Fund
shares held in the account under the Program.
Variable Investment Programs
Variable Investment Programs are designed for both those who desire to make
regular monthly payments for ten years and those who desire flexibility in
making payments to buy an interest in a professionally managed portfolio of
securities. The Program provides for regular monthly investments in shares of
United International Growth Fund, Inc. The table below shows how monthly
payments may be fitted to your individual resources and needs. The payments
range from a minimum of $30 to a maximum of $625 per month over a ten-year
period. Payments you make under a Program, after deductions for sales and other
charges described below, are invested in Fund shares at the net asset value next
determined. Naturally, there are market risks inherent in any investment in
equity securities and your Program does not assure you of a fixed amount of
capital upon completion of the Program.
<TABLE>
ALLOCATION OF PAYMENTS BETWEEN PURCHASE OF FUND SHARES AND DEDUCTIONS
<CAPTION>
% of
Total Deductions
------------------
Sales Charge(A) To Com-
-------------- Percent Custodian Fee pletion
Com- Pay- Pay- Total of Com- ------------- Total Net Amount To Net
Pay- pletion ment ment Sales pletion Per Deduction Amount In- of Amount
ment Amount 1-12 13-120 Charge Amount Payment Total Amount(B) vested(C) Program Invested
- --------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 30 $ 3,600 $ 15.00 $ .70 $ 255.60 7.10% $ .50 $ 60.00 $ 315.60 $ 3,284.40 8.77% 9.61%
40 4,800 20.00 .90 337.20 7.03 .60 72.00 409.20 4,390.80 8.53 9.32
50 6,000 25.00 1.10 418.80 6.98 .70 84.00 502.80 5,497.20 8.38 9.15
60 7,200 30.00 1.30 500.40 6.95 .80 96.00 596.40 6,603.60 8.28 9.03
70 8,400 35.00 1.50 582.00 6.93 .90 108.00 690.00 7,710.00 8.21 8.95
80 9,600 40.00 1.70 663.60 6.91 1.00 120.00 783.60 8,816.40 8.16 8.89
90 10,800 45.00 1.90 745.20 6.90 1.10 132.00 877.20 9,922.80 8.12 8.84
100 12,000 50.00 2.10 826.80 6.89 1.20 144.00 970.80 11,029.20 8.09 8.80
125 15,000 62.50 2.10 976.80 6.51 1.20 144.00 1,120.80 13,879.20 7.47 8.08
150 18,000 75.00 2.10 1,126.80 6.26 1.20 144.00 1,270.80 16,729.20 7.06 7.60
200 24,000 100.00 2.10 1,426.80 5.95 1.20 144.00 1,570.80 22,429.20 6.55 7.00
250 30,000 125.00 2.10 1,726.80 5.76 1.20 144.00 1,870.80 28,129.20 6.24 6.65
350 42,000 175.00 2.10 2,326.80 5.54 1.20 144.00 2,470.80 39,529.20 5.88 6.25
500 60,000 250.00 2.10 3,226.80 5.38 1.20 144.00 3,370.80 56,629.20 5.62 5.95
625 75,000 312.50 2.10 3,976.80 5.30 1.20 144.00 4,120.80 70,879.20 5.49 5.81
(A) When multiple payments are made, the amounts increase in proportion to the
number of payments.
(B) The above schedule does not include an administrative fee per Program,
currently not exceeding $2.00 per year, to cover certain administrative
expenses actually incurred, which may be increased by the Sponsor to not
more than $4.00 per year should administrative costs increase in future
years. The fee is deducted annually first from dividends and then
distributions and, if these are not sufficient, by redemption of Fund
shares at the option of the Sponsor (see page 9).
(C) These figures do not include any income dividends or capital gains
distributions received on Fund shares.
</TABLE>
<TABLE>
MINIMUM VARIABLE INVESTMENT PROGRAMS ($30 MONTHLY)
ALLOCATION OF PAYMENTS AND DEDUCTIONS AT VARIOUS INTERVALS
<CAPTION>
10 Years 6 Months 1 Year 2 Years
(120 Monthly (6 Monthly (12 Monthly (24 Monthly
Program Payments) Program Payments) Program Payments) Program Payments)
------------------ ------------------ ------------------ -------------------
% of % of % of % of
Total Total Total Total
Amount Payments Amount Payments Amount Payments Amount Payments
--------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total monthly
Program
payments ...... $3,600.00 100.00% $180.00 100.00% $360.00 100.00% $720.00 100.00%
Deduct (See Note):
Sales charge .. 255.60 7.10 90.00 50.00 180.00 50.00 188.40 26.16
Custodian
fee ......... 60.00 1.67 3.00 1.67 6.00 1.67 12.00 1.67
--------- ------ ------- ------ ------- ------ ------- ------
Total
deductions .. 315.60 8.77 93.00 51.67 186.00 51.67 200.40 27.83
--------- ------ ------- ------ ------- ------ ------- ------
Net amount
invested
under the
Program ....... $3,284.40 91.23% $ 87.00 48.33% $174.00 48.33% $519.60 72.17%
========= ====== ======= ====== ======= ====== ======= ======
- ---------------
Note: Does not include an administrative fee described below. Does not include
any income dividends or capital gains distributions received on Fund
shares.
</TABLE>
No custodian or administrative fees are deducted in connection with a
direct purchase of Fund shares. Because of these fees, therefore, regardless of
any increase or decrease in the net asset value of Fund shares, if you liquidate
your Program, you would receive less than you would receive from liquidation of
a comparable Open Purchase Account.
After acceptance by Waddell & Reed, Inc., the Sponsor, of your application
for a Program, a Program Certificate registered in your name will be sent to
you.
Each subsequent payment, after authorized deductions, is applied to the
purchase of shares of the Fund at the net asset value in the manner set forth
under the caption "The Custodian." The Fund shares so acquired are credited to
the account under the Program.
A sales charge and a custodian fee are deducted from each payment in an
amount depending on the size of the payment. There is also an administrative
fee per Program of $2.00 per year to cover certain administrative expenses
actually incurred, which may be increased by the Sponsor to not more than $4.00
per year should administrative costs increase in future years. After you have
made all of your Program payments, or, if your payments have been made in
advance, after ten years from the date your Program was commenced, the Custodian
shall receive, in lieu of the deductions from each payment, an annual fee at the
rate of .2 of 1% of the completion amount of your Program, but limited to $20.00
annually. The Custodian also receives this fee on Programs on which no payments
have been made for any twelve-month period after giving credit for advance
payments. The fees are deducted annually first from dividends and then
distributions and, if these are not sufficient, by redemption of Fund shares.
It is the current policy of the Sponsor to waive collection of fees if it
requires redemption of Fund shares. This policy is subject to change at the
option of the Sponsor.
IMPORTANCE OF MAKING PAYMENTS
Under the terms of the Variable Investment Program, it is contemplated that
regular payments that can vary in amounts are to be made monthly but the
Programs also permit advance payments to be made at any time and payments to be
made in arrears if monthly payments have been missed. Convenient remittance
forms for making your next payments will be sent to you with the receipt for
your last payments and a reminder notice will be sent the first time you forget
to make a monthly payment, unless you have made payments in advance.
If 12 monthly payments remain unpaid, whether consecutive or not, the
Sponsor may terminate the Program. In computing the number of monthly payments,
credit will be given for any advance payments previously made. If the Sponsor
elects to terminate the Program, a written notice will be sent to you stating
that, unless at least one monthly payment is made within 60 days, the Program
will be deemed terminated. In the absence of such a payment, you will then have
no further rights under the Program. The Fund shares will be credited to an
account registered in your name unless you request in writing that the shares be
redeemed. Upon termination of your Program, the Custodian will deliver Fund
shares or cash to your last known address.
If the Custodian is unable to deliver the Fund shares or cash to you, it
will continue to hold them for your benefit subject to applicable state laws.
No interest is credited on any cash balance held by the Custodian after
termination.
Because a higher amount is deducted for sales charge from the first 12
payments under a Program than from payments under a comparable Open Purchase
Account and because of the deductions of certain fees (see pages 2 and 3), you
would receive less on liquidation of your Program during the early years than
from liquidation of the Open Purchase Account.
COST COMPARISON
The table shows the comparison of the cost between a Variable Investment
Program (at various payment periods) as contrasted with an Open Purchase Account
for direct purchase of Fund shares. A major portion of the entire sales charge
is deducted from the first 12 payments of a Program as contrasted to an Open
Purchase Account. A higher initial sales charge and deductions under a Program
would result in more shares being purchased during the first 12 months under an
Open Purchase Account.
<TABLE>
VARIABLE INVESTMENT PROGRAM OPEN PURCHASE
($30 Monthly) ACCOUNT**
---------------------------------------------- ---------------------------
<CAPTION>
% of Net % of Net
% of Sales Amount %of Sales Amount
Charge to Invested Total Charge to Invested
Total Sales Total Custodian Total to Total Sales Total Total
Payments Charge Payments Fee Charges* Payments Charge Payments Payments
--------- ------- ---------- --------- -------- -------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Six Months$ 180.00 $ 90.00 50.00% $ 3.00 $ 93.00 48.33% $ 10.35 5.75% 94.25%
One Year 360.00 180.00 50.00 6.00 186.00 48.33 20.70 5.75 94.25
Two Years 720.00 188.40 26.16 12.00 200.40 72.17 41.40 5.75 94.25
Ten Years 3,600.00 255.60 7.10 60.00 315.60 91.23 207.00 5.75 94.25
_______________
*Does not include administrative fee described on page 3.
**Initial payment of $500 is required.
</TABLE>
Except for Programs of a completion amount of $42,000 ($350 monthly) or greater,
the sales charge as a percentage of the completion amount is greater than the
sales charge on the same amount of payments under an Open Purchase Account.
Investor's Rights and Privileges---------------------------------
Advance Payments
Variable Investment Programs do not limit you to monthly payments. You may
make payments in advance at any time and complete your Program at an earlier
date. Payments in advance will not result in any reduction of sales or service
charges and advance payments will not diminish risk of loss should you
discontinue your Program during the early years.
Refund
Within 15 days after your Program Certificate is mailed to you, including a
Program Certificate issued upon an exchange, a statement of the charges to be
deducted from your projected payments will be mailed to you by the Sponsor. If
within 45 days after the statement is mailed, you surrender your Program
Certificate to the Sponsor at its principal offices in Overland Park, Kansas,
you have the right to receive in cash the then value of your account together
with an amount equal to the difference between the gross payments made under the
Program and the net amount invested in Fund shares.
Moreover, you have the right to a refund of the portion of the sales
charges which exceeds 15% of the gross payments you have made plus the then net
asset value of the Fund shares accumulated in your account, provided you
surrender your Certificate so that it is received by the Sponsor at its
principal offices in Overland Park, Kansas, within 18 months of the date the
Certificate representing the Program concerned was issued. In addition, if you
miss any three payments (which need not be consecutive) among the first fifteen
payments due under your Program or any one payment thereafter, but prior to the
due date of the 19th payment, you will receive a separate written notice
informing you of (1) your right to surrender your Program Certificate, (2) the
value of your account at the time of the mailing of the notice, and (3) the
amount to which you are entitled. You will have 15 days from the date of the
notice in which to exercise your right to request a refund.
Automatic Reinvestment of Dividends and Distributions
Income dividends and capital gains distributions, if any, on Fund shares
held in your account under the Program will be automatically reinvested, after
making authorized deductions, in additional Fund shares at the net asset value
next determined without a sales charge on the record date.
Partial Withdrawals and Redeposits
If you have made 18 minimum monthly payments in your Program, you have the
privilege, without terminating your Program, of making partial withdrawals of
cash or Fund shares from your Program. Such partial withdrawals may be made
upon written request to the Sponsor in amounts not less than $250 and not in
excess of 90% of the net asset value of the Fund shares then held in the account
under the Program, provided that the balance of the Fund shares remaining in the
account has a net asset value of at least $100. A partial withdrawal may be
made only with the consent of the Sponsor if requested within six months after
you have made a payment. Only one partial withdrawal may be made in any one
calendar year. A partial withdrawal does not alter the total number of monthly
payments to be made, the due dates of such payments or the unpaid balance of
such payments under the Program.
There is a service charge of $2.50 for each partial withdrawal of cash or
Fund shares.
After 90 days from the time you make a withdrawal and before termination or
exchange of the Program, you have the right to redeposit either cash, if cash
was withdrawn, or Fund shares, if Fund shares were withdrawn. If the redeposit
is in cash, it may not exceed the amount of cash withdrawn; if it is in Fund
shares, it may not exceed the number of Fund shares withdrawn. Each cash
deposit will be applied to the purchase of Fund shares at the net asset value
next determined without a sales charge. The Fund shares so purchased and any
Fund shares deposited will be held for your account subject to all the terms of
the Program. Redeposit is not available where a Program is used to fund a Self-
Employed Retirement Plan (see page 11).
There is a service charge of $1.00 for each redeposit of cash or Fund
shares. In addition, you may authorize partial withdrawals to pay custodial
service fees and other expenses in conjunction with Self-Employed Retirement and
Individual Retirement Plans (see page 11). There is no charge for such a
withdrawal, nor shall it be subject to the general limitations on withdrawals
set forth in this section.
See "Tax Status of Programs" on pages 7 and 8 concerning taxation of
partial withdrawals.
Assignment of Program
You may assign your Program Certificate to a bank or lending institution as
security for a loan; or assign your Program to another person who may either
exercise the right of complete withdrawal or make application for a Program upon
acceptance of which he will succeed to all your rights under the Program. To
make an assignment you must furnish the Sponsor with instructions with your
signature guaranteed by a national bank, a federally chartered savings and loan
or a member of a national stock exchange or other eligible guarantor in
accordance with procedures of the Sponsor. The Program Certificate contains
information on how to make an assignment and how such an assignment may be
released.
There is a service charge of $2.50 for each assignment.
Voting Rights and Financial Information
The Custodian will vote all Fund shares held for your account in the manner
directed by you. If instructions are not received from you, the Custodian will
vote the Fund shares for or against any proposal in the same ratio as it votes
Fund shares as to which instructions are received. Financial and other reports,
notices of shareholders' meetings and proxy statements relating to the Fund
shares will be sent to you.
Completion Options
You have a choice of options as to the disposition of the Fund shares held
in your account under your completed Program. You may elect:
Continued Administration. . .
Leave the Fund shares in your Program account with the Custodian subject to
all the terms, privileges and conditions of the Program Certificate, including
custodian and administrative fees, until 25 years after the commencement of the
Program, and thereafter until the Program is terminated by you or the Sponsor or
the Custodian.
To Receive Fund Shares. . .
Terminate your Program and have the Fund shares registered in your name,
after which you may enjoy any rights or privileges then available to
shareholders of the Fund.
To Receive Cash. . .
Have the Fund shares redeemed at their net asset value and the cash
proceeds paid to you by surrendering your Program Certificate and requesting
cash value of the Fund shares. If Fund shares are redeemed by the Fund by the
delivery of securities or other property, the Custodian may deliver securities
and other property to you in lieu of cash proceeds. You will incur brokerage
costs on the sale of such securities.
Termination
At any time, you may terminate your Program by surrendering your Program
Certificate to the Sponsor with a written request for termination. Thereupon
you shall have the right to receive Fund shares or cash as you may select. Upon
termination, all of your rights under the Program will cease.
Exchange
Your United International Growth Investment Program may be exchanged for a
similar Program of United Income Investment Programs or United Vanguard
Investment Programs.
To qualify for the exchange privilege, you must have owned your Program for
at least 60 days. An exchange will be made upon written request to the Sponsor
and delivery of your Program Certificate.
An exchange is accomplished by redeeming the underlying Fund shares at the
net asset value next determined and reinvesting the proceeds in the underlying
shares of the other Fund at the net asset value. There is a service charge of
$5.00. A new Program Certificate will be issued to you and you will be notified
of the number of underlying shares.
The exercise of this privilege will not in any way alter the payment or
other provisions of the Program or the remaining number of monthly payments to
complete any Variable Investment Program. The Sponsor reserves the right to
terminate this privilege at any time without further notice to you.
Before making the exchange, you should consider the difference in
investment objectives and should realize that the exchange will constitute a
taxable transaction, and any gain or loss will be computed by comparing your
adjusted basis in the Program with the proceeds received from liquidation.
Reinstatement Privilege
If you have terminated your Program, other than through the exercise of the
refund privileges as previously discussed, you may reinstate it or establish a
similar Program in United Income Investment Programs or United Vanguard
Investment Programs by so requesting and returning all the proceeds received
upon termination. The request and proceeds must be received within 30 days
after your request for termination was received by the Sponsor. The proceeds
will be reinvested at the net asset value next determined in shares and held in
the account under your Program. The privilege may be exercised only once with
respect to any particular Variable Investment Program currently offered by
Waddell & Reed, Inc. Reinstatement or the establishment of a similar Program as
provided above does not in any way alter the payment or other provisions of the
Program or the remaining number of monthly payments to complete the Program.
If the shareholder realizes a gain on the redemption of the underlying
shares when the Program is terminated, the transaction is a taxable event and
reinstatement will not alter any tax liability resulting from the capital gain.
If the shareholder realizes a loss and subsequently uses the reinstatement
privilege, some or all of the loss will not be allowed as a tax deduction.
The exercise of certain of the above Rights and Privileges by an investor
who has funded a Self-Employed or Individual Retirement Plan with a Program may
result in adverse tax consequences including the loss of the tax exempt status
of the Plan (see page 11).
Tax Status of Programs--------------------------------------------
The Sponsor is advised by counsel that for Federal income tax purposes an
investor is considered as if he directly owned the Fund shares credited to the
account under his Program. Dividends from the Fund's investment company taxable
income are taxable to you as ordinary income, to the extent of the Fund's
earnings and profits, whether received in cash or reinvested in additional Fund
shares. Distributions of the Fund's realized net capital gains, when designated
as such, are taxable to you as long-term gains, whether received in cash or
reinvested in additional Fund shares and regardless of the length of time you
have owned your shares. It should be noted that dividends or other
distributions on Fund shares paid shortly after making a payment, although in
effect a return of capital, are subject to such income taxes. If you make a
profit in exercising the right of partial withdrawal, or as a result of a
liquidation to pay fees, or upon termination or exchange of your Program, you
are responsible for any resulting tax liability. For additional information see
the accompanying Fund Prospectus.
You will be notified as to the amount and nature of any dividend or capital
gains distribution taxable to you for Federal income tax purposes. Other taxes,
if any, applicable against the Programs as a group, as well as any reasonable
expenses resulting from any possible tax claims, will be paid or reserves
therefor may be established by the Custodian or upon instruction of the Sponsor
and charged to the investors affected in proportion to the number of underlying
Fund shares in the accounts under their respective Programs.
You will be entitled to deduct on your Federal income tax return (for the
year in which such fees were deducted) all applicable custodian and
administrative fees only if you elect to itemize your deductions instead of
claiming the optional standard deduction and only to the extent that these fees,
when combined with certain other expenses, exceed two percent of your adjusted
gross income subject to limitations on the total amount of itemized deductions
allowable. You should consult with your tax adviser regarding your specific
situation.
When Fund shares are credited to your account upon termination of your
Program or upon partial withdrawal of Fund shares, no gain or loss is recognized
for Federal income tax purposes.
The Fund is required to withhold 31% of all dividends, distributions and
redemption proceeds payable to you if you have not complied with the provisions
of the Internal Revenue Code relating to the furnishing of the tax
identification numbers and reporting of dividend and interest income.
Withholding at that rate from dividends and distributions also is required from
such shareholders who otherwise are subject to backup withholding.
Authorized Changes in Programs------------------------------------
The terms of the Programs may be changed and the Custodian Agreement may be
amended by agreement between the Sponsor and the Custodian. No change can be
made which adversely affects your substantive rights without your consent. The
Sponsor may substitute a new Custodian. You will be given notice of any such
substitution.
If United International Growth Fund, Inc. should cease (other than for a
temporary period) to offer the Fund shares for the Programs at the net asset
value without a sales charge, the Sponsor shall obtain the approval of the
Securities and Exchange Commission for any substitution of Fund shares so long
as such approval is required under the Investment Company Act of 1940. The
substituted investment generally must be shares of an open-end investment
company generally comparable in quality and investment objectives to United
International Growth Fund, Inc.
The Sponsor or the Custodian will notify you of any proposed substitution
of shares and advise you that unless you surrender your Program Certificate
within 40 days you will be deemed to have agreed to the substitution and to the
payment of your pro rata share of the actual expenses in connection therewith,
including tax liability, if any.
The Custodian-----------------------------------------------------
State Street Bank and Trust Company, 53 State Street, Boston,
Massachusetts, is the Custodian of the Programs. It is a Massachusetts banking
corporation subject to the supervision of state banking authorities. The
Custodian does not perform any management, supervisory or investment functions.
It affords no protection against possible decline in the value of Fund shares.
The Custodian maintains custody of the assets of the Programs. Its duties
relate principally to receiving the investor's payments; applying them to the
purchase of the Fund shares after making authorized deductions; holding the Fund
shares in its custody and receiving the dividends and distributions thereon;
reinvesting such dividends and distributions in additional Fund shares;
terminating Programs; and maintaining the records of each account. Payments made
under Programs are invested in Fund shares at the net asset value per share
calculated, in the manner set forth in the Fund Prospectus, as of the next close
of the regular session of the New York Stock Exchange after receipt of payment.
The Custodian is responsible for mailing to investors a receipt for each
payment; statements of the number of Fund shares held under the Program;
statement of deductions; notice of right of withdrawal; periodic reports of the
Fund; notices to shareholders, including distribution and tax statements, voting
material, etc.; causing periodic audits to be made of the Programs' records;
and preparing and filing tax and other reports required by law.
The Custodian has delegated all of these duties, other than maintaining
custody of the assets of the Programs, to the Sponsor; therefore, the Sponsor
receives all of the administrative fees and service charges described in this
Prospectus. The fees paid to the Sponsor do not exceed its costs in performing
the duties delegated to it. In the event that the Sponsor should fail or refuse
to perform these delegated duties, the Custodian is responsible for performing
them itself or appointing another person to perform them.
The Custodian is obligated to perform such duties and only such duties as
are specifically set forth in the Custodian Agreement and the Program
Certificates, and no implied obligations are read into the Custodian Agreement
or the Program Certificates against the Custodian, and in the absence of bad
faith on its part, the Custodian may conclusively rely as to the truth of the
statements and the correctness of the opinions expressed therein upon any
instruments, certificates, opinions or other writing furnished to the Custodian
and conforming to the requirements of the Custodian Agreement. The Custodian is
not responsible for any statements of fact contained in the Custodian Agreement
or the Program Certificates nor for the contents of this Prospectus. The
Custodian makes no representations as to the Programs or the securities issued
in connection therewith or as to the validity, legality or enforceability of the
Programs or of the securities, and the Custodian shall incur no liability or
responsibility in respect of any such matters. The Custodian is liable only for
its willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties.
The Custodian may commingle cash received from, and income received for,
the account of each investor with payments and income received from or for the
account of other investors pursuant to the Custodian Agreement and outstanding
Programs. The Custodian may deposit the funds in a general trust account or
accounts in its own bank or otherwise and is authorized to commingle Fund shares
and certificates, if any, therefor purchased for each investor with Fund shares
and certificates, if any, therefor purchased for other investors pursuant to the
Custodian Agreement and outstanding Programs and cause certificates, if any, for
such Fund shares to be registered in its name as Custodian or in the name of its
nominee or nominees.
Neither the Custodian nor the Sponsor shall bear any portion of any tax
levied or assessed against them or either of them or the custodianship with
respect to the Fund shares or with respect to any phase of the operations of the
custodianship or the income from the Fund shares or the sale or transfer
thereof.
The Custodian may not resign its custodianship unless a successor Custodian
has been designated and has accepted the custodianship, or the property held by
the Custodian for all accounts has been completely distributed or liquidated and
the proceeds of the liquidation distributed to the investors. Such successor
must be a bank or trust company having an aggregate capital, surplus and
undivided profits of at least $1,000,000.
The Sponsor-------------------------------------------------------
The Sponsor of the Programs is Waddell & Reed, Inc., 6300 Lamar Avenue, P.
O. Box 29217, Shawnee Mission, Kansas 66201-9217, a Delaware corporation. The
Sponsor is a registered broker-dealer and a member of the National Association
of Securities Dealers, Inc. The officers and employees of the Sponsor are
covered by a broker's blanket indemnity bond in the amount of $5,000,000.
