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. 49
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT
OF 1940 X
Amendment No. 32
UNITED RETIREMENT SHARES, INC.
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(Exact Name as Specified in Charter)
6300 Lamar Avenue, Shawnee Mission, Kansas 66201-2917
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(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
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
_____ immediately upon filing pursuant to paragraph (b)
__X__ on September 30, 1998 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)
_____ on (date) pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a)(2) of Rule 485
_____ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
============================================================================
DECLARATION REQUIRED BY RULE 24f-2 (a) (1)
The issuer has registered an indefinite amount of its securities under the
Securities Act of 1933 pursuant to Rule 24f-2(a)(1). Notice for the
Registrant's fiscal year ended June 30, 1998, will be filed on or about
September 28, 1998.
===========================================================================
<PAGE>
UNITED RETIREMENT SHARES, INC.
==============================
Cross Reference Sheet
=====================
Part A of
Form N-1A
Item No. Prospectus Caption
- --------- ------------------
1 ........................ Cover Page
2(a) ..................... Expenses
(b) ..................... An Overview of the Fund
(c) ..................... An Overview of the Fund
3(a) ..................... Financial Highlights
(b) ..................... *
(c) ..................... Performance
(d)...................... Performance; About Your Account
4(a) ..................... About the Investment Principles of the Fund; About
the Management and Expenses of the Fund
(b) ..................... About the Investment Principles of the Fund
(c) ..................... An Overview of the Fund; About the Investment
Principles of the Fund
5(a) ..................... About the Management and Expenses of the Fund
(b)...................... Inside Back Cover; About the Management and
Expenses of the Fund
(c) ..................... About the Management and Expenses of the Fund
(d) ..................... About the Management and Expenses of the Fund
(e) ..................... Inside Back Cover; About the Management and
Expenses of the Fund
(f) ..................... Expenses; About the Management and Expenses of the
Fund
(g)...................... *
5A......................... **
6(a) ..................... About the Management and Expenses of the Fund
(b) ..................... *
(c) ..................... *
(d) ..................... About the Management and Expenses of the Fund
(e) ..................... About Your Account
(f)...................... About Your Account
(g) ..................... About Your Account
(h) ..................... About the Management and Expenses of the Fund
7(a) ..................... Inside Back Cover; About Your Account; About the
Management and Expenses of the Fund
(b) ..................... About Your Account
(c) ..................... About Your Account
(d) ..................... About Your Account
(e) ..................... *
(f) ..................... About the Management and Expenses of the Fund
8(a) ...................... About Your Account
(b) ..................... *
(c) ..................... About Your Account
(d) ..................... About Your Account
9 ........................ *
Part B of
Form N-1A
Item No. SAI Caption
- --------- -----------
10(a) ..................... Cover Page
(b) ..................... *
11 ........................ Cover Page
12 ........................ *
13(a) ..................... Goal and Investment Policies
(b) ..................... Goal and Investment Policies
(c) ..................... Goal and Investment Policies
(d) ..................... Goal and Investment Policies
14(a) ..................... Directors and Officers
(b) ..................... Directors and Officers
(c) ..................... Directors and Officers
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) ..................... Investment Management and Other Services
17(a) ..................... Portfolio Transactions and Brokerage
(b) ..................... *
(c) ..................... Portfolio Transactions and Brokerage
(d) ..................... Portfolio Transactions and Brokerage
(e) ..................... Portfolio Transactions and Brokerage
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) ..................... Investment Management and Other Services
(c) ..................... *
22(a) ..................... *
(b)(i) .................. Performance Information
(b)(ii) ................. Performance Information
(b)(iii) ................ *
(b)(iv).................. Performance Information
23 ........................ Financial Statements
- ---------------------------------------------------------------------------
*Not Applicable or Negative Answer
**Contained in the Annual Report to Shareholders
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated September 30, 1998. The SAI is available free upon request to the Fund or
to Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone
number stated 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.
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.
United Retirement Shares, Inc.
Class A Shares
This Fund seeks to provide the highest long-term total investment return as is,
in the opinion of the Fund's investment manager, consistent with reasonable
safety of capital. The Fund will attempt to achieve its goal through a fully
managed investment policy.
This Prospectus describes one class of shares of the Fund -- Class A Shares.
Prospectus
September 30, 1998
UNITED RETIREMENT SHARES, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-366-5465
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND.........................................6
EXPENSES........................................................7
FINANCIAL HIGHLIGHTS............................................8
PERFORMANCE.....................................................9
Explanation of Terms ..........................................9
ABOUT WADDELL & REED...........................................10
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND....................11
Investment Goal and Principles ...............................11
Risk Considerations .........................................11
Securities and Investment Practices ...........................8
ABOUT YOUR ACCOUNT.............................................24
Ways to Set Up Your Account ..................................24
Buying Shares ................................................23
Minimum Investments ..........................................25
Adding to Your Account .......................................26
Selling Shares ...............................................26
Shareholder Services .........................................28
Personal Service ............................................28
Reports .....................................................28
Exchanges ...................................................29
Automatic Transactions ......................................29
Distributions and Taxes ......................................29
Distributions ...............................................29
Taxes .......................................................30
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..................32
WRIMCO and Its Affiliates ....................................32
Breakdown of Expenses ........................................33
Management Fee ..............................................33
Other Expenses ..............................................34
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class A shares of United Retirement
Shares, Inc., an open-end, diversified management investment company.
Goal and Strategies: United Retirement Shares, Inc. (the "Fund") seeks to
provide the highest long-term total investment return as is, in the opinion of
the Fund's investment manager, consistent with reasonable safety of capital.
The Fund seeks to achieve this goal through a fully managed investment policy.
The Fund invests primarily in common stock, preferred stock or debt securities.
See "About the Investment Principles of the Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class A shares of the Fund through Waddell & Reed, Inc.
and its account representatives. The price to buy a Class A share of the Fund
is the net asset value of a Class A share plus a sales charge. See "About Your
Account" for information on how to purchase Class A shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption and reinvestment procedures.
Who May Want to Invest: The Fund is designed for investors seeking a high total
return with reasonable safety of principal through a diversified portfolio that
may include stocks, bonds and other securities. You should consider whether the
Fund fits your particular investment objectives.
Risk Considerations: Because the Fund owns different types of investments, its
performance will be affected by a variety of factors. The value of the Fund's
investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Fund" for information
about the risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases
(as a percentage of
offering price) 5.75%
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating expenses (as a percentage of average net assets).
Management fees 0.54%
12b-1 fees1 0.21%
Other expenses 0.19%
Total Fund operating
expenses 0.94%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return2 and (2) redemption at the end of each time period:
1 year $ 67
3 years $ 86
5 years $107
10 years $166
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class A shares of 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. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
1It is possible that long-term shareholders of the Fund may bear 12b-1
distribution fees that are more than the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers,
Inc.
2Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
The following information has been audited in conjunction with the audits
of the Financial Statements of the Fund. Financial Statements for the fiscal
year ended June 30, 1998 and the Independent Auditors' Report of Deloitte &
Touche LLP thereon are included in the SAI and should be read in conjunction
with the Financial Highlights.
For a Class A share outstanding throughout each period.*
<TABLE>
For the fiscal year ended June 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $9.14 $8.72 $8.26 $7.64 $7.70 $7.20 $6.41 $6.41 $6.03 $5.39
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations:
Net investment income 0.24 0.27 0.26 0.24 0.18 0.22 0.21 0.26 0.26 0.26
Net realized and
unrealized gain
on investments 0.99 1.08 0.94 0.86 0.22 0.73 0.91 0.05 0.51 0.67
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations ... 1.23 1.35 1.20 1.10 0.40 0.95 1.12 0.31 0.77 0.93
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
From net investment
income ..... (0.25)(0.27)(0.27)(0.22)(0.18)(0.23)(0.22)(0.26)(0.26)(0.28)
From capital gains (0.84)(0.66)(0.47)(0.26)(0.28)(0.22)(0.11)(0.05)(0.13)(0.01)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (1.09)(0.93)(0.74)(0.48)(0.46)(0.45)(0.33)(0.31)(0.39)(0.29)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $9.28 $9.14 $8.72 $8.26 $7.64 $7.70 $7.20 $6.41 $6.41 $6.03
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return** .. 14.45%16.70%14.93%15.07% 5.03%13.45%17.93% 5.07%13.06%17.88%
Net assets, end of
period (in millions) $825 $716 $607 $528 $453 $380 $259 $195 $161 $126
Ratio of expenses to
average net assets 0.93% 0.92% 0.89% 0.89% 0.87% 0.80% 0.82% 0.88% 0.87% 0.87%
Ratio of net investment
income to average net
assets ....... 2.57% 3.12% 3.01% 3.04% 2.32% 2.98% 3.12% 4.20% 4.21% 4.77%
Portfolio turnover
rate ......... 53.52%39.55%42.05%48.62%27.10%30.62%38.26%29.05%53.20%52.19%
Average commission
rate paid ..... $0.0628 $0.0580
*On October 7, 1995, Fund shares outstanding were designated Class A shares.
**Total return calculated without taking into account the sales load deducted on
an initial purchase.
</TABLE>
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing performance rankings. Performance
information is calculated and presented separately for each class of Fund
shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and other
distributions. A cumulative total return reflects actual performance over a
stated period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative total
return if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same as
actual year-by-year results. Non-standardized total return may not reflect
deduction of the applicable sales charge or may be for periods other than those
required to be presented or may otherwise differ from standardized total return.
Total return quotations that do not reflect the applicable sales charge will
reflect a higher rate of return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a ranking,
the Fund may provide additional information, such as the particular category to
which it relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
All performance information that 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.
The Fund's recent performance and holdings will be detailed twice a year in
the annual and semiannual reports, which are sent to all Fund shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas, is available to assist you and
your Waddell & Reed account representative. You may speak with a Customer
Service Representative by calling the telephone number listed on the inside back
cover of this Prospectus.
<PAGE>
About the Investment Principles of the Fund
Investment Goal and Principles
The goal of the Fund is to achieve the highest long-term total investment
return as is, in the opinion of WRIMCO, 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 Fund seeks to achieve this goal through a
fully managed investment policy in which it may invest substantially all of its
assets in equity securities, preferred stock, debt securities or convertible
securities, or may invest varying proportions of its assets in these types of
securities, depending on WRIMCO's analysis of what types of securities, or what
proportions, are most likely to achieve the Fund's goal. There is no assurance
that the Fund will achieve its goal. When deemed advisable by WRIMCO, as a
temporary measure, the Fund may make defensive investments in either cash or
money market instruments with respect to up to all of its assets.
Since the Fund's goal is long-term total investment return, WRIMCO will not
attempt to make quick shifts between the type 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.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk and, in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risk, you should anticipate that
the share price of the Fund will fluctuate. Financial risk is based on the
financial situation of the issuer. The financial risk of the Fund depends on
the credit quality of the underlying securities. Prepayment risk is the
possibility that, during periods of falling interest rates, a debt security with
a high stated interest rate will be prepaid prior to its expected maturity date.
The Fund may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, forward currency
contracts, swaps, caps, collars, floors, indexed securities, stripped securities
and mortgage-backed and other asset-backed securities. The use of derivative
instruments involves special risks. See "Risks of Derivative Instruments" for
further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest, and strategies WRIMCO may employ in
pursuit of the Fund's goal. A summary of risks associated with these instrument
types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by the Fund's investment policies and
restrictions unless it believes that doing so will help the Fund achieve its
goal.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy may not be changed without the approval of
the shareholders of the Fund. Operating policies may be changed by the Board of
Directors without the approval of the affected shareholders. The goal of the
Fund and the types of securities in which the Fund may invest are fundamental
policies. Unless otherwise indicated, the types of other assets in which the
Fund may invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
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. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which
the Fund invests may include debt securities whose performance is linked to a
specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
U.S. Government securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government ("U.S. Government Securities"). Not all
U.S. Government Securities are backed by the full faith and credit of the United
States. Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S. Government to
purchase the agencies' obligations; while others are supported only by the
credit of the instrumentality. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment.
The Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with original issue discount ("OID"). Zero coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or that specify a future date when the
securities begin to pay current interest; instead, they are sold at a deep
discount from their face value and are redeemed at face value when they mature.
Because zero coupon securities do not pay current income, their prices can be
very volatile when interest rates change and generally are subject to greater
fluctuations in response to changing interest rates than the prices of debt
obligations of comparable maturities that make current distributions of interest
in cash.
The Federal tax law requires that a holder of a security with OID accrue
a ratable portion of the OID on the security as income each year, even though
the holder may receive no interest payment on the security during the year.
Accordingly, although the Fund will receive no payments on its zero coupon
securities prior to their maturity or disposition, it will have current income
attributable to those securities. Nevertheless, for Federal income and excise
tax purposes the Fund annually must distribute to its shareholders substantially
all of its net investment income, including OID. Accordingly, the Fund will be
required to include in its dividends an amount equal to the income attributable
to its zero coupon and other OID securities. See "Taxes" in the SAI. Those
dividends will be paid from the Fund's cash assets or by liquidation of
portfolio securities, if necessary, at a time when the Fund otherwise might not
have done so.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by the
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in the Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, the Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those rated D
by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
C by Moody's Investors Service, Inc. ("MIS")). In addition, the Fund will treat
unrated securities judged by WRIMCO to be of equivalent quality to a rated
security to be equivalent to securities having that rating. Debt securities
rated at least BBB by S&P or Baa by MIS are considered to be investment grade
debt securities. Securities rated BBB or Baa may have speculative
characteristics. Debt securities rated D by S&P or C by MIS are in payment
default or are regarded as having extremely poor prospects of ever attaining any
real investment standing.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield, high-risk debt securities, certain risks are associated with credit
ratings. Credit ratings evaluate the safety of principal and interest payments,
not market value risk. Credit ratings for individual securities may change from
time to time, and the Fund may retain a portfolio security whose rating has been
changed. S&P and MIS ratings are described in Appendix A to the SAI.
Preferred Stock. The Fund may invest in preferred stock rated in any
rating category by an established rating service and unrated preferred stock
judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities generally have higher
yields than common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities, are less subject to fluctuation in value
than the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: The Fund does not intend to invest more than
10% of its total assets in debt securities rated lower than BBB by S&P or Baa by
MIS.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse diplomatic
developments. There is no assurance that WRIMCO will be able to anticipate
these potential events or counter their effects.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: The Fund may purchase securities of foreign
issuers only if not more than 10% of the Fund's total assets are invested in
foreign securities.
Options, Futures and Other Strategies. The Fund may use certain options,
futures contracts, forward currency contracts, indexed securities, swaps, caps,
collars, floors, mortgage-backed and other asset-backed securities and certain
other strategies described herein to attempt to enhance income or yield or to
attempt to reduce the risk of its investments. The strategies described below
may be used in an attempt to manage the Fund's foreign currency exposure as well
as other risks of the Fund's investments that can affect fluctuation in its net
asset value. The Fund may also use various techniques to increase or decrease
its exposure to changing security prices, interest rates, currency exchange
rates, commodity prices or other factors that affect security values.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not use
any of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Policies and Restrictions: Subject to the further limitations stated in
the SAI, generally, the Fund may purchase and sell any type of derivative
instrument including, without limitation, futures contracts, options, forward
currency contracts, swaps, caps, collars, floors and indexed securities.
However, the Fund will only purchase or sell a particular derivative instrument
if the Fund is authorized to invest in the type of asset by which the return on,
or value of, the derivative instrument is primarily measured. Since the Fund is
authorized to invest in foreign securities, it may purchase and sell currency
derivatives.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance its income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed-upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in 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 that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the offsetting put or call. If the Fund is not able to enter
into an offsetting closing transaction on an option it has written, it will be
required to maintain the securities, or cash in the case of an option on an
index, subject to the call or the collateral underlying the put until a closing
purchase transaction can be entered into or the option expires. Because index
options are settled in cash, the Fund cannot provide in advance for its
potential settlement obligations on a call it has written on an 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.
Futures Contracts and Options on Futures Contracts. 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.
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
writes a call, it assumes a short futures position. If it writes a put, it
assumes a long futures position. 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 the futures contract (a long position if the option is a call and a
short position if the option is a put).
Forward Currency Contracts and Foreign Currencies. The Fund may enter into
forward currency contracts for the purchase or sale of a specified currency at a
specified future date either with respect to specific transactions or with
respect to portfolio positions in order to minimize the risk to the Fund from
adverse changes in the relationship between the U.S. dollar and a foreign
currency. For example, when WRIMCO anticipates purchasing or selling a security
denominated in a foreign currency, the Fund may enter into a forward currency
contract in order to set the exchange rate at which the transaction will be
made. The Fund also may enter into a forward currency contract to sell an
amount of a foreign currency approximating the value of some or all of the
Fund's securities positions denominated in such currency. The Fund may also use
forward currency contracts in one currency or a basket of currencies to attempt
to hedge against fluctuations in the value of securities denominated in a
different currency if WRIMCO anticipates that there will be a correlation
between the two currencies.
The Fund may also use forward currency contracts to shift the Fund's
exposure to foreign currency exchange rate changes from one foreign currency to
another. For example, if the Fund owns securities denominated in a foreign
currency and WRIMCO believes that currency will decline relative to another
currency, it might enter into a forward currency contract to sell the
appropriate amount of the first foreign currency with payment to be made in the
second foreign currency. Transactions that use two foreign currencies are
sometimes referred to as "cross hedging." Use of a different foreign currency
magnifies the Fund's exposure to foreign currency exchange rate fluctuations.
The Fund may also purchase forward currency contracts to enhance income when
WRIMCO anticipates that the foreign currency will appreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities.
Successful use of forward currency contracts depends on WRIMCO's skill in
analyzing and predicting currency values. Forward currency contracts may
substantially change the Fund's investment exposure to changes in currency
exchange rates and could result in losses to the Fund if currencies do not
perform as WRIMCO anticipates. There is no assurance that WRIMCO's use of
forward currency contracts will be advantageous to the Fund or that it will
hedge at an appropriate time.
The Fund may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
Indexed Securities are securities the value of which varies in relation to
the value of other securities, securities indices, currencies, precious metals
or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities depends to a great extent on
the performance of the security, currency, or other instrument to which they are
indexed and may also be influenced by interest rate changes in the United States
and abroad. At the same time, indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying instruments.
Swaps, Caps, Collars and Floors. The Fund may enter into swaps, caps,
collars and floors as described below. The Fund may enter into these
transactions to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date or to attempt to
enhance income or yield.
Swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of a cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
value, to receive payments on a notional principal amount from the party selling
such cap. The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling such floor. A collar combines
elements of buying a cap and selling a floor.
Depending on how they are used, the swap, cap, collar and floor agreements
used by the Fund may also increase or decrease the overall volatility of its
investments and its share price and yield. The most significant factor in the
performance of these agreements is the change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the Fund.
The Fund usually will enter into swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. If, however, an agreement
calls for payments by the Fund, the Fund must be prepared to make such payments
when due. The creditworthiness of firms with which the Fund enters into swaps,
caps, collars or floors will be monitored by WRIMCO in accordance with
procedures adopted by the Board of Directors. If a firm's creditworthiness
declines, the value of an agreement would be likely to decline, potentially
resulting in losses. If a default occurs by the other party to such
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction.
The Fund understands that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
and are, therefore, subject to the limitations on investment in illiquid
investments as described in the SAI.
Mortgage-Backed and Other Asset-Backed Securities are bonds backed by
specific types of assets. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. Government mortgage-backed securities are issued or
guaranteed as to principal and interest (but not as to market value) by the
Government National Mortgage Association, Fannie Mae (formerly the Federal
National Mortgage Association), the Federal Home Loan Mortgage Corporation or
other government-sponsored enterprises. Other mortgage-backed securities are
sponsored or issued by private entities, including investment banking firms and
mortgage originators.
Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
Prospectus as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of
these payments that investors receive, as well as the priority of their rights
to receive payments, are determined by the specific terms of the CMO class.
For example, interest-only ("IO") classes are entitled to receive all or a
portion of the interest, but none (or only a nominal amount) of the principal
payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest payments allocable to the IO class, and therefore
the yield to investors, generally will be reduced. In some instances, an
investor in an IO may fail to recoup all of his or her initial investment, even
if the security is government guaranteed or considered to be of the highest
quality. Conversely, principal-only ("PO") classes are entitled to receive all
or a portion of the principal payments, but none of the interest, from the
underlying mortgage assets. PO classes are purchased at substantial discounts
from par, and the yield to investors will be reduced if principal payments are
slower than expected. IOs, POs and other CMOs involve special risks, and
evaluating them requires special knowledge.
When interest rates decline and homeowners refinance their mortgages,
mortgage-backed bonds may be paid off more quickly than investors expect. When
interest rates rise, mortgage-backed bonds may be paid off more slowly than
originally expected. Changes in the rate or "speed" of these prepayments can
cause the value of mortgage-backed securities to fluctuate rapidly.
Other asset-backed securities are similar to mortgage-backed securities,
except that the underlying assets securing the debt are different. These
underlying assets may be nearly any type of financial asset or receivable, such
as motor vehicle installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from credit cards.
The yield characteristics of mortgage-backed and other asset-backed
securities differ from those of traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently
and that principal may be prepaid at any time because the underlying mortgage
loans or other assets generally may be prepaid at any time. Generally,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed and other asset-backed securities may also decrease in value as
a result of increases in interest rates and, because of prepayments, may benefit
less than other bonds from declining interest rates. Reinvestments of
prepayments may occur at lower interest rates than the original investment, thus
adversely affecting the Fund's yield. Actual prepayment experience may cause
the yield of a mortgage-backed security to differ from what was assumed when the
Fund purchased the security.
The market for privately issued mortgage-backed and other asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specially structured in a manner
that provides any of a wide variety of investment characteristics, such as
yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, forward currency contracts, swaps, caps, collars
and floors and the investment in indexed securities, stripped securities and
mortgage-backed and other asset-backed securities, involve special risks,
including (i) possible imperfect or no correlation between price movements of
the portfolio investments (held or intended to be purchased) involved in the
transaction and price movements of the instruments involved in the transaction,
(ii) possible lack of a liquid secondary market for any particular instrument at
a particular time, (iii) the need for additional portfolio management skills and
techniques, (iv) losses due to unanticipated market price movements, (v) the
fact that, while such strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in investments involved in the transaction, (vi)
incorrect forecasts by WRIMCO concerning interest or currency exchange rates or
direction of price fluctuations of the investment involved in the transaction,
which may result in the strategy being ineffective, (vii) loss of premiums paid
by the Fund on options it purchases, and (viii) the possible inability of the
Fund to purchase or sell a portfolio security at a time when it would otherwise
be favorable for it to do so, or the possible need for the Fund to sell a
portfolio security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate assets in connection with such transactions and
the possible inability of the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. 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. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments for hedging purposes to adjust the
risk characteristics of the Fund's portfolio of investments and may use some of
these instruments to adjust the return characteristics of the Fund's portfolio
of investments. The use of derivative techniques for speculative purposes can
increase investment risk. If WRIMCO judges market conditions incorrectly or
employs a strategy that does not correlate well with the Fund's investments,
these techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
the Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is not
a liquid secondary market to close out a position that the Fund has entered
into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest rate,
currency exchange rate or stock market trends by WRIMCO may still not result in
a successful transaction. WRIMCO may be incorrect in its expectations as to the
extent of various interest or currency exchange rate movements or stock market
movements or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transactions
costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect
the Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund sells a security on a delayed-delivery basis, the
Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, the Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
The Fund may purchase securities in which it may invest on a when-issued or
delayed-delivery basis or sell them on a delayed-delivery basis.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Policies and Restrictions: The Fund may not enter into a repurchase
agreement if, as a result, more than 10% of its net assets would consist of
illiquid investments, which include repurchase agreements not terminable within
seven days.
Restricted Securities and Illiquid Investments. Restricted securities are
securities that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Fund's Board of Directors. Illiquid investments may
be difficult to sell promptly at an acceptable price. Difficulty in selling
securities may result in a loss or may be costly to the Fund.
Policies and Restrictions: The Fund may not purchase a security if, as a
result, more than 10% of its net assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not, with
respect to 75% of its total assets, purchase securities of any one issuer (other
than cash items and "Government securities" as defined in the Investment Company
Act of 1940 (the "1940 Act")), if immediately after and as a result of such
purchase, (a) the value of the holdings of the Fund in the securities of such
issuer exceeds 5% of the value of the Fund's total assets, or (b) the Fund owns
more than 10% of the outstanding voting securities of such issuer.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow
money only from banks, as a temporary measure or for extraordinary or emergency
purposes, but only up to 5% of its total assets. The Fund may not pledge its
assets in connection with any permitted borrowings; however, this policy does
not prevent the Fund from pledging its assets in connection with its purchase
and sale of futures contracts, options, forward currency contracts, swaps, caps,
collars, floors and other financial instruments.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing the Fund's income. This practice could result in
a loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed creditworthy by WRIMCO.
Policies and Restrictions: As a fundamental policy, the Fund will not lend
more than 10% of its securities at any one time, and such loans must be on a
collateralized basis in accordance with applicable regulatory requirements.
Other Instruments may include warrants, rights and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund would
bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: As a fundamental policy, the Fund may buy
shares of other investment companies that do not redeem their shares only if it
does so in a regular transaction in the open market and only if not more than
10% of the Fund's total assets would be invested in these shares. The Fund does
not currently intend to invest more than 5% of its assets in such securities.
The Fund does not currently intend to purchase the securities of any issuer
(other than securities issued or guaranteed by domestic or foreign governments
or political subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises that,
including predecessors, have a record of less than three years of continuous
operation. This restriction does not apply to any obligations issued or
guaranteed by the U.S. Government or a state or local government authority, or
their respective agencies or instrumentalities, or to collateralized mortgage
obligations, other mortgage-related securities, asset-backed securities, indexed
securities or over-the-counter derivative financial instruments.
About Your Account
The different ways to set up (register) your account are listed below.
Ways to Set Up Your Account
- -------------------------------------------------
Individual or Joint Tenants
For your general investment needs
Individual accounts are owned by one person. Joint accounts have two or more
owners (tenants).
- -------------------------------------------------
Business or Organization
For investment needs of corporations, associations, partnerships, institutions
or other groups
- -------------------------------------------------
Retirement
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. In addition, contributions to these accounts (other
than Roth IRAs and Education IRAs) may be tax deductible.
. Individual Retirement Accounts (IRAs) allow anyone of legal age and under 70
1/2 with earned income to invest up to $2,000 per tax year. The maximum for
an investor and his or her spouse is $4,000 ($2,000 for each spouse) or, if
less, the couple's combined earned income for the taxable year.
. Rollover IRAs retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
. Roth IRAs enable an individual whose adjusted gross income (or combined
adjusted gross income, if married) does not exceed certain levels to make
non-deductible contributions up to $2,000 per year. Withdrawals of earnings
from a Roth IRA generally are not taxable if the account has been held at
least five years and the account holder has reached age 59 1/2 (or other
conditions are met).
. Education IRAs may be established for the benefit of a minor, and
contributions up to $500 per child per year may be made by any person whose
adjusted gross income does not exceed certain levels. Generally, withdrawals
used to pay the qualified higher education expenses of the beneficiary (or a
family member) are not taxable.
. Simplified Employee Pension Plans (SEP - IRAs) provide small business owners
or those with self-employed income (and their eligible employees) with many
of the same advantages as a Keogh Plan, but with fewer administrative
requirements.
. Savings Incentive Match Plans for Employees (SIMPLE Plans) can be established
by small employers to contribute to their employees' retirement accounts and
involve fewer administrative requirements than 401(k) or other qualified
plans generally.
. Keogh Plans allow self-employed individuals to make tax-deductible
contributions for themselves up to 25% of their annual earned income, with a
maximum of $30,000 per year.
. 401(k) Programs allow employees of corporations and non-governmental tax-
exempt organizations of all sizes to contribute a percentage of their wages
on a tax-deferred basis. These accounts need to be established by the
administrator or trustee of the plan.
. 403(b) Custodial Accounts are available to employees of public school systems
or certain types of charitable organizations.
. 457 Accounts allow employees of state and local governments and certain
charitable organizations to contribute a portion of their compensation on a
tax-deferred basis.
- -------------------------------------------------
Gifts or Transfers to a Minor
To invest for a child's education or other future needs
These custodial accounts provide a way to give money to a child and obtain tax
benefits. An individual can give up to $10,000 a year per child free of Federal
transfer tax consequences. Depending on state laws, you can set up a custodial
account under the Uniform Gifts to Minors Act ("UGMA") or the Uniform Transfers
to Minors Act ("UTMA").
- -------------------------------------------------
Trust
For money being invested by a trust
The trust must be established before an account can be opened, or you may use a
trust form made available by Waddell & Reed. Contact your Waddell & Reed
account representative for the form.
- -------------------------------------------------
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a Class A share (price to buy one Class A share) is
the Fund's Class A net asset value ("NAV") plus the sales charge shown in the
table below.
Sales
Sales Charge
Charge as
as Approx.
Percent Percent
of of
Size of Offering Amount
Purchase Price Invested
- -------- -------- -------
Under
$100,000 5.75% 6.10%
$100,000
to less
than
$200,000 4.75 4.99
$200,000
to less
than
$300,000 3.50 3.63
$300,000
to less
than
$500,000 2.50 2.56
$500,000
to less
than
$1,000,000 1.50 1.52
$1,000,000
to less
than
$2,000,000 1.00 1.01
$2,000,000
and over 0.00 0.00
The Fund's Class A NAV is the value of a single share. The Class A NAV is
computed by adding, with respect to that class, the value of the Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class A shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices quoted by a third-party pricing service. Short-term debt
securities are valued at amortized cost, which approximates market value. Other
investment assets are valued at their fair value by or at the direction of the
Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the NAVs of its shares as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option or futures contract held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may
trade on Saturdays or on customary U.S. national business holidays when the NYSE
is closed. Consequently, the NAV of Fund shares may be significantly affected
on days when the Fund does not price its shares and when you have no access to
the Fund.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted. Note
the following:
. Orders are accepted only at the home office of Waddell & Reed, Inc.
. All of your purchases must be made in U.S. dollars.
. If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
When you sign your account application, you will be asked to certify that
your Social Security or other taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income to
the Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Lower sales charges are available by combining additional purchases of
Class A shares of any of the funds in the United Group, to the extent otherwise
permitted, except United Municipal Bond Fund, Inc., United Cash Management,
Inc., United Government Securities Fund, Inc. and United Municipal High Income
Fund, Inc., with the NAV of Class A shares already held ("rights of
accumulation") and by grouping all purchases of Class A shares made during a
thirteen-month period ("Statement of Intention"). Class A 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.
Additional information and applicable forms are available from Waddell & Reed
account representatives.
Class A shares may be purchased at NAV by the Directors and officers of the
Fund, employees of Waddell & Reed, Inc., employees of their affiliates, account
representatives of Waddell & Reed, Inc. and the spouse, children, parents,
children's spouses and spouse's parents of each such Director, officer, employee
and account representative. Purchases of Class A shares in certain retirement
plans and certain trusts for these persons may also be made at NAV. Purchases
of Class A shares in a 401(k) plan having 100 or more eligible employees and
purchases of Class A shares in a 457 plan having 100 or more eligible employees
may be made at NAV. Shares may also be issued at NAV in a merger, acquisition
or exchange offer made pursuant to a plan of reorganization to which the Fund is
a party.
Minimum Investments
To Open an Account $500
For certain exchanges $100
For certain retirement accounts and accounts opened with Automatic Investment
Service $50
For certain retirement accounts and accounts opened through payroll deductions
for or by employees of WRIMCO, Waddell & Reed, Inc. and their affiliates $25
To Add to an Account
For certain exchanges $100
For Automatic Investment
Service $25
Adding to Your Account
Subject to the minimums described under "Minimum Investments," you can make
additional investments of any amount at any time.
To add to your account, make your check payable to Waddell & Reed, Inc.
Mail the check along with:
. the detachable form that accompanies the confirmation of a prior purchase by
you or your year-to-date statement; or
. a letter stating your account number, the account registration and that you
wish to purchase Class A shares of the Fund.
Mail to Waddell & Reed, Inc. at the address printed on your confirmation or
year-to-date statement.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares. The redemption price (price to
sell one Class A share) is the Fund's Class A NAV.
To sell shares, your request must be made in writing. Complete an Account
Service Request form, available from your Waddell & Reed account representative,
or write a letter of instruction with:
. the name on the account registration;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be redeemed; and
. any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Individual or The written instructions must
Joint Tenant be signed by all persons
required to sign for
transactions, exactly as their
names appear on the account.
Sole The written instructions must
Proprietorship be signed by the individual
owner of the business.
UGMA, UTMA The custodian must sign the
written instructions
indicating capacity as
custodian.
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
Conservator, The written instructions must
Guardian or be signed by the person
Other Fiduciary properly authorized by court
order to act in the particular
fiduciary capacity.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request for redemption in good
order by Waddell & Reed, Inc. at its home office. Note the following:
. 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.
. If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
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 the date the Fund is able to
verify that your purchase check has cleared and been honored.
. Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
. Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
. the request for redemption is made by a corporation, partnership or
fiduciary;
. the request for redemption is made by someone other than the owner of record;
or
. the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from 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. A notary public cannot provide a signature guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will give
you notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
You may reinvest without charge all or part of the amount you redeemed by
sending to the Fund the amount you want to reinvest. The reinvested amounts
must be received by the Fund within thirty days after the date of your
redemption. You may do this only once as to Class A shares of the Fund.
Under the terms of the 401(k) prototype 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 Class A shares of any of the funds
in the United Group in which the plan may invest.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, one toll-free call, 1-800-366-5465, connects
you to a Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Services staff is
available to respond to your inquiries or update your account records. At
almost any time of the day or night, you may access TeleWaddell from a touch-
tone phone to:
. Obtain information about your accounts;
. Obtain price information about other funds in the United Group; or
. Request duplicate statements.
Reports
Statements and reports sent to you include the following:
. confirmation statements (after every purchase, other than those purchases
made through Automatic Investment Service, and after every exchange, transfer
or redemption)
. year-to-date statements (quarterly)
. annual and semiannual reports (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Fund. Call the telephone number listed above for Customer Service if
you need copies of annual or semiannual reports or historical account
information.
Exchanges
You may sell your Class A shares and buy Class A shares of other funds in
the United Group. You may exchange only into funds that are legally registered
for sale in your state of residence. Note that exchanges out of the Fund may
have tax consequences for you. Before exchanging into a fund, read its
prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Automatic Transactions
Flexible withdrawal service lets you set up ongoing monthly, quarterly,
semiannual or annual redemptions from your account.
