File No. 811-2263
File No. 2-42885
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. ______
Post-Effective Amendment No. 43
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 26
UNITED RETIREMENT SHARES, INC.
(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66201-2917
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (913) 236-2000
Sharon K. Pappas, P. O. Box 29217, Shawnee Mission, Kansas 66201-9217
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on September 30, 1994 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
_____ on (date) pursuant to paragraph (a) of Rule 485
============================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities
under the Securities Act of 1933 pursuant to Rule 24f(a)(1).
Notice for the Registrant's fiscal year ended June 30, 1994 was
filed on August 23, 1994.
============================================================================
<PAGE>
UNITED RETIREMENT SHARES, INC.
==============================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) Summary of Expenses
(b) ..................... *
(c) ..................... *
3(a) ..................... Financial Highlights
(b) ..................... Financial Highlights
(c) ..................... Performance Information
(d)...................... Financial Highlights
4(a) ..................... What is United Retirement Shares, Inc.?; Goal of
the Fund
(b) ..................... Goal of the Fund
(c) ..................... Goal of the Fund
5(a) ..................... What is United Retirement Shares, Inc.?
(b)...................... Management and Services; Inside Back Cover
(c) ..................... Management and Services
(d) ..................... Management and Services; Inside Back Cover
(e) ..................... Management and Services; Inside Back Cover
(f) ..................... Management and Services
(g)(i)................... *
(g)(ii).................. Management and Services
5A........................ **
6(a) ..................... What is United Retirement Shares, Inc.?
(b) ..................... *
(c) ..................... *
(d) ..................... *
(e) ..................... Management and Services
(f)...................... Dividends, Distributions and Taxes
(g) ..................... Dividends, Distributions and Taxes
7(a) ..................... Management and Services; Inside Back Cover
(b) ..................... Purchase of Shares
(c) ..................... Purchase of Shares
(d) ..................... Purchase of Shares
(e) ..................... *
(f) ..................... Management and Services
8(a) ..................... Redemption
(b) ..................... *
(c) ..................... Redemption
(d) ..................... Redemption
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Investment Objective and Policies
(b) ..................... Investment Objective and Policies
(c) ..................... Investment Objective and Policies
(d) ..................... Investment Objective and Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... *
15(a) ..................... *
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
16(a)(i) .................. Investment Management and Other Services
(a)(ii) ................. Directors and Officers
(a)(iii) ................ Investment Management and Other Services
(b) ..................... Investment Management and Other Services
(c) ..................... *
(d) ..................... Investment Management and Other Services
(e) ..................... *
(f) Investment Management and Other Services
(g) ..................... *
(h) ..................... Investment Management and Other Services
(i) ..................... *
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... *
(e) ..................... *
18(a) ..................... Other Information
(b) ..................... *
19(a) ..................... Purchase, Redemption and Pricing of Shares
(b) ..................... Purchase, Redemption and Pricing of Shares
(c) ..................... Purchase, Redemption and Pricing of Shares
20 ........................ Payments to Shareholders; Taxes
21(a) ..................... Investment Management and Other Services
(b) ..................... *
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. *
(b)(iii) ................ *
(b)(iv).................. Performance Information
23 ........................ ***
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Included in Annual Report to Shareholders
***Included in Prospectus
<PAGE>
UNITED RETIREMENT SHARES, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
September 30, 1994
PROSPECTUS
United Retirement Shares, Inc. (the "Fund") is a management investment
company which seeks to provide the highest long-term total investment return as
is, in the opinion of management, consistent with reasonable safety of capital.
It will attempt to achieve its objective through a fully-managed investment
policy.
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 RETIREMENT SHARES, 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 0.57%
12b-1 Fees* 0.25%
Other Expenses 0.22%
(Includes, among other expenses, transfer
agency, accounting, custodian, audit and legal fees)
Total Fund Operating Expenses** 1.04%
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: $67 $89 $112 $177
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 Retirement Shares, Inc.
FINANCIAL HIGHLIGHTS
(Audited)
The following information has been audited by Price Waterhouse,
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 $7.70 $7.20 $6.41 $6.41 $6.03 $5.39 $6.66 $7.42 $6.05 $5.56
--------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income .18 .22 .21 .26 .26 .26 .25 .24 .30 .40
Net realized and
unrealized gain
(loss) on
investments .22 .73 .91 .05 .51 .67 (0.48) .16 1.41 .75
--------------------------------------------------------------------------------------
Total from investment
operations ... .40 .95 1.12 .31 .77 .93 (0.23) .40 1.71 1.15
--------------------------------------------------------------------------------------
Less distributions:
Dividends from
net investment
income ... (0.18) (0.23) (0.22) (0.26) (0.26) (0.28) (0.30) (0.22) (0.33) (0.42)
Distributions from
from capital
gains ..... (0.28) (0.22) (0.11) (0.05) (0.13) (0.01) (0.74) (0.94) (0.01) (0.24)
--------------------------------------------------------------------------------------
Total distri-
butions ... (0.46) (0.45) (0.33) (0.31) (0.39) (0.29) (1.04) (1.16) (0.34) (0.66)
--------------------------------------------------------------------------------------
Net asset value,
end of period $7.64 $7.70 $7.20 $6.41 $6.41 $6.03 $5.39 $6.66 $7.42 $6.05
======================================================================================
Total return* ... 5.03% 13.45% 17.93% 5.07% 13.06% 17.88% -1.72% 6.46% 29.54 22.93%
Net assets, end of
of period
(000 omitted).$452,836 $379,933 $258,862 $195,330 $161,263 $125,987 $103,768 $109,405 $99,478 $73,088
Ratio of expenses
to average net
assets ........ 0.87% 0.80% 0.82% 0.88% 0.87% 0.87% 0.91% 0.87% 0.92 % 1.05%
Ratio of net investment
income to average net
assets ....... 2.32% 2.98% 3.12% 4.20% 4.21% 4.77% 4.26% 3.90% 4.73% 7.16%
Portfolio turnover
rate** ....... 27.10% 30.62% 38.26% 29.05% 53.20% 52.19% 113.34% 161.24% 128.32% 69.43%
*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 cover of this
Prospectus.
<PAGE>
What is United Retirement Shares, Inc.?
United Retirement Shares, Inc. was organized as a Maryland corporation
under the general laws of the state of Maryland by Articles of Incorporation
filed May 8, 1989. The Fund commenced operations on December 29, 1989. On that
date, the Fund merged with United Retirement Shares, Inc., a Delaware
corporation, pursuant to an Agreement and Plan of Merger dated July 31, 1989.
As a result of the merger, in which the Fund was the surviving entity, the Fund
continued the business of the Delaware corporation with the same investment
objectives and policies, and with the same shareholders. The Fund is an open-
end diversified management investment company commonly called a "mutual fund."
The Fund's Board of Directors 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 goal of the Fund is to achieve the highest long-term total investment
return as is, in the opinion of management, consistent with reasonable safety of
capital. Total return is the aggregate of income and changes in the capital
value of the shares of the Fund. The goal of the Fund and the types of
securities the Fund may invest in are matters of fundamental policy which may
not be changed without shareholder vote. There can be no assurance that the
Fund will achieve its goal; some market risks are inherent in all securities to
varying degrees.
The Fund will try to achieve its goal through a fully-managed investment
policy in which it may invest substantially all of its assets in equity
securities, preferred stock including preferred stock that converts to common
stock either automatically or after a specified period of time or at the option
of the issuer, debt securities including money-market securities (such as
certificates of deposit, commercial paper and U.S. Treasury bills and notes) and
debt securities whose performance is linked to a specified equity security or
securities index, or convertible securities, or may invest varying proportions
of its assets in these types of securities, depending on the Manager's analysis
of what types of securities, or what proportions, are most likely to achieve the
Fund's objective. Normally, the debt securities purchased by the Fund will be
rated at least BBB by Standard & Poor's Ratings Group or Baa by Moody's
Investors Services, Inc.; however, the Fund has no minimum investment rating
requirement. See the SAI for a description of these ratings. Securities rated
BBB or Baa may have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher rated
securities. The Fund may retain securities whose ratings fall below BBB or Baa.
Certain additional risks are associated with securities below these investment
grade ratings. The Fund may make defensive investments in cash or money-market
securities with respect to up to all of its assets as a temporary measure when
deemed advisable. Since the objective is long-term total investment return,
Waddell & Reed Investment Management Company (the "Manager"), the Fund's
investment manager, will not attempt to make quick shifts between types of
securities to take advantage of what it considers to be short-term market or
economic trends, but will, rather, attempt to find investment opportunities
based on its analysis of long-term prospects for capital growth, capital
stability and income. This policy differs from that of many mutual funds which
either stress capital appreciation or current income because under this policy
the Fund will seek the highest long-term total investment return.
Investment Policies
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 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
on the delivery date.
The Fund may not purchase securities of foreign issuers if more than 10% of
its total assets, taken at market, would consist of such securities. There are
certain risks associated with foreign securities not usually associated with
U.S. securities including absence of uniform accounting, auditing and financial
standards, changes in currency rates and in exchange regulations, political
instability and less government regulation. See the SAI for further discussion.
As a fundamental policy the Fund may lend not more than 10% of its assets
at any one time on a collateralized basis in accordance with certain regulatory
requirements. There are certain risks associated with lending securities in
that the Fund may experience delays in recovering the collateral or even loss of
the collateral. See the SAI for further discussion.
The Fund will not purchase the securities of any company which has a record
of less than three years' continuous operation including the operation of any
predecessors. The Fund may buy shares of other investment companies which do
not redeem their shares, subject to the conditions stated in the SAI. The SAI
gives further details as to other investment restrictions.
The Fund may write (sell) listed covered calls on securities on not more
than 50% of its assets and may purchase calls and write and purchase puts on
securities. "Covered" means that the Fund owns the securities which are subject
to the call or has the right to acquire them without additional payment. The
purchaser of a call has the right to purchase from the Fund the securities
covered by the call at a fixed price for a fixed period. The Fund has an
operating policy which provides that only options on securities which are issued
by the Options Clearing Corporation may be purchased or sold except the Fund may
write unlisted put options and purchase unlisted put and call options on
securities issued or guaranteed by the U. S. Government or its agencies or
instrumentalities.
The Fund may write options on securities for the purpose of increasing
income in the form of premiums paid by the purchaser of the option. While
writing covered calls may increase the Fund's income, the Fund will lose the
opportunity to profit from an increase in the price of the security subject to
the call over the exercise price. When the Fund writes a put it will maintain
designated cash or readily marketable assets adequate to purchase the related
investments should the put be exercised. In writing puts, the Fund assumes the
risk of loss should the market value of the underlying security decline below
the exercise price at which the Fund is obligated to purchase the security. The
Fund will write a put only when it has determined that it would be willing to
purchase the underlying security at the exercise price.
The Fund may purchase calls to take advantage of an expected rise in the
market value of securities which the Fund does not hold in its portfolio and to
close positions in calls it has written. It may purchase puts on related
investments it owns ("protective puts") or on related investments it does not
own ("nonprotective puts"). Buying a protective put permits the Fund to protect
itself during the put period against a decline in the value of the related
investments below the exercise price by selling them through the exercise of the
put. Buying a nonprotective put permits the Fund, if the market price of the
related investments is below the put price during the put period, either to
resell the put or to buy the related investments and sell them at the exercise
price. The Fund may also purchase puts to close positions in puts it has
written. If an option purchased by the Fund is not exercised or sold it will
become worthless at its expiration date and the Fund will lose the amount of the
premium it paid.
The Fund may also, for non-speculative purposes, write and purchase
listed options on stock indexes which are not limited to stocks of any industry
or group of industries ("broadly-based stock indexes"). It will write options
on stock indexes primarily to generate income. It will purchase calls on
broadly-based stock indexes to hedge against an anticipated increase in the
price of securities it wishes to acquire and will purchase puts on broadly-based
stock indexes to hedge against an anticipated decline in the market value of its
portfolio securities. Because stock index options are settled in cash, the Fund
cannot provide in advance for its potential settlement obligations on a call it
has written on a stock index by holding the underlying securities. The Fund
bears the risk that the value of the securities it holds will vary from the
value of the index.