The Sponsor's Directors and Officers
The following are directors and/or principal officers of the Sponsor: Keith
A. Tucker, Chairman of the Board; Robert L. Hechler, President, Chief Executive
Officer, Treasurer, Principal Financial Officer and Director; George L.
Wirkkula, Executive Vice President, National Sales Manager and Director; Henry
J. Herrmann, Director; Sharon K. Pappas, Senior Vice President, Secretary and
General Counsel; Michael D. Strohm, Senior Vice President and Controller; and
James A. Williams, Senior Vice President.
Mr. Tucker is President, Chief Executive Officer and Director of Waddell &
Reed Financial Services, Inc. ("WRFS"), of which the Sponsor is a direct
subsidiary; Chairman of the Board of Waddell & Reed Investment Management
Company ("WRIMCO"), a direct subsidiary of the Sponsor; and Chairman of the
Board of Waddell & Reed Asset Management Company ("WRAMCO") and Waddell & Reed
Services Company ("WARSCO"), affiliates of the Sponsor. He is Vice Chairman of
the Board, President and Chief Executive Officer of United Investors Management
Company ("UIMCO"), of which the Sponsor is an indirect subsidiary; and Vice
Chairman of the Board of Torchmark Corporation, of which the Sponsor is an
indirect subsidiary. He is also Chairman of the Board of Torchmark
Distributors, Inc., a direct subsidiary of the Sponsor; and President and
Director of each of the funds in the United Group, TMK/United Funds, Inc.,
Waddell & Reed Funds, Inc., Torchmark Government Securities Fund, Inc. and
Torchmark Insured Tax-Free Fund, Inc. Mr. Hechler is Vice President, Chief
Operations Officer, Treasurer and Director of WRFS; Executive Vice President,
Principal Financial Officer, Treasurer and Director of WRIMCO; Director and
Treasurer of WRAMCO; and President, Treasurer and Director of WARSCO. He is
Vice President, Treasurer and Director of Torchmark Distributors, Inc.; and Vice
President of each of the funds in the United Group, TMK/United Funds, Inc.,
Waddell & Reed Funds, Inc., Torchmark Government Securities Fund, Inc. and
Torchmark Insured Tax-Free Fund, Inc. Ms. Pappas is Vice President, Secretary
and General Counsel of WRFS; Senior Vice President, Secretary and General
Counsel of WRIMCO; Secretary and General Counsel of WRAMCO; and Secretary,
General Counsel and Senior Vice President of WARSCO. She is Vice President,
Secretary and General Counsel of Torchmark Distributors, Inc.; and General
Counsel, Secretary and Vice President of each of the funds in the United Group,
TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc. Mr. Herrmann is
Vice President, Chief Investment Officer and Director of WRFS; President, Chief
Executive Officer, Chief Investment Officer and Director of WRIMCO and WRAMCO;
Senior Vice President and Chief Investment Officer of UIMCO; and Vice President
of each of the funds in the United Group, TMK/United Funds, Inc., Waddell & Reed
Funds, Inc., Torchmark Government Securities Fund, Inc. and Torchmark Insured
Tax-Free Fund, Inc. Mr. Wirkkula is Vice President, National Sales Manager and
Director of WRFS. Mr. Strohm is Senior Vice President of WARSCO and Vice
President of Torchmark Distributors, Inc. The address of each person listed is
6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission, Kansas 66201-9217.
Self-Employed Retirement Plan and Individual Retirement Plan------
For those self-employed individuals who wish to make payments on a Variable
Investment Program in conjunction with a retirement plan, there is available
through the Sponsor a defined contribution plan which has been approved by the
Internal Revenue Service as a prototype plan. For a defined contribution plan,
the maximum amount of contribution which may be made in any one year is $30,000
or 25% of your yearly earned income, whichever is less.
For those individuals who have earned income and wish to purchase a
Variable Investment Program in conjunction with an Individual Retirement Account
("IRA"), there is available through the Sponsor an Individual Retirement Plan
and Custody Agreement which has been approved by the Internal Revenue Service as
a prototype plan. The maximum amount you may contribute each year to your IRA
is the lessor of $2,000 or your yearly earned income. The maximum is $2,250 if
your spouse has earned income less than $250 in a taxable year. If your spouse
has at least $2,000 of earned income in a taxable year, the maximum is $4,000
($2,000 for each spouse). These contributions are deductible unless the
investor (or, if married, either spouse) is an active participant in a qualified
retirement plan or if, notwithstanding that the investor or one or both spouses
so participates, the adjusted gross income does not exceed certain levels.
More detailed information about these arrangements is in the retirement
plan forms which are available from the Sponsor.
These plans may involve complex tax questions as to excess contributions,
premature distributions and other matters. You should consult your tax adviser
or pension consultant before establishing a Retirement Plan in conjunction with
a Program and prior to exercising the rights and privileges available under the
Program. See "Investor's Rights and Privileges."
Furthermore, the use of Programs for funding retirement benefits for a
participant who would not be able to complete the Program or have it completed
on his behalf would be undesirable since it would result in a loss of a prepaid
sales charge if the Program or the participant's interest in the Program had to
be liquidated prior to completion. Therefore, in the case of a Self-Employed
Retirement Plan, a person who does not expect to remain in the employment of the
employer during the term of the Program, or an employer who does not foresee
completion of contributions pursuant to the terms of the Program, would probably
fare better by investing, or having the contributions made on his behalf under
the Retirement Plan invested, in shares of the Fund directly, rather than
through the Program.
If, after consideration of the above factors, a Program is chosen as a
funding medium for all or part of the Plan participants, particular care should
be exercised in determining the completion amount of the Program. Consideration
should be given to the participant's expected income over the period of the
Program so that the completion amount will correspond to the total contributions
that are reasonably foreseen. Also, the payments scheduled under the Program
should coincide with the amount of the yearly contribution allowable under the
Self-Employed Retirement Plan or Individual Retirement Plan which is adopted.
Persons whose income is subject to sharp downward fluctuations and who,
consequently, may not be able to meet the monthly payments called for by a
Program are advised to purchase their Fund shares on a direct basis. Direct
purchases of Fund shares will obviate any of the difficulties described above.
Under the Self-Employed Retirement Plan, it is possible for an employer to
direct that the contributions for some of the participants be invested directly
in Fund shares and the contributions for the other participants be invested in
one or more Programs. If an employer determines that contributions should be
invested on behalf of some or all of the participants in Programs, a separate
Program may be established for each participant.
To commence either Plan, you first must sign the Plan Application and
submit it with your initial investment.
General Information-----------------------------------------------
The Programs were created under Missouri law by a Custodian Agreement dated
as of July 15, 1970 between the Sponsor and a former Custodian. The Programs
are registered as a unit investment trust with the Securities and Exchange
Commission under the Investment Company Act of 1940. This does not imply
supervision of management or policies by the Commission.
Programs may be purchased in all states other than Arizona, California,
Maine, Massachusetts, Montana, North Dakota, Oklahoma, Texas, Vermont,
Washington and Wisconsin.
The Prospectus omits certain of the information contained in the
registration statement on file with the Securities and Exchange Commission.
Copies of those portions of the registration statement containing the omitted
information may be obtained from the Commission's office in Washington, D. C.,
upon payment of the fee prescribed by the rules and regulations of the
Commission, or examined there without charge.
<PAGE>
ILLUSTRATION OF A VARIABLE INVESTMENT PROGRAM FOR INVESTMENTS IN
UNITED INTERNATIONAL GROWTH FUND, INC.
This illustration is in terms of an assumed investment of $30 per month
(minimum monthly payment program) for ten years, no withdrawals made during the
period, with dividends reinvested and capital gains distributions accepted in
shares.
The results shown should not be considered as a representation of the
dividend income or capital gain or loss which may be realized from an investment
made under a Program starting today. A program of the type illustrated does not
assure a profit or protection against depreciation in declining markets.
<TABLE>
Annual Capital
Annual Gains Value
Year Dividend Deductions Balance Invested Distri- of Total
Ended Monthly Payments Income Total -------------- After Deductions butions Shares Shares
June ---------------- Rein- Cumulative SalesCustodian ----------------- Rein- Accumu- Accumu-
30, Annually Cumulative vested Cost(a) Charge Fee Annually Cumulative vested lated lated
- ---- -------- ---------- ------ --------- ------- ------ ------- --------- ------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 $360.00*$ 360.00 $ 3.08 $ 363.08 $180.00 $ 6.00 $177.08 $ 177.08$ 3.87 $ 191.46 34
1986 360.00 720.00 8.53 731.61 8.40 6.00 354.13 531.21 7.81 723.63 88
1987 360.00 1,080.00 8.55 1,100.16 8.40 6.00 354.15 885.36 153.26 1,430.37 158
1988 360.00 1,440.00 26.54 1,486.70 8.40 6.00 372.14 1,257.50 364.74 1.759.28 267
1989 360.00 1,800.00 40.61 1,887.31 8.40 6.00 386.21 1,643.71 76.76 2,100.36 338
1990 360.00 2,160.00 49.58 2,296.89 8.40 6.00 395.18 2,038.89 94.67 2,790.26 412
1991 360.00 2,520.00 53.52 2,710.41 8.40 6.00 399.12 2,438.01 -- 2,834.76 477
1992 360.00 2,880.00 44.54 3,114.95 8.40 6.00 390.14 2,828.15 12.73 3,818.79 538
1993 360.00 3,240.00 40.12 3,515.07 8.40 6.00 385.72 3,213.87 26.49 4,285.52 599
1994 360.00 3,600.00 27.16 3,902.23 8.40 6.00 372.76 3,586.63 311.26 6,088.44 678
------- ------- ------ ---------
$302.23 $255.60 $60.00 $1,051.59
======= ======= ====== =========
(a) Reflects the cumulative total of monthly payments, plus the cumulative
amount of income dividends reinvested at net asset value.
*Under the terms of this Program $15.00 is deducted as a sales charge from
each of the first 12 payments and $.70 is deducted as a sales charge from
each of the remaining payments. Additional deductions include $.50 from
each payment for custodian fees. Total deductions from the first 12
minimum payments equal $186.00 or 51.67% of the total of the first 12
minimum payments. If all payments are made, total sales charge and other
deductions amount to 8.77% of the total agreed payments.
</TABLE>
The above schedule does not include an administrative fee, currently not
exceeding $2.00 per year, to cover certain administrative expenses actually
incurred, which may be increased by the Sponsor to not more than $4.00 per year
should administrative costs increase in future years. The fee is deducted
annually first from dividends and then from distributions and, if these are not
sufficient, by redemption of Fund shares.
No allowance has been made for any income taxes payable by Programholders
on capital gains distributions and dividends reinvested in shares for the ten-
year period.
<PAGE>
UNITED INTERNATIONAL GROWTH INVESTMENT PROGRAMS*
Statement of Assets and Liabilities
June 30, 1994
Assets
United International Growth Fund, Inc. shares
held for Investors, at market value
(cost $33,768,783)............................... $46,522,183
Receivable for Programs sold ...................... 79,554
-----------
Total assets ................................... 46,601,737
Liabilities
Payable for Fund shares purchased ................. (79,554)
-----------
Net Assets (equivalent to $8.98 per share based
on 5,180,644 shares of capital stock owned on
outstanding programs) ............................. $46,522,183
===========
*See accompanying Prospectus of United International Growth Fund, Inc.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH INVESTMENT PROGRAMS*
Statement of Operations
For the fiscal year ended June 30, 1994
Income
Cash distributions on shares of United
International Growth Fund, Inc. held
for Investors:
Dividends............................ $ 213,786
Capital gains........................ 2,513,015
-----------
2,726,801
-----------
Expenses
Custodian fees ........................ $94,131
Less portion deducted from payments
made by Investors or collected
through liquidation of
Trust shares......................... (60,444)
-------
Custodian fees deducted
from dividends ..................... 33,687
Administrative fees and
service charges...................... 19,810
Less portion collected through
liquidation of Trust shares ......... (57)
-------
Administrative fees and
service charges deducted
from dividends ..................... 19,753
-----------
Total expenses ..................... 53,440
-----------
Taxes withheld from dividends ...... 6,567
-----------
Net dividends received on
shares of United International
Growth Fund, Inc. held for
Investors....................... 2,666,794
-----------
Realized and Unrealized Gain on Investments
Excess of proceeds over cost for Fund
shares liquidated.................... 1,604,544
Unrealized appreciation in United
International Growth Fund, Inc.
shares............................... 7,634,231
-----------
Net gain on investments.............. 9,238,775
-----------
Net increase in net assets resulting
from operations................... $11,905,569
===========
*See accompanying Prospectus of United International Growth Fund, Inc.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH INVESTMENT PROGRAMS*
Statement of Changes in Net Assets
For the fiscal year ended
June 30,
-------------------------
1994 1993
------------ ------------
Increase (Decrease) in Net Assets
Net distributions received on shares
of United International Growth
Fund, Inc. held for Investors ...... $ 2,666,794 $ 552,310
Excess of proceeds over cost
for Fund shares liquidated ......... 1,604,544 479,178
Unrealized appreciation
(depreciation) in United
International Growth Fund, Inc.
shares ............................. 7,634,231 (189,407)
----------- -----------
Net increase in net
assets resulting from
operations........................ 11,905,569 842,081
Dividends and distributions
reinvested in shares of United
International Growth Fund, Inc.
(Note 2) ........................... (2,666,794) (552,310)
Capital share transactions - net
(Note 2)............................. 1,388,803 (736,118)
----------- -----------
Total increase (decrease)............ 10,627,578 (446,347)
Net Assets
Beginning of year ..................... 35,894,605 36,340,952
----------- -----------
End of year ........................... $46,522,183 $35,894,605
=========== ===========
*See accompanying Prospectus of United International Growth Fund, Inc.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH INVESTMENT PROGRAMS*
Notes to Financial Statements
NOTE 1 -- Significant Accounting Policies
United International Growth Investment Programs (the "Trust") is a unit
investment trust for purposes of the registration of its shares with the
Securities and Exchange Commission. The assets of the Trust represent the
undivided interest of the Investors in the outstanding shares of United
International Growth Fund, Inc., the financial statements of which appear in the
Prospectus of that Fund.
Since June 15, 1973, the Selective Investment Programs have not been
offered for sale. Programholders at that date may add to an established
account. Dividends and capital gains distributions will continue to be
reinvested at net asset value as long as the Programs are in force.
The following significant accounting policies, which are in conformity with
generally accepted accounting principles for unit investment trusts, are
consistently used in the preparation of its financial statements.
Security valuation - Investments are valued at the net asset value of Fund
shares held.
Transaction dates - Share transactions are recorded on the trade dates.
Income and capital gains distributions are recorded on the record dates.
Federal income tax status - Under provisions of the Tax Reform Act of 1969,
the Trust is not a taxable entity; accordingly, no provision for Federal income
taxes is required.
*See accompanying Prospectus of United International Growth Fund, Inc.
<PAGE>
NOTE 2 -- Trust Shares
As of June 30, 1994, the Trust held 5,180,644 shares of United
International Growth Fund, Inc. Capital transactions in Trust shares were as
follows:
For the fiscal year
ended June 30, 1994
----------------------
Shares Value
---------- ------------
Investors' payments..................... $5,324,372
----------
Less -
Sales charge......................... 405,912
Custodian fees....................... 59,671
Exchange fees........................ 420
----------
466,003
----------
Balance invested in United International
Growth Fund, Inc. shares .............. 553,910 4,858,369
Shares acquired on reinvestment of
dividends and capital gains
distribution ......................... 308,043 2,666,794
Retired in liquidation.................. (694,522) (6,136,360)
------- ----------
Net increase .......................... 167,431 $1,388,803
======= ==========
For the fiscal year
ended June 30, 1993
----------------------
Shares Value
---------- ------------
Investors' payments..................... $5,189,583
----------
Less -
Sales charge......................... 446,234
Custodian fees....................... 61,140
Exchange fees........................ 140
----------
507,514
----------
Balance invested in United International
Growth Fund, Inc. shares .............. 688,564 4,682,069
Shares acquired on reinvestment of
dividends and capital gains
distribution ......................... 82,657 552,310
Retired in liquidation.................. (876,452) (5,970,497)
------- ----------
Net decrease .......................... (105,231) $ (736,118)
======= ==========
NOTE 3 -- Investors' Cost of United International Growth Fund, Inc.
Shares
The investment in United International Growth Fund, Inc. shares is carried
at identified cost, which represents the amount available for investment
(including reinvested distributions of net investment income and realized gains)
in such shares after deduction of sales charges, custodian fees and exchange
fees, if applicable.
Programs Outstanding
June 30, 1994
--------------------
Total payments made by investors
on programs outstanding ........................... $31,547,504
Reinvested distributions from:
Net investment income ............................. 3,093,630
Realized gains .................................... 9,714,407
-----------
Total............................................ 44,355,541
-----------
Deductions
Sales charges ..................................... 3,814,016
Custodian fees .................................... 377,993
Exchange fees ..................................... 1,326
-----------
Total deductions................................. 4,193,335
-----------
Net investment in United International Growth
Fund, Inc. shares ................................. 40,162,206
Less: Cost of partial withdrawals ................ 6,393,423
-----------
Net cost of United International
Growth Fund, Inc. shares .......................... 33,768,783
Unrealized appreciation............................. 12,753,400
-----------
Net amount applicable to programholders............. $46,522,183
===========
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Sponsor, Waddell & Reed, Inc., and to the Programholders
of United International Growth Investment Programs
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of the unit investment trust known
as United International Growth Investment Programs (the "Trust") at June 30,
1994, the results of its operations for the year then ended and the changes in
its net assets for each of the two years in the period then ended, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Trust'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 provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
July 29, 1994
<PAGE>
WADDELL & REED, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Waddell & Reed Financial Services, Inc.)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1994 1993
------------ ------------
(unaudited)
Current Assets:
Cash and cash equivalents (note 2) $ 31,968,000 $ 46,483,000
Short-term investments (note 2) 609,000 612,000
Other receivables:
Customers and dealers for securities
transactions 6,588,000 8,673,000
Management fees 175,000 175,000
Commissions and other, less $56,000
allowance for doubtful accounts
(1993 - $59,000) 7,656,000 5,762,000
Current income taxes receivable 572,000 1,660,000
Due from affiliates (note 4) 136,000 68,000
Prepaid expenses 2,545,000 2,577,000
------------ ------------
Total current assets 50,249,000 66,010,000
Investments (note 3) 19,870,000 18,520,000
Property and equipment at cost
less $9,745,000 accumulated
depreciation (1993 - $9,040,000) 24,723,000 24,093,000
Excess of cost over fair value of net assets
acquired, less $5,158,000 accumulated
amortization (1993 - $4,950,000) 11,356,000 11,564,000
Other assets 4,557,000 3,479,000
------------ ------------
Total assets $110,755,000 $123,666,000
============ ============
(See accompanying notes to consolidated financial statements.)
<PAGE>
WADDELL & REED, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Waddell & Reed Financial Services, Inc.)
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1994 1993
----------- -----------
(unaudited)
Current liabilities:
Payable to investment companies, brokers
and dealers for securities bought but
not received $ 21,057,000 $ 21,090,000
Payable to customers and others 2,985,000 4,272,000
Payable to affiliates (note 4) 130,000 8,000
Accrued compensation 4,668,000 8,060,000
Other accrued liabilities 1,938,000 2,487,000
Deferred income taxes (note 5) 151,000 424,000
----------- -----------
Total current liabilities 30,929,000 36,341,000
Accrued pension contributions and post
retirement benefits 8,203,000 7,944,000
Deferred income taxes (note 5) 1,003,000 1,017,000
----------- -----------
Total liabilities 40,135,000 45,302,000
----------- -----------
Stockholder's equity:
Common stock, par value $1 per share:
Authorized, issued and outstanding
1,000 shares 1,000 1,000
Additional paid-in capital 58,574,000 58,574,000
Retained earnings 12,370,000 19,789,000
Unrealized loss on investments (note 3) (325,000) -
----------- -----------
Total stockholder's equity 70,620,000 78,364,000
----------- -----------
Commitments and contingencies (notes 6 and 7)
Total liabilities and
stockholder's equity $110,755,000 $123,666,000
=========== ===========
(See accompanying notes to consolidated financial statements.)
<PAGE>
WADDELL & REED, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Waddell & Reed Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF INCOME
Six
Months Ended Year Ended
June 30, December 31,
1994 1993
------------ ------------
(unaudited)
Revenues:
Commissions (note 4) $ 38,373,000 $ 77,355,000
Investment management fees 31,934,000 58,483,000
Investment service fees 14,706,000 27,660,000
Other revenue, principally
interest income (note 4) 1,446,000 3,916,000
------------ ------------
86,459,000 167,414,000
------------ ------------
Expenses:
Compensation to sales representatives 27,302,000 57,118,000
Salaries and employee fringe benefits 9,300,000 21,431,000
General and administrative expenses 6,759,000 16,631,000
------------ ------------
43,361,000 95,180,000
------------ ------------
Income before provision
for income taxes and cumulative effect
of change in accounting principles 43,098,000 72,234,000
Provision for income taxes (note 5) 16,517,000 27,489,000
------------ ------------
Income before cumulative effect of
change in accounting principles 26,581,000 44,745,000
Cumulative effect at January 1, 1993
of changes in accounting for
postretirement benefits other than
pensions and income taxes (note 1) - 5,034,000
------------ ------------
Net income $ 26,581,000 $ 49,779,000
============ ============
(See accompanying notes to consolidated financial statements.)
<PAGE>
WADDELL & REED, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Waddell & Reed Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Unrealized Total
Common stock Additional gain (loss) stock-
------------- paid-in Retained on invest- holder's
Shares Amount capital earnings ments equity
------ ------ ----------- ----------- ---------- ----------
Balance at
December 31,
1992 1,000 $1,000 $55,614,000 $21,210,000 $ (31,000) $76,794,000
Net income - - - 49,779,000 - 49,779,000
Unrealized gain
on investment in
affiliates - - - - 31,000 31,000
Dividends to parent
(note 4) - - - (51,200,000) - (51,200,000)
Capital contribu-
tions by parent
(note 5) - - 2,960,000 - - 2,960,000
------ ------ ----------- ----------- ---------- ----------
Balance at
December 31,
1993 1,000 1,000 58,574,000 19,789,000 - 78,364,000
Net income - - - 26,581,000 - 26,581,000
Unrealized loss on
investment net of
income taxes - - - - (325,000) (325,000)
Dividends to
parent - - - (34,000,000) - (34,000,000)
------ ----- ---------- ---------- --------- ----------
Balance at
June 30,1994
(unaudited) 1,000 $1,000 $58,574,000 $12,370,000$(325,000) $70,620,000
====== ===== ========== ========== ========= ==========
(See accompanying notes to consolidated financial statements.)
<PAGE>
WADDELL & REED, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Waddell & Reed Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six
Months Ended Year Ended
June 30, December 31,
1994 1993
----------- -----------
Cash flows from operating activities: (unaudited)
Net income $26,581,000 $49,779,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 931,000 1,848,000
(Gain)/Loss on sale of investments 26,000 (23,000)
Loss on sale and retirement
of fixed assets 4,000 94,000
Capital gains and dividends reinvested (36,000) (49,000)
Provision for deferred income taxes (66,000) (3,427,000)
Changes in assets and liabilities:
Other receivables 1,210,000 2,069,000
Prepaid expenses and other assets (1,046,000) (1,426,000)
Payable to investment companies,
brokers and dealers for securities
bought but not received (33,000) 2,308,000
Payable to customers and others (1,287,000) 263,000
Other accrued liabilities (3,561,000) 4,857,000
----------- -----------
Net cash provided by operating activities 22,723,000 56,293,000
----------- -----------
Cash flows from investing activities:
Advances to related parties - (5,183,000)
Repayment of advances to related parties - 2,234,000
Additions to investments (8,454,000) (4,762,000)
Proceeds from sales of investments 3,214,000 -
Proceeds from maturity of investments 3,359,000 9,647,000
Capital expenditures (1,357,000) (1,981,000)
Proceeds from sale of fixed assets - 15,000
----------- -----------
Net cash used in
investing activities (3,238,000) (30,000)
----------- -----------
Cash flows from financing activities:
Dividends paid (34,000,000) (35,700,000)
----------- -----------
Net cash used in financing activities (34,000,000) (35,700,000)
----------- -----------
Net increase (decrease) in cash and cash
equivalents (14,515,000) 20,563,000
Cash and cash equivalents at beginning of period 46,483,000 25,920,000
----------- -----------
Cash and cash equivalents at end of period $31,968,000 $46,483,000
=========== ===========
Cash paid for income taxes $15,797,677 $25,105,000
=========== ===========
Retirement of note receivable
from parent through the
declaration of a dividend (note 4) $ - $15,500,000
=========== ===========
Property and equipment contributed
by parent $ - $ 56,000
=========== ===========
Capital contribution -
reduction of federal
income taxes $ - $ 2,904,000
=========== ===========
(See accompanying notes to consolidated financial statements.)