Regular investment plans allow you to transfer money into your Fund account
automatically. While regular investment plans do not guarantee a profit and
will not protect you against loss in a declining market, they can be an
excellent way to invest for retirement, a home, educational expenses and other
long-term financial goals.
Certain restrictions and fees imposed by the plan custodian may also apply
for retirement accounts. Speak with your Waddell & Reed account representative
for more information.
Regular Investment Plans
Automatic Investment Service
To move money from your bank account to an existing Fund account
Minimum Frequency
$25 Monthly
Funds Plus Service
To move money from United Cash Management, Inc. to the Fund whether in the same
or a different account
Minimum Frequency
$100 Monthly
Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year. Ordinarily, dividends are
distributed from the Fund's net investment income, which includes accrued
interest, earned OID, dividends and other income earned on portfolio assets less
expenses, quarterly in March, June, September and December. Net capital gains
(and any net gains from foreign currency transactions) ordinarily are
distributed in December. The Fund may make additional distributions if
necessary to avoid Federal income or excise taxes on certain undistributed
income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers three
options:
1. Share Payment Option. Your dividend, capital gains and other distributions
will be automatically paid in additional Class A shares of the Fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains and other distributions will be
automatically paid in additional Class A shares, but you will be sent a
check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividend, capital gains and
other distributions.
For retirement accounts, all distributions are automatically paid in
additional Class A shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Internal Revenue Code of 1986, as
amended, 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 (the excess of net long-term capital gains
over net short-term capital losses) that it distributes to its shareholders.
There are certain tax requirements that the Fund must satisfy in order to
avoid Federal taxation. In its effort to adhere to these requirements, the Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account (or you
are not otherwise exempt from income tax), you should be aware of the following
tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income generally are taxable to you as ordinary income whether received
in cash or paid in additional Fund shares. Distributions of the Fund's net
capital gains, when designated as such, are taxable to you as long-term capital
gains, whether received in cash or paid in additional Fund shares and regardless
of the length of time you have owned your shares. As a result of recent Federal
tax legislation, your long-term capital gains (if you are a noncorporate Fund
shareholder) generally are taxed at a maximum rate of 20%.
The Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that year.
Under certain circumstances, the Fund may elect to permit shareholders to take a
credit or deduction for foreign income taxes paid by the Fund. The Fund will
notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or
paid in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by 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 Federal alternative
minimum tax.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate from dividends
and capital gains distributions also is required for such shareholders who
otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than 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 ninety 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. See "About Your Account." In these cases, any
gain on the disposition of the original Fund shares would be increased, or loss
decreased, by the amount of the sales charge you paid when those shares were
acquired, and that amount will increase the adjusted basis of the shares
subsequently acquired. In addition, if you purchase Fund shares within thirty
days before or after redeeming other Fund shares (regardless of class) at a
loss, part or all of that loss will not be deductible and will increase the
basis of the newly purchased shares.
State and local income taxes. The portion of the dividends paid by the
Fund attributable to interest earned on its U.S. Government Securities generally
is not subject to state and local income taxes, although distributions by the
Fund to its shareholders of net realized gains on the disposition of those
securities are fully subject to those taxes. You should consult your tax
adviser to determine the taxability of dividends and other distributions by the
Fund in your state and locality.
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 more detailed 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.
<PAGE>
About the Management and Expenses of the Fund
United Retirement Shares, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Fund is an open-end, diversified management investment company organized as
a corporation under Maryland law on May 8, 1989, as successor to a Delaware
corporation which commenced operations on December 3, 1971.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class A shares,
which are offered by this Prospectus, the Fund has issued and outstanding Class
Y shares which are offered by Waddell & Reed, Inc. through a separate
prospectus. Class Y shares are designed for institutional investors or others
investing through certain intermediaries. Class Y shares are not subject to a
sales charge on purchases and are not subject to redemption fees. Class Y
shares are not subject to a Rule 12b-1 fee. Additional information about Class
Y shares may be obtained by calling or writing to Waddell & Reed, Inc. at the
telephone number or address on the inside back cover of this Prospectus.
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 a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the 1940 Act
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate vote of
any class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board
of Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors have served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, whichever was later, and to Target/United Funds,
Inc. since that fund's inception, until January 8, 1992, when it assigned its
duties as investment manager and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992 and United
Asset Strategy Fund, Inc. since it commenced operations in March 1995.
Cynthia P. Prince-Fox is primarily responsible for the day-to-day
management of the portfolio of the Fund. Ms. Prince-Fox has held her Fund
responsibilities since January 1995. She is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. From January 1993 to March 1998, Ms.
Prince-Fox was Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. Ms. Prince-Fox has served as the portfolio manager for
investment companies managed by WRIMCO since January 1993 and prior to that was
an investment analyst with Waddell & Reed, Inc. and its successor, WRIMCO, since
February 1983. Other members of WRIMCO's investment management department
provide input on market outlook, economic conditions, investment research and
other considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell &
Reed Funds, Inc. and acts as the principal underwriter and distributor of the
variable life insurance and variable annuity policies issued by United Investors
Life Insurance Company for which Target/United Funds, Inc. is the underlying
investment vehicle.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends. 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 its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
Waddell & Reed Financial, Inc., a holding company, and Torchmark Corporation, a
holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of Fund shares as a factor in the selection of brokers to
execute portfolio transactions, subject to best execution. For further
information concerning Fund portfolio transactions, please see "Portfolio
Transactions and Brokerage" in the SAI.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .15 of 1% of its net assets. The
group fee is a pro rata participation based on the relative net asset size of
the Fund in the group fee computed each day on the combined net asset values of
all the funds in the United Group at the annual rates shown in the following
table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $19.9 billion as of June 30, 1998. Management fees for the fiscal
year ended June 30, 1998 were 0.54% of the Fund's average net assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class A shares, the Fund pays the Shareholder Servicing Agent a monthly fee for
each Class A shareholder account that was in existence at any time during the
month, and a fee for each account on which a dividend or distribution had a
record date during the month.
The Fund has adopted a Distribution and Service Plan (the "Plan") pursuant
to Rule 12b-1 of the 1940 Act with respect to its Class A shares. Under the
Plan, the Fund may pay monthly a fee to Waddell & Reed, Inc. in an amount not to
exceed 0.25% of the Fund's average annual net assets of its Class A shares. The
fee is to be paid to reimburse Waddell & Reed, Inc. for amounts it expends in
connection with the distribution of the Class A shares and/or provision of
service to Class A shareholders and maintenance of Class A shareholder
accounts.
There are two parts to this fee: all or a portion of the fee may be paid
to Waddell & Reed, Inc. for distribution services and distribution expenses,
including commissions paid by Waddell & Reed, Inc. to its account
representatives, account managers and/or other broker-dealers (the "distribution
fee") with respect to the Fund's Class A shares; and all or a portion of the fee
may be paid to Waddell & Reed, Inc. for the provision by Waddell & Reed, Inc.,
Waddell & Reed Services Company and/or other third parties (including broker-
<PAGE>
dealers who may sell Class A shares) of personal services to Class A
shareholders and other services to maintain Class A shareholder accounts (the
"service fee"). However, the total amount of the distribution fee and service
fee paid by the Fund pursuant to the Plan will not exceed, on an annual basis,
0.25% of the average annual net assets of the Fund's Class A shares.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, 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 extraordinary expenses including
litigation and indemnification relative to litigation.
The Fund cannot precisely predict what its portfolio turnover rate will be,
but the Fund may have a high portfolio turnover. A higher turnover will
increase transaction and commission costs and could generate taxable income or
loss.
<PAGE>
United Retirement Shares, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Retirement Shares, Inc.
Class A Shares
PROSPECTUS
September 30, 1998
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1007(9-98)
printed on recycled paper
<PAGE>
Please read this Prospectus before investing, and keep it on file for future
reference. It sets forth concisely the information about the Fund that you
ought to know before investing.
Additional information has been filed with the Securities and Exchange
Commission and is contained in a Statement of Additional Information ("SAI")
dated September 30, 1998. The SAI is available free upon request to the Fund or
to Waddell & Reed, Inc., the Fund's underwriter, at the address or telephone
number stated 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.
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.
United Retirement Shares, Inc.
Class Y Shares
This Fund seeks to provide the highest long-term total investment return as is,
in the opinion of the Fund's investment manager, consistent with reasonable
safety of capital. The Fund will attempt to achieve its goal through a fully
managed investment policy.
This Prospectus describes one class of shares of the Fund -- Class Y Shares.
Prospectus
September 30, 1998
UNITED RETIREMENT SHARES, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
913-236-2000
800-366-5465
<PAGE>
Table of Contents
AN OVERVIEW OF THE FUND........................................40
EXPENSES........................................................4
FINANCIAL HIGHLIGHTS............................................5
PERFORMANCE.....................................................6
Explanation of Terms ..........................................6
ABOUT WADDELL & REED............................................7
ABOUT THE INVESTMENT PRINCIPLES OF THE FUND.....................8
Investment Goal and Principles ................................8
Risk Considerations ..........................................8
Securities and Investment Practices ...........................8
ABOUT YOUR ACCOUNT.............................................23
Buying Shares ................................................23
Minimum Investments ..........................................25
Adding to Your Account .......................................25
Selling Shares ...............................................25
Telephone Transactions .......................................27
Shareholder Services .........................................27
Personal Service ............................................28
Reports .....................................................28
Exchanges ...................................................28
Distributions and Taxes ......................................28
Distributions ...............................................28
Taxes .......................................................29
ABOUT THE MANAGEMENT AND EXPENSES OF THE FUND..................31
WRIMCO and Its Affiliates ....................................32
Breakdown of Expenses ........................................33
Management Fee ..............................................33
Other Expenses ..............................................33
<PAGE>
An Overview of the Fund
The Fund: This Prospectus describes the Class Y shares of United Retirement
Shares, Inc., an open-end, diversified management investment company.
Goal and Strategies: United Retirement Shares, Inc. (the "Fund") seeks to
provide the highest long-term total investment return as is, in the opinion of
the Fund's investment manager, consistent with reasonable safety of capital.
The Fund seeks to achieve this goal through a fully managed investment policy.
The Fund invests primarily in common stock, preferred stock or debt securities.
See "About the Investment Principles of the Fund" for further information.
Management: Waddell & Reed Investment Management Company ("WRIMCO") provides
investment advice to the Fund and manages the Fund's investments. WRIMCO is a
wholly owned subsidiary of Waddell & Reed, Inc. WRIMCO, Waddell & Reed, Inc.
and its predecessors have provided investment management services to registered
investment companies since 1940. See "About the Management and Expenses of the
Fund" for further information about management fees.
Distributor: Waddell & Reed, Inc. acts as principal underwriter and distributor
of the shares of the Fund.
Purchases: You may buy Class Y shares of the Fund through Waddell & Reed, Inc.
and its account representatives or through other authorized third parties. The
price to buy a Class Y share of the Fund is the net asset value of a Class Y
share. There is no sales charge incurred upon purchase of Class Y shares of the
Fund. See "About Your Account" for information on how to purchase Class Y
shares.
Redemptions: You may redeem your shares at net asset value. When you sell your
shares, they may be worth more or less than what you paid for them. See "About
Your Account" for a description of redemption procedures.
Who May Want to Invest: The Fund is designed for investors seeking a high total
return with reasonable safety of principal through a diversified portfolio that
may include stocks, bonds and other securities. You should consider whether the
Fund fits your particular investment objectives.
Risk Considerations: Because the Fund owns different types of investments, its
performance will be affected by a variety of factors. The value of the Fund's
investments and the income generated will vary from day to day, generally
reflecting changes in interest rates, market conditions and other company and
economic news. Performance will also depend on WRIMCO's skill in selecting
investments. See "About the Investment Principles of the Fund" for information
about the risks associated with the Fund's investments.
<PAGE>
Expenses
Shareholder transaction expenses are charges you pay when you buy or sell shares
of a fund.
Maximum sales load
on purchases None
Maximum sales load
on reinvested
dividends None
Deferred
sales load None
Redemption fees None
Exchange fee None
Annual Fund operating
expenses (as a percentage of average net assets).
Management fees 0.54%
12b-1 fees None
Other expenses 0.24%
Total Fund operating
expenses 0.78%
Example: You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return3 and (2) redemption at the end of each time period:
1 year $ 8
3 years $25
5 years $43
10 years $97
The purpose of this table is to assist you in understanding the various costs
and expenses that a shareholder of the Class Y shares of 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. For a more complete discussion of certain expenses and fees, see
"Breakdown of Expenses."
3Use of an assumed annual return of 5% is for illustration purposes only and is
not a representation of the Fund's future performance, which may be greater or
lesser.
<PAGE>
Financial Highlights
The following information has been audited in conjunction with the audits
of the Financial Statements of the fund. Financial Statements for the fiscal
year ended June 30, 1998 and the Independent Auditors' Report of Deloitte &
Touche LLP thereon are included in the SAI and should be read in conjunction
with the Financial Highlights.
For a Class Y share outstanding throughout each period:
For the
For the fiscal year period
ended June 30, from 2/27/96*
----------------------- through
1998 1997 6/30/96
-------- -------- --------
Net asset value,
beginning of period $9.14 $8.72 $8.68
----- ----- -----
Income from investment
operations:
Net investment
income .......... .25 .29 .10
Net realized and
unrealized gain
on investments .. .99 1.07 .06
----- ----- -----
Total from investment
operations ........ 1.24 1.36 .16
----- ----- -----
Less distributions:
From net investment
income........... (0.26) (.28) (.12)
From capital gains (0.84) (.66) (.00)
----- ----- -----
Total distributions. (1.10) (.94) (.12)
----- ----- -----
Net asset value,
end of period .... $9.28 $9.14 $8.72
===== ===== =====
Total return ....... 14.62% 16.87% 1.91%
Net assets, end of
period (in
millions) ........ $3 $3 $2
Ratio of expenses
to average net
assets ............ 0.79% 0.78% 0.71%**
Ratio of net
investment income
to average net
assets ............ 2.71% 3.28% 3.36%**
Portfolio
turnover rate ..... 53.52% 39.55% 42.05%**
Average commission
rate paid ........ $0.0628 $0.0580
*Commencement of operations.
**Annualized.
<PAGE>
Performance
Mutual fund performance is commonly measured as total return. The Fund may
also advertise its performance by showing performance rankings. Performance
information is calculated and presented separately for each class of Fund
shares.
Explanation of Terms
Total Return is the overall change in value of an investment in the Fund
over a given period, assuming reinvestment of any dividends and other
distributions. A cumulative total return reflects actual performance over a
stated period of time. An average annual total return is a hypothetical rate of
return that, if achieved annually, would have produced the same cumulative total
return if performance had been constant over the entire period. Average annual
total returns smooth out variations in performance; they are not the same as
actual year-by-year results. Non-standardized total return may be for periods
other than those required to be presented or may otherwise differ from
standardized total return.
Performance Rankings are comparisons of the Fund's performance to the
performance of other selected mutual funds, selected recognized market
indicators such as the Standard & Poor's 500 Composite Stock Price Index and the
Dow Jones Industrial Average, or non-market indices or averages of mutual fund
industry groups. The Fund may quote its performance rankings and/or other
information as published by recognized independent mutual fund statistical
services or by publications of general interest. In connection with a ranking,
the Fund may provide additional information, such as the particular category to
which it relates, the number of funds in the category, the criteria upon which
the ranking is based, and the effect of sales charges, fee waivers and/or
expense reimbursements.
All performance information that 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.
The Fund's recent performance and holdings will be detailed twice a year in
the annual and semiannual reports, which are sent to all Fund shareholders.
<PAGE>
About Waddell & Reed
Since 1937, Waddell & Reed has been helping people make the most of their
financial future by helping them take advantage of various financial services.
Today, Waddell & Reed has over 2500 account representatives located throughout
the United States. Your primary contact in your dealings with Waddell & Reed
will be your local account representative. However, the Waddell & Reed
shareholder services department, which is part of the Waddell & Reed
headquarters operations in Overland Park, Kansas is available to assist you and
your Waddell & Reed account representative. You may speak with a Customer
Service Representative by calling the telephone number listed on the inside back
cover of this Prospectus.
<PAGE>
About the Investment Principles of the Fund
Investment Goal and Principles
The goal of the Fund is to achieve the highest long-term total investment
return as is, in the opinion of WRIMCO, 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 Fund seeks to achieve this goal through a
fully managed investment policy in which it may invest substantially all of its
assets in equity securities, preferred stock, debt securities or convertible
securities, or may invest varying proportions of its assets in these types of
securities, depending on WRIMCO's analysis of what types of securities, or what
proportions, are most likely to achieve the Fund's goal. There is no assurance
that the Fund will achieve its goal. When deemed advisable by WRIMCO, as a
temporary measure, the Fund may make defensive investments in either cash or
money market instruments with respect to up to all of its assets.
Since the Fund's goal is long-term total investment return, WRIMCO will not
attempt to make quick shifts between the type 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.
Risk Considerations
There are risks inherent in any investment. The Fund is subject to varying
degrees of market risk, financial risk and, in some cases, prepayment risk.
Market risk is the potential for fluctuations in the price of the security
because of market factors. Because of market risk, you should anticipate that
the share price of the Fund will fluctuate. Financial risk is based on the
financial situation of the issuer. The financial risk of the Fund depends on
the credit quality of the underlying securities. Prepayment risk is the
possibility that, during periods of falling interest rates, a debt security with
a high stated interest rate will be prepaid prior to its expected maturity date.
The Fund may also invest in certain derivative instruments, including
options, futures contracts, options on futures contracts, forward currency
contracts, swaps, caps, collars, floors, indexed securities, stripped securities
and mortgage-backed and other asset-backed securities. The use of derivative
instruments involves special risks. See "Risks of Derivative Instruments" for
further information on the risks of investing in these instruments.
Securities and Investment Practices
The following pages contain more detailed information about types of
instruments in which the Fund may invest, and strategies WRIMCO may employ in
pursuit of the Fund's goal. A summary of risks associated with these instrument
types and investment practices is included as well.
WRIMCO might not buy all of these instruments or use all of these
techniques to the full extent permitted by the Fund's investment policies and
restrictions unless it believes that doing so will help the Fund achieve its
goal.
Certain of the investment policies and restrictions of the Fund are also
stated below. A fundamental policy may not be changed without the approval of
the shareholders of the Fund. Operating policies may be changed by the Board of
Directors without the approval of the affected shareholders. The goal of the
Fund and the types of securities in which the Fund may invest are fundamental
policies. Unless otherwise indicated, the types of other assets in which the
Fund may invest and other policies are operating policies.
Policies and limitations are typically considered at the time of purchase;
the sale of instruments is usually not required in the event of a subsequent
change in circumstances.
Please see the SAI for further information concerning the following
instruments and associated risks and the Fund's investment policies and
restrictions.
Equity Securities. Equity securities represent an ownership interest in an
issuer. This ownership interest often gives an investor the right to vote on
measures affecting the issuer's organization and operations. Although common
stocks and other equity securities have a history of long-term growth in value,
their prices tend to fluctuate in the short term, particularly those of smaller
companies. The equity securities in which the Fund invests may include
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. Bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. The debt securities in which
the Fund invests may include debt securities whose performance is linked to a
specified equity security or securities index.
Debt securities have varying levels of sensitivity to changes in interest
rates and varying degrees of quality. As a general matter, however, when
interest rates rise, the values of fixed-rate debt securities fall and,
conversely, when interest rates fall, the values of fixed-rate debt securities
rise. The values of floating and adjustable-rate debt securities are not as
sensitive to changes in interest rates as the values of fixed-rate debt
securities. Longer-term bonds are generally more sensitive to interest rate
changes than shorter-term bonds.
U.S. Government securities are high-quality instruments issued or
guaranteed as to principal or interest by the U.S. Treasury or by an agency or
instrumentality of the U.S. Government ("U.S. Government Securities"). Not all
U.S. Government Securities are backed by the full faith and credit of the United
States. Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others are backed by discretionary authority of the U.S. Government to
purchase the agencies' obligations; while others are supported only by the
credit of the instrumentality. In the case of securities not backed by the full
faith and credit of the United States, the investor must look principally to the
agency issuing or guaranteeing the obligation for ultimate repayment.
The Fund may invest in zero coupon securities that are "stripped" U.S.
Treasury notes and bonds, zero coupon bonds of corporate issuers and other
securities that are issued with original issue discount ("OID"). Zero coupon
securities are debt obligations that do not entitle the holder to any periodic
payment of interest prior to maturity or that specify a future date when the
securities begin to pay current interest; instead, they are sold at a deep
discount from their face value and are redeemed at face value when they mature.
Because zero coupon securities do not pay current income, their prices can be
very volatile when interest rates change and generally are subject to greater
fluctuations in response to changing interest rates than the prices of debt
obligations of comparable maturities that make current distributions of interest
in cash.
The Federal tax law requires that a holder of a security with OID accrue
a ratable portion of the OID on the security as income each year, even though
the holder may receive no interest payment on the security during the year.
Accordingly, although the Fund will receive no payments on its zero coupon
securities prior to their maturity or disposition, it will have current income
attributable to those securities. Nevertheless, for Federal income and excise
tax purposes the Fund annually must distribute to its shareholders substantially
all of its net investment income, including OID. Accordingly, the Fund will be
required to include in its dividends an amount equal to the income attributable
to its zero coupon and other OID securities. See "Taxes" in the SAI. Those
dividends will be paid from the Fund's cash assets or by liquidation of
portfolio securities, if necessary, at a time when the Fund otherwise might not
have done so.
Lower-quality debt securities (commonly called "junk bonds") are considered
to be speculative and involve greater risk of default or price changes due to
changes in the issuer's creditworthiness. The market prices of these securities
may fluctuate more than high-quality securities and may decline significantly in
periods of general economic difficulty. While the market for high-yield, high-
risk corporate debt securities has been in existence for many years and has
weathered previous economic downturns, the 1980s brought a dramatic increase in
the use of such securities to fund highly leveraged corporate acquisitions and
restructurings. Past experience may not provide an accurate indication of the
future performance of the high-yield, high-risk bond market, especially during
periods of economic recession. The market for lower-rated debt securities may
be thinner and less active than that for higher-rated debt securities, which can
adversely affect the prices at which the former are sold. Adverse publicity and
changing investor perceptions may decrease the values and liquidity of lower-
rated debt securities, especially in a thinly traded market. Valuation becomes
more difficult and judgment plays a greater role in valuing lower-rated debt
securities than with respect to securities for which more external sources of
quotations and last sale information are available. Since the risk of default
is higher for lower-rated debt securities, WRIMCO's research and credit analysis
are an especially important part of managing securities of this type held by the
Fund. WRIMCO continuously monitors the issuers of lower-rated debt securities
in the Fund's portfolio in an attempt to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments. The Fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security holder to
seek to protect the interests of security holders if it determines this to be in
the best interest of the Fund's shareholders.
Subject to its investment restrictions, the Fund may invest in debt
securities rated in any rating category of the established rating services,
including securities rated in the lowest rating category (such as those rated D
by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
C by Moody's Investors Service, Inc. ("MIS")). In addition, the Fund will treat
unrated securities judged by WRIMCO to be of equivalent quality to a rated
security to be equivalent to securities having that rating. Debt securities
rated at least BBB by S&P or Baa by MIS are considered to be investment grade
debt securities. Securities rated BBB or Baa may have speculative
characteristics. Debt securities rated D by S&P or C by MIS are in payment
default or are regarded as having extremely poor prospects of ever attaining any
real investment standing.
While credit ratings are only one factor WRIMCO relies on in evaluating
high-yield, high-risk debt securities, certain risks are associated with credit
ratings. Credit ratings evaluate the safety of principal and interest payments,
not market value risk. Credit ratings for individual securities may change from
time to time, and the Fund may retain a portfolio security whose rating has been
changed. S&P and MIS ratings are described in Appendix A to the SAI.
Preferred Stock. The Fund may invest in preferred stock rated in any
rating category by an established rating service and unrated preferred stock
judged by WRIMCO to be of equivalent quality.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest paid or accrued on debt or the
dividend paid on preferred stock until the convertible security matures or is
redeemed, converted or exchanged. Convertible securities generally have higher
yields than common stocks of the same or similar issuers, but lower yields than
comparable nonconvertible securities, are less subject to fluctuation in value
than the underlying stock because they have fixed income characteristics, and
provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is influenced by changes in interest
rates, with investment value declining as interest rates increase and increasing
as interest rates decline. The credit standing of the issuer and other factors
also may have an effect on the convertible security's investment value.
Policies and Restrictions: The Fund does not intend to invest more than
10% of its total assets in debt securities rated lower than BBB by S&P or Baa by
MIS.
Foreign Securities and foreign currencies can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies, and of dividends and interest
from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the
costs of foreign investing, including withholding taxes, brokerage commissions
and custodial costs, are generally higher than for U.S. investments.
Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers and securities markets may be subject to less
governmental supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal
rights in foreign countries.
Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility
of default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic or social instability, military action or unrest, or adverse diplomatic
developments. There is no assurance that WRIMCO will be able to anticipate
these potential events or counter their effects.
Certain foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to transfer
restrictions may be marketable abroad, they may be less liquid than foreign
securities of the same class that are not subject to such restrictions.
Policies and Restrictions: The Fund may purchase securities of foreign
issuers only if not more than 10% of the Fund's total assets are invested in
foreign securities.
Options, Futures and Other Strategies. The Fund may use certain options,
futures contracts, forward currency contracts, indexed securities, swaps, caps,
collars, floors, mortgage-backed and other asset-backed securities and certain
other strategies described herein to attempt to enhance income or yield or to
attempt to reduce the risk of its investments. The strategies described below
may be used in an attempt to manage the Fund's foreign currency exposure as well
as other risks of the Fund's investments that can affect fluctuation in its net
asset value. The Fund may also use various techniques to increase or decrease
its exposure to changing security prices, interest rates, currency exchange
rates, commodity prices or other factors that affect security values.
The Fund's ability to use these strategies may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not use
any of these strategies, and there can be no assurance that any strategy that is
used will succeed. The risks associated with such strategies are described
below. Also see the SAI for more information on these instruments and
strategies and their risk considerations.
Policies and Restrictions: Subject to the further limitations stated in
the SAI, generally, the Fund may purchase and sell any type of derivative
instrument including, without limitation, futures contracts, options, forward
currency contracts, swaps, caps, collars, floors and indexed securities.
However, the Fund will only purchase or sell a particular derivative instrument
if the Fund is authorized to invest in the type of asset by which the return on,
or value of, the derivative instrument is primarily measured. Since the Fund is
authorized to invest in foreign securities, it may purchase and sell currency
derivatives.
Options. The Fund may engage in certain strategies involving options to
attempt to enhance its income or yield or to attempt to reduce the overall risk
of its investments. A call option gives the purchaser the right to buy, and
obligates the writer to sell, the underlying investment at the agreed-upon
exercise price during the option period. A put option gives the purchaser the
right to sell, and obligates the writer to buy, the underlying investment at the
agreed-upon exercise price during the option period. Purchasers of options pay
an amount, known as a premium, to the option writer in exchange for the right
under the option contract.
Options offer large amounts of leverage, which will result in 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 that are not listed on an
exchange may be less active than the market for exchange-listed options. The
Fund will be able to close a position in an option it has written only if there
is a market for the offsetting put or call. If the Fund is not able to enter
into an offsetting closing transaction on an option it has written, it will be
required to maintain the securities, or cash in the case of an option on an
index, subject to the call or the collateral underlying the put until a closing
purchase transaction can be entered into or the option expires. Because index
options are settled in cash, the Fund cannot provide in advance for its
potential settlement obligations on a call it has written on an 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.
Futures Contracts and Options on Futures Contracts. 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.
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
writes a call, it assumes a short futures position. If it writes a put, it
assumes a long futures position. 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 the futures contract (a long position if the option is a call and a
short position if the option is a put).
Forward Currency Contracts and Foreign Currencies. The Fund may enter into
forward currency contracts for the purchase or sale of a specified currency at a
specified future date either with respect to specific transactions or with
respect to portfolio positions in order to minimize the risk to the Fund from
adverse changes in the relationship between the U.S. dollar and a foreign
currency. For example, when WRIMCO anticipates purchasing or selling a security
denominated in a foreign currency, the Fund may enter into a forward currency
contract in order to set the exchange rate at which the transaction will be
made. The Fund also may enter into a forward currency contract to sell an
amount of a foreign currency approximating the value of some or all of the
Fund's securities positions denominated in such currency. The Fund may also use
forward currency contracts in one currency or a basket of currencies to attempt
to hedge against fluctuations in the value of securities denominated in a
different currency if WRIMCO anticipates that there will be a correlation
between the two currencies.
The Fund may also use forward currency contracts to shift the Fund's
exposure to foreign currency exchange rate changes from one foreign currency to
another. For example, if the Fund owns securities denominated in a foreign
currency and WRIMCO believes that currency will decline relative to another
currency, it might enter into a forward currency contract to sell the
appropriate amount of the first foreign currency with payment to be made in the
second foreign currency. Transactions that use two foreign currencies are
sometimes referred to as "cross hedging." Use of a different foreign currency
magnifies the Fund's exposure to foreign currency exchange rate fluctuations.
The Fund may also purchase forward currency contracts to enhance income when
WRIMCO anticipates that the foreign currency will appreciate in value, but
securities denominated in that currency do not present attractive investment
opportunities.
Successful use of forward currency contracts depends on WRIMCO's skill in
analyzing and predicting currency values. Forward currency contracts may
substantially change the Fund's investment exposure to changes in currency
exchange rates and could result in losses to the Fund if currencies do not
perform as WRIMCO anticipates. There is no assurance that WRIMCO's use of
forward currency contracts will be advantageous to the Fund or that it will
hedge at an appropriate time.
The Fund may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
Indexed Securities are securities the value of which varies in relation to
the value of other securities, securities indices, currencies, precious metals
or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. The performance of indexed securities depends to a great extent on
the performance of the security, currency, or other instrument to which they are
indexed and may also be influenced by interest rate changes in the United States
and abroad. At the same time, indexed securities are subject to the credit
risks associated with the issuer of the security, and their values may decline
substantially if the issuer's creditworthiness deteriorates. Indexed securities
may be more volatile than the underlying instruments.
Swaps, Caps, Collars and Floors. The Fund may enter into swaps, caps,
collars and floors as described below. The Fund may enter into these
transactions to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date or to attempt to
enhance income or yield.
Swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of a cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
value, to receive payments on a notional principal amount from the party selling
such cap. The purchase of a floor entitles the purchaser, to the extent that a
specified index falls below a predetermined value, to receive payments on a
notional principal amount from the party selling such floor. A collar combines
elements of buying a cap and selling a floor.
Depending on how they are used, the swap, cap, collar and floor agreements
used by the Fund may also increase or decrease the overall volatility of its
investments and its share price and yield. The most significant factor in the
performance of these agreements is the change in the specific interest rate,
currency, or other factors that determine the amounts of payments due to and
from the Fund.
The Fund usually will enter into swaps on a net basis, i.e., the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. If, however, an agreement
calls for payments by the Fund, the Fund must be prepared to make such payments
when due. The creditworthiness of firms with which the Fund enters into swaps,
caps, collars or floors will be monitored by WRIMCO in accordance with
procedures adopted by the Board of Directors. If a firm's creditworthiness
declines, the value of an agreement would be likely to decline, potentially
resulting in losses. If a default occurs by the other party to such
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction.
The Fund understands that the position of the staff of the Securities and
Exchange Commission is that assets involved in such transactions are illiquid
and are, therefore, subject to the limitations on investment in illiquid
investments as described in the SAI.
Mortgage-Backed and Other Asset-Backed Securities are bonds backed by
specific types of assets. Mortgage-backed securities represent direct or
indirect interests in pools of underlying mortgage loans that are secured by
real property. U.S. Government mortgage-backed securities are issued or
guaranteed as to principal and interest (but not as to market value) by the
Government National Mortgage Association, Fannie Mae (formerly the Federal
National Mortgage Association), the Federal Home Loan Mortgage Corporation or
other government-sponsored enterprises. Other mortgage-backed securities are
sponsored or issued by private entities, including investment banking firms and
mortgage originators.
Mortgage-backed securities may be composed of one or more classes and may
be structured either as pass-through securities or collateralized debt
obligations. Multiple-class mortgage-backed securities are referred to in this
Prospectus as "CMOs." Some CMOs are directly supported by other CMOs, which in
turn are supported by mortgage pools. Investors typically receive payments out
of the interest and principal on the underlying mortgages. The portions of
these payments that investors receive, as well as the priority of their rights
to receive payments, are determined by the specific terms of the CMO class.
For example, interest-only ("IO") classes are entitled to receive all or a
portion of the interest, but none (or only a nominal amount) of the principal
payments, from the underlying mortgage assets. If the mortgage assets
underlying an IO experience greater than anticipated principal prepayments, then
the total amount of interest payments allocable to the IO class, and therefore
the yield to investors, generally will be reduced. In some instances, an
investor in an IO may fail to recoup all of his or her initial investment, even
if the security is government guaranteed or considered to be of the highest
quality. Conversely, principal-only ("PO") classes are entitled to receive all
or a portion of the principal payments, but none of the interest, from the
underlying mortgage assets. PO classes are purchased at substantial discounts
from par, and the yield to investors will be reduced if principal payments are
slower than expected. IOs, POs and other CMOs involve special risks, and
evaluating them requires special knowledge.
When interest rates decline and homeowners refinance their mortgages,
mortgage-backed bonds may be paid off more quickly than investors expect. When
interest rates rise, mortgage-backed bonds may be paid off more slowly than
originally expected. Changes in the rate or "speed" of these prepayments can
cause the value of mortgage-backed securities to fluctuate rapidly.
Other asset-backed securities are similar to mortgage-backed securities,
except that the underlying assets securing the debt are different. These
underlying assets may be nearly any type of financial asset or receivable, such
as motor vehicle installment sales contracts, home equity loans, leases of
various types of real and personal property and receivables from credit cards.
The yield characteristics of mortgage-backed and other asset-backed
securities differ from those of traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently
and that principal may be prepaid at any time because the underlying mortgage
loans or other assets generally may be prepaid at any time. Generally,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Mortgage-backed and other asset-backed securities may also decrease in value as
a result of increases in interest rates and, because of prepayments, may benefit
less than other bonds from declining interest rates. Reinvestments of
prepayments may occur at lower interest rates than the original investment, thus
adversely affecting the Fund's yield. Actual prepayment experience may cause
the yield of a mortgage-backed security to differ from what was assumed when the
Fund purchased the security.
The market for privately issued mortgage-backed and other asset-backed
securities is smaller and less liquid than the market for U.S. Government
mortgage-backed securities. CMO classes may be specially structured in a manner
that provides any of a wide variety of investment characteristics, such as
yield, effective maturity and interest rate sensitivity. As market conditions
change, however, and especially during periods of rapid or unanticipated changes
in market interest rates, the attractiveness of some CMO classes and the ability
of the structure to provide the anticipated investment characteristics may be
significantly reduced. These changes can result in volatility in the market
value, and in some instances reduced liquidity, of the CMO class.