Options offer large amounts of leverage which will result in the Fund's
net asset value being more sensitive to changes in the value of the related
investment. There is no assurance that a liquid secondary market will exist for
exchange-listed options. The market for options which are not listed on an
exchange may be less active than the market for exchange-listed options. If the
Fund is not able to enter into a closing transaction on an option it has written
it will be required to maintain the securities, or cash in the case of an option
on a broadly-based stock index, subject to the call or the collateral underlying
the put until a closing purchase transaction can be entered into or the option
expires. Option transactions may increase the portfolio turnover rate creating
greater commission expenses, transaction costs and certain tax consequences.
The Fund may also buy and sell futures contracts on debt securities ("Debt
Futures"), futures contracts on broadly-based stock indexes ("Stock Index
Futures") and options on Debt Futures and Stock Index Futures. The Fund will
purchase or sell futures contracts only for the purpose of hedging against
changes in the market value of its portfolio securities or changes in the market
value of securities which the Manager anticipates it may wish to include in the
Fund's portfolio. At the present time, the debt securities to which Debt
Futures relate are long-term U.S. Treasury Bonds, Treasury Notes, Government
National Mortgage Association pass-through mortgage-backed securities and three-
month U.S. Treasury Bills. Since futures contracts and options thereon can
replicate movements in the cash markets for the securities in which the Fund
invests without the large cash investments required for dealing in such markets,
they may subject the Fund to greater and more volatile risks than might
otherwise be the case. The principal risks related to the use of such
instruments are (i) imperfect correlation between movements in the market price
of the portfolio investments (held or intended) being hedged and in the price of
the futures contract or option; (ii) possible lack of a liquid secondary market
for closing out futures or options positions; (iii) the need for additional
portfolio management skills and techniques; and (iv) losses due to unanticipated
market price movements. For a hedge to be completely effective, the price
change of the hedging instrument should equal the price change of the security
being hedged. Such equal price changes are not always possible because the
investment underlying the hedging instrument may not be the same investment that
is being hedged. The Manager will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation. The ordinary spreads between prices in the cash and futures
markets, due to the differences in the natures of those markets, are subject to
distortion. Due to the possibility of distortion, a correct forecast of general
interest or stock market trends by the Manager may still not result in a
successful transaction. The Manager may be incorrect in its expectations as to
the extent of various interest rate movements or stock market movements or the
time span within which the movements take place. As of the date of this
Prospectus, except as to covered call writing, the Fund intends to limit
purchase and sale of options and futures contracts to buying and selling
broadly-based stock index futures contracts and options thereon for the purpose
of hedging not more than 10% of total assets.
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.
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 .15 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 0.57% of the Fund's average net assets.
The Fund's total expenses for that year were 0.87% 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.
James D. Wineland is primarily responsible for the day-to-day management
of the portfolio of the Fund. Mr. Wineland 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. Wineland has
held his Fund responsibilities since January 1988 and has been an employee of
Waddell & Reed, Inc. and its successor, the Manager, since November 1984. He
has served as the portfolio manager for the Fund and other investment companies
managed by Waddell & Reed, Inc. or the Manager since January 1988. 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 quarterly 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
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
gains 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.
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 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 later of the close of the regular session of the New York Stock Exchange or
the close of the regular session of any domestic securities exchange or
commodities exchange on which an option or future held by the Fund is traded on
each day the New York Stock Exchange is open. 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. Bonds are valued according to prices quoted by a dealer in bonds
which offers a pricing service. 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 $100 minimum
initial investment pertains to certain exchanges of shares from other funds in
the United Group. A $50 minimum initial investment pertains to certain
retirement accounts and 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 shareholder may arrange with Waddell & Reed, Inc. to purchase shares
by having regular monthly withdrawals of $25 or more made from a bank account.
A shareholder may also arrange with Waddell & Reed, Inc. to purchase shares 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 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
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 30 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.
The Fund reserves the right to redeem at net asset value all shares owned
by a particular shareholder in the Fund having an aggregate net asset value less
than $500. The Fund will give the shareholder notice of intention to redeem and
a 60-day opportunity to purchase a sufficient number of additional shares to
bring the net asset value of his or her shares in the Fund to $500. See the SAI
for further information.
Information concerning the establishment of automatic payments from an
account is available from sales representatives of Waddell & Reed, Inc.
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS
Airlines - 1.15%
Southwest Airlines Co. ................. 200,000 $ 5,225,000
Automotive - 2.81%
Eaton Corporation ...................... 100,000 5,200,000
General Motors Corporation ............. 150,000 7,537,500
Total ................................. 12,737,500
Banks and Savings and Loans - 0.49%
HSBC Holdings plc (A) .................. 202,060 2,208,718
Beverages - 2.81%
Coca-Cola Company (The) ................ 200,000 8,125,000
PepsiCo, Inc. .......................... 150,000 4,593,750
Total ................................. 12,718,750
Building - 6.47%
Georgia-Pacific Corporation ............ 80,000 4,790,000
Sherwin-Williams Company (The) ......... 150,000 4,725,000
Temple-Inland Inc. ..................... 300,000 14,287,500
York International Corporation ......... 150,000 5,512,500
Total ................................. 29,315,000
Chemicals Major - 5.30%
du Pont (E. I.) de Nemours and Company . 200,000 11,675,000
PPG Industries, Inc. ................... 120,000 4,500,000
Praxair, Inc. .......................... 400,000 7,800,000
Total ................................. 23,975,000
Chemicals Specialty and Miscellaneous Technology - 5.29%
Ferro Corporation ...................... 225,000 5,203,125
Geon Company (The) ..................... 225,000 5,850,000
Minnesota Mining and Manufacturing
Company ............................... 100,000 4,950,000
WMX Technologies, Inc. ................. 300,000 7,950,000
Total ................................. 23,953,125
Computers and Office Equipment - 1.23%
General Motors Corporation, Class E .... 160,000 5,580,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Consumer Electronics and Appliances - 1.16%
Whirlpool Corporation .................. 100,000 $ 5,250,000
Domestic Oil - 2.26%
Atlantic Richfield Company .............. 100,000 10,212,500
Drugs and Hospital Supply - 1.03%
Abbott Laboratories .................... 160,000 4,640,000
Electrical Equipment - 3.32%
Emerson Electric Co. ................... 100,000 5,687,500
General Electric Company ............... 200,000 9,325,000
Total ................................. 15,012,500
Engineering and Construction - 0.96%
Foster Wheeler Corporation ............. 120,000 4,365,000
Food and Related - 0.92%
CPC International Inc. ................. 86,000 4,149,500
Hospital Management - 0.59%
LTC Properties, Inc. ................... 200,000 2,675,000
Household Products - 3.97%
Gillette Company (The) ................. 150,000 9,768,750
Procter & Gamble Company (The) ......... 80,000 4,270,000
Rubbermaid Incorporated ................ 150,000 3,937,500
Total ................................. 17,976,250
Insurance - 4.24%
Chubb Corporation (The) ................ 150,000 11,493,750
Financial Security Assurance Holdings Ltd.* 350,000 7,700,000
Total ................................. 19,193,750
International Oil - 1.25%
Exxon Corporation ...................... 100,000 5,662,500
Leisure Time - 2.53%
Walt Disney Company (The) .............. 275,000 11,446,875
Machinery - 6.22%
Caterpillar Inc. ....................... 175,000 17,500,000
Parker Hannifin Corporation ............ 150,000 6,393,750
Timken Company (The) ................... 131,000 4,290,250
Total ................................. 28,184,000
Metals and Mining - 1.06%
Reynolds Metals Company ................ 100,000 4,800,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1994
Shares Value
COMMON STOCKS (Continued)
Multi-Industry - 1.44%
ITT Corporation ........................ 80,000 $ 6,530,000
Oil Services - 2.66%
Baker Hughes Incorporated .............. 300,000 6,150,000
Schlumberger Limited ................... 100,000 5,912,500
Total ................................. 12,062,500
Public Utilities - Pipelines - 0.83%
Consolidated Natural Gas Company ....... 100,000 3,775,000
Publishing and Advertising - 1.32%
New York Times Co., Class A ............ 250,000 5,968,750
Railroads - 0.75%
Union Pacific Corporation .............. 60,000 3,397,500
Retailing - 3.63%
Cifra, S.A. de C.V., C (A) ............. 550,000 1,280,400
Home Depot, Inc. (The) ................. 70,000 2,948,750
Penney (J. C.) Company, Inc. ........... 225,000 12,206,250
Total ................................. 16,435,400
Telecommunications - 5.23%
AT&T Corporation ....................... 250,000 13,593,750
GTE Corporation ........................ 179,700 5,660,550
MCI Communications Corporation ......... 200,000 4,437,400
Total ................................. 23,691,700
TOTAL COMMON STOCKS - 70.92% $321,141,818
(Cost: $276,024,070)
PREFERRED STOCKS
Airlines - 1.00%
Delta Air Lines, Incorporated,
Convertible ........................... 100,000 4,525,000
Automotive - 1.29%
Ford Motor Company, Convertible ........ 60,000 5,820,000
Building - 0.55%
National Health Investors, Convertible .. 100,000 2,512,500
TOTAL PREFERRED STOCKS - 2.84% $ 12,857,500
(Cost: $10,853,522)
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1994
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES
Electrical Equipment - 0.69%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... $ 3,000 $ 3,137,280
Financial - 2.18%
American Express Company,
6.25%, 10-15-96 ....................... 9,188 9,875,001
Telecommunications - 0.71%
Bell Telephone Company of Pennsylvania,
8.35%, 12-15-2030 ..................... 3,000 3,226,200
TOTAL CORPORATE DEBT SECURITIES - 3.58% $ 16,238,481
(Cost: $15,137,718)
OTHER GOVERNMENT SECURITY - 0.62%
Supranational
International Bank for Reconstruction and
Development,
9.25%, 7-15-2017 ...................... 2,500 $ 2,792,875
(Cost: $2,498,158)
UNITED STATES GOVERNMENT SECURITIES
United States Treasury:
9.5%, 10-15-94 ........................ 2,000 2,027,500
7.625%, 5-31-96 ....................... 10,000 10,267,200
9.25%, 8-15-98 ........................ 5,000 5,429,700
7.25%, 5-15-2004 ...................... 5,000 4,971,850
9.375%, 2-15-2006 ..................... 8,500 9,757,745
10.375%, 11-15-2012 ................... 4,000 4,895,640
9.25%, 2-15-2016 ...................... 5,000 5,773,450
Miscellaneous United States Government
Backed Securities:
National Archives Facility Trust,
8.5%, 9-1-2019 ...................... 4,475 4,631,599
Postal Square Limited Partnership,
8.95%, 6-15-2022 .................... 1,970 2,123,042
TOTAL UNITED STATES GOVERNMENT SECURITIES - 11.01% $ 49,877,726
(Cost: $49,218,194)
SHORT-TERM SECURITIES
Banks and Savings and Loans - 0.10%
U. S. Bancorp,
Master Note ........................... 470 470,000
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1994
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Consumer Electronics and Appliances - 1.29%
TDK (USA) Corp.,
4.28%, 7-20-94 ........................ $5,870 $ 5,856,740
Financial - 3.43%
Associates Corporation of North America,
Master Note ........................... 874 874,000
Dana Credit Corp.,
4.5%, 7-5-94 .......................... 6,000 5,997,000
National Australia Funding (DE) Inc.,
4.29%, 7-5-94 ......................... 8,680 8,675,863
Total ................................. 15,546,863
Insurance - 1.90%
Aon Corp.,
4.25%, 7-8-94 ......................... 8,600 8,592,893
Paper - 1.44%
Champion International, Inc.,
4.5%, 7-6-94........................... 6,510 6,505,931
Public Utilities - Electric - 1.64%
Potomac Electric Power Co.,
4.25%, 7-21-94 ........................ 7,455 7,437,398
Retailing - 1.12%
Albertson's Inc.,
4.32%, 7-11-94 ........................ 5,060 5,053,928
Services, Consumer and Business - 0.22%
Hertz Corp.,
4.45%, 7-26-94 ........................ 1,000 996,910
Telecommunications - 1.42%
BellSouth Telecommunications Inc.,
4.27%, 8-3-94 ......................... 6,430 6,404,832
TOTAL SHORT-TERM SECURITIES - 12.56% $ 56,865,495
(Cost: $56,865,495)
TOTAL INVESTMENT SECURITIES - 101.53% $459,773,895
(Cost: $410,597,157)
LIABILITIES, NET OF CASH AND OTHER ASSETS - (1.53%) (6,937,862)
NET ASSETS - 100.00% $452,836,033
See Notes to Schedule of Investments on page 18.