<PAGE>
WADDELL & REED, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Waddell & Reed Financial Services, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF ACCOUNTING POLICIES
Ownership
Waddell & Reed, Inc. and subsidiaries (the Company) is a wholly-owned
subsidiary of Waddell & Reed Financial Services, Inc. which is a wholly-owned
subsidiary of United Investors Management Company (UIMCO). Torchmark Corporation
is the parent company of UIMCO.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. Amounts in the accompanying
consolidated financial statements and notes are rounded to the nearest thousand.
Revenue Recognition
Commission revenue and expenses (and related receivables and payables)
resulting from securities transactions are recorded on the date on which the
order to buy or sell securities is executed.
Cash and Cash Equivalents
Cash and cash equivalents in the accompanying statements of cash flows
include cash on hand and short-term investments with original maturities of less
than ninety days.
Property and Equipment
Property and equipment are carried at cost. The Company provides for
depreciation using the straight-line and sum-of-the-years-digits methods at
annual rates based on the estimated useful lives of the assets. Generally, the
building is being depreciated over thirty-two years and furniture and equipment
over three to ten years.
A summary of property and equipment at June 30, 1994 (unaudited) and
December 31, 1993 is as follows:
June 30, December 31,
1994 1993
----------- -----------
(unaudited)
Land $ 5,204,000 $ 5,204,000
Building 12,591,000 12,568,000
Furniture and fixtures 5,417,000 5,296,000
Equipment and machinery 6,727,000 5,790,000
Land and building held for development 4,529,000 4,275,000
----------- -----------
Property and equipment, at cost 34,468,000 33,133,000
Less accumulated depreciation 9,745,000 9,040,000
----------- -----------
Property and equipment, net $24,723,000 $24,093,000
=========== ===========
Excess of Cost Over Fair Value of Net Assets Acquired
The excess cost reflects the excess of the purchase price over the fair
value of the Company's net assets acquired at October 26, 1981. The excess cost
is being amortized on a straight-line basis over a period of 40 years.
Amortization charged to expense for the six months ended June 30, 1994
(unaudited) and the year ended December 31, 1993 was $208,000 and $415,000,
respectively.
Income Taxes
The accounts of the Company and its subsidiaries are included in a
consolidated federal income tax return to be filed by the Company's parent. The
Company's provision for income taxes has been made on the same basis as if the
Company and its subsidiaries filed a separate return.
In February, 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (Statement 109). Statement 109 required a change from the deferred
method of accounting for income taxes of Accounting Principles Board Opinion 11
to the asset and liability method of accounting for income taxes. Under the
asset and liability method of Statement 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109. The
cumulative effect of this change in accounting for income taxes of $5,855,000
was determined as of January 1, 1993 and is reported separately in the
accompanying consolidated statement of income for the year ended December 31,
1993.
Retirement Plan
The Company and its subsidiaries together with certain affiliated companies
participate in a noncontributory retirement plan which covers substantially all
employees. Benefits payable under the plan are based on employees' years of
service and compensation during the final ten years of employment.
At December 31, 1993, the assumed discount rate, the rate at which the plan
benefit obligations could be settled, was 7.25%. The estimated rate of increase
in future compensation levels used in determining the actuarial present value of
the projected benefit obligation was 4.25% for December 31, 1993. The expected
long-term rate of return on plan assets was 8.0% at December 31, 1993.
The Company's funding policy is to contribute annually the maximum amount
that can be deducted for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future. Substantially all of the plan's
assets are invested in mutual funds managed by the Company.
Net pension cost includes the cost for the Company and its subsidiaries,
and Torch Energy Advisors, Inc. and subsidiary (Torch Energy), an affiliated
company, (member companies) because all plan assets are commingled and available
for distribution to all member companies' employees.
Net pension cost for years ended December 31, 1993 included the following
components:
1993
-----------
Service cost - benefits earned during
the period $ 2,173,000
Interest cost on projected benefit
obligation 1,672,000
Actual return on plan assets (2,059,000)
Net amortization and deferral 499,000
-----------
Net periodic pension cost
of member companies $ 2,285,000
===========
Pension expense for the six months ended June 30, 1994 (unaudited) and the
year ended December 31, 1993 was $692,000 and $1,178,000, respectively, for the
Company and its subsidiaries.
The following table sets forth the plan's funded status for all member
companies as of December 31, 1993:
1993
Actuarial present value of -----------
benefit obligations:
Vested benefits $14,568,000
Nonvested benefits 1,851,000
-----------
Accumulated benefit obligation 16,419,000
Increase in benefits due to future
compensation increases 7,580,000
-----------
Projected benefit obligation 23,999,000
Estimated fair market value of
plan assets 17,613,000
-----------
Projected benefit obligation in
excess of plan assets 6,386,000
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions 1,578,000
Unrecognized net transition obligation
being recognized over 21.57 years (295,000)
Unrecognized prior service cost
attributable to plan amendments (134,000)
-----------
Pension liability of member
companies as of December 31 $ 7,535,000
===========
Company and subsidiaries pension
liability $ 6,537,000
===========
Postretirement Benefits Other Than Pensions
The Company and its subsidiaries sponsor an unfunded defined benefit
postretirement medical plan that covers substantially all its employees. The
plan is contributory with retiree contributions adjusted annually.
The FASB has issued Statement of Financial Accounting Standards (SFAS) No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
This statement significantly changed the then prevalent practice of accounting
for postretirement benefits on a pay-as-you-go (cash) basis by requiring
accrual, during the years that the employee renders the necessary service, of
the expected cost of providing those benefits to an employee and the employee's
beneficiaries and covered dependents.
Effective January 1, 1993, the Company implemented SFAS No. 106. The
Company elected immediate recognition of the transition obligation which
amounted to $1,244,000 and has recorded such, net of $423,000 income tax
benefit, as a cumulative effect of change in accounting principle. Previously,
expenses for postretirement benefits other than pensions were recognized in the
year claims were paid. For the six months ended June 30, 1994 (unaudited) and
the year ended December 31, 1993, net claims paid by the Company totaled
approximately $8,000 and $15,000, respectively.
The following table sets forth the plans' funded status as of December 31,
1993:
December 31,
1993
Accumulated postretirement benefit
obligation (APBO):
Retirees $ 502,000
Fully eligible active plan
participants 143,000
Other active plan participants 449,000
-----------
1,094,000
Plan assets at fair value -0-
Unrecognized effects of
changes in assumptions 313,000
-----------
Accumulated postretirement benefit
obligation in excess of plan assets $ 1,407,000
===========
Net periodic postretirement benefit cost for the year ended December 31,
1993 included the following components:
Service cost-benefits attributed
to service during the year $ 60,000
Interest cost on accumulated
postretirement benefit obligation 103,000
-----------
Net periodic postretirement benefit cost $ 163,000
===========
The net periodic postretirement benefit cost for the six months ended June
30, 1994 (unaudited) was $66,000.
The significant assumptions used in computing the APBO as of December 31,
1993 are as follows:
Assumed health care cost trend rate used to measure the expected cost of
benefits covered by the plan:
December 31, 1993
Current year 13%
Thereafter Decrease annually
to 5.5% by 2018
Discount rate 7.25%
The effect of a one-percent increase each year in the assumed health care
cost trend rate on the aggregate of the Service and Interest Cost components of
Net Periodic Postretirement Benefit Cost would be an increase of approximately
$62,000 for the year ended December 31, 1993. Additionally, the effect on the
APBO as of December 31, 1993 would be an increase of approximately $266,000.
Savings and Investment Plan
The Company has a savings and investment plan covering substantially all
employees. The plan provides for a matching Company contribution of 50% of the
employee's investment in mutual fund shares and/or Torchmark Corporation stock,
not to exceed 3% of the employee's salary.
The charge to expense for this plan for the six months ended June 30, 1994
(unaudited) and the year ended December 31, 1993 was $334,000 and $575,000,
respectively.
Investments
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," was issued by FASB in May
1993 and is effective for fiscal years beginning after December 15, 1993. SFAS
No. 115 expands the use of fair value accounting and the reporting for certain
investments in debt and equity securities. The Company adopted the provisions
of SFAS No. 115 effective January 1, 1994 and has classified its investments at
June 30, 1994 as available-for-sale. Investments at December 31, 1993 are
stated at the lower of aggregate cost or market value.
Available-for-sale securities are recorded at fair value. Unrealized
holding gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component
of stockholder's equity until realized.
A decline in the market value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.
Dividend and interest income are recognized when earned. Realized gains
and losses for securities classified as available-for-sale are included in
earnings and are derived using the specific identification method for
determining the cost of securities sold.
NOTE 2 -- CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents at June 30, 1994 (unaudited) and December 31,
1993 includes reserves of $15,733,000 and $18,189,000, respectively, for the
benefit of customers in compliance with securities industry regulations and an
investment of $1,204,000 and $2,704,000, respectively, in a money market fund
for which the Company is principal underwriter and investment advisor.
Short-term investments at cost, which approximates market, are U. S.
Government obligations which amounted to $609,000 and $612,000 at June 30, 1994
(unaudited) and December 31, 1993, respectively, of which $494,000 and $496,000,
respectively, are reserved for the benefit of customers in compliance with
security regulations.
NOTE 3 -- INVESTMENTS
Investments at June 30, 1994 (unaudited) and December 31, 1993 are
summarized below:
June 30, December 31,
1994 1993
(unaudited)
Investments in Government
National Mortgage Association
Securities $ 7,946,000 $14,217,000
Investments in Municipal Bonds 11,073,000 3,446,000
Investment in affiliates 851,000 857,000
----------- -----------
$19,870,000 $18,520,000
=========== ===========
The amortized cost, gross unrealized holding losses and fair value for
available-for-sale investments at June 30, 1994 (unaudited), were as follows:
Unrealized
Amortized Holding
Cost Losses Fair Value
Available-for-sale:
GNMA $ 8,122,000 $(176,000) $ 7,946,000
Municipal bonds 11,406,000 (333,000) 11,073,000
Investments in affiliates 888,000 (37,000) 851,000
----------- --------- -----------
$20,416,000 $(546,000) $19,870,000
=========== ========= ===========
Investments in Government National Mortgage Association Pools consist of
investments in pools of U.S. government-backed mortgage securities, with various
maturities through August, 2022.
Investments in municipal bonds have various maturities through September,
2004.
NOTE 4 -- TRANSACTIONS WITH RELATED PARTIES
During 1993, the Company advanced monies to Pershing Lease Income Limited
Partnership (Pershing), an affiliate of the Company, for the purpose of
acquiring equipment. All notes bear interest at 6.0%. The notes were repaid in
1993.
The amounts due from affiliates at June 30, 1994 (unaudited) and December
31, 1993 of $136,000 and $68,000, respectively, include advances to affiliates
for current operating expenses, initial organizational and offering costs and
commissions due from the sale of the affiliates' investment products.
The amounts due to affiliates at June 30, 1994 (unaudited) and December 31,
1993 of $130,000 and $8,000, respectively, relate primarily to amounts owed for
current operating expenses.
Interest earned on notes receivable from affiliates for the year ended
December 31, 1993 aggregated $1,114,000. On December 30, 1993, the Company
retired the note totaling $15,500,000 through the declaration of a dividend to
the Company's parent. There were no advances to affiliates during the six month
period ending June 30,
1994.
The Company maintains a general agency contract with United Investors Life
Insurance Company (UIL), a wholly-owned subsidiary of UIMCO. The contract
provides, generally, that the Company will maintain a sales force for sale and
distribution of UIL life insurance and other products, for which services the
Company will be compensated by UIL. Total general agency commissions received
from UIL for the six months ended June 30, 1994 (unaudited) and the year ended
December 31, 1993 were $12,621,000 and $25,569,000, respectively.
The Company serves as investment advisor to various subsidiaries and
affiliates of Torchmark Corporation, including Liberty National Life, UIL, Globe
Life and Accident and United American Life. Under the terms of the advisory
agreements, the Company is compensated for its services at a specified
percentage of the market value of the assets managed. Revenues from the
affiliates for investment advisory services amounted to $90,000 and $79,000
during the six months ended June 30, 1994 (unaudited) and the year ended
December 31, 1993, respectively.
NOTE 5 -- PROVISION FOR INCOME TAXES
The components of the provision for income taxes are as follows:
Six
Months Ended Year Ended
June 30, December 31,
1994 1993
------------ -----------
(unaudited)
Currently payable:
Federal $14,394,000 $23,815,000
State 2,189,000 2,977,000
----------- -----------
16,583,000 26,792,000
Deferred taxes (66,000) 697,000
----------- -----------
$16,517,000 $27,489,000
=========== ===========
The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at June 30, 1994
(unaudited) and December 31, 1993 are as follows:
June 30, December 31,
1994 1993
(unaudited)
Deferred tax liabilities:
Prepaid commissions $ (256,000) $ (390,000)
Intangible assets (3,207,000) (3,207,000)
Deferred acquisition costs (1,229,000) (804,000)
Fixed assets (180,000) (180,000)
Other (56,000) (63,000)
---------- ----------
Total gross deferred liabilities (4,928,000) (4,644,000)
---------- ----------
Deferred tax assets:
Accrued retirement and postretirement
benefits other than pension 3,394,000 3,174,000
Investments gain/loss adjustment 220,000 -
Other 160,000 29,000
---------- ----------
Total gross deferred assets 3,774,000 3,203,000
---------- ----------
Net deferred tax liability $(1,154,000) $(1,441,000)
========== ==========
A valuation allowance for deferred tax assets was not necessary at June 30,
1994 (unaudited) or December 31, 1993.
Income tax expense amounted to $16,517,000 and $27,489,000 for the six
months ended June 30, 1994 (unaudited) and the year ended December 31, 1993,
respectively, (effective rate of 38% for both periods). The actual tax expense
for the six months ended June 30, 1994 (unaudited) and the year ended December
31, 1993 differs from "expected" tax expense for the period (computed by
applying the U.S. federal corporate tax rate of 35% to earnings before income
taxes) primarily as a result of state income taxes.
During 1993, the parent company contributed $2,904,000 to the paid-in
capital of the Company in the form of a reduction of federal income tax payable.
NOTE 6 -- COMMITMENTS
Rental Expense and Lease Commitments
The Company rents certain of its offices and office equipment under leases
covering one year or less which are not included in the following minimum rental
commitments. Certain of the office leases contain escalation clauses under
which rents may be increased at any time based on the lessor's increased costs
for property taxes and operating costs.
Aggregate rental expense for the six months ended June 30, 1994 (unaudited)
and the year ended December 31, 1993, and the aggregate future minimum rental
commitments under noncancelable operating leases in effect at June 30, 1994
(unaudited) are as follows:
General Sales Office Aggregate
offices offices equipment amount
------- ------- --------- ---------
(Thousands of dollars)
Period ended June 30, 1994:
Rent expense $ 39 $1,569 $ - $1,608
====== ====== ==== ======
Year ended December 31, 1993:
Rent expense $ 54 $3,072 $ - $3,126
====== ====== ==== ======
Minimum remaining rental commitments
years ended December 31:
1994 $ 18 $1,209 $ - $1,227
1995 45 1,547 - 1,592
1996 45 615 - 660
1997 45 217 - 262
1998 45 76 - 121
Thereafter 84 14 - 98
------ ------ ---- ------
$ 282 $3,678 $ - $3,960
====== ====== ==== ======
As existing leases expire, new leases are expected to be executed.
NOTE 7 -- CONTINGENCIES
On August 25, 1993 the Internal Revenue Service ("IRS") issued an assessment
against Waddell & Reed, Inc. The IRS is claiming the registered representatives
and managers engaged in selling securities on behalf of Waddell & Reed, Inc. and
insurance on behalf of Waddell & Reed, Inc. affiliates are employees for
purposes of Social Security, unemployment, and income tax withholding provisions
of the Internal Revenue Code of 1986, as amended. Waddell & Reed contends the
registered representatives and managers are independent contractors when engaged
in selling securities and insurance and has filed a protest with the IRS.
Waddell & Reed intends to vigorously contest the assessment. Management
believes it is more likely than not that the IRS will concede that
representatives of Waddell & Reed are independent contractors, leaving in
dispute approximately $2.2 million with respect to commissions paid to managers
as a result of their selling activities.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Waddell & Reed, Inc.:
We have audited the accompanying consolidated balance sheet of Waddell &
Reed, Inc., and subsidiaries, a wholly-owned subsidiary of Waddell & Reed
Financial Services, Inc. as of December 31, 1993 and the related consolidated
statements of income, stockholder's equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Waddell &
Reed, Inc. and subsidiaries as of December 31, 1993 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As described in Note 1 to the financial statements, the Company adopted
Statement of Financial Accounting Standards Nos. 106 and 109, "Accounting for
Postretirement Benefits Other Than Pensions" and "Accounting for Income Taxes"
in 1993.
KPMG PEAT MARWICK
February 4, 1994
<PAGE>
PROSPECTUS
UNITED INTERNATIONAL GROWTH INVESTMENT PROGRAMS
October 15, 1994
Sponsor
Waddell & Reed, Inc.
6300 Lamar Avenue
P.O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
Table of Contents
Variable Investment Programs . . . . 2
Investor's Rights and Privileges . . 5
Tax Status of Programs . . . . . . . 7
Authorized Changes in Programs . . . 8
The Custodian. . . . . . . . . . . . 8
The Sponsor. . . . . . . . . . . . .10
Self-Employed Retirement Plan and
Individual Retirement Plan . . . .11
General Information. . . . . . . . .12
Financial Statements . . . . . . . .14
NUP1003(10-94)
printed on recycled paper
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
September 30, 1994
PROSPECTUS
United International Growth Fund, Inc. (the "Fund") is a management
investment company which seeks as its primary goal the long-term appreciation of
your investment. The secondary goal of the Fund is realization of income.
This Prospectus contains concise information about the Fund of which you
should be aware before investing. Additional information has been filed with
the Securities and Exchange Commission and is contained in a Statement of
Additional Information (the "SAI"), dated September 30, 1994. You may obtain a
copy of the SAI free of charge by request to the Fund or its Underwriter,
Waddell & Reed, Inc., at the address or telephone number shown below. The SAI
is incorporated by reference into this Prospectus and you will not be aware of
all facts unless you read both this Prospectus and the SAI.
Retain This Prospectus For Future Reference
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>
UNITED INTERNATIONAL GROWTH FUND, INC.
Summary of Expenses
Shareholder Transaction Expenses
- --------------------------------
Maximum Sales Load Imposed on Purchases 5.75%
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested None
Dividends (as a percentage of offering price)
Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds, as applicable) None
Redemption Fees (as a percentage
of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average net assets)
Management Fees 0.72%
12b-1 Fees* 0.25%
Other Expenses 0.40%
(Includes, among other expenses, transfer
agency, accounting, custodian, audit and legal fees)
Total Fund Operating Expenses** 1.37%
Example 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
You would pay the
following expenses on
a $1,000 investment,
assuming (1) 5% annual
return and (2) redemption
at the end of each
time period: $71 $98 $128 $213
The purpose of this table is to assist investors in understanding the various
costs and expenses that an investor in the Fund will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses. Actual expenses may be greater or lesser than those shown.
*Expense information reflects the 12b-1 service fee which became effective
October 1, 1993, which fee will not exceed .25% of the Fund's average annual
net assets. It is possible that long-term shareholders of the Fund may bear
12b-1 fees which are more than the economic equivalent of the maximum front-
end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc. See "Management and Services" for further
information about the 12b-1 service fee.
**Expense information has been restated to reflect the current maximum 12b-1
service fee which became effective October 1, 1993.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
(Audited)
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.
For a Share of Capital Stock Outstanding Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended June 30,
-----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period .... $7.16 $7.10 $5.94 $6.77 $6.21 $6.60 $9.07 $8.26 $5.70 $5.92
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income ...... .04 .07 .08 .12 .12 .15 .11 .07 .13 .18
Net realized and
unrealized gain
(loss) on
investments 2.32 .11 1.20 (0.83) .83 (0.15) (0.39) 2.44 2.76 .58
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ... 2.36 .18 1.28 (0.71) .95 0.00 (0.28) 2.51 2.89 .76
Less distributions:
Dividends from
net investment
income ...... (0.04) (0.07) (0.09) (0.12) (0.13) (0.13) (0.13) (0.08) (0.15) (0.23)
Distributions from
capital gains (0.50) (0.05) (0.03) 0.00 (0.26) (0.26) (2.06) (1.62) (0.18) (0.75)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.54) (0.12) (0.12) (0.12) (0.39) (0.39) (2.19) (1.70) (0.33) (0.98)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $8.98 $7.16 $7.10 $5.94 $6.77 $6.21 $6.60 $9.07 $8.26 $5.70
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return* ... 33.31% 2.62% 21.59% -10.50% 15.44% 0.03% -1.30% 38.23% 52.82% 15.06%
Net assets, end of period
(000 omitted) $572,456 $336,382 $322,534 $259,322 $291,691 $258,168 $289,920 $291,897 $188,916 $107,691
Ratio of
expenses to
average
net assets ... 1.20% 1.18% 1.18% 1.20% 1.17% 1.13% 1.12% 1.07% 1.09% 1.16%
Ratio of net
investment income
to average
net assets ... 0.57% 1.07% 1.17% 1.89% 1.81% 2.29% 1.47% 0.97% 1.94% 3.46%
Portfolio turn-
over rate** .. 83.76% 94.22% 112.82% 118.05% 196.43% 193.01% 228.98% 216.66% 167.97% 132.48%
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
**This rate is, in general, calculated by dividing the average value of the
Fund's portfolio during the period into the
lesser of its purchases or sales in the period, excluding short-term
securities.
</TABLE>
Information regarding the performance of the Fund 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 front cover of
this Prospectus.
<PAGE>
What is United International Growth Fund, Inc.?
United International Growth Fund, Inc. is a corporation organized under
Maryland law on November 6, 1974 as successor to a Delaware corporation which
commenced operations in 1970. It is an open-end diversified management
investment company commonly called a "mutual fund." The Fund has a Board of
Directors which has overall responsibility for the management of its affairs.
For the names of the directors and other information about them, see the SAI.
The Fund has only one class of shares. Each share has the same rights to
dividends and to vote. Shares are fully paid and nonassessable when bought.
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 or special
meeting called by the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
shareholders for the purpose of electing directors until such time as less than
a majority of directors holding office have been elected by shareholders, at
which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the Investment
Company Act of 1940, as amended, applies to the Fund, the directors are required
to call a meeting of shareholders for the purpose of voting upon the question of
removal of any director when requested in writing to do so by the shareholders
of record of not less than 10% of the Fund's outstanding shares.
Performance Information
From time to time the Fund or Waddell & Reed, Inc. may include performance
data in advertisements or in information furnished to present or prospective
shareholders. Fund performance may be shown by presenting one or more
performance measurements, including total return and performance rankings.
A Fund's total return is its overall change in value for the period shown
including the effect of reinvesting dividends and distributions and any change
in the net asset value per share. A cumulative total return reflects the Fund'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 Fund'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.
Standardized total return figures reflect payment of the maximum sales
charge. The Fund may also provide non-standardized performance information
which does not reflect deduction of such sales charge or which is for periods
other than those required to be presented or which differs otherwise from
standardized total return figures. Quotations which do not reflect the sales
charge will reflect a higher rate of return. See the SAI for total return and
method of computation.
From time to time in advertisements and information furnished to present or
prospective shareholders the Fund may discuss its 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. The Fund may also compare its performance to
that of other selected mutual funds or selected recognized market indicators
such as the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average. Performance information may be quoted numerically or presented in a
table, graph or other illustration.
All performance information which the Fund advertises or includes in
information provided to present or prospective shareholders is historical in
nature and is not intended to represent or guarantee future results. The value
of the Fund's shares when redeemed may be more or less than their original cost.
Goal of the Fund
The primary goal of the Fund is the long-term appreciation of your
investment. Realization of income is a secondary goal. The Fund tries to
achieve these goals by investing in securities issued by companies or
governments of any nation. The securities selected to attempt to achieve the
Fund's primary goal will be issued by companies which Waddell & Reed Investment
Management Company (the "Manager"), the Fund's investment manager, believes have
the potential for long-term growth. The Fund's goals, the types of securities
it may invest in and the proportion of its assets which may be invested in each
such type are matters of fundamental policy and may not be changed without the
approval of shareholders.