Risks of Derivative Instruments. The use of options, futures contracts,
options on futures contracts, forward currency contracts, swaps, caps, collars
and floors and the investment in indexed securities, stripped securities and
mortgage-backed and other asset-backed securities, involve special risks,
including (i) possible imperfect or no correlation between price movements of
the portfolio investments (held or intended to be purchased) involved in the
transaction and price movements of the instruments involved in the transaction,
(ii) possible lack of a liquid secondary market for any particular instrument at
a particular time, (iii) the need for additional portfolio management skills and
techniques, (iv) losses due to unanticipated market price movements, (v) the
fact that, while such strategies can reduce the risk of loss, they can also
reduce the opportunity for gain, or even result in losses, by offsetting
favorable price movements in investments involved in the transaction, (vi)
incorrect forecasts by WRIMCO concerning interest or currency exchange rates or
direction of price fluctuations of the investment involved in the transaction,
which may result in the strategy being ineffective, (vii) loss of premiums paid
by the Fund on options it purchases, and (viii) the possible inability of the
Fund to purchase or sell a portfolio security at a time when it would otherwise
be favorable for it to do so, or the possible need for the Fund to sell a
portfolio security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate assets in connection with such transactions and
the possible inability of the Fund to close out or liquidate its position.
For a hedging strategy to be completely effective, the price change of the
hedging instrument must equal the price change of the investment being hedged.
The risk of imperfect correlation of these price changes increases as the
composition of the Fund's portfolio diverges from instruments underlying a
hedging instrument. 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. WRIMCO will attempt to create a closely correlated hedge
but hedging activity may not be completely successful in eliminating market
value fluctuation.
WRIMCO may use derivative instruments for hedging purposes to adjust the
risk characteristics of the Fund's portfolio of investments and may use some of
these instruments to adjust the return characteristics of the Fund's portfolio
of investments. The use of derivative techniques for speculative purposes can
increase investment risk. If WRIMCO judges market conditions incorrectly or
employs a strategy that does not correlate well with the Fund's investments,
these techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
the Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. In addition, these techniques could result in a loss if the
counterparty to the transaction does not perform as promised or if there is not
a liquid secondary market to close out a position that the Fund has entered
into.
The ordinary spreads between prices in the cash and futures markets, due to
the differences in the natures of those markets, are subject to distortion. Due
to the possibility of distortion, a correct forecast of general interest rate,
currency exchange rate or stock market trends by WRIMCO may still not result in
a successful transaction. WRIMCO may be incorrect in its expectations as to the
extent of various interest or currency exchange rate movements or stock market
movements or the time span within which the movements take place.
Options and futures transactions may increase portfolio turnover rates,
which results in correspondingly greater commission expenses and transactions
costs and may result in certain tax consequences.
New financial products and risk management techniques continue to be
developed. The Fund may use these instruments and techniques to the extent
consistent with its goal, investment policies and regulatory requirements
applicable to investment companies.
When-Issued and Delayed-Delivery Transactions are trading practices in
which payment and delivery for the securities take place at a future date. The
market value of a security could change during this period, which could affect
the Fund's yield.
When purchasing securities on a delayed-delivery basis, the Fund assumes
the rights and risks of ownership, including the risk of price and yield
fluctuations. When the Fund sells a security on a delayed-delivery basis, the
Fund does not participate in further gains or losses with respect to the
security. If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, the Fund could miss a favorable price or yield
opportunity, or could suffer a loss.
The Fund may purchase securities in which it may invest on a when-issued or
delayed-delivery basis or sell them on a delayed-delivery basis.
Repurchase Agreements. In a repurchase agreement, the Fund buys a security
at one price and simultaneously agrees to sell it back at a higher price.
Delays or losses could result if the other party to the agreement defaults or
becomes insolvent.
Policies and Restrictions: The Fund may not enter into a repurchase
agreement if, as a result, more than 10% of its net assets would consist of
illiquid investments, which include repurchase agreements not terminable within
seven days.
Restricted Securities and Illiquid Investments. Restricted securities are
securities that are subject to legal or contractual restrictions on resale.
Restricted securities may be illiquid due to restrictions on their resale.
Certain restricted securities may be determined to be liquid in accordance with
guidelines adopted by the Fund's Board of Directors. Illiquid investments may
be difficult to sell promptly at an acceptable price. Difficulty in selling
securities may result in a loss or may be costly to the Fund.
Policies and Restrictions: The Fund may not purchase a security if, as a
result, more than 10% of its net assets would consist of illiquid investments.
Diversification. Diversifying the Fund's investment portfolio can reduce
the risks of investing. This may include limiting the amount of money invested
in any one issuer or, on a broader scale, in any one industry.
Policies and Restrictions: As a fundamental policy, the Fund may not, with
respect to 75% of its total assets, purchase securities of any one issuer (other
than cash items and "Government securities" as defined in the Investment Company
Act of 1940 (the "1940 Act")), if immediately after and as a result of such
purchase, (a) the value of the holdings of the Fund in the securities of such
issuer exceeds 5% of the value of the Fund's total assets, or (b) the Fund owns
more than 10% of the outstanding voting securities of such issuer.
As a fundamental policy, the Fund may not buy a security if, as a result,
more than 25% of the Fund's total assets would then be invested in securities of
companies in any one industry.
Borrowing. If the Fund borrows money, its share price may be subject to
greater fluctuation until the borrowing is paid off.
If the Fund makes additional investments while borrowings are outstanding,
this may be considered a form of leverage.
Policies and Restrictions: As a fundamental policy, the Fund may borrow
money only from banks, as a temporary measure or for extraordinary or emergency
purposes, but only up to 5% of its total assets. The Fund may not pledge its
assets in connection with any permitted borrowings; however, this policy does
not prevent the Fund from pledging its assets in connection with its purchase
and sale of futures contracts, options, forward currency contracts, swaps, caps,
collars, floors and other financial instruments.
Lending. Securities loans may be made on a short-term or long-term basis
for the purpose of increasing the Fund's income. This practice could result in
a loss or a delay in recovering the Fund's securities. Loans will be made only
to parties deemed creditworthy by WRIMCO.
Policies and Restrictions: As a fundamental policy, the Fund will not lend
more than 10% of its securities at any one time, and such loans must be on a
collateralized basis in accordance with applicable regulatory requirements.
Other Instruments may include warrants, rights and securities of closed-end
investment companies. As a shareholder in an investment company, the Fund would
bear its pro rata share of that investment company's expenses, which could
result in duplication of certain fees, including management and administrative
fees.
Policies and Restrictions: As a fundamental policy, the Fund may buy
shares of other investment companies that do not redeem their shares only if it
does so in a regular transaction in the open market and only if not more than
10% of the Fund's total assets would be invested in these shares. The Fund does
not currently intend to invest more than 5% of its assets in such securities.
The Fund does not currently intend to purchase the securities of any issuer
(other than securities issued or guaranteed by domestic or foreign governments
or political subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises that,
including predecessors, have a record of less than three years of continuous
operation. This restriction does not apply to any obligations issued or
guaranteed by the U.S. Government or a state or local government authority, or
their respective agencies or instrumentalities, or to collateralized mortgage
obligations, other mortgage-related securities, asset-backed securities, indexed
securities or over-the-counter derivative financial instruments.
<PAGE>
About Your Account
Class Y shares are designed for institutional investors or others investing
through certain intermediaries. Class Y shares are available for purchase
by:
. participants of employee benefit plans established under section 403(b) or
section 457, or qualified under section 401, including 401(k) plans, of the
Internal Revenue Code of 1986, as amended (the "Code"), when the plan has 100
or more eligible employees and holds the shares in an omnibus account on the
Fund's records;
. banks, trust institutions, investment fund administrators and other third
parties investing for their own accounts or for the accounts of their
customers where such investments for customer accounts are held in an omnibus
account on the Fund's records;
. government entities or authorities and corporations whose investment within
the first twelve months after initial investment is $10 million or more; and
. certain retirement plans and trusts for employees and account representatives
of Waddell & Reed, Inc. and its affiliates.
Buying Shares
You may buy shares of the Fund through Waddell & Reed, Inc. and its account
representatives. To open your account you must complete and sign an
application. Your Waddell & Reed account representative can help you with any
questions you might have.
The price to buy a share of the Fund, called the offering price, is
calculated every business day.
The offering price of a Class Y share (price to buy one Class Y share) is
the Fund's Class Y net asset value ("NAV"). The Fund's Class Y shares are sold
without a sales charge.
To purchase by wire, you must first obtain an account number by calling 1-
800-366-5465, then mail a completed application to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217 or fax it to 913-236-5044.
Instruct your bank to wire the amount you wish to invest to UMB Bank, n.a., ABA
Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer Name and
Account Number.
To purchase by check, make your check payable to Waddell & Reed, Inc. Mail
the check, along with your completed application, to Waddell & Reed, Inc., P.O.
Box 29217, Shawnee Mission, Kansas 66201-9217.
You may also buy shares of the Fund indirectly through certain broker-
dealers, banks and other third parties, some of which may charge you a fee.
These firms may have additional requirements to buy shares.
The Fund's Class Y NAV is the value of a single share. The Class Y NAV is
computed by adding, with respect to that class, the value of the Fund's
investments, cash and other assets, subtracting its liabilities, and then
dividing the result by the number of Class Y shares outstanding.
The securities in the Fund's portfolio that are listed or traded on an
exchange are valued primarily using market quotations or, if market quotations
are not available, at their fair value in a manner determined in good faith by
or at the direction of the Board of Directors. Bonds are generally valued
according to prices quoted by a third-party pricing service. Short-term debt
securities are valued at amortized cost, which approximates market value.
Other investment assets are valued at their fair value by or at the direction of
the Board of Directors.
The Fund is open for business each day the New York Stock Exchange (the
"NYSE") is open. The Fund normally calculates the NAVs of its shares as of the
later of the close of business of the NYSE, normally 4 p.m. Eastern time, or the
close of the regular session of any other securities or commodities exchange on
which an option or futures contract held by the Fund is traded.
The Fund may invest in securities listed on foreign exchanges which may
trade on Saturdays or on customary U.S. national business holidays when the NYSE
is closed. Consequently, the NAV of Fund shares may be significantly affected
on days when the Fund does not price its shares and when you have no access to
the Fund.
When you place an order to buy shares, your order will be processed at the
next offering price calculated after your order is received and accepted. Note
the following:
. Orders are accepted only at the home office of Waddell & Reed, Inc.
. All of your purchases must be made in U.S. dollars.
. If you buy shares by check, and then sell those shares by any method other
than by exchange to another fund in the United Group, the payment may be
delayed for up to ten days to ensure that your previous investment has
cleared.
. The Fund does not issue certificates representing Class Y shares of the Fund.
. If you purchase Fund shares from certain broker-dealers, banks or other
authorized third parties, the Fund will be deemed to have received your
purchase order when that third party (or its designee) has received your
order. Your order will receive the offering price next calculated after the
order has been received in proper form by the authorized third party (or its
designee). You should consult that firm to determine the time by which it
must receive your order for you to purchase Fund shares at that day's
price.
When you sign your account application, you will be asked to certify that
your Social Security or other taxpayer identification number is correct and
whether you are subject to backup withholding for failing to report income to
the Internal Revenue Service.
Waddell & Reed, Inc. reserves the right to reject any purchase orders,
including purchases by exchange, and it and the Fund reserve the right to
discontinue offering Fund shares for purchase.
Minimum Investments
To Open an Account
For a government entity or authority or for a corporation:
$10 million
(within
first twelve
months)
For other
investors: Any amount
Adding to Your Account
You can make additional investments of any amount at any time.
To add to your account by wire: Instruct your bank to wire the amount you
wish to invest, along with the account number and registration, to UMB Bank,
<PAGE>
n.a., ABA Number 101000695, W&R Underwriter Account Number 0007978, FBO Customer
Name and Account Number.
To add to your account by mail: Make your check payable to Waddell & Reed,
Inc. Mail the check along with a letter stating your account number, the
account registration and that you wish to purchase Class Y shares of the Fund
to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
If you purchase Fund shares from certain broker-dealers, banks or other
authorized third parties, additional purchases may be made through those
firms.
Selling Shares
You can arrange to take money out of your Fund account at any time by
selling (redeeming) some or all of your shares.
The redemption price (price to sell one Class Y share) is the Fund's Class
Y NAV.
To sell shares by telephone or fax: If you have elected this method in
your application or by subsequent authorization, call 1-800-366-5465 or fax your
request to 913-236-5044 and give your instructions to redeem shares and make
payment by wire to your pre-designated bank account or by check to you at the
address on the account.
To sell shares by written request: Complete an Account Service Request
form, available from your Waddell & Reed account representative, or write a
letter of instruction with:
. the name on the account registration;
. the Fund's name;
. the Fund account number;
. the dollar amount or number of shares to be redeemed; and
. any other applicable requirements listed in the table below.
Deliver the form or your letter to your Waddell & Reed account
representative, or mail it to:
Waddell & Reed, Inc.
P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
Unless otherwise instructed, Waddell & Reed will send a check to the
address on the account.
Special Requirements for Selling Shares
Account Type Special Requirements
Retirement The written instructions must
Account be signed by a properly
authorized person.
Trust The trustee must sign the
written instructions
indicating capacity as
trustee. If the trustee's
name is not in the account
registration, provide a
currently certified copy of
the trust document.
Business or At least one person authorized
Organization by corporate resolution to act
on the account must sign the
written instructions.
When you place an order to sell shares, your shares will be sold at the
next NAV calculated after receipt of a written request for redemption in good
order by Waddell & Reed, Inc. at its home office. Note the following:
. If more than one person owns the shares, each owner must sign the written
request.
. If you recently purchased the shares by check, the Fund may delay payment of
redemption proceeds. You may arrange for the bank upon which the purchase
check was drawn to provide to the Fund telephone or written assurance,
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 the date the Fund is able to
verify that your purchase check has cleared and been honored.
. Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the Securities and Exchange Commission.
. Payment is normally made in cash, although under extraordinary conditions
redemptions may be made in portfolio securities.
. If you purchased Fund shares from certain broker-dealers, banks or other
authorized third parties, you may sell those shares through those firms, some
of which may charge you a fee and may have additional requirements to sell
Fund shares. The Fund will be deemed to have received your order to sell
shares when that firm (or its designee) has received your order. Your order
will receive the offering price next calculated after the order has been
received in proper form by the authorized firm (or its designee). You should
consult that firm to determine the time by which it must receive your order
for you to sell Fund shares at that day's price.
The Fund reserves the right to require a signature guarantee on certain
redemption requests. This requirement is designed to protect you and Waddell &
Reed from fraud. The Fund may require a signature guarantee in certain
situations such as:
. the request for redemption is made by a corporation, partnership or
fiduciary;
. the request for redemption is made by someone other than the owner of record;
or
. the check is being made payable to someone other than the owner of record.
The Fund will accept a signature guarantee from 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. A notary public cannot provide a signature guarantee.
The Fund reserves the right to redeem at NAV all shares of the Fund owned
or held by you having an aggregate NAV of less than $500. The Fund will give
you notice of its intention to redeem your shares and a 60-day opportunity to
purchase a sufficient number of additional shares to bring the aggregate NAV of
your shares to $500.
Telephone Transactions
The Fund and its agents will not be liable for following instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Fund fails to do so, the Fund may be liable for
losses due to unauthorized or fraudulent instructions. Current procedures
relating to instructions communicated by telephone include tape recording
instructions, requiring personal identification and providing written
confirmations of transactions effected pursuant to such instructions.
Shareholder Services
Waddell & Reed provides a variety of services to help you manage your
account.
Personal Service
Your local Waddell & Reed account representative is available to provide
personal service. Additionally, one toll-free call, 1-800-366-5465, connects
you to a Customer Service Representative or TeleWaddell, our automated customer
telephone service. During normal business hours, our Customer Service staff is
available to respond to your inquiries or update your account records. At
almost any time of the day or night, you may access TeleWaddell from a touch-
tone phone to:
. Obtain information about your accounts;
. Obtain price information about other funds in the United Group; or
. Request duplicate statements.
Reports
Statements and reports sent to you include the following:
. confirmation statements (after every purchase, exchange, transfer or
redemption)
. year-to-date statements (quarterly)
. annual and semiannual reports (every six months)
To reduce expenses, only one copy of the most recent annual and semiannual
reports will be mailed to your household, even if you have more than one account
with the Fund. Call the telephone number listed above for Customer Service if
you need copies of annual or semiannual reports or historical account
information.
Exchanges
You may sell your Class Y shares and buy Class Y shares of other funds in
the United Group or Class A shares of United Cash Management, Inc. You may
exchange only into funds that are legally registered for sale in your state of
residence. Note that exchanges out of the Fund may have tax consequences for
you. Before exchanging into a fund, read its prospectus.
The Fund reserves the right to terminate or modify these exchange
privileges at any time, upon notice in certain instances.
Distributions and Taxes
Distributions
The Fund distributes substantially all of its net investment income and net
capital gains to its shareholders each year. Ordinarily, dividends are
distributed from the Fund's net investment income, which includes accrued
interest, earned OID, dividends and other income earned on portfolio assets less
expenses, quarterly in March, June, September and December. Net capital gains
(and any net gains from foreign currency transactions) ordinarily are
distributed in December. The Fund may make additional distributions if
necessary to avoid Federal income or excise taxes on certain undistributed
income and capital gains.
Distribution Options. When you open an account, specify on your
application how you want to receive your distributions. The Fund offers three
options:
1. Share Payment Option. Your dividend, capital gains and other distributions
will be automatically paid in additional Class Y shares of the Fund. If
you do not indicate a choice on your application, you will be assigned this
option.
2. Income-Earned Option. Your capital gains and other distributions will be
automatically paid in additional Class Y shares, but you will be sent a
check for each dividend distribution.
3. Cash Option. You will be sent a check for your dividend, capital gains and
other distributions.
For retirement accounts, all distributions are automatically paid in
additional Class Y shares.
Taxes
The Fund has qualified and intends to continue to qualify for treatment as
a regulated investment company under the Code 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 (the
excess of net long-term capital gains over net short-term capital losses) that
it distributes to its shareholders.
There are certain tax requirements that the Fund must satisfy in order to
avoid Federal taxation. In its effort to adhere to these requirements, the Fund
may have to limit its investment activity in some types of instruments.
As with any investment, you should consider how your investment in the Fund
will be taxed. If your account is not a tax-deferred retirement account (or you
are not otherwise exempt from income tax), you should be aware of the following
tax implications:
Taxes on distributions. Dividends from the Fund's investment company
taxable income generally are taxable to you as ordinary income whether received
in cash or paid in additional Fund shares. Distributions of the Fund's net
capital gains, when designated as such, are taxable to you as long-term capital
gains, whether received in cash or paid in additional Fund shares and regardless
of the length of time you have owned your shares. As a result of recent Federal
tax legislation, your long-term capital gains (if you are a noncorporate Fund
shareholder) generally are taxed at a maximum rate of 20%.
The Fund notifies you after each calendar year-end as to the amounts of
dividends and other distributions paid (or deemed paid) to you for that year.
Under certain circumstances, the Fund may elect to permit shareholders to take a
credit or deduction for foreign income taxes paid by the Fund. The Fund will
notify you of any such election.
A portion of the dividends paid by the Fund, whether received in cash or
paid in additional Fund shares, may be eligible for the dividends-received
deduction allowed to corporations. The eligible portion may not exceed the
aggregate dividends received by 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 Federal alternative
minimum tax.
Withholding. The Fund is required to withhold 31% of all dividends,
capital gains distributions and redemption proceeds payable to individuals and
certain other noncorporate shareholders who do not furnish the Fund with a
correct taxpayer identification number. Withholding at that rate from dividends
and capital gains distributions also is required for such shareholders who
otherwise are subject to backup withholding.
Taxes on transactions. Your redemption of Fund shares will result in
taxable gain or loss to you, depending on whether the redemption proceeds are
more or less than 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. In
addition, if you purchase Fund shares within thirty days before or after
redeeming other Fund shares (regardless of class) at a loss, part or all of that
loss will not be deductible and will increase the basis of the newly purchased
shares.
State and local income taxes. The portion of the dividends paid by the
Fund attributable to interest earned on its U.S. Government Securities generally
is not subject to state and local income taxes, although distributions by the
Fund to its shareholders of net realized gains on the disposition of those
securities are fully subject to those taxes. You should consult your tax
adviser to determine the taxability of dividends and other distributions by the
Fund in your state and locality.
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 more detailed 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.
<PAGE>
About the Management and Expenses of the Fund
United Retirement Shares, Inc. is a mutual fund: an investment that pools
shareholders' money and invests it toward a specified goal. In technical terms,
the Fund is an open-end, diversified management investment company organized as
a corporation under Maryland law on May 8, 1989, as successor to a Delaware
corporation which commenced operations on December 3, 1971.
The Fund is governed by a Board of Directors, which has overall
responsibility for the management of its affairs. The majority of directors are
not affiliated with Waddell & Reed, Inc.
The Fund has two classes of shares. In addition to the Class Y shares
offered by this Prospectus, the Fund has issued and outstanding Class A shares
which are offered by Waddell & Reed, Inc. through a separate prospectus. Class
A shares are subject to a sales charge on purchases but are not subject to
redemption fees. Class A shares are subject to a Rule 12b-1 fee at an annual
rate of up to 0.25% of the Fund's average net assets attributable to Class A
shares. Additional information about Class A shares may be obtained by calling
or writing to Waddell & Reed, Inc. at the telephone number or address on the
inside back cover of the Prospectus.
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 a meeting called by
the Board of Directors for such purpose.
Special meetings of shareholders may be called for any purpose upon receipt
by the Fund of a request in writing signed by shareholders holding not less than
25% of all shares entitled to vote at such meeting, provided certain conditions
stated in the Bylaws of the Fund are met. There will normally be no meeting of
the shareholders for the purpose of electing directors until such time as less
than a majority of directors holding office have been elected by shareholders,
at which time the directors then in office will call a shareholders' meeting for
the election of directors. To the extent that Section 16(c) of the 1940 Act
applies to the Fund, the directors are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
director when requested in writing to do so by the shareholders of record of not
less than 10% of the Fund's outstanding shares.
Each share (regardless of class) has one vote. All shares of the Fund vote
together as a single class, except as to any matter for which a separate vote of
any class is required by the 1940 Act, and except as to any matter which affects
the interests of one or more particular classes, in which case only the
shareholders of the affected classes are entitled to vote, each as a separate
class. Shares are fully paid and nonassessable when purchased.
WRIMCO and Its Affiliates
The Fund is managed by WRIMCO, subject to the authority of the Fund's Board
of Directors. WRIMCO provides investment advice to the Fund and supervises the
Fund's investments. Waddell & Reed, Inc. and its predecessors have served as
investment manager to each of the registered investment companies in the United
Group of Mutual Funds, except United Asset Strategy Fund, Inc., since 1940 or
the inception of the company, whichever was later, and to Target/United Funds,
Inc. since that fund's inception, until January 8, 1992, when it assigned its
duties as investment manager and assigned its professional staff for investment
management services to WRIMCO. WRIMCO has also served as investment manager for
Waddell & Reed Funds, Inc. since its inception in September 1992 and United
Asset Strategy Fund, Inc. since it commenced operations in March 1995.
Cynthia P. Prince-Fox is primarily responsible for the day-to-day
management of the portfolio of the Fund. Ms. Prince-Fox has held her Fund
responsibilities since January 1995. She is Vice President of WRIMCO, Vice
President of the Fund and Vice President of other investment companies for which
WRIMCO serves as investment manager. From January 1993 to March 1998, Ms.
Prince-Fox was Vice President of Waddell & Reed Asset Management Company, an
affiliate of WRIMCO. Ms. Prince-Fox has served as the portfolio manager for
investment companies managed by WRIMCO since January 1993 and prior to that was
an investment analyst with Waddell & Reed, Inc. and its successor, WRIMCO, since
February 1983. Other members of WRIMCO's investment management department
provide input on market outlook, economic conditions, investment research and
other considerations relating to the Fund's investments.
Waddell & Reed, Inc. serves as the Fund's underwriter and as underwriter
for each of the other funds in the United Group of Mutual Funds and Waddell &
Reed Funds, Inc. and acts as the principal underwriter and distributor of the
variable life insurance and variable annuity policies issued by United Investors
Life Insurance Company for which Target/United Funds, Inc. is the underlying
investment vehicle.
Waddell & Reed Services Company acts as transfer agent ("Shareholder
Servicing Agent") for the Fund and processes the payments of dividends. 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 its shares.
WRIMCO and Waddell & Reed Services Company are subsidiaries of Waddell &
Reed, Inc. Waddell & Reed, Inc. is a direct subsidiary of Waddell & Reed
Financial Services, Inc., a holding company, and an indirect subsidiary of
Waddell & Reed Financial, Inc., a holding company, and Torchmark Corporation, a
holding company.
WRIMCO places transactions for the portfolio of the Fund and in doing so
may consider sales of Fund shares as a factor in the selection of brokers to
execute portfolio transactions, subject to best execution. For further
information concerning Fund portfolio transactions, please see "Portfolio
Transactions and Brokerage" in the SAI.
Breakdown of Expenses
Like all mutual funds, the Fund pays fees related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends; they are neither billed directly to shareholders nor deducted from
shareholder accounts.
The Fund pays a management fee to WRIMCO for providing investment advice
and supervising its investments. The Fund also pays other expenses, which are
explained below.
Management Fee
The management fee of the Fund is calculated by adding a group fee to a
specific fee. It is accrued and paid to WRIMCO daily.
The specific fee is computed on the Fund's net asset value as of the close
of business each day at the annual rate of .15 of 1% of its net assets. The
group fee is a pro rata participation based on the relative net asset size of
the Fund in the group fee computed each day on the combined net asset values of
all the funds in the United Group at the annual rates shown in the following
table:
Group Fee Rate
Annual
Group Net Group
Asset Level Fee Rate
(all dollars For Each
in millions) Level
- ------------ --------
From $0
to $750 .51 of 1%
From $750
to $1,500 .49 of 1%
From $1,500
to $2,250 .47 of 1%
From $2,250
to $3,000 .45 of 1%
From $3,000
to $3,750 .43 of 1%
From $3,750
to $7,500 .40 of 1%
From $7,500
to $12,000 .38 of 1%
Over $12,000 .36 of 1%
Growth in assets of the United Group assures a lower group fee rate.
The combined net asset values of all of the funds in the United Group were
approximately $19.9 billion as of June 30, 1998. Management fees for the fiscal
year ended June 30, 1998 were 0.54% of the Fund's average net assets.
Other Expenses
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well.
The Fund pays the Accounting Services Agent a monthly fee based on the
average net assets of the Fund for accounting services. With respect to its
Class Y shares, the Fund pays the Shareholder Servicing Agent a monthly fee
based on the average daily net assets of the class for the preceding month.
The Fund also pays other expenses, such as fees and expenses of certain
directors, audit and outside legal fees, costs of materials sent to
shareholders, 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 extraordinary expenses including
litigation and indemnification relative to litigation.
The Fund cannot precisely predict what its portfolio turnover rate will be,
but the Fund may have a high portfolio turnover. A higher turnover will
increase transaction and commission costs and could generate taxable income or
loss.
<PAGE>
United Retirement Shares, Inc.
Custodian Underwriter
UMB Bank, n.a. Waddell & Reed, Inc.
Kansas City, Missouri 6300 Lamar Avenue
P. O. Box 29217
Legal Counsel Shawnee Mission, Kansas
Kirkpatrick & Lockhart LLP 66201-9217
1800 Massachusetts Avenue, N. W. (913) 236-2000
Washington, D. C. 20036 (800) 366-5465
Independent Auditors Shareholder Servicing Agent
Deloitte & Touche LLP Waddell & Reed
1010 Grand Avenue Services Company
Kansas City, Missouri 6300 Lamar Avenue
64106-2232 P. O. Box 29217
Shawnee Mission, Kansas
Investment Manager 66201-9217
Waddell & Reed Investment (913) 236-2000
Management Company (800) 366-5465
6300 Lamar Avenue
P. O. Box 29217 Accounting Services Agent
Shawnee Mission, Kansas Waddell & Reed
66201-9217 Services Company
(913) 236-2000 6300 Lamar Avenue
(800) 366-5465 P. O. Box 29217
Shawnee Mission, Kansas
66201-9217
(913) 236-2000
(800) 366-5465
Our INTERNET address is:
http://www.waddell.com
<PAGE>
United Retirement Shares, Inc.
Class Y Shares
PROSPECTUS
September 30, 1998
The United Group of Mutual Funds
United Asset Strategy Fund, Inc.
United Cash Management, Inc.
United Continental Income Fund, Inc.
United Funds, Inc.
United Bond Fund
United Income Fund
United Accumulative Fund
United Science and Technology Fund
United Gold & Government Fund, Inc.
United Government Securities Fund, Inc.
United High Income Fund, Inc.
United High Income Fund II, Inc.
United International Growth Fund, Inc.
United Municipal Bond Fund, Inc.
United Municipal High Income Fund, Inc.
United New Concepts Fund, Inc.
United Retirement Shares, Inc.
United Vanguard Fund, Inc.
NUP1007-Y(9-98)
printed on recycled paper
<PAGE>
UNITED RETIREMENT SHARES, INC.
6300 Lamar Avenue
P. O. Box 29217
Shawnee Mission, Kansas 66201-9217
(913) 236-2000
(800) 366-5465
September 30, 1998
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information (the "SAI") is not a prospectus.
Investors should read this SAI in conjunction with a prospectus ("Prospectus")
for the Class A shares or the Class Y shares, as applicable, of United
Retirement Shares, Inc. (the "Fund") dated September 30, 1998, 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
Goal and Investment Policies ....................... 4
Investment Management and Other Services ........... 30
Purchase, Redemption and Pricing of Shares ......... 35
Directors and Officers ............................. 50
Payments to Shareholders ........................... 56
Taxes .............................................. 57
Portfolio Transactions and Brokerage ............... 61
Other Information .................................. 63
Appendix A ......................................... 64
Financial Statements ............................... 68
<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 and, for Class A shares, from which the maximum sales load of
5.75% is deducted. All dividends and distributions are assumed to be reinvested
in shares of the applicable class at net asset value for the class as of the day
the dividend or distribution is paid. No sales load is charged on reinvested
dividends or distributions on Class A shares. The formula used to calculate the
total return for a particular class of the Fund is:
n
P(1 + T) = ERV
Where : P = $1,000 initial payment
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of the $1,000 investment for the
periods shown.
Non-standardized performance information may also be presented. For
example, the Fund may also compute total return for its Class A shares without
deduction of the sales load in which case the same formula noted above will be
used but the entire amount of the $1,000 initial payment will be assumed to have
been invested. If the sales charge applicable to Class A shares were reflected,
it would reduce the performance quoted for that class.
The average annual total return quotations for Class A shares as of June
30, 1998, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
With Without
Sales LoadSales Load
Deducted Deducted
One-year period from July 1, 1997 to
June 30, 1998: 7.86% 14.45%
Five-year period from July 1, 1993 to
June 30, 1998: 11.82% 13.16%
Ten-year period from July 1, 1988 to
June 30, 1998: 12.60% 13.27%
Prior to October 7, 1995, the Fund offered only one class of shares to the
public. Shares outstanding on that date were designated as Class A shares.
Since that date, Class Y shares of the Fund have been available to certain
institutional investors.
The average annual total return quotations for Class Y shares as of June
30, 1998, which is the most recent balance sheet included in this SAI, for the
periods shown were as follows:
Period from July 1, 1997 to
June 30, 1998: 14.62%
Period from February 27, 1996* to
June 30, 1998: 14.23%
*Date of inception.
The Fund may also quote unaveraged or cumulative total return for a class
which reflects the change in value of an investment in that class over a stated
period of time. Cumulative total returns will be calculated according to the
formula indicated above but without averaging the rate for the number of years
in the period.
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. Each class of 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 Composite Stock Price Index and the Dow Jones Industrial
Average. Performance information may be quoted numerically or presented in a
table, graph or other illustration.
All performance information that 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.
GOAL AND INVESTMENT POLICIES
The goal and investment 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,
debt securities and convertible 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.
Specific Securities and Investment Practices
U.S. Government Securities
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S. Government Securities") include Treasury Bills (which
mature within one year of the date they are issued), Treasury Notes (which have
maturities of one to ten years) and Treasury Bonds (which generally have
maturities of more than 10 years). All such Treasury securities are backed by
the full faith and credit of the United States.
U.S. Government agencies and instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Fannie Mae (formerly, the Federal National Mortgage Association), Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("Ginnie Mae"), General
Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation ("Freddie Mac"), Farm Credit Banks,
Maritime Administration, the Tennessee Valley Authority, the Resolution Funding
Corporation and the Student Loan Marketing Association.
Securities issued or guaranteed by U.S. Government agencies and
instrumentalities are not always supported by the full faith and credit of the
United States. Some, such as securities issued by the Federal Home Loan Banks,
are backed by the right of the agency or instrumentality to borrow from the
Treasury. Others, such as securities issued by Fannie Mae, are supported only
by the credit of the instrumentality and by a pool of mortgage assets. If the
securities are not backed by the full faith and credit of the United States, the
owner of the securities must look principally to the agency issuing the
obligation for repayment and may not be able to assert a claim against the
United States in the event that the agency or instrumentality does not meet its
commitment.
U.S. Government Securities may include mortgage-backed securities issued by
the U.S. Government agencies or instrumentalities including, but not limited to,
Ginnie Mae, Freddie Mac and Fannie Mae. These mortgage-backed securities
include pass-through securities, participation certificates and collateralized
mortgage obligations. See "Mortgage-Backed and Asset-Backed Securities." Timely
payment of principal and interest on Ginnie Mae pass-throughs is guaranteed by
the full faith and credit of the United States. Freddie Mac and Fannie Mae are
both instrumentalities of the U.S. Government, but their obligations are not
backed by the full faith and credit of the United States. It is possible that
the availability and the marketability (i.e., liquidity) of the securities
discussed in this section could be adversely affected by actions of the U.S.
Government to tighten the availability of its credit.
Zero Coupon Securities
A broker-dealer creates a derivative zero by separating the interest and
principal components of a U.S. Treasury security and selling them as two
individual securities. CATS (Certificates of Accrual on Treasury Securities),
TIGRs (Treasury Investment Growth Receipts), and TRs (Treasury Receipts) are
examples of derivative zeros.
The Federal Reserve Bank creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the interest and principal
components of an outstanding U.S. Treasury bond and selling them as individual
securities. Bonds issued by the Resolution Funding Corporation (REFCORP) and
the Financing Corporation (FICO) can also be separated in this fashion.