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1994
Notes to Schedule of Investments
*No income dividends were paid during the preceding 12 months.
(A) Listed on an exchange outside the United States.
See Note 1 to financial statements for security valuation and other significant
accounting policies concerning investments.
See Note 3 to financial statements for cost and unrealized appreciation and
depreciation of investments owned for Federal income tax purposes.
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1994
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $459,773,895
Cash ............................................. 10,144
Receivables:
Dividends and interest .......................... 1,939,316
Fund shares sold ................................ 1,502,828
Prepaid insurance premium ......................... 18,727
------------
Total assets .................................. 463,244,910
------------
Liabilities
Payable for investment securities purchased ...... 9,450,600
Payable for Fund shares redeemed ................. 769,250
Accrued service fee ............................... 91,640
Accrued transfer agency and dividend disbursing .. 72,626
Accrued accounting services fee .................. 5,000
Other ............................................ 19,761
------------
Total liabilities ............................. 10,408,877
------------
Total net assets ............................. $452,836,033
============
Net Assets
$1.00 par value capital stock, authorized --
300,000,000; shares outstanding -- 59,281,716
Capital stock ................................... $ 59,281,716
Additional paid-in capital....................... 333,187,777
Accumulated undistributed income:
Accumulated undistributed net investment income . 806,482
Accumulated undistributed net realized gain
on investment transactions .................... 10,383,320
Net unrealized appreciation in value of investments
at end of period .............................. 49,176,738
------------
Net assets applicable to outstanding
units of capital ............................. $452,836,033
============
Net asset value per share (net assets divided by
shares outstanding) .............................. $7.64
Sales load (offering price x 5.75%) ................ .47
-----
Offering price per share (net asset value
divided by 94.25%) ............................... $8.11
=====
On sales of $100,000 or more the sales load
is reduced as set forth on page 11.
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1994
Investment Income
Income:
Interest ........................................ $ 7,135,345
Dividends ....................................... 6,529,978
-----------
Total income .................................. 13,665,323
-----------
Expenses (Note 2):
Investment management fee ....................... 2,423,283
Transfer agency and dividend disbursing ......... 693,686
Service fee ..................................... 342,919
Accounting services fee ......................... 60,000
Custodian fees .................................. 48,151
Audit fees ...................................... 20,350
Legal fees ...................................... 6,770
Other ........................................... 129,805
-----------
Total expenses ................................ 3,724,964
-----------
Net investment income ........................ 9,940,359
-----------
Realized and Unrealized Gain (Loss) on Investments
Realized net gain on investments ................. 16,961,825
Unrealized depreciation in value of investments
during the period ............................... (8,435,883)
-----------
Net gain on investments ......................... 8,525,942
-----------
Net increase in net assets resulting
from operations .............................. $18,466,301
===========
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
For the fiscal year ended
June 30,
-------------------------
1994 1993
------------ ------------
Increase in Net Assets
Operations:
Net investment income ...............$ 9,940,359 $ 9,421,852
Realized net gain on investments .... 16,961,825 14,211,153
Unrealized appreciation
(depreciation) .................... (8,435,883) 15,734,082
------------ ------------
Net increase in net assets
resulting from operations ........ 18,466,301 39,367,087
------------ ------------
Dividends to shareholders from:*
Net investment income ............... (9,489,801) (9,558,210)
Realized gains on securities
transactions ...................... (14,680,000) (8,932,827)
------------ ------------
(24,169,801) (18,491,037)
------------ ------------
Capital share transactions:
Proceeds from sale of shares
(12,022,339 and 13,934,605
shares, respectively) ............. 95,070,558 104,779,648
Proceeds from reinvestment of
dividends and/or capital gains
distribution (3,062,704 and
2,470,349 shares, respectively) ... 24,100,246 18,444,394
Payments for shares redeemed
(5,121,599 and 3,063,290
shares, respectively) ............. (40,564,094) (23,029,170)
------------ ------------
Net increase in net assets
resulting from capital
share transactions ............... 78,606,710 100,194,872
------------ ------------
Total increase ................... 72,903,210 121,070,922
Net Assets
Beginning of period .................. 379,932,823 258,861,901
------------ ------------
End of period, including
undistributed net investment
income of $806,482 and $355,924,
respectively ........................$452,836,033 $379,932,823
============ ============
*See "Financial Highlights" on page 22.
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, 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 $7.70 $7.20 $6.41 $6.41 $6.03 $5.39 $6.66 $7.42 $6.05 $5.56
--------------------------------------------------------------------------------------
Income from investment
operations:
Net investment
income .18 .22 .21 .26 .26 .26 .25 .24 .30 .40
Net realized and
unrealized gain
(loss) on
investments .22 .73 .91 .05 .51 .67 (0.48) .16 1.41 .75
--------------------------------------------------------------------------------------
Total from investment
operations ... .40 .95 1.12 .31 .77 .93 (0.23) .40 1.71 1.15
--------------------------------------------------------------------------------------
Less distributions:
Dividends from
net investment
income ... (0.18) (0.23) (0.22) (0.26) (0.26) (0.28) (0.30) (0.22) (0.33) (0.42)
Distributions from
from capital
gains ..... (0.28) (0.22) (0.11) (0.05) (0.13) (0.01) (0.74) (0.94) (0.01) (0.24)
--------------------------------------------------------------------------------------
Total distri-
butions ... (0.46) (0.45) (0.33) (0.31) (0.39) (0.29) (1.04) (1.16) (0.34) (0.66)
--------------------------------------------------------------------------------------
Net asset value,
end of period $7.64 $7.70 $7.20 $6.41 $6.41 $6.03 $5.39 $6.66 $7.42 $6.05
======================================================================================
Total return* ... 5.03% 13.45% 17.93% 5.07% 13.06% 17.88% -1.72% 6.46% 29.54 22.93%
Net assets, end of
of period
(000 omitted).$452,836 $379,933 $258,862 $195,330 $161,263 $125,987 $103,768 $109,405 $99,478 $73,088
Ratio of expenses
to average net
assets ........ 0.87% 0.80% 0.82% 0.88% 0.87% 0.87% 0.91% 0.87% 0.92 % 1.05%
Ratio of net investment
income to average net
assets ....... 2.32% 2.98% 3.12% 4.20% 4.21% 4.77% 4.26% 3.90% 4.73% 7.16%
Portfolio turnover
rate** ....... 27.10% 30.62% 38.26% 29.05% 53.20% 52.19% 113.34% 161.24% 128.32% 69.43%
*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 RETIREMENT SHARES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1994
NOTE 1 -- Significant Accounting Policies
United Retirement Shares, 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. 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. Interest income is recorded on the accrual basis. See Note
3 -- Investment Securities Transactions.
C. 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.
D. 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 $2,204 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 .15% 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
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
$3,770,666, out of which W&R paid sales commissions of $2,136,431 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 $15,193.
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 obligations
and short-term securities, aggregated $204,939,791 while proceeds from
maturities and sales aggregated $70,574,269. Purchases of short-term and U.S.
Government securities aggregated $754,429,122 and $10,987,500, respectively.
Proceeds from maturities and sales of short-term and U.S. Government securities
aggregated $807,946,439 and $23,124,766, respectively. There was no gain or
loss on the sale of short-term securities. There was a gain of $4,062,176 on
the sale of U.S. Government securities.
For Federal income tax purposes, cost of investments owned at June 30, 1994
was $410,597,157, resulting in net unrealized appreciation of $49,176,738, of
which $55,623,381 related to appreciated securities and $6,446,643 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income
of $16,961,824 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
United Retirement Shares, 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 Retirement Shares, 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 RETIREMENT SHARES, 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 RETIREMENT SHARES, 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 Retirement
Shares, Inc.? ..... 4
Performance Information 4
Goal of the Fund ..... 5
Investment Policies .. 6
Management and Services 8
Dividends, Distributions
and Taxes ......... 10
Purchase of Shares 11
Redemption ........12
Financial Statements 14
NUP2007(9-94)
printed on recycled paper
<PAGE>
UNITED RETIREMENT SHARES, 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 Retirement Shares, 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 Objective and Policies................... 3
Investment Management and Other Services............ 22
Purchase, Redemption and Pricing of Shares.......... 26
Directors and Officers.............................. 40
Payments to Shareholders............................44
Taxes ..............................................
Portfolio Transactions and Brokerage................ 48
Other Information................................... 50
Appendix A.......................................... 51
<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: -1.01% 5.03%
Five-year period from July 1, 1989 to
June 30, 1994: 9.49% 10.79%
Ten-year period from July 1, 1984 to
June 30, 1994: 11.94% 12.60%
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.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective 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.
Ratings of Debt Securities
Normally the debt securities purchased by the Fund will be rated at
least BBB by Standard and Poor's Ratings Group or Baa by Moody's Investors
Services. See Appendix A included in this SAI for a description of the factors
considered by the rating companies.
Foreign Securities
The Fund may not purchase securities of foreign issuers if more than 10% of
the Fund's total assets would consist of 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 ability to invest a substantial portion of its assets
abroad might 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.
Lending Securities
One of the ways in which the Fund may try to realize income is by lending
not more than 10% of its securities at any one time. This percentage limitation
can only be changed by shareholder vote. 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.
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)
securities for which market quotations are not readily available; and (iii)
unlisted options and their underlying collateral.
Writing Covered Calls on Securities
As a fundamental policy the Fund may 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 50% of the Fund's total assets would be subject
to calls; calls may be purchased 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 50% of the Fund's assets are subject to calls. "Covered"
means that it must own the securities which are subject to the call or have the
right to acquire them without any additional payment. "Listed" calls are those
which are listed on a domestic securities exchange.
If the Fund writes 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 by 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 by 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 when it writes a call the
Fund receives 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 may purchase calls 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. 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. As
discussed below, the Fund may also purchase calls other than as part of a
closing purchase transaction.
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.
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.
Writing Puts on Securities
Subject to the limitations set forth under "Operating Restrictions," the
Fund may write put options on securities in which it may invest. As with
covered call writing, the Fund will write puts on securities for the purpose of
increasing income by receiving premiums from the purchaser of the option. When
the Fund writes a put, it receives a premium and agrees to purchase the related
investments from a purchaser of a put during the put period at a fixed exercise
price (which may differ from the market price of the related investments)
regardless of market price changes during the put period. If the put is
exercised, the Fund must purchase the related investments at the exercise price.
Puts are ordinarily sold when it is anticipated that during the option period
the market price of the underlying security will decline by less than the amount
of the premium, adjusted for any amount by which the market price of the
underlying security at the time of sale is greater than the strike price. In
writing puts, the Fund assumes the risk of loss should the market value of the
underlying security decline below the exercise price of the option. The Fund's
cost of purchasing the investments will be adjusted by the amount of the premium
it has received. The Fund will write a put only when it has determined that it
would be willing to purchase the underlying security at the exercise price.