There are three main kinds of securities that the Fund will own: common
stocks, preferred stocks and debt securities. These securities in which the
Fund may invest include preferred stock that converts to common stock either
automatically or after a specified period of time or at the option of the
issuer, and debt securities whose performance is linked to a specified equity
security or securities index. Securities purchased because they may increase in
value over the long term will usually be common stocks or securities which may
be converted into common stocks or rights for the purchase of common stocks.
There may be times, however, when up to all of the Fund's assets may be invested
as a temporary measure in either debt securities (including commercial paper or
short-term U.S. Government securities) or preferred stocks or both. This would
be done if, in the opinion of the Manager, common stocks or similar securities
do not offer adequate growth potential because of market or economic conditions.
As an operating (i.e., nonfundamental) policy, the Fund does not intend to
invest more than 5% of its assets in non-investment grade debt securities. See
the SAI for a discussion of the risks associated with non-investment grade debt
securities. Only 5% of the Fund's assets may be in companies which have not
been in continuous operation for at least three years (including predecessor
companies). The Fund may buy shares of other investment companies which do not
redeem their shares, subject to the conditions stated in the SAI. The Fund may
purchase warrants and rights to purchase securities, provided that as a result
of such purchase not more than 5% of its assets consist of warrants, rights or a
combination thereof. Certain states may impose a lower percentage limitation on
investments in warrants and rights.
All or a substantial amount of the Fund's assets may be invested in foreign
securities if, in the opinion of the Manager, doing so might assist in achieving
the Fund's goals. It is anticipated that normally at least 80% of the Fund's
assets will be invested in foreign securities. The Fund may purchase foreign
securities only if they (i) are 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) are
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 market; or (iii) are issued or guaranteed by any foreign
government or any subdivision, agency or instrumentality thereof. The Fund may
not purchase a particular foreign security if as a result more than 75% of its
assets would be invested in securities of that foreign country. For defensive
purposes the Fund may at times temporarily invest completely or substantially in
U.S. securities. The Fund may purchase restricted foreign securities provided
that after such purchase not more than 5% of its assets consist of such
securities. As an operating (i.e., non-fundamental) policy, under normal market
conditions, the Fund will have at least 65% of its assets invested in at least
three different countries outside the U.S. As an operating policy, the Fund
will not invest more than 25% of its assets in the securities issued by the
government of any one foreign country.
There are certain risks associated with foreign securities not usually
associated with U.S. securities including absence of uniform accounting,
auditing and financial standards, less government regulation, changes in
currency rates and in exchange regulations, and political instability. See the
SAI for further discussion of these risks.
The Fund may enter into forward foreign currency exchange contracts
("Forward Contracts") provided that it does not have more than 15% of the value
of its assets committed to the consummation of such contracts. A Forward
Contract is an obligation to purchase or sell a specific currency at a future
date at a fixed price. The Fund enters into Forward Contracts to attempt to
protect against losses which may result from changes in the value of currencies
but at the same time they tend to limit any potential gains which might result
from currency changes. Because of the difficulty of accurately predicting
short-term currency movements, there are risks associated with the use of these
contracts. See the SAI for further discussion.
For the purpose of increasing income, the Fund may purchase securities
subject to repurchase agreements (which can be considered as collateralized
loans by the Fund) but may not cause more than 10% of its net assets to be
invested in illiquid securities, which include repurchase agreements not
terminable within seven days. The Fund may write listed covered calls.
"Covered" means that the Fund owns the securities subject to call or has the
right to acquire them without additional payment. Covered calls give a holder
of a call the right to purchase from the Fund the securities covered by the call
at a fixed price for a fixed period. Writing covered calls may increase the
Fund's income but the Fund loses the opportunity to profit from an increase in
the price over the exercise price of the securities which are subject to the
call. Writing calls may increase the Fund's turnover rate and result in higher
brokerage commissions. The Fund will not write covered calls on more than 10%
of its assets. It may purchase calls to close positions in calls it has
written. See the SAI for more details as to these investment methods and their
possible rewards and risks.
The Fund may also lend its securities for the purpose of realizing income.
The percentage limit and the requirement that such loans be on a collateralized
basis in accordance with certain regulatory requirements are fundamental
policies which can only be changed by shareholder vote. The Fund will not loan
more than 10% of its assets at any one time. If the Fund loses its voting
rights on securities loaned, it will have the securities returned to it in time
to vote them if a material event affecting the investment is to be voted upon.
There are certain risks associated with lending securities in that the Fund may
experience delay in recovering the collateral or even loss of the collateral.
See the SAI for further discussion of these risks.
There can be no assurance that the Fund will achieve its goals; some market
risks are inherent in all securities to varying degrees.
The Fund may have a high portfolio turnover. See the Financial Highlights
table for past turnover. This results in correspondingly greater commission
expenses and transaction costs and may result in certain tax consequences. The
ability to invest all or a substantial amount of the Fund's assets in foreign
securities may result in a higher turnover rate and higher commission costs.
Management and Services
Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual Funds
since 1940 or the inception of the investment company, whichever was later, and
to TMK/United Funds, Inc. since its inception. 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 Waddell & Reed Investment Management Company,
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 Torchmark Government Securities Fund, Inc. and Torchmark
Insured Tax-Free Fund, Inc. since each commenced operations in February 1993.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter for
each of the investment companies in the United Group of Mutual Funds, TMK/United
Funds, Inc. 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 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 the Fund's net
asset value as of the close of business each day at the annual rate of .30 of 1%
of net assets and (ii) a pro rata participation based on the relative net asset
size of the Fund in a "Group" fee computed each day on the combined net asset
values of all of the funds in the United Group at the annual rates shown in the
following table. The fee is accrued and paid daily. Prior to the above-
described assignment to the Manager on January 8, 1992, the fees were paid to
Waddell & Reed, Inc.
Group Fee Rate
Group Net Asset Level Annual Group 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%
From $ 2,250 to $ 3,000 .45 of 1%
From $ 3,000 to $ 3,750 .43 of 1%
From $ 3,750 to $ 7,500 .40 of 1%
From $ 7,500 to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Waddell & Reed Services Company, a subsidiary of Waddell & Reed, Inc., acts
as transfer agent ("Shareholder Servicing Agent") for the Fund and processes the
payments of dividends. See the SAI for the fees paid for these services.
Inquiries concerning shareholder accounts should be sent to that company at the
address shown on the inside back cover of this Prospectus or to the Fund at the
address shown on the front cover of this Prospectus.
Waddell & Reed Services Company also 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 the Fund. For these services, the
Fund 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 Fund
------------------------- ------------------
From $ 0 to $ 10 $ 0
From $ 10 to $ 25 $ 10,000
From $ 25 to $ 50 $ 20,000
From $ 50 to $ 100 $ 30,000
From $ 100 to $ 200 $ 40,000
From $ 200 to $ 350 $ 50,000
From $ 350 to $ 550 $ 60,000
From $ 550 to $ 750 $ 70,000
From $ 750 to $1,000 $ 85,000
$1,000 and Over $100,000
Under a Service Plan adopted by the Fund pursuant to Rule 12b-1 under the
Investment Company Act of 1940, the Fund may pay monthly a fee to Waddell &
Reed, Inc., the principal underwriter for the Fund, in an amount not to exceed
.25% of the Fund's average annual net assets. The fee is to be paid to
reimburse Waddell & Reed, Inc. for amounts it expends in connection with the
provision of personal services to Fund shareholders and/or maintenance of
shareholder accounts. In particular, the Service Plan and a related Service
Agreement between the Fund and Waddell & Reed, Inc. contemplate that these
expenditures may include costs and expenses incurred by Waddell & Reed, Inc. and
its affiliates in compensating, training and supporting registered sales
representatives, sales managers and/or other appropriate personnel in providing
personal services to Fund shareholders and/or maintaining shareholder accounts;
increasing services provided to Fund shareholders by office personnel located at
field sales offices; engaging in other activities useful in providing personal
services to Fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers who may regularly sell Fund shares for providing
shareholder services and/or maintaining shareholder accounts. See the SAI for
additional information and terms of the Service Plan.
The combined net asset values of all of the funds in the United Group were
approximately $10.5 billion as of June 30, 1994. Management fees for the fiscal
year ended June 30, 1994 were 0.72% of the Fund's average net assets. The
Fund's total expenses for that year were 1.20% of its average net assets.
The Manager places transactions for the Fund's portfolio and in doing so
may consider sales of shares of the Fund and other funds it manages as a factor
in the selection of brokers to execute portfolio transactions. See the SAI for
further information.
Mark L. Yockey is primarily responsible for the day-to-day management of
the portfolio of the Fund. Mr. Yockey is Vice President of the Manager and Vice
President of the Fund. He is also Vice President of other investment companies
for which the Manager serves as investment manager. Mr. Yockey has held his
Fund responsibilities since February 1990 and has been an employee of Waddell &
Reed, Inc. and its successor, the Manager, since November 1986. He has also
served as the portfolio manager for other investment companies managed by
Waddell & Reed, Inc. or the Manager since January 1990. Other members of the
Manager's investment management department provide input on market outlook,
economic conditions, investment research and other considerations relating to
the Fund's investments.
Dividends, Distributions and Taxes
Ordinarily, dividends are paid semiannually from net investment income,
which includes accrued interest, earned discount, dividends and other income
earned on portfolio securities less expenses. The Fund also distributes
substantially all of its net capital gains (the excess of net long-term capital
gains over net short-term capital losses) and net short-term capital gains, if
any, after deducting any available capital loss carryovers, and any net realized
gains from foreign currency transactions, with its regular dividend at the end
of the calendar year. The Fund may make additional distributions if necessary
to avoid Federal income or excise taxes on certain undistributed income and
capital gains.
You have the option to receive dividends and distributions in cash, to
reinvest them without charge or to receive dividends in cash and reinvest other
distributions, as you may instruct. In the absence of instructions, dividends
and distributions will be reinvested.
The Fund intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986 so that it will be
relieved of Federal income tax on that part of its investment company taxable
income (consisting generally of net investment income, net short-term capital
gains and net gains from certain foreign currency transactions) and net capital
gain that is distributed to its shareholders.
Dividends from the Fund's investment company taxable income are taxable to
you as ordinary income, to the extent of the Fund's earnings and profits,
whether received in cash or reinvested in additional Fund shares. Distributions
of the Fund's realized net capital gains, when designated as such, are taxable
to you as long-term capital gains, whether received in cash or reinvested in
additional Fund shares and regardless of the length of time you have owned your
shares. The Fund notifies you after each calendar year-end as to the amounts of
dividends and distributions paid (or deemed paid) to you for that year. Under
certain circumstances, the Fund may elect to permit shareholders to take a
credit or deduction for foreign income taxes paid by the Fund. The Fund will
notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or
reinvested in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by the Fund from U.S. corporations. However,
dividends received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the alternative minimum
tax.
The Fund is required to withhold 31% of all dividends, distributions and
redemption proceeds payable to individuals and certain other noncorporate
shareholders who do not furnish the Fund with a correct taxpayer identification
number. Withholding at that rate from dividends and distributions is also
required for such shareholders who otherwise are subject to backup withholding.
Your redemption of Fund shares will result in taxable gain or loss to you,
depending on whether the redemption proceeds are more or less than your adjusted
basis for the redeemed shares (which normally includes any sales charge paid).
An exchange of Fund shares for shares of any other fund in the United Group
generally will have similar tax consequences. However, special rules apply when
you dispose of Fund shares through a redemption or exchange within 90 days after
your purchase thereof and subsequently reacquire Fund shares or acquire shares
of another fund in the United Group without paying a sales charge due to the
thirty-day reinvestment privilege or exchange privilege. In these cases, any
gain on the disposition of the Fund shares would be increased, or loss
decreased, by the amount of the sales charge you paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if you purchase Fund shares within thirty
days before or after redeeming other Fund shares at a loss, part or all of that
loss will not be deductible and will increase the basis of the newly purchased
shares.
The foregoing is only a summary of some of the important Federal tax
considerations generally affecting the Fund and its shareholders; see the SAI
for a further discussion. There may be other Federal, state or local tax
considerations applicable to a particular investor. You are urged to consult
your own tax adviser.
Purchase of Shares
You may purchase shares through Waddell & Reed, Inc. and its sales
representatives. To open an account you must complete an application. Orders
are accepted only at the home office of Waddell & Reed, Inc. (see inside back
cover of this Prospectus for address), and it need not accept any orders. The
offering price of a share is its net asset value next determined following
acceptance plus the sales charge shown in the table below. This net asset value
per share is the value of the Fund's assets, less liabilities, divided by the
number of shares outstanding. Net asset value is determined once each day as of
the close of the regular session of the New York Stock Exchange on each day the
Exchange is open. The Fund may invest in securities listed on foreign exchanges
which may trade on Saturdays and on customary U.S. national business holidays
when the New York Stock Exchange is closed. Consequently, the net asset value
of Fund shares may be significantly affected on days when the Fund does not
price its shares and when the shareholder has no access to the Fund. The Fund's
portfolio securities listed or traded on an exchange are valued using market
quotations or, if not available, at their fair value in a manner determined in
good faith by the Board of Directors. Short-term debt securities are valued at
amortized cost which approximates market value. Other assets are valued at
their fair value.
Sales Charge
Sales Charge as Approximate
as Percent of Percent of
Size of Purchase Offering Price Amount Invested
Under $100,000 ...................... 5.75 6.10
$ 100,000 to less than 200,000 .. 4.75 4.99
200,000 to less than 300,000 .. 3.50 3.63
300,000 to less than 500,000 .. 2.50 2.56
500,000 to less than 1,000,000 .. 1.50 1.52
1,000,000 to less than 2,000,000 .. 1.00 1.01
2,000,000 and over ................. 0.00 0.00
Ordinarily, the minimum initial investment is $500. A $50 minimum initial
investment pertains to sales in Arizona, California, Maine, Massachusetts,
Montana, North Dakota, Oklahoma, Texas, Vermont, Washington and Wisconsin and to
certain retirement plan accounts. A $50 minimum initial investment also
pertains to accounts for which an investor has arranged, at the time of initial
investment, to make subsequent purchases for the account through automatic bank
withdrawals, as described below. A $100 minimum initial investment pertains to
certain exchanges of shares from other funds in the United Group.
A shareholder may arrange with Waddell & Reed, Inc. to purchase shares by
having regular monthly withdrawals of $25 or more made from a bank account or by
having regular monthly exchanges of shares with a value of $25 or more made from
United Cash Management, Inc., subject to certain conditions explained in the
SAI.
Lower sales charges are available by combining additional purchases of any
of the funds in the United Group except United Municipal Bond Fund, Inc., United
Cash Management, Inc., United Government Securities Fund, Inc. and United
Municipal High Income Fund, Inc. with the net asset value of shares already held
("rights of accumulation") and by grouping all purchases made during a thirteen-
month period ("Statement of Intention"). Shares of this Fund or another fund
purchased through a "contractual" plan may not be included unless the plan has
been completed. Purchases by certain related persons may be grouped. Shares of
this Fund may be exchanged for shares of another fund in the United Group
without payment of an additional sales charge. Subject to certain conditions,
automatic monthly exchanges of shares of United Cash Management, Inc. and
exchanges of shares of certain other funds in the United Group (listed on the
back cover of this Prospectus) may be made into the Fund. These exchange
privileges may be eliminated or modified at any time, upon notice in certain
instances. Information as to rights of accumulation, Statements of Intention,
grouping by related persons, exchange privileges, Flexible Withdrawal Service,
Individual Retirement Accounts, Section 403(b) plans, Keogh, 401(k), 457 plans
and other qualified employee benefit plans is contained in the SAI. Applicable
forms are available from Waddell & Reed, Inc.'s sales representatives.
Fund shares may be purchased at net asset value by the directors and
officers of the Fund, employees of Waddell & Reed, Inc., employees of their
affiliates, sales representatives of Waddell & Reed, Inc. and the spouse,
children, parents, children's spouses and spouse's parents of each such
director, officer, employee and sales representative. Purchases in certain
retirement plans and certain trusts for these persons may also be made at net
asset value. Purchases in a 401(k) plan having 100 or more eligible employees
and purchases in a 457 plan sold through a broker/dealer not affiliated with
Waddell & Reed, Inc. may be made at net asset value. Shares may also be issued
at net asset value in a merger, acquisition or exchange offer made pursuant to a
plan of reorganization to which the Fund is a party. See the SAI for additional
information.
Redemption
You have the right to sell your shares back to the Fund (redeem) at any
time by sending a written request to the address on the front cover of this
Prospectus, stating how many shares or the amount in dollars you wish to redeem.
The written request must be in good order which requires that if more than one
person owns the shares, each owner must sign the written request. If you hold a
certificate, it must be properly endorsed and sent to the Fund. The Fund
reserves the right to require a signature guarantee by a national bank, a
federally chartered savings and loan or a member firm of a national stock
exchange or other eligible guarantor in accordance with procedures of the Fund's
transfer agent if the request for redemption is made by a corporation,
partnership or fiduciary, or if the redemption request is made by, or if
redemption proceeds are payable to, someone other than the owner of record. If
you recently purchased the shares by check, the payment of redemption proceeds
on these shares may be delayed. You may arrange for the bank upon which the
purchase check was drawn to provide to the Fund telephone or written assurance,
satisfactory to the Fund, that the check has cleared and been honored. If no
such assurance is given, payment of the redemption proceeds on these shares will
be delayed until the earlier of 10 days or when the Fund has been able to verify
that your purchase check has cleared and been honored.
The Fund will redeem your shares at their net asset value (which may be
more or less than what you paid) next computed after receipt of your written
request for redemption in good order at the Fund's address shown on the front
cover of this Prospectus. Payment is made within seven days, unless delayed
because of emergency conditions determined by the Securities and Exchange
Commission, when the New York Stock Exchange is closed (other than on weekends
and holidays) or when trading on the Exchange is restricted. Payment is made in
cash, although under extraordinary conditions redemptions may be made in
portfolio securities.
You may reinvest in the Fund all or part of the amount you redeemed without
charge by sending to the Fund the amount you wish to reinvest. The reinvested
amounts must be received within thirty days after the date of your redemption.
You may do this only once as to Fund shares.
Under the terms of the 401(k) plan which Waddell & Reed, Inc. has
available, the plan may have the right to make a loan to a plan participant by
redeeming Fund shares held by the plan. Principal and interest payments on the
loan made in accordance with the terms of the plan may be reinvested by the
plan, without payment of a sales charge, in shares of any of the funds in the
United Group in which the plan may invest.