Original issue zeros are zero coupon securities originally issued by the U.S.
Government, a government agency, or a corporation in zero coupon form.
Mortgage-Backed and Asset-Backed Securities
Mortgage-Backed Securities. Mortgage-backed securities represent direct or
indirect participations in, or are secured by and payable from, mortgage loans
secured by real property and include single- and multi-class pass-through
securities and collateralized mortgage obligations. Multi-class pass-through
securities and collateralized mortgage obligations are collectively referred to
in this SAI as "CMOs." The U.S. Government mortgage-backed securities in which
the Fund may invest include mortgage-backed securities issued or guaranteed as
to the payment of principal and interest (but not as to market value) by Ginnie
Mae, Fannie Mae, or Freddie Mac. Other mortgage-backed securities are issued by
private issuers, generally originators of and investors in mortgage loans,
including savings associations, mortgage bankers, commercial banks, investment
bankers and special purpose entities. Payments of principal and interest (but
not the market value) of such private mortgage-backed securities may be
supported by pools of mortgage loans or other mortgage-backed securities that
are guaranteed, directly or indirectly, by the U.S. Government or one of its
agencies or instrumentalities, or they may be issued without any government
guarantee of the underlying mortgage assets but with some form of non-government
credit enhancement. These credit enhancements do not protect investors from
changes in market value.
The Fund may purchase mortgage-backed securities issued by both government
and non-government entities such as banks, mortgage lenders, or other financial
institutions. Other types of mortgage-backed securities will likely be
developed in the future, and the Fund may invest in them if Waddell & Reed
Investment Management Company ("WRIMCO"), the Fund's investment manager,
determines they are consistent with the Fund's goal and investment policies.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
are created when a U.S. Government agency or a financial institution separates
the interest and principal components of a mortgage-backed security and sells
them as individual securities. The holder of the "principal-only" security
("PO") receives the principal payments made by the underlying mortgage-backed
security, while the holder of the "interest-only" security ("IO") receives
interest payments from the same underlying security.
Asset-Backed Securities. Asset-backed securities have structural
characteristics similar to mortgage-backed securities, as discussed above.
However, the underlying assets securing the debt are not first lien mortgage
loans or interests therein, but include assets such as motor vehicle installment
sales contracts, other installment sale contracts, home equity loans, leases of
various types of real and personal property and receivables from revolving
credit (credit card) agreements. Such assets are securitized through the use of
trusts or special purpose corporations. Payments or distributions of principal
and interest may be guaranteed up to a certain amount and for a certain time
period by a letter of credit or pool insurance policy issued by a financial
institution unaffiliated with the issuer, or other credit enhancements may be
present. The value of asset-backed securities may also depend on the
creditworthiness of the servicing agent for the loan pool, the originator of the
loans, or the financial institution providing the credit enhancement.
Special Characteristics of Mortgage-Backed and Asset-Backed Securities.
The yield characteristics of mortgage-backed and asset-backed securities differ
from those of traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other obligations generally may be prepaid at any time. Prepayments on a
pool of mortgage loans are influenced by a variety of economic, geographic,
social and other factors, including changes in mortgagors' housing needs, job
transfers, unemployment, mortgagors' net equity in the mortgaged properties and
servicing decisions. Generally, however, prepayments on fixed-rate mortgage
loans will increase during a period of falling interest rates and decrease
during a period of rising interest rates. Similar factors apply to prepayments
on asset-backed securities, but the receivables underlying asset-backed
securities generally are of a shorter maturity and thus are likely to experience
substantial prepayments. Such securities, however, often provide that for a
specified time period the issuers will replace receivables in the pool that are
repaid with comparable obligations. If the issuer is unable to do so, repayment
of principal on the asset-backed securities may commence at an earlier date.
The rate of interest on mortgage-backed securities is lower than the
interest rates paid on the mortgages included in the underlying pool due to the
annual fees paid to the servicer of the mortgage pool for passing through
monthly payments to certificateholders and to any guarantor, and due to any
yield retained by the issuer. Actual yield to the holder may vary from the
coupon rate, even if adjustable, if the mortgage-backed securities are purchased
or traded in the secondary market at a premium or discount. In addition, there
is normally some delay between the time the issuer receives mortgage payments
from the servicer and the time the issuer makes the payments on the mortgage-
backed securities, and this delay reduces the effective yield to the holder of
such securities.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools of
fixed-rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of a
pool of mortgage-related securities. Conversely, in periods of rising interest
rates, the rate of prepayment tends to decrease, thereby lengthening the actual
average life of the pool. However, these effects may not be present, or may
differ in degree, if the mortgage loans in the pools have adjustable interest
rates or other special payment terms, such as a prepayment charge. Actual
prepayment experience may cause the yield of mortgage-backed securities to
differ from the assumed average life yield.
Variable or Floating Rate Instruments
Variable or floating rate instruments (including notes purchased directly
from issuers) bear variable or floating interest rates and may carry rights that
permit holders to demand payment of the unpaid principal balance plus accrued
interest from the issuers or certain financial intermediaries on dates prior to
their stated maturities. Floating rate securities have interest rates that
change whenever there is a change in a designated base rate, while variable rate
instruments provide for a specified periodic adjustment in the interest rate.
These formulas are designed to result in a market value for the instrument that
approximates its par value.
Foreign Securities and Currency
WRIMCO believes that there are investment opportunities as well as risks in
investing in foreign securities. Individual foreign economies may differ
favorably or unfavorably from the U.S. economy or each other in such matters as
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. Individual foreign companies may
also differ favorably or unfavorably from domestic companies in the same
industry. Foreign currencies may be stronger or weaker than the U.S. dollar or
than each other. WRIMCO believes that the Fund's ability to invest its assets
abroad might enable it to take advantage of these differences and strengths
where they are favorable.
Further, an investment in foreign securities may be affected by changes in
currency rates and in exchange control regulations (i.e., currency blockage).
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 (the
"NYSE") and securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies. There is generally
less government regulation of stock exchanges, brokers and listed companies than
in the United States. In addition, with respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, political or
social instability or diplomatic developments that could adversely affect
investments in securities of issuers located in those countries. If it should
become necessary, the Fund would normally encounter greater difficulties in
commencing a lawsuit against the issuer of a foreign security than it would
against a U.S. 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
is a fundamental policy and can only be changed by shareholder vote. If the
Fund does lend its securities, the borrower pays the Fund an amount equal to the
dividends or interest on the securities that the Fund would have received if it
had not loaned the securities. The Fund also receives additional compensation.
Any securities loans that 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, U.S. Government Securities or bank letters
of credit, at least equal in value to the market value of the securities loaned
on each day that the loan is outstanding. If the market value of the loaned
securities exceeds the value of the collateral, the borrower must add more
collateral so that it at least equals the market value of the securities loaned.
If the market value of the securities decreases, the borrower is entitled to
return of the excess collateral.
There are two methods of receiving compensation for making loans. The
first is to receive a negotiated loan fee from the borrower. This method is
available for all three types of collateral. The second method, which is not
available when letters of credit are used as collateral, is for the Fund to
receive interest on the investment of the cash collateral or to receive interest
on the U.S. Government Securities used as collateral. Part of the interest
received in either case may be shared with the borrower.
The letters of credit that 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.
Under the Fund's current securities lending procedures, the Fund may lend
securities only to broker-dealers and financial institutions deemed creditworthy
by WRIMCO. The Fund will make loans only under rules of the NYSE, which
presently require the borrower to give the securities back to the Fund within
five business days after the Fund gives notice to do so. If 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.
There may be risks of delay in receiving additional collateral from the
borrower if the market value of the securities loaned increases, risks of delay
in recovering the securities loaned or even loss of rights in the collateral
should the borrower of the securities fail financially.
Some, but not all, of these rules are necessary to meet requirements of
certain laws relating to securities loans. These rules will not be changed
unless the change is permitted under these requirements. These requirements do
not cover the present rules, which may be changed without shareholder vote, as
to (i) whom securities may be loaned, (ii) the investment of cash collateral, or
(iii) voting rights.
Repurchase Agreements
The Fund may purchase securities subject to repurchase agreements. The
Fund will not enter into a repurchase transaction that will cause more than 10%
of its net assets to be invested in illiquid investments, which include
repurchase agreements not terminable within seven days. See "Illiquid
Investments." A repurchase agreement is an instrument under which the Fund
purchases a security and the seller (normally a commercial bank or broker-
dealer) agrees, at the time of purchase, that it will repurchase the security at
a specified time and price. The amount by which the resale price is greater
than the purchase price reflects an agreed-upon market interest rate effective
for the period of the agreement. The return on the securities subject to the
repurchase agreement may be more or less than the return on the repurchase
agreement.
The majority of the repurchase agreements in which the Fund would engage
are overnight transactions, and the delivery pursuant to the resale typically
will occur within one to five days of the purchase. The primary risk is that
the Fund may suffer a loss if the seller fails to pay the agreed-upon amount on
the delivery date and that amount is greater than the resale price of the
underlying securities and other collateral held by the Fund. In the event of
bankruptcy or other default by the seller, there may be possible delays or
expenses in liquidating the underlying securities or other collateral, decline
in their value and loss of interest. The return on such collateral may be more
or less than that from the repurchase agreement. The Fund's repurchase
agreements will be structured so as to fully collateralize the loans. In other
words, the value of the underlying securities, which will be held by the 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, as amended (the "1940 Act"), is
and, during the entire term of the agreement, will remain at least equal to the
value of the loan, including the accrued interest earned thereon. Repurchase
agreements are entered into only with those entities approved by WRIMCO on the
basis of criteria established by the Board of Directors.
Warrants and Rights
Warrants are options to purchase equity securities at a specified price
valid for a specific period of time. Their prices do not necessarily move
parallel to the prices of the underlying securities. Rights are similar to
warrants, but normally have a short duration and are distributed directly by the
issuer to its shareholders. Rights and warrants have no voting rights, receive
no dividends, and have no rights with respect to the assets of the issuer.
Warrants and rights are highly volatile and, therefore, more susceptible to
sharp decline in value than the underlying security might be. They are also
generally less liquid than an investment in the underlying shares.
When-Issued and Delayed-Delivery Transactions
The Fund may purchase any securities in which it may invest on a when-
issued or delayed-delivery basis or sell them on a delayed-delivery basis. The
securities so purchased or sold by the Fund are subject to market fluctuation;
their value may be less or more when delivered than the purchase price paid or
received. For example, delivery to the Fund and payment by the Fund in the case
of a purchase by it, or delivery by the Fund and payment to it in the case of a
sale by the Fund, may take place a month or more after the date of the
transaction. The purchase or sale price is fixed on the transaction date. The
Fund will enter into when-issued or delayed-delivery transactions in order to
secure what is considered to be an advantageous price and yield at the time of
entering into the transaction. No interest accrues to the Fund until delivery
and payment is completed. When the Fund makes a commitment to purchase
securities on a when-issued or delayed-delivery basis, it will record the
transaction and thereafter reflect the value of the securities in determining
its net asset value per share. The securities sold by the Fund on a delayed-
delivery basis are also subject to market fluctuation; their value when the Fund
delivers them may be more than the purchase price the Fund receives. When the
Fund makes a commitment to sell securities on a delayed-delivery basis, it will
record the transaction and thereafter value the securities at the sales price in
determining the Fund's net asset value per share.
Ordinarily the Fund purchases securities on a when-issued or delayed-
delivery basis with the intention of actually taking delivery of the securities.
However, before the securities are delivered to the Fund and before it has paid
for them (the "settlement date"), the Fund could sell the securities if WRIMCO
decided it was advisable to do so for investment reasons. The Fund will hold
aside or segregate cash or other securities, other than those purchased on a
when-issued or delayed-delivery basis, at least equal to the amount it will have
to pay on the settlement date; these other securities may, however, be sold at
or before the settlement date to pay the purchase price of the when-issued or
delayed-delivery securities.
Restricted Securities
Restricted securities are subject to legal or contractual restrictions on
resale because they are not registered under the Securities Act of 1933, as
amended (the "1933 Act"). Restricted securities generally can be sold in
privately negotiated transactions, pursuant to an exemption from registration
under the 1933 Act, or in a registered public offering. Where registration is
required, the Fund may be obligated to pay all or part of the registration
expense and a considerable period may elapse between the time it decides to seek
registration and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to seek registration of the security.
There are risks associated with investment in restricted securities in that
there can be no assurance of a ready market for resale. Also, the contractual
restrictions on resale might prevent the Fund from reselling the securities at a
time when such sale would be desirable. Restricted securities in which the Fund
seeks to invest need not be listed or admitted to trading on a foreign or
domestic exchange and may be less liquid than listed securities. See "Illiquid
Investments."
Illiquid Investments
The Fund has an operating policy, which may be changed without shareholder
approval, which provides that the Fund may not invest more than 10% of its net
assets in illiquid investments. Investments currently considered to be illiquid
include: (i) repurchase agreements not terminable within seven days; (ii)
securities for which market quotations are not readily available; (iii) over-
the-counter ("OTC") options and their underlying collateral; (iv) bank deposits,
unless they are payable at principal plus accrued interest on demand or within
seven days after demand; (v) non-government stripped fixed-rate mortgage-backed
securities; (vi) restricted securities not determined to be liquid pursuant to
guidelines established by the Fund's Board of Directors; and (vii) securities
involved in swap, cap, collar and floor transactions. The assets used as cover
for OTC options written by the Fund will be considered illiquid unless the OTC
options are sold to qualified dealers who agree that the Fund may repurchase any
OTC option it writes at a maximum price to be calculated by a formula set forth
in the option agreement. The cover for an OTC option written subject to this
procedure would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Indexed Securities
Indexed securities are securities the value of which varies in relation to
the value of other securities, securities indices, currencies, precious metals
or other commodities, or other financial indicators. Indexed securities
typically, but not always, are debt securities or deposits whose value at
maturity or coupon rate is determined by reference to a specific instrument or
statistic. Gold-indexed securities, for example, typically provide for a
maturity value that depends on the price of gold, resulting in a security whose
price tends to rise and fall together with gold prices. Currency-indexed
securities typically are short-term to intermediate-term debt securities whose
maturity values or interest rates are determined by reference to the values of
one or more specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities of equivalent issuers. Currency-indexed
securities may be positively or negatively indexed; that is, their maturity
value may increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument, or their
maturity value may decline when foreign currencies increase, resulting in a
security whose price characteristics are similar to a put on the underlying
currency. Currency-indexed securities may also have prices that depend on the
values of a number of different foreign currencies relative to each other.
Recent issuers of indexed securities have included banks, corporations, and
certain U.S. Government agencies. Certain indexed securities that are not
traded on an established market may be deemed illiquid.
Options and Futures
General. As discussed in the Prospectus, WRIMCO may use certain options,
futures contracts (sometimes referred to as "futures"), options on futures
contracts, forward currency contracts, swaps, caps, collars, floors and indexed
securities (collectively, "Financial Instruments") to attempt to enhance the
Fund's income or yield or to attempt to hedge the Fund's investments.
Generally, the Fund may purchase and sell any type of Financial Instrument.
However, as an operating policy, the Fund will only purchase or sell a
particular Financial Instrument if the Fund is authorized to invest in the type
of asset by which the return on, or value of, the Financial Instrument is
primarily measured. Since the Fund is authorized to invest in foreign
securities, it may purchase and sell foreign currency derivatives.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of a Financial Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in the Fund's portfolio. Thus, in a short hedge the Fund takes
a position in a Financial Instrument whose price is expected to move in the
opposite direction of the price of the investment being hedged.
Conversely, a long hedge is a purchase or sale of a Financial Instrument
intended partially or fully to offset potential increases in the acquisition
cost of one or more investments that the Fund intends to acquire. Thus, in a
long hedge the Fund takes a position in a Financial Instrument whose price is
expected to move in the same direction as the price of the prospective
investment being hedged. A long hedge is sometimes referred to as an
anticipatory hedge. In an anticipatory hedge transaction, the Fund does not own
a corresponding security and, therefore, the transaction does not relate to a
security the Fund owns. Rather, it relates to a security that the Fund intends
to acquire. If the Fund does not complete the hedge by purchasing the security
it anticipated purchasing, the effect on the Fund's portfolio is the same as if
the transaction were entered into for speculative purposes.
Financial Instruments on securities generally are used to attempt to hedge
against price movements in one or more particular securities positions that the
Fund owns or intends to acquire. Financial Instruments on indices, in contrast,
generally are used to attempt to hedge against price movements in market sectors
in which the Fund has invested or expects to invest. Financial Instruments on
debt securities may be used to hedge either individual securities or broad debt
market sectors.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission (the "SEC"), the several exchanges upon
which they are traded and the Commodity Futures Trading Commission (the "CFTC").
In addition, the Fund's ability to use Financial Instruments will be limited by
tax considerations. See "Taxes."
In addition to the instruments, strategies and risks described below and in
the Prospectus, WRIMCO expects to discover additional opportunities in
connection with Financial Instruments and other similar or related techniques.
These new opportunities may become available as WRIMCO develops new techniques,
as regulatory authorities broaden the range of permitted transactions and as new
Financial Instruments or other techniques are developed. WRIMCO may utilize
these opportunities to the extent that they are consistent with the Fund's goal
and permitted by the Fund's investment limitations and applicable regulatory
authorities. The Fund's Prospectus or SAI will be supplemented to the extent
that new products or techniques involve materially different risks than those
described below or in the Prospectus.
Special Risks. The use of Financial Instruments involves special
considerations and risks, certain of which are described below. Risks
pertaining to particular Financial Instruments are described in the sections
that follow.
(1) Successful use of most Financial Instruments depends upon WRIMCO's
ability to predict movements of the overall securities, currency and interest
rate markets, which requires different skills than predicting changes in the
prices of individual securities. There can be no assurance that any particular
strategy will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of a Financial Instrument and price movements of the investments
being hedged. For example, if the value of a Financial Instrument used in a
short hedge increased by less than the decline in value of the hedged
investment, the hedge would not be fully successful. Such a lack of correlation
might occur due to factors unrelated to the value of the investments being
hedged, such as speculative or other pressures on the markets in which Financial
Instruments are traded. The effectiveness of hedges using Financial Instruments
on indices will depend on the degree of correlation between price movements in
the index and price movements in the securities being hedged.
Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match the Fund's current or anticipated investments exactly. The Fund may
invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in which it
typically invests, which involves a risk that the options or futures position
will not track the performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Fund's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options, futures
and securities are traded, or from imposition of daily price fluctuation limits
or trading halts. The Fund may purchase or sell options and futures contracts
with a greater or lesser value than the securities it wishes to hedge or intends
to purchase in order to attempt to compensate for differences in volatility
between the contract and the securities, although this may not be successful in
all cases. If price changes in the Fund's options or futures positions are
poorly correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
(3) If successful, the above-discussed strategies can reduce risk of loss
by wholly or partially offsetting the negative effect of unfavorable price
movements. However, such strategies can also reduce opportunity for gain by
offsetting the positive effect of favorable price movements. For example, if
the Fund entered into a short hedge because WRIMCO projected a decline in the
price of a security in the Fund's portfolio, and the price of that security
increased instead, the gain from that increase might be wholly or partially
offset by a decline in the price of the Financial Instrument. Moreover, if the
price of the Financial Instrument declined by more than the increase in the
price of the security, the Fund could suffer a loss. In either such case, the
Fund would have been in a better position had it not attempted to hedge at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain accounts or make margin payments when it takes positions in
Financial Instruments involving obligations to third parties (i.e., Financial
Instruments other than purchased options). If the Fund were unable to close out
its positions in such Financial Instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expired or matured. These requirements might impair the Fund's ability to sell
a portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time. The Fund's ability to close out a position in a Financial
Instrument prior to expiration or maturity depends on the existence of a liquid
secondary market or, in the absence of such a market, the ability and
willingness of the other party to the transaction ("counterparty") to enter into
a transaction closing out the position. Therefore, there is no assurance that
any position can be closed out at a time and price that is favorable to the
Fund.
Cover. Transactions using Financial Instruments, other than purchased
options, expose the Fund to an obligation to another party. The Fund will not
enter into any such transactions unless it owns either (1) an offsetting
("covered") position in currencies or other options, futures contracts or
forward contracts, or (2) cash and liquid assets with a value, marked-to-market
daily, sufficient to cover its potential obligations to the extent not covered
as provided in (1) above. The Fund will comply with SEC guidelines regarding
cover for these instruments and will, if the guidelines so require, set aside
cash or liquid assets in an account with its custodian in the prescribed amount
as determined daily.
Assets used as cover or held in an account cannot be sold while the
position in the corresponding Financial Instrument is open, unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or to accounts could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options. The purchase of call options can serve as a long hedge, and the
purchase of put options can serve as a short hedge. Writing put or call options
can enable the Fund to enhance income or yield by reason of the premiums paid by
the purchasers of such options. However, if the market price of the security
underlying a put option declines to less than the exercise price of the option,
minus the premium received, the Fund would expect to suffer a loss.
Writing call options can serve as a limited short hedge, because declines
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security or currency
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised and the Fund will be obligated to
sell the security or currency at less than its market value. If the call option
is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
Writing put options can serve as a limited long hedge because increases in
the value of the hedged investment would be offset to the extent of the premium
received for writing the option. However, if the security or currency
depreciates to a price lower than the exercise price of the put option, it can
be expected that the put option will be exercised and the Fund will be obligated
to purchase the security or currency at more than its market value. If the put
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Illiquid Investments."
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options that expire unexercised have
no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
A type of put that the Fund may purchase 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 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 may purchase or write both
exchange-traded and OTC options. Exchange-traded options in the United States
are issued by a clearing organization affiliated with the exchange on which the
option is listed that, in effect, guarantees completion of every exchange-traded
option transaction. In contrast, OTC options are contracts between the Fund and
its counterparty (usually a securities dealer or a bank) with no clearing
organization guarantee. Thus, when the Fund purchases an OTC option, it relies
on the counterparty from whom it purchased the option to make or take delivery
of the underlying investment upon exercise of the option. Failure by the
counterparty to do so would result in the loss of any premium paid by the Fund
as well as the loss of any expected benefit of the transaction.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by an offsetting transaction in the secondary market if any
such market exists. There can be no assurance that the Fund will in fact be
able to close out an OTC option position at a favorable price prior to
expiration. In the event of insolvency of the counterparty, the Fund might be
unable to close out an OTC option position at any time prior to its expiration.
If the Fund were unable to effect an offsetting closing transaction for an
option it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into an offsetting closing purchase transaction
for a covered call option written by the Fund could cause material losses
because the Fund would be unable to sell the investment used as cover for the
written option until the option expires or is exercised.
Options on Stock Indices. Puts and calls on indices are similar to puts
and calls on securities or futures contracts except that all settlements are in
cash and gain or loss depends on changes in the index in question rather than on
price movements in individual securities or futures contracts. When the Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, the purchaser of the call, upon exercise of the call, will
receive from the Fund an amount of cash if the closing level of the index upon
which the call is based is greater than the exercise price of the call. The
amount of cash is equal to the difference between the closing price of the index
and the exercise price of the call times a specified multiple ("multiplier"),
which determines the total dollar value for each point of such difference. When
the Fund buys a call on an index, it pays a premium and has the same rights as
to such call as are indicated above. When the Fund buys a put on an index, it
pays a premium and has the right, prior to the expiration date, to require the
seller of the put, upon the 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 less 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 an index, it receives a premium and the purchaser of the put has
the right, prior to the expiration date, to require the Fund to deliver to it an
amount of cash equal to the difference between the closing level of the index
and the exercise price times the multiplier if the closing level is less than
the exercise price.
Risks of Options on Stock Indices. The risks of investment in options on
stock indices may be greater than options on securities. Because index options
are settled in cash, when the Fund writes a call on an 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 writing a call
index option by holding a diversified portfolio of securities 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
securities as underlie the index and, as a result, bears a risk that the value
of the securities held will vary from the value of the index.
Even if the Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level on the date when the option is exercised. As with
other kinds of options, the Fund as the call writer will not learn that the Fund
has been assigned until the next business day at the earliest. The time lag
between exercise and notice of assignment poses no risk for the writer of a
covered call on a specific underlying security, such as a common stock, because
there the writer's obligation is to deliver the underlying security, not to pay
its value as of a fixed time in the past. So long as the writer already owns
the underlying security, it can satisfy its settlement obligations by simply
delivering it, and the risk that its value may have declined since the exercise
date is borne by the exercising holder. In contrast, even if the writer of an
index call holds securities that exactly match the composition of the underlying
index, it will not be able to satisfy its assignment obligations by delivering
those securities against payment of the exercise price. Instead, it will be
required to pay cash in an amount based on the closing index value on the
exercise date. By the time it learns that it has been assigned, the index may
have declined, with a corresponding decline in the value of its portfolio. This
"timing risk" is an inherent limitation on the ability of index call writers to
cover their risk exposure by holding securities 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 will be required to pay the
difference between the closing index value and the exercise price of the option
(times the applicable multiplier) to the assigned writer.
OTC Options. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size and strike
price, the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows the Fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than exchange-
traded options, which are guaranteed by the clearing organization of the
exchanges where they are traded.
Generally, OTC foreign currency options used by the Fund are European-style
options. This means that the option is only exercisable immediately prior to
its expiration. This is in contrast to American-style options, which are
exercisable at any time prior to the expiration date of the option.
Futures Contracts and Options on Futures Contracts. The purchase of
futures or call options on futures can serve as a long hedge, and the sale of
futures or the purchase of put options on futures can serve as a short hedge.
Writing call options on futures contracts can serve as a limited short hedge,
using a strategy similar to that used for writing call options on securities or
indices. Similarly, writing put options on futures contracts can serve as a
limited long hedge. Futures contracts and options on futures contracts can also
be purchased and sold to attempt to enhance income or yield.
In addition, futures strategies can be used to manage the average duration
of the Fund's fixed-income portfolio. If WRIMCO wishes to shorten the average
duration of the Fund's fixed-income portfolio, the Fund may sell a debt futures
contract or a call option thereon, or purchase a put option on that futures
contract. If WRIMCO wishes to lengthen the average duration of the Fund's
fixed-income portfolio, the Fund may buy a debt futures contract or a call
option thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund is required to deposit "initial margin"
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to the Fund at the termination of the transaction if
all contractual obligations have been satisfied. Under certain circumstances,
such as periods of high volatility, the Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the Fund purchases
or sells a futures contract or writes a call or put option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions in
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures may
be closed only on an exchange or board of trade that provides a secondary
market. However, there can be no assurance that a liquid secondary market will
exist for a particular contract at a particular time. In such event, it may not
be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily
price limits do not limit potential losses because prices could move to the
daily limit for several consecutive days with little or no trading, thereby
preventing liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on a
futures position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund would continue to be
required to make daily variation margin payments and might be required to
maintain the position being hedged by the futures contract or option or to
maintain liquid assets in an account.
Risks of Futures Contracts and Options Thereon. The ordinary spreads
between prices in the cash and futures markets (including the options on futures
market), due to 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 rate, currency exchange rate or stock market trends by WRIMCO
may still not result in a successful transaction. WRIMCO may be incorrect in
its expectations as to the extent of various interest rate, currency exchange
rate or stock market movements or the time span within which the movements take
place.
Index Futures. The risk of imperfect correlation between movements in the
price of an index future and movements in the price of the securities that are
the subject of the hedge increases as the composition of the Fund's portfolio
diverges from the securities included in the applicable index. The price of the
index futures may move more than or less than the price of the securities being
hedged. If the price of the index future moves less than the price of the
securities that are the subject of the hedge, the hedge will not be fully
effective but, if the price of the securities being hedged has moved in an
unfavorable direction, the Fund would be in a better position than if it had not
hedged at all. If the price of the securities being hedged has moved in a
favorable direction, this advantage will be partially offset by the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge. To compensate for the imperfect
correlation of movements in the price of the securities being hedged and
movements in the price of the index futures, the Fund may buy or sell index
futures in a greater dollar amount than the dollar amount of such securities
being hedged if the historical volatility of the prices of the securities being
hedged is more than the historical volatility of the prices of the securities
included in the index. It is also possible that, where the Fund has sold index
futures contracts to hedge against decline in the market, the market may advance
and the value of the securities held in the portfolio may decline. If this
occurred, the Fund would lose money on the futures contract and also experience
a decline in value of its portfolio securities. However, while this could occur
for a very brief period or to a very small degree, over time the value of a
diversified portfolio of securities will tend to move in the same direction as
the market indices on which the futures contracts are based.
Where index futures are purchased to hedge against a possible increase in
the price of securities before the Fund is able to invest in them in an orderly
fashion, it is possible that the market may decline instead. If the Fund then
concludes not to invest in them at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
futures contract that is not offset by a reduction in the price of the
securities it had anticipated purchasing.
To the extent that the Fund enters into futures contracts, options on
futures contracts or options on foreign currencies traded on a CFTC-regulated
exchange, in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish those
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) will not exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized losses on
any contracts the Fund has entered into. (In general, a call option on a
futures contract is "in-the-money" if the value of the underlying futures
contract exceeds the strike, i.e., exercise, price of the call; a put option on
a futures contract is "in-the-money" if the value of the underlying futures
contract is exceeded by the strike price of the put.) This policy does not
limit to 5% the percentage of the Fund's assets that are at risk in futures
contracts, options on futures contracts and currency options.
Foreign Currency Hedging Strategies--Special Considerations. The Fund may
use options and futures contracts on foreign currencies, as described above, and
forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or to attempt to enhance income or yield. Currency hedges can
protect against price movements in a security that the Fund owns or intends to
acquire that are attributable to changes in the value of the currency in which
it is denominated. Such hedges do not, however, protect against price movements
in the securities that are attributable to other causes.
The Fund might seek to hedge against changes in the value of a particular
currency when no Financial Instruments on that currency are available or such
Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, the Fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the values of which WRIMCO believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Financial Instrument
will not correlate perfectly with movements in the price of the currency subject
to the hedging transaction is magnified when this strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Financial Instruments until they
reopen.
Settlement of transactions involving foreign currencies might be required
to take place within the country issuing the underlying currency. Thus, the
Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts. The Fund may enter into forward currency
contracts to purchase or sell foreign currencies for a fixed amount of U.S.
dollars or another foreign currency. A forward currency contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (term) from the date of the forward currency
contract agreed upon by the parties, at a price set at the time of the forward
currency contract. These forward currency contracts are traded directly between
currency traders (usually large commercial banks) and their customers.
Such transactions may serve as long hedges; for example, the Fund may
purchase a forward currency contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Fund intends to acquire.
Forward currency contract transactions may also serve as short hedges; for
example, the Fund may sell a forward currency contract to lock in the U.S.
dollar equivalent of the proceeds from the anticipated sale of a security,
dividend or interest payment denominated in a foreign currency.
The Fund may also use forward contracts to hedge against a decline in the
value of existing investments denominated in foreign currency. For example, if
the Fund owned securities denominated in pounds sterling, it could enter into a
forward currency contract to sell pounds sterling in return for U.S. dollars to
hedge against possible declines in the pound's value. Such a hedge, sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations, but would not offset changes in security values
caused by other factors. The Fund could also hedge the position by selling
another currency expected to perform similarly to the pound sterling, for
example, by entering into a forward contract to sell Deutsche Marks or European
Currency Units in return for U.S. dollars. This type of hedge, sometimes
referred to as a "proxy hedge," could offer advantages in terms of cost, yield,
or efficiency, but generally would not hedge currency exposure as effectively as
a simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.
The Fund also may use forward currency contracts to attempt to enhance
income or yield. The Fund could use forward currency contracts to increase its
exposure to foreign currencies that WRIMCO believes might rise in value relative
to the U.S. dollar, or shift its exposure to foreign currency fluctuations from
one country to another. For example, if the Fund owned securities denominated
in a foreign currency and WRIMCO believed that currency would decline relative
to another currency, it might enter into a forward currency contract to sell an
appropriate amount of the first foreign currency, with payment to be made in the
second foreign currency.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When the Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can
be no assurance that the Fund will in fact be able to close out a forward
currency contract at a favorable price prior to maturity. In addition, in the
event of insolvency of the counterparty, the Fund might be unable to close out a
forward currency contract at any time prior to maturity. In either event, the
Fund would continue to be subject to market risk with respect to the position,
and would continue to be required to maintain a position in securities
denominated in the foreign currency or to maintain cash or liquid assets in a
segregated account.
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of such
securities, measured in the foreign currency, will change after the forward
currency contract has been established. Thus, the Fund might need to purchase
or sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Normally, consideration of the prospect for currency parities will be
incorporated into the longer term investment decisions made with regard to
overall diversification strategies. However, WRIMCO believes that it is
important to have the flexibility to enter into such forward currency contracts
when it determines that the best interests of the Fund will be served.
Combined Positions. The Fund may purchase and write options in combination
with each other, or in combination with futures contracts, to adjust the risk
and return characteristics of its overall position. For example, the Fund may
purchase a put option and write a call option on the same underlying instrument,
in order to construct a combined position whose risk and return characteristics
are similar to selling a futures contract. Another possible combined position
would involve writing a call option at one strike price and buying a call option
at a lower price, in order to reduce the risk of the written call option in the
event of a substantial price increase. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by the Fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate.
Once the Fund has received an exercise notice on an option it has written, it
cannot effect a closing transaction in order to terminate its obligation under
the option and must deliver or receive the underlying securities at the exercise
price. The exercise of puts purchased by the Fund may also cause the sale of
related investments, also increasing turnover; although such exercise is within
the Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. The
Fund will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than
those that would apply to direct purchases or sales.
Swaps, Caps, Collars and Floors. Swap agreements, including caps, collars
and floors, can be individually negotiated and structured to include exposure to
a variety of different types of investments or market factors. Depending on
their structure, swap agreements may increase or decrease the Fund's exposure to
long- or short-term interest rates (in the United States or abroad), foreign
currency values, mortgage-backed security values, corporate borrowing rates, or
other factors such as security prices or inflation rates.
Swap agreements will tend to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agrees to exchange
payments in U.S. dollars for payments in foreign currency, the swap agreement
would tend to decrease the Fund's exposure to U.S. interest rates and increase
its exposure to foreign currency and interest rates. Caps and floors have an
effect similar to buying or writing options.
The creditworthiness of firms with which the Fund enters into swaps, caps
or floors will be monitored by WRIMCO in accordance with procedures adopted by
the Fund's Board of Directors. If a default occurs by the other party to such
transaction, the Fund will have contractual remedies pursuant to the agreements
related to the transaction.