To terminate its obligation on a put which it has written, the Fund may
purchase a put in a "closing purchase transaction." As discussed below, it may
also purchase puts other than as part of such closing transaction. A profit or
loss may be realized depending on the amount of option transaction costs and
whether the premium previously received is more or less than the cost of the put
purchased. A profit will also be realized if the put lapses unexercised because
the Fund retains the premium received.
When the Fund writes a put it will, until it enters into a closing purchase
transaction, maintain designated cash or readily marketable assets adequate to
purchase the related investments should the put be exercised. The Fund may hold
cash or acquire readily marketable assets for this purpose. The Fund will be
unable to utilize such cash or assets for other investment purposes until the
exercise or expiration of the put.
Purchasing Calls and Puts on Securities
Subject to the limitations set forth under "Operating Restrictions," the
Fund may purchase options.
The Fund may purchase a call in a closing purchase transaction in order to
terminate its obligation on a call it has written. In addition, the Fund may
purchase calls on securities for the purpose of taking advantage of a rise in
the market value of the underlying securities.
When a Fund buys a call, it pays a premium and has the right to buy the
related investments from a seller of a call during the call period at a fixed
exercise price. The Fund benefits only if the market price of the related
investments is above the call price during the call period and the call is
either exercised or sold at a profit. If the call is not exercised or sold
(whether or not at a profit), it will become worthless at its expiration date
and the Fund will lose the premium payment and the right to purchase the related
investments.
The Fund will purchase puts on securities to protect against major price
declines in the value of its portfolio securities. The Fund may purchase a put
on a security it owns ("protective put") or on a security it does not own
("nonprotective put"). When a Fund buys a put, it pays a premium and has the
right to sell the related investments to a seller of a put during the put period
at a fixed exercise price. Buying a protective put (as defined above) permits
the Fund to protect itself during the put period against a decline in the value
of the related investments below the exercise price by selling them through the
exercise of the put. Buying a nonprotective put (as defined above) permits the
Fund, if the market price of the related investments is below the put price
during the put period, either to resell the put or to buy the related
investments and sell them at the exercise price. If the market price of the
related investments is above the exercise price and as a result the put is not
exercised or resold (whether or not at a profit), the put will become worthless
at its expiration date.
A type of put which the Fund may purchase under the proposal is an
"optional delivery standby commitment" which is entered into by parties selling
debt securities to the Fund. An optional delivery standby commitment gives the
Fund purchasing the security the right to sell the security back to the seller
on specified terms. This right is provided as an inducement to purchase the
security.
Risks of Options on Securities
The Fund is authorized to write listed covered call options on securities
and to write put options and purchase options which are listed or unlisted. The
Fund has an operating policy, however, which provides that it will only purchase
calls or write and purchase puts which are listed with two exceptions: (1) it
may purchase calls and write and purchase puts which are not listed if the
security underlying the option is a security issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; and (2) optional delivery
standby commitments may be unlisted. Exchange-listed options are issued by the
Options Clearing Corporation ("OCC"). A position in an exchange-listed option
may be closed out only on an exchange which provides a secondary market for
options covering the same related investment having the same exercise price and
expiration date. There is no assurance that a liquid secondary market will
exist for any particular option. In investing in options on securities which
are not listed on an exchange, the Fund must rely on the creditworthiness of the
party with whom it has entered into the options transaction. The Manager will
evaluate the creditworthiness of all such parties and intends to enter into
unlisted option transactions only with major dealers in such unlisted options.
The market for these options may be less active than the market for exchange-
listed options. The Manager will evaluate the ability to enter into closing
purchase transactions on unlisted options prior to investing in them.
The Fund's put and call activities may affect its turnover rate and
brokerage commission payments. The exercise of calls or puts written by the
Fund may cause it to sell or purchase related investments, thus increasing its
turnover rate in a manner beyond its control. The exercise of puts may also
cause the sale of related investments, also increasing turnover; although such
exercise is within the Fund's control, holding a protective put might cause it
to sell the related investments for reasons which would not exist in the absence
of the put. The Fund will pay a brokerage commission each time it buys or sells
a put or call or buys or sells an underlying investment in connection with the
exercise of a put or call. Such commissions may be higher than those which
would apply to direct purchases or sales. The Fund's custodian bank, or a
securities depository acting for it, will act as the Fund's escrow agent as to
the related investments on which it has written covered calls, or as to other
assets acceptable for such escrow, so that pursuant to the rules of the Option
Clearing Corporation and certain exchanges, no margin deposit will be required
of the Fund on such calls. Until the related investments or other investments
held in escrow are released from escrow, they cannot be sold by the Fund; this
release will take place on the expiration of the call or by the Fund's entering
into a closing purchase transaction. Once the Fund has received an exercise
notice on an option it has written, it cannot effect a closing purchase
transaction in order to terminate its obligation under the option and must
deliver or receive the underlying securities at the exercise price.
Option premiums paid to control an amount of related investments are small
in relation to the market value of related investments and, consequently, put
and call options offer large amounts of leverage. The leverage offered by
trading in options will result in the Fund's net asset value being more
sensitive to changes in the value of the related investment. Markets for
options on securities and options on futures contracts are relatively new so it
is not possible to predict whether active exchange markets will continue over
time.
Options On Stock Indexes
The Fund is permitted to write and purchase options on broadly-based stock
indexes subject to the limitations set forth under "Operating Restrictions" and
"Investment Restrictions." Broadly-based stock indexes are indexes which are
not limited to stocks of any particular industry or industries. The Fund will
write options on stock indexes primarily to generate income when the Manager
anticipates that the index price will not increase or decrease by more than the
premium received by the Fund. The Fund will purchase calls on stock indexes to
hedge against anticipated increases in the price of securities it wishes to
acquire and purchase puts on stock indexes to hedge against anticipated declines
in the market value of portfolio securities. Puts and calls on stock indexes
are similar to puts and calls on securities or futures contracts except that all
settlements are in cash and gain or loss depends on changes in the broad-based
index in question (and thus on price movements in the stock market generally)
rather than on price movements in individual securities or futures contracts.
When the Fund writes a call on a stock index, it receives a premium and agrees
that during the call period a purchaser of a call, upon exercise of the call,
will receive from the Fund an amount of cash if the closing level of the stock
index upon which the call is based is greater than the exercise price of the
call. The amount of cash is equal to the difference between the closing price
of the index and the exercise price of the call times a specified multiple (the
"multiplier") which determines the total dollar value for each point of such
difference. When the Fund buys a call on a stock index it pays a premium and
has the same rights as to such call as are indicated above as the Fund's
obligation when it writes such a call. When the Fund buys a put on a stock
index, it pays a premium and has the right during the put period to require a
seller of such a put, upon the Fund's exercise of the put, to deliver to the
Fund an amount of cash if the closing level of the stock index upon which the
put is based is lesser than the exercise price of the put, which amount of cash
is determined by the multiplier, as described above for calls. When the Fund
writes a put on a stock index it receives a premium and the purchaser has the
right during the put period to require the Fund to deliver to it an amount of
cash equal to the difference between the closing level of the stock index and
the exercise price times the multiplier, if the closing level is less than the
exercise price.
When the Fund writes a call on a stock index it will, until it enters into
a closing purchase transaction as to that call, segregate and maintain cash or
readily marketable assets adequate to make the required cash delivery if the
call is exercised. When it writes a put on a stock index, it will, until it
enters into a closing purchase transaction as to that put, maintain designated
cash or readily marketable assets adequate to purchase the related investments
should the put be exercised.
Risks of Options on Stock Indexes
The risks of investment in options on stock indexes may be greater than
options on securities. Because exercises of stock index options are settled in
cash, when the Fund writes a call on a stock index it cannot provide in advance
for its potential settlement obligations by acquiring and holding the underlying
securities. The Fund can offset some of the risk of its writing position by
holding a diversified portfolio of stocks similar to those on which the
underlying index is based. However, the Fund cannot, as a practical matter,
acquire and hold a portfolio containing exactly the same stocks as the
underlying index and, as a result, bears a risk that the value of the securities
held will vary from the value of the index. Even if the Fund could assemble a
stock portfolio that exactly reproduced the composition of the underlying index,
it still would not be fully covered from a risk standpoint because of the
"timing risk" inherent in writing index options. When an index option is
exercised, the amount of cash that the holder is entitled to receive is
determined by the difference between the exercise price and the closing index
level on the date when the option is exercised. As with other kinds of options,
the Fund as the call writer will not learn that it has been assigned until the
next business day at the earliest. The time lag between exercise and notice of
assignment poses no risk for the writer of a covered call on a specific
underlying security, such as a common stock, because there the writer's
obligation is to deliver the underlying security, not to pay its value as of a
fixed time in the past. So long as the writer already owns the underlying
security, it can satisfy its settlement obligations by simply delivering it, and
the risk that its value may have declined since the exercise date is borne by
the exercising holder. In contrast, even if the writer of an index call holds
stocks that exactly match the composition of the underlying index, it will not
be able to satisfy its assignment obligations by delivering those stocks against
payment of the exercise price. Instead, it will be required to pay cash in an
amount based on the closing index value on the exercise date; and by the time it
learns that it has been assigned, the index may have declined, with a
corresponding decline in the value of its stock portfolio. This "timing risk"
is an inherent limitation on the ability of index call writers to cover their
risk exposure by holding stock positions.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available it runs the risk that the level of
the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund exercising the option will
be required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer.
Futures Contracts and Options on Futures Contracts
The Fund is permitted to purchase and sell futures contracts and options
on futures contracts subject to the limitations set forth under "Operating
Restrictions" and "Investment Restrictions." When the Fund purchases a futures
contract, it incurs an obligation to take delivery of a specified amount of the
obligation underlying the contract at a specified time in the future for a
specified price. When the Fund sells a futures contract it incurs an obligation
to deliver the specified amount of the underlying obligation at a specified time
in return for an agreed upon price. In the case of futures contracts on
broadly-based stocks ("Stock Index Futures") the obligation underlying the
futures contract is an amount of cash equal to a specified dollar amount times
the difference between the index value at the close of the last trading day of
the futures contract and the price at which the futures contract is originally
struck. In the case of futures contracts on debt securities ("Debt Futures")
the underlying obligation is the related debt security.
When the Fund writes an option on a futures contract it becomes obligated,
in return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the term of the option. If the Fund
has written a call it becomes obligated to assume a "long" position in a futures
contract which means that it is required to take delivery of the underlying
securities. If it has written a put it is obligated to assume a "short"
position in a futures contract which means that it is required to deliver the
underlying securities. When the Fund purchases an option on a futures contract
it acquires the right in return for the premium it pays to assume a position in
a futures contract.
The Fund will not purchase or sell futures contracts and options thereon
for speculative purposes but rather only for the purpose of hedging against
changes in the market value of its portfolio securities or changes in the market
value of securities which the Manager anticipates that it may wish to include in
the portfolio of a Fund. The Fund may sell a Stock Index Future or write a call
or purchase a put on a Stock Index Future if the Manager anticipates that a
general market or market sector decline may adversely affect the market value of
any or all of the Fund's common stock holdings. The Fund may buy a Stock Index
Future or purchase a call or sell a put on a Stock Index Future if the Manager
anticipates a significant market advance in the common stock it intends to
purchase for the Fund's portfolio. The Fund may purchase a Stock Index Future
or a call option thereon as a temporary substitute for the purchase of
individual stocks which may then be purchased in an orderly fashion. In the
case of debt securities the Fund could sell a Debt Future or write a call or buy
a put on a Debt Future to attempt to protect against the risk that the value of
debt securities held by the Fund might decline. The Fund could purchase a Debt
Future or purchase a call or write a put on a Debt Future to protect against the
risk of an increase in the value of debt securities at a time when the Fund is
not invested in debt securities to the extent permitted by its investment
policies. As securities are purchased, corresponding futures positions would be
terminated by offsetting sales.
Unlike when the Fund purchases or sells securities, no price is paid or
received by it upon the purchase or sale of a futures contract. Initially, the
Fund will be required to deposit an amount of cash or U.S. Treasury Bills equal
to a varying specified percentage of the contract amount. This amount is known
as initial margin. Cash held in the margin account is not income producing.