Information concerning the establishment of automatic payments from an
account is available from sales representatives of Waddell & Reed, Inc.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS
Argentina - 1.97%
Astra Cia Argentina De Petro ........... 455,083 $ 902,885
Banco Frances del Rio de la
Plata, SA, ADR ........................ 45,500 1,018,063
Ciadea, S.A.* .......................... 194,022 2,139,287
Colorin S.A.* .......................... 696,330 893,391
Compania Naviera Perez Companc S.A.,
Class B ............................... 320,000 1,520,320
Corcemar S.A. .......................... 64,371 519,410
IRSA Inversiones Y Representaciones S.A.* 131,165 453,569
Molinos Rio de la Plata S.A.* .......... 292,316 3,838,401
Total ................................. 11,285,326
Australia - 3.43%
Advance Bank Australia Ltd. ............ 695,136 4,585,812
Australian Consolidated Press Group
Limited ............................... 250,000 759,750
Bank of Melbourne Ltd. ................. 23,103 82,524
Futuris Corporation LTD ................ 2,400,000 2,239,200
News Corporation Limited ............... 603,180 3,675,779
Pacific Magazines & Printing, Limited .. 300,000 629,700
West Australian Newspapers Holdings,
Limited ............................... 594,000 1,853,280
Westpac Banking Corp. .................. 1,787,894 5,810,656
Total ................................. 19,636,701
Austria - 1.23%
Universale-Bau, Aktiengesellschaft ..... 50,000 3,739,100
VA Technologie Aktiengesellschaft* ..... 40,000 3,295,760
Total ................................. 7,034,860
Brazil - 0.59%
Telecomunicacoes Brasileiras S/A -
Telebras, ADR ......................... 87,500 3,390,625
Canada - 0.40%
Suzy Shier Limited* .................... 379,900 2,299,915
Chile - 0.20%
Laboratorio Chile S.A., ADS* ........... 80,000 1,120,000
China - 0.34%
Maanshan Iron & Steel Company Limited,
ADS (A)* .............................. 70,380 1,929,116
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Denmark - 1.61%
Danske Traelast* ....................... 80,000 $ 4,401,440
Girobank ............................... 40,000 1,559,080
Thorkild Kristensen* .................. 58,450 3,234,565
Total ................................. 9,195,085
Finland - 10.06%
Enso-Gutzeit Oy ........................ 1,120,000 8,464,960
Metsa Serla Oy, Class B ................ 251,000 9,676,050
Nokia Corporation ...................... 326,000 26,551,396
Pohjola Insurance Company Ltd. ......... 91,700 1,034,468
Raision Tehtaat Oy AB .................. 8,200 757,737
Sampo Ins Co Ltd., A Shares ............ 6,000 260,778
Tampella Oy* ........................... 3,526,667 10,862,134
Total ................................. 57,607,523
France - 7.36%
Compagnies Europeennes Reunies S.A. .... 333,333 6,366,994
Credit Lyonnais SA ..................... 66,675 5,797,791
Epeda Bertrand Faure ................... 10,000 1,525,870
Europe 1 Communication ................. 6,000 1,875,168
Guyenne et Gascogne .................... 19,500 5,126,375
Lapeyre ................................ 202,985 11,310,730
Poliet Ex Lambert Freres ............... 14,900 1,166,908
Societe Industrielle de Transports
Automobiles S.A. ...................... 42,100 5,262,963
Union Des Assurances Federales ........ 35,000 3,680,460
Total ................................. 42,113,259
Germany - 4.75%
AVA Allgemeine Handelsgesellschaft der
Verbraucher AG ........................ 4,258 1,556,363
Buderus Aktiengesellschaft ............. 2,000 757,498
FAG Kugelfischer AG* ................... 8,000 1,179,728
GILDEMEISTER Aktiengesellschaft* ....... 5,690 724,337
Kolbenschmidt AG* ...................... 4,000 541,968
Mannesman AG ........................... 31,000 7,892,600
TRAUB AG* .............................. 30,000 4,253,820
Veba AG ................................ 12,500 3,926,925
Vereinigter Baubeschlag-Handel
Aktiengesellschaft..................... 8,100 4,716,662
WERU AG ............................... 1,900 1,622,446
Total ................................. 27,172,347
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Hong Kong - 3.17%
China Overseas Land & Investment, Ltd. . 5,000,000 $ 1,130,000
Dongfang Electrical Machinery
Co., Ltd.* ............................ 3,000,000 1,143,000
Guangdong Corporation Limited ......... 7,000,000 4,025,000
Guangzhou Investment .................. 9,000,000 2,529,000
International Tak Cheung (Holdings) LTD . 2,230,000 807,260
M. C. Packaging (Hong Kong) LTD ........ 2,500,000 897,500
New World Development Company Ltd. .... 750,000 2,085,750
Oriental Press Group Limited ........... 2,000,000 1,500,000
Peregrine Investments Holdings,
Ltd. .................................. 1,500,000 2,464,500
Prod-Art Technology Holdings Limited ... 4,682,000 379,242
Wo Kee Hong (Holdings) Limited ......... 2,850,000 1,214,100
Total ................................. 18,175,352
Italy - 1.52%
Arnoldo Mondadori Editore S.p.A. ....... 320,000 3,406,720
Banco di Sardegna Non-Convertible,
RISP .................................. 142,200 1,450,724
Fiat Impresit Sistemi
Ambientali S.p.A. ..................... 600,000 1,437,000
Instituto Mobiliare Italiano SpA ....... 300,000 2,030,400
Merloni Elettrodomestici .............. 247,500 376,200
Total ............................... 8,701,044
Japan - 13.51%
Aichi Steel Works Ltd.* ................ 209,000 1,461,119
Alps Electric .......................... 100,000 1,440,800
Amway Japan ............................ 75,000 2,907,150
Asahi Glass ............................ 300,000 3,713,700
Hitachi ................................ 1,100,000 11,496,100
Kawasaki Steel Corporation ............. 750,000 3,180,750
Kobe Steel, Ltd. ....................... 500,000 1,603,000
Matsushita Electric Industrial ......... 200,000 3,673,200
Mitsubishi Heavy Industries, Ltd. ...... 250,000 2,001,500
Mitsubishi Kasei Corporation ........... 500,000 2,663,500
Mitsubishi Motors ...................... 400,000 3,977,600
NEC .................................... 600,000 7,427,400
NKK .................................... 1,200,000 3,225,600
Nakakita Seisakusho Company, Ltd.* ..... 200,000 1,156,600
Navix Line ............................. 1,100,000 4,240,500
Nippon Steel Corporation ............... 500,000 1,745,000
Nissan Diesel Motor* ................... 500,000 2,932,500
OKi Electric Industry* ................. 300,000 2,416,800
Omron .................................. 300,000 5,388,000
Sharp .................................. 300,000 5,448,900
Sumitomo Chemical ...................... 550,000 2,979,900
Sumitomo Metal Industries, Ltd.* ....... 750,000 2,259,750
Total ................................. 77,339,369
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Malaysia - 0.10%
Berjaya Sports Toto Bhd ................ 400,000 $ 598,800
Mexico - 6.56%
Cemex, S.A., CPO Shares ................ 808,750 5,160,634
Cifra, S.A. de C.V., C ................. 950,000 2,211,600
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., B ....................... 847,000 5,467,385
Desc-Sociedad de Fomento Industrial,
S.A. de C.V., C ...................... 228,918 1,484,304
Grupo Carso, S.A. de C.V., Class 1* .... 636,500 5,759,689
Grupo Financiero Banamex Accival,
S.A. de C.V., C ....................... 659,000 4,166,198
Grupo Financiero Bancomer, S.A. de
C.V., B, CPO Shares ................... 5,279,600 4,434,864
Grupo Financiero Bancomer, S.A. de
C.V., C .............................. 500,000 560,000
Grupo Financiero InverMexico,
S.A. de C.V., B ...................... 1,000,000 1,709,000
Grupo Financiero InverMexico,
S.A. de C.V., L ....................... 100,000 170,900
Grupo Iusacell, S.A. de C.V., D, ADS* .. 3,000 79,125
Grupo Iusacell, S.A. de C.V., L, ADS* .. 7,000 182,000
Grupo Mexicano de Desarrollo, S.A.,
B, ADS*................................ 175,000 2,340,625
Grupo Mexicano de Desarrollo, S.A.,
L, ADS* ............................... 129,000 1,951,125
Grupo Tribasa, S.A.de C.V., ADS* ....... 84,000 1,858,500
Total ................................. 37,535,949
Netherlands - 0.27%
Pirelli Tyre Holding* .................. 175,000 1,561,000
Norway - 2.78%
Den Norske Luftfartselskap A/S,
Class B* .............................. 280,000 7,643,720
Elkem Metals, Class A* ................ 300,500 4,123,161
Kverneland ............................ 85,000 969,850
Schibsted A/S .......................... 145,000 1,727,820
Sparebkn Nor Grundfondsbevis ........... 80,000 1,467,520
Total ................................. 15,932,071
Portugal - 0.13%
Espirito Santo Financial Holding
SA, ADS ............................... 27,400 739,800
Singapore - 0.21%
L&M Group Investments Ltd. ............. 1,630,000 1,227,390
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Spain - 5.12%
Centros Commerciales Pryca, S.A. ....... 280,100 $ 3,750,259
Conserva Campofrio, S.A. ............... 23,850 1,401,044
Corporation Financiero Alba, S.A. ...... 67,250 2,821,810
Cristaleria Espanola, S.A. ............. 70,450 3,789,224
Cubiertas y Mzov ....................... 124,525 9,547,705
Grupo Uralita* ......................... 415,000 4,812,340
Inmobiliaria Metropolitana Vasco
Central, S.A. ......................... 70,000 2,477,930
Sotogrande S.A.* ....................... 234,000 722,826
Total ................................. 29,323,138
Sweden - 14.78%
ASTRA AB, Class A ...................... 226,665 4,586,340
Avesta Sheffield AB* ................... 1,130,000 7,670,440
Bilspedition AB* ....................... 1,475,000 5,255,425
Bylock & Nordsjofrakt AB, Class B ...... 100,000 861,500
Catena, Class A ........................ 450,000 4,112,100
Enator AB, Class B ..................... 510,000 2,263,380
Forsheda AB, Class B ................... 125,000 1,794,875
Garphyttan Industrier AB ............... 13,700 346,953
Hoganas AB* ............................ 300,000 3,739,800
Kinnevik ............................... 250,000 4,928,000
Marieberg Tidnings AB, Series A ........ 20,000 396,840
Rottneros AB* .......................... 3,000,000 2,916,000
Skandia Enskilda Banken, Class A* ...... 1,020,000 6,071,040
Skane-Gripen AB, Class B ............... 245,000 1,822,800
Stena Line AB, Class B ................. 449,500 2,928,043
Svenska Handelsbanken, Class A* ........ 300,000 4,033,500
Telefonaktiebolaget LM Ericcson,
Class B................................ 151,100 7,574,341
Trelleborg AB, Series B* .............. 300,000 4,033,500
Trygg-Hansa S Holding AB ............... 300,000 3,524,400
AB Volvo .............................. 180,000 15,743,340
Total ................................. 84,602,617
Switzerland - 2.59%
ASG Arbonia-Foster-Holding AG* ......... 255 1,424,634
BIL GT Group ........................... 5,000 2,354,705
Forbo Holding SA ....................... 4,900 4,519,682
Prodega AG ............................ 5,200 1,501,308
Societe Internationale Pirelli SA* ..... 40,000 5,009,360
Total ................................. 14,809,689
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Turkey - 0.15%
Tofas, Turk Otomobil Fabrikasi
Anonim Sirketi, ADS (A) ............... 115,000 $ 848,125
United Kingdom - 8.78%
AMEC ................................... 2,250,000 3,681,000
BET Plc ................................ 1,200,000 2,110,800
BTR PLC ............................... 1,000,000 5,463,000
Barclays Bank PLC ...................... 506,666 4,058,395
Body Shop (The) ........................ 310,000 1,152,890
HSBC Holdings plc ...................... 379,317 4,027,967
House of Fraser PLC* ................... 1,000,000 2,855,000
Next plc ............................... 3,000,000 10,833,000
Pentos Plc ............................. 1,225,000 481,425
Pilkington PLC ......................... 3,080,645 7,938,822
Takare PLC ............................. 490,000 1,610,630
Taylor Woodrow ......................... 1,250,000 2,546,250
United Biscuits (Holdings) Public
Limited Co. ........................... 667,822 3,236,265
WEW Group PLC .......................... 485,000 269,175
Total ................................. 50,264,619
TOTAL COMMON STOCKS - 91.61% $524,443,720
(Cost: $458,975,649)
PREFERRED STOCKS
Austria - 0.34%
Creditanstalt Bank Verein .............. 30,000 1,921,050
Brazil - 0.76%
Iochpe-Maxion S.A. ..................... 8,341,000 4,328,979
Germany - 1.81%
Hornbach-Baumarkt AG ................... 10,000 10,398,280
TOTAL PREFERRED STOCKS - 2.91% $ 16,648,309
(Cost: $9,000,477)
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Face
Amount in
Thousands Value
UNREALIZED GAIN ON OPEN FORWARD CURRENCY
CONTRACT - 0.03%
British Pounds, 12-29-94 (B) ............ P19,500$ 179,400
TOTAL SHORT-TERM SECURITIES - 3.70% $ 21,151,365
(Cost: $21,151,365)
TOTAL INVESTMENT SECURITIES - 98.25% $562,422,794
(Cost: $489,127,491)
CASH AND OTHER ASSETS, NET
OF LIABILITIES - 1.75% 10,033,269
NET ASSETS - 100.00% $572,456,063
See Notes to Schedule of Investments on page 17.
<PAGE>
THE INVESTMENTS OF
UNITED INTERNATIONAL GROWTH FUND, INC.
JUNE 30, 1994
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) As of June 30, 1994, the following restricted securities were owned in the
International Growth Fund:
Acquisition Acquisition Market
Security Date Shares Cost Value
---------------- --------------------------------------------
Tofas, Turk
Otomobil
Fabrikasi Anonim
Sirketi, ADS 3/3/94 75,000$1,237,500$ 553,125
3/8/94 20,000 327,500 147,500
3/9/94 20,000 265,000 147,500
Maanshan Iron &
Steel Company
Limited, ADS 10/14/93 70,380 2,078,517 1,929,116
--------------------
$3,908,517$2,777,241
====================
The total market value of restricted securities represents approximately
0.49% of the total net assets in the International Growth Fund at June 30,
1994.
(B) Principal amounts are denominated in the indicated foreign currency where
applicable (P - British Pound).
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>
Table I: Portfolio Diversification by Nation and Industry
June 30, 1994 market value as percent of total net assets
- ---------------------------------------------------------------------------
United
SwedenJapan Finland KingdomFranceGermany Mexico
- ---------------------------------------------------------------------------
Building .51% 0.65% 1.69% .45% 2.18% 1.10% 1.65%
- ---------------------------------------------------------------------------
Banks and
Savings and Loans 1.77 1.41 1.01 1.20
- ---------------------------------------------------------------------------
Multi-Industry 2.28 .20 .12 1.32 2.23
- ---------------------------------------------------------------------------
Retailing 2.72 .90 2.09 .39
- ---------------------------------------------------------------------------
Telecommunications1.32 4.64 .04
- ---------------------------------------------------------------------------
Automotive 3.12 1.20 1.38 .09
- ---------------------------------------------------------------------------
Engineering and
Construction .65 .64 .34 .32
- ---------------------------------------------------------------------------
Machinery .36 1.90 2.25
- ---------------------------------------------------------------------------
Steel 1.34 2.35
- ---------------------------------------------------------------------------
Electrical Equipment 3.62
- ---------------------------------------------------------------------------
Packaging and
Containers 1.39
- ---------------------------------------------------------------------------
Consumer Electronics
and Appliances .32 1.59
- ---------------------------------------------------------------------------
Publishing and
Advertising .07
- ---------------------------------------------------------------------------
Food and Related .57
- ---------------------------------------------------------------------------
Insurance .62 .23 .64
- ---------------------------------------------------------------------------
Paper 1.48
- ---------------------------------------------------------------------------
Airlines
- ---------------------------------------------------------------------------
Electronics 1.30
- ---------------------------------------------------------------------------
Shipping .51 .74
- ---------------------------------------------------------------------------
<PAGE>
United
SwedenJapan Finland KingdomFranceGermany Mexico
- ---------------------------------------------------------------------------
Financial .73
- ---------------------------------------------------------------------------
Tire and Rubber
- ---------------------------------------------------------------------------
Trucking 1.07
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply .80
- ---------------------------------------------------------------------------
Chemicals - Major .99
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology .92
- ---------------------------------------------------------------------------
Leisure Time .33
- ---------------------------------------------------------------------------
Metals and Mining
- ---------------------------------------------------------------------------
Public Utilities - .69
Electric
- ---------------------------------------------------------------------------
Household Products .51
- ---------------------------------------------------------------------------
Computers and
Office Equipment .40
- ---------------------------------------------------------------------------
Textiles and Apparel
- ---------------------------------------------------------------------------
Hospital Management .28
- ---------------------------------------------------------------------------
International Oil
- ---------------------------------------------------------------------------
Total 14.78% 13.51% 10.06% 8.78% 7.36% 6.56% 6.56
- ---------------------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
June 30, 1994, market value as percent of total net assets
- ---------------------------------------------------------------------------
Aus- Hong Switz- Argen-
Spain tralia Kong Norway erland tinaDenmark
- ---------------------------------------------------------------------------
Building 1.40% 1.00% .79% .33% 1.34%
- ---------------------------------------------------------------------------
Banks and
Savings and Loans 1.83% .26% .41 .17 .27
- ---------------------------------------------------------------------------
Multi-Industry .49 .40 .70 .27
- ---------------------------------------------------------------------------
Retailing .66
- ---------------------------------------------------------------------------
Telecommunications .07
- ---------------------------------------------------------------------------
Automotive .37
- ---------------------------------------------------------------------------
Engineering and
Construction 1.67 .14 .25
- ---------------------------------------------------------------------------
Machinery .16
- ---------------------------------------------------------------------------
Steel
- ---------------------------------------------------------------------------
Electrical Equipment .20
- ---------------------------------------------------------------------------
Packaging and
Containers .66 .16
- ---------------------------------------------------------------------------
Consumer Electronics
and Appliances .21
- ---------------------------------------------------------------------------
Publishing and
Advertising 1.20 .26
- ---------------------------------------------------------------------------
Food and Related .24 .26 .67
- ---------------------------------------------------------------------------
Insurance
- ---------------------------------------------------------------------------
Paper
- ---------------------------------------------------------------------------
Airlines 1.34
- --------------------------------------------------------------------------
Electronics
- ---------------------------------------------------------------------------
Shipping
- ---------------------------------------------------------------------------
<PAGE>
Aus- Hong Switz- Argen-
Spain tralia Kong Norway erland tinaDenmark
- ---------------------------------------------------------------------------
Financial .43
- ---------------------------------------------------------------------------
Tire and Rubber .88
- ---------------------------------------------------------------------------
Trucking
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply
- ---------------------------------------------------------------------------
Chemicals - Major
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology
- ---------------------------------------------------------------------------
Leisure Time .30
- ---------------------------------------------------------------------------
Metals and Mining .72
- ---------------------------------------------------------------------------
Public Utilities -
Electric
- ---------------------------------------------------------------------------
Household Products
- ---------------------------------------------------------------------------
Computers and
Office Equipment
- ---------------------------------------------------------------------------
Textiles and Apparel
- ---------------------------------------------------------------------------
Hospital Management
- ---------------------------------------------------------------------------
International Oil .16
- ---------------------------------------------------------------------------
Total 5.12% 3.43% 3.17% 2.78% 2.59% 1.97% 1.61%
- ---------------------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
June 30, 1994, market value as percent of total net assets
- ---------------------------------------------------------------------------
Nether-
Austria ItalyBrazil Canada China lands
- ---------------------------------------------------------------------------
Building
- ---------------------------------------------------------------------------
Banks and
Savings and Loans .34% .60%
- ---------------------------------------------------------------------------
Multi-Industry
- ---------------------------------------------------------------------------
Retailing
- ---------------------------------------------------------------------------
Telecommunications .59%
- ---------------------------------------------------------------------------
Automotive .25
- ---------------------------------------------------------------------------
Engineering and
Construction 1.23
- ---------------------------------------------------------------------------
Machinery .76
- ---------------------------------------------------------------------------
Steel .34%
- ---------------------------------------------------------------------------
Electrical Equipment
- ---------------------------------------------------------------------------
Packaging and
Containers
- ---------------------------------------------------------------------------
Consumer Electronics
and Appliances .07
- ---------------------------------------------------------------------------
Publishing and
Advertising .60
- ---------------------------------------------------------------------------
Food and Related
- ---------------------------------------------------------------------------
Insurance
- ---------------------------------------------------------------------------
Paper
- ---------------------------------------------------------------------------
Airlines
- ---------------------------------------------------------------------------
Electronics
- ---------------------------------------------------------------------------
Shipping
- ---------------------------------------------------------------------------
<PAGE>
Nether-
Austria ItalyBrazil Canada China lands
- ---------------------------------------------------------------------------
Financial
- ---------------------------------------------------------------------------
Tire and Rubber .27%
- ---------------------------------------------------------------------------
Trucking
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply
- ---------------------------------------------------------------------------
Chemicals - Major
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology
- ---------------------------------------------------------------------------
Leisure Time
- ---------------------------------------------------------------------------
Metals and Mining
- ---------------------------------------------------------------------------
Public Utilities -
Electric
- ---------------------------------------------------------------------------
Household Products
- ---------------------------------------------------------------------------
Computers and
Office Equipment
- ---------------------------------------------------------------------------
Textiles and Apparel 0.40%
- ---------------------------------------------------------------------------
Hospital Management
- ---------------------------------------------------------------------------
International Oil
- ---------------------------------------------------------------------------
Total 1.57% 1.52% 1.35% .40% .34% .27%
- ---------------------------------------------------------------------------
<PAGE>
Table I: Portfolio Diversification by Nation and Industry
June 30, 1994, market value as percent of total net assets
- ---------------------------------------------------------------------------
Singa-
poreChile TurkeyPortugalMalaysia Total
- ---------------------------------------------------------------------------
Building 13.09%
- ---------------------------------------------------------------------------
Banks and
Savings and Loans .13% 9.40%
- ---------------------------------------------------------------------------
Multi-Industry 8.01%
- ---------------------------------------------------------------------------
Retailing 6.76%
- ---------------------------------------------------------------------------
Telecommunications 6.66%
- ---------------------------------------------------------------------------
Automotive 0.15% 6.56%
- ---------------------------------------------------------------------------
Engineering and
Construction .21% 5.45%
- ---------------------------------------------------------------------------
Machinery 5.43%
- ---------------------------------------------------------------------------
Steel 4.03%
- ---------------------------------------------------------------------------
Electrical Equipment 3.82%
- ---------------------------------------------------------------------------
Packaging and
Containers 2.21%
- ---------------------------------------------------------------------------
Consumer Electronics
and Appliances 2.19%
- ---------------------------------------------------------------------------
Publishing and
Advertising 2.13%
- ---------------------------------------------------------------------------
Food and Related 1.74%
- ---------------------------------------------------------------------------
Insurance 1.49%
- ---------------------------------------------------------------------------
Paper 1.48%
- ---------------------------------------------------------------------------
Airlines 1.34%
- ---------------------------------------------------------------------------
Electronics 1.30%
- ---------------------------------------------------------------------------
Shipping 1.25%
- ---------------------------------------------------------------------------
<PAGE>
Singa-
poreChile TurkeyPortugalMalaysia Total
- ---------------------------------------------------------------------------
Financial 1.16%
- ---------------------------------------------------------------------------
Tire and Rubber 1.15%
- ---------------------------------------------------------------------------
Trucking 1.07%
- ---------------------------------------------------------------------------
Drugs and
Hospital Supply .20% 1.00%
- ---------------------------------------------------------------------------
Chemicals - Major .99%
- ---------------------------------------------------------------------------
Chemicals Specialty
and Miscellaneous
Technology .92%
- ---------------------------------------------------------------------------
Leisure Time .10% .73%
- ---------------------------------------------------------------------------
Metals and Mining .72%
- ---------------------------------------------------------------------------
Public Utilities -
Electric .69%
- ---------------------------------------------------------------------------
Household Products .51%
- ---------------------------------------------------------------------------
Computers and
Office Equipment .40%
- ---------------------------------------------------------------------------
Textiles and Apparel .40%
- ---------------------------------------------------------------------------
Hospital Management .28%
- ---------------------------------------------------------------------------
International Oil .16%
- ---------------------------------------------------------------------------
Total .21% .20% .15% .13% .10% 94.52%
- ---------------------------------------------------------------------------
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1994
Assets
Investment securities -- at value (Notes 1 and 3) . $562,422,794
Cash ............................................ 16,416
Receivables:
Investment securities sold ...................... 12,210,553
Dividends and interest .......................... 2,237,135
Fund shares sold ................................ 1,689,665
Prepaid insurance premium ......................... 30,441
------------
Total assets .................................. 578,607,004
------------
Liabilities
Payable for investment securities purchased ...... 5,084,179
Payable for Fund shares redeemed ............ ..... 713,421
Accrued transfer agency and dividend disbursing .. 117,077
Accrued service fee .............................. 106,146
Accrued accounting services fee ................... 5,833
Other ............................................ 124,285
------------
Total liabilities ............................. 6,150,941
------------
Total net assets ............................. $572,456,063
============
Net Assets
$1.00 par value capital stock, authorized --
300,000,000; shares outstanding -- 63,782,659
Capital stock ................................... $ 63,782,659
Additional paid-in capital ...................... 378,487,329
Accumulated undistributed income:
Accumulated undistributed net investment income . 1,452,615
Accumulated net realized gain on
investment transactions ....................... 55,438,157
Net unrealized appreciation in value
of investments at end of period ............... 73,295,303
------------
Net assets applicable to outstanding
units of capital ............................. $572,456,063
============
Net asset value per share (net assets divided by
shares outstanding) .............................. $8.98
Sales load (offering price x 5.75%) ................ .55
-----
Offering price per share (net asset value
divided by 94.25%) ............................... $9.53
=====
On sales of $100,000 or more the sales load
is reduced as set forth on page 10.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1994
Investment Income
Income:
Dividends (net of foreign withholding
taxes of $986,095) ............................ $ 8,030,240
Interest ........................................ 519,894
------------
Total income .................................. 8,550,134
------------
Expenses (Note 2):
Investment management fee ....................... 3,451,650
Transfer agency and dividend disbursing ......... 980,548
Custodian fees .................................. 690,995
Service fee ..................................... 411,578
Accounting services fee ......................... 63,333
Audit fees ...................................... 29,311
Legal fees ...................................... 7,380
Other ........................................... 153,508
------------
Total expenses ................................ 5,788,303
------------
Net investment income ........................ 2,761,831
------------
Realized and Unrealized Gain on Investments
Realized net gain on securities .................. 70,675,621
Realized net gain on forward currency contracts ... 805,983
------------
Realized net gain on investments ................ 71,481,604
------------
Unrealized appreciation in value of securities
during the period................................ 38,829,585
Unrealized depreciation on open forward
currency contracts during the period ............ (1,312,448)
------------
Unrealized appreciation on investments .......... 37,517,137
------------
Net gain on investments ....................... 108,998,741
------------
Net increase in net assets resulting from
operations ................................. $111,760,572
============
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
June 30,
-------------------------
1994 1993
------------ ------------
Increase in Net Assets
Operations:
Net investment income ...............$ 2,761,831 $ 3,379,206
Realized net gain on investments .... 71,481,604 6,585,093
Unrealized appreciation
(depreciation) .................... 37,517,137 (1,362,743)
------------ ------------
Net increase in net assets
resulting from operations ........ 111,760,572 8,601,556
------------ ------------
Dividends to shareholders from:*
Net investment income................ (2,383,629) (3,253,570)
Realized gains on securities
transactions ....................... (25,486,802) (2,180,166)
------------ ------------
(27,870,431) (5,433,736)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(18,563,121 and 6,682,190
shares, respectively) ............. 167,996,208 45,742,504
Proceeds from reinvestment
of dividends and/or capital
gains distribution (3,149,966 and
788,115 shares, respectively) ...... 27,280,780 5,264,217
Payments for shares redeemed
(4,880,995 and 5,930,817
shares, respectively) ............. (43,092,631) (40,327,132)
------------ ------------
Net increase in net assets
resulting from capital share
transactions...................... 152,184,357 10,679,589
------------ ------------
Total increase ................... 236,074,498 13,847,409
Net Assets
Beginning of period .................. 336,381,565 322,534,156
------------ ------------
End of period, including undistributed
net investment income of $1,452,615
and $1,074,413, respectively.........$572,456,063 $336,381,565
============ ============
*See "Financial Highlights" on page 23.
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
For a Share of Capital Stock Outstanding
Throughout Each Period:
<TABLE>
<CAPTION>
For the fiscal year ended
June 30,
-----------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period .... $7.16 $7.10 $5.94 $6.77 $6.21 $6.60 $9.07 $8.26 $5.70 $5.92
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income ...... .04 .07 .08 .12 .12 .15 .11 .07 .13 .18
Net realized and
unrealized gain
(loss) on
investments 2.32 .11 1.20 (0.83) .83 (0.15) (0.39) 2.44 2.76 .58
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ... 2.36 .18 1.28 (0.71) .95 0.00 (0.28) 2.51 2.89 .76
Less distributions:
Dividends from
net investment
income ...... (0.04) (0.07) (0.09) (0.12) (0.13) (0.13) (0.13) (0.08) (0.15) (0.23)
Distributions from
capital gains (0.50) (0.05) (0.03) 0.00 (0.26) (0.26) (2.06) (1.62) (0.18) (0.75)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.54) (0.12) (0.12) (0.12) (0.39) (0.39) (2.19) (1.70) (0.33) (0.98)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $8.98 $7.16 $7.10 $5.94 $6.77 $6.21 $6.60 $9.07 $8.26 $5.70
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return* ... 33.31% 2.62% 21.59% -10.50% 15.44% 0.03% -1.30% 38.23% 52.82% 15.06%
Net assets, end of period
(000 omitted) $572,456 $336,382 $322,534 $259,322 $291,691 $258,168 $289,920 $291,897 $188,916 $107,691
Ratio of
expenses to
average
net assets ... 1.20% 1.18% 1.18% 1.20% 1.17% 1.13% 1.12% 1.07% 1.09% 1.16%
Ratio of net
investment income
to average
net assets ... 0.57% 1.07% 1.17% 1.89% 1.81% 2.29% 1.47% 0.97% 1.94% 3.46%
Portfolio turn-
over rate** .. 83.76% 94.22% 112.82% 118.05% 196.43% 193.01% 228.98% 216.66% 167.97% 132.48%
*Total return calculated without taking into account the sales load deducted on
an initial purchase.