The net amount of the excess, if any, of the Fund's obligations over its
entitlements with respect to each swap will be accrued on a daily basis and an
amount of cash or liquid assets having an aggregate net asset value at least
equal to the accrued excess will be maintained in an account with the Fund's
custodian that satisfies the requirements of the 1940 Act. The Fund will also
establish and maintain such account with respect to its total obligations under
any swaps that are not entered into on a net basis and with respect to any caps
or floors that are written by the Fund. WRIMCO and the Fund believe that such
obligations do not constitute senior securities under the 1940 Act and,
accordingly, will not treat them as being subject to the Fund's borrowing
restrictions.
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) Purchase or sell physical commodities; however, this policy shall not
prevent the Fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, collars, floors
and other financial instruments;
(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 that redeem their shares.
The Fund can buy shares of investment companies that do not redeem
their shares if it does it in a regular transaction in the open market
and then does not have more than one tenth (i.e., 10%) of its total
assets in these shares. 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 and other
obligations consistent with its goal and its other investment policies
and restrictions; 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) Participate on a joint, or a joint and several, basis in any trading
account in any securities;
(vii) Sell securities short (unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short)
or purchase securities on margin, except that (1) this policy does not
prevent the Fund from entering into short positions in foreign
currency, futures contracts, options, forward contracts, swaps, caps,
collars, floors and other financial instruments, (2) the Fund may
obtain such short-term credits as are necessary for the clearance of
transactions, and (3) the Fund may make margin payments in connection
with futures contracts, options, forward contracts, swaps, caps,
collars, floors and other financial instruments;
(viii) Engage in the underwriting of securities, that is, the selling of
securities for others;
(ix) Borrow for investment purposes, that is, to purchase securities. 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
(x) With respect to 75% of its total assets, purchase securities of any
one issuer (other than cash items and "Government securities" as
defined in the Investment Company Act of 1940 (the "1940 Act")), if
immediately after and as a result of such purchase, (a) the value of
the holdings of the Fund in the securities of such issuer exceeds 5%
of the value of the Fund's total assets, or (b) the Fund owns more
than 10% of the outstanding voting securities of such issuer; 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, 1998 was 66.77%, while the rate for
the remainder of the portfolio was 17.50%. The Fund's overall portfolio
turnover rates for the fiscal years ended June 30, 1998 and 1997 were 53.52% and
39.55%, 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 WRIMCO, a wholly owned subsidiary of Waddell & Reed, Inc.
Under the Management Agreement, WRIMCO is employed to supervise the investments
of the Fund and provide investment advice to the Fund. The address of WRIMCO
and Waddell & Reed, Inc. is 6300 Lamar Avenue, P.O. Box 29217, Shawnee Mission,
Kansas 66201-9217. Waddell & Reed, Inc. is the 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 Board of Directors prior to approving any Shareholder
Servicing Agreement or Accounting Services Agreement.
Torchmark Corporation and Waddell & Reed Financial, Inc.
WRIMCO is a wholly owned subsidiary of Waddell & Reed, Inc. Waddell &
Reed, Inc. is a wholly owned subsidiary of Waddell & Reed Financial Services,
Inc., a holding company. Waddell & Reed Financial Services, Inc. is a wholly
owned subsidiary of Waddell & Reed Financial, Inc. Waddell & Reed Financial,
Inc. is a subsidiary of Torchmark Corporation. Torchmark Corporation is a
publicly held company. The address of Torchmark Corporation 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,
except United Asset Strategy Fund, Inc., since 1940 or the company's inception
date, whichever was later, and to Target/United Funds, Inc. since that fund's
inception, until January 8, 1992 when it assigned its duties as investment
manager for these funds (and the related professional staff) to WRIMCO. WRIMCO
has also served as investment manager for Waddell & Reed Funds, Inc. since its
inception in September 1992 and United Asset Strategy Fund, Inc. since it
commenced operations in March 1995. Waddell & Reed, Inc. serves as principal
underwriter for the investment companies in the United Group of Mutual Funds and
Waddell & Reed Funds, Inc. and acts as principal underwriter and distributor for
variable life insurance and variable annuity policies issued by United Investors
Life Insurance Company for which Target/United Funds, Inc. is the underlying
investment vehicle.
Shareholder Services
Under the Shareholder Servicing Agreement entered into between the Fund and
Waddell & Reed Services Company (the "Agent"), a subsidiary of Waddell & Reed,
Inc., the Agent performs shareholder servicing functions, including the
maintenance of shareholder accounts, the issuance, transfer and redemption of
shares, distribution of dividends and payment of redemptions, the furnishing of
related information to the Fund and handling of shareholder inquiries. A new
Shareholder Servicing Agreement, or amendments to the existing one, may be
approved by the Fund's Board of 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 Board of Directors
without shareholder approval.
Payments by the Fund for Management, Accounting and Shareholder Services
Under the Management Agreement, for WRIMCO's management services, the Fund
pays WRIMCO a fee as described in the Prospectus.
The management fees paid to WRIMCO during the fiscal years ended June 30,
1998, 1997 and 1996 were $4,229,070, $3,578,876 and $3,198,744,
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, with respect to Class A shares,
the Fund pays the Agent a monthly fee of $1.3125 for each shareholder account
that was in existence at any time during the prior month, plus $0.30 for each
account on which a dividend or distribution, of cash or shares, had a record
date in that month. For Class Y shares, the Fund pays the Agent a monthly fee
equal to one-twelfth of .15 of 1% of the average daily net assets of that class
for the preceding month. The Fund also pays certain out-of-pocket expenses of
the Agent, including long distance telephone communications costs; microfilm and
storage costs for certain documents; forms, printing and mailing costs; and
costs of legal and special services not provided by Waddell & Reed, Inc.,
WRIMCO, or the Agent.
Under the Accounting Services Agreement, the Fund pays the 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 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
Fees paid to the Agent for the fiscal years ended June 30, 1998, 1997 and
1996 were $80,000, $70,000 and $66,667, respectively.
Since the Fund pays a management fee for investment supervision and an
accounting services fee for accounting services as discussed above, WRIMCO and
the Agent, respectively, pay all of their own expenses in providing these
services. Amounts paid by the 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 WRIMCO 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 Class A shares for the fiscal years ended June 30,
1998, 1997 and 1996 were $3,494,973, $2,917,026 and $2,789,340, respectively,
and the amounts retained by Waddell & Reed, Inc. for each fiscal year were
$1,471,735, $1,227,433 and $1,195,073, respectively.
A major portion of the sales charge for Class A shares is paid to account
representatives and managers of Waddell & Reed, Inc. Waddell & Reed, Inc. may
compensate its account representatives as to purchases for which there is no
sales 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 Distribution and Service Plan for Class A shares (the "Plan")
adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act, the Fund may pay
Waddell & Reed, Inc., the principal underwriter for the Fund, a fee not to
exceed 0.25% of the Fund's average annual net assets attributable to Class A
shares, paid monthly, to reimburse Waddell & Reed, Inc. for its costs and
expenses in connection with the distribution of the Class A shares and/or the
service and/or maintenance of Class A shareholder accounts.
Waddell & Reed, Inc. offers the Fund's shares through its registered
representatives and sales managers (sales force) unless it elects, which is not
currently contemplated for Class A shares, to make distribution of shares also
through other broker-dealers. In distributing shares through its sales force,
Waddell & Reed, Inc. will pay commissions and incentives to the sales force at
or about the time of sale and will incur other expenses including for
prospectuses, sales literature, advertisements, sales office maintenance,
processing of orders and general overhead with respect to its efforts to
distribute the Fund's shares. The Plan permits Waddell & Reed, Inc. to receive
reimbursement for these Class A-related distribution activities through the
distribution fee, subject to the limit contained in the Plan. The Plan also
contemplates that Waddell & Reed, Inc. may be reimbursed for amounts it expends
in compensating, training and supporting registered account representatives,
sales managers and/or other appropriate personnel in providing personal services
to Class A shareholders of the Fund and/or maintaining Class A shareholder
accounts; increasing services provided to Class A shareholders of the Fund by
office personnel located at field sales offices; engaging in other activities
useful in providing personal service to Class A shareholders of the Fund and/or
maintenance of Class A shareholder accounts; and in compensating broker-dealers
who may regularly sell Class A shares of the Fund, and other third parties, for
providing shareholder services and/or maintaining shareholder accounts with
respect to Class A shares. Fees paid (or accrued) as distribution fees and
service fees by the Fund for the fiscal year ended June 30, 1998 were $2,335 and
$1,571,139, respectively.
The Plan was 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 the affected 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 Class A 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 UMB Bank, n.a., Kansas City, Missouri. In general,
the Custodian is responsible for holding the Fund's cash and securities.
Deloitte & Touche LLP, Kansas City, Missouri, the Fund's independent
accountants, audits the Fund's financial statements.
Year 2000 Issue
Like other mutual funds, financial and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by WRIMCO and the Fund's other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." WRIMCO is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
assurances that comparable steps are being taken by the Fund's other, major
service providers. Although there can be no assurances, WRIMCO believes these
steps will be sufficient to avoid any adverse impact on the Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Offering Price
The net asset value of each class of the shares of the Fund is the value of
the assets of that class, less the class's liabilities, divided by the total
number of outstanding shares of that class.
Class A shares of the 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, 1997 was as follows:
Net asset value per Class A share (Class A
net assets divided by Class A shares
outstanding) ............................. $9.28
Add: selling commission (5.75% of offering
price) ................................... .57
-----
Maximum offering price per Class A share
(Class A net asset value divided by 94.25%) $9.85
=====
The offering price of a Class A share is its net asset value next
determined following acceptance of a purchase order plus the sales charge. The
offering price of a Class Y share is its net asset value next determined
following acceptance of a purchase order. The number of shares you receive for
your purchase depends on the next offering price after Waddell & Reed, Inc.
receives and accepts your order at its principal business office at the address
shown on the cover of this SAI. You will be sent a 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 ordinarily computed
once on each day that the NYSE is open for trading as of the later of the close
of the regular session of the NYSE or the close of the regular session of any
domestic securities or commodities exchange on which an option or future held by
the Fund is traded. The NYSE annually announces the days on which it will not
be open for trading. The most recent announcement indicates that the NYSE will
not be open on the following days: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, it is possible that the NYSE may
close on other days. The net asset value will change every business day, since
the value of the assets and the number of shares outstanding change every
business day.
The securities in the portfolio of the Fund, except as otherwise noted,
that are listed or traded on a stock exchange are valued on the basis of the
last sale on that day or, lacking any sales, at a price that is the mean between
the closing bid and asked prices. Other securities that are traded over-the-
counter are priced using the Nasdaq Stock Market, which provides information on
bid and asked prices quoted by major dealers in such stocks. Bonds, other than
convertible bonds, are valued using a third-party pricing system. Convertible
bonds are valued using this pricing system only on days when there is no sale
reported. Short-term debt securities are valued at amortized cost, which
approximates market. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in good faith
under procedures established by and under the general supervision and
responsibility of the Fund's Board of Directors.
Puts, calls and futures contracts 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 for options
trading on national securities exchanges is 4:10 p.m. Eastern time and the close
of the regular session for commodities exchanges is 4:15 p.m. Eastern time.
Futures contracts will be valued 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" (that is, treated as sold for its fair market
value) 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.
Foreign currency exchange rates are generally determined prior to the close
of trading of the regular session of the NYSE. Occasionally events affecting
the value of foreign investments and such exchange rates occur between the time
at which they are determined and the close of the regular session of trading on
the NYSE, which events will not be reflected in a computation of the Fund's net
asset value on that day. If events materially affecting the value of such
investments or currency exchange rates occur during such time period,
investments will be valued at their fair value as determined in good faith by or
under the direction of the Board of Directors. The foreign currency exchange
transactions of the Fund conducted on a spot (that is, cash) basis are valued at
the spot rate for purchasing or selling currency prevailing on the foreign
exchange market. This rate under normal market conditions differs from the
prevailing exchange rate in an amount generally less than one-tenth of one
percent due to the costs of converting from one currency to another.
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
For Class A shares, initial investments must be at least $500 with the
exceptions described in this paragraph. A $100 minimum initial investment
pertains to certain exchanges of shares from another fund in the United Group.
A $50 minimum initial investment pertains to purchases for certain retirement
plan accounts and to accounts for which an investor has arranged, at the time of
initial investment, to make subsequent purchases for the account by having
regular monthly withdrawals of $25 or more made from a bank account. A minimum
initial investment of only $25 is applicable to purchases made through payroll
deduction by or for employees of Waddell & Reed, Inc., WRIMCO, their affiliates
or certain retirement plan accounts. Except with respect to certain exchanges
and automatic withdrawals from a bank account, a shareholder may make subsequent
investments of any amount. See "Exchanges for Shares of Other Funds in the
United Group."
For Class Y shares, investments by government entities or authorities or by
corporations must total at least $10 million within the first twelve months
after initial investment. There is no initial investment minimum for other
Class Y investors.
Reduced Sales Charges (Applicable to Class A Shares Only)
Account Grouping
Large purchases of Class A shares are subject to lower sales charges. The
schedule of sales charges appears in the Prospectus for Class A shares. For the
purpose of taking advantage of the lower sales charges available for large
purchases, a purchase in any of categories 1 through 7 listed below made by an
individual or deemed to be made by an individual may be grouped with purchases
in any other of these categories:
1. Purchases by an individual for his or her own account (includes purchases
under the United Funds Revocable Trust Form);
2. Purchases by that individual's spouse purchasing for his or her own account
(includes United Funds Revocable Trust Form of spouse);
3. Purchases by that individual or his or her spouse in their joint account;
4. Purchases by that individual or his or her spouse for the account of their
child under age 21;
5. Purchase by any custodian for the child of that individual or spouse in a
Uniform Gifts to Minors Act ("UGMA") or Uniform Transfers to Minors Act
("UTMA")account;
6. Purchases by that individual or his or her spouse for his or her Individual
Retirement Account ("IRA"), salary reduction plan account under Section 457
of the Internal Revenue Code of 1986, as amended (the "Code"), tax
sheltered annuity account ("TSA") or Keogh plan account, provided that such
purchases are subject to a sales charge (see "Net Asset Value Purchases"),
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 of Class A shares made for a participant in a multi-
participant Keogh plan may be grouped only with other purchases made under the
same plan; a multi-participant Keogh plan is defined as a plan in which there is
more than one participant where one or more of the participants is other than
the spouse of the owner/employer.
Example A: H has established a Keogh plan; he and his wife W are the only
participants in the plan; they may group their purchases made under
the plan with any purchases in categories 1 through 7 above.
Example B: H has established a Keogh plan; his wife, W, is a participant and
they have hired one or more employees who also become participants
in the plan; H and W may not combine any purchases made under the
plan with any purchases in categories 1 through 7 above; however,
all purchases made under the plan for H, W or any other employee
will be combined.
All purchases of Class A shares made under a "qualified" employee benefit
plan of an incorporated business will be grouped. A "qualified" employee
benefit plan is established pursuant to Section 401 of the Code. All qualified
employee benefit plans of any one employer or affiliated employers will also be
grouped. An affiliate is defined as an employer that directly, or indirectly,
controls or is controlled by or is under control with another employer.
Example: Corporation X sets up a defined benefit plan; its subsidiary,
Corporation Y, sets up a 401(k) plan; all contributions made under
both plans will be grouped.
All purchases of Class A shares made under a simplified employee pension
plan ("SEP"), payroll deduction plan or similar arrangement adopted by an
employer or affiliated employers (as defined above) may be grouped provided that
the employer elects to have all such purchases grouped at the time the plan is
set up. If the employer does not make such an election, the purchases made by
individual employees under the plan may be grouped with the other accounts of
the individual employees described above in "Account Grouping."
Account grouping as described above is available under the following
circumstances.
One-time Purchases
A one-time purchase of Class A shares in accounts eligible for grouping may
be combined for purposes of determining the availability of a reduced sales
charge. In order for an eligible purchase to be grouped, the investor must
advise Waddell & Reed, Inc. at the time the purchase is made that it is eligible
for grouping and identify the accounts with which it may be grouped.
Example: H and W open an account in the Fund and invest $75,000; at the same
time, H's parents open up three UGMA accounts for H and W's three
minor children and invest $10,000 in each child's name; the combined
purchase of $105,000 of Class A shares is subject to a reduced sales
load of 4.75% provided that Waddell & Reed, Inc. is advised that the
purchases are entitled to grouping.
Rights of Accumulation
If Class A shares are held in any account and an additional purchase is
made in that account or in any account eligible for grouping with that account,
the additional purchase is combined with the net asset value of the existing
account as of the date the new purchase is accepted by Waddell & Reed, Inc. for
the purpose of determining the availability of a reduced sales charge.
Example: H is a current Class A shareholder who invested in the Fund three
years ago. His account has a net asset value of $80,000. His wife,
W, now wishes to invest $20,000 in Class A shares of the Fund. W's
purchase will be combined with H's existing account and will be
entitled to a reduced sales charge of 4.75%. H's original purchase
was subject to a full sales charge and the reduced charge does not
apply retroactively to that purchase.
In order to be entitled to rights of accumulation, the purchaser must
inform Waddell & Reed, Inc. that the purchaser is entitled to a reduced charge
and provide Waddell & Reed, Inc. with the name and number of the existing
account with which the purchase may be combined.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under such plan may be combined with the additional
purchase only if the contractual plan has been completed.
Statement of Intention
The benefit of a reduced sales charge for larger purchases of Class A
shares is also available under a Statement of Intention. By signing a Statement
of Intention form, which is available from Waddell & Reed, Inc., the purchaser
indicates an intention to invest, over a 13-month period, a dollar amount which
is sufficient to qualify for a reduced sales charge. The 13-month period begins
on the date the first purchase made under the Statement of Intention is accepted
by WRIMCO. Each purchase made from time to time under the Statement of
Intention is treated as if the purchaser were buying at one time the total
amount which he or she intends to invest. The sales charge applicable to all
purchases of Class A shares made under the terms of the Statement of Intention
will be the sales charge in effect on the beginning date of the 13-month period.
In determining the amount which the purchaser must invest in order to
qualify for a reduced sales charge under a Statement of Intention, the
investor's Rights of Accumulation (see above) will be taken into account; that
is, Class A shares already held in the same account in which the purchase is
being made or in any account eligible for grouping with that account, as
described above, will be included.
Example: H signs a Statement of Intention indicating his intent to invest in
his own name a dollar amount sufficient to entitle him to purchase
Class A shares at the sales charge applicable to a purchase of
$100,000. H has an IRA account and the Class A shares held under the
IRA in the Fund have a net asset value as of the date the Statement of
Intention is accepted by Waddell & Reed, Inc. of $15,000; H's wife, W,
has an account in her own name invested in another fund in the United
Group which charges the same sales load as the Fund, with a net asset
value as of the date of acceptance of the Statement of Intention of
$10,000; H needs to invest $75,000 in Class A shares over the 13-month
period in order to qualify for the reduced sales load applicable to a
purchase of $100,000.
A copy of the Statement of Intention signed by a purchaser will be returned
to the purchaser after it is accepted by Waddell & Reed, Inc. and will set forth
the dollar amount of Class A shares which must be purchased within the 13-month
period in order to qualify for the reduced sales charge.
If a purchaser holds shares which have been purchased under a contractual
plan, the shares held under the plan will be taken into account in determining
the amount which must be invested under the Statement of Intention only if the
contractual plan has been completed.
The minimum initial investment under a Statement of Intention is 5% of the
dollar amount which must be invested under the Statement of Intention. An
amount equal to 5% of the purchase required under the Statement of Intention
will be held "in escrow." If a purchaser does not, during the period covered by
the Statement of Intention, invest the amount required to qualify for the
reduced sales charge under the terms of the Statement of Intention, he or she
will be responsible for payment of the sales charge applicable to the amount
actually invested. The additional sales charge owed on purchases of Class A
shares made under a Statement of Intention which is not completed will be
collected by redeeming part of the shares purchased under the Statement of
Intention and held "in escrow" unless the purchaser makes payment of this amount
to Waddell & Reed, Inc. within 20 days of Waddell & Reed, Inc.'s request for
payment.
If the actual amount invested is higher than the amount an investor intends
to invest, and is large enough to qualify for a sales charge lower than that
available under the Statement of Intention, the lower sales charge will apply.
A Statement of Intention does not bind the purchaser to buy, or Waddell &
Reed, Inc. to sell, the shares covered by the Statement of Intention.
With respect to Statements of Intention for $2,000,000 or purchases
otherwise qualifying for no sales charge under the terms of the Statement of
Intention, the initial investment must be at least $200,000, and the value of
any shares redeemed during the 13-month period which were acquired under the
Statement of Intention will be deducted in computing the aggregate purchases
under the Statement of Intention.
Statements of Intention are not available for purchases made under a SEP
where the employer has elected to have all purchases under the SEP grouped.
Other Funds in the United Group
Reduced sales charges for larger purchases of Class A shares apply to
purchases of any of the 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 have shares that 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., United High Income Fund II, Inc. and United
Asset Strategy Fund, Inc. The following funds in the United Group have shares
that 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 of shares that are subject to a full sales charge may not be
grouped with purchases of shares in a fund in the United Group that are subject
to a reduced sales charge; conversely, purchases of shares in a fund with a
reduced sales charge may not be grouped or combined with purchases of shares of
a fund that are 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 of Class A Shares
As stated in the Prospectus, Class A shares of the Fund may be purchased at
net asset value by the Directors and officers of the Fund, employees of Waddell
& Reed, Inc., employees of their affiliates, account representatives of Waddell
& Reed, Inc. and the spouse, children, parents, children's spouses and spouse's
parents of each such Director, officer, employee and account representative.
"Child" includes stepchild; "parent" includes stepparent. Purchases of Class A
shares in an IRA sponsored by Waddell & Reed, Inc. established for any of these
eligible purchasers may also be at net asset value. Purchases in any tax
qualified retirement plan under which the eligible purchaser is the sole
participant may also be made at net asset value. Trusts under which the grantor
and the trustee or a co-trustee are each an eligible purchaser are also eligible
for net asset value purchases of Class A shares. "Employees" includes retired
employees. A retired employee is an individual separated from service from
Waddell & Reed, Inc. or affiliated companies with a vested interest in any
Employee Benefit Plan sponsored by Waddell & Reed, Inc. or its affiliated
companies. "Account representatives" includes retired account representatives.
A "retired account representative" is any account representative who was, at the
time of separation from service from Waddell & Reed, Inc., a Senior Account
Representative. A custodian under the UGMA or UTMA purchasing for the child or
grandchild of any employee or account representative may purchase Class A shares
at net asset value whether or not the custodian himself is an eligible
purchaser.
Purchases of Class A shares in a 401(k) plan having 100 or more eligible
employees and purchases of Class A shares in a 457 plan having 100 or more
eligible employees may be made at net asset value.
Reasons for Differences in Public Offering Price of Class A Shares
As described herein and in the Prospectus for Class A shares, there are a
number of instances in which the Fund's Class A shares are sold or issued on a
basis other than the maximum public offering price, that is, the net asset value
plus the highest sales charge. Some of these relate to lower or eliminated
sales charges for larger purchases of Class A shares, whether made at one time
or over a period of time as under a Statement of Intention or right of
accumulation. See the table of sales charges in the Prospectus. The reasons
for these quantity discounts are, in general, that (i) they are traditional and
have long been permitted in the industry and are therefore necessary to meet
competition as to sales of shares of other funds having such discounts, (ii)
certain quantity discounts are required by rules of the National Association of
Securities Dealers, Inc. (as are elimination of sales charges on the
reinvestment of dividends and distributions), and (iii) they are designed to
avoid an unduly large dollar amount of sales 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 for Class A shares are as follows. Exchanges at net
asset value are permitted because a sales charge has already been paid on the
shares exchanged. Sales of Class A shares without sales charge are permitted to
Directors, officers and certain others due to reduced or eliminated selling
<PAGE>
expenses and since such sales may aid in the development of a sound employee
organization, encourage incentive, responsibility and interest in the United
Group and an identification with its aims and policies. Limited reinvestments
of redemptions of Class A shares at no sales charge are permitted to attempt to
protect against mistaken or not fully informed redemption decisions. Class A
shares may be issued at no sales charge in plans of reorganization due to
reduced or eliminated sales expenses and since, in some cases, such issuance is
exempted in the 1940 Act 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 Class A shareholders
adversely affected since, in each case, the Fund receives the net asset value
per share of all shares sold or issued.
Flexible Withdrawal Service for Class A Shareholders
If you qualify, you may arrange to receive through the Flexible Withdrawal
Service (the "Service") regular monthly, quarterly, semiannual or annual
payments by redeeming on an ongoing basis Class A shares that you own of the
Fund or of any of the funds in the United Group. It would be a disadvantage to
an investor to make additional purchases of shares while a withdrawal program is
in effect because it would result in duplication of sales charges. Applicable
forms to start the Service are available through Waddell & Reed, Inc.
To qualify for the Service, you must have invested at least $10,000 in
Class A shares which you still own of any of the funds in the United Group; or,
you must own Class A shares having a value of at least $10,000. The value for
this purpose is the value at the offering price.
You can choose to have your shares redeemed to receive:
1. a monthly, quarterly, semiannual or annual payment of $50 or more;
2. a monthly payment, which will change each month, equal to one-twelfth
of a percentage of the value of the shares in the Account (you select the
percentage); or
3. a monthly or quarterly payment, which will change each month or
quarter, by redeeming a number of shares fixed by you (at least five shares).
Shares are redeemed on the 20th day of the month in which the payment is to
be made, or on the prior business day if the 20th is not a business day.
Payments are made within five days of the redemption.
Retirement plan accounts may be subject to a fee imposed by the plan
custodian for use of their service.
If you have a share certificate for the shares you want to make available
for this Service, you must enclose the certificate with the form initiating the
Service.
The dividends and distributions on shares you have made available for the
Service are paid in additional Class A shares. All payments under the Service
are made by redeeming Class A shares, which may involve a gain or loss for tax
purposes. To the extent that payments exceed dividends and distributions, the
number of Class A shares you own will decrease. When all of the shares in your
account are redeemed, you will not receive any further payments. Thus, the
payments are not an annuity or an income or return on your investment.
You may, at any time, change the manner in which you have chosen to have
shares redeemed to any of the other choices originally available to you. You
may, at any time, redeem part or all of the shares in your account; if you
redeem all of the shares, the Service is terminated. The 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
Class A Share Exchanges
Once a sales charge has been paid on shares of a fund in the United Group,
these shares and any shares added to them from dividends or distributions paid
in shares may be freely exchanged for Class A shares of another fund in the
United Group. The shares you exchange must be worth at least $100 or you must
already own shares of the fund in the United Group into which you want to
exchange.
You may exchange Class A shares you own in another fund in the United Group
for Class A shares of the Fund without charge if (i) a sales charge was paid on
these shares, or (ii) the shares were received in exchange for shares for which
a sales charge was paid, or (iii) the shares were acquired from reinvestment of
dividends and distributions paid on such shares. There may have been one or
more such exchanges so long as a sales charge was paid on the shares originally
purchased. Also, shares acquired without a sales charge because the purchase
was $2 million or more will be treated the same as shares on which a sales
charge was paid.
United Municipal Bond Fund, Inc., United Government Securities Fund, Inc.
and United Municipal High Income Fund, Inc. shares are the exception and special
rules apply. Class A shares of these funds may be exchanged for Class A shares
of the Fund only if (i) you received those shares as a result of one or more
exchanges of shares on which a sales charge was originally paid, or (ii) the
shares have been held from the date of the original purchase for at least six
months.
Subject to the above rules regarding sales charges, you may have a specific
dollar amount of Class A shares of United Cash Management, Inc. automatically
exchanged each month into Class A shares of 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 Class A
shares of the fund in the United Group into which you want to exchange. The
minimum value of shares which you may designate for automatic exchange monthly
is $100, which may be allocated among the Class A shares of different funds in
the United Group so long as each fund receives a value of at least $25. Minimum
initial investment and minimum balance requirements apply to such automatic
exchange service.
You may redeem your Class A shares of a Fund and use the proceeds to
purchase Class Y shares of that Fund if you meet the criteria for purchasing
Class Y shares.
Class Y Share Exchanges
Class Y shares of a Fund may be exchanged for Class Y shares of any other
fund in the United Group or for Class A shares of United Cash Management, Inc.
General Exchange Information
When you exchange shares, the total shares you receive will have the same
aggregate net asset value as the total shares you exchange. The relative values
are those next figured after your 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
As described in the Prospectus for Class A shares, your account may be set
up as a funding vehicle for a retirement plan. For individual taxpayers meeting
certain requirements, Waddell & Reed, Inc. offers model or prototype documents
for the following retirement plans. All of these plans involve investment in
shares of the Fund (or shares of certain other funds in the United Group).
Individual Retirement Accounts (IRAs). Investors having earned income may
set up a plan that is commonly called an IRA. Under a traditional IRA, an
investor can contribute each year up to 100% of his or her earned income, up to
an annual maximum of $2,000 (provided the investor has not reached age 70 1/2).
For a married couple, the annual maximum is $4,000 ($2,000 for each spouse) or,
if less, the couple's combined earned income for the taxable year, even if one
spouse had no earned income. Generally, the contributions are deductible unless
the investor (or, if married, either spouse) is an active participant in a
qualified retirement plan or if, notwithstanding that the investor or one or
both spouses so participate, their adjusted gross income does not exceed certain
levels. However, a married investor who is not an active participant, files
jointly with his or her spouse and whose combined adjusted gross income does not
exceed $150,000, is not affected by the spouse's active participant status.
An investor may also use a traditional IRA to receive a rollover
contribution that is either (a) a direct rollover distribution from an
employer's plan or (b) a rollover of an eligible distribution paid to the
investor from an employer's plan or another IRA. To the extent a rollover
contribution is made to a traditional IRA, the distribution will not be subject
to Federal income tax until distributed from the IRA. A direct rollover
generally applies to any distribution from an employer's plan (including a
custodial account under Section 403(b)(7) of the Code, but not an IRA) other
than certain periodic payments, required minimum distributions and other
specified distributions. In a direct rollover, the eligible rollover
distribution is paid directly to the IRA, not to the investor. If, instead, an
investor receives payment of an eligible rollover distribution, all or a portion
of that distribution generally may be rolled over to an IRA within 60 days after
receipt of the distribution. Because mandatory Federal income tax withholding
applies to any eligible rollover distribution which is not paid in a direct
rollover, investors should consult their tax advisers or pension consultants as
to the applicable tax rules. If you already have an IRA, you may have the
assets in that IRA transferred directly to an IRA offered by Waddell & Reed,
Inc.
Roth IRAs. Investors whose adjusted gross income (or combined adjusted
gross income, if married) does not exceed certain levels may establish and
contribute up to $2,000 per tax year to a Roth IRA. In addition, for an
investor whose adjusted gross income does not exceed $100,000 (and who is not a
married person filing a separate return), certain distributions from traditional
IRAs may be rolled over to a Roth IRA and any of the investor's traditional IRAs
may be converted into a Roth IRA; these rollover distributions and conversions
are, however, subject to Federal income tax.
Contributions to a Roth IRA are not deductible; however, earnings
accumulate tax-free in the Roth IRA, and withdrawals of earnings are not subject
to Federal income tax if the account has been held for at least five years (or
in the case of earnings attributable to rollover contributions or conversions of
a traditional IRA, the rollover or conversion occurred more than five years
prior to the withdrawal) and the account holder has reached age 59 1/2 (or
certain other conditions apply).
Education IRAs. Although not technically for retirement savings, Education
IRAs provide a vehicle for saving for a child's higher education. An Education
IRA may be established for the benefit of any minor, and any person whose
adjusted gross income does not exceed certain levels may contribute up to $500
to an Education IRA (or to each of multiple Education IRAs), provided that no
more than $500 may be contributed for any year to Education IRAs for the same
beneficiary. Contributions are not deductible and may not be made after the
beneficiary reaches age 18; however, earnings accumulate tax-free, and
withdrawals are not subject to tax if used to pay the qualified higher education
expenses of the beneficiary (or a member of his or her family).
Simplified Employee Pension (SEP) plans. Employers can make contributions
to SEP-IRAs established for employees. Generally, an employer may contribute up
to 15% of compensation, or $24,000, whichever is less, per year for each
employee.
Savings Incentive Match Plans for Employees (SIMPLE Plans). An employer
with 100 or fewer employees who does not sponsor another active retirement plan
may sponsor a SIMPLE to contribute to its employees' retirement accounts. A
SIMPLE plan can be funded by either an IRA or a 401(k) plan. In general, an
employer can choose to match employee contributions dollar-for-dollar (up to 3%
of an employee's compensation) or may contribute to all eligible employees 2% of
their compensation, whether or not they defer salary to their retirement plans.
SIMPLE plans involve fewer administrative requirements than 401(k) or other
qualified plans generally.
Keogh Plans. Keogh plans, which are available to self-employed
individuals, are defined contribution plans that may be either a money purchase
plan or a profit-sharing plan. As a general rule, an investor under a defined
contribution Keogh plan can contribute each year up to 25% of his or her annual
earned income, with an annual maximum of $30,000.
457 Plans. If an investor is an employee of a state or local government or
of certain types of charitable organizations, he or she may be able to enter
into a deferred compensation arrangement in accordance with Section 457 of the
Code.
TSAs - Custodial Accounts and Title I Plans. If an investor is an employee
of a public school system or of certain types of charitable organizations, he or
she may be able to enter into a deferred compensation arrangement through a
custodian account under Section 403(b) of the Code. Some organizations have
adopted Title I plans, which are funded by employer contributions in addition to
employee deferrals.
401(k) Plans. With a 401(k) plan, employees can make tax-deferred
contributions into a plan to which the employer may also contribute, usually on
a matching basis. An employee may defer each year up to 25% of compensation,
subject to certain annual maximums, which may be increased each year based on
cost-of-living adjustments.
More detailed information about these arrangements and applicable forms are
available from Waddell & Reed, Inc. These plans may involve complex tax
questions as to premature distributions and other matters. Investors should
consult their tax adviser or pension consultant.
Redemptions
The Prospectus gives information as to redemption procedures. Redemption
payments are made within seven days unless delayed because of emergency
conditions determined by the SEC, when the NYSE is closed other than for
weekends or holidays, or when trading on the NYSE is restricted. Payment is
made in cash, although under extraordinary conditions redemptions may be made in
portfolio securities. Payment for redemption of shares of the Fund may be made
in portfolio securities when the Fund's Board of Directors determines that
conditions exist making cash payments undesirable. Securities used for payment
of redemptions are valued at the value used in figuring net asset value. There
would be brokerage costs to the redeeming shareholder in selling such
securities. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act, pursuant to which it is obligated to redeem shares solely in cash
up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder.