Subsequent payments, called variation margin, to and from the broker will be
made on a daily basis as the price of the underlying index fluctuates making the
futures contract more or less valuable, a process known as marking-to-
market.
If the Fund writes an option on a futures contract it will be required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to futures contracts. Premiums received from the writing of an
option on a future are included in the initial margin deposit.
Changes in variation margin are recorded by the Fund as unrealized gains or
losses. Initial margin payments will be deposited in the Fund's custodian bank
in an account registered in the broker's name; access to the assets in that
account may be made by the broker only under specified conditions. At any time
prior to expiration of a futures contract or an option thereon, the Fund may
elect to close the position by taking an opposite position which will operate to
terminate its position in the futures contract or option. A final determination
of variation margin is made at that time, additional cash is required to be paid
by or released to it and it realizes a loss or gain. Although futures contracts
by their terms call for the actual delivery or acquisition of the underlying
obligation, in most cases the contractual obligation is so fulfilled without
having to make or take delivery. The Fund does not intend to make or take
delivery of the underlying obligation. All transactions in futures contracts
and options thereon are made, offset or fulfilled through a clearing house
associated with the exchange on which the contracts are traded. Although the
Fund intends to buy and sell futures contracts only on exchanges where there
appears to be an active secondary market, there is no assurance that a liquid
secondary market will exist for any particular future at any particular time.
In such event, it may not be possible to close a futures contract position.
The Fund will deposit in a segregated account with its custodian bank high-
quality debt obligations maturing in one year or less, or cash, in an amount
equal to the fluctuating market value of long futures contracts it has purchased
less any margin deposited on its long position. It may hold cash or acquire
such debt obligations for the purpose of making these deposits.
The use of futures contracts and options thereon to attempt to protect
against the market risk of a decline in the value of portfolio securities is
referred to as having a "short futures position." The use of futures contracts
and options thereon to attempt to protect against the market risk that the Fund
might not be fully invested at a time when the value of the securities in which
it invests is increasing is referred to as having a "long futures position."
The Fund must operate within certain restrictions as to long and short positions
in futures contracts and options thereon under a rule (the "CFTC Rule") adopted
by the Commodity Futures Trading Commission ("CFTC") under the Commodity
Exchange Act (the "CEA") to be eligible for the exclusion provided by the CFTC
Rule from registration by the Fund with the CFTC as a "commodity pool operator"
(as defined under the CEA), and must represent to the CFTC that it will operate
within such restrictions. Under these restrictions the Fund will not, as to any
positions, whether long, short or a combination thereof, enter into futures and
options thereon for which the aggregate initial margins and premiums exceed 5%
of the fair market value of the Fund's assets after taking into account
unrealized profits and losses on options the Fund has entered into; in the case
of an option that is "in-the-money" (as defined under the CEA) the "in-the-
money" amount may be excluded in computing such 5%. (In general a call option
on a futures contract is "in-the-money" if the value of the future exceeds the
strike, i.e. exercise, price of the call; a put option on a futures contract is
"in-the-money" if the value of the futures contract which is the subject of the
put is exceeded by the strike price of the put.) Under the restrictions, the
Fund also must, as to short positions, use futures contracts and options thereon
solely for bona fide hedging purposes within the meaning and intent of the
applicable provisions under the CEA. As to its long positions which are used as
part of the Fund's portfolio strategy and are incidental to the Fund's
activities in the underlying cash market, the "underlying commodity value" (see
below) of the Fund's futures contract and options thereon must not exceed the
sum of (i) cash set aside in an identifiable manner, or short-term U.S. debt
obligations or other U.S. dollar-denominated high-quality short-term money
market instruments so set aside, plus any funds deposited as margin; (ii) cash
proceeds from existing investments due in 30 days; and (iii) accrued profits
held at the futures commission merchant. (There is described above the
segregated accounts which the Fund must maintain with its custodian bank as to
its options and futures contracts activities due to Securities and Exchange
Commission ("SEC") requirements; the Fund will, as to its long positions, be
required to abide by the more restrictive of these SEC and CFTC requirements.)
The "underlying commodity value" of a futures contract is computed by
multiplying the size (dollar amount) of the futures contract by the daily
settlement price of the futures contract. For an option on a futures contract
that value is the underlying commodity value of the future underlying the
option.
Risk of Futures Contracts and Options Thereon
Since futures contracts and options thereon can replicate movements in the
cash markets for the securities in which the Fund invests without the large cash
investments required for dealing in such markets, they may subject the Fund to
greater and more volatile risks than might otherwise be the case. The principal
risks related to the use of such instruments are (i) the offsetting correlation
between movements in the market price of the portfolio investments (held or
intended) being hedged and in the price of the futures contract or option may be
imperfect; (ii) possible lack of a liquid secondary market for closing out
futures or options positions; (iii) the need for additional portfolio management
skills and techniques; and (iv) losses due to unanticipated market price
movements. For a hedge to be completely effective, the price change of the
hedging instrument should equal the price change of the security being hedged.
Such equal price changes are not always possible because the investment
underlying the hedging instrument may not be the same investment that is being
hedged. The Manager will attempt to create a closely correlated hedge but
hedging activity may not be completely successful in eliminating market value
fluctuation. (See below for additional discussion of correlation as it relates
to Stock Index Futures.) The ordinary spreads between prices in the cash and
futures markets, due to the differences in the natures of those markets, are
subject to the following factors which may create distortions. First, all
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between the cash and futures markets.
Second, the liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced, thus producing distortion. Third, from the point of
view of speculators the deposit requirements in the futures market are less
onerous than margin requirements in the securities market. Therefore, increased
participation by speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct forecast of
general interest or stock market trends by the Manager may still not result in a
successful transaction. The Manager may be incorrect in its expectations as to
the extent of various interest rate movements or stock market movements or the
time span within which the movements take place.
The risk of imperfect correlation between movements in the price of a Stock
Index Future and movements in the price of the securities which are the subject
of the hedge increases as the composition of the Fund's common stock portfolio
diverges from the common stocks included in the applicable index. The price of
the Stock Index Future may move more than or less than the price of the
securities being hedged. If the price of the Stock Index Future moves less than
the price of the securities which are the subject of the hedge, the hedge will
not be fully effective but, if the price of the common stocks being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the common stocks being hedged has
moved in a favorable direction, this advantage will be partially offset by the
futures contract. If the price of the futures contract moves more than the
price of the stock, the Fund will experience either a loss or a gain on the
futures contract which will not be completely offset by movements in the price
of the securities which are the subject of the hedge. To compensate for the
imperfect correlation of movements in the price of the securities being hedged
and movements in the price of the Stock Index Futures, the Fund may buy or sell
Stock Index Futures in a greater dollar amount than the dollar amount of common
stocks being hedged if the historical volatility of the prices of such common
stocks being hedged is less than the historical volatility of the stock index.
It is also possible that, where the Fund has sold futures contracts to hedge its
common stocks against decline in the market, the market may advance and the
value of common stocks held in the portfolio may decline. If this occurred, the
Fund would lose money on the futures contract and also experience a decline in
value in its portfolio securities. However, while this could occur for a very
brief period or to a very small degree, over time the value of a diversified
portfolio of common stocks will tend to move in the same direction as the market
indices upon which the futures contracts are based.
Where Stock Index Futures are purchased to hedge against a possible
increase in the price of stocks before the Fund is able to invest in common
stocks in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest in common stocks at that time
because of concern as to possible further market decline or for other reasons,
it will realize a loss on the futures contract that is not offset by a reduction
in the price of the common stocks it had anticipated purchasing.
Operating Restrictions
The Fund is subject to certain operating restrictions pertaining to
investments in options and futures. Such operating restrictions may be revised
by the Board depending on its judgments regarding the ability of the Manager to
make use of these instruments to the benefit of the Funds and in order to
conform to rules and regulations of the CFTC, the SEC, various state securities
commissions, Federal tax law and regulations, and the rules of the exchanges on
which the investments are traded.
(i) Options on stock indexes, futures contracts and options on futures
contracts will be used only for risk management ("hedging") purposes
within the meaning of applicable regulations. The Fund will not hedge
more than 10% of its total assets.
(ii) Only options on securities which are issued by the Options Clearing
Corporation may be purchased or sold except for options on securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities and except for optional delivery standby commitments;
only options on stock indexes, options on futures contracts and futures
contracts which are listed on a national securities or commodities
exchange may be purchased or sold; to the extent option transactions
involving unlisted options are illiquid, such options and the underlying
collateral will be subject to an operating policy of the Fund which
limits investment in illiquid securities to 10% of the net assets of the
Fund.
(iii) The aggregate premiums paid for the purchase of permitted options which
are held by the Fund at any one time, adjusted for the portion of any
premium attributable to a difference between the "strike price" of the
option and the market value of the underlying security or futures
contract at the time of purchase, may not exceed 20% of the total assets
of the Fund;
(iv) The aggregate margin deposits and premiums required on all futures
contracts and options thereon held or outstanding at any one time by the
Fund may not exceed 5% of the total assets of the Fund adjusted for
unrealized gains or losses of the Fund on such options and futures
contracts;
(v) The aggregate amount of the obligations underlying the puts written by
the Fund which are outstanding at any one time may not exceed 25% of the
net assets of the Fund computed at the time of sale.
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 or sell commodities or commodity contracts except that it may, for
non-speculative purposes, buy or sell Stock Index Futures, Debt Futures
and options on Stock Index Futures and Debt Futures;
(ii) Buy real estate nor any nonliquid interests in real estate investment
trusts which includes investments in oil, gas and other mineral leases
and real estate limited partnerships;
(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, there is no current intent to invest more than
5% of the Fund's 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) Lend money or other assets, other than through certain limited types of
loans described herein; the Fund can buy debt securities which have been
sold to the public; it can buy other obligations customarily acquired by
institutional investors; 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, buy securities on margin or engage in arbitrage
transactions; however, the Fund may make margin deposits in connection
with its use of any financial instrument permitted by its fundamental
policies;
(ix) Engage in the underwriting of securities, that is, the selling of
securities for others; also, the Fund does not invest in restricted
securities; restricted securities are securities which cannot freely be
sold for legal reasons;
(x) Purchase warrants;
(xi) 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 50% of the Fund's total assets would be
subject to calls; calls may be purchased to effect a closing purchase
transaction as to any call written in accordance with the foregoing. In
addition, the Fund may purchase calls and write and purchase put options
("puts") on securities in which the Fund may invest and may, for non-
speculative purposes, write and purchase options on broadly-based stock
indexes;
(xii) Borrow for investment purposes, that is, to purchase securities or
mortgage or pledge any of its assets but may enter into escrow and
collateral arrangements in connection with the use of options and
futures. 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; or
(xiii) 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.
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. The
portfolio turnover rate for the common stock portion of the Fund's portfolio for
the fiscal year ended June 30, 1994 was 25.60%, while the rate for the remainder
of the portfolio was 32.19%. The Fund's overall portfolio turnover rates for
the fiscal years ended June 30, 1994 and 1993 were 27.10% and 30.62%,
respectively.
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
$2,423,283, $1,801,837 and $1,306,311, 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 record 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 $60,000, $52,500
and $49,167, respectively.
The State of California imposes limits on the amount of certain expenses
the Fund can pay and requires the Manager to reduce its fee if these expense
amounts are exceeded. The Manager must reduce the amount of such expenses to
the extent they exceed these expense limits. Not all of the Fund's expenses are
included in the limit. The excluded expenses include interest, taxes, brokerage
commissions and extraordinary expenses such as litigation that usually do not
arise in the normal operations of a mutual fund. The Fund's other expenses,
including its management fee, are included.
The Manager must, under California law, reduce the cost of any included
expenses which are over 2.5% of the Fund's first $30 million of average net
assets, 2% of the next $70 million of average net assets, and 1.5% of any
remaining average net assets during a fiscal year. The Fund will notify
shareholders of any change in the limitation.