**This rate is, in general, calculated by dividing the average value of the
Fund's portfolio during the period into the
lesser of its purchases or sales in the period, excluding short-term
securities.
</TABLE>
See notes to financial statements.
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
NOTE 1 -- Significant Accounting Policies
United International Growth Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. 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. See Note 3 -- Investment
Securities Transactions.
C. Foreign currency translations -- All assets and liabilities expressed in
foreign currencies are converted into U.S. dollars at the mean of the bid
and asked prices of such currencies against U.S. dollars at the end of the
respective period. The cost of portfolio securities is translated at the
rates of exchange prevailing when acquired. Income is translated at rates
of exchange prevailing when accrued or received. The resulting transaction
exchange gains or losses have been included in the results of operations
with the type of transaction giving rise to the gain or loss.
D. Forward foreign currency exchange contracts -- A forward foreign currency
exchange contract (Forward Contract) is an obligation to purchase or sell a
specific currency at a future date at a fixed price. Forward Contracts are
"marked-to-market" daily at the applicable translation rates and the
resulting unrealized gains or losses are reflected in the Fund's financial
statements. Gains or losses are realized by the Fund at the time the
forward contract is extinguished. Contracts may be extinguished by either
entry into a closing transaction or by delivery of the currency. Risks may
arise from the possibility that the other party will not complete the
obligations of the contract and from unanticipated movements in the value
of the foreign currency relative to the U.S. dollar.
E. 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.
F. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. During the fiscal year ended
June 30, 1994, the Fund adopted Statement of Position 93-2 Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain,
and Return of Capital Distributions by Investment Companies. Accordingly,
permanent book and tax basis differences relating to future shareholder
distributions have been reclassified to additional paid-in capital. As of
July 1, 1993, the cumulative effect of such differences totaling $189,111
was reclassified from accumulated undistributed net realized gain on
investment transactions to additional paid-in capital. Net investment
income, net realized gains and net assets were not affected by this change.
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 annual rate of .30% of net assets and (ii)
a "Group" fee computed each day on the combined net asset values of all of the
funds in the United Group of mutual funds (approximately $10.5 billion of
combined net assets at June 30, 1994) at annual rates of .51% of the first $750
million of combined net assets, .49% on that amount between $750 million and
$1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between $2.25
billion and $3 billion, .43% between $3 billion and $3.75 billion, .40% between
$3.75 billion and $7.5 billion, .38% between $7.5 billion and $12 billion, and
.36% of that amount over $12 billion. The 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 the Fund. For these services, the
Fund 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 Level
------------------------- -------------------
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
At present, the Fund operates under state expense requirements which limit
the amount of aggregate annual expenses, adjusted for certain excess custodian
fees, that the Fund may incur during its fiscal year. The Manager will
reimburse the Fund for any expenses in excess of the limitation. No such
reimbursement was required for the period ended June 30, 1994.
The Fund also pays WARSCO a monthly per account charge for transfer agency
and dividend disbursement services of $1.0208 for each shareholder account which
was in existence at any time during the prior month, plus $0.30 for each account
on which a dividend or distribution of cash or shares had a record date in that
month. The Fund also reimburses W&R and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received direct and
indirect gross sales commissions (which are not an expense of the Fund) of
$5,013,005, out of which W&R paid sales commissions of $2,788,342 and all
expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
On September 28, 1993, shareholders of the Fund approved the adoption of a
12b-1 Service Plan with a maximum fee of .25%. The Plan went into effect
October 1, 1993.
The Fund paid Directors' fees of $15,917.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and United Investors Management Company, a holding company, and a direct
subsidiary of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Securities Transactions
Purchases of investment securities, other than U.S. Government and short-
term securities, aggregated $492,129,357 while proceeds from maturities and
sales aggregated $389,762,151. Purchases of short-term securities aggregated
$317,808,894 while proceeds from maturities and sales of short-term securities
aggregated $304,608,806. No U.S. Government securities were bought or sold
during the period.
For Federal income tax purposes, cost of investments owned at June 30, 1994
was $489,127,491, resulting in net unrealized appreciation of $73,115,903, of
which $97,953,867 related to appreciated securities and $24,837,964 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $70,169,156 during its fiscal year ended June 30, 1994, of which a portion
was paid to shareholders during the period ended June 30, 1994. Remaining
capital gain net income will be distributed to Fund shareholders.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United International Growth Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule 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 United International Growth Fund,
Inc. (the "Fund") at June 30, 1994, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
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 June 30, 1994 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
July 29, 1994
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
Custodian Underwriter
United Missouri Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas 66201-9217
Kirkpatrick & Lockhart (913) 236-2000
1800 M Street, N. W.
Washington, D. C. Shareholder Servicing Agent
Waddell & Reed Services Company
Independent Accountants 6300 Lamar Avenue
Price Waterhouse LLP P. O. Box 29217
Kansas City, Missouri Shawnee Mission, Kansas 66201-9217
(913) 236-2000
Investment Manager
Waddell & Reed Investment Accounting Services Agent
Management Company Waddell & Reed Services Company
6300 Lamar Avenue 6300 Lamar Avenue
P. O. Box 29217 P. O. Box 29217
Shawnee Mission, Kansas 66201-9217 Shawnee Mission, Kansas 66201-9217
(913) 236-2000 (913) 236-2000
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
PROSPECTUS
September 30, 1994
The United Group of Mutual Funds
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
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.
TABLE OF CONTENTS
Summary of Expenses .. 2
Financial Highlights . 3
What is United International
Growth Fund, Inc.? 4
Performance Information 4
Goal of the Fund ..... 5
Management and Services 6
Dividends, Distributions
and Taxes ......... 8
Purchase of Shares ... 9
Redemption ........... 11
Financial Statements . 12
NUP1002(9-94)
printed on recycled paper
<PAGE>
UNITED INTERNATIONAL GROWTH FUND, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
September 30, 1994
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with the prospectus (the
"Prospectus") of United International Growth Fund, Inc. (the "Fund") dated
September 30, 1994, which may be obtained from the Fund or its Underwriter,
Waddell & Reed, Inc., at the address or telephone number shown above.
TABLE OF CONTENTS
Performance Information............................. 2
Investment Objectives and Policies.................. 3
Investment Management and Other Services............ 16
Purchase, Redemption and Pricing of Shares.......... 20
Directors and Officers.............................. 33
Payments to Shareholders............................ 37
Taxes .............................................. 38
Portfolio Transactions and Brokerage................ 41
Other Information .................................. 44
<PAGE>
PERFORMANCE INFORMATION
Waddell & Reed, Inc., the Fund's underwriter, or the Fund may from time to
time publish the Fund's total return information and/or performance rankings in
advertisements and sales materials.
Total Return
An average annual total return quotation is computed by finding the average
annual compounded rates of return over the one-, five-, and ten-year periods
that would equate the initial amount invested to the ending redeemable value.
Standardized total return information is calculated by assuming an initial
$1,000 investment from which the maximum sales load of 5.75% is deducted. All
dividends and distributions are assumed to be reinvested at net asset value as
of the day the dividend or distribution is paid. No sales load is charged on
reinvested dividends or distributions. 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.
Non-standardized performance information may also be presented and it may
not reflect the sales charge. For example, the Fund may also compute total
return without deduction of the sales load in which case the same formula noted
above will be used but the entire amount of the $1,000 initial payment will be
assumed to have been invested. If the sales charge were reflected, it would
reduce the performance quoted.
The average annual total return quotations as of June 30, 1994, which is
the most recent balance sheet included in the Prospectus, for the periods shown
were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from July 1, 1993 to
June 30, 1994: 25.65% 33.31%
Five-year period from July 1, 1989 to
June 30, 1994: 10.13% 11.44%
Ten-year period from July 1, 1984 to
June 30, 1994: 14.50% 15.18%
The Fund may also quote unaveraged or cumulative total returns which
reflect 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.
Performance Rankings
Waddell & Reed, Inc. or the Fund also may from time to time publish in
advertisements or sales material performance rankings as published by recognized
independent mutual fund statistical services such as Lipper Analytical Services,
Inc., or by publications of general interest such as Forbes, Money, The Wall
Street Journal, Business Week, Barron's, Fortune or Morningstar Mutual Fund
Values. The Fund may also compare its performance to that of other selected
mutual funds or selected recognized market indicators such as the Standard &
Poor's 500 Stock Index and the Dow Jones Industrial Average. Performance
information may be quoted numerically or presented in a table, graph or other
illustration.
All performance information which the Fund advertises or includes in sales
material is historical in nature and is not intended to represent or guarantee
future results. The value of the Fund's shares when redeemed may be more or
less than their original cost.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Fund are described in the
Prospectus, which refers to the following investment methods and practices.
Securities - General
The Fund may invest in securities including common stock, preferred stock
and debt securities, as described in the Prospectus. These securities may
include the following described securities from time to time.
The Fund 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 Fund 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.
Foreign Securities
Waddell & Reed Investment Management Company (the "Manager"), the Fund's
investment manager, believes that while there are investment risks (see below)
in investing in foreign securities, there are also investment opportunities 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 the Fund's policy of investing a
substantial portion of its assets abroad will enable it to take advantage of
these differences and strengths where they are favorable.
Further, an investment may be affected by changes in currency rates and in
exchange control regulations (i.e., currency blockage). The Fund may bear a
transaction charge in connection with the exchange of currency. There may be
less publicly available information about a foreign company than about a
domestic company. Foreign companies are not generally subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic companies. Most foreign stock markets have substantially
less volume than the New York Stock Exchange 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 which could adversely affect investments in securities
of issuers located in those countries. If it should become necessary, the Fund
would normally encounter greater difficulties in commencing a lawsuit against
the issuer of a foreign security than it would against a United States' issuer.
As an operating policy, under normal market conditions, the Fund will have
at least 65% of its assets invested in at least three different countries
outside the U.S.
Restricted Securities
The Fund may purchase foreign restricted securities. However, it will not
purchase restricted securities if as a result of such purchase more than 5% of
its total assets would consist of restricted securities. These are fundamental
policies that may only be changed with shareholder approval. Restricted
securities are securities which are subject to legal or contractual restrictions
on resale.
Restricted securities which are traded in foreign markets are often subject
to restrictions which prohibit resale to United States persons or entities or
permit sales only to foreign broker-dealers who agree to limit their resale to
such persons or entities. The buyer of such securities must enter into an
agreement that, usually for a limited period of time, it will resell such
securities subject to such restrictions.
There are risks associated with investment in restricted securities in that
there can be no assurance of a ready market for resale. Also, the contractual
restrictions on resale might prevent the Fund from reselling the securities at a
time when such sale would be desirable. Restricted securities in which the Fund
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. See "Illiquid
Investments" below.
Warrants and Rights
The Fund may purchase warrants or rights to purchase securities ("rights")
provided that the Fund will not purchase warrants or rights if as a result of
such purchase more than 5% of its total assets would consist of warrants, rights
or a combination thereof, not including warrants or rights acquired in units or
attached to other securities. This is a fundamental policy which may only be
changed by shareholder approval. Certain states may impose a lower percentage
limit on investments in warrants and rights.
Warrants are options to purchase equity securities at a specified price
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends, and have no rights with respect to the assets of the issuer.
Warrants and rights are highly volatile and, therefore, more susceptible to
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
Lending Securities
One of the ways in which the Fund may try to realize income is by lending
its securities. If the Fund does this, the borrower pays the Fund an amount
equal to the dividends or interest on the securities that the Fund would have
received if it had not loaned the securities. The Fund also receives additional
compensation as discussed below.
Any securities loans which the Fund makes must be collateralized in
accordance with applicable regulatory requirements (the "Guidelines"). This
policy can only be changed by shareholder vote. Under the present Guidelines,
the collateral must consist of cash or securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities ("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 the Fund to
receive interest on the investment of the cash collateral or to receive interest
on the Government Securities used as collateral. Part of the interest received
in either case may be shared with the borrower.
The letters of credit which the Fund may accept as collateral are
agreements by banks (other than the borrowers of the Fund's securities), entered
into at the request of the borrower and for its account and risk, under which
the banks are obligated to pay to the Fund, while the letter is in effect,
amounts demanded by the Fund if the demand meets the terms of the letter. The
Fund's right to make this demand secures the borrower's obligations to it. The
terms of any such letters and the creditworthiness of the banks providing them
(which might include the Fund's custodian bank) must be satisfactory to the
Fund.
The Manager, subject to the direction and control of the Board of
Directors, has adopted additional rules concerning lending of securities which
may be changed without shareholder vote. At present, under these rules, the
Fund will lend securities only to creditworthy broker-dealers and financial
institutions. The Fund will make loans only under rules of the New York Stock
Exchange, which presently require the borrower to give the securities back to
the Fund within five business days after the Fund gives notice to do so. If the
Fund loses its voting rights on securities loaned, it will have the securities
returned to it in time to vote them if a material event affecting the investment
is to be voted on. The Fund may pay reasonable finder's, administrative and
custodian fees in connection with loans of securities.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules which may be changed without shareholder vote as to
(i) whom securities may be loaned; (ii) the investment of cash collateral; or
(iii) voting rights.
The Fund will not loan more than 10% of its assets at any one time. There
may be risks of delay in receiving additional collateral from the borrower if
the market value of the securities loaned goes up, risks of delay in recovering
the securities loaned or even loss of rights in the collateral should the
borrower of the securities fail financially.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. The
Fund will not enter into a repurchase transaction which will cause more than 10%
of its net assets to be invested in illiquid securities, which include
repurchase agreements not terminable within seven days. A repurchase
transaction occurs when, at the time the Fund purchases securities, it also
agrees to resell them to the vendor (normally a commercial bank or broker-
dealer), and must deliver those securities and/or securities substituted for
them under the repurchase agreement to the vendor on an agreed-upon date in the
future. In this section, such securities, including any securities so
substituted, are referred to as the "Resold Securities." The resale price is in
excess of the purchase price in that it reflects an agreed-upon market interest
rate effective for the period of time during which the Fund's money is invested
in the Resold Securities. The majority of the repurchase transactions in which
the Fund would engage run from day to day, and the delivery pursuant to the
resale typically will occur within one to five days of the purchase. The Fund's
risk is limited to the ability of the vendor to pay the agreed-upon sum upon the
delivery date. In the event of bankruptcy or other default by the vendor, there
may be possible delays or expenses in liquidating the Resold Securities, decline
in their value or loss of interest. Upon default, the Resold Securities
constitute collateral security for the repurchase obligation. The return on
such collateral may be more or less than that from the repurchase agreement.
The Fund's repurchase agreements will be structured so as to fully collateralize
the loans, i.e., the value of the Resold Securities, which will be held by the
Fund's Custodian bank or by a third party that qualifies as a custodian under
Section 17(f) of the Investment Company Act of 1940, 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. Repurchase agreements are
entered into only with those entities approved on the basis of criteria
established by the Board of Directors.
Illiquid Investments
The Fund has an operating policy, which may be changed without shareholder
approval, which provides that due to their possible limited liquidity, the Fund
may not make certain investments if as a result more than 10% of its net assets
would consist of such investments. The investments which are included in this
10% limit are: (i) repurchase agreements not terminable within seven days; (ii)
restricted securities; and (iii) securities for which market quotations are not
readily available.
Call Options
One of the rules which can be changed only by shareholder vote is that the
Fund will not purchase or write puts, calls or combinations thereof; however,
call options ("calls") may be written on securities if (i) such calls are listed
on a domestic securities exchange; (ii) when any such call is written and at all
times prior to a closing purchase transaction as to such call, or its lapse or
exercise, the Fund owns the securities which are subject to the call or has the
right to acquire such securities without the payment of further consideration;
and (iii) when any such call is written, not more than 10% of the Fund's total
assets would be subject to calls; calls may be purchased only to effect a
closing purchase transaction as to any call written in accordance with the
foregoing.
In short, the Fund can write calls, but only listed, covered calls and only
if not more than 10% of the Fund's assets are subject to calls. "Covered" means
that the Fund must own the securities which are subject to the call (or have the
right to acquire them without additional payment). "Listed" calls are those
which are listed on a domestic securities exchange.
If the Fund writes (i.e., sells) a call, it agrees to sell to a purchaser
of a call the securities subject to the call. The price at which it must sell
is fixed in the call and is referred to as the exercise price. This price may
be equal to, or more or less than, the market price of the securities covered by
the call. The period during which the Fund must sell at this price is also
fixed in the call. Most calls run for periods of up to 9 months except that
calls on certain debt securities may run for periods of up to 15 months. During
the period of a call the Fund must, if the call is exercised, sell at the
exercise price no matter what happens to the market price of the securities
subject to the call.
As compensation for entering into this contract, the Fund would, if it
writes a call, get an amount called a premium. The Manager believes that the
Fund's income can be increased through the receipt of premiums on calls. Also,
should the market price of securities on which the Fund has written calls go
down during the call period, the premium would help to offset that decline.
However, if the Fund wrote a call, it would lose the opportunity to profit from
an increase in the market price of securities which are subject to a call over
the exercise price except to the extent that the premium represents such a
profit. The Fund will write calls when it considers that the amount of the
premium represents adequate compensation for the loss of the opportunity.
Writing calls is a highly specialized activity. Personnel of the Manager
have had experience in this activity with respect to the Fund and other funds
and accounts managed by the Manager and its affiliates. Writing calls involves
investment techniques and risks different from those ordinarily associated with
investment companies. It is believed that the Fund's limitations on writing
calls will tend to reduce these risks.
The Fund purchases calls only to close its position in a call which it has
written. To do this, it will make a "closing purchase transaction"; this
involves buying a call on the same security with the same exercise price and
call period as the call it has written. When the Fund sells a security on which
it has written a call, it will, so that the call will remain covered, effect a
closing purchase transaction. The Fund may also effect a closing purchase
transaction to avoid having to sell a security on which it has written a call if
the call is exercised. The Fund will have a profit or loss from a closing
purchase transaction, depending on whether the amount it paid to purchase the
call is less or more than the premium it received on the call which is closed
out (see "Taxes" and "Payments to Shareholders"). There is no assurance that
the Fund will be able to effect a closing purchase transaction, if there is no
market for the call in question; if it cannot do so, it will have to hold the
security on which the call was written until the call expires or is exercised
even though it might otherwise be desirable to sell the security. If a call
which the Fund wrote is exercised, it could deliver the securities which it owns
(or the securities which it has the right to get). It could also deliver other
securities which it purchases.
Portfolio securities will be bought and sold on the basis of attempting to
achieve the goals of the Fund. However, the fact that listed calls can be
written on a particular security may be a factor in buying or keeping it if it
is otherwise considered suitable for the Fund.
The Fund's Custodian bank (or a securities depository acting for it) will
act as the Fund's escrow agent as to securities on which the Fund has written
calls (or other securities which, under the applicable rules, are acceptable for
escrow arrangements). The securities will not be released from the escrow until
the call expires or the Fund enters into a closing purchase transaction.
The writing of calls by the Fund may affect its turnover rate and the
brokerage commissions it pays. Calls may be exercised causing the sale of
securities, thus increasing its turnover rate. The increase would be beyond the
Fund's control since it has no control over the exercise of calls written by it.
The Fund will pay a brokerage commission each time it writes a call, effects a
closing purchase transaction or sells securities on the exercise of a call. The
brokerage commissions associated with the buying and selling of calls are
normally proportionately higher than those associated with general securities
transactions.
A premium received by the Fund upon writing a call will be included in its
assets; an equal amount will be included in the liability section of the
Statement of Assets and Liabilities as a deferred credit. This amount will be
subsequently adjusted to the current market value of the call. For example, if
the current market value of the call exceeds the premium received, the excess
would be an unrealized loss; if the premium exceeds the current market value,
the excess would be an unrealized gain. The current market value of a call will
be the last sales price on the principal exchange in which the call is traded
or, in the absence of transactions, the mean between the bid and asked prices.
Currency Exchange Contracts
The Fund may enter into forward foreign currency exchange contracts
("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 Contracts;
however, it will not enter into Forward Contracts or maintain a net exposure to
such contracts where the consummation of the Forward Contracts would obligate
the Fund to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency. The Fund 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. It may not buy commodities or commodity
contracts other than such Forward Contracts or foreign currency. All the
policies stated in this paragraph are fundamental policies.
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 contract agreed upon by the parties, at a price set at the time of
the contract. Forward Contracts are traded directly between currency traders
(usually large commercial banks) and their customers.
The Fund expects to use Forward Contracts under two circumstances:
1. When the Manager wishes to "lock in" the U.S. dollar price of a security
when the Fund is purchasing or selling a security denominated in a foreign
currency, the Fund would be able to enter into a Forward Contract to do so;
2. When the Manager believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, the Fund would be
able to enter into a Forward Contract to sell foreign currency for a fixed
U.S. dollar amount approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency.
As to the first circumstance, when the Fund enters into a trade for the
purchase or sale of a security denominated in a foreign currency, it may be
desirable to establish (lock in) the U.S. dollar cost or proceeds. By entering
into Forward Contracts in U.S. dollars for the purchase or sale of a foreign
currency involved in an underlying security transaction, the Fund will be able
to protect itself against a possible loss between trade and settlement dates
resulting from the adverse change in the relationship between the U.S. dollar
and the subject foreign currency.
Under the second circumstance, when the Manager believes that the currency
of a particular country may suffer a substantial decline, the Fund could enter
into a Forward Contract to sell for a fixed dollar amount the amount in foreign
currencies approximating the value of some or all of its portfolio securities
denominated in such foreign currency. The Fund will place cash or liquid equity
or debt securities in a separate account with its Custodian in an amount equal
to the value of the Forward Contracts entered into under the second
circumstance. If the value of the securities placed in the separate account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account equals the amount of the Fund's
commitments with respect to such Contracts.
The precise matching of Forward Contracts in the amounts and values of
securities involved would not generally be possible since the future values of
such foreign currencies will change as a consequence of market movements in the
values of those securities between the date the Forward Contract is entered into
and the date it matures. The projection of short-term currency market movements
is extremely difficult, and the successful execution of short-term hedging
strategy is highly uncertain. The Manager does not intend to enter into such
Contracts on a regular basis. Normally, consideration of the prospect for
currency parities will be incorporated into the long-term investment decisions
made with respect to overall diversification strategies. However, the Manager
believes that it is important to have flexibility to enter into such Forward
Contracts when it determines that the Fund's best interests may be served.
Generally, the Fund will not enter into a Forward Contract with a term of
greater than one year. At the maturity of the Forward Contract, the Fund may
either sell the portfolio security and make delivery of the foreign currency, or
it may retain the security and terminate the obligation to deliver the foreign
currency by purchasing an "offsetting" Forward Contract with the same currency
trader obligating the Fund to purchase, on the same maturity date, the same
amount of the foreign currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the Forward Contract. Accordingly, it
may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
foreign currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, it will incur a gain or a loss (as described below) to the extent
that there has been movement in Forward Contract prices. If it engages in an
offsetting transaction, it may subsequently enter in a new Forward Contract to
sell the foreign currency. Should forward prices decline during the period
between the Fund's entering into a Forward Contract for the sale of a foreign
currency and the date it enters into an offsetting Contract for the purchase of
the foreign currency, the Fund will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the currency it agreed
to purchase. Should forward prices increase, it will suffer a loss to the
extent the price of the currency it has agreed to purchase exceeds the price of
the currency it has agreed to sell.
It should be realized that this method of attempting to protect the value
of the Fund's portfolio securities against decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which one can achieve at some future point
in time. Additionally, although Forward Contracts tend to minimize the risk of
loss due to a decline in the value of the hedged currency, at the same time they
tend to limit any potential gains which might result should the value of such
currency increase.
Risk Factors of High-Yield Investing
As an operating (i.e., nonfundamental) policy, the Fund does not intend to
invest more than 5% of its assets in non-investment grade debt securities. The
market for high-yield, high-risk debt securities is relatively new and much of
its growth has paralleled a long economic expansion, during which this market
has involved a significant increase in the use of high-yield debt securities to
fund highly leveraged corporate acquisitions and restructurings. Thereafter,
this market was affected by a relatively high percentage of defaults with
respect to high-yield securities as compared with higher-rated securities. An
economic downturn or increase in interest rates is likely to have a greater
negative effect on this market and the value of high-yield debt securities, if
any, in the Fund's portfolio.