Reinvestment Privilege
The Prospectus for Class A shares discusses the reinvestment privilege for
Class A shares under which, if you redeem your Class A shares and then decide it
was not a good idea, you may reinvest. If Class A shares of the Fund are then
being offered, you can put all or part of your redemption payment back into
Class A shares of the Fund without any sales charge at the net asset value next
determined after you have returned the amount. Your written request to do this
must be received within 30 days after your redemption request was received. You
can do this only once as to Class A shares of the Fund. You do not use up this
privilege by redeeming Class A shares to invest the proceeds at net asset value
in a Keogh plan or an IRA.
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 of Directors has responsibility
for establishing broad corporate policies for the Fund and for overseeing
overall performance of the selected experts. It has the benefit of advice and
reports from independent counsel and independent auditors.
The principal occupation during at least the past five years of each
Director and officer is given below. Each of the persons listed through and
including Mr. Wise is a member of the Fund's Board of Directors. The other
persons are officers but not members of the Board of Directors. For purposes of
this section, the term "Fund Complex" includes each of the registered investment
companies in the United Group of Mutual Funds, Target/United Funds, Inc. and
Waddell & Reed Funds, Inc. Each of the Fund's Directors is also a Director of
each of the other funds in the Fund Complex and each of its officers is also an
officer of one or more of the funds in the Fund Complex.
KEITH A. TUCKER*
Chairman of the Board of Directors of the Fund and each of the other funds
in the Fund Complex; Chairman of the Board of Directors, Chief Executive
Officer, Chief Financial Officer and Principal Financial Officer of Waddell &
Reed Financial, Inc.; President, Chairman of the Board of Directors and Chief
Executive Officer of Waddell & Reed Financial Services, Inc.; Chairman of the
Board of Directors of WRIMCO, Waddell & Reed, Inc., Waddell & Reed Services
Company, Waddell & Reed Development, Inc., a business development company, and
Waddell & Reed Distributors, Inc.; formerly, President of the Fund and each of
the other funds in the Fund Complex; formerly, Vice Chairman of the Board of
Directors of Torchmark Corporation; formerly, Vice Chairman of the Board of
Directors, Chief Executive Officer and President of United Investors Management
Company; formerly, Chairman of the Board of Directors of Waddell & Reed Asset
Management Company; formerly, Director of Vesta Insurance Group, Inc.; formerly,
Director of Southwestern Life Corporation; formerly, partner in Trivest, a
private investment concern; formerly, Director of Atlantis Group, Inc., a
diversified company. Date of birth: February 11, 1945.
JAMES M. CONCANNON
950 Docking Road
Topeka, Kansas 66615
Dean and Professor of Law, Washburn University School of Law; Director,
AmVestors CBO II Inc. Date of birth: October 2, 1947.
JOHN A. DILLINGHAM
4040 Northwest Claymont Drive
Kansas City, Missouri 64116
Director and consultant, McDougal Construction Company; President, JoDill
Corp., an agricultural company; formerly, Senior Vice President-Sales and
Marketing, Garney Companies, Inc., a specialty utility contractor. Date of
birth: January 9, 1939.
DAVID P. GARDNER
525 Middlefield Road, Suite 200
Menlo Park, California 94025
President of Hewlett Foundation and Chairman of George S. and Delores Dori
Eccles Foundation. Director of First Security Corp., a bank holding company and
Director of Fluor Corp. a company with interests in coal. Date of birth: March
24, 1933.
LINDA GRAVES*
1 South West Cedar Crest Road
Topeka, Kansas 66606
First Lady of Kansas; formerly, partner, Levy and Craig, P.C., a law firm.
Daughter of Ronald K. Richey, Director of the Fund and each of the other funds
in the Fund Complex. Date of birth: July 29, 1953.
JOHN F. HAYES*
20 West 2nd Avenue
P. O. Box 2977
Hutchinson, Kansas 67504-2977
Director of Central Bank and Trust; Director of Central Financial
Corporation; Director of Central Properties, Inc.; Chairman of the Board of
Directors, Gilliland & Hayes, P.A., a law firm; formerly, President, Gilliland &
Hayes, P.A. Date of birth: December 11, 1919.
GLENDON E. JOHNSON
7300 Corporate Center Drive
P. O. Box 020270
Miami, Florida 33126-1208
Director and Chief Executive Officer of John Alden Financial Corporation
and subsidiaries. Date of birth: February 19, 1924.
WILLIAM T. MORGAN*
928 Glorietta Blvd.
Coronado, California 92118
Retired. Date of birth: April 27, 1928.
RONALD K. RICHEY*
2001 Third Avenue South
Birmingham, Alabama 35233
Director of the Fund and each of the other funds in the Fund Complex;
Director of Waddell & Reed Financial, Inc.; Chairman of the Board of Directors
of United Investors Life Insurance Company; Chairman of the Executive Committee
and Director of Torchmark Corporation; Chairman of the Board of Directors of
Vesta Insurance Group, Inc.; Director of Full House Resorts, Inc., a developer
of resorts and gaming casinos; formerly, Chairman of the Board of Directors of
the Fund and each of the other funds in the Fund Complex; formerly, Chairman of
the Board of Directors of Torchmark Corporation; formerly, Chairman of the Board
of Directors of Waddell & Reed Financial Services, Inc.; formerly, Chairman of
the Board of United Investors Management Company. Father of Linda Graves,
Director of the Fund and each of the other funds in the Fund Complex. Date of
birth: June 16, 1926.
FRANK J. ROSS, JR.*
700 West 47th Street
Kansas City, Missouri 64112
Shareholder, Polsinelli, White, Vardeman & Shalton, a law firm. Date of
birth: April 9, 1953.
ELEANOR B. SCHWARTZ
5100 Rockhill Road
Kansas City, Missouri 64113
Chancellor, University of Missouri-Kansas City. Date of birth: January 1,
1937.
FREDERICK VOGEL III
1805 West Bradley Road
Milwaukee, Wisconsin 53217
Retired. Date of birth: August 7, 1935.
PAUL S. WISE
P. O. Box 5248
8648 Silver Saddle Drive
Carefree, Arizona 85377
Director of Potash Corporation of Saskatchewan, a fertilizer company. Date
of birth: July 16, 1920.
Robert L. Hechler
President and Principal Financial Officer of the Fund and each of the other
funds in the Fund Complex; Executive Vice President, Chief Operating Officer and
Director of Waddell & Reed Financial, Inc.; Vice President, Chief Operating
Officer, Director and Treasurer of Waddell & Reed Financial Services, Inc.;
Executive Vice President, Principal Financial Officer, Director and Treasurer of
WRIMCO; President, Chief Executive Officer, Principal Financial Officer,
Director and Treasurer of Waddell & Reed, Inc.; President, Director and
Treasurer of Waddell & Reed Services Company; President, Treasurer and Director
of Waddell & Reed Distributors, Inc.; President of Waddell & Reed Development,
Inc., a business development company; formerly, Vice President of the Fund and
each of the other funds in the Fund Complex; formerly, Director and Treasurer of
Waddell & Reed Asset Management Company. Date of birth: November 12, 1936.
Henry J. Herrmann
Vice President of the Fund and each of the other funds in the Fund Complex;
President, Chief Investment Officer, Treasurer and Director of Waddell & Reed
Financial, Inc.; Vice President, Chief Investment Officer and Director of
Waddell & Reed Financial Services, Inc.; Director of Waddell & Reed, Inc.;
President, Chief Executive Officer, Chief Investment Officer and Director of
WRIMCO; Director of Waddell & Reed Development, Inc., a business development
company. Formerly, President, Chief Executive Officer, Chief Investment Officer
and Director of Waddell & Reed Asset Management Company. Date of birth:
December 8, 1942.
Theodore W. Howard
Vice President, Treasurer and Principal Accounting Officer of the Fund and
each of the other funds in the Fund Complex; Vice President of Waddell & Reed
Services Company. Date of birth: July 18, 1942.
Sharon K. Pappas
Vice President, Secretary and General Counsel of the Fund and each of the
other funds in the Fund Complex; Secretary and General Counsel of Waddell & Reed
Financial, Inc.; Vice President, Secretary, General Counsel and Director of
Waddell & Reed Financial Services, Inc.; Senior Vice President, Secretary and
General Counsel of WRIMCO and Waddell & Reed, Inc.; Senior Vice President,
Secretary, General Counsel and Director of Waddell & Reed Services Company; Vice
President, Secretary and General Counsel of Waddell & Reed Distributors, Inc.;
Secretary of Waddell & Reed Development, Inc., a business development company;
formerly, Assistant General Counsel of WRIMCO, Waddell & Reed Financial
Services, Inc., Waddell & Reed, Inc., Waddell & Reed Asset Management Company
and Waddell & Reed Services Company. Formerly, Director, Secretary and General
Counsel of Waddell & Reed Asset Management Company. Date of birth: February 9,
1959.
Cynthia P. Prince-Fox
Vice President of the Fund and two other funds in the Fund Complex; Vice
President of WRIMCO; formerly, Vice President of Waddell & Reed Asset
Management; formerly, Vice President of Waddell & Reed, Inc. Date of birth:
January 11, 1959.
The address of each person is 6300 Lamar Avenue, P. O. Box 29217, Shawnee
Mission, Kansas 66201-9217 unless a different address is given.
The Directors who may be deemed to be interested persons as defined in the
1940 Act are indicated as such by an asterisk.
The Board of Directors has created an honorary position of Director
Emeritus, which position a director may elect after 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 or her past services whether or not
services are rendered in his or her capacity as Director Emeritus, but he has no
authority or responsibility with respect to management of the Fund. Messrs.
Doyle Patterson, Jay B. Dillingham and Henry L. Bellmon retired as Directors of
the Fund and of each of the funds in the Fund Complex and elected a position as
Director Emeritus.
The funds in the United Group, Target/United Funds, Inc. and Waddell & Reed
Funds, Inc. pay to each Director a total of $48,000 per year, plus $2,500 for
each meeting of the Board of Directors attended plus reimbursement of expenses
of attending such meeting (prior to January 1, 1998, the funds in the United
Group, Target/United Funds, Inc. and Waddell & Reed Funds, Inc. paid to each
Director a fee of $44,000 per year plus $1,000 for each meeting of the Board of
Directors attended) and $500 for each Committee meeting attended which is not in
conjunction with a Board of Directors meeting, other than Directors who are
affiliates of Waddell & Reed, Inc. The fees to the Directors who receive them
are divided among the funds in the United Group, Target/United Funds, Inc. and
Waddell & Reed Funds, Inc. based on their relative size.
During the Fund's fiscal year ended June 30, 1998, the Fund's Directors
received the following fees for service as a director:
COMPENSATION TABLE
Total
Aggregate Compensation
Compensation From Fund
From and Fund
Director Fund Complex*
- -------- ------------ ------------
Keith A. Tucker $ 0 $ 0
James M. Concannon 1,974 53,500
John A. Dillingham 1,974 53,500
Linda Graves 1,974 53,500
John F. Hayes 1,974 53,500
Glendon E. Johnson 1,937 52,500
William T. Morgan 1,974 53,500
Ronald K. Richey 0 0
Frank J. Ross, Jr. 1,974 53,500
Eleanor B. Schwartz 1,974 53,500
Frederick Vogel III 1,974 53,500
Paul S. Wise 1,974 53,500
*No pension or retirement benefits have been accrued as a part of Fund expenses.
Mr. David P. Gardner was elected as a Director on August 19, 1998. The
officers are paid by WRIMCO or its affiliates.
Shareholdings
As of August 31, 1998, all of the Fund's Directors and officers as a group
owned less than 1% of the outstanding shares of the Fund. The following table
sets forth information with respect to the Fund, as of August 31, 1998,
regarding the beneficial ownership of the classes of the Fund's shares.
Name and Address Shares owned
of Record or Beneficially
Beneficial Owner Class or of Record Percent
- ------------------- ----- ------------ -------
Waddell & Reed Class Y 49,130 12.47%
Financial, Inc.
Savings & Investment Plan
6300 Lamar Avenue
Overland Park KS 66201
Torchmark Corporation Class Y 208,714 52.97
Savings & Investment Plan
2001 Third Avenue South
Birmingham AL 35202
Morrissey Inc. Class Y 66,497 16.88
401k Retirement Plan
9340 Bryant Ave S
Bloomington MN 55420
PAYMENTS TO SHAREHOLDERS
General
There are three sources for the payments the Fund makes to you as a
shareholder of a class of shares of the Fund, other than payments when you
redeem your shares. The first source is net investment income, which is derived
from the dividends, interest and earned discount on the securities the Fund
holds less expenses (which will vary by class). The second source is net
realized capital gains, which are derived from the proceeds received from the
Fund's sale of securities at a price higher than the Fund's tax basis (usually
cost) in such securities, less losses from sales of securities at a price lower
than the Fund's basis therein; these gains can be either long-term or short-
term, depending on how long the Fund has owned the securities before it sells
them. The third source is net realized gains from foreign currency
transactions. The payments made to shareholders from net investment income, net
short-term capital gains and net realized gains from certain foreign currency
transactions are called dividends.
The Fund pays distributions from 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 pay distributions once each year, in the
latter part of the fourth calendar quarter, except to the extent it has
applicable net capital losses carried over from a prior year or years to offset
the gains.
Choices You Have on Your Dividends and Distributions
On your application form, you can give instructions that (i) you want cash
for your dividends and distributions, (ii) you want your dividends and
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid, or (iii) you want cash for your dividends and want your
distributions paid in shares of the Fund of the same class as that with respect
to which they were paid. You can change your instructions at any time. If you
give no instructions, your dividends and distributions will be paid in shares of
the Fund of the same class as that with respect to which they were paid. All
payments in shares are at net asset value without any sales charge. The net
asset value used for this purpose is that computed as of the record date for the
dividend or distribution, although this could be changed by the Board of
Directors.
Even if you get dividends and distributions of Class A shares in cash, you
can thereafter reinvest them (or distributions only) in Class A shares of the
Fund at net asset value (i.e., no sales charge) next determined after receipt by
Waddell & Reed, Inc. of the amount clearly identified as a reinvestment. The
reinvestment must be within 45 days after the payment.
TAXES
General
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) ("Distribution
Requirement") 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) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. Government
Securities, securities of other RICs and other securities that are limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities ("50% Diversification Requirement"); and
(3) at the close of each quarter of the Fund's taxable year, not more than 25%
of the value of its total assets may be invested in securities (other than U.S.
Government Securities or the securities of other RICs) of any one issuer.
Dividends and distributions declared by the Fund in October, November or
December of any year and payable to its shareholders of record on a date in any
of those months are deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Accordingly, those dividends and distributions will be taxed
to the shareholders for the year in which that December 31 falls.
If 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 investor 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 pay sufficient dividends and 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 November 1 and the
end of the current calendar year.
Income from Foreign Securities
Dividends and interest received, and gains realized, by the Fund may be
subject to income, withholding or other taxes imposed by foreign countries and
U.S. possessions ("foreign taxes") that would reduce the yield and/or total
return on its securities. Tax conventions between certain countries and the
United States may reduce or eliminate foreign taxes, however, and many foreign
countries do not impose taxes on capital gains in respect of investments by
foreign investors.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation -- other than a "controlled foreign
corporation" (i.e., a foreign corporation in which, on any day during its
taxable year, more than 50% of the total voting power of all voting stock
therein or the total value of all stock therein is owned, directly, indirectly,
or constructively, by "U.S. shareholders," defined as U.S. persons that
individually own, directly, indirectly, or constructively, at least 10% of that
voting power) as to which the Fund is a U.S. shareholder -- that, in general,
meets either of the following tests: (1) at least 75% of its gross income is
passive or (2) an average of at least 50% of its assets produce, or are held for
the production of, passive income. Under certain circumstances, the Fund will
be subject to Federal income tax on a portion of any "excess distribution"
received on the stock of a PFIC or of any gain on disposition of the stock
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. The
balance of the PFIC income will be included in the Fund's investment company
taxable income and, accordingly, will not be taxable to it to the extent that
income is distributed to its shareholders.
If the Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund will be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gains -- which
probably would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gains were not distributed to the Fund by the QEF. In most instances it will be
very difficult, if not impossible, to make this election because of certain
requirements thereof.
The Fund may elect to "mark to market" its stock in any PFIC. "Marking-to-
market," in this context, means including in ordinary income each taxable year
the excess, if any, of the fair market value of a PFIC's stock over the Fund's
adjusted basis therein as of the end of that year. Pursuant to the election,
the Fund also would be allowed to deduct (as an ordinary, not capital, loss) the
excess, if any, of its adjusted basis in PFIC stock over the fair market value
thereof as of the taxable year-end, but only to the extent of any net mark-to-
market gains with respect to that stock included by the Fund for prior taxable
years. The Fund's adjusted basis in each PFIC's stock with respect to which it
makes this election will be adjusted to reflect the amounts of income included
and deductions taken under the election. Regulations proposed in 1992 provided
a similar election with respect to the stock of certain PFICs.
Foreign Currency Gains and Losses
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in a foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of the security and the date of disposition, and (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, Futures and Forward Currency Contracts and Foreign
Currencies
The use of hedging and option income strategies, such as writing (selling)
and purchasing options and futures contracts and entering into forward currency
contracts, involves complex rules that will determine for income tax purposes
the amount, character and timing of recognition of the gains and losses the Fund
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains that may be excluded by future regulations),
and gains from options, futures contracts and forward currency contracts derived
by the Fund with respect to its business of investing in securities or foreign
currencies, will qualify as permissible income under the Income Requirement.
Any income the Fund earns from writing options is treated 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 lapses without being
exercised, the premium it received also will be a short-term capital gain. If
such an option is exercised and the Fund thus sells the securities subject to
the option, the premium the Fund receives will be added to the exercise price to
determine the gain or loss on the sale.
Certain options, futures contracts and forward currency contracts in which
the Fund may invest may be "section 1256 contracts." Section 1256 contracts
held by the Fund at the end of its taxable year, other than contracts subject to
a "mixed straddle" election made by the Fund are "marked-to-market" (that is,
treated as sold at that time for their fair market value) for Federal income tax
purposes, with the result that unrealized gains or losses are treated as though
they were realized. Sixty percent of any net gains or losses recognized on
these deemed sales, and 60% of any net realized gains or losses from any actual
sales of section 1256 contracts, are treated as long-term capital gains or
losses, and the balance is treated as short-term capital gains or losses. That
60% portion will qualify for the 20% (10% for taxpayers inthe 15% marginal tax
bracket) maximum tax rate on net capital gains enacted by the Taxpayer Relief
Act of 1997. Section 1256 contracts also may be marked-to-market for purposes
of the Excise Tax and other purposes. The Fund may need to distribute any mark-
to-market gains to its shareholders to satisfy the Distribution Requirement
and/or avoid imposition of the Excise Tax, even though it may not have closed
the transactions and received cash to pay the distributions.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Fund may invest. That section
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property.
Section 1092 generally provides that any loss from the disposition of a position
in a straddle may be deducted only to the extent the loss exceeds the unrealized
gain on the offsetting position(s) of the straddle. The regulations under
section 1092 also provide certain "wash sale" rules that apply to transactions
where a position is sold at a loss and a new offsetting position is acquired
within a prescribed period, and "short sale" rules applicable to straddles. If
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.
If the Fund has an "appreciated financial position" -- generally, an
interest (including an interest through an option, futures or forward currency
contract or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund will be treated as having made an
actual sale thereof, with the result that gain will be recognized at that time.
A constructive sale generally consists of a short sale, an offsetting notional
principal contract or futures or forward currency contract entered into by the
Fund or a related person with respect to the same or substantially similar
property. In addition, if the appreciated financial position is itself a short
sale or such a contract, acquisition of the underlying property or substantially
similar property will be deemed a constructive sale.
PORTFOLIO TRANSACTIONS AND BROKERAGE
One of the duties undertaken by WRIMCO pursuant to the Management Agreement
is to arrange the purchase and sale of securities for the portfolio of 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 or WRIMCO may
otherwise combine orders for the Fund with those of other funds in the United
Group, Target/United Funds, Inc. and Waddell & Reed Funds, Inc. or other
accounts for which it has investment discretion. Transactions effected pursuant
to such combined orders are averaged as to price and allocated in accordance
with the purchase or sale orders actually placed for each fund or advisory
account, except where the combined order is not filled completely. In this
case, WRIMCO will ordinarily allocate the transaction pro rata based on the
orders placed. Sharing in large transactions could affect the price the Fund
pays or receives or the amount it buys or sells. However, sometimes a better
negotiated commission is available.
To effect the portfolio transactions of the Fund, WRIMCO is authorized to
engage broker-dealers ("brokers") which, in its best judgment based on all
relevant factors, will implement the policy of the Fund to achieve "best
execution" (prompt and reliable execution at the best price obtainable) for
reasonable and competitive commissions. WRIMCO need not seek competitive
commission bidding but is expected to minimize the commissions paid to the
extent consistent with the interests and policies of the Fund. Subject to
review by the Board of Directors, such policies include the selection of brokers
which provide execution and/or research services and other services, including
pricing or quotation services directly or through others ("brokerage services")
considered by WRIMCO to be useful or desirable for its investment management of
the Fund and/or the other funds and accounts over which WRIMCO has investment
discretion.
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 WRIMCO that the commission
is reasonable in relation to the brokerage services provided. Subject to the
foregoing considerations, WRIMCO may also consider sales of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio
transactions. No allocation of brokerage or principal business is made to
provide any other benefits to WRIMCO.
The investment research provided by a particular broker may be useful only
to one or more of the other advisory accounts of WRIMCO and investment research
received for the commissions of those other accounts may be useful both to the
Fund and one or more of such other accounts. To the extent that electronic or
other products provided by such brokers to assist WRIMCO in making investment
management decisions are used for administration or other non-research purposes,
a reasonable allocation of the cost of the product attributable to its non-
research use is made by WRIMCO.
Such investment research (which may be supplied by a third party at the
request of a broker) includes information on particular companies and industries
as well as market, economic or institutional activity areas. It serves to
broaden the scope and supplement the research activities of WRIMCO; serves to
make available additional views for consideration and comparisons; and enables
WRIMCO to obtain market information on the price of securities held in the
Fund's portfolio or being considered for purchase. The Fund may also use its
brokerage to pay for pricing or quotation services to value securities.
During the Fund's fiscal years ended June 30, 1998, 1997 and 1996, it paid
brokerage commissions of $721,927, $524,052 and $504,086, 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, 1998, the transactions, other
than principal transactions, which were directed to broker-dealers who provided
research as well as execution totaled $463,371,478 on which $512,662 in
brokerage commissions were paid. These transactions were allocated to these
broker-dealers by the internal allocation procedures described above.
As of June 30, 1998, the Fund owned J. P. Morgan & Co. Incorporated
securities in the aggregate amount of $13,989,247. J. P. Morgan & Co.
Incorpororated is a regular broker of the Fund.
The Fund, WRIMCO and Waddell & Reed, Inc. have adopted a Code of Ethics
which imposes restrictions on the personal investment activities of their
employees, officers and interested directors.
OTHER INFORMATION
The Shares of the Fund
The Fund offers two classes of shares: Class A and Class Y. Each class
represents an interest in the same assets of the Fund and differ as follows:
each class of shares has exclusive voting rights on matters pertaining to
matters appropriately limited to that class; Class A shares are subject to an
initial sales charge and to an ongoing service fee; each class may bear
differing amounts of certain class-specific expenses; and each class has a
separate exchange privilege. The Fund does not anticipate that there will be
any conflicts between the interests of holders of the different classes of
shares of the Fund by virtue of those classes. On an ongoing basis, the Board
of Directors will consider whether any such conflict exists and, if so, take
appropriate action. Each share of the Fund is entitled to equal voting,
dividend, liquidation and redemption rights, except that due to the differing
expenses borne by the two classes, dividends and liquidation proceeds of Class A
shares are expected to be lower than for Class Y shares of the Fund. Each
fractional share of a class has the same rights, in proportion, as a full share
of that class.
<PAGE>
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, a division of The McGraw-Hill Companies, Inc. A
Standard & Poor's ("S&P") corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to S&P by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform 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 S&P. 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, Inc. 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>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1998
Shares Value
COMMON STOCKS
Amusement and Recreation Services - 0.69%
SFX Entertainment, Inc., Class A* ...... 125,000 $ 5,730,375
Apparel and Accessory Stores - 1.04%
Kohl's Corporation* .................... 166,000 8,611,250
Apparel and Other Textile Products - 1.40%
Liz Claiborne, Inc. .................... 222,000 11,613,264
Business Services - 1.38%
BMC Software, Inc.* .................... 220,000 11,432,960
Chemicals and Allied Products - 8.03%
Abbott Laboratories .................... 200,000 8,175,000
Dow Chemical Company (The) ............. 40,000 3,867,480
du Pont (E.I.) de Nemours and Company .. 100,000 7,462,500
Lilly (Eli) and Company ................ 115,000 7,604,375
Monsanto Company ....................... 150,000 8,381,250
Novartis, AG (A) ....................... 4,700 7,833,851
Pfizer Inc. ............................ 146,000 15,868,302
Procter & Gamble Company (The) ......... 80,000 7,284,960
Total ................................. 66,477,718
Communication - 6.22%
AT&T Corporation ....................... 155,000 8,854,375
Carso Global Telecom & Media (A) ....... 500,000 1,558,673
Cox Communications, Inc.* .............. 120,000 5,812,440
MediaOne Group, Inc.* .................. 295,000 12,961,415
SBC Communications Inc. ................ 390,000 15,600,000
Telebras S.A., ADR ..................... 62,000 6,758,000
Total ................................. 51,544,903
Depository Institutions - 1.57%
BankAmerica Corporation ................ 150,000 12,965,550
Electric, Gas and Sanitary Services - 1.86%
Houston Industries Incorporated ........ 260,000 8,027,500
Unicom Corporation ..................... 210,000 7,350,000
Total ................................. 15,377,500
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1998
Shares Value
COMMON STOCKS (Continued)
Electronic and Other Electric Equipment - 3.92%
Emerson Electric Co. ................... 200,000 $ 12,075,000
Intel Corporation ...................... 100,000 7,409,300
Texas Instruments Incorporated ......... 100,000 5,831,200
U. S. Industries, Inc. ................. 290,000 7,177,500
Total ................................. 32,493,000
Fabricated Metal Products - 0.67%
Mark IV Industries, Inc. ............... 254,677 5,507,390
Food and Kindred Products - 3.05%
General Mills, Inc. .................... 110,000 7,521,250
Heinz (H. J.) Company .................. 150,000 8,418,750
Ralston-Ralston Purina Group ........... 80,000 9,344,960
Total ................................. 25,284,960
General Merchandise Stores - 1.58%
Cifra, S.A. de C.V., Series C (A) ...... 550,000 764,195
Cifra, S.A. de C.V., Series V (A) ...... 112,454 167,767
Wal-Mart Stores, Inc. .................. 200,000 12,150,000
Total ................................. 13,081,962
Health Services - 1.70%
Columbia/HCA Healthcare Corporation .... 270,000 7,863,750
Tenet Healthcare Corporation* .......... 200,000 6,250,000
Total ................................. 14,113,750
Holding and Other Investment Offices - 3.05%
Berkshire Hathaway Inc., Class B* ...... 3,000 7,830,000
Boston Properties, Inc. ................ 100,000 3,450,000
Grupo Carso, S.A. de C.V.,
Series 1A (A) ......................... 500,000 2,056,892
LTC Properties, Inc. ................... 300,000 5,587,500
National Health Investors, Inc. ........ 190,500 6,310,312
Total ................................. 25,234,704
Industrial Machinery and Equipment - 2.58%
Baker Hughes Incorporated .............. 175,000 6,048,350
Deere & Company ........................ 75,000 3,965,625
Minnesota Mining and Manufacturing Company 90,000 7,396,830
Parker Hannifin Corporation ............ 104,300 3,976,437
Total ................................. 21,387,242
Instruments and Related Products - 0.53%
St. Jude Medical, Inc.* ................ 120,000 4,417,440
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1998
Shares Value
COMMON STOCKS (Continued)
Insurance Carriers - 4.56%
Chubb Corporation (The) ................ 175,000 $ 14,065,625
Hartford Financial Services Group
Inc. (The) ............................ 125,000 14,296,875
MGIC Investment Corporation ............ 165,000 9,415,230
Total ................................. 37,777,730
Miscellaneous Manufacturing Industries - 0.64%
Mattel, Inc. ........................... 125,000 5,289,000
Miscellaneous Retail - 1.52%
Costco Companies, Inc.* ................ 200,000 12,612,400
Motion Pictures - 0.89%
Walt Disney Company (The) .............. 70,000 7,354,340
Nondepository Institutions - 2.84%
Freddie Mac ............................ 240,000 11,294,880
Household International, Inc. .......... 120,000 5,985,000
Providian Financial Corporation ........ 80,000 6,284,960
Total ................................. 23,564,840
Oil and Gas Extraction - 0.46%
Noble Affiliates, Inc. ................. 100,000 3,793,700
Petroleum and Coal Products - 5.30%
Chevron Corporation .................... 100,000 8,306,200
Exxon Corporation ...................... 200,000 14,262,400
Mobil Corporation ...................... 90,000 6,896,250
Royal Dutch Petroleum Company .......... 180,000 9,866,160
Tosco Corporation ...................... 154,500 4,538,438
Total ................................. 43,869,448
Primary Metal Industries - 0.62%
British Steel plc, ADR ................. 225,000 5,118,750
Printing and Publishing - 4.00%
Gannett Co., Inc. ...................... 135,000 9,593,370
McGraw-Hill Companies, Inc. (The) ...... 100,000 8,156,200
Meredith Corporation ................... 150,000 7,040,550
New York Times Company (The), Class A .. 105,000 8,321,250
Total ................................. 33,111,370
Rubber and Miscellaneous Plastics Products - 1.09%
A. Schulman, Inc. ...................... 200,000 3,900,000
Goodyear Tire & Rubber Company (The) ... 80,000 5,154,960
Total ................................. 9,054,960
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1998
Shares Value
COMMON STOCKS (Continued)
Transportation Equipment - 0.68%
Chrysler Corporation ................... 100,000 $ 5,637,500
Transportation Services - 1.22%
Dial Corporation (The) ................. 390,000 10,140,000
TOTAL COMMON STOCKS - 63.09% $522,598,006
(Cost: $385,762,243)
PREFERRED STOCKS
Electric, Gas and Sanitary Services - 0.12%
El Paso Energy Capital Trust I,
Convertible ........................... 20,000 1,060,000
Holding and Other Investment Offices - 0.46%
LTC Properties, Inc., 9.5%, ............ 150,000 3,796,800
TOTAL PREFERRED STOCKS - 0.58% $ 4,856,800
(Cost: $4,825,000)
Principal
Amount in
Thousands
CORPORATE DEBT SECURITIES
Building Materials and Garden Supplies - 0.36%
Home Depot, Inc. (The), Convertible,
3.25%, 10-1-2001 ...................... $ 1,600 2,976,000
Communication - 1.29%
Bell Telephone Company of Pennsylvania (The),
8.35%, 12-15-2030 ..................... 3,000 3,782,670
Clear Channel Communications, Inc., Convertible,
2.625%, 4-1-2003 ...................... 6,400 6,912,000
Total ................................. 10,694,670
Electric, Gas and Sanitary Services - 0.12%
California Infrastructure and Economic Development
Bank Special Purpose Trust PG&E-1,
6.42%, 9-25-2008 ...................... 1,000 1,021,410
Electronic and Other Electric Equipment - 0.54%
Cooper Industries, Inc.,
6.0%, 1-1-99 (Exchangeable) ........... 3,416 4,459,125
Food and Kindred Products - 0.63%
Coca-Cola Enterprises Inc.,
6.7%, 10-15-2036 ...................... 5,000 5,212,000
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
CORPORATE DEBT SECURITIES (Continued)
Nondepository Institutions - 0.43%
General Electric Capital Corporation,
8.3%, 9-20-2009 ....................... $ 3,000 $ 3,538,740
United States Postal Service - 0.29%
Postal Square Limited Partnership,
8.95%, 6-15-2022 ...................... 1,892 2,408,165
Wholesale Trade -- Nondurable Goods - 0.29%
Enron Corp.,
6.25%, 12-13-98 (Exchangeable) ........ 2,588 2,380,000
TOTAL CORPORATE DEBT SECURITIES - 3.95% $ 32,690,110
(Cost: $28,086,996)
OTHER GOVERNMENT SECURITY - 0.41%
Supranational
International Bank for Reconstruction and
Development,
9.25%, 7-15-2017 ...................... 2,500 $ 3,412,250
(Cost: $2,498,260)
UNITED STATES GOVERNMENT SECURITIES
National Archives Facility Trust,
8.5%, 9-1-2019 ........................ 4,235 5,181,092
United States Treasury:
9.25%, 8-15-98 ........................ 5,000 5,022,650
4.75%, 10-31-98 ....................... 10,000 9,976,600
5.5%, 2-28-99 ......................... 15,000 15,002,400
7.125%, 9-30-99 ....................... 20,000 20,381,200
7.75%, 12-31-99 ....................... 10,000 10,315,600
5.75%, 10-31-2000 ..................... 10,000 10,046,900
7.25%, 5-15-2004 ...................... 5,000 5,425,000
7.875%, 11-15-2004 .................... 10,000 11,231,200
7.5%, 2-15-2005 ....................... 37,000 40,954,190
9.375%, 2-15-2006 ..................... 8,500 10,497,500
10.375%, 11-15-2012 ................... 4,000 5,356,240
9.25%, 2-15-2016 ...................... 5,000 6,954,700
0.0%, 2-15-2019 ....................... 20,000 6,181,400
TOTAL UNITED STATES GOVERNMENT SECURITIES - 19.62% $162,526,672
(Cost: $154,689,919)
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES
Auto Repair, Services and Parking - 0.17%
PHH Corp.,
6.5%, 7-1-98 .......................... $ 1,400 $ 1,400,000
Depository Institutions - 1.69%
J.P. Morgan & Co. Incorporated,
5.53%, 7-6-98 ......................... 14,000 13,989,247
Electric, Gas and Sanitary Services - 0.23%
Commonwealth Edison Co.,
5.8%, 7-24-98 ......................... 1,875 1,868,052
Electronic and Other Electric Equipment - 0.86%
Emerson Electric Co.,
5.53%, 7-27-98 ........................ 7,120 7,091,564
Engineering and Management Services - 1.20%
Halliburton Co.,
5.62%, 7-31-98 ........................ 10,000 9,953,167
Fabricated Metal Products - 0.21%
Danaher Corporation,
5.6602%, Master Note .................. 1,778 1,778,000
Food and Kindred Products - 1.43%
Hercules Inc.,
5.7%, 7-13-98 ......................... 3,900 3,892,590
Ralston Purina Company,
5.7%, 7-17-98 ......................... 8,010 7,989,708
Total ................................. 11,882,298
Industrial Machinery and Equipment - 2.89%
Ingersoll-Rand Company,
5.68%, 7-10-98 ........................ 24,000 23,965,920
Nondepository Institutions - 0.34%
Textron Financial Corp.,
5.73%, 7-17-98 ........................ 2,800 2,792,869
See Notes to Schedule of Investments on page .