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 also 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 $3,770,666, $4,667,599 and $2,547,810, respectively, and the amounts
retained by Waddell & Reed, Inc. for each fiscal year were $1,634,235,
$2,015,186 and $1,095,646, respectively.
A major portion of the sales charge is paid to 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 $342,919.
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) ......... $7.64
Add: selling commission (5.75% of offering
price) .................................... .47
-----
Maximum offering price per share (net asset
value divided by 94.25%) ............... $8.11
=====
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 later of
the close of the regular session of the New York Stock Exchange (ordinarily,
4:00 P.M. Eastern time) or the close of the regular session of any domestic
securities or commodities exchange on which an option or future held by the Fund
is traded. 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 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. 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. 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.
Puts, calls and futures purchased and held by the Fund are valued at the
last sales price thereof on the securities or commodities exchanges on which
they are traded, or, if there are no transactions, at the mean between bid and
asked prices. Ordinarily, the close of the regular session of option trading on
national securities exchanges is 4:10 P.M. Eastern time and the close of the
regular session of commodities exchanges is 4:15 P.M. Eastern time. Futures
contracts will be valued with reference to established futures exchanges. The
value of a futures contract purchased by the Fund will be either the closing
price of that contract or the bid price. Conversely, the value of a futures
contract sold by the Fund will be either the closing price or the asked price.
When the Fund writes a put or 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 put or
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 the Fund exercised a call it purchased, the amount paid to
purchase the related investment is increased by the amount of the premium paid.
If a put written by the Fund is exercised, the amount that the Fund pays to
purchase the related investment is decreased by the amount of the premium it
received. If the Fund exercises a put it purchased, the amount the Fund
receives from the sale of the related investment is reduced by the amount of the
premium it paid. If a put or call written by 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.
Optional delivery standby commitments are valued at fair value under the
general supervision and responsibility of the Fund's Board of Directors. They
are accounted for in the same manner as exchange-listed puts.
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 certain
retirement plan accounts and to accounts for which an investor has arranged, at
the time of initial investment, to make subsequent purchases for the account by
having regular monthly withdrawals of $25 or more made from a bank account. A
minimum initial investment of only $25 is applicable to purchases made through
payroll deduction by or for 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. Except with respect to certain exchanges and automatic
withdrawals from a bank account, a shareholder may make subsequent investments
of any amount. See "Exchanges for Shares of Other Funds in the United
Group."
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 an 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 the Manager. 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 the 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 this 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 your account are redeemed, you will not
receive any 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 of the 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 exception and special
rules apply. Shares 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 the 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 individual retirement arrangements which provide tax deferral and
contribute to retirement assets. All four of them involve investment 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 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 Internal Revenue 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 then 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.
Mandatory Redemption of Certain Small Accounts
The Fund has the right to compel the redemption of shares held under any
account or any plan if the aggregate net asset value of such shares (taken at
cost or value as the Board of Directors may determine) is less than $500. The
Board has no intent to compel redemptions in the foreseeable future. If it
should elect to compel redemptions, shareholders who are affected will receive
prior written notice and will be permitted 60 days to bring their accounts up to
the minimum before this redemption is processed.
DIRECTORS AND OFFICERS
The day-to-day affairs of the 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 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.
James D. Wineland
Vice President of the Fund; Vice President of the Manager; formerly, Vice
President of Waddell & Reed, Inc.
The address of each person is 6300 Lamar Avenue, P. O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
As of the date of this SAI, 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 of 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 he 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 $15,193.
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 gains 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 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 and
futures contracts 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 RICs and 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 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.
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 Futures Contracts
The use of hedging strategies, such as writing (selling) and purchasing
options and futures 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 transactions in
options and futures 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 and futures
contracts 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 futures 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.
Certain options and futures contracts in which the Fund may invest may be
"section 1256 contracts." Section 1256 contracts held by the Fund at the end of
each taxable year, other than section 1256 contracts that are part of a "mixed
straddle" with respect to which the Fund has made an election not to have the
following rules apply, are "marked-to-market" (that is, treated as sold for
their fair market value) for Federal income tax purposes, with the result that
unrealized gains or losses are treated as though they were realized. Sixty
percent of any net gains or losses recognized on these deemed sales, and 60% of
any net realized gains or losses from any actual sales of section 1256
contracts, are treated as long-term capital gains or losses, and the balance is
treated as short-term capital gains or losses. Section 1256 contracts also may
be marked-to-market for purposes of the Excise Tax and for other purposes.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Fund may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If 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 $379,174, $202,341 and $196,360, 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 $203,832,284 on which $301,608 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.
APPENDIX A
DESCRIPTION OF BOND RATINGS
The following are descriptions of some of the ratings of securities which
the Fund may use. The Fund may also use ratings provided by other nationally
recognized statistical rating organizations in determining the securities
eligible for investment.
Standard & Poor's Ratings Group. A Standard & Poor's corporate or
municipal bond rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment of
creditworthiness may take into consideration obligors such as guarantors,
insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer or obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit in connection
with any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or based on other circumstances.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default -- capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
2. Nature of and provisions of the obligation;
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA -- Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA also qualifies as high quality debt. Capacity to
pay interest and repay principal is very strong, and debt rated AA differs from
AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
BB -- Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B -- Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC -- Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC -- The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C -- The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
CI -- The rating CI is reserved for income bonds on which no interest is
being paid.
D -- Debt rated D is in payment default. It is used when interest
payments or principal payments are not made on a due date even if the applicable
grace period has not expired, unless Standard & Poor's believes that such
payments will be made during such grace periods. The D rating will also be used
upon a filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-) -- To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR -- Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Debt Obligations of issuers outside the United States and its territories
are rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into account
currency exchange and related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "investment grade" ratings)
are generally regarded as eligible for bank investment. In addition, the laws
of various states governing legal investments may impose certain rating or other
standards for obligations eligible for investment by savings banks, trust
companies, insurance companies and fiduciaries generally.
Moody's Investors Service. A brief description of the applicable Moody's
Investors Service rating symbols and their meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Some bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NOTE: Bonds within the above categories which possess the strongest investment
attributes are designated by the symbol "1" following the rating.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
<PAGE>
REGISTRATION STATEMENT
PART C
OTHER INFORMATION
24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements -- United Retirement Shares, Inc.
Included in Part B:
-------------------
As of June 30, 1994
Statement of Assets and Liabilities
For the fiscal year ended June 30, 1994
Statement of Operations
For each of the two years ended June 30, 1994
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of June 30, 1994
Report of Independent Accountants
Included in Part C:
-------------------
Consent of Independent Accountants
Amended Exhibit A to Custodian Agreement-EX-99.B8-RSCAA
Amended Exhibit B to Custodian Agreement-EX-99.B8-RSCAA
Amendment to Service Agreement-EX-99.B15-RSSAA
Financial Data Schedule-EX-99.B17-RSFDS
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Post-
Effective Amendment No. 43 to the Registration Statement on Form N-1A of our
report dated July 29, 1994 relating to the financial statements and the
financial highlights of United Retirement Shares, Inc., which appears in such
Prospectus. We further consent to the reference to us under the heading
"Financial Highlights" in such Prospectus and to the reference to us under the
heading "Custodial and Auditing Services" in the Statement of Additional
Information constituting part of this Post-Effective Amendment.
PRICE WATERHOUSE LLP
Kansas City, Missouri
September 28, 1994
<PAGE>
(b) Exhibits:
(1) Articles of Incorporation, as amended by Agreement and Plan of
Merger dated July 31, 1989 filed December 5, 1989 as Exhibit
(b)(1) to Post-Effective Amendment No. 36 to the Registration
Statement on Form N-1A*
(2) By-Laws, as amended by Agreement and Plan of Merger dated July
31, 1989 filed December 5, 1989 as Exhibit (b)(2) to Post-
Effective Amendment No. 36 to the Registration Statement on Form
N-1A*
Amendment to By-Laws filed October 27, 1990 as Exhibit (b)(2) to
Post-Effective Amendment No. 39 to the Registration Statement on
Form N-1A*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation filed December 5, 1989 as Exhibit (b)(1) to Post-
Effective Amendment No. 36 to the Registration Statement on Form
N-1A*; Article II and Article VIII of the Bylaws of the
Registrant, as amended by Agreement and Plan of Merger filed
December 5, 1989 as Exhibit (b)(2) to Post-Effective Amendment No
36 to the Registration Statement on Form N-1A*
(5) Investment Management Agreement filed June 29, 1990 as Exhibit
(b)(5) to Post-Effective Amendment No. 38 to the Registration
Statement on Form N-1A*
Assignment of the Investment Management Agreement filed August
24, 1992 as Exhibit 3 on Form SE to Form N-SAR for the six months
ended June 30, 1992*
(6) Underwriting Agreement filed December 5, 1989 as Exhibit (b)(6)
to Post-Effective Amendment No. 36 to the Registration Statement
on Form N-1A*
(7) Not applicable
(8) Custodian Agreement filed September 24, 1992 as Exhibit (b)(8) on
Form SE to Post-Effective Amendment No. 41 to the Registration
Statement on Form N-1A*
Amended Exhibit A to the Custodian Agreement dated July 1, 1994
attached hereto
Amended Exhibit B to the Custodian Agreement dated July 1, 1994
attached hereto
Amendment to Custodian Agreement dated February 17, 1993 filed
August 4, 1993 as Exhibit (b)(8) to Post-Effective Amendment No.
42 to the Rgistration Statement on Form N-1A*
(9) Shareholder Servicing Agreement filed August 4, 1993 as Exhibit
(b)(9) to Post-Effective Amendment No. 42 to the Registration
Statement on Form N-1A*
Fund application filed September 23, 1991 as Exhibit (b)(9)(b) on
Form SE to Post-Effective Amendment No. 40 to the Registration
Statement on Form N-1A*
Accounting Services Agreement filed October 27, 1990 as Exhibit
(b)(5) to Post-Effective Amendment No. 39 to the Registration
- ---------------------------------
*Incorporated herein by reference
Statement on Form N-1A*
(10) Not Applicable
(11) Not Applicable
(12) Not Applicable
(13) Capitalization Agreement filed December 5, 1989 as Exhibit
(b)(13) to Post-Effective Amendment No. 36 to the Registration
Statement on Form N-1A*
(14) (a) Individual Retirement Plan Agreement filed March 9, 1992 as
Exhibit b(14)(a) on Form SE to Post-Effective Amendment No.
111 to the Registration Statement on Form N-1A of United
Funds, Inc.*
(b) Simplified Employee Pension Plan filed March 9, 1992 as
Exhibit b(14)(b) on Form SE to Post-Effective Amendment No.