Prices of high-yield debt securities may be more sensitive to adverse
economic changes or corporate developments than higher rated investments. Debt
securities with longer maturities, which may have higher yields, may increase or
decrease in value more than debt securities with shorter maturities. Market
prices of high-yield debt securities structured as zero coupon or pay-in-kind
securities are affected to a greater extent by interest rate changes and may be
more volatile than securities which pay interest periodically and in cash.
Where it deems it appropriate and in the best interests of Fund shareholders,
the Fund may incur additional expenses to seek recovery on a debt security on
which the issuer has defaulted and to pursue litigation to protect the interests
of security holders of its portfolio companies.
Because the market for lower-rated securities may be thinner and less
active than for higher rated securities, there may be market price volatility
for these securities and limited liquidity in the resale market. If market
quotations are not readily available for the Fund's lower rated or unrated
securities, these securities will be valued by a method that the Fund's Board of
Directors believes accurately reflects fair value. Valuation becomes more
difficult and judgment plays a greater role in valuing high-yield debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available.
While credit ratings are only one factor the Manager relies on in
evaluating high-yield debt securities, certain risks are associated with using
credit ratings. Credit ratings evaluate the safety of principal and interest
payments, not market value risk. Credit ratings of individual securities may
change from time to time, and the Fund may retain a portfolio security whose
rating has been changed.
Investment Restrictions
Certain of the Fund's investment restrictions are described in the
Prospectus. The following are fundamental policies and together with certain
restrictions described in the Prospectus, cannot be changed without shareholder
approval. Under these additional restrictions, the Fund may not:
(i) Buy real estate nor any nonliquid interests in real estate investment
trusts;
(ii) Buy the securities of any company if it would then own more than 10% of
its voting securities or any class of its securities; or buy the
securities of any company if more than 5% of the Fund's total assets
(valued at market value) would then be invested in that company; or buy
the securities of companies in any one industry if more than 25% of the
Fund's total assets would then be in companies in that industry;
(iii) Buy shares of other investment companies which redeem their shares. The
Fund can buy shares of investment companies which do not redeem their
shares if it does it in a regular transaction in the open market and
then does not have more than one tenth (i.e., 10%) of its total assets
in these shares; however, the Fund does not have any current intent to
invest more than 5% of its assets in such securities in the foreseeable
future nor has it done so within the past year. The Fund may also buy
these shares as part of a merger or consolidation;
(iv) Make loans other than certain limited types of loans described herein;
the Fund can buy debt securities which have been sold to the public; it
can also lend its portfolio securities (see "Lending Securities" above)
or, except as provided above, enter into repurchase agreements (see
"Repurchase Agreements" above);
(v) Invest for the purpose of exercising control or management of other
companies;
(vi) Buy or continue to hold securities if the Fund's Directors or officers
or certain others own too much of the same securities; if any one of
these people owns more than one two-hundredths (i.e., .5 of 1%) of the
shares of a company and if the people who own that much or more own one
twentieth (i.e., 5%) of that company's shares, the Fund cannot buy that
company's shares or continue to own them;
(vii) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(viii) Sell securities short or buy securities on margin; also, the Fund may
not engage in arbitrage transactions;
(ix) Engage in the underwriting of securities or invest in restricted
securities, except restricted foreign securities. However, the Fund
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 are securities which are subject to legal or
contractual restrictions on resale;
(x) Purchase calls, which are rights to buy securities, or purchase puts,
which are rights to sell securities. The Fund also may not write (i.e.,
sell) any puts or calls or combinations of the two except that it may
write certain covered call options and purchase calls to close out its
position in a call which it has written (see "Call Options" above);
(xi) Borrow for investment purposes, that is, to purchase securities or
mortgage or pledge any of its assets; this does not prohibit the escrow
arrangements contemplated by the writing of covered call options. The
Fund may borrow money from banks as a temporary measure or for
extraordinary or emergency purposes but only up to 5% of its total
assets.
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. The Fund's turnover rate may
vary greatly from year to year as well as within a particular year and may be
affected by cash requirements for the redemption of its shares. For the fiscal
year ended June 30, 1994, the Fund's portfolio turnover rate was 83.76%. For
the fiscal year ended June 30, 1993, its portfolio turnover rate was 94.22%.
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 Waddell & Reed Investment Management Company, a wholly-
owned subsidiary of Waddell & Reed, Inc. Under the Management Agreement, the
Manager is employed to supervise the investments of the Fund and provide
investment advice to the Fund. 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 underwriter.
The Management Agreement permits Waddell & Reed, Inc. or an affiliate of
Waddell & Reed, Inc. to enter into a separate agreement for transfer agency
services ("Shareholder Servicing Agreement") and a separate agreement for
accounting services ("Accounting Services Agreement") with the Fund. The
Management Agreement contains detailed provisions as to the matters to be
considered by the Fund's Directors prior to approving any Shareholder Servicing
Agreement or Accounting Services Agreement.
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. United Investors
Management Company is a wholly-owned subsidiary of Torchmark Corporation.
Torchmark Corporation is a publicly held company. The address of Torchmark
Corporation and United Investors Management Company is 2001 Third Avenue South,
Birmingham, Alabama 35233.
Waddell & Reed, Inc. and its predecessors served as investment manager to
each of the registered investment companies in the United Group of Mutual Funds
since 1940 or the company's inception date, whichever was later, and to
TMK/United Funds, Inc. since that fund's inception, until January 8, 1992 when
it assigned its duties as investment manager for these funds (and the related
professional staff) to the Manager. The Manager has also served as investment
manager for Waddell & Reed Funds, Inc. since its inception in September 1992 and
Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund,
Inc. since they each commenced operations in February 1993. Waddell & Reed,
Inc. serves as principal underwriter for the investment companies in the United
Group of Mutual Funds, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between Waddell &
Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed, Inc., and
the Fund, the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Directors without shareholder approval.
Accounting Services
Under the Accounting Services Agreement entered into between the Fund and
the Agent, the Agent provides the Fund with bookkeeping and accounting services
and assistance, including maintenance of the Fund's records, pricing of the
Fund's shares, and preparation of prospectuses for existing shareholders, proxy
statements and certain reports. A new Accounting Services Agreement, or
amendments to an existing one, may be approved by the Fund's Directors without
shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder 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
Waddell & Reed Investment Management Company, all fees were paid to Waddell &
Reed, Inc. The management fees paid to Waddell & Reed, Inc. or the Manager, as
the case may be, during the fiscal years ended June 30, 1994, 1993 and 1992 were
$3,451,650, $2,282,090 and $2,149,370, respectively.
For purposes of calculating the daily fee the Fund does not include money
owed to it by Waddell & Reed, Inc. for shares which it has sold but not yet paid
to the Fund. The Fund accrues and pays this fee daily.
Under the Shareholder Servicing Agreement, the Fund pays the Agent a
monthly fee of $1.0208 for each shareholder account which was in existence at
any time during the prior month, plus $0.30 for each account on which a dividend
or distribution, of cash or shares, had a payment date in that month. It also
pays certain out-of-pocket expenses of the Agent, including long distance
telephone communications costs; microfilm and storage costs for certain
documents; forms, printing and mailing costs; and costs of legal and special
services not provided by Waddell & Reed, Inc., the Manager or the Agent.
Under the Accounting Services Agreement, the Fund pays the Agent a fee for
accounting services as described in the Prospectus. Fees paid to the Agent for
the fiscal years ended June 30, 1994, 1993 and 1992 were $63,333, $50,000 and
$50,000, respectively.
The State of California imposes limits on the amount of certain expenses
the Fund can pay. If these expense limitations are exceeded, the Manager is
required to reduce the amount by which these expenses exceed the expense
limitation.
The State of California has granted the Fund a variance from the expense
limitation to allow the Fund to exclude from its aggregate annual expenses for
purposes of calculating the expense limitation, the number of basis points by
which its custodian fee ratio exceeds the average custodial fee ratio for
domestic securities incurred by the other equity funds in the United Group of
Mutual Funds. Other expenses excluded from aggregate annual expenses include
interest, taxes, brokerage commissions and extraordinary expenses such as
litigation.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, the Manager
and the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the Fund under the Shareholder Servicing Agreement
are described above. Waddell & Reed, Inc. and affiliates pay the Fund's
Directors and officers who are affiliated with the Manager and its affiliates.
The Fund pays the fees and expenses of the Fund's other Directors.
Waddell & Reed, Inc., under an agreement separate from the Management
Agreement, Shareholder Servicing Agreement and Accounting Services Agreement,
acts as the Fund's underwriter, i.e., sells its shares on a continuous basis.
Waddell & Reed, Inc. is not required to sell any particular number of shares,
and thus sells shares only for purchase orders received. Under this agreement,
Waddell & Reed, Inc. pays the costs of sales literature, including the costs of
shareholder reports used as sales literature, and the costs of printing the
prospectus furnished to it by the Fund. The aggregate dollar amounts of
underwriting commissions for the fiscal years ended June 30, 1994, 1993 and 1992
were $5,013,005, $2,282,699 and $2,475,410, respectively, and the amounts
retained by Waddell & Reed, Inc. for each fiscal year were $2,224,663,
$1,069,053 and $1,344,608, respectively.
A major portion of the sales charge is paid to the sales representatives
and managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may compensate its
sales representatives as to purchases for which there is no sales charge.
The Fund pays all of its other expenses. These include the costs of
materials sent to shareholders, audit and outside legal fees, taxes, brokerage
commissions, interest, insurance premiums, custodian fees, fees payable by the
Fund under Federal or other securities laws and to the Investment Company
Institute and nonrecurring and extraordinary expenses, including litigation and
indemnification relating to litigation.
Under a Service Plan (the "Plan") adopted by the Fund pursuant to Rule 12b-
1 under the Investment Company Act of 1940, the Fund may pay Waddell & Reed,
Inc., the principal underwriter for the Fund, a fee not to exceed .25% of the
Fund's average annual net assets, paid monthly, to reimburse Waddell & Reed,
Inc. for its costs and expenses in connection with the provision of personal
services to Fund shareholders and/or maintenance of shareholder accounts.
The Plan and a related Service Agreement between the Fund and Waddell &
Reed, Inc. contemplate that Waddell & Reed, Inc. may be reimbursed for amounts
it expends in compensating, training and supporting registered sales
representatives, sales managers and/or other appropriate personnel in providing
personal services to Fund shareholders and/or maintaining shareholder accounts;
increasing services provided to Fund shareholders by office personnel located at
field sales offices; engaging in other activities useful in providing personal
service to Fund shareholders and/or maintenance of shareholder accounts; and in
compensating broker-dealers who may regularly sell Fund shares for providing
shareholder services and/or maintaining shareholder accounts. Fees paid (or
accrued) as service fees by the Fund for the fiscal year ended June 30, 1994
were $411,578.
The Plan and the Service Agreement were approved by the Fund's Board of
Directors, including the Directors who are not interested persons of the Fund
and who have no direct or indirect financial interest in the operations of the
Plan or any agreement referred to in the Plan (hereafter, the "Plan Directors").
The Plan was also approved by shareholders of the Fund.
Among other things, the Plan provides that (i) Waddell & Reed, Inc. will
provide to the Directors of the Fund at least quarterly, and the Directors will
review, a report of amounts expended under the Plan and the purposes for which
such expenditures were made, (ii) the Plan will continue in effect only so long
as it is approved at least annually, and any material amendments thereto will be
effective only if approved, by the Directors including the Plan Directors acting
in person at a meeting called for that purpose, (iii) amounts to be paid by the
Fund under the Plan may not be materially increased without the vote of the
holders of a majority of the outstanding shares of the Fund, and (iv) while the
Plan remains in effect, the selection and nomination of the Directors who are
Plan Directors will be committed to the discretion of the Plan Directors.
Custodial and Auditing Services
The Fund's Custodian is United Missouri Bank, n.a., Kansas City, Missouri.
In general, the Custodian is responsible for holding the Fund's cash and
securities. The Fund may place and maintain its foreign securities and cash
with a foreign custodian in accordance with Rule 17f-5 of the Investment Company
Act of 1940. Price Waterhouse, Kansas City, Missouri, the Fund's independent
accountants, audits the Fund's financial statements.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each of the shares of the Fund is the value of the
Fund's assets, less what it owes, divided by the total number of shares. For
example, if on a particular day the Fund owned securities worth $100 and had
cash of $15, the total value of the assets would be $115. If it owed $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).
Shares of the Fund are sold at their next determined net asset value plus
the sales charge described in the Prospectus. The price makeup as of June 30,
1994 was as follows:
Net asset value per share (net assets divided
by capital shares outstanding) ............ $8.98
Add: selling commission (5.75% of offering
price) .................................... .55
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Maximum offering price per share (net asset
value divided by 94.25%) .................. $9.53
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The offering price of a share is its net asset value next determined
following acceptance of a purchase order plus the sales charge. The number of
shares you receive for your purchase depends on the next offering price after
Waddell & Reed, Inc. receives and accepts your order at its principal business
office at the address shown on the cover of this SAI. You will be sent a
confirmation after your purchase which will indicate how many shares you have
purchased. Shares are normally issued for cash only.
Waddell & Reed, Inc. need not accept any purchase order, and it or the Fund
may determine to discontinue offering Fund shares for purchase.
The net asset value and offering price per share are computed once on each
day that the New York Stock Exchange is open for trading as of the close of the
regular session of that exchange (ordinarily, 4:00 P.M. Eastern time). The New
York Stock Exchange 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 New York Stock Exchange may close on other days. The net
asset value will change every business day, since the value of the assets
changes every business day and so does the number of shares.
The Fund's portfolio securities, except as otherwise noted, listed or
traded on a stock exchange, are valued on the basis of the last sale on that day
or, lacking any sales, at a price which is the mean between the closing bid and
asked prices. Other securities which are traded over-the-counter are priced
using NASDAQ (National Association of Securities Dealers Automated Quotations),
which provides information on bid and asked prices quoted by major dealers in
such stocks. Restricted foreign securities for which market quotations are
readily available are valued at market value. 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 are valued at amortized cost,
which approximates market. Warrants and rights to purchase securities are
valued at market value. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in good faith
under procedures established by and under the general supervision and
responsibility of the Fund's Board of Directors.
When the Fund writes a call, an amount equal to the premium received is
included in the 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 call.
If a call the Fund wrote is exercised, the proceeds received on the sale of the
related investment are increased by the amount of the premium the Fund received.
If a put or call written by the Fund expires, it has a gain in the amount of the
premium; if it enters into a closing purchase transaction, it will have a gain
or loss depending on whether the premium was more or less than the cost of the
closing transaction.
Minimum Initial and Subsequent Investments
Initial investments must be at least $500 with the exceptions described in
this paragraph. A $50 minimum initial investment pertains to sales made in
Arizona, California, Maine, Massachusetts, Montana, North Dakota, Oklahoma,
Texas, Vermont, Washington and Wisconsin and to certain retirement plan
accounts. A $50 minimum initial investment also pertains to accounts for which
an investor has arranged, at the time of initial investment, to make subsequent
purchases for the account by having regular monthly withdrawals of $25 or more
made from a bank account. A minimum initial investment of $25 is applicable to
purchases made through payroll deduction for or by employees of Waddell & Reed,
Inc., the Manager, their affiliates or certain retirement plan accounts. A $100
minimum initial investment pertains to certain exchanges of shares from another
fund in the United Group (see "Exchanges for Shares of Other Funds in the United
Group"). Except with respect to certain exchanges and automatic withdrawals
from a bank account, a shareholder may make subsequent investments of any
amount.
Waddell & Reed, Inc., in addition to distributing shares of the funds in
the United Group, TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. may
distribute certain limited partnership investment interests from time to time.
These investments may provide distributions at various intervals in amounts less
than $500. A Fund account may be set up by an investor in these limited
partnerships to receive partnership distributions of $25 or more. Accordingly,
the $500 minimum initial investment will not apply to such accounts.
Reduced Sales Charges
Account Grouping
Large purchases are subject to lower sales charges. (The schedule of sales
charges appears in the Prospectus.) For the purpose of taking advantage of the
lower sales charges available for large purchases, a purchase in any of
categories 1 through 7 listed below made by an individual or deemed to be made
by an individual may be grouped with purchases in any other of these categories.
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own account
(includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in a
Uniform Gift to Minors Act ("UGMA") or Uniform Transfers to Minors Act
account;
6. Purchases by that individual or his or her spouse for his or her Individual
Retirement Account ("IRA"), Section 457 of the Internal Revenue Code of
1986, as amended (the "Code"), salary reduction plan account, tax sheltered
annuity account ("TSA") or Keogh plan account, provided that the individual
and spouse are the only participants in the Keogh plan; and
7. Purchases by a trustee under a trust where that individual or his or her
spouse is the settlor (the person who establishes the trust).
Examples:
A. Grandmother opens a UGMA account for grandson A; Grandmother has an
account in her own name; A's father has an account in his own name;
the UGMA account may be grouped with A's father's account but may not
be grouped with Grandmother's account;
B. H establishes a trust naming his children as beneficiaries and
appointing himself and his bank as co-trustees; a purchase made in the
trust account is eligible for grouping with an IRA account of W, H's
wife;
C. H's will provides for the establishment of a trust for the benefit of
his minor children upon H's death; his bank is named as trustee; upon
H's death, an account is established in the name of the bank, as
trustee; a purchase in the account may be grouped with an account held
by H's wife in her own name.
D. X establishes a trust naming herself as trustee and R, her son, as
successor trustee and R and S as beneficiaries; upon X's death, the
account is transferred to R as trustee; a purchase in the account may
not be grouped with R's individual account. (If X's spouse, Y, was
successor trustee, this purchase could be grouped with Y's individual
account.)
All purchases made for a participant in a multi-participant Keogh plan may
be grouped only with other purchases made under the same plan; a multi-
participant Keogh plan is defined as a plan in which there is more than one
participant where one or more of the participants is other than the spouse of
the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made under
the plan with any purchases in categories 1 through 7 above.
Example B: H has established a Keogh plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.
All purchases made under a "qualified" employee benefit plan of an
incorporated business will be grouped. (A "qualified" employee benefit plan is
established pursuant to Section 401 of the Code.) All qualified employee
benefit plans of any one employer or affiliated employers will also be grouped.
(An affiliate is defined as an employer that directly, or indirectly, controls
or is controlled by or is under control with another employer.)
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.
All purchases made under a simplified employee pension plan ("SEP"),
payroll deduction plan or similar arrangement adopted by an employer or
affiliated employers (as defined above) may be grouped provided that the
employer elects to have all such purchases grouped at the time the plan is set
up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase in accounts eligible for grouping may be combined for
purposes of determining the availability of a reduced sales charge. In order
for an eligible purchase to be grouped, the investor must advise Waddell & Reed,
Inc. at the time the purchase is made that it is eligible for grouping and
identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at the same
time, H's parents open up three UGMA accounts for H and W's three
minor children and invest $10,000 in each child's name; the combined
purchase of $105,000 is subject to a reduced sales load of 4.75%
provided that Waddell & Reed, Inc. is advised that the purchases are
entitled to grouping.
Rights of Accumulation
If shares are held in any account and an additional purchase is made in
that account or in any account eligible for grouping with that account, the
additional purchase is combined with the net asset value of the existing account
as of the date the new purchase is accepted by Waddell & Reed, Inc. for the
purpose of determining the availability of a reduced sales charge.
Example: H is a current shareholder who invested in the Fund three years ago.
His account has a net asset value of $80,000. His wife, W, now wishes
to invest $20,000 in the Fund. W's purchase will be combined with H's
existing account and will be entitled to a reduced sales charge of
4.75%. (H's original purchase was subject to a full sales charge and
the reduced charge does not apply retroactively to that purchase.)
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under an investment
program ("contractual plan") the shares held under the plan may be combined with
the additional purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases is also
available under a Statement of Intention. By signing a Statement of Intention
form, which is available from Waddell & Reed, Inc., the purchaser indicates an
intention to invest, over a 13-month period, a dollar amount which is sufficient
to qualify for a reduced sales charge. The 13-month period begins on the date
the first purchase made under the Statement is accepted by Waddell & Reed, Inc.
Each purchase made from time to time under the Statement is treated as if the
purchaser were buying at one time the total amount which he or she intends to
invest. The sales charge applicable to all purchases made under the terms of
the statement will be the sales charge in effect on the beginning date of the
13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, shares already held in the same account in which the purchase is being made
or in any account eligible for grouping with that account, as described above,
will be included.
Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
shares at the sales charge applicable to a purchase of $100,000. H
has an IRA account and the shares held under the IRA in the Fund have
a net asset value as of the date the Statement is accepted by Waddell
& Reed, Inc. of $15,000; H's wife, W, has an account in her own name
invested in another fund in the United Group which charges the same
sales load as the Fund, with a net asset value as of the date of
acceptance of the Statement of $10,000; H needs to invest $75,000 over
the 13-month period in order to qualify for the reduced sales load
applicable to a purchase of $100,000.
A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount which must be purchased within the 13-month period in order to
qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under an investment
program ("contractual plan"), the shares held under the plan will be taken into
account in determining the amount which must be invested under the Statement
only if the contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of the
dollar amount which must be invested under the Statement. An amount equal to 5%
of the purchase required under the Statement will be held "in escrow." If a
purchaser does not, during the period covered by the Statement, invest the
amount required to qualify for the reduced sales charge under the terms of the
Statement, he or she will be responsible for payment of the sales charge
applicable to the amount actually invested. The additional sales charge owed on
purchases made under a Statement which is not completed will be collected by
redeeming part of the shares purchased under the Statement and held "in escrow"
unless the purchaser makes payment of this amount to Waddell & Reed, Inc. within
20 days of Waddell & Reed, Inc.'s request for payment.
If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell &
Reed, Inc. to sell, the shares covered by the Statement.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement will be deducted in computing the aggregate purchases under the
Statement.
Statements of Intention are not available for purchases made under a
simplified employee pension plan ("SEP") where the employer has elected to have
all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases apply to purchases of any of the
funds in the United Group which are subject to a sales charge. A purchase of,
or shares held, in any of the funds in the United Group which are subject to the
same sales charge as the Fund will be treated as an investment in the Fund for
the purpose of determining the applicable sales charge. The following funds in
the United Group are subject to a maximum 5.75% ("full") sales charge as
described in the prospectus of each Fund: United Funds, Inc., United
International Growth Fund, Inc., United Continental Income Fund, Inc., United
Vanguard Fund, Inc., United Retirement Shares, Inc., United High Income Fund,
Inc., United New Concepts Fund, Inc., United Gold & Government Fund, Inc. and
United High Income Fund II, Inc. The following funds in the United Group are
subject to a "reduced" sales charge as described in the prospectus of each fund:
United Municipal Bond Fund, Inc., United Government Securities Fund, Inc. and
United Municipal High Income Fund, Inc. For the purposes of obtaining the lower
sales charge which applies to large purchases, purchases in a fund in the United
Group which is subject to a full sales charge may not be grouped with purchases
in a fund in the United Group which is subject to a reduced sales charge;
conversely, purchases made in a fund with a reduced sales charge may not be
grouped or combined with purchases of a fund which is subject to a full sales
charge.
United Cash Management, Inc. is not subject to a sales charge. Purchases
in that fund are not eligible for grouping with purchases in any other fund.
Net Asset Value Purchases
As stated in the Prospectus, Fund shares may be purchased at net asset
value by the Directors and officers of the Fund, employees of Waddell & Reed,
Inc., employees of their affiliates, sales representatives of Waddell & Reed,
Inc. and the spouse, children, parents, children's spouses and spouse's parents
of each such Director, officer, employee and sales representative. "Child"
includes stepchild; "parent" includes stepparent. Purchases in an IRA sponsored
by Waddell & Reed, Inc. established for any of these eligible purchasers may
also be at net asset value. Purchases in any tax qualified retirement plan
under which the eligible purchaser is the sole participant may also be made at
net asset value. Trusts under which the grantor and the trustee or a co-trustee
are each an eligible purchaser are also eligible for net asset value purchases.
"Employees" includes retired employees. A retired employee is an individual
separated from service from Waddell & Reed, Inc. or affiliated companies with a
vested interest in any Employee Benefit plan sponsored by Waddell & Reed, Inc.
or its affiliated companies. "Sales representatives" includes retired sales
representatives. A "retired sales representative" is any sales representative
who was, at the time of separation from service from Waddell & Reed, Inc., a
Senior Account Representative. A custodian under the Uniform Gifts (or
Transfers) to Minors Act purchasing for the child or grandchild of any employee
or sales representative may purchase at net asset value whether or not the
custodian himself is an eligible purchaser.