<PAGE>
THE INVESTMENTS OF
UNITED RETIREMENT SHARES, INC.
JUNE 30, 1998
Principal
Amount in
Thousands Value
SHORT-TERM SECURITIES (Continued)
Oil and Gas Extraction - 2.04%
Atlantic Richfield Company,
5.56%, 7-30-98 ........................ $17,000 $ 16,923,859
Primary Metal Industries - 0.28%
Aluminum Company of America,
5.53%, 7-15-98 ........................ 2,300 2,295,054
Textile Mill Products - 0.07%
Sara Lee Corporation,
5.5102%, Master Note .................. 580 580,000
Transportation Equipment - 0.63%
Dana Credit Corp.,
5.71%, 7-14-98 ........................ 5,215 5,204,247
TOTAL SHORT-TERM SECURITIES - 12.04% $ 99,724,277
(Cost: $99,724,277)
TOTAL INVESTMENT SECURITIES - 99.69% $825,808,115
(Cost: $675,586,695)
CASH AND OTHER ASSETS, NET OF LIABILITIES - 0.31% 2,529,197
NET ASSETS - 100.00% $828,337,312
Notes to Schedule of Investments
*No 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, 1998
(In Thousands, Except for Per Share Amounts)
Assets
Investment securities - at value
(Notes 1 and 3) ................................. $825,808
Cash ............................................ 12
Receivables:
Dividends and interest .......................... 4,283
Investment securities sold ...................... 546
Fund shares sold ................................ 1,027
Prepaid insurance premium ......................... 9
Other assets ..................................... 13
--------
Total assets .................................. 831,698
--------
Liabilities
Payable to Fund shareholders ..................... 2,927
Accrued service fee (Note 2) ..................... 315
Accrued transfer agency and
dividend disbursing (Note 2) .................... 95
Accrued management fee (Note 2) .................. 12
Accrued accounting services fee (Note 2) ......... 7
Other ............................................ 5
--------
Total liabilities ............................. 3,361
--------
Total net assets ............................. $828,337
========
Net Assets
$1.00 par value capital stock
Capital stock ................................... $ 89,286
Additional paid-in capital....................... 556,020
Accumulated undistributed income:
Accumulated undistributed net investment income . 981
Accumulated undistributed net realized
gain on investment transactions ............... 31,829
Net unrealized appreciation in value of
investments ................................... 150,221
--------
Net assets applicable to outstanding
units of capital ............................. $828,337
========
Capital shares outstanding
Class A .......................................... 88,958
Class Y .......................................... 328
Capital shares authorized .......................... 300,000
Net asset value per share (net assets divided
by shares outstanding)
Class A .......................................... $9.28
Class Y .......................................... $9.28
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF OPERATIONS
For the Fiscal Year Ended JUNE 30, 1998
(In Thousands)
Investment Income
Income (Note 1B):
Interest and amortization ....................... $ 17,920
Dividends ....................................... 9,212
--------
Total income .................................. 27,132
............................................ --------
Expenses (Note 2):
Investment management fee ....................... 4,229
Distribution and service fees - Class A.......... 1,573
Transfer agency and dividend disbursing - Class A 1,046
Accounting services fee ......................... 80
Custodian fees .................................. 43
Audit fees ...................................... 13
Legal fees ...................................... 8
Shareholder servicing - Class Y ................. 6
Other ........................................... 195
--------
Total expenses ................................ 7,193
--------
Net investment income ........................ 19,939
--------
Realized and Unrealized Gain (Loss) on
Investments (Notes 1 and 3)
Realized net gain on securities .................. 65,740
Realized net loss on foreign
currency transactions ........................... (35)
--------
Realized net gain on investments ................ 65,705
Unrealized appreciation in value of investments
during the period ............................... 18,773
--------
Net gain on investments ....................... 84,478
--------
Net increase in net assets resulting
from operations ............................ $104,417
========
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
STATEMENT OF CHANGES IN NET ASSETS
(Dollars In Thousands)
For the fiscal year ended
June 30,
-------------------------
1998 1997
Increase in Net Assets ------------ -----------
Operations:
Net investment income ............... $ 19,939 $ 20,202
Realized net gain on investments .... 65,705 49,201
Unrealized appreciation ............. 18,773 32,716
-------- --------
Net increase in net assets
resulting from operations ........ 104,417 102,119
-------- --------
Distributions to shareholders from (Note 1D):*
Net investment income
Class A ........................... (20,761) (19,808)
Class Y ........................... (88) (81)
Realized gains on securities
transactions
Class A ........................... (66,648) (46,608)
Class Y ........................... (271) (174)
-------- --------
(87,768) (66,671)
Capital share transactions: -------- --------
Proceeds from sale of shares:
Class A (10,522,139 and 8,619,974
shares, respectively) ............ 96,683 75,017
Class Y (61,007 and 171,527
shares, respectively) ............ 570 1,493
Proceeds from reinvestment of dividends
and/or capital gains distribution:
Class A (9,995,667 and
7,914,002 shares, respectively) .. 87,119 66,243
Class Y (41,126 and 30,364
shares, respectively) ............ 359 255
Payments for shares redeemed:
Class A (9,861,351 and 7,839,899
shares, respectively) ............ (90,559) (68,275)
Class Y (107,103 and 80,360
shares, respectively) ............ (990) (709)
-------- --------
Net increase in net assets
resulting from capital
share transactions ............... 93,182 74,024
-------- --------
Total increase ................... 109,831 109,472
Net Assets
Beginning of period .................. 718,506 609,034
-------- --------
End of period, including undistributed
net investment income of $981
and $1,926, respectively ............ $828,337 $718,506
======== ========
*See "Financial Highlights" on pages - .
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
FINANCIAL HIGHLIGHTS
Class A Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the fiscal year ended June 30,
----------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Net asset value,
beginning of
period ........... $9.14 $8.72 $8.26 $7.64 $7.70
----- ----- ----- ----- -----
Income from investment
operations:
Net investment
income .......... .24 .27 .26 .24 .18
Net realized and
unrealized gain
on investments .. .99 1.08 .94 .86 .22
----- ----- ----- ----- -----
Total from investment
operations ....... 1.23 1.35 1.20 1.10 .40
----- ----- ----- ----- -----
Less distributions:
From net
investment
income .......... (0.25) (0.27) (0.27) (0.22) (0.18)
From capital
gains ........... (0.84) (0.66) (0.47) (0.26) (0.28)
----- ----- ----- ----- -----
Total distributions. (1.09) (0.93) (0.74) (0.48) (0.46)
----- ----- ----- ----- -----
Net asset value,
end of period .... $9.28 $9.14 $8.72 $8.26 $7.64
===== ===== ===== ===== =====
Total return* ...... 14.45% 16.70% 14.93% 15.07% 5.03%
Net assets, end of
period (in millions) $825 $716 $607 $528 $453
Ratio of expenses to
average net assets 0.93% 0.92% 0.89% 0.89% 0.87%
Ratio of net
investment income
to average net
assets ........... 2.57% 3.12% 3.01% 3.04% 2.32%
Portfolio turnover
rate ............. 53.52% 39.55% 42.05% 48.62% 27.10%
Average commission
rate paid ........ $0.0628$0.0580
*Total return calculated without taking into account the sales load deducted
on an initial purchase.
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
FINANCIAL HIGHLIGHTS
Class Y Shares
For a Share of Capital Stock Outstanding
Throughout Each Period:
For the
For the fiscal year period
ended June 30, from 2/27/96*
----------------------- through
1998 1997 6/30/96
-------- -------- --------
Net asset value,
beginning of period $9.14 $8.72 $8.68
----- ----- -----
Income from investment
operations:
Net investment
income .......... .25 .29 .10
Net realized and
unrealized gain
on investments .. .99 1.07 .06
----- ----- -----
Total from investment
operations ........ 1.24 1.36 .16
----- ----- -----
Less distributions:
From net investment
income........... (0.26) (.28) (.12)
From capital gains (0.84) (.66) (.00)
----- ----- -----
Total distributions. (1.10) (.94) (.12)
----- ----- -----
Net asset value,
end of period .... $9.28 $9.14 $8.72
===== ===== =====
Total return ....... 14.62% 16.87% 1.91%
Net assets, end of
period (in
millions) ........ $3 $3 $2
Ratio of expenses
to average net
assets ............ 0.79% 0.78% 0.71%**
Ratio of net
investment income
to average net
assets ............ 2.71% 3.28% 3.36%**
Portfolio
turnover rate ..... 53.52% 39.55% 42.05%**
Average commission
rate paid ........ $0.0628 $0.0580
*Commencement of operations.
**Annualized.
See notes to financial statements.
<PAGE>
UNITED RETIREMENT SHARES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
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. Its investment objective is to provide the highest long-term total
investment return as is, in the opinion of management, consistent with
reasonable safety of capital. 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 pricing service or dealer in bonds.
Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Stocks which are traded over-the-counter are
priced using the Nasdaq Stock Market, which provides information on bid and
asked prices quoted by major dealers in such stocks. 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. Foreign currency translations -- All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars daily. Purchases and
sales of investment securities and accruals of income and expenses are
translated at the rate of exchange prevailing on the date of the
transaction. For assets and liabilities other than investments in
securities and bullion, net realized and unrealized gains and losses from
foreign currency translations arise from changes in currency exchange
rates. The Fund combines fluctuations from currency exchange rates and
fluctuations in market value when computing net realized and unrealized
gain or loss from investments.
D. Federal income taxes -- It is the Fund's policy to distribute all of its
taxable income and capital gains to its shareholders and otherwise qualify
as a regulated investment company under Subchapter M of the Internal
Revenue Code. In addition, the Fund intends to pay distributions as
required to avoid imposition of excise tax. Accordingly, provision has not
been made for Federal income taxes. See Note 4 -- Federal Income Tax
Matters.
E. Dividends and distributions -- Dividends and distributions to shareholders
are recorded by the Fund on the record date. Net investment income
dividends and capital gains distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are due to differing treatments for items
such as deferral of wash sales and post-October losses, foreign currency
transactions, net operating losses and expiring capital loss carryovers.
At June 30, 1998, $35,502 was reclassified between accumulated
undistributed net investment income and accumulated undistributed net
realized gain on investment transactions.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 -- Investment Management and Payments to Affiliated Persons
The Fund pays a fee for investment management services. The fee is
computed daily based on the net asset value at the close of business. The fee
consists of two elements: (i) a "Specific" fee computed on net asset value as of
the close of business each day at the 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 $19.9 billion of
combined net assets at June 30, 1998) at annual rates of .51% of the first $750
million of combined net assets, .49% on that amount between $750 million and
$1.5 billion, .47% between $1.5 billion and $2.25 billion, .45% between $2.25
billion and $3 billion, .43% between $3 billion and $3.75 billion, .40% between
$3.75 billion and $7.5 billion, .38% between $7.5 billion and $12 billion, and
.36% of that amount over $12 billion. The 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
For Class A shares, the Fund also pays WARSCO a monthly per account charge
for transfer agency and dividend disbursement services of $1.3125 for each
shareholder account which was in existence at any time during the prior month,
plus $0.30 for each account on which a dividend or distribution of cash or
shares had a record date in that month. With respect to Class Y shares, the
Fund pays WARSCO a monthly fee at an annual rate of .15% of the average daily
net assets of the class for the preceding month. The Fund also reimburses W&R
and WARSCO for certain out-of-pocket costs.
As principal underwriter for the Fund's shares, W&R received gross sales
commissions for Class A shares (which are not an expense of the Fund) of
$3,494,973, out of which W&R paid sales commissions of $2,023,238 and all
expenses in connection with the sale of Fund shares, except for registration
fees and related expenses.
Under a Distribution and Service Plan for Class A shares adopted by the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Fund
may pay monthly a distribution and/or service fee to W&R in an amount not to
exceed .25% of the Fund's average annual net assets. The fee is to be paid to
reimburse W&R for amounts it expends in connection with the distribution of the
Class A shares and/or provision of personal services to Fund shareholders and/or
maintenance of shareholder accounts. The Fund incurred $2,335 and $1,531,139 in
distribution and service fees, respectively.
The Fund paid Directors' fees of $27,439, which are included in other
expenses.
W&R is an indirect subsidiary of Torchmark Corporation, a holding company,
and Waddell & Reed Financial, Inc., a holding company, and a direct subsidiary
of Waddell & Reed Financial Services, Inc., a holding company.
NOTE 3 -- Investment Securities Transactions
Purchases of investment securities, other than U.S. Government obligations
and short-term securities, aggregated $377,638,284 while proceeds from
maturities and sales aggregated $328,937,797. Purchases of short-term and U.S.
Government securities aggregated $1,157,293,086 and $15,360,438, respectively.
Proceeds from maturities and sales of short-term and U.S. Government securities
aggregated $1,171,514,721 and $35,067,813, respectively.
For Federal income tax purposes, cost of investments owned at June 30, 1998
was $676,349,793, resulting in net unrealized appreciation of $149,458,322 of
which $159,722,323 related to appreciated securities and $10,264,001 related to
depreciated securities.
NOTE 4 -- Federal Income Tax Matters
For Federal income tax purposes, the Fund realized capital gain net income of
$66,504,485 during its fiscal year ended June 30, 1998, of which a portion was
paid to shareholders during the period ended June 30, 1998. Remaining capital
gain net income will be distributed to Fund shareholders.
NOTE 5 -- Multiclass Operations
On October 7, 1995, the Fund was authorized to offer investors a choice of two
classes of shares, Class A and Class Y, each of which has equal rights as to
assets and voting privileges. Class Y shares are not subject to a sales charge
on purchases; they are not subject to a Rule 12b-1 Distribution and Service Plan
and have a separate transfer agency and dividend disbursement services fee
structure. A comprehensive discussion of the terms under which shares of either
class are offered is contained in the prospectus and the Statement of Additional
Information for the Fund.
Income, non-class specific expenses and realized and unrealized gains and
losses are allocated daily to each class of shares based on the value of
relative net assets as of the beginning of each day adjusted for the prior day's
capital share activity.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
United Retirement Shares, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of United Retirement Shares, Inc. (the "Fund") as
of June 30, 1998, and the related statements of operations for the fiscal year
then ended and changes in net assets for each of the fiscal years in the two-
year period then ended, and the financial highlights for each of the fiscal
years in the five-year period then ended. These financial statements and the
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June
30, 1998 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of United Retirement
Shares, Inc. as of June 30, 1998, the results of its operations, the changes in
its net assets and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Kansas City, Missouri
August 7, 1998
<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, 1998
Statement of Assets and Liabilities
For the fiscal year ended June 30, 1998
Statement of Operations
For each of the two years ended June 30, 1998
Statement of Changes in Net Assets
Schedule I -- Investment Securities as of June 30, 1998
Report of Independent Accountants
Included in Part C:
-------------------
Financial Data Schedule
Other schedules prescribed by Regulation S-X are not filed because the
required matter is not present or is insignificant.
(b) Exhibits:
(1) Articles of Incorporation, as amended, attached hereto as EX-
99.B1-charter
Articles Supplementary, filed by EDGAR on August 7, 1995 as EX-
99.B1-rsarsupa to Post-Effective Amendment No. 45 to the
Registration Statement on Form N-1A*
(2) Bylaws, as amended, filed by EDGAR on September 26, 1996 as EX-
99.B2-rsbylaw to Post-Effective Amendment No. 46 to the
Registration Statement on Form N-1A*
(3) Not applicable
(4) Article FIFTH and Article SEVENTH of the Articles of
Incorporation of the Registrant, as amended, attached hereto as
EX-99.B1-charter; Article II and Article VIII of the Bylaws of
the Registrant, as amended, filed by EDGAR on September 26, 1996
as EX-99.B2-rsbylaw to Post-Effective Amendment No. 46 to the
Registration Statement on Form N-1A*
(5) Investment Management Agreement filed by EDGAR on August 7, 1995
as EX-99.B5-rsima to Post-Effective Amendment No. 45 to the
Registration Statement on Form N-1A*
Assignment of the Investment Management Agreement filed by EDGAR
on August 7, 1995 as EX-99.B5-rsassign to Post-Effective
Amendment No. 45 to the Registration Statement on Form N-1A*
(6) Underwriting Agreement filed by EDGAR on August 7, 1995 as EX-
99.B6-rsua to Post-Effective Amendment No. 45 to the Registration
Statement on Form N-1A*
(7) Not applicable
(8) Custodian Agreement, as amended, filed by EDGAR on May 30, 1997
as EX-99.B8-rsca to Post-Effective Amendment No. 47 to the
Registration Statement on Form N-1A*
(9) Shareholder Servicing Agreement, attached hereto as EX-99.B9-
rsssa
Fund Class A application, as amended, filed by EDGAR on May 30,
1997 as EX-99.B9-rsappca to Post-Effective Amendment No. 47 to
the Registration Statement on Form N-1A*
Fund Class Y application, filed by EDGAR on August 7, 1995 as EX-
99.B9-rsappcy to Post-Effective Amendment No. 45 to the
Registration Statement on Form N-1A*
Fund NAV application, filed by EDGAR on August 7, 1995 as EX-
99.B9-rsappnav to Post-Effective Amendment No. 45 to the
Registration Statement on Form N-1A*
Class Y Letter of Understanding filed by EDGAR on September 26,
1996 as EX-99.B9-rslou to Post-Effective Amendment No. 46 to the
Registration Statement on Form N-1A*
Accounting Services Agreement, filed by EDGAR on August 7, 1995
as EX-99.B9-rsasa to Post-Effective Amendment No. 45 to the
Registration Statement on Form N-1A*
(10) Consent of Deloitte & Touche LLP, Independent Accountants,
attached hereto as EX-99.B10-rsconsnt
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) 1. Qualified Retirement Plan and Trust-Defined Contribution
Basic Plan Document filed December 16, 1994 as EX-99.B14-1-
03bpd to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
2. Qualified Retirement Plan-Summary Plan Description filed
December 16, 1994 as EX-99.B14-2-03spd to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
3. Employer Contribution 403(b)-Adoption Agreement filed
December 16, 1994 as EX-99.B14-3-403baa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
4. IRC Section 457 Deferred Compensation Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-4-457aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
5. IRC Section 457-Deferred Compensation Specimen Plan Document
filed December 16, 1994 as EX-99.B14-5-457bpd to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
6. National Nonstandardized 401(k)Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-6-ns401aa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
7. 401(k) Nonstandardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-7-ns401gs
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
8. National Nonstandardized Money Purchase Pension Plan-
Adoption Agreement filed December 16, 1994 as EX-99.B14-8-
nsmppaa to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
9. National Nonstandardized Profit Sharing Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-9-nspspaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
10. Standardized 401(k) Profit Sharing Plan-Adoption Agreement
filed December 16, 1994 as EX-99.B14-10-s401aa to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
11. 401(k) Standardized Profit Sharing Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-11-s401gis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
12. Universal Simplified Employee Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-12-sepaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
13. Universal Simplified Employee Pension Plan-Basic Plan
Document filed December 16, 1994 as EX-99.B14-13-sepbpd to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
14. National Standardized Money Purchase Pension Plan-Adoption
Agreement filed December 16, 1994 as EX-99.B14-14-smppaa to
Pre-Effective Amendment No. 1 to the Registration Statement
on Form N-1A of United Asset Strategy Fund, Inc.*
15. Standardized Money Purchase Pension Plan-Summary Plan
Description filed December 16, 1994 as EX-99.B14-15-smppgis
to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-1A of United Asset Strategy Fund, Inc.*
16. Standardized Profit Sharing Plan-Adoption Agreement filed
December 16, 1994 as EX-99.B14-16-spspaa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
17. Standardized Profit Sharing Plan-summary Plan Description
filed December 16, 1994 as EX-99.B14-17-spspgis to Pre-
Effective Amendment No. 1 to the Registration Statement on
Form N-1A of United Asset Strategy Fund, Inc.*
18. 403(b)(7) Tax-sheltered Custodial Account Agreement filed
December 16, 1994 as EX-99.B14-18-tsa to Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A
of United Asset Strategy Fund, Inc.*
19. Title I 403(b) Plan Document filed December 16, 1994 as EX-
99.B14-19-ttllpbd to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A of United Asset Strategy
Fund, Inc.*
20. Simple IRA Plan Document filed March 26, 1997 as EX-99.B14-
20-simple to Post-Effective Amendment No. 119 to the
Registration Statement on Form N-1A of United Funds, Inc.*
21. Individual Retirement Plan filed March 26, 1997 as EX-
99.B14-21-crp00005 to Post-Effective Amendment No. 119 to
the Registration Statement on Form N-1A of United Funds,
Inc.*
22. Retirement Plan Distribution/Withdrawal Document filed May
16, 1997 as EX-99.B14-22-crp1665 to Post-Effective Amendment
No. 8 to the Registration Statement on Form N-1A of Waddell
& Reed Funds, Inc.*
23. Special Tax Notice Regarding Plan Payments filed May 16,
1997 as EX-99.B14-23-crp1666 to Post-Effective Amendment No.
8 to the Registration Statement on Form N-1A of Waddell &
Reed Funds, Inc.*
24. Waiver of Joint and Survivor Annuity filed May 16, 1997 as
EX-99.B14-24-crp1667 to Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A of Waddell & Reed
Funds, Inc.*
25. Spousal Consent on Early Distribution filed May 16, 1997 as
EX-99.B14-25-crp1668 to Post-Effective Amendment No. 8 to
the Registration Statement on Form N-1A of Waddell & Reed
Funds, Inc.*
26. Consent to Lump Sum Distribution filed May 16, 1997 as EX-
99.B14-26-crp1669 to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A of Waddell & Reed Funds,
Inc.*
(15) Distribution and Service Plan, as restated, filed by EDGAR on
September 26, 1997 as EX-99.B15-rsspca to Post-Effective
Amendment No. 48 to the Registration Statement on Form N-1A*
Service Agreement, filed by EDGAR on August 7, 1995 as EX-99.B15-
rssa to Post-Effective Amendment No. 45 to the Registration
Statement on Form N-1A*
Amendment to Service Agreement, filed by EDGAR on September 28,
1994 as Exhibit (b)(15) to Post-Effective Amendment No. 43 to
Registration Statement on Form N-1A*
Amendment to Service Agreement, filed by EDGAR on August 7, 1995
as EX-99.B15-rssaa to Post-Effective Amendment No. 45 to the
Registration Statement on Form N-1A*
(16) Schedule for Computation of Average Annual Total Return
Performance Quotations for Class A shares filed by EDGAR on
August 4, 1993 as Exhibit (b)(16) to Post-Effective Amendment No.
42 to the Registration Statement on Form N-1A*
Schedule for Computation of Average Annual Total Return
Performance Quotations for Class Y shares filed by EDGAR on May
30, 1997 as EX-99.B16-rsaatrpq to Post-Effective Amendment No. 47
to the Registration Statement on Form N-1A*
(17) Financial Data Schedule, attached hereto as EX-27.B17-rsfds
(18) Multiple Class Plan, filed by EDGAR on September 26, 1996 as
EX-99.B18-rsmcp to Post-Effective Amendment No. 46 to the
Registration Statement on Form N-1A*
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 July 31, 1998
-------------- ------------------------------
Capital Stock Class A 57,439
Capital Stock Class Y 161
27. Indemnification
---------------
Reference is made to Article TENTH Section 10.2 of the Articles of
Incorporation, as amended, attached hereto as EX-99.B1-charter; Article IX
of the Bylaws, filed by EDGAR on September 26, 1997 as EX-99.B2-rsbylaw to
Post-Effective Amendment No. 46 to the Registration Statement on Form N-1A*
and to Article IV of the Underwriting Agreement, filed by EDGAR on August
7, 1995 as EX-99.B6-rsua to Post-Effective Amendment No. 45 to the
Registration Statement on Form N-1A*, each of which provide
indemnification. Also refer to Section 2-418 of the Maryland General
Corporation Law regarding indemnification of directors, officers and
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 Executive Committee of Torchmark
Corporation, the parent company of Waddell & Reed, Inc. Mr. Richey's
address is 2001 Third Avenue South, Birmingham, Alabama 35233. The address
of the others is 6300 Lamar Avenue, Shawnee Mission, Kansas 66202-4200.
As to each director and officer of Waddell & Reed Investment Management
Company, reference is made to the Prospectus and SAI of this Registrant.
29. Principal Underwriter
---------------------
(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.
United Asset Strategy Fund, Inc.
Advantage I
Advantage II
Advantage Plus
Waddell & Reed Funds, Inc.
(b) The information contained in the underwriter's application on form BD,
under the Securities Exchange Act of 1934, is herein incorporated by
reference.
(c) No compensation was paid by the Registrant to any principal
underwriter who is not an affiliated person of the Registrant or any
affiliated person of such affiliated person.
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.
- ---------------------------------
*Incorporated herein by reference
<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, 1998.
UNITED RETIREMENT SHARES, INC.
(Registrant)
By /s/ Robert L. Hechler*
------------------------
Robert L. Hechler, President
Pursuant to the requirements of the Securities Act of 1933, and/or the
Investment Company Act of 1940, this Post-Effective Amendment has been signed
below by the following persons in the capacities and on the date indicated.
Signatures Title
---------- -----
/s/Keith A. Tucker* Chairman of the Board September 28, 1998
- ---------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler* President September 28, 1998
- ---------------------- (Principal Financial Officer) ----------------
Robert L. Hechler
/s/Theodore W. Howard* Vice President, Treasurer September 28, 1998
- ---------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon* Director September 28, 1998
- ------------------- ----------------
James M. Concannon
/s/John A. Dillingham* Director September 28, 1998
- ------------------- ----------------
John A. Dillingham
/s/David P. Gardner* Director September 28, 1998
- ------------------- ----------------
David P. Gardner
/s/Linda Graves* Director September 28, 1998
- ------------------- ----------------
Linda Graves
/s/John F. Hayes* Director September 28, 1998
- ------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson* Director September 28, 1998
- ------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan* Director September 28, 1998
- ------------------- ----------------
William T. Morgan
/s/Ronald K. Richey* Director September 28, 1998
- ------------------- ----------------
Ronald K. Richey
/s/Frank J. Ross, Jr.* Director September 28, 1998
- ------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor B. Schwartz* Director September 28, 1998
- ------------------- ----------------
Eleanor B. Schwartz
/s/Frederick Vogel III* Director September 28, 1998
- ------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise* Director September 28, 1998
- ------------------- ----------------
Paul S. Wise
*By
Sharon K. Pappas
Attorney-in-Fact
ATTEST:
Kristen Richards
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned, UNITED FUNDS,
INC., UNITED INTERNATIONAL GROWTH FUND, INC., UNITED MUNICIPAL BOND FUND, INC.,
UNITED VANGUARD FUND, INC., UNITED HIGH INCOME FUND, INC., UNITED CASH
MANAGEMENT, INC., UNITED NEW CONCEPTS FUND, INC., UNITED GOVERNMENT SECURITIES
FUND, INC., UNITED MUNICIPAL HIGH INCOME FUND, INC., UNITED GOLD & GOVERNMENT
FUND, INC., UNITED HIGH INCOME FUND II, INC., UNITED CONTINENTAL INCOME FUND,
INC., UNITED RETIREMENT SHARES, INC., UNITED ASSET STRATEGY FUND, INC.,
TMK/UNITED FUNDS, INC. AND WADDELL & REED FUNDS, INC. (each hereinafter called
the "Corporation"), and certain directors and officers for the Corporation, do
hereby constitute and appoint KEITH A. TUCKER, ROBERT L. HECHLER, and SHARON K.
PAPPAS, and each of them individually, their true and lawful attorneys and
agents to take any and all action and execute any and all instruments which said
attorneys and agents may deem necessary or advisable to enable each Corporation
to comply with the Securities Act of 1933 and/or the Investment Company Act of
1940, as amended, and any rules, regulations, orders or other requirements of
the United States Securities and Exchange Commission thereunder, in connection
with the registration under the Securities Act of 1933 and/or the Investment
Company Act of 1940, as amended, including specifically, but without limitation
of the foregoing, power and authority to sign the names of each of such
directors and officers in his/her behalf as such director or officer as
indicated below opposite his/her signature hereto, to any Registration Statement
and to any amendment or supplement to the Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and/or the
Investment Company Act of 1940, as amended, and to any instruments or documents
filed or to be filed as a part of or in connection with such Registration
Statement or amendment or supplement thereto; and each of the undersigned hereby
ratifies and confirms all that said attorneys and agents shall do or cause to be
done by virtue hereof.
Date: August 19, 1998 /s/Robert L. Hechler
--------------------------
Robert L. Hechler, President
/s/Keith A. Tucker Chairman of the Board August 19, 1998
- -------------------- ----------------
Keith A. Tucker
/s/Robert L. Hechler President August 19, 1998
- -------------------- (Principal Financial ----------------
Robert L. Hechler Officer)
/s/Theodore W. Howard Vice President, Treasurer August 19, 1998
- -------------------- and Principal Accounting ----------------
Theodore W. Howard Officer
/s/James M. Concannon Director August 19, 1998
- -------------------- ----------------
James M. Concannon
/s/John A. Dillingham Director August 19, 1998
- -------------------- ----------------
John A. Dillingham
/s/David P. Gardner Director August 19, 1998
- -------------------- ----------------
David P. Gardner
/s/Linda Graves Director August 19, 1998
- -------------------- ----------------
Linda Graves
/s/John F. Hayes Director August 19, 1998
- -------------------- ----------------
John F. Hayes
/s/Glendon E. Johnson Director August 19, 1998
- -------------------- ----------------
Glendon E. Johnson
/s/William T. Morgan Director August 19, 1998
- -------------------- ----------------
William T. Morgan
/s/Ronald K. Richey Director August 19, 1998
- -------------------- ----------------
Ronald K. Richey
/s/Frank J. Ross, Jr. Director August 19, 1998
- -------------------- ----------------
Frank J. Ross, Jr.
/s/Eleanor Schwartz Director August 19, 1998
- -------------------- ----------------
Eleanor Schwartz
/s/Frederick Vogel III Director August 19, 1998
- -------------------- ----------------
Frederick Vogel III
/s/Paul S. Wise Director August 19, 1998
- -------------------- ----------------
Paul S. Wise
Attest:
/s/Sharon K. Pappas
- --------------------------------
Sharon K. Pappas, Vice President
and Secretary
EX-99.B1-charter
ARTICLES OF INCORPORATION
OF
UNITED RETIREMENT SHARES, INC.
FIRST: THE UNDERSIGNED, Robert G. Bagnall, whose post office address is
South Lobby - Ninth Floor, 1800 M Street, N.W., Washington, D.C. 20036, being at
least eighteen years of age, under and by virtue of the General Laws of the
State of Maryland authorizing the formation of corporations, is acting as sole
incorporator with the intention of forming a corporation.
SECOND: The name of the corporation is United Retirement Shares, Inc. (the
"Corporation").
THIRD: The purposes for which the Corporation is formed are to act as an
open-end investment management company under the Investment Company Act of 1940,
as amended ("1940 Act"), and to exercise and enjoy all of the powers, rights and
privileges granted to, or conferred upon, corporations of a similar character by
the General Laws of the State of Maryland now or hereafter in force, including,
but not limited to, the following:
(a) To hold, invest and reinvest its funds, and in connection
therewith to hold part or all of its funds in cash, and to purchase,
subscribe for or otherwise acquire, hold for investment or otherwise, to
trade and deal in, write, sell, assign, negotiate, transfer, exchange,
lend, pledge or otherwise dispose of or turn to account or realize upon,
securities (which term "securities" shall, for the purposes of these
Articles of Incorporation, without limiting the generality thereof, be
deemed to include any stocks, shares, bonds, debentures, bills, notes,
mortgages or other obligations, or evidences of indebtedness, and any
options, certificates, receipts, warrants or other instruments representing
rights to receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets; and any negotiable or non-negotiable instruments and money market
instruments, including bank certificates of deposit, finance paper,
commercial paper, bankers' acceptances and all kinds of repurchase or
reverse repurchase agreements) created or issued by any United States or
foreign issuer (which term "issuer" shall for the purpose of these Articles
of Incorporation, without limiting the generality thereof, be deemed to
include any persons, firms, associations, partnerships, corporations,
syndicates, combinations, organizations, governments, or subdivisions,
agencies or instrumentalities of any government); and to exercise, as owner
or holder of any securities, all rights, powers and privileges in respect
thereof including the right to vote thereon; to aid by further investment
any issuer, any obligation of or interest in which is held by the
Corporation or in the affairs of which the Corporation has any direct or
indirect interest; to guarantee or become surety on any or all of the
contracts, stocks, bonds, notes, debentures and other obligations of any
corporation, company, trust, association or firm; and to do any and all
acts and things for the preservation, protection, improvement and
enhancement in value of any or all such securities.
(b) To acquire all or any part of the goodwill, rights, property and
business of any person, firm, association or corporation heretofore or
hereafter engaged in any business similar to any business which the
Corporation has the power to conduct, and to hold, utilize, enjoy and in
any manner dispose of the whole or any part of the rights, property and
business so acquired, and to assume in connection therewith any liabilities
of any such person, firm, association or corporation.
(c) To apply for, obtain, purchase or otherwise acquire, any patents,
copyrights, licenses, trademarks, trade names and the like, which may be
capable of being used for any of the purposes of the Corporation; and to
use, exercise, develop, grant licenses in respect of, sell and otherwise
turn to account, the same.
(d) To issue and sell shares of its own capital stock and securities
convertible into such capital stock in such amounts and on such terms and
conditions, for such purposes and for such amount or kind of consideration
(including without limitation thereto, securities) now or hereafter
permitted by the laws of the State of Maryland, by the 1940 Act and by
these Articles of Incorporation, as its Board of Directors may determine.
(e) To purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock in any manner
and to the extent now or hereafter permitted by the laws of the State of
Maryland, by the 1940 Act and by these Articles of Incorporation.
(f) To conduct its business in all its branches at one or more
offices in Maryland and elsewhere in any part of the world, without
restriction or limit as to extent.
(g) To exercise and enjoy, in Maryland and in any other states,
territories, districts and United States dependencies and in foreign
countries, all of the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the State of Maryland
now or hereafter in force.
(h) In general to carry on any other business in connection with or
incidental to its corporate purposes, to do everything necessary, suitable
or proper for the accomplishment of such purposes or for the attainment of
any object or the furtherance of any power hereinbefore set forth, either
alone or in association with others, to do every other act or thing
incidental or appurtenant to or growing out of or connected with its
business or purposes, objects or powers, and, subject to the foregoing, to
have and exercise all the powers, rights and privileges conferred upon
corporations by the laws of the State of Maryland as in force from time to
time.