111 to the Registration Statement on Form N-1A of United
Funds, Inc.*
(c) Tax Sheltered Account for Employees of Public and Private
Schools and Tax-Exempt Organizations filed March 9, 1992 as
Exhibit (b)(14)(c) on Form SE to Post-Effective Amendment
No. 111 to the Registration Statement on Form N-1A of United
Funds, Inc.*
(d) Tax Sheltered Keogh Retirement Plan for self-employed
individuals, sole proprietors and common partnerships filed
March 9, 1992 as Exhibit (b)(14)(d) on Form SE to Post-
Effective Amendment No. 111 to the Registration Statement on
Form N-1A of United Funds, Inc.*
(e) Defined Contribution filed March 9, 1992 as Exhibit
(b)(14)(e) on Form SE to Post-Effective Amendment No. 111 to
the Registration Statement on Form N-1A of United Funds,
Inc.*
(f) 457 Plan for Public Employees filed March 9, 1992 as Exhibit
(b)(14)(f) on Form SE to Post-Effective Amendment No. 111 to
the Registration Statement on Form N-1A of United Funds,
Inc.*
(g) 401(k) Plan for Public Employees filed March 9, 1992 as
Exhibit (b)(14)(g) on Form SE to Post-Effective Amendment
No. 111 to the Registration Statement on Form N-1A of United
Funds, Inc.*
(15) Service Plan filed August 4, 1993 as Exhibit (b)(15) to Post-
Effective Amendment No. 42 to the Registration Statement on Form
N-1A*
Service Agreement filed August 4, 1993 as Exhibit (b)(15) to
Post-Effective Amendment No. 42 to the Registration Statement on
Form N-1A*
Amendment to Service Agreement attached hereto
(16) Schedule for computation of average annual total return
performance quotations filed August 4, 1993 as Exhibit (b)(16) to
Post-Effective Amendment No. 42 to the Registration Statement on
Form N-1A*
- ---------------------------------
*Incorporated herein by reference
(17) Financial Data Schedule attached hereto
25. Persons Controlled by or under common control with Registrant
-------------------------------------------------------------
None
26. Number of Holders of Securities
-------------------------------
Number of Record Holders as of
Title of Class June 30, 1994
-------------- ------------------------------
Capital Stock 47,075
27. Indemnification
---------------
Reference is made to ARTICLE Tenth Section 10.2 of the Articles of
Incorporation of the Registrant filed December 5, 1989 as Exhibit (b)(1) to
Post-Effective Amendment No. 36 to the Registration Statement on Form N-
1A;* Article IX of the Bylaws of the Registrant filed December 5, 1989 as
Exhibit (b)(2) to Post-Effective Amendment No. 36 to the Registration
Statement on Form N-1A;* and Article IV of the Underwriting Agreement filed
December 5, 1989 as Exhibit (b)(6) to Post-Effective Amendment No. 36 to
the Registration Statement on Form N-1A*, each of which provides
indemnification. Also refer to Section 2-418 of the Maryland General
Corporation Law regarding indemnification of directors, officers, employees
and agents.
28. Business and Other Connections of Investment Manager
----------------------------------------------------
Waddell & Reed Investment Management Company is the investment manager of
the Registrant. Under the terms of an Investment Management Agreement
between Waddell & Reed, Inc. and the Registrant, Waddell & Reed, Inc. is to
provide investment management services to the Registrant. Waddell & Reed,
Inc. assigned its investment management duties under this agreement to
Waddell & Reed Investment Management Company on January 8, 1992. Waddell &
Reed Investment Management Company is a corporation which is not engaged in
any business other than the provision of investment management services to
those registered investment companies described in Part A and Part B of
this Post-Effective Amendment.
Each director and executive officer of Waddell & Reed Investment Management
Company has had as his sole business, profession, vocation or employment
during the past two years only his duties as an executive officer and/or
employee of Waddell & Reed Investment Management Company or its
predecessors, except as to persons who are directors and/or officers of the
Registrant and have served in the capacities shown in the Statement of
Additional Information of the Registrant, and except for Mr. Ronald K.
Richey. Mr. Richey is Chairman of the Board and Chief Executive Officer of
Torchmark Corporation, the parent company of Waddell & Reed, Inc., and
Chairman of the Board of United Investors Management Company, a holding
company of which Waddell & Reed, Inc. is an indirect subsidiary. Mr.
Richey's address is 2001 Third Avenue South, Birmingham, Alabama 35233.
The address of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas
66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
- ---------------------------------
*Incorporated herein by reference
29. Principal Underwriter
---------------------
(a) Waddell & Reed, Inc. is the principal underwriter of the Registrant.
It is also the principal underwriter to the following investment
companies:
United Funds, Inc.
United International Growth Fund, Inc.
United Continental Income Fund, Inc.
United Vanguard Fund, 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.
TMK/United Funds, Inc.
Waddell & Reed Funds, Inc.
and is depositor of the following unit investment trusts:
United Periodic Investment Plans to acquire shares of United Science
and Energy Fund
United Periodic Investment Plans to acquire shares of United
Accumulative Fund
United Income Investment Programs
United International Growth Investment Programs
United Continental Income Investment Programs
United Vanguard Investment Programs
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
30. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act and
rules promulgated thereunder are under the possession of Mr. Robert L.
Hechler and Ms. Sharon K. Pappas, as officers of the Registrant, each of
whose business address is Post Office Box 29217, Shawnee Mission, Kansas
66201-9217.
31. Management Services
-------------------
There is no service contract other than as discussed in Part A and B of
this Post-Effective Amendment and listed in response to items (b)(9) and
(b) 15 hereof.
32. Undertakings
-----------
(a) Not applicable
(b) Not applicable
(c) The Fund agrees to furnish to each person to whom a prospectus is
delivered a copy of the Fund's latest annual report to shareholders
upon request and without charge.
(d) To the extent that Section 16(c) of the Investment Company Act of
1940, as amended, applies to the Fund, the Fund agrees, if requested
in writing by the shareholders of record of not less than 10% of the
Fund's outstanding shares, to call a meeting of the shareholders of
the Fund for the purpose of voting upon the question of removal of any
director.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment pursuant to
rule 485(b) of the Securities Act of 1933, and the Registrant has duly caused
this Post-Effective Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Overland Park, and State of Kansas, on
the 28th day of September, 1994.
UNITED RETIREMENT SHARES, INC.
(Registrant)
By /s/ Keith A. Tucker*
------------------------
Keith A. Tucker, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
/s/Ronald K. Richey* Chairman of the Board September 28, 1994
- ---------------------- ----------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director September 28, 1994
- ---------------------- (Principal Executive Officer) ----------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer September 28, 1994
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and September 28, 1994
- ---------------------- Principal Financial ----------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director September 28, 1994
- ---------------------- ----------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director September 28, 1994
- --------------------- ----------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director September 28, 1994
- -------------------- ----------------
Jay B. Dillingham
/s/John F. Hayes* Director September 28, 1994
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director September 28, 1994
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director September 28, 1994
- ------------------- ----------------
William T. Morgan
/s/Doyle Patterson* Director September 28, 1994
- ------------------- ----------------
Doyle Patterson
/s/Frederick Vogel, III* Director September 28, 1994
- ------------------- ----------------
Frederick Vogel, III
/s/Paul S. Wise* Director September 28, 1994
- ------------------- ----------------
Paul S. Wise
/s/Leslie S. Wright* Director September 28, 1994
- ------------------- ----------------
Leslie S. Wright
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Amy D. Eisenbeis
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC., WADDELL & REED FUNDS, INC., TORCHMARK INSURED TAX-FREE
FUND, INC. AND TORCHMARK GOVERNMENT SECURITIES FUND, INC. (each hereinafter
called the "Corporation"), and certain directors and officers for the
Corporation, do hereby constitute and appoint KEITH A. TUCKER, ROBERT L.
HECHLER, and SHARON K. PAPPAS, and each of them individually, their true and
lawful attorneys and agents to take any and all action and execute any and all
instruments which said attorneys and agents may deem necessary or advisable to
enable each Corporation to comply with the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and any rules, regulations, orders
or other requirements of the United States Securities and Exchange Commission
thereunder, in connection with the registration under the Securities Act of 1933
and/or the Investment Company Act of 1940, as amended, including specifically,
but without limitation of the foregoing, power and authority to sign the names
of each of such directors and officers in his behalf as such director or officer
has indicated below opposite his signature hereto, to any amendment or
supplement to the Registration Statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and to any instruments or documents filed or to be filed as a
part of or in connection with such Registration Statement; and each of the
undersigned hereby ratifies and confirms all that said attorneys and agents
shall do or cause to be done by virtue hereof.
Date: September 1, 1994 /s/Keith A. Tucker*
---------------------
Keith A. Tucker, President
/s/Ronald K. Richey* Chairman of the Board September 1, 1994
- -------------------- ---------------
Ronald K. Richey
/s/Keith A. Tucker* President and Director September 1, 1994
- -------------------- (Principal Executive Officer) ---------------
Keith A. Tucker
/s/Theodore W. Howard* Vice President, Treasurer September 1, 1994
- -------------------- and Principal Accounting ---------------
Theodore W. Howard Officer
/s/Robert L. Hechler* Vice President and September 1, 1994
- -------------------- Principal Financial ---------------
Robert L. Hechler Officer
/s/Henry L. Bellmon* Director September 1, 1994
- -------------------- ---------------
Henry L. Bellmon
/s/Dodds I. Buchanan* Director September 1, 1994
- -------------------- ---------------
Dodds I. Buchanan
/s/Jay B. Dillingham* Director September 1, 1994
- -------------------- ---------------
Jay B. Dillingham
/s/John F. Hayes* Director September 1, 1994
- -------------------- ---------------
John F. Hayes
/s/Glendon E. Johnson Director September 1, 1994
- -------------------- ---------------
Glendon E. Johnson
/s/William T. Morgan* Director September 1, 1994
- -------------------- ---------------
William T. Morgan
/s/Doyle Patterson* Director September 1, 1994
- -------------------- ---------------
Doyle Patterson
/s/Frederick Vogel, III* Director September 1, 1994
- -------------------- ---------------
Frederick Vogel, III
/s/Paul S. Wise* Director September 1, 1994
- -------------------- ---------------
Paul S. Wise
/s/Leslie S. Wright* Director September 1, 1994
- -------------------- ---------------
Leslie S. Wright
Attest:
/s/Sharon K. Pappas*
Sharon K. Pappas, Vice President
and Secretary
APPENDIX "B"
TO
CUSTODIAN AGREEMENT
BETWEEN
UNITED RETIREMENT SHARES, INC.
AND
UNITED MISSOURI BANK, n.a.
Dated as of November 26, 1991
The Fund shall be responsible for providing the Custodian the net asset
levels the Custodian requires to calculate the net asset portion of the
Custodian's fees. Such determinations shall be based upon the average monthly
assets of each Fund and shall specify the level of domestic assets and foreign
assets by country, as appropriate. Domestic assets shall include all assets
held in the United States including but not limited to American Depository
Receipts. Foreign assets shall include all assets held outside the United
States including but not limited to securities which clear through Euroclear or
Cedel. The Custodian will provide as soon as practicable after receiving the
information provided by the Fund with respect to the net asset level numbers, a
bill for the Fund, including such reasonable detail in support of each bill as
may be reasonably requested by the Fund. As used in this Appendix "B", "United
Funds" shall mean all funds in the United Group of Funds, TMK/United Funds,
Inc., Waddell & Reed Funds, Inc., Torchmark Insured Tax-Free Fund, Inc. and
Torchmark Government Securities Fund, Inc.
DOMESTIC CUSTODY FEE SCHEDULE
A. Annual Fee (combining all domestic assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of domestic assets), at the annual rate of:
.00025 for the first $100,000,000 of the net assets of the United Funds,
plus
.00015 for the next $900,000,000 of the net assets of the United Funds,
plus
.00010 for the next $1,000,000,000 of the net assets of the United Funds,
plus
.00005 for the next $3,000,000,000 of the net assets of the United Funds,
plus
.000025 for the next $5,000,000,000 of the net assets of the United Funds,
plus
.00001 for any net assets exceeding $10,000,000,000 of the assets of the
United Funds.
B. Portfolio Transaction Fees (billed to each Fund):
(1)For each portfolio transaction* processed through a
Depository (DTC, PTC, Fed) $10.00
(2) For each portfolio transaction* processed through the
New York office (physical settlement) 20.00
(3)For each futures/options contract written 25.00
(4)For each principal/interest paydown 6.00
(5)For each interfund note transaction 5.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Earnings Credits:
Positive earnings credits will be applied on all collected custody and cash
management balances of each Fund at the Custodian to earn the Custodian's
daily repurchase agreement rate less reserve requirements and FDIC
premiums. Negative earnings credits will be charged on all uncollected
custody and cash management balances of each Fund at the Custodian's prime
rate less 150 basis points on each day a negative balance occurs. Positive
and/or negative earnings credits will be monitored daily for each Fund and
the net positive or negative amount for each Fund will be included in the
monthly statements. Excess positive credits for each Fund will be carried
forward indefinitely.