Reasons for Differences in Public Offering Price
As described herein and in the Prospectus, there are a number of instances
in which the Fund's shares are sold or issued on a basis other than the maximum
public offering price, that is, the net asset value plus the highest sales
charge. Some of these relate to lower or eliminated sales charges for larger
purchases, whether made at one time or over a period of time as under a
Statement of Intention or right of accumulation. See the table of sales charges
in the Prospectus. The reasons for these quantity discounts are, in general,
that (i) they are traditional and have long been permitted in the industry and
are therefore necessary to meet competition as to sales of shares of other funds
having such discounts; (ii) certain quantity discounts are required by rules of
the National Association of Securities Dealers, Inc. (as are elimination of
sales charges on the reinvestment of dividends and distributions); and (iii)
they are designed to avoid an unduly large dollar amount of sales charge on
substantial purchases in view of reduced selling expenses. Quantity discounts
are made available to certain related persons for reasons of family unity and to
provide a benefit to tax exempt plans and organizations.
The reasons for the other instances in which there are reduced or
eliminated sales charges are as follows. Exchanges at net asset value are
permitted because a sales charge has already been paid on the shares exchanged.
Sales without sales charge are permitted to Directors, officers and certain
others due to reduced or eliminated selling expenses and since such sales may
aid in the development of a sound employee organization, encourage incentive,
responsibility and interest in the United Group and an identification with its
aims and policies. Limited reinvestments of redemptions at no sales charge are
permitted to attempt to protect against mistaken or not fully informed
redemption decisions. Shares may be issued at no sales charge in plans of
reorganization due to reduced or eliminated sales expenses and since, in some
cases, such issuance is exempted in the Investment Company Act of 1940 from the
otherwise applicable restrictions as to what sales charge must be imposed. In
no case in which there is a reduced or eliminated sales charge are the interests
of existing shareholders adversely affected since, in each case, the Fund
receives the net asset value per share of all shares sold or issued.
Flexible Withdrawal Service
If you qualify, you may arrange to receive regular monthly, quarterly,
semiannual or annual payments; this can be done by redeeming shares on a regular
basis. This service is called Flexible Withdrawal Service (the "Service"). It
is available not only for Fund shares but also for shares of any of the funds in
the United Group. It would be a disadvantage to an investor to make additional
purchases of shares while a withdrawal program is in effect as this would result
in duplication of sales charges.
To qualify for this Service, you must have invested at least $10,000 in
shares which you still own of any of the funds in the United Group; or, you must
own shares having a value of at least $10,000. The value for this purpose is
not the net asset value but the value at the offering price, i.e., the net asset
value plus the sales charge.
To start this Service, you must fill out a form (available from Waddell &
Reed, Inc.), advising Waddell & Reed, Inc. how you want your shares redeemed to
make the payments. You have three choices:
First. To get a monthly, quarterly, semiannual or annual payment of $50 or
more;
Second. To get a monthly payment, which will change each month, equal to
one-twelfth of a percentage of the value of the shares in the Account; you fix
the percentage; or
Third. To get a monthly or quarterly payment, which will change each month
or quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
The Fund, not Waddell & Reed, Inc., pays the costs of this Service. Having
the Service costs you nothing extra individually. There is a $2.00 fee for each
withdrawal from Retirement plan accounts.
If you have a share certificate for the shares you want to make available
for the Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares you have made available for this
Service are reinvested in additional shares. All payments are made by redeeming
shares, which may involve a gain or loss for tax purposes. To the extent that
payments exceed dividends and distributions, the number of shares you own will
decrease. When all of the shares in an account are redeemed, you will not
receive any more payments. Thus, the payments are not an annuity or an income
or return on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed. You can change to any one of the other choices originally
available to you. For example, if you started out with a $50 monthly payment,
you could change to a $200 quarterly payment. You can at any time redeem part
or all of the shares in your account; if you redeem all of the shares, the
Service is terminated. The Fund can also terminate the Service by notifying you
in writing.
After the end of each calendar year, information on shares redeemed will be
sent to you to assist you in completing your Federal income tax return.
Exchanges for Shares of Other Funds in the United Group
Once a sales charge has been paid on shares of a fund in the United Group,
these shares and any shares added to them from reinvestment of dividends or
distributions may be freely exchanged for shares of another fund in the United
Group. The shares you exchange must be worth at least $100 or you must already
own shares of the fund in the United Group into which you want to exchange.
You may exchange shares you own in another fund in the United Group for
fund shares without charge if (i) a sales charge was paid on these shares, or
(ii) the shares were received in exchange for shares for which a sales charge
was paid, or (iii) the shares were acquired from reinvestment of dividends and
distributions paid on such shares. There may have been one or more such
exchanges so long as a sales charge was paid on the shares originally purchased.
Also, shares acquired without a sales charge because the purchase was $2 million
or more will be treated the same as shares on which a sales charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund, Inc.
and United Municipal High Income Fund, Inc. shares are the exceptions and
special rules apply. Shares of any of these funds may be exchanged for Fund
shares only if (i) you have received those shares as a result of one or more
exchanges of shares on which a sales charge was originally paid, or (ii) the
shares have been held from the date of original purchase for at least six
months.
Subject to the above rules regarding sales charges, you may have a specific
dollar amount of shares of United Cash Management, Inc. automatically exchanged
each month into the Fund or any other fund in the United Group. The shares of
United Cash Management, Inc. which you designate for automatic exchange must be
worth at least $100 or you must own shares of the fund in the United Group into
which you want to exchange. The minimum value of shares which you may designate
for automatic exchange monthly is $100, which may be allocated among different
funds in the United Group so long as each fund receives a value of at least $25.
Minimum initial investment and minimum balance requirements apply to such
automatic exchange service.
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your written exchange request is received in good
order.
These exchange rights and other exchange rights concerning the other funds
in the United Group can in most instances be eliminated or modified at any time
and any such exchange may not be accepted.
Retirement Plans
For individual taxpayers meeting certain requirements, Waddell & Reed, Inc.
offers four retirement plan arrangements which provide tax deferral and
contribute to retirement assets. All four of them involve investments in Fund
shares (or the shares of certain other funds in the United Group).
First. A self-employed person may set up a plan that is commonly called a
Keogh plan. As a general rule, an investor under a defined contribution Keogh
plan can contribute each year up to 25% of his or her annual earned income, with
a maximum of $30,000.
Second. Investors having earned income may set up a plan that is commonly
called an IRA. Under an IRA, an investor can contribute each year up to 100% of
his or her earned income up to a maximum of $2,000. The maximum is $2,250 if an
investor's spouse has no earned income in a taxable year. If an investor's
spouse has at least $2,000 of earned income in a taxable year, the maximum is
$4,000 ($2,000 for each spouse).
These contributions are deductible unless the investor (or, if married,
either spouse) is an active participant in a qualified retirement plan or if,
notwithstanding that the investor or one or both spouses so participates, the
adjusted gross income does not exceed certain levels.
An investor may also use an IRA to receive a rollover contribution which is
either (a) a direct rollover from an employer's plan or (b) a rollover of an
eligible distribution paid to the investor from an employer's plan or another
IRA. To the extent a rollover contribution is made to an IRA, the distribution
will not be subject to Federal income tax until distributed from the IRA. A
direct rollover generally applies to any distribution from an employer's plan
(including a custodial account under Section 403(b)(7) of the Code, but not an
IRA) other than certain periodic payments, required minimum distributions and
other specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Third. If an investor is an employee of a public school system or of
certain types of charitable organizations, he or she may be able to enter into a
deferred compensation arrangement through a custodial account under Section
403(b) of the Code.
Fourth. If an investor is an employee of a state or local government or of
certain types of charitable organizations, he or she may be able to enter into a
deferred compensation arrangement in accordance with Section 457 of the Code.
Waddell & Reed, Inc. also offers to businesses prototype employee benefit
plans qualified under Section 401 of the Code. Investments may be made in the
Fund in accordance with the terms of the plans.
More detailed information about these arrangements is in the applicable
forms which are available from Waddell & Reed, Inc. These plans may involve
complex tax questions as to premature distributions and other matters.
Investors should consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures; the emergency
or other extraordinary conditions there indicated under which payment may be
delayed beyond seven days are certain emergency conditions determined by the
Securities and Exchange Commission, when the New York Stock Exchange is closed
other than for weekends or holidays, or when trading on the Exchange is
restricted. The extraordinary conditions mentioned in the Prospectus under
which redemptions may be made in portfolio securities are that the Fund's Board
of Directors can decide that conditions exist making cash payments undesirable.
If they should, redemption payments could be made in securities. They would be
valued at the value used in figuring net asset value. There would be brokerage
costs to the redeeming shareholder in selling such securities. The Fund,
however, has elected to be governed by Rule 18f-1 under the Investment Company
Act, pursuant to which it is obligated to redeem shares solely in cash up to the
lesser of $250,000 or 1% of its net asset value during any 90-day period for any
one shareholder.
Reinvestment Privilege
The Prospectus discusses the reinvestment privilege under which, if you
redeem and the decide it was not a good idea, you may reinvest. If Fund shares
are then being offered, you can put all or part of your redemption payment back
into Fund shares without any sales charge at the net asset value next determined
after you have returned the amount. Your written request to do this must be
received within 30 days after your redemption request was received. You can do
this only once as to Fund shares. You do not use up this privilege by redeeming
shares to invest the proceeds at net asset value in a Keogh plan or an IRA.
DIRECTORS AND OFFICERS
The day-to-day affairs of the Fund are handled by outside organizations
selected by the Board of Directors. The Board 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.
Each of the Fund's Directors is also a Director of each of the other funds
in the United Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc.,
Torchmark Government Securities Fund, Inc. and Torchmark Insured Tax-Free Fund,
Inc. and, with the exception of Mark L. Yockey, each of its officers is also an
officer of one or more of these funds. 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. Wright is a member of the Fund's
Board of Directors. The other persons are officers but not Board members.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Chairman of the Board of Directors of the Fund; 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;
formerly, Chairman of the Board of Directors of Waddell & Reed, Inc.
KEITH A. TUCKER*
President of the Fund; President, Chief Executive Officer and Director of
Waddell & Reed Financial Services, Inc.; Chairman of the Board of Directors of
the Manager, 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; formerly, partner in Trivest, a
private investment concern; formerly, Director of Atlantis Group, Inc., a
diversified company.
HENRY L. BELLMON
Route 1
Red Rock, Oklahoma 74651
Rancher; Professor, Oklahoma State University; formerly, Governor of
Oklahoma; prior to his current service as Director of the funds in the United
Group, TMK/United Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government
Securities Fund, Inc. and Torchmark Insured Tax-Free Fund, Inc., he served in
such capacity for the funds in the United Group and TMK/United Funds, Inc.
DODDS I. BUCHANAN
University of Colorado
Campus Box 419
Boulder, Colorado 80309
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, Chairman, Department of Marketing,
Transportation and Tourism, University of Colorado; formerly, Professor of
Marketing, College of Business, University of Colorado.
JAY B. DILLINGHAM
926 Livestock Exchange Building
Kansas City, Missouri 64102
Formerly, President and Director of Kansas City Stock Yards Company;
formerly, Partner in Dillingham Farms, a farming operation.
JOHN F. HAYES*
335 N. Washington
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; formerly, President of Gilliland & Hayes, P.A., a law firm.
GLENDON E. JOHNSON
7300 Corporate Center Drive
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Life Insurance Company.
WILLIAM T. MORGAN*
1799 Westridge Road
Los Angeles, California 90049
Retired; formerly, Chairman of the Board of Directors and President of the
Fund, each Fund in the United Group, TMK/United Funds, Inc., Waddell & Reed
Funds, Inc., Torchmark Government Securities Fund, Inc. and Torchmark Insured
Tax-Free Fund, Inc. (Mr. Morgan retired as Chairman of the Board of Directors
and President of these Funds on April 30, 1993); formerly, President, Director
and Chief Executive Officer of the Manager 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.
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.
LESLIE S. WRIGHT
Samford University
800 Lakeshore Drive
Birmingham, Alabama 35209
Chancellor of Samford University; formerly, Director of City Federal
Savings and Loan Association; formerly, President of Samford University.
Robert L. Hechler
Vice President and Principal Financial Officer of the Fund; Vice President,
Chief Operations Officer, Director and Treasurer of Waddell & Reed Financial
Services, Inc.; Executive Vice President, Principal Financial Officer, Director
and Treasurer of the Manager; 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; 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 the Manager 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;
Vice President of Waddell & Reed Services Company.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund; Vice President,
Secretary and General Counsel of Waddell & Reed Financial Services, Inc.; Senior
Vice President, Secretary and General Counsel of the Manager and Waddell & Reed,
Inc.; Senior Vice President, Secretary and General Counsel of Waddell & Reed
Services Company; 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 the Manager, Waddell
& Reed Financial Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset
Management Company and Waddell & Reed Services Company.
Carl E. Sturgeon
Vice President of the Fund; Vice President of the Manager; formerly, Vice
President of Waddell & Reed, Inc.
Mark L. Yockey
Vice President of the Fund; Vice President of the Manager; formerly,
Analyst for the Treasury Department of the state of Michigan.
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, four of the Fund's Directors may be deemed to
be "interested persons" as defined in the Investment Company Act of 1940 of its
underwriter, Waddell & Reed, Inc. or the Manager. 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 in
the United Group 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. Currently, no person
serves as Director Emeritus.
The Funds in the United Group, TMK/United Funds, Inc. and Waddell & Reed
Funds, Inc. pay to each Director a total of $40,000 per year, plus $500 for each
meeting of the Board of Directors attended and $500 for each committee meeting
attended which is not in conjunction with a Board of Directors' meeting, other
than Directors who are affiliates of Waddell & Reed, Inc. The fees to the
Directors who receive them are divided among the funds in the United Group,
TMK/United Funds, Inc. and Waddell & Reed Funds, Inc. based on their relative
size. During the Fund's fiscal year ended June 30, 1994, its share was $15,917.
The officers are paid by the Manager or its affiliates.
Shareholdings
As of August 31, 1994, all of the Fund's Directors and officers as a group
owned less than 1% of the outstanding shares of the Fund. As of such date no
person owned of record or was known by the Fund to own beneficially 5% or more
of the Fund's outstanding shares.
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder, other than payments when you redeem your shares. The first source
is the Fund's net investment income, which is derived from the dividends,
interest and earned discount on the securities it holds less its expenses. The
second source is realized capital gains, which are derived from the proceeds
received from the sale of securities at a price higher than the Fund's tax basis
(usually cost) in such securities; these gains can be either long-term or short-
term, depending on how long the Fund has owned the securities before it sells
them. The third source is net realized gains from foreign currency
transactions. The payments made to shareholders from net investment income, net
short-term capital gains and net realized gains from certain foreign currency
transactions are called dividends. Payments, if any, from long-term capital
gains are called distributions.
The Fund pays distributions only if it has net capital gains (the excess of
net long-term capital gains over net short-term capital losses). It may or may
not have such gains, depending on whether securities are sold and at what price.
If the Fund has net capital gains, it will ordinarily pay distributions once
each year, in the latter part of the fourth calendar quarter. Even if it has
net capital gains for a year, the Fund does not pay out the gains if it has
applicable prior year losses to offset the gains.
Choices You Have on Your Dividends and Distributions
In your application form, you can give instructions that (i) you want cash
for your dividends and distributions, (ii) you want your dividends and
distributions reinvested in Fund shares or (iii) you want cash for your
dividends and want your distributions reinvested in Fund shares. You can change
your instructions at any time. If you give no instruction, your dividends and
distributions will be reinvested in Fund shares. All reinvestments are at net
asset value without any sales charge. The net asset value used for this purpose
is that computed as of the record date for the dividend or distribution,
although this could be changed by the Directors.
Even if you get dividends and distributions in cash, you can thereafter
reinvest them (or distributions only) in Fund shares at net asset value (i.e.,
no sales charge) next determined after receipt by Waddell & Reed, Inc., of the
amount clearly identified as a reinvestment. The reinvestment must be within 45
days after the payment.
TAXES
General
In order to continue to qualify for treatment as a regulated investment
company ("RIC") under the Code, the Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital gain and
net gains from certain foreign currency transactions) and must meet several
additional requirements. These requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures contracts or forward contracts)
derived with respect to its business of investing in securities or those
currencies ("Income Requirement"); (2) the Fund must derive less than 30% of its
gross income each taxable year from the sale or other disposition of securities,
or any of the following, that were held for less than three months -- (i)
options, futures contracts or forward contracts or (ii) foreign currencies (or
options, futures contracts or forward contracts thereon) that are not directly
related to the Fund's principal business of investing in securities (or in
options with respect to securities) ("Short-Short Limitation"); (3) at the close
of each quarter of the Fund's taxable year, at least 50% of the value of its
total assets must be represented by cash and cash items, 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; and (4) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than Government Securities or the securities of
other RICs) of any one issuer.
Dividends and distributions declared by the Fund in October, November or
December of any year and payable to shareholders of record on a date in one of
those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to shareholders for the year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any distributions received on those shares. Investors should also
be aware that if shares are purchased shortly before the record date for a
dividend or distribution, the purchaser will receive some portion of the
purchase price back as a taxable dividend or distribution.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year substantially
all of its ordinary income for that year and capital gain net income for the
one-year period ending on October 31 of that year, plus certain other amounts.
It is the Fund's policy to make sufficient distributions each year to avoid
imposition of the Excise Tax. The Code permits the Fund to defer into the next
calendar year net capital losses incurred between each November 1 and the end of
the current calendar year.
Income from Foreign Securities
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. Because more than 50% of the value
of the Fund's total assets at the close of its taxable year will ordinarily
consist of securities of foreign corporations, the Fund will be eligible to, and
may, file an election with the Internal Revenue Service that will enable the
shareholders, in effect, to receive the benefit of the foreign tax credit with
respect to any foreign and U.S. possessions income taxes paid by the Fund.
Pursuant to any such election, the Fund would treat those taxes as dividends
paid to its shareholders and each shareholder would be required to (1) include
in gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes; (2) treat the shareholder's share of those
taxes and of any dividend paid by the Fund that represents income from foreign
or U.S. possessions sources as the shareholder's own income from those sources;
and (3) either deduct the taxes deemed paid by the shareholder in computing the
shareholder's taxable income or, alternatively, use the foregoing information in
calculating the foreign tax credit against the shareholder's federal income tax.
The Fund will report to its shareholders shortly after each taxable year the
share of its income from sources within, and taxes paid to, foreign countries
and U.S. possessions if it makes this election.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally are treated
as ordinary income or loss. These gains or losses, referred to under the Code
as "section 988" gains or losses, may increase or decrease the amount of the
Fund's investment company taxable income to be distributed to its shareholders.
Income from Options and Currencies
The use of hedging strategies, such as writing (selling) and purchasing
options and entering into Forward Contracts, involves complex rules that will
determine for income tax purposes the character and timing of recognition of the
gains and losses the Fund realizes in connection therewith. Income from foreign
currencies (except certain gains therefrom that may be excluded by future
regulations), and income from transactions in options and Forward Contracts
derived by the Fund 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 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 Forward Contracts thereon, that are not
directly related to the Fund's principal business of investing in securities (or
options with respect to securities) also will be subject to the Short-Short
Limitation if they are held for less than three months.
If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
Short-Short Limitation. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of that limitation. The
Fund intends that, when it engages in hedging transactions, they will qualify
for this treatment, but at the present time it is not clear whether this
treatment will be available for all of the Fund's hedging transactions. To the
extent this treatment is not available, the Fund may be forced to defer the
closing out of options and certain Forward Contracts beyond the time when it
otherwise would be advantageous to do so, in order for the Fund to continue to
qualify as a RIC.
Any income the Fund earns from writing options is taxed as short-term
capital gains. If the Fund 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 the Fund expires without being
exercised, the premium it receives also will be a short-term gain. If such an
option is exercised and the Fund thus sells the securities subject to the
option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale. The Fund will not write so many options
that it could fail to continue to qualify as a RIC.
Code section 1092 (dealing with straddles) also may affect the taxation of
options in which the Fund may invest. Section 1092 defines a "straddle" as
offsetting positions with respect to personal property; for these purposes,
options 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 the Fund makes certain elections, the amount, character and
timing of the recognition of gains and losses from the affected straddle
positions will be determined under rules that vary according to the elections
made. Because only a few of the regulations implementing the straddle rules
have been promulgated, the tax consequences of straddle transactions to the Fund
are not entirely clear.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by the Manager pursuant to the Management
Agreement is to arrange the purchase and sale of securities for the portfolio of
the Fund. Transactions in securities other than those for which an exchange is
the primary market are generally done with dealers acting as principals or
market makers. Brokerage commissions are paid primarily for effecting
transactions in securities traded on an exchange and otherwise only if it
appears likely that a better price or execution can be obtained. The individual
who manages the Fund may manage other advisory accounts with similar investment
objectives. It can be anticipated that the manager will frequently place
concurrent orders for all or most accounts for which the manager has
responsibility. Transactions effected pursuant to such combined orders are
averaged as to price and allocated in accordance with the purchase or sale
orders actually placed for each fund or advisory account.
To effect the portfolio transactions of the Fund, 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 Fund 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 Fund. 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 Fund and/or the other funds and accounts over which the
Manager or its affiliates have investment discretion.
Brokerage services are, in general, defined by reference to Section 28(e)
of the Securities Exchange Act of 1934 as including (i) advice, either directly
or through publications or writings, as to the value of securities, the
advisability of investing in, purchasing or selling securities and the
availability of securities and purchasers or sellers; (ii) furnishing analyses
and reports; or (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance, settlement and custody). "Investment
discretion" is, in general, defined as having authorization to determine what
securities shall be purchased or sold for an account, or making those decisions
even though someone else has responsibility.
The commissions paid to brokers that provide such brokerage services may be
higher than another qualified broker would charge for effecting comparable
transactions if a good faith determination is made by the Manager that the
commission is reasonable in relation to the brokerage services provided.
Subject to the foregoing considerations, the Manager may also consider the
willingness of particular brokers and dealers to sell shares of the Fund and
other funds managed by the Manager and its affiliates as a factor in its
selection. 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 and its affiliates
and investment research received for the commissions of those other accounts may
be useful both to the Fund and one or more of such other accounts. To the
extent that electronic or other products provided by such brokers to assist 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 the Fund's portfolio or being considered for purchase.
In placing transactions for the Fund's portfolio, the Manager may consider
sales of shares of the Fund and other funds managed by the Manager and its
affiliates as a factor in the selection of brokers to execute portfolio
transactions. The Manager intends to allocate brokerage on the basis of this
factor only if the sale is $2 million or more and there is no sales charge.
This results in the consideration only of sales which by their nature would not
ordinarily be made by Waddell & Reed, Inc.'s direct sales force and is done in
order to prevent the direct sales force from being disadvantaged by the fact
that it cannot participate in Fund brokerage.
During the Fund's fiscal years ended June 30, 1994, 1993 and 1992, it paid
brokerage commissions of $2,475,162, $1,864,173 and $1,830,572, respectively.
These figures do not include principal transactions or spreads or concessions on
principal transactions, i.e., those in which the Fund sells securities to a
broker-dealer firm or buys from a broker-dealer firm securities owned by it.
During the Fund's fiscal year ended June 30, 1994, the transactions, other than
principal transactions, which were directed to broker-dealers who provided
research as well as execution totaled $468,304,319 on which $1,457,424 in
brokerage commissions were paid. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
Buying and Selling With Other Funds
The Fund and one or more of the other funds in the United Group, TMK/United
Funds, Inc., Waddell & Reed Funds, Inc., Torchmark Government Securities Fund,
Inc. and Torchmark Insured Tax-Free Fund, Inc. or accounts over which Waddell &
Reed Asset Management Company exercises investment discretion frequently buy or
sell the same securities at the same time. If this happens, the amount of each
purchase or sale is divided. This is done on the basis of the amount of
securities each fund or account wanted to buy or sell. Sharing in large
transactions could affect the price the Fund pays or receives or the amount it
buys or sells. However, sometimes a better negotiated commission is available.
OTHER INFORMATION
The Shares of the Fund
The Fund presently has only one kind (class) of shares. Each share has the
same rights to dividends, to vote and to receive assets if the Fund liquidates
(winds up). Each fractional share has the same rights, in proportion, as a full
share. Shares are fully paid and nonassessable when bought.