The foregoing objects and purposes shall, except as otherwise expressly
provided, be in no way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of these Articles of
Incorporation, and shall each be regarded as independent, and construed as a
power as well as an object and a purpose, and the enumeration of specific
purposes, objects and powers shall not be construed to limit or restrict in any
manner the meaning of general terms or the general powers of the Corporation now
or hereafter conferred by the laws of Maryland, nor shall the expression of one
thing be deemed to exclude another, though it be of like nature, not expressed;
provided, however, that the Corporation shall not have power to carry on within
the State of Maryland any business whatsoever the carrying on of which would
preclude it from being classified as an ordinary business corporation under the
laws of said State; nor shall it carry on any business, or exercise any powers,
in any other state, territory, district or country except to the extent that the
same may lawfully be carried on or exercised under the laws thereof.
Incident to meeting the purposes specified above, the Corporation also
shall have the power:
(1) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, and any interest therein.
(2) To borrow money and, in this connection, issue notes or other evidence
of indebtedness.
(3) To buy, hold, sell, and otherwise deal in and with commodities,
indices of commodities or securities, and foreign exchange, including the
purchase and sale of futures contracts and options on futures contracts related
thereto, subject to any applicable provisions of law.
FOURTH: The address of the principal office of the Corporation in the
State of Maryland is 32 South Street, Baltimore, Maryland 21202. The name of
the resident agent of the Corporation in the State of Maryland is The
Corporation Trust, Inc., whose post office address is 32 South Street,
Baltimore, Maryland 21202. The resident agent is incorporated in the State of
Maryland.
FIFTH: Section 5.1.(a). Capital Stock. The total number of shares of
capital stock which the Corporation shall have authority to issue is Three
Hundred Million (300,000,000) shares, of the par value of One Dollar ($1.00) per
share ("Shares"), and of the aggregate par value of Three Hundred Million
Dollars ($300,000,000.00). All authorized shares that have not been designated
or classified remain available for future designation or classification. The
Shares may be issued by the Board of Directors in such separate and distinct
series ("Series") and classes of Series ("Classes") as the Board of Directors
shall from time to time create and establish. The Board of Directors shall have
full power and authority, in its sole discretion, to create and establish Series
and Classes having such preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by resolution or
resolutions providing for the issuance of such Shares adopted by the Board of
Directors. In addition, the Board of Directors is hereby expressly granted
authority to increase or decrease the number of Shares of any Series or Class,
but the number of Shares of any Series or Class shall not be decreased by the
Board of Directors below the number of Shares thereof then outstanding.
The Board of Directors of the Corporation is authorized, from time to time,
to classify or to reclassify, as the case may be, any unissued Shares of the
Corporation in separate Series or Classes. The shares of said Series or Class
of stock shall have such preferences, rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by the Board of
Directors. The Corporation may hold as treasury Shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at their discretion from time to time, any Shares reacquired by the
Corporation. No holder of any of the Shares shall be entitled as of right to
subscribe for, purchase, or otherwise acquire any Shares of the Corporation
which the Corporation proposes to issue or reissue.
The Corporation shall have authority to issue any additional Shares
hereafter authorized and any Shares redeemed or repurchased by the Corporation.
All Shares of any Series or Class when properly issued in accordance with these
Articles of Incorporation shall be fully paid and nonassessable.
(b) Pursuant to the authority vested in the Board of Directors of the
Corporation by Article FIFTH of the Articles of Incorporation of the
Corporation, the Board of Directors, in accordance with Maryland General
Corporation Law, now duly designates and classifies the capital stock of the
Corporation among the classes of the Corporation as follows:
Class A (150,000,000 shares)
Class Y (150,000,000 shares)
The aggregate number of shares of stock of the Corporation remains at Three
Hundred Million (300,000,000) shares of capital stock, the par value remains
$1.00 per share, and the aggregate of all authorized stock remains Three Hundred
Million Dollars ($300,000,000.00).
(c) The capital stock of the Corporation is divided into classes and there
are no changes in the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption as shares of capital stock as set forth in the
Corporation's Articles of Incorporation, except as follows:
(1) The capital stock of Class A shares shall be subject to fees,
including a front-end sales load and a Rule 12b-1 fee, as
determined by the Board of Directors of the Corporation from time
to time;
(2) The capital stock of the Class Y shares shall not be subject to
either a front-end or contingent deferred sales charge or Rule
12b-1 fees and is subject to a shareholder servicing fee which
differs from that of the Class A shares.
Section 5.2. Establishment of Series. The establishment of any Series or
Class shall be effective upon the adoption of a resolution by a majority of the
then Directors setting forth such establishment and designation and the relative
rights and preferences of the Shares of such Series or Class. At any time that
there are no Shares outstanding of any particular Series or Class previously
established and designated, the Directors may by a majority vote abolish that
Series and the establishment and designation thereof.
Section 5.3. Dividends. Dividends and distributions on Shares with
respect to each Series or Class may be declared and paid with such frequency, in
such form and in such amount as the Board of Directors may from time to time
determine. Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the Board
of Directors may determine.
The Board of Directors shall have the power, in its sole discretion, to
distribute in any fiscal year as dividends (including dividends designated in
whole or in part as capital gain distributions) amounts sufficient, in the
opinion of the Board of Directors, to enable the Corporation, or where
applicable each Series of the Corporation, to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended, or any successor or
comparable statute thereto, and regulations promulgated thereunder, and to avoid
liability of the Corporation, or each Series of the Corporation, for Federal
income tax in respect of that year. However, nothing in the foregoing shall
limit the authority of the Board of Directors to make distributions greater than
or less than the amount necessary to qualify as a regulated investment company
and to avoid liability of the Corporation, or any Series of the Corporation, for
such tax.
Dividends and distributions may be paid in cash, property or Shares, or a
combination thereof, as determined by the Board of Directors or pursuant to any
program that the Board of Directors may have in effect at the time. Any such
dividend or distribution paid in Shares will be paid at the current net asset
value thereof as defined in Section 5.7.
Section 5.4. Assets and Liabilities of Series. All consideration received
by the Corporation for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be, shall be referred to as "assets belonging to" that Series. In
addition, any assets, income, earnings, profits, and proceeds thereof, funds, or
payments which are not readily identifiable as belonging to any particular
Series shall be allocated by the Board of Directors between and among one or
more of the Series in such manner as the Board of Directors, in its sole
discretion, deems fair and equitable. Each such allocation shall be conclusive
and binding upon the Stockholders of all Series for all purposes, and shall be
referred to as assets belonging to that Series. The assets belonging to a
particular Series shall be so recorded upon the books of the Corporation. The
assets belonging to each particular Series or Class shall be charged with the
liabilities of that Series or Class and all expenses, costs, charges and
reserves attributable to that Series or Class. Any general liabilities,
expenses, costs, charges or reserves of the Corporation which are not readily
identifiable as belonging to any particular Series or Class shall be allocated
and charged by the Board of Directors between or among any one or more of the
Series or Classes in such a manner as the Board of Directors in its sole
discretion deems fair and equitable. Each such allocation shall be conclusive
and binding upon the Stockholders of all Series or Class for all purposes.
Section 5.5. Voting. On each matter submitted to a vote of the
Stockholders, each holder of a Share shall be entitled to one vote for each
Share and fractional votes for fractional Shares standing in his or her name on
the books of the Corporation; provided, however, that when required by the 1940
Act or rules thereunder or when the Board of Directors has determined that the
matter affects only the interests of one Series or Class, matters may be
submitted to a vote of the Stockholders of a particular Series or Class, and
each holder of Shares thereof shall be entitled to votes equal to the full and
fractional Shares of the Series or Class standing in his or her name on the
books of the Corporation. The presence in person or by proxy of the holders of
one-third of the Shares outstanding and entitled to vote thereat shall
constitute a quorum for the transaction of business at a Stockholders' meeting,
except that where any provision of law or of these Articles of Incorporation
permit or require that holders of any Series or Class shall vote as a Series or
Class, then one-third of the aggregate number of Shares of that Series or Class
outstanding and entitled to vote shall constitute a quorum for the transaction
of business by that Series or Class.
Section 5.6. Redemption by Stockholders. Each holder of Shares shall have
the right at such times as may be permitted by the Corporation to require the
Corporation to redeem all or any part of his or her Shares at a redemption price
per Share equal to the net asset value per Share as of such time as the Board of
Directors shall have prescribed by resolution. In the absence of such
resolution, the redemption price per Share shall be the net asset value next
determined (in accordance with Section 5.7) after receipt by the Corporation of
a request for redemption in proper form less such charges as are determined by
the Board of Directors and described in the Corporation's registration statement
under the Securities Act of 1933. The Board of Directors may specify
conditions, prices, and places of redemption, and may specify binding
requirements for the proper form or forms of requests for redemption. Payment
of the redemption price may be wholly or partly in securities or other assets at
the value of such securities or assets used in such determination of net asset
value, or may be in cash. Notwithstanding the foregoing, the Board of Directors
may postpone payment of the redemption price and may suspend the right of the
holders of Shares to require the Corporation to redeem Shares during any period
or at any time when and to the extent permissible under the 1940 Act.
Section 5.7. Net Asset Value per Share. The net asset value of each Share
of the Corporation, or each Series or Class, shall be the quotient obtained by
dividing the value of the net assets of the Corporation, or if applicable of the
Series or Class (being the value of the assets of the Corporation or of the
particular Series or Class less its actual and accrued liabilities exclusive of
Capital Stock and Surplus) by the total number of outstanding Shares of the
Corporation, or of the Series or Class. The Board of Directors shall have the
power and duty to determine from time to time the net asset value per Share at
such times and by such methods as it shall determine subject to any restrictions
or requirements under the 1940 Act and the rules, regulations and
interpretations thereof promulgated or issued by the Securities and Exchange
Commission or insofar as permitted by any order of the Securities and Exchange
Commission applicable to the Corporation. The Board of Directors may delegate
such power and duty to any one or more of the directors and officers of the
Corporation, to the Corporation's manager or investment adviser, to the
custodian or depository of the Corporation's assets, or to another agent of the
Corporation.
Section 5.8. Redemption by the Corporation. The Board of Directors may
cause the Corporation to redeem at current net asset value all Shares owned or
held by any one Stockholder having an aggregate current net asset value of less
than five hundred dollars ($500). No such redemption shall be effected unless
the Corporation has given the Stockholder at least sixty (60) days' notice of
its intention to redeem the Shares and an opportunity to purchase a sufficient
number of additional Shares to bring the aggregate current net asset value of
his or her Shares to five hundred dollars ($500). Upon redemption of Shares
pursuant to this Section, the Corporation shall promptly cause payment of the
full redemption price to be made to the holder of Shares so redeemed.
SIXTH: Section 6.1. Issuance of New Stock. The Board of Directors is
authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
stockholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold, except as a stock dividend
distributed to stockholders, for a consideration (which shall be net to the
Corporation after underwriting discounts or commissions) less in amount or value
than the net asset value of the Shares so issued or sold determined as of such
time as the Board of Directors shall have by resolution prescribed. In the
absence of such a resolution, such net asset value shall be that next determined
after an unconditional order in proper form to purchase such Shares is accepted,
except that Shares may be sold to an underwriter at (a) the net asset value next
determined after such orders are received by a dealer with whom such underwriter
has a sales agreement or (b) the net asset value determined at a later time.
Section 6.2. Fractional Shares. The Corporation may issue and sell
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "Share" or "Shares" are used in these Articles or in the By-Laws they
shall be deemed to include fractions of Shares, where the context does not
clearly indicate that only full Shares are intended.
SEVENTH: Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all Shares of the Corporation or of
all Series or Classes (or of any Series or Class entitled to vote thereon as a
separate Series or Class) to take or authorize any action, in accordance with
the authority granted by Section 2-104(b)(5) of the Maryland General Corporation
Law, the Corporation is hereby authorized to take such action upon the
concurrence of a majority of the aggregate number of Shares entitled to vote
thereon (or of a majority of the aggregate number of Shares of a Series or Class
entitled to vote thereon as a separate Series or Class). The right to cumulate
votes in the election of directors is expressly prohibited.
EIGHTH: Section 8.1. Board of Directors. All corporate powers and
authority of the Corporation (except as otherwise provided by statute, by these
Articles of Incorporation, or by the By-Laws of the Corporation) shall be vested
in and exercised by the Board of Directors. The number of directors
constituting the Board of Directors shall be such number as may from time to
time be fixed in or in accordance with the By-Laws of the Corporation, provided
that after stock is issued to more than one stockholder, such number shall not
be less than three. Except as provided in the By-Laws, the election of
directors may be conducted in any way approved at the meeting (whether of
stockholders or directors) at which the election is held, provided that such
election shall be by ballot whenever requested by any person entitled to vote.
The name of the person who shall act as initial director until stock is issued
to more than one stockholder or the first meeting of stockholders, whichever
shall occur first, and until her successor(s) has been duly chosen and qualified
is Sharon K. Pappas.
Section 8.2. By-Laws. Except as may otherwise be provided in the By-Laws,
the Board of Directors of the Corporation is expressly authorized to make,
alter, amend and repeal By-Laws or to adopt new By-Laws of the Corporation,
without any action on the part of the Stockholders; but the By-Laws made by the
Board of Directors and the power so conferred may be altered or repealed by the
Stockholders.
NINTH: Section 9.1. Contracts. The Board of Directors may in its
discretion from time to time enter into an exclusive or nonexclusive
distribution contract or contracts providing for the sale of Shares whereby the
Corporation may either agree to sell Shares to the other party to the contract
or appoint such other party its sales agent for such shares (such other party
being herein sometimes called the "underwriter"), and in either case on such
terms and conditions as may be prescribed in the By-Laws, if any, and such
further terms and conditions as the Board of Directors may in its discretion
determine not inconsistent with the provisions of these Articles of
Incorporation and such contract may also provide for the repurchase of Shares of
the Corporation by such other party or parties as agent of the Corporation. The
Board of Directors may also in its discretion from time to time enter into an
investment advisory or management contract or contracts whereby the other party
to such contract shall undertake to furnish to the Board of Directors such
management, investment advisory, statistical and research facilities and
services and such other facilities and services, if any, and all upon such terms
and conditions, as the Board of Directors may in its discretion determine.
Section 9.2. Parties to Contracts. Any contract of the character
described in Section 9.1 or for services as administrator, custodian, transfer
agent or disbursing agent or related services may be entered into with any
corporation, firm, trust or association, although any one or more of the
directors or officers of the Corporation may be an officer, director, trustee,
stockholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered violable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Corporation under or
by reason of said contract or accountable for any profit realized directly or
indirectly therefrom, provided that the contract when entered into was
reasonable and fair and not inconsistent with the provisions of this Article
NINTH. The same person (including a firm, corporation, trust, or association)
may be the other party to contracts entered into pursuant to Section 9.1 above,
and any individual may be financially interested or otherwise affiliated with
persons who are parties to any or all of the contracts mentioned in this Section
9.2.
TENTH: Section 10.1. Liability. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) as currently in effect
or as may hereafter be amended, no director or officer of the Corporation shall
be liable to the Corporation or its stockholders for money damages.
Section 10.2. Indemnification. To the maximum extent permitted by
applicable law (including Maryland law and the 1940 Act) currently in effect or
as may hereafter be amended, the Corporation shall indemnify and advance
expenses as provided in the By-Laws to its present and past directors, officers,
employees and agents, and persons who are serving or have served at the request
of the Corporation as a director, officer, employee or agent in similar
capacities for other entities.
Section 10.3. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity or arising out of his
or her status as such, whether or not the Corporation would have the power to
indemnify him or her against such liability.
Section 10.4. Modification. Any repeal or modification of this Article
TENTH by the stockholders of the Corporation, or adoption or modification of any
other provision of the Articles of Incorporation or By-Laws inconsistent with
this Article TENTH, shall be prospective only, to the extent that such repeal or
modification would, if applied retrospectively, adversely affect any limitation
on the liability of any director or officer of the Corporation or
indemnification available to any person covered by these provisions with respect
to any act or omission which occurred prior to such repeal, modification or
adoption.
ELEVENTH: The Corporation reserves the right from time to time to make any
amendment of these Articles of Incorporation, now or hereafter authorized by
law, including any amendment which alters contract rights, as expressly set
forth in these Articles of Incorporation, of any outstanding Shares. Any
amendment to these Articles of Incorporation may be adopted at a meeting of the
stockholders upon receiving an affirmative vote of a majority of all votes
entitled to be cast thereon.
IN WITNESS WHEREOF, the undersigned incorporator of UNITED RETIREMENT
SHARES, INC. has executed the foregoing Articles of Incorporation and hereby
acknowledges the same to be his act and further acknowledges that, to the best
of his knowledge, information, and belief, the matters and facts set forth
therein are true in all material respects under the penalties of perjury.
On the 5th day of May, 1989.
/s/Robert G. Bagnall
---------------------
Robert G. Bagnall
EX-99.B9-rsssa
SHAREHOLDER SERVICING AGREEMENT
THIS AGREEMENT, made as of the 1ST day of November, 1992, by and between
UNITED RETIREMENT SHARES, INC., and Waddell & Reed Services Company (the
"Agent"), as amended and restated as of April 1, 1996,
W I T N E S S E T H :
WHEREAS, The Company wishes, as applicable, to appoint the Agent or to
continue the appointment of the Agent to be its shareholder servicing agent
upon, and subject to, the terms and provisions of this Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Appointment of Agent as Shareholder Servicing Agent for the Company;
Acceptance.
(1) The Company hereby appoints the Agent to act as Shareholder
Servicing Agent for the Company upon, and subject to, the terms and provisions
of this Agreement.
(2) The Agent hereby accepts the appointment as Shareholder Servicing
Agent for the Company and agrees to act as such upon, and subject to, the terms
and provisions of this Agreement.
(3) The Agent may appoint an entity or entities approved by the
Company in writing to perform any portion of Agent's duties hereunder (the
"Subagent").
2. Definitions.
(1) In this Agreement -
(a) The term the "Act" means the Investment Company Act of 1940
as amended from time to time;
(b) The term "account" means the shares of the Company
registered on the books of the Company in the name of a shareholder under a
particular account registration number and includes shares subject to
instructions by the shareholder with respect to periodic redemptions and/or
reinvestment in additional shares of any dividends payable on said shares;
(c) The term "affiliate" of a person shall mean a person
controlling, controlled by, or under common control with that person;
(d) The term "Class" shall mean each separate sub-class of a
class of shares of the Company, as may now or in the future exist;
(e) The term "Fund" shall mean each separate class of shares of
the Company, as may now or in the future exist;
(f) The term "officers' instruction" means an instruction given
on behalf of the Company to the Agent and signed on behalf of the Company by any
one or more persons authorized to do so by the Company's Board of Directors;
(g) The term "prospectus" means the prospectus and Statement of
Additional Information of the applicable Fund or Class from time to time in
effect;
(h) The term "shares" means shares including fractional shares
of capital stock of the Company, whether or not such shares are evidenced by an
outstanding stock certificate issued by the Company;
(i) The term "shareholder" shall mean the owner of record of
shares of the Company;
(j) The term "stock certificate" means a certificate
representing shares in the form then currently in use by the Company.
3. Duties of the Agent.
The Agent shall perform such duties as shall be set forth in this
paragraph 3 and in accordance with the practice stated in Exhibit A of this
Agreement or any amendment thereof, any or all of which duties may be delegated
to or performed by one or more Subagents pursuant to Paragraph (3) above.
(1) Transfers.
Subject to the provisions of this Agreement the Agent hereby
agrees to perform the following functions as transfer agent for the Company:
(a) Recording the ownership, transfer, exchange and cancellation
of ownership of shares of the Company on the books of the Company;
(b) Causing the issuance, transfer, exchange and cancellation of
stock certificates;
(c) Establishing and maintaining records of accounts;
(d) Computing and causing to be prepared and mailed or otherwise
delivered to shareholders payment checks and notices of reinvestment in
additional shares of dividends, stock dividends or stock splits declared by the
Company on shares and of redemption proceeds due by the Company on redemption of
shares;
(e) Furnishing to shareholders such information as may be
reasonably required by the Company, including appropriate income tax
information;
(f) Addressing and mailing to shareholders prospectuses, annual
and semi-annual reports and proxy materials for shareholder meetings prepared by
or on behalf of the Company;
(g) Replacing allegedly lost, stolen or destroyed stock
certificates in accordance with and subject to procedures and conditions agreed
upon and set out in officers' instructions;
(h) Maintaining such books and records relating to transactions
effected by the Agent pursuant to this Agreement as are required by the Act, or
by rules or regulations thereunder, or by any other applicable provisions of
law, to be maintained by the Company or its transfer agent with respect to such
transactions; preserving, or causing to be preserved, any such books and records
for such periods as may be required by any such law, rule or regulation;
furnishing the Company such information as to such transactions and at such time
as may be reasonably required by it to comply with applicable laws and
regulations;
(i) Providing such services and carrying out such
responsibilities on behalf of the Company, or imposed on the Agent as the
Company's transfer agent, not otherwise expressly provided for in this Paragraph
3, as may be required by or be reasonably necessary to comply with any statute,
act, governmental rule, regulation or directive or court order, including,
without limitation, the requirements imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 and the Income and Dividend Tax Compliance Act of
1983 relating to the withholding of tax from distributions to shareholders.
(2) Correspondence.
The Agent agrees to deal with and answer all correspondence from
or on behalf of shareholders relating to its functions under this Agreement.
4. Compensation of the Agent.
The Company agrees to pay the Agent for its services under this
Agreement in accordance with the schedule as then in effect set forth in Exhibit
B of this Agreement or any amendment thereof. In addition, the Company agrees
to reimburse the Agent for the following "out-of-pocket" expenses of the Agent
within five days after receipt of an itemized statement of such expenses, to the
extent that payment of such expenses has not been or is not to be made directly
by the Company: (i) costs of stationery, appropriate forms, envelopes, checks,
postage, printing (except cost of printing prospectuses, annual and semi-annual
reports and proxy materials) and mailing charges, including returned mail and
proxies, incurred by the Agent with respect to materials and communications sent
to shareholders in carrying out its duties to the Company under this Agreement;
(ii) long distance telephone costs incurred by the Agent for telephone
communications and microfilm and storage costs for transfer agency records and
documents; (iii) costs of all ancillary and supporting services and related
expenses (other than insurance premiums) reasonably required by and provided to
the Agent, other than by its employees or employees of an affiliate, with
respect to functions of the Company being performed by it in its capacity as
Agent hereunder, including legal advice and representation in litigation to the
extent that such payments are permitted under Paragraph 7 of this Agreement and
charges to Agent made by any Subagent; (iv) costs for special reports or
information furnished on request pursuant to this Agreement and not specifically
required by the Agent by Paragraph 3 of this Agreement; and (v) reasonable costs
and expenses incurred by the Agent in connection with the duties of the Agent
described in Paragraph (3)(1)(i). In addition, the Company agrees to promptly
pay over to the Agent any fees or payment of charges it may receive from a
shareholder for services furnished to the shareholder by the Agent.
Services and operations incident to the sale and distribution of the
Company's shares, including sales communications, confirmations of investments
(not including reinvestment of dividends) and the clearing or collection of
payments will not be for the account or at the expense of the Company under this
Agreement.
5. Right of Company to Inspect Records, etc.
The Company will have the right under this Agreement to perform on
site inspection of records and accounts and to perform audits directly
pertaining to the Company shareholder accounts serviced by the Agent hereunder
at the Agent's or any Subagent's facilities in accordance with reasonable
procedures at the frequency necessary to assure proper administration of the
Agreement. The Agent will cooperate with the Company's auditors or
representatives of appropriate regulatory agencies and furnish all reasonably
requested records and data.
6. Insurance.
The Agent now has the insurance coverage described in Exhibit C,
attached hereto, and the Agent will not take any action to eliminate or decrease
such coverage during the term of this Agreement without receiving the approval
of the Fund in advance of any change, except the Agent, after giving reasonable
notice to the Company, may eliminate or decrease any coverage if the premiums
for such coverage are substantially increased.
7. Standard of Care; Indemnification.
The Agent will at all times exercise due diligence and good faith in
performing its duties hereunder. The Agent will make every reasonable effort
and take all reasonably available measures to assure the adequacy of its
personnel and facilities as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations or as set forth in the prospectus.
The Agent shall not be responsible for, and the Company agrees to
indemnify the Agent for any losses, damages or expenses (including reasonable
counsel fees and expenses) (i) resulting from any claim, demand, action or suit
not resulting from the Agent's failure to exercise good faith or due diligence
and arising out of or in connection with the Agent's duties on behalf of the
Company hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military authority,
national emergencies, labor difficulties (except with respect to the Agent's
employees), fire, mechanical breakdown beyond its control, flood or catastrophe,
acts of God, insurrection, war, riots, or failure beyond its control of
transportation, communication or power supply; or (iii) for any action taken or
omitted to be taken by the Agent in good faith in reliance on (a) the
authenticity of any instrument or communication reasonably believed by it to be
genuine and to have been properly made and signed or endorsed by an appropriate
person, (b) the accuracy of any records or information provided to it by the
Company, (c) any authorization or instruction contained in any officers'
instruction, or (d) with respect to the functions performed for the Company
listed under Paragraph 3(1) of this Agreement, any advice of counsel approved by
the Company who may be internally employed counsel or outside counsel, in either
case for the Company and/or the Agent.
In order for the rights to indemnification to apply, it is understood
that if in any case the Company may be asked to indemnify or hold the Agent
harmless, the Company shall be advised of all pertinent facts concerning the
situation in question, and it is further understood that the Agent will use
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present a claim for
indemnification against the Company. The Company shall have the option to
defend the Agent against any claim which may be the subject of this
indemnification and, in the event that the Company so elects, it will so notify
the Agent and thereupon the Company shall take over complete defense of the
claim and the Agent shall sustain no further legal or other expenses in such
situation for which the Agent shall seek indemnification under this paragraph.
The Agent will in no case confess any claim or make any compromise in any case
in which the Company will be asked to indemnify the Agent except with the
Company's prior written consent.
8. Term of the Agreement; Taking Effect; Amendments.
This Agreement shall become effective at the start of business on the
date hereof and shall continue, unless terminated as hereinafter provided, for a
period of one year and from year to year thereafter, provided that such
continuance shall be specifically approved as provided below.
This Agreement shall go into effect, or may be continued, or may be
amended or a new agreement between the Company and the Agent covering the
substance of this Agreement may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Company,
including the vote of a majority of the directors who are not "interested
persons," as defined in the Act, of either party to this Agreement or of Waddell
& Reed Investment Management Company, cast in person at a meeting called for the
purpose of voting on such approval. Such a vote is hereinafter referred to as a
"disinterested director vote."
Any disinterested director vote shall include a determination that (i)
the Agreement, amendment, new agreement or continuance in question is in the
best interests of the Company and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the
Company; (iii) the Agent can provide services the nature and quality of which
are at least equal to those provided by others offering the same or similar
services; and (iv) the fees for such services are fair and reasonable in the
light of the usual and customary charges made by others for services of the same
nature and quality.
9. Termination.
(1) This Agreement may be terminated by the Agent at any time without
penalty upon giving the Company 120 days' written notice (which notice may be
waived by the Company) and may be terminated by the Company at any time without
penalty upon giving the Agent sixty (60) days' written notice (which notice may
be waived by the Agent), provided that such termination by the Company shall be
directed or approved by the vote of a majority of the Board of Directors of the
Company in office at the time or by the vote of the holders of a majority (as
defined in or under the Act) of the outstanding shares of the Company.
(2) On termination, the Agent will deliver to the Company or its
designee all files, documents and records of the Company used, kept or
maintained by the Agent in the performance of its services hereunder, including
such of the Company's records in machine readable form as may be maintained by
the Agent, as well as such summary and/or control data relating thereto used by
or available to the Agent.
(3) In the event of any termination which involves the appointment of
a new shareholder servicing agent, including the Company's acting as such on its
own behalf, the Company shall have the non-exclusive right to the use of the
data processing programs used by the Agent in connection with the performance of
its duties under this Agreement without charge.
(4) In addition, on such termination or in preparation therefore, at
the request of the Company and at the Company's expense the Agent shall provide
to the extent that its capabilities then permit such documentation, personnel
and equipment as may be reasonably necessary in order for a new agent or the
Company to fully assume and commence to perform the agency functions described
in this Agreement with a minimum disruption to the Company's activities.
10. Construction; Governing Law.
The headings used in this Agreement are for convenience only and shall
not be deemed to constitute a part hereof. Whenever the context requires, words
denoting singular shall be read to include the plural. This Agreement and the
rights and obligations of the parties hereunder, shall be construed and
interpreted in accordance with the laws of the State of Kansas, except to the
extent that the laws of the State of Maryland apply with respect to share
transactions.
11. Representations and Warranties of Agent.
Agent represents and warrants that it is a corporation duly organized
and existing and in good standing under the laws of the State of Missouri, that
it is duly qualified to carry on its business in the State of Kansas and
wherever its duties require, that it has the power and authority under laws and
by its Articles of Incorporation and Bylaws to enter into this Shareholder
Servicing Agreement and to perform the services contemplated by this Agreement.
12. Entire Agreement.
This Agreement and the Exhibits annexed hereto constitutes the entire
and complete agreement between the parties hereto relating to the subject matter
hereof, supersedes and merges all prior discussions between the parties hereto,
and may not be modified or amended orally.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to
be duly executed on the day and year first above written.
UNITED RETIREMENT SHARES, INC.
By:_________________________________
Sharon K. Pappas, Vice President
ATTEST:
By:____________________________
Sheryl Strauss, Assistant Secretary
WADDELL & REED SERVICES COMPANY
By:__________________________________
Robert L. Hechler, President
ATTEST:
By:___________________________
Sharon K. Pappas, Secretary
<PAGE>
EXHIBIT A
A. DUTIES IN SHARE TRANSFERS AND REGISTRATION
1. The Agent in carrying out its duties shall follow general commercial
practices and the Rules of the Stock Transfer Association, Inc. except as they
may conflict or be inconsistent with the specific provisions of the Company's
Articles of Incorporation and Bylaws, prospectus, applicable Federal and state
laws and regulations and this Agreement.
2. The Agent shall not require that the signature of the appropriate
person be guaranteed, witnessed or verified in order to effect a redemption,
transfer, exchange or change of address except as may from time to time be
directed by the Company as set forth in an officers' instruction. In the event
a signature guarantee is required by the Company, the Agent shall not inquire as
to the genuineness of the guarantee.
3. The Agent shall not replace a lost, stolen or misplaced stock
certificate without requiring and being furnished with an open penalty surety
bond protecting the Company and the Agent against loss.
B. The practices, procedures and requirements specified in A above may be
modified, altered, varied or supplemented as from time to time may be mutually
agreed upon by the Company and the Agent and evidenced on behalf of the Company
by an officers' instruction. Any such change shall not be deemed to be an
amendment to the Agreement within the meaning of Paragraph 8 of the Agreement.
<PAGE>
EXHIBIT B
COMPENSATION
Class A Shares
An amount payable on the first day of each month of $1.3125 for each account of
the Company which was in existence during any portion of the immediately
preceding month and, in addition, to pay to the Agent the sum of $0.30 for each
account for which, during such month, a record date was established for payment
of a dividend, in cash or otherwise (which term includes a distribution),
irrespective of whether such dividend was payable in that month or later or was
payable directly or was to be reinvested.
Class Y Shares
An amount payable on the first day of each month equal to 1/12 of .15 of 1% of
the average daily net assets of the Class for the preceding month.
<PAGE>
EXHIBIT C
Bond or
Name of Bond Policy No. Insurer
Investment Company 87015198B ICI
Blanket Bond Form Mutual
Insurance
Company
Fidelity $20,400,000
Audit Expense 50,000
On Premises 20,400,000
In Transit 20,400,000
Forgery or Alteration 20,400,000
Securities 20,400,000
Counterfeit Currency 20,400,000
Uncollectible Items of
Deposit 25,000
Voice-Initiated Transactions 500,000
Total Limit 20,400,000
Directors and Officers/ 87015198D ICI
Errors and Omissions Liability Mutual
Insurance Form Insurance
Total Limit $ 5,000,000 Company
Blanket Lost Instrument Bond (Mail Loss) 30S100639551 Aetna
Life &
casualty
Blanket Undertaking Lost Instrument
Waiver of Probate 42SUN339806 Hartford
Casualty
Insurance
EX-99.B10-rsconsnt
INDEPENDENT AUDITORS' CONSENT
United Retirement Shares, Inc.:
We consent to the use in Post-Effective Amendment No. 49 to Registration
Statement No. 2-42885 of our report dated August 7, 1998 appearing in the
Statement of Additional Information, which is a part of such Registration
Statement, and to the reference to us under the caption "Financial Highlights"
appearing in the Prospectuses, which also are a part of such Registration
Statement.
Deloitte & Touche LLP
Kansas City, Missouri
September 25, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT TO
SHAREHOLDERS DATED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000101185
<NAME> UNITED RETIREMENT SHARES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 675,586,695
<INVESTMENTS-AT-VALUE> 825,808,115
<RECEIVABLES> 5,856,000
<ASSETS-OTHER> 22,000
<OTHER-ITEMS-ASSETS> 12,000
<TOTAL-ASSETS> 831,698,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,361,000
<TOTAL-LIABILITIES> 3,361,000
<SENIOR-EQUITY> 89,286,000
<PAID-IN-CAPITAL-COMMON> 556,020,000
<SHARES-COMMON-STOCK> 89,286,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 981,000
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,829,000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 150,221,000
<NET-ASSETS> 828,337,000
<DIVIDEND-INCOME> 9,212,000
<INTEREST-INCOME> 17,920,000
<OTHER-INCOME> 0
<EXPENSES-NET> (7,193,000)
<NET-INVESTMENT-INCOME> 19,939,000
<REALIZED-GAINS-CURRENT> 65,705,000
<APPREC-INCREASE-CURRENT> 18,773,000
<NET-CHANGE-FROM-OPS> 104,417,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (20,849,000)
<DISTRIBUTIONS-OF-GAINS> (66,919,000)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,583,146
<NUMBER-OF-SHARES-REDEEMED> (9,968,454)
<SHARES-REINVESTED> 10,036,793
<NET-CHANGE-IN-ASSETS> 109,831,000
<ACCUMULATED-NII-PRIOR> 1,926,000
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,229,000
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,193,000
<AVERAGE-NET-ASSETS> 776,209,433
<PER-SHARE-NAV-BEGIN> 9.14
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> .99
<PER-SHARE-DIVIDEND> (0.25)
<PER-SHARE-DISTRIBUTIONS> (0.84)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.28
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
September 28, 1998
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N. W.
Judiciary Plaza
Washington, D. C. 20549
RE: United Retirement Shares, Inc.
Post-Effective Amendment No. 49
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:fr