D. Out-of-Pocket Expenses (passed directly from Special Subcustodians):
Includes all fees charged by any Special Subcustodian to the Custodian as
Custodian for any assets held at the Special Subcustodian.
GLOBAL CUSTODY FEE SCHEDULE
A. Annual Fee (combining all foreign assets):
An annual fee to be computed as of month end and payable each month of the
Fund's fiscal year (after receipt of the bill issued to each Fund based
upon its portion of global assets), at the annual rate of:
.0035 on all assets held in countries assigned to category 5 below, plus
.0014 on all assets held in countries assigned to category 4 below, plus
.0012 on the first $500,000,000 remaining global assets, plus
.0010 on the remaining global assets in excess of $500,000,000.
B. Portfolio Transaction Fees (billed to each Fund)*:
Category 1: $30.00
Belgium, Canada, Japan, Netherlands
Category 2: 60.00
Austria, Denmark, Germany, Ireland, Italy, Sweden, United Kingdom
Category 3: 90.00
Australia, Finland, France, Greece, Hong Kong, Indonesia, Malaysia, New
Zealand,
Norway, Philippines, Portugal, Singapore, Spain, Switzerland, Thailand
Category 4: 30.00
Argentina, Brazil, Chile, India, Mexico, Peru, Turkey
Category 5: 60.00
Korea
Miscellaneous Cash Transactions 10.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
C. Out-of-Pocket Expenses (passed directly from Brown Brothers Harriman &
Co.):
Including, but not limited to, telex, legal, telephone, postage, and direct
expenses, including but not limited to, emerging markets subcustodian
custody fees and transaction charges (Category 4 above), tax reclaim,
customized systems programming, certificate fees, duties, and registration
fees.
D. Short-term Dollar Denominated Global Assets--Eurodollar CDs, Time Deposits
(billed to each Fund):
(1)An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill issued to the Fund
based upon its portion of short-term dollar denominated assets), at the
annual rate of:
.0004 on all short-term dollar denominated assets of the United Funds.
(2)Portfolio Transaction Fees (billed to each Fund)*:
Eurodollar Time Deposits/CDs will be assessed the following charges:
First Chicago Clearing Centre-Trades with Members $136.00
First Chicago Clearing Centre-Trades with Non-members 153.00
First Chicago Clearing Centre-Income Collection 64.00
E. Euroclear Eligible Issues (billed to each Fund):
(1)An annual fee to be computed as of month end and payable each month of
the Fund's fiscal year (after receipt of the bill
issued to the Fund based upon its portion of Euroclear issues), at the annual
rate of:
2.5 basis points on all United Funds Euroclear assets held in account
at United Missouri Bank, n.a.
(2) Portfolio Transaction Fees (billed to each Fund)*:
Euroclear $60.00
* A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
AMENDMENT TO SERVICE AGREEMENT
This Amendment to the Service Agreement made this 1st day of September, 1994, by
and between United Gold & Government Fund, Inc. (the "Fund") and Waddell & Reed,
Inc. ("W&R").
WHEREAS, the Fund and W&R have entered into a certain Service Agreement dated
October 1, 1993, which the parties now desire to amend to provide for the
provision of personal services and maintenance of shareholder accounts through
broker-dealers who sell shares of the Fund to qualified benefit plans under a
selling group agreement with W&R, or through other third parties;
AND WHEREAS, the Fund has adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 a Service Plan pursuant to which this Service Agreement has
been adopted and which Service Plan authorizes the payment to W&R of a service
fee to finance shareholder servicing by, among others, broker-dealers who may
sell Fund shares.
NOW THEREFORE, it is mutually agreed as follows:
A. Section A of the Service Agreement is hereby amended by the addition of the
following subsection:
4. Third-Party Services - Through broker-dealers selling shares of the
Fund to employee benefit plans, including benefit plans existing under the
provisions of Section 457 of the United States Internal Revenue Code (hereafter
"Benefit Plans"), or through other third parties, and who provide personal
services to the Benefit Plans and assist in the maintenance of participants'
accounts for whom the Benefit Plans hold shares of the Fund.
B. Section B of the Service Agreement is hereby amended by the addition of the
following subsection:
5. Subject to the limitation set forth in Section B.3., the Fund shall
fully reimburse W&R for payments it makes to a broker-dealer who sells Fund
shares to Benefit Plans to cover a part of the broker-dealer's cost incurred
directly or through affiliates, and to any other third party to cover a part of
that party's cost, in providing personal services to the Benefit Plans and for
the maintenance of participants' accounts of the Benefit Plans, provided that
such payment shall not exceed a sum equal to .25 of 1% of the Fund's average
annual net assets represented by Fund shares purchased through the broker-dealer
or in accounts coded in the name of the third party, as applicable, and held by
the Benefit Plans.
C. Approval and Other Provisions.
1. The Fund represents that this Amendment has been approved by vote of
the Board of Directors of the Fund and of the directors of the Fund who are not
interested persons of the Fund and who have no direct financial interest in the
operation of the 2Service Plan or this Agreement ("independent directors"),
which was cast in person by such directors at a meeting called for the purpose
of voting on the plan and approval of this Amendment.
2. It is understood that this Amendment is part of the aforesaid Service
Agreement and is subject to continuation and termination as set forth in the
Service Agreement and to the other provisions set forth therein.
IN WITNESS WHEREOF, the parties have executed this Amendment this 1st day of
September, 1994.
United Gold & Government Fund, Inc.
By: /s/Sharon K. Pappas
------------------------------------------------------
Sharon K. Pappas, Vice President and Secretary
Waddell & Reed, Inc.
By: /s/Robert L. Hechler
------------------------------------------------------
Robert L. Hechler, President
September 28, 1994
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
RE: United Retirement Shares, Inc.
Post-Effective Amendment No. 43
Dear Sir or Madam:
In connection with the filing of the above-referenced Post-Effective Amendment,
I hereby represent that the Amendment does not contain disclosures which would
render it ineligible to become effective pursuant to paragraph (b) of Rule 485.
Yours truly,
Sharon K. Pappas
General Counsel
SKP:jb
[ARTICLE] 6
[LEGEND]
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT TO SHAREHOLDERS DATED JUNE 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] JUN-30-1994
[PERIOD-END] JUN-30-1994
[INVESTMENTS-AT-COST] 410,597,157
[INVESTMENTS-AT-VALUE] 459,773,895
[RECEIVABLES] 3,442,144
[ASSETS-OTHER] 10,144
[OTHER-ITEMS-ASSETS] 18,727
[TOTAL-ASSETS] 463,244,910
[PAYABLE-FOR-SECURITIES] 9,450,600
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 958,277
[TOTAL-LIABILITIES] 10,408,877
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 333,187,777
[SHARES-COMMON-STOCK] 59,281,716
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 806,482
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 10,383,320
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 49,176,738
[NET-ASSETS] 452,836,033
[DIVIDEND-INCOME] 6,529,978
[INTEREST-INCOME] 7,135,345
[OTHER-INCOME] 0
[EXPENSES-NET] 3,724,964
[NET-INVESTMENT-INCOME] 9,940,359
[REALIZED-GAINS-CURRENT] 16,961,825
[APPREC-INCREASE-CURRENT] (8,435,883)
[NET-CHANGE-FROM-OPS] 18,466,301
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 9,489,801
[DISTRIBUTIONS-OF-GAINS] 14,680,000
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 12,022,339
[NUMBER-OF-SHARES-REDEEMED] 5,121,599
[SHARES-REINVESTED] 3,062,704
[NET-CHANGE-IN-ASSETS] 72,903,210
[ACCUMULATED-NII-PRIOR] 355,924
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,423,283
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,724,964
[AVERAGE-NET-ASSETS] 427,898,378
[PER-SHARE-NAV-BEGIN] 7.70
[PER-SHARE-NII] .18
[PER-SHARE-GAIN-APPREC] .22
[PER-SHARE-DIVIDEND] .18
[PER-SHARE-DISTRIBUTIONS] .28
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 7.64
[EXPENSE-RATIO] .87
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
APPENDIX A
This Appendix A relates to the Custodian Agreements between United Missouri
Bank, n.a. and each of the following funds dated the date specified by the
fund's name, as amended:
Fund Date
United Cash Management, Inc. November 26, 1991
United Continental Income Fund, Inc. November 26, 1991
United Gold & Government Fund, Inc. November 26, 1991
United Government Securities Fund, Inc. November 26, 1991
United High Income Fund, Inc. November 26, 1991
United High Income Fund II, Inc. November 26, 1991
United International Growth Fund, Inc. November 26, 1991
United Municipal Bond Fund, Inc. November 26, 1991
United Municipal High Income Fund, Inc. November 26, 1991
United New Concepts Fund, Inc. November 26, 1991
United Retirement Shares, Inc. November 26, 1991
United Vanguard Fund, Inc. November 26, 1991
United Funds, Inc.
United Bond Fund November 26, 1991
United Income Fund November 26, 1991
United Accumulative Fund November 26, 1991
United Science and Technology Fund November 26, 1991
TMK/United Funds, Inc.
High Income Portfolio November 26, 1991
Money Market Portfolio November 26, 1991
Bond Portfolio November 26, 1991
Income Portfolio November 26, 1991
Growth Portfolio November 26, 1991
Balanced Portfolio April 29, 1994
International Portfolio April 29, 1994
Limited-Term Bond Portfolio April 29, 1994
Small Cap Portfolio April 29, 1994
Waddell & Reed Funds, Inc.
Total Return Fund April 24, 1992
Municipal Bond Fund April 24, 1992
Limited-Term Bond Fund April 24, 1992
Global Income Fund April 24, 1992
Growth Fund April 24, 1992
Torchmark Government Securities Fund, Inc. December 9, 1992
Torchmark Insured Tax-Free Fund, Inc. December 9, 1992
The following is a list of Domestic Subcustodians, Foreign Sub-Subcustodian
and Special Subcustodians under the Custodian Agreement as amended:
A. Domestic Subcustodians:
Brown Brothers Harriman & Co.
United Missouri Trust Company of New York
B. Foreign Sub-Subcustodians:
Country Sub-Subcustodian Depository
Argentina Citibank, n.a., Argentina CDV
Australia National Australia Bank Ltd. AUSTRACLEAR, RITs
Austria Creditanstalt Bankverein KONTROLLBANK (OEKB)
Belgium Banque Bruxelles Lambert CIK, BNB
Brazil First National Bank of Boston, Brazil BOVESPA, CLC
Canada Canadian Imperial Bank of Commerce CDS
Chile Citibank, n.a. Chile None
Denmark Den Danske VP
Finland Union Bank of Finland Securities
Association
France Banque Indosuez SICOVAM; Banque De
France
Germany Berliner Handels Und.Frankfurter Bank KASSENVEREIN
Hong Kong HongKong & Shanghai Banking Corp. HongKong Securities
Clearing
Company
Indonesia Citibank, n.a. None
Italy Banca Commerciale Italiana MONTE TITOLI, Banco
D'Italia
Japan Mitsui Trust & Banking Co. JASDEC, Bank of
Japan
Korea Citibank, n.a. Korean Securities
Depository
Corporation (KSD)
Malaysia HongKong & Shanghai Banking Corp. MCD; Bank Negara Malaysia
Mexico Citibank n.a., Mexico INDEVAL; Banco De
Mexico
Netherlands ABN - Amro Bank NECIGER; De Nederlandsche
Bank
Peru Citibank, n.a. Caja De Valores (CAVAL)
Philippines Citibank n.a., Philippines None
Singapore HongKong & Shanghai Banking Corp. CDP
Spain Banco Santander SCLV; Banco De
Espana
Sweden Skandinaviska Enskilda Banken VPC
Switzerland Union Bank of Switzerland SEGA
Thailand HongKong & Shanghai Banking Corp. Share Depository Center
(SDC)
Turkey Citibank, n.a. None
United Kingdom Midland Securities PLC CMO, CGO
C. Special Subcustodians:
Wilmington Trust Co.
The Bank of New York, n.a.
Euroclear
